<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
SCHEDULE 14D-1
Tender Offer Statement Pursuant to Section 14(d)(1)
of the Securities Exchange Act of 1934
and
SCHEDULE 13D
under the Securities Exchange Act of 1934
--------------
ERO, INC.
(Name of Subject Company)
--------------
HC ACQUISITION CORP.
HEDSTROM CORPORATION
(Bidders)
--------------
Common Stock, $.01 par value
(Title of Class of Securities)
--------------
-------------------
268911104 (Common Stock)
(CUSIP number of Class of Securities)
--------------
Alan B. Menkes
Hicks, Muse, Tate & Furst Incorporated
1325 Avenue of the Americas, 25th Floor
New York, New York 10019
(Name, Address and Telephone Number of Person Authorized to
Receive Notices and Communications on Behalf of the Bidders)
--------------
Copy to:
Simeon Gold, Esq.
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
--------------
April 10, 1997
(Date of Event which Registration Filing Statement on Schedule 13D)
CALCULATION OF FILING FEE
===============================================================================
TRANSACTION VALUATION* AMOUNT OF FILING FEE
- -------------------------------------------------------------------------------
$122,600,000 $24,520
===============================================================================
* Estimated for purposes of calculating the amount of the filing fee only. The
amount assumes the purchase of 10,274,300 shares of common stock, par value
$.01 per share (the "Shares"), at a per Share purchase price of $11.25 and
the cancellation of and settlement with respect to options to purchase
1,458,000 Shares. Such number of Shares and options represents all of the
Shares and options outstanding as of April 10, 1997.
[ ] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the form
or schedule and the date of its filing.
Amount Previously Paid: None Form or Registration No.: Not Applicable
Filing Party: Not Applicable Date Filed: Not Applicable
Page 1 of 8 Pages
Exhibit Index is located on Page 1
<PAGE> 2
CUSIP NO. 268911104 14D-1 PAGE 2 OF 8 PAGES
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS
HC Acquisition Corp.
- -----------------------------------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
2 (a) [ ]
(b) [ ]
- -----------------------------------------------------------------------------------------------------------
SEC USE ONLY
3
- -----------------------------------------------------------------------------------------------------------
SOURCE OF FUNDS
4 BK, AF
- -----------------------------------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(e) or 2(f). [ ]
- -----------------------------------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
State of Delaware
- -----------------------------------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
7 PERSON 3,940,000*
- -----------------------------------------------------------------------------------------------------------
8 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN SHARES [ ]
- -----------------------------------------------------------------------------------------------------------
9 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7)
38.3%
- -----------------------------------------------------------------------------------------------------------
TYPE OF REPORTING PERSON
10 CO
- -----------------------------------------------------------------------------------------------------------
</TABLE>
* On April 10, 1997, Hedstrom Corporation, a Delaware
corporation ("Parent"), and HC Acquisition Corp., a Delaware
corporation and a wholly owned subsidiary of Parent
("Purchaser"), entered into a Stockholders Agreement (the
"Stockholders Agreement") with ERO, Inc., a Delaware
corporation (the "Company") and Golder, Thoma, Cressey Fund III
Limited Partnership (the "Selling Stockholder"), pursuant to
which the Selling Stockholder agreed to validly tender and not
withdraw an aggregate of 3,940,000 shares of the Company's
common stock, par value $.01 per share (the "Shares") pursuant
to Purchaser's offer to purchase all outstanding Shares at a
purchase price per Share of $11.25, net to the seller in cash.
The Stockholders Agreement is more fully described in Section
12 of the Offer to Purchase, dated April 17, 1997.
2
<PAGE> 3
CUSIP NO. 268911104 14D-1 Page 3 of 8 Pages
<TABLE>
<S> <C> <C> <<C>
- -----------------------------------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS
Hedstrom Corporation
- -----------------------------------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
2 (a) [ ]
(b) [ ]
- -----------------------------------------------------------------------------------------------------------
SEC USE ONLY
3
- -----------------------------------------------------------------------------------------------------------
SOURCE OF FUNDS
4 BK, AF, OO
- -----------------------------------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(e) or 2(f). [ ]
- -----------------------------------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
State of Delaware
- -----------------------------------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
7 PERSON 3,940,000*
- -----------------------------------------------------------------------------------------------------------
8 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN SHARES [ ]
- -----------------------------------------------------------------------------------------------------------
9 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7)
38.3%
- -----------------------------------------------------------------------------------------------------------
TYPE OF REPORTING PERSON
10 CO
- -----------------------------------------------------------------------------------------------------------
</TABLE>
* On April 10, 1997, Hedstrom Corporation, a Delaware
corporation ("Parent"), and HC Acquisition Corp., a Delaware
corporation and a wholly owned subsidiary of Parent
("Purchaser"), entered into a Stockholders Agreement (the
"Stockholders Agreement") with ERO, Inc., a Delaware
corporation (the "Company") and Golder, Thoma Cressey Fund III
Limited Partnership (the "Selling Stockholder"), pursuant to
which the Selling Stockholder agreed to validly tender and
not withdraw an aggregate of 3,940,000 shares of the Company's
common stock, par value $.01 per share (the "Shares") pursuant
to Purchaser's offer to purchase all outstanding Shares at a
purchase price per Share of $11.25, net to the seller in cash.
The Stockholders Agreement is more fully described in Section
12 of the Offer to Purchase, dated April 17, 1997.
3
<PAGE> 4
TENDER OFFER
This Tender Offer Statement on Schedule 14D-1 and Statement on
Schedule 13D is filed by HC Acquisition Corp., a Delaware corporation
("Purchaser"), and Hedstrom Corporation, a Delaware corporation ("Parent"),
relating to the offer by Purchaser to purchase all outstanding shares of common
stock, par value $.01 per share (the "Shares"), of ERO, Inc., a Delaware
corporation (the "Company"), at $11.25 per Share, net to the seller in cash, on
the terms and subject to the conditions set forth in the Offer to Purchase,
dated April 17, 1997 (the "Offer to Purchase"), and in the related Letter of
Transmittal, copies of which are attached hereto as Exhibits (a)(1) and (a)(2),
respectively (which collectively constitute the "Offer").
The item numbers and responses thereto below are in accordance with
the requirements of Schedule 14D-1.
ITEM 1. SECURITY AND SUBJECT COMPANY.
(a) The name of the subject company, a Delaware corporation, is
ERO, Inc. (the "Company"). The address of the Company's principal executive
offices is 585 Slawin Court, Mount Prospect, Illinois 60056.
(b) The information set forth on the cover page and under
"Introduction" in the Offer to Purchase is incorporated herein by reference.
(c) The information set forth in Section 6 of the Offer to
Purchase is incorporated herein by reference.
ITEM 2. IDENTITY AND BACKGROUND.
(a)-(d), (g) This Statement is filed by Purchaser and Parent. The
information set forth on the cover page of, under "Introduction" and in Section
9 of, and in Schedule I to the Offer to Purchase is incorporated herein by
reference.
