<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 16, 1997
REGISTRATION NO. 333-16917
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SYRATECH CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3914 13-3354944
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
175 MCCLELLAN HIGHWAY
EAST BOSTON, MA 02128-9114
PHONE: (617) 561-2200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
E. MERLE RANDOLPH
VICE PRESIDENT, TREASURER AND
CHIEF FINANCIAL OFFICER
SYRATECH CORPORATION
175 MCCLELLAN HIGHWAY
EAST BOSTON, MA 02128-9114
PHONE: (617) 561-2200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
WITH COPIES TO:
<TABLE>
<S> <C>
JAMES L. PURCELL, ESQ. JAMES WESTRA, ESQ.
PAUL, WEISS, RIFKIND, WHARTON & GARRISON HUTCHINS, WHEELER & DITTMAR
1285 AVENUE OF THE AMERICAS A PROFESSIONAL CORPORATION
NEW YORK, NEW YORK 10019-6064 101 FEDERAL STREET
(212) 373-3000 BOSTON, MASSACHUSETTS 02110
(617) 951-6600
</TABLE>
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after this Registration Statement becomes
effective and the effective time of the merger (the "Merger") of THL Transaction
I Corp., ("THL I"), a corporation that has been organized by Thomas H. Lee
Company, with and into Syratech Corporation ("Syratech" or the "Company"),
pursuant to the Restated Agreement and Plan of Merger (the "Merger Agreement")
between THL I and Syratech, dated as of November 27, 1996, effective as of
October 23, 1996, and the Amendment, dated January , 1997 to the Restated
Agreement and Plan of Merger, which together are attached as Annex I to the
Proxy Statement/Prospectus forming a part of this Registration Statement.
If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
SYRATECH CORPORATION
175 MCCLELLAN HIGHWAY
EAST BOSTON, MASSACHUSETTS 02128-9114
, 1997
Dear Fellow Stockholders:
You are invited to attend a Special Meeting of Stockholders of Syratech
Corporation ("Syratech") to vote on the proposed merger (the "Merger") of
Syratech with THL Transaction I Corp., a corporation that has been organized by
Thomas H. Lee Company. Details of the Merger are discussed in the enclosed
Syratech Corporation Proxy Statement/Prospectus (the "Proxy
Statement/Prospectus"), the forepart of which includes a summary of the terms of
the Merger and certain other information relating to the proposed transaction.
At the special meeting, Syratech stockholders will be asked to approve and
adopt the Restated Agreement and Plan of Merger, dated as of November 27, 1996,
effective as of October 23, 1996, as amended (the "Merger Agreement") and the
transactions contemplated thereby, including the Merger. Copies of the Merger
Agreement and the amendment thereto, dated January , 1997, are together
attached as ANNEX I to the enclosed Proxy Statement/Prospectus.
At its meeting on October 22, 1996, Syratech's Board of Directors, by
unanimous vote of those present and voting, determined, among other things, that
the transactions contemplated by the Merger Agreement, including the Merger,
taken together, are advisable and in the best interests of Syratech and its
stockholders; and the Board recommends that holders of Syratech Common Stock
vote FOR the approval and adoption of the Merger Agreement and the transactions
contemplated thereby, including the Merger. In reaching its decision, the Board
of Directors considered, among other things, the written opinion of Merrill
Lynch & Co., to the effect that the cash consideration to be received in the
Merger by Syratech's stockholders (other than with respect to shares to be
retained, shares to be cancelled pursuant to the Merger Agreement and dissenting
shares) is fair to the holders of Syratech Common Stock from a financial point
of view.
Holders of Syratech Common Stock will be entitled to appraisal rights under
Delaware law in connection with the Merger as described in the accompanying
Proxy Statement/Prospectus.
The special meeting will be held at Syratech's Corporate Headquarters, 175
McClellan Highway, East Boston, Massachusetts 02128, on March , 1997,
beginning at 9:00 a.m., Eastern Standard Time.
IT IS VERY IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE SPECIAL
MEETING, WHETHER OR NOT YOU PLAN TO ATTEND PERSONALLY. THEREFORE, YOU SHOULD
COMPLETE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT AS SOON AS POSSIBLE IN
THE ENCLOSED POSTAGE-PAID ENVELOPE. THIS WILL ENSURE THAT YOUR SHARES ARE
REPRESENTED AT THE SPECIAL MEETING.
Very truly yours,
LEONARD FLORENCE
Chairman of the Board, President
and Chief Executive Officer
<PAGE> 3
SYRATECH CORPORATION
175 MCCLELLAN HIGHWAY
EAST BOSTON, MASSACHUSETTS 02128
(617) 561-2200
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD MARCH , 1997
------------------------
To the Stockholders of Syratech Corporation
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (including
any adjournments or postponements thereof, the "Special Meeting") of Syratech
Corporation, a Delaware corporation ("Syratech"), will be held at Syratech's
Corporate Headquarters located at 175 McClellan Highway, East Boston,
Massachusetts 02128, on March , 1997, beginning at 9:00 a.m., Eastern Standard
Time for the following purposes, which are more fully described in the
accompanying Proxy Statement/Prospectus (the "Proxy Statement/Prospectus"):
1. To consider and vote upon a proposal to approve and adopt the
Restated Agreement and Plan of Merger, dated as of November 27, 1996,
effective as of October 23, 1996, as amended on January , 1997 (the
"Merger Agreement"), between Syratech and THL Transaction I Corp., a
Delaware corporation ("THL I") organized by Thomas H. Lee Company, and the
transactions contemplated thereby, including the merger of THL I with and
into Syratech (the "Merger"). Pursuant to the Merger, each share of
Syratech Common Stock, $0.01 par value per share ("Syratech Common Stock")
(other than (i) shares of Syratech Common Stock held by Syratech or any
wholly-owned subsidiary thereof, which will be canceled and retired, and
(ii) shares of Syratech Common Stock, the holders of which have duly
perfected their appraisal rights), will be entitled, at the election of the
holder thereof and subject to the terms described herein, either (a) to
receive $32.00 in cash or (b) to retain one share of Syratech Common Stock.
The right to retain Syratech Common Stock will be limited in the case of
each stockholder (other than any person listed as an executive officer in
Syratech's 1996 Proxy Statement (each a "Management Stockholder")) to 35%,
and in the case of each Management Stockholder to 25%, of such
stockholder's shares of Syratech Common Stock, other than Leonard Florence
who is required by the Merger Agreement to retain 650,704 shares of
Syratech Common Stock. In addition, because no more than an aggregate of
781,250 shares of Syratech Common Stock may be retained by existing
Syratech stockholders (other than Management Stockholders), the right to
retain shares of Syratech Common Stock may be subject to proration, as set
forth in the Merger Agreement and described in the accompanying Proxy
Statement/Prospectus. A copy of the Merger Agreement (including the
principal exhibits thereto and the amendment thereto dated January ,
1997) is attached as ANNEX I to the accompanying Proxy
Statement/Prospectus.
2. To transact such other and further business as may properly come
before the Special Meeting or any adjournments or postponements thereof.
The affirmative vote of a majority of the outstanding shares of Syratech
Common Stock is required to approve and adopt the Merger Agreement and the
transactions contemplated thereby, including the Merger.
The record date for the determination of stockholders entitled to notice
of, and to vote at, the Special Meeting, and any adjournments or postponements
thereof, is , 1997 (the "Record Date"). Only holders of record of
shares of Syratech Common Stock at the close of business on the Record Date are
entitled to notice of, and to vote at, the Special Meeting. A list of Syratech
stockholders entitled to vote at the Special Meeting will be available for
examination by any holder of Syratech Common Stock, for proper purposes, during
normal business hours, at Syratech's corporate offices, 175 McClellan Highway,
East Boston, Massachusetts 02128, commencing two business days after the date of
this Notice of Special Meeting and continuing through the date of the Special
Meeting.
<PAGE> 4
Holders of Syratech Common Stock have a right to dissent from the Merger,
and, if the Merger is consummated, to receive "fair value" for their shares in
cash by complying with the provisions of Delaware law, including Section 262 of
the Delaware General Corporation Law. The full text of Section 262 of the
Delaware General Corporation Law relating to the rights of stockholders to
dissent from the Merger is attached as ANNEX III to the accompanying Proxy
Statement/Prospectus.
YOUR VOTE IS VERY IMPORTANT REGARDLESS OF HOW MANY SHARES OF SYRATECH
COMMON STOCK YOU OWN. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, YOU
ARE REQUESTED TO SIGN, DATE AND RETURN THE ENCLOSED PROXY WITHOUT DELAY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE. YOU MAY REVOKE YOUR PROXY AT ANY TIME PRIOR TO
ITS EXERCISE. IF YOU ARE PRESENT AT THE SPECIAL MEETING OR ANY ADJOURNMENTS OR
POSTPONEMENTS THEREOF, YOU MAY REVOKE YOUR PROXY AND VOTE PERSONALLY ON THE
MATTERS PROPERLY BROUGHT BEFORE THE SPECIAL MEETING.
BY ORDER OF THE BOARD OF DIRECTORS
LEONARD FLORENCE
Chairman of the Board, President and
Chief Executive Officer
, 1997
------------------------
PLEASE SIGN AND DATE THE ENCLOSED PROXY AND
RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE
------------------------
STOCKHOLDERS ELECTING TO RETAIN SYRATECH COMMON STOCK
SHOULD RETURN THE ENCLOSED FORM OF NON-CASH ELECTION
TOGETHER WITH DULY ENDORSED SYRATECH STOCK
CERTIFICATES AS INSTRUCTED IN THE PROXY STATEMENT/PROSPECTUS.
<PAGE> 5
SYRATECH CORPORATION
PROXY STATEMENT/PROSPECTUS
------------------------
This Proxy Statement/Prospectus (the "Proxy Statement/Prospectus") is being
furnished to stockholders of Syratech Corporation, a Delaware corporation
("Syratech" or the "Company"), in connection with the solicitation of proxies by
the Board of Directors of the Company for use at the Special Meeting of
Stockholders of the Company, including any adjournments or postponements
thereof, scheduled to be held on March , 1997 at 9:00 a.m., Eastern Standard
Time, at Syratech's Corporate Headquarters located at 175 McClellan Highway,
East, Boston, Massachusetts 02128 (the "Special Meeting"). This Proxy
Statement/Prospectus relates to the proposed merger (the "Merger") of THL
Transaction I Corp., a Delaware corporation ("THL I") that has been organized by
Thomas H. Lee Company, with and into the Company pursuant to the Restated
Agreement and Plan of Merger, dated as of November 27, 1996, effective as of
October 23, 1996, as amended (the "Merger Agreement"), between THL I and the
Company, and the transactions contemplated thereby.
Pursuant to the Merger, each share of Syratech Common Stock, par value
$0.01 per share ("Syratech Common Stock"), issued and outstanding immediately
prior to the effective time of the Merger (the "Effective Time") (other than (i)
shares of Syratech Common Stock held by Syratech or any wholly owned subsidiary
thereof and (ii) shares of Syratech Common Stock, the holders of which shall
have duly perfected their appraisal rights) will be entitled, at the election of
the holder thereof and subject to the terms described herein, either (a) to
receive $32.00 in cash or (b) to retain one fully paid and nonassessable share
of Syratech Common Stock. The right to retain Syratech Common Stock will be
limited in the case of each stockholder (other than any person listed as an
executive officer in Syratech's 1996 Proxy Statement (each a "Management
Stockholder")) to 35%, and in the case of each Management Stockholder to 25%, of
such stockholder's shares of Syratech Common Stock, other than Leonard Florence
who is required by the Merger Agreement to retain 650,704 shares of Syratech
Common Stock. In addition, because no more than an aggregate of 781,250 shares
of Syratech Common Stock may be retained by existing stockholders (other than
Management Stockholders), the right to retain Syratech Common Stock may be
subject to proration as set forth in the Merger Agreement and described in this
Proxy Statement/Prospectus. See "THE MERGER -- Merger Consideration."
This Proxy Statement/Prospectus also constitutes a prospectus of the
Company with respect to the shares of Syratech Common Stock to be retained by
stockholders in the Merger.
The Merger requires the approval at the Special Meeting of the holders of
not less than a majority of the shares of Syratech Common Stock entitled to vote
thereon. Holders of Syratech Common Stock will be entitled to appraisal rights
under Delaware law in connection with the Merger as described herein. See
"DISSENTING STOCKHOLDERS' RIGHTS."
At its meeting on October 22, 1996, the Board of Directors of Syratech (the
"Board"), by unanimous vote of those present and voting (the three Directors
present at the meeting who are also officers of the Company having abstained
from voting), approved the Merger and determined, among other things, that the
Merger Agreement and the transactions contemplated thereby, including the
Merger, taken together, are advisable and in the best interests of Syratech and
its stockholders and resolved to recommend that holders of Syratech Common Stock
approve the Merger Agreement, including the Merger and the other transactions
contemplated by the Merger Agreement.
Syratech Common Stock is listed for trading on the New York Stock Exchange,
Inc. (the "NYSE") under the symbol "SYR." On , 1997, the last reported
sale price of Syratech Common Stock was $ per share. On October 22, 1996,
the last trading day before public announcement of the execution of the Merger
Agreement, the last sale price of Syratech Common Stock as reported on the NYSE
was $26 1/4 per share. If the Merger is approved, the Company anticipates that
it will seek to have Syratech Common Stock delisted from the NYSE. See "SPECIAL
FACTORS/RISK FACTORS -- Delisting; Loss of Liquidity; Reporting Obligations."
This Proxy Statement/Prospectus, the accompanying form of proxy (the
"Proxy") and the other enclosed documents are first being mailed to stockholders
of the Company on or about , 1997.
------------------------
SEE "SPECIAL FACTORS/RISK FACTORS" BEGINNING ON PAGE 18 FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS OF SYRATECH COMMON STOCK IN
CONNECTION WITH THEIR CONSIDERATION OF THE MERGER.
------------------------
NEITHER THIS TRANSACTION NOR THESE SECURITIES HAVE BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION. THE COMMISSION HAS NOT PASSED UPON
THE FAIRNESS OR MERITS OF THIS TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF
THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
------------------------
The date of this Proxy Statement/Prospectus is , 1997.
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
AVAILABLE INFORMATION................................................................. 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....................................... 2
FORWARD-LOOKING STATEMENTS............................................................ 3
SUMMARY............................................................................... 4
The Special Meeting................................................................. 4
The Merger.......................................................................... 7
Selected Consolidated Historical Financial Data of Syratech Corporation............. 14
Price of Syratech Common Stock...................................................... 17
INTRODUCTION.......................................................................... 18
SPECIAL FACTORS/RISK FACTORS.......................................................... 18
Purposes of the Merger, Structure................................................... 18
Timing of the Transaction........................................................... 18
Advantages of the Merger............................................................ 19
Disadvantages of the Merger......................................................... 19
Effect on Affiliate................................................................. 21
Federal Income Tax Consequences..................................................... 22
Fairness of the Merger; Recommendation of the Board of Directors.................... 23
Opinion of Financial Advisor........................................................ 25
Non-Cash Election and Proration into Cash........................................... 29
Forecasts; Limits of Reliability.................................................... 30
Competition......................................................................... 30
Difficulty in Achieving Post-Merger Business Strategy............................... 30
Dependence Upon Key Personnel....................................................... 30
Uncertainty Associated with the Retail Industry..................................... 31
Seasonality......................................................................... 31
Dependence upon Foreign Sources of Supply........................................... 31
Price and Availability of Raw Materials............................................. 31
Environmental Regulation............................................................ 32
Importance of Trademarks, Copyrights and Patents.................................... 32
Labor Relations..................................................................... 32
THE COMPANY........................................................................... 33
General............................................................................. 33
Recent Acquisitions................................................................. 34
Integration Strategy for Recent Acquisitions........................................ 34
THE SPECIAL MEETING................................................................... 35
Matters to Be Considered............................................................ 35
Required Votes...................................................................... 36
Voting and Revocation of Proxies.................................................... 36
Record Date; Stock Entitled to Vote; Quorum......................................... 36
Solicitation of Proxies............................................................. 37
THE MERGER............................................................................ 38
Background of the Merger............................................................ 38
Recommendation of the Board; Reasons for the Merger................................. 44
Opinion of Financial Advisor........................................................ 45
</TABLE>
i
<PAGE> 7
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Certain Forecasts................................................................... 46
Merger Consideration................................................................ 48
Non-Cash Election................................................................... 49
Non-Cash Election Procedure......................................................... 49
Effective Time...................................................................... 49
Conversion/Retention of Shares; Procedures for Exchange of Certificates............. 50
Fractional Shares................................................................... 51
Conduct of Business Pending the Merger.............................................. 51
Conditions to the Consummation of the Merger........................................ 51
Federal Income Tax Considerations................................................... 51
Anticipated Accounting Treatment.................................................... 53
Effect on Stock and Employee Benefit Matters........................................ 53
Interests of Certain Persons in the Merger.......................................... 54
Employment Agreements............................................................... 54
NYSE De-Listing..................................................................... 57
Effect of the Merger on Rights of Holders of Syratech Common Stock.................. 58
Resale of Syratech Common Stock Following the Merger................................ 58
Merger Financings................................................................... 58
Conversion of THL I Stock........................................................... 59
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS................................. 60
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)................................................... 62
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER
31, 1995 (IN THOUSANDS, EXCEPT SHARE DATA).......................................... 65
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS NINE MONTHS ENDED
SEPTEMBER 30, 1996 (IN THOUSANDS, EXCEPT SHARE DATA)................................ 67
DESCRIPTION OF SYRATECH CAPITAL STOCK................................................. 68
General............................................................................. 68
Syratech Common Stock............................................................... 68
Syratech Common Stock Following the Merger.......................................... 68
Preferred Stock..................................................................... 68
CERTAIN PROVISIONS OF THE MERGER AGREEMENT............................................ 69
The Merger.......................................................................... 69
Representations and Warranties...................................................... 69
Certain Pre-Closing Covenants....................................................... 70
No Solicitation of Alternative Transactions......................................... 71
Certificate of Incorporation and By laws............................................ 72
Board of Directors and Officers of the Company Following the Merger................. 72
Stock and Employee Benefit Plans.................................................... 72
Access to Information and Confidentiality........................................... 72
Best Efforts........................................................................ 72
Indemnification and Insurance....................................................... 72
Conditions to the Consummation of the Merger........................................ 73
Termination......................................................................... 74
Amendment and Waiver................................................................ 75
Expenses and Certain Required Payments.............................................. 75
</TABLE>
ii
<PAGE> 8
<TABLE>
<CAPTION>
PAGE
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<S> <C>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........................ 75
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.......................................................................... 77
BUSINESS.............................................................................. 84
REGULATORY APPROVALS.................................................................. 94
THL I AND THOMAS H. LEE COMPANY....................................................... 95
DISSENTING STOCKHOLDERS' RIGHTS....................................................... 95
EXPERTS............................................................................... 96
Financial Statements................................................................ 96
Legal Opinions...................................................................... 97
OTHER INFORMATION AND STOCKHOLDER PROPOSALS........................................... 97
SYRATECH CORPORATION CONSOLIDATED FINANCIAL STATEMENTS................................ F-1
SCHEDULE I Certain Information Regarding THL Transaction I Corp. and Thomas H. Lee
Company
ANNEX I Restated Agreement and Plan of Merger
ANNEX II Opinion of Merrill Lynch & Co. dated October 23, 1996
ANNEX III Excerpts from Delaware General Corporation Law Relating to
Dissenters' Rights
</TABLE>
iii
<PAGE> 9
AVAILABLE INFORMATION
No person is authorized to give any information or to make any
representations, other than as contained in this Proxy Statement/Prospectus, in
connection with the Merger, and, if given or made, such information or
representations may not be relied upon as having been authorized by Syratech,
THL I or Thomas H. Lee Company. This Proxy Statement/Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy the securities
to which it relates in any jurisdiction in which, or to any person to whom, it
is unlawful to make such an offer or solicitation. Neither the delivery of this
Proxy Statement/Prospectus nor any offer or sale made hereunder shall, under any
circumstances, create any implication that there has been no change in the
information set forth herein or in the affairs of the Company since the date
hereof.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy statements
and other information filed by the Company with the Commission can be inspected
and copied at the public reference facilities maintained by the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 or at
its regional offices located at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661, and 7 World Trade Center, Suite 1300, New York, New York 10048.
Copies of such material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission at http://www.sec.gov. The Company's Common
Stock is listed on the NYSE, and reports, proxy statements and other information
concerning the Company may be inspected and copied at the offices of the New
York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
This Proxy Statement/Prospectus also constitutes a Prospectus of the
Company filed as part of a Registration Statement on Form S-4 under the
Securities Act of 1933, as amended. This Proxy Statement/Prospectus omits
certain information contained in the Registration Statement and the Exhibits
thereto. Reference is made to the Registration Statement and related exhibits
for further information with respect to the Company and the retention of
Syratech Common Stock. For the complete text of any document, the material
provisions of which are described herein, reference is made in each instance to
the copy of the document filed as an exhibit to the Registration Statement or
otherwise filed with the Commission.
A copy of each report and opinion referred to in this Proxy
Statement/Prospectus shall be made available for inspection and copying at the
principal executive offices of the Company during its regular business hours by
any interested equity security holder of the Company or his representative who
has been so designated in writing.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF ANY SUCH DOCUMENTS
RELATING TO THE COMPANY, OTHER THAN EXHIBITS TO SUCH DOCUMENTS (UNLESS SUCH
EXHIBITS SPECIFICALLY ARE INCORPORATED BY REFERENCE IN SUCH DOCUMENTS), ARE
AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM SYRATECH
CORPORATION, 175 MCCLELLAN HIGHWAY EAST BOSTON, MASSACHUSETTS 02128-9114,
ATTENTION: FAYE A. FLORENCE, ESQ., VICE PRESIDENT, SECRETARY AND GENERAL
COUNSEL, TELEPHONE: (617) 561-2200. IN ORDER TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS REQUESTED, ANY SUCH REQUEST SHOULD BE MADE BY , 1997.
The following documents previously filed by the Company (File No. 1-12624)
with the Commission are incorporated in this Proxy Statement/Prospectus by
reference:
(1) The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995.
(2) The Company's Proxy Statement, dated April 8, 1996 which was
mailed to the Company's stockholders in connection with the Annual Meeting
of Stockholders held on May 9, 1996.
(3) The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1996.
2
<PAGE> 10
(4) The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 1996.
(5) The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 1996.
(6) The description of Syratech Common Stock set forth in the
Company's Registration Statement on Form 8-A, filed on October 5, 1993, as
amended.
(7) The Company's Current Report on Form 8-K dated February 29, 1996,
as amended by the Current Report on Form 8-K/A dated April 29, 1996;
Current Report on Form 8-K dated April 17, 1996, as amended by the Current
Report on Form 8-K/A dated August 26, 1996; Current Report on Form 8-K
dated May 1, 1996; Current Report on Form 8-K dated July 11, 1996; Current
Report on Form 8-K dated September 17, 1996; Current Report on Form 8-K
dated October 25, 1996; and Current Report on Form 8-K dated November 12,
1996.
All reports and other documents subsequently filed by the Company pursuant
to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act prior to the date of
the Special Meeting shall be deemed to be incorporated by reference herein and
to be part hereof from the date of the filing of such reports and documents.
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 of this Proxy Statement/Prospectus to the extent that a statement
contained herein, or in any other subsequently filed document that also is or is
deemed to be incorporated by reference herein, modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute part of this Proxy
Statement/Prospectus.
FORWARD-LOOKING STATEMENTS
Except for the historical information contained or incorporated by
reference in this Proxy Statement/Prospectus, the matters discussed or
incorporated by reference herein are forward-looking statements. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the Company, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the risk factors
set forth under "Special Factors/Risk Factors" as well as the following: general
economic and business conditions; industry capacity; industry trends; overseas
expansion; the loss of major customers; changes in demand for the Company's
products; the timing of orders received from customers; cost and availability of
raw materials; dependence on foreign sources of supply; changes in business
strategy or development plans; availability and quality of management;
availability, terms and deployment of capital; and the seasonal nature of the
business. SPECIAL ATTENTION SHOULD BE PAID TO SUCH FORWARD-LOOKING STATEMENTS
INCLUDING, BUT NOT LIMITED TO, STATEMENTS RELATING TO (I) THE COMPANY'S ABILITY
TO EXECUTE ITS GROWTH STRATEGIES AND TO REALIZE ITS GROWTH OBJECTIVES, (II) THE
COMPANY'S PLANNED EXPANSION OF ITS PRODUCT OFFERINGS, (III) THE COMPANY'S
ABILITY TO OBTAIN SUFFICIENT RESOURCES TO FINANCE ITS WORKING CAPITAL AND
CAPITAL EXPENDITURE NEEDS AND PROVIDE FOR ITS KNOWN OBLIGATIONS, AND (IV) THE
CONTINUATION OF, AND THE COMPANY'S ABILITY TO BENEFIT FROM, THE VENDOR
CONSOLIDATION TREND IN THE RETAIL INDUSTRY DESCRIBED ELSEWHERE IN THIS PROXY
STATEMENT/PROSPECTUS.
3
<PAGE> 11
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement/Prospectus. Reference is made to the more detailed
information contained or incorporated by reference in this Proxy
Statement/Prospectus and the ANNEXES hereto. Stockholders of the Company are
urged to read this Proxy Statement/Prospectus and the ANNEXES hereto in their
entirety.
FOR A DISCUSSION OF CERTAIN IMPORTANT FACTORS THAT SHOULD BE CONSIDERED BY
HOLDERS OF SYRATECH COMMON STOCK IN CONNECTION WITH THEIR CONSIDERATION OF THE
MERGER, INCLUDING CERTAIN RISKS RELATED TO CONTINUING TO HOLD SYRATECH COMMON
STOCK, SEE "SPECIAL FACTORS/RISK FACTORS."
THE SPECIAL MEETING
Time and Place; Record Date... A Special Meeting of the Stockholders of
Syratech will be held on March , 1997, at
9:00 a.m. Eastern Standard Time at Syratech's
Corporate Headquarters, 175 McClellan Highway,
East Boston, Massachusetts 02128. Stockholders
of record at the close of business on
, 1997 (the "Record Date") will be
entitled to notice of, and to vote at, the
Special Meeting. The date of the mailing of
this Proxy Statement/Prospectus to stockholders
of the Company will be on or about
, 1997. At the close of business on
the Record Date, there were outstanding and
entitled to vote shares of Syratech
Common Stock.
Matters to be Considered...... The purpose of the Special Meeting is to vote
upon a proposal to approve and adopt the Merger
Agreement and the transactions contemplated
thereby, including the Merger, pursuant to
which (a) THL I will merge with and into
Syratech, (b) the stockholders of Syratech will
receive the consideration described below in
the Summary under "THE MERGER -- Effect of the
Merger" and (c) the stock of THL I, all of
which will be owned immediately prior to the
Effective Time by affiliates of Thomas H. Lee
Company ("Lee Affiliates"), will be converted
into 3,191,850 shares of Syratech Common Stock
less the number of shares of Syratech Common
Stock retained by existing stockholders (other
than shares retained by Leonard Florence and
63,696 shares that were issued as compensation
to and will be retained by three Management
Stockholders). After the Effective Time, there
will be 3,906,250 shares of Syratech Common
Stock issued and outstanding (including 650,704
shares to be retained by Mr. Florence, 126,721
shares to be retained by Management
Stockholders other than Leonard Florence and up
to an aggregate of 781,250 shares of Syratech
Common Stock retained by existing stockholders
(other than Management Stockholders)); and, if
the warrants to be issued to lenders in
connection with the financing of the
transactions contemplated by the Merger
Agreement (the "Warrants") are exercised in
full after the Merger, there will be 4,155,585
shares of Syratech Common Stock issued and
outstanding.
Required Votes................ Approval of the Merger Agreement requires the
affirmative vote of stockholders holding a
majority of the shares of Syratech Common Stock
entitled to vote thereon. All of the directors
and officers of the Company holding Syratech
Common Stock have indicated that they intend to
vote their shares of Syratech Common Stock in
4
<PAGE> 12
favor of the resolution to approve and adopt
the Merger Agreement and the transactions
contemplated thereby, including the Merger. See
"THE SPECIAL MEETING -- Required Votes" and
"THE MERGER -- Interests of Certain Persons in
the Merger."
Risks of the Transaction...... The transaction entails certain special risks
to the stockholders who elect to retain
Syratech Common Stock in the Merger, in
addition to those risks (described under
"Special Factors/Risk Factors") that are
inherent in Syratech's business. The special
risks include (i) the fact that at least 60%
and up to 81.7% of the outstanding shares of
Syratech Common Stock will be held by Lee
Affiliates, including Thomas H. Lee Equity Fund
III LP (the "Fund"), which will own at least
50% and thereby control the Company and have
the power to elect all of its directors,
appoint new management and approve any action
requiring the approval of the holders of
Syratech Common Stock, (ii) termination of the
listing of Syratech Common Stock on the NYSE,
with the expectation that such delisting,
coupled with concentration of power in
affiliates of Thomas H. Lee Company and the
Management Stockholders, can be expected to
result in a substantial decrease in the
liquidity of Syratech Common Stock and (iii)
the substantial increase in the consolidated
indebtedness of the Company and its
subsidiaries with the result that following the
Merger stockholders' equity will decline from
its present level to a deficit amount ($3.9
million on a pro forma basis at September 30,
1996) and negatively impact Syratech's earnings
due to substantially increased interest costs
(with the further possibility that the equity
and income impairments could adversely affect
Syratech's ability to achieve its business
strategies and prospects). See "SPECIAL
FACTORS/ RISK FACTORS -- Disadvantages of the
Merger -- Control by Affiliates of the Thomas
H. Lee Company, Delisting; Reporting
Obligations," "-- Substantial Leverage;
Stockholders' Deficit; Liquidity," "-- Dilution
in Equity Participation of Existing Syratech
Stockholders."
Also note that incident to the Merger the
employment agreement of Leonard Florence will
be modified to provide that his guaranteed
annual compensation will be no less than his
total compensation in 1996, which will affect
the retirement and survivor's benefits payable
to Mr. Florence and his wife, respectively.
Also, three other executive officers (two of
whom are Directors of the Company) have
received or will receive, pursuant to
agreements between Mr. Florence, the Company,
THL I and each of the executive officers (i)
compensatory stock grants (ii) and cash
payments for Syratech's tax benefits from the
grants. Moreover, certain Management
Stockholders hold options to purchase Syratech
Common Stock that will vest on the Merger. The
aggregate number of shares subject to such
options is 45,000, and the aggregate amount
that will be payable by Syratech as a result of
the vesting and cash- out of such options will
be $733,750. See "THE MERGER -- Interests of
Certain Persons in the Merger."
5
<PAGE> 13
Voting of Proxies............. Shares of Syratech Common Stock represented by
a properly executed Proxy received in time for
the Special Meeting will be voted in the manner
specified in the Proxy. Proxies that do not
contain any instruction to vote for or against
or to abstain from voting on a particular
matter will be voted in favor of such matter.
See "THE SPECIAL MEETING -- Required Vote." It
is not expected that any matter other than the
proposal to approve and adopt the Merger
Agreement will be brought before the
stockholders at the Special Meeting. If,
however, other matters are properly presented,
the persons named as proxies will vote in
accordance with their best judgment with
respect to such matters.
Adjournments; Revocability
of Proxies.................. If the Special Meeting is adjourned, for
whatever reason, the approval of the Merger
Agreement shall be considered and voted upon by
stockholders at the subsequent, reconvened
meeting, if any. You may revoke your Proxy at
any time prior to its exercise by (i) attending
the Special Meeting and voting in person
(although attendance at the Special Meeting
will not in and of itself constitute revocation
of a Proxy), (ii) giving notice of revocation
of your Proxy at the Special Meeting, or (iii)
delivering (a) a written notice of revocation
of your Proxy, or (b) a duly executed Proxy
relating to the matters to be considered at the
Special Meeting, bearing a date later than the
Proxy previously executed, to the Secretary of
Syratech, 175 McClellan Highway, East Boston,
Massachusetts 02128-9114. Unless revoked in one
of the manners set forth above, Proxies in the
form enclosed will be voted at the Special
Meeting in accordance with your instructions.
Solicitation of Proxies....... The cost of soliciting Proxies will be borne by
the Company. The Company may solicit Proxies
and the Company's directors, officers and
employees may also solicit Proxies by
telephone, telegram or personal interview.
These persons will receive no additional
compensation for their services. Arrangements
will be made to furnish copies of Proxy
materials to fiduciaries, custodians and
brokerage houses for forwarding to beneficial
owners of Syratech Common Stock. Such persons
will be reimbursed for their reasonable out-of-
pocket expenses. WILL
ASSIST IN THE SOLICITATION OF PROXIES BY THE
COMPANY FOR A FEE OF $ , PLUS
REASONABLE OUT-OF-POCKET EXPENSES. HOLDERS OF
SYRATECH COMMON STOCK SHOULD NOT SEND STOCK
CERTIFICATES WITH THEIR PROXY CARDS. SEE "THE
MERGER -- NON-CASH ELECTION" FOR INSTRUCTIONS
FOR STOCKHOLDERS ELECTING TO RETAIN SHARES.
Security Ownership of
Management.................... As of December 31, 1996, directors and
executive officers of the Company and their
affiliates were beneficial owners of an
aggregate of 3,626,870 shares of Syratech
Common Stock (approximately 41.6% of the
outstanding shares).
6
<PAGE> 14
THE MERGER
Effect of the Merger.......... At the Effective Time, THL I will be merged
with and into Syratech and Syratech will
continue as the surviving corporation in the
Merger. Subject to certain provisions as
described herein with respect to shares owned
by Syratech or any wholly owned subsidiary of
Syratech, and with respect to Dissenting Shares
(as defined under "Dissenting Stockholders'
Rights" below), (i) each issued and outstanding
share of Syratech Common Stock (other than
Electing Shares (as defined below)) will be
entitled to receive in cash from Syratech
following the Merger an amount equal to $32.00
(the "Cash Price") and (ii) subject to the
limitations hereinafter set forth, each issued
and outstanding share of Syratech Common Stock
with respect to which an election to retain
Syratech Common Stock has been made and not
withdrawn in accordance with the Merger
Agreement (an "Electing Share") will be
entitled to retain one fully paid and
nonassessable share of Syratech Common Stock (a
"Non-Cash Election Share"). Each stockholder of
Syratech (other than Leonard Florence) shall
receive the Cash Price with respect to all of
the stockholder's shares of Syratech Common
Stock, unless such holder makes an election (a
"Non-Cash Election") to take a portion of the
consideration to be received by such holder in
Non-Cash Election Shares. Stockholders (other
than Management Stockholders) may make a
Non-Cash Election to take up to 35% of such
consideration in Non-Cash Election Shares;
provided, that the aggregate number of shares
of Syratech Common Stock to be retained at the
Effective Time by stockholders (other than
Management Stockholders, whose Non-Cash
Election Shares will not be counted toward the
Non-Cash Election Number, as defined below)
shall not exceed 781,250 (the "Non-Cash
Election Number"). The Merger Agreement permits
stockholders (other than Management
Stockholders) to retain up to an aggregate of
781,250 shares of Syratech Common Stock and
contemplates that the remaining issued and
outstanding shares of Syratech Common Stock
(other than shares of Syratech Common Stock
held by Management Stockholders) will be
converted into cash, as described above. In
addition, the Merger Agreement requires Leonard
Florence to retain 650,704 shares, and receive
cash for all other shares he owns. Management
Stockholders other than Leonard Florence may
retain up to 25% of their shares, which will
reduce the number of shares to be acquired by
the holders of common stock of THL I. Because
no more than 781,250 shares may be retained by
stockholders (other than Management
Stockholders) in the Merger, stockholders who
elect to retain shares may, due to proration,
be required to retain fewer shares of Syratech
Common Stock than is specified in their
election. SEE "THE MERGER -- Merger
Consideration." Because the total number of
issued and outstanding shares of Syratech
Common Stock will decrease from approximately
8,676,631 to 3,906,250, the maximum number of
outstanding shares of Syratech Common Stock to
be retained by existing stockholders (other
than Management Stockholders) in the Merger
(781,250 shares) will represent 20% of the
shares out-
7
<PAGE> 15
standing immediately after the Merger, and the
maximum number of shares to be owned by THL I
(3,191,850) will represent approximately 81.7%
of the shares outstanding immediately after the
Merger if no stockholders make a Non-Cash
Election. If the Warrants are exercised in full
pursuant to their terms, the percentages
specified herein will decline to 18.8% and
76.8%, respectively.
Recommendation of the Board of
Directors................... At its October 22, 1996 meeting, the Board of
Directors of the Company, with all but two
members in attendance, by unanimous vote of
those members attending and voting (the three
Directors present who are also officers of the
Company having abstained) (i) determined that
the Merger Agreement and the transactions
contemplated thereby, including the Merger,
taken together, are advisable and in the best
interests of the Company and its stockholders,
and (ii) subject to the Board's fiduciary
duties, resolved to recommend that the holders
of Syratech Common Stock approve the Merger
Agreement and the transactions contemplated
thereby, including the Merger. See "SPECIAL
FACTORS/RISK FACTORS -- Fairness of the Merger;
Recommendation of the Board of Directors" and
"THE MERGER -- Background of the Merger" and
"-- Reasons for the Merger; Recommendation of
the Board of Directors."
Opinion of Financial
Advisor....................... On October 22, 1996, Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch")
delivered its verbal opinion, which was
confirmed in writing on October 23, 1996, to
Syratech's Board of Directors to the effect
that, as of such date, the cash consideration
to be received in the Merger by the holders of
Syratech Common Stock (other than with respect
to shares held by Leonard Florence, shares to
be cancelled pursuant to the Merger Agreement
and Dissenting Shares) is fair to such
stockholders from a financial point of view. In
arriving at its opinion, Merrill Lynch, among
other things, reviewed certain information and
conducted certain analyses with respect to
Syratech Common Stock and the Merger. For
information on the assumptions made, matters
considered, limits of the review by Merrill
Lynch and the relationships between Merrill
Lynch and THL I, see "SPECIAL FACTORS/RISK
FACTORS -- Opinion of Financial Advisor" and
"THE MERGER -- Opinion of Financial Advisor."
Holders of Syratech Common Stock are urged to
read in its entirety the opinion of Merrill
Lynch, dated October 23, 1996, a copy of which
appears as Annex II to this Proxy
Statement/Prospectus. The opinion of Merrill
Lynch was limited to the cash consideration
only and was silent as to the non-cash portion
that stockholders may elect; and no
determination of fairness was made by Merrill
Lynch as to the Non-Cash Election feature.
Non-Cash Election............. Subject to the Non-Cash Election Number, record
holders of shares of Syratech Common Stock
(other than Management Stockholders) will be
entitled to make an unconditional Non-Cash
Election, on or prior to the Election Date (as
defined below), to retain Non-Cash Election
Shares for up to 35% of their present holdings
of Syratech Common Stock. If the number of
Electing
8
<PAGE> 16
Shares of all stockholders (other than
Management Stockholders) exceeds the Non-Cash
Election Number, then (i) the number of such
Electing Shares covered by each Non-Cash
Election will be determined by multiplying the
total number of such Electing Shares covered by
such Non-Cash Election by a proration factor
determined by dividing the Non-Cash Election
Number by the total number of such Electing
Shares and (ii) such number of Electing Shares
will be so retained. All Electing Shares of
stockholders (other than Management
Stockholders), other than those shares retained
as described in the immediately preceding
sentence, will be converted into the right to
receive cash as if such shares were not
Electing Shares. See also "THE MERGER --
Federal Income Tax Consequences -- Stockholders
Receiving Cash" for a discussion of the tax
consequences of receiving cash.
Non-Cash Election Procedure... Holders of Syratech Common Stock electing to
retain Non-Cash Election Shares must properly
complete and sign the Non-Cash Election Form
(the "Form of Election") accompanying this
Proxy Statement/Prospectus, and such Form of
Election, together with all of such Holder's
certificates representing shares of Syratech
Common Stock duly endorsed in blank or
otherwise in form acceptable for transfer on
the books of the Company (or by appropriate
guarantee of delivery, as set forth in such
Form of Election), must be received by
(the "Exchange Agent") at one of
the addresses listed on the Form of Election by
5:00 p.m., Eastern Standard Time, on the
business day next preceding the date of the
Special Meeting (the "Election Date") and must
not be withdrawn. See "THE MERGER -- Non-Cash
Election Procedure."
Fractional Shares............. Fractional shares of Syratech Common Stock will
not be issued in the Merger. Holders of
Syratech's Common Stock otherwise entitled to a
fractional share of Syratech's Common Stock
following the Merger will be paid cash in lieu
of such fractional share determined and paid as
described in "THE MERGER -- Fractional Shares."
Conditions to the Merger...... The obligations of Syratech and THL I to
consummate the Merger are subject to various
conditions, including, without limitation, the
approval of the Merger Agreement and the
transactions contemplated thereby by the
holders of the requisite number of shares of
Syratech Common Stock, the termination or
expiration of the relevant waiting period under
the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act") (which
has occurred), the effectiveness of the
Company's registration statement on Form S-4,
and the absence of any injunction or other
legal restraint or prohibition preventing the
consummation of the Merger. See "REGULATORY
APPROVALS."
THL I's obligations to effect the Merger are
further subject to the continuing truth of the
Company's representations made in the Merger
Agreement, performance of material obligations
of the Company under the Merger Agreement, the
absence of pending or threatened material
litigation intended to prevent the Merger, the
satisfaction of certain environmental matters
and the receipt of
9
<PAGE> 17
financing proceeds, on terms set forth in
commitment letters attached to the Merger
Agreement or such other terms as the Company
and THL I reasonably agree and are not
materially more onerous, in an amount
sufficient to consummate the transactions
contemplated by the Merger, including an amount
sufficient to (i) pay the Cash Election Price,
(ii) refinance Syratech's outstanding
indebtedness, (iii) pay transaction fees
associated with the Merger and (iv) provide for
the Company's working capital needs following
the Merger. If the Merger had been consummated
as of September 30, 1996, financing proceeds,
capital from THL I obtained by it from an
equity contribution by its stockholders and
existing cash on the Company's balance sheet,
together aggregating approximately $377.1
million, would have been required to consummate
such transactions. The equity contribution to
be made to THL I will constitute approximately
$102.1 million (less the value of the shares
retained by stockholders other than Leonard
Florence and the value of the 63,696 shares
that were issued to, and will be retained by,
certain Management Stockholders) of such $377.1
million. See "THE MERGER -- Merger Financing."
The Company's obligations to effect the Merger
are further subject to the continuing truth of
THL I's representations made in the Merger
Agreement, performance of all material
obligations of THL I under the Merger Agreement
and the absence of litigation intended to
prevent the Merger. See "CERTAIN PROVISIONS OF
THE MERGER AGREEMENT -- Conditions to the
Consummation of the Merger" and "REGULATORY
APPROVALS." See "CERTAIN PROVISIONS OF THE
MERGER AGREEMENT -- Expenses and Certain
Required Payments."
Regulatory Approvals.......... On November 25, 1996, the Federal Trade
Commission and the Antitrust Division granted
early termination of the waiting period under
the HSR Act with respect to the Merger. See
"REGULATORY APPROVALS."
Merger Financing.............. Syratech is expected to enter into debt
financing arrangements aggregating
approximately $290 million, which will consist
of both debt securities (the "Debt Securities")
and a senior revolving credit facility (the
"Revolving Credit Facility"). It is anticipated
that the full proceeds of the Debt Securities
and a portion of the proceeds available
pursuant to the Revolving Credit Facility would
be used to finance the conversion into cash of
the shares of Syratech Common Stock currently
outstanding which are not retained by existing
stockholders, and to refinance Syratech's
outstanding indebtedness. In addition, the
Revolving Credit Facility would be used to
provide for Syratech's working capital
requirements at the time of the Merger. On
October 23, 1996, THL I received commitment
letters to provide such financing. See "THE
MERGER -- Merger Financing."
Certain Federal Income Tax
Consequences................ The receipt of cash by a stockholder pursuant
to the Merger will, generally, be treated as a
sale of stock generating capital gain equal to
the cash received less the stockholder's basis
in the stock sold.
10
<PAGE> 18
Syratech may, in certain circumstances, be
required to withhold tax from cash paid to
stockholders. See "THE MERGER -- Federal Income
Tax Consequences."
Treatment of Company
Stock Options............... At the Effective Time (x) each Company Stock
Option granted under the 1986 and 1993 Stock
Plans (as defined under "THE MERGER -- Effect
on Stock and Employee Benefit Matters")
outstanding immediately prior to the Effective
Time will vest as a consequence of the Merger
and will be canceled in exchange for a payment
from the Company after the Merger (subject to
any applicable withholding taxes) equal to the
product of (1) the total number of shares of
Syratech Common Stock subject to such Company
Stock Option and (2) the excess of $32 over the
exercise price per share of Syratech Common
Stock subject to such Company Stock Option,
payable in cash immediately following the
Effective Time, and (y) each unexercised and
outstanding Company Stock Option granted under
the 1995 Stock Plan (as defined under "THE
MERGER -- Effect on Stock and Employee Benefit
Matters") shall be terminated and canceled
without consideration, unless the holder of
such Company Stock Option consents in writing
to the amendment of such Company Stock Option
to provide the holder thereof with the right to
receive upon exercise of the Company Stock
Option, a conditional deferred payment from the
Company (subject to any applicable withholding
taxes) equal to the product of (1) the total
number of shares of Syratech Common Stock
subject to such Company Stock Option and (2)
the excess, if any, of $32 over the exercise
price per share of Syratech Common Stock
subject to such Company Stock Option, payable
in equal installments on each remaining vesting
date of such Company Stock Option, subject to
the continued employment with the Company of
the holder of such Company Stock Option on such
vesting dates. The Stock Plans will terminate
as of the Effective Time, and following the
Effective Time no holder of a Company Stock
Option or participant in any Stock Plan will
have any right thereunder to acquire equity
securities of the Company following the Merger.
Interests of Certain Persons
in the Merger................. Certain directors and officers of the Company
have interests, described herein, that may
present them with potential conflicts of
interest in connection with the Merger. The
Board of Directors is aware of the conflicts
and considered them in addition to the other
matters described or referred to under "SPECIAL
FACTORS/RISK FACTORS -- Fairness of the Merger;
Recommendation of the Board of Directors" and
under "THE MERGER -- Reasons for the Merger;
Recommendation of the Board of Directors."
Leonard Florence will be required and entitled
to retain 650,704 of his shares of Syratech
Common Stock which will not be subject to
proration; such shares will constitute 16.7% of
the shares of Syratech Common Stock outstanding
immediately after the Merger. The other
Management Stockholders will not be subject to
proration with respect to the shares that they
elect to retain. Four executive officers of the
Company, Leonard Florence, Mel-
11
<PAGE> 19
vin L. Levine, Alan R. Kanter and E. Merle
Randolph, are parties to Employment Agreements,
and Faye A. Florence, also an executive
officer, has a Retirement Benefit Agreement,
each of which provides (among other things in
the Employment Agreements) for the payment of
retirement benefits to such person at the later
of age 65 or termination of his or her
employment equal to a multiple of a percentage
of his or her average annual compensation for
the three fiscal years ended immediately prior
to termination of his or her employment. At the
Effective Time, the Employment Agreement with
Leonard Florence will be amended so as to (i)
change his term of full-time employment from a
rolling five-year term to a fixed five-year
term, (ii) provide for a minimum base salary of
$1,150,000 per annum, (iii) establish
$1,150,000 as the minimum amount upon which his
retirement benefit (and the survivor's benefit
of his surviving spouse) will be computed and
(iv) create contractual rights with respect to
certain perquisites that he is accorded
informally under his present arrangements with
the Company. Additionally, at the Effective
Time, the Employment Agreement with Melvin L.
Levine will be amended to change his term of
full-time employment from a rolling five-year
term to a fixed five-year term. In addition,
Thomas H. Lee Company and its affiliates will
receive certain fees. See "SUMMARY -- Risks of
the Transaction" and "THE MERGER -- Interests
of Certain Persons in the Merger."
Termination of the Merger
Agreement................... The Merger Agreement may be terminated at any
time prior to the Effective Time: (i) by mutual
consent of THL I and Syratech; (ii) by either
THL I or Syratech (a) if a court or other
governmental entity shall have issued a final
and nonappealable order, decree or ruling or
taken any other final and nonappealable action
permanently enjoining or otherwise prohibiting
the Merger; or (b) if the Merger shall not have
been consummated on or before April 30, 1997
(other than due to the failure of the party
seeking to terminate the Merger Agreement to
perform its obligations under the Merger
Agreement at or prior to the Effective Time);
or (iii) by THL I or Syratech in certain other
situations, including in connection with an
alternative transaction. Under certain
circumstances related to a third party
transaction, termination of the Merger
Agreement prior to the Effective Time will
result in the payment of a fee and expenses
aggregating $9 million from the Company to THL
I. See "CERTAIN PROVISIONS OF THE MERGER
AGREEMENT -- Termination" and "-- Expenses and
Certain Required Payments."
THL I......................... THL I, a Delaware corporation, was organized by
Thomas H. Lee Company in connection with the
Merger and has not carried on any activities to
date other than those incident to its formation
and the transactions contemplated by the Merger
Agreement. The principal offices of THL I are
located at c/o Thomas H. Lee Company, 75 State
Street, Boston, Massachusetts 02109; telephone
number (617) 227-1050.
12
<PAGE> 20
Conversion of THL I Stock..... As a result of the Merger, in connection with
an equity contribution in THL I of
approximately $102.1 million less the value of
the shares retained by stockholders (other than
shares retained by Leonard Florence and 63,696
shares that were issued to, and will be
retained by, certain Management Stockholders),
the Fund and the Lee Affiliates will receive an
aggregate of 3,191,850 shares of Syratech
Common Stock, less the number of shares of
Syratech Common Stock retained by stockholders
(other than shares retained by Leonard Florence
and 63,696 shares that were issued to, and will
be retained by, certain Management
Stockholders). These shares of Syratech Common
Stock will represent a maximum of approximately
81.7% of the shares of Syratech Common Stock
outstanding immediately after the Merger if no
stockholders make a Non-Cash Election.
Dissenting Stockholders'
Appraisal Rights.............. Under Section 262 of the Delaware General
Corporation Law (the "DGCL"), a stockholder of
the Company may dissent from the Merger, demand
appraisal of, and obtain payment for, the fair
value of such holder's shares of Syratech
Common Stock. In order to dissent, (i) the
dissenting stockholder must deliver to the
Company, prior to the vote being taken on the
Merger at the Special Meeting, written notice
of such holder's intent to demand payment for
such holder's shares of Syratech Common Stock
if the Merger is effected and (ii) the
dissenting stockholder must not vote in favor
of the Merger. See "DISSENTING STOCKHOLDERS'
RIGHTS" and ANNEX III.
Selected Financial Data....... Set forth on the following pages are certain
selected historical and pro forma financial and
other data relating to Syratech and the Merger.
The selected historical data should be read in
conjunction with Syratech's historical
financial statements, including the notes
thereto, incorporated by reference in this
Proxy Statement/Prospectus. The selected pro
forma financial data should be read in
conjunction with the Pro Forma Consolidated
Financial Statements, including the notes
thereto, appearing elsewhere in this Proxy
Statement/Prospectus.
13
<PAGE> 21
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
OF SYRATECH CORPORATION
The following selected consolidated financial information as of December
31, 1991 through 1995 and for each of the years in the five-year period ended
December 31, 1995 has been derived from the consolidated financial statements of
the Company. The consolidated balance sheets of the Company as of December 31,
1994 and 1995 and the consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1995, together with the notes thereto and the related report of Deloitte &
Touche LLP, independent auditors, are included elsewhere herein. The following
selected consolidated balance sheet data as of September 30, 1996 and income
statement data for the nine-month periods ended September 30, 1995 and September
30, 1996 have been derived from the unaudited consolidated financial statements
of the Company. Such unaudited financial statements have been prepared on the
same basis as the audited financial statements and, in the opinion of
management, include all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the information set forth herein.
Results for the nine months ended September 30, 1996 are not necessarily
indicative of the results to be expected for the year ending December 31, 1996.
The information set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and Notes thereto of the Company included
elsewhere in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA(1):
Net sales.................................... $82,871 $103,735 $122,682 $147,291 $169,520 $118,619 $182,727
Cost of sales................................ 55,280 70,361 84,643 104,600 119,836 85,294 130,303
------- -------- -------- -------- -------- -------- --------
Gross profit................................. 27,591 33,374 38,039 42,691 49,684 33,325 52,424
Selling, general and administrative
expenses................................... 20,379 24,364 27,727 31,613 34,239 24,004 39,161
Other operating income....................... 5,057(2)
------- -------- -------- -------- -------- -------- --------
Income from operations....................... 7,212 9,010 10,312 11,078 15,445 9,321 18,320
Interest expense............................. (2,474) (2,757) (948) (559) (287) (212) (2,083)
Interest income.............................. 98 23 82 98 4,881 3,414 662
Other income................................. 11,900(3)
------- -------- -------- -------- -------- -------- --------
Income before income taxes and extraordinary
item....................................... 4,836 6,276 9,446 10,617 20,039 12,523 28,799
Provision for income taxes................... 1,286 1,657 2,390 2,758 6,863 4,289 10,080
------- -------- -------- -------- -------- -------- --------
Income from continuing operations before
extraordinary item......................... 3,550 4,619 7,056 7,859 13,176 8,234 18,719
Discontinued operations:
Income from discontinued operations, net of
income taxes............................. 5,948 10,284 10,838 12,068 2,572 2,572
Gain on sale of Syroco, Inc., net of income
taxes.................................... 30,451 30,451
Extraordinary item insurance settlement, net
of income taxes............................ 1,126
------- -------- -------- -------- -------- -------- --------
Net income................................... $10,624 $ 14,903 $ 17,894 $ 19,927 $ 46,199 $ 41,257 $ 18,719
======= ======== ======== ======== ======== ======== ========
Earnings Per Share:
Continuing operations...................... $ .44 $ .55 $ .60 $ .67 $ 1.12 $ .70 $ 2.13
Discontinued operations.................... .64 1.10 .92 1.02 2.79 2.79
Extraordinary item......................... .12
------- -------- -------- -------- -------- -------- --------
Net income................................. $ 1.20 $ 1.65 $ 1.52 $ 1.69 $ 3.91 $ 3.49 $ 2.13
======= ======== ======== ======== ======== ======== ========
Weighted average common shares and common
share equivalents outstanding.............. 9,247 9,312 11,768 11,809 11,803 11,814 8,781
======= ======== ======== ======== ======== ======== ========
</TABLE>
14
<PAGE> 22
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------- SEPTEMBER 30,
1991 1992 1993 1994 1995 1996
------- -------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................. $32,601 $ 87,458 $105,115 $125,136 $122,050 $ 118,686
Total assets................................ 99,554 141,294 152,060 190,684 220,566 310,349
Total debt(4)............................... 27,481 6,446 5,060 15,379 51,735(5) 82,155
Stockholders' equity........................ 52,228 112,381 131,005 152,100 146,596 165,509
Book value per share........................ 7.37 10.55 11.25 13.01 16.91 19.08
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------ -------------------
1991 1992 1993 1994 1995 1995 1996
------ ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDA(6)................................... $9,711 $11,824 $13,363 $14,348 $18,698 $11,747 $16,687
Depreciation and amortization............... 2,499 2,814 3,051 3,270 3,253 2,426 3,424
Ratio of earnings to fixed charges(7)....... 2.6x 2.9x 7.4x 10.2x 23.4x 19.4x 9.2x
</TABLE>
- ---------------
(1) The income statement has been restated to reflect Syroco, Inc. as a
discontinued operation. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Recent Transactions."
(2) Consists of income from the sale of Farberware inventory, and other
operating income, net of certain selling, general and administrative
expenses.
(3) Consists of nonrecurring pre-tax income related to licensing the Farberware
name on cookware and bakeware.
(4) Consists of long-term debt, notes payable and current maturities of
long-term debt.
(5) Reflects temporary borrowings of $51,735 made on December 29, 1995 in
connection with the purchase by the Company for retirement of 3,065 shares
of Common Stock owned by affiliates of Katy Industries, Inc. (the "Katy
Stock Repurchase"). These borrowings were paid on January 2, 1996.
(6) "EBITDA" is defined herein as income before income taxes, plus depreciation
and amortization expense and interest expense less other income related to
the sale of Farberware inventory, other operating income and the
non-recurring pre-tax income related to licensing the Farberware name on
cookware and bakeware. EBITDA is presented because the Company believes it
is a widely accepted financial indicator of a company's ability to service
and/or incur indebtedness. However, EBITDA should not be considered as an
alternative to net income as a measure of operating results or to cash flows
as a measure of liquidity in accordance with generally accepted accounting
principles.
(7) For purposes of computing this ratio, earnings consist of income before
income taxes plus fixed charges. Fixed charges consist of interest expense,
and one-third of the rent expense from operating leases, which management
believes is a reasonable approximation of an interest factor.
15
<PAGE> 23
SELECTED PRO FORMA CONSOLIDATED FINANCIAL DATA
OF SYRATECH CORPORATION
The following table sets forth unaudited selected pro forma consolidated
financial data of the Company, as adjusted to give effect to the Merger, the
Rauch Acquisition, the Katy Stock Repurchase and the Company's disposal of
Syroco, Inc. on April 11, 1995 (the "Syroco, Inc. Disposal"), which have been
derived from, and should be read in conjunction with, the unaudited Pro Forma
Condensed Consolidated Financial Statements, including the notes thereto,
appearing elsewhere in this Proxy Statement/Prospectus. See "PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS." The selected pro forma consolidated
financial data are presented for illustrative purposes only and are not
necessarily indicative of the operating results or financial position that would
have occurred if the Merger or other transactions had been consummated on the
dates indicated, nor are they necessarily indicative of future operating results
or financial position.
<TABLE>
<CAPTION>
PRO FORMA UNAUDITED
----------------------------------
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -----------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
SELECTED INCOME STATEMENT DATA:
Net sales..................................................... $228,439 $ 183,336
Cost of goods sold............................................ 170,007 130,734
------- -------
Gross profit................................................ 58,432 52,602
Selling, general and administrative expenses.................. 44,677 40,255
Other operating income........................................ -- 5,057(1)
------- -------
Income from operations...................................... 13,755 17,404
Interest expense.............................................. (19,958)(2) (18,429)(2)
Interest income............................................... 683
Gain on insurance settlement.................................. 6,275 --
Other income.................................................. 157 11,900
------- -------
Income before provision for income taxes.................... 229 11,558
Provision for income taxes.................................... 80 4,045
------- -------
Income from continuing operations............................. $ 149 $ 7,513
======= =======
Income per share from continuing operations................... $ 0.04 $ 1.92
======= =======
Weighted average common shares and common share equivalents
outstanding................................................. 3,906 3,906
======= =======
SELECTED BALANCE SHEET DATA:
Working capital............................................... $ 191,309
Property, plant and equipment, net............................ 60,831
Total assets.................................................. 310,905
Total debt(3)................................................. 252,083
Stockholders' deficit......................................... (3,863)
Book value per common share................................... (0.99)
OTHER FINANCIAL DATA:
EBITDA(4)..................................................... $ 25,130 $ 15,902
Depreciation and amortization................................. 4,943 3,555
Adjusted EBITDA(5)............................................ 17,508
Ratio of earnings to fixed charges(6)......................... 1.0x 1.6x
</TABLE>
- ---------------
(1) Consists of income from the sale of Farberware inventory and other operating
income, net of certain selling, general and administrative expenses.
(2) The pro forma statements give effect to the recapitalization and the
corresponding increase in debt levels and interest expense. Because interest
rates in connection with the Merger Financings have not been determined as
of the date of this Proxy Statement/Prospectus, the Company has estimated
pro forma
16
<PAGE> 24
interest expense for purposes of this presentation. See "Pro Forma Condensed
Consolidated Financial Statements" for additional information on assumed
interest rates and the effects on certain income statement items of
incremental changes in such assumed interest rates. The pro forma statements
do not reflect the warrants which may be issued in connection with the
financing of the transactions contemplated by the Merger Agreement.
(3) Consists of long-term debt and borrowings under the revolving line of
credit.
(4) "EBITDA" is defined herein as income before income taxes, plus depreciation
and amortization expense and interest expense less other income related to
the sale of Farberware inventory and other operating income and Farberware
other income. EBITDA is presented because the Company believes it is a
widely accepted financial indicator of a company's ability to service and/or
incur indebtedness. However, EBITDA should not be considered as an
alternative to net income as a measure of operating results or to cash flows
as a measure of liquidity in accordance with generally accepted accounting
principles.
(5) "Adjusted EBITDA" is defined herein as EBITDA adjusted for certain items of
expense which are not expected to be continuing costs to the Company. These
items consist of Rauch non-recurring expenses of $154 incurred as a result
of a 1994 fire at its principal manufacturing, warehouse and distribution
facility, Rauch salaries and related benefits of $454 and Silvestri expenses
of $998 including showroom, warehouse and freight expenses.
(6) For purposes of computing this ratio, earnings consist of income before
income taxes plus fixed charges. Fixed charges consist of interest expense,
amortization of debt issuance costs and one-third of the rent expense from
operating leases, which management believes is a reasonable approximation of
an interest factor.
PRICE OF SYRATECH COMMON STOCK
Syratech Common Stock is listed and traded on NYSE under the symbol "SYR."
The following table sets forth, for the periods indicated, the high and low
sales closing prices per share of Syratech Common Stock.
<TABLE>
<CAPTION>
HIGH LOW
---- ----
<S> <C> <C>
FISCAL 1994
First Quarter (ended March 31, 1994)........................... $19 1/4 $15 3/4
Second Quarter (ended June 30, 1994)........................... 17 5/8 15 1/8
Third Quarter (ended September 30, 1994)....................... 18 7/8 15 5/8
Fourth Quarter (ended December 31, 1994)....................... 19 17
FISCAL 1995
First Quarter (ended March 31, 1995)........................... $19 1/4 $ 15
Second Quarter (ended June 30, 1995)........................... 19 16 3/4
Third Quarter (ended September 30, 1995)....................... 20 5/8 17 7/8
Fourth Quarter (ended December 31, 1995)....................... 23 19 3/4
FISCAL 1996
First Quarter (ended March 31, 1996)........................... $26 3/8 $20 1/2
Second Quarter (ended June 30, 1996)........................... 27 5/8 22 3/8
Third Quarter (ended September 30, 1996)....................... 24 1/2 22
Fourth Quarter (ended December 31, 1996)....................... 31 3/4 23 3/8
FISCAL 1997
First Quarter (ended) ......................
</TABLE>
On October 22, 1996, the last trading day before public announcement of
execution of the Merger Agreement, the last sale price of Syratech Common Stock
as reported on the NYSE was $26 1/4 per share. The average of the closing prices
for the 20 consecutive trading days ended October 22, 1996 was $24.59 per share.
On , 1997, the most recent practicable date prior to the printing
of this Proxy Statement/Prospectus, the last sale price of Syratech Common Stock
as reported on the NYSE was $ per share.
SYRATECH STOCKHOLDERS SHOULD OBTAIN CURRENT MARKET QUOTATIONS FOR SYRATECH
COMMON STOCK.
17
<PAGE> 25
INTRODUCTION
This Proxy Statement/Prospectus is being furnished to holders of Syratech
Common Stock in connection with the solicitation of proxies by the Board of
Directors of Syratech for use at the Special Meeting of Stockholders of Syratech
Corporation to be held at Syratech's Corporate Headquarters located at 175
McClellan Highway, East Boston, Massachusetts 02128 on March , 1997, beginning
at 9:00 a.m. Eastern Standard Time, and at any adjournments or postponements
thereof. This Proxy Statement/Prospectus is accompanied by a form of Proxy for
use at the Special Meeting. At the Special Meeting, Syratech stockholders will
be asked to approve a Merger Agreement, pursuant to which THL I will merge with
and into Syratech, and Lee Affiliates will become the owners of 3,191,850 shares
of Syratech Common Stock, less the number of shares retained by stockholders
(other than shares retained by Leonard Florence and 63,696 shares that were
issued as compensation to and will be retained by three Management
Stockholders), representing a maximum of approximately 81.7% of the issued and
outstanding shares of Syratech Common Stock.
This Proxy Statement/Prospectus also constitutes a prospectus of the
Company with respect to the shares of Syratech Common Stock to be retained by
stockholders pursuant to the Merger, which prospectus is part of a Registration
Statement on Form S-4 filed by the Company with the Commission under the
Securities Act of 1933, as amended (the "Securities Act").
This Proxy Statement/Prospectus and the accompanying form of proxy are
being mailed to stockholders of the Company on or about , 1997.
SPECIAL FACTORS/RISK FACTORS
Holders of Syratech Common Stock should carefully consider the following
factors in connection with their consideration of the Merger. See also
"FORWARD-LOOKING STATEMENTS" elsewhere in this Proxy Statement/Prospectus.
PURPOSES OF THE MERGER, STRUCTURE
The purposes of the Merger are to enable the Lee Affiliates through THL I
to make an investment in the Company, and to enable existing stockholders of the
Company to realize a substantial premium on the shares of Syratech Common Stock
owned by them without paying sales commissions; and at the same time, to afford
to those stockholders who wish to do so the opportunity to retain a limited
participation in the Company's future growth. THL I was formed by the Lee
Affiliates for the purpose of making an investment in Syratech because they felt
that there is potential future value attributable to an investment in a
recapitalized Company.
The transaction has been structured as a merger so that it can be accounted
for as a recapitalization and so that stockholders of the Company will have an
opportunity to vote for or against the transaction prior to any transfer of
control.
TIMING OF THE TRANSACTION
Neither the Board nor the Company's officers had considered a merger or
business combination or any similar transaction prior to July, 1996. Discussions
leading to the proposed Merger grew out of negotiations initiated by the Company
relating to its possible acquisition of the interests of certain funds
affiliated with Thomas H. Lee Company in FFSC, Inc. During April 1996, the
Company purchased its Silvestri line from FFSC, Inc. See "THE
MERGER -- Background of the Merger" and "THE COMPANY -- Recent Acquisitions."
When representatives of the Thomas H. Lee Company proposed a transaction that
would result in a change of control, officers of the Company considered the
proposal to be of sufficient merit to require its submission to the Board for
its consideration. The Board, in turn, concluded that the proposal was worthy of
exploration and appointed a Special Committee composed entirely of independent
directors to examine the proposal; and it authorized the Special Committee to
select and retain an investment banking firm to act as its financial advisor and
legal counsel independent of the Company to act as its legal advisor. The
financial advisor selected by the Special Committee was, in turn, authorized by
the Company to make a limited
18
<PAGE> 26
solicitation of potential participants in alternative transactions -- a
solicitation that in fact yielded no meaningful expressions of interest on the
part of those solicited. The lack of interest by other potential buyers, coupled
with an evaluation of the advantages and disadvantages of the Thomas H. Lee
Company's proposal, led the Board to the conclusion that it would serve the best
interests of the stockholders of the Company to make available to them the
benefit of the one transaction at hand, i.e., the Thomas H. Lee Company's
proposal. See "THE MERGER -- Background of the Merger."
ADVANTAGES OF THE MERGER
The principal advantage of the Merger is that it makes available to the
stockholders of the Company an opportunity to realize a substantial premium
(i.e., $7.41 or 30%, above the average of the closing prices of Syratech Common
Stock for the twenty consecutive trading days ended October 22, 1996, the last
day preceding public announcement of the execution of the Merger Agreement) on
disposition of their shares without payment of sales commissions. In addition,
the Merger permits stockholders to dispose of shares of Syratech Common Stock
without confronting the obstacles of a ready and orderly disposition of Syratech
Common Stock that results from the low historical volume of trading in Syratech
Common Stock. At the same time the Merger, as structured, permits those
stockholders who wish to do so to retain a limited portion of their shares in
the Company and thus to participate in the future prospects of the Company.
Because of the uncertainties affecting the Company's future, including the
Special Factors/Risk Factors referred to herein, it is not possible to quantify
the advantage, if any, to stockholders of the right to retain a limited portion
of their shares in the Company and thus to participate in the future prospects
of the Company.
DISADVANTAGES OF THE MERGER
The Merger will result in significant changes in the affairs and financial
condition of the Company, including the following:
CONTROL BY AFFILIATES OF THE THOMAS H. LEE COMPANY. Upon completion of the
Merger, at least 60% and up to 81.7% of the outstanding shares of Syratech
Common Stock will be held by Lee Affiliates, including the Fund, which will own
at least 50%. Accordingly, the Fund will control the Company and have the power
to elect all of its directors, appoint new management and to approve any action
requiring the approval of the holders of Syratech Common Stock, including
adopting amendments to the Company's Certificate of Incorporation and approving
mergers or sales of substantially all of the Company's assets. The directors
elected by the Fund will have the authority to effect decisions affecting the
capital structure of the Company, including the issuance of additional capital
stock, the implementation of stock repurchase programs and the declaration of
dividends. There can be no assurance that the policies of the Company in effect
prior to the Merger will continue after the Merger.
DELISTING; LOSS OF LIQUIDITY; REPORTING OBLIGATIONS. Following the
consummation of the Merger, the Company anticipates that it will seek to have
Syratech Common Stock, which currently is traded on the NYSE, delisted. Any
delisting of Syratech Common Stock, together with the substantial decrease in
the number of shares of Syratech Common Stock to be held by holders thereof
other than Lee Affiliates and Management Stockholders, is expected to result in
a substantial decrease in the liquidity of Syratech Common Stock, EVEN IF THE
COMPANY CONTINUES TO BE A REPORTING COMPANY UNDER THE EXCHANGE ACT AND CONTINUES
TO FILE THE PERIODIC REPORTS (INCLUDING ANNUAL AND QUARTERLY REPORTS) REQUIRED
TO BE FILED THEREUNDER.
The Company expects to continue to be a reporting company under the
Exchange Act and to continue to file periodic reports (including annual and
quarterly reports) following the Merger. The Company will also continue to
provide proxy statements to its stockholders under the Exchange Act if as a
result of Non-Cash Elections the Company has 300 or more holders of Syratech
Common Stock following consummation of the Merger. If, however, after one year
following the Merger and related offering of Debt Securities (as defined
herein), there are fewer than 300 holders of Debt Securities and fewer than 300
holders of Syratech Common Stock, the Company, subject to any contractual
limitations set forth in the Indenture governing the Debt Securities, may cease
to be a reporting company under the Exchange Act. If the Company were to cease
to be
19
<PAGE> 27
a reporting company under the Exchange Act the information now available to
stockholders in the annual, quarterly and other reports required to be filed by
the Company would not be available to them as a matter of right.
Upon any such delisting, shares of Syratech Common Stock would trade only
in the over-the-counter market. Although prices in respect of trades may be
published by the National Association of Securities Dealers, Inc. on its
electronic bulletin board and "pink sheets," quotes for such shares would not be
as readily available. As a result, it is anticipated that the shares will trade
much less frequently relative to the trading volume of Syratech Common Stock
prior to the Merger, and stockholders may experience difficulty selling such
shares or obtaining prices that reflect the value thereof.
SUBSTANTIAL LEVERAGE; STOCKHOLDERS' DEFICIT; LIQUIDITY. The Company is
expected to enter into a syndicated senior secured revolving credit facility and
issue debt securities (collectively, the "Merger Financings") to finance a
substantial portion of the cash consideration to be paid to the stockholders of
Syratech Common Stock in the Merger, to refinance the outstanding indebtedness
of the Company and to provide for working capital requirements. Upon completion
of the Merger Financings, the Company will have consolidated indebtedness that
will be substantial in relation to its stockholders' equity and substantially
greater than the Company's pre-Merger indebtedness. Upon consummation of the
Merger, it is expected that based upon the Pro Forma Condensed Consolidated
Financial Statements of Syratech Corporation as at September 30, 1996, the
Company will have consolidated indebtedness of approximately $252 million. The
increased indebtedness and higher debt-to-equity ratio of the Company in
comparison to that of the Company on an historical basis may have the effect of
reducing the flexibility of the Company to respond to changing business and
economic conditions, as well as limiting capital expenditures. On a pro forma
basis the Company's ratio of earnings to fixed charges would have been 1.0 to 1
for the year ended December 31, 1995 and 1.6 to 1 for the nine months ended
September 30, 1996. It is expected that the Company will have a stockholders'
deficit account ($3.9 million on a pro forma basis at September 30, 1996)
considering the effects of the Merger because the redemption of certain shares
of Common Stock, as well as approximately one-third of the Merger expenses, will
reduce stockholders' equity. The Company expects that the definitive terms of
the debt instruments in the Merger Financings will include significant operating
and financial restrictions, such as limits on the Company's ability to incur
indebtedness, create liens, sell assets, engage in mergers or consolidations,
make investments or acquisitions and pay dividends. See "-- Difficulty in
Achieving Post-Merger Business Strategy."
In addition, the substantial leverage will have a negative effect on the
Company's net income. For the nine months ended September 30, 1996, the
Company's income from continuing operations on a pro forma basis as adjusted to
give effect to the Merger and the Merger Financings, would have been $7.513
million, compared to the historical amount for such period of $18.719 million.
For the fiscal year ended December 31, 1995, the Company's income from
continuing operations on a pro forma basis as adjusted to give effect to the
Merger and the Merger Financings, would have been $0.149 million, compared to
the historical amount for such period of $13.176 million. Pro forma interest
expense would have been $18.429 million and $19.958 million for the nine months
ended September 30, 1996 and the year ended December 31, 1995, respectively, as
compared to $2.176 million and $1.592 million, respectively, for the same
periods on an historical basis for the Company and Rauch.
After the Merger is consummated, the Company's principal sources of
liquidity are expected to be cash flow from operations and borrowings under the
revolving credit portion of the senior secured credit facility. It is
anticipated that the Company's principal uses of liquidity will be to provide
working capital, meet debt service requirements, finance capital expenditures
and finance the Company's strategic plans. The revolving credit facility will be
available for the issuance of letters of credit. Substantially all of the credit
facilities will be drawn in full upon consummation of the Merger. See "THE
MERGER -- Merger Financings" and "FORWARD LOOKING STATEMENTS."
Based upon the current and anticipated level of operations, the Company
believes that its cash flow from operations, together with amounts available
under the credit facilities, will be adequate to meet its anticipated
requirements for working capital, capital expenditures, interest payments and
scheduled principal payments
20
<PAGE> 28
through the fiscal year ending December 31, 1998. There can be no assurance,
however, that the Company's business will continue to generate cash flow at or
above current levels. If the Company is unable to generate sufficient cash flow
from operations in the future to service its debt, it may be required to
refinance all or a portion of its existing debt or to obtain additional
financing. See also "Less Favorable Financing Terms if Debt Offering is not
Consummated" immediately below. There can be no assurance that any such
refinancing would be possible or that any additional financing could be
obtained. The inability to obtain additional financing could have a material
adverse effect on the Company.
LESS FAVORABLE FINANCING TERMS IF DEBT OFFERING IS NOT CONSUMMATED. If the
Company is unable to consummate the issuance and sale of the Debt Securities,
the Company will rely on other financing (the "Senior Bridge Financing") to
finance a substantial portion of the cash consideration to be paid to the
holders of Syratech Common Stock in the Merger, to refinance the outstanding
indebtedness of the Company and to provide for working capital requirements. The
Company has received commitment letters with respect to the Senior Bridge
Financing. The Senior Bridge Financing will be on terms which differ from, and
are less favorable to the Company than, the terms of the Debt Securities.
Interest under the Senior Bridge Financing would be payable at a floating
rate higher than the interest rate on the Debt Securities, which rate would
increase at the end of each three-month interval from the date of issuance for
as long as the Senior Bridge Financing is outstanding subject to certain caps
and certain cash interest and non-cash interest caps. The Senior Bridge
Financing matures twelve (12) months from the date of funding (the "Maturity
Date"), and if not repaid in full by the Maturity Date it may be satisfied at
that time (thereafter, the "Rollover Date") through the issuance and delivery of
Senior Rollover Notes with a maturity of nine (9) years.
DILUTION IN EQUITY PARTICIPATION OF EXISTING SYRATECH STOCKHOLDERS. Upon
completion of the Merger, the existing stockholders of the Company (other than
Management Stockholders) will own a maximum of 781,250 shares of Syratech Common
Stock in the aggregate, or 20% of the outstanding shares, and affiliates of
Thomas H. Lee Company will own a maximum of 3,191,850 shares of Syratech Common
Stock in the aggregate, or 81.7% of the outstanding shares. In certain
circumstances, providers of the debt facilities may hold Warrants, which will
entitle the holders to purchase after the Effective Time up to 249,335 shares of
Syratech Common Stock at an exercise price of $0.01 per share, subject to
certain anti-dilution adjustments. The Warrants are exercisable at a nominal
price for up to 9 years. If the Warrants were exercised in full by the payment
of the aggregate exercise price, the present holders of Syratech Common Stock
(other than Management Stockholders) would own, in the aggregate, a maximum of
approximately 18.8% of the outstanding shares (as compared to 20% of the
outstanding shares without giving effect to the exercise of the Warrants). In
addition, such holders will experience a similar dilution in the proportionate
voting power of such shares.
Following the Merger, the Company also intends to grant to members of
management, options to purchase up to 273,438 shares of Syratech Common Stock,
the exercise of which would further dilute the holdings of such stockholders and
also dilute the holdings of Lee Affiliates.
EFFECT ON AFFILIATE. Leonard Florence, who as of December 31, 1996 owned
32.5% of the outstanding Syratech Common Stock, may be deemed to be an affiliate
of the Company. The Merger Agreement requires him to retain 650,704 shares of
Syratech Common Stock, which will constitute approximately 16.7% of the
outstanding Syratech Common Stock following the Merger. The shares to be
retained by Mr. Florence are expected to then have a negative book value of
($0.99) each or an aggregate of ($644,197).
It has been agreed that upon completion of the Merger, the existing
employment agreement with Mr. Florence will be modified in ways that may be
deemed beneficial to Mr. Florence. See "THE MERGER - Interests of Certain
Persons in the Merger."
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Because certain of the Risk Factors referred to herein (e.,g., Competition,
Dependence upon Key Personnel, Hazards of the Retail Industry, Seasonality,
Dependence upon Foreign Sources of Supply, Price and Availability of Raw
Materials, Environmental Regulation, Importance of Trademarks, Copyrights and
Patents and Labor Relations), which are inherent in the business of the Company
and apply whether or not the Merger is completed, are not susceptible of
numerical evaluation, and because the effect of other factors applicable only if
the Merger is completed are largely dependent upon future events (some of which
may be beyond the Company's control), it is not practicable to quantify the
disadvantages of the Merger.
FEDERAL INCOME TAX CONSEQUENCES
Characterization of the Merger for U.S. Federal Income Tax Purposes. For
U.S. federal income tax purposes, THL I will be disregarded as a transitory
entity, and the Merger of THL I with and into the Company will be treated as a
sale of a portion of a tendering stockholder's Syratech Common Stock to
affiliates of Thomas H. Lee Company and as a redemption of a portion of the
stockholder's Syratech Common Stock by the Company.
Treatment of Stockholders. To the extent that a stockholder is considered
to have sold Syratech Common Stock to affiliates of the Thomas H. Lee Company,
such stockholder will recognize either capital gain or loss (assuming the
Syratech Common Stock is held by such stockholder as a capital asset) equal to
the difference between the amount realized on the stockholder's deemed sale of
Syratech Common Stock to affiliates of the Thomas H. Lee Company (i.e., the cash
proceeds properly allocated to such sale) and the stockholder's adjusted tax
basis in such Syratech Common Stock.
To the extent such redemption is treated as a sale or exchange under
Section 302 of the Internal Revenue Code of 1986, as amended ("the Code") with
respect to such stockholder a stockholder also will recognize either capital
gain or loss equal to the difference between the cash proceeds allocable to the
redemption of such stockholder's Syratech Common Stock by the Company and the
stockholder's adjusted tax basis in such Syratech Common Stock. In each case,
such gain or loss generally will be long-term capital gain or loss if the
Syratech Common Stock is held as a capital asset by the stockholder for more
than one year. If such redemption of Syratech Common Stock is not treated as a
sale or exchange, it will be treated as a dividend to the extent of the
Company's current and accumulated earnings and profits. Any excess will be
applied first against the adjusted basis of the shares treated as redeemed, with
any remainder treated as gain from the sale or exchange of such Syratech Common
Stock.
Under Section 302 of the Code, a redemption of Syratech Common Stock
pursuant to the Merger will, as a general rule, be treated as a sale or exchange
if such redemption (a) is "substantially disproportionate" with respect to the
stockholder, or (b) results in a "complete redemption" of the stockholder's
interest in the Company.
In determining whether either of those Section 302 tests is satisfied,
stockholders must take into account not only the Syratech Common Stock that they
actually own, but also any Syratech Common Stock they are deemed to own under
the constructive ownership rules set forth in Section 318 of the Code. Pursuant
to these constructive ownership rules, a stockholder is deemed to constructively
own any Syratech Common Stock that is owned (actually and in some cases
constructively) by certain related individuals or entities and any Syratech
Common Stock that the stockholder has the right to acquire by exercise of an
option or by conversion or exchange of a security.
The redemption of a stockholder's Syratech Common Stock will be
"substantially disproportionate" with respect to such stockholder if the
percentage of Syratech Common Stock actually and constructively owned by such
stockholder immediately following the Merger is less than 80% of the percentage
of Syratech Common Stock actually and constructively owned by such stockholder
immediately prior to the Merger.
The redemption of a stockholder's Syratech Common Stock will result in a
"complete redemption" of a stockholder's interest in the Company if either (a)
all the Syratech Common Stock actually and constructively owned by the
stockholder is redeemed pursuant to the Merger or (b) all the Syratech Common
Stock actually owned by the stockholder is redeemed pursuant to the Merger and
the stockholder is eligible to waive,
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and does effectively waive in accordance with Section 302(c) of the Code,
attribution of all Syratech Common Stock which otherwise would be considered to
be constructively owned by such stockholder. Stockholders in this position
should consult their tax advisor as to the availability of such a waiver.
Based on the rules described above, a stockholder who does not make a
Non-Cash Election and who is not treated as owning any Syratech Common Stock
following the Merger, either directly or by operation of the constructive
ownership rules described above, will satisfy the "complete redemption" test,
and accordingly will recognize a capital gain or loss with respect to the entire
amount of cash received in exchange for his shares. In addition, based on the
limitation on the amount of Syratech Common Stock that shareholders are
permitted to retain under the Non-Cash Election, shareholders making the
Non-Cash Election (as well as shareholders who receive all cash but to whom
ownership of shares of Syratech Common Stock will be attributed from persons who
do make the Non-Cash Election) will satisfy the "substantially disproportionate"
test, and accordingly will also recognize a capital gain or loss with respect to
the entire amount of cash received in exchange for their shares.
THOUGH THE FOREGOING ARE THE MATERIAL U.S. FEDERAL INCOME TAX
CONSIDERATIONS GENERALLY APPLICABLE TO THE MERGER, THE DISCUSSION DOES NOT
ADDRESS EVERY FEDERAL INCOME TAX CONCERN THAT MAY BE APPLICABLE TO A PARTICULAR
STOCKHOLDER. EACH STOCKHOLDER IS URGED TO CONSULT SUCH STOCKHOLDER'S OWN TAX
ADVISOR TO DETERMINE THE TAX CONSEQUENCES TO SUCH STOCKHOLDER, IN THE LIGHT OF
SUCH STOCKHOLDER'S PARTICULAR CIRCUMSTANCES, OF THE DISPOSITION OF SYRATECH
COMMON STOCK PURSUANT TO THE MERGER.
FAIRNESS OF THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS
References to the "Merger Agreement" in this section and in "-- Opinion of
Financial Advisor" below refer to the Merger Agreement as of October 23, 1996.
Neither the Special Committee nor Merrill Lynch reviewed the Merger Agreement as
amended.
The Company and its Board, Leonard Florence and THL I all reasonably
believe that the Merger is fair to unaffiliated stockholders because (i) the
terms of the Merger are the products of arms-length negotiations between
representatives of THL I and a Special Committee and its financial and legal
advisors, (ii) the consideration to be paid to stockholders for their Syratech
Common Stock (a) represents a premium over current and historical market prices
for such shares, (b) is approximately 168% of the net book value per share of
Syratech Common Stock at September 30, 1996, (c) is approximately seventeen (17)
times projected 1996 earnings per share of $1.87 (exclusive of earnings
attributable to the disposition of certain assets of Farberware Inc. that are
expected to be non-recurring, but adjusted to give effect to assumed 1996
earnings attributable to Farberware licensing royalties in an amount equal to
the Company's projected 1997 Farberware licensing royalties, in each case after
giving effect to income taxes), and (d) is approximately 188% of the $17 per
share price at which affiliates of Katy Industries, Inc. (collectively the
Company's largest stockholder) sold their block of 3,064,751 shares of Syratech
Common Stock to the Company in December, 1995, (iii) Syratech Common Stock
lacked market support and there was only limited trading of such shares on the
New York Stock Exchange, (iv) the forecasted results of the Company's operations
through 2001 and (v) the opinion of the financial advisor to the Special
Committee that the cash consideration to be received by unaffiliated
stockholders in the Merger is fair from a financial point of view. The Board did
not assign weights to each of the above factors.
The Merger was not structured so that approval of at least a majority of
unaffiliated stockholders is required.
A majority of directors who are not employees of the Company has not
retained an unaffiliated representative to act solely on behalf of unaffiliated
security holders for the purpose of negotiating the terms of the Merger and/or
preparing a report concerning the fairness of the transaction, but a Special
Committee (composed entirely of non-employee directors) selected an independent
financial and legal advisor to assist it in negotiating the terms of the Merger;
and the financial advisor selected by the Special Committee has
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rendered an opinion concerning the fairness of the cash consideration to be
received by unaffiliated stockholders in the Merger.
The Merger has been approved by a majority of the directors of the Company
who are not employees of the Company.
No firm offer of which the Company is aware has been made by any
unaffiliated person (other than the Merger discussed herein) during the eighteen
months preceding the date of the Merger Agreement for (A) a merger or
consolidation, (B) a sale or other transfer of the Company's assets or (C) the
purchase of securities of the Company that would enable the purchaser to
exercise control of the Company.
As stated above, the Board has determined the Merger to be fair to and in
the best interests of Syratech and its stockholders. ACCORDINGLY, THE BOARD HAS
BY THE UNANIMOUS VOTE OF THOSE DIRECTORS PRESENT AND VOTING APPROVED THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGER; AND
THE BOARD RECOMMENDS THAT SYRATECH STOCKHOLDERS VOTE "FOR" APPROVAL AND ADOPTION
OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE
MERGER.
THE RECOMMENDATION BY THE BOARD THAT THE COMPANY'S STOCKHOLDERS APPROVE AND
ADOPT THE MERGER AGREEMENT IS NOT, AND SHOULD NOT BE CONSIDERED TO BE, A
RECOMMENDATION THAT STOCKHOLDERS ELECT TO RETAIN OR, ALTERNATIVELY, THAT
STOCKHOLDERS DO NOT ELECT TO RETAIN SHARES OF SYRATECH COMMON STOCK HELD BY THEM
IN THE MERGER.
The decision of the Board to approve, and recommend adoption and approval
by Syratech stockholders of, the Merger Agreement and the transactions
contemplated thereby, including the Merger followed extensive negotiations
between a Special Committee of the Board (composed entirely of independent
Directors) and representatives of THL I and the Lee Group regarding the terms of
the Merger, presentations to the Board by the Special Committee and its counsel,
a presentation to the Board by Merrill Lynch and disclosures by Directors who
are also Management Stockholders of the conflicts of interest perceived by them.
See "THE MERGER -- Background of the Merger." The Board's deliberations included
a detailed review of Syratech's business, results of operations and prospects,
including the likelihood of effecting an alternative transaction and the ranges
of values to Syratech stockholders that might be achievable in an alternative
transaction and the financial and other terms of the proposed Merger.
In connection with its approval and recommendation, the Board considered
the following factors (which it believed to be all of the relevant material
factors):
(a) the terms of the proposed Merger including the price to be paid to
holders of Syratech Common Stock (and the premium represented thereby), the
conditions to the Merger, the circumstances under which the Merger
Agreement could be terminated and the termination fees and expense
reimbursements payable in connection therewith (all of which were products
of arm's-length negotiations between representatives of THL I and the
Special Committee and its financial and legal advisors);
(b) the opportunity under the Merger Agreement for Syratech
stockholders, subject to certain limitations, to elect to continue to
participate in future results through the retention of some equity in
Syratech while receiving a premium for the remainder;
(c) the presentation of Merrill Lynch which included valuation
analyses of Syratech indicating that Syratech Common Stock was relatively
undervalued in market trading, that the proposed Merger was toward the top
of the range that a leveraged buyout purchaser (such as the Lee Group)
might be able to pay to acquire the Company and that there had been no
significant indication of interest from any of the potential strategic
buyers it had been authorized to contact (see "-- Opinion of Financial
Advisor");
(d) the opinion of Merrill Lynch that the proposed cash consideration
to be received by the holders of shares of Syratech Common Stock (other
than shares held by Mr. Florence, shares to be canceled pursuant to the
Merger Agreement and dissenting shares) pursuant to the Merger is fair to
such stockholders from a financial point of view (such opinion of Merrill
Lynch was given subject to certain limitations, qualifications and
assumptions specified therein including the fact that the opinion of
Merrill Lynch was limited to the cash consideration only and did not
consider the fairness of the Non-Cash Election Option; see "-- Opinion of
Financial Advisor");
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(e) the ability to enter into an agreement for an alternative
transaction under certain circumstances under the Merger Agreement;
(f) the risks to stockholders associated with Syratech Common Stock
including, without limitation, the fact that Syratech had recently
completed acquisitions that could affect future results in a manner that
could not be assured; the relative lack of liquidity for holders of
Syratech Common Stock, in light of historically low trading volume and the
related lack of institutional following; and the dependence of Syratech on
the continued employment and efforts of Mr. Florence, as Syratech's Chief
Executive Officer, and other executive officers, and the consequences that
could result if Mr. Florence and such other executive officers were
unavailable for such positions; and
(g) the tax treatment of the transaction to Syratech and Syratech's
stockholders.
In reaching the determination to approve and adopt, and recommend approval
and adoption of, the Merger Agreement and the Merger, the Board did not assign
any relative or specific weights to the foregoing factors.
Although Leonard Florence abstained from voting on the proposal to approve
the Merger Agreement and related transactions and recommend that stockholders
vote for approval and the transactions contemplated thereby, including the
Merger, he agrees with the Board's conclusion that the Merger is fair and in the
best interests of Syratech and its stockholders based upon his personal
consideration of the material factors considered by the Board as outlined above.
THL I believes that the Merger is fair and in the best interests of
Syratech and its stockholders because the terms of the Merger Agreement were the
products of arm's-length negotiations between its representatives and the
Special Committee and its financial and legal advisors.
