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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT
NO. 1 TO
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(d)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
DUTY FREE INTERNATIONAL, INC.
(Name of Subject Company)
DUTY FREE INTERNATIONAL, INC.
(Name of Person(s) Filing Statement)
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(Title and Class of Securities)
267 08410
(CUSIP Number of Class of Securities)
LAWRENCE CAPUTO, ESQ.
VICE PRESIDENT AND GENERAL COUNSEL
DUTY FREE INTERNATIONAL, INC.
63 COPPS HILL ROAD
RIDGEFIELD, CONNECTICUT 06877
(203) 431-6057
(Name, address and telephone number of person
authorized to receive notice and communications
on behalf of the person(s) filing statement)
WITH A COPY TO:
STEPHEN P. FARRELL, ESQ.
MORGAN, LEWIS & BOCKIUS LLP
101 PARK AVENUE
NEW YORK, NEW YORK 10178
(212) 309-6050
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This Amendment No. 1 amends and supplements the Solicitation/Recommendation
Statement on Schedule 14D-9 originally filed with the Securities and Exchange
Commission (the "Commission") on July 9, 1997 (the "Schedule 14D-9") by Duty
Free International, Inc., a Maryland corporation, relating to the offer
disclosed in the Tender Offer Statement on Schedule 14D-1/Schedule 13D
originally filed with the Commission on July 9, 1997, as amended July 25, 1997,
by BAA plc, a corporation organized under the laws of the United Kingdom, and
W&G Acquisition Corporation, a Maryland corporation. Capitalized terms used
herein without definition shall have the meanings set forth in the Schedule
14D-9.
ITEM 3. IDENTITY AND BACKGROUND
The paragraph captioned "Conditions to the Merger" set forth under Item 3 is
amended to add as the last sentence thereto the following:
"The Company has been advised that early termination has been granted by the
Federal Trade Commission with respect to the HSR filing."
ITEM 4. THE SOLICITATION OR RECOMMENDATION
Paragraphs (iii) and (viii) of Item 4(b)(2) are hereby amended to read in
their entirety as follows:
"(iii) the Board's determination, based in part on presentations by the
Company's management and Compass, that the alternative transaction proposed by
the other retailer on June 3 was, on balance, less favorable to the Company and
its stockholders because the alternative transaction did not constitute an offer
to acquire all of the equity of the Company for cash but rather involved the
contribution to the Company of certain operations of the other retailer which,
when combined with the Company's operations, were expected to generate limited
synergies and, therefore, were not expected to alleviate the intensified
competition faced by the Company on a stand-alone basis, and that the terms of
the Merger Agreement, including the termination fee and expense reimbursement
provisions, should not preclude third parties from making bona fide acquisition
proposals subsequent to signing the Merger Agreement;"
"(viii) the enhanced competition the Company had encountered in seeking to
retain existing, or to acquire new, duty free and other retail concessions at
airports; the prospect of the significant reduction of duty free markets in the
European Economic Community commencing in 1999 and the increased competition the
Company could thereafter experience from duty free operators with greater access
to capital resources than the Company and projections prepared by management of
the Company taking into consideration such factors which indicated a per share
value range for the Company, on a stand-alone basis, below $24 per share."
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
Item 9 is hereby amended and supplemented by adding thereto the following:
Exhibit 19. Amended Solicitation/Recommendation Statement, dated July 30,
1997.
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: July 30, 1997
DUTY FREE INTERNATIONAL, INC.
BY: /S/ ALFRED CARFORA
-----------------------------------------
Name: Alfred Carfora
Title: President and Chief Executive
Officer
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EXHIBIT INDEX
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EXHIBIT
NO. DESCRIPTION
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<S> <C>
99.19 Amended Solicitation/Recommendation Statement
dated July 30, 1997
</TABLE>
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This Amendment No. 1 amends and supplements the Solicitation/Recommendation
Statement on Schedule 14D-9 originally filed with the Securities and Exchange
Commission (the "Commission") on July 9, 1997 (the "Schedule 14D-9") by Duty
Free International, Inc., a Maryland corporation, relating to the offer
disclosed in the Tender Offer Statement on Schedule 14D-1/Schedule 13D
originally filed with the Commission on July 9, 1997, as amended July 25, 1997,
by BAA plc, a corporation organized under the laws of the United Kingdom, and
W&G Acquisition Corporation, a Maryland corporation. Capitalized terms used
herein without definition shall have the meanings set forth in the Schedule
14D-9.
ITEM 1. SECURITY AND SUBJECT COMPANY
The name of the subject company is Duty Free International, Inc., a Maryland
corporation (the "Company"), and the address of its principal executive offices
is 63 Copps Hill Road, Ridgefield, Connecticut 06877. The title of the class of
equity securities to which this Statement relates is the common stock, par value
$.01 per share, of the Company (the "Common Stock").
ITEM 2. TENDER OFFER OF THE BIDDER
This statement relates to a tender offer by W&G Acquisition Corporation, a
Maryland corporation ("Purchaser") and a wholly owned subsidiary of BAA plc, a
corporation organized under the laws of England ("Parent"), disclosed in a
Tender Offer Statement on Schedule 14D-1, dated July 9, 1997, as amended July
25, 1997 (the "Schedule 14D-1"), to purchase all outstanding shares of Common
Stock (the "Shares"), at a price of $24.00 per Share, net to the seller in cash,
upon the terms and subject to the conditions set forth in the Offer to Purchase,
dated July 9, 1997, as amended July 25, 1997 (the "Offer to Purchase"), and the
related Letter of Transmittal (which, as amended from time to time, together
constitute the "Offer").
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of July 2, 1997 (the "Merger Agreement"), among Parent, the Purchaser and the
Company. The Merger Agreement provides, among other things, that following
satisfaction or waiver of all conditions to the Merger, the Purchaser will be
merged with the Company (the "Merger"). A copy of the Merger Agreement has been
filed as Exhibit 1 hereto and is incorporated herein by reference.
Based on the information contained in the Schedule 14D-1, the principal
executive offices of the Purchaser are located c/o The Corporation Trust
Incorporated at 32 South Street, Baltimore, Maryland 21202 and the principal
executive offices of Parent are located at Stockley House, 130 Wilton Road,
London SW1V 1LQ.
ITEM 3. IDENTITY AND BACKGROUND
(a) The name and address of the Company, which is the person filing this
Statement, are set forth in Item 1 above.
(b) Certain contracts, agreements, arrangements or understandings between
the Company or its affiliates and (i) the Company, its executive officers,
directors or affiliates or (ii) the Purchaser, its executive officers, directors
or affiliates are described at pages 8 through 14 of the Company's Proxy
Statement, dated April 14, 1997, relating to the Company's 1997 Annual Meeting
of Stockholders (the "1997 Proxy Statement"). Copies of such pages are filed as
Exhibit 2 hereto and are incorporated herein by reference. As of the date
hereof, except as described below or as set forth in Schedule I to this
Statement or pages 8 through 14 of the 1997 Proxy Statement (each of which is
incorporated herein by reference), there exists no material contract, agreement,
arrangement or understanding and no actual or potential conflict of interest
between the Company or its affiliates and (i) the Company's executive officers,
directors or affiliates, or (ii) the Purchaser or the Purchaser's executive
officers, directors or affiliates.
MERGER AGREEMENT
The following is a summary of certain provisions of the Merger Agreement.
The summary is qualified in its entirety by reference to the Merger Agreement
which is incorporated herein by reference and a copy of which is filed as
Exhibit 1 hereto.
THE OFFER. The Merger Agreement provides that, subject to the provisions
thereof, as promptly as practicable but in no event later than five business day
after the announcement of the execution of the Merger Agreement, the Purchaser
will commence the Offer and that, upon the terms and subject to prior
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satisfaction or waiver of the conditions of the Offer, the Purchaser will
purchase all Shares validly tendered pursuant to the Offer. The Merger Agreement
provides that, without the consent of the Company, the Purchaser will not reduce
the number of shares subject to the Offer, reduce the Offer price, modify or add
to the conditions of the Offer set forth in "Conditions to the Offer" below or
otherwise amend the Offer in any manner materially adverse to the Company's
stockholders, except as provided in the next two sentences, extend the Offer, or
change the form of consideration payable in the Offer. Notwithstanding the
foregoing, the Purchaser may, without the consent of the Company, (i) extend the
Offer for a period of not more than 10 business days beyond the initial
expiration date of the Offer (which initial expiration date shall be 20 business
days following commencement of the Offer), if on the date of such extension less
than 90% of the outstanding Shares have been validly tendered and not properly
withdrawn pursuant to the Offer, (ii) extend the Offer from time to time if at
the initial expiration date or any extension thereof the Minimum Condition (as
defined below) or any of the other conditions to the Purchaser's obligation to
purchase Shares set forth in paragraphs (a), (b) and (e) under "Conditions to
the Offer" below, shall not be satisfied or waived, until such time as such
conditions are satisfied or waived, (iii) extend the Offer for any period
required by any rule, regulation, interpretation or position of the Securities
and Exchange Commission (the "SEC") or the staff thereof applicable to the Offer
and (iv) extend the Offer for any reason for a period of not more than 10
business days beyond the latest expiration date that would otherwise be
permitted under clauses (i), (ii) or (iii) of this sentence. In addition, the
Purchaser shall at the request of the Company extend the Offer for five business
days if at any scheduled expiration date of the Offer any of the conditions to
the Purchaser's obligation to purchase Shares shall not be satisfied; PROVIDED,
HOWEVER, that the Purchaser shall not be required to extend the Offer beyond
December 31, 1997.
CONDITIONS TO THE OFFER. Notwithstanding any other terms of the Offer or
the Merger Agreement, the Purchaser shall not be required to accept for payment
or, subject to any applicable rules and regulations of the SEC, including Rule
14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (relating to the Purchaser's obligation to pay for or return tendered
Shares after the termination or withdrawal of the Offer), to pay for any Shares
tendered pursuant to the Offer, unless (i) there shall have been validly
tendered and not withdrawn prior to the expiration of the Offer that number of
Shares which would represent at least a majority of the Shares outstanding on a
fully diluted basis (the "Minimum Condition") and (ii) any waiting period under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), applicable to the purchase of Shares pursuant to the Offer shall have
expired or been terminated. Furthermore, notwithstanding any other term of the
Offer or the Merger Agreement, the Purchaser shall not be required to accept for
payment or, subject as aforesaid, to pay for any Shares not theretofore accepted
for payment or paid for, and may terminate the Offer if, at any time on or after
the date of the Merger Agreement and before the acceptance of such shares for
payment or the payment therefor, any of the following conditions exists:
(a) there shall be threatened or pending any suit, action or proceeding
by any Governmental Entity (as defined below) (including, without
limitation, the Department of the Treasury, the Customs Service Bureau and
the Bureau of Alcohol, Tobacco and Firearms) or any other person (in the
case of any suit, action or proceeding by a person other than a Governmental
Entity, such suit, action or proceeding having a reasonable likelihood of
success) (i) challenging the acquisition by Parent or the Purchaser of any
Shares, seeking to restrain or prohibit the making or consummation of the
Offer or the Merger or the performance of any of the other transactions
contemplated by the Operative Agreements (as defined below), or seeking to
obtain from the Company, Parent or the Purchaser any damages that are
material in relation to the Company and its subsidiaries taken as a whole,
(ii) seeking to prohibit or limit the ownership or operation by the Company,
Parent or any of their respective subsidiaries of any material portion of
the business or assets of the Company, Parent or any of their respective
subsidiaries, or to compel the Company, Parent or any of their respective
subsidiaries to dispose of or hold separate any material portion of the
business or assets of the Company, Parent or any of their respective
subsidiaries, as a result of the Offer or the Merger or any of the other
transactions contemplated by the Operative Agreements, (iii) seeking to
impose limitations on the ability of Parent or the Purchaser to acquire or
hold or exercise full rights of ownership of,
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any Shares, including the right to vote the Shares purchased by it on all
matters properly presented to the stockholders of the Company, (iv) seeking
to prohibit Parent or any of its subsidiaries from effectively controlling
in any material respect the business or operations of the Company or its
subsidiaries, or (v) which otherwise is reasonably likely to prevent
consummation of the transactions contemplated by the Operative Agreements;
(b) there shall be any statute, rule, regulation, legislation,
interpretation, judgment, order or injunction threatened, proposed, sought,
enacted, entered, enforced, promulgated, amended or issued (each of the
foregoing, a "Legal Event") with respect to, or deemed applicable to, or any
consent or approval withheld with respect to, (i) Parent, the Company or any
of their respective subsidiaries or (ii) the Offer, the Merger or any of the
other transactions contemplated by the Operative Agreements by any
Governmental Entity or before any court or governmental authority, agency or
tribunal, domestic or foreign, that has a substantial likelihood of
resulting, directly or indirectly, in any of the consequences referred to in
clauses (i) through (v) of paragraph (a) above;
(c) since the date of the Merger Agreement there shall have occurred any
material adverse change or any development that, insofar as reasonably can
be foreseen, is reasonably likely to result in a material adverse change in
the business, properties, assets, condition (financial or otherwise),
results of operations or prospects of the Company and its subsidiaries taken
as a whole other than changes resulting from currency exchange rate
fluctuations, customs, tax and duty law changes and changes relating to the
economy in general and to the Company's industry in general and not
specifically relating to the Company or any of its subsidiaries;
(d) (i) the Board of Directors of the Company or any committee thereof
shall have withdrawn or modified in a manner adverse to Parent or the
Purchaser its approval or recommendation of the Offer, the Merger or the
Merger Agreement, or approved or recommended any Superior Takeover Proposal
(as defined below) or (ii) the Board of Directors of the Company or any
committee thereof shall have resolved to do any of the foregoing;
(e) there shall have occurred (i) any general suspension of trading in,
or limitation on prices for, securities on the New York Stock Exchange or on
the London Stock Exchange, for a period in excess of 24 hours (excluding
suspensions or limitations resulting solely from physical damage or
interference with such exchanges not related to market conditions), (ii) a
declaration of a banking moratorium or any suspension of payments in respect
of banks in the United States (whether or not mandatory), (iii) a
commencement of war, armed hostilities or other international or national
calamity directly or indirectly involving the United States or involving the
United Kingdom and, in the case of armed hostilities involving the United
Kingdom, having, or which could reasonably be expected to have, a
substantial continuing general effect on business and financial conditions
in the United Kingdom, (iv) any limitation (whether or not mandatory) by any
United States or the United Kingdom governmental authority on the extension
of credit generally by banks or other financial institutions, or (v) in the
case of any of the foregoing existing at the time of the commencement of the
Offer, a material acceleration or worsening thereof;
(f) any of the representations and warranties of the Company set forth
in the Merger Agreement that are qualified as to materiality shall not be
true and correct and any such representations and warranties that are not so
qualified shall not be true and correct in any material respect, in each
case as if such representations and warranties were made as of such time and
the failure to be so true and correct in any material respect would have a
material adverse effect on the business, properties, assets, condition
(financial or otherwise) or results of operations or prospects of the
Company and its Subsidiaries taken as a whole other than as the result of
currency exchange rate fluctuations, customs, tax and duty law changes and
changes relating to the economy generally or to the Company's industry in
general and not specifically relating to the Company or any of its
Subsidiaries (a "Company Material Adverse Effect"), and except with respect
to representations and warranties made as of an earlier time;
(g) the Company shall have failed to perform in any material respect any
obligation or to comply in any material respect with any agreement or
covenant of the Company to be performed or complied
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with by it under the Merger Agreement and such failure would result in a
Company Material Adverse Effect; or
(h) the Merger Agreement shall have been terminated in accordance with
its terms.