(e)-(f) During the last five years, neither Purchaser or Parent nor,
to their knowledge, any of the persons listed in Schedule I (Directors and
Executive Officers) to the Offer to Purchase, (i) has been convicted in a
criminal proceeding (excluding traffic violations or similar misdemeanors) or
(ii) has been a party to a civil proceeding of a judicial or administrative
body of competent jurisdiction and as a result of such proceeding was or is
subject to a judgment, decree or final order enjoining future violations of, or
prohibiting activities subject to, federal or state securities laws or finding
any violation of such laws.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY.
(a) None.
(b) The information set forth under "Introduction," and in
Sections 8, 11, and 12 of the Offer to Purchase is incorporated herein by
reference.
ITEM 4. SOURCES AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a)-(b) The information set forth under "Introduction" and in
Section 10 of the Offer to Purchase is incorporated herein by reference.
(c) Not applicable.
4
<PAGE> 5
ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDERS.
(a)-(e) The information set forth under "Introduction" and in
Sections 12 and 13 of the Offer to Purchase is incorporated herein by
reference.
(f)-(g) The information set forth under Section 7 of the Offer to
Purchase is incorporated herein by reference.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
(a) The information set forth under "Introduction" and in Section
12 of the Offer to Purchase is incorporated herein by reference.
(b) The information set forth under "Introduction" and in Section
12 of the Offer to Purchase is incorporated herein by reference.
ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO THE SUBJECT COMPANY'S SECURITIES.
The information set forth under "Introduction" and in Sections 9, 10,
11, and 12 of the Offer to Purchase is incorporated herein by reference.
ITEM 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The information set forth under "Introduction" and in Section 16 of
the Offer to Purchase is incorporated herein by reference.
ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS.
The information set forth in Section 9 of the Offer to Purchase is
incorporated herein by reference.
ITEM 10. ADDITIONAL INFORMATION.
(a) The information set forth under Sections 8, 10, 11 and 12 of
the Offer to Purchase is incorporated herein by reference.
(b)-(e) The information set forth under Sections 10 and 15 of the
Offer to Purchase is incorporated herein by reference.
(f) The information set forth in the Offer to Purchase and the
Letter of Transmittal, copies of which are attached hereto as Exhibits (a)(1)
and (a)(2), respectively, is incorporated herein by reference.
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS.
99(a)(1) Offer to Purchase, dated April 17, 1997.
99(a)(2) Letter of Transmittal.
99(a)(3) Notice of Guaranteed Delivery.
5
<PAGE> 6
99(a)(4) Letter to Brokers, Dealers, Commercial Banks, Trust Companies
and Other Nominees.
99(a)(5) Letter to Clients for use by Brokers, Dealers, Commercial
Banks, Trust Companies and Other Nominees.
99(a)(6) Guidelines for Certification of Taxpayer Identification Number
on Substitute Form W-9.
99(a)(7) Form of Summary Advertisement, dated April 17, 1997.
99(a)(8) Text of Press Release, dated April 11, 1997.
99(b)(1) Equity Commitment Letter, dated April 10, 1997, from Hicks
Muse Equity Fund II, L.P. to Parent.
99(b)(2) Engagement Letter, dated April 11, 1997, from Credit Suisse
First Boston Corporation to Parent.
99(b)(3) Senior Discount Notes Commitment Letter, dated April 11, 1997,
from Credit Suisse First Boston Corporation to Parent.
99(b)(4) Bridge Loan Commitment Letter, dated April 11, 1997, from
Credit Suisse First Boston Corporation to Parent.
99(b)(5) Acquisition Credit Facilities Commitment Letter, dated April
10, 1997, from Credit Suisse First Boston Corporation to
Parent.
99(c)(1) Agreement and Plan of Merger, dated April 10, 1997, among
Parent, Purchaser, and the Company.
99(c)(2) Stockholders Agreement, dated April 10, 1997, among Parent,
Purchaser, the Company and Golder, Thoma, Cressey Fund III
Limited Partnership.
99(d) None.
99(e) Not applicable.
99(f) None.
6
<PAGE> 7
SIGNATURES
After due inquiry and to the best of my knowledge and belief, the
undersigned certify that the information set forth in this statement is true,
complete and correct.
Dated: April 17, 1997
HC ACQUISITION CORP.
By: /s/ Andrew S. Rosen
---------------------------------
Title: Vice President
HEDSTROM CORPORATION
By: /s/ Andrew S. Rosen
---------------------------------
Title: Vice President
7
<PAGE> 8
EXHIBIT INDEX
Exhibit
99(a)(1) Offer to Purchase, dated April 17, 1997.
99(a)(2) Letter of Transmittal.
99(a)(3) Notice of Guaranteed Delivery.
99(a)(4) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and
Other Nominees.
99(a)(5) Letter to Clients for use by Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees.
99(a)(6) Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
99(a)(7) Form of Summary Advertisement, dated April 17, 1997.
99(a)(8) Text of Press Release, dated April 11, 1997.
99(b)(1) Equity Commitment Letter, dated April 10, 1997, from Hicks
Muse Equity Fund II, L.P. to Parent.
99(b)(2) Engagement Letter, dated April 11, 1997, from Credit Suisse
First Boston Corporation to Parent.
99(b)(3) Senior Discount Notes Commitment Letter, dated April 11, 1997,
from Credit Suisse First Boston Corporation to Parent.
99(b)(4) Bridge Loan Commitment Letter, dated April 11, 1997, from
Credit Suisse First Boston Corporation to Parent.
99(b)(5) Acquisition Credit Facilities Commitment Letter, dated April
10, 1997, from Credit Suisse First Boston Corporation to Parent.
99(c)(1) Agreement and Plan of Merger, dated April 10, 1997, among Parent,
Purchaser, and the Company.
99(c)(2) Stockholders Agreement, dated April 10, 1997, among Parent,
Purchaser, the Company and Golder, Thoma, Cressey Fund III Limited
Partnership.
99(d) None.
99(e) Not applicable.
99(f) None.
<PAGE> 1
Offer to Purchase for Cash
All Outstanding Shares of Common Stock
of
ERO, INC.
at
$11.25 NET PER SHARE
by
HC ACQUISITION CORP.
a wholly owned subsidiary of
HEDSTROM CORPORATION
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON
MONDAY, JUNE 2, 1997, UNLESS THE OFFER IS EXTENDED.