THE BOARD RECOMMENDS THAT SYRATECH STOCKHOLDERS VOTE FOR APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT AND THE TRANSACTION CONTEMPLATED THEREBY,
INCLUDING THE MERGER.
Five of the six members of the Board who voted to approve the Merger
Agreement and the transactions contemplated thereby, including the Merger, were
non-employees of the Company and its subsidiaries. The sixth voting member is an
officer of a subsidiary of the Company.
OPINION OF FINANCIAL ADVISOR
Merrill Lynch was retained to act as the financial advisor to the Special
Committee (composed entirely of independent directors) in the Merger. On October
22, 1996, Merrill Lynch rendered its oral opinion to the Company's Board of
Directors which was subsequently confirmed in a written opinion (the "Merrill
Lynch Opinion") dated October 23, 1996, a copy of which is included herein as
Annex II that, as of such dates and based upon the assumptions made, matters
considered and limits of review in connection with such opinions, the cash
consideration to be received by the holders of shares of Common Stock of the
Company (other than shares held by Mr. Leonard Florence, shares to be canceled
pursuant to the Merger Agreement and dissenting shares) in the Merger was fair
to such holders from a financial point of view. The Merrill Lynch Opinion was
limited to the cash consideration only and was silent as to the non-cash portion
that stockholders may elect; and no determination of fairness was made by
Merrill Lynch as to the Non-Cash Election option. The Merrill Lynch Opinion does
not constitute a recommendation to any stockholder of the Company as to how such
stockholder should vote at the Special Meeting or any other meeting of the
Company's stockholders called to consider the Merger, and it does not constitute
a recommendation that stockholders elect to retain, or alternatively, that
stockholders do not elect to retain, shares of Syratech Common Stock in the
Merger. The summary of the Merrill Lynch Opinion is qualified in its entirety by
reference to the full text of such opinion, a copy of which is attached as Annex
II to this Proxy Statement/Prospectus. See "THE MERGER -- Opinion of Financial
Advisor."
No limitations were imposed by the Company's Board of Directors upon
Merrill Lynch with respect to the investigations made or the procedures followed
by it in rendering its opinion except that Merrill Lynch was not authorized to,
and did not, solicit any indications of interest from any potential third party,
either financial or strategic, to acquire all or any part of the Company other
than a group of potential strategic buyers selected by the Company in
consultation with Merrill Lynch, as described under "THE MERGER -- Background of
the Merger."
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In rendering its opinion, Merrill Lynch (i) reviewed Syratech's Annual
Reports, Forms 10-K and related financial information for the five fiscal years
ended December 31, 1995 and Syratech's Forms 10-K and the related unaudited
financial information for the quarterly periods ending March 31, 1996, and June
30, 1996; (ii) reviewed a draft of Syratech's Form S-3 dated September 12, 1996;
(iii) reviewed certain information, including the Management Forecasts relating
to the business, earnings, cash flow, assets and prospects of Syratech,
furnished to Merrill Lynch by Syratech; (iv) conducted discussions with members
of senior management of Syratech concerning its businesses and prospects; (v)
reviewed the historical market prices and trading activity for Syratech's Common
Stock and compared them with that of certain publicly traded companies which
Merrill Lynch deemed to be reasonably similar to Syratech; (vi) compared the
results of operations of Syratech with that of certain publicly traded companies
which Merrill Lynch deemed to be reasonably similar to Syratech; (vii) compared
the proposed financial terms of the transactions contemplated by the Agreement
with the financial terms of certain other mergers and acquisitions which Merrill
Lynch deemed to be relevant; (viii) reviewed the Merger Agreement, including the
financing commitment letters attached thereto; and (ix) reviewed such other
financial studies and analyses and performed such other investigations and took
into account such other matters as Merrill Lynch deemed necessary, including
Merrill Lynch's assessment of general economic, market and monetary conditions.
In rendering its opinion, Merrill Lynch assumed and relied upon the
accuracy and completeness of the financial and other information used by it and,
with the Company's approval, did not assume any responsibility for independent
verification of such information. Merrill Lynch further relied upon the
assurances of Management that they were not aware of any facts that would make
such information inaccurate or misleading. With respect to the Management
Forecasts, Merrill Lynch assumed, with the Company's approval, that (i) such
forecasts and projections were reasonably prepared on bases reflecting the best
currently available estimates and judgments of Management as to the future
financial performance of the Company, and (ii) the Company would perform in
accordance with such projections. Merrill Lynch did not conduct a physical
inspection of the properties and facilities of the Company and did not undertake
or obtain any evaluations or appraisals of the assets or liabilities of the
Company. The Merrill Lynch Opinion was necessarily based upon market, economic
and other conditions as they existed and could be evaluated as of the date of
the opinion.
The following is a summary of certain financial and comparative analyses
performed by Merrill Lynch in arriving at its oral opinion delivered to the
Company's Board of Directors on October 22, 1996 and its written opinion
delivered to the Company's Board of Directors on October 23, 1996 as to the
fairness of the proposed cash consideration to be received by the shareholders
of the Company (other than with respect to shares held by Mr. Leonard Florence,
shares to be canceled pursuant to the Merger Agreement and dissenting shares)
pursuant to the Merger Agreement, from a financial point of view. Merrill Lynch
was not asked to value the stock of the surviving entity and did not do so. In
addition, the 1996 and 1997 estimated pro forma EPS (as defined below) and
EBITDA (which, for purposes of the analyses set forth below (with respect to
EBITDA for companies other than the Company), is defined as income before income
taxes, plus depreciation and amortization expense and net interest expense,
adjusted for non-recurring or extraordinary items) numbers used by Merrill Lynch
in its analyses were derived from the Management Forecasts and adjusted by
Merrill Lynch to exclude extraordinary and nonrecurring items for 1996 and 1997
and to include the full year 1996 effect of acquisitions.
Historical Stock Trading Analysis. Merrill Lynch analyzed the cash
consideration to be received by holders of the Company's Common Stock pursuant
to the Merger Agreement in relation to the historical trading levels of the
Company's Common Stock in light of the fact that Syratech was not directly
comparable to any other company and had had a limited opportunity to tell its
story, that Syratech had limited research coverage and a limited number of
shares held by non-affiliates, reducing the liquidity of Syratech's Common
Stock, and that, in Merrill Lynch's view, its common stock was undervalued. For
the 52 weeks prior to the offer, the Company's Common Stock traded at a high of
$27.625 and a low of $19.75. In addition, Merrill Lynch analyzed the cash
consideration to be received by holders of the Company's Common Stock pursuant
to the Merger Agreement in relation to the market price of the Company's Common
Stock on October 18, 1996, October 14, 1996 and for the 20 consecutive trading
days ended September 24, 1996, as well as from the
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period beginning with the Company's initial public offering in December 1992,
which was at a price of $17 per share. The highest price achieved following the
initial public offering and prior to receipt of the Lee Group's proposal was
$27.625 on April 30, 1996. Such analysis indicated that the cash price per share
of the Company's Common Stock to be paid pursuant to the Merger Agreement
represented a premium of (i) 21.9% based on the October 18, 1996 closing price
of $26.25 per share, (ii) 35.4% based on the October 14, 1996 closing price of
$23.625 per share and (iii) 36.7% based on the average of the closing prices for
the 20 consecutive trading days ended September 24, 1996 of $23.41 per share.
Publicly Traded Comparable Company Analysis. Using publicly available
information, Merrill Lynch compared certain financial and operating information
and ratios (described below) for the Company with corresponding financial and
operating information and ratios for a group of publicly traded companies that
Merrill Lynch deemed to be in lines of business reasonably similar to the
Company's business lines (understanding that no public company is directly
comparable to the Company). The public companies included in the comparable
company analysis were: American Greetings Corporation, CSS Industries Inc.,
Department 56, Inc., Ekco Group, Inc., General Housewares Corp., Libbey Inc.,
Lifetime Hoan Corporation, Newell Co., Oneida Ltd., Rubbermaid Incorporated,
Stanhome Inc., and Tupperware Corporation (collectively, the "Comparables").
Merrill Lynch compared ratios of the Company's (A) market price per share as a
multiple of (i) 1996 estimated pro forma earnings per share ("EPS") (the "P/E
Ratio") to the 1996 P/E Ratios of the Comparables which ratios ranged from
approximately 9.9x to 22.4x compared to 14.0x for the Company and the Lee
Group's offer price of 17.1x and (ii) 1997 estimated pro forma EPS to the 1997
P/E Ratios for the Comparables which ranged from approximately 8.0x to 18.3x
compared to 9.2x for the Company and the Lee Group's offer price of 11.3x; (B)
market capitalization as a multiple of estimated 1996 pro forma EBITDA to such
ratio for the Comparables which ratios ranged from approximately 3.9x to 10.3 x
compared to 8.1x for the Company and the Lee Group's offer price of 9.9x. Based
on the Comparables deemed to be most comparable to the Company, Merrill Lynch
applied a range of 10.5x to 12x to the 1997 pro forma estimated EPS of $2.84 for
the Company. Utilizing this methodology, the implied value of the Company's
Common Stock was estimated at between approximately $30.00 and $34.00 per share.
P/E to Growth Rate Analysis. Using publicly available information, Merrill
Lynch compared the 1996 estimated P/E Ratios to the five year estimated future
EPS growth rate for each of the Comparables. Based on the Comparables deemed to
be most comparable to the Company, Merrill Lynch applied a range of 0.90x to
1.10x to the estimated future pro forma EPS growth rate of 19.4% for the Company
and the 1996 estimated pro forma EPS of $1.87 for the Company. Utilizing this
methodology, the implied value of the Company's Common Stock was estimated at
between approximately $33.00 and $40.00 per share.
Comparable Acquisition Transaction Analysis. Merrill Lynch reviewed
certain publicly available information regarding 12 selected business
combinations since May 1991 (the "Acquisition Comparables"). The Acquisition
Comparables and the dates the transactions were announced were as follows: the
acquisition of Holson Burnes Group Inc. by Newell Co. (December 1995), the
acquisition of Rauch Industries Inc. by Syratech (December 1995), the
acquisition of Bonny Products Inc. from American Brands Inc. by Frederick Cooper
PLC (November 1995), the acquisition of Syracuse China Corp. from The
Pfaltzgraff Co. by Libbey Inc. (May 1995), the acquisition of Olfa Products
Corp. from Walter Absil Co. Ltd. by General Housewares Corp. (October 1994), the
acquisition of Stylemaster Inc. by Glacier Holdings Inc. (February 1993), the
acquisition of OXO International LP by General Housewares Corp. (October 1992),
the acquisition of Intercraft Industries Corp. by Newell Co. (September 1992),
the acquisition of Mennen Co. Paper Products Business from Colgate-Palmolive Co.
by James River Corp. of Virginia (July 1992), the acquisition of Frem Corp. by
Ekco Group Inc. (November 1992), the acquisition of Spearhead Industries Inc. by
Paper Magic Group (July 1992) and the acquisition of Dansk International Designs
Ltd. by Brown-Forman Corp. (May 1991). Merrill Lynch compared multiples of
transaction value (as defined below) to (i) trailing 12 month EBITDA for the
Acquisition Comparables which multiples ranged from approximately 6.6x to 11.1x
as compared to the Lee Group's offer price of 9.9x (based on the 1996 estimated
pro forma EBITDA for the Company) and (ii) trailing 12 month sales for the
Acquisition Comparables which multiples ranged from approximately 0.40x to 1.71x
as compared to the Lee Group's offer price of 1.12x (based on the 1996 pro forma
sales estimate for the Company). Based on the Acquisition Comparables deemed to
be the most
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comparable to the Company, Merrill Lynch applied a range of 9x to 11x to the
1996 pro forma estimated EBITDA for the Company of $32.0 million. Utilizing this
methodology, the implied value of the Company's Common Stock was estimated at
between approximately $29.00 and $36.00 per share.
In undertaking the above-mentioned comparable company and comparable
acquisitions analyses, Merrill Lynch compared the (A) "offer value" (defined to
be the offer price per share multiplied by the sum of the number of shares
outstanding and the number of exercisable options outstanding (net of option
proceeds)) of each such transactions a multiple of, among other things, then
publicly available 1996 and 1997 EPS estimates and (B) "transaction value"
(defined to be the offer value plus the liquidation value of preferred stock
plus short-term debt plus long-term debt plus minority interests minus cash and
cash equivalents (net of option proceeds)) of each such transaction as a
multiple of, among other things, then publicly available 1996 and 1997 EBITDA
and sales estimates.
Discounted Cash Flow Analysis. Merrill Lynch performed a discounted cash
flow analysis ("DCF") of the Company using projections for the years 1997 (on a
pro forma basis) through year end 2001. The DCF as of December 31, 1996 was
calculated assuming discount rates ranging from 10% to 13%, and was comprised of
the sum of the present value of (i) the projected unlevered free cash flows for
the years 1997 (on a pro forma basis) through year end 2001, (ii) the year end
2001 terminal values based upon a range of multiples from approximately 6x to 8x
projected year 2001 EBITDA. The various ranges for discount rates and terminal
value multiples were chosen to reflect theoretical analyses of cost of capital
and range of trading values for comparable companies. Using this methodology,
the implied values of the Company's Common Stock ranged from $28.00 to $39.00
per share.
Leveraged Buy-Out Analysis. Merrill Lynch prepared an analysis based on
projections provided to it by the Company's management on October 1, 1996 and on
market and economic conditions at that time as to the consideration a leveraged
buyout purchaser (such as the Lee Group) might be able to pay to acquire the
Company. The maximum price was determined based on certain criteria required by
the high yield debt market and the bank financing market for acquisition
financing for the Company and also based upon estimated return on investment
requirements for such purchasers. Among the criteria utilized by Merrill Lynch
were the following: (i) minimum 1996 estimated pro forma EBITDA to total
interest coverage of 1.6x; (ii) minimum size of a public offering of senior
subordinated notes of $100 million; (iii) working capital revolving credit
availability limited to 75% of accounts receivable and 50% of inventory; (iv)
bank term loan maturity within 7 years; (v) minimum equity investment of 20% of
total capital structure; and (vi) minimum internal rate of return on equity of
20% invested during a 5 year period. Based on the above criteria, Merrill Lynch
determined that the range that such a prospective purchaser might be able to pay
was $30.00 to $33.00 per share.
Possible Acquiror Pro Forma Analysis. For those companies that Merrill
Lynch had been authorized to contact, Merrill Lynch prepared an analysis to
determine the maximum price that such potential strategic acquirors might be
willing to pay for the Company without sustaining any dilution in 1997 estimated
EPS (based upon publicly available EPS estimates). The purpose of the analysis
was not to determine how much any particular company would pay, or to express
any judgement as to whether any such entity would be interested in pursuing an
acquisition, but rather to attempt to determine what hypothetically such
strategic buyers might be able to afford to pay for the Company, and in what
form of consideration, should it have been determined that these companies had
an interest in acquiring the Company. For each company, two scenarios were
analyzed: (1) an all cash acquisition of the Company accounted for as a purchase
transaction and (2) an all stock transaction with the Company accounted for as a
pooling-of-interests transaction. For each company, Merrill Lynch estimated the
average cost of financing a cash acquisition and the then-current market prices
of the acquiror's stock in the case of a stock transaction. For the group of
strategic acquirors, the range at which there was no 1997 pre-share earnings
accretion or dilution was $28.00 to $50.00 per share. As noted in "THE
MERGER -- Background of the Merger", none of the potential strategic acquirors
contacted by Merrill Lynch had expressed interest in proceeding with an
acquisition or conducting the requisite due diligence.
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For a statement of the qualifications of Merrill Lynch, the terms upon
which it was engaged and the disclosure of certain relationships between Merrill
Lynch, on the one hand, and Thomas H. Lee and/or Lee Affiliates, on the other,
see "SPECIAL FACTORS/RISK FACTORS -- Opinion of Financial Advisor."
The summary set forth above does not purport to be a complete description
of the analyses performed by Merrill Lynch. Arriving at a fairness opinion is a
complex process not necessarily amenable to partial or summary description.
Merrill Lynch believes that its analysis must considered as a whole and that
selecting portions of its analyses and of the factors considered by it, without
considering all such factors and analyses, could create a misleading view of the
process underlying its analyses set forth in the Merrill Lynch Opinion. The
matters considered by Merrill Lynch in its analyses are based on numerous
macroeconomic, operating and financial assumptions with respect to industry
performance, general business and economic conditions and other matters, many of
which are beyond the Company's control. Any estimates incorporated in the
analyses performed by Merrill Lynch are not necessarily indicative of actual
past or future results or values, which may be significantly more or less
favorable than such estimates. Estimated values do not purport to be appraisals
and do not necessarily reflect the prices at which business or companies may be
sold in the future, and such estimates are inherently subject to uncertainty. No
public company utilized as a comparison is identical to the Company, and none of
the Acquisition Comparables or other business combinations utilized as a
comparison is identical to the proposed Merger. Accordingly, an analysis of
publicly traded comparable companies and comparable business combinations is not
mathematical; rather it involves complex considerations and judgments concerning
differences in financial and operating characteristics of the comparable
companies and other factors that could affect the public trading value of the
comparable companies or company to which it is being compared.
Pursuant to a letter agreement dated September 26, 1996 (the "Engagement
Letter"), the Company engaged Merrill Lynch to provide investment banking advice
and services to the Special Committee in connection with its review and analysis
of the Lee Group's proposal. The Company agreed to pay Merrill Lynch a fee of
$100,000 (the "Advisory Fee") as a retainer upon execution of the Engagement
Letter. In addition, if the Merger is consummated, the Company has agreed to pay
Merrill Lynch additional compensation, based on a percentage of the total
consideration for Syratech Common Stock, less the amount of the Advisory Fee. If
the Merger is consummated, this additional compensation will be equal to 0.85%
of the aggregate consideration to be paid or delivered to stockholders (computed
as if all outstanding shares (on a fully diluted basis) were being acquired in
the transaction), plus the amount of all indebtedness of the Company assumed,
acquired, retired or defeased in the Merger (adjusted for average annual
seasonal working capital borrowings), which would total approximately $2.7
million, toward which the Advisory Fee would be credited. Pursuant to the
Engagement Letter, the Company has agreed to reimburse Merrill Lynch for
reasonable expenses incurred by Merrill Lynch, subject to certain limitations,
including fees and disbursements of counsel, and to indemnify Merrill Lynch
against certain liabilities in connection with its engagement, including certain
liabilities under the federal securities laws.
In addition, an affiliate of Merrill Lynch acts as the general partner for
the publicly registered investment funds (but not THL I) in which Thomas H. Lee
is an individual general partner and an affiliate of Thomas H. Lee acts as the
investment advisor to the funds. Merrill Lynch has also provided in the past
financial advisory and financing services to Thomas H. Lee and to certain
companies affiliated with Thomas H. Lee and such funds. Merrill Lynch identified
such relationships to the Company and informed the Company that it did not
believe that such relationships would create a conflict of interest for Merrill
Lynch in connection with it rendering the Merrill Lynch Opinion. In the ordinary
course of business, Merrill Lynch has traded the equity securities of the
Company for its own account and the accounts of its customers and, accordingly,
may at any time hold a long or short position in such securities.
See "THE MERGER -- Background of the Merger" and "-- Opinion of Financial
Advisor."
NON-CASH ELECTION AND PRORATION INTO CASH
As described herein, a stockholder (other than a Management Stockholder)
may make a Non-Cash Election in respect of up to 35% of such stockholder's
holdings and thereby elect to retain shares of Syratech
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Common Stock in the Merger. However, if the aggregate number of Electing Shares
of all stockholders (other than Management Stockholders) exceeds 781,250, such
electing stockholder may receive cash for a portion of such holder's Syratech
Common Stock as to which such holder had made a Non-Cash Election as a result of
the proration procedures described herein under "THE MERGER -- Non-Cash
Election." See "THE MERGER -- Federal Income Tax Consequences -- Stockholders
Receiving Cash" for a discussion of the tax consequences of receiving cash.
FORECASTS; LIMITS OF RELIABILITY
The forecasts set forth under the "The Merger -- Certain Forecasts," while
presented with numerical specificity, are based upon a number of estimates and
assumptions which, though considered reasonable by the Company, are inherently
subject to significant business, economic and competitive uncertainties and
contingencies, including those set forth herein under "SPECIAL FACTORS/RISK
FACTORS," many of which are beyond the control of the Company, and upon
assumptions with respect to future business strategies and decisions which are
subject to change. The forecasts were not prepared with a view toward compliance
with published guidelines of the Commission, the American Institute of Certified
Public Accountants, any regulatory or professional agency or body or generally
accepted accounting principles. Moreover, Deloitte & Touche LLP, the Company's
independent public accountants, has not compiled or examined the forecasts and
accordingly, does not express any opinion or any other form of assurance with
respect thereto, assume no responsibility for and disclaim any association with
the forecasts. While the Company believes the forecasts are based upon
reasonable assumptions and estimates, actual results will vary and such
variations may be material. Forecasts are necessarily speculative in nature, and
it is usually the case that one or more of the assumptions underlying the
forecasts will not materialize. Furthermore, the Company does not intend to
update or revise the forecasts to reflect events or circumstances after the date
thereof or to reflect the occurrence of unanticipated events. Stockholders are
cautioned not to place undue reliance on any of the forecasts included herein.
COMPETITION
The tabletop, giftware and seasonal products markets are highly
competitive. Competition is affected not only by the large number of domestic
manufacturers, but also by the large volume of foreign imports. Several of the
Company's competitors are larger and may have greater financial resources than
the Company. The Company's products may compete indirectly with a broad range of
products not offered by the Company. A number of factors affect competition in
the sale of tabletop, giftware, seasonal and other products of the types
manufactured, imported and sold by the Company. Among these are brand
identification, style, design, packaging, price, quality, promotion and the
level of service provided to customers. The importance of these competitive
factors varies from customer to customer and from product to product. See "THE
COMPANY -- Business -- Competition."
DIFFICULTY IN ACHIEVING POST-MERGER BUSINESS STRATEGY
The post-merger business strategy that has been developed by the Company is
based on the Company's operations and the operations of other companies in the
tabletop and giftware industries. See "THE COMPANY -- General." After the Merger
and after gaining experience with the Company's operations, the Company's
management may decide to alter or discontinue certain parts of the post-Merger
business strategy described herein and may adopt alternative or additional
strategies. In addition, there can be no assurance that such a strategy, if
implemented, will be successful or will improve operating results. Moreover,
there can be no assurance that the successful implementation of such a strategy
will result in improved operating results. Further, other conditions may exist,
such as increased competition, or an economic downturn, which may offset any
improved operating results that are attributable to such a strategy.
DEPENDENCE UPON KEY PERSONNEL
The Company is currently dependent upon the ability and experience of its
senior management team, including Leonard Florence, Chairman of the Board,
President and Chief Executive Officer, E. Merle
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Randolph, Vice President, Treasurer and Chief Financial Officer, Melvin L.
Levine, Vice President of Purchasing, and Alan R. Kanter, Vice President of
Sales. The loss of any of these executives could adversely affect the Company.
In connection with the Merger, these executives will continue to be employed by
the Company pursuant to their current employment agreements with certain
modifications. The terms of the employment agreements for these four executives
will be five years in the case of Messrs. Florence and Levine and three years in
the case of Messrs. Randolph and Kanter. The Company does not maintain policies
of "key person" life insurance on the life of any of its executives.
UNCERTAINTY ASSOCIATED WITH THE RETAIL INDUSTRY
The Company sells its products to retailers, including department and
specialty stores, mass market merchandisers, catalogue showrooms, discount
wholesalers, warehouse clubs, premium and incentive marketers, drug and
supermarket chains, jewelers and home centers and through other channels of
distribution. Certain of such retailers have engaged in leveraged buyouts or
transactions in which they incurred a significant amount of debt, and some are
currently operating under the protection of the federal bankruptcy laws.
As is customary in the retail industry, the Company generally does not
enter into written agreements with customers but relies on orders that are
cancelable until shipment.
The Company's business is sensitive to consumer spending patterns, which in
turn are subject to prevailing economic conditions. Future economic recessions
could have a material adverse effect on the Company's financial condition and
results of operations.
SEASONALITY
Historically, the Company has realized its highest sales and profit levels
in its third and fourth quarters as a result of the buying patterns associated
with the Christmas selling season. The Company expects that the recent Rauch
acquisition and the acquisitions of certain assets of Potpourri Press and
Silvestri (hereinafter described) will intensify the degree of seasonality that
the Company historically has experienced as the vast majority of Rauch,
Silvestri and Potpourri Press products are Christmas items.
DEPENDENCE UPON FOREIGN SOURCES OF SUPPLY
Many of the Company's products are manufactured to its specifications by
foreign manufacturers located principally in Hong Kong, India, Korea, Taiwan,
the People's Republic of China and Japan. In 1995, the Company purchased an
aggregate of approximately $81 million of products from approximately 160
foreign manufacturers. No vendor accounted for 10% or more of such purchases in
1995. The Company does not have information on the financial condition of its
major foreign vendors, all of which are privately held. Of the Company's foreign
purchases in 1995, approximately 92% were from vendors located in the Far East
and approximately 7% were from vendors located in India. The Company's
arrangements with its manufacturers are subject to the risks of doing business
abroad, including risks associated with economic or political instability in
countries in which such manufacturers are located, labor strikes and risks
associated with foreign currency and potential import restrictions. The Company
also is subject to risks associated with the availability of, and time required
for, the transportation of products from foreign countries, including shipping
losses or lost sales that may result from delays or interruptions in shipping.
PRICE AND AVAILABILITY OF RAW MATERIALS
Silver used by the Company in the manufacture of its tabletop and giftware
products represents less than 5% of its Cost of Goods Sold. Collectively, the
Company and its four major competitors in the sterling silver flatware market
account for substantially all sterling silver flatware sales in the United
States. Prices of silver are subject to fluctuation. The price of silver has
ranged, according to the closing prices of Handy & Harman Inc. (the "Handy &
Harman Price"), from $3.545 per troy ounce to $6.01 per troy ounce during the
five-year period ended September 30, 1996. A prolonged significant increase in
silver prices could have a material adverse effect on the Company's results of
operations. The Handy & Harman Price for a troy ounce of silver on ,
1997 was $ . See "BUSINESS -- Manufacturing and Raw Materials."
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ENVIRONMENTAL REGULATION
The Company's silverplating, chrome plating, tool making and painting
operations routinely involve the handling of waste materials that are classified
as hazardous. The Company also refabricates certain materials used in its
silverplating operations. The Company is subject to certain domestic federal,
state, local and foreign laws and regulations concerning the containment and
disposal of hazardous materials, and therefore, in the ordinary course of its
business, the Company incurs compliance costs and may be required to incur
clean-up costs. Based upon currently available information, the Company does not
expect that the costs of such compliance and clean-up costs will be material. In
addition, the Company's C.J. Vander facility is subject to many environmental
regulations related to its plating operations in the United Kingdom. However,
compliance costs are not expected to be material. Actions by federal, state,
local and foreign governments concerning environmental matters could result in
laws or regulations that could increase the cost of producing the products
manufactured by the Company or otherwise adversely affect the demand for its
products. In addition, the future costs of compliance with environmental laws
and regulations and liabilities resulting from currently unknown circumstances
or developments could be substantial and could have a material adverse effect on
the Company.
IMPORTANCE OF TRADEMARKS, COPYRIGHTS AND PATENTS
The Company markets its products under many well-recognized tradenames,
including WALLACE SILVERSMITHS(R), INTERNATIONAL SILVER COMPANY(R), TOWLE
SILVERSMITHS(R), FARBERWARE(R), TUTTLE STERLING(R), C.J. VANDER LTD.(TM), RAUCH
INDUSTRIES, INC.(R), SILVESTRI(R), ROCHARD(R), ELEMENTS(R) and 1847 ROGERS
BROS.(R) The success of the Company's various businesses depends in part on the
Company's ability to exploit these tradenames as well as certain proprietary
designs and trademarks on an exclusive basis in reliance upon the protections
afforded by applicable copyright, patent and trademark laws and regulations. The
loss of certain of the Company's rights to such designs, trademarks and
tradenames or the inability of the Company effectively to protect or enforce
such rights could adversely affect the Company. The Company does not believe
that there is a significant danger that it will lose its rights to any of its
material trademarks and tradenames or be unable effectively to protect or
enforce such rights. Although the loss of any other rights to designs,
trademarks and tradenames could have negative effects, any such effects are
unlikely to be material.
LABOR RELATIONS
The Company believes that its relationship with its employees is good. The
Company's employees are not represented by labor unions; however, Rauch, which
merged with the Company on February 15, 1996, was a subject of efforts by UNITE
(the "Union") in the fall of 1995 to organize Rauch's employees. A scheduled
Union election was postponed because the Union filed unfair labor practice
charges against Rauch with the National Labor Relations Board (the "NLRB").
These charges, which related to allegations of threats and promises by Rauch
officials and the termination of certain employees, were settled pursuant to an
agreement between Rauch and the Union. On May 2, 1996, the NLRB approved the
agreement and the Union's request that the petition for an election be withdrawn
with prejudice.
On March 31, 1994 an Administrative Law Judge ("ALJ") designated by the
National Labor Relations Board ("NLRB") determined that the Company's
subsidiaries Wallace International de P.R., Inc. and International Silver de
P.R., Inc. (the "P.R. Subsidiaries") has engaged in unfair labor practices
incident to a union election (won by the P.R. Subsidiaries) held in February,
1993 and ordered the P.R. Subsidiaries to refrain from certain conduct and to
take certain affirmative action. The ALJ's decision was affirmed by the NLRB on
September 22, 1994. Incident to a second union election (also won by the P.R.
Subsidiaries) held on June 22, 1994 pursuant to stipulation, the P.R.
Subsidiaries were again charged with unfair labor practices. The ALJ again found
that the P.R. Subsidiaries had engaged in unfair labor practices. The Company
has appealed to the NLRB, and the appeal is pending.
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THE COMPANY
GENERAL
Syratech designs, manufactures, imports and markets a diverse portfolio of
tabletop, giftware and seasonal products, including: sterling silver,
silverplated and stainless steel flatware; sterling silver, silverplated and
brass hollowware; picture frames and photo albums; glassware, woodenware and
ceramics; fine porcelain boxes; figurines, waterglobes and Christmas ornaments,
trim, lighting and tree skirts.
The Company's net sales have grown from $82.9 million in 1991 to $169.5
million in 1995, a compounded annual growth rate of approximately 20%. For the
nine months ended September 30, 1996, the Company had net sales of $182.7
million, an increase of 54.0% from the same period in 1995. Such growth was
achieved primarily through the recent acquisitions, the addition of new products
and product categories and expanded distribution of existing products. The
addition of new products and product categories has been implemented through
both internal development and the acquisition of complementary brands. The
Company has grown these acquired brands into substantial product categories by
expanding and improving their product lines and distributing them through the
Company's distribution channels.
The Company's strategic goal is to be the leading domestic supplier of
tabletop, giftware and seasonal products to retailers. In order to achieve this
goal, the Company intends to rely on what it believes to be certain competitive
strengths, including its market leadership in key product categories, a broad
portfolio of products with well-recognized tradenames, a significant presence
within major distribution channels, strong relationships with retailers, its
product development expertise and its manufacturing and sourcing capabilities.
The Company offers a broad portfolio of tabletop, giftware and seasonal
products both in terms of the different product categories and multiple retail
price points through its "good-better-best" strategy. The Company believes that
it is one of the leading domestic manufacturers and marketers of sterling silver
flatware and sterling silver and silverplated hollowware, which products are
sold under many well-recognized tradenames including Wallace Silversmiths(R),
International Silver Company(R), Towle Silversmiths(R) and Tuttle Sterling(R).
In addition, the Company believes it is one of the leading domestic
manufacturers of Christmas ornaments which, together with other seasonal
products, are sold under the Rauch(R), Silvestri(R) and Holiday Workshop(TM)
tradenames.
The Company's products are sold through approximately 30,000 customers,
including retail specialty stores, such as jewelry, seasonal and nonseasonal
giftware and collectible stores, department stores, mass market merchandisers,
catalogue showrooms and warehouse clubs. The Company believes that the recent
Rauch, Silvestri and Potpourri Press acquisitions (see "-- Recent Acquisitions"
below) will strengthen the Company's presence across multiple distribution
channels. In addition, the Company believes it has benefited from the vendor
consolidation trend in the retail industry, which has resulted in increased
demand for vendors that have the ability to make timely deliveries of a broad
range of quality products and provide advertising and other sales support. The
Company has a policy of not owning or operating Company outlet stores and
believes that this policy further strengthens its relationships with its
customers.
The Company aims at delivering quality products at competitive prices to
its customers. The Company relies both on its own domestic manufacturing
capabilities and on over 160 vendors located primarily in the Asia Pacific Rim.
The Company's products, including imported products, are designed by the
Company's design team and independent designers in conjunction with the
Company's product development and marketing team. In order to ensure quality,
products are generally manufactured using Company-owned tools and dies.
The Company's post-merger strategy for future growth focuses primarily on
(i) integrating its recent acquisitions, in particular Rauch, Silvestri and
Potpourri Press, into the Company's marketing and distribution structure, (ii)
continuing to expand the distribution of its existing product lines, both
domestically and internationally, by adding new customers and increasing sales
to existing customers, (iii) continuing to expand its product lines by
introducing new products and product categories, (iv) enhancing its
manufacturing, warehousing and distribution capabilities and productivity
through investments in new facilities, tools and dies
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and machinery, rationalization of existing facilities and investments in
technology, and (v) pursuing selected acquisitions of complementary product
lines and businesses, thereby capitalizing on the Company's distribution
capabilities. See "FORWARD-LOOKING STATEMENTS" and "SPECIAL FACTORS/RISK
FACTORS -- Difficulty in Achieving Post-Merger Business Strategy."
RECENT ACQUISITIONS
Rauch. Rauch Industries, Inc. ("Rauch"), a leading domestic manufacturer
and marketer of Christmas and other seasonal products, in particular glass and
satin tree ornaments, was acquired in February 1996 for approximately $49.6
million. Rauch distributes its products primarily to mass market merchandisers
through its own sales force and independent representatives. The acquisition
included Rochard, Inc. ("Rochard"), a marketer of fine porcelain boxes sold
primarily to high-end specialty and department stores.
Farberware. In April 1996, the Company acquired certain assets of
Farberware Inc., including its name, trademarks and other intellectual property,
inventory, tools and dies and machinery and equipment. The purchase price paid
by the Company was $32.6 million, subject to adjustment. The Company has been
selling the inventory initially purchased and subsequently acquired pursuant to
a manufacturing services agreement and, in three separate transactions, has
entered into licensing agreements for use by third parties of the Farberware
tradename in connection with the sourcing, manufacturing and marketing of (a)
certain cookware and bakeware products for a one-time payment of $25.5 million,
(b) certain electric products for home use for an annual royalty payment, and
(c) Commercial Products (defined as six specified urns and a specified
convection oven plus other products to be developed with the prior approval of
Farberware Inc.) for annual royalty payments. The Company and Lifetime Hoan
Corporation together share the rights to receive royalties under certain other
license agreements entered into and assigned to the Company by the prior owner
of the Farberware tradename; and, in conjunction with Lifetime Hoan Corporation,
the Company expects to continue to grant licenses and intends from time to time
to market specific products under the Farberware tradename. See "FORWARD LOOKING
STATEMENTS."
Silvestri. In April 1996, the Company acquired certain inventory and
intangibles of the Silvestri Division of FFSC, Inc. ("Silvestri") for
approximately $8.6 million. The Silvestri product line consists of high-end
Christmas ornaments, collectibles, lighting and trim, as well as other seasonal
and nonseasonal giftware and decorative accessories, distributed primarily to
specialty and department stores.
C.J. Vander. In May 1996, the Company acquired C.J. Vander Ltd. ("C.J.
Vander"), a manufacturer and marketer of prestigious sterling silver flatware
and hollowware with manufacturing locations in Sheffield and London, England for
approximately $1.0 million. C.J. Vander's products are distributed primarily to
jewelry and other specialty stores in the United Kingdom and Europe.
Potpourri Press. On November 26, 1996, a wholly-owned subsidiary of the
Company acquired inventory, tangible property, intellectual property rights,
certain key records (including customer lists, customer files, supplier
information, catalogs) and certain contract rights (selected by the Company's
subsidiary) of Potpourri Press, a North Carolina-based manufacturer and marketer
of Christmas products for a purchase price of approximately $2.3 million plus a
$0.2 million promissory note.
INTEGRATION STRATEGY FOR RECENT ACQUISITIONS
The Company believes that significant opportunities for growth in sales and
operating income exist if it can successfully integrate its recent acquisitions
into the Company's sales and marketing organization and consolidate and
rationalize certain operations. See "FORWARD LOOKING STATEMENTS."
The Company plans to expand the distribution of Rauch, Silvestri and
Potpourri products by marketing them through the Company's established
distribution channels and also plans to add new products to their existing
lines. By integrating Rauch, Silvestri and Potpourri with the Company's
internally developed Holiday Workshop line of seasonal products, the Company has
significantly expanded its offerings in this product category, both in terms of
types of product and retail price points, and strengthened its presence in major
retail channels. In addition, the Company believes that such strengthened
presence should provide it with
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substantial opportunities to cross-sell the Company's tabletop and giftware
product lines through Rauch and Silvestri distribution channels. See "FORWARD
LOOKING STATEMENTS" and "SPECIAL FACTORS/RISK FACTORS -- Difficulty in Achieving
Post-Merger Business Strategy."
In order to support the growth in its seasonal business, the Company is in
the process of investing in excess of $15 million to expand its manufacturing,
warehousing and distribution capabilities, primarily by consolidating warehouse
and distribution facilities, building a new customer showroom and acquiring new
tools and dies and machinery. These investments, along with the consolidation of
certain selling, general and administrative functions, are also designed to
generate significant cost savings.
Through the acquisition of C.J. Vander, the Company believes that it will
be able to expand the distribution of its Wallace and Towle sterling silver and
silverplated product lines into the European market, primarily through C.J.
Vander's existing distribution channels. In addition, the Company intends to
expand the distribution of C.J. Vander products in the United States, in
particular through the Rochard sales force, which consists of independent
representatives who sell to high-end specialty and department stores.
During the summer of 1996, the Company commenced marketing a
water-purification device under the name "Glacier Pure by Farberware." The
Company also intends to capitalize on the Farberware brand name recognition by
introducing new tabletop products under that tradename beginning in 1997.
THE SPECIAL MEETING
MATTERS TO BE CONSIDERED
The purpose of the Special Meeting is to consider and vote upon a proposal
to approve and adopt the Merger Agreement entered into between THL I and
Syratech, and the transactions contemplated thereby, including the Merger. If
the Merger is approved by the stockholders of Syratech, THL I will merge with
and into Syratech, and each share of Syratech Common Stock issued and
outstanding immediately prior to the Effective Time (other than (i) shares of
Syratech Common Stock held by Syratech or any wholly owned subsidiary thereof
and (ii) shares of Syratech Common Stock subject to appraisal rights) will be
entitled, at the election of the holder and subject to the terms described
herein, either (a) to receive $32.00 in cash or (b) to retain one fully paid and
nonassessable share of Syratech Common Stock. The right to retain Syratech
Common Stock will be limited in the case of each stockholder (other than a
Management Stockholder) to 35%, and in the case of each Management Stockholder
to 25%, of such holder's shares of Syratech Common Stock, other than Leonard
Florence who is required by the Merger Agreement to retain 650,704 shares of
Syratech Common Stock. In addition, because no more than an aggregate of 781,250
shares of Syratech Common Stock may be retained by existing stockholders (other
than Management Stockholders), such stockholder's right to retain Syratech
Common Stock is subject to proration as set forth in the Merger Agreement and
described in this Proxy Statement/Prospectus. If the Merger is approved, the
common stock of THL I will be converted into 3,191,850 shares of Syratech Common
Stock less the number of shares of Syratech Common Stock to be retained by
stockholders (other than shares retained by Leonard Florence and 63,696 shares
that were issued to, and will be retained by, certain Management Stockholders).
The shares of Syratech Common Stock to be owned by the affiliates of Thomas H.
Lee Company immediately following the Merger will represent a maximum of
approximately 81.7% of the Syratech Common Stock expected to be issued and
outstanding after the Merger (see "THE MERGER -- Conversion of THL I Stock").
Immediately after the Effective Time, 3,906,250 shares of Syratech Common
Stock will be issued and outstanding. If the Warrants are exercised in full
immediately following the Merger, 249,335 additional shares of Syratech Common
Stock will be issued, resulting in a total of 4,155,585 shares of Syratech
Common Stock issued and outstanding at such time. The Merger Agreement
(including the principal exhibits thereto) is attached to this Proxy
Statement/Prospectus as ANNEX I. See "THE MERGER" and "CERTAIN PROVISIONS OF THE
MERGER AGREEMENT." The Board of Directors of Syratech has, by unanimous vote of
those members attending and voting (certain of those Directors present who are
also officers of the Company having abstained), approved the Merger Agreement
and recommended that the
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Company's stockholders vote FOR approval of the Merger Agreement and the
transactions contemplated thereby, including the Merger.
REQUIRED VOTES
The affirmative vote of stockholders holding shares of Syratech
Common Stock, being a majority of the shares of Syratech Common Stock entitled
to vote thereon, is required to adopt and approve the Merger Agreement and the
transactions contemplated thereby, including the Merger.
As of December 31, 1996, directors and executive officers of the Company
and their affiliates were beneficial owners of an aggregate of 3,626,870 shares
(approximately 41.6%) of the outstanding Syratech Common Stock. All of the
directors and executive officers of the Company, have indicated that they intend
to vote their shares of Syratech Common Stock in favor of the resolution to
approve and adopt the Merger Agreement and the transactions contemplated
thereby, including the Merger. Approval of the Merger Agreement and the
transactions contemplated thereby, including the Merger, by at least a majority
of unaffiliated holders of Syratech Common Stock is not required.
VOTING AND REVOCATION OF PROXIES
Shares of Syratech Common Stock that are entitled to vote and are
represented by a Proxy properly signed and received at or prior to the Special
Meeting, unless subsequently properly revoked, will be voted in accordance with
the instructions indicated thereon. If a Proxy is signed and returned without
indicating any voting instructions, shares of Syratech Common Stock represented
by such Proxy will be voted FOR the proposal to approve and adopt the Merger
Agreement and the transactions contemplated thereby, including the Merger. The
Board of Directors of Syratech is not currently aware of any business to be
acted upon at the Special Meeting other than as described herein. If, however,
other matters are properly brought before the Special Meeting or any
adjournments or postponements thereof, the persons appointed as proxies will
have discretion to vote or act thereon in accordance with their best judgment.
The persons appointed as proxies may not exercise their discretionary voting
authority to vote any Proxy in favor of any adjournments or postponements of the
Special Meeting if such proxy contains an instruction to vote against the
approval of the Merger Agreement.
Any Proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before the shares represented by such Proxy are voted at
the Special Meeting by (i) attending and voting in person at the Special
Meeting, (ii) giving notice of revocation of the Proxy at the Special Meeting,
or (iii) delivering to the Secretary of Syratech (a) a written notice of
revocation or (b) a duly executed Proxy relating to the same shares and matters
to be considered at the Special Meeting, bearing a date later than the Proxy,
previously executed. Attendance at the Special Meeting will not in and of itself
constitute a revocation of a Proxy. All written notices of revocation and other
communications with respect to revocation of proxies should be addressed as
follows: Syratech Corporation, 175 McClellan Highway, East Boston, Massachusetts
02128-9114, Attention: Secretary, and must be received before the taking of the
votes at the Special Meeting.
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM
Only holders of Syratech Common Stock at the close of business on
, 1997 will be entitled to receive notice of and to vote at the
Special Meeting. At the close of business on the Record Date, the Company had
outstanding and entitled to vote shares of Syratech Common Stock.
Shares of Syratech Common Stock represented by Proxies which are marked
"abstain" or which are not marked as to any particular matter or matters will be
counted as shares present for purposes of determining the presence of a quorum
on all matters. Proxies relating to "street name" shares that are voted by
brokers will be counted as shares present for purposes of determining the
presence of a quorum on all matters, but will not be treated as shares having
voted at the Special Meeting as to any proposal as to which authority to vote is
withheld by the broker.
The presence, in person or by proxy, at the Special Meeting of the holders
of at least shares of Syratech Common Stock, i.e., a majority of the
shares of Syratech Common Stock outstanding on the
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record date, is necessary to constitute a quorum for the transaction of
business. The affirmative vote of the holders of shares of Syratech
Common Stock, i.e., a majority of the votes entitled to be cast by the holders
of all outstanding shares of Syratech Common Stock, is necessary to approve the
Merger Agreement and the transactions contemplated thereby, including the
Merger. THE TRANSACTION HAS NOT BEEN STRUCTURED SO THAT APPROVAL OF AT LEAST A
MAJORITY OF UNAFFILIATED HOLDERS OF SYRATECH COMMON STOCK IS REQUIRED.
Abstentions will be counted as present for the purposes of determining whether a
quorum is present but will not be counted as votes cast in favor of the Merger
Agreement. Because the vote on the Merger Agreement and the transactions
contemplated thereby, including the Merger, requires the approval of a majority
of the votes entitled to be cast by the holders of all outstanding shares of
Syratech Common Stock, abstentions will have the same effect as a vote against
this proposal.
SOLICITATION OF PROXIES
The Company will bear the cost of the solicitation of Proxies and the cost
of printing and mailing this Proxy Statement/Prospectus. In addition to
solicitation by mail, the directors, officers and employees of the Company may
solicit Proxies from stockholders of the Company by telephone, telegram or in
person. Such directors, officers and employees will not be additionally
compensated for any such solicitation but may be reimbursed for outstanding
out-of-pocket expenses in connection therewith. Arrangements will also be made
with brokerage houses and other custodians, nominees and fiduciaries for their
forwarding of solicitation material to the beneficial owners of shares held of
record by such persons and the Company will reimburse such custodians, nominees
and fiduciaries for their reasonable out-of-pocket expenses in connection
therewith.
[NAME OF PROXY SOLICITING FIRM] will assist in the solicitation of Proxies
by the Company for a fee of $ , plus reasonable out-of-pocket expenses.
HOLDERS OF SYRATECH COMMON STOCK SHOULD NOT SEND STOCK CERTIFICATES WITH
THEIR PROXY CARDS. ONLY HOLDERS OF SYRATECH COMMON STOCK WHO WISH TO MAKE A
NON-CASH ELECTION ARE REQUIRED TO SEND STOCK CERTIFICATES WITH THEIR FORM OF
ELECTION (AS DEFINED BELOW). SEE "THE MERGER -- NON-CASH ELECTION" AND
"-- NON-CASH ELECTION PROCEDURE."
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THE MERGER
BACKGROUND OF THE MERGER
References to the "Merger Agreement" in this section and in "-- Opinion of
Financial Advisor" below refer to the Merger Agreement as of October 23, 1996.
Neither the Special Committee nor Merrill Lynch reviewed the Merger Agreement as
amended.
Representatives of the Thomas H. Lee Company first met with Mr. Leonard
Florence to discuss the possible purchase by Syratech of the interests of
certain funds affiliated with Thomas H. Lee Company in FFSC, Inc. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Recent Transactions."
In the late spring of 1996, partly to increase the visibility and daily
trading volume of Syratech Common Stock, Syratech retained Merrill Lynch in
connection with a contemplated public offering of Syratech Common Stock.
In early July 1996, representatives of the Thomas H. Lee Company indicated
to Leonard Florence an interest in exploring the potential acquisition of
Syratech by Thomas H. Lee Equity Fund III, L.P., the Thomas H. Lee Company and
certain of its affiliates (collectively, the "Lee Group"). In connection
therewith, a confidentiality agreement was executed on July 11, 1996. The Lee
Group pursued its preliminary due diligence investigation in July and early
August 1996, and meetings were held on August 7, 1996 and August 21, 1996
between representatives of the Lee Group and Mr. Florence and other
representatives of Syratech with regard to such due diligence.
On August 21, 1996, the Lee Group furnished to Syratech a due diligence
request list. Thereafter, the Lee Group continued its due diligence
investigation, including visits to Syratech facilities. Further meetings between
the parties occurred on September 9, 1996, September 16, 1996, September 19,
1996 at which the Lee Group's due diligence investigation was pursued and the
parties' divergent views regarding the terms of the transaction were discussed.
On September 11, 1996, Mr. Florence contacted Merrill Lynch regarding the
meetings to date. On September 13, 1996, at the request of Mr. Florence,
representatives of Merrill Lynch met with Mr. Florence at the Company's
headquarters. At this meeting, Mr. Florence disclosed to Merrill Lynch the
progress of the discussions with the Lee Group to date. The representatives of
Merrill Lynch suggested that the Company's contemplated public offering be held
in abeyance pending resolution of this matter, that the Board of Directors be
informed of the discussions with the Lee Group and that a Special Committee of
the Board be established to act on behalf of the Board with respect to this
matter.
On September 24, 1996, the Lee Group delivered to Mr. Florence the
following letter:
September 24, 1996
Mr. Leonard Florence
Chairman of the Board,
Chief Executive Officer,
President and Director
Syratech Corporation
175 McClellan Highway
East Boston, MA 02128
Dear Mr. Florence:
The Thomas H. Lee Company is interested in pursuing with you a transaction
which would result in our acquiring all of the outstanding capital stock of
Syratech Corporation (the "Company"). Based on our review of available
information to date, we believe a price per share of $28 to $30, payable in
cash, is feasible based on the assumption that there are approximately 8.9
million shares currently outstanding on a fully diluted basis. This would
represent a total equity value of approximately $249 to $267 million.
In our view, this transaction would position the Company and its employees
for an exciting future while maximizing value for the Company's
shareholders. In order to move forward, we request that you grant to
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<PAGE> 46
us and to our representatives and prospective financing sources access to
the Company's books, records and senior management subject, of course, to
appropriate confidentiality provisions.
We believe that the commitment and involvement of you and your management
team are critical to the future success of the Company, and our preliminary
proposal contemplates your retention of an appropriate ownership interest
in the Company and agreements with respect to the future employment of you
and your management team with the Company. Simultaneously with the
performance of due diligence, we would hope to discuss with management
their roles in the future of the Company.
Thomas H. Lee Equity Fund III, L.P. has available equity commitments of
over $1 billion, and is prepared to make a significant investment in the
Company. In addition, we have had discussions with prospective financing
sources, and based on those discussions, we are confident that we can
secure commitments for the balance of the financing needed to fund the
acquisition of the Company. We expect that such commitments can be obtained
promptly.
We are only interested in pursuing a transaction that has the endorsement
of the Company's Board of Directors. In light of our approach to the
transaction and while we recognize that your Board must take appropriate
action in the best interest of your shareholders, we are not prepared to
participate in a public auction process. Of course, we trust that the
contents of this letter and its existence will remain confidential.
The Thomas H. Lee Company has been in existence since 1974 and during that
time has completed over 100 transactions. We look for attractive investment
opportunities in companies which we can help grow through the use of our
capital and expertise. Many of our portfolio companies have grown
dramatically, providing job opportunities and other economic benefits for
the communities in which they operate. We intend to continue the current
operations and facilities of the Company and believe that our acquisition
of the Company will provide significant benefits to the many stakeholders
in the Company, including its employees, suppliers and customers and the
communities in which the Company operates.
We believe that our proposal presents an attractive opportunity for the
Company and its shareholders and are eager to proceed. If given the
opportunity, we would expect to complete our diligence review, reach
agreement with management on its role in the future of the Company and
negotiate a definitive acquisition agreement within the next few weeks. Our
legal and financial advisers stand ready to commence work.
We would be pleased to make a presentation to your Board of Directors, and
if this is deemed desirable, request that a meeting be scheduled as soon as
practicable. In the meantime, should you have any questions, please direct
them to myself, Scott A. Schoen or Thomas M. Hagerty. We can be reached at
617-227-1050.
Sincerely,
THOMAS H. LEE EQUITY FUND III, L.P.
By: /s/ David V. Harkins
------------------------------------
David V. Harkins
President
THL Equity Trust, III General
Partner
THL Equity Advisors III, Limited
Partnership, General Partner
THL Equity Fund III, Limited
Partnership
On the same date, Mr. Florence convened a Special Meeting of the Board. At
the meeting Mr. Florence disclosed that he had received the foregoing letter,
which was the first written proposal, from the Lee Group expressing an interest
in pursuing an acquisition of Syratech at a price of $28 to $30 per share in
cash. Mr. Florence informed the Board that, as mentioned in the letter, the
acquisition was predicated upon and
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<PAGE> 47
would involve the continuing commitment and involvement of Mr. Florence and
other members of Syratech management, the retention by Mr. Florence of an
ownership interest in the enterprise following the acquisition and the execution
of agreements with respect to future employment. At that meeting, the Board
decided that the preliminary proposal and discussions with the Lee Group
regarding a definitive proposal should be evaluated and, if advanced to a
definitive proposal that merited negotiation of a definitive agreement, that
negotiations to such end should be conducted. In addition, in light of the
contemplated participation by Mr. Florence and, possibly, other members of
Syratech management in the transaction, the Board designated Messrs. Irwin
Chafetz, Harold Cohen and Jerry R. Jacob as members of a Special Committee, with
Mr. Chafetz as Chairman, for the purpose of evaluating any proposal received
from the Lee Group and conducting any further discussions with the Lee Group;
and it authorized the retention by the Special Committee of financial and legal
advisors at Syratech's expense.
During the following week, the Special Committee interviewed
representatives of various investment banking and law firms for the purpose of
retaining independent financial and legal advisors. As a result of such
interviews, the Special Committee retained Merrill Lynch (which, as noted above,
had previously been retained by the Company to be the underwriter of a
contemplated offering of Syratech Common Stock, which was being held in
abeyance) and Wachtell, Lipton, Rosen & Katz, as its financial and legal
advisors, respectively. On September 27, 1996, Merrill Lynch, the Lee Group,
Morgan Stanley and potential financing sources conducted due diligence, both at
Syratech headquarters and at the offices of Thomas H. Lee Company. Such due
diligence, with the Lee Group, Morgan Stanley and potential financing sources,
continued during the following week.
On September 27, 1996, the Company provided Merrill Lynch with a
preliminary draft of the Management Forecasts and Merrill Lynch conducted oral
inquiries and due diligence with respect thereto. On October 4, 1996, the
Company provided Merrill Lynch and the Lee Group with the Management Forecasts
reprinted herein.
On Friday, October 4, 1996, the Special Committee met with its advisors for
the purpose of beginning its evaluation of the Lee Group's proposal. At this
meeting, the Special Committee, together with its advisors, reviewed the terms
of the Lee Group's proposal and received preliminary advice from Merrill Lynch
that the financial terms of the proposal appeared to be below preliminary
valuation ranges. The Special Committee also considered alternatives that might
be available to Syratech, such as the possibility of rejecting an acquisition
transaction in favor of a public equity offering and the possibility of seeking
a potential strategic partner that would be willing to purchase Syratech at a
higher price. At the end of this meeting, the Special Committee undertook to
consider further the Lee Group's proposal during the following week, with a view
toward a further meeting of the Special Committee to consider the proposal on
October 11.
On Monday, October 7, 1996, representatives of the Lee Group, potential
financing sources and Morgan Stanley met with representatives of Syratech,
including Mr. Florence, to conduct further due diligence. Also during the week
of October 7, 1996, representatives of the Lee Group sent to the Special
Committee's advisors a proposed Merger Agreement with respect to the
transaction, and the Special Committee's legal advisors gave general preliminary
comments with respect thereto. Among the items proposed therein were shareholder
agreements on the part of Mr. Florence and other participating members of
management to vote shares of Syratech's Common Stock held by them in favor of
the Merger and/or to grant proxies with respect to such shares in favor of the
Lee Group so that such shares could be voted directly by the Lee Group in favor
of the Merger. The Special Committee's legal advisors informed the Lee Group's
legal advisors that such proposal was unacceptable and insisted that ways in
which Mr. Florence's equity position would not determine the outcome of the
stockholder vote with respect to the Merger should be explored.
On Friday, October 11, 1996, the Special Committee met with its advisors
and continued its evaluation of the Lee Group's proposal. At this meeting, the
Special Committee received oral advice of Merrill Lynch that the financial terms
of the Lee Group's proposal were unfair and inadequate from a financial point of
view. In addition, the Special Committee's legal advisors reviewed with the
Special Committee various structural issues with respect to the Lee Group's
proposal. After this meeting, the Special Committee's advisors contacted
representatives of the Lee Group, informed them that the current proposal was
unfair and
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<PAGE> 48
inadequate and did not merit beginning negotiations with respect to a definitive
agreement and urged them to improve the terms of their offer if they wished to
pursue an acquisition of the Company. Within a few days thereafter, during the
week of October 14, the Lee Group's legal advisors sent to the Special
Committee's legal advisors a revised proposed Merger Agreement.
On Tuesday, October 15, 1996, representatives of the Lee Group contacted
the Special Committee's advisors to inform them that the Lee Group had raised
the proposed price to be paid to Syratech stockholders in the Merger to $31 per
share in cash and that the request for the shareholder and lockup agreements on
the part of Mr. Florence and other participating members of management had been
dropped. On October 15 and October 16, the Special Committee was briefed on and
considered the revised offer with its advisors, as well as the terms of the
revised proposed Merger Agreement. On October 15, the Special Committee received
oral advice from Merrill Lynch that the financial terms of the Lee Group's
proposal were inadequate from a financial point of view and that a strategic
buyer for Syratech, if one could be found, might be better able and willing to
pay more to acquire Syratech than a financial buyer.
On October 16, the Special Committee's advisors contacted representatives
of the Lee Group to inform them that the $31 per share offer was inadequate to
commence negotiations with respect to a definitive agreement and to urge the Lee
Group to put their best offer forward so that the Special Committee could
determine whether the transaction merited pursuing. In addition, with respect to
the revised proposed Merger Agreement, the Special Committee's advisors asked
for a specific quantitative proposal with respect to the termination fees and
expense reimbursements contemplated by the agreement, to restructure the
termination fee so that it would be more in the nature of a "topping" fee
payable in the event that a superior transaction were obtained, to supply
commitment letters with respect to financing for the transaction and to consider
alternative structures more responsive to the Special Committee's concern that
Mr. Florence's equity position would determine the outcome of the stockholder
vote with respect to the transaction. On the same date, the Lee Group's legal
advisors sent to the Special Committee's legal advisors a revised proposed
Merger Agreement.
Also, on October 16, 1996, Merrill Lynch was given authority by the
Company, the Special Committee and the Lee Group to solicit expressions of
interest in an acquisition from certain potential strategic buyers selected by
the Company in consultation with Merrill Lynch, which process was begun on such
date by Merrill Lynch. Merrill Lynch continued its efforts with respect to such
solicitation regularly through October 22, and the Special Committee was kept
abreast of all developments.
On the evening of Friday, October 18, 1996, representatives of the Lee
Group contacted the Special Committee's legal advisors and informed them that,
in response to the Special Committee's request, the Lee Group had increased its
offer to a price of $32 per share in cash, for a transaction structured
substantially along the lines of the proposed Merger Agreement most recently
delivered, and that this price was the best and last offer of the Lee Group,
with no incremental value to be delivered thereafter. At this time,
representatives of the Lee Group provided draft financing commitments consistent
with this proposal to the Special Committee's legal advisors. The Lee Group
requested that negotiations toward definitive documentation and Board approval
occur over the following weekend with a view toward announcing that a definitive
agreement had been entered into by the morning of Monday, October 21.
Thereafter, on the evening of October 18, the Chairman of the Special Committee
spoke with the Special Committee's advisors, and it was decided that, due to the
need for adequate time to review and consider the Lee Group's most recent
proposal and convene a meeting of the Special Committee and the pendency of
inquiries by the Special Committee's financial advisors to potential strategic
acquirors, the Special Committee would meet on Monday, October 21, to review the
most recent proposal with a view toward a definitive response to the Lee Group
immediately thereafter, and that the Special Committee's legal advisors would
deliver comments with respect to the revised proposed Merger Agreement over the
intervening weekend. This proposed course of action was then communicated to
representatives of the Lee Group. At this time, representatives of the Lee Group
were requested to provide revised draft financing commitments reflecting the
improved offer.
Over the weekend of Saturday and Sunday, October 19 and 20, 1996, the
Special Committee's legal advisors discussed the revised proposed draft Merger
Agreement with the Lee Group's legal advisors and
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<PAGE> 49
reached substantial agreement with respect to certain issues, but sought
improvements with respect to (i) price, (ii) the voting of shares held by Mr.
Florence, (iii) Syratech's ability to respond to indications of interest
following execution of the Merger Agreement, (iv) the circumstances under which
Syratech or the Lee Group could terminate the Merger Agreement and a termination
fee become payable and (v) the size of the termination fee and expense
reimbursements. The Special Committee's legal advisors also stated that, in
connection with entering into the Merger Agreement, the possibility of obtaining
a superior proposal thereafter should be preserved, subject to the termination
fee provisions under discussion, and that outstanding Rights under Syratech's
Rights Agreement should be redeemed promptly to provide fewer obstacles with
respect thereto.
The Special Committee met with its advisors on the morning of Monday,
October 21, 1996. At this meeting, the developments over the preceding week,
both with respect to the Lee Group and potential strategic acquirors, were
reviewed, as well as the terms of the Merger Agreement, including unresolved
issues. In this connection, Merrill Lynch told the Special Committee that, while
certain inquiries were still pending, no potential strategic acquiror had shown
significant interest in acquiring the Company. Thereafter, at the direction of
the Special Committee, the Special Committee's advisors spoke with
representatives of the Lee Group and communicated to them that the Special
Committee requested improvements in the proposal with respect to each of the
five issues listed above, and particularly with respect to price, but that
in-person negotiations could begin. In particular, the Special Committee's
advisors noted that one way in which the price to the public stockholders could
be raised would involve an acquisition in which Mr. Florence received a lower
price per share than other stockholders. The Special Committee's advisors
suggested that this possibility be considered in that, unlike other
stockholders, Mr. Florence would retain an opportunity to participate in
Syratech's future results through his continued equity interest. Representatives
of the Lee Group stated that the group would need time to consider the Special
Committee's request and would reply later that day. On the afternoon of October
21, representatives of the Lee Group contacted the Special Committee's advisors
to inform them that this two-tiered pricing structure was being considered, but
that the Lee Group would not raise the $32 per share offer to Syratech
stockholders and that, following a review of recent comparable transactions, the
Lee Group was proposing that the transaction have a termination fee of 3.75% of
the total equity value and that expense reimbursements be up to a maximum of
0.75% of the total equity value. This contrasted with the Lee Group's prior
proposal of 4.25% plus an unlimited amount for out of pocket expenses. The
Special Committee's advisors informed the Lee Group's representatives that a
price increase was still being sought and that the two-tiered pricing structure
should be seriously considered for the reasons described above. Later on the
evening of October 21, representatives of the Lee Group contacted the Special
Committee's legal advisors to inform them that a two-tiered pricing structure
had been considered and discussed with Mr. Florence and that Mr. Florence had
been unwilling to agree to such a structure.
The Special Committee met again with its advisors beginning on the morning
of Tuesday, October 22, 1996 and continuing intermittently throughout the day.
At this meeting, the developments over the preceding day and the open issues
with respect to the Merger Agreement were reviewed. In this connection, Merrill
Lynch told the Special Committee that it had completed its solicitation of
expressions of interest from those potential strategic acquirors that it had
been authorized to contact, that none of such parties had expressed interest in
proceeding with an acquisition and that none of such parties had expressed a
willingness to conduct the requisite due diligence with respect to Syratech. The
Special Committee continued to request improvements with respect to the five
issues listed above. In addition, the Special Committee, through its advisors,
sought to have the Lee Group improve its $32 per share offer by adding a
contingent value right to the cash consideration offered. The Lee Group rejected
this proposal, stating that $32 was the highest price it would be willing to pay
for shares of Syratech Common Stock. The Chairman of the Special Committee and
the Special Committee's advisors then met with representatives of the Lee Group
and the Lee Group's advisors to discuss remaining issues, particularly price and
the size of the termination fee and expense reimbursements. Thereafter, on the
evening of October 22, in-person negotiations were begun among representatives
of the Lee Group and its advisors, the Special Committee and its advisors and
Syratech's legal advisors, in which the Lee Group reiterated that no improvement
in the $32 price per share would be offered, but proposed that, to be responsive
to the interests of the Special Committee and to afford Syratech stockholders in
addition to Mr. Florence the opportunity to participate in future results, the
Lee Group would permit all stockholders,
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<PAGE> 50
subject to certain limitations, to elect to receive consideration in the form of
continuing equity. Negotiations continued until late on the evening of October
22 for improvements in all issues, at which time agreement was reached with
respect to all principal terms of the Merger.
In reaching the conclusion that the initial and interim proposals of the
Lee Group were inadequate, the Committee was influenced primarily by the advice
of Merrill Lynch that the prices offered were not within the range preliminarily
computed by Merrill Lynch; and the Committee's conclusions were also influenced
by the belief that, based upon comparable transactions, the breakup fees and
expense allowances proposed by the Lee Group were at unacceptable levels.
Late on the evening of October 22, a meeting of Syratech's Board of
Directors was convened and continued into the early morning of October 23, 1996.
All of the Directors of the Company were present, except Messrs. Alan Perlman
and Harold Roitenberg, each of whom had previously informed the Company that he
would be unable to attend. Also present at the meeting were Faye A. Florence,
Vice President, Secretary and General Counsel of the Company, representatives of
Paul, Weiss, Rifkind, Wharton & Garrison, regular outside counsel to the
Company, representatives of Merrill Lynch & Co., financial advisor to the
Special Committee, a representative of Wachtell Lipton Rosen & Katz, counsel to
the Special Committee, and representatives of Skadden Arps, Meagher, Slate &
Flom, special counsel to Mr. Florence and certain other Management Stockholders.
At such meeting, the Special Committee unanimously recommended that the Board
approve and adopt the Merger and the Merger Agreement. The Special Committee and
its advisors reported to the Board in detail the reasons for its recommendation
of the Merger and the Merger Agreement.
At the beginning of the Board meeting, the Special Committee's legal
advisor requested that each Director disclose any potential conflict that such
Director may have in connection with the proposed Merger. Mr. Florence noted
that, unlike the other stockholders, he is required by the terms of the proposed
merger agreement to retain 714,400 shares (since reduced to 650,704 shares to
take into account the contribution to the Company by Mr. Florence of 63,696
shares) of his Syratech Common Stock and he is not subject to any proration. E.
Merle Randolph and Melvin L. Levine, Directors of the Company, who are also
executive officers thereof, each stated that he planned to elect to retain a
certain portion of his shares and that he was aware that the Management
Stockholders would not be subject to proration with respect to the shares that
they elected to retain and that he expected to continue as an executive officer
of the Company following the Merger.
The Special Committee's legal advisor then reviewed at length the
activities of the Special Committee and its advisors since appointment of the
Special Committee, discussing in his presentation the matters set forth above.
Following this presentation a representative of Merrill Lynch described the
four-week negotiations between the Special Committee and its advisors, on the
one hand, and representatives of the Lee Group, on the other hand.
Representatives of Merrill Lynch then distributed copies of analyses prepared by
Merrill Lynch in the process of formulating its view of the proposed merger.
Merrill Lynch's valuation analyses as set forth in the presentation
materials distributed to the members of the Board were then described in detail.
The Merrill Lynch representative noted, based on the financial data and its
analyses, that Syratech was not directly comparable to any other company and had
had a limited opportunity to tell its story, that Syratech had limited research
coverage and a limited number of shares held by non-affiliates reducing the
liquidity of Syratech's common stock and that in Merrill Lynch's view, its
common stock was undervalued. Possible alternatives for Syratech, including a
public offering of stock, were then discussed.
The Merrill Lynch representative noted that based on its analyses a
strategic buyer, if available, would probably be able to offer the highest price
for Syratech. He stated that in a limited time period, Merrill Lynch had
conducted the strategic market check as described above, that Merrill Lynch had
been authorized to contact and solicit interest from certain potential strategic
buyers selected by the Company in consultation with Merrill Lynch, and that
Merrill Lynch believed that such potential buyers were among those most likely
to be interested in a possible acquisition of Syratech and among those most
likely to ascribe the highest value
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<PAGE> 51
to the Company. The Merrill Lynch representative stated that none of the
strategic buyers it had been authorized to contact had expressed interest in
proceeding with an acquisition or conducting the requisite due diligence.
Merrill Lynch did not make inquiries concerning the interest of potential
financial buyers because it had not been authorized to do so.
At the conclusion of his presentation, the Merrill Lynch representative
delivered an oral opinion that the cash consideration to be received by the
holders of shares of Common Stock of the Company (other than shares held by Mr.
Leonard Florence, shares to be cancelled pursuant to the Merger Agreement and
dissenting shares) in the Merger was fair to such holders from a financial point
of view.
The Chairman of the Special Committee then made a presentation on behalf of
the Special Committee. He noted the extensive work that had been done by the
Committee with the assistance of its financial and legal advisors and expressed
the view that the process had been exhausted and that, based in part on the
Merrill Lynch presentation, it would not be possible to obtain a better price
from the Lee Group or from any other potential buyer in the near term. The other
members of the Committee expressed a similar view and suggested that, based on
the past market performance of Syratech Common Stock and, in part on the Merrill
Lynch presentation, without an acquisition transaction, it seemed unlikely that
Syratech's Common Stock would reach the level of the Lee Group's offer in the
near term. The members of the Special Committee stated that they were
unanimously of the conclusion that the transaction proposed by the Lee Group was
in the best interest of the Company and its stockholders.
The Special Committee's legal advisor next described in detail the terms of
the Merger Agreement and certain legal matters.
The Special Committee and its advisors then responded to a series of
questions, and Mr. Florence then expressed his view that the proposed Merger was
in the best interest of the Company and its stockholders. After further
extensive discussion and deliberation (including consideration of the factors
noted below under "Reasons for the Merger; Recommendation of the Board") a
motion to approve the Merger Agreement and the transactions contemplated thereby
and to recommend approval thereof to the stockholders of the Corporation was
made, seconded and unanimously carried by vote of those Directors present and
voting. Messrs. Florence, Levine and Randolph expressed concurrence with the
Board's action but abstained from voting on the motion because of their
perceived conflicts of interest as above and elsewhere herein described.
RECOMMENDATION OF THE BOARD; REASONS FOR THE MERGER
The Board has determined the Merger to be fair to and in the best interests
of Syratech and its stockholders. See "SPECIAL FACTORS/RISK FACTORS."
ACCORDINGLY, AS STATED ABOVE, THE BOARD HAS BY THE UNANIMOUS VOTE OF THOSE
DIRECTORS PRESENT AND VOTING APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY, INCLUDING THE MERGER; AND THE BOARD RECOMMENDS THAT
SYRATECH STOCKHOLDERS VOTE "FOR" APPROVAL AND ADOPTION OF THE MERGER AGREEMENT
AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGER. THE
RECOMMENDATION BY THE BOARD THAT THE COMPANY'S STOCKHOLDERS APPROVE AND ADOPT
THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY IS NOT, AND
SHOULD NOT BE CONSIDERED TO BE, A RECOMMENDATION THAT STOCKHOLDERS ELECT TO
RETAIN OR, ALTERNATIVELY, THAT STOCKHOLDERS DO NOT ELECT TO RETAIN SHARES OF
SYRATECH COMMON STOCK HELD BY THEM IN THE MERGER.
As described above, the decision of the Board to approve, and recommend
adoption and approval by Syratech stockholders of, the Merger Agreement and the
transactions contemplated thereby, including the Merger followed extensive
negotiations between the Special Committee and the Lee Group regarding the terms
of the Merger. The Board's deliberations included a detailed review of
Syratech's business, results of operations and prospects, including the
likelihood of effecting an alternative transaction and the ranges of values to
Syratech stockholders that might be achievable in an alternative transaction and
the financial and other terms of the proposed Merger. For a statement of the
material factors considered by the Board in connection with its approval and
recommendation, See "SPECIAL FACTORS/RISK FACTORS -- Reasons for the Merger;
Recommendation of the Board."
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<PAGE> 52
THE BOARD RECOMMENDS THAT SYRATECH STOCKHOLDERS VOTE FOR APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT AND THE TRANSACTION CONTEMPLATED THEREBY,
INCLUDING THE MERGER.
Five of the six members of the Board who voted to approve the Merger
Agreement and the transactions contemplated thereby, including the Merger, were
non-employees of the Company and its subsidiaries. The sixth voting member is an
officer of a subsidiary of the Company.
OPINION OF FINANCIAL ADVISOR
As stated above, Merrill Lynch was retained to act as the financial advisor
to the Special Committee (composed entirely of independent directors) in the
Merger. On October 22, 1996, Merrill Lynch rendered its oral opinion to the
Company's Board of Directors which was subsequently confirmed in a written
opinion (the "Merrill Lynch Opinion") dated October 23, 1996, a copy of which is
included herein as Annex II that, as of such dates and based upon the
assumptions made, matters considered and limits of review in connection with
such opinions, the cash consideration to be received by the holders of shares of
Common Stock of the Company (other then shares held by Mr. Leonard Florence,
shares to be canceled pursuant to the Merger Agreement and dissenting shares) in
the Merger was fair to such holders from a financial point of view. No
limitations were imposed by the Company's Board of Directors upon Merrill Lynch
with respect to the investigations made or the procedures followed by it in
rendering its opinion except that Merrill Lynch was not authorized to, and did
not, solicit any indications of interest from any potential third party, either
financial or strategic, to acquire all or any part of the Company other than a
group of potential strategic buyers selected by the Company in consultation with
Merrill Lynch, as described above.
In rendering its opinion, Merrill Lynch, (i) reviewed Syratech's Annual
Reports, Forms 10-K and related financial information for the five fiscal years
ended December 31, 1995 and Syratech's Forms 10-K and the related unaudited
financial information for the quarterly periods ending March 31, 1996, and June
30, 1996; (ii) reviewed a draft of Syratech's Form S-3 dated September 12, 1996;
(iii) reviewed certain information, including the Management Forecasts relating
to the business, earnings, cash flow, assets and prospects of Syratech,
furnished to Merrill Lynch by Syratech; (iv) conducted discussions with members
of senior management of Syratech concerning its businesses and prospects; (v)
reviewed the historical market prices and trading activity for Syratech's Common
Stock and compared them with that of certain publicly traded companies which
Merrill Lynch deemed to be reasonably similar to Syratech; (vi) compared the
results of operations of Syratech with that of certain publicly traded companies
which Merrill Lynch deemed to be reasonably similar to Syratech; (vii) compared
the proposed financial terms of the transactions contemplated by the Agreement
with the financial terms of certain other mergers and acquisitions which Merrill
Lynch deemed to be relevant; (viii) reviewed the Merger Agreement, including the
financing commitment letters attached thereto; and (ix) reviewed such other
financial studies and analyses and performed such other investigations and took
into account such other matters as Merrill Lynch deemed necessary, including
Merrill Lynch's assessment of general economic, market and monetary conditions.
In rendering its opinion, Merrill Lynch assumed and relied upon the
accuracy and completeness of the financial and other information used by it and,
with the Company's approval, did not assume any responsibility for independent
verification of such information. Merrill Lynch further relied upon the
assurances of Management that they were not aware of any facts that would make
such information inaccurate or misleading. With respect to the Management
Forecasts, Merrill Lynch assumed, with the Company's approval, that (i) such
forecasts and projections were reasonably prepared on bases reflecting the best
currently available estimates and judgments of Management as to the future
financial performance of the Company, and (ii) the Company would perform in
accordance with such projections. Merrill Lynch did not conduct a physical
inspection of the properties and facilities of the Company and did not undertake
or obtain any evaluations or appraisals of the assets or liabilities of the
Company. The Merrill Lynch Opinion was necessarily based upon market, economic
and other conditions as they existed and could be evaluated as of the date of
the opinion.
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<PAGE> 53
A COPY OF THE MERRILL LYNCH OPINION, DATED OCTOBER 23, 1996, WHICH SETS
FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED, AND CERTAIN LIMITATIONS ON THE
SCOPE OF REVIEW UNDERTAKEN BY MERRILL LYNCH, APPEARS AS ANNEX II TO THIS PROXY
STATEMENT. THE COMPANY'S STOCKHOLDERS ARE URGED TO READ THIS OPINION IN ITS
ENTIRETY. THE MERRILL LYNCH OPINION WAS ADDRESSED TO THE COMPANY'S BOARD, WAS
DIRECTED ONLY TO THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF THE CASH
CONSIDERATION TO BE RECEIVED BY THE STOCKHOLDERS OF THE COMPANY OTHER THAN WITH
RESPECT TO SHARES HELD BY MR. LEONARD FLORENCE, SHARES TO BE CANCELED PURSUANT
TO THE MERGER AGREEMENT AND DISSENTING SHARES AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY STOCKHOLDER OF THE COMPANY AS TO HOW SUCH STOCKHOLDER
SHOULD VOTE AT THE SPECIAL MEETING OR ANY OTHER MEETING OF THE COMPANY'S
STOCKHOLDERS CALLED TO CONSIDER THE MERGER, AND IT DOES NOT CONSTITUTE A
RECOMMENDATION THAT STOCKHOLDERS ELECT TO RETAIN, OR ALTERNATIVELY, THAT
STOCKHOLDERS DO NOT ELECT TO RETAIN, SHARES OF SYRATECH COMMON STOCK IN THE
MERGER. THIS SUMMARY OF THE MERRILL LYNCH OPINION IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
For a summary of certain financial and comparative analyses performed by
Merrill Lynch in arriving at its oral opinion delivered to the Company's Board
of Directors on October 22, 1996 and its written opinion delivered to the
Company's Board of Directors on October 23, 1996 as to the fairness of the
proposed cash consideration to be received by the shareholders of the Company
(other than with respect to shares held by Mr. Leonard Florence, shares to be
canceled pursuant to the Merger Agreement and dissenting shares) pursuant to the
Merger Agreement, from a financial point of view see "SPECIAL FACTORS/RISK
FACTORS -- Opinion of Financial Advisor."
Merrill Lynch was not asked to value the stock of the surviving entity and
did not do so. In addition, the 1996 and 1997 estimated pro forma EPS and EBITDA
numbers used by Merrill Lynch in its analyses were derived from the Management
Forecasts and adjusted by Merrill Lynch to exclude extraordinary and
nonrecurring items for 1996 and 1997 and to include the full year 1996 effect of
acquisitions.
For a statement of the qualifications of Merrill Lynch, the terms upon
which it was engaged and the disclosure of certain relationships between Merrill
Lynch, on the one hand, and Thomas H. Lee and/or Lee Affiliates, on the other,
see "SPECIAL FACTORS/RISK FACTORS -- Opinion of Financial Advisor."
Merrill Lynch is a recognized investment banking firm and, as a customary
part of its investment banking activities, is regularly engaged in the valuation
of businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, private placements, and valuations for corporate and
other purposes. The Special Committee selected Merrill Lynch because of its
expertise, reputation and familiarity with the Company, its business and
transactions similar to the Merger.
CERTAIN FORECASTS
See "FORWARD-LOOKING STATEMENTS" elsewhere in this Proxy
Statement/Prospectus.
Syratech does not as a matter of course make public projections or
forecasts as to future sales, earnings or other results, but does prepare
forecasts on a confidential basis for internal management use. However, in
connection with the negotiation of the Merger Agreement, Merrill Lynch and the
Lee Group were provided with certain forecasts for Syratech (the "Management
Forecasts"). These forecasts were not prepared with a view towards complying
with published guidelines regarding projections and forecasts, but, in the view
of Syratech management, were prepared on a reasonable basis and reflect the best
currently available estimates and judgments as to the expected future financial
performance of Syratech. The fact that the Management Forecasts were furnished
to Merrill Lynch and the Lee Group or reprinted herein should not be regarded as
an indication that any persons who received the Management Forecasts considered
them to be an accurate prediction of future events. The Management Forecasts are
included herein only because such forecasts were
46
<PAGE> 54
provided to Merrill Lynch and the Lee Group in connection with the negotiation
of the Merger Agreement, and Syratech does not intend to update the Management
Forecasts.
THE MANAGEMENT FORECASTS PROVIDED TO MERRILL LYNCH WERE BASED UPON
ESTIMATES AND ASSUMPTIONS AS TO THE MARKET RECEPTION OF THE COMPANY'S FUTURE
PRODUCT OFFERINGS AND ABOUT ECONOMIC AND OPERATING FACTORS WITH RESPECT TO
INDUSTRY PERFORMANCE, GENERAL BUSINESS AND ECONOMIC CONDITIONS AND OTHER MATTERS
THAT CANNOT BE PREDICTED ACCURATELY AND THAT ARE SUBJECT TO CONTINGENCIES OVER
WHICH SYRATECH DOES NOT HAVE CONTROL, INCLUDING THOSE SET FORTH ABOVE UNDER
"SPECIAL FACTORS/RISK FACTORS." ACCORDINGLY, THERE CAN BE NO ASSURANCE THAT
FORECASTED RESULTS ARE INDICATIVE OF FUTURE PERFORMANCE OR THAT ACTUAL RESULTS
WILL NOT BE MATERIALLY HIGHER OR LOWER THAN THOSE FORECAST. IN ADDITION, THE
MANAGEMENT FORECASTS WERE NOT PREPARED WITH A VIEW TO PUBLIC DISCLOSURE OR IN
COMPLIANCE WITH THE PUBLISHED GUIDELINES OF THE COMMISSION OR THE GUIDELINES
ESTABLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS REGARDING
PROJECTIONS OR FORECASTS. THE ASSUMPTIONS MADE IN FORMULATING THE FORECASTS WERE
NOT REDUCED TO WRITING AND WERE NOT PROVIDED TO MERRILL LYNCH. MOREOVER, AS
NOTED ABOVE UNDER "THE MERGER -- OPINION OF FINANCIAL ADVISOR," ALTHOUGH THE PRO
FORMA EPS AND EBITDA NUMBERS USED BY MERRILL LYNCH IN ITS ANALYSES WERE DERIVED
FROM SUCH FORECASTS, THEY WERE ADJUSTED BY MERRILL LYNCH IN CONNECTION WITH ITS
PRESENTATION TO THE BOARD.
MOREOVER, THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS, NEITHER COMPILED
NOR EXAMINED THE FORECASTS AND ACCORDINGLY, DOES NOT EXPRESS ANY OPINION OR ANY
OTHER FORM OF ASSURANCE WITH RESPECT THERETO, ASSUMES NO RESPONSIBILITY FOR, AND
DISCLAIMS ANY ASSOCIATION WITH, THE FORECASTS.
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<PAGE> 55
The Management Forecasts do not give effect to the Merger and should be
read together with the consolidated financial statements of Syratech contained
herein or incorporated herein by reference, with the caveat that past results do
not necessarily foreshadow or provide assurance of future performance or
results.
MANAGEMENT FORECASTS
<TABLE>
<CAPTION>
FULL FULL FULL FULL FULL FULL FULL
YEAR YEAR YEAR YEAR YEAR YEAR YEAR
1995 1996(F) 1997(F) 1998(F) 1999(F) 2000(F) 2001(F)
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales......................... $169,520 $282,409 $326,833 $367,687 $408,133 $450,987 $496,085
Cost of Sales................. 119,836 203,022 231,754 261,058 289,366 319,299 350,732
-------- -------- -------- -------- -------- -------- --------
Gross Margin.................. 49,684 79,387 95,080 106,629 118,767 131,688 145,353
29.3% 28.1% 29.1% 29.0% 29.1% 29.2% 29.3%
Selling and Administrative.... 34,239 54,622 58,996 66,184 73,464 81,178 89,295
20.2% 19.3% 18.1% 18.0% 18.0% 18.0% 18.0%
Other Income Farberware....... (6,044) (250)
-------- -------- -------- -------- -------- -------- --------
Operating Income.............. 15,445 30,810 36,334 40,446 45,303 50,511 56,058
9.1% 10.9% 11.1% 11.0% 11.1% 11.2% 11.3%
Interest Expense.............. 287 2,805 377
Interest Income............... (4,881) (604) 0 (678) (2,199) (4,332) (6,953)
Other Income.................. 0 (12,350) (2,600) (3,000) (3,000) (3,000) (3,500)
-------- -------- -------- -------- -------- -------- --------
Income Before Taxes........... 20,039 40,959 38,557 44,123 50,502 57,843 66,511
-------- -------- -------- -------- -------- -------- --------
Income Taxes (35%)............ 6,863 14,335 13,495 16,105 19,191 22,559 26,604
-------- -------- -------- -------- -------- -------- --------
Income From Continuing
Operations.................. 13,176 26,624 25,062 28,018 31,311 35,284 39,906
Sale of Syroco, Inc........... 33,023 0
-------- -------- -------- -------- -------- -------- --------
Net Income.................... $ 46,199 $ 26,624 $ 25,062 $ 28,018 $ 31,311 $ 35,284 $ 39,906
======== ======== ======== ======== ======== ======== ========
Average Shares................ 11,803 8,793 8,793 8,793 8,793 8,793 8,793
Earnings Per Share
Continuing.................. $ 1.12 $ 3.03 $ 2.85 $ 3.19 $ 3.56 $ 4.01 $ 4.54
Earnings Per Share Other...... $ 2.79(1) $ 0.00
Total Earnings Per Share...... $ 3.91(1) $ 3.03 $ 2.85 $ 3.19 $ 3.56 $ 4.01 $ 4.54
</TABLE>
- ---------------
(1) 1995 includes the sale of Syroco, Inc.
MERGER CONSIDERATION
Subject to certain provisions as described herein with respect to shares of
Syratech Common Stock owned by the Company or any wholly owned subsidiary of the
Company, and with respect to Dissenting Shares, (i) each issued and outstanding
share of Syratech Common Stock (other than Electing Shares as defined below)
will be entitled to receive in cash from the Company following the Merger an
amount equal to $32.00 (the "Cash Price") and (ii) each issued and outstanding
share of Syratech Common Stock with respect to which an election to retain
Syratech Common Stock has been made and not withdrawn in accordance with the
Merger Agreement (an "Electing Share") will be entitled to retain one fully paid
and nonassessable share of Syratech Common Stock (a "Non-Cash Election Share").
The right to retain Syratech Common Stock will be limited in the case of each
holder (other than a Management Stockholder) to 35%, and in the case of each
Management Stockholder (other than Leonard Florence) to 25%, of such holder's
shares of Syratech Common Stock. In addition, because no more than 781,250
shares in the aggregate of Syratech Common Stock may be retained by existing
stockholders (other than Management Stockholders), the right to retain Syratech
Common Stock is subject to proration as set forth in the Merger Agreement and
described in this Proxy Statement/Prospectus. Leonard Florence has agreed to
retain 650,704 shares of Syratech Common Stock, and certain other Management
Stockholders will retain, and have indicated their intention to make Non-Cash
Elections with respect to, an aggregate of 126,721 shares of the Syratech Common
Stock owned by them. If all stockholders (other than Management Stockholders)
elect to retain 35% of their shares of Syratech Common Stock, as a result of the
proration, each holder will have the right
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<PAGE> 56
after proration, to retain approximately 9.9% of such holder's shares of
Syratech Common Stock. With respect to certain risks related to continuing to
hold Syratech Common Stock, see "SPECIAL FACTORS/RISK FACTORS" above.
Fractional shares of Syratech Common Stock will not be issued in the
Merger. Holders of Syratech Common Stock otherwise entitled to a fractional
share of Syratech Common Stock following the Merger will be paid cash in lieu of
such fractional share determined and paid as described under "--Fractional
Shares" below.
Any shares of Syratech Common Stock owned by the Company or by any wholly
owned subsidiary of the Company, will automatically be canceled at the Effective
Time and will cease to exist.
NON-CASH ELECTION
Record holders of shares of Syratech Common Stock (other than Leonard
Florence) will be entitled, with respect to up to 35% in the case of each
stockholder (other than a Management Stockholder), and up to 25% in the case of
each Management Stockholder (other than Leonard Florence), of such holder's
shares, to make an unconditional election (a "Non-Cash Election") on or prior to
the Election Date (as defined below) to retain Non-Cash Election Shares. If the
number of Electing Shares (other than shares held by Management Stockholders)
exceeds 781,250, then (i) the number of such Electing Shares covered by each
Non-Cash Election will be determined by multiplying the total number of such
Electing Shares covered by such Non-Cash Election by a proration factor (the
"Non-Cash Proration Factor") determined by dividing 781,250 by the total number
of such Electing Shares and (ii) such number of Electing Shares will be so
retained. All Electing Shares, other than those shares retained as described in
the two immediately preceding sentences, will be converted into cash as if such
shares were not Electing Shares.
With respect to certain risks related to continuing to hold Syratech Common
Stock, see "RISK FACTORS" above.
NON-CASH ELECTION PROCEDURE
The form for making a Non-Cash Election (the "Form of Election") is being
mailed to holders of record of Syratech Common Stock together with this Proxy
Statement/Prospectus. FOR A FORM OF ELECTION TO BE EFFECTIVE, HOLDERS OF
SYRATECH COMMON STOCK MUST PROPERLY COMPLETE SUCH FORM OF ELECTION, AND SUCH
FORM OF ELECTION, TOGETHER WITH ALL CERTIFICATES FOR SHARES OF SYRATECH COMMON
STOCK HELD BY SUCH HOLDER, DULY ENDORSED IN BLANK OR OTHERWISE IN FORM
ACCEPTABLE FOR TRANSFER ON THE BOOKS OF THE COMPANY (OR BY APPROPRIATE GUARANTEE
OF DELIVERY AS SET FORTH IN SUCH FORM OF ELECTION), MUST BE RECEIVED BY THE
EXCHANGE AGENT AT ONE OF THE ADDRESSES LISTED ON THE FORM OF ELECTION AND NOT
WITHDRAWN, BY 5:00 P.M., EASTERN TIME, ON THE BUSINESS DAY NEXT PRECEDING THE
DATE OF THE SPECIAL MEETING (THE "ELECTION DATE").
The determinations of the Exchange Agent as to whether or not Non-Cash
Elections have been properly made or revoked, and when such election or
revocations were received, will be binding.
EFFECTIVE TIME
The Merger will become effective upon the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware or such other date
as is specified in such Certificate of the Merger in accordance with the
Delaware General Corporation Law and as THL I and the Company shall agree (the
"Effective Time"). Subject to certain limitations, the Merger Agreement may be
terminated by either party if, among other reasons, the Merger has not been
consummated on or before April 30, 1997. See "CERTAIN PROVISIONS OF THE MERGER
AGREEMENT -- Conditions to the Consummation of the Merger" and "-- Termination."
49
<PAGE> 57
CONVERSION/RETENTION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES
At the Effective Time, shares of Syratech Common Stock (other than shares
as to which appraisal rights are properly exercised) will either be entitled to
(i) the right to receive cash or (ii) retain shares of Syratech Common Stock
following the Merger.