Subject to the provisions of the Merger Agreement set forth under "The
Offer" above, the foregoing conditions (i) may be asserted by Parent and the
Purchaser regardless of the circumstances giving rise to such condition and (ii)
are for the sole benefit of Parent and the Purchaser and may be waived by Parent
or the Purchaser, in whole or in part at any time and from time to time in the
sole discretion of Parent or the Purchaser. The failure by Parent or the
Purchaser at any time to exercise any of the foregoing rights shall not be
deemed a waiver of any such right and each such right shall be deemed an ongoing
right which may be asserted at any time and from time to time.
THE MERGER. The Merger Agreement provides that following the satisfaction
or waiver of the conditions described below under "Conditions to the Merger" and
in accordance with the Maryland General Corporation Law (the "MGCL"), the
Purchaser will be merged with the Company, and each then outstanding Share
(other than Shares owned by the Company or by any subsidiary of the Company and
Shares owned by Parent, the Purchaser or any other subsidiary of Parent) will be
converted into the right to receive an amount in cash equal to the price per
Share paid pursuant to the Offer, without interest.
VOTE REQUIRED TO APPROVE MERGER. The MGCL requires, among other things,
that the adoption of any plan of merger or consolidation of the Company must be
approved by the Board of Directors and generally by the holders of the Company's
outstanding voting securities. The Board of Directors of the Company has
approved the Offer and the Merger. Consequently, the only additional action of
the Company that may be necessary to effect the Merger is approval by such
stockholders if the "short-form" merger procedure described below is not
available. Under the Company's Charter, the affirmative vote of holders of a
majority of the outstanding Shares (including any Shares owned by the
Purchaser), is required to approve the Merger if the short-form merger procedure
is unavailable. If the Purchaser acquires, through the Offer or otherwise,
voting power with respect to at least a majority of the outstanding Shares, it
would have sufficient voting power to effect the Merger without the vote of any
other stockholder of the Company. However, as of October 1, 1997, the MGCL
permits a parent company that owns at least 90% of each class of stock of a
subsidiary to merge into that subsidiary without the action of the other
stockholders of the subsidiary. Accordingly, if, as a result of the Offer or
otherwise, the Purchaser acquires or controls the voting power of at least 90%
of the outstanding Shares, the Purchaser could effect the Merger without any
action by any other stockholder of the Company.
CONDITIONS TO THE MERGER. The Merger Agreement provides that the Merger is
subject to the satisfaction or waiver of the following conditions: (1) if
required by applicable law, the Merger Agreement and the Merger shall have been
approved by the affirmative vote or consent of the holders of a majority of the
outstanding Shares in accordance with applicable law and the Company's Charter,
(2) the waiting period (and any extension thereof) applicable to the Merger
under the HSR Act shall have been terminated or shall have expired, (3) 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 each of the Company, the Purchaser and Parent shall have
used its best efforts to prevent the entry of any such injunction or other order
and to appeal as promptly as possible any injunction or other order that may be
entered and (4) the receipt by the Company and Parent of all necessary consents
and approvals from each of the Customs Service Bureau and the Bureau of Alcohol,
Tobacco and Firearms applicable to the Merger. The Company has been advised that
early termination has been granted by the Federal Trade Commission with respect
to the HSR Act filing.
TERMINATION OF THE MERGER AGREEMENT. The Merger Agreement may be terminated
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, (1) by mutual written consent of the Company and Parent, (2) by either
the Company or Parent if (a) the Purchaser shall not have purchased that number
of Shares which constitutes the Minimum Condition pursuant to the Offer prior to
December 31, 1997; provided, however, that the passage of such period shall be
tolled for any part thereof during which any party shall be subject
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to a nonfinal order, decree, ruling or action restraining, enjoining or
otherwise prohibiting the purchase of Shares pursuant to the Offer or the
consummation of the Merger; or (b) if any Federal, state or local government or
any court, administrative or regulatory agency or commission or other
governmental authority or agency, domestic or foreign (a "Governmental Entity"),
shall have issued an order, decree or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibiting the purchase of
Shares pursuant to the Offer or the Merger and such order, decree or ruling or
other action shall have become final and nonappealable, (3) by either Parent or
the Company if the Merger shall not have consummated by April 30, 1998 or such
later date mutually agreed to by the parties; PROVIDED, HOWEVER, that the
passage of such period shall be tolled for any part thereof during which any
party shall be subject to a non final order, decree, ruling or action
restraining, enjoining or otherwise prohibiting the purchase of shares of Common
Stock pursuant to the Offer or the consummation of the Merger; PROVIDED,
FURTHER, HOWEVER, that the right to terminate the Merger Agreement pursuant to
such clause shall not be available to any party whose failure to perform any
obligations under the Merger Agreement results in the failure of the Merger to
be consummated by such time, (4) by the Company if (a) the Board of Directors of
the Company approves or recommends a Superior Proposal (as defined below) under
circumstances described below in the second paragraph under "Takeover Proposals;
No Solicitation" and (b) the Company has paid to the Purchaser an amount in cash
equal to the sum of the Termination Fee (as defined below), or (5) by the
Purchaser or Parent if the Purchaser terminates the Offer as a result of the
occurrence of any event set forth in paragraph (d), (f) and (g) of "Conditions
to the Offer" above; (6) by the Company, if the Purchaser terminates the Offer
as a result of the occurrence of any event set forth in paragraph (a), (b), (c),
(e), (f) or (g) of "Conditions to the Offer" above; (7) by the Company in the
event the Company has convened a meeting of the Company's stockholders in
accordance with the Merger Agreement and the Merger and the Merger Agreement
have not been approved by the affirmative vote or consent of the holders of the
requisite number of outstanding shares of Common Stock in accordance with
applicable law and the Company's Charter; (8) by the Company, if the Purchaser
(a) shall have failed to commence the Offer within the time required under the
Exchange Act, or (b) shall have failed to pay for any Common Stock accepted for
payment pursuant to the Offer and, in the case of clause (b), the Purchaser
shall have failed to make such payment within three business days of receipt of
written notice thereof from the Company; PROVIDED, HOWEVER, that any such
failure is not caused by a material breach by the Company, or (9) by the
Company, if Parent or the Purchaser fail to perform in any material respect any
provision of the Merger Agreement and Parent or the Purchaser have failed to
perform such obligation or cure such breach within 10 business days of its
receipt of written notice from the Company and such failure to perform has not
been waived in accordance with the terms of the Merger Agreement; PROVIDED,
HOWEVER, that such failure to perform is not caused by a material breach by the
Company.
TAKEOVER PROPOSALS; NO SOLICITATION. (a) The Company has agreed that it
will not, and will not permit any officer or director of the Company or any
officer or director of its subsidiaries to, nor shall it authorize or permit any
officer, director or employee of, or any investment banker, attorney or other
advisor or representative of, the Company or any of its subsidiaries to, (i)
solicit or initiate the submission of, any Takeover Proposal (ii) except as
provided in (b) below, enter into any agreement with respect to any Takeover
Proposal or (iii) participate in any discussions or negotiations regarding, or
furnish to any person any non-public information with respect to any Takeover
Proposal, or take any other action to solicit or initiate any inquiries or the
making of any proposal that constitutes, or may reasonably be expected to lead
to, any Takeover Proposal; provided, however, that prior to the acceptance for
payment of Shares pursuant to the Offer, the Company may, after taking into
account the advice of outside counsel, in response to an unsolicited written
bona fide Takeover Proposal which contains no financing condition from a person
that the Company Board reasonably believes has the financial ability to make a
Superior Proposal, subject to compliance with the notification requirements
described below in (c), furnish non-public information with respect to the
Company to such person pursuant to a customary confidentiality agreement and
participate in discussions or negotiations with such person. For purpose of the
Merger Agreement, "Takeover Proposal" means any written proposal for a merger or
other business combination involving the Company or any of its subsidiaries or
any proposal or offer to acquire in any manner, directly or indirectly, more
than
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20% of the equity securities of the Company or more than 20% of the Company's
consolidated total assets, other than the transactions contemplated by the
Merger Agreement.
(b) Neither the Company Board nor any committee thereof shall (i) withdraw
or modify, or propose to withdraw or modify, in a manner adverse to Parent or
Purchaser, the approval or recommendation by the Company Board or any such
committee of the Offer, the Merger Agreement or the Merger or (ii) approve or
recommend, or propose to approve or recommend, any Takeover Proposal.
Notwithstanding the foregoing, the Company Board may approve or recommend (and,
in connection therewith withdraw or modify its approval or recommendation of the
Offer, the Merger Agreement or the Merger) a Superior Proposal. For purposes of
the Merger Agreement, "Superior Proposal" means a bona fide Takeover Proposal
which contains no financing condition made by a third party on terms which the
Company Board determines in its good faith judgment, after taking into account
the written advice of the Company's investment banker, to be more favorable to
the Company's stockholders than the Offer and the Merger.
(c) The Company has agreed to promptly advise Parent orally and in writing
of any Takeover Proposal or any inquiry with respect to or which it believes
would be reasonably likely to lead to any Takeover Proposal unless the Company
Board is advised by outside legal counsel that the furnishing of such advice
would be inconsistent with the legal obligations of the Company Board. The
Company has agreed to keep Parent informed of the status of any such Takeover
Proposal or inquiry.
(d) The Merger Agreement provides that nothing in the provisions thereof
described above shall prevent the Company and the Company Board from complying
with Rule 14e-2 under the Exchange Act, or issuing a communication meeting the
requirements of Rule 14d-9(e) under the Exchange Act, with respect to any tender
offer or otherwise prohibit the Company from making any public disclosures
required by law or the requirements of the New York Stock Exchange; provided,
however, that the Company may not, except as permitted by (b) above, withdraw or
modify its position with respect to the Offer or the Merger or approve or
recommend, or propose to approve or recommend, a Takeover Proposal.
FEES AND EXPENSES. The Merger Agreement provides that the Company shall pay
to Parent a fee of $20 million (the "Termination Fee") if (i) the Purchaser or
the Company terminates the Merger Agreement under the circumstances described in
clause 2(a) under "Termination of the Merger Agreement" as a result of the
existence of any condition set forth in paragraph (d) under "Conditions to the
Offer" above, (ii) (a) after the date of the Merger Agreement, any person or
"group" (within the meaning of Section 13(d)(3) of the Exchange Act), other than
Parent, Purchaser, any of their respective affiliates or other persons with whom
any of the foregoing is part of a group, shall have publicly made a Takeover
Proposal, (b) the Offer shall have remained open until at least the scheduled
expiration date immediately following the date such Takeover Proposal is made
(and in any event for at least 10 business days following the date such Takeover
Proposal is made), (c) the Minimum Condition shall not have been satisfied at
the expiration of the Offer, (d) the Merger Agreement shall thereafter be
terminated by either Parent or the Company under the circumstances described in
clause 2(a) under "Termination of the Merger Agreement," and (e) the Board of
Directors of the Company, within 10 business days after the public announcement
of such Takeover Proposal, either fails to recommend against acceptance of such
Takeover Proposal by the Company's stockholders or announces that it takes no
position with respect to the acceptance of such Takeover Proposal by the
Company's stockholders or (iii) the Merger Agreement is terminated under the
circumstances described in clause (4) or (5) under "Termination of the Merger
Agreement" (but only in the case of paragraph (f) of "Conditions to the Offer,"
where such condition existed on the date of the Merger Agreement), or in the
event the Merger Agreement is terminated pursuant to clause 5 under "Termination
of Merger Agreement" as a result of any condition set forth in paragraph (f) of
"Conditions to the Offer", and provided that no Termination Fee is or would
become payable hereunder, the Company shall pay to Parent all of Parent's
expenses up to and including $1,000,000. In the event the Merger Agreement is
terminated, the Offer is terminated or the Merger does not occur, solely due to
a breach by Parent or the Purchaser of any of its covenants, agreements or
obligations under the Merger Agreement, without limitation of any other rights
or remedies available to
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the Company at law or in equity, Parent and the Purchaser shall pay to the
Company, upon demand, all expenses of the Company up to and including
$4,000,000.