------------------
THE BOARD OF DIRECTORS OF ERO, INC. (THE "COMPANY") HAS UNANIMOUSLY (A)
DETERMINED THAT EACH OF THE MERGER AGREEMENT, THE OFFER AND THE MERGER (EACH AS
DEFINED HEREIN) IS FAIR TO AND IN THE BEST INTERESTS OF HOLDERS ("STOCKHOLDERS")
OF THE COMPANY'S COMMON STOCK, PAR VALUE $.01 PER SHARE ("SHARES"), (B) APPROVED
THE EXECUTION, DELIVERY AND PERFORMANCE OF THE MERGER AGREEMENT AND THE
CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE OFFER AND
THE MERGER, SUCH APPROVAL CONSTITUTING APPROVAL THEREOF FOR PURPOSES OF SECTION
203 OF THE DELAWARE GENERAL CORPORATION LAW, AS AMENDED, AND FOR PURPOSES OF
ARTICLE NINE OF THE COMPANY'S AMENDED AND RESTATED CERTIFICATE OF INCORPORATION,
AND (C) RESOLVED TO RECOMMEND ACCEPTANCE OF THE OFFER AND, IF REQUIRED, BOTH THE
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE APPROVAL OF THE MERGER BY
THE STOCKHOLDERS.
HEDSTROM CORPORATION AND HC ACQUISITION CORP. HAVE ENTERED INTO A STOCKHOLDERS
AGREEMENT WITH GOLDER, THOMA, CRESSEY FUND III LIMITED PARTNERSHIP (THE "SELLING
STOCKHOLDER"), PURSUANT TO WHICH, AMONG OTHER THINGS, THE SELLING STOCKHOLDER
HAS AGREED TO VALIDLY TENDER (AND NOT TO WITHDRAW) PURSUANT TO AND IN ACCORDANCE
WITH THE OFFER, APPROXIMATELY 33.6% OF THE OUTSTANDING SHARES (CALCULATED ON A
FULLY DILUTED BASIS) AT THE OFFER PRICE.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (A) THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER A NUMBER OF
SHARES WHICH CONSTITUTES A MAJORITY OF THE SHARES OUTSTANDING ON A FULLY DILUTED
BASIS ON THE DATE OF PURCHASE AND (B) THE DEBT FINANCING SOURCES OF HEDSTROM
CORPORATION AND ITS PARENT COMPANY, HEDSTROM HOLDINGS, INC., HAVING PROVIDED THE
APPLICABLE DEBT FINANCING PURSUANT TO THE FINANCING COMMITMENTS (AS DEFINED
HEREIN). THE OFFER IS ALSO SUBJECT TO CERTAIN OTHER CONDITIONS CONTAINED IN THIS
OFFER TO PURCHASE. SEE INTRODUCTION AND SECTIONS 1 AND 14 HEREOF.
IMPORTANT
Any Stockholder desiring to tender all or a portion of such Stockholder's
Shares should either (1) complete and sign the Letter of Transmittal provided
herewith (or a manually signed facsimile thereof) in accordance with the
instructions in the Letter of Transmittal, mail or deliver it and any other
required documents to the Depositary identified in the Letter of Transmittal and
either deliver the certificates for such Shares to the Depositary along with the
Letter of Transmittal or tender such Shares pursuant to the procedures for
book-entry transfer set forth in Section 3 hereof or (2) request such
Stockholder's broker, dealer, commercial bank, trust company or other nominee to
effect the transaction for such Stockholder. Any Stockholder whose Shares are
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee must contact such broker, dealer, commercial bank, trust company
or other nominee if such Stockholder desires to tender such Shares.
Any Stockholder who desires to tender Shares and whose certificates
representing such Shares are not immediately available or who cannot comply with
the procedure for book-entry transfer on a timely basis should tender such
Shares by following the procedures for guaranteed delivery set forth in Section
3.
Questions and requests for assistance may be directed to the Information
Agent or the Dealer Manager at their respective addresses and telephone numbers
set forth on the back cover of this Offer to Purchase. Requests for additional
copies of this Offer to Purchase, the Letter of Transmittal, the Notice of
Guaranteed Delivery and other related materials may be directed to the
Information Agent or to brokers, dealers, commercial banks and trust companies.
The Dealer Manager for the Offer is:
[CREDIT SUISSE LOGO]
April 17, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INTRODUCTION................................................ 3
1. Terms of the Offer................................. 4
2. Acceptance for Payment and Payment for Shares...... 6
3. Procedure for Tendering Shares..................... 7
4. Withdrawal Rights.................................. 9
5. Certain Federal Income Tax Consequences of the
Offer and the Merger.................................. 10
6. Price Range of the Shares; Dividends on the
Shares................................................ 11
7. Effect of the Offer on the Market for the Shares,
Nasdaq Stock Market Listing, Exchange Act
Registration and Margin Securities................. 11
8. Certain Information Concerning the Company......... 12
9. Certain Information Concerning Purchaser, Parent
and Holdings.......................................... 15
10. Source and Amount of Funds......................... 16
11. Background of the Offer............................ 21
12. Purpose of the Offer and the Merger; Plans for the
Company; Merger Agreement; Other Agreements; Other
Matters............................................ 22
13. Dividends and Distributions........................ 32
14. Certain Conditions of the Offer.................... 32
15. Certain Legal Matters.............................. 34
16. Fees and Expenses.................................. 36
17. Miscellaneous...................................... 36
Schedule I -- Directors and Executive Officers of Holdings,
Parent and Purchaser...................................... I-1
</TABLE>
2
<PAGE> 3
To the Holders of Common Stock of ERO, Inc.
INTRODUCTION
HC Acquisition Corp., a Delaware corporation ("Purchaser") and a direct
wholly owned subsidiary of Hedstrom Corporation, a Delaware corporation
("Parent"), hereby offers to purchase all outstanding shares of the common
stock, par value $.01 per share ("Shares"), of ERO, Inc., a Delaware corporation
(the "Company"), at a purchase price of $11.25 per Share (the "Offer Price"),
net to the seller in cash, upon the terms and subject to the conditions set
forth in this Offer to Purchase and in the related Letter of Transmittal (which,
together with any amendments or supplements hereto or thereto, collectively
constitute the "Offer").
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of April 10, 1997, among Parent, Purchaser and the Company (the "Merger
Agreement"). The Merger Agreement provides, among other things, for the
commencement of the Offer by Purchaser and further provides that, following the
consummation of the Offer and subject to the satisfaction or waiver of certain
conditions, Purchaser will be merged with and into the Company (the "Merger"),
with the Company surviving the Merger as a direct wholly owned subsidiary of
Parent (the "Surviving Corporation"). In the Merger, each issued and outstanding
Share (excluding Shares directly or indirectly owned by the Company or by
Parent, Purchaser or any other subsidiary of Parent and Shares owned by
stockholders of the Company who shall have not voted in favor of the Merger or
consented thereto in writing and who shall have demanded properly in writing
appraisal for such shares under Delaware law ("Dissenting Shares")) will be
converted at the effective time of the Merger (the "Effective Time") into the
right to receive the per Share amount actually paid in the Offer, in cash,
without any interest thereon (the "Merger Consideration"), less any required
withholding taxes.