As soon as practicable following the Effective Time, the Exchange Agent
will send a letter of transmittal to each holder of Syratech Common Stock. The
letter of transmittal will contain instructions with respect to the surrender of
certificates representing shares of Syratech Common Stock in exchange for cash
and, under certain circumstances, certificates representing shares of Syratech
Common Stock to be retained in the Merger, or the amount of cash in lieu of any
fractional interest in a share of Syratech Common Stock for which the shares
represented by the certificates so surrendered are exchangeable pursuant to the
Merger Agreement.
EXCEPT FOR SYRATECH COMMON STOCK CERTIFICATES SURRENDERED WITH A FORM OF
ELECTION AS DESCRIBED ABOVE UNDER "-- NON-CASH ELECTION PROCEDURE," STOCKHOLDERS
OF THE COMPANY SHOULD NOT FORWARD STOCK CERTIFICATES TO THE EXCHANGE AGENT UNTIL
THEY HAVE RECEIVED THE LETTER OF TRANSMITTAL.
As soon as practicable after the Effective Time, each holder of an
outstanding certificate or certificates at such time which prior thereto
represented shares of Syratech Common Stock shall, upon surrender to the
Exchange Agent of such certificate or certificates and acceptance thereof by the
Exchange Agent, be entitled to the amount of cash, into which the number of
shares of Syratech Common Stock previously represented by such certificate or
certificates surrendered shall have been converted pursuant to the Merger
Agreement and a certificate or certificates representing the number of full
shares of Syratech Common Stock, if any, to be retained by the holder thereof
pursuant to the Merger Agreement. The Exchange Agent will accept such
certificates upon compliance with such reasonable terms and conditions as the
Exchange Agent may impose to effect an orderly exchange thereof in accordance
with normal exchange practices. After the Effective Time, there will be no
further transfer on the records of the Company or its transfer agent of
certificates representing shares of Syratech Common Stock which have been
converted, in whole or in part, pursuant to the Merger Agreement into the right
to receive cash, and if such certificates are presented to the Company for
transfer, they will be canceled against delivery of cash and, if appropriate,
certificates for retained Syratech Common Stock. Until surrendered as
contemplated by the Merger Agreement, each certificate for shares of Syratech
Common Stock will be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender the consideration contemplated by
the Merger Agreement. No interest will be paid or will accrue on any cash
payable as consideration in the Merger or in lieu of any fractional shares of
retained Syratech Common Stock.
No dividends or other distributions with respect to retained Syratech
Common Stock with a record date after the Effective Time will be paid to the
holder of any unsurrendered certificate for shares of Syratech Common Stock with
respect to the shares of retained Syratech Common Stock represented thereby and
no cash payment in lieu of a fractional share shall be paid to any such holder
pursuant to the Merger Agreement until the surrender of such certificate in
accordance with the Merger Agreement. Subject to the effect of applicable laws,
following surrender of any such certificate, there shall be paid to the holder
of the certificate representing whole shares of retained Syratech Common Stock
issued in connection therewith, without interest, (i) at the time of such
surrender, the amount of any cash payable in lieu of a fractional share of
retained Syratech Common Stock to which such holder is entitled pursuant to the
Merger Agreement and the proportionate amount of dividends or other
distributions, if any, with a record date after the Effective Time theretofore
paid with respect to such whole shares of retained Syratech Common Stock, and
(ii) at the appropriate payment date, the proportionate amount of dividends or
other distributions, if any, with a record date after the Effective Time but
prior to such surrender and a payment date subsequent to such surrender payable
with respect to such whole shares of retained Syratech Common Stock.
50
<PAGE> 58
FRACTIONAL SHARES
No certificates or scrip representing fractional shares of retained
Syratech Common Stock will be issued in connection with the Merger, and such
fractional share interests will not entitle the owner thereof to vote or to any
rights of a stockholder of the Company after the Merger. Each holder of shares
of Syratech Common Stock exchanged pursuant to the Merger who would otherwise
have been entitled to receive a fraction of a share of retained Syratech Common
Stock (after taking into account all shares of Syratech Common Stock delivered
by such holder) will receive, in lieu thereof, a cash payment (without interest)
equal to the product obtained by multiplying $32 by a fraction equal to the
fraction of a share of Syratech Common Stock to which such holder would be
entitled if fractional shares were being issued.
CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the Merger Agreement, the Company has agreed to carry on its
business and that of its subsidiaries prior to the Effective Time in the usual,
regular and ordinary course of business consistent with past practice. See
"CERTAIN PROVISIONS OF THE MERGER AGREEMENT -- Certain Pre-Closing Covenants."
CONDITIONS TO THE CONSUMMATION OF THE MERGER
The obligation of the Company and THL I to consummate the Merger are
subject to various conditions, including, without limitation, obtaining
requisite stockholder approval, the termination or expiration of the relevant
waiting period under the HSR Act and the absence of any injunction or other
legal restraint or prohibition preventing the consummation of the Merger. See
"CERTAIN PROVISIONS OF THE MERGER AGREEMENT -- Conditions to the Consummation of
the Merger" and "REGULATORY APPROVALS."
FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Paul, Weiss, Rifkind, Wharton & Garrison concerning the
tax consequences of the Merger, the following are, under currently applicable
law, the material United States federal income tax considerations applicable to
the Merger. The tax treatment described herein may vary depending upon each
stockholder's particular circumstances and tax position. Certain stockholders
(including insurance companies, tax-exempt organizations, financial institutions
or broker-dealers, foreign corporations, persons who are not citizens or
residents of the United States ("U.S."), stockholders who do not hold their
shares as capital assets and stockholders who have acquired their existing stock
upon the exercise of options or otherwise as compensation) may be subject to
special rules not discussed below. In addition, the discussion set forth below
assumes that, immediately after the Merger, no stockholder will own (or will be
treated as owning under the attribution rules of Section 318 of the Code) any
Syratech Common Stock (through the stockholder of THL I or otherwise) other than
Syratech Common Stock retained by each stockholder or person related to each
stockholder pursuant to a Non-Cash Election. No ruling from the Internal Revenue
Service ("IRS") will be applied for with respect to the federal income tax
consequences discussed herein and, accordingly, there can be no assurance that
the IRS will agree with the conclusions stated herein. In addition, this
discussion does not consider the effect of any applicable foreign, state, local
or other tax laws. Each stockholder should consult his or her own tax advisor as
to the particular tax consequences to him or her of the Merger, including the
applicability and effect of any foreign, state, or local or other tax laws, any
recent changes in applicable tax laws and any proposed legislation.
Characterization of the Merger for U.S. Federal Income Tax Purposes. For
U.S. federal income tax purposes, THL I will be disregarded as a transitory
entity, and the Merger of THL I with and into the Company will be treated as a
sale of a portion of a tendering stockholder's Syratech Common Stock to
affiliates of Thomas H. Lee Company and as a redemption of a portion of the
stockholder's Syratech Common Stock by the Company.
Treatment of Stockholders. To the extent that a stockholder is considered
to have sold Syratech Common Stock to affiliates of Thomas H. Lee Company, such
stockholder will recognize either capital gain or
51
<PAGE> 59
loss (assuming the Syratech Common Stock is held by such stockholder as a
capital asset) equal to the difference between the amount realized on its deemed
sale of Syratech Common Stock to affiliates of Thomas H. Lee Company (i.e., the
cash proceeds properly allocated to such sale) and the stockholder's adjusted
tax basis in such Syratech Common Stock.
To the extent such redemption is treated as a sale or exchange under
Section 302 of the Internal Revenue Code of 1986, as amended ("the Code") with
respect to such stockholder a stockholder also will recognize either capital
gain or loss equal to the difference between the cash proceeds allocable to the
redemption of such stockholder's Syratech Common Stock by the Company and the
stockholder's adjusted tax basis in such Syratech Common Stock. In each case,
such gain or loss generally will be long-term capital gain or loss if the
Syratech Common Stock is held as a capital asset by the stockholder for more
than one year. To the extent that such redemption of Syratech Common Stock is
not treated as a sale or exchange, it will be treated as a dividend to the
extent of the Company's current and accumulated earnings and profits. Any excess
will be applied first against the adjusted basis of the shares treated as
redeemed, with any remainder treated as gain from the sale or exchange of such
Syratech Common Stock.
Under Section 302 of the Code, a redemption of Syratech Common Stock
pursuant to the Merger will, as a general rule, be treated as a sale or exchange
if such redemption (a) is "substantially disproportionate" with respect to the
stockholder, or (b) results in a "complete redemption" of the stockholder's
interest in the Company.
In determining whether either of these Section 302 tests is satisfied,
stockholders must take into account not only the Syratech Common Stock that they
actually own, but also any Syratech Common Stock they are deemed to own under
the constructive ownership rules set forth in Section 318 of the Code. Pursuant
to these constructive ownership rules, a stockholder is deemed to constructively
own any Syratech Common Stock that is owned (actually and in some cases
constructively) by certain related individuals or entities and any Syratech
Common Stock that the stockholder has the right to acquire by exercise of an
option or by conversion or exchange of a security.
The redemption of a stockholder's Syratech Common Stock will be
"substantially disproportionate" with respect to such stockholder if the
percentage of Syratech Common Stock actually and constructively owned by such
stockholder immediately following the Merger is less than 80% of the percentage
of Syratech Common Stock actually and constructively owned by such stockholder
immediately prior to the Merger.
The redemption of a stockholder's Syratech Common Stock will result in a
"complete redemption" of a stockholder's interest in the Company if either (a)
all the Syratech Common Stock actually and constructively owned by the
stockholder is redeemed pursuant to the Merger or (b) all the Syratech Common
Stock actually owned by the stockholder is redeemed pursuant to the Merger and
the stockholder is eligible to waive, and does effectively waive in accordance
with Section 302(c) of the Code, attribution of all Syratech Common Stock which
otherwise would be considered to be constructively owned by such stockholder.
Stockholders in this position should consult their tax advisors as to the
availability of such a waiver.
Based on the rules described above, a stockholder who does not make a
Non-Cash Election and who is not treated as owning any Syratech Common Stock
following the Merger, either directly or by operation of the constructive
ownership rules described above, will satisfy the "complete redemption" test,
and accordingly will recognize a capital gain or loss with respect to the entire
amount of cash received in exchange for his shares. In addition, based on the
limitation on the amount of Syratech Common Stock that shareholders are
permitted to retain under the Non-Cash Election, shareholders making the
Non-Cash Election (as well as shareholders who receive all cash but to whom
ownership of shares of Syratech Common Stock will be attributed from persons who
do make the Non-Cash Election) will satisfy the "substantially disproportionate"
test, and accordingly will also recognize a capital gain or loss with respect to
the entire amount of cash received in exchange for their shares.
Information Reporting and Backup Withholding. The Company must report
annually to the IRS and to each stockholder the amount of dividends paid to such
stockholder and the backup withholding, if any, tax withheld with respect to
such dividends. Copies of these information returns also may be made available
to the
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tax authorities in the country in which a foreign stockholder resides under the
provisions of an applicable income tax treaty.
Backup withholding (which generally is a withholding tax imposed at the
rate of 31% on certain payments to persons that fail to furnish certain
information under the United States information reporting requirements)
generally will not apply to dividends paid to a foreign stockholder at an
address outside the United States (unless the payor has knowledge that the payee
is a U.S. person).
Payment of the proceeds of a sale of Syratech Common Stock by or through a
United States office of a broker is subject to both backup withholdings and
information reporting unless the beneficial owner certifies under penalties of
perjury that it is a foreign stockholder, or otherwise establishes an exemption.
In general, backup withholding and information reporting will not apply to a
payment of the proceeds of a sale of Syratech Common Stock by or through a
foreign office of a broker. If, however, such broker is, for United States
federal income tax purposes, a U.S. person, a controlled foreign corporation, or
a foreign person that derives 50% or more of its gross income for certain
periods from the conduct of a trade or business in the United States, such
payments will be subject to information reporting, but not backup withholding,
unless (1) such broker has documentary evidence in its records that the
beneficial owner is a foreign holder and certain other conditions are met, or
(2) the beneficial owner otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules may be allowed as a
refund or a credit against the holder's U.S. federal income tax liability
provided the required information is furnished to the IRS.
The backup withholding and information reporting rules are currently under
review by the Treasury Department and their application to the Syratech Common
Stock could be changed by future regulations.
THOUGH THE FOREGOING ARE THE MATERIAL U.S. FEDERAL INCOME TAX
CONSIDERATIONS GENERALLY APPLICABLE TO THE MERGER, THE DISCUSSION DOES NOT
ADDRESS EVERY FEDERAL INCOME TAX CONCERN THAT MAY BE APPLICABLE TO A PARTICULAR
STOCKHOLDER. EACH STOCKHOLDER IS URGED TO CONSULT SUCH STOCKHOLDER'S OWN TAX
ADVISOR TO DETERMINE THE TAX CONSEQUENCES TO SUCH STOCKHOLDER, IN THE LIGHT OF
SUCH STOCKHOLDER'S PARTICULAR CIRCUMSTANCES, OF THE DISPOSITION OF SYRATECH
COMMON STOCK PURSUANT TO THE MERGER.
ANTICIPATED ACCOUNTING TREATMENT
The Company intends that the Merger will be accounted for as a
recapitalization. Accordingly, the historical basis of the Company's assets and
liabilities will not be impacted by the transaction. See "PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS."
EFFECT ON STOCK AND EMPLOYEE BENEFIT MATTERS
At the Effective Time (x) each stock option to purchase shares of Syratech
Common Stock ("Company Stock Options") granted under the 1986 Key Employees'
Stock Option Plan and the 1993 Key Employees' Stock Option Plan (collectively,
the "1986 and 1993 Stock Plans") outstanding immediately prior to the Effective
Time will vest as a consequence of the Merger and (y) each such Company Stock
Option will be canceled in exchange for a payment from the Company after the
Merger (subject to any applicable withholding taxes) of an amount equal to the
product of (1) the total number of shares of Syratech Common Stock subject to
such Company Stock Option and (2) the excess of $32.00 over the exercise price
per share of Syratech Common Stock subject to such Company Stock Option, payable
in cash immediately following the Effective Time, representing approximately
$4.3 million in the aggregate.
At the Effective Time, each unexercised and outstanding Company Stock
Option granted under the 1995 Key Employees' Stock Option Plan (the "1995 Stock
Plan" and, together with the 1986 and 1993 Stock Plans, the "Stock Plans") shall
be terminated and canceled without consideration, unless the holder of such
Common Stock Option consents in writing to the amendment of such Company Stock
Option to provide the holder thereof with the right to receive upon exercise
under the Company Stock Option, a conditional deferred
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payment from the Company (subject to any applicable withholding taxes) equal to
the product of (1) the total number of shares of Syratech Common Stock subject
to such Company Stock Option and (2) the excess of $32 over the exercise price
per share of Syratech Common Stock subject to such Company Stock Option, payable
in equal installments on each remaining vesting date of such Company Stock
Option, subject to the continued employment with the Company of the holder of
such Company Stock Option on such vesting dates.
The Stock Option Plans will terminate as of the Effective Time, and
following the Effective Time no holder of a Company Stock Option nor any
participant in any Stock Plan will have any right thereunder to acquire equity
securities of the Company following the Merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain directors and officers of the Company have interests, described
below, that may present them with potential conflicts of interest in connection
with the Merger. The Board of Directors is aware of the conflicts described
below and considered them in addition to the other matters described under
"-- Background of the Merger" and "-- Recommendation of the Board; Reasons for
the Merger."
EMPLOYMENT AGREEMENTS
Effective August 16, 1991, the Company entered into an employment agreement
with Leonard Florence (the "Florence Employment Agreement") providing for the
employment of Mr. Florence as Chief Executive Officer of the Company at an
annual base salary, payable in month installments, of not less than $0.35
million as well as for certain other benefits and the reimbursement of expenses.
Unless otherwise terminated by the Company as provided in the Florence
Employment Agreement, Mr. Florence's term of full-time employment will continue
until the earlier of (i) the fifth anniversary of receipt of a notice of
termination given by either party to the other or (ii) the first anniversary of
receipt of a notice of termination given by Mr. Florence to the Company on or
after his 64th birthday. The Company may, at its discretion, but without any
obligation, increase Mr. Florence's base salary during the term of full-time
employment. Once the base salary shall have been increased, it shall not
thereafter be decreased without his written consent. Mr. Florence's current base
salary is $0.7 million per annum. The Florence Employment Agreement obligates
Mr. Florence to provide certain advisory services to the Company during the
five-year period following the term of Mr. Florence's full-time employment (the
"Advisory Period") and provides for Mr. Florence to receive annual compensation
during the Advisory Period in an amount equal to not less than 25% of his base
salary during the final year of his full-time employment. During the period of
his full-time employment and the Advisory Period, Mr. Florence is prohibited
from engaging in any business that is competitive with any line of business in
which the Company is engaged that contributes three percent or more of the gross
revenues of the Company. The Florence Employment Agreement also provides for
payment to Mr. Florence of a retirement benefit.
The Company entered into a similar employment agreement, also effective as
of August 16, 1991, with Melvin L. Levine, Vice President of Purchasing of the
Company, except in Mr. Levine's case the base salary was $0.225 million for the
year ended December 31, 1992. Mr. Levine's current base salary is $0.350 million
per annum.
As of May 1995 and July 1995, the employment agreements with Messrs. Levine
and Florence were amended with respect to the computation and payment of
retirement benefits to each and, in the case of Mr. Florence, to provide for
payment of a survivor's benefit to his surviving spouse. Specifically, the
amendments provided for annual retirement benefit payments in amounts equal to
2% of their respective average total compensation (i.e., base salary and bonus
compensation) in the three years preceding attainment by the relevant executive
of age sixty-five or termination of such executive's full time employment,
whichever occurs later, multiplied by the number of years of such executive's
employment by the Company.
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The Employment Agreements with Messrs. Florence and Levine, as amended,
provide for retirement benefit payments determined and payable in accordance
with the agreements. The following table shows the estimated annual benefits
payable to Messrs. Florence and Levine upon retirement based upon various
compensation levels and years of service.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
-------------------------------
RENUMERATION 5 10 15
- ------------ ------- ------- -------
<S> <C> <C> <C>
400,000 40,000 80,000 120,000
500,000 50,000 100,000 150,000
600,000 60,000 120,000 180,000
700,000 70,000 140,000 210,000
800,000 80,000 160,000 240,000
900,000 90,000 180,000 270,000
1,000,000 100,000 200,000 300,000
1,100,000 110,000 220,000 330,000
1,200,000 120,000 240,000 360,000
1,300,000 130,000 260,000 390,000
1,400,000 140,000 280,000 420,000
</TABLE>
Messrs. Florence and Levine have each completed ten years of credited
service. Retirement benefits under the employment agreements are computed on the
basis of a straight-life annuity and are not reduced by the benefits received
under Social Security, but would be reduced by any benefits received under any
Company funded pension plan that hereafter may be adopted.
At the Effective Time, the Employment Agreement with Leonard Florence will
be amended so as to (i) change his term of full-time employment from a rolling
five-year term to a fixed five-year term, (ii) provide for a minimum base
compensation of $1.15 million per annum, (iii) establish $1.15 million as the
minimum amount upon which his retirement benefit (and the survivor's benefit of
his surviving spouse) will be computed and (iv) create contractual rights with
respect to certain perquisites that are accorded to him informally under his
present arrangements with the Company. Under Section 162(m) of the Internal
Revenue Code, so much of the compensation paid to Mr. Florence as exceeds $1
million annually may not be deductible by the Company for federal income tax
purposes. The Employment Agreement with Melvin L. Levine will be amended, as of
the Effective Time, to change his term of full-time employment from a rolling
five-year term to a fixed five-year term.
The Company has also entered into employment agreements, effective as of
August 16, 1991, with E. Merle Randolph, Vice President, Chief Financial Officer
and Treasurer, and Alan R. Kanter, Vice President of Sales of the Company. The
agreements with Messrs. Randolph and Kanter are similar to those with Messrs.
Florence and Levine described above, except that (i) the term of full-time
employment of each of Messrs. Randolph and Kanter will continue until the third
anniversary of receipt of a notice of termination given by the Company to the
executive involved or by such executive to the Company, (ii) the period during
which each of Messrs. Randolph and Kanter has agreed to provide advisory
services to the Company (and to be bound by a non-competition agreement)
following the term of his full-time employment will be the lesser of three years
or six months for each year of his full-time employment beginning with the date
of the employment agreement, with such advisory period and the coextensive
non-competition covenant being subject to termination at the election of the
Company on six months prior notice to the executive involved, and (iii) no
provision was originally made therein for a payment of a retirement benefit.
The employment agreements of Messrs. Randolph and Kanter were amended in
July 1996, to provide, and during the same month Faye A. Florence and the
Company entered into a Retirement Benefit Agreement that provides, inter alia,
for the payment at age 65 or upon termination of such officer's employment,
whichever is later, of an annual retirement benefit to each such officer equal
to a percentage of his or her
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average annual compensation for the three fiscal years ended immediately prior
to the date on which such officer ceases to be a full time employee of the
Company multiplied by the number of years of such officer's service to the
Company. The minimum annual retirement benefit for each such officer will be
$75,000.
It is not contemplated that any changes will be made in the agreements with
Messrs. Randolph and Kanter and Ms. Florence.
On December 31, 1996 the Company, THL I and Leonard Florence entered into
separate agreements with each of Alan R. Kanter, Melvin L. Levine and E. Merle
Randolph (each an "Executive Party") pursuant to which (i) Mr. Florence agreed
to contribute to the Company (a) on December 31, 1996, 10,604 shares of Syratech
Common Stock, (b) on January 14, 1997, 10,628 shares of Syratech Common Stock
and (c) on January 14, 1998, the largest number (not exceeding 3,124) of shares
of Syratech Common Stock as shall have an aggregate value of approximately
$99,991, (ii) on each of the dates of contribution of such shares of Syratech
Common Stock by Mr. Florence to the Company, such shares were to be canceled and
the Company was to issue to the Executive Party, that number of shares of
Syratech Common Stock that would be equal to the number of shares of Syratech
Common Stock contributed to the Company on such date by Mr. Florence; (iii) on
December 31, 1996 the Company was to pay to each Executive Party the sum of
$234,346; (iv) on January 14, 1997 the Company was to pay to each Executive
Party an amount equal to the lesser of (x) the income tax benefit to the Company
from the issuance of shares of Syratech Common Stock and the cash payment
required to be made to him on such date or (y) the aggregate amount of federal,
state and local income taxes to be owed by each Executive Party as a result of
the issuance of such shares and the making of such cash payment; and (v) on
January 14, 1998 the Company is required to pay to each Executive Party an
amount equal to the lesser of (x) the income tax benefit to the Company from the
issuance of shares of Common Stock and the cash payment to be made to each
Executive Party on such date or (y) the aggregate amount of federal, state and
local income taxes that will be owed by each Executive Party as a result of the
issuance of shares of Common Stock and cash payment to be made to him on such
date. Each agreement provides that the manner in which the payments to be made
to each Executive Party for the purpose of transferring to each Executive Party
the tax benefits to the Company from such transactions are to be calculated and
subsequently adjusted is to be in the sole discretion of the Company.
Faye A. Florence, Alan R. Kanter, Melvin L. Levine and E. Merle Randolph
hold options to purchase shares of Syratech Common Stock which will become fully
vested as a consequence of the Merger and be terminated and canceled in exchange
for a payment from the Company (subject to applicable withholding taxes)
immediately following the Effective Time equal to the product of (i) the total
number of shares of Syratech Common Stock subject to such options times (ii) the
excess of $32.00 over the exercise price of such options. The aggregate number
of shares subject to the options held by such executive officers is 45,000, and
the aggregate amount that will be payable by the Company as a result of the
vesting and cash out of the options held by them will be $733,750.
In connection with the Fund's commitment to purchase common stock of THL I,
THL I agreed, whether or not the transactions contemplated by the commitment
letter provided by the Fund are consummated, to pay and save the Fund harmless
against any liability for all reasonable out-of-pocket expenses of the Fund for
attorneys, accountants and other professional services required in connection
with (i) the preparation of the commitment letter, (ii) the due diligence
process involved in valuing the status of the affairs of Syratech, (iii) the
negotiation, documentation and closing of the business transactions contemplated
by the commitment letter, and (iv) all related printing, reproduction or similar
transactional costs. In addition, Thomas H. Lee Company, an affiliate of the
Fund, is to receive a fee of $3 million, payable upon consummation of the
Merger, and an annual management fee in the amount of $0.45 million. In
addition, THL I agreed to indemnify and hold the Fund harmless from and against
any and all actions, suits, proceedings, losses, claims, damages, liabilities or
expenses of any kind which may be incurred by or asserted against or involved
the Fund or any of its partners, officers, agents or employees as a result of or
arising out of or in any way related to the transactions described in the
commitment letter, except that the Fund will not be entitled to indemnity for
its own gross negligence or willful misconduct as determined by a court of
competent jurisdiction. THL I further agreed to pay or reimburse the Fund for
any legal or other expenses incurred by the Fund in connection with
investigating, defending or preparing to defend any action, suit, claim or
proceeding (including any inquiry or
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investigation). If the Merger is consummated, the agreement between the Fund and
THL I will become and be binding upon Syratech.
Ocean State Jobbers, Inc. ("Ocean State") purchased from the Company
merchandise in the amount of approximately $0.735 million for the year ended
December 31, 1995. Alan Perlman, a director of the Company, has been an officer
and director of Ocean State since 1977.
Service Merchandise Co. Inc., ("Service") purchased from the Company
merchandise in the amount of approximately $10.706 million for the year ended
December 31, 1995. On July 12, 1996, Farberware granted to Service, in
consideration of royalty payments to be made by Service, the exclusive license
to use and exploit the Farberware name and related intellectual property in
connection with the sourcing, manufacture, marketing and sale of certain
electric products. An indirect beneficial owner of less than 1% of the Company's
Common Stock holds a significant management position in Service. Harold
Roitenberg, a director of the Company, is also a director of Service.
Wacker Industrial Company ("Wacker"), a major supplier, is owned by a
holder of less than 1% of Syratech Common Stock. For the year ended December 31,
1995, the Company had purchases from Wacker of approximately $5.371 million.
The Company believes that the transactions described or referred to above
were effected on terms no less favorable to the Company than those that could
have been obtained from unaffiliated third parties.
Shares of Syratech Common Stock held by executive officers and directors of
the Company will be entitled to receive the same consideration as shares of
Syratech Common Stock held by other stockholders, except that Leonard Florence
will be required to retain 650,704 of his shares of Syratech Common Stock and
the other Management Stockholders' rights to retain shares of Syratech Common
Stock will be limited to 25% of their shares (as opposed to 35% for stockholders
other than Management Stockholders) but such rights will not be subject to
proration. Management Stockholders (other than Mr. Florence) will retain 126,721
shares of Syratech Common Stock, including 63,696 shares that three Management
Stockholders are obliged to retain under the December 31, 1996 agreements
referred to under "THE MERGER -- Interests of Certain Persons in the Merger."
Mr. Florence and THL I have agreed that, following the Merger, (i) the
parties will agree to vote their shares of Syratech Common Stock in favor of a
Board of Directors, the majority of whom will be designated by the Lee
Affiliates and certain members of which will be designated by management, (ii)
the Lee Affiliates and management will have certain rights in connection with
certain sales of shares by the other, including the right to participate in such
sale, (iii) the Lee Affiliates and Mr. Florence will have certain registration
rights with respect to sales of Syratech Common Stock and (iv) it is intended
that Syratech establish an option plan granting Management options to purchase
273,438 shares of Syratech Common Stock (such options to be allocated as
determined by the Board of Directors in consultation with Mr. Florence).
Pursuant to the Merger Agreement, the Company has agreed for six years
after the Effective Time to indemnify all present and former directors and
officers of the Company and its subsidiaries and will, subject to certain
limitations, maintain for six years its current directors' and officers'
insurance and indemnification policy. See "CERTAIN PROVISIONS OF THE MERGER
AGREEMENT -- Indemnification and Insurance."
Additional information relating to executive compensation and various
benefit arrangements of the Company is set forth and incorporated herein by
reference to the Company's Proxy Statement for its Annual Meeting of
Stockholders held on May 9, 1996. See "AVAILABLE INFORMATION" and "INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE."
NYSE DE-LISTING
Following the consummation of the Merger, the Company anticipates that it
will seek to have the Syratech Common Stock, which is currently traded on the
NYSE delisted. See "RISK FACTORS -- Delisting; Loss of Liquidity."
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EFFECT OF THE MERGER ON RIGHTS OF HOLDERS OF SYRATECH COMMON STOCK
As a result of the Merger, Syratech Common Stock will no longer be traded
on the NYSE. See "SPECIAL FACTORS/RISK FACTORS -- Disadvantages of the
Merger -- Delisting; Loss of Liquidity; Reporting Obligations." In addition, as
required by the Merger Agreement, Syratech has redeemed all outstanding Rights
(as defined below) and terminated the Rights Agreement pursuant to which they
were issued. See "DESCRIPTION OF SYRATECH CAPITAL STOCK -- Preferred Stock."
Also, at the Effective Time of the Merger, the Company's Certificate of
Incorporation will be amended to permit holders of Syratech Common Stock to act
by written consent in lieu of a meeting.
RESALE OF SYRATECH COMMON STOCK FOLLOWING THE MERGER
The Syratech Common Stock to be retained in connection with the Merger will
be freely transferable, except that shares retained by any stockholder who may
be deemed to be an "affiliate" (as defined under the Securities Act and
generally including, without limitation, directors, certain executive officers
and beneficial owners of 10% or more of a class of capital stock) of the Company
for purposes of Rule 145 under the Securities Act will not be transferable
except in compliance with the Securities Act. This proxy statement does not
cover sales of Syratech Common Stock retained by any person who may be deemed to
be an affiliate of the Company.
MERGER FINANCINGS
Syratech is expected to enter into debt financing arrangements aggregating
approximately $290 million, which will consist of both debt securities (the
"Debt Securities") and a senior revolving credit facility (the "Revolving Credit
Facility"). It is anticipated that the full proceeds of the Debt Securities and
a portion of the proceeds available pursuant to the Revolving Credit Facility
would be used to finance the conversion into cash of the shares of Syratech
Common Stock currently outstanding which are not retained by existing
stockholders, and to refinance Syratech's outstanding indebtedness. In addition,
the Revolving Credit Facility would be used to provide for Syratech's working
capital requirements at the time of the Merger. On October 23, 1996, THL I
received commitment letters to provide such financing. The commitments are
subject to customary conditions, including the negotiation, execution and
delivery of definitive documentation with respect to the financings contemplated
by the commitments.
Under the Revolving Credit Facility, NationsBank, N.A. ("NationsBank") will
provide the Company with $130.0 million of revolving credit borrowings. The
Revolving Credit Facility will include a $30.0 million sublimit for the issuance
of standby and commercial letters of credit. Borrowings made under the Revolving
Credit Facility will bear interest at a rate equal to, at the Company's option,
NationsBank's Eurodollar Rate plus 225 basis points or the Prime Rate plus 50
basis points. The "Prime Rate" is a fluctuating interest rate equal to the
higher of (i) the rate of interest announced publicly by NationsBank as its
prime rate and (ii) a rate equal to 1/2 of 1% per annum above the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers, as determined for any
day by NationsBank. The Eurodollar Rate and Prime Rate margins will be subject
to step-downs commencing twelve months from the Closing, based on the Company's
performance. Interest based on the base rate will be payable monthly in arrears.
Interest based on the Eurodollar Rate will be payable in arrears at the earlier
of the end of (a) the applicable interest period and (b) month-end. Eurodollar
Rate borrowings are available in 1-, 2- 3- or 6-month interest periods.
The Revolving Credit Facility expires five (5) years from the consummation
of the Merger. Pursuant to the terms of the Revolving Credit Facility, the
Company is required during February and March of each year to maintain excess
availability (i.e. borrowing capacity in excess of the borrowings under the
Revolving Credit Facility) of at least $45.0 million. The obligations of the
Company under the Revolving Credit Facility are secured by inventory, accounts
receivable and the proceeds of the foregoing of the Company and its domestic
subsidiaries.
The Revolving Credit Facility contains customary covenants of the Company
and the subsidiary borrowers, including, without limitation, restrictions on (i)
the incurrence of debt, (ii) the sale of assets,
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(iii) mergers, acquisitions and other business combinations, (iv) voluntary
prepayment of other debt of the Company, (v) transactions with affiliates (as
defined in the Revolving Credit Facility) and (vi) investments, as well as
prohibitions on the payment of dividends to, or the repurchase or redemption of
stock from, shareholders and various financial covenants. Pursuant to the terms
of the Revolving Credit Facility, the Company would be in default under the
Revolving Credit Facility upon the non-payment of principal or interest when due
under the notes issued in connection with the Revolving Credit Facility or,
subject to applicable grace periods in certain circumstances (ranging form zero
to ten days), upon the non-fulfillment of the covenants described above, certain
changes in control of the ownership of the Company or various other defaults
described in the Revolving Credit Facility. If such a default occurs, the banks
will be entitled to take all actions permitted to be taken by a secured creditor
under the Uniform Commercial Code and to accelerate the amounts due under the
Revolving Credit Facility and may require all such amounts to be immediately
paid in full.
The Company plans to issue $160 million original principal amount of Debt
Securities, with an interest rate of % per annum. The Debt Securities will
have a maturity of ten years from the date of issue. Interest shall be payable
semi-annually. The Debt Securities will be general unsecured obligations of the
Company, ranking senior to all existing and future subordinated indebtedness of
the Company and pari passu in right of payment with all other existing and
future unsubordinated indebtedness of the Company, including the Revolving
Credit Facility. The payment of principal, premium, if any, and interest on the
Debt Securities will be unconditionally guaranteed on a joint and several basis
by each of the Company's domestic subsidiaries. See Note 15 to Notes to
Financial Statements.
On or after five years from the date of issue, the Company may redeem the
Debt Securities in whole or in part pursuant to the terms thereof.
Notwithstanding the foregoing, at any time on or before three years from the
date of issue, the Company may redeem up to 37 1/2% of the original aggregate
principal amount of Debt Securities at a redemption price of % of the
principal amount thereof, provided that at least $100.0 million of Debt
Securities remain outstanding immediately after the occurrence of such
redemption. Upon a Change of Control (as defined in the Indenture pursuant to
which the Debt Securities will be issued (the "Indenture")), the Company will be
required to make an offer to purchase all outstanding Debt Securities at 101% of
the principal amount thereof. In addition, the Indenture will restrict, among
other things, the ability of the Company and its subsidiaries to incur
additional indebtedness, pay dividends or make certain other restricted
payments, incur liens, engage in any sale and leaseback transaction, sell stock
of subsidiaries, apply net proceeds from certain asset sales, merge or
consolidate with any other person, sell, assign, transfer, lease, envy or
otherwise dispose of substantially all of the assets of the Company, enter into
certain transactions with affiliates, or incur indebtedness that is subordinate
in right of payment to any Indebtedness and senior in right of payment to the
Debt Securities.
Certain affiliates of Thomas H. Lee Company expect to make an equity
contribution to THL I of approximately $102.1 million to the Company less an
amount of approximately $2.0 million, which is equal to the product obtained by
multiplying $32 by the number of shares of Syratech Common Stock retained by
Management Stockholders other than Leonard Florence (other than the 63,696
shares issued as compensation to certain Management Stockholders). The equity
contribution to THL I of approximately $100.1 million assumes that stockholders
(other than Management Stockholders), do not elect to retain Syratech Common
Stock of up to the maximum of $25.0 million.
CONVERSION OF THL I STOCK
In the Merger, the shares of stock of THL I issued and outstanding
immediately prior to the Effective Time will be converted into such aggregate
number of shares of Syratech Common Stock as equals 3,191,850 less the number of
shares of Syratech Common Stock retained by stockholders (other than shares
retained by Leonard Florence and 63,696 shares that were issued as compensation
to and will be retained by three Management Stockholders). Such shares of
Syratech Common Stock will be held by Lee Affiliates, including the Fund.
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PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated financial
statements (the "Pro Forma Condensed Consolidated Financial Statements") have
been derived by the application of pro forma adjustments to the Company's
historical financial statements included in this Proxy Statement/Prospectus. The
pro forma condensed consolidated statement of operations for the year ended
December 31, 1995 and for the nine months ended September 30, 1996 give effect
to the Merger and related transactions and the acquisition of Rauch as if such
transactions were consummated as of the beginning of the earliest period
presented. The pro forma condensed consolidated statement of operations for the
year ended December 31, 1995 also includes the Katy Stock Repurchase and the
Syroco, Inc. Disposal as if they were consummated on January 1, 1995. The
acquisition of C. J. Vander and the Silvestri and Potpourri Press product lines
were not material to the condensed consolidated financial statements and as such
are not included in the Pro Forma Condensed Consolidated Financial Statements.
The pro forma balance sheet gives effect to the Merger and related transactions
as if such transactions had occurred as of September 30, 1996. The adjustments
are described in the accompanying notes. The Pro Forma Financial Statements
should not be considered indicative of actual results that would have been
achieved had the Merger and related transactions been consummated on the date or
for the periods indicated and do not purport to indicate balance sheet data or
results of operations as of any future date or for any future period. The Pro
Forma Condensed Consolidated Financial Statements should be read in conjunction
with the Company's historical financial statements and the notes thereto
included in this Proxy Statement/Prospectus. See "AVAILABLE INFORMATION" and
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
The pro forma adjustments were applied to the respective historical
financial statements to reflect and account for the Merger as a
recapitalization. Accordingly, the historical basis of the Company's assets and
liabilities has not been impacted by the transaction.
60
<PAGE> 68
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-----------------------------------------------
HISTORICAL PRO FORMA
SYRATECH TRANSACTION SYRATECH
CORPORATION ADJUSTMENTS(A) CORPORATION
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents.............................. $ 9,532 $ (9,532)(a) $ 0
Accounts receivable, net.......................... 117,199 117,199
Inventories....................................... 105,297 105,297
Deferred income taxes............................. 8,193 8,193
Prepaid expenses and other........................ 1,737 1,737
Net assets of discontinued operations............. 105 105
-------- --------- ---------
Total current assets...................... 242,063 (9,532) 232,531
Property, plant and equipment, net.................. 60,831 60,831
Purchase price in excess of net assets acquired..... 6,994 6,994
Other assets........................................ 461 10,088(b) 10,549
-------- --------- ---------
Total..................................... $ 310,349 $ 556 $ 310,905
======== ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Revolving loan and notes payable.................. $ 82,155 $ (82,155)(c) $ 0
Current long-term debt............................ 0
Accounts payable.................................. 16,586 16,586
Accrued expenses.................................. 14,392 14,392
Accrued compensation.............................. 3,256 3,256
Accrued advertising............................... 4,779 4,779
Income taxes payable.............................. 2,209 2,209
-------- --------- ---------
Total current liabilities................. 123,377 (82,155) 41,222
Long-term debt...................................... 252,083(d) 252,083
Deferred income taxes............................... 18,795 18,795
Pension liability................................... 2,668 2,668
Stockholders' equity (deficit)
Preferred stock...................................
Common stock...................................... 87 (48)(e)(f) 39
Additional paid-in capital........................ 9,835 (9,835)(f) 0
Retained earnings (deficit)....................... 155,447 (159,492)(b)(f) (4,045)
Cumulative translation adjustment................. 143 143
Less: Treasury stock.............................. (3) 3(f)(g) 0
-------- --------- ---------
Total stockholders' equity (deficit)...... 165,509 (169,372) (3,863)
-------- --------- ---------
Total..................................... $ 310,349 $ 556 $ 310,905
======== ========= =========
</TABLE>
See notes to pro forma condensed consolidated balance sheet.
61
<PAGE> 69
NOTES TO PRO FORMA
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
The pro forma financial data have been derived by the application of pro
forma adjustments to the Company's historical financial statements for the
period noted. The Merger has been accounted for as a recapitalization which will
have no impact on the historical basis of assets and liabilities. The pro forma
financial data assumes that there are no dissenting shareholders to the Merger.
(a) The net effect of the Merger, as if it occurred on September 30, 1996,
reflects the following:
<TABLE>
<S> <C>
Sources of Funds:
New Revolving Loan Facility proceeds(1)................................. $ 92,083
Debt Securities proceeds................................................ 160,000
Syratech cash at September 30, 1996..................................... 9,532
Cash from exercise of employee stock options............................ 2,998
Equity contribution:
THL I................................................................ 100,122
Retained by Management(2)............................................ 24,878
--------
Total Sources $389,613
========
Uses of Funds:
Merger consideration(2)................................................. $284,958
Repayment of existing debt.............................................. 82,155
Fees and expenses....................................................... 22,500
--------
Total Uses......................................................... $389,613
========
</TABLE>
- ---------------
(1) The Company expects that a $130,000 new Revolving Loan Facility,
including a letter of credit sub-limit of $30,000, will be available for
working capital and general corporate purposes. The amount shown
excludes $16,758 of letters of credit which will be issued to replace
existing letters of credit.
(2) Includes 650,704 shares to be retained by Mr. Florence and 126,721
shares to be retained by other members of Management.
(b) The adjustment to retained earnings reflects the total fees and expenses of
$22,500 anticipated to be paid to effect the Merger, net of the adjustment
to other assets of $10,088 of capitalized debt issuance fees. Such
estimated fees and expenses are anticipated to consist of (i) fees and
expenses related to the Merger Financings, including bank commitment fees
and underwriting discounts and commissions, (ii) fees and expenses in
connection with the prepayment of historical debt and (iii) professional,
advisory and investment banking fees and expenses and (iv) miscellaneous
fees and expenses such as printing and filing fees.
(c) The pro forma adjustment to short-term borrowings reflects the repayment of
historical revolving debt outstanding.
(d) The pro forma adjustment to long-term debt reflects the following:
<TABLE>
<S> <C>
Revolving Credit Facility (1)........................................... $ 92,083
Debt Securities......................................................... 160,000
--------
Total adjustment................................................ $252,083
========
</TABLE>
- ---------------
(1) In addition there are $16,758 of outstanding letters of
credit.
This presentation is indicative of the Company's best current estimate of
the types of financing which may be used in connection with the Merger.
The Company expects that a $130,000 Revolving Credit Facility, including a
letter of credit sub-limit of $30,000, will be available for working
capital and general corporate purposes.
The pro forma statements do not reflect the Warrants which may be issued in
connection with the financing of the transactions contemplated by the
Merger Agreement.
(e) The adjustment reflects the effect of the Merger on the 8,676,631 shares
outstanding at $.01 par value per share. There will be 3,906,250 shares
outstanding subsequent to the Merger.
62
<PAGE> 70
(f) The adjustment reflects amounts distributed to convert up to 8,127,306
shares of Syratech Common Stock to cash, including those converted under
the Employee Stock Option Plan, for total consideration of $284,958 less
the retention of shares by existing shareholders. Combining the retained
shares with the receipt of proceeds of up to 3,191,850 shares issued as
part of the Merger to THL I results in total equity of $125,000.
<TABLE>
<S> <C>
Historical retained earnings.............................................. $155,447
Common stock converted by existing stockholders(1)........................ (260,080)
Equity contribution(2).................................................... 100,122
Cash proceeds from exercise of employee stock options..................... 2,998
Costs and expenses incurred, net of deferred financing costs
capitalized............................................................. (12,412)
Allocation to par value of the common stock as a result of the Merger..... 48
Allocation to reduce additional paid in capital to zero................... 9,835
Allocation to cancel treasury stock....................................... (3)
--------
Pro forma retained deficit................................................ $ (4,045)
========
</TABLE>
- ---------------
(1) Assumes no stockholders other than Management elect to retain shares of
Syratech Common Stock.
(2) Assumes non-management stockholders do not elect to retain Syratech
Common Stock.
(g) The adjustment reflects the cancellation of the 218 shares of treasury
stock.
63
<PAGE> 71
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
--------------------------------------------------------------------------------
MERGER
HISTORICAL HISTORICAL PRO FORMA PRO FORMA PRO FORMA
SYRATECH RAUCH ADJUSTMENTS COMBINED ADJUSTMENTS COMBINED
---------- ---------- ----------- -------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net sales.................. $ 169,520 $ 58,919 $ $228,439 $ 228,439
Cost of sales.............. 119,836 47,756 1,604(a) 170,007 170,007
811(b)
-------- ------- ------- -------- --------
Gross profit.......... 49,684 11,163 (2,415) 58,432 58,432
Selling, general and
administrative
expenses................. 34,239 11,795 (1,604)(a) 44,227 $ 450(g) 44,677
241(c)
(444)(d)
-------- ------- ------- -------- -------- --------
Income (loss) from
operations............... 15,445 (632) (608) 14,205 (450) 13,755
Interest expense........... (287) (1,305) 1,592(e) 0 (19,958)(h) (19,958)
Interest income............ 4,881 (4,881)(e) 0 0
Gain on insurance
settlement............... 6,275 6,275 6,275
Other income............... 157 157 157
-------- ------- ------- -------- -------- --------
Income before
provision for income
taxes............... 20,039 4,495 (3,897) 20,637 (20,408) 229
Provision for income
taxes.................... 6,863 2,102 (1,742)(i) 7,223 (7,143)(i) 80
-------- ------- ------- -------- -------- --------
Income from continuing
operations............... $ 13,176 $ 2,393 $(2,155) $ 13,414 $ (13,265) $ 149
======== ======= ======= ======== ======== ========
Earnings per share from
continuing operations.... $ 1.12 $ 1.54 $ 0.04
======== ======== ========
Weighted average common
shares and common share
equivalents
outstanding.............. 11,803 (3,065)(f) 8,738 (4,832)(j) 3,906
======== ======= ======== ======== ========
</TABLE>
See notes to pro forma condensed consolidated statement of operations.
64
<PAGE> 72
NOTES TO PRO FORMA
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT SHARE DATA)
The pro forma condensed consolidated financial data have been derived by
the application of pro forma adjustments to the Company's historical financial
statements for the period noted. The Merger has been accounted for as a
recapitalization which will have no impact on the historical basis of assets and
liabilities. The pro forma financial data assumes that there are no dissenting
shareholders to the Merger.
(a) Reflects a reclassification of Rauch warehouse and distribution costs to
conform to the Company's accounting for such costs.
(b) Reflects additional depreciation expense as a result of an allocation of a
portion of the Rauch purchase price to property, plant and equipment.
(c) Reflects additional amortization expense as a result of amortizing, over 30
years, the allocation of Rauch purchase price in excess of net assets
acquired.
(d) Reflects an adjustment for certain acquisition related fees incurred by
Rauch.
(e) Reflects an adjustment to reduce debt, and corresponding interest expense
to zero, had the acquisition of Rauch, the Katy Stock Repurchase and the
Syroco, Inc. Disposal transactions occurred on January 1, 1995.
A summary of the components of the adjustment for transactions assuming all
transactions occurred on 1/1/95, and resulting cash is as follows:
<TABLE>
<S> <C>
Syroco, Inc. Disposal net proceeds............................. $133,931
Cash used for the Katy Stock Repurchase........................ (52,054)
Cash used for the Rauch Acquisition............................ (49,626)
--------
Cash to cover working capital needs............................ $ 32,251
========
</TABLE>
Interest income was not recorded on the excess cash balance.
(f) Reflects the reduction in weighted average common shares and common share
equivalents outstanding as a result of the reduction in shares for the Katy
Stock Repurchase.
(g)The pro forma adjustment to selling, general and administrative expenses
reflect the annual management fee the Company will pay to Thomas H. Lee
Company.
(h)The pro forma adjustment to interest expense reflects the following:
<TABLE>
<S> <C>
Interest expense on the new Revolving Loan Facility (assumed 9.0% rate)... $ 1,751
Interest expense on the Debt Securities (assumed 10.5% rate).............. 16,800
Amortization of debt issuance costs over 6-10 years....................... 1,407
-------
Total adjustment................................................ $ 19,958
=======
</TABLE>
Because interest rates in connection with the Merger Financings have not
been determined as of the date of this Proxy Statement/Prospectus, this
presentation is indicative of the Company's best current estimate of
interest expense.
A 0.125% increase or decrease in the assumed average interest rate on the
Debt Securities would change the pro forma interest expense by $200. The
pro forma net income would change by $130 and the pro forma earnings per
share would change by $0.03.
(i) The adjustment reflects the tax effect of the pro forma adjustments at a
35% effective tax rate.
(j) Reflects the reduction in weighted average common shares and common share
equivalents outstanding as a result of the reduction in shares in
connection with the Merger.
65
<PAGE> 73
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1996
-------------------------------------------------------------------------------------------
MERGER
HISTORICAL PRO FORMA PRO FORMA PRO FORMA
SYRATECH RAUCH(A) ADJUSTMENTS COMBINED ADJUSTMENTS COMBINED
---------- ---------- ----------- -------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net sales.................. $ 182,727 $ 609 $ $183,336 $ 183,336
Cost of sales.............. 130,303 330 101(b) 130,734 130,734
-------- ------- ------ -------- --------
Gross profit..... 52,424 279 (101) 52,602 52,602
Selling, general and
administrative
expenses................. 39,161 1,806 30(c) 39,917 $ 338(g) 40,255
(94)(d)
(986)(e)
Other operating income..... 5,057(1) 5,057 5,057
-------- ------- ------ -------- -------- --------
Income (loss)
from
operations..... 18,320 (1,527) 949 17,742 (338) 17,404
Interest expense........... (2,083) (93) (519)(f) (2,695) (15,734)(h) (18,429)
Interest income............ 662 21 683 683
Other income............... 11,900(2) 11,900(g) 11,900
-------- ------- ------ -------- -------- --------
Income (loss) before
provision (benefit) for
income taxes............. 28,799 (1,599) 430 27,630 (16,072) 11,558
Provision (benefit) for
income taxes............. 10,080 (560) 150(i) 9,670 (5,625)(i) 4,045
-------- ------- ------ -------- -------- --------
Net income (loss).......... $ 18,719 $ (1,039) $ 280 $ 17,960 $ (10,447) $ 7,513
======== ======= ====== ======== ======== ========
Earnings (loss) per share
from continuing
operations............... $ 2.13 $ 2.04 $ 1.92
======== ======== ========
Weighted average common
shares and
common share equivalents
outstanding.............. 8,781 8,786 (4,880)(j) 3,906
======== ======== ======== ========
</TABLE>
- ---------------
(1) Consists of income of $5,057 from the sale of Farberware inventory and other
operating income, net of certain selling, general and administrative
expenses.
(2) Consists of nonrecurring pre-tax income of $11,900 related to licensing the
Farberware name on cookware and bakeware.
See notes to pro forma condensed consolidated statement of operations.
66
<PAGE> 74
NOTES TO PRO FORMA
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
The pro forma condensed consolidated financial data have been derived by
the application of pro forma adjustments to the Company's historical financial
statements for the period noted. The Merger has been accounted for as a
recapitalization which will have no impact on the historical basis of assets and
liabilities. The pro forma financial data assumes that there are no dissenting
shareholders to the Merger.
(a) Includes results of operations of 45 day period, beginning January 1, 1996,
prior to its acquisition by the Company.
(b) Reflects additional depreciation expense as a result of an allocation of a
portion of the Rauch purchase price to property, plant and equipment.
(c) Reflects additional amortization expense as a result of amortizing, over 30
years, the allocation of Rauch purchase price in excess of net assets
acquired.
(d) Reflects an adjustment for certain acquisition related fees incurred by
Rauch.
(e) Reflects an adjustment for a stock option buy out by Rauch.
(f) reflects an increase in interest expense had the acquisition of Rauch taken
place on January 1, 1995, using an interest rate of 8.3% per annum, which
represents the Company's weighted average interest costs for the period.
(g) The pro forma adjustment to selling, general and administrative expenses
reflects the annual management fee the Company will pay to the Thomas H. Lee
Company.
(h) The pro forma adjustment to interest expense reflects the following:
<TABLE>
<S> <C>
Interest expense on the new Revolving Loan Facility (assumed 9.0% rate).... $ 2,078
Interest expense on the Debt Securities (assumed 10.5% rate)............... 12,600
Amortization of debt issuance costs over 6-10 years........................ 1,056
-------
Total adjustment................................................. $15,734
=======
</TABLE>
Because interest rates in connection with the Merger Financings have not
been determined as of the date of this Proxy Statement/Prospectus, this
presentation is indicative of the Company's best current estimate of
interest expense.
A 0.125% increase or decrease in the assumed average interest rate on the
Debt Securities would change the pro forma interest expense by $150. The
pro forma net income would change by $98 and the pro forma earnings per
share would change by $0.02.
(i) The adjustment reflects the tax effect of the pro forma adjustments at a
35% effective tax rate.
(j) Reflects the reduction in weighted average common shares and common share
equivalents outstanding as a result of the reduction in shares in connection
with the Merger.
67
<PAGE> 75
DESCRIPTION OF SYRATECH CAPITAL STOCK
GENERAL
Syratech is authorized by its Restated Certificate of Incorporation, to
issue an aggregate of 20,000,000 shares of Common Stock, par value $.01 per
share and 500,000 shares of Preferred Stock, par value $.10 per share. The
following is a summary of certain of the rights and privileges pertaining to
Syratech Capital Stock. For a full description of Syratech Capital Stock,
reference is made to the Company's Restated Certificate of Incorporation, a copy
of which is on file with the Commission.
SYRATECH COMMON STOCK
The holders of Syratech Common Stock are entitled to one vote per share on
all matters submitted for action by the stockholders. Stockholders holding a
majority of the shares of Syratech Common Stock can, if they elect to do so,
approve the Merger. There is no provision for cumulative voting with respect to
the election of directors. Accordingly, the holders of more than 50% of the
shares of Syratech Common Stock can, if they choose to do so, elect all of the
directors. In such event, the holders of the remaining shares will not be able
to elect any directors.
Subject to the rights of any holders of outstanding Preferred Stock, all
shares of Syratech Common Stock are entitled to share in such dividends as the
Board of Directors may from time to time declare from sources legally available
therefor.
Subject to the rights of any holders of outstanding Preferred Stock, upon
liquidation or dissolution of the Company, whether voluntary or involuntary, all
shares of Syratech Common Stock are entitled to share equally in the assets
available for distribution to stockholders after payment of all prior
obligations of the Company.
SYRATECH COMMON STOCK FOLLOWING THE MERGER
If the Merger is approved by the requisite vote of the stockholders of
Syratech Common Stock at the Special Meeting, at the Effective Time the
Certificate of Incorporation of the Company will be amended and restated so as
to read in its entirety in the form set forth as Exhibit A to the Merger
Agreement which is attached hereto as ANNEX II, and, as so amended, until
thereafter further amended as provided therein and under the Delaware General
Corporation Law, will be the certificate of incorporation of the Company
following the Merger. The Amended and Restated Certificate of Incorporation will
reduce the total number of shares of capital stock that the Company is
authorized to issue from 20,000,000 to shares.
PREFERRED STOCK
The Board of Directors is empowered under the Company's Restated
Certificate of Incorporation and without further stockholder action to divide
any and all shares of the Preferred Stock into series and to fix and determine
the relative rights and preferences of the shares of any series so established.
The issuance of Preferred Stock by the Board of Directors could affect the
rights of holders of shares of Common Stock. For example, issuance of the
Preferred Stock could result in a class of securities outstanding that will have
certain preferences with respect to dividends and in liquidation over the Common
Stock, and may enjoy certain voting rights, contingent or otherwise, in addition
to that of the Common Stock, and could result in the dilution of the voting
rights, net income per share and net book value of the Common Stock.
The Amended and Restated Certificate of Incorporation will reduce the
number of shares of Preferred Stock that the Company is authorized to issue from
500,000 to and change the par value of Preferred Stock from $0.10 to
$0.01 per share.
On October 26, 1992, the Board authorized and declared a dividend of one
preferred share purchase right (a "Right") for each share of Syratech Common
Stock outstanding at the close of business on October 31, 1992, and further
authorized the issuance of one Right with respect to each share of Syratech
Common Stock that would become outstanding (whether originally issued or
delivered from the Company's treasury after
68
<PAGE> 76
October 31, 1992). As required by the Merger Agreement, effective on November 8,
1996, Syratech redeemed all outstanding Rights and terminated the Rights
Agreement pursuant to which they were issued. The redemption price for each
Right is one cent and if holders of Rights have not received payment of the
redemption price prior to the Effective Time they will, upon receipt of
satisfactory proof of non-payment of the redemption price of Rights held by them
on November 8, 1996, have the redemption price of their Rights added to the
payment of the cash price for their shares of Syratech Common Stock in the
Merger.
CERTAIN PROVISIONS OF THE MERGER AGREEMENT
The following is a brief summary of certain provisions of the Merger
Agreement, as amended, which appears as ANNEX I to this Proxy
Statement/Prospectus and is incorporated herein by reference. Such summary is
qualified in its entirety by reference to the Merger Agreement.
THE MERGER
The Merger Agreement provides that, following the approval of the Merger
and the adoption of the Merger Agreement by the vote of holders of a majority of
the shares of Syratech Common Stock entitled to vote thereon and the
satisfaction or waiver of the other conditions to the Merger, THL I will be
merged with and into the Company, and the Company will continue as the surviving
corporation in the Merger.
If the conditions to the Merger are satisfied or waived, the parties will
file with the Secretary of State of the State of Delaware a duly executed
Certificate of Merger, and the Merger will become effective upon the filing and
acceptance thereof or at such other time as is provided in the Certificate of
Merger in accordance with the Delaware General Corporation Law and as THL I and
the Company agree.
Each share of Syratech Common Stock outstanding at the Effective Time
(other than shares of Syratech Common Stock held by Syratech or any wholly owned
subsidiary thereof and Dissenting Shares) will be entitled either (i) to the
Cash Price or (ii) to retain a share, subject to certain restrictions, as more
fully described under "THE MERGER -- Merger Consideration" and "-- Non-Cash
Election." With regard to the treatment of fractional share interests, see
"-- Fractional Shares."
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains customary representations and warranties of
the Company relating, with respect to the Company and its subsidiaries, to,
among other things, (a) organization, standing and similar corporate matters;
(b) subsidiaries; (c) the Company's capital structure; (d) the authorization,
execution, delivery, performance and enforceability of the Merger Agreement and
related matters; (e) documents filed by the Company with the Commission, the
accuracy of information contained therein and the absence of undisclosed
liabilities; (f) the accuracy of information supplied by the Company in
connection with this Proxy Statement/Prospectus; (g) the absence of certain
changes or events since the date of the most recent financial statements filed
with the Commission, including material adverse changes with respect to the
Company; (h) the absence of pending or threatened material litigation, certain
labor matters and compliance with applicable laws; (i) benefit plans and other
matters relating to the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") and employment matters; (j) filing of tax returns and payment
of taxes; (k) the absence of defaults under material contracts; (l) brokers's
fees and expenses; (m) the receipt of an opinion of the Company's financial
advisor; (n) the recommendation of the Board of Directors of the Company with
respect to the Merger Agreement, the Merger and related transactions; (o) the
required vote of the Company's stockholders; (p) the lack of any provisions in
the Company's organizational documents restricting, and the inapplicability of
any state takeover or similar statutes to, the Merger Agreement, the Merger or
related agreements and transactions; (q) the ownership of Company trade names;
and (r) related party transactions.
The Merger Agreement also contains customary representations and warranties
of THL I relating to, among other things, (a) organization, standing and similar
corporate matters; (b) subsidiaries; (c) THL I's capital structure; (d) the
authorization, execution, delivery, performance and enforceability of the Merger
69
<PAGE> 77
Agreement and related matters; (e) broker's fees and expenses; (f) financing;
(g) the accuracy of information supplied by THL I in connection with this Proxy
Statement/Prospectus; and (h) participation by Syratech's management in the
transaction contemplated by the Agreement.
CERTAIN PRE-CLOSING COVENANTS
Pursuant to the Merger Agreement, the Company has agreed, until the
Effective Time (except as otherwise specifically required by the terms of the
Merger Agreement), that it will, and it will cause its subsidiaries to, act and
carry on their respective businesses in the usual, regular and ordinary course
of business consistent with past practice and use its and their respective
reasonable best efforts to preserve intact their current business organizations,
keep available the services of their current officers and employees and preserve
their relationships with customers, suppliers, licensors, licensees,
advertisers, distributors and others having business dealings with them and to
preserve goodwill. Without limiting the generality of the foregoing, until the
Effective Time, the Company has agreed that it will not, and will not permit any
of its subsidiaries, without the prior consent of THL I, which shall not be
unreasonably withheld to, (i) declare, set aside or pay any dividends on, or
make any other distributions in respect of, any of its capital stock, other than
dividends and distributions by a direct or indirect wholly owned subsidiary of
the Company to its parent, (ii) split, combine or reclassify any of its capital
stock or issue or authorize the issuance of any other securities in respect of,
in lieu of or in substitution for shares of its capital stock (except pursuant
to the Company's Rights Agreement), or (iii) purchase, redeem or otherwise
acquire any shares of capital stock of the Company or any of its subsidiaries or
any other securities thereof or any rights, warrants or options to acquire any
such shares or other securities, except, in the case of this clause (iii), for
the acquisition of shares of Syratech Common Stock from holders of Company Stock
Options in full or partial payment of the exercise price payable by such holder
upon exercise of Company Stock Options outstanding on the date of the Merger
Agreement (except pursuant to the Company's Rights Agreement); (iv) subject to
certain exceptions, authorize for issuance, issue, deliver, sell, pledge or
otherwise encumber any shares of its capital stock or the capital stock of any
of its subsidiaries, any other voting securities or any securities convertible
into, or any rights, warrants or options to acquire, any such shares, voting
securities or convertible securities or any other securities or equity
equivalents; (v) amend its articles of incorporation, by-laws or other
comparable charter or organizational documents; (vi) acquire or agree to acquire
any business or any corporation, partnership, joint venture, association or
other business organization or division thereof material to the Company; (vii)
subject to certain exceptions, sell, encumber or otherwise dispose of any of its
properties or assets other than properties or assets that meet certain specified
criteria, except transactions in the ordinary course of business consistent with
past practice, sales of inventory and entering into leases for showrooms and
sales or dispositions of buildings no longer usable by the Company in its
operations; (viii) incur any indebtedness for borrowed money or guarantee any
such indebtedness of another person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of the Company or any of
its subsidiaries, guarantee any debt securities of another person, enter into
any "keep well" or other agreement to maintain any financial statement condition
of another person or enter into any arrangement having the economic effect of
any of the foregoing, except for short-term borrowings and for lease
obligations, in each case incurred in the ordinary course of business consistent
with past practice, (ix) make any material loans, advances or capital
contributions to, or investments in, any other person, other than to the Company
or any direct or indirect wholly owned subsidiary of the Company; (x) acquire or
agree to acquire any assets that are material, individually or in the aggregate,
to the Company and its subsidiaries taken as a whole, or, make or agree to make
any capital expenditures in excess of the amount budgeted therefor by the
Company; (xi) subject to certain exceptions, pay, discharge or satisfy any
claims (including claims of stockholders), liabilities or obligations (absolute,
accrued, asserted or unasserted, contingent or otherwise), or waive, release,
grant or transfer any rights of material value or modify or change in any
material respect any existing license, lease, contract or other document, other
than in the ordinary course of business consistent with past practice; (xii)
adopt a plan of complete or partial liquidation or resolutions providing for or
authorizing such a liquidation or a dissolution, merger, consolidation,
restructuring, recapitalization or reorganization; (xiii) enter into any new
collective bargaining agreement or any successor collective bargaining agreement
to any collective bargaining agreement, except in the ordinary course of
business; (xiv) change any material accounting principle; (xv) settle or
compromise any litigation, other than
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settlements or compromises where the amount paid (after giving effect to
insurance proceeds actually received) in settlement or compromise is not
material to the Company; or (xvi) authorize any of, or commit or agree to take
any of, the foregoing actions.
Under the Merger Agreement, the Company has also agreed, subject to certain
exceptions, that neither it nor any of its subsidiaries will adopt or amend
(except as required by law) any employee benefit plan, agreement, trust, fund or
other arrangement for the benefit or welfare of any employee, director or former
director or employee, other than increases for individuals (other than officers
and directors) in the ordinary course of business consistent with past practice
or increase the compensation or fringe benefits of any director, employee or
former director or employee or pay any benefit not required by an existing plan,
arrangement or agreement.
Pursuant to the Merger Agreement, the Company has also agreed that neither
it nor any of its subsidiaries will (i) grant any new or modified severance or
termination arrangement or increase or accelerate any benefits payable under its
severance or termination pay policies in effect on the date of the Merger
Agreement, (ii) effectuate a "plant closing" or "mass layoff," as defined in the
Worker Adjustment and Retraining Notification Act of 1988, affecting in whole or
in part any site of employment, facility, operating unit or employee of the
Company or any subsidiary, without notifying THL I or its affiliates in advance
and without complying with the notice requirements and other provisions of such
Act or (iii) except in the ordinary course of business and consistent with past
practice, make any tax election or settle or compromise any federal, state,
local or foreign tax liability.
NO SOLICITATION OF ALTERNATIVE TRANSACTIONS
The Merger Agreement provides that neither Syratech nor any of its
subsidiaries (nor any of their respective officers, directors, employees,
representatives, agents or other affiliates), will directly or indirectly
initiate, solicit or knowingly encourage or take any other action to facilitate
knowingly any inquiries or the making of any proposal that constitutes, or may
reasonably be expected to lead to (i) any merger consolidation, share exchange,
recapitalization, business combination, or other similar transaction involving
40% more of the assets of the Company, (ii) any sale, lease exchange, mortgage,
pledge, transfer or other disposition of 40% or more of the assets of the
Company and subsidiaries, taken as a whole, in a single transaction or series of
transactions, (iii) any tender offer or exchange offer for 40% or more of the
outstanding shares of capital stock of the Company or any filing of a
registration statement under the Securities Act in connection therewith, or (iv)
any public announcement or a proposal, plan or intention to do any of the
foregoing or any agreement to engage in any of the foregoing (each a
"Transaction Proposal"), or enter into or maintain or continue discussions or
negotiate with any person or entity in furtherance of such inquiries or to
obtain a Transaction Proposal or agree to or endorse any Transaction Proposal or
authorize or permit any of its officers, directors or employees or any of its
subsidiaries or any investment banker, financial advisor, attorney, accountant
or other representative retained by any of its subsidiaries to take any such
actions. By the terms of the Merger Agreement, the foregoing provision will not
prohibit the Company from (i) furnishing information to or entering into
discussions or negotiations with, any person or entity that makes an unsolicited
written, bona fide proposal to acquire the Company and/or its subsidiaries
pursuant to a merger, consolidation, share exchange, business combination,
tender or exchange offer or other similar transaction if, and only to the extent
that (A) the Board (or a special committee thereof), after consultation with and
based upon the advice of independent legal counsel (who may be the Company's
regularly engaged independent legal counsel), determines in good faith that such
action is necessary for the Board to comply with its fiduciary duties to
stockholders under applicable law and (B) prior to taking such action the
Company (x) provides reasonable notice to THL I to the effect that it is taking
such action and (y) receives from such person or entity an executed
confidentiality agreement in reasonably customary form, (ii) failing to make or
withdrawing or modifying its recommendation of the Merger if the Board, after
consultation with and based upon the advice of independent legal counsel (who
may be the Company's regularly engaged independent counsel), determines in good
faith that such action is necessary for the Board to comply with its fiduciary
duties to stockholders under applicable law or (iii) making to the Company's
stockholders any recommendation and related filing with the SEC as required by
Rule 14e-2 and 14d-9 under the Exchange Act, with respect to any
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tender offer, or taking any other legally required action (including, without
limitation, the making of public disclosures as may be necessary or advisable
under applicable securities laws). For a description of the effects that a
Transaction Proposal prior to the Effective Time could have under the Merger
Agreement, see "-- Termination" below.
CERTIFICATE OF INCORPORATION AND BY LAWS
Attached to the Merger Agreement as Exhibit A is the Amended and Restated
Certificate of Incorporation of the Company as it will be amended to read as a
result of and following the Merger until thereafter amended as provided therein
and under the Delaware General Corporation Laws.
The By-Laws of Syratech as in effect at the Effective Time shall be the
By-laws of the Company following the Merger until thereafter changed or amended
as provided therein or by applicable law.
BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY FOLLOWING THE MERGER
The Merger Agreement provides that the following nine persons David A.
Harkins, Scott A. Schoen, Thomas M. Hagerty, Kent R. Weldon, Seth W. Lawry,
Melvin L. Levine, Alan R. Kanter, E. Merle Randolph and Leonard Florence will be
the directors of the Company following the Merger. See Schedule 1 for more
information on these persons other than existing directors of the Company. The
Board of Directors will be subject to change from time to time. See "SPECIAL
FACTORS/RISK FACTORS -- Control by Affiliates of the Thomas H. Lee Company."
The Merger Agreement also provides that the officers of the Company at the
Effective Time will be officers of the Company following the Merger, until the
earlier of their resignation or removal or until their respective successors are
duly elected and qualified, as the case may be.
STOCK AND EMPLOYEE BENEFIT PLANS
The treatment in the Merger of outstanding Company Stock Options and of the
Company's employee benefit plans will be as described in "THE MERGER -- Effect
on Stock and Employee Benefit Matters."
ACCESS TO INFORMATION AND CONFIDENTIALITY
Subject to applicable provisions regarding confidentiality, the Company has
agreed in the Merger Agreement to, and to cause each of its subsidiaries,
officers, employees, counsel, financial advisors and other representatives to,
afford to THL I and its representatives and to potential financing sources,
reasonable access, in a coordinated manner, during normal business hours during
the period prior to the Effective Time to all its properties, books, contracts,
commitments, personnel and records and, during such period, to, and to cause
each of its subsidiaries to, furnish promptly to THL I a copy of all documents
filed by it during such period pursuant to Federal and State securities laws and
such information concerning its business, properties, financial condition,
operations and personnel as THL I may from time to time reasonably request.
BEST EFFORTS
Pursuant to the Merger Agreement and subject to certain conditions and
limitations described therein, the parties have agreed to cooperate with each
other and to use their respective best efforts do all things necessary, proper
or advisable, so that the transactions contemplated by the Merger Agreement may
be consummated. Under the Merger Agreement, the Company and THL I will take all
actions necessary to delist the Company's Common Stock from the NYSE, effective
after the Effective Time.
INDEMNIFICATION AND INSURANCE
Under the Merger Agreement, for six years after the Effective Time, the
Company will indemnify all present and former directors and officers of the
Company and its subsidiaries for matters existing or occurring at or prior to
the Effective Time to the fullest extent currently provided in their respective
certificates of
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incorporation or by-laws on the date of the Merger Agreement consistent with
applicable law, to the extent that such costs have not been paid for by
insurance.
The Company will, for six years following the Effective Time, maintain its
current directors' and officers' insurance and indemnification policy to the
extent that it provides coverage for events occurring prior to the Effective
Time for all persons who are directors and officers of the Company on the date
of the Merger Agreement; provided, that the Company will not be required in any
year to spend in excess of 200% of the annual premium paid for directors' and
officers' insurance prior to the date of the Merger Agreement; provided that the
Company shall be obligated to provide such coverage as may be obtained for such
amount.
CONDITIONS TO THE CONSUMMATION OF THE MERGER
The respective obligations of the Company and THL I to effect the Merger
are subject to various conditions which include, in addition to certain other
customary closing conditions, the following:
(a) the Merger Agreement shall have been approved by the requisite
vote of holders of outstanding shares of Syratech Common Stock and not more
than 10% of the outstanding shares of Syratech Common Stock shall be
Dissenting Shares;
(b) the waiting period (and any extension thereof) applicable to the
Merger under the HSR Act shall have been terminated or shall have expired;
(c) no temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction or
other legal restraint or prohibition preventing the consummation of the
Merger shall be in effect; provided that the Company and THL I are required
to use their best efforts to have any such injunction, order, restraint or
prohibition vacated; and
(d) any registration statement used in connection with the Merger on
Form S-4 shall have become effective under the Securities Act and shall not
be the subject of any stop order or proceeding seeking a stop order, and
any material "blue sky" and other state securities laws applicable to the
registration and qualification of Syratech Common Stock to be retained in
the Merger shall have been complied with.
THL I's obligations to effect the Merger are further subject, in addition
to certain other customary conditions, to the following additional conditions:
(a) THL I shall have received evidence, in form and substance
reasonably satisfactory to it, that all licenses, permits, consents,
approvals, authorizations, qualifications and orders of governmental
authorities and other third parties as are necessary in connection with the
transactions contemplated by the Merger Agreement have been obtained,
except such licenses, permits, consents, approvals, authorizations,
qualifications and orders which are not, individually or in the aggregate,
material to the Company and its subsidiaries, taken as a whole.
(b) there shall not be pending or threatened by any governmental
entity any suit, action or proceeding (or by any other person any suit,
action or proceeding which has a reasonable likelihood of success), (i)
challenging or seeking to restrain or prohibit the consummation of the
Merger or any of the other transactions contemplated by the Merger
Agreement or seeking to obtain from THL I or any of its affiliates any
damages that are material to such party, (ii) seeking to prohibit or limit
the ownership or operation by the Company or any of its subsidiaries of any
material portion of the business or assets of the Company or any of its
subsidiaries, to dispose of or hold separate any material portion of the
business or assets of the Company or any of its subsidiaries, as a result
of the Merger or any of the other transactions contemplated by the Merger
Agreement, or (iii) seeking to impose limitations on the ability of THL I
(or any designee of THL I) to acquire or hold, or exercise full rights of
ownership of, any shares of Syratech Common Stock, including, without
limitation, the right to vote the Syratech Common Stock on all matters
properly presented to the stockholders of the Company.
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(c) THL I shall have received certain agreements from each person
identified by the Company to be an "affiliate" of the Company for purposes
of Rule 145 under the Securities Act;
(d) the Company shall have received the proceeds of financing pursuant
to the commitment letters attached to the Merger Agreement (or from such
other financing sources as THL I and the Company reasonably agree) in
amounts sufficient to consummate the transactions contemplated by the
Merger Agreement, including, without limitation, (i) to pay the Cash Price,
(ii) to refinance the outstanding indebtedness of the Company, (iii) to pay
fees and expenses in connection with the Merger Agreement or the financing
thereof and (iv) to provide for the working capital needs of the Company
following the Merger. It is anticipated that financing proceeds and an
equity contribution aggregating approximately $377.1 will be required to
consummate such transactions. The equity contribution to be made by
affiliates of Thomas H. Lee Company to THL I will constitute approximately
$102.1 million (less the value of the shares retained by stockholders other
than Leonard Florence and 63,696 shares that were issued to, and will be
retained by, certain Management Stockholders) of such $377.1 million; and
(e) except as disclosed in the Disclosure Schedule there shall have
been no Material Adverse Effect with respect to the Company relating to
Environmental Matters as set out in Schedule 7.2(a) to the Merger
Agreement. The obligations of the Company to effect the Merger are further
subject, in addition to certain other customary closing conditions, to the
following condition: there shall not be pending or threatened by any party
any suit, action or proceeding challenging or seeking to restrain or
prohibit the consummation of the Merger or any of the other transactions
contemplated by the Merger Agreement or seeking to obtain from the Company
(or any director) any significant damages. See "REGULATORY APPROVALS."
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of the Merger by the stockholders of the
Company:
(a) by mutual written consent of THL I and the Company;
(b) by either THL I or the Company if:
(i) any federal, state or local government or any court,
administrative agency or commission or other governmental authority or
agency, domestic or foreign, shall have issued a final and nonappealable
order, decree or ruling or taken any other final and nonappealable
action permanently enjoining, restraining or otherwise prohibiting the
Merger and such order, decree, ruling or action shall have become final
and nonappealable; or
(ii) if the Merger shall not have been consummated on or before
April 30, 1997 (other than due to the failure of the party seeking to
terminate the Merger Agreement to perform its obligations under the
Merger Agreement required to be performed at or prior to the Effective
Time);
(iii) if the 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 THL I if the Company shall have (1) withdrawn, modified or
amended in any respect adverse to THL I its approval or recommendation of
the Merger Agreement or any of the transactions contemplated therein, (2)
failed to include such recommendation in the Proxy Statement/Prospectus
mailed to the Company's stockholders, (3) recommended any Transaction
Proposal from a person other than THL I or any of its affiliates or (4)
resolved to do any of the foregoing; or
(d) by either THL I or the Company shall enter into any agreement with
a third party with respect to a Transaction Proposal.
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In the event of termination of the Merger Agreement by either the Company
or THL I, the Merger Agreement will become void and will have no effect, without
any liability or obligation on the part of the Company or THL I, other than
under certain specified provisions of the Merger Agreement relating to brokers'
fees, payment of fees and expenses, confidentiality agreements, the effect of
termination of the Merger Agreement and third party beneficiaries.
See "-- Expenses and Certain Required Payments."
AMENDMENT AND WAIVER
The Merger Agreement may be amended by the parties at any time before or
after any required approval of matters presented in connection with the Merger
by the stockholders of the Company; provided, that after any such approval,
there shall be made no amendment that by law requires further approval by such
stockholders without the further approval by such stockholders. At any time
prior to the Effective Time, the parties may (a) extend the time for the
performance of any of the obligations or other acts of the parties, (b) waive
any inaccuracies in the representations and warranties in the Merger Agreement
or any document delivered pursuant thereto, or (c) subject to the approval of
stockholders required by law, waive compliance with any of the agreements or
conditions contained in the Merger Agreement. The failure of the Company or THL
I to assert any of its rights under the Merger Agreement will not constitute a
waiver of such rights.
EXPENSES AND CERTAIN REQUIRED PAYMENTS
In addition to any other amounts which may be payable or become payable
pursuant to the provisions described in the next succeeding paragraph, the
Company has agreed (provided that THL I is not then in material breach of the
Merger Agreement) promptly, but in no event later than one business day after
the termination of the Merger Agreement pursuant to the provisions described in
paragraphs (c) and (d) under "Termination" (or from time to time after Closing),
to reimburse THL I for all its out-of-pocket expenses and fees up to an
aggregate amount of $2.25 million in connection with the Merger and the
consummation of the transactions contemplated by the Merger Agreement and the
financing thereof.
If any person (other than THL I or any of its affiliates) shall have made,
or proposed, communicated or disclosed in a manner which is or otherwise becomes
public a Transaction Proposal and the Merger Agreement is terminated pursuant to
the provisions described in paragraphs (c) and (d) under "Termination," then the
Company shall, promptly but in no event later than one business day after the
termination of the Merger Agreement, pay THL I a fee of $6.75 million.
Except as otherwise provided above, all costs and expenses incurred in
connection with the Merger Agreement and the transactions contemplated thereby
shall be paid by the party incurring such expenses, except that the Company will
pay all costs and expenses (x) in connection with printing and mailing the Proxy
Statement/Prospectus, as well as all SEC filing fees relating to the
transactions contemplated therein and (y) of obtaining any consents of any third
party.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning the beneficial
ownership of Syratech Common Stock (i) by each stockholder who is known by the
Company to own beneficially in excess of 5% of the outstanding Common Stock,
(ii) by each director, and (iii) by all officers and directors as a group, as of
December 31, 1996. Except as otherwise indicated, all persons listed below have
(i) sole voting power and investment power with respect to their shares of
Common Stock, except to the extent that authority is shared
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by spouses under applicable law, and (ii) record and beneficial ownership with
respect to their shares of Common Stock.
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
BENEFICIALLY
NAME OWNED PERCENTAGE
- ------------------------------------------------------------------ ------------ ---------
<S> <C> <C>
Leonard Florence(a)............................................... 2,826,188(b)(c) 32.5%
E. Merle Randolph................................................. 80,569(d,e) (f)
Melvin L. Levine.................................................. 213,604(d) 2.5%
Alan R. Kanter.................................................... 194,286(d) 2.2%
Faye A. Florence.................................................. 27,633(g) (f)
Irwin Chafetz..................................................... 18,461(h) (f)
Frederick H. Chicos............................................... 4,400(i) (f)
Harold Cohen...................................................... 94,925(j) 1.1%
Jerry R. Jacob.................................................... 20,505 (f)
Alan Perlman...................................................... 95,212(k,l) 1.1%
Harold Roitenberg................................................. 54,462(m) (f)
Jacob Saliba...................................................... 0 (f)
Officers and Directors as a group (12 persons).................... 3,626,870 41.6%
Gabelli Funds, Inc. & related entities(n)......................... 900,000 10.4%
</TABLE>
- ---------------
(a) The business address for Leonard Florence is c/o Syratech Corporation, 175
McClellan Highway, East Boston, Massachusetts, 02128-9114.
(b) Includes 87,000 shares held by the Florence Family Foundation.
(c) Includes Common Stock held of record by Mr. Florence's wife but does not
include an aggregate of 46,864 shares of Common Stock held of record by Mr.
Florence's adult children, as to which shares Mr. Florence disclaims
beneficial ownership.
(d) Includes 4,000 shares of Common Stock issuable upon exercise of vested
employee stock options.
(e) Includes an aggregate of 2,975 shares of Common Stock held of record by Mr.
Randolph's wife, and dependent daughter.
(f) Represents less than 1% of the issued and outstanding shares of Common
Stock.
(g) Includes 10,000 shares of Common Stock issuable upon exercise of vested
employee stock options.
(h) Includes 6,000 shares held by the Chafetz Family Charitable Trust.
(i) Represents shares of Common Stock held of record by Transeo Trust No. 2, of
which the mother of Frederick H. Chicos, Mary L. Chicos is trustee.
(j) Includes 5,000 shares of Common Stock held of record in trust for Brian S.
Cohen, Mr. Cohen's son.
(k) Includes 16,000 shares held by the Pisa Foundation Under Indenture of Trust
in which Alan Perlman and Ann P. Perlman, his wife, are Co-Trustees.
(l) Includes Common Stock held of record by Mr. Perlman's wife, and Common
Stock held of record in trusts for Mr. Perlman's children and nephews,
aggregating 27,675 shares as to which Mr. Perlman disclaims beneficial
ownership.
(m) Represents shares of Common Stock held of record by Roitenberg Investments,
Inc., of which Harold Roitenberg is President.
(n) The business address for Gabelli Funds, Inc. and related entities is One
Center, Rye, NY 10580.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SEE "FORWARD-LOOKING STATEMENTS"
RECENT TRANSACTIONS
Rauch Industries, Inc.
On February 15, 1996, the Company, through an indirect wholly owned
subsidiary, acquired the outstanding shares of Rauch for approximately $49.6
million, including costs of the transaction. The acquisition was accounted for
under the purchase method of accounting, and the results of operations of Rauch
have been included with the results of the Company from February 15, 1996. The
purchase price in excess of net assets acquired of $7.2 million is being
amortized on the straight line basis over 30 years. During the nine months ended
September 30, 1996, the Company received $23.8 million ($20.5 million in the
third quarter of 1996) in connection with an insurance claim relating to a 1994
fire at Rauch. During the fiscal year ended December 31, 1995, net sales of
Rauch were $58.9 million. See "Pro Forma Financial Information."
Farberware
On April 2, 1996, the Company, through its indirect wholly owned
subsidiary, Far-B Acquisition Corp. ("Far-B"), together with Lifetime Hoan
Corporation ("Lifetime"), acquired certain assets from Farberware Inc., a
subsidiary of U.S. Industries, Inc. Lifetime and the Company are not affiliates.
Farberware Inc. was a manufacturer of aluminum clad, stainless steel
cookware and bakeware and small electric kitchen appliances. The aggregate
consideration paid by Far-B and Lifetime was $45.8 million, subject to
adjustment. The amount of the adjustment is being disputed; approximately $2.5
million is at issue, of which approximately $2.3 million relates to inventory
acquired by the Company. The assets acquired by the Company included certain of
the inventory, the tradename "Farberware" and the intellectual property
(including the intellectual property that relates to cookware and bakeware and
electric products other than major kitchen appliances) and certain tools and
dies and machinery and equipment. The consideration paid by Far-B was
approximately $32.6 million, subject to adjustment, the amount of which is, as
noted above, being disputed. Effective April 2, 1996, the Company, through
Far-B, entered into a manufacturing services agreement with Farberware Inc. for
transitional manufacturing services for certain finished goods previously
produced by Farberware Inc. The Company entered into the manufacturing services
agreement in part to provide continuity of product during a transition period in
order to protect the strength of the Farberware name in the marketplace. The
manufacturing services agreement has terminated.
The Company acquired Farberware Inc. assets in order to expand Farberware's
licensing activities and to use the Farberware name on certain of the Company's
existing and new products.
Upon disposal of the existing inventory, the Company will not manufacture
or sell Farberware cookware and bakeware products or noncommercial electric
products. Accordingly, net sales for the nine months ended September 30, 1996
exclude sales of Farberware inventory, and $5.1 million, net of certain selling,
general and administrative expenses, from these sales has been recorded as other
operating income.
In a separate transaction, the Company and Far-B entered into an agreement
with Lifetime, which provided for the allocation between them of those assets
acquired from Farberware Inc., which had not been acquired by Lifetime directly
from Farberware Inc. the granting of a long-term license to Lifetime for use of
the Farberware name in connection with an extensive list of products, the
granting to Lifetime of long-term exclusive rights to operate Farberware outlet
stores, the reservation of certain exclusive rights to Far-B (including
exclusive rights to use of the Farberware name for corporate purposes and for
the marketing of cookware and bakeware products as well as electric products)
and for the future formation of a joint venture to administer certain licensing
rights.
On June 27, 1996, the Company's Farberware Inc. subsidiary (formerly Far-B)
("Farberware") entered into a license agreement with Meyer Marketing Co. Ltd.
("Meyer") pursuant to which Meyer was granted for a term of 200 years (i) an
exclusive worldwide license to use and exploit the Farberware name and certain
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related intellectual property rights in connection with the sourcing,
manufacture and distribution of cookware and bakeware products for home use and
commercial, industrial and institutional size pots, pans and roasters, and (ii)
non-exclusive (shared) rights to use certain Farberware technology and other
intellectual property. For such grant, Meyer made a one-time payment to the
Company of $25.5 million, which resulted in recognition by the Company of $11.9
million of non-recurring income. Under the terms of the licensing agreement, the
Company has no further obligation with respect to the amount paid by Meyer. As
such, the entire proceeds received were recognized as revenue. On July 12, 1996,
Farberware granted to a major retail chain the exclusive license to use and
exploit the Farberware name and related intellectual property in connection with
the sourcing, manufacture, marketing and sale of certain electric products for
annual royalty payments. On October 25, 1996 Farberware Inc. granted to FCI
Corp. a license to use and exploit the Farberware name in connection with the
sourcing, manufacturing, marketing and sale of certain Commercial Products
(defined as six specified commercial urns and one specified commercial
convection oven plus cookware, bakeware and electric products developed by the
Licensee solely and exclusively for commercial, industrial or institutional use
with the prior written approval of Farberware) for the payment of annual
royalties. See "BUSINESS -- Legal Proceedings."
Silvestri
On April 16, 1996, the Company purchased finished goods inventory and
intangible assets of the Silvestri division of FFSC, Inc. for approximately $8.6
million. Prior to the Company's purchase of such assets, FFSC, Inc., its
subsidiaries and affiliated companies had filed for protection under Chapter 11
of the Bankruptcy Code in the United States Bankruptcy Court for the Northern
District of Texas (the "Bankruptcy Court"). The Bankruptcy Court approved this
acquisition by the Company. Silvestri products include Christmas ornaments,
collectibles, lighting and trim as well as other seasonal and nonseasonal
giftware and decorative accessories.
The Company has given a Guaranty (limited to $4 million), dated as of May
21, 1996, of the obligations of FF Holding Company, FFSC, Inc. and certain
related entities to The CIT Group/Business Credit, Inc. under a certain debtor
in possession financing agreement dated May 21, 1996 and, at the request of the
Company, NationsBank N.A. (South) has issued its letter of credit, dated May 21,
1996 in the amount of $4 million to CIT Group/Business Credit, Inc. to secure
the Company's aforesaid guaranty. Certain funds which are affiliates of the
Thomas H. Lee Company are creditors of FFSC, Inc. See "Agreement and Plan of
Merger" below.
C.J. Vander
On May 8, 1996, the Company, through one of its subsidiaries, acquired all
of the outstanding common stock of C.J. Vander, a manufacturer of sterling
silver and silverplated flatware and hollowware in Sheffield and London,
England. The purchase price was immaterial to the Company's consolidated
financial statements. The acquisition was accounted for under the purchase
method of accounting.
Potpourri Press
On November 26, 1996, a wholly-owned subsidiary of the Company acquired
inventory, tangible property, intellectual property rights, certain key records
(including customer lists, customer files, supplier information, catalogs) and
certain contract rights (selected by the Company's subsidiary) of Potpourri
Press, a North Carolina-based manufacturer of Christmas products for a purchase
price of approximately $2.3 million plus a $0.2 million promissory note.
Syroco
On April 11, 1995, pursuant to an agreement entered into on March 28, 1995,
the Company, through its subsidiary, Syratech Holding Corporation, sold Syroco,
Inc. ("Syroco"). The net proceeds received after costs of the sale and income
taxes were $133.9 million. On September 25, 1995, the Company reached a final
settlement regarding the sale of Syroco. Under the terms of the settlement, the
Company reacquired certain
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assets and reassumed certain liabilities of Syroco which have been recorded at
their estimated net fair value amounting to $1.8 million at December 31, 1995.
The Company does not expect that the liquidation of these assets or the ultimate
resolution of the reassumed liabilities will have a material effect on the
previously recognized gain on disposal. The sale resulted in the discontinuance
of the Company's casual furniture and accessories business and resulted in an
after tax gain on disposal of $30.5 million which was recognized in the second
quarter of 1995. The assets and liabilities relating to the discontinued
business are included in the caption, net assets of discontinued operations, in
the Consolidated Balance Sheets at December 31, 1994 and 1995 and at September
30, 1996. The results of operations for the discontinued segment are included in
discontinued operations in the Consolidated Income Statements and Statements of
Cash Flows for the years ended December 31, 1993, 1994 and 1995 and the nine
months ended September 30, 1995 and 1996.
AGREEMENT AND PLAN OF MERGER
On October 23, 1996, the Company and THL I, entered into the Merger
Agreement (which was restated on November 27, 1996 and was further amended on
January , 1997) and pursuant to which THL I will be merged into the Company.
Pursuant to the transaction, stockholders of the Company will receive $32 in
cash for each share of Syratech Common Stock owned by them or may elect to
receive a portion of their consideration by retaining stock of the surviving
entity. See "CERTAIN PROVISIONS OF THE MERGER AGREEMENT -- Conditions to the
Consummation of the Merger."
RESULTS OF OPERATIONS
The following table sets forth certain financial data as a percentage of
net sales of the Company for each of the periods presented.