CONDUCT OF BUSINESS BY THE COMPANY. The Merger Agreement provides that
during the period from the date of the Merger Agreement to the earlier of the
effective time of the Merger in accordance with the Merger Agreement (the
"Effective Time") and the appointment or election of the Purchaser's designees
to the Board of Directors of the Company pursuant to the terms of the Merger
Agreement (such earlier time, the "Control Time"), the Company shall, and shall
cause its subsidiaries to, carry on their respective businesses in the usual,
regular and ordinary course in substantially the same manner as conducted prior
to the date of the Merger Agreement and, to the extent consistent therewith, use
all reasonable 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,
distributors and others having business dealings with them to the end that their
goodwill and ongoing businesses shall be unimpaired at the Effective Time. The
Merger Agreement further provides that, except as contemplated by the Merger
Agreement or otherwise approved in writing by Parent, during the period from the
date of the Merger Agreement to the Control Time, the Company shall not, and
shall not permit any of its subsidiaries to, (1) (a) declare, set aside or pay
any dividends on, or make any other distributions in respect of, any of its
capital stock, other than regular quarterly dividends of $.06 per share and
other than dividends and distributions by any 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 or (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; (2) issue,
deliver, sell, pledge or otherwise encumber any shares of its capital stock, 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 other than the issuance of Shares upon the exercise of
stock options outstanding on the date of the Merger Agreement in accordance with
their present terms; (3) amend its certificate of incorporation, by-laws or
other comparable charter or organizational documents; (4) acquire or agree to
acquire (a) by merging or consolidating with, or by purchasing a substantial
portion of the assets of, or by any other manner, any business or any
corporation, partnership, joint venture, association or other business
organization or division thereof or (b) any assets that are material,
individually or in the aggregate, to the Company and its subsidiaries taken as a
whole, except purchases of inventory in the ordinary course of business
consistent with past practice; (5) sell, lease, license, mortgage or otherwise
encumber or subject to any lien (except for such lien required by law) or
otherwise dispose of any of its properties or assets, except sales of inventory
in the ordinary course of business consistent with past practice; (6) (a) 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 incurred in the ordinary course of business
consistent with past practice and pursuant to existing agreements, or (b) make
any 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; (7) make or agree to make any new capital expenditure
or expenditures not contemplated by the Company's current budget; (8) (a) grant
to any officer of the Company or any of its subsidiaries any increase in
compensation, except as was required under employment agreements in effect as of
January 26, 1997, (b) grant to any officer of the Company or any of its
subsidiaries any increase in severance or termination pay, except as was
required under employment, severance or termination agreements in effect as of
January 26, 1997, (c) enter into any employment, severance or termination
agreement with any officer of the Company or any of its subsidiaries or (d)
amend any benefit plan in any respect; (9) make any change in accounting
methods, principles or practices materially affecting the Company's assets,
liabilities or business, except insofar as may have been required by a change in
generally accepted accounting
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principles; (10) pay, discharge, settle or satisfy any material claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge, settlement or
satisfaction, in the ordinary course of business consistent with past practice
or in accordance with their terms; (11) except in the ordinary course of
business, modify, amend or terminate any material note, bond, mortgage,
indenture, lease, license, contract, agreement or other instrument or obligation
to which the Company or any of its subsidiaries is a party or by which any of
them or any of their properties or assets may be bound, or waive or release or
assign any material rights or claims; (12) make any material tax election or
settle or compromise any material income tax liability; or (13) authorize any
of, or commit or agree to take any of, the foregoing actions.
Pursuant to the Merger Agreement, the Company shall not, and shall not
permit any of its subsidiaries to, take any action that would or that could
reasonably be expected to result in (1) any of its representations and
warranties set forth in the Merger Agreement that are qualified as to
materiality becoming untrue, (2) any of such representations and warranties that
are not so qualified becoming untrue in any material respect or (3) except as
otherwise permitted by the provisions of the Merger Agreement described above
under "Takeover Proposals", any of the conditions to the Offer or to the Merger
not being satisfied.
In addition, the Merger Agreement provides that the Company shall promptly
advise the Purchaser orally and in writing of any change or event having, or
which, insofar as can reasonably be foreseen, would have, a Company Material
Adverse Effect.
BOARD OF DIRECTORS. The Merger Agreement provides that upon the acceptance
for payment of, and payment by the Purchaser for, any Shares pursuant to the
Offer, the Purchaser shall be entitled to designate such number of directors on
the Board of Directors of the Company as shall give the Purchaser, subject to
compliance with Section 14(f) of the Exchange Act, representation on the Board
of Directors of the Company equal to at least that number of directors, rounded
up to the next whole number, which is the product of (a) the total number of
directors on the Board of Directors of the Company (giving effect to the
directors elected pursuant to this sentence) multiplied by (b) the percentage
that (i) such number of Shares so accepted for payment and paid for by the
Purchaser plus the number of Shares otherwise owned by the Purchaser or any
other subsidiary of Parent bears to (ii) the number of such Shares outstanding,
and the Company shall, at such time, cause the Purchaser's designees to be so
elected. Subject to applicable law, the Company has agreed to take all action
requested by Parent necessary to effect any such election, including mailing to
its stockholders the Information Statement containing the information required
by Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder, and
the Company shall make such mailing with the mailing of this Schedule 14D-9
(provided that the Purchaser shall have provided to the Company on a timely
basis all information required to be included in the Information Statement with
respect to the Purchaser's designees). In connection with the foregoing, the
Company shall promptly, at the option of the Purchaser, either increase the size
of the Board of Directors of the Company or obtain the resignation of such
number of its current directors as is necessary to enable the Purchaser's
designees to be elected or appointed to the Board of Directors of the Company as
provided above. The Merger Agreement also provides that the provisions of this
paragraph are in addition to and shall not limit any rights which the Purchaser
or any of its affiliates may have as a holder or beneficial owner of Shares as a
matter of law with respect to the election of directors or otherwise.
STOCK OPTIONS. The Merger Agreement provides that either prior to or as
soon as practicable following the consummation of the Offer, the Board of
Directors of the Company (or, if appropriate, any committee administering the
stock plans of the Company) shall adopt such resolutions or take such other
actions as are required to adjust the terms of all outstanding stock options to
provide that, at the Effective Time, each stock option outstanding immediately
prior to the acceptance for payment of Shares pursuant to the Offer (whether or
not vested) shall be canceled in exchange for a cash payment by the Company of,
or can only be exercised for net cash equal to, an amount equal to (i) the
excess, if any, of (A) the price per Share to be paid pursuant to the Offer over
(B) the exercise price per Share subject to such stock option, multiplied by
(ii) the number of Shares for which such stock option shall not theretofore have
been exercised.
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The Merger Agreement provides further that all stock plans shall terminate
as of the Effective Time and the provisions in any other benefit plan of the
Company providing for the issuance, transfer or grant of any capital stock of
the Company or any interest in respect of any capital stock of the Company shall
be deleted as of the Effective Time, and the Company shall ensure that following
the Effective Time no holder of a stock option or any participant in any stock
plan or any other benefit plan of the Company shall have any right thereunder to
acquire any capital stock of the Company or the Surviving Corporation.
INDEMNIFICATION. From and after the Effective Time, Parent and the
Surviving Corporation have agreed to indemnify, defend and hold harmless each
person who is now, or has been at any time prior to the date of the Merger
Agreement or who becomes prior to the Effective Time, an officer, director or
employee of the Company or any of its subsidiaries (the "Indemnified Parties")
against (i) all losses, claims, damages, costs, expenses (including attorney's
fees and expenses), liabilities or judgments or amounts that are paid in
settlement (which settlement shall require the prior written consent of Parent,
which consent shall not be unreasonably withheld or delayed) of or in connection
with any claim, action, suit, proceeding or investigation (a "Claim") in which
an Indemnified Party is, or is threatened to be made, a party or a witness based
in whole or in part on or arising in whole or in part out of the fact that such
person is or was an officer, director or employee of the Company or any of its
subsidiaries, whether such Claim pertains to any matter or fact arising,
existing or occurring at or prior to the Effective Time, regardless of whether
such Claim is asserted or claimed prior to, at or after the Effective Time (the
"Indemnified Liabilities"), and (ii) all Indemnified Liabilities based in whole
or in part on, or arising in whole or in part out of, or pertaining to the
Merger Agreement, the Merger, the Offer, the Operative Agreements (as defined
below) or the other transactions contemplated by the Merger Agreement or by the
Operative Agreements, in the case of either clause (i) or (ii) to the full
extent the Company would have been permitted under Maryland law and its Charter
and Bylaws to indemnify such person (and Parent shall pay expenses in advance of
the final disposition of any such action or proceeding to each Indemnified Party
to the full extent permitted by law and under such Charter or Bylaws, upon
receipt of any undertaking required by such Charter, Bylaws or applicable law).
The obligations of Parent described above shall continue in full force and
effect, without any amendment thereto, for a period of not less than six years
from the Effective Time.
Parent and the Surviving Corporation have agreed to cause to be maintained
in effect for not less than six years from the Effective Time the current
policies of directors' and officers' liability insurance maintained by the
Company and its subsidiaries (provided that Parent and the Surviving Corporation
may substitute therefor policies of at least the same coverage containing terms
and conditions which are no less advantageous to the Indemnified Parties in all
material respects so long as no lapse in coverage occurs as a result of such
substitution) with respect to all matters, including the transactions
contemplated hereby, occurring prior to, and including, the Effective Time,
provided that, in the event that any Claim is asserted or made within such
six-year period, such insurance shall be continued in respect of any such Claim
until final disposition of any and all such Claims, provided, further, that
Parent shall not be obligated to make annual premium payments for such insurance
to the extent such premiums exceed 150% of the premiums paid as of the date
hereof by Parent for such insurance.
The obligations of Parent and the Surviving Corporation described above are
intended to benefit, and be enforceable against Parent and the Surviving
Corporation directly by, the Indemnified Parties, and shall be binding on all
respective successors of Parent and the Surviving Corporation.
REASONABLE NOTIFICATION. The Merger Agreement provides that, on the terms
and subject to the conditions of the Merger Agreement, each of the parties shall
use its reasonable 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 Offer and the Merger
and the other transactions contemplated by the Merger Agreement, the
Shareholders Agreement (as defined below) or the Stock Option Agreement (as
defined below) (collectively, the "Operative Agreements").
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PROCEDURE FOR TERMINATION, AMENDMENT, EXTENSION OR WAIVER. The Merger
Agreement provides that in the event the Purchaser's designees are appointed or
elected to the Board of Directors of the Company as described above under "Board
of Directors," after the acceptance for payment of Shares pursuant to the Offer
and prior to the Effective Time, the affirmative vote of a majority of the
Directors (other than the Purchaser's designees or appointees) shall be required
for the Company to amend or terminate the Merger Agreement, exercise or waive
any of its rights or remedies under the Merger Agreement or extend the time for
performance of the Purchaser's and Parent's respective obligations under the
Operative Agreements.
REPRESENTATIONS AND WARRANTIES. In the Merger Agreement, the Company has
made customary representations and warranties to Parent and the Purchaser with
respect to, among other things, its organization, capitalization, financial
statements, public filings, conduct of business, employee benefit plans, labor
relations and employment matters, compliance with laws, subsidiaries, tax
matters, litigation, vote required to approve the Merger Agreement, undisclosed
liabilities, information supplied, the absence of any material adverse changes
in the Company since January 26, 1997, absence of excess parachute payments,
inapplicability of state takeover statutes, the opinion of the Company's
financial advisor, brokers, fees and expenses, intellectual property,
environmental protection, and contracts.
THE SHAREHOLDERS AGREEMENT
As an inducement and a condition to entering into the Merger Agreement,
Parent required that certain stockholders who were the beneficial owners of an
aggregate of 8,626,073 Shares on July 2, 1997 (the "Selling Stockholders")
agree, and the Selling Stockholders agreed, to enter into a Shareholders
Agreement among such Selling Stockholders, Parent and the Company (the
"Shareholders Agreement"). The following is a summary of the material terms of
the Shareholders Agreement. This summary is not a complete description of the
terms and conditions thereof and is qualified in its entirety by reference to
the full text of the Shareholders Agreement which is incorporated herein by
reference and a copy of which is filed herewith as Exhibit 3.
TENDER OF SHARES. Upon the terms and subject to the conditions of the
Shareholders Agreement, each Selling Stockholder has agreed to validly tender
(and not to withdraw) pursuant to and in accordance with the terms of the Offer,
not later than the fifth business day after commencement of the Offer, the
number of Shares set forth opposite such Selling Stockholder's name under the
caption "Existing Shareholders" on Schedule I to the Shareholders Agreement
(together with Shares acquired by such Selling Stockholder after the date of the
Shareholders Agreement) and owned by him, her or it. Each Selling Stockholder
has acknowledged and agreed that the Purchaser's obligation to accept for
payment and pay for Shares in the Offer is subject to the terms and conditions
of the Offer.