The Board of Directors of the Company (the "Board") has unanimously (i)
determined that each of the Merger Agreement, the Offer and the Merger is fair
to and in the best interests of the holders of the Shares (the "Stockholders"),
(ii) approved the execution, delivery and performance of the Merger Agreement
and the consummation of the transactions contemplated thereby, including the
Offer and the Merger, such approval constituting approval thereof for purposes
of Section 203 of the Delaware General Corporation Law, as amended (the "DGCL"),
and for purposes of Article Nine of the Company's Amended and Restated
Certificate of Incorporation and (iii) resolved to recommend acceptance of the
Offer and, if required, both the approval and adoption of the Merger Agreement
and the approval of the Merger by the Stockholders.
Dean Witter Reynolds, Inc. ("Dean Witter"), the Company's financial
advisor, has delivered to the Board its written opinion, dated April 10, 1997,
that, as of such date and based upon and subject to the matters set forth
therein, the cash consideration to be received by the Stockholders (other than
Parent, Purchaser and any other subsidiary of Parent) pursuant to the Offer and
Merger is fair, from a financial point of view, to such Stockholders. A copy of
the opinion of Dean Witter is contained in the Company's
Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9")
filed with the Securities and Exchange Commission (the "Commission") in
connection with the Offer. A copy of the Schedule 14D-9 is being furnished to
the Stockholders herewith.
The Offer is conditioned upon, among other things, (i) there being validly
tendered and not withdrawn prior to the Expiration Date (as defined in Section 1
below) a number of Shares (the "Minimum Number of Shares") which constitutes a
majority of the Shares outstanding on a fully-diluted basis ("fully diluted
basis" meaning, as of any date, the number of Shares outstanding, together with
Shares which the Company may be required, now or in the future, to issue
pursuant to options, warrants or other rights or obligations outstanding at that
date) on the date of purchase (the "Minimum Tender Condition") and (ii) the debt
financing sources of Parent and its corporate parent, Hedstrom Holdings, Inc., a
Delaware corporation ("Holdings"), having provided the applicable debt financing
pursuant to the Financing Commitments (as defined in Section 10). The Offer is
also subject to certain other conditions. See Sections 1 and 14.
The Company has informed Purchaser that as of April 10, 1997, (i)
10,274,300 Shares were issued and outstanding and 1,458,000 Shares were reserved
for issuance upon the exercise of outstanding options to purchase Shares
("Options") granted under the Company's 1988 Key Employee Stock Option Plan,
1992 Key
3
<PAGE> 4
Employee Stock Option Plan and 1992 Director's Stock Option Plan or otherwise
(collectively, the "Stock Option Plans"). Based on the foregoing, at least
5,866,151 Shares must be validly tendered and not withdrawn in the Offer for the
Minimum Tender Condition to be met.
Concurrently with the execution of the Merger Agreement, Parent and
Purchaser entered into a Stockholders Agreement, dated April 10, 1997 (the
"Stockholders Agreement"), with Golder, Thoma, Cressey Fund III Limited
Partnership (the "Selling Stockholder") which owns, in the aggregate, 3,940,000
(or approximately 33.6%) of the outstanding Shares calculated on a fully-diluted
basis. Pursuant to the Stockholders Agreement, the Selling Stockholder has
agreed to validly tender pursuant to the Offer and not to withdraw all Shares
which are owned of record or beneficially by them prior to the Expiration Date.
The consummation of the Merger is subject to the satisfaction or waiver of
a number of conditions, including, if required, the approval of the Merger by
the requisite vote of the Stockholders. Under the DGCL, the Stockholder vote
necessary to approve the Merger will be the affirmative vote of at least a
majority of the outstanding Shares, including Shares held by Purchaser and its
affiliates. If the Minimum Tender Condition is met and the Offer is consummated,
Purchaser will own a sufficient number of shares to cause the Merger to be
approved. If Purchaser acquires at least 90% of the outstanding Shares pursuant
to the Offer or otherwise, Purchaser will be able to effect the Merger pursuant
to the "short-form" merger provisions of Section 253 of the DGCL, without prior
notice to, or any action by, any other Stockholder. In each event, Purchaser
intends to effect the Merger as promptly as practicable following the purchase
of Shares in the Offer. See Section 12.
The Merger Agreement is more fully described in Section 12. Certain federal
income tax consequences of the sale of Shares pursuant to the Offer and the
exchange of Shares for the Merger Consideration pursuant to the Merger are
described in Section 5.
Tendering Stockholders will not be obligated to pay brokerage fees or
commissions to the Dealer Manager, the Depositary or the Information Agent or,
except as set forth in Instruction 6 to the Letter of Transmittal, transfer
taxes on the sale of Shares pursuant to the Offer or the Merger. A tendering
Stockholder who holds securities with such Stockholder's broker may be required
by such broker to pay a service charge or other fee. Purchaser will pay all
charges and expenses of Credit Suisse First Boston Corporation ("Credit Suisse
First Boston" or "CSFB"), as the dealer manager (the "Dealer Manager"), IBJ
Schroder Bank & Trust Company, as the depositary (the "Depositary"), and
MacKenzie Partners, Inc., as the information agent (the "Information Agent"),
incurred in connection with the Offer. See Section 16.
1. TERMS OF THE OFFER
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any such extension
or amendment), Purchaser will accept for payment (and thereby purchase) all
Shares that are validly tendered and not withdrawn in accordance with Section 4
below prior to the Expiration Date. As used in the Offer, the term "Expiration
Date" shall mean 12:00 midnight, New York City time, on June 2, 1997, unless and
until Purchaser, in accordance with the terms of the Offer and the Merger
Agreement, shall have extended the period of time during which the Offer is
open, in which event the term "Expiration Date" shall mean the latest time and
date at which the Offer, as so extended by Purchaser, shall expire. As used in
this Offer to Purchase, "business day" has the meaning set forth in Rule
14d-1(c)(6) under the Securities Exchange Act of 1934, as amended (the "Exchange
Act").
In the event that the Offer is not consummated, Purchaser may seek to
acquire Shares through open market purchases, privately negotiated transactions,
or otherwise, upon such terms and conditions and at such prices as it shall
determine, which may be more or less than the Offer Price and could be for cash
or other consideration.
In certain circumstances in connection with the termination of the Merger
Agreement, Purchaser would be prohibited from acquiring any shares other than
pursuant to the Offer.
The Offer is conditioned upon, among other things, satisfaction of the
Minimum Tender Condition and the debt financing sources of Parent and Holdings
having provided the applicable debt financing pursuant to the Financing
Commitments, and the expiration or termination of all waiting periods imposed by
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the
regulations thereunder (the "HSR Act"). The
4
<PAGE> 5
Offer is also subject to certain other conditions set forth in Section 14 below.