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
-----------------------------------------------------
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------- -----------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net Sales.................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.............................. 69.0 71.0 70.7 71.9 71.3
----- ----- ----- ----- -----
Gross profit............................. 31.0 29.0 29.3 28.1 28.7
Selling, general and administrative
expenses................................. 22.6 21.5 20.2 20.2 21.4
Other operating income..................... 2.7(1)
----- ----- ----- ----- -----
Income from operations................... 8.4 7.5 9.1 7.9 10.0
Interest income (expense), net............. (0.7) (.3) 2.7 2.7 (.7)
Other income............................... 6.5(2)
----- ----- ----- ----- -----
Income before income taxes............... 7.7 7.2 11.8 10.6 15.8
Provision for income taxes................. 1.9 1.9 4.0 3.7 5.6
----- ----- ----- ----- -----
Income from continuing operations........ 5.8% 5.3% 7.8% 6.9% 10.2%
===== ===== ===== ===== =====
</TABLE>
- ---------------
(1) Includes income from the sale of Farberware inventory and other operating
income, net of certain selling, general and administrative expenses.
(2) Consists of non-recurring pre-tax income related to licensing the Farberware
name on cookware and bakeware.
Nine months ended September 30, 1996 compared to nine months ended September
30, 1995
Net sales increased 54.0% to $182.7 million for the nine months ended
September 30, 1996 from $118.6 million for the nine months ended September 30,
1995. Excluding the impact of acquisitions of businesses and product lines
completed in 1996, net sales increased 9.5%. This increase reflects primarily
increased sales volume of the Company's sterling silver flatware and certain
tabletop and giftware. The changes in product prices did not materially impact
net sales.
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Gross profit increased 57.3% to $52.4 million for the nine months ended
September 30, 1996 from $33.3 million for the nine months ended September 30,
1995. Gross profit as a percentage of sales was 28.7% for the nine months ended
September 30, 1996 compared to 28.1% for the nine months ended September 30,
1995. The increase in the gross profit percentage was primarily a result of the
acquisition of the high end Silvestri seasonal product line and improved gross
profit margin due to product mix in the Company's giftware product line which
was not materially impacted by change in product prices. The Company expects
pressure on its gross profit percentage during 1996 (and possibly thereafter)
due to the acquisition of Rauch, which historically has had gross profit margins
which have been lower than those of certain other product lines.
Selling, general and administrative expenses increased to 21.4% as a
percentage of net sales or $39.2 million for the nine months ended September 30,
1996 from 20.2% or $24.0 million for the comparable period of 1995. The increase
in selling, general and administrative expenses is due primarily to inclusion of
selling, general and administrative expenses of Rauch and Silvestri; selling,
general and administrative expenses related to the disposal of Farberware
inventory and increased costs related to the growth in sales volume including
personnel related costs, royalties and product and systems development costs.
Income from operations increased 96.5% to $18.3 million from $9.3 million
in the nine months ended September 30, 1995. Included in income from operations
for the nine months ended September 30, 1996 was income of $5.1 million, net of
certain selling, general and administrative expenses, from the disposal of
Farberware inventory. The Company expects the disposal of the Farberware
inventory to continue for the remainder of 1996 and into 1997.
Interest expense, net, was $1.4 million for the nine months ended September
30, 1996 compared to net interest income of $3.2 million for the nine months
ended September 30, 1995. This change resulted from a reduction in invested cash
used to purchase and retire 3,064,751 shares of the Company's Common Stock, for
recent acquisitions and seasonal working capital needs.
The provision for income taxes was $10.1 million for the nine months ended
September 30, 1996 compared to $4.3 million for the nine months ended September
30, 1995. The effective tax rate was 35.0% for the nine months ended September
30, 1996, compared to 34.2% for the comparable nine months of 1995. The increase
in the effective income tax rate in 1996 is due to the higher proportion of
income earned in tax jurisdictions with higher income tax rates.
Net income for the nine months ended September 30, 1996, all of which was
from continuing operations, was $18.7 million or $2.13 per share, on shares of
8,781,000, compared to income from continuing operations of $8.2 million or
$0.70 per share, on shares of 11,814,000, for the same period last year. The
nine months ended September 30, 1996 included non-recurring pre-tax income of
$11.9 million, net of costs, resulting from a license agreement. Net income for
the nine months ended September 30, 1995 was $41.3 million or $3.49 per share.
The nine months of 1995 included income from discontinued operations, net of
income taxes, of $2.6 million and the gain on sale of Syroco, Inc. of $30.5
million totaling $2.79 per share.
1995 Compared to 1994
Net sales increased by 15.1% to $169.5 million in 1995 from $147.3 million
in 1994 primarily due to increased sales volume as a result of expanded product
offerings within the giftware line, as well as increased demand for the
Company's giftware products and an increase in its seasonal product category.
Changes in product prices did not materially impact net sales. The Company's
sales increased despite a difficult retail environment in 1995.
The Company's gross profit increased 16.4% to $49.7 million in 1995 from
$42.7 million in 1994. The gross profit as a percentage of net sales increased
to 29.3% in 1995 from 29.0% in 1994. This increase is due primarily to improved
product mix in the giftware lines.
Selling, general and administrative expenses increased to $34.2 million in
1995 from $31.6 million in 1994 but decreased as a percentage of net sales to
20.2% in 1995 from 21.5% in 1994. The decrease of 1.3 percentage points is due
to the Company's cost reduction program following the sale of Syroco.
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Income from operations increased 39.4% to $15.4 million in 1995 from $11.1
million in 1994 as a result of the factors discussed above.
Interest income, net, was $4.6 million in 1995 compared to net interest
expense of $0.5 million in 1994. Interest income was earned primarily as a
result of investing the net proceeds from the sale of Syroco in short-term,
investment grade securities.
The provision for income taxes in 1995 was $6.9 million compared with $2.8
million in 1994. The effective income tax rate increased to 34.3% in 1995 from
26.0% in 1994. The 1995 effective income tax rate increased primarily due to an
increase in the proportion of the Company's earnings in tax jurisdictions with
higher tax rates, primarily interest income earned in the United States.
1994 Compared to 1993
The Company's net sales increased 20.1% to $147.3 million in 1994 from
$122.7 million in 1993 primarily due to an expanded product offering in the
giftware line and strong demand for existing product lines including sterling
silver flatware. Changes in product prices did not materially impact net sales.
The Company's gross profit increased 12.2% to $42.7 million in 1994 from
$38.0 million in 1993. The gross profit as a percentage of net sales decreased
to 29.0% in 1994 from 31.0% in 1993. The decrease in gross profit as a
percentage of net sales in 1994 is due primarily to increased raw material costs
and higher growth in the Company's imported product lines, which typically have
lower gross profit margins.
Selling, general and administrative expenses increased to $31.6 million in
1994 from $27.7 million in 1993 but decreased as a percentage of net sales to
21.5% in 1994 from 22.6% in 1993. The higher expense levels reflect increased
personnel costs, commissions, product design and development, printing and
advertising costs due to higher 1994 sales volume and an increase in sales
volume which was anticipated for 1995 as a result of the factors discussed
above.
Income from operations increased 7.4% to $11.1 million in 1994 from $10.3
million in 1993 as a result of the factors discussed above.
Interest expense, net decreased to $0.5 million in 1994 from $0.9 million
in 1993. This decrease reflects lower borrowings during 1994 compared to 1993.
The provision for income taxes in 1994 was $2.8 million compared with $2.4
million in 1993. The effective income tax rate increased to 26.0% in 1994 from
25.3% in 1993. This increase was due primarily to an increase in the proportion
of the Company's earnings in jurisdictions with higher tax rates. The Company's
subsidiaries in Puerto Rico and in Hong Kong are taxed at rates significantly
below United States federal and state rates.
LIQUIDITY AND CAPITAL RESOURCES
On March 28, 1995, the Company sold its casual furniture and accessories
business to Marley plc for net proceeds of $133.9 million after transaction
costs and income taxes. The Company has used the net proceeds from the sale of
Syroco for working capital requirements to grow its existing business, to effect
the Katy Stock Repurchase and to make several acquisitions in 1996.
Net cash used in operating activities for the nine months ended September
30, 1996 was approximately $50.4 million. The primary uses of cash were seasonal
and acquisition related increases in accounts receivable and inventories.
Partially offsetting these uses was the decrease in marketable securities as a
result of the repayment of temporary borrowings used to effect the Katy Stock
Repurchase.
At September 30, 1996, accounts receivable increased to $117.2 million from
$31.9 million at December 31, 1995. This increase is primarily the result of
sales of Farberware inventory, seasonality, the recent acquisitions and
increased sales volume in the tabletop and giftware product lines. The increase
in inventory from $41.2 million at December 31, 1995 to $105.3 million at
September 30, 1996 is due to recent acquisitions, including purchased Farberware
inventory, and to a seasonal increase in the Company's inventory
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in anticipation of the fourth quarter selling season. During 1996, $23.8 million
was collected from the final settlement agreement for the Rauch fire loss which
occurred prior to the Company's acquisition of Rauch.
Net cash used in operating activities for the year ended 1995 was
approximately $39.6 million compared to $10.6 million in 1994. The primary uses
of cash were the working capital increases in the casual furniture and
accessories business prior to its sale and the increase in marketable securities
as a result of the investment of proceeds from the Syroco sale.
The Company's working capital requirements are seasonal and tend to be
highest in the period from September through December due to the Christmas
selling season. Accounts receivable tend to decline during the first quarter as
receivables generated during the third and fourth quarters are collected and
remain lower until the next peak season beginning in September. This seasonality
has increased as a result of the acquisition of Rauch and the Silvestri product
line.
Capital expenditures were approximately $10.2 million for the nine months
ended September 30, 1996. These expenditures were primarily for a warehouse in
South Carolina, computer software and hardware, improvements at the Company's
East Boston facility and machinery, tools and dies for the Company's
manufacturing facilities.
The Company expects capital expenditures for the year ended December 31,
1996 to be approximately $18 million, including preliminary construction costs
for a warehouse facility on the West Coast, the cost of certain machinery and
equipment for Rauch and for a building and equipment for C.J. Vander.
The Company's capital expenditures in 1995 were $2.7 million. These
expenditures were primarily for machinery and equipment for the Company's
sterling silver fabrication operation, renovations and improvements of its East
Boston facility and the expansion of its East Boston showroom.
On December 29, 1995, the Company effected the Katy Stock Repurchase. The
aggregate purchase price of $52.1 million represented approximately $17 per
share. The purchase was substantially financed by the issuance of two promissory
notes due January 2, 1996 to subsidiaries of Katy and the assumption of short
term bank debt, all aggregating $51.7 million. The two promissory notes and the
short-term bank debt were paid on January 2, 1996.
As a result of the Rauch acquisition, the Company assumed the borrowings of
Rauch (the "Rauch Loan"). The Rauch Loan is from the same lender as the Company
Loan Agreement. During 1996, the Rauch Loan was modified to permit the
continuation of the Rauch Loan under the Company Loan Agreement. The Rauch Loan
allowed long-term borrowings up to $12.8 million and short-term borrowings up to
$40.0 million. On September 30, 1996, there was $34.9 million outstanding under
the Rauch Loan. Effective October 31, 1996, the Company and the lender entered
into an agreement that extended certain modifications previously agreed upon by
the lender, added Rauch, Farberware and Silvestri as borrowers and limited total
borrowings, including amounts reserved for drawings on letters of credit, to
$100.0 million through December 31, 1996 and thereafter to $60.0 million until
the earlier of April 30, 1997 or the completion of refinancing contemplated with
respect to the Merger. The Rauch long-term loan was paid on October 31, 1996.
In July 1996, the interest rate on the Company Loan Agreement and the Rauch
Loan was set at the bank's prime rate less .75% and borrowings under the
Eurodollar rate option was set at 1.0% over the Eurodollar rate.
The revolving credit facility of one of the Company's Puerto Rican
subsidiaries expired on May 30, 1996; however, the Company received a letter of
commitment increasing the line from $4.0 million to $10.0 million and extending
it to May 31, 1997. As of September 30, 1996, the Company was negotiating the
final details of the line of credit. On October 15, 1996, the Puerto Rican
subsidiary and the lender entered into an Amended and Restated Line of Credit
Agreement increasing the facility to $10 million and renewing it to May 31,
1997. As of September 30, 1996, the amount of outstanding borrowings under the
line was $1.9 million.
On September 30, 1996, borrowings and credit availability, net of $16.8
million of outstanding letters of credit, under the Company Loan Agreement, the
Rauch Loan and the Puerto Rican subsidiary's line totaled $82.2 million and
$16.7 million, respectively.
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Upon consummation of the Merger, the Company would have on a pro forma
basis (as of September 30, 1996) outstanding debt of approximately $252.1
million. The transaction is expected to close in the first quarter of 1997. It
is intended that the transaction will be accounted for as a recapitalization.
The Company believes that the 1996 acquisitions of the businesses and
product lines together with the growth in the Company's existing businesses will
generate sufficient income from operations to cover the increased level of
interest to be incurred as a result of the Merger and allow the Company to
remain profitable.
The Company believes that funds generated from operations and borrowings
available under existing revolving loan facilities will be sufficient to finance
the Company's working capital requirements, provide for all known obligations of
the Company (including the obligations of the Company under its operating
leases) and fund planned capital expenditures through December 31, 1998. See
"FORWARD-LOOKING STATEMENTS" and "SPECIAL FACTORS/RISK FACTORS -- Substantial
Leverage; Stockholders Deficit; Liquidity."
ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting For Stock-Based Compensation"
("Statement 123"). The Company has continued to account for its stock-based
transactions to employees in accordance with Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" and will include the pro
forma disclosures required by Statement 123, if material, in its annual
financial statements. For stock option grants to non-employees, the Company
follows the provisions of Statement 123, calculates compensation expense using a
fair value based method and amortizes compensation expense over the vesting
period. During the nine months ended September 30, 1996, the Company did not
grant any options to purchase shares of common stock to non-employees.
Also, effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" ("Statement 121"). Statement
121 requires that long-lived assets held and used by an entity be reviewed for
impairment whenever circumstances indicate that the carrying amount of an asset
may not be recoverable. It also requires that long-lived assets to be disposed
of be reported at the lower of the carrying amount or fair value less the cost
to sell. The adoption of Statement 121 did not have a material effect on the
Company's financial position or results of operations for the nine months ended
September 30, 1996.
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BUSINESS
OVERVIEW
The Company designs, manufactures, imports and markets a diverse portfolio
of tabletop, giftware and seasonal products, including: sterling silver,
silverplated and stainless steel flatware; sterling silver, silverplated and
brass hollowware; picture frames and photo albums; glassware, woodenware and
ceramics; fine porcelain boxes; figurines, waterglobes and Christmas ornaments,
trim, lighting and tree skirts.
The Company's net sales have grown from $82.9 million in 1991 to $169.5
million in 1995, a compounded annual growth rate of approximately 20%. For the
nine months ended September 30, 1996, the Company had net sales of $182.7
million, an increase of 54.0% from the same period in 1995. Such growth was
achieved through the recent acquisitions, the addition of new products and
product categories and expanded distribution of existing products. The addition
of new products and product categories has been implemented through both
internal development and the acquisition of complementary brands. The Company
has grown these acquired brands into substantial product categories by expanding
and improving their product lines and distributing them through the Company's
distribution channels.
RECENT ACQUISITIONS
Rauch. Rauch, a leading domestic manufacturer and marketer of Christmas
and other seasonal products, in particular glass and satin tree ornaments, was
acquired in February 1996 for approximately $49.6 million. Rauch distributes its
products primarily to mass market merchandisers through its own sales force and
independent representatives. The acquisition included Rochard, a marketer of
fine porcelain boxes sold primarily to high-end specialty and department stores.
Farberware. In April 1996, the Company acquired certain assets of
Farberware Inc., including its name, trademarks and other intellectual property,
inventory, tools and dies and machinery and equipment. The purchase price paid
by the Company was $32.6 million, subject to adjustment. The Company has been
selling the inventory initially purchased and subsequently acquired pursuant to
a manufacturing services agreement and, in three separate transactions, has
entered into licensing agreements for use by third parties of the Farberware
tradename in connection with the sourcing, manufacturing and marketing of (a)
certain cookware and bakeware products for a one-time payment of $25.5 million,
(b) certain electric products for home use for an annual royalty payments and
(c) Commercial Products (defined as six specified urns and a specified
convection oven plus other products to be developed with the prior approval of
Farberware) for annual royalty payments. The Company expects to continue to
grant licenses and intends from time to time to market specific products under
the Farberware tradename.
Silvestri. In April 1996, the Company acquired certain inventory and
intangibles of the Silvestri Division of FFSC, Inc. for approximately $8.6
million. The Silvestri product line consists of high-end Christmas ornaments,
collectibles, lighting and trim, as well as other seasonal and nonseasonal
giftware and decorative accessories, distributed primarily to specialty and
department stores.
C.J. Vander. In May 1996, the Company acquired C. J. Vander, a
manufacturer and marketer of prestigious sterling silver flatware and hollowware
with manufacturing locations in Sheffield and London, England. C.J. Vander's
products are distributed primarily to jewelry and other specialty stores in the
United Kingdom and Europe for approximately $1.0 million.
Potpourri Press. On November 26, 1996, a wholly-owned subsidiary of the
Company acquired inventory, tangible property, intellectual property rights,
certain key records (including customer lists, customer files, supplier
information, catalogs) and certain contract rights (selected by the Company's
subsidiary) of Potpourri Press, a North Carolina-based manufacturer and marketer
of Christmas products for a purchase price of approximately $2.3 million plus a
$0.2 million promissory note.
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COMPETITIVE STRENGTHS AND OPERATING STRATEGY
The Company's strategic goal is to be the leading domestic, one-source
supplier of tabletop, giftware and seasonal products to retailers. In order to
achieve this goal, the Company intends to rely on what it believes to be certain
competitive strengths and on certain operating strategies including:
Leadership in Key Product Categories. The Company believes that it is one
of the leading domestic manufacturers and marketers of sterling silver flatware
and sterling silver and silverplated hollowware, which products are sold under
many well-recognized tradenames. In addition, the Company believes it is one of
the leading domestic manufacturers of Christmas ornaments. Historically, the
Company has been able to increase sales by leveraging its strong presence with
retailers in certain categories, such as sterling silver flatware, to introduce
new products and product categories.
Broad Portfolio of Products with Well-Recognized Tradenames. The Company
offers a broad portfolio of tabletop, giftware and seasonal products both in
terms of the different product categories and multiple retail price points
through its "good-better-best" strategy. Wallace, Towle and International Silver
are among the best recognized tradenames for sterling silver flatware in the
United States, dating back to the colonial period. Rauch and Silvestri are well
established brands for Christmas and other seasonal merchandise. The Company's
giftware products are marketed under well-recognized tradenames such as
International Silver Company, Rochard and Melannco. The Company believes that
certain of its strongest brands draw customers into retail stores specifically
to purchase products bearing those tradenames. In addition to its own
tradenames, the Company produces a variety of products under license from
certain entities including The Walt Disney Company(R), Cuisinart(R), Victoria &
Albert Museum(R) and Faberge, Inc.(R)
Diversified Distribution Channels. The Company sells in products to
approximately 30,000 customers in most major distribution channels, including
retail specialty stores, such as jewelry, seasonal and nonseasonal giftware and
collectible stores, department stores, mass market merchandisers, catalogue
showrooms and warehouse clubs. The Company believes that the recent Rauch and
Silvestri acquisitions will strengthen the Company's presence with mass market
merchandisers and department and specialty stores, respectively. The Company's
broad customer base, both in terms of number of customers and channels of
distribution, reduces its exposure to any single customer or channel of
distribution. In 1995, no single customer accounted for 10% or more of the
Company's net sales.
Strong Relationships with Retailers. The Company attributes the successful
development of its retail channels to a number of factors. The Company believes
that it has benefited from the vendor consolidation trend in the retail
industry, which has resulted in increased demand for vendors that have the
ability to make timely deliveries of a broad range of quality products and
provide advertising and other sales support. The Company also believes that the
maintenance of separate sales forces for its product categories has allowed the
Company to provide its customers with specialized sales and marketing expertise.
In addition, the Company has a policy of not owning or operating Company outlet
stores and believes that this policy further strengthens its relationships with
its customers.
Product Development Expertise. The vast majority of the Company's
products, including products that are sourced from outside vendors, are designed
by the Company's design team and independent designers in conjunction with the
Company's product development and marketing team. The Company's design and
product development and marketing teams work closely to (i) introduce innovative
new products and product categories, such as the Holiday Workshop line of
seasonal products, the Hostess Helpers(R) sterling accessory line and a
dinnerware category that coordinates with sterling silver flatware and (ii)
develop acquired brands into substantial product lines for the Company, such as
the Melannco lines of picture frames and photo albums and the Elements glassware
lines.
Integrated Manufacturing and Sourcing. The Company aims at delivering
quality products at competitive prices to its customers. In order to pursue this
goal, the Company relies both on its own domestic manufacturing capabilities and
on a variety of suppliers located primarily in the Asia Pacific Rim. The
Company's decision on whether to manufacture or import is based upon, among
other criteria, expertise, quality, availability and cost. The Company's
imported products are designed by the Company's design team
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with the assistance of independent designers in conjunction with the Company's
marketing team. In addition, in order to ensure quality, products are generally
manufactured using Company-owned tools and dies. In 1995, through its import
organization comprised of approximately 150 employees, both in the U.S. and
overseas, the Company sourced products from over 100 manufacturers, with whom in
many cases it has long-standing relationships. The Company can rely on multiple
manufacturers and countries with respect to most of its imported products.
GROWTH STRATEGY
The Company's strategy for future growth focuses on the integration of its
recent acquisitions and on its continued ability to expand its product lines,
expand its distribution, both domestically and internationally, improve the
efficiency of its operations and pursue selected acquisitions of complementary
product lines and businesses.
Integration of Recent and Pending Acquisitions. The Company believes that
significant opportunities for growth in sales and operating income exist if it
can successfully integrate its recent acquisitions into the Company's sales and
marketing organization and consolidate and rationalize certain operations.
The Company plans to expand the distribution of Rauch and Silvestri
products by marketing them through the Company's established distribution
channels and also plans to add new products to their existing lines. By
integrating Rauch, Silvestri and Potpourri with the Company's internally
developed Holiday Workshop line of seasonal products, the Company has
significantly expanded its product offerings in this product category, both in
terms of types of product and retail price points, and strengthened its presence
in major retail channels. In addition, the Company believes that such
strengthened presence will provide the Company with substantial opportunities to
cross-sell the Company's tabletop and giftware product lines through Rauch and
Silvestri distribution channels.
In order to support the growth in its seasonal business, the Company is in
the process of investing $15 million to expand its manufacturing, warehousing
and distribution capabilities, primarily by consolidating warehouse and
distribution facilities, building a new centralized customer showroom for
seasonal products and acquiring new tools and dies and machinery. These
investments, along with the consolidation of certain selling, general and
administrative functions, are also designed to generate significant cost
savings.
Through the acquisition of C.J. Vander, the Company believes that it will
be able to expand the distribution of Wallace and Towle sterling silver and
silverplated product lines into the European market, primarily through C.J.
Vander's existing distribution channels. In addition, the Company intends to
expand the distribution of C.J. Vander products in the United States, in
particular through the Rochard sales force, which consists of independent
representatives who sell to high-end specialty and department stores. The
Company also intends to capitalize on the Farberware brand name recognition to
introduce new tabletop products under that tradename beginning in 1997.
Expanded Distribution. In addition to the opportunities offered by the
recent acquisitions discussed above, the Company believes that it has
significant opportunities to expand the distribution of its existing product
lines by increasing the penetration of existing retailer customers and the
number of retail outlets to which it sells. Beginning in 1994, the Company
implemented a program with a specialty retailer and franchisee, whereby the
Company sources, markets and distributes giftware products for the customer's
retail system comprised of several thousand stores. With respect to this
program, the Company has identified several growth opportunities, both in terms
of expanded product offerings and additional store coverage. In addition, the
Company intends to expand the distribution of several product lines introduced
in the past several years, such as Melannco and Elements, which the Company
believes are not currently fully exploited.
New Product Introduction. The Company intends to continue to introduce
many new products each year. As a result of the planned investments in tools,
dies and machinery, the Company believes that it will be able to broaden
significantly its offering of Christmas and other seasonal merchandise beginning
in 1997. The Company intends to capitalize on the Farberware tradename
recognition for quality housewares to introduce
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new products beginning in 1997. In addition, the Company continuously expands
and upgrades its line of sterling silver, silverplated and other tabletop and
giftware products.
Continued Investment in Technology and Productivity. The Company, through
one of its indirect wholly-owned subsidiaries, has entered into a purchase and
sale agreement to acquire approximately 42 acres of land in Mira Loma,
California. The Company intends to construct a warehouse and distribution center
on the property to serve as its western region warehouse and distribution
center. The Company intends to invest in additional application solutions to
enhance its Electronic Data Interchange (EDI) and warehousing capabilities. The
Company plans to add a Warehouse Management System (WMS) to each of its
warehouses that would enhance the Company's ability to service its customers by
improving its order processing and logistics and storage utilization, minimize
order cycle times, enhance inventory management, and ensure that customer orders
are processed efficiently.
Acquisitions. The Company believes that the giftware and seasonal markets
and, to a lesser extent, the tabletop market are highly fragmented with a number
of small manufacturers and marketers of a limited line of products. The Company
believes that these industry characteristics and the continuing trend among
retailers to consolidate their vendor base will generate attractive
opportunities to acquire complementary brands, products, product categories and
businesses.
Limitations on Growth Strategy. The Company's ability to follow the growth
plans outlined in preceding paragraphs may be constrained by the availability
and cost of capital following the Merger. As noted above, immediately following
the Merger there will be a deficit in Stockholders' equity, and, as a
consequence, the Company may find it necessary to curtail or abandon some or all
of its growth plans.
PRODUCTS
The Company designs, manufactures, imports and markets a diverse offering
of quality tabletop, giftware and seasonal products. The following table
presents a breakdown of the Company's net sales by major product categories for
the periods presented. For the purpose of this table, seasonal products include
the Rauch (including Rochard), Silvestri and Holiday Workshop product lines.
Certain seasonal products marketed under Wallace, Towle and International Silver
trademarks are included in the tabletop and giftware product category.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
PRO FORMA(1)
1993 1994 1995 1995
-------- -------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Tabletop and Giftware(1)..................... $119,182 $139,510 $153,170 $153,170
Seasonal(1).................................. 3,500 7,781 16,350 75,269
-------- -------- -------- --------
Total.............................. $122,682 $147,291 $169,520 $228,439
======== ======== ======== ========
</TABLE>
- ---------------
(1) The 1995 pro forma data presents the revenue breakdown assuming that the
acquisition of Rauch had been completed on January 1, 1995.
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<PAGE> 95
The Company's products include those shown in the table below, all of which
are marketed under one of the Company's many well-recognized tradenames as shown
in the table:
<TABLE>
<CAPTION>
PRODUCT CATEGORY REPRESENTATIVE PRODUCTS PRINCIPAL TRADENAMES
- ------------------ -------------------------------- --------------------------------
<S> <C> <C>
TABLETOP AND Sterling Silver Flatware and Wallace Silversmiths(R), Towle
GIFTWARE Hollowware, Silverplated Silversmiths(R), International
Flatware and Hollowware, Silver Company(R),
Stainless Steel Flatware, Farberware(R), C.J. Vander,
Picture Frames and Photo Albums, Ltd.(TM), Roberts and Belk,
Porcelain Boxes, Candlesticks, Ltd.(TM), Tuttle Sterling(R),
Cosmetic Accessories, Glassware, Rochard(TM), Melannco(R), 1847
Woodenware, Ceramics, Brassware Rogers Bros.(R), Elements(R)
SEASONAL Waterglobes, Figurines, Rauch Industries(R),
Collectibles Silvestri(R), Holiday
Christmas Ornaments, Christmas Workshop(R), International
Stockings, Tree Skirts, Trim, Christmas(TM), Holiday
Lighting Products(TM), Rochard(TM)
</TABLE>
Tabletop and Giftware
Sterling Silver and Silverplated Flatware and Hollowware. The Company
designs, markets and distributes a variety of products in these categories,
including flatware, serving pieces, cosmetic accessories and hollowware, such as
candlesticks, casseroles and coffee and tea services, that are marketed under
the tradenames Wallace Silversmiths(R), Towle Silversmiths(R), International
Silver Company(R), C.J. Vander(TM) and Tuttle Sterling(R). A vast majority of
the Company's products in this category are manufactured at the Company's plants
in Puerto Rico and Massachusetts. These products are sold primarily to specialty
stores, including jewelry stores and gift stores, and department stores and are
generally included in bridal registries.
Stainless Steel Flatware. The Company designs, markets and distributes
several lines of stainless steel flatware ranging from premium mass-produced
sets to high-end flatware place settings. The Company markets these products
under tradenames such as Wallace Silversmiths(R), Towle Silversmiths(R),
International Silver Company(R), 1847 Rogers Bros.(R) and, under a license
agreement, the tradename Cuisinart(R). The Company's products in this category
are imported from the Company's third-party vendors located primarily in the
Asia Pacific Rim. The primary channels of distribution include department
stores, mass market merchandisers, warehouse clubs and specialty stores and are
also included in bridal registries.
Picture Frames and Photo Albums. The Company designs, markets and
distributes several product lines of picture frames and photo albums. The
picture frames range from sterling silver on the high end to a variety of other
frames produced in wood, resin, ceramic, metal and other mediums. The photo
albums are produced in metal, fabric and resin. The Company markets these
products under tradenames such as Melannco International(R), International
Silver Company(R), Wallace Silversmiths(R) and Towle Silversmiths(R) and under
license from The Walt Disney Company(R). The Company's products in this category
are imported from the Company's third-party vendors located primarily in the
Asia Pacific Rim. The channels of distribution include department stores,
including stationery departments, specialty stores and mass market
merchandisers.
Glassware, Woodenware and Ceramics. The Company designs, markets and
distributes several lines of glassware products, including beverageware, glass
dinnerware and salad sets. The Company markets these products under the
tradenames International Silver Company(R) and Elements(R). The Company intends
to market a woodenware and ceramics line in 1997. The Company's products in this
category are imported from the Company's third-party vendors located primarily
in the Asia Pacific Rim. The channels of distribution of the Company's glassware
line include mass market merchandisers, warehouse clubs and specialty stores.
Porcelain Boxes. The Company designs, markets and distributes a diverse
range of high-end, hand-painted porcelain boxes under the Rochard(TM) tradename
which are primarily manufactured by third-party vendors located primarily in
France. The channels of distribution include specialty stores, including jewelry
stores and department stores.
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<PAGE> 96
Other Tabletop and Giftware. The Company designs, markets and distributes
a wide range of other tabletop and giftware products, including premium products
such as picture frames and cosmetic accessories as "gift with purchase" items,
brassware, napkin rings and decorative clocks. The primary channels of
distribution include department stores, mass market merchandisers, warehouse
clubs and specialty stores.
Seasonal Products
Christmas Ornaments. The Company designs, markets and distributes
Christmas tree ornaments made of glass, satin, ceramic and resin. The Company's
products are distributed through specialty stores, department stores, jewelry
stores, mass market merchandisers and warehouse clubs. These products are
marketed under the tradenames Rauch(R), Silvestri(R), Holiday Workshop(R) and
International Christmas(TM). The Company also manufactures limited edition,
sterling silver Christmas ornaments that are marketed under the tradenames
Wallace Silversmiths(R) and Towle Silversmiths(R).
Other Christmas Decorations. The Company designs, markets and distributes
a diverse product offering of other Christmas decorations including figurines,
waterglobes, collectibles, trim, lighting, tree skirts and other decorative
items produced in wood, resin, metal, paper, textiles, glass and ceramic. These
products are marketed under the tradenames Silvestri(R), Rauch(R), Holiday
Workshop(R), International Christmas(TM) and Elements(R). These products are
distributed through specialty stores, department stores, mass market
merchandisers and warehouse clubs.
Other Seasonal Products. The Company designs, markets and distributes a
variety of other seasonal products for Halloween, Easter, Thanksgiving, Mothers
Day and Valentines Day. These products include figurines, vases, bowls, trays
and other items comprised of metal, resin, wood, ceramic and glass. These
products are distributed through specialty stores, department stores, mass
market merchandisers and warehouse clubs.
SALES, MARKETING AND DISTRIBUTION
The Company, through one of its indirect wholly-owned subsidiaries, has
entered into a purchase and sale agreement to acquire approximately 42 acres of
land in Mira Loma, California. The Company intends to construct a warehouse and
distribution center on the property to serve as its western region warehouse and
distribution center.
The Company sells many different types of products, with a variety of price
points and target customers. Accordingly, the Company sells its products through
a variety of distribution channels including department and speciality stores,
mass market merchandisers, warehouse clubs, catalogue showrooms, drugstores,
supermarkets, incentive marketers and jewelry stores. The Company maintains
separate sales forces for its product lines so as to provide the specialized
expertise and attention necessary to service its customer base. The Company's
sales and marketing staff coordinates with individual retailers to devise
marketing strategies and merchandising concepts and to furnish advice on
advertising and product promotion. The Company has developed several promotional
programs for use in the ordinary course of business to promote sales throughout
the year.
The Company's various sales and marketing efforts are supported from its
principal office and showroom in East Boston, Massachusetts and, for certain of
its products, from its offices and showrooms in Hong Kong and London. The
Company maintains additional showrooms in New York, Los Angeles, Atlanta, Dallas
and Chicago. The Company's sales and marketing staff at September 30, 1996,
consisted of approximately 120 employees who are salaried, paid commissions
based on sales or, in some instances, paid a base salary plus commissions. The
Company also distributes certain of its products through independent sales
representatives who work on a commission basis only.
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<PAGE> 97
RETAILING CUSTOMERS
During 1995, 20 customers accounted for approximately 42% of the Company's
net sales. No one customer represented 10% or more of the Company's net sales.
<TABLE>
<CAPTION>
1995 CHANNELS OF DISTRIBUTION % OF 1995 NET SALES(1)
----------------------------------------------------------------- ----------------------
<S> <C>
Mass Market Merchandisers, Catalogue Showrooms, Warehouse Clubs,
Drug Stores, Supermarkets...................................... 27%
Department Stores................................................ 30%
Specialty Stores, Jewelry Stores, Premium and Incentive
Marketers...................................................... 43%
</TABLE>
- ---------------
(1) With the addition of Rauch in 1996, the Company expects net sales to mass
market merchandisers as a percentage of total net sales to increase.
In order better to service its customers, the Company has invested in
equipment and software to allow its customers to transmit their orders
electronically throughout the EDI system.
MANUFACTURING AND RAW MATERIALS
The Company produces its sterling silver flatware at its manufacturing
facility in San German, Puerto Rico, where it fabricates and manufactures
sterling silver into finished products for the Wallace, International, Towle and
Tuttle lines, and in Sheffield, England for C.J. Vander, Ltd. and Roberts and
Belk. The Company also designs, produces and maintains the tools required for
manufacturing sterling silver flatware.
The Company has maintained, in the aggregate, approximately six months of
inventory. The Company's silver fabrication operation in its Puerto Rico
manufacturing plant became fully operational during 1994. This process reduces
the need for purchasing fabricated silver from outside vendors. The Company uses
substantial quantities of fabricated silver in its manufacturing operations.
Fabricated sterling silver made from fine silver purchased by the Company may be
readily obtainable from outside resources as well. The Company purchases fine
silver in the spot market in quantities the Company believes are adequate to
meet reasonably foreseeable consumer demand for its silver products. The Company
does not engage in speculative purchases of fine silver. In the five-year period
ended September 30, 1996, the closing price of silver as quoted by Handy &
Harman Inc. has ranged from $3.54 per troy ounce to $ per troy ounce
($ at , 1996).
The Company manufactures silverplated giftware and tabletop products,
including hollowware, at its manufacturing and silverplating facilities in North
Dighton, Massachusetts and Sheffield, England. These facilities have all the
stamping, processing, soldering, finishing, polishing, silverplating and
packaging capabilities necessary to turn unfinished metal into finished
products.
The Company's imported products originate as designs created by its
internal design staff or by independent designers, in each case in conjunction
with the Company's product development and marketing staffs. Products based on
these designs are manufactured to the Company's specifications in various
countries including Hong Kong, India, Korea, Taiwan, China, Japan, Indonesia,
Malaysia and certain European countries.
In 1995, the Company purchased an aggregate of approximately $81 million of
products from approximately 100 foreign manufacturers. No vendor accounted for
ten percent or more of such purchases in 1995. The Company does not have
information on the financial condition of its major foreign vendors, all of
which are privately held, but is not aware of any unfavorable information
related to their respective financial condition. Of the Company's foreign
purchases in 1995, approximately 92% were from vendors located in the Far East
and approximately 7% were from vendors located in India. The Company's
arrangements with its manufacturers are subject to the risks of doing business
abroad, including risks associated with economic or political instability in
countries in which such manufacturers are located, labor strikes and risks
associated with foreign currency and potential import restrictions. The Company
does not believe that the loss of any single foreign supplier would have a
material long-term adverse impact on the Company's source of supply, because
other manufacturers with whom the Company does business would be able to
increase production to fulfill the Company's requirements. The Company is also
subject to risks associated with the availability of,
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<PAGE> 98
and time required for, the transportation of products from foreign countries,
including shipping losses or lost sales that may result from delays or
interruptions in shipping.
The Company intends to invest in increasing production capacity and
improving productivity related to its Rauch operations. For several of the prior
selling seasons, the Company believes that Rauch had operated under capacity
constraints. The Company has developed and is in the process of installing new
automatic machinery with a production capacity exceeding 150% of the capacity of
its current machines. The Company expects that the new machinery will start
operating during the first quarter of 1997. The Company also purchased an
828,000 (approximately) square foot building in Chester, South Carolina, which
is in close proximity to the existing Rauch manufacturing plant. This new
facility will provide adequate space for the new machinery and allow for
automated material handling which is expected to reduce costs substantially.
This large warehouse and distribution center will also provide the Company an
opportunity to consolidate its outside warehouse and manufacturing. The Company
continuously looks for opportunities for new equipment to reduce production
costs.
The recently acquired Rauch Christmas decoration manufacturing process uses
three basic raw materials: (i) expandable polystyrene ("EPS") for unbreakable
ornaments, (ii) glass ornament blanks and (iii) acetate or polyester yarn
materials including boxes and packaging. To produce Christmas stockings, tree
skirts and Santa Claus hats and suits, Rauch purchases non-woven and knitted
pile fabric. Rauch has not experienced difficulty in obtaining raw materials or
other supplies from its suppliers and does not anticipate any such difficulty in
the foreseeable future. Rauch imports ornament hangers, small glass and satin
balls and assorted tree and off-the-tree decorations from Taiwan, Hong Kong,
Mexico and Colombia.
COMPETITION
The tabletop, giftware and seasonal products industries in which the
Company is engaged are highly competitive. Competition is affected not only by
the large number of domestic manufacturers, but also by the large volume of
foreign imports. Several of the Company's competitors are larger and have
greater financial resources than the Company. The Company's products compete
indirectly with a broad range of household products not offered by the Company.
Within the overall tabletop products industry, the production of sterling silver
flatware in the United States is relatively concentrated, with five
manufacturers, including the Company, accounting for substantially all of the
sterling silver flatware manufactured and sold in the United States. The other
principal manufacturers and marketers of sterling silver flatware are Gorham,
Inc. and its affiliate The Kirk Steiff Company, Reed & Barton Corp. and Lunt
Silversmiths, all of which have been in business for many years. The giftware
and seasonal products industries, however, are very fragmented with numerous
small manufacturers and marketers of a limited number of products. The Company
is not aware of any competitor having the same product line breadth.
A number of factors affect competition in the sale of products of the type
manufactured, imported and sold by the Company. Among these are brand
identification, style, design, packaging, price, quality, promotion, sales staff
and the level of service provided to customers. The importance of these
competitive factors varies from customer to customer and from product to product
and no one of these factors is dominant in all cases. The Company believes that
its ability to compete effectively can be attributed to its performance in all
of these areas. Certain of the Company's foreign competitors have tried to gain
market share in the United States by producing low-cost items and by taking
advantage of the increased purchasing power of the dollar in times when the
dollar is relatively strong as compared to foreign countries. Rising labor costs
in many foreign countries and the relative weakness of the dollar, as compared
to the exchange rates prevailing in the mid-1980's, have reduced these
advantages to some extent in recent years.
TRADEMARKS, COPYRIGHTS AND PATENTS
The success of the Company's various businesses depends in part on the
Company's ability to exploit certain proprietary designs, trademarks and brand
names on an exclusive basis in reliance upon the protections afforded by
applicable copyright, patent and trademark laws and regulations. The loss of
certain of the Company's rights to such designs, trademarks and brand names or
the inability of the Company effectively to
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<PAGE> 99
protect or enforce such rights could adversely affect the Company. The Company
does not believe that there is a significant danger that it will lose its rights
to any of its material trademarks and tradenames or be unable effectively to
protect or enforce such rights. Although the loss of any right to designs,
trademarks and tradenames could have negative effects, any such effects are
unlikely to be material.
SEASONALITY
Sales are generally higher in the third and fourth quarters and are
strongly influenced by the buying patterns associated with the Christmas season.
The acquisitions of Rauch and Silvestri will intensify the seasonality of the
Company since the majority of Rauch and Silvestri products are Christmas items
and sales of these products are strongest in the third and fourth quarters. The
Company continues to introduce products appropriate to other holidays and
seasons in order to increase sales during the first and second quarters.
BACKLOG
Orders for the Company's products are generally subject to cancellation
until shipment. The Company's backlog consists of cancelable orders and is
dependent upon trends in consumer demand throughout the year. Customer order
patterns vary from year to year, largely because of annual differences in
consumer acceptance of product lines, product availability, marketing
strategies, inventory levels of retailers and differences in overall economic
and weather conditions. As a result, comparison of backlog as of any date in a
given year with backlog at the same date in a prior year are not necessarily
indicative of sales trends. The Company had (exclusive of Farberware) a backlog
of approximately $92.75 million as of September 30, 1996, compared to
approximately $45.14 million as of September 30, 1995. See "Seasonality." The
Company does not believe that backlog is necessarily indicative of the Company's
future results of operations or prospects.
The Company's warranty policy is to accept returns of products with defects
in materials or workmanship. The Company will also accept returns of incorrectly
shipped goods where the Company has been notified on a timely basis and, in
certain cases, to maintain customer goodwill. In accordance with normal retail
industry practice, the Company ordinarily accepts returns only from its
customers and does not ordinarily accept returns directly from consumers.
Certain of the products returned to the Company by its customers, however, may
have been returned to those customers by consumers. The Company will routinely
accept returns for imported products that are received late by the customer. The
majority of the returned products are resold into the same distribution channel.
During the three year period ended December 31, 1995, returns and allowances
amounted to approximately 2.6% of sales.
ENVIRONMENTAL REGULATION
The Company's silverplating, chrome plating, tool making and painting
operations routinely involve the handling of waste materials that are classified
as hazardous. The Company also refabricates certain materials used in its
silverplating operations. The Company is subject to certain domestic federal,
state and local laws and regulations concerning the containment and disposal of
hazardous materials and, therefore, in the ordinary course of its business, the
Company incurs compliance costs and may be required to incur clean-up costs.
Based upon currently available information, the Company does not expect that the
costs of such compliance and clean-up costs will be material. In addition, the
Company's C.J. Vander facility is subject to many environmental regulations
related to its plating operations in the United Kingdom. Actions by federal,
state and local governments concerning environmental matters could result in
laws or regulations that could increase the cost of producing the products
manufactured by the Company or otherwise adversely affect the demand for its
products. In addition, the future costs of compliance with environmental laws
and regulations and liabilities resulting from currently unknown circumstances
or developments could be substantial and could have a material adverse effect on
the Company.
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PROPERTIES
The following table sets forth information with respect to the Company's
properties as of December 31, 1996:
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE
FOOTAGE OR
LOCATION TYPE OF FACILITY ACREAGE STATUS
- ----------------------- ----------------------------------------- ----------- -------
<S> <C> <C> <C>
Chester, SC*........... Warehouse/Manufacturing/Showroom 828,000 Owned
Revere, MA............. Warehouse/Distribution 535,000 Owned
Gastonia, NC........... Office/Manufacturing/Distribution 447,441 Owned
East Boston, MA........ Office/Showroom 292,000 Owned
Ontario, CA............ Office/Warehouse/Distribution 285,000 Leased
Dallas, TX............. Warehouse 189,100 Leased
El Paso, TX............ Office/Manufacturing 135,000 Owned
North Dighton, MA...... Office/Manufacturing/Warehouse 134,042 Leased
Crisfield, MD.......... Office/Manufacturing/Warehouse 71,754 Leased
San German, PR......... Office/Manufacturing 70,296 Leased
New York, NY........... Showrooms 45,361 Leased
Hong Kong.............. Office/Warehouse/Showroom 42,009 Leased
Atlanta, GA............ Showrooms 15,050 Leased
Dallas, TX............. Showrooms 9,716 Leased
Los Angeles, CA........ Showroom 10,095 Leased
Wallingford, CT........ Office 2,800 Leased
Cramerton, NC.......... Land 34.1 Acres Owned
Dallas, TX............. Office 20,000 Leased
Sheffield, England..... Manufacturing/Warehouse/Foundry 75,116 Owned
London, England........ Office/Showroom/Retail Store 4,000 Leased
China.................. Warehouse 56,512 Leased
Taiwan................. Office 6,253 Leased
Philippines............ Office 4,380 Leased
Chicago, IL............ Showroom 7,452 Leased
New York, NY........... Warehouse 3,800 Leased
</TABLE>
- ---------------
(*) Scheduled to be operational by March 31, 1997
EMPLOYEES
As of September 30, 1996, the Company had approximately 2,175 employees of
whom approximately 350 were temporary seasonal employees at Rauch. The Company
believes that its relationship with its employees is good.
The Company's employees are not represented by labor unions; however,
Rauch, which merged with the Company on February 15, 1996, was a subject of
efforts by UNITE (the "Union") in the fall of 1995 to organize Rauch's
employees. A scheduled Union election was postponed because the Union filed
unfair labor practice charges against Rauch with the National Labor Relations
Board (the "NLRB"). These charges, which related to allegations of threats and
promises by Rauch officials and the termination of certain employees, were
settled pursuant to an agreement between Rauch and the Union. On May 2, 1996,
the NLRB approved the agreement and the Union's request that the petition for an
election be withdrawn with prejudice.
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LEGAL PROCEEDINGS
The Company has been named as a defendant in several legal actions arising
from its normal business activities, including routine copyright and trademark
litigation, which actions are considered normal in the businesses in which the
Company is engaged.
The Company is also involved in litigation with Bruckner Manufacturing
Corp. ("BMC") and its parent, U.S. Industries, Inc. ("USI") growing out of the
acquisition by its Farberware Inc. subsidiary of the Farberware assets
previously owned by BMC and certain related transactions. The Company carries
insurance against liability for certain types of risks. Although the amount of
liability that could result from any litigation cannot be accurately predicted,
in the opinion of management, the Company's potential liability on all known
claims would not have a material adverse effect on the results of operations or
financial condition of the Company.
On March 31, 1994 an Administrative Law Judge ("ALJ") designated by the
National Labor Relations Board ("NLRB") determined that the Company's
subsidiaries Wallace International de P.R., Inc. and International Silver de
P.R., Inc. (the "P.R. Subsidiaries") has engaged in unfair labor practices
incident to a union election (won by the P.R. Subsidiaries) held in February,
1993 and ordered the P.R. Subsidiaries to refrain from certain conduct and to
take certain affirmative action. The ALJ's decision was affirmed by the NLRB on
September 22, 1994. Incident to a second union election (also won by the P.R.
Subsidiaries) held on June 22, 1994 pursuant to stipulation, the P.R.
Subsidiaries were again charged with unfair labor practices. The ALJ again found
that the P.R. Subsidiaries had engaged in unfair labor practices. The Company
has appealed to the NLRB, and the appeal is pending.
REGULATORY APPROVALS
The Merger is subject to the expiration or termination of the applicable
waiting period under the HSR Act, which, as noted below, has occurred. Certain
aspects of the Merger will require notification to, and filings with, certain
securities and other authorities in certain states, including jurisdictions
where the Company currently operates.
Antitrust. Under the HSR Act and the rules promulgated thereunder by the
Federal Trade Commission (the "FTC"), the Merger may not be consummated until
notifications have been given and certain information has been furnished to the
FTC and the Antitrust Division of the Department of Justice (the "Antitrust
Division") and the applicable waiting period has expired or been terminated. On
November 12, 1996, the Company and the Fund, as ultimate parent entity of THL I,
filed Notification and Report Forms under the HSR Act with the FTC and the
Antitrust Division. On November 25, 1996, the FTC and the Antitrust Division
granted early termination of the waiting period under the HSR Act with respect
to the Merger effective immediately. At any time before or after consummation of
the Merger, notwithstanding termination of the waiting period under the HSR Act,
the Antitrust Division or the FTC could take such action under the antitrust
laws as it deems necessary or desirable in the public interest, including
seeking to enjoin the consummation of the Merger or seeking divestiture of
substantial assets of the Company. At any time before or after the Effective
Time, and notwithstanding termination of the waiting period under the HSR Act,
any state could take such action under the antitrust laws as it deems necessary
or desirable in the public interest. Such action could include seeking to enjoin
the consummation of the Merger or seeking divestiture of substantial assets of
the Company. Private parties may also seek to take legal action under the
antitrust laws under certain circumstances.
Based on information available to them, the Company and THL I believe that
the Merger can be effected in compliance with federal and state antitrust laws.
However, there can be no assurance that a challenge to the consummation of the
Merger on antitrust grounds will not be made or that, if such a challenge were
made, the Company and THL I would prevail or would not be required to accept
certain adverse conditions in order to consummate the Merger.
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<PAGE> 102
Other. The obligations of THL I under the Merger Agreement are also
subject to the receipt of all necessary licenses, permits, consents, approvals,
authorizations, qualifications and orders of governmental authorities and other
third parties as are necessary in connection with the transactions contemplated
by the Merger unless the failure to so obtain would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole.
THL I AND THOMAS H. LEE COMPANY
THL I, a Delaware corporation organized by Thomas H. Lee Company, was
organized in connection with the Merger and has not carried on any activities to
date other than those incident to its formation and the transactions
contemplated by the Merger Agreement. As at the date hereof the outstanding
shares of THL I are owned by Thomas H. Lee, the President of Thomas H. Lee
Company. The name, business, address, principal occupation or employment, and
five year employment history of each of the directors and executive officers of
THL I and of Thomas H. Lee Company and certain other information, are set forth
in SCHEDULE I to this Proxy Statement/Prospectus.
DISSENTING STOCKHOLDERS' RIGHTS
If the Merger is consummated, stockholders of the Company who make the
demand described below with respect to their shares, who continuously are the
record holders of such shares through the Effective Time, who otherwise comply
with the statutory requirements of Section 262 (a copy of which is attached
hereto as Annex III to this Proxy Statement/Prospectus) and who neither vote in
favor of the Merger Agreement nor consent thereto in writing will be entitled to
an appraisal by the Delaware Court of the fair value of their shares of Syratech
Common Stock. Except as set forth herein, stockholders of the Company will not
be entitled to appraisal rights in connection with the Merger.
A holder of shares of Syratech Common Stock wishing to exercise dissenters'
rights of appraisal must, before the taking of the vote on the Merger at the
Special Meeting, deliver to Syratech a written demand for appraisal of such
shares. A demand for appraisal will be sufficient if it reasonably informs
Syratech of the identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of his or her shares.
Within 10 days after the Effective Time, the Company is required to, and
will, notify each stockholder of the Company who has satisfied the foregoing
conditions on the date on which the Merger became effective. Within 120 days
after the Effective Time, either the Company or any stockholder who has complied
with the required conditions of Section 262 may file a petition in the Delaware
Court, with a copy served on the Company in the case of a petition filed by a
stockholder, demanding a determination of the fair value of the shares of all
dissenting stockholders. There is no present intent on the part of the Company
to file an appraisal petition and stockholders seeking to exercise appraisal
rights should not assume that the Company will file such a petition or that the
Company will initiate any negotiations with respect to the fair value of such
shares. Accordingly, stockholders who desire to have their shares appraised
should initiate any petitions necessary for 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 theretofore
complied with the applicable provisions of Section 262 will be entitled, upon
written request, to receive from the Company, a statement setting forth the
aggregate number of shares of Syratech Common Stock not voting in favor of the
Merger Agreement and with respect to which demands for appraisal were received
by the Company and the number of holders of such shares. Such statement must be
mailed within 10 days after the written request therefor has been received by
the Company.
If a petition for an appraisal is timely filed, at the hearing on such
petition, the Delaware Court will determine which stockholders are entitled to
appraisal rights. The Delaware 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 Delaware Court may dismiss
the proceedings as to such stockholder. Where proceedings are not dismissed, the
Delaware Court will appraise the shares of Syratech Common Stock, owned by such
stockholders, determining the fair value of
95
<PAGE> 103
such 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, to be
paid upon the amount determined to be the fair value. In determining fair value,
the Delaware Court is to take into account all relevant factors. In Weinberger
v. UOP Inc., the Delaware Supreme Court discussed the factors that could be
considered in determining fair value in an appraisal proceeding, stating 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, and that "fair price obviously requires consideration of all
relevant factors involving the value of a company." The Delaware Supreme Court
stated that in making this determination of fair value the court must consider
market value, asset value, dividends, earnings prospects, the nature of the
enterprise and any other facts which could be ascertained as of the date of the
merger which throw light on future prospects of the merged corporation. In
Weinberger, the Delaware Supreme Court stated that "elements of future value,
including the nature of the enterprise, which are known or susceptible of proof
as of the date of the merger and not the product of speculation, may be
considered." Section 262, however, provides that fair value is to be "exclusive
of any element of value arising from the accomplishment or expectation of the
merger."
Holders of shares of Syratech Common Stock considering seeking appraisal
should recognize that the fair value of their shares determined under Section
262 could be more than, the same as or less than the consideration they are
entitled to receive pursuant to the Merger Agreement if they do not seek
appraisal of their shares. The cost of the appraisal proceeding may be
determined by the Delaware Court and taxed against the parties as the Delaware
Court deems equitable in the circumstances. Upon application of a dissenting
stockholder of the Company, the Delaware Court may order that all or a portion
of the expenses incurred by any dissenting stockholder in connection with the
appraisal proceeding, including without limitation, reasonable attorney's fees
and the fees and expenses of experts, be charged pro rata against the value of
all shares of stock entitled to appraisal.
At any time within 60 days after the Effective Time, any stockholder will
have the right to withdraw such demand for appraisal and to accept the terms
offered in the Merger; after this period, the stockholder may withdraw such
demand for appraisal only with the consent of the Company. If no petition for
appraisal is filed with the Delaware Court within 120 days after the Effective
Time, stockholders' rights to appraisal shall cease, and all holders of shares
of Syratech Common Stock will be entitled to receive the consideration offered
pursuant to the Merger Agreement. Inasmuch as the Company has no obligation to
file such a petition, and the Company has no present intention to do so, any
holder of shares of Syratech Common Stock who desires such a petition to be
filed is advised to file it on a timely basis. Any stockholder may withdraw such
stockholder's demand for appraisal by delivering to the Company a written
withdrawal of his or her demand for appraisal and acceptance of the Merger,
except (i) that any such attempt to withdraw made more than 60 days after the
Effective Time will require written approval of the Company, and (ii) that no
appraisal proceeding in the Delaware Court shall be dismissed as to any
stockholder without the approval of the Delaware Court, and such approval may be
conditioned upon such terms as the Delaware Court deems just.
The foregoing is only a summary of Section 262, and is qualified in its
entirety by reference to the provisions thereof, the full text of which is set
forth as ANNEX III to this Proxy Statement/Prospectus. Each stockholder of the
Company is urged to read carefully the full text of Section 262.
EXPERTS
FINANCIAL STATEMENTS
The consolidated financial statements and schedule of Syratech and its
subsidiaries as of December 31, 1994 and 1995 and for each of the three years in
the period ended December 31, 1995, included in this Proxy Statement/Prospectus,
have been audited by Deloitte & Touche LLP, independent accountants, as stated
in their reports appearing herein and elsewhere in the Proxy
Statement/Prospectus and have been so included in reliance upon the reports of
such firm given upon their authority as experts in accounting and auditing. The
financial statements of Rauch Industries, Inc. for the fiscal year ended
December 31, 1995 included in the Company's Form 8-K/A dated April 26, 1996,
amending the Company's Current Report on Form 8-K dated
96
<PAGE> 104
February 15, 1996, have been incorporated by reference in this Proxy and have
been audited by Coopers & Lybrand L.L.P., independent accountants, as indicated
in their report, also incorporated by reference in this Proxy from the Form
8K/A, with respect thereto, and have been so incorporated in reliance upon the
authority of said firm as experts in accounting and auditing.
Representatives of Deloitte & Touche LLP are expected to be present at the
Special Meeting, where they will have the opportunity to make a statement if
they desire to do so and will be available to respond to appropriate questions.
LEGAL OPINIONS
The legality of Syratech Common Stock being retained in the Merger is being
passed on by Paul, Weiss, Rifkind, Wharton & Garrison, New York, New York. As of
, 1997, lawyers of Paul, Weiss, Rifkind, Wharton & Garrison,
beneficially owned an aggregate of 36,681 shares individually or in various
fiduciary capacities.
OTHER INFORMATION AND STOCKHOLDER PROPOSALS
Management of the Company knows of no other matters that may properly be,
or which are likely to be, brought before the Special Meeting. However, if any
other matters are properly brought before such Special Meeting, the persons
named in the enclosed Proxy or their substitutes will vote the Proxies in
accordance with their judgment with respect to such matters, unless authority to
do so is withheld in the Proxy.
STOCKHOLDERS PROPOSALS
Proposals which stockholders intend to present at the Company's 1997 Annual
Meeting of Stockholders and wish to have included in the Company's proxy
materials were required to be received by the Company no later than December 14,
1996. If following the Merger, the Company continues to be subject to the
requirement to file and send proxy statements to its stockholders and if the
1997 Annual Meeting of Stockholders is held on the second Thursday in May in
accordance with past practice, proposals which stockholders intend to present at
the Company's 1998 Annual Meeting of Stockholders and wish to have included in
the Company's proxy materials will have to be received by the Company no later
than December 13, 1997.
By Order of the Board of Directors
Faye A. Florence
Secretary
97
<PAGE> 105
SYRATECH CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Deloitte & Touche LLP....................................................... F-2
Consolidated Financial Statements:
Consolidated balance sheets as of December 31, 1994, December 31, 1995 and September
30, 1996......................................................................... F-3
Consolidated income statements for the years ended December 31, 1993, December 31,
1994 and December 31, 1995, and for the nine months ended September 30, 1996 and
September 30, 1995............................................................... F-4
Consolidated statements of stockholders' equity for the years ended December 31,
1993, December 31, 1994 and December 31, 1995, and for the nine months ended
September 30, 1996 and September 30, 1995........................................ F-5
Consolidated statements of cash flows for the years ended December 31, 1993,
December 31, 1994 and December 31, 1995, and for the nine months ended September
30, 1996 and September 30, 1995.................................................. F-6
Notes to consolidated financial statements.......................................... F-7
</TABLE>
F-1
<PAGE> 106
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Syratech Corporation:
We have audited the accompanying consolidated balance sheets of Syratech
Corporation and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Syratech Corporation and
subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 8, 1996 (February 15, 1996 as to paragraphs 1 and 4 of Note 2 and
December 16, 1996 as to Note 15)
F-2
<PAGE> 107
SYRATECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- SEPTEMBER 30,
NOTES 1994 1995 1996
--------- -------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS........................................ 1, 7
Current assets:
Cash and equivalents........................ $ 1,866 $ 78,493 $ 9,532
Marketable securities....................... 4 30,561
Accounts receivable, net.................... 28,244 31,893 117,199
Inventories................................. 5 40,334 41,151 105,297
Deferred income taxes....................... 8 2,960 5,105 8,193
Prepaid expenses and other.................. 10 156 1,602 1,737
Net assets of discontinued operations....... 3 85,850 1,834 105
-------- -------- --------
Total current assets................ 159,410 190,639 242,063
Property, plant and equipment, net.......... 6 30,691 29,560 60,831
Purchase price in excess of net assets
acquired................................. 6,994
Other assets................................ 583 367 461
-------- -------- --------
Total............................... $190,684 $220,566 $ 310,349
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving loan facilities and notes
payable.................................. 7 $ 14,504 $ 51,735 $ 82,155
Current maturities of long-term debt........ 7 875
Accounts payable............................ 12 7,590 6,438 16,586
Accrued expenses............................ 2,690 4,436 14,392
Accrued compensation........................ 3,156 2,478 3,256
Accrued advertising......................... 1,642 1,991 4,779
Income taxes payable........................ 1, 8 3,817 1,511 2,209
-------- -------- --------
Total current liabilities........... 34,274 68,589 123,377
Deferred income taxes......................... 1, 8 3,741 3,657 18,795
Pension liability............................. 10 569 1,724 2,668
Commitments and contingencies................. 9, 10, 14
Stockholders' equity:......................... 1, 11, 15
Preferred stock, $.10 par value, 500,000
shares authorized; no shares issued or
outstanding (135,000 shares are
designated Series A Preferred Stock)..... -- -- --
Common stock, $.01 par value, 20,000,000
shares authorized, 11,687,850, 8,667,249
and 8,676,849 shares issued in 1994, 1995
and 1996, respectively................... 116 87 87
Additional paid-in capital.................. 61,373 9,699 9,835
Retained earnings........................... 7 90,529 136,728 155,447
Cumulative translation adjustment........... 1 85 85 143
Less: Treasury stock; 218 shares, at cost... (3) (3) (3)
-------- -------- --------
Total stockholders' equity.......... 152,100 146,596 165,509
-------- -------- --------
Total............................... $190,684 $220,566 $ 310,349
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 108
SYRATECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------------
NOTES 1993 1994 1995 1995 1996
------ -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net sales.............................. 1 $122,682 $147,291 $169,520 $118,619 $182,727
Cost of sales.......................... 84,643 104,600 119,836 85,294 130,303
-------- -------- -------- -------- --------
Gross profit................. 38,039 42,691 49,684 33,325 52,424
Selling, general and administrative
expenses............................. 27,727 31,613 34,239 24,004 39,161
Other operating income................. 2 5,057
-------- -------- -------- -------- --------
Income from operations....... 10,312 11,078 15,445 9,321 18,320
Interest expense....................... 7 (948) (559) (287) (212) (2,083)
Interest income........................ 4 82 98 4,881 3,414 662
Other income........................... 2 11,900
-------- -------- -------- -------- --------
Income before provision for
income taxes............... 9,446 10,617 20,039 12,523 28,799
Provision for income taxes............. 1, 8 2,390 2,758 6,863 4,289 10,080
-------- -------- -------- -------- --------
Income from continuing
operations................. 7,056 7,859 13,176 8,234 18,719
Discontinued operations:
Income from discontinued operations
net of income taxes of $6,225,
$7,421, $1,645 and $1,645,
respectively...................... 3 10,838 12,068 2,572 2,572
Gain on sale of Syroco, Inc., net of
income taxes of $16,599........... 3 30,451 30,451
-------- -------- -------- -------- --------
Net income................... $ 17,894 $ 19,927 $ 46,199 $ 41,257 $ 18,719
======== ======== ======== ======== ========
Earnings per share: 1
Continuing operations............. $ .60 $ .67 $ 1.12 $ .70 $ 2.13
Discontinued operations........... .92 1.02 2.79 2.79
-------- -------- -------- -------- --------
Net income................... $ 1.52 $ 1.69 $ 3.91 $ 3.49 $ 2.13
======== ======== ======== ======== ========
Weighted average common shares and
common share equivalents
outstanding.......................... 1 11,768 11,809 11,803 11,814 8,781
======== ======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 109
SYRATECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CUMULATIVE
------------------- PAID-IN RETAINED TRANSLATION TREASURY
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT STOCK TOTAL
---------- ------ ---------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993.... 10,647,840 $106 $ 59,560 $ 52,708 $ 7 $112,381
Exercise of stock
options................ 1,001,810 10 90 100
Compensation related to
stock options.......... 99 99
Tax effect of stock
options................ 465 465
Purchase of common stock
for treasury........... (218) $ (3) (3)
Net income................ 17,894 17,894
Translation adjustment.... 69 69
--------- ---- ------ -------- ---- ---- --------
Balance, December 31,
1993...................... 11,649,432 116 60,214 70,602 76 (3) 131,005
Exercise of stock
options................ 38,200 297 297
Compensation related to
stock options.......... 116 116
Tax effect of stock
options................ 746 746
Net income................ 19,927 19,927
Translation adjustment.... 9 9
--------- ---- ------ -------- ---- ---- --------
Balance, December 31,
1994...................... 11,687,632 116 61,373 90,529 85 (3) 152,100
Exercise of stock
options................ 44,150 1 326 327
Compensation related to
stock options.......... 102 102
Tax effect of stock
options................ (78) (78)
Purchase of common stock
for retirement (Note
11).................... (3,064,751) (30) (52,024) (52,054)
Net income................ 46,199 46,199
--------- ---- ------ -------- ---- ---- --------
Balance, December 31,
1995...................... 8,667,031 87 9,699 136,728 85 (3) 146,596
Unaudited:
Exercise of stock
options................ 9,600 78 78
Compensation related to
stock options.......... 58 58
Net income................ 18,719 18,719
Translation adjustment.... 58 58
--------- ---- ------ -------- ---- ---- --------
Balance, September 30, 1996,
(unaudited)............... 8,676,631 $ 87 $ 9,835 $155,447 $143 $ (3) $165,509
========= ==== ====== ======== ==== ==== ========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 110
SYRATECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------- -------------------
1993 1994 1995 1995 1996
------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flow from operating activities:
Net income........................................................ $17,894 $ 19,927 $ 46,199 $ 41,257 $ 18,719
Adjustments to reconcile net income to net cash provided by (used
in) operating activities:
Depreciation and amortization................................... 3,051 3,270 3,253 2,426 3,424
Deferred income taxes........................................... 1,253 (452) (2,229) (1,065) (920)
Acquisition of Farberware assets................................ (9,500)
Disposal of Farberware assets................................... 13,600
Farberware electrics license.................................... -- -- -- -- 500
Interest on royalties........................................... 125 -- -- -- --
Pension liability............................................... 188 208 1,155 487 944
Compensation related to stock options........................... 99 116 102 82 58
Gain (loss) on disposal of assets and other..................... (523) 8 3 -- (22)
Increase (decrease) in cash, net of effect of businesses
acquired:
Marketable securities....................................... -- -- (30,561) -- 30,561
Accounts receivable......................................... (2,131) (7,984) (3,649) (10,351) (75,604)
Inventories................................................. (1,814) (6,590) (817) (8,613) (41,222)
Prepaid expenses and other.................................. (595) 711 (1,446) (1,086) 848
Accounts payable and accrued expenses....................... 243 4,155 595 3,705 7,488
Income taxes payable........................................ (6,575) 3,699 (2,306) 1,125 (967)
Discontinued operations....................................... (3,376) (27,660) (49,915) (49,460) 1,729
------- -------- -------- -------- --------
Net cash provided by (used in) operating activities............... 7,839 (10,592) (39,616) (21,493) (50,364)
------- -------- -------- -------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment........................ (2,781) (2,603) (2,679) (1,645) (10,161)
Net proceeds from sale of Syroco, Inc............................. -- -- 133,931 133,931 --
Proceeds from disposal of assets.................................. 86 336 -- -- 65
Insurance claim proceeds.......................................... -- -- -- -- 23,771
Acquisitions of businesses, net of cash acquired.................. -- -- -- -- (48,540)
Other............................................................. (162) (529) 61 209 (61)
------- -------- -------- -------- --------
Net cash provided by (used in) investing activities............... (2,857) (2,796) 131,313 132,495 (34,926)
------- -------- -------- -------- --------
Cash flows from financing activities:
Change in revolving loan facilities............................... 444 11,944 (14,504) (14,349) 16,537
Proceeds from borrowings.......................................... 69 -- -- -- --
Repayment of borrowings........................................... (1,901) (1,624) (875) (875) (300)
Payment of royalty................................................ (1,720) -- -- -- --
Tax effect on stock options....................................... 465 746 (78) (287)
Exercise of stock options......................................... 100 297 327 199 78
Deferred financing costs and other................................ 41 62 60 62 14
------- -------- -------- -------- --------
Net cash provided by (used in) financing activities............... (2,502) 11,425 (15,070) (15,250) 16,329
------- -------- -------- -------- --------
Net increase (decrease) in cash and equivalents................... 2,480 (1,963) 76,627 95,752 (68,961)
Cash and equivalents, beginning of period......................... 1,349 3,829 1,866 1,866 78,493
------- -------- -------- -------- --------
Cash and equivalents, end of period............................... $ 3,829 $ 1,866 $ 78,493 $ 97,618 $ 9,532
======= ======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 111
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE DATA.
INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND SEPTEMBER 30, 1996
IS UNAUDITED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Syratech Corporation designs, manufactures, imports and markets a diverse
portfolio of tabletop, giftware and seasonal products, including: sterling
silver, silverplated and stainless steel flatware; sterling silver, silverplated
and brass holloware; picture frames and photo albums; glassware, woodenware and
ceramics; fine porcelain boxes; figurines, waterglobes and Christmas ornaments,
trim, lighting and tree skirts.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of Syratech
Corporation and its subsidiaries (the Company), Syratech Holding Corporation and
its subsidiaries, Syratech Security Corporation, Wallace International
Silversmiths, Inc. and its subsidiaries (Wallace), Leonard Florence Associates,
Inc. (LFA), Towle Manufacturing Company and its subsidiaries (Towle), Syratech
(H.K.) Ltd. and its subsidiaries (Syratech H.K.). All significant intercompany
balances and transactions have been eliminated.
INTERIM RESULTS (UNAUDITED)
The accompanying consolidated balance sheet at September 30, 1996, the
consolidated statements of income and cash flows for the nine months ended
September 30, 1995 and 1996 and the statement of stockholders' equity for the
nine months ended September 30, 1996 are unaudited. In the opinion of
management, these statements have been prepared on the same basis as the audited
consolidated statements and include all adjustments, consisting only of normal
recurring adjustments, necessary for the fair presentation of the consolidated
financial position and operating results of the Company for such periods.
ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1996, the Company adopted, prospectively, Statement of
Financial Accounting Standard (SFAS) No. 121, "Accounting for Impairment of
Long-lived Assets and for Long-lived Assets to be Disposed Of." SFAS No. 121
requires that long-lived assets be reviewed for impairment whenever
circumstances indicate that the carrying value of an asset may not be
recoverable. The adoption of SFAS No. 121 did not have a significant effect on
the Company's financial position or results of operations for the nine months
ended September 30, 1996.
Effective January 1, 1996, the Company adopted SFAS No. 123, "Accounting
For Stock-Based Compensation." The Company has continued to account for its
stock-based transactions to employees in accordance with Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees," and will
include the pro forma disclosures required by SFAS No. 123, if material, in its
annual financial statements. For stock option grants to non-employees, the
Company follows the provisions of SFAS No. 123, calculates compensation expense
using a fair value based method and amortizes compensation expense over the
vesting period. During the nine months ended September 30, 1996, the Company did
not grant any options to purchase shares of common stock to non-employees.
MARKETABLE SECURITIES
The Company's marketable securities have been classified as trading
securities and are carried at their fair value on the consolidated balance
sheet.
F-7
<PAGE> 112
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
USE OF ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amount of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and revenues and expenses during the reporting period. The Company
has made significant estimates relating to the Farberware transactions (see
Notes 2 and 14). Actual results could differ from these estimates.
REVENUE RECOGNITION
Revenue is recognized when products are shipped. The Company provides
allowances for estimated doubtful accounts and sales returns based on historical
experience and evaluation of specific accounts. Such allowances were comprised
of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- SEPTEMBER 30,
1994 1995 1996
------ ------ -------------
<S> <C> <C> <C>
Sales returns and allowances......................... $2,133 $2,604 $ 3,759
Doubtful accounts.................................... 1,372 1,603 3,201
------ ------ ------
$3,505 $4,207 $ 6,960
====== ====== ======
</TABLE>
CUSTOMERS
Substantially all customers are retailers. No base of customers in one
geographic area constitutes a significant portion of sales. No single customer
represented 10% or greater of consolidated net sales in 1995, 1994 or 1993.
INVENTORIES
Inventories are stated at the lower of cost or market. Two subsidiaries
determine cost on the last-in, first-out (LIFO) method for silver and certain
non-silver inventories. For all other inventories, cost is determined on the
first-in, first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT
Purchased property, plant and equipment is recorded at cost. Leased
equipment is recorded at the present value of the minimum lease payments
required during the lease term. Depreciation and amortization are provided using
the straight-line method over the estimated useful lives of the related assets
and over the terms, if shorter, of the related leases, as follows:
<TABLE>
<CAPTION>
YEARS
--------
<S> <C>
Buildings and improvements.......................................... 4 to 39
Tools and dies...................................................... 3 to 10
Machinery and equipment............................................. 3 to 10
Other............................................................... 3 to 10
</TABLE>
EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED
Excess of purchase price over net assets acquired is amortized using the
straight-line method over 30 years (Note 2). The Company evaluates the carrying
value of goodwill based upon current and anticipated net income and undiscounted
cash flows, and recognizes an impairment when it is probable that such estimated
future net income and/or cash flows will be less than the carrying value of
goodwill. Measurement of the amount of impairment, if any, is based upon the
difference between carrying value and fair value.
F-8
<PAGE> 113
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OTHER ASSETS
Other assets consist principally of deposits, deferred fees, deferred
financing costs and deferred long-term rent. Deferred financing costs are being
amortized using the straight-line method over the terms of the related loans.
Accumulated amortization aggregated approximately $311, $100 and $118 at
December 31, 1994 and 1995 and September 30, 1996, respectively.
ADVERTISING COSTS
Advertising costs are charged to operations when incurred. These costs
totaled $2,690, $3,035 and $3,064 in the years ended December 31, 1993, 1994 and
1995 and $2,127 and $2,006 for the nine months ended September 30, 1995 and
1996, respectively.
FINANCIAL INSTRUMENTS
The carrying values of cash and cash equivalents, accounts receivable,
accounts payable and borrowings under revolving credit facilities approximate
fair value due to the short-term nature of these instruments.
INCOME TAXES
The Company and its domestic subsidiaries (except for Wallace's Puerto
Rican subsidiaries) file a consolidated federal income tax return. The Puerto
Rican subsidiaries file separate returns in accordance with Section 936 of the
Internal Revenue Code. Deferred income taxes are provided for certain income and
expense items which are accounted for differently for financial reporting and
income tax purposes.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities denominated in foreign currencies are translated
into U.S. dollars at year-end exchange rates and income and expense items are
translated at the average rates of exchange prevailing during each year. The
effects of foreign currency fluctuations on the foreign subsidiary's assets and
liabilities have been reflected as a separate component of stockholders' equity.
Transaction gains and losses have been insignificant.
EARNINGS PER SHARE
Earnings per share are computed based on the weighted average number of
common and common equivalent shares outstanding during each period presented.
Common stock equivalents include common stock options (treasury stock method).
Primary and fully diluted earnings per share are the same for each of the
periods presented.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform with the 1996
presentation.
F-9
<PAGE> 114
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CASH FLOW INFORMATION
Supplemental cash flow information is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------------
1993 1994 1995 1995 1996
------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Cash paid during the period for:
Interest........................ $1,324 $ 827 $ 268 $ 212 $ 1,126
====== ======= ======= ======= =======
Income taxes.................... $8,903 $10,741 $30,593 $22,757 $11,634
====== ======= ======= ======= =======
Supplemental schedule of non-cash
investing and financing
activities:
Purchase of common stock for
retirement, financed by
issuance of promissory notes
and assumption of bank
debt......................... $51,735
=======
</TABLE>
2. ACQUISITION OF PRODUCT LINES
On February 15, 1996, the Company, through an indirect wholly owned
subsidiary, acquired the outstanding shares of Rauch Industries, Inc. ("Rauch")
for approximately $49,626 including costs of the transaction. The acquisition
was accounted for under the purchase method of accounting, and the results of
operations of Rauch have been included with the results of the Company from
February 15, 1996.
The purchase price in excess of net assets acquired of $7,224 is being
amortized on the straight line basis over 30 years. Rauch is a leading domestic
manufacturer and marketer of Christmas and other seasonal products, in
particular glass and satin tree ornaments. During 1996, the Company received
$23,771 ($20,468 in the three months ended September 30, 1996) in connection
with an insurance claim relating to a 1994 fire at Rauch. The allocation of
purchase price is as follows:
<TABLE>
<S> <C>
Cash paid to Rauch shareholders................................. $48,042
Acquisition costs incurred...................................... 1,584
-------
Total Purchase price............................................ $49,626
=======
Allocated to:
Cash............................................................ $ 2,084
Accounts receivable............................................. 8,558
Insurance receivable............................................ 23,771
Inventories..................................................... 21,382
Deferred income taxes........................................... 2,518
Prepaid expenses and other...................................... 983
Property, plant and equipment, net.............................. 23,081
Other assets.................................................... 89
Purchase price in excess of net assets acquired................. 7,224
Current liabilities............................................. (24,576)
Deferred income taxes........................................... (15,488)
-------
$49,626
=======
</TABLE>
F-10
<PAGE> 115
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following summarized pro forma (unaudited) information assumes the
acquisition had occurred on January 1, 1995.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, ---------------------
1995 1995 1996
------------ -------- --------
<S> <C> <C> <C>
Net sales........................................ $228,439 $151,459 $183,336
======== ======== ========
Income from continuing operations................ $ 10,404 $ 4,791 $ 18,059
======== ======== ========
Net income....................................... $ 43,407 $ 37,814 $ 18,059
======== ======== ========
Earnings per share:
Continuing operations.......................... $ 0.88 $ 0.41 $ 2.06
======== ======== ========
Net income..................................... $ 3.67 $ 3.20 $ 2.06
======== ======== ========
</TABLE>
In February of 1996, the Company entered into an agreement to acquire
certain assets, including a major portion of the tangible assets, intellectual
property and corporate name of Farberware Inc. ("Farberware Inc.").
Effective April 12, 1996, the Company, through its indirect wholly-owned
subsidiary, Far-B Acquisition Corp. ("Far-B"), together with Lifetime Hoan
Corporation ("Lifetime") acquired certain assets from Farberware Inc., a
subsidiary of U.S. Industries, Inc. The Company and Lifetime are not affiliates.
Farberware Inc. was a manufacturer of aluminum clad, stainless steel
cookware and bakeware and small electric kitchen appliances. The aggregate
consideration paid by Far-B and Lifetime was $45,771, subject to adjustment. The
amount of the adjustment is being disputed; approximately $2,500 is at issue, of
which approximately $2,300 relates to inventory acquired by the Company. The
assets acquired by the Company included certain of the inventory, the tradename
"Farberware" and the intellectual property (including the intellectual property
that relates to cookware and bakeware and electric products other than major
kitchen appliances) and certain tools and dies and machinery and equipment. The
consideration paid by Far-B was approximately $32,611, subject to adjustment,
the amount of which is, as noted above, being disputed. Effective April 2, 1996,
the Company, through Far-B, entered into a manufacturing services agreement with
Farberware Inc. for transitional manufacturing services for certain finished
goods previously produced by Farberware Inc. The Company entered into the
manufacturing services agreement in part to provide continuity of product during
a transition period in order to protect the strength of the Farberware name in
the marketplace. The manufacturing services agreement has terminated.
Upon disposal of the existing inventory, the Company will not manufacture
or sell Farberware cookware and bakeware products or noncommercial electric
products. Accordingly, net sales for the nine months ended September 30, 1996
exclude sales of Farberware inventory, and $5,057, net of certain selling,
general and administrative expenses, from these sales has been recorded as other
operating income.
In a separate transaction, the Company and Far-B entered into an agreement
with Lifetime, which provided for the allocation between them of the assets
acquired from Farberware Inc., the granting of a long-term license to Lifetime
for use of the Farberware name in connection with an extensive list of products,
the granting to Lifetime of long-term exclusive rights to operate Farberware
outlet stores, the reservation of certain exclusive rights to Far-B (including
exclusive rights to use of the Farberware name for corporate purposes and for
the marketing of cookware and bakeware products as well as electric products)
and for the future formation of a joint venture to administer certain licensing
rights.
F-11
<PAGE> 116
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On June 27, 1996, the Company's Farberware Inc. subsidiary (formerly Far-B)
("Farberware") entered into a license agreement with Meyer Marketing Co. Ltd.
("Meyer") pursuant to which Meyer was granted for a term of 200 years (i) an
exclusive worldwide license to use and exploit the Farberware name and certain
related intellectual property rights in connection with the sourcing,
manufacture and distribution of cookware and bakeware products for home use and
commercial, industrial and institutional size pots, pans and roasters, and (ii)
non-exclusive (shared) rights to use certain Farberware technology and other
intellectual property. For such grant, Meyer made a one-time payment to the
Company of $25,500 which resulted in recognition by the Company of $11,900 of
non-recurring income. Under the terms of the licensing agreement, the Company
has no further obligation with respect to the amount paid by Meyer. As such, the
entire proceeds received were recognized as revenue in the second quarter of
1996. On July 12, 1996, Farberware granted to a major retail chain the exclusive
license to use and exploit the Farberware name and related intellectual property
in connection with the sourcing, manufacture, marketing and sale of certain
electric products for annual royalty payments. On October 25, 1996 Farberware
Inc. granted to FCI Corp. a license to use and exploit the Farberware name in
connection with the sourcing, manufacturing, marketing and sale of certain
commercial products (defined as six specified commercial urns and one specified
commercial convection oven plus cookware, bakeware and electric products
developed by the Licensee solely and exclusively for commercial, industrial or
institutional use with the prior written approval of Farberware) for the payment
of annual royalties. See Note 14.
On April 16, 1996, the Company purchased finished goods inventory and
intangible assets of the Silvestri division of FFSC, Inc. ("Silvestri") for
approximately $8,600. Prior to the Company's purchase of such assets, FFSC,
Inc., its subsidiaries and affiliated companies had filed for protection under
Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the
Northern District of Texas (the "Bankruptcy Court"). The Bankruptcy Court
approved this acquisition by the Company. Silvestri products include Christmas
ornaments, collectibles, lighting and trim as well as other seasonal and
nonseasonal giftware and decorative accessories.
The Corporation has given a Guaranty (limited to $4,000), dated as of May
21, 1996, of the obligations of FF Holding Company, FFSC, Inc. and certain
related entities to The CIT Group/Business Credit, Inc. under a certain debtor
in possession financing agreement dated May 21, 1996 and, at the request of the
Company, NationsBank N.A. (South) has issued its letter of credit, dated May 31,
1996 in the amount of $4 million to CIT Group/Business Credit, Inc. to secure
the Company's aforesaid guaranty.
On May 8, 1996, the Company, through one of its subsidiaries, acquired all
of the outstanding common stock of C.J. Vander Ltd., a manufacturer of sterling
silver and silverplated flatware and hollowware in Sheffield and London,
England. The purchase price was immaterial to the Company's consolidated
financial statements. The acquisition was accounted for under the purchase
method of accounting.
On November 26, 1996, a wholly-owned subsidiary of the Company acquired
inventory, tangible property, intellectual property rights, certain key records
(including customer lists, customer files, supplier information, catalogs) and
certain contract rights (selected by the Company's subsidiary) of Potpourri, a
North Carolina-based manufacturer and marketer of Christmas products for a
purchase price of approximately $2,300 plus a $240 promissory note.
3. DISCONTINUED OPERATIONS
On April 11, 1995, pursuant to an agreement entered into on March 28, 1995,
the Company, through its subsidiary, Syratech Holding Corporation, sold Syroco,
Inc. ("Syroco"). The net proceeds received after costs of the sale and income
taxes were $133,931. On September 25, 1995, the Company reached a final
settlement regarding the sale of Syroco. Under the terms of the settlement, the
Company reacquired certain assets and reassumed certain liabilities of Syroco
which have been recorded at their estimated net fair value of $1,834 at December
31, 1995, and $105 at September 30, 1996. The Company does not expect that the
liquidation of these assets or the ultimate resolution of the assumed
liabilities will have a material effect on the previously
F-12
<PAGE> 117
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
recognized gain on disposal. An after tax gain on disposal of Syroco of $30,451
was recognized in the second quarter of 1995.
The sale resulted in the discontinuation of the Company's casual furniture
and accessories business. The assets and liabilities relating to the
discontinued business are included in net assets of discontinued operations in
the consolidated balance sheets at December 31, 1994, December 31, 1995 and
September 30, 1996. The results of operations and cash flows for the
discontinued segment are included in discontinued operations in the consolidated
income statements and the consolidated statements of cash flows for years ended
December 31, 1993, 1994 and 1995 and for the nine months ended September 30,
1996 and September 30, 1995.
Net assets of discontinued operations consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1994 1995 1996
------- ------- -------------
<S> <C> <C> <C>
Accounts receivable, net........................... $14,930 $ -- $ --
Inventories, net................................... 35,142 1,778 --
Property, plant and equipment, net................. 48,517 227 134
Other assets....................................... 5,220 875 875
Liabilities........................................ (17,959) (1,046) (904)
------- ------- -----
Total.................................... $85,850 $ 1,834 $ 105
======= ======= =====
</TABLE>
Operating results of the discontinued segment consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31, THREE MONTHS
------------------- ENDED MARCH 31,
1993 1994 1995
------- ------- ---------------
(UNAUDITED)
<S> <C> <C> <C>
Net sales........................................ $87,343 $94,883 $33,626
======= ======= =======
Income before provision for income taxes......... 17,063 19,489 $ 4,217
Provision for income taxes....................... 6,225 7,421 1,645
------- ------- -------
Income from discontinued operations.............. $10,838 $12,068 $ 2,572
======= ======= =======
</TABLE>
The operating results of the discontinued segment exclude previously
allocated corporate expenses.
4. MARKETABLE SECURITIES
At December 31, 1995, marketable securities consisted of $30,000 of
short-term high grade notes having original maturities of six months. Marketable
securities are carried at fair value which approximates cost plus accrued
interest. Interest earned at December 31, 1995 but not paid, of $561, is
included in interest income for the year ended December 31, 1995.
5. INVENTORIES
Inventories were comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- SEPTEMBER 30,
1994 1995 1996
------- ------- -------------
<S> <C> <C> <C>
Raw Materials.......................................... $ 4,063 $ 3,908 $ 12,035
Work-in-process........................................ 3,342 1,744 7,683
Finished goods......................................... 32,929 35,499 85,579
------- ------- -------
Total............................................. $40,334 $41,151 $ 105,297
======= ======= =======
</TABLE>
F-13
<PAGE> 118
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Inventories would have been approximately $3,164 and $2,752 higher at
December 31,1994 and 1995, respectively, if the FIFO method had been used for
all inventories. There were no decreases in LIFO inventory quantities in 1993
and 1995. Decreases in LIFO inventory quantities had the effect of increasing
consolidated net income by $4 in 1994.
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment was comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1994 1995 1996
-------- -------- -------------
<S> <C> <C> <C>
Land and improvements................................ $ 7,813 $ 7,813 $ 8,175
Buildings and improvements........................... 17,465 18,780 35,540
Tools and dies....................................... 13,651 13,808 13,993
Machinery and equipment.............................. 5,652 6,046 23,044
Other................................................ 797 1,169 1,293
Construction in progress............................. 1,450 1,239 10,126
------- ------- -------
Total........................................... 46,828 48,855 92,171
Less: accumulated depreciation and amortization...... (16,137) (19,295) (31,340)
------- ------- -------
Net............................................. $ 30,691 $ 29,560 $ 60,831
======= ======= =======
</TABLE>
During 1995, the Company purchased all property previously under capital
leases (Note 7). Cost and accumulated amortization related to property under
capital leases at December 31, 1994 was approximately $5,075 and $2,199,
respectively.
Included in construction in progress at September 30, 1996 was $5,210 for
an 830,000 square foot warehouse, manufacturing and showroom facility in
Chester, South Carolina that the Company purchased during the second quarter of
1996 which will be placed into service upon completion of renovations.
Capitalized interest was not material to the Company's consolidated financial
statements.
7. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt were comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- SEPTEMBER 30,
1994 1995 1996
------- ------- -------------
<S> <C> <C> <C>
Revolving loan facilities and notes payable............ $14,504 $51,735 $82,155
======= ======= =======
Equipment note......................................... $ 140
Capital lease obligation............................... 735
-------
Total............................................. 875
Less: current maturities of long-term debt............. (875)
-------
Long-term debt.................................... $ -- $ -- $ --
======= ======= =======
</TABLE>
REVOLVING LOAN FACILITIES
The Company's Amended and Restated Loan and Security Agreement (the
"Company Loan Agreement") provides for maximum permitted borrowings of $60,000,
an interest rate at the bank's prime rate less .25% (8.25% at December 31,
1995), and an option to borrow at 1.5% over the Eurodollar rate (7.15625%, 30
day Eurodollar rate, at December 31, 1995). The weighted average interest rate
on borrowings outstanding
F-14
<PAGE> 119
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
under this facility for the year ended December 31, 1995 was 8.32%. The Company
Loan Agreement expires on November 30, 1997. At December 31, 1995, there were no
borrowings outstanding under the Company Loan Agreement, and at September 30,
1996, $45,399 was outstanding. The credit availability (net of letters of credit
outstanding) under this agreement was $53,808 at December 31, 1995. Borrowings
are collateralized by substantially all of the assets of the Company and its
subsidiaries with the exception of Rauch, Farberware, Silvestri and C.J. Vander.
The Company Loan Agreement restricts the payment of cash dividends to 33 1/3% of
net income for the prior year. In addition, it limits repurchases of the
Company's outstanding capital stock and capital expenditures, and contains
covenants which require, among other things, minimum levels of consolidated
tangible net worth and the maintenance of certain financial ratios. In December
1995, the restriction to repurchase outstanding capital stock was modified to
allow the Company to repurchase all of the 3,064,751 shares of the Company's
stock owned by affiliates of Katy Industries, Inc. (the "Katy Stock
Repurchase"). The agreement was modified in December 1995 to permit the
acquisition of Rauch referred to in Note 2. During 1996, further modifications
were made to permit the Farberware, Silvestri and C.J. Vander acquisitions. At
December 31, 1995, the Company had $15,400 of unrestricted retained earnings
available for payment of cash dividends.
As a result of the Rauch acquisition, the Company assumed the borrowings of
Rauch (the "Rauch Loan"). The Rauch Loan is from the same lender as the Company
Loan Agreement. During 1996, the Rauch Loan was modified to permit the
continuation of the Rauch Loan under the company Loan Agreement. The Rauch Loan
allowed long-term borrowings up to $12,800 and short-term borrowings up to
$40,000. On September 30, 1996, there was $34,875 outstanding under the Rauch
Loan. Effective October 31, 1996, the Company and the lender entered into an
agreement that extended certain modifications previously agreed upon by the
lender, added Rauch, Farberware and Silvestri as borrowers and limited total
borrowings including amounts reserved for drawings on letters of credit to
$100,000 through December 31, 1996 and to $60,000 until the earlier of April 30,
1997 or the completion of refinancing contemplated with respect to the Agreement
and Plan of Merger with THL Transaction I Corp. The Rauch long-term loan was
paid on October 31, 1996.