VOTING. Each Selling Stockholder has agreed that during the period
commencing on the date of the Shareholders Agreement and continuing until the
first to occur of the purchase of the Shares by Purchaser pursuant to the Offer,
the Effective Time or termination of the Merger Agreement in accordance with its
terms, at any meeting of the Company's stockholders, however called, or in
connection with any written consent of the Company's stockholders, such Selling
Stockholder will vote (or cause to be voted) the Shares held of record or
beneficially owned by such Selling Stockholder, whether issued, heretofore owned
or hereafter acquired, (i) in favor of the Merger, the execution and delivery by
the Company of the Merger Agreement and the approval of the terms thereof and
each of the other actions contemplated by the Merger Agreement and the
Shareholders Agreement and any actions required in furtherance thereof; (ii)
against any action or agreement that would result in a breach in any respect of
any covenant, representation or warranty or any other obligation or agreement of
the Company under the Merger Agreement or the Shareholders Agreement (after
giving effect to any materiality or similar qualifications contained therein);
and (iii) except as otherwise agreed to in writing in advance by Parent, against
the following actions (other than the Merger and the transactions contemplated
by the Merger Agreement): (A) any extraordinary corporate transaction, such as a
merger, consolidation or other business combination involving the Company or its
subsidiaries; (B) a sale, lease or transfer of a material amount of assets of
the
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Company or its subsidiaries, or a reorganization, recapitalization, dissolution
or liquidation of the Company or its subsidiaries; (C) (1) any change in a
majority of the persons who constitute the Board of Directors of the Company;
(2) any change in the present capitalization of the Company or any amendment of
the Company's Charter or By-Laws; (3) any other material change in the Company's
corporate structure or business; or (4) any other action involving the Company
or its subsidiaries which is intended, or could reasonably be expected, to
impede, interfere with, delay, postpone, or materially adversely affect the
Merger and the transactions contemplated by the Shareholders Agreement and the
Merger Agreement. Each Selling Stockholder further agreed not to enter into any
agreement or understanding with any person or entity, the effect of which would
be inconsistent with or violative of the provisions and agreements described
above.
REPRESENTATIONS, WARRANTIES, COVENANTS AND OTHER AGREEMENTS. Each Selling
Stockholder has made certain customary representations, warranties and
covenants, including with respect to (i) ownership of the Shares to be tendered
by it or him, (ii) the authority to enter into and perform its or his
obligations under the Shareholders Agreement, (iii) the absence of required
consents or contractual conflicts relating to the Shareholders Agreement, (iv)
the absence of liens and encumbrances on and in respect of its Shares to be
tendered by it or him, (v) no finder's fees, (vi) the solicitation of
acquisition proposals, (vii) transfers of Shares, (viii) waiver of appraisal
rights and (ix) further assurances.
TERMINATION. Other than as provided therein, the covenants and agreements
contained in the Shareholders Agreement with respect to the Shares will
terminate upon the earliest of (w) the acquisition of the Shares by Parent or
Purchaser pursuant to the Offer, (x) the Effective Time, (y) if the Effective
Time does not occur, the termination of the Merger Agreement or the withdrawal
or modification by the Board of Directors of the Company of its recommendation
of the Offer or the Merger as permitted by the Merger Agreement and (z) the
first anniversary of the date of the Shareholders Agreement.
THE OPTION AGREEMENT
Simultaneously with the execution of the Merger Agreement, Parent and the
Company entered into an option agreement (the "Option Agreement") as a condition
to Parent's willingness to proceed with the Offer. The following is a summary of
the material terms of the Option Agreement. This summary is not a complete
description of the terms and conditions thereof and is qualified in its entirety
by reference to the full text of the Option Agreement which is incorporated
herein by reference and a copy of which is filed herewith as Exhibit 4.
The Option Agreement provides for the grant by the Company to Parent of an
irrevocable option (the "Option") to purchase up to 5,434,367 option shares at a
price of $24.00 per option share. The Option Agreement provides that the Option
may be exercised by Parent, in whole or in part, at any time or from time to
time, commencing upon the Option Exercise Date (as defined below) and prior to
the Option Expiration Date (as defined below). "The Option Exercise Date" is
defined in the Option Agreement as the first to occur of any of the following
dates: (i) any corporation (including the Company or any of its subsidiaries or
affiliates), partnership, person, other entity or group (as defined in Section
13(d)(3) of the Exchange Act) other than Parent, Purchaser or any of their
respective affiliates or other persons with whom any of the foregoing is a part
of a group (collectively, "Persons") shall have become the beneficial owner of
more than 20% of the outstanding Shares and the Merger Agreement is terminated
pursuant to clause (4) or clause (5) under "Merger Agreement--Termination of the
Merger Agreement" above but, with respect to clause (5), only in the case of
paragraph (d) set forth under "The Merger Agreement-- Conditions to the Offer";
(ii) (a) any Person other than Parent, Purchaser, any of their respective
affiliates or other Persons with whom any of the foregoing is a part of a group
has commenced or publicly proposed a Takeover Proposal at a value greater than
the aggregate consideration to be received by holders of Shares pursuant to the
Offer and (b) the Merger Agreement is terminated pursuant to clause (4) or
clause (5) under "Merger Agreement--Termination of the Merger Agreement" above
but, with respect to clause (5), only in the case of paragraph (d) set forth
under "The Merger Agreement--Conditions to the Offer". The
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"Option Expiration Date" is defined in the Option Agreement as the first to
occur of any of the following dates: (a) the satisfaction of the Minimum
Condition, (b) 120 days after the later of (i) the termination of the Merger
Agreement in accordance with its terms and (ii) the expiration or termination of
the applicable waiting period under HSR Act applicable to the exercise of the
Option; (c) December 31, 1997; or (d) the date on which written notice of
termination of the Merger Agreement is given by Parent to the Company.
The Option Agreement provides that if the Option is exercised and if Parent
has so requested in writing on or before December 31, 1997, the Company will use
its reasonable efforts to effect the registration under the Securities Act of
1933, as amended, of such number of Shares owned by Parent and its subsidiaries
as Parent may request and to keep such registration statement effective for a
period of not less than one year. The Company has no obligation to register
shares issued upon exercise of the Option after two registrations pursuant to
the Option Agreement have been effected.
Parent may exercise the Option and purchase option shares pursuant to the
Option Agreement only if (i) such purchase would not otherwise violate, or cause
the violation of, any applicable law or regulation (including, without
limitation, the HSR Act, the Exon-Florio Amendment or the rules of the New York
Stock Exchange), and (ii) no United States or United Kingdom statute, rule,
regulation, decree, order or injunction has been promulgated, enacted, entered
into or enforced by any United States or United Kingdom government, governmental
agency, authority or court which prohibits delivery of the option shares,
whether temporary, preliminary or permanent (PROVIDED, HOWEVER, that Parent and
the Company have agreed to use their best efforts to have any such order, decree
or injunction vacated or reversed).
The Option Agreement contains customary representations and warranties by
the Company and Parent.
CONFIDENTIALITY AGREEMENTS
COMPANY CONFIDENTIALITY AGREEMENT. Pursuant to a Confidentiality Agreement
entered into as of January 6, 1997 by Parent and the Company (the "Company
Confidentiality Agreement"), the parties agreed to provide, among other things,
for the confidential treatment of their discussions regarding the Offer and the
Merger and the exchange of certain confidential information concerning the
Company. Parent also agreed, for a two year period commencing on the date of the
Confidentiality Agreement, not to (i) in any manner acquire, agree to acquire or
make any proposal to acquire, directly or indirectly, any securities or direct
or indirect rights to acquire any securities of the Company or any of its
subsidiaries, (ii) propose to enter into, directly or indirectly, any merger or
business combination involving the Company or any of its subsidiaries or to
purchase, directly or indirectly, a material portion of the assets of the
Company or any of its subsidiaries, (iii) make, or in any way participate,
directly or indirectly, in any "solicitations" of "proxies" (as such terms are
used in the proxy rules of the SEC) to vote, or seek to advise or influence any
person with respect to the voting of, any securities of the Company or any of
its subsidiaries, (iv) form, join or in any way participate in a "group" (within
the meaning of Section 13(d)(3) of the Exchange Act) with respect to any
securities of the Company or any of its subsidiaries, (v) otherwise act, alone
or in concert with others, to seek to control or influence the management, Board
of Directors or policies of the Company, (vi) disclose any intention, plan or
arrangement inconsistent with the foregoing, or (vii) advise, assist or
encourage any other persons in connection with any of the foregoing. The
Confidentiality Agreement is incorporated herein by reference and a copy of it
is filed herewith as Exhibit 5 hereto.
PARENT CONFIDENTIALITY AGREEMENT. Pursuant to a Confidentiality Agreement
entered into as of January 6, 1997 by Parent and the Company (the "Parent
Confidentiality Agreement") , the Company agreed, among other things, to treat
as confidential certain information and documents concerning Parent to be
provided to the Company in connection with the transactions contemplated by the
Merger Agreement. The Company also agreed that until the expiration of two years
from the date of the Parent Confidentiality Agreement it would not, and would
ensure that its associates (as defined in Section 435 of the English Insolvency
Act of 1986), advisors and certain other related persons would not (i) in any
manner acquire,
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agree to acquire or make any proposal to acquire, directly or indirectly, any
securities or direct or indirect rights to acquire any securities of Parent or
any of its subsidiaries, (ii) propose to enter into, directly or indirectly, any
merger or business combination involving the Parent or any of its subsidiaries
or to purchase, directly or indirectly, a material portion of the assets of the
Parent or any of its subsidiaries, (iii) otherwise act, alone or in concert with
others, to seek to control or influence the management, Board of Directors or
policies of the Company, (iv) disclose any intention, plan or arrangement
inconsistent with the foregoing, or (v) advise, assist or encourage any other
persons in connection with any of the foregoing. The Parent Confidentiality
Agreement is incorporated herein by reference and a copy of it is filed herewith
as Exhibit 6 hereto.
LIMITATION OF LIABILITY AND INDEMNIFICATION.
The MGCL permits a Maryland corporation to include in its charter a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability
resulting from (a) actual receipt of an improper benefit or profit in money,
property or services or (b) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. The Charter contains
such a provision which eliminates such liability to the maximum extent permitted
by the MGCL.
The MGCL requires a corporation (unless its charter provides otherwise,
which the Charter does not) to indemnify a director or officer who has been
successful, on the merits or otherwise, in the defense of any proceeding to
which he is made a party by reason of his service in that capacity. The MGCL
permits a corporation to indemnify its present and former directors and
officers, among others, against judgments, penalties, fines, settlements and
reasonable expenses actually incurred by them in connection with any proceeding
to which they may be made a party by reason of their service in those or other
capacities unless it is established that (a) the act or omission of the director
or officer was material to the matter giving rise to the proceeding and (i) was
committed in bad faith or (ii) was the result of active and deliberate
dishonesty, (b) the director or officer actually received an improper personal
benefit in money, property or services or (c) in the case of any criminal
proceeding, the director or officer had reasonable cause to believe that the act
or omission was unlawful. However, under the MGCL, a Maryland corporation may
not indemnify for an adverse judgment in a suit by or in the right of the
corporation or for a judgment of liability on the basis that personal benefit
was improperly received, unless in either case a court orders indemnification
and then only for expenses. In addition, the MGCL permits a corporation to
advance reasonable expenses to a director or officer upon the corporation's
receipt of (a) a written affirmation by the director or officer of his good
faith belief that he has met the standard of conduct necessary for
indemnification by the corporation and (b) a written statement by or on his
behalf to repay the amount paid or reimbursed by the corporation if it shall
ultimately be determined that the standard of conduct was not met.
The Company's Charter provides, among other things, that the Company shall
indemnify, to the full extent permitted by the laws of the State of Maryland,
any person made or threatened to be made a party to an action or a proceeding,
whether criminal, civil, or administrative or investigative, by reason of the
fact he is or was a director or officer of the Company or served another
enterprise as a director or officer at the request of the Company.
The By-Laws of the Company provide, among other things, that the Company
shall indemnify as set forth in the Company's Charter and to the full extent
permitted by the laws of the State of Maryland, 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, by reason that he is or was a director, officer, employee or
agent of the Company, or is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or is or was serving at the request of the
Company as a trustee or administrator or in any other fiduciary capacity under
any pension, profit sharing or other deferred compensation plan, or any
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employee welfare benefit plan of the Company. The By-Laws further provide that
the Company shall pay expenses (including attorney's fees) incurred in defending
a civil or criminal action, suit or proceeding in advance of the final
disposition thereof on the conditions and to the extent permitted by the laws of
the State of Maryland.
As described above under the caption "The Merger Agreement-Indemnification,"
Parent and the surviving corporation of the Merger have agreed in the Merger
Agreement to indemnify the current or former directors, officers and employees
of the Company and its subsidiaries with respect to certain Indemnified
Liabilities. Such indemnification obligation shall continue in full force and
effect for a period of not less than six years from the Effective Time.
The Company has entered into a separate indemnity agreement with Jack
Africk, a Director of the Company, whereby the Company agrees (i) to indemnify
Mr. Africk in certain events and (ii) to provide Mr. Africk with directors' and
officers' liability insurance to the maximum extent of the coverage available
for any Director of the Company.
The Company and Compass Partners International, L.L.C. (of which Stephen M.
Waters, a Director of the Company, is a founding partner) ("Compass") have
entered into a letter agreement pursuant to which the Company has agreed (i) to
pay Compass a fee in connection with the services rendered by Compass as the
Company's exclusive financial advisor thereunder, (ii) to reimburse Compass for
reasonable out-of-pocket expenses incurred by Compass in connection with its
activities thereunder and (iii) to indemnify Compass against certain liabilities
incurred in connection with such activities including liabilities arising under
federal securities laws.
STOCK OPTIONS
At the Effective Time of the Merger, each stock option outstanding
immediately prior to the acceptance for payment of shares of Common Stock
pursuant to the Offer (whether or not vested) shall be canceled in exchange for
a cash payment by the Company of, or shall be exercised for net cash equal to,
an amount equal to (i) the excess, if any, of (A) the price per share of Common
Stock to be paid pursuant to the Offer over (B) the exercise price per share of
Common Stock subject to such stock option, multiplied by (ii) the number of
shares of Common Stock for which such stock option shall not theretofore have
been exercised.
EMPLOYMENT AGREEMENTS WITH MANAGEMENT
In connection with the transactions contemplated by the Merger Agreement,
various members of management, including Alfred Carfora, the Chief Executive
Officer, John Edmondson, the Chief Operating Officer and Gerald F. Egan, the
Chief Financial Officer, are entering into employment contracts with the Company
with durations ranging from two to three years and setting forth base salaries
and bonuses at levels comparable to their current compensation.