Subject to the terms of the Merger Agreement, including in certain instances the
Company's consent, Purchaser reserves the right (but shall not be obligated) to
amend or modify the terms of the Offer, including, without limitation, the
right, if by the Expiration Date any or all of the conditions of the Offer are
not satisfied or waived, to (i) extend the period during which the Offer is open
and, subject to the rights of tendering Stockholders to withdraw their Shares,
retain all tendered Shares until the Expiration Date, (ii) waive or reduce the
Minimum Tender Condition or waive any or all of the conditions of the Offer and,
subject to complying with applicable rules and regulations of the Commission,
accept for payment or purchase all validly tendered Shares and not extend the
Offer, or (iii) terminate the Offer and not accept for payment any Shares and
return promptly all tendered Shares to tendering Stockholders. Notwithstanding
the foregoing, without the prior written consent of the Company, Purchaser may
not (and Parent shall not cause Purchaser to) (i) decrease the Offer Price or
the form of consideration therefor or decrease the number of Shares sought
pursuant to the Offer, (ii) amend or waive the Minimum Tender Condition, (iii)
extend the Expiration Date (except that Purchaser may extend the Expiration Date
(a) as required by any rule, regulation or interpretation of the Commission, (b)
for such periods as Purchaser may reasonably deem necessary (but not to a date
later than the 60th calendar day after the date of commencement) in the event
that any condition to the Offer is not satisfied or (c) for one or more times
for an aggregate period of up to 15 days (not to exceed 60 calendar days from
the date of commencement) for any reason other than those specified in the
immediately preceding clause (a) and clause (b)) or (iv) change any condition or
impose additional conditions to the Offer or amend any term of the Offer in any
manner adverse to holders of Shares; provided, however, that, except as set
forth above, Purchaser may waive any other condition to the Offer in its sole
discretion; and provided further that the Offer (i) may be extended in
connection with an increase in the consideration to be paid pursuant to the
Offer so as to comply with applicable rules and regulations of the Commission
and (ii) will, for one time only, be automatically extended for a period which
ends on the 15th business day from the date the Company shall have received an
Acquisition Proposal (as defined in Section 12 below) in the event the Company
shall receive such Acquisition Proposal less than ten business days prior to the
Expiration Date. Assuming the prior satisfaction or waiver of the conditions to
the Offer, Purchaser shall accept for payment, and pay for, in accordance with
the terms of the Offer, all Shares validly tendered and not withdrawn pursuant
to the Offer as soon as practicable after the Expiration Date.
The Commission has announced that, under its interpretation of Rules
14d-4(c) and 14d-6(d) under the Exchange Act, material changes in the terms of a
tender offer or information concerning a tender offer may require that the
tender offer be extended so that it remains open for a sufficient period of time
to allow security holders to consider such material changes or information in
deciding whether or not to tender or withdraw their securities. The minimum
period during which an offer must remain open following material changes in the
terms of the Offer or information concerning the Offer, other than a change in
price or a change in percentage of securities sought, will depend upon the facts
and circumstances, including the relative materiality of the terms or
information. If Purchaser decides to increase or, subject to the consent of the
Company, to decrease the consideration in the Offer, to make a change in the
percentage of Shares sought or, subject to the consent of the Company, to change
or waive the Minimum Tender Condition and, if at the time that notice of any
such changes is first published, sent or given to Stockholders, the Offer is
scheduled to expire at any time earlier than the tenth business day after (and
including) the date of such notice, then the Offer will be extended until the
expiration of at least such period of ten business days.
Purchaser also reserves the right, subject to applicable laws (including
applicable regulations of the Commission promulgated under the Exchange Act) and
to the terms of the Merger Agreement, at any time or from time to time, to delay
acceptance for payment of or payment for any Shares, regardless of whether the
Shares were theretofore accepted for payment, or to terminate the Offer and not
accept for payment or pay for any Shares not theretofore accepted for payment or
paid for, upon the occurrence of any of the conditions specified in Section 14
below, by giving oral or written notice of such delay in payment or termination
to the Depositary. The reservation by Purchaser of the right to delay acceptance
for payment of or payment for Shares is subject to the provisions of Rule
14e-1(c) under the Exchange Act, which requires that Purchaser pay the
consideration offered or return the Shares deposited by or on behalf of
Stockholders promptly after the termination or withdrawal of the Offer. Any
delay in acceptance for payment or payment beyond the time
5
<PAGE> 6
permitted by applicable law will be effectuated by an extension of the period of
time during which the Offer is open.
Any extension, delay in payment, termination or amendment will be followed
as promptly as practicable by public announcement, the announcement in the case
of an extension to be issued no later than 9:00 a.m., New York City time, on the
next business day after the previously scheduled Expiration Date. Without
limiting the manner in which Purchaser may choose to make any public
announcement, Purchaser will have no obligation to publish, advertise or
otherwise communicate any such announcement other than by issuing a release to
the Dow Jones News Service (or a similar news service) or as otherwise may be
required by law.
The Company has provided Purchaser with its stockholder list as of April
11, 1997 and security position listings for the purpose of disseminating the
Offer to Stockholders. This Offer to Purchase, the related Letter of Transmittal
and other relevant materials will be mailed to record holders of Shares and will
be furnished to brokers, dealers, commercial banks, trust companies and similar
persons whose names, or the names of whose nominees, appear on the Company's
stockholder list as of April 11, 1997 or, if applicable, who are listed as
participants in a clearing agency's security position listing, for subsequent
transmittal to beneficial owners of Shares.
2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any such extension
or amendment), Purchaser will accept for payment (and thereby purchase) and pay
for Shares that are validly tendered and not withdrawn on or prior to the
Expiration Date, as soon as practicable after the later of the following dates:
(i) the Expiration Date and (ii) the date of satisfaction or waiver of all of
the conditions to the Offer set forth herein. Purchaser expressly reserves the
right, in its discretion, subject to applicable laws and regulations, to delay
acceptance for payment of or payment for Shares in order to comply, in whole or
in part, with any applicable law, government regulation or condition contained
herein. See Section 14 below.
In all cases, payment for Shares purchased pursuant to the Offer will be
made only after timely receipt by the Depositary of (i) certificates for such
Shares (or a Book-Entry Confirmation (as defined in Section 3) with respect to
such Shares) and (ii) the Letter of Transmittal (or a manually signed facsimile
thereof), properly completed and duly executed, with all required signature
guarantees and all other documents required by the Letter of Transmittal. See
Section 3 below.
For purposes of the Offer, Purchaser will be deemed to have accepted for
payment (and thereby purchased) tendered Shares as, if and when Purchaser gives
oral or written notice to the Depositary of Purchaser's acceptance of such
Shares for payment. In all cases, payment for Shares purchased pursuant to the
Offer will be made by deposit of the purchase price therefor with the
Depositary, which will act as agent for tendering Stockholders for the purpose
of receiving payment from Purchaser and transmitting payment to tendering
Stockholders whose Shares have theretofore been accepted for payment. If, for
any reason, acceptance for payment of any Shares tendered pursuant to the Offer
is delayed, or Purchaser is unable to accept for payment Shares tendered
pursuant to the Offer, then, without prejudice to Purchaser's rights under
Section 14, the Depositary may, nevertheless, on behalf of Purchaser, retain
tendered Shares, and such Shares may not be withdrawn, except to the extent that
the tendering Stockholders are entitled to withdrawal rights as described in
Section 4 below and as otherwise required by Rule 14e-1(c) under the Exchange
Act. Under no circumstances will interest on the purchase price be paid by
Purchaser, regardless of any delay in making such payment.