In July 1996, the interest rate on each of the Company Loan Agreement and
the Rauch Loan was set at the bank's prime rate less .75% and borrowings under
the Eurodollar rate option was set at 1.0% over the Eurodollar rate.
One of Wallace's Puerto Rican subsidiaries has a revolving credit facility
(the "Facility") which provides for borrowings up to a maximum of $4,000.
Interest on borrowings is charged at the bank's prime rate (8.50% at December
31, 1995). The weighted average interest rate on borrowings outstanding under
this Facility for the year ended December 31, 1995 was 8.33%. There were no
borrowings outstanding under the Facility at December 31, 1995. At September 30,
1996, $1,881 was outstanding under the Facility. The credit availability under
the Facility was $4,000 at December 31, 1995. Borrowings are uncollateralized;
however, the pledge of assets owned by one of the subsidiaries as collateral for
other loans is prohibited. Borrowings under the Facility are guaranteed by the
Company and cross-guaranteed by certain other subsidiaries. The Facility expired
on May 30, 1996; however, the Company received a letter of commitment increasing
the line from $4,000 to $10,000, lowering the interest rate to the bank's prime
rate minus .30% or the Eurodollar rate plus 1.70% and extending it to May 31,
1997. As of September 30, 1996, the Company was negotiating the final details of
the line of credit. On October 15, 1996, the Puerto Rican subsidiary and the
lender entered into an Amended and Restated Line of Credit Agreement increasing
the facility to $10 million and renewing it to May 31, 1997.
At September 30, 1996, the Company had $16,687 of credit availability, net
of $16,758 of letters of credit outstanding, under the Company's revolving
credit facilities.
F-15
<PAGE> 120
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Notes Payable
At December 31, 1995, the Company had notes payable of $51,735 related to
the purchase of 3,064,751 shares of the Company's common stock on December 29,
1995 (Note 11). These notes were paid on January 2, 1996.
Equipment Note
One of Wallace's Puerto Rican subsidiaries had an equipment note payable in
monthly installments of $17 plus interest at 10.375%. The note was
collateralized by certain of the subsidiary's equipment. The note was paid in
full during 1995.
Capital Lease Obligation
In 1990, one of Wallace's Puerto Rican subsidiaries sold and leased back,
under a capital lease, certain of its tooling. The agreement provided for the
repayment of $4,000 of proceeds received over 60 months in monthly installments
of principal and interest of $86. The implicit interest rate of the lease was
10.375%. During 1995, the lease expired and the subsidiary repurchased the
tooling for $25.
8. INCOME TAXES
The provisions for income taxes were comprised of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Current:
Federal................................................ $1,484 $1,356 $6,297
State.................................................. 443 524 1,608
Foreign................................................ 779 625 937
------ ------ ------
2,706 2,505 8,842
------ ------ ------
Deferred:
Federal................................................ (578) (561) (1,805)
State.................................................. (125) 87 (383)
Foreign................................................ (78) (19)
------ ------ ------
(781) (493) (2,188)
------ ------ ------
Tax benefit from exercise of stock options:
Federal................................................ 358 574 161
State.................................................. 107 172 48
------ ------ ------
465 746 209
------ ------ ------
Total.................................................. $2,390 $2,758 $6,863
====== ====== ======
</TABLE>
The provision for income tax expense for the nine month period ended
September 30, 1996 has been computed using an estimated effective tax rate for
the year ended December 31, 1996.
F-16
<PAGE> 121
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The reconciliations between the Company's effective income tax rate and the
U.S. federal statutory rate are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate......................................... 35.0% 35.0% 35.0%
State taxes, net of federal income tax benefit................. 2.6 3.1 2.5
Hong Kong...................................................... (8.4) (6.6) (4.8)
Puerto Rico.................................................... (5.9) (6.0) (3.8)
Provision for undistributed foreign earnings................... 4.1 1.6 5.0
Other.......................................................... (2.1) (1.1) 0.4
---- ---- ----
Effective income tax rate.................................... 25.3% 26.0% 34.3%
==== ==== ====
</TABLE>
The components of income before provision for income taxes were comprised
of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1993 1994 1995
------ ------- -------
<S> <C> <C> <C>
Domestic............................................... $6,302 $ 7,081 $14,480
Foreign................................................ 3,144 3,536 5,559
------ ------- -------
Total........................................ $9,446 $10,617 $20,039
====== ======= =======
</TABLE>
Provisions have been made for taxes on the undistributed earnings of
Syratech H.K. and Wallace's Puerto Rican subsidiaries which are ultimately
expected to be remitted to the parent company. In addition, the Company has
permanently invested a portion of the undistributed earnings of its Puerto Rican
and Syratech H.K. subsidiaries. It is not practical to estimate the amount of
unrecognized deferred tax liability attributable to these undistributed foreign
earnings.
Wallace's Puerto Rican subsidiaries operate under grants from the
Commonwealth of Puerto Rico exempting 90% of their income from taxation until
December 2003. Had the Company not been eligible for the tax exemption, net
income in 1993, 1994, and 1995 would have been reduced by approximately $1,512,
$1,330, and $1,198, and earnings per share would have been decreased by
approximately $.13, $.11, and $.10, respectively.
F-17
<PAGE> 122
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of significant items comprising the Company's net deferred
tax asset (liability) are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
------- -------
<S> <C> <C>
Deferred tax assets:
Accounts receivable............................................ $ 1,951 $ 2,171
Inventory...................................................... 851 1,447
Other reserves................................................. 445 1,996
Pension........................................................ 221 522
Other deductible amounts....................................... 206 250
------- -------
Deferred tax asset..................................... 3,674 6,386
------- -------
Deferred tax liability:
Asset acquisition allocation................................... (476) (592)
Depreciation................................................... (2,540) (2,352)
Foreign earnings............................................... (1,439) (1,994)
------- -------
Deferred tax liability................................. (4,455) (4,938)
------- -------
Net deferred tax asset (liability)............................... $ (781) $ 1,448
======= =======
</TABLE>
9. COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries have various operating lease commitments
for buildings and equipment. The lease agreements generally require the Company
to pay insurance, real estate taxes, and maintenance and contain various renewal
options. Future minimum rental payments for all noncancellable operating leases
for each of the next five years and thereafter, including those resulting from
the Rauch, Silvestri and C. J. Vander acquisitions, are as follows:
<TABLE>
<S> <C>
1996................................................................ $4,273
1997................................................................ 2,559
1998................................................................ 1,146
1999................................................................ 896
2000................................................................ 751
Subsequent to 2000.................................................. 342
</TABLE>
Rent expense for all operating leases were approximately $1,601, $1,789,
and $1,821 in 1993, 1994 and 1995 and $1,406 and $4,287 for the nine months
ended September 30, 1995 and 1996, respectively.
Certain subsidiaries were contingently obligated for outstanding letters of
credit, trade acceptances and similar instruments aggregating $6,909 at December
31, 1995 and $16,758 (Note 7) at September 30, 1996. The assets of Syratech H.K.
are pledged as collateral for certain of these contingent obligations.
10. EMPLOYEE BENEFIT PLANS
The Company has three 401(k) savings plans. The 401(k) savings plans cover
substantially all employees of its domestic and Puerto Rican subsidiaries. The
401(k) plans are subject to certain minimum age and length of employment
requirements. Under two of these plans, the Company matches 30% of participants'
contributions up to 6% of compensation. Under the other plan, the Company
matches 50% of the first five hundred twenty dollars contributed and 25%
thereafter, of the participants' contributions up to 15% of compensation. The
Company also has a savings plan, established in 1991, covering substantially all
employees
F-18
<PAGE> 123
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of the Company's Hong Kong subsidiary. Under the Hong Kong plan, the Company
contributes up to 10% of the participants' compensation. The Company contributed
an aggregate of $140, $197, and $256 to all of these Plans in 1993, 1994 and
1995, and $194 and $444 for the nine months ended September 30, 1995 and 1996,
respectively.
The Company's C. J. Vander subsidiary also has an employee benefit plan.
The Company's obligation under the plan is not material to the Company's
financial position or results of operations.
The Company has employment agreements with certain officers and employees
(including one non-officer employee/director) for terms ranging from three to
five years, which provide for minimum annual salaries aggregating $3,051 and
certain other benefits.
Employment agreements with the Company's five officers provide for
retirement benefit payments. With respect to two of these officers, for the
years ended December 31, 1994 and 1993, the agreements provided for benefit
payments in amounts equal to two percent of the officers' final year base
salaries multiplied by the number of years of service with the Company. In May
1995, these two agreements were amended to provide that the benefit payments be
based upon two percent of the average total annual compensation (salary and
bonus) for the three year period preceding the executives' retirement dates
multiplied by the number of years of service. In addition, one of the agreements
was amended (the "1995 Plan Amendment") to provide for a 100% survivor benefit
for the executive's spouse. In July, 1996 existing employment agreements with
the other three officers were amended to also provide for a retirement benefit.
Two of these agreements were amended to provide for benefit payments based upon
the greater of (i) $75,000 or (ii) one half of one percent of the average total
annual compensation (salary and bonus) for the three year period preceding the
executives' retirement dates multiplied by the number of years of service. One
of these agreements was amended to provide for benefit payments based upon the
greater of (i) $75,000 or (ii) one percent of the average total annual
compensation (salary and bonus) for the three year period preceding the
executives' retirement dates multiplied by the number of years of service.
Upon consummation of the Merger (Note 15), an employment agreement with an
officer will be amended so as to (i) change the officer's term of full-time
employment from a rolling five-year term to a fixed five-year term, (ii) provide
for a minimum base salary of $1,150 per annum, (iii) establish $1,150 as the
minimum amount upon which the officer's retirement benefit (and the survivor's
benefit of his surviving spouse) will be computed and (iv) create contractual
rights with respect to certain perquisites that he is accorded informally under
present arrangements with the Company. Additionally, an employment agreement
with another officer will be amended to change the officer's term of full-time
employment from a rolling five-year term to a fixed five-year term.
Pension expense is determined using assumptions at the beginning of the
year. Assumptions used in determining the actuarial present value of the
projected benefit obligation include: a discount rate of 8.5% and a rate of
future increases in benefit compensation of 5%. The Company has changed its
discount rate assumption to 7.5% effective January 1, 1996. The effect of the
change in discount rate was not material to the December 31, 1995 financial
statements.
Net pension cost included the following components:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Service cost for benefits earned.............................. $124 $137 $196
Interest cost benefit obligation.............................. 64 71 123
Amortization of prior service cost............................ -- -- 476
---- ---- ----
Net periodic pension cost..................................... $188 $208 $795
==== ==== ====
</TABLE>
F-19
<PAGE> 124
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the amounts recognized in the consolidated
balance sheets as of December 31, 1994 and 1995:
<TABLE>
<CAPTION>
1994 1995
------ ------
<S> <C> <C>
Actuarial present value of obligations:
Vested benefit obligation........................................ $1,602 $1,724
Projected benefit obligation..................................... 1,648 2,012
Fair value of plan assets.......................................... -- --
Projected benefit obligation in excess of plan assets.............. 1,648 2,012
Unrecognized prior service cost.................................... (1,079) (603)
Unrecognized gain/(loss)........................................... -- (45)
Additional minimum liability....................................... -- 360
------ ------
Net accrued pension liability...................................... $ 569 $1,724
====== ======
</TABLE>
11. STOCKHOLDERS' EQUITY
Key Employee Stock Option Plans
Under the Company's 1986 Key Employee Stock Option Plan ("1986 Plan"),
qualified and non-qualified options to purchase up to a maximum of 1,300,000
shares of common stock were granted to certain employees at exercise prices not
less than 85% of the fair market value at the date of grant. Options become
exercisable ratably over a five-year period and expire ten years from the date
of grant. There were no shares available for grant under the 1986 Plan at
December 31, 1995 and September 30, 1996.
In 1993, the Company established the 1993 Key Employee Stock Option Plan
("1993 Plan"), with provisions similar to the 1986 Plan. Under the 1993 Plan,
qualified and non-qualified options to purchase up to a maximum of 400,000
shares of common stock may be granted to certain employees at an exercise price
not less than fair market value at the date of grant. Options outstanding under
the 1993 plan at December 31, 1995 and September 30, 1996 were 47,500 and
67,000, respectively.
In 1995, the Company established the 1995 Key Employee Stock Option Plan
("1995 Plan"). The 1995 Plan contains certain provisions similar to the 1993
Plan and would allow the grant of 800,000 options at an exercise price not less
than fair market value at the date of grant. No options were outstanding under
the 1995 plan at December 31, 1995. At September 30, 1996, 120,000 options were
outstanding under the 1995 plan.
F-20
<PAGE> 125
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of stock option activity under the Plans is as follows:
<TABLE>
<CAPTION>
EXERCISE
PRICE
SHARES PER SHARE
---------- -------------
<S> <C> <C>
Outstanding at January 1, 1993........................... 1,299,960 $.0038-$10.67
Canceled................................................. (19,100) $10.00-$10.67
Granted.................................................. 18,300 $13.70
Exercised................................................ (1,001,810) $.0038-$10.67
----------
Outstanding at December 31, 1993......................... 297,350 $.0038-$13.70
Canceled................................................. (8,400) $10.67
Granted.................................................. 50,000 $14.35
Exercised................................................ (38,200) $.0038-$10.67
----------
Outstanding at December 31, 1994......................... 300,750 $.0038-$14.35
Canceled................................................. (90,900) $10.67-$14.56
Granted.................................................. 54,500 $14.56-$18.75
Exercised................................................ (44,150) $.0038-$10.67
----------
Outstanding at December 31, 1995......................... 220,200 $.0038-$18.25
Canceled................................................. (2,000) $10.67
Granted.................................................. 139,500 $23.00-$24.75
Exercised................................................ (9,600) $.0038-$10.67
----------
Outstanding at September 30, 1996........................ 348,100 $.0038-$24.75
==========
Exercisable at December 31, 1995......................... 85,720 $.0038-$13.70
==========
Exercisable at September 30, 1996........................ 86,020 $.0038-$18.75
==========
</TABLE>
Purchase of Common Stock
On December 29, 1995, the Company effected the Katy Stock Repurchase. The
aggregate purchase price of $52,054 represented approximately $17 per share. The
purchase was financed by the issuance of two promissory notes due January 2,
1996 to subsidiaries of Katy and the assumption of short-term bank debt, all
aggregating $51,735. The two promissory notes and the short-term bank debt were
paid on January 2, 1996. The Company's par and additional paid-in capital values
have been decreased to reflect the purchase.
Shareholder Rights Plan
On October 26, 1992 the Company's Board of Directors adopted a Shareholder
Rights Plan (the "Plan"). Under the Plan, the Company distributed a dividend of
one right (a "Right") to purchase shares of preferred stock to stockholders of
record on October 31, 1992 and further authorized the issuance of one Right to
each share of common stock which becomes outstanding after the record date. Each
Right entitles the registered holder to purchase from the Company one
one-hundredth of a share of a new series of preferred stock ("Series A Preferred
stock") at a price of $50, subject to adjustment. As amended on July 5, 1994,
the Rights become exercisable only if an individual or group (an "Acquiring
Person") acquires 15% or more of the outstanding common stock or commences a
tender offer which would result in its ownership of 30% or more of the
outstanding common stock, or in the case of a person who beneficially owned 20%
or more of the outstanding common stock on October 26, 1992, such person
acquires an additional 1% or more of the outstanding common stock. On November
8, 1996, the Company redeemed the Rights and terminated the Plan.
F-21
<PAGE> 126
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Once exercisable, the Rights, under certain circumstances, permit the
holder (other than an Acquiring Person) to acquire shares of common stock of the
Company or of an acquiring company, having a value equal to twice the exercise
price of the Right.
The right to acquire shares of common stock described in the preceding
paragraph shall not arise as a result of a tender offer for the acquisition of
any and all of the outstanding common shares of the Company for cash, provided
such tender offer remains open for a period of not less than 60 calendar days.
Furthermore, at any time after an Acquiring Person acquires ownership of 15% or
more (but less than 50%) of the Company's outstanding common stock, the Board of
Directors may, at its option, exchange part or all of the Rights (other than
those held by the Acquiring Person) for shares of the Company's common stock at
a ratio of one share of common stock per Right, as adjusted. The Company is
generally entitled to redeem the Rights at $0.01 per Right. As required by the
Agreement and Plan of Merger (Note 15), effective on November 8, 1996, the
Company redeemed all outstanding Rights and terminated the Shareholder Rights
Plan pursuant to which the Rights were issued. The redemption price for each
Right is one cent and if holders of Rights have not received payment of the
redemption price prior to the Effective Time they will, upon receipt of
satisfactory proof of non-payment of the redemption price of Rights held by them
on November 8, 1996, have the redemption price of their Rights added to the
payment of the cash price for their shares of Company Common Stock in the
Merger.
Transfer of Shares
On December 31, 1996, the principal shareholder of the Company, the Company
and THL Transaction I Corp. entered into agreements with three executive
officers whereby the principal shareholder will transfer up to 73,068 shares
(the Shares) of his Syratech common stock to the Company to effect the transfer
of an equal number of newly issued shares to the executive officers. In
connection with each transfer of shares of stock, the agreements also provide
for each executive to receive, from the Company, as additional compensation, an
annual lump sum cash payment (the "Lump Sum Payments") for the reimbursement of
income taxes owed by the executive as a result of such transfer and payment. The
transfer of Shares by the principal shareholder and the Lump Sum Payments to the
executives are irrevocable and unconditional and are not based upon the
executives future employment with the Company. On December 31, 1996, 31,812
shares were transferred and Lump Sum Payments totaling $703 were made to the
executives. Shares aggregating 31,884 were transferred as of January 14, 1997.
Additional shares of up to 9,372 will be transferred on January 14, 1998.
The estimated value of the shares to be issued to the three executive
officers will be recorded as an addition to additional paid-in capital of
$2,338. Total compensation expense equal to the estimated value of the Shares
plus an estimate of the aggregate Lump Sum Payments, or $3,953 will be recorded
in the fourth quarter of 1996.
Short and long-term compensation payable will be $705 and $207,
respectively at December 31, 1996.
12. RELATED PARTY TRANSACTIONS
A beneficial owner of less than 1% of the Company holds a significant
management role in Service Merchandise Co., Inc. ("Service"). A different person
is a director of the Company and is also a director of Service. The Company had
net sales to Service of approximately $10,065, $9,909 and $10,706 in 1993, 1994
and 1995, and $9,206 and $20,273 in the nine months ended September 30, 1995 and
1996, respectively. The Company had accounts receivable from Service of
approximately $834, $756 and $10,884 at December 31, 1994, 1995 and September
30, 1996, respectively.
Effective July 12, 1996, the Company, through an indirect wholly-owned
subsidiary, granted a license to Service to use certain trademarks, patents and
copyrights relating to certain electric and other products. The agreement is
subject to cancellation with six months notice by the licensee.
F-22
<PAGE> 127
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Wacker Industrial Company ("Wacker"), a major supplier, is owned by a
holder of less than 1% of the Company's common stock. In 1993, 1994 and 1995 and
the nine months ended September 30, 1995 and 1996, the Company had purchases
from this supplier of approximately $12,297, $6,176 and $5,371 and $4,324 and
$3,097, respectively. Accounts payable to this supplier approximated $161, $75
and $158 at December 31, 1994, 1995 and September 30, 1996, respectively.
Other transactions with companies affiliated with certain
directors/stockholders include net sales of approximately $403, $297 and $735
and purchases of products and services of $1,637, $1,228 and $746 in 1993, 1994
and 1995, respectively. For the nine month periods ended September 30, 1995 and
1996, net sales to affiliated companies approximated $608 and $4,283,
respectively. As of December 31, 1995, amounts payable to these companies
approximated $319, and as of September 30, 1996, there were no amounts payable;
there also were no accounts receivable.
13. FOREIGN OPERATIONS
The Company's foreign operations relate to its Hong Kong subsidiary, the
sales of which are substantially to customers in the United States. Summarized
financial information about the Company's operations in different geographic
areas is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Net sales:
United States........................................ $ 95,643 $114,457 $122,950
Foreign.............................................. 27,039 32,834 46,570
-------- -------- --------
Total............................................. $122,682 $147,291 $169,520
======== ======== ========
Income from operations:
United States........................................ $ 7,110 $ 7,497 $ 9,846
Foreign.............................................. 3,202 3,581 5,599
-------- -------- --------
Total............................................. $ 10,312 $ 11,078 $ 15,445
======== ======== ========
Identifiable assets:
United States........................................ $147,147 $185,632 $213,162
Foreign.............................................. 4,913 5,052 7,404
-------- -------- --------
$152,060 $190,684 $220,566
======== ======== ========
</TABLE>
As of May 8, 1996, the Company's foreign operations include its C.J. Vander
subsidiary (Note 2).
14. LITIGATION
The Company has been named as a defendant in several legal actions arising
from its normal business activities. The Company carries insurance against
liability for certain types of risks. Although the amount of liability that
could result from any litigation cannot be predicted, in the opinion of
management, the Company's potential liability on all known claims would not have
a material adverse effect on the consolidated financial position or results of
operations of the Company.
The Company is also involved in litigation with Bruckner Manufacturing
Corp. ("BMC") and its parent, U.S. Industries, Inc. ("USI") growing out of the
acquisition by its Farberware Inc. subsidiary of the Farberware assets
previously owned by BMC and certain related transactions. The Company carries
insurance against liability for certain types of risks. Although the amount of
liability that could result from any litigation cannot be accurately predicted,
in the opinion of management, the Company's potential liability on all known
F-23
<PAGE> 128
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
claims would not have a material adverse effect on the results of operations or
financial condition of the Company.
15. SUBSEQUENT EVENT
On October 23, 1996, the Company and THL Transaction I Corp., a company
organized and controlled by affiliates of Thomas H. Lee Company, entered into an
Agreement and Plan of Merger, dated November 27, 1996, effective as of October
23, 1996, pursuant to which THL Transaction I Corp. will be merged into the
Company (the "Merger"). Pursuant to the transaction, stockholders of the Company
will receive $32 in cash per share or may elect to receive a portion of their
consideration by retaining stock of the surviving entity.
Upon consummation of the Merger, the Company would have on a pro forma
basis, as of September 30, 1996, outstanding debt of approximately $252,083
(unaudited). The transaction is expected to close in the first quarter of 1997.
It is intended that the transaction will be accounted for as a recapitalization.
The equity contribution to be made to THL I Transaction Corp. will constitute
approximately $102,139 unaudited (less the value of the shares retained by
stockholders other than the Company's chairman and 63,696 shares that were
issued to, and will be retained by, certain Management Stockholders). The
Company expects to have a stockholders' deficit ($3,863 on a pro forma basis at
September 30, 1996 unaudited) considering the effects of the Merger, because the
distribution to stockholders, as well as approximately one-third of the Merger
expenses, will reduce stockholders' equity.
The consummation of the Merger is conditioned upon the issuance of $160,000
of Senior Notes (the "Senior Notes"). The Senior Notes will be general unsecured
obligations of the Company ranking senior to all existing and future
subordinated indebtedness of the Company, including indebtedness under the New
Credit Facility. However, the obligations of the Company under the New Credit
Facility will be secured by the accounts receivable and inventory of the Company
and its domestic subsidiaries and, accordingly, such indebtedness will
effectively rank senior to the Senior Notes to the extent of such assets. The
Senior Notes will be unconditionally guaranteed on a joint and several basis by
each of the Company's domestic subsidiaries. (The "Guarantor Subsidiaries").
The following condensed consolidating financial statements as of December
31, 1994 and 1995 and for each of the three years in the period ended December
31, 1995, present separate financial information for the Company ("Guarantor
Parent"), the Guarantor Subsidiaries, the Non Guarantor Subsidiaries, and
Discontinued Operations.
F-24
<PAGE> 129
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 1994
<TABLE>
<CAPTION>
NON
GUARANTOR GUARANTOR GUARANTOR DISCONTINUED
PARENT SUBSIDIARIES SUBSIDIARIES OPERATIONS ELIMINATIONS CONSOLIDATED
--------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents....... $ 474 $ 1,392 $ 1,866
Accounts receivable, net... 26,856 1,388 28,244
Inventories................ 38,643 1,650 $ 41 40,334
Deferred income taxes...... 2,960 2,960
Prepaid expenses and
other................... (60) 216 156
Net assets of discontinued
operations.............. $ 85,850 85,850
-------- -------- ------- ------- ----- --------
Total current
assets............. 68,873 4,646 85,850 41 159,410
Property, plant and
equipment, net............. 30,343 406 (58) 30,691
Other assets................. $ 387 583 (387) 583
-------- -------- ------- ------- ----- --------
Total................. $ 387 $ 99,799 $ 5,052 $ 85,850 $ (404) $190,684
======== ======== ======= ======= ===== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving loan facilities
and notes payable....... $ 14,504 $ 14,504
Current maturities of long-
term debt............... 875 875
Accounts payable........... 6,233 $ 1,357 7,590
Accrued expenses........... 2,638 52 2,690
Accrued compensation....... 2,985 171 3,156
Accrued advertising........ 1,642 1,642
Income taxes payable....... $ (1,089) 4,733 179 $ (6) 3,817
-------- -------- ------- ----- --------
Total current
liabilities........ (1,089) 33,610 1,759 (6) 34,274
Deferred income taxes........ 1,439 2,302 3,741
Pension liability............ 569 569
Intercompany (receivable)
payable.................... (54,337) (26,242) (5,271) $ 85,850
Stockholders' equity......... 54,374 89,560 8,564 (398) 152,100
-------- -------- ------- ------- ----- --------
Total................. $ 387 $ 99,799 $ 5,052 $ 85,850 $ (404) $190,684
======== ======== ======= ======= ===== ========
</TABLE>
F-25
<PAGE> 130
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
NON
GUARANTOR GUARANTOR GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents.......... $ 63,354 $ 11,786 $ 3,353 $ 78,493
Marketable securities......... 30,561 30,561
Accounts receivable, net...... 30,129 1,764 31,893
Inventories................... 39,415 1,695 $ 41 41,151
Deferred income taxes......... 1,582 3,523 5,105
Prepaid expenses and other.... 516 854 232 1,602
Net assets of discontinued
operations................. 1,834 1,834
-------- -------- ------- --------- --------
Total current assets..... 97,847 85,707 7,044 41 190,639
Property, plant and equipment,
net........................... 29,256 351 (47) 29,560
Other assets.................... 130,914 358 9 (130,914) 367
-------- -------- ------- --------- --------
Total.................... $ 228,761 $115,321 $ 7,404 $ (130,920) $220,566
======== ======== ======= ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Revolving loan facilities and
notes payable.............. $ 51,735 $ 51,735
Accounts payable.............. $ 4,964 $ 1,474 6,438
Accrued expenses.............. 922 3,314 199 $ 1 4,436
Accrued compensation.......... 2,212 266 2,478
Accrued advertising........... 1,991 1,991
Income taxes payable.......... 20,152 (19,104) 469 (6) 1,511
-------- -------- ------- --------- --------
Total current
liabilities........... 72,809 (6,623) 2,408 (5) 68,589
Deferred income taxes........... 1,819 1,838 3,657
Pension liability............... 1,724 1,724
Intercompany (receivable)
payable....................... (63,540) 68,727 (5,590) 403
Stockholders' equity............ 217,673 49,655 10,586 (131,318) 146,596
-------- -------- ------- --------- --------
Total.................... $ 228,761 $115,321 $ 7,404 $ (130,920) $220,566
======== ======== ======= ========= ========
</TABLE>
F-26
<PAGE> 131
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING INCOME STATEMENTS
YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
NON
GUARANTOR GUARANTOR GUARANTOR DISCONTINUED
PARENT SUBSIDIARIES SUBSIDIARIES OPERATIONS ELIMINATIONS CONSOLIDATED
--------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales.................... $ 95,643 $ 43,346 $(16,307) $122,682
Cost of sales................ 65,999 34,951 (16,307) 84,643
------- ------- -------- --------
Gross profit............... 29,644 8,395 38,039
Selling, general and
administrative expenses.... 23,022 5,193 (488) 27,727
------- ------- -------- --------
Income from operations..... 6,622 3,202 488 10,312
Interest expense............. (883) (65) (948)
Interest income.............. 75 7 82
------- ------- -------- --------
Income before provision for
income taxes............ 5,814 3,144 488 9,446
Provision for income taxes... 1,846 544 2,390
------- ------- -------- --------
Income from continuing
operations.............. 3,968 2,600 488 7,056
Discontinued operations,
net........................ $ 10,838 10,838
---- ------- ------- ------- -------- --------
Net income................. $-- $ 3,968 $ 2,600 $ 10,838 $ 488 $ 17,894
==== ======= ======= ======= ======== ========
</TABLE>
F-27
<PAGE> 132
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING INCOME STATEMENTS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
NON
GUARANTOR GUARANTOR GUARANTOR DISCONTINUED
PARENT SUBSIDIARIES SUBSIDIARIES OPERATIONS ELIMINATIONS CONSOLIDATED
--------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $114,457 $ 53,495 $(20,661) $147,291
Cost of sales........... 81,946 43,315 (20,661) 104,600
-------- ------- -------- --------
Gross profit.......... 32,511 10,180 42,691
Selling, general and
administrative
expenses.............. 25,269 6,599 (255) 31,613
-------- ------- -------- --------
Income from
operations......... 7,242 3,581 255 11,078
Interest expense........ (496) (63) (559)
Interest income......... 80 18 98
Other income............ $ 2,000 2,000 (4,000)
------ -------- ------- -------- --------
Income before
provision for
income taxes....... 2,000 8,826 3,536 (3,745) 10,617
Provision for income
taxes................. 157 1,995 606 2,758
------ -------- ------- -------- --------
Income from continuing
operations......... 1,843 6,831 2,930 (3,745) 7,859
Discontinued operations,
net................... $ 12,068 12,068
------ -------- ------- ------- -------- --------
Net income......... $ 1,843 $ 6,831 $ 2,930 $ 12,068 $ (3,745) $ 19,927
====== ======== ======= ======= ======== ========
</TABLE>
F-28
<PAGE> 133
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING INCOME STATEMENTS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
NON
GUARANTOR GUARANTOR GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales............................... $122,950 $ 67,354 $(20,784) $169,520
Cost of sales........................... 87,593 53,027 (20,784) 119,836
-------- ------- -------- --------
Gross profit.......................... 35,357 14,327 49,684
Selling, general and administrative
expenses.............................. 25,522 8,728 (11) 34,239
------- -------- ------- -------- --------
Income from operations................ 9,835 5,599 11 15,445
Interest expense........................ (198) (89) (287)
Interest income......................... $ 4,496 336 49 4,881
Other income............................ 1,300 1,300 (2,600)
------- -------- ------- -------- --------
Income before provision for income
taxes.............................. 5,796 11,273 5,559 (2,589) 20,039
Provision for income taxes.............. 2,623 3,303 937 6,863
------- -------- ------- -------- --------
Income from continuing operations..... 3,173 7,970 4,622 (2,589) 13,176
Discontinued operations, net............ 33,023 33,023
------- -------- ------- -------- --------
Net income............................ $36,196 $ 7,970 $ 4,622 $ (2,589) $ 46,199
======= ======== ======= ======== ========
</TABLE>
F-29
<PAGE> 134
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
NON
GUARANTOR GUARANTOR GUARANTOR DISCONTINUED
PARENT SUBSIDIARIES SUBSIDIARIES OPERATIONS ELIMINATIONS CONSOLIDATED
--------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income................... $ 3,968 $ 2,600 $ 10,838 $ 488 $ 17,894
Adjustments to reconcile net
income to net cash provided
by (used in) operations:
Depreciation and
amortization............ 2,954 585 (488) 3,051
Deferred income taxes...... $ 1,943 (871) (76) 257 1,253
Other...................... 99 (214) 4 (111)
Increase (decrease) in
cash:
Accounts receivable..... (1,517) (614) (2,131)
Inventories............. (1,666) (148) (1,814)
Prepaid expenses and
other................. (319) (276) (595)
Accounts payable and
accrued expenses...... (72) 315 243
Income taxes payable.... (1,943) (4,166) (209) (257) (6,575)
Intercompany account.... (664) 10,155 (2,029) (7,462)
Discontinued operations.... (3,376) (3,376)
------- ------- ------- ------- ----- -------
Net cash provided by (used
in) operating activities... (565) 8,252 152 7,839
------- ------- ------- ------- ----- -------
Cash flows from investing
activities:
Purchases of property, plant
and equipment.............. (2,659) (122) (2,781)
Other........................ (76) (76)
------- ------- ------- ------- ----- -------
Net cash used in investing
activities................. (2,735) (122) (2,857)
------- ------- ------- ------- ----- -------
Cash flows from financing
activities:
Change in revolving loan
facilities................. 444 444
Proceeds from borrowings..... 69 69
Repayment of borrowings...... (1,901) (1,901)
Payment of royalty........... (1,720) (1,720)
Other........................ 565 (28) 69 606
------- ------- ------- ------- ----- -------
Net cash provided by (used
in) financing activities... 565 (3,136) 69 (2,502)
------- ------- ------- ------- ----- -------
Net increase in cash and
equivalents................ 2,381 99 2,480
Cash and equivalents,
beginning of year.......... 94 1,255 1,349
------- ------- ------- ------- ----- -------
Cash and equivalents, end of
year....................... $ -- $ 2,475 $ 1,354 $ -- $ -- $ 3,829
======= ======= ======= ======= ===== =======
</TABLE>
F-30
<PAGE> 135
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
NON
GUARANTOR GUARANTOR GUARANTOR DISCONTINUED
PARENT SUBSIDIARIES SUBSIDIARIES OPERATIONS ELIMINATIONS CONSOLIDATED
--------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income......................... $ 1,843 $ 6,831 $ 2,930 $ 12,068 $ (3,745) $ 19,927
Adjustments to reconcile net income
to net cash provided by (used in)
operations:
Depreciation and amortization.... 3,074 451 (255) 3,270
Deferred income taxes............ 1,439 (1,870) (21) (452)
Other............................ 116 217 (1) 332
Increase (decrease) in cash:
Accounts receivable........... (7,738) (246) (7,984)
Inventories................... (6,350) (240) (6,590)
Prepaid expenses and other.... 566 145 711
Accounts payable and accrued
expenses.................... 3,661 494 4,155
Income taxes payable.......... (1,283) 5,046 (64) 3,699
Intercompany account.......... (3,158) (13,235) (3,199) 15,592 4,000
Discontinued operations.......... (27,660) (27,660)
------- -------- ------- -------- ------- --------
Net cash provided by (used in)
operating activities............. (1,043) (9,798) 249 (10,592)
------- -------- ------- -------- ------- --------
Cash flows from investing
activities:
Purchases of property, plant and
equipment........................ (2,391) (212) (2,603)
Other.............................. (194) 1 (193)
------- -------- ------- -------- ------- --------
Net cash used in investing
activities....................... (2,585) (211) (2,796)
------- -------- ------- -------- ------- --------
Cash flows from financing
activities:
Change in revolving loan
facilities....................... 11,944 11,944
Repayment of borrowings............ (1,624) (1,624)
Other.............................. 1,043 62 1,105
------- -------- ------- -------- ------- --------
Net cash provided by financing
activities....................... 1,043 10,382 11,425
------- -------- ------- -------- ------- --------
Net (decrease) increase in cash and
equivalents...................... (2,001) 38 (1,963)
Cash and equivalents, beginning of
year............................. 2,475 1,354 3,829
------- -------- ------- -------- ------- --------
Cash and equivalents, end of
year............................. $ -- $ 474 $ 1,392 $ -- $ -- $ 1,866
======= ======== ======= ======== ======= ========
</TABLE>
F-31
<PAGE> 136
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
NON
GUARANTOR GUARANTOR GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.............................. $ 36,196 $ 7,970 $ 4,622 $ (2,589) $ 46,199
Adjustments to reconcile net income to
net cash provided by (used in)
operations:
Depreciation and amortization......... 3,089 175 (11) 3,253
Deferred income taxes................. (1,202) (1,027) (2,229)
Other................................. 102 1,158 1,260
Increase (decrease) in cash, net of
effect of business acquired:
Marketable securities.............. (30,561) (30,561)
Accounts receivable................ (3,273) (376) (3,649)
Inventories........................ (772) (45) (817)
Prepaid expenses and other......... (516) (914) (16) (1,446)
Accounts payable and accrued
expenses......................... 922 (686) 359 595
Income taxes payable............... 21,241 (23,837) 290 (2,306)
Intercompany account............... (47,093) 47,421 (2,928) 2,600
Discontinued operations............... (49,915) (49,915)
-------- -------- ------- ------- --------
Net cash (used in) provided by operating
activities............................ (70,826) 29,129 2,081 (39,616)
-------- -------- ------- ------- --------
Cash flows from investing activities:
Net proceeds on sale of Syroco, Inc..... 133,931 133,931
Purchases of property, plant and
equipment............................. (2,559) (120) (2,679)
Other................................... 61 61
-------- -------- ------- ------- --------
Net cash provided by (used in) investing
activities............................ 133,931 (2,498) (120) 131,313
-------- -------- ------- ------- --------
Cash flows from financing activities:
Change in revolving loan facilities..... (14,504) (14,504)
Repayment of borrowings................. (875) (875)
Other................................... 249 60 309
-------- -------- ------- ------- --------
Net cash provided by (used in) financing
activities............................ 249 (15,319) (15,070)
-------- -------- ------- ------- --------
Net increase in cash and equivalents.... 63,354 11,312 1,961 76,627
Cash and equivalents, beginning of
year.................................. 474 1,392 1,866
-------- -------- ------- ------- --------
Cash and equivalents, end of year....... $ 63,354 $ 11,786 $ 3,353 $ -- $ 78,493
======== ======== ======= ======= ========
</TABLE>
F-32
<PAGE> 137
SCHEDULE I
CERTAIN INFORMATION REGARDING
THL TRANSACTION I CORP.
The following table sets forth the name, business address, age, principal
occupation or employment at the present time and during the last five years, the
name, principal business and address of any corporation or other organization in
which such occupation or employment is or was conducted and current
directorships of the executive officers, directors and stockholders of THL I,
all of whom are citizens of the United States. Except as otherwise noted, the
address of each such corporation or organization listed and the business
addresses of such persons is the address of Thomas H. Lee Company, 75 State
Street, Boston, Massachusetts 02109. Each person has had the principal
occupation or employment listed for more than the past five years except as
otherwise noted.
<TABLE>
<CAPTION>
NAME AND PRESENT PRINCIPAL OCCUPATION OR
BUSINESS ADDRESS AGE EMPLOYMENT AND FIVE YEAR EMPLOYMENT HISTORY
- ------------------------------ --- --------------------------------------------------------
<S> <C> <C>
Thomas H. Lee................. 52 Founder of Thomas H. Lee Company and its President since
1974. Director of Autotote Corporation, Finlay
Enterprises Inc., Gillett Holdings, Inc. (Vail
Associates), Health o meter Products, Inc., Livent,
Inc., Playtex Products, Inc., Sondik Supply Corporation,
First Security Services Corporation and Miller Import
Corporation. Mr. Lee owns all of the outstanding shares
of THL I.
David V. Harkins.............. 55 Senior Managing Director of Thomas H. Lee Company since
1991; Joined Thomas H. Lee Company in 1986. President
and Trustee of THL Equity Trust III, the General Partner
of THL Equity Advisers III Limited Partnership, which is
the General Partner of Thomas H. Lee Equity Fund III,
L.P. Chairman of National Dentex Corporation since 1983.
Mr. Harkins is a director of Stanley Furniture Company,
Inc., National Dentex Corporation, HomeSide, Inc.,
Freedom Securities, Inc. and First Alert, Inc.
Scott A. Schoen............... 38 President and director of THL I. Managing Director of
the Thomas H. Lee Company since 1991. Joined Thomas H.
Lee Company in 1986. Vice President and Trustee of THL
Equity Trust III, the General Partner of THL Equity
Advisers III Limited Partnership, which is the General
Partner of Thomas H. Lee Equity Fund III, L.P. Mr.
Schoen is a director of First Alert, Inc., Rayovac
Corporation, Anchor Advanced Products, Inc., Alliance
International Group, Inc., Health o meter Products, Inc.
and LaSalle ReHoldings Limited.
Thomas M. Hagerty............. 33 Treasurer and director of THL I. Managing Director of
the Thomas H. Lee Company since 1993; Joined Thomas H.
Lee Company in 1988. Vice President and Trustee of THL
Equity Trust III, the General Partner of THL Equity
Advisers III Limited Partnership, which is the General
Partner of Thomas H. Lee Equity Fund III, L.P. Mr.
Hagerty is a director of Select Beverages, Inc., Freedom
Securities, Inc. and HomeSide, Inc.
</TABLE>
S-1
<PAGE> 138
<TABLE>
<CAPTION>
NAME AND PRESENT PRINCIPAL OCCUPATION OR
BUSINESS ADDRESS AGE EMPLOYMENT AND FIVE YEAR EMPLOYMENT HISTORY
- ------------------------------ --- --------------------------------------------------------
<S> <C> <C>
Seth W. Lawry................. 32 Worked at Thomas H. Lee Company from 1989 to 1990 and
rejoined in 1994. Vice President of THL Equity Trust
III, the General Partner of THL Equity Advisers III
Limited Partnership, which is the General Partner of
Thomas H. Lee Equity III, L.P. From 1990 to 1992, Mr.
Lawry attended Stanford Graduate School of Business.
From 1992 to 1994, Mr. Lawry worked in the Mergers &
Acquisitions Department of Morgan Stanley & Co.
Incorporated, 1585 Broadway, New York, New York. Mr.
Lawry is a director of Freedom Securities, Inc.
Kent R. Weldon................ 29 Secretary and director of THL I. Vice President of THL
Equity Trust III, the General Partner of THL Equity
Advisers III Limited Partnership, which is the General
Partner of Thomas H. Lee Equity III, L.P. Worked at
Thomas H. Lee Company from 1991 to 1993 and rejoined in
1995. From 1989 to 1991, Mr. Weldon worked in the
Mergers & Acquisitions Department of Morgan Stanley &
Co. Incorporated, 1585 Broadway, New York, New York.
From 1993 to 1995, Mr. Weldon attended the Harvard
Graduate School of Business Administration.
</TABLE>
S-2
<PAGE> 139
ANNEX I
RESTATED AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
THL TRANSACTION I CORP.,
A DELAWARE CORPORATION,
AND
SYRATECH CORPORATION,
A DELAWARE CORPORATION,
DATED NOVEMBER 27, 1996
EFFECTIVE AS OF OCTOBER 23, 1996
<PAGE> 140
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C> <C>
ARTICLE I
THE MERGER
SECTION 1.1 The Merger........................................................... 1
SECTION 1.2 Closing.............................................................. 1
SECTION 1.3 Effective Time....................................................... 1
SECTION 1.4 Effects of the Merger................................................ 1
SECTION 1.5 Certificate of Incorporation; By-Laws................................ 1
SECTION 1.6 Directors............................................................ 2
SECTION 1.7 Officers............................................................. 2
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS
SECTION 2.1 Effect on Capital Stock.............................................. 2
SECTION 2.2 Company Common Stock Elections....................................... 3
SECTION 2.3 Proration............................................................ 4
SECTION 2.4 Stock Plans.......................................................... 4
SECTION 2.5 Exchange of Certificates............................................. 5
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 3.1 Organization, Standing and Corporate Power........................... 6
SECTION 3.2 Subsidiaries......................................................... 7
SECTION 3.3 Capital Structure.................................................... 7
SECTION 3.4 Authority; Noncontravention.......................................... 7
SECTION 3.5 SEC Documents; Undisclosed Liabilities............................... 8
SECTION 3.6 Information Supplied................................................. 9
SECTION 3.7 Absence of Certain Changes of Events................................. 9
SECTION 3.8 Litigation; Labor Matters: Compliance with Laws...................... 9
SECTION 3.9 Employee Benefit Plans............................................... 10
SECTION 3.10 Tax Returns and Tax Payments......................................... 11
SECTION 3.11 Intentionally Omitted................................................ 11
SECTION 3.12 Material Contracts................................................... 11
SECTION 3.13 Brokers.............................................................. 11
SECTION 3.14 Opinion of Financial Advisor......................................... 11
SECTION 3.15 Board Recommendation................................................. 12
SECTION 3.16 Required Company Vote................................................ 12
SECTION 3.17 State Takeover Statutes.............................................. 12
SECTION 3.18 Intellectual Property................................................ 12
SECTION 3.19 Related Party Transactions........................................... 12
</TABLE>
i
<PAGE> 141
<TABLE>
<CAPTION>
PAGE
------
<S> <C> <C>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THL I
SECTION 4.1 Organization, Standing and Corporate Power........................... 12
SECTION 4.2 Subsidiaries......................................................... 12
SECTION 4.3 Capital Structure.................................................... 13
SECTION 4.4 Authority; Noncontravention.......................................... 13
SECTION 4.5 Brokers.............................................................. 13
SECTION 4.6 Financing............................................................ 13
SECTION 4.7 Information Supplied................................................. 13
SECTION 4.8 Management Participation............................................. 14
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR TO MERGER
SECTION 5.1 Conduct of Business of the Company................................... 14
SECTION 5.2 Changes in Employment Arrangements................................... 15
SECTION 5.3 Severance............................................................ 16
SECTION 5.4 WARN................................................................. 16
SECTION 5.5 Tax Elections........................................................ 16
SECTION 5.6 Redemption of Rights................................................. 16
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.1 Preparation of Form S-4 and Proxy Statement; Stockholder Meeting..... 16
SECTION 6.2 Access to Information; Confidentiality............................... 17
SECTION 6.3 Best Efforts......................................................... 17
SECTION 6.4 Indemnification...................................................... 18
SECTION 6.5 Public Announcements................................................. 19
SECTION 6.6 No Solicitation...................................................... 19
SECTION 6.7 Affiliates........................................................... 20
ARTICLE VII
CONDITIONS PRECEDENT
SECTION 7.1 Conditions to Each Party's Obligation................................ 20
SECTION 7.2 Conditions to Obligations of THL I................................... 20
SECTION 7.3 Conditions to Obligation of the Company.............................. 21
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.1 Termination.......................................................... 22
SECTION 8.2 Effect of Termination................................................ 22
SECTION 8.3 Amendment............................................................ 22
SECTION 8.4 Extension; Waiver.................................................... 22
SECTION 8.5 Procedure for Termination, Amendment Extension or Waiver............. 22
</TABLE>
ii
<PAGE> 142
<TABLE>
<CAPTION>
PAGE
------
<S> <C> <C>
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.1 Nonsurvival of Representations and Warranties........................ 23
SECTION 9.2 Fees and Expenses.................................................... 23
SECTION 9.3 Notices.............................................................. 23
SECTION 9.4 Definitions.......................................................... 24
SECTION 9.5 Interpretation....................................................... 25
SECTION 9.6 Counterparts......................................................... 25
SECTION 9.7 Entire Agreement; No Third-Party Benefits............................ 25
SECTION 9.8 GOVERNING LAW........................................................ 25
SECTION 9.9 Assignment........................................................... 25
SECTION 9.10 Enforcement.......................................................... 25
SECTION 9.11 Schedules............................................................ 25
EXHIBIT A Amended Certificate of Incorporation of the Company.................. A-1
EXHIBIT B Form of Company Affiliate Letter..................................... B-1
</TABLE>
iii
<PAGE> 143
DEFINED TERMS
<TABLE>
<CAPTION>
SECTION PAGE
--------- ------
<S> <C> <C>
Affiliate sec.
9.4(a) 33
Cash Price sec.
2.1(c) 3
Certificate of Merger sec. 1.3 2
Certificates sec.
2.2(a) 4
Closing sec. 1.1 1
Closing Date sec. 1.2 1
Company Preamble 1
Company Common Stock Recitals 1
Company Plans sec.
3.9(a) 10
Company Stock Options sec.
2.2(a) 4
Company Stockholder Approved Recitals 1
Confidentiality Agreement sec.
6.2(a) 23
Consolidated Group sec. 3.10 13
Costs sec. 6.4 25
DGCL sec. 1.1 1
Disclosure Schedule sec. 3.1 6
Dissenting Shares sec.
2.1(c) 3
D&O Insurance sec. 6.4 25
Effective Time sec. 1.3 2
Environmental Claim sec.
3.11(i) 15
Environmental Laws sec.
3.11(i) 16
Environmental Permits sec.
3.11(i) 15
ERISA sec.
3.9(a) 10
Exchange Act sec.
2.2(a) 4
Exchange Fund sec.
2.3(e) 5
Exercise Period sec.
2.2(a) 3
Governmental Entity sec. 3.4 8
Hazardous Materials sec.
3.11(i) 16
HSR Act sec. 3.4 8
Indemnified Parties sec. 6.4 25
Knowledge sec.
9.4(b) 33
Liens sec. 3.2 7
Management sec.
2.1(c) 3
Management Rollover Share sec.
2.1(c) 3
Material Adverse Change sec.
9.4(c) 34
Material Averse Effect Person sec.
9.4(c) 34
Material Contracts sec.
3.11(i) 16
Merger Recitals 1
Merger Consideration sec.
2.1(c) 3
Permitted Changes sec.
5.1(d) 20
Person sec.
9.4(d) 34
Proxy Statement sec. 3.4 8
Recent SEC Documents sec. 3.5 9
Rights Agreement sec. 5.6 22
SEC sec. 3.2 6
</TABLE>
iv
<PAGE> 144
<TABLE>
<CAPTION>
SECTION PAGE
--------- ------
<S> <C> <C>
SEC Documents sec. 3.5 9
SEC Financial Statements sec. 3.5 9
Securities Act sec. 3.3 7
Silver sec. 1.1 1
Stock Plans sec.
2.2(a) 4
Stockholders Meeting sec.
6.1(c) 22
Subsidiaries sec. 3.2 6
Subsidiary sec.
9.4(e) 34
Tax Return sec. 3.10 14
Taxes sec. 3.10 14
THL sec.
6.2(a) 23
THL I Preamble 1
Transactions Proposal sec. 6.6 26
WARN sec. 5.4 22
</TABLE>
v
<PAGE> 145
RESTATED AGREEMENT AND PLAN OF MERGER
THIS RESTATED AGREEMENT AND PLAN OF MERGER dated November , 1996,
effective as of the 23rd day of October, 1996 by and between THL Transaction I
Corp., a Delaware corporation ("THL I"), and Syratech Corporation, a Delaware
corporation (the "Company").
WHEREAS, the respective Boards of Directors of the Company and THL I have
determined that the merger of THL I with and into the Company (the "Merger"),
upon the terms and subject to the conditions set forth in this Agreement, would
be advisable and in the best interests of their respective companies and
stockholders, and such Boards of Directors have approved such Merger, pursuant
to which holders of shares of common stock, par value $.01 per share, of the
Company ("Company Common Stock") issued and outstanding immediately prior to the
Effective Time will be entitled to either the right (A) to retain, at their
election and subject to the terms hereof, a portion of their Company Common
Stock or (B) to receive cash, other than as set forth herein;
WHEREAS, the Merger and this Agreement require the vote of a majority of
the issued and outstanding shares of the Company Common Stock for the approval
thereof (the "Company Stockholder Approval");
WHEREAS, THL I and the Company desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe various conditions to the Merger; and
WHEREAS, it is intended that the Merger be recorded as a recapitalization
for financial reporting purposes;
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties agree as
follows:
ARTICLE I
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions set forth in
this Agreement, and in accordance with the Delaware General Corporation Law (the
"DGCL"), THL I shall be merged with and into the Company at the Effective Time.
Upon the Effective Time, the separate existence of THL I shall cease, and the
Company shall continue as the surviving corporation and shall continue under the
name "Syratech Corporation."
1.2 Closing. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Section
8.1 and subject to the satisfaction or waiver of the conditions set forth in
Article VII, the closing of the Merger (the "Closing") will take place at 10:00
a.m. not later than the sixth business day after satisfaction or waiver of the
conditions set forth in Article VII (the "Closing Date"), at the offices of
Hutchins, Wheeler & Dittmar, 101 Federal Street, Boston, Massachusetts, unless
another date, time or place is agreed to in writing by the parties hereto.
1.3 Effective Time. On the Closing Date, the parties shall file a
certificate of merger and other appropriate documents (the "Certificate of
Merger") executed in accordance with the relevant provisions of the DGCL and
shall make all other filings or recordings required under the DGCL in connection
with the Merger. The Merger shall become effective at such time as the
Certificate of Merger is duly filed with the Secretary of State of the State of
Delaware, or at such other time as is specified in the Certificate of Merger in
accordance with the DGCL and as THL I and the Company shall agree should be
specified in the Certificate of Merger (the time the Merger becomes effective
being the "Effective Time").
1.4 Effects of the Merger. The Merger shall have the effects set forth in
the DGCL.
1.5 Certificate of Incorporation; By-Laws. (a) The Certificate of
Incorporation of the Company, as in effect immediately prior to the Effective
Time, shall be amended so as to read in its entirety in the form set forth as
Exhibit A hereto, and, as so amended, until thereafter further amended as
provided therein and under the DGCL, it shall be the Certificate of
Incorporation of the Company following the Merger.
1
<PAGE> 146
(b) The By-laws of the Company as in effect at the Effective Time shall be
the By-laws of the Company following the Merger until thereafter changed or
amended as provided therein or by applicable law.
1.6 Directors. Those persons listed on Schedule 1.6 hereto shall be the
directors of the Company following the Merger, until the earlier of their
resignation or removal or until their respective successors are duly elected and
qualified, as the case may be.
1.7 Officers. The officers of the Company at the Effective Time shall be
the officers of the Company following the Merger, until the earlier of their
resignation or removal or until their respective successors are duly elected and
qualified, as the case may be.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS
2.1 Effect on Capital Stock. As of the Effective Time, by virtue of the
Merger and without any action on the part of the holder of any shares of Company
Common Stock or any shares of capital stock of THL I:
(a) Common Stock of THL I. The shares of common stock of THL I issued
and outstanding immediately prior to the Effective Time, shall be converted
into such aggregate number of shares of Company Common Stock as equals
3,191,850 less the number of shares of Company Common Stock retained,
consistent with Section 2.1(c), by members of Management of the Company
other than Leonard Florence ("Management Rollover Shares"). A person shall
be deemed a member of "Management" if listed as an executive officer in the
Company's 1996 Proxy Statement.
(b) Cancellation of Treasury Stock. Each share of Company Common
Stock that is owned by the Company or by any wholly owned subsidiary of the
Company shall automatically be canceled and retired and shall cease to
exist, and no cash or other consideration shall be delivered or deliverable
in exchange therefor.
(c) Conversion (or Retention) of Company Common Stock. Except as
otherwise provided herein and subject to Section 2.5, each issued and
outstanding share of Company Common Stock shall:
(i) subject to Sections 2.2(a) and 2.3, for each share of Company
Common Stock with respect to which an election to retain Company Common
Stock has been effectively made and not revoked or lost (all such shares
other than the Management Rollover Shares are sometimes referred to
herein as the "Electing Shares"), be entitled to retain one fully paid
and nonassessable share of Company Common Stock (a "Non-Cash Election
Share");
(ii) for 714,400 shares of Company Common Stock held by Mr. Leonard
Florence, be entitled to retain the same number of fully paid and
nonassessable shares of Company Common Stock ("Florence Rollover
Shares"), and for each other share of Company Common Stock held by Mr.
Leonard Florence, the right to receive in cash from the Company
following the Merger the Cash Price; and
(iii) for each share of Company Common Stock (other than Dissenting
Shares, Florence Rollover Shares, Management Rollover Shares and
Electing Shares which become the right to Non-Cash Election Shares), the
right to receive in cash from the Company following the Merger an amount
equal to $32.00 (the "Cash Price").
The consideration set forth in paragraphs (i), (ii) and (iii) above
is collectively referred to as the "Merger Consideration."
(d) Dissenting Shares. Notwithstanding anything in this Agreement to
the contrary, shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time held by a holder who has the right
to demand payment for and an appraisal of such shares in accordance with
Section 262 of the DGCL (or any successor provision) ("Dissenting Shares")
shall not be converted into the right to receive Merger Consideration
unless such holder fails to perfect or otherwise withdraws, forfeits or
loses such holder's right to such payment or appraisal, if any. If, after
the Effective Time, such holder fails to perfect or withdraws, forfeits or
loses any such right to appraisal, each share of such holder
2
<PAGE> 147
shall be treated as a share that had been converted as of the Effective
Time into the right to receive Merger Consideration in accordance with this
Section 2.1. The Company shall give prompt notice to THL I of any demands
received by the Company for appraisal of shares of Company Common Stock,
and THL I shall have the right to participate in all negotiations and
proceedings with respect to such demands. The Company shall not, except
with the prior written consent of THL I, which consent shall not be
unreasonably withheld, make any payment with respect to, or settle or offer
to settle, any such demands.
(e) Cancellation and Retirement of Company Common Stock. As of the
Effective Time, all shares of Company Common Stock (other than Florence
Rollover Shares and shares referred to in Sections 2.1(c)(i) and 2.1(d))
issued and outstanding immediately prior to the Effective Time, shall no
longer be outstanding and shall automatically be canceled and retired and
shall cease to exist, and each holder of a Certificate representing any
such shares of Company Common Stock shall, to the extent such Certificate
represents such shares, cease to have any rights with respect thereto,
except the right to receive the Merger Consideration applicable thereto,
upon surrender of such Certificate in accordance with Section 2.5.
2.2 Company Common Stock Elections. (a) Each person who, on or prior to
the Election Date referred to in Section 2.2(c) below, is a record holder of
shares of Company Common Stock (other than members of Management) will be
entitled, with respect to up to 35% and in the case of each Management
Stockholder (other than Leonard Florence) to 25% of such holder's shares, to
make an unconditional election (a "Non-Cash Election") on or prior to such
Election Date to retain Non-Cash Election Shares, on the basis hereinafter set
forth.
(b) Prior to the mailing of the Proxy Statement, the Company shall appoint
a banker or trust company reasonably acceptable to THL I to act as exchange
agent (the "Exchange Agent") for the payment of the Merger Consideration and
payments in respect of Company Stock Options as contemplated by Section 2.4.
(c) Subject to any required clearance by the SEC, the Company shall prepare
and mail a form of election (the "Form of Election"), which form shall be
subject to the reasonable approval of THL I, with the Proxy Statement to the
record holders of Company Common Stock as of the record date for the
Stockholders Meeting, which Form of Election shall be used by each record holder
of shares of Company Common Stock who wishes to elect to retain Non-Cash
Election Shares for shares of Company Common Stock held, subject to the
provisions of Section 2.3 hereof, by such holder. The Company will use its best
efforts to make the Form of Election and the Proxy Statement available to all
persons who become holders of Company Common Stock during the period between
such record date and the Election Date referred to below. Any such holder's
election to retain Non-Cash Election Shares shall have been properly made only
if the Exchange Agent shall have received at its designated office, by 5:00
p.m., New York City time on the business day (the "Election Date") next
preceding the date of the Stockholders Meeting, a Form of Election properly
completed and signed and accompanied by Certificates for the shares of Company
Common Stock to which such Form of Election relates, duly endorsed in blank or
otherwise in form acceptable for transfer on the books of the Company (or by an
appropriate guarantee of delivery of such certificates as set forth in such Form
of Election from a firm which is a member of a registered national securities
exchange or of the National Association of Securities Dealer, Inc. or a
commercial bank or trust company having an office or correspondent in the United
States, provided such certificates are in fact delivered to the Exchange Agent
within five NYSE trading days after the date of execution of such guarantee of
delivery).
(d) Any Form of Election may be revoked by the stockholder submitting it to
the Exchange Agent only by written notice received by the Exchange Agent (i)
prior to 5:00 p.m., New York City time on the Election Date or (ii) after the
date of the Proxy Statement, if (and to the extent that) the Exchange Agent is
legally required to permit revocations and the Effective Time shall not have
occurred prior to such date. In addition, all Forms of Election shall
automatically be revoked if the Exchange Agent is notified in writing by THL I
and the Company that the Merger has been abandoned. If a Form of Election is
revoked, the Certificate or Certificates (or guarantees of delivery, as
appropriate) for the shares of Company Common Stock to which such Form of
Election relates shall be promptly returned to the stockholder submitting the
same to the Exchange Agent.
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(e) The determination of the Exchange Agent shall be binding whether or not
elections to retain Non-Cash Election Shares have been properly made or revoked
pursuant to this Section 2.2 with respect to shares of Company Common Stock and
when elections and revocations were received by it. If the Exchange Agent
determines that any election to retain Non-Cash Election Shares was not properly
made with respect to shares of Company Common Stock, such shares shall be
treated by the Exchange Agent as shares which were not Non-Cash Election Shares
at the Effective Time, and such shares shall be exchanged in the Merger for cash
pursuant to Section 2.1(c)(iii). The Exchange Agent shall also make all
computations as to the allocation and the proration contemplated by Section 2.3,
and any such computation shall be conclusive and binding on the holders of
shares of Company Common Stock. The Exchange Agent may, with the mutual
agreement of THL I and the Company, make such rules as are consistent with this
Section 2.2 for the implementation of the elections provided for herein as shall
be necessary or desirable fully to effect such elections.
2.3 Proration.
(a) Notwithstanding anything in this Agreement to the contrary, the
aggregate number of shares of Company Common Stock (other than Florence Rollover
Shares and Management Rollover Shares) to be converted into the right to retain
Company Common Stock at the Effective Time shall not exceed 781,250.
(b) If the number of Electing Shares exceeds 781,250, then each Electing
Share shall be converted into the right to retain Non-Cash Election Shares or
receive cash in accordance with the terms of Section 2.1(e) in the following
manner:
(i) A proration factor (the "Non-Cash Proration Factor") shall be
determined by dividing 781,250 by the total number of Electing Shares.
(ii) The number of Electing Shares covered by each Non-Cash Election
to be converted into the right to retain Non-Cash Election Shares shall be
determined by multiplying the Non-Cash Proration Factor by the total number
of Electing Shares covered by such Non-Cash Election, rounded down to the
nearest whole number.
(iii) All Electing Shares, other than those shares converted into the
right to receive Non-Cash Election Shares in accordance with Section
2.3(b)(ii), shall be converted into cash (on a consistent basis among
shareholders who made the election referred to in Section 2.1(c)(i), pro
rata to the number of shares as to which they made such election) as if
such shares were not Electing Shares in accordance with the terms of
Section 2.1(c)(iii).
(c) If the number of Electing Shares is less than 781,250, then all
Electing Shares shall be converted into the right to retain Company Common Stock
in accordance with the terms of Section 2.1(c)(i).
2.4 Stock Plans. (a) As soon as practicable following the date of this
Agreement, the Board of Directors of the Company (or, if appropriate, the
Compensation and Stock Option Committee of the Board of Directors, which
administers the 86/93 Stock Plans and the 95 Stock Plan (each as defined below))
shall adopt such resolutions or take such other actions as may be required to
effect the following:
(i) deliver written notice at least 30 days prior to the Effective
Time to each holder of an employee stock option to purchase shares of
Company Common Stock granted under the 1986 Key Employees' Stock Option
Plan and the 1993 Key Employee's Stock Option Plan (collectively, the
"86/93 Stock Plans" and the options issued thereunder the "86/93 Options"),
to the effect that at the Effective Time each 86/93 Option that shall
remain unexercised and outstanding immediately prior to the Effective Time
shall (x) become fully vested as a consequence of the Merger and (y) be
terminated and canceled in exchange for a payment from the Company (subject
to applicable withholding taxes) immediately following the Effective Time
equal to the product of (1) the total number of shares of Company Common
Stock subject to the 86/93 Option times (2) the excess, if any, of the Cash
Price over the exercise price per share of Company Common Stock subject to
such 86/93 Option;
(ii) deliver written notice at least 30 days prior to the Effective
Time to each holder of an employee stock option to purchase shares of
Company Common Stock granted under the 1995 Key Employees' Stock Option
Plan (the "95 Stock Plan" and the options issued thereunder the "95
Options"), to the
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effect that, at the Effective Time each 95 Option, whether or not then
vested and exercisable, that shall remain unexercised and outstanding
immediately prior to the Effective Time shall be terminated and cancelled
without consideration, unless the holder of such 95 Stock Option consents
in writing to the amendment of such 95 Option to provide the holder thereof
with the right, and only the right, to receive in lieu of the existing
right to receive shares of Company Common Stock upon exercise and tending
of the exercise price under such 95 Option, a conditional deferred payment
from the Company (subject to applicable withholding taxes) (the
"Conditional Deferred Payment") equal to the product of (1) the total
number of shares of Company Common Stock subject to such 95 Option times
(2) the excess, if any, of the Cash Price over the exercise price per share
of the Company Common Stock subject to such 95 Option, which Conditional
Deferred payment shall be paid to such holder in equal installments on each
remaining vesting date of such 95 Option, subject to and conditioned upon,
such 95 Option holder's continued employment with the Company on such
vesting dates.
(iii) prior to the Effective Time, make any adjustments to the terms
of the 86/93 Options and 95 Options that may be necessary to effect the
transactions contemplated in Sections 2.4(i) and 2.4(ii) above; and
(iv) except as provided herein or otherwise agreed to by the parties,
cause the 86/93 Stock Plans and 95 Stock Plan and any other plan, program
or arrangement providing for the issuance or grant of any other interest in
respect of the capital stock of the Company or any subsidiary to terminate
as of the Effective Time.
(b) The Company hereby represents and warrants that upon taking of the
actions specified above, immediately following the Effective Time, no holder of
a Company Stock Option nor any participant in any Stock Plan shall have the
right thereunder to acquire equity securities of the Company after the Merger.
2.5 Exchange of Certificates.
(a) Exchange Agent. As soon as reasonably practicable as of or after the
Effective Time, the Company shall deposit with the Exchange Agent, for the
benefit of the holders of shares of Company Common Stock and holders of Company
Stock Options, for exchange in accordance with this Article II, the cash portion
of the Merger Consideration, an amount of cash sufficient to satisfy obligations
to holders of Company Stock Options as contemplated by Section 2.4 and
certificates for shares of Company Common Stock sufficient to satisfy
obligations as contemplated by Section 2.1.
(b) Exchange Procedures. (i) Promptly after the Effective Time, the
Exchange Agent shall mail to each record holder, as of the Effective Time, of an
outstanding certificate or certificates which immediately prior to the Effective
Time represented shares of Company Common Stock (the "Certificates") or of an
outstanding Company Stock Option, a letter of transmittal and instructions for
use in effecting the surrender of the Certificates or of outstanding Company
Stock Options for payment therefor (or such other documents as may reasonably be
required in connection with such surrender) in substantially the form to be
agreed by THL I and the Company prior thereto. Thereafter, each holder of an
outstanding Certificate or Certificates or Company Stock Option shall, upon
surrender to the Exchange Agent of such Certificate or Certificates or Company
Stock Option and acceptance thereof by the Exchange Agent, be entitled to
receive the amount of cash and/or other Merger consideration into which such
Certificate or Certificates or outstanding Company Stock Option surrendered
shall have been converted pursuant to this Agreement.
(ii) Intentionally Omitted.
(iii) After the Effective Time, there shall be no further transfer on the
records of the Company or its transfer agent of Certificates, and if
Certificates are presented to the Company for transfer, they shall be canceled
against delivery of cash or a certificate or certificates representing Florence
Rollover Shares, Management Rollover Shares or Non-Cash Electing Shares, as
applicable. If cash or a certificate or certificates, as applicable, is to be
remitted to a name other than that in which the Certificate surrendered for
exchange is registered, it shall be a condition of such exchange that the
Certificate so surrendered shall be properly endorsed, with signature
guaranteed, or otherwise in proper form for transfer and that the person
requesting such exchange shall pay to the Company or its transfer agent any
transfer or other taxes required or
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establish to the satisfaction of the Company or its transfer agent that such tax
has been paid or is not applicable. Until surrendered as contemplated by this
Section 2.5(b), each Certificate shall be deemed at any time after the Effective
Time to represent only the right to receive upon such surrender the Merger
Consideration applicable thereto as contemplated by Section 2.1. No interest
will be paid or will accrue on any cash payable as Merger Consideration.
(c) Distributions with Respect to Unexchanged Shares. No dividends or
other distributions with respect to Company Common Stock with a record date
after the Effective Time shall be paid to the holder of any unsurrendered
Certificate until the surrender of such Certificate in accordance with this
Article II. Following surrender of any such Certificate, there shall be paid to
the holder of the Certificate the amount of dividends or other distributions, if
any, with a record date after the Effective Time theretofore paid with respect
to shares of Company Common Stock.
(d) No Further Ownership Rights. All cash paid upon the surrender for
exchange of Certificates or Company Stock Options in accordance with the terms
of this Article II shall be deemed to have been issued and paid in full
satisfaction of all rights pertaining to such shares.
(e) Termination of Exchange Fund. Any portion of the Merger Consideration
deposited with the Exchange Agent pursuant to this Section 2.5 (the "Exchange
Fund") which remains undistributed to the holders of the Certificates or Company
Stock Options for twelve months after the Effective Time shall be delivered to
the Company, upon demand, and any holders of shares of Company Common Stock or
of Company Stock Options prior to the Merger who have not theretofore complied
with this Article II shall thereafter look only to the Company and only as
general creditors thereof for payment of their claim for the Merger
Consideration and/or cash, if any, to which such holders may be entitled.
(f) No Liability. None of THL I, the Company or the Exchange Agent shall
be liable to any person in respect of any consideration from the Exchange Fund
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law. If any Certificates or Company Stock Options shall not
have been surrendered prior to the later of (i) one year after the Effective
Time and (ii) immediately prior to such date on which any cash, if any, in
respect of such Certificate or Company Stock Options would otherwise escheat to
or become the property of any Governmental Entity, any such cash, dividends or
distributions in respect of such Certificate or Company Stock Options shall, to
the extent permitted by applicable law, become the property of the Company, free
and clear of all claims or interest of any person previously entitled thereto.
(g) Investment of Exchange Fund. The Exchange Agent shall invest any cash
included in the Exchange Fund, as directed by the Company, on a daily basis. Any
interest and other income resulting from such investments shall be paid to the
Company.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to THL I as follows (subject to
such exceptions as may be disclosed in the SEC Documents or the Disclosure
Schedule delivered to THL I by the Company within five (5) business days of the
date hereof in form and substance reasonably acceptable to THL I (the
"Disclosure Schedule")):
3.1 Organization, Standing and Corporate Power. Each of the Company and
each of its Subsidiaries is duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is incorporated and has
the requisite corporate power and authority to carry on its business as now
being conducted. Each of the Company and each of its Subsidiaries is duly
qualified or licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification or licensing necessary, other than in
such jurisdictions where the failure to be so qualified or licensed
(individually or in the aggregate) would not have a Material Adverse Effect with
respect to the Company. The Company has delivered to THL I complete and correct
copies of the certificate of incorporation and by-laws of the Company, as
amended to the date of this Agreement.
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3.2 Subsidiaries. The only direct or indirect subsidiaries of the Company
(other than subsidiaries of the Company that would not constitute in the
aggregate a "Significant Subsidiary" within the meaning of Rule 1.02 of
Regulation S-X of the Securities and Exchange Commission (the "SEC")) are those
listed in Section 3.2 of the Disclosure Schedule (the "Subsidiaries"). All the
outstanding shares of capital stock of each such wholly owned Subsidiary have
been validly issued and are fully paid and nonassessable and are owned (of
record and beneficially) by the Company, by another wholly owned Subsidiary of
the Company or by the Company and another such wholly owned Subsidiary, free and
clear of all pledges, claims, liens, charges, encumbrances and security
interests of any kind or nature whatsoever (collectively, "Liens"). Except for
the ownership interests set forth in Section 3.2 of the Disclosure Schedule, the
Company does not own, directly or indirectly, any capital stock or other
ownership interest in any corporation, partnership, business association, joint
venture or other entity material with respect to the Company.
3.3 Capital Structure. The authorized capital stock of the Company
consists of (i) 20,000,000 shares of Company Common Stock, par value $.01 per
share, and (ii) 500,000 shares of preferred stock. Subject to any Permitted
Changes there are, as of September 30, 1996: (i) 8,676,631 shares of Company
Common Stock issued and outstanding; (ii) 218 shares of Company Common Stock
held in the treasury of the Company; (iii) 606,000 shares of Company Common
Stock reserved for issuance upon exercise of authorized but unissued Company
Stock Options pursuant to the Stock Plans; (iv) 348,100 shares of Company Common
Stock issuable upon exercise of outstanding Company Stock Options and (v) shares
of preferred stock reserved for issuance in connection with the Rights
Agreement. Section 3.3 of the Disclosure Schedule sets forth the exercise price
for the outstanding Company Stock Options. Except as set forth above, as of
September 30, 1996, no shares of capital stock or other equity securities of the
Company are issued, reserved for issuance or outstanding. All outstanding shares
of capital stock of the Company are, and all shares which may be issued pursuant
to the Stock Plans will be, when issued, duly authorized, validly issued, fully
paid and nonassessable and not subject to preemptive rights. There are no
outstanding bonds, debentures, notes or other indebtedness or other securities
of the Company having the right to vote (or convertible into, or exchangeable
for, securities having the right to vote) on any matters on which stockholders
of the Company may vote. Except as set forth above, there are no outstanding
securities, options, warrants, calls, rights, commitments, agreements,
arrangements or undertakings of any kind to which the Company or any of its
Subsidiaries is a party or by which any of them is bound obligating the Company
or any of its Subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock or other equity or voting
securities of the Company or any of its subsidiaries or obligating the Company
or any of its subsidiaries to issue, grant, extend or enter into any such
security, option, warrant, call, right, commitment, agreement, arrangement or
undertaking. Other than with respect to indebtedness disclosed in the most
recent balance sheet of the Company included in the SEC Documents, no
indebtedness for borrowed money of the Company or its subsidiaries contains any
restriction upon the incurrence of indebtedness for borrowed money by the
Company or any of its subsidiaries or restricts the ability of the Company or
any of its subsidiaries to grant any Liens on its properties or assets. Other
than the Company Stock Options and other than as disclosed in Section 3.3 of the
Disclosure Schedule, (i) there are no outstanding contractual obligations,
commitments, understandings or arrangements of the Company or any of its
subsidiaries to repurchase, redeem or otherwise acquire or make any payment in
respect of any shares of capital stock of the Company or any of its subsidiaries
and (ii) to the knowledge of the Company, there are no irrevocable proxies with
respect to shares of capital stock of the Company or any subsidiary of the
Company. Section 3.3 of the Disclosure Schedule sets forth the record and, to
the knowledge of the Company, beneficial ownership of, and voting power in
respect of, the capital stock of the Company held by the Company's directors,
officers and stockholders owning five percent or more of the Company's
outstanding common stock. Except as set forth above, there are no agreements or
arrangements pursuant to which the Company is or could be required to register
shares of Company Common Stock or other securities under the Securities Act of
1933, as amended (the "Securities Act"), or other agreements or arrangements
with or among any security holders of the Company with respect to securities of
the Company.
3.4 Authority; Noncontravention. The Company has the requisite corporate
and other power and authority to enter into this Agreement and, subject to the
Company Stockholder Approval, to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement by the Company and the
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consummation by the Company of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of the Company,
subject to the Company Stockholder Approval. This Agreement has been duly
executed and delivered by the Company and constitutes a valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, except as may be limited by (1) any bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights, (2) general equity principles, (3) the law of
fraudulent conveyance, (4) public policy, (5) applicable law relating to
fiduciary duties and (6) judicial imposition of any implied covenant of good
faith and fair dealing. Except as disclosed in Section 3.4 of the Disclosure
Schedule, the execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated by this Agreement and compliance
with the provisions hereof will not, conflict with, or result in any breach or
violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
or "put" right with respect to any obligation or to loss of a material benefit
under, or result in the creation of any Lien upon any of the properties or
assets of the Company or any of its subsidiaries under, (i) the Certificate of
Incorporation, as amended, or By-laws, as amended, of the Company or the
comparable organizational documents of any of its subsidiaries, (ii) any loan or
credit agreement, note, note purchase agreement, bond, mortgage, indenture,
lease or other agreement, instrument, permit, concession, franchise or license
applicable to the Company or any of its subsidiaries or their respective
properties or assets or (iii) subject to the governmental filings and other
matters referred to in the following sentence, any judgment, order, decree,
statute, law, ordinance, rule, regulation or arbitration award applicable to the
Company or any of its subsidiaries or their respective properties or assets,
other than, in the case of clauses (i), (ii) and (iii), any such conflicts,
breaches, violations, defaults, rights, losses or Liens that individually or in
the aggregate would not have a Material Adverse Effect with respect to the
Company or would not prevent, hinder or materially delay the ability of the
Company to consummate the transactions contemplated by this Agreement if not
cured or waived by the Closing Date. No consent, approval, order or
authorization of, or registration, declaration or filing with, or notice to, any
Federal, state or local government or any court, administrative agency or
commission or other governmental authority or agency, domestic or foreign (a
"Governmental Entity"), is required by or with respect to the Company or any of
its subsidiaries in connection with the execution and delivery of this Agreement
by the Company or the consummation by the Company of the transactions
contemplated hereby, except for (i) the filing of a pre-merger notification and
report form by the Company under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"), (ii) the filing with the SEC of (x) a
proxy statement relating to the Company Stockholder Approval (such proxy
statement as amended or supplemented from time to time, the "Proxy Statement"),
(y) the registration statement on Form S-4 to be filed with the SEC by the
Company in connection with the retention of Company Common Stock of the Company
in the Merger pursuant to Article II (the "Form S-4") and (z) such reports under
the Exchange Act as may be required in connection with this Agreement and the
transactions contemplated by this Agreement, (iii) the filing of the Certificate
of Merger with the Secretary of State of the State of Delaware and appropriate
documents with the relevant authorities of other states in which the Company is
qualified to do business and (iv) such other consents, approvals, orders,
authorizations, registrations, declarations, filings or notices as are set forth
in Schedule 3.4 of the Disclosure Schedule.
3.5 SEC Documents; Undisclosed Liabilities. The Company has filed all
required reports, schedules, forms, statements and other documents with the SEC
since December 16, 1992 (collectively, and in each case including all exhibits
and schedules thereto and documents incorporated by references therein, and as
amended, the "SEC Documents"). As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the Securities Act,
or the Exchange Act, as the case may be, and the rules and regulations of the
SEC promulgated thereunder applicable to such SEC Documents, and none of the SEC
Documents (including any and all financial statements included therein) as of
such dates contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The consolidated financial statements of the Company
included in all SEC Documents filed since January 1, 1996 (the "SEC Financial
Statements") comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with generally accepted
accounting principles (except, in the case of unaudited
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consolidated quarterly statements, as permitted by Form 10-Q of the SEC) applied
on a consistent basis during the periods involved, except as may be indicated in
the notes thereto) and fairly present the consolidated financial position of the
Company and its consolidated subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended (subject, in the case of unaudited quarterly statements, to normal
year-end audit adjustments). Except as set forth in the SEC Documents and except
as disclosed in Section 3.5 of the Disclosure Schedule, at the date of the most
recent audited financial statements of the Company included in the SEC
Documents, neither the Company nor any of its subsidiaries had, and since such
date neither the Company nor any of such subsidiaries has incurred, any
liabilities or obligations of any nature (whether accrued, absolute, contingent
or otherwise) which, individually or in the aggregate, would be required to be
disclosed in a balance sheet prepared in accordance with generally accepted
accounted principles and would reasonably be expected to have a Material Adverse
Effect with respect to the Company except liabilities incurred in the ordinary
and usual course of business and consistent with past practice and liabilities
incurred in connection with the transactions contemplated by this Agreement.
3.6 Information Supplied. None of the information supplied or to be
supplied by the Company for inclusion or incorporation by reference in (i) the
Form S-4 will, at the time the Form S-4 is filed with the SEC, and at any time
it is amended or supplemented or at the time it becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading, and (ii) the Proxy Statement will, at the
date it is first mailed to the Company's stockholders or at the time of the
Stockholders Meeting, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
are made, not misleading, except that no representations or warranty is made by
the Company with respect to information supplied by THL I or any affiliate of
THL I for inclusion in the Proxy Statement. The Form S-4 will, as of its
effective date, and the prospectus contained therein will, as of its date,
comply as to form in all material respects with the requirements of the
Securities Act and the rules and regulations promulgated thereunder. The Proxy
Statement will comply as to form in all material respects with the requirements
of the Exchange Act and the rules and regulations promulgated thereunder.
3.7 Absence of Certain Changes or Events. Except as disclosed in the SEC
Documents, since the date of the most recent financial statements included in
such SEC Documents, the Company has conducted its business only in the ordinary
course consistent with past practice, and there is not and has not been: (i) any
Material Adverse Change with respect to the Company; (ii) any condition, event
or occurrence which, individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect or give rise to a Material Adverse
Change with respect to the Company; (iii) any event which, if it had taken place
following the execution of this Agreement, would not have been permitted by
Section 5.1 without the prior consent of THL I; or (iv) any condition, event or
occurrence which would reasonably be expected to prevent, hinder or materially
delay the ability of the Company to consummate the transactions contemplated by
this Agreement.
3.8 Litigation; Labor Matters: Compliance with Laws. (a) Except as
disclosed in Section 3.8 of the Disclosure Schedule or in the SEC Documents,
there is (i) no suit, action or proceeding or investigation pending and, (ii) to
the knowledge of the Company, no suit, action or proceeding or investigation
threatened against or affecting the Company or any of its subsidiaries that,
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect with respect to the Company or prevent, hinder or
materially delay the ability of the Company to consummate the transactions
contemplated by this Agreement nor is there any judgment, decree, injunction,
rule or order or any Governmental Entity or arbitrator outstanding against the
Company or any of its Subsidiaries having, or which in the future could have,
any such effect.
(b) Except as disclosed in Section 3.8 of the Disclosure Schedule, (i)
neither the Company nor any of its Subsidiaries is a party to, or bound by, any
collective bargaining agreement, contract or other agreement or understanding
with a labor union or labor organization; (ii) there is no strike, work stoppage
or other labor dispute involving it or any of its subsidiaries pending or, to
its knowledge, threatened; and (iii) the Company is not liable for any severance
pay or other payments to any employee or former employee arising from the
termination of employment under any benefit or severance policy, practice,
agreement, plan, or program of the
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Company, nor will the Company have any liability which exists or arises, or may
be deemed to exist or arise, under any applicable law or otherwise, as a result
of or in connection with the transactions contemplated hereunder or as a result
of the termination by the Company of any persons employed by the Company or any
of its subsidiaries on or prior to the Effective Time.
(c) The conduct of the business of each of the Company and each of its
subsidiaries complies with all statutes, laws, regulations, ordinances, rules,
judgments, orders, decrees or arbitration awards applicable thereto, except for
violations or failures so to comply, if any, that, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect
with respect to the Company.
3.9 Employee Benefit Plans.
(a) General. Except as listed on Section 3.9 of the Disclosure Schedule,
neither the Company nor any of its "ERISA Affiliates" (as defined in the
Internal Revenue Code of 1986, as amended) is a party to, participates in,
contributes to or has any liability or contingent liability with respect to:
(i) any "employee welfare benefit plan" or "employee pension benefit
plan" as those terms are respectively defined in sections 3(1) and 3(2) of
ERISA, or
(ii) any retirement or deferred compensation plan, incentive
compensation plan, stock plan, unemployment compensation plan, vacation
pay, severance pay, bonus or benefit arrangement, medical insurance or
hospitalization program or any other fringe benefit arrangements for any
current or former employee, director, consultant or agent, whether pursuant
to contract, arrangement, custom or informal understanding, which does not
constitute an "employee benefit plan" (as defined in section 3(3) of
ERISA).
(b) Plan Documents and Reports. A true and correct copy of each of the
plans, arrangements, and agreements listed on Section 3.9 of the Disclosure
Schedule, (referred to collectively hereinafter in this Agreement as the
"Employee Benefit Plans"), each as in effect on the date hereof, has been
supplied or made available to THL I. A true and correct copy of the most recent
annual report, summary plan description, and Internal Revenue Service
determination letter with respect to each Employee Benefit Plan, to the extent
applicable, has been supplied or made available to THL I, and there has been no
material changes in the financial condition in the respective plan from that
stated in the annual reports supplied.
(c) Compliance With Laws; Liabilities. As to all Employee Benefit Plans:
(i) All Employee Benefit Plans that are employee pension benefit plan
(as defined in section 3(2) of ERISA) comply in form and in operation with
all applicable requirements of section 401(a) and 501(a) of the Code; there
have been no amendments to such plans which are not the subject of a
determination letter issued with respect thereto by the Internal Revenue
Service or for which application for such letter has not been, or will not
be, timely filed with the Internal Revenue Service; and no event has
occurred which would likely give rise to disqualification of any such plan
under such sections or to a tax under section 511 of the Code.
(ii) There have been no non-exempt "prohibited transactions" (as
described in section 406 of ERISA or section 4975 of the Code) with respect
to any Employee Benefit Plan for which the Company or any of its
Subsidiaries may be liable.
(iii) None of the payments contemplated by the Employee Benefit Plans
would, in the aggregate, constitute non-deductible excess parachute
payments as defined in section 280G of the Code.
(iv) No Employee Benefit plan is subject to Title IV of ERISA and no
plan is a multiemployer plan (as defined in Section 3(37) of ERISA).
(v) Each Employee Benefit Plan which constitutes a "group health plan"
(as defined in section 607(1) of ERISA of section 4980(g)(2) of the Code),
including any plans of current and former Affiliates which must be taken
into account under sections 4980B and 414(t) of the Code or section 601 of
ERISA, has been operated in material compliance with applicable la,
including coverage requirements of section 4980B of the Code and section
601 of ERISA to the extent such requirements are applicable.
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(vi) Except as reflected in the SEC Financial Statements, neither the
Company nor any ERISA Affiliate has any liability or contingent liability
for providing, under any Employee Benefit Plan or otherwise, any
post-retirement medical or life insurance benefits, other than Statutory
liability for providing group health plan continuation coverage under Part
6 of Title I of ERISA and section 4980B of the Code.
(vii) Accruals in an amount determined by the Seller's actuaries for
all obligations under the Employee Benefit Plans, arrangements and
agreements are reflected in the SEC Financial Statements.
(viii) Except as set forth on Section 3.9 of the Disclosure Schedule,
there has been no act or omission that would impair the ability of the
Company (or any successor thereto) unilaterally to amend or terminate any
Employee Benefit Plan.
3.10 Tax Returns and Tax Payments. Except as disclosed in Section 3.10 of
the Disclosure Schedule, the Company and each of its subsidiaries, and any
consolidated, combined, unitary or aggregate group for Tax purposes of which the
Company or any of its subsidiaries is or has been a member (a "Consolidated
Group") (i) has timely filed all Tax Returns required to be filed by it on or
before the date hereof, other than any filings which the failure to make in a
timely manner would not have a Material Adverse Effect on the Company and (ii)
has paid all Taxes shown thereon to be due and has provided adequate reserves in
its financial statements for any Taxes that have not been paid, whether or not
shown as being due on any returns. To the knowledge of Company, all such Tax
Returns are correct and complete in all materials respects. As used herein,
"Taxes" shall mean all taxes of any kind, including, without limitation, those
on or measured by or referred to as income, gross receipts, sales, use, ad
valorem, franchise, profits, license, withholding, back-up withholding, payroll,
employment, excise, severance, stamp, occupation, premium, value added, property
or windfall profits taxes, customs, duties or similar fees, assessments or
charges of any kind whatsoever, together with any interest and any penalties,
additions to tax or additional amounts imposed by any governmental authority,
domestic or foreign. As used herein, "Tax Return" shall mean any return, report
or statement required to be filed with any governmental authority with respect
to Taxes.
3.11 Intentionally Omitted.
3.12 Material Contracts. The Company has provided or made available to THL
I (i) true and complete copies of all written contracts, agreements (including,
but not limited to, distribution agreements and licensing agreements),
commitments, arrangements, leases (including with respect to personal property),
policies and other instruments to which it or any of its Subsidiaries is a party
or by which it or any such Subsidiary is bound which (A) require payments to be
made in excess of $250,000 per year for goods and/or services, or (B) do not by
their terms expire and are not subject to termination within six months from the
date of the execution and delivery thereof and require payments to be made in
excess of $250,000 ("Material Contracts"), or (ii) with respect to such Material
Contracts that have not been reduced to writing, a written description thereof,
each of which is listed on Section 3.12 of the Disclosure Schedule. Neither the
Company nor any of its Subsidiaries is, or has received any notice or has any
knowledge that any other party is, in default in any respect under any such
Material Contract, except for those defaults which would not reasonably be
likely either individually or in the aggregate, to have a Material Adverse
Effect with respect to the Company; and there has not occurred any event that
with the lapse of time or the giving of notice or both would constitute such a
material default.
3.13 Brokers. No broker, investment banker, financial advisor or other
person, other than Merrill Lynch & Co., the fees and expenses of which will be
paid by the Company (pursuant to a fee agreement, a copy of which has been
provided to THL I), is entitled to any broker's, finder's, financial advisor's
or other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
the Company.
3.14 Opinion of Financial Advisor. The Company has received the opinion of
Merrill Lynch & Co., as of October 22, 1996, to the effect that the
consideration to be received in the Merger by the Company's stockholders (other
than as contemplated by Sections 2.1(b), 2.1(c)(ii) and 2.1(d)) is fair to the
holders of the Company Common Stock from a financial point of view.
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3.15 Board Recommendation. The Board of Directors of the Company, at a
meeting duly called and held, has (a) determined that this Agreement and the
transactions contemplated hereby, taken together, are advisable and in the best
interests of the Company and its stockholders, and (b) subject to the other
provisions hereof, resolved to recommend that the holders of the shares of
Company Common Stock approve this Agreement and the transactions contemplated
hereby, including the Merger.
3.16 Required Company Vote. The Company Stockholder Approval, being the
affirmative vote of a majority of the shares of the Company Common Stock, is the
only vote of the holders of any class or series of the Company's securities
necessary to approve this Agreement, the Merger and the other transactions
contemplated hereby.
3.17 State Takeover Statutes. The Board of Directors has taken such action
so that no state takeover statute or similar statute or regulation of the State
of Delaware (and, to the knowledge of the Company after due inquiry, of any
other state or jurisdiction) applies to this Agreement, the Merger, or any of
the other transactions contemplated hereby. Except as set forth in Section 3.17
of the Disclosure Schedule, neither the Company nor any of its subsidiaries has
any rights plan, preferred stock or similar arrangement which have any of the
aforementioned consequences in respect of the transactions contemplated hereby.