15
<PAGE>
ITEM 4. THE SOLICITATION OR RECOMMENDATION
a. RECOMMENDATION OF THE BOARD OF DIRECTORS.
The Board of Directors has unanimously approved the Merger Agreement and the
transactions contemplated thereby and unanimously recommends that all holders of
Shares tender such Shares pursuant to the Offer.
b. (i) BACKGROUND.
Since its formation, the Company has grown primarily through acquisitions.
In 1992, it completed the acquisition of UETA, Inc., which afforded it the
ability to serve duty free markets along the United States/ Mexico border. In
1994, it acquired Inflight Sales Group Ltd., a company engaged in duty free
sales on international air flights. Because it has actively pursued
acquisitions, the Company has frequently been in discussions with other
companies interested in potential business combinations.
In October 1996, Mr. Carfora, the President and Chief Executive Officer of
the Company, met with the chief executive officer of another duty free retailer
(the "other retailer") at a duty free industry convention. They agreed to meet
in January 1997 to discuss opportunities for potential business combinations
between certain operations of each of the Company and the other retailer.
At the same industry convention, in October 1996, Mr. Carfora met Barry
Gibson, Group Retail Director of Parent and they discussed possible business
combinations between the Company and Parent. Mr. Carfora and Mr. Gibson agreed
to meet again in January 1997 to continue such discussions.
At its December 1996 meeting, the Board of Directors of the Company
authorized management to engage in discussions with both Parent and the other
retailer regarding potential business combinations.
On January 6, 1997, the Company resumed discussing different possible
transactions with Parent, including a joint venture with Parent of the Company's
and Parent's duty free retail operations, a contribution of Parent's duty free
retail operations to the Company in exchange for shares of the Company's Common
Stock and other possible transactions. Also on that date, the Company entered
into the Company Confidentiality Agreement with Parent and Parent entered into
the Parent Confidentiality Agreement with the Company. Thereafter, the Company
and Parent exchanged certain confidential financial information and other
confidential information relating to their respective duty free operations.
At its meeting on January 24, 1997, the Board of Directors of the Company
authorized management to engage in further discussions with both the other
retailer and Parent, with the objective of exploring the possibility of a
transaction with either the other retailer or Parent, and also authorized the
Company's engagement of Compass. The Company retained Compass as its exclusive
financial advisor in connection with any transaction involving the sale of
control of the Company and entered into a letter agreement dated April 1, 1997
with Compass relating thereto (the "Engagement Letter").
On April 19, Mr. Carfora received an inquiry from Mr. Gibson as to whether
the Company would be willing to consider an offer to purchase all of the
outstanding Common Stock of the Company. The parties discussed matters that
would need to be addressed in connection with such a transaction, and Mr. Gibson
said that if Parent were to proceed it would require the Company to enter into
an exclusivity agreement for a certain period of time.
On April 22, Mr. Carfora met with an executive officer of the other retailer
to discuss opportunities for potential business combinations between certain of
the Company's and the other retailer's operations.
On April 25, Mr. Carfora, together with a representative of Compass, met
with Mr. Gibson and Russell Walls, Chief Financial Officer of Parent, to discuss
the possible acquisition of the Company by Parent in a cash tender offer.
Although a price range per share of $21-$23 was raised at the meeting, no
detailed discussion or agreement concerning such a range was reached at that
time.
16
<PAGE>
On May 7, the Company entered into an exclusivity agreement with Parent (the
"Exclusivity Agreement"), providing, among other things, that until May 30, the
Company would not initiate or solicit offers for a business combination from any
other person. Promptly thereafter, Parent commenced a due diligence review of
the Company's business, including non-public information provided by the
Company. The term of the Exclusivity Agreement was subsequently extended until
June 13.
On May 9, representatives of Parent and of NatWest Markets met with Mr.
Carfora and Mr. Egan of the Company and representatives of Compass. At this
meeting, the Company's representatives responded to questions from Parent
regarding the Company's financial position and operating results.
On May 12, Mr. Gibson and other representatives of Parent met with Mr.
Carfora and other representatives of the Company and representatives of Compass
at the offices of Gleacher NatWest Inc. to discuss strategic values which might
be achieved through a business combination transaction and to discuss financial
due diligence matters. On May 13, representatives of Parent's and the Company's
respective independent accountants met to review tax and accounting matters. On
May 14, representatives of Parent and the Company met in the offices of Compass
to review the Company's management information systems. From May 12 through May
16, representatives of Parent, Cahill Gordon & Reindel, counsel to Parent
("Cahill"), and Parent's independent accountants visited the offices of Morgan,
Lewis & Bockius LLP, counsel to the Company ("MLB"), to review information
regarding the Company and its business.
On May 16, Mr. Carfora received a follow-up inquiry from the other retailer
regarding the opportunities for potential business combinations that had been
the subject of the other retailer's and the Company's earlier discussions, as
well as the possibility of the other retailer acquiring a controlling interest
in the Company.
On May 18, the Company advised Parent of the Company's receipt of an
expression of interest from another interested party, although the name of such
party was not disclosed at that time.
At a meeting of the Board of Directors of the Company on May 22, Mr. Carfora
updated the Board as to the status of the separate discussions with Parent and
the other retailer. The Board reconfirmed the authorization of management to
engage in further discussions with Parent and the other retailer regarding
possible business combinations.
On Friday, May 23, Parent distributed the initial draft of the Merger
Agreement and related documents to the Company's representatives. The draft
Merger Agreement did not set forth any terms regarding the price to be proposed
by Parent, a subject which was left for discussion between the chief executives
of the Company and Parent.
On May 23, an executive officer of the other retailer sent a letter to Mr.
Carfora expressing interest in the possibility of the other retailer acquiring
100% of the equity of the Company.
On May 27, the other retailer and one of its affiliates entered into a
confidentiality and standstill agreement with the Company, on substantially the
same terms set forth in the Company Confidentiality Agreement between the
Company and Parent, and the Company prepared to provide to the other retailer
the same information that had previously been provided to Parent.
The Board of Directors of the Company met by conference telephone call on
May 28, at which time Mr. Carfora informed the Board of the letter received from
the other retailer. He also told the Board that Parent had been informed that
another unnamed party had expressed interest and that, based on this
development, the transaction had been removed from the agenda for a scheduled
meeting of the board of Parent. Mr. Carfora further explained that information
would be provided to the other retailer so that it would be in substantially the
same position as Parent to evaluate a potential transaction with the Company.
Discussions would then be pursued, so that the Company could determine whether
the proposal of the other retailer presented a potential alternative to the
transaction with Parent. Mr. Carfora said a more definitive expression of
interest from the other retailer was expected by the end of the week.
17
<PAGE>
On May 29, at the request of the Company, Compass provided to the other
retailer an information memorandum prepared by the Company containing certain
non-public financial information regarding the Company and its business.
On June 3, the other retailer informed Mr. Carfora that it would not proceed
with a purchase of 100% of the equity of the Company, but proposed that the
Company consider the contribution to the Company of certain of the other
retailer's duty free operations in exchange for Common Stock of the Company, as
well as the possible acquisition by the other retailer of a controlling interest
in the Company. At the Company's direction, Compass requested additional
information regarding the proposed alternative transactions. Subsequently, the
other retailer provided to Compass and the Company financial data with respect
to certain of its duty free operations.
On June 5, the Chairman of Parent informed Mr. Carfora that Parent would not
be in a position to proceed with further discussions regarding the price range
for any possible business combination until after July 2.
On June 13, the Company forwarded to Parent comments on the proposed draft
of the Merger Agreement.
On June 18, Mr. Carfora suggested to Mr. Gibson that Parent should propose a
price of $26.00 per share. Mr. Gibson said he would need to discuss this price
with the directors of Parent. On June 23, the Company and Parent reached a
tentative understanding on a price per share in the range of $23.00 to $25.00.
On June 19, the other retailer informed the Company that it did not wish to
pursue the possible acquisition of a controlling interest in the Company, but
that it remained interested in discussing the contribution to the Company of
certain of the other retailer's duty free operations in exchange for Common
Stock of the Company.
On June 28, Parent distributed a revised draft of the Merger Agreement.
On June 30, the Company provided to Parent its comments on the revised
Merger Agreement, as well as the Shareholders Agreement and the Option
Agreement, although an express stipulation was made by the Company that there
was no agreement that the Option Agreement and/or the Shareholders Agreement
would be entered into.
On July 1, representatives of the Company and Parent met to negotiate the
provisions of the Merger Agreement.
On July 2, further discussions were held by the Company and Parent with
respect to the proposed price for the transaction. At the conclusion of such
discussions, Parent proposed to acquire 100% of the equity of the Company for
$24.00 per share, conditioned upon the execution and delivery of the Option
Agreement by the Company and the Shareholders Agreement by certain of the
Company's stockholders, including Gebr. Heinemann, its largest stockholder.
On July 2, revised drafts of the Merger Agreement, the Option Agreement and
the Shareholders Agreement were circulated by Parent and further negotiation
thereof between Parent and the Company ensued throughout the day.
At a special telephonic meeting of the Board on July 2, representatives of
Compass made a presentation to the Board which included, among other things, a
discussion of the merits and effects of the transaction proposed with Parent,
the alternative transaction proposed by the other retailer on June 3, and the
Company continuing to operate on a stand-alone basis. Representatives of Compass
also delivered its written opinion dated July 2, 1997 that, as of such date and
on the basis of and subject to the matters set forth therein, the cash
consideration to be received by the holders of Shares in the Offer and the
Merger was fair, from a financial point of view, to such holders. The Board also
received a summary by counsel to the Company regarding the negotiation of and
the principal terms of the Merger Agreement, the Option Agreement and the
Shareholders Agreement. The Board deliberated as to the proposed transaction
with
18
<PAGE>
Parent, the alternative transaction proposed by the other retailer and the
possibility of continuing to operate on a stand-alone basis and the respective
merits and effects of each. After consideration of the presentations made by the
Company's management and its financial and legal advisors, the Board unanimously
(i) approved the Merger Agreement and the transactions contemplated thereby,
(ii) determined that the Offer and the Merger are advisable and fair to and in
the best interests of the shareholders of the Company, (iii) determined to
recommend acceptance of the Offer and approval and adoption of the Merger
Agreement, the Merger, the Shareholders Agreement and the Option Agreement by
the shareholders of the Company, (iv) took actions to amend the Company's
By-laws to exempt the transactions from the control share acquisition provisions
of the MGCL and (v) adopted a resolution exempting the transaction from the
business combination provisions of the MGCL.
On July 2, 1997, the Company was informed that the Board of Parent had
unanimously approved the terms and conditions of the proposed transaction with
the Company, including the terms and conditions of the Merger Agreement and the
other transaction documents contemplated thereby.
In the early morning of July 3, the parties executed the Merger Agreement,
dated as of July 2, 1997, and publicly announced the transactions contemplated
thereby.
On July 9, 1997, Purchaser commenced the Offer.
(b) (2) REASONS FOR THE RECOMMENDATION. In approving the Merger Agreement,
the Shareholders Agreement and the Option Agreement and the transactions
contemplated thereby and recommending that all holders of Shares tender their
Shares pursuant to the Offer, the Board of Directors considered a number of
factors, including:
(i) the familiarity of the Board of Directors with the Company's
business, financial condition, results of operations, properties and
prospects as an independent entity, and the nature of the industry in which
it operates, based in part upon presentations by the Company's management
and Compass;
(ii) the trading range for the Company's Common Stock during the period
from 1995 to the present, and the fact that the $24.00 price proposed by
Parent represents a significant premium over the sale prices for the
Company's Common Stock over the past three years;
(iii) the Board's determination, based in part on presentations by the
Company's management and Compass, that the alternative transaction proposed
by the other retailer on June 3 was, on balance, less favorable to the
Company and its stockholders because the alternative transaction did not
constitute an offer to acquire all of the equity of the Company for cash but
rather involved the contribution to the Company of certain operations of the
other retailer which, when combined with the Company's operations, were
expected to generate limited synergies and, therefore, were not expected to
alleviate the intensified competition faced by the Company on a stand-alone
basis and that the terms of the Merger Agreement, including the termination
fee and expense reimbursement provisions, should not preclude third parties
from making bona fide acquisition proposals subsequent to signing the Merger
Agreement;
(iv) the terms of the Merger Agreement, including the proposed structure
of the Offer and the Merger involving an immediate cash tender offer for all
outstanding Shares to be followed by a merger for the same consideration,
thereby enabling stockholders to obtain cash for their Shares at the
earliest possible time;
(v) the presentation of Compass at the July 2, 1997 Board meeting and
the written opinion of Compass dated July 2, 1997 that, as of such date and
on the basis of and subject to the matters set forth therein, the cash
consideration to be received by the holders of the Shares pursuant to the
Offer and the Merger was fair, from a financial point of view, to such
holders. A copy of the written opinion of Compass, which sets forth the
factors considered and the assumptions made, is attached hereto as Exhibit
15 and incorporated herein by reference. STOCKHOLDERS ARE URGED TO READ THE
OPINION OF COMPASS CAREFULLY AND IN ITS ENTIRETY;
19
<PAGE>
(vi) that the Merger Agreement permits the Company, prior to the
acceptance for payment of Shares pursuant to the Offer, to furnish nonpublic
information and access thereto to third parties, in response to an
unsolicited written bona fide proposal for a merger or other business
combination involving the Company or any of its subsidiaries or any proposal
or offer to acquire in any manner, directly or indirectly, more than 20% of
the equity securities of the Company or more than 20% of the Company's
consolidated total assets which contains no financing condition from a
person the Company's Board reasonably believes has the financial ability to
make a takeover proposal which is, after taking into account the written
advice of the Company's investment banker, more favorable to the Company's
stockholders than the Offer and the Merger, and to participate in the
discussions and negotiations with such parties with respect thereto;
(vii) the ability of Parent and Purchaser to consummate the Offer and
the Merger without conditioning the Offer on the arrangement of financing;
and
(viii) the enhanced competition the Company had encountered in seeking
to retain existing, or to acquire new, duty free and other retail
concessions at airports; the prospect of the significant reduction of duty
free markets in the European Economic Community commencing in 1999 and the
increased competition the Company could thereafter experience from duty free
operators with greater access to capital resources than the Company and
projections prepared by management of the Company taking into consideration
such factors which indicated a per share value range for the Company, on a
stand-alone basis, below $24 per share.