If any tendered Shares are not purchased for any reason or if certificates
are submitted for more Shares than are tendered, certificates for such Shares
not purchased or tendered will be returned pursuant to the instructions of the
tendering Stockholder without expense to the tendering Stockholder (or, in the
case of Shares delivered by book-entry transfer, into the Depositary's account
at a Book-Entry Transfer Facility (as defined in Section 3) pursuant to the
procedures set forth in Section 3, such Shares will be credited to an account
maintained at the appropriate Book-Entry Transfer Facility) as promptly as
practicable following the expiration, termination or withdrawal of the Offer.
6
<PAGE> 7
If, prior to the Expiration Date, Purchaser increases the consideration to
be paid per Share pursuant to the Offer, Purchaser will pay such increased
consideration for all such Shares purchased pursuant to the Offer, whether or
not such Shares were tendered prior to such increase in consideration.
Purchaser reserves the right to transfer or assign, in whole or from time
to time in part, to any newly-formed direct wholly owned subsidiary of Parent or
Purchaser the right to purchase Shares tendered pursuant to the Offer; however,
no such transfer or assignment will release Purchaser from its obligations under
the Offer or prejudice the rights of tendering Stockholders to receive payment
for Shares validly tendered and accepted for payment pursuant to the Offer.
3. PROCEDURE FOR TENDERING SHARES
Valid Tenders. For Shares to be validly tendered pursuant to the Offer,
either (a) a properly completed and duly executed Letter of Transmittal (or a
manually signed facsimile thereof), with all required signature guarantees and
all other documents required by the Letter of Transmittal, must be received by
the Depositary at one of its addresses set forth on the back cover of this Offer
to Purchase prior to the Expiration Date and either (i) certificates
representing such Shares must be received by the Depositary at any such address
prior to the Expiration Date or (ii) such Shares must be delivered pursuant to
the procedures for book-entry transfer set forth below and a Book-Entry
Confirmation (as defined below) must be received by the Depositary prior to the
Expiration Date or (b) the tendering Stockholder must comply with the guaranteed
delivery procedures set forth below. No alternative, conditional or contingent
tenders will be accepted.
Book-Entry Transfer. The Depositary will establish an account with respect
to the Shares at The Depository Trust Company and the Philadelphia Depository
Trust Company (each, a "Book-Entry Transfer Facility" and, collectively, the
"Book-Entry Transfer Facilities") for purposes of the Offer within two business
days after the date of this Offer to Purchase. Any financial institution that is
a participant in any of the Book-Entry Transfer Facilities' systems may make
book-entry delivery of Shares by causing a Book-Entry Transfer Facility to
transfer such Shares into the Depositary's account at such Book-Entry Transfer
Facility in accordance with that Book-Entry Transfer Facility's procedure for
such transfer. However, although delivery of Shares may be effected through
book-entry transfer into the Depositary's account at a Book-Entry Transfer
Facility, the Letter of Transmittal (or a manually signed facsimile thereof),
properly completed and duly executed, with all required signature guarantees and
all other required documents, must in any case be transmitted to and received by
the Depositary at one of its addresses set forth on the back cover of this Offer
to Purchase prior to the Expiration Date, or the tendering Stockholder must
comply with the guaranteed delivery procedures described below. The confirmation
of a book-entry transfer of Shares into the Depositary's account at a Book-Entry
Transfer Facility as described above is referred to herein as a "Book-Entry
Confirmation". Delivery of documents to a Book-Entry Transfer Facility in
accordance with such Book-Entry Transfer Facility's procedures does not
constitute delivery to the Depositary.
Signature Guarantee. Except as otherwise provided below, all signatures on
a Letter of Transmittal must be guaranteed by a financial institution (including
most commercial banks, savings and loan associations and brokerage houses) that
is a participant in the Security Transfer Agents Medallion Program, the New York
Stock Exchange Medallion Signature Guarantee Program or the Stock Exchange
Medallion Program (an "Eligible Institution"). Signatures on a Letter of
Transmittal need not be guaranteed (a) if the Letter of Transmittal is signed by
the registered holders (which term, for purposes of this section, includes any
participant in any of the Book-Entry Transfer Facilities' systems whose name
appears on a security position listing as the owner of the Shares) of Shares
tendered therewith and such registered holder has not completed the box entitled
"Special Payment Instructions" or the box entitled "Special Delivery
Instructions" on the Letter of Transmittal or (b) if such Shares are tendered
for the account of an Eligible Institution. See Instructions 1 and 5 of the
Letter of Transmittal. If the certificates representing Shares are registered in
the name of a person other than the signer of the Letter of Transmittal or if
certificates for Shares not accepted for payment or not tendered are to be
issued to a person other than the registered holder, then the certificates must
be endorsed or accompanied by appropriate stock powers, in each case signed
exactly as the name or names of the registered holder or holders appear on the
certificates, with the signatures on the certificates or stock powers guaranteed
as described above and as provided in the Letter of Transmittal. See
Instructions 1 and 5 of the Letter of Transmittal.
7
<PAGE> 8
Guaranteed Delivery. If a Stockholder desires to tender Shares pursuant to
the Offer and such Stockholder's certificates are not immediately available or
the procedures for book-entry transfer cannot be completed on a timely basis or
time will not permit all required documents to reach the Depositary prior to the
Expiration Date, such Shares may nevertheless be tendered if all of the
following guaranteed delivery procedures are complied with:
(i) such tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form provided by Purchaser herewith, is
received by the Depositary as provided below prior to the Expiration Date;
and
(iii) the certificates for all tendered Shares in proper form for
transfer or a Book-Entry Confirmation with respect to all tendered Shares,
together with a properly completed and duly executed Letter of Transmittal
(or a manually signed facsimile thereof) and all required signature
guarantees and all other documents required by the Letter of Transmittal,
are received by the Depositary by 5 p.m., New York City time, on the third
business day after the date of execution of such Notice of Guaranteed
Delivery.
THE NOTICE OF GUARANTEED DELIVERY MAY BE DELIVERED BY HAND OR TRANSMITTED
BY FACSIMILE TRANSMISSION OR MAILED TO THE DEPOSITARY AND MUST INCLUDE AN
ENDORSEMENT BY AN ELIGIBLE INSTITUTION IN THE FORM SET FORTH IN SUCH NOTICE OF
GUARANTEED DELIVERY.