3.18 Intellectual Property. The Company and its subsidiaries own or
possess adequate licenses or other rights to use, all patents, trademarks, trade
names, service marks, copyrights, licenses and product licenses or registrations
(including applications for any of the foregoing), as are used or useful in
connection with its business the lack of which would reasonably be expected to
have a Material Adverse Effect with respect to the Company; and none of the
Company or any of its subsidiaries has (i) received any written notice asserting
that its patents, trademarks, trade names, service marks, copyrights, or
licenses violate the rights of others, (ii) any knowledge of any conflict with
the proprietary intellectual property rights of any of the Company or its
subsidiary therein or (iii) any knowledge of any conflict by the Company or its
subsidiary with the rights of others therein which, in the case of any of the
items described in clause (i), (ii) or (iii) would have a Material Adverse
Effect with respect to the Company.
3.19 Related Party Transactions. Except as set forth in Section 3.19 of
the Disclosure Schedule hereto, no director, officer, partner, employee,
"affiliate" or "associate" (as such terms are defined in Rule 12b-2 under the
Exchange Act) or the Company or any of its Subsidiaries (i) has borrowed any
monies from or has outstanding any indebtedness or other similar obligations to
the Company or any of its Subsidiaries; (ii) owns any direct or indirect
interest of any kind in, or is a director, officer, employee, partner, affiliate
or associate of, or consultant or lender to, or borrower from, or has the right
to participate in the management, operations or profits of, any person or entity
which is (1) a competitor, supplier, customer, distributor, lessor, tenant,
creditor or debtor of the Company or any of its Subsidiaries, (2) engaged in a
business related to the business of the Company or any of its Subsidiaries, (3)
participating in any transaction to which the Company or any of its Subsidiaries
is a party or (iii) is otherwise a party to any contract, arrangement or
understanding with the Company or any of its Subsidiaries.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THL I
THL I hereby represents and warrants to the Company as follows:
4.1 Organization, Standing and Corporate Power. THL I is a corporation
duly organized, validly incorporated and in good standing in the State of
Delaware and has the requisite corporate power and authority to carry on its
business as now being conducted. THL I is duly qualified or licensed to do
business and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
or licensing necessary. THL I has delivered to the Company complete and correct
copies of its certificate of incorporation (or other organizational documents)
and by-laws.
4.2 Subsidiaries. THL I has no direct or indirect subsidiaries.
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4.3 Capital Structure. The authorized capital stock of THL I consists
solely of shares of common stock, par value $.01 per share, all of which have
been validly issued, are fully paid and nonassessable. The commitment letters
attached hereto as Schedule 7.2(e) contemplate that the Company will issue
warrants to acquire, for nominal consideration, 6% of the fully diluted equity
of the Company following the Merger upon the terms and to the parties set forth
therein. Other than the common stock and the warrant contemplated by the
previous sentence, there are no outstanding securities, rights or other
agreements with respect to the capital stock of THL I.
4.4 Authority; Noncontravention. THL I has all requisite corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated by this Agreement. The execution and delivery of this Agreement by
THL I and the consummation by THL I of the transactions contemplated by this
Agreement have been duly authorized by all necessary corporate action on the
part of THL I. This Agreement has been duly executed and delivered by and
constitutes a valid and binding obligation of THL I, enforceable against THL I
in accordance with its terms. The execution and delivery of this Agreement do
not, and the consummation of the transactions contemplated by this Agreement and
compliance with the provisions of this Agreement will not, conflict with, or
result in any breach or violation of, or default (with or without notice or
lapse of time, or both) under or give rise to a right of termination,
cancellation or acceleration of or "put" right with respect to any obligations
or to loss of a material benefit under, or result in the creation of any Lien
upon any of the properties or assets of THL I under, (i) the certificate of
incorporation or by-laws of THL I, (ii) any loan or credit agreement, note,
bond, mortgage, indenture, lease or other agreement, instrument, permit,
concession, franchise or license applicable to THL I or its properties or assets
or (iii) subject to the governmental filings and other matters referred to in
the following sentence, any judgment, order, decree, statute, law, ordinance,
rule, regulation or arbitration award applicable to THL I or its properties or
assets, other than, in the case of clauses (ii) and (iii), any such conflicts,
breaches, violations, defaults, rights, losses or Liens that individually or in
the aggregate could not have a material adverse effect with respect to THL I or
could not prevent, hinder or materially delay the ability of THL I to consummate
the transactions contemplated by this Agreement. No consent, approval, order or
authorization of, or registration, declaration or filing with, or notice to, any
Governmental Entity is required by or with respect to THL I in connection with
the execution and delivery of this Agreement by THL I or the consummation by THL
I of any of the transactions contemplated by this Agreement, except for (i) the
filing of a premerger notification and report form under the HSR Act, (ii) the
filing with the SEC of (y) the Proxy Statement and the Form S-4 and (z) such
reports under the Exchange Act as may be required in connection with this
Agreement and the transactions contemplated hereby, (iii) the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware and
appropriate documents with the relevant authorities of other states in which the
Company is qualified to do business and (iv) such other consents, approvals,
orders, authorizations, registrations, declarations, filings or notices as may
be required under the "takeover" or "blue sky" laws of various states.
4.5 Brokers. No broker, investment banker, financial advisor or other
person, other than Morgan Stanley & Co. the fees and expenses of which will be
paid by THL I, is entitled to any broker's, finder's, financial advisor's or
other similar fee or commission in connection with the transactions contemplated
by this Agreement based upon arrangements made by or on behalf of THL I to its
affiliates.
4.6 Financing. Schedule 7.2(e) attached hereto sets forth true and
complete copies of written documentation from third parties which provides for
financing in amounts sufficient to consummate the transactions contemplated
hereby as contemplated by Section 7.2(e). The terms and conditions of such
documentation are satisfactory to THL I.
4.7 Information Supplied. None of the information supplied or to be
supplied by THL I or its affiliates for inclusion or incorporation by reference
in (i) the Form S-4 will, at the time the Form S-4 is filed with the SEC, and at
any time it is amended or supplemented or at the time it becomes effective under
the Securities Act, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading, and (ii) the Proxy Statement will, at the
time the Proxy Statement is first mailed to the Company's stockholders or at the
time of the Stockholders
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Meeting, contain any untrue statement or a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading.
4.8 Management Participation. Schedule 4.8 hereto sets forth a true and
complete summary of all written arrangements, agreements and understandings
regarding the interests of and the terms of the participation of Management in
the transactions contemplated hereby including, without limitation, with respect
to the voting of shares of Company Common Stock beneficially owned by Management
and the economic benefits which may inure to Management as a result of the
transactions contemplated hereby. Except as set forth in Schedule 4.8, there is
no material arrangement, agreement or understanding regarding such interests or
participation.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR TO MERGER
5.1 Conduct of Business of the Company. Except as set forth in the
Disclosure Schedule, during the period from the date of this Agreement to the
Effective Time (except as otherwise specifically required by the terms of this
Agreement), the Company shall, and shall cause its subsidiaries to, act and
carry on their respective businesses in the usual, regular and ordinary course
of business consistent with past practice and use its and their respective
reasonable best efforts to preserve intact their current business organizations,
keep available the services of their current officers and employees and preserve
their relationships with customers, suppliers, licensors, licensees,
advertisers, distributors and others having business dealings with them and to
preserve goodwill. Without limiting the generality of the foregoing, except as
set forth in the Disclosure Schedule or otherwise contemplated by this
Agreement, during the period from the date of this Agreement to the Effective
Time, the Company shall not, and shall not permit any of its subsidiaries to,
without the prior consent of THL I, which shall not be unreasonably withheld:
(a) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, other than dividends
and distributions by a direct or indirect wholly owned subsidiary of the
Company to its parent;
(b) split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock (except pursuant to the
Company's Rights Agreement);
(c) purchase, redeem or otherwise acquire any shares of capital stock
of the Company or any of its subsidiaries or any other securities thereof
or any rights, warrants or options to acquire any such shares or other
securities, except for the acquisition of shares of Company Common Stock
from holders of Company Stock Options in full or partial payment of the
exercise price payable by such holder upon exercise of Company Stock
Options outstanding on the date of this Agreement (except pursuant to the
Company's Rights Agreement);
(d) authorize for issuance, issue, deliver, sell, pledge or otherwise
encumber any shares of its capital stock (except pursuant to the Company's
Rights Agreement) or the capital stock of any of its subsidiaries, any
other voting securities or any securities convertible into, or any rights,
warrants or options to acquire, any such shares, voting securities or
convertible securities or any other securities or equity equivalents
(including without limitation stock appreciation rights) (other than the
issuance of Company Common Stock upon the exercise of Company Stock Options
outstanding on the date of this Agreement and in accordance with their
represent terms (such issuances, together with the acquisitions of shares
of Company Common Stock permitted under clause (c) above, being referred to
herein as "Permitted Changes");
(e) in the case of the Company, amend its articles of organization,
by-laws or other comparable charter or organizational documents;
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(f) acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial portion of the stock or assets of, or by any
other manner, any business or any corporation, partnership, joint venture,
association or other business organization or division thereof material to
the Company.
(g) other than as specifically permitted by Section 5.1 of the
Disclosure Schedule, sell, lease, license, mortgage or otherwise encumber
or subject to any Lien or otherwise dispose of any of its properties or
assets other than any such properties or assets the value of which do not
exceed $500,000 individually and $4,000,000 in the aggregate, except for
(i) transactions in the ordinary course of business consistent with past
practice, (ii) sales of inventory and entering into leases for showrooms
and (iii) sales or dispositions of buildings no longer usable by the
Company in its operations;
(h) incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of the Company of
any of its subsidiaries, guarantee any debt securities of another person,
enter into any "keep well" or other agreement to maintain any financial
statement condition of another person or enter into any arrangement having
the economic effect of any of the foregoing, except for short-term
borrowings and for lease obligations, in each case incurred in the ordinary
course of business consistent with past practice;
(i) make any material loans, advances or capital contributions to, or
investments in, any other person, other than to the Company or any direct
or indirect wholly owned subsidiary of the Company;
(j) acquire or agree to acquire any assets that are material,
individually or in the aggregate, to the Company and its subsidiaries taken
as a whole, or make or agree to make any capital expenditures except
capital expenditures which, individually or in the aggregate, do not exceed
the amount budgeted therefor in the Company's annual capital expenditures
budget for 1996 and 1997 previously provided to THL I;
(k) pay, discharge or satisfy any claims (including claims of
stockholders), liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), except for the payment, discharge or
satisfaction, (a) of liabilities or obligations in the ordinary course of
business consistent with past practice or in accordance with their terms as
in effect on the date hereof or (b) claims settled or compromised to the
extent permitted by Section 5.1(o), or waive, release, grant, or transfer
any rights of material value or modify or change in any material respect
any existing license, lease, contract or other document, other than in the
ordinary course of business consistent with past practice;
(l) adopt a plan of complete or partial liquidation or resolutions
providing for or authorizing such a liquidation or a dissolution, merger,
consolidation, restructuring, recapitalization or reorganization;
(m) enter into any new collective bargaining agreement or any
successor collective bargaining agreement to any collective bargaining
agreement disclosed in Section 3.8(b) of the Disclosure Schedule except in
the ordinary course of business;
(n) change any material accounting principle used by it;
(o) settle or compromise any litigation (whether or not commenced
prior to the date of this Agreement) other than settlements or compromises
of litigation where the amount paid (after giving effect to insurance
proceeds actually received) in settlement or compromise is not material to
the Company; or
(p) authorize any of, or commit or agree to take any of, the foregoing
actions.
5.2 Changes in Employment Arrangements. Neither the Company nor any of its
subsidiaries shall adopt or amend (except as may be required by law) any bonus,
profit sharing, compensation, stock option, pension, retirement, deferred
compensation, employment or other employee benefit plan, agreement, trust, fund
or other arrangement (including any Company Plan) for the benefit or welfare of
any employee, director or former director or employee, other than increases for
individuals other than officers and directors) in the ordinary course of
business consistent with past practice or increase the compensation or fringe
benefits of any director, employee or former director or employee or pay any
benefit not required by any existing plan, arrangement or agreement.
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5.3 Severance. Neither the Company nor any of its subsidiaries shall grant
any new or modified severance or termination arrangement or increase or
accelerate any benefits payable under its severance or termination pay policies
in effect on the date hereof.
5.4 WARN. Neither the Company nor any of its subsidiaries shall effectuate
a "plant closing" or "mass layoff", as those terms are defined in the Worker
Adjustment and Retraining Notification Act of 1988 ("WARN"), affecting in whole
or in part any site of employment, facility, operating unit or employee of the
Company or any subsidiary, without notifying THL I or its affiliates in advance
and without complying with the notice requirements and other provisions of WARN.
5.5 Tax Elections. Except in the ordinary course of business and
consistent with past practice, neither the Company nor any of its subsidiaries
shall make any tax election or settle or compromise any material federal, state,
local or foreign Tax liability.
5.6 Redemption of Rights. Within ten (10) calendar days of the date of
this Agreement, the Company shall have redeemed all rights under, or otherwise
terminated without adverse consequences to the Company, THL I or the
consummation or the transactions contemplated hereby, the Rights Agreement
between the Company and State Street Bank and Trust Company, dated as of October
26, 1992, as amended to date (the "Rights Agreement").
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Preparation of Form S-4 and Proxy Statement; Stockholder Meeting.
(a) Promptly following the date of this Agreement, with the cooperation of
THL I, the Company shall prepare the Proxy Statement, and the Company shall
prepare and file with the SEC the Form S-4, in which the Proxy Statement will be
included. The Company shall use its best efforts as promptly as practicable to
have the Form S-4 declared effective under the Securities Act as promptly as
practicable after such filing. The Company will use its best efforts to cause
the Proxy Statement to be mailed to the Company's stockholders as promptly as
practicable after the Form S-4 is declared effective under the Securities Act.
The Company shall also take all reasonable action required to be taken under any
applicable state securities laws in connection with the registration and
qualification in connection with the Merger of Company Common Stock following
the Merger. The information provided and to be provided by THL I, and the
Company, respectively, for use in the Form S-4 shall, at the time the Form S-4
becomes effective and on the date of the Stockholders Meeting referred to below,
be true and correct in all material respects and shall not omit to state any
material fact required to be stated therein or necessary in order to make such
information not misleading, and the Company and THL I each agree to correct any
information provided by it for use in the Form S-4 which shall have become false
or misleading.
(b) The Company will immediately notify THL I and its affiliates of (i) the
effectiveness of the Form S-4, (ii) the receipt of any comments from the SEC
regarding the S-4 and (iii) any request by the SEC for any amendment to the Form
S-4 or for additional information. THL I shall be given a reasonable opportunity
to review and comment on all filings with the SEC, including the Form S-4 and
any amendments thereto, and all mailings to the Company's stockholders in
connection with the Merger, including the Proxy Statement, prior to the filing
or mailing thereof, and the Company shall use its best efforts to reflect all
such reasonable comments.
(c) The Company will, as promptly as practicable following the date of this
Agreement and in consultation with THL I, duly call, give notice of, convene and
hold a meeting of its stockholders (the "Stockholders Meeting") for the purpose
of approving this Agreement and the transactions contemplated by this Agreement.
The Company will, through its Board of Directors, recommend to its stockholders
approval of the foregoing matters, as set forth in Section 3.15; provided,
however, that the obligations contained herein shall be subject to the
provisions of Section 6.6 of this Agreement. Subject to the foregoing, such
recommendation, together with a copy of the opinion referred to in Section 3.14,
shall be included in the Proxy
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Statement. The Company will use its best efforts to hold such meeting as soon as
practicable after the date hereof.
(d) The Company will cause its transfer agent to make stock transfer
records relating to the Company available to the extent reasonably necessary to
effectuate the intent of this Agreement.
6.2 Access to Information; Confidentiality.
(a) The Company shall, and shall cause its subsidiaries, officers,
employees, counsel, financial advisors and other representatives to, afford to
THL I and its representatives and to potential financing sources reasonable
access during normal business hours, in a manner initially coordinated with the
chief executive officer of the Company, and thereafter coordinated with those
persons designated by the chief executive officer, during the period prior to
the Effective Time to its properties, books, contracts, commitments, personnel
and records and, during such period, the Company shall, and shall cause its
subsidiaries, officers, employees and representatives to, furnish promptly to
THL I (i) a copy of each report, schedule, registration statement and other
document filed by it during such period pursuant to the requirements of Federal
or state securities laws and (ii) all other information concerning its business,
properties, financial condition, operations and personnel as THL I may from time
to time reasonably request. Except as required by law, each of the Company and
THL I will hold, and will cause its respective directors, officers, employees,
accountants, counsel, financial advisors and other representatives and
affiliates to hold, any nonpublic information in confidence to the extent
required by, and in accordance with, the provisions of the letter dated July 11,
1996, between Thomas H. Lee Company ("THL") and the Company (the
"Confidentiality Agreement").
(b) No investigation pursuant to this Section 6.2 shall affect any
representations or warranties of the parties herein or the conditions to the
obligations of the parties hereto.
6.3 Best Efforts.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the parties agrees to use its best efforts to take, or cause
to be taken, all actions, and to do, or cause to be done, and to assist and
cooperate with the other parties in doing, all things necessary, proper or
advisable to consummate and make effective, in the most expeditious manner
practicable, the Merger and the other transactions contemplated by this
Agreement. THL I and the Company will use their best efforts and cooperate with
one another (i) in promptly determining whether any filings are required to be
made or consents, approvals, waivers, licenses, permits or authorizations are
required to be obtained (or, which if not obtained, would result in an event of
default, termination or acceleration of any agreement or any put right under any
agreement) under any applicable law or regulation or from any governmental
authorities or third parties, including parties to loan agreements or other debt
instruments, in connection with the transactions contemplated by this Agreement,
including the Merger and (ii) in promptly making any such filings, in furnishing
information required in connection therewith and in timely seeking to obtain any
such consents, approvals, permits or authorizations.
(b) The Company shall make, subject to the condition that the transactions
contemplated herein actually occur, any undertakings (including undertakings to
make divestitures, provided, in any case, that such undertakings divestitures
need not themselves be effective or made until after the transactions
contemplated hereby actually occur) required in order to comply with the
antitrust requirements or laws of any governmental entity, including the HSR
Act, in connection with the transactions contemplated by this Agreement;
provided that no such divestiture or undertaking shall be made unless reasonably
acceptable to THL I.
(c) The Company shall cooperate with any reasonable requests of THL I or
the SEC related to the recording of the Merger as a recapitalization for
financial reporting purposes, including, without limitation, to assist THL I and
its affiliates with any presentation to the SEC with regard go such recording
and to include appropriate disclosure with regard to such recording in all
filings with the SEC and all mailings to stockholders made in connection with
the Merger. In furtherance of the foregoing, the Company shall provide to THL I
for the prior review of THL I's advisors any description of the transactions
contemplated by this Agreement which is meant to be disseminated.
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(d) Each of the parties agrees to cooperate with each other in taking, or
causing to be taken, all actions necessary to delist the Company Common Stock
from NYSE, provided that such delisting shall not be effective until after the
Effective Time. The parties also acknowledge that it is THL I's intent that the
Company Common Stock following the Merger will not be quoted on NYSE, NASDAQ or
listed on any national securities exchange.
(e) The Company agrees to provide, and will cause its subsidiaries and its
and their respective officers and employees to provide, all reasonable
cooperation in connection with the arrangement of any financing contemplated by
Section 7.2(e), including without limitation, the execution and delivery of any
commitment letters, underwriting or placement agreements, loan, pledge and
security documents, other definitive financing documents, or other requested
certificates or documents, including a certificate of the chief financial
officer of the Company with respect to solvency matters, as may be reasonably
requested by THL I. The parties acknowledge that any obligations (including the
payment of any fees and expenses) on behalf of the Company in connection with
any commitment letters or other financings or refinancings contemplated hereby
shall be subject to the occurrence of the Closing. In addition, in conjunction
with the obtaining of any such financing, the Company agrees, at the request of
THL I, to call for prepayment or redemption, or to prepay, redeem and/or
renegotiate, as the case may be, any then existing indebtedness of the Company;
provided that no such prepayment or redemption shall themselves actually be made
or be required until at or after the Effective Time.
(f) (i) THL I hereby agrees to use its best commercial efforts, subject to
normal conditions, to arrange and consummate the financing described in Section
7.2(e) hereof in respect of the transactions contemplated by this Agreement,
including, subject to normal conditions, using its best commercial efforts (A)
to assist the Company in the negotiation of definitive agreements with respect
thereto, (B) to satisfy all conditions applicable to THL I in such definitive
agreements and (C) to negotiate such modifications to the financing described in
Section 7.2(e) as may be necessary to reflect any change in market conditions
which occurs after the date of execution of this Agreement.
(ii) Subject to the Company having received the proceeds of the financing
described in Section 7.2(e) on terms satisfactory to THL I, THL I at closing
will be capitalized with an equity contribution of $102,139,200 less the product
of (x) $32.00 and (y) the aggregate number of shares retained by stockholders
other than Leonard Florence. THL I will be under no obligation pursuant to the
preceding sentence unless and until the Company receives the proceeds of the
financing described in Section 7.2(e), or such other financings as may be
contemplated by Section 7.2(e), on terms consistent with the commitment letters
referenced in Section 7.2(e). In addition, THL I will be under no obligation
under any circumstances to be capitalized with equity of more than $102,139,200.
In no event shall it be required that THL I be capitalized with such amounts of
equity prior to the Closing.
6.4 Indemnification. For six years after the Effective Time, the Company
shall indemnify all present and former directors or officers of the Company and
its subsidiaries ("Indemnified Parties") against any liability, costs or
expenses (including reasonable attorneys' fees), judgments, fines, losses,
claims, damages or liabilities (collectively, "Costs") incurred in connection
with any claim, action, suit, proceeding or investigation, whether civil,
criminal, administrative or investigative, arising out of or pertaining to
matters existing or occurring at or prior to the Effective Time, whether
asserted or claimed prior to, at or after the Effective Time, to the fullest
extent as would have been permitted in their respective articles of organization
or by-laws as in effect on the date hereof consistent with applicable law, to
the extent such Costs have not been paid for by insurance and shall, in
connection with defending against any action for which indemnification is
available hereunder, advance such officers and directors, from time to time upon
receipt of reasonable and sufficient supporting documentation, the full amount
of any costs and expenses reasonably incurred by such officers or directors;
provided that the advance of such advances shall be conditioned upon such
officer's or director's agreement promptly to return such amounts to the Company
if a court of competent jurisdiction shall ultimately determine by a final
judgment not subject to appeal that indemnification of such officer or director
is prohibited by applicable law. The Company will maintain for a period of not
less than six years from the Effective Time, the Company's current directors'
and officers' insurance and indemnification policy to the extent that it
provides coverage for events occurring prior to the Effective Time (the "D&O
Insurance") for all
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persons who are directors and officers of the Company on the date of this
Agreement; provided that the Company shall not be required to spend as an annual
premium for such D&O Insurance an amount in excess of 200% of the annual premium
paid for directors' and officers' insurance in effect prior to the date of this
Agreement; and provided further that the Company shall nevertheless be obligated
to provide such coverage as may be obtained for such amount. The provisions of
this Section are intended for the benefit of, and shall be enforceable by, each
Indemnified Party and his or her heirs and representatives.
6.5 Public Announcements. Neither THL I, on the one hand, nor the Company,
on the other hand, will issue any press release or public statement with respect
to the transactions contemplated by this Agreement, including the Merger,
without the other party's prior consent (which shall not be unreasonably
withheld), except as may be required by applicable law, court process or by
obligations pursuant to any listing agreement with NYSE. In addition to the
foregoing, THL I and the Company will consult with each other before issuing,
and provide each other the opportunity to review and comment upon, any such
press release or other public statements with respect to such transactions. The
parties agree that the initial press release or releases to be issued with
respect to the transactions contemplated by this Agreement shall be mutually
agreed upon prior to the issuance thereof.
6.6 No Solicitation. From and after the date hereof until the termination
of this Agreement neither the Company or any of its Subsidiaries, nor any of
their respective officers, directors, employees, representatives, agents or
affiliates (including, without limitation, any investment banker, attorney or
accountant retained by the Company or any of its Subsidiaries) will directly or
indirectly initiate, solicit or knowingly encourage (including by way of
furnishing non-public information or assistance), or take any other action to
facilitate knowingly, any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to any Transaction Proposal,
or enter into or maintain or continue discussions or negotiate with any person
or entity in furtherance of such inquiries or to obtain a Transaction Proposal
or agree to or endorse any Transaction Proposal or authorize or permit any of
its officers, directors or employees or any of its Subsidiaries or any
investment banker, financial advisor, attorney, accountant or other
representative retained by any of its Subsidiaries to take any such action;
provided, however, that nothing contained in this Agreement shall prohibit the
Board of Directors of the Company (or, if applicable, the Special Committee)
from (i)furnishing information to or entering into discussions or negotiations
with, any person or entity that makes an unsolicited written, bona fide
proposal, to acquire the Company and/or its Subsidiaries pursuant to a merger,
consolidation, share exchange, business combination, tender or exchange offer or
other similar transaction if, and only to the extent that (A) the Board of
Directors of the Company (or the Special Committee), after consultation with and
based upon the advice of independent legal counsel (who may be the Company's
regularly engaged independent legal counsel) determines in good faith that such
action is necessary for the Board of Directors of the Company to comply with its
fiduciary duties to stockholders under applicable law and (B) prior to taking
such action the Company (x) provides reasonable notice to THL I to the effect
that it is taking such action and (y) receives from such person or entity an
executed confidentiality agreement in reasonably customary form, (ii) failing to
make or withdrawing or modifying its recommendation referred to in Section 3.15
if the Board of Directors of the Company, after consultation with and based upon
the advice of independent legal counsel (who may be the Company's regularly
engaged independent counsel), determines in good faith that such action is
necessary for the Board of Directors of the Company to comply with its fiduciary
duties to stockholders under applicable law or (iii) making to the Company's
stockholders any recommendation and related filing with the SEC as required by
Rule 14e-2 and 14d-9 under the Exchange Act, with respect to any tender offer,
or taking any other legally required action (including, without limitation, the
making of public disclosures as may be necessary or advisable under applicable
securities laws); and provided further, however, that, in the event of an
exercise of the Company's or it's Board of Director's (or the Special
Committee's) rights under clause (i), (ii) or (iii) above, notwithstanding
anything contained in this Agreement to the contrary, such failure shall not
constitute a breach of this Agreement by the Company. For purposes of this
Agreement, "Transaction Proposal" shall mean any of the following (other than
the transactions between the Company and THL I) involving the Company and its
subsidiaries: (i) any merger, consolidation, share exchange, recapitalization,
business combination, or other similar transaction involving 40% or more of the
assets of the Company; (ii) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition of 40% or more of the assets of the Company and
its subsidiaries, taken as a whole, in a single
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transaction or series of transactions; (iii) any tender offer or exchange offer
for 40% or more of the outstanding shares of capital stock of the Company or the
filing of a registration statement under the Securities Act in connection
therewith; or (iv) any public announcement of a proposal, plan or intention to
do any of the foregoing or any agreement to engage in any of the foregoing.
6.7 Affiliates. Prior to the Closing Date, the Company shall deliver to
THL I a letter identifying all persons who are, at the time this Agreement is
submitted for approval to the stockholders of the Company, "affiliates" of the
Company for purposes of Rule 145 under the Securities Act. The Company shall use
its reasonable best efforts to cause each such person to deliver to THL I on or
prior to the Closing Date a written agreement substantially in the form attached
as Exhibit B hereto.
ARTICLE VII
CONDITIONS PRECEDENT
7.1 Conditions to Each Party's Obligation. The respective obligation of
each party to effect the Merger is subject to the Satisfaction or waiver on or
prior to the Closing Date of the following conditions:
(a) Company Stockholder Approval. The Company Stockholder Approval
shall have been obtained, and not more than 10% of the outstanding shares
of Company Common Stock shall be Dissenting Shares.
(b) HSR Act. The waiting period (and any extension thereof)
applicable to the Merger under the HSR Act shall have been terminated or
shall have expired.
(c) Form S-4. The Form S-4 shall have become effective under the
Securities Act and shall not be the subject of any stop order or
proceedings seeking a stop order, and any material "blue sky" and other
state securities laws applicable to the registration and qualification of
Company Common Stock to be retained in the Merger shall have been complied
with.
(d) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing
the consummation of the merger shall be in effect; provided, however, that
the parties hereto shall use their best efforts to have any such
injunction, order, restraint or prohibition vacated.
7.2 Conditions to Obligations of THL I. The obligations of THL I to effect
the Merger are further subject to the following conditions:
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement and those statements
made on Schedule 7.2(a) hereto shall be true and correct in all material
respects in each case as of the date of this Agreement and as of the
Closing Date as though made on and as of the Closing Date; provided,
however, that, for purposes of this Section 7.2(a), such representations
and warranties and statements shall be deemed to be true and correct in all
material respects unless the failure or failures of such representations
and warranties and statements to be so true and correct, individually or in
the aggregate, would result in a Material Adverse Effect with respect to
the Company. THL I shall have received a certificate signed on behalf of
the Company by the chief executive officer and the chief financial officer
of the Company to the effect set forth in this paragraph.
(b) Performance of Obligations of the Company. The Company shall have
performed the obligations required to be performed by it under this
Agreement at or prior to the Closing Date, including but not limited to its
obligations pursuant to Section 5.6 hereof, except for such failures to
perform as have not had or would not individually or in the aggregate, have
a Material Adverse Effect with respect to the Company or materially
adversely affect the ability of the Company to consummate the transactions
contemplated hereby.
(c) Consents, etc. THL I shall have received evidence, in form and
substance reasonably satisfactory to it, that all licenses, permits,
consents, approvals, authorizations, qualifications and orders of
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governmental authorities and other third parties necessary to consummate
the transactions contemplated hereby shall have been obtained, unless the
failure to so obtain would not have a Material Adverse Effect on the
Company.
(d) No Litigation. There shall not be pending or threatened by any
Governmental Entity any suit, action or proceeding (or by any other person
any suit, action or preceding which has a reasonable likelihood of
success), (i) challenging or seeking to restrain or prohibit the
consummation of the Merger or any of the other transactions contemplated by
this Agreement or seeking to obtain from THL I or any of their affiliates
any damages that are material to any such party, (ii) seeking to prohibit
or limit the ownership or operation by the Company or any of its
subsidiaries of any material portion of the business or assets of the
Company or any of its subsidiaries, to dispose of or hold separate any
material portion of the business or assets of the Company or any of its
subsidiaries, as a result of the Merger or any of the other transaction
contemplated by this Agreement or (iii) seeking to impose limitations on
the ability of THL I (or any designee of THL I), to acquire or hold, or
exercise full rights of ownership of, any shares of Company Common Stock,
including, without limitation, the right to vote the Company Common Stock
on all matters properly presented to the stockholders of the Company.
(e) Financing. The Company shall have received the proceeds of
financing pursuant to the commitment letters set forth on Schedule 7.2(e)
hereto on terms and conditions set forth therein (or on such other terms
and conditions, or involving such other financing sources, as THL I and the
Company shall reasonably agree and are not materially more onerous) in
amounts sufficient to consummate the transactions contemplated by this
Agreement, including, without limitation (i) to pay, with respect to all
shares of Company Common Stock in the Merger, the cash portion of the
Merger Consideration pursuant to Section 2.1(c)(ii), (ii) to refinance the
outstanding indebtedness of the Company, (iii) to pay any fees and expenses
in connection with the transactions contemplated by this Agreement or the
financing thereof and (iv) to provide for the working capital needs of the
Company following the Merger, including, without limitation, if applicable,
letters of credit. The amount of proceeds to be received by the Company
from senior credit financing and bond financing as contemplated by the
commitment letters attached hereto on Schedule 7.2(e) shall be allocated in
the sole discretion of THL I.
(f) Affiliate Letters. THL I shall have received the agreements referred
to in Section 6.7.
7.3 Conditions to Obligation of the Company. The obligation of the Company
to effect the Merger is further subject to the following conditions:
(a) Representations and Warranties. The representations and
warranties of THL I set forth in this Agreement shall be true and correct
in all material respects, in each case as of the date of this Agreement and
as of the Closing Date as though made on and as of the Closing Date. The
Company shall have received a certificate signed on behalf of THL I, by an
authorized officer of THL I to the effect set forth in this paragraph.
(b) Performance of Obligations of THL I. THL I shall have performed
the obligations required to be performed by them under this Agreement at or
prior to the Closing Date (except for such failures to perform as have not
had or could not reasonably be expected, either individually or in the
aggregate, to have a Material adverse Effect with respect to THL I or
adversely affect the ability of THL I to consummate the transactions herein
contemplated or perform its obligations hereunder).
(c) No Litigation. There shall not be pending or threatened by any
party any suit, action or proceeding challenging or seeking to restrain or
prohibit the consummation of the Merger or any of the other transactions
contemplated by this Agreement or seeking to obtain from the Company (or
any of its Directors) any significant damages.
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ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. This Agreement may be terminated and abandoned at any
time prior to the Effective Time, whether before or after approval of matters
presented in connection with the Merger by the stockholders of the Company;
(a) by mutual written consent of THL I and the Company; or
(b) by either THL I or the Company if any Governmental Entity shall
have issued an order, decree or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibiting the Merger and
such order, decree, ruling or other action shall have become final and
nonappealable; or
(c) by either THL I or the Company if the Merger shall not have been
consummated on or before April 30, 1997 (other than due to the failure of
the party seeking to terminate this Agreement to perform its obligations
under this Agreement required to be performed at or prior to the Effective
Time); or
(d) by either THL I or the Company, if 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
(e) by THL I, if the Company shall have (1) withdrawn, modified or
amended in any respect adverse to THL I its approval or recommendation of
this Agreement or any of the transactions contemplated herein, (2) failed
to include such recommendation in the Proxy Statement mailed to the
Company's stockholders, (3) recommended any Transaction Proposal from a
person other than THL I or any of its affiliates or (4) resolved to do any
of the foregoing; or
(f) by either THL I or the Company, if the Company shall enter into
any agreement with a third party with respect to a Transaction Proposal.
8.2 Effect of Termination. In the event of termination of this Agreement
by either the Company of THL I as provided in Section 8.1, this Agreement shall
forthwith become void and have no effect, without any liability or obligation on
the part of THL I or the Company, other than the provisions of Section 3.13,
Section 4.5, the last sentence of Section 6.2(a), this Section 8.2, Section 9.2
and Section 9.7. Nothing contained in this Section shall relieve any party for
any breach of the representations, warranties, covenants or agreements set forth
in this Agreement.
8.3 Amendment. This Agreement way be amended by the parties at any time
before or after any required approval of matters presented in connection with
the merger by the stockholders of the Company; provided, however, that after any
such approval, there shall be made no amendment that by law requires further
approval by such stockholders without the further approval of such stockholders.
This Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties.
8.4 Extension; Waiver. At any time prior to the Effective Time, the
parties may (a) extend the time for the performance of any of the obligations or
other acts of the other parties, (b) waive any inaccuracies in the
representations and warranties contained in this Agreement or in any document
delivered pursuant to this Agreement or (c) subject to the proviso of Section
8.3, waive compliance with any of the agreements or conditions contained in this
Agreement. Any agreement on the part of a party to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf of
such party. The failure of any party to this Agreement to assert any of its
rights under this Agreement or otherwise shall not constitute a waiver of such
rights.
8.5 Procedure for Termination, Amendment, Extension or Waiver. A
termination of this Agreement pursuant to Section 8.1, an amendment of this
Agreement pursuant to Section 8.3 or an extension or waiver pursuant to Section
8.4 shall, in order to be effective, be in writing and require in the case of
THL I or the Company, action by its Board of Directors or the duly authorized
designee of its Board of Directors.
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ARTICLE IX
GENERAL PROVISIONS
9.1 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time and all such
representations and warranties will be extinguished on consummation of the
Merger and neither the Company nor any officer, director or employee or
shareholder shall be under any liability whatsoever with respect to any such
representation or warranty after such time. This Section 9.1 shall not limit any
covenant or agreement of the parties which by its terms contemplates performance
after the Effective Time.
9.2 Fees and Expenses.
(a) In addition to any other amounts which may be payable or become payable
pursuant to any other paragraph of this Section 9.2, the Company shall (provided
that THL I is not then in material breach of its obligations under this
Agreement) promptly, but in no event later than one business day after the
termination of this Agreement pursuant to Section 8.1(e) or 8.1(f) or from time
to time after Closing, reimburse THL for all out-of-pocket expenses and fees, up
to an aggregate amount not to exceed $2.25 million, (including, without
limitation, fees payable to all banks, investment banking firms and other
financial institutions, and their respective agents and counsel, and all fees of
counsel, accountants, financial printers, experts and consultants to THL I and
its affiliates), whether incurred prior to, on or after the date hereof, in
connection with the Merger and the consummation of all transactions contemplated
by this Agreement, and the financing thereof.
(b) If any Person (other than THL I or any of its affiliates) shall have
made, or proposed, communicated or disclosed in a manner which is or otherwise
becomes public a Transaction Proposal and this Agreement is terminated pursuant
to Section 8.1(e) or Section 8.1(f), then the Company shall, promptly, but in no
event later than one business day after the termination of this Agreement, pay
THL I a fee of $6.75 million in cash, which amount shall be payable in same day
funds. No termination of this Agreement at a time when a fee is reasonably
expected to be payable pursuant to this Section 9.2(b) following termination of
this Agreement shall be effective until such fee is paid. Only one fee in the
aggregate of $6.75 million shall be payable pursuant to this Section 9.2(b). No
amount payable pursuant to any of the other provisions of this Section 9.2 shall
reduce the amount of the fee payable pursuant to this paragraph (b).
(c) Except as provided otherwise in paragraph (a) above, all costs and
expenses incurred in connection with this Agreement, and the transactions
contemplated hereby shall be paid to the party incurring such expenses, except
that the Company shall pay all costs and expenses (i) in connection with
printing and mailing the Proxy Statement, as well as all SEC filing fees
relating to the transactions contemplated herein and (ii) of obtaining any
consents of any third party.
9.3 Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered by facsimile transmission (with electronic confirmation),
personally or sent by overnight courier providing proof of delivery) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) if to THL I, to
c/o Thomas H. Lee Company
75 State Street
Boston, MA 02109
Attn: David V. Harkins
Facsimile: (617) 227-3514
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with a copy to:
Hutchins, Wheeler & Dittmar
101 Federal Street
Boston, MA 02110
Attn: James Westra, Esq.
Facsimile: (617) 951-1295
(b) if to the Company, to
Syratech Corporation
175 McClellan Highway
East Boston, Massachusetts 02128
Attn: Leonard Florence
Facsimile: (617) 561-0275
with copies to:
Faye A. Florence, Esq.
General Counsel
Syratech Corporation
175 McClellan Highway
East Boston, Massachusetts 02128
Facsimile: (617) 568-1361
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, NY 10019
Attn: James L. Purcell, Esq.
Facsimile: (212) 373-2145
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019
Attn: Barry A. Bryer, Esq.
Facsimile: (212) 403-2000
and
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Attn: Kenneth J. Bialkin, Esq.
Facsimile: (212) 735-2001
9.4 Definitions. For purposes of this Agreement:
(a) an "affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by,
or is under control with, such first person;
(b) "knowledge", with respect to the Company means the actual
knowledge of the following officers and employees (as well as any of their
successors) of the Company and its subsidiaries: Leonard Florence, E. Merle
Randolph, Alan R. Kanter, Melvin L. Levine and, without duplication, the
employees in charge of environmental, tax, labor, employee benefits and
real estate matters of any of the foregoing, in each case after reasonable
investigation and inquiry.
(c) "Material Adverse Change" or "Material Adverse Effect" means, when
used in connection with the Company, any change or effect that either
individually or in the aggregate with all other such changes or effects is
materially adverse to the business, financial condition or results of
operations of the Company
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and its subsidiaries taken as a whole and the terms "material" and
"materially" shall have correlative meanings;
(d) "person" means an individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or other entity;
and
(e) a "subsidiary" of any person means another person, an amount of
the voting securities, other voting ownership or voting partnership
interests of which is sufficient to elect at least a majority of its Board
of Directors (or other governing body) or, if there are no such voting
interests, 50% or more of the equity interests of which is owned directly
or indirectly by such first person.
9.5 Interpretation. When a reference is made in this Agreement to a
Section, Exhibit or Schedule, such reference shall be to a section of, or an
Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation."
9.6 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
9.7 Entire Agreement; No Third-Party Benefits. This Agreement and the
other agreements referred to herein constitute the entire agreement, and
supersede all Prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter of this Agreement. This
Agreement, other than Sections 6.4 and 9.2, is not intended to confer upon any
Person other than the parties any rights or remedies.
9.8 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE, REGARDLESS OF THE LAWS THAT
MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICTS OF LAWS.
9.9 Assignment. Neither this Agreement nor any of the rights, interests or
obligations under this Agreement shall be assigned, in whole or in part, by
operation of law or otherwise by any of the parties without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of, and be enforceable by, the
parties and their respective successors and assigns.
9.10 Enforcement. The parties agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached, and it is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement.
9.11 Schedules. The parties agree that any schedules referenced herein
shall be delivered in form and substance reasonably acceptable to both parties
within five (5) business days of the date hereof.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties below have caused this Agreement to be duly
executed by persons duly authorized, all as of the date first written above.
THL TRANSACTION I CORP.
By: /s/ SCOTT A. SCHOEN
------------------------------------
Name: Scott A. Schoen
Title: President
SYRATECH CORPORATION
By: /s/ FAYE A. FLORENCE
------------------------------------
Name: Faye A. Florence
Title: Vice President and General
Counsel
EXECUTED BY THE UNDERSIGNED
SOLELY FOR THE PURPOSES OF AFFIRMING HIS OBLIGATION UNDER
SECTION 2.1(c)(ii)
/s/ LEONARD FLORENCE
- --------------------------------------
Leonard Florence
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EXHIBIT A
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
SYRATECH CORPORATION
The undersigned, in order to form a corporation for the purpose hereinafter
stated, under and pursuant to the provisions of the Delaware General Corporation
Law, hereby certifies that:
FIRST: The name of the Corporation is Syratech Corporation.
SECOND: The registered office and registered agent of the Corporation is
[ ].
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the Delaware General
Corporation Law.
FOURTH: The total number of shares of stock that the Corporation is
authorized to issue is shares of Common Stock, $0.01 par value per
share and shares of preferred stock, $0.01 par value per share
(hereinafter referred to as "Preferred Stock"). The Preferred Stock may be
issued from time to time in one or more series with such distinctive
designations as may be stated in the resolution or resolutions providing for the
issue of the Preferred Stock by the Board of Directors or a duly authorized
committee thereof. The resolution or resolutions providing for the issue of
shares of a particular series shall fix, subject to applicable laws and the
provisions of this Article FOURTH, for each such series the number of shares
constituting such series and the designations and powers, preferences and
relative participating, optional or other special rights and qualifications,
limitations or restrictions thereof, including, without limiting the generality
of the foregoing, such provisions as may be desired concerning voting,
redemption, dividends, dissolution or the distribution of assets, conversion or
exchange, and such other subjects or matters as may be fixed by resolution or
resolutions of the Board of Directors or a duly authorized committee thereof
under the Delaware General Corporation Law. The number of authorized shares or
any class or classes of stock may be increased or decreased (but not below the
number of shares thereof then outstanding) by the affirmative vote of the
holders of a majority of the Common Stock of the Corporation irrespective of the
provisions of Section 242(b)(2) of the Delaware General Corporation Law or any
corresponding provision hereinafter enacted.
FIFTH: The Board of Directors of the Corporation, acting by majority vote,
may alter, amend or repeal the By-Laws of the Corporation.
SIXTH: Except as otherwise provided by the Delaware General Corporation Law
as the same exists or may hereafter be amended, no director of the Corporation
shall be personally liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director. Any repeal or modification
of this Article SIXTH by the stockholders of the Corporation shall not adversely
affect any right or protection of a director of the Corporation existing at the
time of such repeal or modification.
SEVENTH: A director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty by such director as a director, except for liability as a director (A) for
any breach for the director's duty of loyalty to the Corporation or its
stockholders; (B) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (C) under Section 174 of
the Delaware General Corporation Law; or (D) for any transaction from which the
director derived an improper personal benefit. If the Delaware General
Corporation Law is amended after this Certificate of Incorporation becomes
effective to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the Delaware General Corporation law, as so amended.
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EIGHTH: INDEMNIFICATION.
8.1 Certain Definitions. As used in this Article, the term:
(a) "Corporation" includes any domestic or foreign predecessor entity
of this Corporation in a merger or other transaction consummation of the
transaction.
(b) "Change in Control" shall have occurred if, during any period of
two consecutive years, individuals who at the beginning of such period
constitute the Board of Directors of the Corporation cease for any reason
to constitute at least a majority thereof, unless the election of each new
director was approved in advance by a vote of at least a majority of the
directors then still in office who were directors at the beginning of the
period.
(c) "Director" means an individual who is or was a director of the
Corporation or an individual who, while a director of the Corporation, is
or was serving at the Corporation's request as a director, officer,
partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, employee benefit plan, or
other enterprise. A director is considered to be serving an employee
benefit plan at the Corporation's request if his duties to the Corporation
also impose duties on, or otherwise involve services by, him to the plan or
to participants in or beneficiaries of the plan. "Director" includes,
unless the context requires otherwise, the estate or personal
representative of a director.
(d) "Expenses" includes attorney's fees.
(e) "Liability" means the obligation to pay a judgment, settlement,
penalty, fine (including an excise tax assessed with respect to an employee
benefit plan), or reasonably expenses incurred with respect to a
proceeding.
(f) "Officer" means an individual who is or was an officer of the
Corporation or an individual who, while an officer of the Corporation, is
or was serving at the Corporation's request as a director, officer,
partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust employee benefit plan, or
other enterprise. An officer is considered to be serving an employee
benefit plan at the Corporation's request if his duties to the Corporation
also impose duties on, or otherwise involve services by, him to the plan or
to participants in or beneficiaries of the plan. "Officer" includes, unless
the context requires otherwise, the estate or personal representative of an
officer.
(g) "Party" includes an individual who was, is, or is threatened to be
made a named defendant or respondent in a proceeding.
(h) "Proceeding" means any threatened, pending, or completed action,
suit, or proceeding, whether civil, criminal, administrative, or
investigative and whether formal or informal.
(i) "Reviewing Party" shall mean the person or persons making the
entitlement determination pursuant to Section 8.4 of this Article, and
shall not include a court making any determination under this Article or
otherwise.
8.2 Basic Indemnification Arrangement.
(a) Except as provided in subsections 8.2(d), 8.2(e) and 8.2(f) below,
the Corporation shall indemnify an individual who is made a party to a
proceeding because he is or was a director or officer against liability
incurred by him in the proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Corporation and, in the case of any criminal proceeding, he had no
reasonable cause to believe his conduct was unlawful.
(b) A person's conduct with respect to an employee benefit plan for a
purpose he believed in good faith to be in the interests of the
participants in and beneficiaries of the plan is conduct that satisfies the
requirement of subsection 8.2(a).
(c) The termination of a proceeding by judgment, order, settlement, or
conviction, or upon a plea of nolo contendere or its equivalent shall not,
of itself, be determinative that the proposed indemnitee did not meet the
standard of conduct set forth in subsection 8.2(a).
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(d) The Corporation shall not indemnify a person under this Article in
connection with a proceeding by or in the right of the Corporation in which
such person was adjudged liable to the Corporation, unless, and then only
to the extent that, the Reviewing Party, or a court of competent
jurisdiction acting pursuant to Section 8.5 of this Article, determines
that, in view of the circumstances of the case, the indemnitee is fairly
and reasonably entitled to indemnification.
(e) Indemnification permitted under this Article in connection with a
proceeding by or in the right of the Corporation shall include reasonable
expenses, penalties, fines (including an excise tax assessed with respect
to an employee benefit plan) and amounts paid in settlement (provided that
such settlement and the amounts paid in connection therewith are not
unreasonable, as determined by the Reviewing Party responsible for making
the determination that indemnification is permissible as described in
Section 8.4(b) below) in connection with the proceeding, but, unless
ordered by a court, shall not include judgments.
(f) Notwithstanding any other provision of this Article, no person
shall be entitled to indemnification or advancement of expense hereunder
with respect to any proceeding or claim brought or made by him against the
Corporation, other than a proceeding or claim seeking or defending such
person's right to indemnification or advancement of expense pursuant to
Section 8.5 hereof or otherwise.
(g) If any person is entitled under any provision of this Article to
indemnification by the Corporation for some portion of liability incurred
by him, but not the total amount thereof, the Corporation shall indemnify
such person for the portion of such liability to which he is entitled.
(h) The Corporation shall indemnify a director or officer to the
extent that he has been successful, on the merits or otherwise, in the
defense of any proceeding to which he was a party, or in defense of any
claim, issue or matter therein, because he is or was a director or officer,
against reasonable expenses incurred by him in connection with the
proceeding.
8.3 Advances for Expenses.
(a) The Corporation shall pay for or reimburse the reasonable expenses
incurred by a director or officer as a party to a proceeding in advance of
final disposition of the proceeding if:
(i) Such person furnishes the Corporation a written affirmation of
good faith belief that he has met the standard of conduct set forth in
subsection 8.2(a) above, and
(ii) Such person furnishes the Corporation a written undertaking
(meeting the qualifications set forth below in subsection 8.3(b));
executed personally or on his behalf, to repay any advances if it is
ultimately determined that he is not entitled to indemnification under
this Article or otherwise.
(b) The undertaking required by subsection 8.3(a)(ii) above must be an
unlimited general obligation of the proposed indemnitee but need not be
secured and shall be accepted without reference to financial ability to
make repayment. If a director or officer seeks to enforce his rights to
indemnification in a court pursuant to Section 8.5, such undertaking to
repay shall not be applicable or enforceable unless and until there is a
final court determination that he is not entitled to indemnification, as to
which all rights of appeal have been exhausted or have expired.
8.4 Authorization of And Determination of Entitlement to Indemnification.
(a) The Corporation acknowledges that indemnification of a director or
officer under Section 8.2 has been pro-authorized by the Corporation in the
manner described in subsection 8.4(b) below. Nevertheless, the Corporation
shall not indemnify a director or officer under Section 8.2 unless a
separate determination has been made in the specific case that
indemnification of such person is permissible in the circumstances because
he has met the standard of conduct set forth in subsection 8.2(a);
provided, however, that no such entitlement decision need be made prior to
the advancement of expenses and that, regardless of the result or absence
of any such determination, the Corporation shall make any indemnification
mandated by Section 8.2(b) above.
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(b) The determination referred to in subsection 8.4(a) above shall be
made, at the election of the Board of Directors (unless a Change in Control
shall have occurred, in which case the proposed indemnitee director or
officer shall be entitled to designate that the determination shall be made
by special legal counsel selected by him);
(i) by the Board of Directors of the Corporation by majority vote
of a quorum consisting of directors not at the time parties to the
proceeding;
(ii) if a quorum cannot be obtained under subdivision (i), by
majority vote of a committee duly designated by the Board of Directors
(in which designation directors who are parties may participate),
consisting solely of two or more directors not at the time parties to
the proceeding;
(iii) by special legal counsel:
(1) selected by the Board of Directors or its committee in the
manner prescribed in subdivision (i) or (ii); or
(2) if a quorum of the Board of Directors cannot be obtained
under subdivision (i) and a committee cannot be designated under
subdivision (ii), selected by a majority vote of the full Board of
Directors (in which selection directors who are parties may
participate); or
(iv) by the stockholders; provided that shares owned by or voted
under the control of directors or officers who are at the time parties
to the proceeding may not be voted on the determination.
(c) As acknowledged above, the Corporation has pre-authorized the
indemnification of directors and officers hereunder, subject to a
case-by-case determination that the proposed indemnitee met the applicable
standard of conduct under subsection 8.2(a). Consequently, no further
decision need or shall be made on a case-by-case basis as to the
authorization of the Corporation's indemnification of, or advancement of
expenses to, directors and officers hereunder. Nevertheless, except as set
forth in subsection 8.4(d) below, evaluation as to reasonableness of
expenses of a director or officer in the specific case shall be made in the
same manner as the determination that indemnification is permissible, as
described in subsection 8.4(d) above, except that if the determination is
made by special legal counsel, evaluation as to reasonableness of expenses
shall be made by those entitled under subsection 8.4(b)(iii) to select
counsel.
(d) Notwithstanding the requirement under subsection 8.4(c) that the
Reviewing Party evaluate the reasonableness of expenses claimed by the
proposed indemnitee, any expenses claimed by the proposed indemnitee shall
be deemed reasonable if the Reviewing Party fails to make the evaluation
required by subsection 8.4(c) within thirty (30) days following the
proposed indemnitee's written request for indemnification for, or
advancement of, expenses.
(e) The Reviewing Party, however chosen, shall make the requested
determination as promptly as reasonably practical after a request for
indemnification is presented.
8.5 Court-ordered Indemnification And Advances For Expenses. A director or
officer who is a party to a proceeding may apply for indemnification or advances
for expenses to the court conducting the proceeding or to another court of
competent jurisdiction. For purposes of this Article, the Corporation hereby
consents to personal jurisdiction and venue in any court in which is pending a
proceeding to which a director or officer is a party. Regardless of any
determination by the Reviewing Party that the proposed indemnitee is not
entitled to indemnification or advancement of expenses or as to the
reasonableness of expenses, and regardless of any failure by the Reviewing Party
to make a determination as to such entitlement or the reasonableness of
expenses, such court's review shall be a DE NOVO review. In application, the
court, after giving any notice it considers necessary, may order indemnification
or advancement of expenses if it determines that:
(i) The applicant is entitled to mandatory indemnification under
Section 8.2(b) above (in which case the Corporation shall pay the
indemnitee's reasonable expenses incurred to obtain court-ordered
indemnification);
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(ii) The applicant is fairly and reasonably entitled to
indemnification in view of all the relevant circumstances, whether or not
he met the standard of conduct set forth in subsection 8.2(a) above or was
adjudged liable as described in subsection 8.2(d) above (in which case any
courtordered indemnification need not be limited to reasonable expenses
incurred by the indemnitee but may include expenses, penalties, fines,
judgments, amounts paid in settlement and any other amounts ordered by the
court to be indemnified, and, whether or not so ordered, the Corporation
shall pay the applicant's reasonable expenses incurred to obtain
court-ordered indemnification); or
(iii) In the case of advances for advances, the applicant is entitled
pursuant to this Restated Certificate of Incorporation, Amended and
Restated Bylaws or applicable resolution or agreement to payment for or
reimbursement of this reasonable expenses incurred as a party to a
proceeding in advance of final disposition of the proceeding (in which case
the Corporation shall pay the applicant's reasonable expenses incurred to
obtain court-ordered advancement of expenses); or
(iv) The applicant is otherwise entitled to enforcement of his rights
hereunder (in which case the Corporation shall pay the indemnitee's
reasonable expenses incurred to obtain such enforcement).
8.6 Indemnification of Employees and Agents. The Corporation may, subject
to authorization in the specific case, indemnify and advance expenses under this
Article to an employee or agent of the Corporation who is not a director or
officer, to the same extent as to a director or to any lesser extent (or greater
extent if permitted by law) determined by the Board of Directors.
8.7 Liability Insurance. The Corporation may purchase and maintain
insurance on behalf of a director or officer or an individual who is or was an
employee or agent of the Corporation or who, while a director, officer, employee
or agent of the Corporation, is or was serving at the request of the Corporation
as a director, officer, partner, trustee, employee or agent of another foreign
or domestic corporation, partnership, joint venture, trust, employee benefit
plan, or other enterprise against liability asserted against or incurred by him
in that capacity or arising from his status as a director, officer, employee, or
agent, whether or not the Corporation would have power to indemnify him against
the same liability under Section 8.2, Section 8.3 or Section 8.4 above.
8.8 Witness Fees. Nothing in this Article shall limit the Corporation's
power to pay or reimburse expenses incurred by a person in connection with his
appearance as a witness in a proceeding at a time when he has not been made a
named defendant or respondent in this proceeding.
8.9 Report to Stockholders. If the Corporation indemnifies or advances
expenses to a director or officer in connection with a proceeding by or in the
right of the Corporation, to the extent required by law the Corporation shall
report the indemnification or advance, in writing, to the stockholders with or
before the notice of the next stockholder's meeting.
8.10 Security for Indemnification Obligations. The Corporation may at any
time and in any manner, at the discretion of the Board of Directors, secure the
Corporation's obligations to indemnify or advance expenses to a person pursuant
to this Article.
8.11 No Duplication of Payments. The Corporation shall not be liable under
this Article to make any payment to a person hereunder to the extent such person
has otherwise actually received payment (under any insurance policy, agreement
or otherwise) of the amounts otherwise payable hereunder.
8.12 Subrogation. In the event of payment under this Article, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of the indemnitee, who shall execute all papers required and
shall do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable the Corporation effectively to
bring suit to enforce such rights.
8.13 Contract Rights. The rights to indemnification and advancement of
expenses conferred hereunder to directors and officers shall be contract right
and shall not be affected adversely to any director or officer by any amendment
of this Restated Certificate of Incorporation with respect to any action or
inaction occurring prior to such amendment; provided, however, that this
provision shall not confer upon any indemnitee or
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potential indemnitee (in his capacity as such) the right to consent or object to
any subsequent amendment of this Restated Certificate of Incorporation.
8.14 Specific Performance. In any proceeding brought by or on behalf of an
officer or director to specifically enforce the provisions of this Article, the
Corporation hereby waives the claim or defense therein that the plaintiff or
claimant has an adequate remedy at law, and the Corporation shall not urge in
any such proceeding the claim or defense that such remedy at law exists. The
provisions of this Section 8.14, however, shall not prevent the officer or
director from seeking a remedy at law in connection with any breach of the
provisions of this Article.
8.15 Non-exclusivity, Etc. The rights of a director or officer hereunder
shall be in addition to any other rights with respect to indemnification,
advancement of expenses or otherwise that he may have under contract or the
General Corporation Law of the State of Delaware or otherwise.
8.16 Amendments. It is the intent of the Corporation to indemnify and
advance expenses to its directors and officers to the full extent permitted by
the Delaware General Corporation Law, as amended from time to time. To the
extent that the Delaware General Corporation Law is hereafter amended to permit
a Delaware business corporation to provide its directors greater rights to
indemnification or advancement of expenses than those specifically set forth
hereinabove, this Article shall be construed to require such greater
indemnification or more liberal advancement of expenses to the Corporation's
directors and officers, in each case consistent with the Delaware General
Corporation Law as so amended from time to time. No amendment modification or
rescission of this Article, or any provision hereof, the effect of which would
diminish the rights to indemnification or advancement of expenses as set forth
herein shall be effective as to any person with respect to any action taken or
omitted by such person prior to such amendment, modification or rescission.
8.17 Severability. To the extent that the provisions of this Article are
held to be inconsistent with the provisions of Section 145 of the Delaware
General Corporation Law (including subsection (f) thereof), such provisions of
such statute shall govern. In the event that any of the provisions of this
Article (including any provision within a single section, subsection, division
or sentence) is held by a court of competent jurisdiction to be invalid, void or
otherwise unenforceable, the remaining provisions of this Article shall remain
enforceable to the fullest extent permitted by law.
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EXHIBIT B
FORM OF COMPANY AFFILIATE LETTER
Gentlemen:
The undersigned, a holder of shares of common stock, par value $.01 per
share ("Company Stock"), of Syratech Corporation, a Delaware corporation (the
"Company"), is entitled to retain, in connection with the merger (the "Merger")
of the Company with THL Transaction I Corp., a Delaware corporation, securities
(the "Securities") of the Company. The undersigned acknowledges that the
undersigned may be deemed an "affiliate" of the Company within the meaning of
Rule 145 ("Rule 145") promulgated under the Securities Act of 1933, as amended
(the "Act"), although nothing contained herein should be construed as an
admission of such fact.
If in fact the undersigned were an affiliate under the Act, the
undersigned's ability to sell, assign or transfer the Securities retained by the
undersigned pursuant to the Merger may be restricted unless such transaction is
registered under the Act or an exemption from such registration is available.
The undersigned understands that such exemptions are limited and the undersigned
has obtained advice of counsel as to the nature and conditions of such
exemptions, including information with respect to the applicability to the sale
of such securities of Rules 144 and 145(d) promulgated under the Act.
The undersigned hereby represents to and covenants with the Company that
the undersigned will not sell, assign or transfer any of the Securities retained
by the undersigned pursuant to the Merger except (i) pursuant to an effective
registration statement under the Act, (ii) in conformity with the volume and
other limitations of Rule 145 or (iii) in a transaction which, in the opinion of
independent counsel reasonably satisfactory to the Company or as described in a
"no-action" or interpretive letter from the Staff of the Securities and Exchange
Commission (the "SEC"), is not required to be registered under the Act.
In the event of a sale or other disposition by the undersigned of
securities pursuant to Rule 145, the undersigned will supply the Company with
evidence of compliance with such Rule in the form of a letter in the form of
Annex I hereto. The undersigned understands that the Company may instruct its
transfer agent to withhold the transfer of any Securities disposed of by the
undersigned, but that upon receipt of such evidence of compliance the transfer
agent shall effectuate the transfer of the Securities sold as indicated in the
letter.
The undersigned acknowledges and agrees that appropriate legends will be
placed on certificates representing Securities retained by the undersigned in
the Merger or held by a transferee thereof, which legends will be removed by
delivery of substitute certificates upon receipt of an opinion in form and
substance reasonably satisfactory to the Company from independent counsel
reasonably satisfactory to the Company to the effect that such legends are no
longer required for purposes of the Act.
The undersigned acknowledges that (i) the undersigned has carefully read
this letter and understands the requirements hereof and the limitations imposed
upon the distribution, sale, transfer or other disposition of Securities and
(ii) the receipt by THL I of this letter is an inducement and a condition to THL
I's obligations to consummate the Merger.
Very truly yours,
Dated:
B-1
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ANNEX I TO EXHIBIT B
(DATE)
(NAME)
On the undersigned sold the securities of the Company (the
"Company") described below in the space provided for that purpose (the
"Securities"). The Securities were retained by the undersigned in connection
with the merger of THL Transaction I Corp. with and into Syratech Corporation.
Based upon the most recent report or statement filed by the Company with
the Securities and Exchange Commission, the Securities sold by the undersigned
were within the prescribed limitations set forth in paragraph (e) of Rule 144
promulgated under the Securities Act of 1933, as amended (the "Act").
The undersigned hereby represents that the Securities were sold in
"brokers' transactions" within the meaning of Section 4(4) of the Act or in
transactions directly with a "market maker" as that term is defined in Section
3(a)(38) of the Securities Exchange Act of 1934, as amended. The undersigned
further represents that the undersigned has not solicited or arranged for the
solicitation of orders to buy the Securities, and that the undersigned has not
made any payment in connection with the offer or sale of the Securities to any
person other than to the broker who executed the order in respect of such sale.
Very truly yours,
(space to be provided for description of securities)
<PAGE> 179
SCHEDULE 7.2(A)
Environmental Matters. Except as disclosed in Section 3.11 of the
Disclosure Schedule, which disclosed items of non-compliance could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect with respect to the Company;
(a) The Company and its subsidiaries hold and formerly held, and, to
the knowledge of the Company, are, and have been, in compliance with, all
Environmental Permits, and the Company and its subsidiaries are, and have
been, otherwise in compliance with all applicable Environmental Laws,
except where the failure to have such Environmental Permits or be in such
compliance would not have a Material Adverse Effect with respect to the
Company;
(b) None of the Company or its subsidiaries has received any
Environmental Claim, and none of the Company or its subsidiaries is aware
after inquiry, of any threatened material Environmental Claim or of any
circumstances, conditions or events that could reasonably be expected to
give rise to a material Environmental Claim, against the Company or any of
its subsidiaries, except where such claim could not reasonably be expected
to have a Material Adverse Effect with respect to the Company;
(c) There are no (i) underground storage tanks, (ii) polychlorinated
biphenyls, (iii) asbestos or asbestos-containing materials, (iv)
urea-formaldehyde insulation, (v) sumps, (vi) surface impoundments, (vii)
landfills, (viii) sewers or septic systems or (ix) Hazardous Materials
present at any facility currently or formerly owned, leased, operated or
otherwise used by the Company or any of its subsidiaries that could
reasonably be expected to give rise to liability of the Company or any of
its subsidiaries under any Environmental Laws, which liability could have a
Material Adverse Effect on the Company;
(d) There are no past (including, without limitation, with respect to
assets or businesses formerly owned, leased or operated by the Company or
any of its subsidiaries) or present actions, activities, events, conditions
or circumstances, including without limitation the release, threatened
release, emission, discharge, generation, treatment, storage or disposal of
Hazardous Materials, that could reasonably be expected to give rise to
liability of the Company or any of its subsidiaries under any Environmental
Laws or any contract or agreement, which liability could reasonably be
expected to have a Material Adverse Effect on the Company;
(e) No modification, revocation, reissuance, alteration, transfer, or
amendment of the Environmental Permits, or any review by, or approval of,
any third party of the Environmental Permits is required in connection with
the execution or delivery of this Agreement or the consummation of the
transactions contemplated hereby or the continuation of the business of the
Company or its subsidiaries following such consummation;
(f) Hazardous Materials have not been generated, transported, treated,
stored, disposed of, released or threatened to be released at, on, from or
under any of the properties or facilities currently or formerly owned,
leased or otherwise used, including without limitation for receipt of the
Company's wastes, by the Company or any of its subsidiaries, in violation
of or in a manner or to a location that could give rise to liability under
any Environmental Laws, which liability could reasonably be expected to
have a Material Adverse Effect on the Company;
(g) The Company and its subsidiaries have not assumed, contractually
or by operation of law, any liabilities or obligations under any
Environmental Laws;
(h) The Company and its subsidiaries have accrued or otherwise
provided, in accordance with generally accepted accounting principles, for
all damages, liabilities, penalties or costs that they may incur in
connection with any claim pending or threatened against them, or any
requirement that is or may be applicable to them, under any Environmental
Laws, and such accrual or other provision is reflected in the Company's
most recent consolidated financial statements.
<PAGE> 180
(i) For purposes of this Agreement, the following terms shall have the
following meanings:
"Environmental Claim" means any written or oral notice, claim,
demand, action, quit, complaint, proceeding, request for information or
other communication by any person alleging liability or potential
liability (including without limitation liability or potential liability
for investigatory costs, cleanup costs, governmental response costs,
natural resource damages, property damage, personal injury, fines or
penalties) arising out of, relating to, based on or resulting from (i)
the presence, discharge, emission, release or threatened release of any
Hazardous Materials at any location, whether or not owned, leased or
operated by the Company or any of its subsidiaries or (ii) circumstances
forming the basis of any violation or alleged violation of any
Environmental Law or Environmental Permit or (iii) otherwise relating to
obligations or liabilities under any Environmental Laws.
"Environmental Permits" means all permits, licenses, registrations
and other governmental authorizations required for the Company and the
operations of the Company's and its subsidiaries, facilities and
otherwise to conduct its business under Environmental Laws.
"Environmental Laws" means all applicable federal, state and local
statutes, rules, regulations, ordinances, orders, decrees and common law
relating in any matter to contamination, pollution or protection of
human health or the environment, including without limitation the
Comprehensive Environmental Response, Compensation and Liability Act,
the Solid Waste Disposal Act, the Clean Air Act, the Clean Water Act,
the Toxic Substances Control Act, the Occupational Safety and Health
Act, the Emergency Planning and Community-Right-to-Know Act, the Safe
Drinking Water Act, all as amended, and similar state laws.
"Hazardous Materials" means all hazardous or toxic substances,
wastes, materials or chemicals, petroleum (including crude oil or any
fraction thereof) and petroleum products, asbestos and
asbestos-containing materials, pollutants, contaminants and all other
materials, substances and forces, including but not limited to
electromagnetic fields, regulated pursuant to, or that could form the
basis of liability under, any Environmental Law.
<PAGE> 181
ANNEX II
[MERRILL LYNCH LETTERHEAD]
October 23, 1996
Board of Directors
Syratech Corporation
175 McClellan Highway
East Boston, MA 02128
Gentlemen:
Syratech Corporation (the "Company"), and THL Transaction I Corporation
(the "Acquiror"), a Delaware corporation formed by The Thomas H. Lee Company,
propose to enter into an agreement (the "Agreement") pursuant to which the
Company will be merged with the Acquiror in a transaction (the "Merger") in
which each outstanding share of the Company's common stock, par value $0.01 per
share (the "Shares"), will be converted into the right to receive $32.00 in cash
(the "Consideration"). In addition, the public shareholders of the Company will
be entitled to elect to receive, subject to certain limitations, up to 25% of
their Consideration in the form of common stock of the surviving entity. Because
this structure is optional, we have not been asked to value the stock of the
surviving entity, and have not done so. The Merger is expected to be considered
by the shareholders of the Company at a special shareholders' meeting and
consummated on or shortly after the date of such meeting (assuming the
shareholders of the Company approve the transaction).
You have asked us whether, in our opinion, the proposed Consideration to be
received by the holders of the Shares (other than Shares held by Mr. Leonard
Florence, Shares to be canceled pursuant to the Agreement and dissenting Shares)
pursuant to the Merger is fair to such shareholders from a financial point of
view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed the Company's Annual Reports, Forms 10-K and related
financial information for the five fiscal years ended December 31, 1995 and
the Company's Forms 10-Q and the related unaudited financial information
for the quarterly periods ending March 31, 1996, and June 30, 1996;
(2) Reviewed a draft of the Company's Form S-3 dated September 12,
1996;
(3) Reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets and prospects of the
Company, furnished to us by the Company;
(4) Conducted discussions with members of senior management of the
Company concerning its businesses and prospects;
(5) Reviewed the historical market prices and trading activity for the
Shares and compared them with that of certain publicly traded companies
which we deemed to be reasonably similar to the Company;
(6) Compared the results of operations of the Company with that of
certain publicly traded companies which we deemed to be reasonably similar
to the Company;
(7) Compared the proposed financial terms of the transactions
contemplated by the Agreement with the financial terms of certain other
mergers and acquisitions which we deemed to be relevant;
(8) Reviewed the Agreement dated October 23, 1996, including the
financing commitment letters attached thereto;
<PAGE> 182
(9) Reviewed such other financial studies and analyses and performed
such other investigations and took into account such other matters as we
deemed necessary, including our assessment of general economic, market and
monetary conditions.
In preparing our opinion, we have relied on the accuracy and completeness
of all information supplied or otherwise made available to us by the Company,
and we have not independently verified such information or undertaken an
independent appraisal of the assets of the Company. With respect to the
financial forecasts furnished by the Company, we have assumed that they have
been prepared on a reasonable basis and reflect the best currently available
estimates and judgment of the Company's management as to the expected future
financial performance of the Company.
In connection with our engagement, we were authorized by the Company to,
and did, solicit indications of interest for the acquisition of the Company from
a limited number of third parties who were specified by the Company.
Our opinion is necessarily based upon market, economic and other conditions
as they exist on, and can be evaluated as of, the date of this letter. Our
opinion does not address the merits of the underlying decision by the Company to
engage in the Merger and does not constitute a recommendation to any shareholder
as to how such shareholder should vote with respect to the Merger or any
transaction related thereto.
Merrill Lynch has acted as exclusive financial advisor to the Special
Committee of the Board of Directors in connection with the Merger, for which we
will receive a fee. An affiliate of Merrill Lynch acts as the general partner
for the publicly registered investment funds in which Thomas H. Lee is an
individual general partner and an affiliate of Thomas H. Lee acts as the
investment advisor to the funds. Merrill Lynch has also provided in the past
financial advisory and financing services to Thomas H. Lee and to certain
companies affiliated with Thomas H. Lee and such funds. In the ordinary course
of business, we have traded the equity securities of the Company for our own
account and the accounts of our customers and, accordingly, may at any time hold
a long or short position in such securities.
On the basis of, and subject to the foregoing, we are of the opinion that
the proposed cash Consideration to be received by the holders of the Shares
(other than Shares held by Mr. Leonard Florence, Shares to be canceled pursuant
to the Agreement and dissenting Shares) pursuant to the Merger is fair to such
shareholders from a financial point of view.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By /s/ William D. Cohan
Director
Investment Banking Group
2
<PAGE> 183
ANNEX III
EXCERPTS FROM DELAWARE GENERAL CORPORATION
LAW RELATING TO DISSENTERS' RIGHTS
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 complied 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 sec. 228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of his 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 a 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 sec. 251 (other than a merger effected pursuant to
subsection (g) of Section 251), 252, 254, 257, 258, 263 or 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 holders of the surviving corporation as
provided in subsection (f) of sec. 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
sec.sec. 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or held of record by more than 2,000
holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
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<PAGE> 184
(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 subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to sec. 228
or 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within 10 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. The notice shall be sent by
certified or registered mail, return receipt requested, addressed to the
stockholder at his address as it appears on the records of the corporation.
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 shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given; provided that,
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective
2
<PAGE> 185
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 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
3
<PAGE> 186
compound, as the Court may direct. Payment shall be so made to each such
stockholder, in the case of holders of uncertificated stock forthwith, and the
case of holders of shares represented by certificates upon the surrender to the
corporation 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. (Last amended by Ch.
349, L. '96, eff. 7-1-96.)
4
<PAGE> 187
THE PROXY SOLICITOR FOR THE MERGER IS:
[TO BE PROVIDED]
Any requests for assistance in filling out or delivering Proxy Cards or
requests for additional copies of this Proxy Statement/Prospectus or the Proxy
Card may be directed to the Proxy Solicitor.
THE EXCHANGE AGENT FOR THE MERGER IS:
[TO BE PROVIDED]
Any questions or requests for assistance in filling out or delivery of
Non-Cash Election Forms or share certificates or requests for additional copies
of the Non-Cash Election Form may be directed to the Exchange Agent by calling
TOLL FREE.
<PAGE> 188
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145(a) of the General Corporation Law of the State of Delaware (the
"GCL") provides that a Delaware corporation may indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or enterprise,
against expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful.
Section 145(b) of the GCL provides that a Delaware corporation may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses actually
and reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted under similar standards, except that no
indemnification may be made in respect of any claim, issue or matter as to which
such person shall have been adjudged to be liable to the corporation unless and
only to the extent that the Court of Chancery or court in which such action or
suit was brought shall determine that despite the adjudication of liability,
such person is fairly and reasonably entitled to be indemnified for such
expenses which the court shall deem proper.
Section 145 of the GCL further provides that to the extent a director or
officer of a corporation has been successful in the defense of any action, suit
or proceeding referred to in subsections (a) and (b) or in the defense of any
claim, issue or matter therein, he shall be indemnified against expenses
actually and reasonably incurred by him in connection therewith; that
indemnification provided for by Section 145 shall not be deemed exclusive of any
other rights to which the indemnified party may be entitled; and that the
corporation may purchase and maintain insurance on behalf of a director or
officer of the corporation against any liability asserted against him or
incurred by him in any such capacity or arising out of his status as such
whether or not the corporation would have the power to indemnify him against
such liabilities under such Section 145.
Section 102(b)(7) of the General Corporation Law provides that a
corporation in its original certificate of incorporation or an amendment thereto
validly approved by stockholders may eliminate or limit personal liability of
members of its board of directors or governing body for breach of a director's
fiduciary duty. However, no such provision may eliminate or limit the liability
of a director for breaching his duty of loyalty, failing to act in good faith,
engaging in intentional misconduct or knowingly violating a law, paying a
dividend or approving a stock repurchase which was illegal, or obtaining an
improper personal benefit. A provision of this type has no effect on the
availability of equitable remedies, such as injunction or rescission, for breach
of fiduciary duty. Syratech's Restated Certificate of Incorporation contains
such a provision.
Syratech's Restated Certificate of Incorporation and Bylaws provide that
the Company shall indemnify officers and directors, and to the extent authorized
by the Board of Directors, employees and agents of the Company, to the full
extent permitted by and in the manner permissible under the laws of the State of
Delaware. The Restated Certificate of Incorporation and Bylaws also permit the
Board of Directors to authorize the Company to purchase and maintain insurance
against any liability asserted against any director, officer, employee or agent
of the Company arising out of his capacity as such; and the Company does so.
The Merger Agreement contains provisions by which Syratech agrees to
indemnify present and former directors against certain liabilities arising in
relation to the period prior to the consummation of the Merger for a period of
six years following execution of that Agreement. The Company also agrees to
maintain its current
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<PAGE> 189
directors' and officers' insurance cover, as that cover applies to the period
prior to consummation of the Merger, for a period of six years.
ITEM 21. EXHIBITS
<TABLE>
<C> <S>
(a) Exhibits
**2.1 Restated Agreement and Plan of Merger dated November 27, 1996, effective as of
October 23, 1996 between Syratech and THL Transaction I Corp. and the Amendment,
dated January , 1997 to the Restated Agreement and Plan of Merger (included as
Annex I to the Proxy Statement/Prospectus included in this Form S-4 Registration
Statement)
3.1 Restated Certificate of Incorporation of Syratech. Incorporated by reference
from Exhibit 3.1 to Form S-1 Registration Statement No. 33-41619.
3.2 Syratech Corporation Certificate of Designations in respect of Series A
Preferred Stock dated October 26, 1992.
3.3 Bylaws of Syratech. Incorporated by reference from Exhibit 3.2 to Form S-1
Registration Statement No. 33-41619.
3.4 Amendment to Section 2.9 of the Bylaws of Syratech, effective August 15, 1991.
Incorporated by reference from Exhibit 3.3 to Form S-1 Registration Statement
No. 33-41619.
3.5 A Certificate of Ownership and Merger of WSC Liquidating, Inc. by and into
Syratech Corporation dated May 9, 1996.
3.6 Specimen Common Stock Certificate. Incorporated by reference to Exhibit 4.1 to
Form 10-K of Syratech for the year ended December 31, 1993.
*5.1 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison as to the legality of the
Common Stock.
*8.1 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison as to certain tax matters
relating to the Common Stock.
**10.1 Form of Amended and Restated Employment Agreement dated as of , 1997
between Leonard Florence and the Company.
10.2 Employment Agreement dated August 16, 1991 between E. Merle Randolph and the
Company. Incorporated by reference from Exhibit 10 to Form S-1 Registration
Statement No. 33-41619.
*10.3 Employment Agreement dated August 16, 1991, as amended on , 1997,
between Melvin L. Levine and the Company.
10.4 Employment Agreement dated August 16, 1991 between Alan R. Kanter and the
Company. Incorporated by reference from Exhibit 10 to Form S-1 Registration
Statement No. 33-41619.
**22 List of Subsidiaries
*23.1 Consent of Paul, Weiss, Rifkind, Wharton & Garrison (included in the opinions
filed as Exhibits 5.1 and 8.1)
23.2 Consent of Deloitte & Touche LLP
23.3 Consent of Coopers & Lybrand L.L.P.
23.4 Consent of Merrill Lynch & Co.
**24.1 Power of Attorney
**99.1 Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated dated October 23,
1996. (Included as Annex II to this Form S-4 Registration Statement)
99.2 Report of Merrill Lynch & Co. dated October 21, 1996.
**99.3 Form of Proxy.
**99.4 Form of Non-Cash Election.
</TABLE>
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<PAGE> 190
(b) Financial Statement Schedules
Schedule VIII--Valuation and Qualifying Account
All other schedules have been omitted because the material is not
applicable or is not required or because the required information is shown in
the condensed consolidated financial statements or the notes thereto.
- ---------------
* To be filed by amendment.
** Previously filed with the Commission on November 27, 1996.
ITEM 22. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed to be underwriters, in addition to the information
called for by the other Items of the applicable form.
The Registrant undertakes that every prospectus (i) that is filed pursuant
to the immediately preceding undertaking or (ii) that purports to meet the
requirements of section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(b) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this Amendment No. 1 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Boston, State of Massachusetts, on the
16th day of January, 1997.
SYRATECH CORPORATION
By: /s/ LEONARD FLORENCE
------------------------------------
Leonard Florence
Chairman of the Board,
Chief Executive Officer and
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------ -----------------
<C> <S> <C>
* Chairman of the Board of January 16, 1997
- --------------------------------------------- Directors, Chief Executive
Leonard Florence Officer and President
(Principal Executive Officer)
/s/ E. MERLE RANDOLPH Vice President, Chief January 16, 1997
- --------------------------------------------- Financial Officer, Treasurer
E. Merle Randolph and Director (Principal
Financial and Accounting
Officer)
* Director January 16, 1997
- ---------------------------------------------
Irwin Chafetz
* Director January 16, 1997
- ---------------------------------------------
Frederick H. Chicos
* Director January 16, 1997
- ---------------------------------------------
Harold Cohen
* Director January 16, 1997
- ---------------------------------------------
Jerry R. Jacob
* Director January 16, 1997
- ---------------------------------------------
Melvin L. Levine
* Director January 16, 1997
- ---------------------------------------------
Alan Perlman
* Director January 16, 1997
- ---------------------------------------------
Harold Roitenberg
* Director January 16, 1997
- ---------------------------------------------
Jacob Saliba
</TABLE>
*By: /s/ E. MERLE RANDOLPH
-------------------------------
E. Merle Randolph
Attorney-in-fact
II-4
<PAGE> 192
SCHEDULE VIII
SYRATECH CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN C
-------------------------
COLUMN B COLUMN E
------------ (1) ----------
COLUMN A BALANCE AT CHARGED TO (2) COLUMN D BALANCE AT
- ------------------------------------ BEGINNING OF COSTS AND CHARGED TO ---------- END OF
DESCRIPTION PERIOD EXPENSES OTHER ACCTS DEDUCTIONS PERIOD
- ------------------------------------ ------------ ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Allowance for doubtful accounts..... $1,372 $ 602 $-- $ (371)(a) $1,603
Sales returns and allowances........ 2,133 5,206 -- (4,735)(b) 2,604
------ ------ ------ ------- ------
$3,505 $5,808 $-- $ (5,106) $4,207
====== ====== ====== ======= ======
YEAR ENDED DECEMBER 31, 1994
Allowance for doubtful accounts..... $1,385 $ 84 -- $ (97)(a) $1,372
Sales returns and allowances........ 2,397 3,868 -- (4,132)(b) 2,133
------ ------ ------ ------- ------
$3,782 $3,952 $-- $ (4,229) $3,505
====== ====== ====== ======= ======
YEAR ENDED DECEMBER 31, 1993
Allowance for doubtful accounts..... $ 676 $ 626 $-- $ 83(a) $1,385
Sales returns and allowances........ 1,866 3,420 -- (2,889)(b) 2,397
------ ------ ------ ------- ------
$2,542 $4,046 $-- $ (2,806) $3,782
====== ====== ====== ======= ======
</TABLE>
- ---------------
(a) Doubtful accounts written off
(b) Sales returns and other
<PAGE> 193
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGINATION
BY
SEQUENTIAL
EXHIBIT EXHIBIT NUMBERING
NUMBER DESCRIPTION SYSTEM
------ --------------------------------------------------------------------- -----------
<C> <S> <C>
(a) Exhibits
**2.1 Restated Agreement and Plan of Merger dated November 27, 1996,
effective as of October 23, 1996 between Syratech and THL Transaction
I Corp. and the Amendment, dated January , 1997 to the Restated
Agreement and Plan of Merger (included as Annex I to the Proxy
Statement/Prospectus included in this Form S-4 Registration
Statement)
3.1 Restated Certificate of Incorporation of Syratech. Incorporated by
reference from Exhibit 3.1 to Form S-1 Registration Statement No.
33-41619.
3.2 Syratech Corporation Certificate of Designations in respect of Series
A Preferred Stock dated October 26, 1992.
3.3 Bylaws of Syratech. Incorporated by reference from Exhibit 3.2 to
Form S-1 Registration Statement No. 33-41619.
3.4 Amendment to Section 2.9 of the Bylaws of Syratech, effective August
15, 1991. Incorporated by reference from Exhibit 3.3 to Form S-1
Registration Statement No. 33-41619.
3.5 A Certificate of Ownership and Merger of WSC Liquidating, Inc. by and
into Syratech Corporation dated May 9, 1996.
3.6 Specimen Common Stock Certificate. Incorporated by reference to
Exhibit 4.1 to Form 10-K of Syratech for the year ended December 31,
1993.
*5.1 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison as to the
legality of the Common Stock.
*8.1 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison as to certain tax
matters relating to the Common Stock.
**10.1 Form of Amended and Restated Employment Agreement dated as of
, 1997 between Leonard Florence and the Company.
10.2 Employment Agreement dated August 16, 1991 between E. Merle Randolph
and the Company. Incorporated by reference from Exhibit 10 to Form
S-1 Registration Statement No. 33-41619.
*10.3 Employment Agreement dated August 16, 1991, as amended on
, 1997, between Melvin L. Levine and the Company.
10.4 Employment Agreement dated August 16, 1991 between Alan R. Kanter and
the Company. Incorporated by reference from Exhibit 10 to Form S-1
Registration Statement No. 33-41619.
**22 List of Subsidiaries
*23.1 Consent of Paul, Weiss, Rifkind, Wharton & Garrison (included in the
opinions filed as Exhibits 5.1 and 8.1)
23.2 Consent of Deloitte & Touche LLP
23.3 Consent of Coopers & Lybrand L.L.P.
23.4 Consent of Merrill Lynch & Co.
**24.1 Power of Attorney
**99.1 Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated dated b
October 23, 1996. (Included as Annex II to this Form S-4 Registration
Statement)
</TABLE>
<PAGE> 194
<TABLE>
<CAPTION>
PAGINATION
BY
SEQUENTIAL
EXHIBIT EXHIBIT NUMBERING
NUMBER DESCRIPTION SYSTEM
------ --------------------------------------------------------------------- ---------
<C> <S> <C>
99.2 Report of Merrill Lynch & Co. dated October 21, 1996.
**99.3 Form of Proxy.
**99.4 Form of Non-Cash Election.
(b) Financial Statement Schedules
</TABLE>
Schedule VIII--Valuation and Qualifying Account
All other schedules have been omitted because the material is not
applicable or is not required or because the required information is shown in
the condensed consolidated financial statements or the notes thereto.
- ---------------
* To be filed by amendment.
** Previously filed with the Commission on November 27, 1996.
<PAGE> 1
EXHIBIT 3.2
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00AM 12/01/1992
923365183 - 2087251
SYRATECH CORPORATION
CERTIFICATE OF DESIGNATIONS
in respect of
SERIES A PREFERRED STOCK
------------------------------
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
------------------------------
The undersigned, being the Chairman, President and Chief Executive
Officer of Syratech Corporation (the "Corporation"), a corporation organized and
existing under the General Corporation Law of the State of Delaware, hereby
certifies that, pursuant to the provisions of Section 151 of the General
Corporation Law of the State of Delaware, the Board of Directors of the
Corporation duly adopted the following resolution at a meeting of said Board of
Directors duly called and held on October 26, 1992, which resolution remains in
full force and effect as of the date hereof:
RESOLVED, that the Board of Directors of the Corporation, pursuant to
authority expressly vested in it by the provisions of the Corporation's
Certificate of Incorporation, as amended (the "Charter"), hereby
establishes a series of the Preferred Stock, par value $0.10 per share, of
the Corporation and fixes the number of shares of such series and the
powers, designations, preferences and relative, participating, optional or
other rights of such series, and the qualifications, limitations or
restrictions thereof, as follows:
<PAGE> 2
The first series of Preferred Stock, par value $0.10 per share, of the
Corporation shall be, and hereby is, designated "Series A Preferred Stock" (the
"Series A Shares"), and the number of shares constituting such series shall be
one hundred thirty-five thousand (135,000). The relative rights and preferences
of the Series A Shares shall be as follows:
Section a. Dividends and Distributions.
---------------------------
(1) Subject to the prior and superior rights of the holders of any shares
of any series of stock ranking prior and superior to the Series A Shares with
respect to dividends, the holders of Series A Shares, in preference to the
holders of the Common Stock, par value $0.01 per share, of the Corporation (the
"Common Stock") and of any other junior stock, shall be entitled to receive,
when and as declared by the Board of Directors, out of any funds lawfully
available therefor, cash dividends theron, payable quarterly, from the date of
issuance therof, upon the tenth days of January, April, July and October in each
year (each such date being referred to herein as a "quarterly Dividend Payment
Date"), commencing on the first Quarterly Dividend Payment Date after the first
issuance of a Series A Share, in an amount per share (rounded to the nearest
cent) equal to the greater of
<PAGE> 3
3
(a) $10.00 or (b) subject to the provisions for adjustment hereinafter set
forth, 100 times the aggregate per share amount of all cash dividends, and 100
times the aggregate per share amount (payable in kind) of all non-cash
dividends or other distributions, other than a dividend or distribution payable
in shares of Common Stock or a subdivision of the outstanding shares of Common
Stock (by reclassification or otherwise), declared on the Common Stock since
the immediately preceding Quarterly Dividend Payment Date or, with respect to
the first Quarterly Dividend Payment Date, since the first issuance of any
Series A Share. In the event the Corporation shall at any time after October
31, 1992 (i) declare any dividend on Common Stock payable in shares of Common
Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such
case the amounts to which holders of Series A Shares were entitled immediately
prior to such event under clause (a) and clause (b) of the preceding sentence
shall be adjusted by multiplying each such amount by a fraction the numerator
of which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which
<PAGE> 4
4
is the number of shares of Common Stock that were outstanding immediately prior
to such event.
(2) The Corporation shall declare a dividend or distribution on the Series
A Shares as provided in paragraph (1) of this Section a immediately after it
declares a dividend or distribution payable in shares of Common Stock); PROVIDED
that, in the event no dividend or distribution shall have been declared on the
Common Stock during the period between any Quarterly Dividend Payment Date and
the next subsequent Quarterly Dividend Payment Date, a dividend of $10.00 per
share on the Series A Shares shall nevertheless be payable on such subsequent
Quarterly Dividend Payment Date; and PROVIDED FURTHER that nothing contained in
this paragraph (2) shall be construed so as to conflict with any provision
relating to the declaration of dividends contained in the Charter.
(3) Dividends shall begin to accrue and be cumulative on outstanding Series
A Shares from the Quarterly Dividend Payment Date next preceding the date of
issue of such Series A Shares, unless the date of issue of such shares is prior
to the record date for the first Quarterly Dividend Payment Date, in which case
dividends on such shares shall begin to accrue
<PAGE> 5
5
from the date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of Series A Shares entitled to receive a quarterly
dividend and before such Quarterly Dividend Payment Date, in either of which
events such dividends shall begin to accrue and be cumulative from such
Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear
interest. Dividends paid on the Series A Shares in an amount less than the
total amount of such dividends at the time accrued and payable on such shares
shall be allocated pro rata on a share-by-share basis among all such shares at
the time outstanding. The Board of Directors may fix a record date for the
determination of holders of Series A Shares entitled to receive payment of a
dividend or distribution declared thereon.
Section b. REDEMPTION. The Series A Shares are not redeemable.
Section c. LIQUIDATION, DISSOLUTION OR WINDING UP. In the event of the
voluntary liquidation of the Corporation the "preferential amount" which the
holders of the Series A Shares shall be entitled to receive out of the assets
of the Corporation shall be $100.00 per share plus all accrued and unpaid
dividends thereon.