The Board of Directors did not assign relative weights to the foregoing
factors or determine that any factor was of particular importance. Rather, the
Board of Directors viewed its position and recommendations as being based on the
totality of the information presented to and considered by it.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED
The Company has retained Compass to act as its exclusive financial advisor
in connection with any proposed Sale Transaction (as defined in the Engagement
Letter). Pursuant to the Engagement Letter, the Company has agreed to pay
Compass a fee of $4,000,000 (less a $100,000 retainer previously paid to Compass
by the Company) for Compass' financial advisory services, 20% of which became
payable upon the public announcement of the execution of the Merger Agreement,
and the remainder of which is payable upon the purchase of Shares pursuant to
the Offer. The Company has also agreed to reimburse Compass for reasonable
out-of-pocket expenses incurred by Compass in connection with its activities
under the Engagement Letter, including reasonable fees and disbursements of
Compass' legal counsel. In addition, the Company has agreed to indemnify Compass
against certain liabilities, including liabilities arising under federal
securities laws.
Neither the Company nor any person acting on its behalf has employed,
retained or compensated any other person to make solicitations or
recommendations to security holders on its behalf concerning the Offer or the
Merger.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES
(a) Except as set forth in Schedule II hereto, no transactions in the Shares
have been effected during the past 60 days by the Company or, to the best of the
Company's knowledge, by any executive officer, director, affiliate or subsidiary
of the Company.
(b) To the best of the Company's knowledge, except for Shares the sale of
which may trigger liability for the holder(s) under Section 16(b) of the
Exchange Act, each executive officer, director and affiliate of the Company
currently intends to tender all Shares over which he or she has sole dispositive
power in the Offer.
20
<PAGE>
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY
(a) Except as set forth above in Items 3(b) and 4(b), no negotiation is
being undertaken or is underway by the Company in response to the Offer which
relates to or would result in (i) an extraordinary transaction, such as a merger
or reorganization, involving the Company or any subsidiary of the Company; (ii)
a purchase, sale or transfer of a material amount of assets by the Company or
any subsidiary of the Company; (iii) a tender offer for or other acquisition of
securities by or of the Company; or (iv) any material change in the present
capitalization or dividend policy of the Company.
(b) Except as set forth above or in Items 3(b) or 4(b) above, there are no
transactions, Board resolutions, agreements in principle or signed contracts in
response to the Offer that relate to or would result in one or more of the
events referred to in Item 7(a) above.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
The Information Statement attached as Schedule I hereto is being furnished
in connection with the possible election of persons designated by Parent to a
majority of the seats on the Board of Directors of the Company.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
<TABLE>
<S> <C>
Exhibit 1. Agreement and Plan of Merger dated as of July 2, 1997 among BAA plc, W & G
Acquisition Corporation and Duty Free International, Inc.
Exhibit 2. Pages 8 through 14 of Duty Free International, Inc.'s Proxy Statement dated
April 14, 1997 relating to its 1997 Annual Meeting of Stockholders.
Exhibit 3. Shareholders Agreement dated as of July 2, 1997 among BAA plc, W & G Acquisition
Corporation, Gebr. Heinemann, John A. Couri, Elaine C. Couri, David H.
Bernstein, Carl Reimerdes, Heribert H. Diehl and Alfred Carfora.
Exhibit 4. Stock Option Agreement dated as of July 2, 1997 by and between BAA plc and Duty
Free International, Inc.
Exhibit 5. Letter Agreement dated January 6, 1997 between BAA plc and Duty Free
International, Inc. (the Company Confidentiality Agreement).
Exhibit 6. Letter Agreement dated January 6, 1997 between Duty Free International, Inc. and
BAA plc (the Parent Confidentiality Agreement).
Exhibit 7. Charter of Duty Free International, Inc.
Exhibit 8. By-laws of Duty Free International, Inc.
Exhibit 9. Indemnity Agreement dated September 18, 1987 between Duty Free International,
Inc. and Jack Africk.
Exhibit Letter Agreement dated April 1, 1997 between Duty Free International, Inc. and
10. Compass Partners International, L.L.C.
Exhibit Consulting Agreement between Duty Free International, Inc. and John Couri.
11.
Exhibit Form of Promissory Notes payable to Duty Free International, Inc. issued by
12. Fenton Hill Florida, Inc.
Exhibit Duty Free International, Inc. 1989 Stock Option Plan.
13.
Exhibit Duty Free International, Inc. 1994 Stock Option Plan.
14.
Exhibit Opinion of Compass Partners International, L.L.C. dated July 2, 1997*.
15.
Exhibit Press Release issued by Duty Free International on July 3, 1997.
16.
Exhibit Form of Letter to Shareholders of Duty Free International, Inc. dated July 9,
17. 1997*.
Exhibit Tombstone Advertisement.
18.
Exhibit Amended Solicitation/Recommendation Statement, dated July 30, 1997.
19.
</TABLE>
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* Included in copies mailed to Shareholders.
21
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: July 30, 1997
DUTY FREE INTERNATIONAL, INC.
BY: /S/ ALFRED CARFORA
-----------------------------------------
Name: Alfred Carfora
Title: President and Chief Executive
Officer
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<PAGE>
SCHEDULE I
DUTY FREE INTERNATIONAL, INC.
63 COPPS HILL ROAD
RIDGEFIELD, CT 06877
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
This Information Statement is being mailed on or about July 9, 1997 as part
of the Solicitation/ Recommendation Statement on Schedule 14D-9 (the "Schedule
14D-9") to holders of the common stock, par value $.01 per share ("Common
Stock"), of Duty Free International, Inc. ("the Company"). Capitalized terms
used and not otherwise defined herein shall have the meaning set forth in the
Schedule 14D-9. You are receiving this Information Statement in connection with
the possible election of persons designated by BAA plc ("BAA") to a majority of
the seats on the Board of Directors of the Company.
Pursuant to the Agreement and Plan of Merger, dated as of July 2, 1997,
among the Company, BAA and W&G Acquisition Corporation (the "Purchaser") (the
"Merger Agreement"), on July 9, 1997, the Purchaser commenced the Offer. The
Offer is scheduled to expire at 12:00 midnight (New York time) on August 5, 1997
unless extended.
The information contained in this Information Statement (including
information incorporated by reference) concerning BAA and the Purchaser and the
BAA Designees (as defined below) has been furnished to the Company by BAA and
the Purchaser and the Company assumes no responsibility for the accuracy or
completeness of such information.
GENERAL INFORMATION REGARDING THE COMPANY
GENERAL
The Common Stock is the only class of voting securities of the Company
outstanding. Each share of Common Stock has one vote. As of July 1, 1997, there
were 27,353,088 shares of Common Stock outstanding and 2,143,220 shares of
Common Stock reserved for issuance upon the exercise of options outstanding. The
Board of Directors of the Company currently consists of nine members and there
are currently no vacancies on the Board of Directors. The Board of Directors is
divided into three classes and each director serves a term of three years and
until his successor is duly elected and qualified or until his earlier death,
resignation or removal.
BAA DESIGNEES
The Merger Agreement provides that, subject to compliance with applicable
law and promptly following the purchase by the Purchaser of more than 50% of the
outstanding Shares pursuant to the Offer, the Purchaser shall be entitled to
designate such number of directors (the "BAA Designees") to the Board of
Directors of the Company as shall give it representation on the Company's Board
equal to at least that number of directors, rounded up to the next whole number,
which represents the product of (x) the total number of directors on the
Company's Board of Directors multiplied by (y) the percentage that the number of
Shares so accepted for payment plus any Shares otherwise owned by the Purchaser
or any other subsidiary of BAA bears to the number of Shares outstanding and the
Company shall, at such time, cause the BAA Designees to be so elected. In
furtherance thereof, the Company will increase the size of the Company's Board
of Directors, or obtain the resignation of directors, as is necessary to permit
the Purchaser's designees to be elected or appointed to the Company's Board of
Directors. This Information Statement is required by Section 14(f) of the
Securities Exchange Act of 1934, as amended (the "Exchange
1
<PAGE>
Act"), and Rule 14f-1 thereunder. YOU ARE URGED TO READ THIS INFORMATION
STATEMENT CAREFULLY. YOU ARE NOT, HOWEVER, REQUIRED TO TAKE ANY ACTION.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as to the number of
shares of Common Stock owned, as of July 1, 1997 (except as noted in note (2)
below), by each person who is known by the Company to beneficially own more than
5% of Common Stock, each Director of the Company, each executive officer named
in the Summary Compensation Table and all executive officers and Directors of
the Company as a group. A person is a beneficial owner if such person has or
shares voting power or investment power. Each beneficial owner has sole voting
and investment power unless otherwise noted. At July 1, 1997, there were
27,353,088 shares of Common Stock outstanding. Except as noted in the footnotes
below, the addresses of all stockholders, Directors and executive officers
identified in the table and accompanying footnotes are in care of the Company's
principal executive offices at 63 Copps Hill Road, Ridgefield, Connecticut
06877.
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK PERCENTAGE OF
BENEFICIALLY OUTSTANDING
NAME OF BENEFICIAL OWNER OWNED COMMON STOCK
- ------------------------------------------------------------------------------ ----------------- -----------------
<S> <C> <C>
Gebr. Heinemann(l)............................................................ 4,571,664 16.7%
FMR Corporation (2)........................................................... 2,454,600 9.0%
John A. Couri (3)............................................................. 1,221,819 4.4%
David H. Bernstein(4)......................................................... 1,205,423 4.4%
Carl Reimerdes(5)............................................................. 989,948 3.6%
Heribert Diehl (1) (6)........................................................ 935,756 3.4%
Alfred Carfora(7)............................................................. 309,229 1.1*
Gerald F. Egan(8)............................................................. 81,100 *
Jack Africk(9)................................................................ 56,101 *
John Edmondson(10)............................................................ 46,667 *
Susan H. Stackhouse(11)....................................................... 17,234 *
Stephen M. Waters(12)......................................................... 4,000 *
All executive officers and Directors as a group (10 persons) (13)............. 4,867,277 17.3%
</TABLE>
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* Represents less than 1% of the issued and outstanding Common Stock.
(1) Heribert Diehl, a member of the executive committee of Gebr. Heinemann, a
partnership, is a Director of the Company. The Company believes that certain
members of the Heinemann family who are partners in Gebr. Heinemann may be
deemed to be indirect beneficial owners of the Common Stock owned by Gebr.
Heinemann.
(2) Fidelity Management & Research Company ("Fidelity"), 82 Devonshire Street,
Boston, Massachusetts 02109, a wholly-owned subsidiary of FMR Corp. and an
investment adviser registered under Section 203 of the Investment Advisers
Act of 1940, is the beneficial owner of 2,454,600 shares of the Company's
Common Stock as of December 31, 1996 as a result of acting as investment
adviser to various investment companies registered under Section 8 of the
Investment Company Act of 1940 (the "Funds"). The ownership of one
investment company, Fidelity Value Fund, amounted to 1,825,700 shares of the
Common Stock.
Fidelity Value Fund has its principal business office at 82 Devonshire
Street, Boston, Massachusetts 02109. Edward C. Johnson 3d, FMR Corp.,
through its control of Fidelity, and the Funds each has sole power to
dispose of the 2,454,600 shares owned by the Funds. Neither FMR Corp. nor
Edward C. Johnson 3d, Chairman of FMR Corp., has the sole power to vote or
direct the voting of the shares
2
<PAGE>
owned directly by the Funds, which power resides with each Fund's Boards of
Trustees. Fidelity carries out the voting of the shares under written
guidelines established by the Fund's Board of Trustees. Members of the
Edward C. Johnson 3d family and trusts for their benefit are the predominant
owners of Class B shares of common stock of FMR Corp., representing
approximately 49% of the voting power of FMR Corp. Mr. Johnson 3d owns 12.0%
and Abigail Johnson owns 24.5% of the aggregate outstanding voting stock of
FMR Corp. Mr. Johnson 3d is chairman of FMR Corp. and Abigail P. Johnson is
a director of FMR Corp. The Johnson family group and all other Class B
shareholders have entered into a shareholders' voting agreement under which
all Class B shares will be voted in accordance with the majority vote of
Class B shares. Accordingly, through their ownership of voting common stock
and execution of the shareholders' agreement, members of the Johnson family
may be deemed, under the Investment Company Act of 1940, to form a
controlling group with respect to FMR Corp. All of the foregoing information
is based on FMR Corporation's Schedule 13G dated February 14, 1997.
(3) This amount includes 337,000 shares of Common Stock beneficially owned by
Mr. Couri as Trustee for the Couri Charitable Remainder Trust and Couri
Charitable Lead Unitrust; 32,485 shares of Common Stock as trustee with his
wife for their children; and 17,515 shares of Common Stock held by his son
for which Mr. Couri disclaims beneficial ownership. This amount also
includes stock options exercisable within 60 days after July 1, 1997 to
purchase approximately 148,334 shares of Common Stock.
(4) This amount includes stock options exercisable within 60 days after July 1,
1997 to purchase approximately 148,334 shares of Common Stock.
(5) This amount includes stock options exercisable within 60 days of July 1,
1997 to purchase approximately 140,000 shares of Common Stock.
(6) This amount includes stock options exercisable within 60 days after July 1,
1997 to purchase approximately 40,334 shares of Common Stock.