IN ALL CASES, SHARES SHALL NOT BE DEEMED VALIDLY TENDERED UNLESS A PROPERLY
COMPLETED AND DULY EXECUTED LETTER OF TRANSMITTAL (OR A MANUALLY SIGNED
FACSIMILE THEREOF) IS RECEIVED BY THE DEPOSITARY.
THE METHOD OF DELIVERY OF CERTIFICATES FOR SHARES, THE LETTER OF
TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS (INCLUDING DELIVERY THROUGH ANY
BOOK-ENTRY TRANSFER FACILITY) IS AT THE OPTION AND SOLE RISK OF THE TENDERING
STOCKHOLDER AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE
DEPOSITARY. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT
REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
Notwithstanding any other provision hereof, payment for Shares accepted for
payment pursuant to the Offer in all cases will be made only after timely
receipt by the Depositary of certificates for (or a Book-Entry Confirmation with
respect to) such Shares and a Letter of Transmittal (or a manually signed
facsimile thereof), properly completed and duly executed, with all required
signature guarantees and all other documents required by the Letter of
Transmittal.
BACKUP FEDERAL INCOME TAX WITHHOLDING. TO PREVENT BACKUP FEDERAL INCOME TAX
WITHHOLDING OF 31% OF THE PAYMENTS MADE TO A STOCKHOLDER WITH RESPECT TO THE
PURCHASE PRICE OF SHARES ACQUIRED PURSUANT TO THE OFFER OR THE MERGER, SUCH
STOCKHOLDER MUST PROVIDE THE DEPOSITARY WITH SUCH STOCKHOLDER'S CORRECT TAXPAYER
IDENTIFICATION NUMBER AND CERTIFY THAT SUCH STOCKHOLDER IS NOT SUBJECT TO BACKUP
FEDERAL INCOME TAX WITHHOLDING BY COMPLETING THE SUBSTITUTE FORM W-9 INCLUDED IN
THE LETTER OF TRANSMITTAL. SEE INSTRUCTION 10 OF THE LETTER OF TRANSMITTAL AND
SECTION 5 BELOW.
Determination of Validity. All questions as to the form of documents and
the validity, eligibility (including time or receipt) and acceptance for payment
of any tender of Shares pursuant to any of the procedures described above will
be determined by Purchaser in its sole discretion, which determination shall be
final and binding on all parties. Purchaser reserves the absolute right to
reject any or all tenders of Shares determined not to be in proper form or the
acceptance of or payment for which may, in the opinion of counsel, be unlawful
and reserves the absolute right (but shall not be obligated) to waive any defect
or irregularity in any tender of Shares. Subject to the terms of the Merger
Agreement, Purchaser also reserves the absolute right (but shall not be
obligated) to waive or to amend any of the conditions of the Offer. Purchaser's
interpretation of the terms and conditions of the Offer (including the Letter of
Transmittal and the instructions thereto) will be final and binding on all
parties. No tender of Shares will be deemed to have been validly made until all
defects and irregularities have been cured or waived. None of the Purchaser,
Parent, the Dealer Manager, the Depositary, the Information Agent or any other
person will be under any duty to give notification of any defects or
irregularities in tenders or incur any liability for failure to give any such
notification.
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<PAGE> 9
Other Requirements. By executing and delivering a Letter of Transmittal, a
tendering Stockholder irrevocably appoints designees of Purchaser as his
attorneys-in-fact and proxies, with full power of substitution, in the manner
set forth in the Letter of Transmittal, to the full extent of such Stockholder's
rights with respect to the Shares tendered by such Stockholder and accepted for
payment by Purchaser and with respect to any and all other Shares or other
securities issued or issuable in respect of such Shares, on or after the date of
the Offer. All such powers of attorney and proxies shall be considered coupled
with an interest in the tendered Shares and therefore irrevocable. Such
appointment will be effective when, and only to the extent that, Purchaser
accepts such Shares for payment. Upon such acceptance for payment, all prior
powers of attorney and proxies given by such Stockholder with respect to such
Shares (and any other Shares or other securities so issued in respect of such
purchased Shares) will be revoked, without further action, and no subsequent
powers of attorney and proxies may be given (and, if given, will not be deemed
effective) by such Stockholder. The designees of Purchaser will be empowered to
exercise all voting and other rights of such Stockholder with respect to such
Shares (and any other Shares or securities so issued in respect of such
purchased Shares) as they in their sole discretion may deem proper, including,
without limitation, in respect of any annual or special meeting of the
Stockholders, or any adjournment or postponement thereof, in connection with any
action by written consent in lieu of a meeting or otherwise (including any such
meeting or action by written consent to approve the Merger). Purchaser reserves
the absolute right to require that, in order for Shares to be validly tendered,
immediately upon Purchaser's acceptance for payment of such Shares, Purchaser
must be able to exercise full voting and other rights with respect to such
Shares, including the right to vote at any meeting of Stockholders then
scheduled.
A tender of Shares pursuant to any of the procedures described above will
constitute the tendering Stockholder's acceptance of the terms and conditions of
the Offer. Purchaser's acceptance for payment of Shares tendered pursuant to the
Offer will constitute a binding agreement between the tendering Stockholder and
Purchaser upon the terms and conditions of the Offer.
4. WITHDRAWAL RIGHTS
Tenders of Shares made pursuant to the Offer are irrevocable, except as
otherwise provided in this Section 4. Shares tendered pursuant to the Offer may
be withdrawn at any time prior to the Expiration Date and, unless theretofore
accepted for payment by Purchaser as provided herein, may also be withdrawn at
any time after June 16, 1997. If Purchaser extends the Offer, is delayed in its
purchase of or payment for Shares or is unable to purchase or pay for Shares for
any reason, then, without prejudice to the rights of Purchaser hereunder,
tendered Shares may be retained by the Depositary on behalf of Purchaser and may
not be withdrawn except to the extent that tendering Stockholders are entitled
to withdrawal rights as set forth in this Section 4.
The reservation by Purchaser of the right to delay the acceptance or
purchase of or payment for Shares is subject to the provisions of Rule 14e-1(c)
under the Exchange Act, which requires Purchaser to pay the consideration
offered or return Shares deposited by or on behalf of Stockholders promptly
after the termination or withdrawal of the Offer.
For a withdrawal to be effective, a written, telegraphic or facsimile
transmission notice of withdrawal must be timely received by the Depositary at
one of its addresses set forth on the back cover of this Offer to Purchase. Any
such notice of withdrawal must specify the name of the person who tendered the
Shares to be withdrawn, the number of Shares to be withdrawn and the name of the
registered holder, if different from that of the person who tendered such
Shares. If certificates evidencing Shares have been delivered or otherwise
identified to the Depositary, then prior to the release of such certificates,
the tendering Stockholder must also submit the serial numbers shown on the
particular certificates evidencing the Shares to be withdrawn, and the signature
on the notice of withdrawal must be guaranteed by an Eligible Institution
(except in the case of Shares tendered for the account of an Eligible
Institution). If Shares have been tendered pursuant to the procedure for
book-entry transfer set forth in Section 3, the notice of withdrawal must
specify the name and number of the account at the applicable Book-Entry Transfer
Facility to be credited with the withdrawn Shares. All questions as to form and
validity (including time of receipt) of notice of withdrawal will be determined
by Purchaser, in its sole discretion, whose determination shall be final and
binding on all parties. No withdrawal of Shares shall be deemed to have been
properly made until all defects and irregularities have been cured or waived.