<PAGE> 6
6
(1) Upon any liquidation, dissolution or winding up of the Corporation, no
distribution shall be made to the holders of shares of stock ranking junior
(upon liquidation, dissolution or winding up) to the Series A Shares unless,
prior thereto, the holders of Series A Shares shall have received $100.00 per
share, plus an amount equal to accrued and unpaid dividends and distributions
thereon, whether or not declared, to the date of such payment (the "Series A
Liquidation Preference"). Following the payment of the full amount of the Series
A Liquidation Preference, no additional distributions shall be made to the
holders Series A Shares unless, prior thereto, the holders of shares of Common
Stock shall have received an amount per share (the "Common Adjustment") equal to
the quotient obtained by dividing (i) the Series A Liquidation Preference by
(ii) 100 (as appropriately adjusted as set forth in paragraph (3) of this
Section c to reflect such events as stock splits, stock dividends and
recapitalizations with respect to the Common Stock) (such number in clause (ii),
the "Adjustment Number"). Following the payment of the full amount of Series A
Liquidation Preference and the Common Adjustment in respect of all outstanding
Series A Shares and Common Stock, respectively, holders of Series A Shares
<PAGE> 7
7
and holders of shares of Common Stock shall receive their ratable and
proportionate share of the remaining assets to be distributed in the ratio of
the Adjustment Number to one with respect to the Series A Shares and Common
Stock, on a per share basis, respectively.
(2) In the event, however, that there are not sufficient assets
available to permit payment in full of the Series A Liquidation Preference and
the liquidation preferences of all other series of preferred stock, if any,
which rank on a parity with the Series A Shares, then all such available assets
shall be distributed ratably to the holders of the Series A Shares and the
holders of such parity shares in proportion to their respective liquidation
preferences. In the event, however, that there are not sufficient assets
available to permit payment in full of the Common Adjustment, then any such
remaining assets shall be distributed ratably to the holders of Common Stock.
(3) In the event the Corporation shall at any time after October 31,
1992 (i) declare any dividend on Common Stock payable in shares of Common
Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such
case the Adjustment Number in effect immediately prior to such
<PAGE> 8
8
event shall be adjusted by multiplying such Adjustment Number by a fraction,
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
Section d. SINKING FUND. The Preferred Shares shall not be entitled to
the benefit of any sinking fund for the redemption or purchase of such shares.
Section e. CONVERSION.
(1) Except pursuant to paragraph (2) of this Section e, the Preferred
Shares shall not be convertible.
(2) In case the Corporation shall enter into any consolidation, merger,
combination or other transaction in which the shares of Common Stock are
exchanged for or changed into other stock or securities, cash and/or any other
property, then in any such case the Series A Shares shall at the same time be
similarly exchanged or changed in an amount per share (subject to the provision
for adjustment hereinafter set forth) equal to 100 times the aggregate amount
of stock, securities, cash and/or any other property (payable in kind), as the
case may be, into which or for which each share of Common Stock is changed or
exchanged. In the event the
<PAGE> 9
9
Corporation shall at any time declare or pay any dividend on Common Stock
payable in shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification or
otherwise) into a greater or lesser number of shares of Common Stock, then in
each such case the amount set forth in the preceding sentence with respect to
the exchange or change of Series A Shares shall be adjusted by multiplying such
amount by a fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event, and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.
Section f. Voting Rights.
-------------
(1) The holders of Series A Shares shall have no voting rights except as
provided by Delaware statutes or by paragraph (2) of this Section f.
(2) So long as any Series A Shares shall be outstanding, and in addition to
any other approvals or consents required by law, without the consent of the
holders of 66-2/3% of the Series A Shares outstanding as of a record date fixed
by the Board of Directors, given either by their affirmative vote at a special
<PAGE> 10
10
meeting called for that purpose, or, if permitted by law, in writing without a
meeting:
(i) The Corporation shall not sell, transfer or lease all or
substantially all the properties and assets of the Corporation; PROVIDED,
HOWEVER, that nothing herein shall require the consent of the holders of
Series A Shares for or in respect of the creation of any mortgage, pledge,
or other lien upon all or any part of the assets of the Corporation.
(ii) The Corporation shall not effect a merger or consolidation with
any other corporation or corporations unless as a result of such merger or
consolidation and after giving effect thereto holders of Series A Shares
are entitled to receive a per share amount and type of consideration equal
to 100 times the per share amount and type of consideration received by
holders of shares of Common Stock, or (1) either (A) the Corporation shall
be the surviving corporation or (B) if the Corporation is not the surviving
corporation, the successor corporation shall be a corporation duly
organized and existing under the laws of any state of the United States of
America or the District of Columbia, and all obligations or the Corporation
<PAGE> 11
11
with respect to the Series A Shares shall be assumed by such successor
corporation, (2) the Series A Shares then outstanding shall continue to be
outstanding, and (3) there shall be no alteration or change in the
designation or the preferences, relative rights or limitations applicable
to outstanding Series A Shares prejudicial to the holders thereof.
(iii) The Corporation shall not amend, alter or repeal any of the
provisions of its Certificate of Incorporation in any manner which
adversely affects the relative rights, preferences or limitations of the
Series A Shares or the holders thereof.
Section g. Certain Restrictions.
--------------------
(1) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Shares as provided in Section a are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not declared, on Series A Shares outstanding shall have been paid in full,
the Corporation shall not:
(i) declare or pay dividends on, make any other distributions on, or
redeem or purchase or otherwise acquire for consideration any shares of
<PAGE> 12
12
stock ranking junior (as to dividends) to the Series A Shares;
(ii) declare or pay dividends on or make any other distributions on
any shares of stock ranking on a parity (as to dividends) with the Series A
Shares, except dividends paid ratably on the Series A Shares and all such
parity stock on which dividends are payable or in arrears in proportion to the
total amounts to which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration shares
of any stock ranking junior (as to dividends) to the Series A Shares, PROVIDED
that the Corporation may at any time redeem, purchase or otherwise acquire
shares of any such junior stock in exchange for shares of any stock of the
Corporation, ranking junior (as to dividends) to the Series A Shares; and
(iv) purchase or otherwise acquire for consideration any Series A
Shares, or any shares of stock ranking on a parity (as to dividends) with the
Series A Shares, except in accordance with a purchase offer made in writing or
by publication (as determined by the Board of Directors) to all holders of such
shares upon such terms as the
<PAGE> 13
13
Board of Directors, after consideration of the respective annual
dividend rates and other relative rights and preferences of the
respective series and classes, shall determine in good faith will
result in fair and equitable treatment among the respective series or
classes.
(2) The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock of
the Corporation unless the Corporation could, under paragraph (1) of this
Section g, purchase or otherwise acquire such shares at such time and in
such manner.
Section h. FRACTIONAL SHARES. The Corporation may issue fractions and
certificates representing fractions of Series A Shares in integral multiples of
1/100th of a Series A Share, or in lieu thereof, at the election of the Board
of Directors of the Corporation at the time of the first issue of any Series A
Shares, evidence such fractions by depositary receipts, pursuant to an
appropriate agreement between the Corporation and a depositary selected by it,
provided that such agreement shall provide that the holders of such depositary
receipts shall have all rights, privileges and pre-ferences to which they would
be entitled as beneficial owners of Series A Shares. In the event that
fractional Series A Shares are issued, the holders thereof
<PAGE> 14
shall have all the rights provided herein for holders of full Series A Shares
in the proportion which such fraction bears to full share.
IN TESTIMONY WHEREOF, Syratech Corporation has caused this Statement to
be signed under its corporate seal by its Chairman, President and Chief
Executive Officer and its Secretary as of the 26th day of October, 1992.
SYRATECH CORPORATION
By: /s/ Leonard Florence
----------------------------------
Leonard Florence
Chairman, President and
Chief Executive Officer
ATTEST:
/s/ Faye A. Florence
- ----------------------------
Faye A. Florence
Secretary
<PAGE> 1
EXHIBIT 3.5
CERTIFICATE OF OWNERSHIP AND MERGER
of
WSC LIQUIDATING, INC.
by and into
SYRATECH CORPORATION
Pursuant to Section 253 of the General Corporation Law of the State of Delaware
SYRATECH CORPORATION, a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), by
E. Merle Randolph, its Vice President, Treasurer and Chief Financial Officer,
does hereby certify as follows:
1. On May 9, 1996, the following preambles and resolutions were duly
adopted by the Board of Directors of the Corporation at a duly convened meeting
at which a quorum was present and acting throughout:
WHEREAS, WSC Liquidating, Inc. ("WSCL") is a Connecticut corporation,
all of the issued and outstanding capital stock of which (being 96
shares of its common stock) is owned by this Corporation so that WSCL
is a wholly-owned subsidiary of this Corporation; and
WHEREAS, the assets of WSCL consist solely of 2,550,500 shares of
Common Stock, par value $.01 a share, of this Corporation, all of
which are fully-paid and non-assessable, and the obligations of WSCL,
if any, are the minimum; and
WHEREAS, this Board has determined that it would be in the best
interests of this Corporation (i) to effect the complete liquidation
of WSCL, (ii) to accomplish the complete liquidation of WSCL by
merging WSCL with and into this Corporation and assuming all of its
obligations, if any, and (iii) to cancel and restore to the status of
authorized but unissued shares all of the shares of Common Stock of
this Corporation now owned by WSCL; and
<PAGE> 2
WHEREAS, WSCL is adopting a plan of complete liquidation
consistent with the foregoing recital;
NOW, THEREFORE, it is
RESOLVED, that this Corporation adopt, and does hereby adopt,
and shall forthwith implement, a plan of complete liquidation (the
"Plan") of WSC Liquidating, Inc., a Connecticut corporation,
consistent with the succeeding paragraphs of these resolutions and
intended to qualify as a plan of complete liquidation under Section
332 of the Internal Revenue Code of 1986, as amended; and it is
further
RESOLVED, that, to give effect to the Plan, WSC Liquidating,
Inc. be merged with and into this Corporation (the "Merger"), and
that this Corporation assume all of the obligations, if any, of WSC
Liquidating, Inc.; and it is further
RESOLVED, that, to evidence and give effect to the Merger, any
officer of this Corporation be, and each of them hereby is,
authorized, for and on behalf and in the name of this Corporation, to
prepare, execute and file, in accordance with Section 103 of the
General Corporation Law of the State of Delaware, a Certificate of
Ownership and Merger that meets the requirements of Section 253 of the
General Corporation Law of the State of Delaware; and it is further
RESOLVED, that, upon the effective date of the Merger of WSC
Liquidating, Inc. with and into this Corporation, all of the 2,550,500
shares of Common Stock, par value $.01 a share, of this Corporation
owned by WSC Liquidating, Inc. shall forthwith be canceled and be
restored to the status of authorized but unissued shares; and it is
further
RESOLVED, that the officers of this Corporation be, and they
hereby are, and each of them hereby is, authorized and directed, for
and on behalf and in the name of this Corporation to take all such
steps as are deemed necessary to effect the complete liquidation of
WSC Liquidating, Inc. pursuant to the Plan and in accordance with the
foregoing resolutions.
2. Said preambles and resolutions have not been modified or rescinded
and are in full force and effect.
<PAGE> 3
IN WITNESS WHEREOF, this Certificate of Ownership and Merger has been
signed as of the 9th day of May, 1996.
/s/ E. Merle Randolph
----------------------------------------
E. Merle Randolph, Vice President,
Treasurer and Chief Financial Officer
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
To the Board of Directors and Shareholders of Syratech Corporation:
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-16917 of Syratech Corporation (the "Company") on Form S-4 of our report
dated February 8, 1996 (February 15, 1996 as to paragraphs 1 and 4 of Note 2 and
December 16, 1996 as to Note 15) appearing in the Proxy Statement/Prospectus,
which is part of this Registration Statement, and to references to us under the
headings "Selected Consolidated Historical Financial Data" and "Experts" in such
Proxy Statement/Prospectus.
Our audits of the consolidated financial statements referred to in our
aforementioned report also included the consolidated financial statement
schedule of the Company, listed in item 21(b). This consolidated financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such consolidated financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
January 15, 1997
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Syratech Corporation on Form S-4 (File No. not assigned) of our report dated
March 12, 1996, as contained in Form 8-K/A dated April 26, 1996, on our audits
of the consolidated balance sheet of Rauch Industries, Inc. as of December 31,
1995 and 1994 and the consolidated statements of income, stockholders' equity,
and cash flows for each of the three years in the period ended December 31,
1995. We also consent to the reference to our firm under the caption "Experts."
COOPERS & LYBRAND L.L.P.
Charlotte, North Carolina
January 15, 1997
<PAGE> 1
EXHIBIT 23.4
Investment Banking
Corporate and Institutional
Client Group
World Finance Center
North Tower
New York, New York 10281-1330
[MERRILL LYNCH LOGO] 212 449 1000
We hereby consent to the use of our opinion letter dated October 23, 1996
to the Board of Directors of Syratech Corporation included in Annex II to the
Proxy Statement/Prospectus which forms a part of the Registration Statement on
Form S-4 relating to the proposed merger described therein and to the references
to such opinion in such Proxy Statement/Prospectus under the captions "Summary
- -- Opinion of Financial Advisor", "The Merger -- Background of the Merger", "The
Merger -- Reasons for the Merger -- Information Concerning the Company's
Financial Advisor" and in the Letter to Shareholders. In giving such consent, we
do not admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended, or the rules
and regulations of the Securities and Exchange Commission thereunder, nor do we
thereby admit that we are experts with respect to any part of such Registration
Statement within the meaning of the term "experts" as used in the Securities Act
of 1933, as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder.
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
By: /s/ William D. Cohan
-----------------------------
Director
Investment Banking Group
<PAGE> 1
The following material was compiled on a confidential basis for use
solely by the Special Committee of the Board of Directors of Syratech
Corporation (the "Company") in evaluating a potential transaction involving
Thomas H. Lee Company or its affiliates and not with a view to public disclosure
or filing thereof under the Securities Act of 1933 or the Securities Exchange
Act of 1934 (the "Federal Securities Laws"). This material was prepared for a
specific use by specific persons and was not prepared to conform with any
disclosure standards under the Federal Securities Laws. Neither Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch") nor any of its officers,
directors, employees, affiliates, advisors, agents or representatives warrants
the accuracy or completeness of any of the material which follows. Nothing
contained in the accompanying material is, or shall be relied upon as, a promise
or representation as to the past, present or future.
It should be understood that any estimates, valuations and/or
projections contained in the accompanying material relating to the Company were
prepared or derived from information supplied by the Company and that Merrill
Lynch has not assumed any responsibility for independent verification of any
such estimates, valuations and/or projections. Accordingly, no representation
or warranty can be or is made by Merrill Lynch as to the accuracy or
achievability of any such estimates, valuations and/or projections.
<PAGE> 2
CONFIDENTIAL
- --------------------------------------------------------------------------------
PRESENTATION TO
THE SPECIAL COMMITTEE OF
THE BOARD OF DIRECTORS OF
SILVER CORPORATION
OCTOBER 21, 1996
<PAGE> 3
PROJECT SILVER
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
1. Summary of Offer
2. Public Market Valuation Considerations
3. SILVER Management Projections
4. SILVER Stock Price Performance
5. SILVER Valuation Analysis
Appendix
A. Public Comparables Analysis
B. Comparable Acquisitions Analysis
C. Discounted Cash Flow Analysis
D. Leveraged Buyout Analysis
E. Strategic Acquiror Pro Forma Analyses
F. SILVER Shareholder Profile
[Merrill Lynch Logo]____________________________________________________________
<PAGE> 4
[Section Break]
<PAGE> 5
- --------------------------------------------------------------------------------
SUMMARY OF OFFER
- --------------------------------------------------------------------------------
<PAGE> 6
PROJECT SILVER
- --------------------------------------------------------------------------------
<TABLE>
Summary of Offer Value
(dollars in millions, except per share)
<S> <C>
T.H. Lee Offer Price Per Share $ 32
Shares Outstanding (a) 8.676
Options Outstanding (a) 0.338
------
OFFER VALUE $288.4
Plus: Average Debt Outstanding (b) 37.6
Less: Average Cash Balance (c) (6.2)
Less: Option Proceeds @
Avg. Exercise Price of $12.38 (d) (4.2)
------
TRANSACTION VALUE $315.6
======
<FN>
- ----------------
(a) As of June 30, 1996. Source: Form S-3 draft dated 9/12/96.
(b) Average 1996 seasonal working capital borrowings, as provided by management.
(c) Average 1996 cash balances, as provided by management.
(d) Mid-point of exercise price range. Source: Form S-3 draft dated 9/12/96.
</TABLE>
[Merrill Lynch Logo]____________________________________________________________
1-1
<PAGE> 7
PROJECT SILVER
- --------------------------------------------------------------------------------
<TABLE>
SUMMARY OF OFFER MULTIPLES
(dollars in millions, except per share)
<S> <C>
T.H. Lee Offer Price $32.00
------------------------------------------------------------
Premium to 10/18/96 Price ($26.25) 21.9%
Premium to 10/14/96 Price ($23.625) 35.4%
Premium to 20 Day Average to 9/24/96 36.7%
Offer Price/1996E EPS 17.1x
Offer Price/1997E EPS 11.3x
------------------------------------------------------------
Transaction Value $315.6
------------------------------------------------------------
Transaction Value/1996E EBITDA 9.9x
Transaction Value/1997E EBITDA 7.1x
Transaction Value/1996E EBIT 11.5x
Transaction Value/1997E EBIT 8.1x
Transaction Value/1996E Sales 1.12x
Transaction Value/1997E Sales 0.97x
------------------------------------------------------------
</TABLE>
[Merrill Lynch Logo]____________________________________________________________
1-2
<PAGE> 8
PROJECT SILVER
- --------------------------------------------------------------------------------
<TABLE>
Summary of Trading Multiples
(millions, except per share)
<S> <C>
SILVER Price Per Share (10/18/96) $26.25
52 Week High $27.63
52 Week Low $19.75
Shares Outstanding (a) 8.676
Market Value $227.7
Plus: Average Debt Outstanding (b) 37.6
Less: Average Cash Balance (c)
(6.2)
------
Market Capitalization $259.1 (e)
======
<CAPTION>
Market Value as Multiple of: (d) Market Capitalization as Multiple of: (d)(e)
-------------------------------- --------------------------------------------
<S> <C> <C> <C>
1996E EPS 14.0x 1996E EBITDA 8.1x
1997E EPS 9.2x 1997E EBITDA 5.9x
1996E EBIT 9.4x
1997E EBIT 6.7x
1996E Sales 0.92x
1997E Sales 0.79x
<FN>
(a) As of June 30, 1996. Source: Form S-3 draft dated 9/12/96.
(b) Average 1996 seasonal working capital borrowings, as provided by management.
(c) Average 1996 cash balances, as provided by management.
(d) Based on projections presented to Merrill Lynch on October 1, 1996.
(e) As of 6/30/96, total debt was $56.4 MM and cash balances were $3.4 MM. Current market capitalization
based on actual net debt is therefore $280.7 MM resulting in a 1996E EBITDA multiple of 8.8x and a
1997E EBITDA multiple of 6.3x.
</TABLE>
[Merrill Lynch Logo]____________________________________________________________
1-3
<PAGE> 9
[Section Break]
<PAGE> 10
- -------------------------------------------------------------------------------
PUBLIC MARKET VALUATION CONSIDERATIONS
- -------------------------------------------------------------------------------
<PAGE> 11
PROJECT SILVER
- -------------------------------------------------------------------------------
PUBLIC MARKET VALUATION CONSIDERATIONS
At its current stock price of $26.25, SILVER is undervalued by the market. The
following factors contribute to SILVER's low valuation:
[Bullet] Small public float. Insiders hold 42% and institutions hold 40%.
SILVER SHAREHOLDERS PROFILE
---------------------------
[Pie Chart]
Insiders 42%
Public 18%
Institutions 40%
[Bullet] Average daily volume was only 5,705 shares over the past 20 days.
[Bullet] Lack of research coverage. Last research report by C.L. King dated
July 26, 1996. No major Wall Street firm covers SILVER.
[Bullet] Limited interaction with investment community, therefore limited
opportunity to tell SILVER's "story".
[Bullet] Low growth industry. No true "pure play" comparable among publicly
traded companies.
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2-1
<PAGE> 12
PROJECT SILVER
- -------------------------------------------------------------------------------
PUBLIC MARKET VALUATION CONSIDERATIONS (cont'd)
[Bullet] Significant growth opportunities exist that may not be factored
into SILVER's stock price:
[Triangle bullet] integration of recent acquisitions: Rauch, Silvestri,
C.J. Vander, Farberware
[Triangle bullet] expanded distribution
[Triangle bullet] new product introduction
[Triangle bullet] continued investment in technology and productivity
[Triangle bullet] additional acquisitions
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2-2
<PAGE> 13
PROJECT SILVER
- -------------------------------------------------------------------------------
P/E TO GROWTH RATE ANALYSIS
[LINE CHART]
1996E P/E
23.0x
---
---
21.0x Rubbermaid
19.0x Newell
---
---
Tupperware ---
17.0x ---
15.0x American Greetings
---
--- ---
CSS Industries --- --- SILVER
---
13.0x --- Ekco
--- --- Stanhome
---
Libbey --- ---
11.0x Lifetime Hoan --- ---
--- Oneida Dept. 56
---
9.0x
7.0x
5.0x
8% 10% 12% 14% 16% 18% 20%
5 YEAR EPS GROWTH RATE(a)
-------------
(a) Source: IBES
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2-3
<PAGE> 14
PROJECT SILVER
- --------------------------------------------------------------------------------
P/E TO GROWTH RATE ANALYSIS
[BAR CHART]
<TABLE>
1996 P/E / 5 Year Est. EPS Growth
<S> <C> <C>
2.00x
Rubbermaid 1.73x
1.50x CSS
Industries 1.38x
Newell 1.25x
Tupperware American
Greetings 1.23x
1.15x
Oneida 1.10x
Ekco
Group 1.03x
1.00x
Libbey 0.99x
Lifetime
Hoan 0.96x
Dept. 56 0.90x
Stanhome 0.87x
SILVER 0.72x
0.50x
0.00x
</TABLE>
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2-4
<PAGE> 15
SECTION BREAK
<PAGE> 16
- --------------------------------------------------------------------------------
SILVER MANAGEMENT PROJECTIONS
- --------------------------------------------------------------------------------
<PAGE> 17
PROJECT SILVER
- --------------------------------------------------------------------------------
<TABLE>
Summary of SILVER Management Projections(a)
(dollars in millions, except per share)
<CAPTION>
HISTORICAL
FYE DECEMBER 31, PRO FORMA(b) PROJECTED FYE DECEMBER 31,
---------------- FYE ------------------------------------------------ 1996-2001
1994 1995 1996E 1997(c) 1998 1999 2000 2001 CAGR
------ ------ ------ ------ ------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $147.3 $169.5 $282.4 $326.8 $367.7 $408.1 $451.0 $496.1 11.9%
% Growth -- 15.1% 66.6% 15.7% 12.5% 11.0% 10.5% 10.0%
Gross Profit 42.7 49.7 79.4 95.1 106.6 118.8 131.7 145.4 12.9%
Gross Margin 29.0% 29.3% 28.1% 29.1% 29.0% 29.1% 29.2% 29.3%
Selling & Administrative
Expenses 31.6 34.2 54.5 58.8 66.2 73.5 81.2 89.3 10.4%
% of Sales 21.5% 20.2% 19.3% 18.0% 18.0% 18.0% 18.0% 18.0%
EBITDA 14.3 18.7 32.0 44.2 49.2 54.7 60.5 67.2 16.0%
EBITDA Margin 9.7% 11.0% 11.3% 13.5% 13.4% 13.4% 13.4% 13.5%
EBIT 11.1 15.4 27.5 38.8 43.4 48.3 53.5 59.6 16.7%
EBIT Margin 7.5% 9.1% 9.7% 11.9% 11.8% 11.8% 11.9% 12.0%
Net Income $ 7.9 $ 13.2 $ 16.4 $ 25.0 $ 28.0 $ 31.3 $ 35.3 $ 39.9 19.5%
Net Income Margin 5.3% 7.8% 5.8% 7.6% 7.6% 7.7% 7.8% 8.0%
EPS $ 1.69 $ 3.91 $ 1.87 $ 2.84 $ 3.19 $ 3.56 $ 4.01 $ 4.54 19.5%
EPS Growth -- 134.4% -52.3% 52.2% 12.2% 11.8% 12.7% 13.1%
Depreciation & Amortization $ 3.3 $ 3.3 $ 4.5 $ 5.4 $ 5.8 $ 6.4 $ 7.0 $ 7.6
Capital Expenditures(d) (2.6) (2.7) (17.8) (20.8) (5.6) (6.1) (6.7) (7.4)
Change In Working Capital 24.1 (10.1) (38.7) (11.1) (15.6) (14.2) (14.1) (13.9)
------ ------ ------ ------ ------ ------ ------ ------
Net Cash Flow $ 32.6 $ 3.7 $(35.6) $ (1.5) $ 12.6 $ 17.4 $ 21.4 $ 26.3
<FN>
- -----------------
(a) SILVER management projections presented to Merrill Lynch on October 1, 1996.
(b) Pro forma for the acquisition of Rauch, Silvestri, C.J. Vander and Farberware. Excludes gain on Farberware transaction
of $11.9 million and sales of Farberware inventory of $6.0 million, but includes $2.6 million of Farberware licensing
royalties.
(c) Adjusted to exclude $0.25 million of Farberware inventory sales.
(d) 1996 and 1997 Capital Expenditures include the construction of a West Coast distribution facility, expansion of
SILVER's East Boston facility, machinery and equipment for Rauch and C.J. Vander and a building for C.J. Vander.
</TABLE>
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3-1
<PAGE> 18
- --------------------------------------------------------------------------------
SILVER STOCK PRICE PERFORMANCE
- --------------------------------------------------------------------------------
<PAGE> 19
PROJECT SILVER
- --------------------------------------------------------------------------------
Daily Stock Price and Trading Volume from 10/18/95 to 10/18/96
[Graphic]
[Graphic]
[MERRILL LYNCH LOGO]
-------------------------------------------------------------
4-1
<PAGE> 20
PROJECT SILVER
- --------------------------------------------------------------------------------
Weekly Stock Price and Trading Volume from 12/18/92 to 10/18/96
[Graphic]
[Graphic]
[MERRILL LYNCH LOGO]
-------------------------------------------------------------
4-2
<PAGE> 21
PROJECT SILVER
- --------------------------------------------------------------------------------
Analysis of Trading Volume, from 10/18/95 to 10/18/96
[Graphic]
[Graphic]
- --------------------------------------------------------------------------------
4-3
<PAGE> 22
- --------------------------------------------------------------------------------
SILVER VALUATION ANALYSIS
- --------------------------------------------------------------------------------
<PAGE> 23
PROJECT SILVER
- --------------------------------------------------------------------------------
SILVER Valuation Summary
<TABLE>
[Bar Graph]
<CAPTION> $35
Merrill Lynch Reference Range T.H. Lee Offer Price Current Price
<S> <C> <C>
$30 $32 $26.25
<CAPTION>
-------------------------------------------------------------------------------------------------------
90%-110% 6x-8x Financing
10.5x-12x 1996 P/E to 9x-11x Terminal EBITDA; and 1997E
1997 EPS 5 Yr 1996 EBITDA 11.0%-12.0% Return EPS
of $2.84 Growth Rate of $32MM Discount Rate Constraints Breakeven
-------------------------------------------------------------------------------------------------------
P/E To Strategic
Silver Public Growth Comparable Maximum Acquiror
52 Week Comparables Rate Acquisitions LBO Pro Forma
High/low Analysis Analysis Analysis DCF Analysis Analysis
-------- ----------- -------- ------------ --- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
SILVER Value Per Share $27.63-19.75 $34-$30 $40-$33 $36-$29 $39-$28 $33-$30 $50-$28
</TABLE>
[Merrill Lynch Logo]____________________________________________________________
5-1
<PAGE> 24
PROJECT SILVER
- --------------------------------------------------------------------------------
<TABLE>
ACQUISITION PRICING MATRIX
(dollars in millions, except per share data)
<CAPTION>
OFFER VALUE AS MULTIPLE OF:
----------------------------------------------------------
OFFER OFFER OFFER NET TRANSACTION 1996E 1996E 1997E 1996E 1996E
PRICE PREMIUM VALUE DEBT (A) VALUE NET INCOME EPS EPS CASH FLOW BOOK VALUE
----- ------- ----- -------- ----------- ---------- ----- ----- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$26.250 0.0% 236.6 $27.2 $263.8 13.7x 14.0x 9.2x 10.9x 1.36x
28.000 6.7% 252.4 $27.2 279.6 14.6 15.0 9.9 11.6 1.46
30.000 14.3% 270.4 $27.2 297.6 15.6 16.0 10.6 12.4 1.56
-----------------------------------------------------------------------------------------------------------------------
32.000 21.9% 288.5 $27.2 315.7 16.7 17.1 11.3 13.2 1.66
-----------------------------------------------------------------------------------------------------------------------
34.000 29.5% 306.5 $27.2 333.7 17.7 18.2 12.0 14.1 1.77
36.000 37.1% 324.5 $27.2 351.7 18.8 19.3 12.7 14.9 1.87
38.000 44.8% 342.6 $27.2 369.8 19.8 20.3 13.4 15.7 1.98
40.000 52.4% 360.6 $27.2 387.8 20.8 21.4 14.1 16.5 2.08
42.000 60.0% 378.6 $27.2 405.8 21.9 22.5 14.8 17.4 2.18
44.000 67.6% 396.6 $27.2 423.8 22.9 23.5 15.5 18.2 2.29
<CAPTION>
TRANSACTION VALUE AS MULTIPLE OF:
--------------------------------
1996E 1996E 1996E
SALES EBITDA EBIT
----- ------ -----
<C> <C> <C>
0.93x 8.2x 9.6x
0.99 8.7 10.2
1.05 9.3 10.8
----------------------------
1.12 9.9 11.5
----------------------------
1.18 10.4 12.1
1.25 11.0 12.8
1.31 11.6 13.4
1.37 12.1 14.1
1.44 12.7 14.8
1.50 13.2 15.4
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
SILVER 1996E(b) Data $17.3 $1.87 $2.84 $21.8 $173.4 $282.4 $32.0 $27.5
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Mean Public Comparable Multiples 16.6x 14.2x 12.4x 9.6x 2.01x 1.36x 8.0x 10.8x
Mean Acquisition Comparable Multiples 15.8x -- -- -- 3.36x 1.00x 8.7x 12.3x
- ---------------------------------------------------------------------------------------------------------------------------------
<FN>
- ------------------------------------------------------------------------------------------------------------------------------------
(a) Based on estimated net debt as of December 31, 1996, calculated as follows:
Average Seasonal Working Capital Borrowings $37.6 million
Less: Average Cash Balances (6.2)
Less: Options Proceeds (4.2)
Net Debt $27.2 million
(b) Pro forma for Rauch, Silvestri, C.J. Vander and Farberware acquisitions
</TABLE>
5-2
<PAGE> 25
PROJECT SILVER
- --------------------------------------------------------------------------------
<TABLE>
Public Comparables Analysis(1)
<CAPTION>
[Bar Graph]
1996 P/E(2)
<S> <C>
T.H. Lee Offer Price 17.1x
<CAPTION>
American CSS Lifetime
Rubbermaid Newell Tupperware SILVER(3) Greetings Industries Ekco Stanhome Libbey Dept.56 Hoan Oneida
- ---------- ------ ---------- --------- --------- ---------- ---- -------- ------ ------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
22.4x 18.7x 17.2x 14.0x 13.8x 13.8x 13.4x 12.2x 11.9x 11.7x 11.6x 9.9x
<CAPTION>
[Bar Graph]
1997 P/E(2)
<S> <C>
T.H. Lee Offer Price 11.3x
<CAPTION>
American CSS Lifetime General
Rubbermaid Ekco Newell Tupperware Greetings Industries Libbey Dept.56 Stanhome Hoan Housewares SILVER(3) Oneida
- ---------- ---- ------ ---------- --------- ---------- ------ ------- -------- -------- ---------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
18.3x 17.0x 16.2x 15.2x 12.3x 11.5x 10.4x 10.3x 10.3x 9.6x 9.3x 9.2x 8.0x
<FN>
- --------------------
(1) Earnings estimates from First Call and calendarized to December year-ends, except for Oneida which is from Zack's and is for a
January year-end.
(2) General Housewares has a projected loss in 1996.
(3) SILVER estimates from the Company, and 1996 is pro forma for the Rauch and Farberware transactions.
</TABLE>
[Merrill Lynch Logo]____________________________________________________________
5-3
<PAGE> 26
PROJECT SILVER
- --------------------------------------------------------------------------------
<TABLE>
Public Comparables Analysis
<CAPTION>
[Bar Graph]
1996E EBITDA Multiples
<S> <C>
T.H. Lee Offer Price 9.9x
<CAPTION>
American Lifetime CSS General
Tupperware Newell Rubbermaid SILVER(3) Greetings Dept.56 Libbey Stanhome Hoan Industries Housewares Ekco
- ---------- ------ ---------- --------- --------- ------- ------ -------- -------- ---------- ---------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10.3x 9.5x 8.3x 8.1x 7.4x 7.3x 6.6x 6.4x 6.1x 5.7x 4.3x 3.9x
<FN>
- ---------------------
(a) EBITDA estimates are from research reports, and where not provided, depreciation and amortization are LTM; data for Oneida not
available.
(b) Based on SILVER 1996E pro forma EBITDA.
</TABLE>
[Merrill Lynch Logo]____________________________________________________________
5-4
<PAGE> 27
PROJECT SILVER
- -------------------------------------------------------------------------------
P/E TO GROWTH RATE ANALYSIS
[LINE CHART]
1996E P/E
23.0x
---
---
21.0x Rubbermaid
19.0x Newell T.H. Lee
--- Offer Price
Tupperware --- --- 17.1
17.0x ---
15.0x American Greetings
---
--- ---
CSS Industries --- --- SILVER
---
13.0x --- Ekco
--- --- Stanhome
---
Libbey --- ---
11.0x Lifetime Hoan --- ---
--- Oneida Dept. 56
---
9.0x
7.0x
5.0x
8% 10% 12% 14% 16% 18% 20%
5 YEAR EPS GROWTH RATE(a)
-------------
(a) Source: IBES.
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5-5
<PAGE> 28
PROJECT SILVER
- -------------------------------------------------------------------------------
P/E TO GROWTH RATE ANALYSIS
<TABLE>
<CAPTION>
1996 P/E
5 YEAR TO 5 YEAR
EST. EPS EST. EPS
1996 P/E GROWTH GROWTH
-------- -------- ------
<S> <C> <C> <C> <C>
LARGE CAPITALIZATION
--------------------
AMERICAN GREETINGS 13.8x 12% 1.15x
NEWELL CO. 18.7 15% 1.25
RUBBERMAID INCORPORATED 22.4 13% 1.73
TUPPERWARE CORP. 17.2 14% 1.23
-------------------------------------------
MEAN 18.1x 14% 1.34x
MEDIAN 18.0 14% 1.24
-------------------------------------------
SMALL CAPITALIZATION
--------------------
CSS INDUSTRIES INC. 13.8x 10% 1.38x
DEPARTMENT 56, INC. 11.7 13% 0.90
EKCO GROUP INC. 13.4 13% 1.03
GENERAL HOUSEWARES(a) NM 13% NM
LIBBEY INC. 11.9 12% 0.99
LIFETIME HOAN CORP. 11.6 12% 0.96
ONEIDA LTD. 9.9 9% 1.10
STANHOME INC. 12.2 14% 0.87
-------------------------------------------
MEAN 12.1x 12% 1.03x
MEDIAN 11.9 13% 0.99
-------------------------------------------
SILVER(b) 14.0x 19% 0.72x
- ----------
<FN>
(a) General Housewares has a projected loss in 1996.
(b) 1996-2001 CAGR.
</TABLE>
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5-6
<PAGE> 29
PROJECT SILVER
- --------------------------------------------------------------------------------
P/E TO GROWTH RATE ANALYSIS
<TABLE>
<CAPTION>
<C> <C> <C>
SILVER 5 Year Estimated EPS Growth Rate(a) 19.4%
Comparable P/E to Growth Rate(b) 90% -- 110%
Estimated 1996E P/E 17.5x -- 21.3x
SILVER 1996E EPS(a) $1.87
-----------------------------------------------------------------------
VALUE PER SILVER SHARE $32.65 $39.91
-----------------------------------------------------------------------
- --------
<FN>
(a) Based on management projections.
(b) Based on 1996 P/E to 5 year growth rate ratios of CSS Industries,
Department 56, Ekco Group, Libbey, Lifetime Hoan, Oneida, and Stanhome.
</TABLE>
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5-7
<PAGE> 30
PROJECT SILVER
- --------------------------------------------------------------------------------
COMPARABLE ACQUISITIONS ANALYSIS
[BAR CHART]
<TABLE>
<CAPTION>
LTM EBITDA MULTIPLE
<S> <C>
Newell Co./Holson Burnes Group Inc. 11.1x
General Housewares Corp./OXO International LP 9.7x
Newell Co./Intercraft Industries Corp. 9.2x
Ekco Group Inc./Frem Corp. 8.1x
Libbey Inc./Syracuse China Corp. (The Pfaltzgraff Co.) 7.6x
Paper Magic Group/Spearhead Industries Inc. 6.6x
T.H. Lee Offer Price(a) 9.9x
- ---------
<FN>
(a) Based on 1996E EBITDA.
</TABLE>
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5-8
<PAGE> 31
PROJECT SILVER
- --------------------------------------------------------------------------------
COMPARABLE ACQUISITIONS ANALYSIS
[BAR CHART]
<TABLE>
<CAPTION>
LTM SALES MULTIPLE
<S> <C>
Glacier Holdings Inc./Stylemaster Inc. 1.71x
SILVER/Rauch Industries Inc. 1.61x
General Housewares Corp./OXO International LP 1.39x
Newell Co./Intercraft Industries Corp. 1.24x
Ekco Group Inc./Frem Corp. 1.14x
Libbey Inc./Syracuse China Corp. (The Pfaltzgraff Co.) 1.10x
General Housewares Corp./Olfa Products Corp.,
Walter Absil Co. Ltd. 0.91x
Brown-Forman Corp./Dansk International Designs Ltd. 0.80x
Paper Magic Group/Spearhead Industries Inc. 0.64x
Newell Co./Holson Burnes Group Inc. 0.60x
Frederick Cooper PLC/Bonny Products Inc.
(American Brands Inc.) 0.46x
James River Corp. of Virginia/Mennen Co-Paper Products Business
(Colgate-Palmolive Co.) 0.40x
T.H. Lee Offer Price(a) 1.12x
- ---------
<FN>
(a) Based on 1996E Sales
</TABLE>
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5-9
<PAGE> 32
PROJECT SILVER
- -------------------------------------------------------------------------------
DISCOUNTED CASH FLOW ANALYSIS
[LINE GRAPH]
<TABLE>
<CAPTION>
----------------------
EBITDA MULTIPLE METHOD
----------------------
Value per SILVER Share
<S> <C> <C> <C>
Discount Rate 10.5% 11.5% 12.5%
6x LTM EBITDA $30.33 $27.54
$33.39
8x LTM EBITDA $39.73 $36.13
T.H. Lee Offer Price $32
</TABLE>
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5-10
<PAGE> 33
PROJECT SILVER
- --------------------------------------------------------------------------------
MAXIMUM LBO ANALYSIS
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
HYPOTHETICAL CONSTRAINTS
-----------------------------------------------------------------------
<S> <C>
[Bullet] 1996 EBITDA/Interest Coverage 1.6x
[Bullet] Minimum 5 Year Return on Equity 20%
[Bullet] Maximum Bank Debt Repayment Period 7 years
[Bullet] Minimum Equity Investment 20%
-----------------------------------------------------------------------
-----------------------------------------------------------------------
RESULTS
-----------------------------------------------------------------------
<S> <C> <C>
[Bullet] Offer Value for Equity $32 per
share
[Bullet] Capital Structure
8.5% Bank Term Loan $ 40MM 13%
7.5% Working Capital Revolver $ 43MM 14%
11.5% Senior Subordinated Notes $100MM 33%
13.0% PIK Preferred $ 50MM 17%
Common Equity $ 67MM 22%
-----------------------------------------------------------------------
</TABLE>
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5-11
<PAGE> 34
PROJECT SILVER
- -------------------------------------------------------------------------------
<TABLE>
POTENTIAL STRATEGIC ACQUIROR PRO FORMA ANALYSIS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
<CAPTION>
1997E EPS (a)
BREAKEVEN PURCHASE PRICE
EST. ------------------------
NET DEBT/ BORROWING CASH STOCK
POTENTIAL ACQUIROR MKT. CAP. 1997E P/E MKT. CAP. RATE PURCHASE POOLING
- ------------------ --------- --------- ---------- --------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
American Greetings $2,645.3 12.3x 15.9% 7% $46 $34
CSS Industries, Inc. 267.5 11.5 6.8 9 39 32
Department 56, Inc. 648.2 10.3 16.1 9 39 28
Newell Co. 5,782.5 16.2 16.3 7 46 45
Rubbermaid Inc. 3,820.8 18.3 5.9 7 46 50
Stanhome Inc. 599.9 10.3 17.6 9 39 29
Tupperware Corp. 3,105.8 15.2 6.2 7 46 42
- ------------
<FN>
(a) Assumes no synergies or cost savings.
</TABLE>
<PAGE> 35
SECTION BREAK
<PAGE> 36
- --------------------------------------------------------------------------------
APPENDIX
- --------------------------------------------------------------------------------
<PAGE> 37
- --------------------------------------------------------------------------------
PUBLIC COMPARABLES ANALYSIS
- --------------------------------------------------------------------------------
<PAGE> 38
PROJECT SILVER
Analysis of Selected Companies
<TABLE>
Comparative Multiples and Imputed Values
----------------------------------------
(dollar amounts in millions except per share data)
<CAPTION>
MARKET MULTIPLE ANALYSIS FOR SELECTED INDUSTRY COMPARABLES
- ------------------------------------------------------------------------------------------------------------------------------------
---MARKET CAP. AS A
---MARKET VALUE AS A MULTIPLE OF:---- MULTIPLE OF:--- 1996 P/E/
LTM 1996 1997 LTM LFQ 1996 5-YR.
PRICE MARKET MARKET NET TO EPS EPS CASH COMMON LTM LTM LTM EBITDA EST. EPS
COMPANIES 18-OCT-96 SHARES VALUE CAP.(a) COMMON EST.(b) EST.(b) FLOW(c) EQUITY EBITDA EBIT SALES EST.(f) GROWTH
- --------------- --------- ------ ------ -------- ------ ------- ------- ------- ------ ------ ----- ----- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AMERICAN
GREETING-CL A $29.75 74.8 $2,224.1 $2,645.3 15.9x 13.8x 12.3x 12.5x 1.78x 8.5x 11.1x 1.32x 7.4x 1.15x
CSS INDS INC 23.25 10.7 249.3 267.5 26.6 13.8 11.5 33.8 1.66 8.7 11.9 0.90 5.7 1.38
DEPARTMENT 56,
INC.-SER A 25.25 21.5 544.1 648.2 10.2 11.7 10.3 9.3 3.03 6.2 6.7 2.51 7.3 0.90
EKCO GROUP INC. 3.97 18.5 69.4 202.2 20.2 13.4 17.0 2.5 0.53 4.6 8.9 0.75 3.9 1.03
GENERAL
HOUSEWARES 9.75 4.1 39.5 68.0 80.2 NM 9.3 8.2 0.84 7.6 16.2 0.60 4.3 NM
LIBBEY INC. 25.00 15.0 375.8 613.7 11.9 11.9 10.4 7.6 NM 7.0 9.1 1.56 6.6 0.99
LIFETIME HOAN
CORP 9.13 11.3 102.9 114.9 14.5 11.6 9.6 12.9 1.58 8.6 9.4 1.33 6.1 0.96
NEWELL CO. 30.50 158.8 4,842.9 5,782.5 20.9 18.7 16.2 11.1 3.58 10.5 13.2 2.16 9.5 1.25
ONEIDA LTD 14.88 11.1 165.3 285.3 10.0 9.9 8.0 5.2 1.53 5.6 8.0 0.57 #N/A 1.10
RUBBERMAID
INCORPORATED 24.00 149.8 3,594.4 3,820.8 22.2 22.4 18.3 13.7 3.69 10.1 13.8 1.64 8.3 1.73
STANHOME INC. 27.63 17.9 494.4 599.9 12.6 12.2 10.3 10.2 1.92 7.0 7.8 0.72 6.4 0.87
TUPPERWARE
CORP. 46.88 62.1 2,912.9 3,105.8 17.1 17.2 15.2 12.4 11.89* 10.9 13.9 2.24 10.3 1.23
MAXIMUM(d) 26.x 22.4x 18.3x 13.7x 3.96 10.9x 16.2x 2.51x 10.3x 1.73x
MEAN(d) 16.6 14.2 12.4 9.6 2.01 8.0 10.8 1.36 6.9 1.14
MEDIAN(d) 15.9 13.4 10.9 10.2 1.72 8.1 10.2 1.32 6.6 1.10
MINUMUN(d) 10.0 9.9 8.0 2.5 0.53 4.6 6.7 0.57 3.9 0.87
SILVER(e) $26.25 8.7 $ 227.8 $ 259.0 13.2x 14.0x 9.2x 10.4x 1.31x 8.1x 9.4x 0.92x 8.1x 0.72
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Market Capitalization = Market Value + Preferred Equity at Liquidation Value (Incl. Redeemable) + Short-Term Debt + Long-Term
Debt + Minority Interest - Cash & Marketable Securities
(b) Earnings Estimates were obtained from First Call and were calendarized to December year-ends, except Oneida which is from Zacks
and is for a January year-end and SILVER which is from the Company
(c) Cash Flow = Income Available to Common + Depreciation, Depletion & Amortization + Deferred Taxes - Unremitted Earnings Of
Unconsolidated Subsidiaries
(d) Summary Multiples exclude numbers that are Negative, Not Available, Not Meaningful, and (*) figures
(e) Data for SILVER is 1996 estimaated pro forma to include the acquisition of Rauch, to exclude Farberware transaction gains of
$11.9 million and sales of Farberware inventory of $6.0 million, but to include licensing royalties of $2.6 million; market
capitalization includes average working capital revolver balance of $37.6 million net of average cash balance of $6.2 million
(f) EBITDA estimates are from research reports, and where not provided, depreciation and amortization are LTM; data for Oneida not
available and data for SILVER is from company projections for the year ended 31-Dec-96
</TABLE>
A-1
<PAGE> 39
PROJECT SILVER
Analysis of Selected Companies
<TABLE>
Comparative Multiples and Imputed Values
----------------------------------------
(dollar amounts in millions except per share data)
<CAPTION>
SUMMARY DATA FOR SELECTED INDUSTRY COMPARABLES
- ------------------------------------------------------------------------------------------------------------------------------------
--52 WEEK LTM 1996 1997 LTM LSQ 1996 5-YR.
RANGE-- NET TO EPS EPS CASH COMMON LTM LTM LTM EBITDA EST. EPS CFY LTM
COMPANIES TICKER HIGH LOW COMMON EST.(a) EST.(a) FLOW(b) EQUITY EBITDA EBIT SALES EST.(d) GROWTH ENDS ENDED
- --------------- ------ ------ ------ ------ ------- ------- ------- ------- ------ ------ -------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AMERICAN
GREETING-CL A AGREA $33.00 $23.50 $140.0 $ 2.15 $2.42 $178.2 $1,251.4 $310.9 $239.3 $2,011.5 $357.9 12% Feb-97 May-96
CSS INDS INC CSS 25.75 20.50 9.4 1.69 2.03 7.4 149.9 30.6 22.4 297.4 47.2 10% Dec-96 Jun-96
DEPARTMENT 56,
INC.-SER A DFS 48.00 19.50 53.2 2.16 2.45 58.5 179.9 103.8 96.9 258.5 89.3 13% Dec-96 Jun-96
EKCO GROUP INC. EKO 6.38 3.75 3.4 0.28 0.22 27.9 130.0 43.7 22.7 270.4 51.5 13% Dec-96 Jun-96
GENERAL
HOUSEWARES GHW 14.13 7.88 0.5 (0.48) 1.05 4.8 47.0 8.9 4.2 113.5 15.7 13% Dec-96 Jun-96
LIBBEY INC. LBY 28.38 19.75 31.5 2.10 2.40 49.4 (36.6) 87.6 67.1 393.0 92.9 12% Dec-96 Jun-96
LIFETIME HOAN
CORP LCUT 11.25 8.00 7.1 0.79 0.95 8.0 65.1 13.3 12.2 86.5 18.8 12% Dec-96 Jun-96
NEWELL CO. NWL 32.50 23.38 232.2 1.63 1.88 435.3 1,345.3 548.8 437.4 2,673.8 607.4 15% Dec-96 Jun-96
ONEIDA LTD OCQ 18.88 14.38 16.5 1.50 1.85 31.9 107.8 51.1 35.5 504.7 #N/A 9% Jan-97 Jul-96
RUBBERMAID
INCORPORATED RBD 30.38 22.13 161.9 1.07 1.31 261.8 973.5 376.8 277.0 2,329.7 458.8 13% Dec-96 Jun-96
STANHOME INC. STH 32.63 25.38 39.3 2.26 2.67 48.2 257.8 85.7 76.8 836.6 94.3 14% Dec-96 Jun-96
TUPPERWARE
CORP. TUP 49.88 38.25 169.9 2.72 3.09 235.4 245.0 284.7 223.6 1,386.2 302.1 14% Dec-96 Jun-96
SILVER(e) $27.63 $19.75 $ 17.3 $1.87 $2.84 $ 21.8 $ 173.4 $ 32.0 $ 27.5 $ 282.4 $ 32.0 19% DEC-96 DEC-96
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Earnings Estimates were obtained from First Call and were calendarized to December year-ends, except Oneida which is from Zacks
and is for a January year-end and SILVER which is from the Company
(b) Cash Flow = Income Available to Common + Depreciation, Depletion & Amortization + Deferred Taxes - Unremitted Earnings Of
Unconsolidated Subsidiaries
(c) Data for SILVER is 1996 estimaated pro forma to include the acquisition of Rauch, to exclude Farberware transaction gains of
$11.9 million and sales of Farberware inventory of $6.0 million, but to include licensing royalties of $2.6 million; market
capitalization includes average working capital revolver balance of $37.6 million net of average cash balance of $6.2 million
(d) EBITDA estimates are from research reports, and where not provided, depreciation and amortization are LTM; data for Oneida not
available and data for SILVER is from company projections for the year ended 31-Dec-96
</TABLE>
A-2
<PAGE> 40
- --------------------------------------------------------------------------------
COMPARABLE ACQUISITIONS ANALYSIS
- --------------------------------------------------------------------------------
<PAGE> 41
PROJECT SILVER
- --------------------------------------------------------------------------------
<TABLE>
ANALYSIS OF SELECTED HOUSEWARES INDUSTRY ACQUISITIONS
(Dollars in Millions, Except Per Share)
<CAPTION>
Announcement
Date Target & Description
- ------------ ----------------------------------------------------------------------------------------------------------
<S> <C>
11-Dec-95 Holson Burnes Group Inc
- Manufactures and markets photo albums and picture frames
7-Dec-95 Rauch Industries Inc
- Manufactures and distributes Christmas decorations, primarily glass and satin Christmas tree ornaments
2-Nov-95 Bonny Products Inc (American Brands Inc)
- Manufactures non-electrical kitchen tools and utensils
11-May-95 Syracuse China Corp (The Pfaltzgraff Co)
- Manufactures ceramic dinnerware, mainly for the foodservice industry
4-Oct-94 Olfa Products Corp, Walter Absil Co Ltd
- Wholesale distributor of cutting tools and accessories for the hobby, craft, hardware and fabric markets
3-Feb-93 Stylemaster Inc
- Manufacturer and marketer of proprietary plastic housewares and supplies, and supplier to Glacier Water
30-Oct-92 OXO International LP
- Marketer of kitchen tools under the Good Grips, Prime and Plus brand names
8-Sep-92 Intercraft Industries Corp
- Manufactures and wholesales picture and mirror frames
20-Jul-92 Mennen Co-Paper Products Business (Colgate-Palmolive Co)
- Manufactures party paper products, tablecloth cutlery and tableware products
13-Nov-91 Frem Corp
- Manufactures and markets injection molded housewares products
10-Jul-91 Spearhead Industries Inc
- Designs, assembles and markets consumer items for Easter and Halloween, and a line of toy products
20-May-91 Dansk International Designs Ltd
- Manufactures tabletop, houseware, and giftware items
<CAPTION>
Offer Value as Multiple of: Transaction Value as Multiple of:
--------------------------- ---------------------------------
Offer Transaction LTM LFQ LTM LTM LTM
Acquiror Value(a) Value(b) Net Income Book Value Sales EBITDA EBIT
- ------------------------------- -------- ----------- ---------- ---------- ----- ------ ----
<S> <C> <C> <C> <C> <C> <C> <C>
Newell Co $ 36.7 $ 82.9 10.8x 1.13x 0.60x 11.1x 18.3x
Syratech Corp 50.3 82.7 NM 1.69 1.61 NM NM
Frederick Cooper PLC 6.0 6.0 5.1 1.22 0.46 N/A N/A
Libbey Inc 40.7 40.6 NM 1.80 1.10 7.6 12.7
General Housewares Corp 13.8 15.1 NM 2.69 0.91 NM NM
Glacier Holdings Inc 2.0 9.6 NM NM 1.71 NM NM
General Housewares Corp 6.3 6.4 20.2 6.16 1.39 9.7 11.0
Newell Co 184.7 184.7 21.5 2.91 1.24 9.2 12.9
James River Corp of Virginia 40.0 40.0 N/A N/A 0.40 N/A N/A
Ekco Group Inc 26.5 32.7 19.1 9.71 1.14 8.1 10.7
Paper Magic Group 13.5 17.5 18.1 2.95 0.64 6.6 8.3
Brown-Forman Corp 66.0 86.0 N/A 3.30 0.80 N/A N/A
-------------------------------------------------------------------
Maximum 21.5x 9.71x 1.71x 11.1x 18.3x
Mean 15.8 3.36 1.00 8.7 12.3
Median 18.6 2.80 1.00 8.6 11.9
Minimum 5.1 1.13 0.40 6.6 8.3
-------------------------------------------------------------------
<FN>
(a) Offer Value = Offer Price per Share x (Shares Outstanding plus Exercisable Options Outstanding)
(b) Transaction Value = Offer Value + Liquidation Value of Preferred Stock + Short Term Debt + Long Term Debt + Minority Interest -
Cash & Equivalents - Exercisable Options Proceeds
</TABLE>
<PAGE> 42
[Section Break]
<PAGE> 43
- --------------------------------------------------------------------------------
DISCOUNTED CASH FLOW ANALYSIS
- --------------------------------------------------------------------------------
<PAGE> 44
PROJECT SILVER
<TABLE>
DISCOUNTED CASH FLOW ANALYSIS - EBITDA MULTIPLE METHOD
- ------------------------------------------------------------------------------------------------------------------------------------
(dollars in millions, except per share)
<CAPTION>
Fiscal Year Ended December 31, Projected Fiscal Year Ended December 31, (a)
----------------------------------- --------------------------------------------
1993 1994 1995 1996E 1997 1998 1999 2000 2001
----------------------------------- --------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $122.7 $147.3 $169.5 $282.4 $326.8 $367.7 $408.1 $451.0 $496.1
EBITDA 13.4 14.3 18.7 32.0 44.2 49.2 54.7 60.5 67.2
Less: Depreciation (3.1) (3.3) (3.3) (4.3) (5.2) (5.6) (6.2) (6.8) (7.4)
----------------------------------- --------------------------------------------
EBITDA 10.3 11.1 15.4 27.7 39.0 43.6 48.5 53.7 59.7
Less: Taxes @ 35.0% (3.6) (3.9) (5.4) (9.7) (13.7) (15.3) (17.0) (18.8) (20.9)
----------------------------------- --------------------------------------------
Tax-effected EBITDA 6.7 7.2 10.0 18.0 25.4 28.4 31.5 34.9 38.8
Plus: Depreciation 5.2 5.6 6.2 6.8 7.4
Plus: Deferred Taxes 0.0 0.0 0.0 0.0 0.0
Less: Capital Expenditures (20.8) (5.6) (6.1) (6.7) (7.4)
Less: Changes in Working Capital (12.1) (15.8) (14.4) (14.4) (14.1)
--------------------------------------------
Free Cash Flow ($2.3) $12.6 $17.1 $20.6 $24.7
Free Cash Flow Growth Rate -546.1% -647.8% 36.1% 20.1% 20.2%
<CAPTION>
-------------- --------------------------- ---------------------------
A + B = C
-------------- --------------------------- ---------------------------
PV of Terminal Value as a Terminal Value as a
Discounted (b) Multiple of 2001 EBITDA (c) Firm Value % of Firm Value
Cash Flows --------------------------- --------------------------- --------------------------------
Discount Rate (1997-2001) 6.0x 7.0x 8.0x 6.0x 7.0x 8.0x 6.0x 7.0x 8.0x
- ------------- -------------- --------------------------- --------------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10.5% $49.8 $244.7 $285.5 $326.3 $294.5 $335.2 $376.0 83.1% 85.2% 86.8%
11.0% 48.9 239.2 279.1 319.0 288.2 328.0 367.9 83.0% 85.1% 86.7%
11.5% 48.1 233.9 272.9 311.9 282.0 321.0 360.0 82.9% 85.0% 86.6%
12.0% 47.3 228.8 266.9 305.0 276.1 314.2 352.3 82.9% 84.9% 86.6%
12.5% 46.5 223.7 261.0 298.3 270.2 307.5 344.8 82.8% 84.9% 86.5%
--------------------------------
<CAPTION>
-------------- ---------------------------
D = E
-------------- ---------------------------
Total Equity Value Value Per Share (e) Equivalent Perpetual Growth Rate
Net Debt --------------------------- --------------------------- --------------------------------
Discount Rate 12/31/96(d) 6.0x 7.0x 8.0x 6.0x 7.0x 8.0x 6.0x 7.0x 8.0x
- ------------- -------------- --------------------------- --------------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10.5% $31.3 $263.2 $304.0 $344.7 $30.33 $35.03 $39.73 4.1% 5.0% 5.6%
11.0% 31.3 256.9 296.8 336.6 29.61 34.20 38.80 4.6% 5.5% 6.1%
11.5% 31.3 250.7 289.7 328.7 28.90 33.39 37.89 5.1% 5.9% 6.6%
12.0% 31.3 244.8 282.9 321.0 28.21 32.60 37.00 5.5% 6.4% 7.1%
12.5% 31.3 239.0 276.2 313.5 27.54 31.84 36.13 6.0% 6.9% 7.6%
--------------------------- --------------------------------
<FN>
- ------------------------------------------------------
(a) Projections are from SILVER management.
(b) Present values are calculated as of 12/31/96.
(c) Discounted 5 years; based on 2001 EBITDA of $67.2 million.
(d) Represents average seasonal working capital revolver balance net of average cash balance for 1996.
(e) Based on 8.7 million shares currently outstanding.
</TABLE>
C-1
<PAGE> 45
<TABLE>
PROJECT SILVER
ANALYSIS OF COST OF CAPITAL
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------
MACROECONOMIC ASSUMPTIONS:
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Three Month Treasury Bill (at 10/19/96) 5.09% Estimated Future Market Return(b) 14.19%
Thirty Year Government Bond (at 10/19/96) 6.79% Estimated Future Risk Free Rate(c) 5.39%
Historical Spread Between Long Bond & Bill(a) 1.40% Estimated Market Risk Premium 8.80%
Historical Spread Between Long Bond & S&P500(a) 7.40%
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------
INDUSTRY BETA ANALYSIS:
- ------------------------------------------------------------------------------------------------------------------------------------
LEVERED BV NET DEBT/ DEBT/ MARGINAL UNLEVERED LEVERED UNLEVERED
COMPARABLE COMPANIES BETA(d) MKT. CAP. EQUITY TAX RATE BETA(e) COST OF CAPITAL COST OF CAPITAL
- -------------------- ------- ----------- ------- -------- --------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
American Greetings 0.80 15.9% 18.9% 39.0% 0.72 12.4% 11.7%
CSS Industries Inc. 0.53 6.8% 7.3% 39.0% 0.51 10.1% 9.9%
Department 56, Inc. 0.70 16.1% 19.1% 39.0% 0.63 11.6% 10.9%
Ekco Group, Inc. 1.19 65.7% 191.4% 39.0% 0.55 15.9% 10.2%
General Housewares 0.60 41.9% 72.1% 39.0% 0.42 10.7% 9.1%
Libbey Inc. 0.83 38.8% 63.3% 39.0% 0.60 12.7% 10.7%
Lifetime Hoan Corp. 0.82 10.4% 11.7% 39.0% 0.77 12.6% 12.1%
Newell Co. 0.96 16.3% 19.4% 39.0% 0.86 13.8% 12.9%
Oneida Ltd. 0.83 42.1% 72.6% 39.0% 0.58 12.7% 10.5%
Rubbermaid Inc. 1.27 5.9% 6.3% 39.0% 1.22 16.6% 16.2%
Stanhome Inc. 0.44 17.6% 21.3% 39.0% 0.39 9.3% 8.8%
---- ---- ---- ----
AVERAGE INDUSTRY COST OF CAPITAL 25.2% 39.0% 0.66 11.2%
SILVER COST OF CAPITAL 0.52 12.1% 13.7% 39.0% 0.48 10.0% 9.6%
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------
TARGET WACC CALCULATION:
- ------------------------------------------------------------------------------------------------------------------------------------
OPTIMAL OPTIMAL PRE-TAX LEVERED BETA ASSUMING
DEBT/ DEBT/ SPREAD TO 30-YR LONG TERM UNLEVERED BETA OF COST OF TARGET
CAPITALIZATION EQUITY TREASURIES (BP) COST OF DEBT 0.66 LEVERED EQUITY WACC
-------------- ------ --------------- ------------ --------------------- -------------- ------
<S> <C> <C> <C> <C> <C> <C>
0.0% 0.0% 100.0 7.8% 0.66 11.2% 11.2%
10.0% 11.1% 125.0 8.0% 0.70 11.6% 10.9%
20.0% 25.0% 150.0 8.3% 0.76 12.1% 10.7%
30.0% 42.9% 175.0 8.5% 0.83 12.7% 10.4%
40.0% 66.7% 200.0 8.8% 0.92 13.5% 10.3%
50.0% 100.0% 300.0 9.8% 1.06 14.7% 10.3%
60.0% 150.0% 400.0 10.8% 1.26 16.5% 10.5%
70.0% 233.3% 500.0 11.8% 1.59 19.4% 10.9%
80.0% 400.0% 600.0 12.8% 2.26 25.3% 11.3%
90.0% 900.0% 700.0 13.8% 4.26 42.9% 11.9%
- ------------------------------------------------------------------------------------------------------------------------------------
- --------------------------------
<FN>
(a) Source: Ibbottson & Sinquefield 1996 Yearbook.
(b) Thirty year government bond yield plus the historical spread between the long bond and the S&P 500.
(c) Thirty year government bond yield less the historical spread between the long bond and the three month bill.
(d) Source: Merrill Lynch Securities Risk Evaluation Book dated September 1996.
(e) Unlevered beta equals Levered Beta/(1 + (Debt/Equity) * (1 - Tax Rate). Assumes beta of debt equals zero.
C-2
</TABLE>
<PAGE> 46
[THIS PAGE IS INTENTIONALLY LEFT BLANK]
<PAGE> 47
- --------------------------------------------------------------------------------
LEVERAGED BUYOUT ANALYSIS
- --------------------------------------------------------------------------------
<PAGE> 48
PROJECT SILVER
<TABLE>
LBO ANALYSIS - TRANSACTION SUMMARY
- -----------------------------------------------------------------------------------------------------------------------------------
(dollars in millions, except per share)
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
SOURCES: AMOUNT PERCENT INTEREST RATE OWNERSHIP TERM POINTS FEES
- -------- ------ ------- ------------- --------- ---- ------ ----
<S> <C> <C> <C> <C> <C> <C> <C>
Existing Cash Balances $ 0.0 0.0% 6.00%
Option Proceeds 4.2 1.4%
Working Capital Revolver (a) 42.7 14.1% 7.50% 0.0% 7 2.5% $3.5
Bank Debt (Term Loan) 40.0 13.2% 8.50% 0.0% 10 2.5% 1.0
Senior Sub. Debentures 100.0 32.9% 11.50% 0.0% 10 3.0% 3.0
PIK Preferred 50.0 16.5% 13.00% 0.0% 7 0.0% 0.0
Seller Rollover Equity 16.7 5.5% 25.0%
T.H. Lee Common Equity 50.0 16.5% 75.0%
------ ------ ------ ----
Total Sources $303.6 100.0% 100.0% $7.5
USES:
- -----
Refinance Debt $ 1.8 ------------------------------------------------------------
Financing Fees 7.5 8.7 total shares outstanding
Transaction Expenses @ 2.0% 5.8 0.3 exerc. options outst. ex. @ $12.38 per share
Purchase of Equity @ $32.00 per share 288.5 ---
Total Uses $303.6 9.0 fully diluted shares outstanding
- -----------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------- ------------------------------------------------------
<CAPTION>
GOODWILL CALCULATION: (b) INTEREST CONVERAGE SUMMARY:
- ------------------------- ---------------------------
1996E 1997 1998
----- ---- ----
<S> <C> <C> <C> <C> <C>
Purchase Price $0.0 EBITDA / Total Interest 1.6x 2.1x 2.3x
Existing Goodwill -- EBITDA-CAPX/Tot. Int. 0.7x 1.1x 2.1x
Non-Financing Transaction Expenses -- EBITDA-Norm. CAPX/Tot. 1.3x 1.9x 2.1x
Less: Book Value Acquired (incl. option proceeds) 0.0 EBIT / Total Interest -- 1.9x 2.0x
Goodwill $0.0 Tot. Funded Debt / EBITD 5.7x 4.4x 4.0x
Amortization Period 40 Funded Sr. Debt / EBITDA 1.2x 2.2x 2.0x
Annual Goodwill Amortization $0.0 Tot. Cmtd. Debt / EBITDA 8.6x 5.8x 5.4x
- ---------------------------------------------------------- Cmtd. Sr. Debt / EBITDA 4.1x 3.6x 3.4x
- ---------------------------------------------------------- Cumulative Bank Debt Pay -- -16.7% -17.6%
Tender Price / 1996 EPS(c) 17.1x ------------------------------------------------------
Tender Price / 1997 EPS(c) 11.3x
- ----------------------------------------------------------
- ---------------------------------------------------------- ------------------------------------------------------
<CAPTION>
MULTIPLE ANALYSIS: TV 12/31/96 Adj. TV 12/31/96(d) RETURNS SUMMARY:
- ------------------ ----------- ------------------- ----------------
3 YEAR 4 YEAR 5 YEAR
------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Transaction Value $284.2 $315.6 EBITDA Multiple:
TV / 1996E EBITDA 8.9x 9.9x ----------------
TV / 1997 EBITDA 6.4x 7.1x 6.0x -16.7% 0.9% 10.2%
TV / 1996E EBIT 10.3x 11.5x 7.0x 11.8% 18.1% 21.3%
TV / 1997 EBIT 7.3x 8.1x 8.0x 30.4% 29.9% 29.5%
- ---------------------------------------------------------- -------------------------------------------------------
<FN>
(a) Assumes $140.0 million of availablity
(b) Assumes recap accounting.
(c) Earnings estimates of $1.87 for 1996 and $2.84 for 1997 are from SILVER management.
(d) Includes average working capital revolver balance of $37.6 million net average cash balance of $6.2 million for 1996.
</TABLE>
D-1
<PAGE> 49
PROJECT SILVER
<TABLE>
OWNERSHIP ANALYSIS
- -----------------------------------------------------------------------------------------------------------------------------------
(dollars in millions, except per share)
<CAPTION>
PRE-TRANSACTION PRICE PER POST-TRANSACTION EFFECTIVE
NUMBER SHARE GROSS CASH FULLY DILUTED NUMBER NEW EQUITY PRICE PER
OF SHARES % RECEIVED RECEIVED OF SHARES % INVESTMENT NEW SHARE
---------------------- --------------------- --------------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Leonard Florence 2,875,600 32.9% $32.00 $ 91.4 2,000,000 20.0% $13.3 $6.67
All Other Insiders 785,725 9.1% 32.00 25.1 500,000 5.0% 3.3 6.67
Thomas H. Lee 0 0.0% 32.00 0.0 7,500,000 75.0% 50.0 6.67
Public 5,033,306 58.0% 32.00 161.1 0 0.0% 0.0 --
--------- ----- ------ ------ ---------- ----- ----- -----
Total 8,676,631 100.0% $32.00 $277.7 10,000,000 100.0% $66.7 $6.67
========= ===== ====== ====== ========== ===== ===== =====
<CAPTION>
NET CASH
RECEIVED/
PROMOTE (INVESTED)
--------- ----------
<S> <C> <C>
Leonard Florence 0.0% $ 78.1
All Other Insiders 0.0% 21.8
Thomas H. Lee 0.0% (50.0)
Public -- 161.1
-- ------
Total -- $211.0
=== ======
</TABLE>
D-2
<PAGE> 50
PROJECT SILVER
<TABLE>
CONSOLIDATED INCOME STATEMENTS
- ----------------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, PROJECTED FISCAL YEAR ENDED DECEMBER 31, (a)
------------------------------------ ----------------------------------------------
1993 1994 1995 1996E(b) 1997 1998 1999 2000 2001
------------------------------------ ----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $122.7 $147.3 $169.5 $282.4 $326.8 $367.7 $408.1 $451.0 $496.1
Cost of Sales 84.6 104.6 119.8 203.0 231.8 261.1 289.4 319.3 350.7
------------------------------------ ----------------------------------------------
Gross Profit $ 38.0 $ 42.7 $ 49.7 $ 79.4 $ 95.1 $106.6 $118.8 $131.7 $145.4
Selling & Administrative 27.7 31.6 34.2 54.4 58.8 62.2 73.5 81.2 89.3
LBO Goodwill Amortization 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Other Income (Expense) 0.0 0.0 0.0 2.6 2.6 3.0 3.0 3.0 3.5
------------------------------------ ----------------------------------------------
EBIT 10.3 11.1 15.4 27.5 38.8 43.4 48.3 53.5 59.6
Interest Income (0.1) (0.1) (4.9) (0.6) (0.1) (0.1) (0.1) (0.1) (0.1)
Working Capital Revolver Interest Expense 0.0 0.0 0.0 0.0 3.8 4.5 4.7 4.6 4.4
Bank Debt (Term Loan) Interest Expense 0.0 0.0 0.0 0.0 3.3 3.1 2.8 2.4 1.8
Seasonal Revolver Interest Expense 0.9 0.6 0.3 2.9 1.5 1.7 1.9 2.1 2.3
Senior Sub. Debentures Interest Expense 0.0 0.0 0.0 0.0 11.5 11.5 11.5 11.5 11.5
Capital Leases Interest Expense 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Amortization of Financing Fees 0.0 0.0 0.0 0.0 0.5 0.5 0.5 0.5 0.5
------ ------ ------ ------ ------ ------ ------ ------ ------
Net Interest Expense 0.9 0.5 (4.6) 2.3 20.5 21.2 21.2 20.9 20.3
Pretax Income 9.4 10.6 20.0 25.2 18.4 22.3 27.1 32.6 39.3
Taxes 2.4 2.8 6.9 8.9 6.5 7.9 9.6 11.5 13.8
PIK Preferred Dividends 0.0 0.0 0.0 0.0 6.5 7.3 8.3 9.4 10.6
------------------------------------ ----------------------------------------------
Net Income $ 7.1 $ 7.9 $ 13.2 $ 16.4 $ 5.4 $ 7.1 $ 9.2 $ 11.7 $ 14.9
==================================== ==============================================
EBIT 10.3 11.1 15.4 27.5 38.8 43.4 48.3 53.5 59.6
Depreciation 3.1 3.3 3.3 4.3 5.2 5.6 6.2 6.8 7.4
Old Goodwill Amortization 0.0 0.0 0.0 0.1 0.2 0.2 0.2 0.2 0.2
LBO Goodwill Amortization 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
------------------------------------ ----------------------------------------------
EBITDA 13.4 14.3 18.7 32.0 44.2 49.2 54.7 60.5 67.2
Revenue Growth -- 20.1% 15.1% 66.6% 15.7% 12.5% 11.0% 10.5% 10.0%
Gross Margin 31.0% 29.0% 29.3% 28.1% 29.1% 29.0% 29.1% 29.2% 29.3%
Selling & Administrative (% Sales) 26.6% 21.5% 20.2% 19.3% 18.0% 18.0% 18.0% 18.0% 18.0%
EBITDA Margin 10.9% 9.7% 11.0% 11.3% 13.5% 13.4% 13.4% 13.4% 13.5%
Depreciation (% of Net PP&E) 4.4% 10.7% 11.0% 6.4% 6.2% 6.7% 7.4% 8.1% 8.9%
Tax Rate 25.3% 26.0% 34.2% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0%
- ------------
<FN>
(a) Projections are from SILVER management.
(b) 1996E excludes gain on Farberware transaction of $11.9 million and sales of Farberware inventory of $6.0 million, but includes
$2.6 million of pro forma Farberware licensing royalties (included in other income).
D-3
</TABLE>
<PAGE> 51
<TABLE>
PROJECT SILVER
INCOME STATEMENTS BY DIVISION
- --------------------------------------------------------------------------------------------------------------------------
(dollars in millions, except per share)
<CAPTION>
Fiscal Year Ended December 31, Projected Fiscal Year Ended December 31, (a)
------------------------------------------ -------------------------------------------------------
1994 1995 1996(b) 1996E 1997 1998 1999 2000 2001
------------------------------------------ -------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Wallace
Sales $ 29.6 $ 26.9 $ 30.6 $ 30.6 $ 33.0 $ 34.3 $ 35.1 $ 35.9 $ 36.8
Sales Growth - -9.0% 13.4% 13.4% 8.0% 3.9% 2.3% 2.4% 2.3%
Cost of Sales 22.4 17.0 19.6 19.6 20.9 21.8 22.3 22.8 23.3
------------------------------------------ -------------------------------------------------------
Gross Profit $ 7.2 $ 10.0 $ 10.9 $ 10.9 $ 12.1 $ 12.5 $ 12.8 $ 13.1 $ 13.4
Gross Margin 24.5% 37.1% 35.7% 35.7% 36.5% 36.5% 36.5% 36.5% 36.5%
Towle
Sales $ 22.8 $ 20.8 $ 23.5 $ 23.5 $ 25.4 $ 26.4 $ 27.0 $ 27.6 $ 28.3
Sales Growth - -8.9% 13.0% 13.0% 8.0% 4.0% 2.3% 2.4% 2.3%
Cost of Sales 14.1 12.8 13.3 13.3 14.5 15.0 15.4 15.7 16.1
------------------------------------------ -------------------------------------------------------
Gross Profit $ 8.7 $ 8.0 $ 10.2 $ 10.2 $ 10.9 $ 11.4 $ 11.6 $ 11.9 $ 12.2
Gross Margin 38.1% 38.2% 43.4% 43.4% 43.1% 43.1% 43.1% 43.1% 43.1%
Hong Kong
Sales $ 33.0 $ 46.6 $ 57.2 $ 57.2 $ 65.7 $ 76.6 $ 87.9 $ 99.2 $111.5
Sales Growth - 41.0% 22.7% 22.7% 15.0% 16.6% 14.7% 12.9% 12.4%
Cost of Sales 22.9 32.2 39.7 39.7 45.1 53.3 61.1 69.0 77.5
------------------------------------------ -------------------------------------------------------
Gross Profit $ 10.2 $ 14.3 $ 17.5 $ 17.5 $ 20.6 $ 23.4 $ 26.8 $ 30.3 $ 34.0
Gross Margin 30.8% 30.8% 30.5% 30.5% 31.4% 30.5% 30.5% 30.5% 30.5%
LFA
Sales $ 61.4 $ 75.2 $ 87.1 $ 87.1 $100.2 $114.3 $128.9 $144.1 $159.2
Sales Growth - 22.4% 15.8% 15.8% 15.0% 14.1% 12.7% 11.8% 10.5%
Cost of Sales 48.9 57.8 67.1 67.1 76.5 90.3 101.8 113.8 125.8
------------------------------------------ -------------------------------------------------------
Gross Profit $ 12.6 $ 17.4 $ 20.0 $ 20.0 $ 23.7 $ 24.0 $ 27.1 $ 30.3 $ 33.4
Gross Margin 20.5% 23.1% 22.9% 22.9% 23.6% 21.0% 21.0% 21.0% 21.0%
Rauch
Sales - - - $ 60.2 $ 66.6 $ 74.4 $ 81.8 $ 90.0 $ 98.5
Sales Growth - - - - 10.6% 11.7% 9.9% 10.0% 9.5%
Cost of Sales - - - 47.7 51.9 54.2 58.7 63.6 68.8
------------------------------------------ -------------------------------------------------------
Gross Profit - - - $ 12.5 $ 14.6 $ 20.1 $ 23.1 $ 26.4 $ 29.7
Gross Margin - - - 20.7% 22.0% 27.1% 28.2% 29.3% 30.2%
Silvestri
Sales - - - $ 19.3 $ 30.0 $ 35.0 $ 40.1 $ 46.1 $ 52.9
Sales Growth - - - - 55.8% 16.6% 14.7% 14.8% 14.8%
Cost of Sales - - - 12.6 19.2 22.3 25.6 29.4 33.8
------------------------------------------ -------------------------------------------------------
Gross Profit - - - $ 6.6 $ 10.8 $ 12.6 $ 14.5 $ 16.6 $ 19.1
Gross Margin - - - 34.4% 36.1% 36.1% 36.1% 36.1% 36.1%
C.J. Vander
Sales - - - $ 4.7 $ 6.0 $ 6.7 $ 7.4 $ 8.1 $ 8.9
Sales Growth - - - - 28.5% 11.7% 10.0% 10.0% 10.0%
Cost of Sales - - - 2.9 3.7 4.1 4.5 4.9 5.4
------------------------------------------ -------------------------------------------------------
Gross Profit - - - $ 1.8 $ 2.3 $ 2.6 $2.9 $ 3.2 $ 3.5
Gross Margin - - - 38.0% 39.0% 39.0% 39.0% 39.0% 39.0%
Gonsolidated
Sales $146.9 $169.5 $198.3 $282.4 $326.8 $367.7 $408.1 $451.0 $496.1
Sales Growth - 15.4% 17.0% 66.6% 15.7% 12.5% 11.0% 10.5% 10.0%
Cost of Sales 108.2 119.8 139.8 203.0 231.8 261.1 289.4 319.3 350.7
------------------------------------------ -------------------------------------------------------
Gross Profit $ 38.7 $ 49.7 $ 58.5 $ 79.4 $ 95.1 $106.6 $118.8 $131.7 $145.4
Gross Margin 26.3% 29.3% 29.5% 28.1% 29.1% 29.0% 29.1% 29.2% 29.3%
<FN>
- ----------------
(a) Projections are from SILVER management.
(b) Shows only organic growth.
</TABLE>
D-4
<PAGE> 52
<TABLE>
PROJECT SILVER
CONSOLIDATED BALANCE SHEET AND CASH FLOW STATEMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
(dollars in millions, except per share)
<CAPTION>
Fiscal Year Ended December 31, Projected Fiscal Year Ended December 31,(a)
------------------------------------ Pro Forma -------------------------------------------
1993 1994 1995 1996E 12/31/96 1997 1998 1999 2000 2001
------------------------------------ --------- -------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cash and Equivalents $ 3.8 $ 1.9 $109.1 $ 1.9 $ 1.9 $ 1.9 $ 1.9 $ 1.9 $ 1.9 $ 1.9
Net Working Capital 76.9 52.8 62.9 119.1 119.1 131.2 147.0 161.4 175.8 189.9
PP&E 68.7 30.7 29.6 68.1 68.1 83.7 83.7 83.6 83.6 83.6
Other Assets 0.9 0.6 0.4 0.4 0.4 0.4 0.4 0.3 0.3 0.2
Net Assets of Discontinued Operations 0.0 85.9 1.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Deferred Financing Fees 0.0 0.0 0.0 0.0 7.5 7.0 6.6 6.1 5.7 5.2
Old Goodwill 0.0 0.0 0.0 0.0 6.0 5.8 5.6 5.4 5.2 5.0
LBO Goodwill 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
------------------------------------ --------- -------------------------------------------
Total Assets $150.3 $171.8 $203.7 $195.6 $203.1 $230.1 $245.1 $258.8 $272.5 $285.9
==================================== ========= ===========================================
Working Capital Revolver $ 9.9 $ 15.4 $ 51.7 $ 1.8 $ 42.7 58.5 62.3 62.2 60.4 56.2
Bank Debt (Term Loan) 0.0 0.0 0.0 0.0 40.0 38.0 35.0 31.0 25.0 17.0
Senior Sub. Debentures 0.0 0.0 0.0 0.0 100.0 100.0 100.0 100.0 100.0 100.0
Capital Leases 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Other Liabilities 9.5 4.3 5.4 20.3 20.3 21.6 21.5 21.8 22.0 22.3
PIK Preferred 0.0 0.0 0.0 0.0 50.0 56.5 63.8 72.1 81.5 92.1
Common Equity 131.0 152.1 146.6 173.4 (49.9) (49.9) (49.9) (49.9) (49.9) (49.9)
Retained Earnings 0.0 0.0 0.0 0.0 0.0 5.4 12.4 21.7 33.4 48.3
------------------------------------ --------- -------------------------------------------
Total Liabilities and Equity $150.3 $171.8 $203.7 $195.6 $203.1 $230.1 $245.1 $258.8 $272.5 $285.9
==================================== ========= ===========================================
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income $ 5.4 $ 7.1 $ 9.2 $ 11.7 $ 14.9
Depreciation 3.1 3.3 3.3 4.3 5.2 5.6 6.2 6.8 7.4
Amortization of Financing Fees 0.5 0.5 0.5 0.5 0.5
Old Goodwill Amortization 0.1 0.2 0.2 0.2 0.2 0.2
LBO Goodwill Amortization 0.0 0.0 0.0 0.0 0.0
Non-Cash Interest/Dividends 6.5 7.3 8.3 9.4 10.6
Change in Working Capital 24.1 (10.1) (56.2) (12.1) (15.8) (14.4) (14.4) (14.1)
Capital Expenditures (2.8) (2.6) (2.7) (17.8) (20.8) (5.6) (6.1) (6.7) (7.4)
Change in Other Assets/Liabilities 1.3 (0.0) 0.3 0.3 0.3
-------------------------------------------
Free Cash Flow (13.8) (0.7) 4.1 7.7 12.3
Required Debt Amortization (2.0) (3.0) (4.0) (6.0) (8.0)
Amortization of Capital Leases 0.0 0.0 0.0 0.0 0.0
-------------------------------------------
Cash Flow Available for Debt Paydown (15.8) (3.7) 0.1 1.7 4.3
Debt Paydown 15.8 3.7 (0.1) (1.7) (4.3)
-------------------------------------------
Increase in Cash Balances 0.0 0.0 0.0 0.0 0.0
Beginning Balance 1.9 1.9 1.9 1.9 1.9
-------------------------------------------
Ending Balance $ 1.9 $ 1.9 $ 1.9 $ 1.9 $ 1.9
- ------------------------------------------------------------------------------------------------------------------------------------
Net Working Capital (% of Sales) 62.6% 35.8% 37.1% 42.2% 40.1% 40.0% 39.6% 39.0% 38.3%
Change in NWC/Change in Sales -- 97.8% -45.4% -49.8% -27.2% -38.7% -35.7% -33.5% -31.4%
CAPX (% of Sales) 23% 1.8% 1.6% 6.3% 6.4% 1.5% 1.5% 1.5% 1.5%
CAPX (% of Net PP&E) 4.0% 8.5% 9.1% 26.1% 24.8% 6.6% 7.3% 8.1% 8.9%
Depreciation (% of Sales) 2.5% 2.2% 1.9% 1.5% 1.6% 1.5% 1.5% 1.5% 1.5%
Depreciation (% of Net PP&E) 4.4% 10.7% 11.0% 6.4% 6.2% 6.7% 7.4% 8.1% 8.9%
Normalized CAPX $ 5.0 $ 5.0 $ 5.0 $ 5.0 $ 5.0 $ 5.0
<FN>
- --------------------
(a) Projections are from SILVER management.
</TABLE>
<PAGE> 53
\
<TABLE>
PROJECT SILVER
WORKING CAPITAL
- ------------------------------------------------------------------------------------------------------------------------------------
(dollars in millions, except per share)
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, PROJECTED FISCAL YEAR ENDED DECEMBER 31,(a)
------------------------------ PRO FORMA ------------------------------------------------------
1994 1995 1996E 12/31/96 1997 1998 1999 2000 2001
------------------------------ --------- ------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Accounts Receivable $28.2 $31.9 $ 73.4 $ 73.4 $ 78.6 $ 88.4 $ 98.1 $108.4 $119.3
Inventory 40.3 41.2 68.2 68.2 73.5 82.7 91.7 101.4 111.5
Prepaids & Other 0.2 1.6 2.0 2.0 1.9 2.1 2.2 2.3 2.5
Deferred Taxes 3.0 5.1 4.0 4.0 4.1 4.1 4.1 4.1 4.1
------------------------------ --------- ------------------------------------------------------
71.7 79.8 147.6 147.6 158.1 177.3 196.2 216.2 237.4
Liabilities
Accounts Payable 7.6 6.4 9.2 9.2 10.3 11.5 12.8 14.2 15.6
Accrued Liabilities 2.7 4.4 10.5 10.5 7.5 8.7 10.1 11.7 13.4
Accrued Compensation 3.2 2.5 3.2 3.2 3.5 3.7 3.9 4.1 4.3
Accrued Advertising 1.6 2.0 3.0 3.0 2.4 2.8 3.2 3.7 4.3
Taxes Payble 3.8 1.5 2.7 2.7 3.2 3.6 4.8 6.8 9.9
------------------------------ --------- ------------------------------------------------------
18.9 16.9 28.5 28.5 26.9 30.3 34.8 40.4 47.5
Net Working Capital 52.8 62.9 119.1 119.1 131.2 147.0 161.4 175.8 189.9
Accounts Receivable (% Sales) 19.2% 18.8% 26.0% 26.0% 24.0% 24.0% 24.0% 24.0% 24.0%
Inventory (% Sales) 27.4% 24.3% 24.1% 24.1% 22.5% 22.5% 22.5% 22.5% 22.5%
Prepaids & Other (% Sales) 0.1% 0.9% 0.7% 0.7% 0.6% 0.6% 0.5% 0.5% 0.5%
Deferred Taxes (% Sales) 2.0% 3.0% 1.4% 1.4% 1.3% 1.1% 1.0% 0.9% 0.8%
Accounts Payable (% Sales) 5.2% 3.8% 3.2% 3.2% 3.1% 3.1% 3.1% 3.1% 3.1%
Accrued Liabilities (% Sales) 1.8% 2.6% 3.7% 3.7% 2.3% 2.4% 2.5% 2.6% 2.7%
Accrued Compensation (% Sales) 2.1% 1.5% 1.1% 1.1% 1.1% 1.0% 0.9% 0.9% 0.9%
Accrued Advertising (% Sales) 1.1% 1.2% 1.1% 1.1% 0.7% 0.8% 0.8% 0.8% 0.9%
Taxes Payable (% Sales) 2.6% 0.9% 1.0% 1.0% 1.0% 1.0% 1.2% 1.5% 2.0%
Net Working Capital (% Sales) 12.8% 9.9% 42.2% 42.2% 40.1% 40.0% 39.6% 39.0% 38.3%
<FN>
- ------------------
(a) Projections are from SILVER management.
</TABLE>
<PAGE> 54
<TABLE>
PROJECT SILVER
CALCULATION OF WORKING CAPITAL REVOLVER
- -------------------------------------------------------------------------------------------------------------
(dollars in millions, except per share)
<CAPTION>
PROJECTED FISCAL YEAR ENDED DECEMBER 31, (a)
---------------------------------------------------
1996E 1997 1998 1999 2000 2001
---------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Accounts Receivable
Qtr 1 $ 28.1 $ 37.6 $ 42.3 $ 47.0 $ 51.9 $ 57.1
Qtr 2 56.4 38.5 43.4 48.1 53.2 58.5
Qtr 3 119.0 106.8 120.2 133.4 147.4 162.2
Qtr 4 73.4 78.6 88.4 98.1 108.4 119.3
Inventory
Qtr 1 $ 68.7 $ 87.0 $ 97.8 $108.6 $120.0 $132.0
Qtr 2 109.1 109.3 123.0 136.5 150.8 165.9
Qtr 3 114.0 101.4 114.1 126.6 139.9 153.9
Qtr 4 68.2 73.5 82.7 91.7 101.4 111.5
Net Work Capital (including cash)
Qtr 1 $ 93.5 $114.1 $128.4 $142.5 $157.4 $173.2
Qtr 2 90.1 111.6 125.6 139.4 154.0 169.4
Qtr 3 119.6 122.5 137.8 153.0 169.0 185.9
Qtr 4 119.3 130.0 146.2 162.3 179.3 197.3
Borrowing Base
(75% of Accounts Receivable + 50% of Inventory
Qtr 1 $ 55.4 $ 71.7 $ 80.6 $ 89.5 $ 98.9 $108.8
Qtr 2 96.9 83.5 94.0 104.3 115.3 126.8
Qtr 3 146.2 130.8 147.2 163.4 180.5 198.6
Qtr 4 89.2 95.7 107.6 119.5 132.0 145.2
Working Capital Revolver Outstanding
Qtr 1 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0
Qtr 2 56.4 19.5 21.9 24.4 26.9 29.6
Qtr 3 92.2 61.1 68.8 76.3 84.4 92.8
Qtr 4 1.8 2.7 3.0 3.3 3.7 4.0
Interest Expense @ 7.895% 7.500% 7.500% 7.500% 7.500% 7.500%
Qtr 1 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0
Qtr 2 1.1 0.4 0.4 0.4 0.5 0.5
Qtr 3 1.8 1.1 1.3 1.4 1.5 1.7
Qtr 4 0.0 0.0 0.1 0.1 0.1 0.1
---------------------------------------------------
Total $ 2.9 $ 1.5 $ 1.7 $ 1.9 $ 2.1 $ 2.3
Average Working Capital Revolver Balance $ 37.6 $ 20.8 $ 23.4 $ 26.0 $ 28.7 $ 31.6
Cash Balance
Qtr 1 $ 11.5 $ 1.0
Qtr 2 3.4 1.0
Qtr 3 7.9 1.0
Qtr 4 1.9 1.0
Average Cash Balance $ 6.2
<FN>
- ----------------------
(a) Projections are from SILVER management.