(7) This amount includes stock options exercisable within 60 days after July 1,
1997 to purchase approximately 133,334 shares of Common Stock.
(8) This amount includes stock options exercisable within 60 days after July 1,
1997 to purchase approximately 80,000 shares of Common Stock.
(9) This amount includes stock options exercisable within 60 days after July 1,
1997 to purchase approximately 52,001 shares of Common Stock.
(10) This amount includes stock options exercisable within 60 days after July 1,
1997 to purchase approximately 46,667 shares of Common Stock.
(11) This amount includes stock options exercisable within 60 days after July 1,
1997 to purchase approximately 16,334 shares of Common Stock.
(12) This amount includes stock options exercisable within 60 days after July 1,
1997 to purchase approximately 2,000 shares of Common Stock.
(13) This amount excludes Common Stock owned by Gebr. Heinemann. The amount
includes stock options exercisable within 60 days after July 1, 1997 to
purchase approximately 807,338 shares of Common Stock.
3
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS
The Company currently has a classified Board of Directors consisting of
three Class A Directors, three Class B Directors and three Class C Directors.
The current terms of the Directors continue until the Annual Meetings of
Stockholders to be held in 1999, 2000 and 1998, respectively, and until their
respective successors are elected and qualified.
CLASS A DIRECTORS
DAVID H. BERNSTEIN, age 62, was the Chairman of the Board of the Company
from 1986 to 1993 and has been a Director since the Company's formation in 1983.
He served until 1992 as President of Samuel Meisel and Company, Inc., a wholly
owned subsidiary of the Company ("Meisel"), with which he had been associated
since 1957. He currently serves as the President of the International
Association of Airport Duty Free Stores, Inc., the trade association
representing all major airport duty free operators in North, South and Central
America, and the Caribbean. He has served in this capacity for the past thirteen
years. Mr. Bernstein is a member of the Board of Trustees of The Johns Hopkins
University and is a trustee of Sinai Hospital and Johns Hopkins Medicine. Mr.
Bernstein is a director of Fenton Hill Florida, Inc.
JOHN A. COURI, age 55, is a consultant to the Company and has been a
Director since the Company's formation. Mr. Couri was Co-Chief Executive Officer
from October 1993 to May 1994 and served as Chairman of the Board of the Company
from October 1993 to December 1994. He was Chief Executive Officer of the
Company from 1987 to 1993, President from 1983 to 1993 and Chief Financial
Officer from 1987 until 1990. In addition, he served as President of the
Northern Border Division from its formation until 1989. Mr. Couri was employed
by IDF Services, Inc. ("IDF Services") from 1972 to 1987, and served as a
director of that corporation until the merger of that corporation with the
Company in 1992.
HERIBERT DIEHL, age 63, has been a Director since the Company's formation.
Mr. Diehl has been an employee of Gebr. Heinemann, a stockholder of the Company,
since 1962 and has been a managing director of that firm since 1983. Gebr.
Heinemann is a major wholesale supplier of duty free merchandise and an operator
of duty free concessions in Europe.
CLASS B DIRECTORS
JACK AFRICK, age 68, is Chairman of Evolution Consulting Group, Inc. Mr.
Africk was the Vice Chairman of the Board of the Company from May 1993 through
December 1994, and was the Vice Chairman of UST, Inc. from 1990 to 1993. He was
a director and Executive Vice President of UST, Inc. from 1987 to 1990, and
previously served as the President and Chief Executive Officer of United States
Tobacco Company, a wholly owned subsidiary of UST, Inc. Mr. Africk is also a
director of Crown Central Petroleum Corp., Tanger Factory Outlets and Transmedia
Network, Inc.
CARL REIMERDES, age 56, has been a Vice President and a Director of the
Company since its formation and the principal operating officer of the Company's
Airport Division and its predecessor since 1983. Mr. Reimerdes was employed by
IDF Services from 1972, and served as its President and as a director, until the
merger of that corporation with the Company in 1992.
LOWELL P. WEICKER, JR., age 65, is a teacher at the University of Virginia.
Mr. Weicker was the Governor of the State of Connecticut from 1990 to 1994; a
U.S. Senator from Connecticut from 1970 to 1988; and a U.S. Congressman from
1968 to 1970. Mr. Weicker is also a director of Compuware, HPSC, Phoenix Home
Life Mutual Fund and UST, Inc.
4
<PAGE>
CLASS C DIRECTORS
ALFRED CARFORA, age 46, was elected President and Co-Chief Executive Officer
of the Company in October 1993 and became Chief Executive Officer in May 1994.
Previously, he served as Executive Vice President and Chief Operating Officer,
and he has been a Director of the Company since 1985. Prior to 1992, Mr. Carfora
had principal operating responsibilities for the Company's Northern Border
Division and Airport Division. Mr. Carfora was employed by IDF Services from
1973 to 1988 and served as its Vice President, Secretary and Treasurer and as a
director until the merger of that corporation with the Company in 1992.
SUSAN H. STACKHOUSE, age 43, has been President of Fenton Hill Florida, Inc.
since 1986 and a Director of the Company since 1992. Ms. Stackhouse joined
Fenton Hill Florida, Inc., formerly known as Bonanni Exports, Inc., in 1980 as
General Manager and served as its Executive Vice President from 1984 until her
election as President in 1986. Fenton Hill Florida, Inc., operates duty free and
retail concessions in eight airports. Ms. Stackhouse has served as a director of
the International Association of Airport Duty Free Stores, Inc. since 1986.
STEPHEN M. WATERS, age 50, is a Managing Partner of Compass Partners
International, L.L.C., a financial services firm. He was Co-Chief Executive of
Morgan Stanley U.K. Group from 1992 to 1996 and a Managing Director of Morgan
Stanley & Company, Inc. from 1988 to 1996. He is a member of the Chancellor's
City Promotion Panel in the United Kingdom, a member of the Harvard Business
School Visiting Committee and Chairman of the Financial Aid Council at Harvard
College.
EXECUTIVE OFFICERS
The Company's executive officers include Alfred Carfora, President and Chief
Executive Officer; John Edmondson, Executive Vice President and Chief Operating
Officer; Carl Reimerdes, Vice President; Gerald F. Egan, Vice President of
Finance, Treasurer, Chief Financial Officer and Secretary; and David H.
Bernstein, Chairman of the Executive Committee of the Board of Directors.
Information concerning each executive officer's age and length of service with
the Company, other than Messrs. Edmondson and Egan, can be found herein under
the subsection entitled "Directors". Each of these executive officers was
elected by, and serves at the pleasure of, the Board of Directors.
JOHN EDMONDSON, age 52, was appointed Executive Vice President and Chief
Operating Officer of the Company in September 1995. From June 1992 to September
1995, Mr. Edmondson had principal operating responsibilities for the Company's
Southern Border Division. He also had principal operating responsibilities for
the Company's Northern Border Division from May 1994 to September 1995. Before
joining the Company in 1992, Mr. Edmondson was a Senior Vice President for Host
Marriott Corporation with complete responsibility for over 150 retail and duty
free airport locations.
GERALD F. EGAN, age 49, joined the Company in August 1989 as Vice President
of Finance. He was elected Chief Financial Officer by the Board of Directors in
January 1990, Treasurer in May 1993 and Secretary in June 1994. Prior to joining
the Company, Mr. Egan had served, since 1985, as chief financial officer of H.B.
Ives Company, a manufacturer of architectural and builders hardware. Mr. Egan
previously had been employed by Cadbury-Schweppes, Inc., a beverage and
confectionery producer, in various financial management positions prior to
becoming its Vice President-Controller in 1984. Mr. Egan is a certified public
accountant.
5
<PAGE>
MEETINGS OF BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors met five times during the fiscal year ended January
26, 1997. All of the Directors attended at least 75% of the aggregate of all
meetings of the Board of Directors and the Committees on which they served
during the fiscal year ended January 26, 1997.
The Audit Committee presently consists of Messrs. Africk, Diehl and Waters.
The Audit Committee is responsible for reviewing, with the Company's independent
auditors, (i) the general scope of the accountants' audit services and the
annual results of their audit, (ii) the reports and recommendations made to the
Audit Committee by the independent auditors and the Company's Internal Audit
Department, and (iii) the Company's internal controls structure. The Audit
Committee held three meetings during the fiscal year ended January 26, 1997.
The Executive Committee presently consists of Messrs. Africk, Bernstein,
Carfora, Couri and Reimerdes. The Executive Committee may exercise all powers of
the Board of Directors between meetings of the Board except as otherwise
provided by law or by the By-laws of the Company. The Executive Committee held
one meeting during the fiscal year ended January 26, 1997.
The Compensation Committee presently consists of Messrs. Africk, Diehl and
Waters. The Compensation Committee is responsible for reviewing and making
recommendations to the Board of Directors concerning remuneration paid to the
Company's executive officers. The Compensation Committee determines the bonuses
awarded under the Company's Incentive Compensation Plan and administers and
makes awards of stock options under the Company's stock option plans. The
Compensation Committee held two meetings during the fiscal year ended January
26, 1997.
The Nominating Committee presently consists of Messrs. Couri and Reimerdes.
The Nominating Committee reviews the qualifications of, and recommends to the
Board, candidates for election to the Board. The Nominating Committee considers
suggestions from many sources, including stockholders, regarding possible
candidates for Director. Such suggestions, together with appropriate
biographical information, may be submitted to the Secretary of the Company. The
Nominating Committee held one meeting during the fiscal year ended January 26,
1997.
COMPENSATION OF EXECUTIVE OFFICERS
The following Summary Compensation Table sets forth certain information
about the cash and non-cash compensation earned by or awarded to Alfred Carfora,
President and Chief Executive Officer, and the four other most highly
compensated executive officers of the Company for the fiscal years ended January
1997, 1996, and 1995.
6
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION (1)
-----------------------------------
<S> <C> <C> <C>
FISCAL
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS
- ---------------------------------------------------------------------------------- ----------- ---------- ----------
Alfred Carfora,................................................................... 1997 $ 325,000 $ 250,000
President and Chief Executive Officer 1996 $ 325,000 $ 175,000
1995 $ 299,000 $ 150,000
John Edmondson,................................................................... 1997 $ 265,000 $ 175,000
Executive Vice President and Chief Operating Officer 1996 $ 245,000 $ 150,000
1995 $ 216,000 $ 100,000
Carl Reimerdes,................................................................... 1997 $ 288,000 $ 125,000
Vice President 1996 $ 288,000 $ 100,000
1995 $ 275,000 $ 125,000
Gerald F. Egan,................................................................... 1997 $ 206,000 $ 75,000
Vice President of Finance, Treasurer, Secretary and Chief Financial Officer 1996 $ 182,000 $ 125,000
1995 $ 170,000 $ 125,000
David H. Bernstein,............................................................... 1997 $ 50,000 $ --
Chairman of the Executive Committee of the Board, former Chairman of the Board 1996 $ 150,000 $ --
1995 $ 256,000 $ 75,000
</TABLE>
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-----------------------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION OPTIONS(2) COMPENSATION(3)
- ------------------------------------------------------------------------------------ ----------- ----------------
<S> <C> <C>
Alfred Carfora,..................................................................... 50,000 $ 18,415
President and Chief Executive Officer -- $ 7,954
125,000 $ 7,477
John Edmondson,..................................................................... 35,000 $ 12,953
Executive Vice President and Chief Operating Officer -- $ 2,491
40,000 $ 2,270
Carl Reimerdes,..................................................................... 25,000 $ 21,015
Vice President -- $ 7,394
125,000 $ 8,942
Gerald F. Egan,..................................................................... 20,000 $ 17,464
Vice President of Finance, Treasurer, Secretary and Chief Financial Officer -- $ 6,734
60,000 $ 7,051
David H. Bernstein,................................................................. -- $ 12,105
Chairman of the Executive Committee of the Board, former Chairman of the Board -- $ 6,091
125,000 $ 11,844
</TABLE>
- ------------------------
(1) Salary and bonus amounts relate to the year in which earned, regardless of
when paid.
(2) This column represents options to purchase the stated number of shares of
Common Stock.
(3) This column includes other compensation that could not properly be reported
in any other column of the Summary Compensation Table. The amounts for
fiscal 1997 include the contributions by the Company to the Duty Free
International, Inc. Employees' Retirement Savings Plan for all named
executives, the cost of life and disability insurance premiums paid by the
Company for all named executives, and professional fees paid by the Company
on behalf of Mr. Bernstein.
7
<PAGE>
The following table summarizes for the named executive officers information
about the grant of options during the fiscal year ended January 26, 1997 and the
potential realizable value of the options.
<TABLE>
<CAPTION>
OPTION GRANTS IN THE LAST FISCAL YEAR
INDIVIDUAL GRANTS
------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED(2) FISCAL YEAR ($ /SH) DATE
- ----------------------------------------------------------------- ----------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
Alfred Carfora................................................... 50,000 20% $ 14.00 9/25/06
John Edmondson................................................... 35,000 14% $ 14.00 9/25/06
Carl Reimerdes................................................... 25,000 10% $ 14.00 9/25/06
Gerald F. Egan................................................... 20,000 8% $ 14.00 9/25/06
David H. Bernstein............................................... -0- N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
RATES OF STOCK PRICE
APPRECIATION FOR OPTION
TERMS (1)
------------------------
NAME 5% 10%
- ---------------------------------------------------------------------------------------- ---------- ------------
<S> <C> <C>
Alfred Carfora.......................................................................... $ 440,226 $ 1,115,620
John Edmondson.......................................................................... $ 308,158 $ 780,934
Carl Reimerdes.......................................................................... $ 220,113 $ 557,810
Gerald F. Egan.......................................................................... $ 176,090 $ 446,248
David H. Bernstein...................................................................... N/A N/A
</TABLE>
- ------------------------
(1) These values have been determined based upon assumed rates of appreciation
and are not intended to forecast the possible future appreciation, if any,
of the price or value of the Company's Common Stock.