</TABLE>
<PAGE> 55
PROJECT SILVER
<TABLE>
FINANCIAL RATIOS
- ------------------------------------------------------------------------------------------------------------------------------------
(dollars in millions, except per share)
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, PROJECTED FISCAL YEAR ENDED DECEMBER 31,(a)
------------------------------------ -----------------------------------------------
1993 1994 1995 1996E 1997 1998 1999 2000 2001
------------------------------------ -----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CAPITALIZATION
- --------------
Senior Debt $ 40.0 $ 40.0 $ 40.0 $ 40.0 $ 96.5 $ 97.3 $ 93.2 $ 85.4 $ 73.2
Other Debt 142.7 142.7 142.7 142.7 100.0 100.0 100.0 100.0 100.0
------------------------------------ -----------------------------------------------
Total Debt 182.7 182.7 182.7 182.7 196.5 197.3 193.2 185.4 173.2
Less: Cash (1.9) (1.9) (1.9) (1.9) (1.9) (1.9) (1.9) (1.9) (1.9)
------------------------------------ -----------------------------------------------
Net Debt 180.8 180.8 180.8 180.8 194.6 195.4 191.2 183.5 171.2
Book Equity + Preferred 0.1 0.1 0.1 0.1 11.9 26.3 43.9 65.0 90.5
Total Capitalization 182.8 182.8 182.8 182.8 208.5 223.6 237.1 250.5 263.6
Working Capital Revolver Committed $ 92.2 $ 92.2 $ 92.2 $ 92.2 $ 61.1 $ 68.8 $ 76.3 $ 84.4 $ 92.8
- ------------------------------------------------------------------------------------------------------------------------------------
COVERAGE RATIOS:
- ----------------
Total Interest Expense $ 20.6 20.6 $ 20.6 $ 20.6 $ 20.6 $ 21.3 $ 21.3 $ 21.0 $ 20.4
Net Interest Expense + Pfd. Divs. 27.0 27.0 27.0 27.0 27.0 28.5 29.5 30.3 30.9
EBITDA $ 13.4 $ 14.3 $18.7 $ 32.0 $ 44.2 $ 49.2 $ 54.7 $ 60.5 $ 67.2
vs. Total Interest 0.6x 0.7x 0.9x 1.6x 2.1x 2.3x 2.6x 2.9x 3.3x
vs. Net Interest + Pfd. Divs. 0.5x 0.5x 0.7x 1.2x 1.6x 1.7x 1.9x 2.0x 2.2x
EBITDA - CAPX $ 10.6 $ 11.7 $ 16.0 $ 14.2 $ 23.4 $ 43.7 $ 48.5 $ 53.7 $ 59.8
vs. Total Interest 0.5x 0.6x 0.8x 0.7x 1.1x 21.x 2.3x 2.6x 2.9x
vs. Net Interest + Pfd. Divs. 0.4x 0.4x 0.6x 0.5x 0.9x 1.5x 1.6x 1.8x 1.9x
EBITDA - Norm. CAPX(b) $ 10.6 $ 11.7 $ 16.0 $ 27.0 $ 39.2 $ 44.2 $ 49.7 $55.5 $ 62.2
vs. Total Interest 0.5x 0.6x 0.8x 1.3x 1.9x 2.1x 2.3x 2.6x 3.0x
vs. Net Interest + Pfd. Divs. 0.4x 0.4x 0.6x 1.0x 1.5x 1.6x 1.7x 1.8x 2.0x
EBIT -- -- -- -- $ 38.8 $ 43.4 $ 48.3 $ 53.5 $ 59.6
vs. Total Interest -- -- -- -- 1.9x 2.0x 2.3x 2.5x 2.9x
vs. Net Interest + Pfd. Divs. -- -- -- -- 1.4x 1.5x 1.6x 1.8x 1.9x
- ------------------------------------------------------------------------------------------------------------------------------------
LEVERAGE RATIOS:
- ----------------
Total Funded Debt/Total Capitalization 100.0% 100.0% 100.0% 100.0% 94.3% 88.2% 81.5% 74.0% 65.7%
Net Funded Debt/Total Capitalization 98.9% 98.9% 98.9% 98.9% 93.3% 87.3% 80.7% 73.3% 64.9%
Total Funded Debt/Equity -- -- -- -- 1645.7% 748.8% 440.1% 285.2% 191.4%
Net Funded Debt/Equity -- -- -- -- 1629.4% 741.4% 435.7% 282.2% 189.3%
Total Funded Debt/EBITDA 13.7x 12.7x 9.8x 5.7x 4.4X 4.0x 3.5x 3.1x 2.6x
Net Funded Debt/EBITDA 13.5x 12.6x 9.7x 5.6x 4.4x 4.0x 3.5x 3.0x 2.5x
Funded Senior Debt/EBITDA 3.0x 2.8x 2.1x 1.2x 2.2x 2.0x 1.7x 1.4x 1.1x
Total Committed Debt/EBITDA 20.6x 19.2x 14.7x 8.6x 5.8x 5.4x 4.9x 4.5x 4.0x
Committed Senior Debt/EBITDA 9.9x 9.2x 7.1x 4.1x 3.6x 3.4x 3.1x 2.8x 2.5x
Cumulative Bank Debt Paydown -- -- -- -- -16.7% -17.6% -12.7% -3.3% 11.5%
<FN>
- ------------------------------------
(a) Projections are from SILVER management.
(b) 1996-2001 adjusted to reflect Normalized CAPX = $5.0 million.
</TABLE>
D-8
<PAGE> 56
PROJECT SILVER
<TABLE>
RETURN ANALYSIS
- ----------------------------------------------------------------------------------------------------------------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
<CAPTION>
PROJECTED FISCAL YEAR ENDED DECEMBER 31, (a)
------- ----------------------------------------------
1996E 1997 1998 1999 2000 2001
------- ----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EBITDA $ 32.0 $ 44.2 $ 49.2 $ 54.7 $ 60.5 $ 67.2
Firm Value [at] EBITDA Multiple of:
6.0x 192.0 265.4 295.4 327.9 362.8 403.1
7.0x 224.0 309.6 344.7 382.6 423.3 470.3
8.0x 256.0 353.8 393.9 437.2 483.8 537.5
Less: Net Debt (180.8) (194.6) (195.4) (191.2) (183.5) (171.2)
Less: Avg. Wkg. Capital Revolver (37.6) (20.8) (23.4) (26.0) (28.7) (31.6)
Less: PIK Preferred (50.0) (56.5) (63.8) (72.1) (81.5) (92.1)
Equity Value [at] EBITDA Multiple of:
6.0x (26.3) (6.6) 12.8 38.5 69.1 108.2
7.0x 5.7 37.7 62.1 93.2 129.6 175.4
8.0x 37.7 81.9 111.3 147.8 190.0 242.6
Initial Equity Investment $ 50.0
Ownership 75.0% 75.0% 75.0% 75.0% 75.0% 75.0%
- ----------------------------------------------------------------------------------------------------------------------
Equity Return [at] EBITDA Multiple of:
6.0x #N/A #NUM! -56.2% -16.7% 0.9% 10.2%
7.0x #N/A -43.5% -3.5% 11.8% 18.1% 21.3%
8.0x #N/A 22.9% 29.2% 30.4% 29.9% 29.5%
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
SENIOR SUB. DEBENTURES RETURNS
Equity Ownership 0.0%
-------
IRR
-------
6.0x #VALUE! (100.0) 11.5 11.5 11.5 11.5 11.5
7.0x #VALUE! (100.0) 11.5 11.5 11.5 11.5 11.5
8.0x #VALUE! (100.0) 11.5 11.5 11.5 11.5 11.5
- ----------------------------------------------------------------------------------------------------------------------
PIK PREFERRED RETURNS
Equity Ownership 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
-------
IRR
-------
6.0x 13.0% (50.0) 0.0 0.0 0.0 0.0 92.1
7.0x 13.0% (50.0) 0.0 0.0 0.0 0.0 92.1
8.0x 13.0% (50.0) 0.0 0.0 0.0 0.0 92.1
-------
- -------------
<FN>
(a) Projections are from SILVER management.
D-9
</TABLE>
<PAGE> 57
- --------------------------------------------------------------------------------
STRATEGIC ACQUIROR PRO FORMA ANALYSES
- --------------------------------------------------------------------------------
<PAGE> 58
<TABLE>
----------
PROJECT SILVER 100% CASH ---------
PRO FORMA ACQUISITION ANALYSIS 0% STOCK PURCHASE
- --------------------------------------------------------------------------------
(dollars in millions, except per share)
<CAPTION>
- --------------------------------------------------------------------------------
AMERICAN GREETINGS ACQUIRES SILVER
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
KEY ASSUMPTIONS
- --------------------------------------------------------------------------------
<S> <C> <C>
American Greetings Stock Price@ 19-Oct-96 $29.75
SILVER Stock Price@ 19-Oct-96 $26.25
SILVER Shares Outstanding 8.676
Options and Warrants@ $12.38 0.338
------
Total Fully-Diluted Shares 9.014
Offer Price Per Share $26.25
------
Offer Value $236.6
Plus: Existing Net Debt $31.4
Less: Option & Warrant Proceeds (4.2)
------
Transaction Value $263.8
======
American Greetings 1996E P/E Multiple 13.8x
SILVER 1996E P/E Multiple 14.0x
Offer Price 1996E P/E Multiple 14.0x
Purchase Premium - % 0.0%
Tangible Book Value $149.4
Purchase Premium - $ 87.2
PP&E Write-Up(0.0%) 0.0
PP&E Depreciation Period 15
Deferred Tax Liability 0.0
New Goodwill-Incl. Transaction Exp. $93.0
Goodwill Amortization Period 40
Exchange Ratio 0.000
Existing American Greetings Shares 74.758
Pro Forma American Greetings Shares 74.758
Transaction Expenses $10.0
American Greetings Marginal Tax Rate 39.0%
SILVER Marginal Tax Rate 39.0%
American Greetings Ownership of New Entity 100.0%
SILVER Ownership of New Entity 0.0%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
- -----------------------------------------------------------------------------------------------
BALANCE SHEET IMPACT
- -----------------------------------------------------------------------------------------------
<CAPTION>
AMERICAN GREETINGS SILVER COMBINED
MAY-96 JUN-96 ADJUSTMENTS MAY-96
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash $43.0 $6.2 $0.0 $49.2
Total Debt 464.2 37.6 242.4 744.3
----- ---- -----
Net Debt 421.2 31.4 695.1
Equity 1,251.4 155.5 (155.5) 0.0 1,251.4
Total Capitalization 1,751.6 193.1 1,995.7
- ----------------------------------------------------------------------------------------------
TOTAL DEBT/TOTAL CAP. 27.1% 19.5% 37.3%
NET DEBT/TOTAL CAP. 24.6% 16.3% 34.8%
- ----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
- ---------------------------------------------------------------------------------------
DILUTION ANALYSIS
- ---------------------------------------------------------------------------------------
<CAPTION>
1996E 1997E 1998E
----- ----- -----
<S> <C> <C> <C> <C>
AMERICAN GREETINGS
Projected American Greetings Standalone EPS $2.15 $2.42 $2.71
Projected American Greetings Standalone Net Income $160.7 $180.9 $202.6
SILVER
Projected SILVER EPS $1.87 $2.84 $3.19
Projected SILVER Standalone Net Income $16.2 $24.6 $27.7
PRE-TAX ACQUISITION ADJUSTMENTS
New Goodwill ($2.3) ($2.3) ($2.3)
Incremental Depreciation 0.0 0.0 0.0
Synergies 0.0 0.0 0.0
New Interest Expense@ 7.0% (17.0) (17.0) (17.0)
--------------------------
Total Pre-Tax Acquisition Adjustments ($19.3) ($19.3) ($19.3)
AFTER-TAX ACQUISITION ADJUSTMENTS
New Goodwill ($2.3) ($2.3) ($2.3)
Incremental Depreciation 0.0 0.0 0.0
Synergies 0.0 0.0 0.0
New Interest Expense@ 7.0% (10.4) (10.4) (10.4)
--------------------------
Total After-Tax Acquisition Adjustments ($12.7) ($12.7) ($12.7)
PRO FORMA EPS CALCULATION
Projected American Greetings Standalone Net Income $160.7 $180.9 $202.6
Projected SILVER Standalone Net Income 16.2 24.6 27.7
- - After-Tax Acquisition Adjustments (12.7) (12.7) (12.7)
--------------------------
Pro Forma Combined Net Income $164.3 $192.9 $217.6
Pro Forma Combined Shares Outstanding 74.758 74.758 74.758
Pro Forma EPS $2.20 $2.58 $2.91
Projected American Greetings Standalone EPS $2.15 $2.42 $2.71
- ---------------------------------------------------------------------------------------
$ PICK-UP (DILUTION) $0.05 $0.16 $0.20
% PICK-UP (DILUTION) 2.2% 6.6% 7.4%
PROJECTED PRE-TAX SYNERGIES REQUIRED
TO BREAK-EVEN ($5.8) ($19.6) ($24.6)
- ---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------
SENSITIVITY ANALYSIS
- --------------------------------------------------------------------------------
<CAPTION>
1996 1997 1998
PREMIUM OFFER PRICE DILUTION DILUTION DILUTION
------- ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
0% $26.25 2.2% 6.6% 7.4%
10% 28.88 1.2% 5.7% 6.6%
20% 31.50 0.2% 4.8% 5.8%
30% 34.13 (0.8%) 4.0% 5.0%
40% 36.75 (1.8%) 3.1% 4.2%
50% 39.38 (2.8%) 2.2% 3.4%
60% 42.00 (3.8%) 1.3% 2.7%
70% 44.63 (4.8%) 0.4% 1.9%
80% 47.25 (5.8%) (0.5%) 1.1%
90% 49.88 (6.8%) (1.4%) 0.3%
100% 52.50 (7.8%) (2.2%) (0.5%)
- --------------------------------------------------------------------------------
</TABLE>
E-1
<PAGE> 59
PROJECT SILVER 0% CASH
PRO FORMA ACQUISITION ANALYSIS 100% STOCK POOLING
- -------------------------------------------------------------------------------
(dollars in millions, except per share)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
AMERICAN GREETINGS ACQUIRES SILVER
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
KEY ASSUMPTIONS
- -------------------------------------------------------------------------------
<S> <C> <C>
American Greetings Stock Price[at] 19-OCt-96 $ 29.75
SILVER Stock Price@ 19-OCt-96 $ 26.25
SILVER Shares Outstanding 8.676
Options and Warrants@ $12.38 0.338
-------
Total Fully-Diluted Shares 9.014
Offer Price Per Share $ 26.25
-------
Offer Value $ 236.6
Plus: Existing Net Debt $ 31.4
Less: Option & Warrant Proceeds (4.2)
-------
Transaction Value $ 263.8
=======
American Greetings 1996E P/E Multiple 13.8x
SILVER 1996E P/E Multiple 14.0x
Offer Price 1996E P/E Multiple 14.0x
Purchase Premium - % 0.0%
Tangible Book Value $ 149.4
Purchase Premium - % 87.2
PP&E Write-Up (0.0%) 0.0
PP&E Depreciation Period 15
Deferred Tax Liability 0.0
New Goodwill - Incl. Transaction Exp. $0.0
Goodwill Amortization Period 40
Exchange Ratio 0.882
Existing American Greetings Shares 74.758
Pro Forma American Greetings Shares 82.571
Transaction Expenses $ 10.0
American Greetings Marginal Tax Rate 39.0%
SILVER Marginal Tax Rate 39.0%
American Greetings Ownership of New Entity 90.5%
SILVER Ownership of New Entity 9.5%
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
- -------------------------------------------------------------------------------
BALANCE SHEET IMPACT
- -------------------------------------------------------------------------------
AMERCIAN GREETINGS SILVER
- -------------------------------------------------------------------------------
<CAPTION>
COMBINED
MAY-96 JUN-96 ADJUSTMENTS MAY-96
-----------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash $ 43.0 $ 6.2 $(10.0) $ 39.2
Total Debt 464.2 37.6 0.0 501.8
-------- ------ --------
Net Debt 421.2 31.4 462.6
Equity 1,251.4 155.5 0.0 (10.0) 1,396.9
Total Capitalization 1,715.6 193.1 1,898.7
- -------------------------------------------------------------------------------
TOTAL DEBT/TOTAL CAP. 27.1% 19.5% 26.4%
NET DEBT/TOTAL CAP. 24.6% 16.3% 24.4%
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
- -------------------------------------------------------------------------------
DILUTION ANALYSIS
- -------------------------------------------------------------------------------
<CAPTION>
1996E 1997E 1998E
----- ----- -----
<S> <C> <C> <C>
AMERICAN GREETINGS
Projected American Greetings Standalone EPS $ 2.15 $ 2.42 $ 2.71
Projected American Greetings Standalone Net Income $160.7 $180.9 $202.6
SILVER
Projected SILVER EPS $ 1.87 $ 2.84 $ 3.19
Projected SILVER Standalone Net Income $ 16.2 $ 24.6 $ 27.7
PRE-TAX ACQUISITION ADJUSTMENTS
New Goodwill $ 0.0 $ 0.0 $ 0.0
Incremental Depreciation 0.0 0.0 0.0
Synergies 0.0 0.0 0.0
New Interest Expense @ 7.0% 0.0 0.0 0.0
------------------------
Total Pre-Tax Acquisition Adjustments $ 0.0 $ 0.0 $ 0.0
AFTER-TAX ACQUISITION ADJUSTMENTS
New Goodwill $ 0.0 $ 0.0 $ 0.0
Incremental Depreciation 0.0 0.0 0.0
Synergies 0.0 0.0 0.0
New Interest Expense @ 7.0% 0.0 0.0 0.0
------------------------
Total After-Tax Acquisition Adjustments $ 0.0 $ 0.0 $ 0.0
PRO FORMA EPS CALCULATION
Projected American Greetings Standalone Net Income $160.7 $180.9 $202.6
Projected SILVER Standalone Net Income 16.2 24.6 27.7
- - After-Tax Aqcuisition Adjustments 0.0 0.0 0.0
------------------------
Pro Forma Combined Net Income $177.0 $205.6 $230.3
Pro Forma Combined Shares Outstanding 82.571 82.571 82.571
Pro Forma EPS $ 2.14 $ 2.49 $ 2.79
Projected American Greetings Standalone EPS $ 2.15 $ 2.42 $ 2.71
- -------------------------------------------------------------------------------
$ PICK-UP (DILUTION) $(0.01) $ 0.07 $ 0.08
% PICK-UP (DILUTION) (0.3%) 2.9% 2.9%
PROJECTED PRE-TAX SYNERGIES REQUIRED
TO BREAK-EVEN $ 0.9 $ (9.4) $(10.7)
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
SENSITIVITY ANALYSIS
- -------------------------------------------------------------------------------
1996 1997 1998
PREMIUM OFFER PRICE DILUTION DILUTION DILUTION
------- ----------- -------- -------- --------
<S> <C> <C> <C> <C>
0% $26.25 (0.3%) 2.9% 2.9%
10% 28.88 (1.3%) 1.9% 1.9%
20% 31.50 (2.2%) 0.9% 1.0%
30% 34.13 (3.1%) (0.0%) 0.0%
40% 36.75 (4.0%) (0.9%) (0.9%)
50% 39.38 (4.9%) (1.9%) (1.8%)
60% 42.00 (5.8%) (2.8%) (2.7%)
70% 44.63 (6.6%) (3.6%) (3.6%)
80% 47.25 (7.5%) (4.5%) (4.5%)
90% 49.88 (8.3%) (5.3%) (5.3%)
100% 52.50 (9.1%) (6.2%) (6.1%)
- -------------------------------------------------------------------------------
</TABLE>
<PAGE> 60
-----------
PROJECT SILVER 100% CASH ---------
PRO FORMA ACQUISITION ANALYSIS 0% STOCK PURCHASE
- --------------------------------------------------------------------------------
(dollars in millions, except per share)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
CSS INDUSTRIES INC ACQUIRES SILVER
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
KEY ASSUMPTIONS
- --------------------------------------------------------------------------------
<S> <C> <C>
CSS Industries Inc Stock Price @ 20-Oct-96 $ 23.25
SILVER Stock Price @ 20-Oct-96 $ 26.25
SILVER Shares Outstanding 8.676
Options and Warrants @ $12.38 0.338
-------
Total Fully-Diluted Shares 9.014
Offer Price Per Share $ 26.25
-------
Offer Value $ 236.6
Plus Existing Net Debt $ 31.4
Less Option & Warrant Proceeds (4.2)
-------
Transaction Value $ 263.8
=======
CSS Industries Inc 1996E P/E Multiple 13.8x
SILVER 1996E P/E Multiple 14.0x
Offer Price 1996E P/E Multiple 14.0x
Purchase Premium - % 0.0%
Tangible Book Value $ 149.4
Purchase Premium - $ 87.2
PP&E Write-Up (0.0%) 0.0
PP&E Depreciation Period 15
Deferred Tax Liability 0.0
New Goodwill - Incl. Transaction Exp. $ 93.0
Goodwill Amortization Period 40
Exchange Ratio 0.000
Existing CSS Industries Inc Shares 10.722
Pro Forma CSS Industries Inc Shares 10.722
Transaction Expresses $ 10.0
CSS Industries Inc Marginal Tax Rate 39.0%
SILVER Marginal Tax Rate 39.0%
CSS Industries Inc Ownership of New Entity 100.0%
SILVER Ownership of New Entity 0.0%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------
BALANCE SHEET IMPACT
- --------------------------------------------------------------------------------
CSS INDUSTRIES INC SILVER
<CAPTION>
COMBINED
JUN-96 JUN-96 ADJUSTMENTS JUN-96
------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash $ 3.4 $ 6.2 $ 0.0 $ 9.6
Total Debt 21.5 37.6 242.4 301.6
------ ------ ------
Net Debt 18.2 31.4 292.0
Equity 149.9 155.5 (155.5) 0.0 149.9
Total Capitalization 171.4 193.1 451.4
- --------------------------------------------------------------------------------
TOTAL DEBT/TOTAL CAP. 12.6% 19.5% 66.8%
NET DEBT/NET CAP. 10.6% 16.3% 64.7%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------
DILUTION ANALYSIS
- --------------------------------------------------------------------------------
<CAPTION>
1996E 1997E 1998E
----- ----- -----
<S> <C> <C> <C>
CSS INDUSTRIES INC
Projected CSS Industries Inc Standalone EPS $ 1.69 $ 2.03 $ 2.23
Projected CSS Industries Inc Standalone Net Income $ 18.1 $ 21.8 $ 23.9
SILVER
Projected SILVER EPS $ 1.87 $ 2.84 $ 3.19
Projected SILVER Standalone Net Income $ 16.2 $ 24.6 $ 27.7
PRE-TAX ACQUISITION ADJUSTMENTS
New Goodwill ($2.3) ($2.3) ($2.3)
Incremental Depreciation 0.0 0.0 0.0
Synergies 0.0 0.0 0.0
New Interest Expense @ 9.0% (21.8) (21.8) (21.8)
------------------------
Total Pre-Tax Acquisition Adjustments ($24.1) ($24.1) ($24.1)
AFTER-TAX ACQUISITION ADJUSTMENTS
New Goodwill ($2.3) ($2.3) ($2.3)
Incremental Depreciation 0.0 0.0 0.0
Synergies 0.0 0.0 0.0
New Interest Expense @ 9.0% (13.3) (13.3) (13.3)
------------------------
Total After-Tax Acquisition Adjustments ($15.6) ($15.6) ($15.6)
PRO FORMA EPS CALCULATION
Projected CSS Industries Inc Standalone Net Income $ 18.1 $ 21.8 $ 23.9
Projected SILVER Standalone Net Income 16.2 24.6 27.7
- - After-Tax Aqcuisition Adjustments (15.6) (15.6) (15.6)
-------------------------
Pro Forma Combined Net Income $ 18.7 $ 30.8 $ 36.0
Pro Forma Combined Shares Outstanding 10.722 10.722 10.722
Pro Forma EPS $ 1.75 $ 2.87 $ 3.36
Projected CSS Industries Inc Standalone EPS $ 1.69 $ 2.03 $ 2.23
- --------------------------------------------------------------------------------
$ PICK-UP (DILUTION) $ 0.06 $ 0.84 $ 1.12
% PICK-UP (DILUTION) 3.3% 41.4% 50.3%
PROJECTED PRE-TAX SYNERGIES REQUIRED
TO BREAK-EVEN $ (1.0) $(14.8) $(19.7)
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SENSITIVITY ANALYSIS
- --------------------------------------------------------------------------------
1996 1997 1998
PREMIUM OFFER PRICE DILUTION DILUTION DILUTION
------- ----------- -------- -------- --------
<S> <C> <C> <C> <C>
0% $26.25 3.3% 41.4% 50.3%
10% 28.88 (7.2%) 32.7% 42.4%
20% 31.50 (17.6%) 24.0% 34.5%
30% 34.13 (28.0%) 15.3% 26.6%
40% 36.75 (38.5%) 6.6% 18.7%
50% 39.38 (48.9%) (2.1%) 10.8%
60% 42.00 (59.3%) (10.7%) 2.9%
70% 44.63 (69.8%) (19.4%) (5.0%)
80% 47.25 (80.2%) (28.1%) (12.9%)
90% 49.88 (90.7%) (36.8%) (20.8%)
100% 52.50 (101.1%) (45.5%) (28.7%)
- --------------------------------------------------------------------------------
</TABLE>
E-3
<PAGE> 61
<TABLE>
-----------
PROJECT SILVER 0% CASH ------------
PRO FORMA ACQUISITION ANALYSIS 100% STOCK POOLING
- --------------------------------------------------------------------------------
(dollars in millions, except per share)
<CAPTION>
- --------------------------------------------------------------------------------
CSS INDUSTRIES INC ACQUIRES SILVER
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
KEY ASSUMPTIONS
- --------------------------------------------------------------------------------
<S> <C> <C>
CSS Industries Inc Stock Price@ 20-Oct-96 $23.25
SILVER Stock Price@ 20-Oct-96 $26.25
SILVER Shares Outstanding 8.676
Options and Warrants@ $12.38 0.338
------
Total Fully-Dilited Shares 9.014
Office Price Per Share $26.25
------
Offer Value $236.6
Plus: Existing Net Debt $31.4
Less: Option & Warrant Proceeds (4.2)
------
Transaction Value $263.8
======
CSS Industries Inc 1996E P/E Multiple 13.8x
SILVER 1996E P/E Multiple 14.0x
Offer Price 1996E P/E Multiple 14.0x
Purchase Premium - % 0.0%
Tangible Book Value $149.4
Purchase Premium - $ 87.2
PP&E Write-Up(0.0%) 0.0
PP&E Depreciation Period 15
Deferred Tax Liability 0.0
New Goodwill-Incl. Transaction Exp. $0.0
Goodwill Amortization Period 40
Exchange Ratio 1.129
Existing CSS Industries Inc Shares 10.722
Pro Forma CSS Industries Inc Shares 20.719
Transaction Expenses $10.0
CSS Industries Inc Marginal Tax Rate 39.0%
SILVER Marginal Tax Rate 39.0%
CSS Industries Inc Ownership of New Entity 51.7%
SILVER Ownership of New Entity 48.3%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
- -----------------------------------------------------------------------------------------------
BALANCE SHEET IMPACT
- -----------------------------------------------------------------------------------------------
<CAPTION>
CSS INDUSTRIES INC SILVER COMBINED
JUN-96 JUN-96 ADJUSTMENTS MAY-96
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash $3.4 $6.2 ($10.0) ($0.4)
Total Debt 21.5 37.6 0.0 59.1
----- ---- -----
Net Debt 18.2 31.4 59.6
Equity 149.9 155.5 0.0 (10.0) 295.4
Total Capitalization 171.4 193.1 354.5
- ----------------------------------------------------------------------------------------------
TOTAL DEBT/TOTAL CAP. 12.6% 19.5% 16.7%
NET DEBT/TOTAL CAP. 10.6% 16.3% 16.8%
- ----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
- ---------------------------------------------------------------------------------------
DILUTION ANALYSIS
- ---------------------------------------------------------------------------------------
<CAPTION>
1996E 1997E 1998E
----- ----- -----
<S> <C> <C> <C> <C>
CSS INDUSTRIES INC
Projected CSS Industries Inc Standalone EPS $1.69 $2.03 $2.23
Projected CSS Industries Inc Standalone Net Income $18.1 $21.8 $23.9
SILVER
Projected SILVER EPS $1.87 $2.84 $3.19
Projected SILVER Standalone Net Income $16.2 $24.6 $27.7
PRE-TAX ACQUISITION ADJUSTMENTS
New Goodwill $0.0 $0.0 $0.0
Incremental Depreciation 0.0 0.0 0.0
Synergies 0.0 0.0 0.0
New Interest Expense@ 9.0% 0.0 0.0 0.0
--------------------------
Total Pre-Tax Acquisition Adjustments $0.0 $0.0 $0.0
AFTER-TAX ACQUISITION ADJUSTMENTS
New Goodwill $0.0 $0.0 $0.0
Incremental Depreciation 0.0 0.0 0.0
Synergies 0.0 0.0 0.0
New Interest Expense@ 9.0% 0.0 0.0 0.0
--------------------------
Total After-Tax Acquisition Adjustments $0.0 $0.0 $0.0
PRO FORMA EPS CALCULATION
Projected CSS Industries Inc Standalone Net Income $18.1 $21.8 $23.9
Projected SILVER Standalone Net Income 16.2 24.6 27.7
- - After-Tax Acquisition Adjustments 0.0 0.0 0.0
--------------------------
Pro Forma Combined Net Income $34.3 $46.4 $51.6
Pro Forma Combined Shares Outstanding 20.719 20.719 20.719
Pro Forma EPS $1.66 $2.24 $2.49
Projected CSS Industries Inc Standalone EPS $1.69 $2.03 $2.23
- ---------------------------------------------------------------------------------------
$ PICK-UP (DILUTION) ($0.03) $0.21 $0.26
% PICK-UP (DILUTION) (1.9%) 10.3% 11.6%
PROJECTED PRE-TAX SYNERGIES REQUIRED
TO BREAK-EVEN $1.1 ($7.1) ($8.8)
- ---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------
SENSITIVITY ANALYSIS
- --------------------------------------------------------------------------------
<CAPTION>
1996 1997 1998
PREMIUM OFFER PRICE DILUTION DILUTION DILUTION
------- ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
0% $26.25 (1.9%) 10.3% 11.6%
10% 28.88 (6.5%) 5.2% 6.3%
20% 31.50 (10.7%) 0.5% 1.6%
30% 34.13 (14.5%) (3.8%) (2.8%)
40% 36.75 (18.0%) (7.8%) (6.8%)
50% 39.38 (21.3%) (11.4%) (10.4%)
60% 42.00 (24.2%) (14.8%) (13.8%)
70% 44.63 (27.0%) (17.9%) (17.0%)
80% 47.25 (29.6%) (20.8%) (19.9%)
90% 49.88 (32.0%) (23.5%) (22.6%)
100% 52.50 (34.2%) (26.0%) (25.2%)
- --------------------------------------------------------------------------------
</TABLE>
E-4
<PAGE> 62
-----------
PROJECT SILVER 100% CASH ---------
PRO FORMA ACQUISITION ANALYSIS 0% STOCK PURCHASE
- --------------------------------------------------------------------------------
(dollars in millions, except per share)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
DEPARTMENT 56, INC ACQUIRES SILVER
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
KEY ASSUMPTIONS
- --------------------------------------------------------------------------------
<S> <C> <C>
Department 56, Inc Stock Price @ 19-Oct-96 $ 25.25
SILVER Stock Price @ 19-Oct-96 $ 26.25
SILVER Shares Outstanding 8.676
Options and Warrants @ $12.38 0.338
-------
Total Fully-Diluted Shares 9.014
Offer Price Per Share $ 26.25
-------
Offer Value $ 236.6
Plus Existing Net Debt $ 31.4
Less Option & Warrant Proceeds (4.2)
-------
Transaction Value $ 263.8
=======
Department 56, Inc 1996E P/E Multiple 11.7x
SILVER 1996E P/E Multiple 14.0x
Offer Price 1996E P/E Multiple 14.0x
Purchase Premium - % 0.0%
Tangible Book Value $ 149.4
Purchase Premium - % 87.2
PP&E Write-Up (0.0%) 0.0
PP&E Depreciation Period 15
Deferred Tax Liability 0.0
New Goodwill Incl. Transaction Exp. $ 93.0
Goodwill Amortization Period 40
Exchange Ratio 0.000
Existing Department 56, Inc Shares 21.550
Pro Forma Department 56, Inc Shares 21.550
Transaction Expenses $ 10.0
Department 56, Inc Marginal Tax Rate 39.0%
SILVER Marginal Tax Rate 39.0%
Department 56, Inc Ownership of New Entity 100.0%
SILVER Ownership of New Entity 0.0%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------
BALANCE SHEET IMPACT
- --------------------------------------------------------------------------------
<CAPTION>
DEPARTMENT 56, INC SILVER COMBINED
JUN-96 JUN-96 ADJUSTMENTS JUN-96
------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash $ 2.8 $ 6.2 $ 0.0 $ 9.0
Total Debt 106.9 37.6 242.4 386.9
------ ------ ------
Net Debt 104.1 31.4 377.9
Equity 179.9 155.5 (155.5) 0.0 179.9
Total Capitalization 286.8 193.1 566.8
- --------------------------------------------------------------------------------
TOTAL DEBT/TOTAL CAP. 37.3% 19.5% 68.3%
NET DEBT/TOTAL CAP. 36.3% 16.3% 66.7%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------
DILUTION ANALYSIS
- --------------------------------------------------------------------------------
<CAPTION>
1996E 1997E 1998E
----- ----- -----
<S> <C> <C> <C>
DEPARTMENT 56, INC
Projected Department 56, Inc Standalone EPS $ 2.16 $ 2.45 $ 2.77
Projected Department 56, Inc Standalone Net Income $ 46.5 $ 52.8 $ 59.7
SILVER
Projected SILVER EPS $ 1.87 $ 2.84 $ 3.19
Projected SILVER Standalone Net Income $ 16.2 $ 24.6 $ 27.7
PRE-TAX ACQUISITION ADJUSTMENTS
New Goodwill $ (2.3) $ (2.3) $ (2.3)
Incremental Depreciation 0.0 0.0 0.0
Synergies 0.0 0.0 0.0
New Interest Expense @ 9.0% (21.8) (21.8) (21.8)
-------------------------
Total Pre-Tax Acquisition Adjustments $(24.1) $(24.1) $(24.1)
AFTER-TAX ACQUISITION ADJUSTMENTS
New Goodwill $ (2.3) $ (2.3) $ (2.3)
Incremental Depreciation 0.0 0.0 0.0
Synergies 0.0 0.0 0.0
New Interest Expense @ 9.0% (13.3) (13.3) (13.3)
-------------------------
Total After-Tax Acquisition Adjustments $(15.6) $(15.6) $(15.6)
PRO FORMA EPS CALCULATION
Projected Department 56, Inc Standalone Net Income $ 46.5 $ 52.8 $ 59.7
Projected SILVER Standalone Net Income 16.2 24.6 27.7
- - After-Tax Acquisition Adjustments (15.6) (15.6) (15.6)
-------------------------
Pro Forma Combined Net Income $ 47.1 $ 61.8 $ 71.7
Pro Forma Combined Shares Outstanding 21.550 21.550 21.550
Pro Forma EPS $ 2.19 $ 2.87 $ 3.33
Projected Department 56, Inc Standalone EPS $ 2.16 $ 2.45 $ 2.77
- --------------------------------------------------------------------------------
$ PICK-UP (DILUTION) $ 0.03 $ 0.42 $ 0.56
% PICK-UP (DILUTION) 1.3% 17.1% 20.2%
PROJECTED PRO-TAX SYNERGIES REQUIRED
TO BREAK-EVEN $ (1.0) $(14.8) $(19.7)
- --------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------
SENSITIVITY ANALYSIS
- --------------------------------------------------------------------------------
1996 1997 1998
PREMIUM OFFER PRICE DILUTION DILUTION DILUTION
------- ----------- -------- -------- --------
<S> <C> <C> <C> <C>
0% $26.25 1.3% 17.1% 20.2%
10% 28.88 (2.8%) 13.5% 17.0%
20% 31.50 (6.9%) 9.9% 13.8%
30% 34.13 (10.9%) 6.3% 10.7%
40% 36.75 (15.0%) 2.7% 7.5%
50% 39.38 (19.0%) (0.8%) 4.3%
60% 42.00 (23.1%) (4.4%) 1.2%
70% 44.63 (27.2%) (8.0%) (2.0%)
80% 47.25 (31.2%) (11.6%) (5.2%)
90% 49.88 (35.3%) (15.2%) (8.3%)
100% 52.50 (39.3%) (18.8%) (11.5%)
- --------------------------------------------------------------------------------
</TABLE>
E-5
<PAGE> 63
-----------
PROJECT SILVER 0% CASH ---------
PRO FORMA ACQUISITION ANALYSIS 100% STOCK POOLING
- --------------------------------------------------------------------------------
(dollars in millions, except per share)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
DEPARTMENT 56, INC ACQUIRES SILVER
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
KEY ASSUMPTIONS
- --------------------------------------------------------------------------------
<S> <C> <C>
Department 56, Inc Stock Price @ 19-Oct-96 $ 25.25
SILVER Stock Price @ 19-Oct-96 $ 26.25
SILVER Shares Outstanding 8.676
Options and Warrants @ $12.38 0.338
-------
Total Fully-Diluted Shares 9.014
Offer Price Per Share $ 26.25
-------
Offer Value $ 236.6
Plus Existing Net Debt $ 31.4
Less Option & Warrant Proceeds (4.2)
-------
Transaction Value $ 263.8
=======
Department 56, Inc 1996E P/E Multiple 11.7x
SILVER 1996E P/E Multiple 14.0x
Offer Price 1996E P/E Multiple 14.0x
Purchase Premium - % 0.0%
Tangible Book Value $ 149.4
Purchase Premium - % 87.2
PP&E Write-Up (0.0%) 0.0
PP&E Depreciation Period 15
Deferred Tax Liability 0.0
New Goodwill Incl. Transaction Exp. $ 0.0
Goodwill Amortization Period 40
Exchange Ratio 1.040
Existing Department 56, Inc Shares 21.550
Pro Forma Department 56, Inc Shares 30.755
Transaction Expenses $ 10.0
Department 56, Inc Marginal Tax Rate 39.0%
SILVER Marginal Tax Rate 39.0%
Department 56, Inc Ownership of New Entity 70.1%
SILVER Ownership of New Entity 29.9%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------
BALANCE SHEET IMPACT
- --------------------------------------------------------------------------------
<CAPTION>
DEPARTMENT 56, INC SILVER COMBINED
JUN-96 JUN-96 ADJUSTMENTS JUN-96
------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash $ 2.8 $ 6.2 $(10.0) $ (1.0)
Total Debt 106.9 37.6 0.0 144.5
------ ------ ------
Net Debt 104.1 31.4 145.5
Equity 179.9 155.5 0.0 (10.0) 325.3
Total Capitalization 286.8 193.1 469.9
- --------------------------------------------------------------------------------
TOTAL DEBT/TOTAL CAP. 37.3% 19.5% 30.8%
NET DEBT/TOTAL CAP. 36.3% 16.3% 31.0%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
- -------------------------------------------------------------------------------
DILUTION ANALYSIS
- -------------------------------------------------------------------------------
<CAPTION>
1996E 1997E 1998E
----- ----- -----
<S> <C> <C> <C>
DEPARTMENT 56, INC
Projected Department 56, Inc Standalone EPS $ 2.16 $ 2.45 $ 2.77
Projected Department 56, Inc Standalone Net Income $ 46.5 $ 52.8 $ 59.7
SILVER
Projected SILVER EPS $ 1.87 $ 2.84 $ 3.19
Projected SILVER Standalone Net Income $ 16.2 $ 24.6 $ 27.7
PRE-TAX ACQUISITION ADJUSTMENTS
New Goodwill $ 0.0 $ 0.0 $ 0.0
Incremental Depreciation 0.0 0.0 0.0
Synergies 0.0 0.0 0.0
New Interest Expense @ 9.0% 0.0 0.0 0.0
------------------------
Total Pre-Tax Acquisition Adjustments $ 0.0 $ 0.0 $ 0.0
AFTER-TAX ACQUISITION ADJUSTMENTS
New Goodwill $ 0.0 $ 0.0 $ 0.0
Incremental Depreciation 0.0 0.0 0.0
Synergies 0.0 0.0 0.0
New Interest Expense @ 9.0% 0.0 0.0 0.0
------------------------
Total After-Tax Acquisition Adjustments $ 0.0 0.0 0.0
PRO FORMA EPS CALCULATION
Projected Department 56, Inc Standalone Net Income $ 46.5 $ 52.8 $ 59.7
Projected SILVER Standalone Net Income 16.2 24.6 27.7
- - After-Tax Acquisition Adjustments 0.0 0.0 0.0
-------------------------
Pro Forma Combined Net Income $ 62.8 $ 77.4 $ 87.3
Pro Forma Combined Shares Outstanding 30.755 30.755 30.755
Pro Forma EPS $ 2.04 $ 2.52 $ 2.84
Projected Department 56, Inc Standalone EPS $ 2.16 $ 2.45 $ 2.77
- --------------------------------------------------------------------------------
$ PICK-UP (DILUTION) $(0.12) $ 0.07 $ 0.07
% PICK-UP (DILUTION) (5.5%) 2.8% 2.6%
PROJECTED PRO-TAX SYNERGIES REQUIRED
TO BREAK-EVEN $ 6.0 $ (3.4) $ (3.6)
- --------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------
SENSITIVITY ANALYSIS
- -------------------------------------------------------------------------------
1996 1997 1998
PREMIUM OFFER PRICE DILUTION DILUTION DILUTION
------- ----------- -------- -------- --------
<S> <C> <C> <C> <C>
0% $26.25 (5.5%) 2.8% 2.6%
10% 28.88 (8.3%) (0.3%) (0.5%)
20% 31.50 (10.9%) (3.1%) (3.3%)
30% 34.13 (13.4%) (5.8%) (6.0%)
40% 36.75 (15.8%) (8.4%) (8.6%)
50% 39.38 (18.0%) (10.8%) (11.0%)
60% 42.00 (20.1%) (13.1%) (13.3%)
70% 44.63 (22.1%) (15.3%) (15.5%)
80% 47.25 (24.0%) (17.4%) (17.5%)
90% 49.88 (25.8%) (19.3%) (19.5%)
100% 52.50 (27.6%) (21.2%) (21.4%)
- -------------------------------------------------------------------------------
</TABLE>
E-6
<PAGE> 64
<TABLE>
-----------
PROJECT SILVER 100% CASH ------------
PRO FORMA ACQUISITION ANALYSIS 0% STOCK PURCHASE
- --------------------------------------------------------------------------------
(dollars in millions, except per share)
<CAPTION>
- --------------------------------------------------------------------------------
NEWELL CO ACQUIRES SILVER
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
KEY ASSUMPTIONS
- --------------------------------------------------------------------------------
<S> <C> <C>
Newell Co Stock Price@ 19-Oct-96 $30.50
SILVER Stock Price@ 19-Oct-96 $26.25
SILVER Shares Outstanding 8.676
Options and Warrants@ $12.38 0.338
------
Total Fully-Diluted Shares 9.014
Offer Price Per Share $26.25
------
Offer Value $236.6
Plus: Existing Net Debt $31.4
Less: Option & Warrant Proceeds (4.2)
------
Transaction Value $263.8
======
Newell Co 1996E P/E Multiple 18.7x
SILVER 1996E P/E Multiple 14.0x
Offer Price1996E P/E Multiple 14.0x
Purchase Premium - % 0.0%
Tangible Book Value $149.4
Purchase Premium - $ 87.2
PP&E Write-Up(0.0%) 0.0
PP&E Depreciation Period 15
Deferred Tax Liability 0.0
New Goodwill-Incl. Transaction Exp. $93.0
Goodwill Amortization Period 40
Exchange Ratio 0.000
Existing Newell Co Shares 158.784
Pro Forma Newell Co Shares 158.784
Transaction Expenses $10.0
Newell Co Marginal Tax Rate 39.0%
SILVER Marginal Tax Rate 39.0%
Newell Co Ownership of New Entity 100.0%
SILVER Ownership of New Entity 0.0%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
- -----------------------------------------------------------------------------------------------
BALANCE SHEET IMPACT
- -----------------------------------------------------------------------------------------------
<CAPTION>
NEWELL CO SILVER COMBINED
JUN-96 JUN-96 ADJUSTMENTS JUN-96
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash $45.5 $6.2 $0.0 $51.7
Total Debt 985.1 37.6 242.4 1,265.2
----- ---- -----
Net Debt 939.6 31.4 1,213.5
Equity 1,354.3 155.5 (155.5) 0.0 1,354.3
Total Capitalization 2,339.4 193.1 2,619.5
- ----------------------------------------------------------------------------------------------
Total Debt/Total Cap. 42.1% 19.5% 48.3%
Net Debt/Total Cap. 40.2% 16.3% 46.3%
- ----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
- ---------------------------------------------------------------------------------------
DILUTION ANALYSIS
- ---------------------------------------------------------------------------------------
<CAPTION>
1996E 1997E 1998E
----- ----- -----
<S> <C> <C> <C> <C>
NEWELL CO
Projected Newell Co Standalone EPS $1.63 $1.88 $2.16
Projected Newell Co Standalone Net Income $258.8 $298.5 $343.3
SILVER
Projected SILVER EPS $1.87 $2.84 $3.19
Projected SILVER Standalone Net Income $16.2 $24.6 $27.7
PRE-TAX ACQUISITION ADJUSTMENTS
New Goodwill ($2.3) ($2.3) ($2.3)
Incremental Depreciation 0.0 0.0 0.0
Synergies 0.0 0.0 0.0
New Interest Expense@ 7.0% (17.0) (17.0) (17.0)
--------------------------
Total Pre-Tax Acquisition Adjustments ($19.3) ($19.3) ($19.3)
AFTER-TAX ACQUISITION ADJUSTMENTS
New Goodwill ($2.3) ($2.3) ($2.3)
Incremental Depreciation 0.0 0.0 0.0
Synergies 0.0 0.0 0.0
New Interest Expense@ 7.0% (10.4) (10.4) (10.4)
--------------------------
Total After-Tax Acquisition Adjustments ($12.7) ($12.7) ($12.7)
PRO FORMA EPS CALCULATION
Projected Newell Co Standalone Net Income $258.8 $298.5 $343.3
Projected SILVER Standalone Net Income 16.2 24.6 27.7
- - After-Tax Acquisition Adjustments (12.7) (12.7) (12.7)
--------------------------
Pro Forma Combined Net Income $262.4 $310.5 $358.3
Pro Forma Combined Shares Outstanding 158,784 158,784 158,784
Pro Forma EPS $1.65 $1.96 $2.26
Projected Newell Co Standalone EPS $1.63 $1.88 $2.16
- ---------------------------------------------------------------------------------------
$ PICK-UP (DILUTION) $0.02 $0.08 $0.09
% PICK-UP (DILUTION) 1.4% 4.0% 4.4%
PROJECTED PRE-TAX SYNERGIES REQUIRED
TO BREAK-EVEN ($5.8) ($19.6) ($24.6)
- ---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------
SENSITIVITY ANALYSIS
- --------------------------------------------------------------------------------
<CAPTION>
1996 1997 1998
PREMIUM OFFER PRICE DILUTION DILUTION DILUTION
------- ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
0% $26.25 1.4% 4.0% 4.4%
10% 28.88 0.8% 3.5% 3.9%
20% 31.50 0.1% 2.9% 3.4%
30% 34.13 (0.5%) 2.4% 3.0%
40% 36.75 (1.1%) 1.9% 2.5%
50% 39.38 (1.7%) 1.3% 2.0%
60% 42.00 (2.3%) 0.8% 1.6%
70% 44.63 (3.0%) 0.3% 1.1%
80% 47.25 (3.6%) (0.3%) 0.6%
90% 49.88 (4.2%) (0.8%) 0.2%
100% 52.50 (4.8%) (1.4%) (0.3%)
- --------------------------------------------------------------------------------
</TABLE>
E-7
<PAGE> 65
<TABLE>
-----------
PROJECT SILVER 100% CASH ------------
PRO FORMA ACQUISITION ANALYSIS 0% STOCK POOLING
- --------------------------------------------------------------------------------
(dollars in millions, except per share)
- --------------------------------------------------------------------------------
NEWELL CO ACQUIRES SILVER
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
KEY ASSUMPTIONS
- --------------------------------------------------------------------------------
<S> <C> <C>
Newell Co Stock Price @ 19-Oct-96 $30.50
SILVER Stock Price @ 19-Oct-96 $26.25
SILVER Shares Outstanding 8.676
Options and Warrants @ $12.38 0.338
------
Total Fully-Diluted Shares 9.014
Offer Price Per Share $26.25
------
Offer Value $236.6
Plus: Existing Net Debt $31.4
Less: Option & Warrant Proceeds (4.2)
------
Transaction Value $263.8
======
Newell Co 1996E P/E Multiple 18.7x
SILVER 1996E P/E Multiple 14.0x
Offer Price 1996E P/E Multiple 14.0x
Purchase Premium - % 0.0%
Tangible Book Value $149.4
Purchase Premium - $ 87.2
PP&E Write-Up (0.0%) 0.0
PP&E Depreciation Period 15
Deferred Tax Liability 0.0
New Goodwill-Incl. Transaction Exp. $0.0
Goodwill Amortization Period 40
Exchange Ratio 0.861
Existing Newell Co Shares 158.784
Pro Forma Newell Co Shares 166.405
Transaction Expenses $10.0
Newell Co Marginal Tax Rate 39.0%
SILVER Marginal Tax Rate 39.0%
Newell Co Ownership of New Entity 95.4%
SILVER Ownership of New Entity 4.6%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
- -----------------------------------------------------------------------------------------------
BALANCE SHEET IMPACT
- -----------------------------------------------------------------------------------------------
<CAPTION>
NEWELL CO SILVER COMBINED
JUN-96 JUN-96 ADJUSTMENTS JUN-96
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash $45.5 $6.2 ($10.0) $41.7
Total Debt 985.1 37.6 0.0 1,022.7
----- ---- -------
Net Debt 939.6 31.4 981.0
Equity 1,354.3 155.5 0.0 (10.0) 1,499.8
Total Capitalization 2,339.4 193.1 2,522.5
- ----------------------------------------------------------------------------------------------
TOTAL DEBT/TOTAL CAP. 42.1% 19.5% 40.5%
NET DEBT/TOTAL CAP. 40.2% 16.3% 38.9%
- ----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
- ---------------------------------------------------------------------------------------
DILUTION ANALYSIS
- ---------------------------------------------------------------------------------------
<CAPTION>
1996E 1997E 1998E
----- ----- -----
<S> <C> <C> <C> <C>
NEWELL CO
Projected Newell Co Standalone EPS $1.63 $1.88 $2.16
Projected Newell Co Standalone Net Income $258.8 $298.5 $343.3
SILVER
Projected SILVER EPS $1.87 $2.84 $3.19
Projected SILVER Standalone Net Income $16.2 $24.6 $27.7
PRE-TAX ACQUISITION ADJUSTMENTS
New Goodwill $0.0 $0.0 $0.0
Incremental Depreciation 0.0 0.0 0.0
Synergies 0.0 0.0 0.0
New Interest Expense@ 7.0% 0.0 0.0 0.0
--------------------------
Total Pre-Tax Acquisition Adjustments $0.0 $0.0 $0.0
AFTER-TAX ACQUISITION ADJUSTMENTS
New Goodwill $0.0 $0.0 $0.0
Incremental Depreciation 0.0 0.0 0.0
Synergies 0.0 0.0 0.0
New Interest Expense@ 7.0% 0.0 0.0 0.0
--------------------------
Total After-Tax Acquisition Adjustments $0.0 $0.0 $0.0
PRO FORMA EPS CALCULATION
Projected Newell Co Standalone Net Income $258.8 $298.5 $343.3
Projected SILVER Standalone Net Income 16.2 24.6 27.7
- - After-Tax Acquisition Adjustments 0.0 0.0 0.0
--------------------------
Pro Forma Combined Net Income $275.0 $323.2 $371.0
Pro Forma Combined Shares Outstanding 166.405 166.405 166.405
Pro Forma EPS $1.65 $1.94 $2.23
Projected Newell Co Standalone EPS $1.63 $1.88 $2.16
- ---------------------------------------------------------------------------------------
$ PICK-UP (DILUTION) $0.02 $0.68 $0.07
% PICK-UP (DILUTION) 1.4% 3.3% 3.1%
PROJECTED PRE-TAX SYNERGIES REQUIRED
TO BREAK-EVEN ($6.2) ($16.9) ($18.4)
- ---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------
SENSITIVITY ANALYSIS
- --------------------------------------------------------------------------------
<CAPTION>
1996 1997 1998
PREMIUM OFFER PRICE DILUTION DILUTION DILUTION
------- ----------- -------- -------- --------
<S> <C> <C> <C> <C>
0% $26.25 1.4% 3.3% 3.1%
10% 28.88 0.9% 2.8% 2.6%
20% 31.50 0.5% 2.3% 2.2%
30% 34.13 0.0%) 1.9% 1.7%
40% 36.75 (0.5%) 1.4% 1.2%
50% 39.38 (0.9%) 0.9% 0.8%
60% 42.00 (1.4%) 0.5% 0.3%
70% 44.63 (1.8%) 0.0% (0.1%)
80% 47.25 (2.2%) (0.4%) 0.6%
90% 49.88 (2.7%) (0.9%) (1.0%)
100% 52.50 (3.1%) (1.3%) (1.5%)
- --------------------------------------------------------------------------------
</TABLE>
E-8
<PAGE> 66
-----------
PROJECT SILVER 100% CASH ---------
PRO FORMA ACQUISITION ANALYSIS 0% STOCK PURCHASE
- --------------------------------------------------------------------------------
(dollars in millions, except per share)
<TABLE>
- --------------------------------------------------------------------------------
RUBBERMAID INC ACQUIRES SILVER
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
KEY ASSUMPTIONS
- --------------------------------------------------------------------------------
<S> <C> <C>
Rubbermaid Inc Stock Price @ 20-Oct-96 $ 24.00
SILVER Stock Price @ 20-Oct-96 $ 26.25
SILVER Shares Outstanding 8.676
Options and Warrants @ $12.38 0.338
-------
Total Fully-Diluted Shares 9.014
Offer Price Per Share $ 26.25
-------
Offer Value $ 236.6
Plus Existing Net Debt $ 31.4
Less Option & Warrant Proceeds (4.2)
-------
Transaction Value $ 263.8
=======
Rubbermaid Inc 1996E P/E Multiple 22.4x
SILVER 1996E P/E Multiple 14.0x
Offer Price 1996E P/E Multiple 14.0x
Purchase Premium - % 0.0%
Tangible Book Value $ 149.4
Purchase Premium - % 87.2
PP&E Write-Up (0.0%) 0.0
PP&E Depreciation Period 15
Deferred Tax Liability 0.0
New Goodwill Incl. Transaction Exp. $ 93.0
Goodwill Amortization Period 40
Exchange Ratio 0.000
Existing Rubbermaid Inc Shares 149.768
Pro Forma Rubbermaid Inc Shares 149.768
Transaction Expenses $ 10.0
Rubbermaid Inc Marginal Tax Rate 39.0%
SILVER Marginal Tax Rate 39.0%
Rubbermaid Inc Ownership of New Entity 100.0%
SILVER Ownership of New Entity 0.0%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------
BALANCE SHEET IMPACT
- --------------------------------------------------------------------------------
<CAPTION>
RUBBERMAID INC SILVER COMBINED
JUN-96 JUN-96 ADJUSTMENTS JUN-96
------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash $ 33.0 $ 6.2 $ 0.0 $ 39.2
Total Debt 259.4 37.6 242.4 539.5
------- ------ -------
Net Debt 226.4 31.4 500.2
Equity 973.5 155.5 (155.5) 0.0 973.5
Total Capitalization 1,232.9 193.1 1,513.0
- --------------------------------------------------------------------------------
TOTAL DEBT/TOTAL CAP. 21.0% 19.5% 35.7%
NET DEBT/TOTAL CAP. 18.4% 16.3% 33.1%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------
DILUTION ANALYSIS
- --------------------------------------------------------------------------------
<CAPTION>
1996E 1997E 1998E
----- ----- -----
<S> <C> <C> <C>
RUBBERMAID INC
Projected Rubbermaid Inc Standalone EPS $ 1.07 $ 1.31 $ 1.48
Projected Rubbermaid Inc Standalone Net Income $ 160.3 $ 196.2 $ 221.7
SILVER
Projected SILVER EPS $ 1.87 $ 2.84 $ 3.19
Projected SILVER Standalone Net Income $ 16.2 $ 24.6 $ 27.7
PRE-TAX ACQUISITION ADJUSTMENTS
New Goodwill $ (2.3) $ (2.3) $ (2.3)
Incremental Depreciation 0.0 0.0 0.0
Synergies 0.0 0.0 0.0
New Interest Expense @ 7.0% (17.0) (17.0) (17.0)
-------------------------
Total Pre-Tax Acquisition Adjustments $ (19.3) $(19.3) $ (19.3)
AFTER-TAX ACQUISITION ADJUSTMENTS
New Goodwill $ (2.3) $ (2.3) $ (2.3)
Incremental Depreciation 0.0 0.0 0.0
Synergies 0.0 0.0 0.0
New Interest Expense @ 7.0% (10.4) (10.4) (10.4)
-------------------------
Total After-Tax Acquisition Adjustments $ (12.7) $(12.7) $ (12.7)
PRO FORMA EPS CALCULATION
Projected Rubbermaid Inc Standalone Net Income $ 160.3 $ 196.2 $ 221.7
Projected SILVER Standalone Net Income 16.2 24.6 27.7
- - After-Tax Acquisition Adjustments (12.7) (12.7) (12.7)
-------------------------
Pro Forma Combined Net Income $ 163.8 $ 208.2 $ 236.7
Pro Forma Combined Shares Outstanding 149.768 149.768 149.768
Pro Forma EPS $ 1.09 $ 1.39 $ 1.58
Projected Rubbermaid Inc Standalone EPS $ 1.07 $ 1.31 $ 1.48
- --------------------------------------------------------------------------------
$ PICK-UP (DILUTION) $ 0.02 $ 0.08 $ 0.10
% PICK-UP (DILUTION) 2.2% 6.1% 6.8%
PROJECTED PRO-TAX SYNERGIES REQUIRED
TO BREAK-EVEN $ (5.8) $ (19.6) $ (24.6)
- --------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------
SENSITIVITY ANALYSIS
- -------------------------------------------------------------------------------
1996 1997 1998
PREMIUM OFFER PRICE DILUTION DILUTION DILUTION
------- ----------- -------- -------- --------
<S> <C> <C> <C> <C>
0% $26.25 2.2% 6.1% 6.8%
10% 28.88 1.2% 5.3% 6.0%
20% 31.50 0.2% 4.5% 5.3%
30% 34.13 (0.8%) 3.6% 4.6%
40% 36.75 (1.8%) 2.8% 3.9%
50% 39.38 (2.8%) 2.0% 3.2%
60% 42.00 (3.8%) 1.2% 2.4%
70% 44.63 (4.8%) 0.4% 1.7%
80% 47.25 (5.8%) (0.4%) 1.0%
90% 49.88 (6.8%) (1.3%) 0.3%
100% 52.50 (7.8%) (2.1%) (0.5%)
- -------------------------------------------------------------------------------
</TABLE>
E-9
<PAGE> 67
-----------
PROJECT SILVER 0% CASH ---------
PRO FORMA ACQUISITION ANALYSIS 100% STOCK POOLING
- --------------------------------------------------------------------------------
(dollars in millions, except per share)
<TABLE>
- --------------------------------------------------------------------------------
RUBBERMAID INC ACQUIRES SILVER
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
KEY ASSUMPTIONS
- --------------------------------------------------------------------------------
<S> <C> <C>
Rubbermaid Inc Stock Price @ 20-Oct-96 $ 24.00
SILVER Stock Price @ 20-Oct-96 $ 26.25
SILVER Shares Outstanding 8.676
Options and Warrants @ $12.38 0.338
-------
Total Fully-Diluted Shares 9.014
Offer Price Per Share $ 26.25
-------
Offer Value $ 236.6
Plus Existing Net Debt $ 31.4
Less Option & Warrant Proceeds (4.2)
-------
Transaction Value $ 263.8
=======
Rubbermaid Inc 1996E P/E Multiple 22.4x
SILVER 1996E P/E Multiple 14.0x
Offer Price 1996E P/E Multiple 14.0x
Purchase Premium - % 0.0%
Tangible Book Value $ 149.4
Purchase Premium - % 87.2
PP&E Write-Up (0.0%) 0.0
PP&E Depreciation Period 15
Deferred Tax Liability 0.0
New Goodwill Incl. Transaction Exp. $ 0.0
Goodwill Amortization Period 40
Exchange Ratio 1.094
Existing Rubbermaid Inc Shares 149.768
Pro Forma Rubbermaid Inc Shares 159.453
Transaction Expenses $ 10.0
Rubbermaid Inc Marginal Tax Rate 39.0%
SILVER Marginal Tax Rate 39.0%
Rubbermaid Inc Ownership of New Entity 93.9%
SILVER Ownership of New Entity 6.1%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------
BALANCE SHEET IMPACT
- --------------------------------------------------------------------------------
<CAPTION>
RUBBERMAID INC SILVER COMBINED
JUN-96 JUN-96 ADJUSTMENTS JUN-96
------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash $ 33.0 $ 6.2 $(10.0) $ 29.2
Total Debt 259.4 37.6 0.0 297.0
Net Debt 226.4 31.4 267.8
Equity 973.5 155.5 0.0 (10.0) 1.119.0
Total Capitalization 1,232.9 193.1 1,416.0
- --------------------------------------------------------------------------------
TOTAL DEBT/TOTAL CAP. 21.0% 19.5% 21.0%
NET DEBT/TOTAL CAP. 18.4% 16.3% 18.9%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------
DILUTION ANALYSIS
- --------------------------------------------------------------------------------
<CAPTION>
1996E 1997E 1998E
----- ----- -----
<S> <C> <C> <C>
RUBBERMAID INC
Projected Rubbermaid Inc Standalone EPS $ 1.07 $ 1.31 $ 1.48
Projected Rubbermaid Inc Standalone Net Income $ 160.3 $ 196.2 $ 221.7
SILVER
Projected SILVER EPS $ 1.87 $ 2.84 $ 3.19
Projected SILVER Standalone Net Income $ 16.2 $ 24.6 $ 27.7
PRE-TAX ACQUISITION ADJUSTMENTS
New Goodwill $ 0.0 $ 0.0 $ 0.0
Incremental Depreciation 0.0 0.0 0.0
Synergies 0.0 0.0 0.0
New Interest Expense @ 7.0% 0.0 0.0 0.0
------------------------
Total Pre-Tax Acquisition Adjustments $ 0.0 $ 0.0 $ 0.0
AFTER-TAX ACQUISITION ADJUSTMENTS
New Goodwill $ 0.0 $ 0.0 $ 0.0
Incremental Depreciation 0.0 0.0 0.0
Synergies 0.0 0.0 0.0
New Interest Expense @ 7.0% 0.0 0.0 0.0
------------------------
Total After-Tax Acquisition Adjustments $ 0.0 0.0 0.0
PRO FORMA EPS CALCULATION
Projected Rubbermaid Inc Standalone Net Income $ 160.3 $ 196.2 $ 221.7
Projected SILVER Standalone Net Income 16.2 24.6 27.7
- - After-Tax Acquisition Adjustments 0.0 0.0 0.0
-------------------------
Pro Forma Combined Net Income $ 176.5 $ 220.8 $ 249.4
Pro Forma Combined Shares Outstanding 159.453 159.453 159.453
Pro Forma EPS $ 1.11 $ 1.38 $ 1.56
Projected Rubbermaid Inc Standalone EPS $ 1.07 $ 1.31 $ 1.48
- --------------------------------------------------------------------------------
$ PICK-UP (DILUTION) $ 0.04 $ 0.07 $ 0.08
% PICK-UP (DILUTION) 3.4% 5.7% 5.7%
PROJECTED PRO-TAX SYNERGIES REQUIRED
TO BREAK-EVEN $ (9.6) $ (19.6) $ (21.9)
- --------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------
SENSITIVITY ANALYSIS
- -------------------------------------------------------------------------------
1996 1997 1998
PREMIUM OFFER PRICE DILUTION DILUTION DILUTION
------- ----------- -------- -------- --------
<S> <C> <C> <C> <C>
0% $26.25 3.4% 5.7% 5.7%
10% 28.88 2.8% 5.1% 5.0%
20% 31.50 2.2% 4.4% 4.4%
30% 34.13 1.6% 3.8% 3.7%
40% 36.75 0.9% 3.2% 3.1%
50% 39.38 0.3%) 2.6% 2.5%
60% 42.00 (0.3%) 1.9% 1.9%
70% 44.63 (0.9%) 1.3% 1.3%
80% 47.25 (1.4%) 0.7% 0.7%
90% 49.88 (2.0%) 0.1% 0.1%
100% 52.50 (2.6%) (0.4%) (0.5%)
- -------------------------------------------------------------------------------
</TABLE>
E-10
<PAGE> 68
<TABLE>
-----------
PROJECT SILVER 100% CASH ------------
PRO FORMA ACQUISITION ANALYSIS 0% STOCK PURCHASE
- --------------------------------------------------------------------------------
(dollars in millions, except per share)
- --------------------------------------------------------------------------------
STANHOME INC ACQUIRES SILVER
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
KEY ASSUMPTIONS
- --------------------------------------------------------------------------------
<S> <C> <C>
Stanhome Inc Stock Price @ 19-Oct-96 $27.63
SILVER Stock Price @ 19-Oct-96 $26.25
SILVER Shares Outstanding 8.676
Options and Warrants @ $12.38 0.338
------
Total Fully-Diluted Shares 9.014
Offer Price Per Share $26.25
------
Offer Value $236.6
Plus: Existing Net Debt $31.4
Less: Option & Warrant Proceeds (4.2)
------
Transaction Value $263.8
======
Stanhome Inc 1996E P/E Multiple 12.2x
SILVER 1996E P/E Multiple 14.0x
Offer Price 1996E P/E Multiple 14.0x
Purchase Premium - % 0.0%
Tangible Book Value $149.4
Purchase Premium - $ 87.2
PP&E Write-Up (0.0%) 0.0
PP&E Depreciation Period 15
Deferred Tax Liability 0.0
New Goodwill-Incl. Transaction Exp. $93.0
Goodwill Amortization Period 40
Exchange Ratio 0.000
Existing Stanhome Inc Shares 17.898
Pro Forma Stanhome Inc Shares 17.898
Transaction Expenses $10.0
Stanhome Inc Marginal Tax Rate 39.0%
SILVER Marginal Tax Rate 39.0%
Stanhome Inc Ownership of New Entity 100.0%
SILVER Ownership of New Entity 0.0%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
- -----------------------------------------------------------------------------------------------
BALANCE SHEET IMPACT
- -----------------------------------------------------------------------------------------------
<CAPTION>
STANHOME INC SILVER COMBINED
JUN-96 JUN-96 ADJUSTMENTS JUN-96
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash $20.5 $6.2 $0.0 $26.7
Total Debt 126.0 37.6 242.4 406.0
----- ---- -----
Net Debt 105.5 31.4 379.3
Equity 257.8 155.5 (155.5) 0.0 257.8
Total Capitalization 383.7 193.1 663.8
- ----------------------------------------------------------------------------------------------
TOTAL DEBT/TOTAL CAP. 32.8% 19.5% 61.2%
NET DEBT/TOTAL CAP. 27.5% 16.3% 57.1%
- ----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
- ---------------------------------------------------------------------------------------
DILUTION ANALYSIS
- ---------------------------------------------------------------------------------------
<CAPTION>
1996E 1997E 1998E
----- ----- -----
<S> <C> <C> <C> <C>
STANHOME INC
Projected Stanhome Inc Standalone EPS $2.26 $2.67 $3.04
Projected Stanhome Inc Standalone Net Income $40.5 $47.8 $54.5
SILVER
Projected SILVER EPS $1.87 $2.84 $3.19
Projected SILVER Standalone Net Income $16.2 $24.6 $27.7
PRE-TAX ACQUISITION ADJUSTMENTS
New Goodwill ($2.3) ($2.3) ($2.3)
Incremental Depreciation 0.0 0.0 0.0
Synergies 0.0 0.0 0.0
New Interest Expense@ 7.0% (21.8) (21.8) (21.8)
--------------------------
Total Pre-Tax Acquisition Adjustments ($24.1) ($24.1) ($24.1)
AFTER-TAX ACQUISITION ADJUSTMENTS
New Goodwill ($2.3) ($2.3) ($2.3)
Incremental Depreciation 0.0 0.0 0.0
Synergies 0.0 0.0 0.0
New Interest Expense@ 7.0% (13.3) (13.3) (13.3)
--------------------------
Total After-Tax Acquisition Adjustments ($15.6) ($15.6) ($15.6)
PRO FORMA EPS CALCULATION
Projected Stanhome Inc Standalone Net Income $40.5 $47.8 $54.5
Projected SILVER Standalone Net Income 16.2 24.6 27.7
- - After-Tax Acquisition Adjustments (15.6) (15.6) (15.6)
--------------------------
Pro Forma Combined Net Income $41.0 $56.8 $66.5
Pro Forma Combined Shares Outstanding 17.898 17.898 17.898
Pro Forma EPS $2.29 $3.17 $3.72
Projected Stanhome Inc Standalone EPS $2.26 $2.67 $3.04
- -------------------------------------------------------------------------------------
$ PICK-UP (DILUTION) $0.03 $0.50 $0.67
% PICK-UP (DILUTION) 1.5% 18.8% 22.1%
PROJECTED PRE-TAX SYNERGIES REQUIRED
TO BREAK-EVEN ($1.0) ($14.8) ($19.7)
- -------------------------------------------------------------------------------------
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------
SENSITIVITY ANALYSIS
- --------------------------------------------------------------------------------
<CAPTION>
1996 1997 1998
PREMIUM OFFER PRICE DILUTION DILUTION DILUTION
------- ----------- -------- -------- --------
<S> <C> <C> <C> <C>
0% $26.25 1.5% 18.8% 22.1%
10% 28.88 (3.2%) 14.9% 18.6%
20% 31.50 (7.9%) 10.9% 15.2%
30% 34.13 (12.6%) 7.0% 11.7%
40% 36.75 (17.2%) 3.0% 8.2%
50% 39.38 (21.9%) 0.9% 4.8%
60% 42.00 (26.6%) (4.9%) 1.3%
70% 44.63 (31.3%) (8.8%) (2.2%)
80% 47.25 (35.9%) (12.8%) (5.7%)
90% 49.88 (40.6%) (16.8%) (9.1%)
100% 52.50 (45.3%) (20.7%) (12.6%)
- --------------------------------------------------------------------------------
</TABLE>
E-11
<PAGE> 69
<TABLE>
-----------
PROJECT SILVER 100% CASH ------------
PRO FORMA ACQUISITION ANALYSIS 0% STOCK POOLING
- --------------------------------------------------------------------------------
(dollars in millions, except per share)
<CAPTION>
- --------------------------------------------------------------------------------
STANHOME INC ACQUIRES SILVER
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
KEY ASSUMPTIONS
- --------------------------------------------------------------------------------
<S> <C> <C>
Stanhome Inc Stock Price @ 19-Oct-96 $27.63
SILVER Stock Price @ 19-Oct-96 $26.25
SILVER Shares Outstanding 8.676
Options and Warrants @ $12.38 0.338
------
Total Fully-Diluted Shares 9.014
Offer Price Per Share $26.25
------
Offer Value $236.6
Plus: Existing Net Debt $31.4
Less: Option & Warrant Proceeds (4.2)
------
Transaction Value $263.8
======
Stanhome Inc 1996E P/E Multiple 12.2x
SILVER 1996E P/E Multiple 14.0x
Offer Price 1996E P/E Multiple 14.0x
Purchase Premium - % 0.0%
Tangible Book Value $149.4
Purchase Premium - $ 87.2
PP&E Write-Up(0.0%) 0.0
PP&E Depreciation Period 15
Deferred Tax Liability 0.0
New Goodwill-Incl. Transaction Exp. $0.0
Goodwill Amortization Period 40
Exchange Ratio 0.950
Existing Stanhome Inc Shares 17.898
Pro Forma Stanhome Inc Shares 26.312
Transaction Expenses $10.0
Stanhome Inc Marginal Tax Rate 39.0%
SILVER Marginal Tax Rate 39.0%
Stanhome Inc Ownership of New Entity 68.0%
SILVER Ownership of New Entity 32.0%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
- -----------------------------------------------------------------------------------------------
BALANCE SHEET IMPACT
- -----------------------------------------------------------------------------------------------
<CAPTION>
STANHOME INC SILVER COMBINED
JUN-96 JUN-96 ADJUSTMENTS JUN-96
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash $20.5 $6.2 ($10.0) $16.7
Total Debt 126.0 37.6 0.0 163.6
----- ---- -----
Net Debt 105.5 31.4 146.9
Equity 257.8 155.5 0.0 (10.0) 403.3
Total Capitalization 383.7 193.1 566.8
- ----------------------------------------------------------------------------------------------
TOTAL DEBT/TOTAL CAP. 32.8% 19.5% 28.9%
NET DEBT/TOTAL CAP. 27.5% 16.3% 25.9%
- ----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
- ---------------------------------------------------------------------------------------
DILUTION ANALYSIS
- ---------------------------------------------------------------------------------------
<CAPTION>
1996E 1997E 1998E
----- ----- -----
<S> <C> <C> <C> <C>
STANHOME INC
Projected Stanhome Inc Standalone EPS $2.26 $2.67 $3.04
Projected Stanhome Inc Standalone Net Income $40.5 $47.8 $54.5
SILVER
Projected SILVER EPS $1.87 $2.84 $3.19
Projected SILVER Standalone Net Income $16.2 $24.6 $27.7
PRE-TAX ACQUISITION ADJUSTMENTS
New Goodwill $0.0 $0.0 $0.0
Incremental Depreciation 0.0 0.0 0.0
Synergies 0.0 0.0 0.0
New Interest Expense@ 9.0% 0.0 0.0 0.0
--------------------------
Total Pre-Tax Acquisition Adjustments $0.0 $0.0 $0.0
AFTER-TAX ACQUISITION ADJUSTMENTS
New Goodwill $0.0 $0.0 $0.0
Incremental Depreciation 0.0 0.0 0.0
Synergies 0.0 0.0 0.0
New Interest Expense @ 9.0% 0.0 0.0 0.0
--------------------------
Total After-Tax Acquisition Adjustments $0.0 $0.0 $0.0
PRO FORMA EPS CALCULATION
Projected Stanhome Inc Standalone Net Income $40.5 $47.8 $54.5
Projected SILVER Standalone Net Income 16.2 24.6 27.7
- - After-Tax Acquisition Adjustments 0.0 0.0 0.0
--------------------------
Pro Forma Combined Net Income $56.7 $72.4 $82.2
Pro Forma Combined Shares Outstanding 26.312 26.312 26.312
Pro Forma EPS $2.15 $2.75 $3.12
Projected Stanhome Inc Standalone EPS $2.26 $2.67 $3.04
- -------------------------------------------------------------------------------------
$ PICK-UP (DILUTION) ($0.11) $0.08 $0.08
% PICK-UP (DILUTION) (4.7%) 3.1% 2.6%
PROJECTED PRE-TAX SYNERGIES REQUIRED
TO BREAK-EVEN $4.6 ($3.6) ($3.4)
- -------------------------------------------------------------------------------------
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------
SENSITIVITY ANALYSIS
- --------------------------------------------------------------------------------
<CAPTION>
1996 1997 1998
PREMIUM OFFER PRICE DILUTION DILUTION DILUTION
------- ----------- -------- -------- --------
<S> <C> <C> <C> <C>
0% $26.25 (4.7%) 3.1% 2.6%
10% 28.88 (7.7%) (0.2%) (0.7%)
20% 31.50 (10.5%) (3.2%) (3.7%)
30% 34.13 (13.2%) (6.1%) (6.5%)
40% 36.75 (15.7%) (8.8%) (9.2%)
50% 39.38 (18.0%) (11.3%) (11.8%)
60% 42.00 (20.3%) (13.8%) (14.2%)
70% 44.63 (22.4%) (16.0%) (16.5%)
80% 47.25 (24.4%) (18.2%) (18.6%)
90% 49.88 (26.3%) (20.3%) (20.7%)
100% 52.50 (28.1%) (22.2%) (22.6%)
- --------------------------------------------------------------------------------
</TABLE>
E-12
<PAGE> 70
<TABLE>
-----------
PROJECT SILVER 100% CASH ------------
PRO FORMA ACQUISITION ANALYSIS 0% STOCK PURCHASE
- --------------------------------------------------------------------------------
(dollars in millions, except per share)
<CAPTION>
- --------------------------------------------------------------------------------
TUPPERWARE CORP ACQUIRES SILVER
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
KEY ASSUMPTIONS
- --------------------------------------------------------------------------------
<S> <C> <C>
Tupperware Corp Stock Price @ 19-Oct-96 $46.88
SILVER Stock Price @ 19-Oct-96 $26.25
SILVER Shares Outstanding 8.676
Options and Warrants @ $12.38 0.338
------
Total fully-Diluted Shares 9.014
Office Price Per Share $26.25
------
Offer Value $236.6
Plus: Existing Net Debt $31.4
Less: Option & Warrant Proceeds (4.2)
------
Transaction Value $263.8
======
Tupperware Corp 1996E P/E Multiple 17.2x
SILVER 1996E P/E Multiple 14.0x
Offer Price1996E P/E Multiple 14.0x
Purchase Premium - % 0.0%
Tangible Book Value $149.4
Purchase Premium - $ 87.2
PP&E Write-Up (0.0%) 0.0
PP&E Depreciation Period 15
Deferred Tax Liability 0.0
New Goodwill-Incl. Transaction Exp. $93.0
Goodwill Amortization Period 40
Exchange Ratio 0.000
Existing Tupperware Corp Shares 62.142
Pro Forma Tupperware Corp Shares 62.142
Transaction Expenses $10.0
Tupperware Corp Marginal Tax Rate 39.0%
SILVER Marginal Tax Rate 39.0%
Tupperware Corp Ownership of New Entity 100.0%
SILVER Ownership of New Entity 0.0%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
- -----------------------------------------------------------------------------------------------
BALANCE SHEET IMPACT
- -----------------------------------------------------------------------------------------------
<CAPTION>
TUPPERWARE CORP SILVER COMBINED
JUN-96 JUN-96 ADJUSTMENTS JUN-96
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash $94.2 $6.2 $0.0 $100.4
Total Debt 287.1 37.6 242.4 567.1
----- ---- -----
Net Debt 192.9 31.4 466.7
Equity 245.8 155.5 (155.5) 0.0 245.0
Total Capitalization 532.1 193.1 812.1
- ----------------------------------------------------------------------------------------------
Total Debt/Total Cap. 54.0% 19.5% 69.8%
Net Debt/Total Cap. 36.3% 16.3% 57.5%
- ----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
- ---------------------------------------------------------------------------------------
DILUTION ANALYSIS
- ---------------------------------------------------------------------------------------
<CAPTION>
1996E 1997E 1998E
----- ----- -----
<S> <C> <C> <C> <C>
TUPPERWARE CORP
Projected Tupperware Corp Standalone EPS $2.72 $3.09 $3.52
Projected Tupperware Corp Standalone Net Income $169.0 $192.0 $218.9
SILVER
Projected SILVER EPS $1.87 $2.84 $3.19
Projected SILVER Standalone Net Income $16.2 $24.6 $27.7
PRE-TAX ACQUISITION ADJUSTMENTS
New Goodwill ($2.3) ($2.3) ($2.3)
Incremental Depreciation 0.0 0.0 0.0
Synergies 0.0 0.0 0.0
New Interest Expense @ 7.0% (17.0) (17.0) (17.0)
--------------------------
Total Pre-Tax Acquisition Adjustments ($19.3) ($19.3) ($19.3)
AFTER-TAX ACQUISITION ADJUSTMENTS
New Goodwill ($2.3) ($2.3) ($2.3)
Incremental Depreciation 0.0 0.0 0.0
Synergies 0.0 0.0 0.0
New Interest Expense @ 7.0% (10.4) (10.4) (10.4)
--------------------------
Total After-Tax Acquisition Adjustments ($12.7) ($12.7) ($12.7)
PRO FORMA EPS CALCULATION
Projected Tupperware Corp Standalone Net Income $169.0 $192.0 $218.9
Projected SILVER Standalone Net Income 16.2 24.6 27.7
- - After-Tax Acquisition Adjustments (12.7) (12.7) (12.7)
--------------------------
Pro Forma Combined Net Income $172.6 $204.0 $233.9
Pro Forma Combined Shares Outstanding 62.142 62.142 62.142
Pro Forma EPS $2.78 $3.28 $3.76
Projected Tupperware Corp Standalone EPS $2.72 $3.09 $3.52
- -------------------------------------------------------------------------------------
$ PICK-UP (DILUTION) $0.06 $0.19 $0.24
% PICK-UP (DILUTION) 2.1% 6.2% 6.9%
PROJECTED PRE-TAX SYNERGIES REQUIRED
TO BREAK-EVEN ($5.8) ($19.6) ($24.6)
- -------------------------------------------------------------------------------------
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------
SENSITIVITY ANALYSIS
- --------------------------------------------------------------------------------
<CAPTION>
1996 1997 1998
PREMIUM OFFER PRICE DILUTION DILUTION DILUTION
------- ----------- -------- -------- --------
<S> <C> <C> <C> <C>
0% $26.25 2.1% 6.2% 6.9%
10% 28.88 1.2% 5.4% 6.1%
20% 31.50 0.2% 4.6% 5.4%
30% 34.13 (0.7%) 3.7% 4.7%
40% 36.75 (1.7%) 2.9% 3.9%
50% 39.38 (2.6%) 2.1% 3.2%
60% 42.00 (3.6%) (1.2%) 2.5%
70% 44.63 (4.5%) 0.4% 1.7%
80% 47.25 (5.5%) (0.4%) 1.0%
90% 49.88 (6.4%) (1.3%) 0.3%
100% 52.50 (7.4%) (2.1%) (0.5%)
- --------------------------------------------------------------------------------
</TABLE>
E-13
<PAGE> 71
<TABLE>
-----------
PROJECT SILVER 100% CASH ------------
PRO FORMA ACQUISITION ANALYSIS 0% STOCK POOLING
- --------------------------------------------------------------------------------
(dollars in millions, except per share)
<CAPTION>
- --------------------------------------------------------------------------------
TUPPERWARE CORP ACQUIRES SILVER
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
KEY ASSUMPTIONS
- --------------------------------------------------------------------------------
<S> <C> <C>
Tupperware Corp Stock Price @ 19-Oct-96 $46.88
SILVER Stock Price @ 19-Oct-96 $26.25
SILVER Shares Outstanding 8.676
Options and Warrants @ $12.38 0.338
------
Total fully-Diluted Shares 9.014
Office Price Per Share $26.25
------
Offer Value $236.6
Plus: Existing Net Debt $31.4
Less: Option & Warrant Proceeds (4.2)
------
Transaction Value $263.8
======
Tupperware Corp 1996E P/E Multiple 17.2x
SILVER 1996E P/E Multiple 14.0x
Offer Price 1996E P/E Multiple 14.0x
Purchase Premium - % 0.0%
Tangible Book Value $149.4
Purchase Premium - $ 87.2
PP&E Write-Up (0.0%) 0.0
PP&E Depreciation Period 15
Deferred Tax Liability 0.0
New Goodwill-Incl. Transaction Exp. $0.0
Goodwill Amortization Period 40
Exchange Ratio 0.560
Existing Tupperware Corp Shares 62.142
Pro Forma Tupperware Corp Shares 67.101
Transaction Expenses $10.0
Tupperware Corp Marginal Tax Rate 39.0%
SILVER Marginal Tax Rate 39.0%
Tupperware Corp Ownership of New Entity 92.6%
SILVER Ownership of New Entity 7.4%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
- -----------------------------------------------------------------------------------------------
BALANCE SHEET IMPACT
- -----------------------------------------------------------------------------------------------
<CAPTION>
TUPPERWARE CORP SILVER COMBINED
JUN-96 JUN-96 ADJUSTMENTS JUN-96
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash $94.2 $6.2 ($10.0) $90.4
Total Debt 287.1 37.6 0.0 324.7
----- ---- -----
Net Debt 192.9 31.4 234.3
Equity 245.8 155.5 0.0 (10.0) 390.5
Total Capitalization 532.1 193.1 715.2
- ----------------------------------------------------------------------------------------------
Total Debt/Total Cap. 54.0% 19.5% 45.4%
Net Debt/Total Cap. 36.3% 16.3% 32.8%
- ----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
- ---------------------------------------------------------------------------------------
DILUTION ANALYSIS
- ---------------------------------------------------------------------------------------
<CAPTION>
1996E 1997E 1998E
----- ----- -----
<S> <C> <C> <C> <C>
TUPPERWARE CORP
Projected Tupperware Corp Standalone EPS $2.72 $3.09 $3.52
Projected Tupperware Corp Standalone Net Income $169.0 $192.0 $218.9
SILVER
Projected SILVER EPS $1.87 $2.84 $3.19
Projected SILVER Standalone Net Income $16.2 $24.6 $27.7
PRE-TAX ACQUISITION ADJUSTMENTS
New Goodwill $0.0 $0.0 $0.0
Incremental Depreciation 0.0 0.0 0.0
Synergies 0.0 0.0 0.0
New Interest Expense @ 7.0% 0.0 0.0 0.0
--------------------------
Total Pre-Tax Acquisition Adjustments $0.0 $0.0 $0.0
AFTER-TAX ACQUISITION ADJUSTMENTS
New Goodwill $0.0 $0.0 $0.0
Incremental Depreciation 0.0 0.0 0.0
Synergies 0.0 0.0 0.0
New Interest Expense @ 7.0% 0.0 0.0 0.0
--------------------------
Total After-Tax Acquisition Adjustments $0.0 $0.0 $0.0
PRO FORMA EPS CALCULATION
Projected Tupperware Corp Standalone Net Income $169.0 $192.0 $218.9
Projected SILVER Standalone Net Income 16.2 24.6 27.7
- - After-Tax Acquisition Adjustments 0.0 0.0 0.0
--------------------------
Pro Forma Combined Net Income $185.3 $216.7 $246.6
Pro Forma Combined Shares Outstanding 67.101 67.101 67.101
Pro Forma EPS $2.76 $3.23 $3.67
Projected Tupperware Corp Standalone EPS $2.72 $3.09 $3.52
- -------------------------------------------------------------------------------------
$ PICK-UP (DILUTION) $0.04 $0.14 $0.15
% PICK-UP (DILUTION) 1.5% 4.5% 4.3%
PROJECTED PRE-TAX SYNERGIES REQUIRED
TO BREAK-EVEN ($4.5) ($15.3) ($16.7)
- -------------------------------------------------------------------------------------
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------
SENSITIVITY ANALYSIS
- --------------------------------------------------------------------------------
<CAPTION>
1996 1997 1998
PREMIUM OFFER PRICE DILUTION DILUTION DILUTION
------- ----------- -------- -------- --------
<S> <C> <C> <C> <C>
0% $26.25 1.5% 4.5% 4.3%
10% 28.88 0.7% 3.7% 3.5%
20% 31.50 (0.0%) 2.9% 2.8%
30% 34.13 (0.7%) 2.2% 2.0%
40% 36.75 (1.5%) 1.4% 1.3%
50% 39.38 (2.2%) 0.7% 0.5%
60% 42.00 (2.9%) (0.0%) 0.2%
70% 44.63 (3.6%) (0.7%) (0.2%)
80% 47.25 (4.3%) (1.4%) (1.6%)
90% 49.88 (4.9%) (2.1%) (2.3%)
100% 52.50 (5.6%) (2.8%) (3.0%)
- --------------------------------------------------------------------------------
</TABLE>
E-14
<PAGE> 72
- --------------------------------------------------------------------------------
SILVER SHAREHOLDER PROFILE
- --------------------------------------------------------------------------------
<PAGE> 73
<TABLE>
PROJECT SILVER
SHAREHOLDER PROFILE
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
Number of % of % of
Shares Primary Fully Diluted
Held (mm) Ownership Ownership
<S> <C> <C> <C>
5% Institutional Shareholders (a)
Gabelli Funds, Inc. & Related Entities 0.900 10.4% 10.0%
Neuberger & Berman 0.400 4.6% 4.4%
Fidelity Management and Research Corp. 0.379 4.4% 4.2%
----- ----- -----
TOTAL 5% SHAREHOLDERS 1.679 19.4% 18.6%
Other Insstitutional Holders (b)
LGT Asset Management Inc. 0.412 4.7% 4.6%
Artisan Partners Ltd. 0.391 4.5% 4.3%
Northern Trust Corp. 0.181 2.1% 4.3%
TCW Group Inc. 0.163 1.9% 1.8%
Barclays Bank PLC 0.129 1.5% 1.4%
PaineWebber Group Inc. 0.100 1.2% 1.1%
Breau Capital Management Inc. 0.074 0.9% 0.8%
----- ----- -----
SUBTOTAL - TOP TEN INSTITUTIONAL HOLDERS 3.128 36.1% 34.7%
Other 0.364 4.2% 4.0%
----- ----- -----
TOTAL INSTITUTIONAL HOLDINGS 3.492 40.3% 38.7%
Management and Directors (a)
Leonard Florence - Chairman, President, CEO and Director 2.858 32.9% 31.7%
Melvin L. Levine - VP of Purchasing and Director 0.202 2.3% 2.2%
Alan R. Kanter - VP of Sales 0.182 2.1% 2.0%
Other Insiders 0.401 4.6% 4.5%
----- ----- -----
TOTAL MANAGEMENT AND DIRECTOR HOLDINGS 3.643 42.0% 40.4%
Other/Public 1.541 17.8% 17.1%
----- ----- -----
TOTAL PRIMARY SHARES OUTSTANDING (a) 8.676 100.0% 96.3%
----- =====
Options Outstanding (a) 0.338 3.7%
----- -----
TOTAL FULLY DILUTED SHARES OUTSTANDING 9.014 100.0%
===== =====
<FN>
- -----------------------------------------
(a) Source: Draft of Form S-3 dated September 6, 1996
(b) Source: CDA/Spectrum Report for the quarter ended June 30, 1996
</TABLE>