(2) The options entitle the holder to purchase shares of the Company's Common
Stock at an exercise price which is equal to the closing price on the New
York Stock Exchange of the Company's Common Stock on the day preceding the
date the stock option was granted. The options vest in three equal annual
installments commencing September 25, 1997 for all named executive officers.
No stock option may be exercised after the expiration of 10 years after the
date of grant.
8
<PAGE>
The following table summarizes for the named executive officers information
about the exercise of stock options by the named executive officers during the
fiscal year ended January 26, 1997 and the value of stock options they held at
January 26, 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND JANUARY 26, 1997 OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED
OPTIONS AT JANUARY 26,
1997
--------------------------
<S> <C> <C> <C> <C>
SHARES ACQUIRED VALUE
NAME ON EXERCISE(#) REALIZED EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ----------------- --------- ----------- -------------
Alfred Carfora............................................ 6,666 $ 67,493 133,334 91,666
John Edmondson............................................ 0 $ 0 46,667 48,333
Carl Reimerdes............................................ 0 $ 0 140,000 66,666
Gerald F. Egan............................................ 0 $ 0 80,000 40,000
David H. Bernstein........................................ 0 $ 0 148,334 41,666
</TABLE>
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
IN-THE-MONEY(L)
OPTIONS AT JANUARY 26,
1997(2)
--------------------------
<S> <C> <C>
NAME EXERCISABLE UNEXERCISABLE
- -------------------------------------------------------------------------------------- ----------- -------------
Alfred Carfora........................................................................ $ 114,584 $ 69,791
John Edmondson........................................................................ $ 86,668 $ 52,082
Carl Reimerdes........................................................................ $ 163,746 $ 63,541
Gerald F. Egan........................................................................ $ 55,000 $ 32,500
David H. Bernstein.................................................................... $ 114,584 $ 57,291
</TABLE>
- ------------------------
(1) Options are "in-the-money" if the closing market price of the Company's
Common Stock on January 24, 1997 exceeded the exercise prices of the
options.
(2) The value of options represents the difference between the exercise prices
of the options and the closing market price of the Company's Common Stock on
January 24, 1997.
9
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee presently consists of Messrs. Africk, Diehl and
Waters. The Compensation Committee is responsible for reviewing and making
recommendations to the Board of Directors concerning remuneration paid to the
Company's executive officers. The Compensation Committee determines the bonuses
awarded under the Company's Incentive Compensation Plan and administers and
makes awards of stock options under the Company's stock option plans. The
Compensation Committee held two meetings during the fiscal year ended January
26, 1997. Mr. Diehl is a member of the executive committee of Gebr. Heinemann, a
partnership which is a greater than five percent stockholder of the Company.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee is responsible for reviewing and making
recommendations to the Board of Directors with respect to the Company's
executive compensation policies. In addition, the Compensation Committee
determines on an annual basis the compensation to be paid to the Chief Executive
Officer and each of the other executive officers of the Company.
COMPENSATION PHILOSOPHY
The Company's compensation programs for executive officers are designed to
enable the Company to:
- Hire, reward, motivate and retain the highest quality managers possible.
- Match the Company's compensation plans to its business strategies, as well
as to the external business environment.
- Align the executive officers' interest with those of stockholders by
providing a significant portion of incentive compensation in the form of
Company stock options.
- Emphasize the relationship between pay and performance by placing a
significant portion of compensation at risk through the Company's
Incentive Compensation Plan.
Executive annual compensation levels (base salary and incentive compensation
awards) are targeted at the median of compensation paid by comparably positioned
companies for like jobs including the companies used in the performance table on
page 12 of this Information Statement (the "Peer Group").
COMPENSATION ELEMENTS
BASE SALARY
In determining an executive officer's base salary, the responsibilities of
the position, the officer's experience, individual performance, and the
competitive marketplace, including a comparison of salaries paid within the Peer
Group, are considered. Based on the most recent information available, the base
salary for the Chief Executive Officer, Alfred Carfora, ranked below the median
base salary relative to the compensation paid by the Peer Group, and the four
other most highly compensated executive officers' base salaries ranked at the
median relative to the compensation paid by the Peer Group.
INCENTIVE COMPENSATION PLAN
Cash bonuses are provided to senior and other key executives under the
Company's Incentive Compensation Plan (the "Plan") which rewards employees based
on performance relative to financial and other predetermined objectives
established for the year. For fiscal 1997, approximately $2,897,000 was set
aside for distribution as bonuses under the Plan. Individual bonus awards were
determined by evaluating each employee's performance toward Company, divisional
or departmental objectives established for the year and specific performance
measures related to both revenue and profitability.
10
<PAGE>
STOCK OPTIONS
The last principal component of compensation arises from the Company's grant
of stock options under the Company's Stock Option Plans. Stock option grants are
designed to more closely align the interests of management with those of
shareholders, and because the full value of an employee's compensation package
cannot be realized unless stock price appreciation occurs over a number of
years, stock option grants are utilized to retain key employees and to provide
an incentive for them to create long-term shareholder value. In granting stock
options under the Stock Option Plans, the Committee considers (i) the
recipient's level of responsibility; (ii) the recipient's specific function
within the Company's overall organization; (iii) the recipient's performance
toward Company, divisional or departmental objectives established for the year;
(iv) the number of options granted to executive officers by the other companies
included in the Peer Group; and (v) the amount of options currently held by the
executive officer. The Stock Option Plans are administered by the Compensation
Committee and provide that no one person, including executive officers, may be
granted options for the purchase of more than 250,000 shares in any fiscal year
(subject to adjustments as noted in the Stock Option Plans in order to prevent
dilution or enlargement of the rights of optionees).
BENEFITS
The Company provides its executives with medical and other benefits that are
generally available to its employees. The Company also pays premiums for life
and disability insurance for certain executive officers.
TAX COMPLIANCE POLICY
Section 162(m) of the Internal Revenue Code generally limits to $1,000,000
the tax deductible compensation paid to the Chief Executive Officer and the four
highest-paid executive officers who are employed as executive officers on the
last day of the year. However, the limitation does not apply to
performance-based compensation provided certain conditions are satisfied.
The Company's policy is generally to preserve the federal income tax
deductibility of compensation paid, to the extent feasible. The Compensation
Committee believes that the incentive compensation and stock option awards
earned for fiscal 1997 and compensation arising from exercise of stock options
granted in fiscal 1997 will be deductible by the Company.
The Compensation Committee considers its primary goal to be the design of
compensation strategies that further the best interests of the Company and its
stockholders. To the extent not inconsistent with that goal, the Compensation
Committee will attempt, where practical, to use compensation policies and
programs that preserve the deductibility of compensation expenses. The
Compensation Committee reserves the right to use its judgment, where merited by
the Compensation Committee's need for flexibility, to respond to changing
business conditions or an executive's individual performance, to nevertheless
authorize compensation payments which may not, in a specific case, be fully
deductible by the Company.
CHIEF EXECUTIVE OFFICER'S COMPENSATION
The compensation program for Alfred Carfora, the Company's Chief Executive
Officer, including salary, annual cash incentive and stock options was
determined using the criteria set forth above. As with the other executive
officers, emphasis is placed on incentive compensation, with approximately 43%
of his fiscal year 1997 compensation (salary and cash bonus) being incentive
based.
Three major factors affected the actions of the Compensation Committee in
fiscal 1997 regarding the compensation of Mr Carfora:
- The Company's operating results improved significantly in fiscal 1997.
11
<PAGE>
- The Company successfully continued a series of cost reduction programs
which contributed to the Company's 34% improvement in profitability.
- Progress was made in each of the Company's businesses.
The Compensation Committee has increased Mr. Carfora's base salary to
$350,000. Mr. Carfora's base salary is below the median base salary for chief
executive officers included in the Peer Group.
Mr. Carfora earned an incentive compensation award of $250,000 for the
fiscal year ended January 26, 1997, which falls below the median bonus award of
chief executive officers who are included in the Peer Group. The Compensation
Committee determined the size of the award after an evaluation of the factors
mentioned above.
Jack Africk
Heribert Diehl
Stephen M. Waters
Members of the Compensation Committee
PERFORMANCE TABLE
The following table compares the cumulative total return on a $100
investment in the Company's Common Stock against the cumulative total return on
a similar investment in (i) the Standard & Poor's Mid-Cap 400 Stock Index and
(ii) a group of five other specialty retail companies, consisting of: CML Group,
Inc., Pier 1 Imports, Inc., Sharper Image Corp., Tiffany & Co. and
Williams-Sonoma, Inc. The table assumes that all investments were made on
January 31, 1992, were held through the Company's fiscal year ended January 26,
1997 and that all dividends were reinvested.
<TABLE>
<CAPTION>
DUTY FREE SPECIALTY RETAIL STANDARD & POOR'S
DATE INTERNATIONAL COMPANIES MID-CAP 400
- ---------------------------------------------------------------- --------------- ----------------- -------------------
<S> <C> <C> <C>
January 31, 1992................................................ $ 100 $ 100 $ 100
January 31, 1993................................................ $ 45 $ 119 $ 111
January 31, 1994................................................ $ 39 $ 117 $ 128
January 29, 1995................................................ $ 19 $ 107 $ 122
January 28, 1996................................................ $ 33 $ 104 $ 161
January 26, 1997................................................ $ 32 $ 155 $ 196
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Ms. Stackhouse, a Director, is the President and an owner of Fenton Hill
Florida, Inc. which has certain arrangements for the purchase of merchandise and
services from the Company. For the fiscal year ended January 26, 1997, such
arrangements included the payment of approximately $43,000 for services rendered
and the purchase of approximately $658,000 of merchandise. On April 28, 1994 and
May 1, 1996, Fenton Hill Florida, Inc. redeemed 4.9 shares of its own stock from
the Company, which was all of the stock owned by the Company, for a total of
$1,425,000. Fenton Hill Florida, Inc. paid the Company $75,000 in 1994 and
promissory notes for $1,350,000 were signed in 1994 and 1996. The notes are
payable in installments starting April 30, 1997 through April 30, 2006. Mr.
Bernstein, a Director and executive of the Company, is a director of Fenton Hill
Florida, Inc.
COMPLIANCE WITH EXCHANGE ACT FILING REQUIREMENTS
The Exchange Act requires the Company's executive officers and directors,
and any persons owning more than 10% of the Common Stock, to file certain
reports of ownership and changes in ownership with the Securities and Exchange
Commission. Based solely on its review of the copies of the Forms 3, 4 and 5
received by it, and written representations from certain reporting persons that
no Forms 5 were required to
12
<PAGE>
be filed by those persons, the Company believes that all executive officers,
directors and 10% shareholders complied with such filing requirements.
INFORMATION WITH RESPECT TO BAA DESIGNEES
BAA has informed the Company that, as of the date of this Information
Statement, BAA has not determined who will be the BAA Designees, but that it
currently intends that some or all of the following persons will be selected as
the BAA Designees.
The following table sets forth the name, business address, present principal
occupation and material positions and occupations within the past five years of
the persons who may be BAA Designees. Unless otherwise specified, each person
listed below is a citizen of the United Kingdom and has his principal address at
the offices of BAA, Stockley House, 130 Wilton Road, London SW1V 1LQ. None of
the persons listed below owns any Common Stock.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR
NAME AND CURRENT EMPLOYMENT, MATERIAL POSITIONS HELD
BUSINESS ADDRESS DURING PAST FIVE YEARS
- ------------------------------------ ---------------------------------------------------------------------------
<S> <C>
Sir John Egan (57) Chief Executive since September 1990. Non Executive Chairman of The London
Tourist Board, 26 Grosvenor Gardens, London SW1W 0DU, since January 1994.
Non Executive Vice Chairman of Legal & General plc, Temple Court, 11 Queen
Victoria Street, London EC4N 4TT, since May 1994. Non Executive Director of
The Foreign & Colonial Investment Trust PLC, Exchange House, Primrose
Street, London EC2 since May 1994. Non Executive Director of World Travel &
Tourism Council, 20 Grosvenor Place, London SW1X 7TT, since March 1994. Non
Executive Director of Marketing Council, Moor Hall, Cookham, Maidenhead,
Berkshire SL6 9QH, since October 1995.
J. Russell F. Walls (53) Group Finance Director since June 1995. Director, Wellcome plc (now
Glaxo-Wellcome), Lansdowne House, Barclay Square, London W1X 6BQ, January
1995-April 1995. Director, Coats Viyella plc, 28 Saville Row, London W1,
until 1994. Non Executive Director Ladbroke Group PLC, Chancel House,
Neasden Lane, London NW10, since June 1996.
Brian Collie (42) Retail Director, Gatwick Airport Limited for the past 5 years. Director of
Duty Free Confederation, 31 Great Peter Street, London SW1P 3LR, May
1996-April 1997.
Nicholas A. Ziebland (44) Group Retail Strategy Director, BAA plc, since February 1996. Head of
Retail Operations, October 1995-February 1996. Head of Retail Operations
BAA plc, 1992-1995.
R.M. Livingstone (54) Chief Executive Officer, World Duty Free Limited since November 1996,
Director of Allders International Limited 1992-1996 (now Allders Nuance
Ltd).
</TABLE>
13
<PAGE>
SCHEDULE II
RECENT TRANSACTIONS WITH RESPECT TO SECURITIES
<TABLE>
<CAPTION>
NAME OF DIRECTOR NUMBER OF OPTIONS GRANTED
- --------------------------------------------------------------------------------------- ---------------------------
<S> <C>
Jack Africk............................................................................ 8,500
Heribert Diehl......................................................................... 6,000
John A. Couri.......................................................................... 6,000
Stephen M. Waters...................................................................... 6,000
Lowell P. Weicker...................................................................... 6,000
Susan H. Stackhouse.................................................................... 1,000
</TABLE>