None of Purchaser, Parent, the Dealer Manager, the Depositary, the Information
Agent or any other person will be under any duty to give
9
<PAGE> 10
notification of any defects or irregularities in any notice of withdrawal or
incur any liability for failing to give such notification.
Any Shares properly withdrawn will be deemed not validly tendered for
purposes of the Offer, but may be tendered at any subsequent time prior to the
Expiration Date by following any of the procedures described in Section 3 above.
5. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE OFFER AND THE MERGER
The following is a summary of the material federal income tax consequences
of the Offer and the Merger to Stockholders whose Shares are purchased pursuant
to the Offer or whose Shares are converted into the right to receive the Merger
Consideration in the Merger (including any cash amounts received by dissenting
Stockholders pursuant to the exercise of appraisal rights). The discussion
applies only to Stockholders in whose hands Shares are capital assets, and may
not apply to holders who received their Shares pursuant to the exercise of
employee stock options or otherwise as compensation, or who are not citizens or
residents of the United States.
THE FEDERAL INCOME TAX CONSEQUENCES SET FORTH BELOW ARE INCLUDED FOR
GENERAL INFORMATIONAL PURPOSES ONLY AND ARE BASED UPON PRESENT LAW. BECAUSE
INDIVIDUAL CIRCUMSTANCES MAY DIFFER, EACH STOCKHOLDER SHOULD CONSULT SUCH
STOCKHOLDER'S OWN TAX ADVISOR TO DETERMINE THE APPLICABILITY OF THE RULES
DISCUSSED BELOW TO SUCH STOCKHOLDER AND THE PARTICULAR TAX EFFECTS OF THE OFFER
AND THE MERGER, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN
TAX LAWS.
Receipt of the Offer Price or the Merger Consideration. The receipt by a
Stockholder of the Offer Price or the Merger Consideration (including any cash
amounts received by dissenting Stockholders pursuant to the exercise of
appraisal rights) in exchange for such Shares will be a taxable transaction for
federal income tax purposes. In general, for federal income tax purposes, a
Stockholder will recognize gain (or loss) equal to the difference between his
adjusted tax basis in the Shares sold pursuant to the Offer or converted to cash
in the Merger and the amount of cash received therefor. Gain (or loss) must be
determined separately for each block of Shares (i.e., Shares acquired at the
same cost in a single transaction) sold pursuant to the Offer or converted to
cash in the Merger. Such gain (or loss) will be capital gain (or loss) and will
be long-term gain (or loss) if, on the date of sale (or, if applicable, the
Effective Time), the Shares were held for more than one year. President Clinton
has proposed legislation which would require a holder to determine adjusted
basis for Shares based on the average of such holder's total adjusted basis for
Shares. Among other things, such proposal may affect the federal income tax
consequences of the receipt of the Offer Price or the Merger Consideration by
Stockholders holding blocks of Shares with different holding periods. However,
it is not possible to predict whether such proposal will be enacted into law or,
if so, whether such legislation will apply to the Offer or to the Merger.
Backup Withholding. Payments in connection with the Offer or the Merger may
be subject to "backup withholding" at a 31% rate. Backup withholding generally
applies if the Stockholder (a) fails to furnish his social security number or
other taxpayer identification number ("TIN"), (b) furnishes an incorrect TIN,
(c) fails properly to report interest or dividends or (d) under certain
circumstances, fails to provide a certified statement, signed under penalties of
perjury, that the TIN provided is his correct number and that he is not subject
to backup withholding. Backup withholding is not an additional tax but merely an
advance payment, which may be refunded to the extent it results in an
overpayment of tax. Any amounts withheld from a payment to a Stockholder under
the backup withholding rules will be allowed as a credit against such
Stockholder's federal income tax liability, provided that the required
information is provided to the Internal Revenue Service. Certain persons
generally are exempt from backup withholding, including corporations and
financial institutions. Certain penalties apply for failure to furnish correct
information and for failure to include the reportable payments in income. Each
Stockholder should consult with such Stockholder's own tax advisor as to such
Stockholder's qualification for exemption from withholding and the procedure for
obtaining such exemption.
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<PAGE> 11
6. PRICE RANGE OF THE SHARES; DIVIDENDS ON THE SHARES
According to the Company's Annual report on Form 10-K for the fiscal year
ended December 31, 1996 (the "Company 10-K") and information supplied to
Purchaser by the Company, the Shares commenced trading on Nasdaq Stock Market
under the symbol "EROI" on April 7, 1992. Based on the foregoing, the Company
has never paid regular cash dividends on the Shares; furthermore, the Merger
Agreement prohibits the Company from declaring or paying any dividend or
distribution on the Shares. The following table sets forth, for the periods
indicated, the high and low closing sales prices per Share on the Nasdaq Stock
Market.
<TABLE>
<CAPTION>
HIGH LOW
------- ------
<S> <C> <C>
FISCAL YEAR 1995:
First Quarter............................................. $ 8.250 $6.750
Second Quarter............................................ 9.250 7.000
Third Quarter............................................. 9.000 6.500
Fourth Quarter............................................ 7.250 5.250
FISCAL YEAR 1996:
First Quarter............................................. 7.250 5.750
Second Quarter............................................ 7.250 5.750
Third Quarter............................................. 6.250 4.250
Fourth Quarter............................................ 8.750 5.125
FISCAL YEAR 1997:
First Quarter............................................. 10.250 6.750
Second Quarter (through April 16, 1997)................... 10.875 9.375
</TABLE>
On April 10, 1997, the last full trading day before the public announcement
of Purchaser's intention to acquire the Shares, the closing sales price per
Share on the Nasdaq Stock Market was $10.250. On April 16, 1997, the last full
trading day before the commencement of the Offer, the closing sales price per
Share on the Nasdaq Stock Market was $10.875 per Share. STOCKHOLDERS ARE URGED
TO OBTAIN A CURRENT MARKET QUOTATION FOR THE SHARES.
7. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES, NASDAQ STOCK MARKET
LISTING, EXCHANGE ACT REGISTRATION AND MARGIN SECURITIES
The purchase of Shares pursuant to the Offer will reduce the number of
holders of Shares and the number of Shares that might otherwise trade publicly
and could adversely affect the liquidity and market value of the remaining
Shares held by the public.
The extent of the public market for the Shares and, according to the
published guidelines of the NASD, the continued trading of the Shares on the
Nasdaq Stock Market, after commencement of the Offer will depend upon the number
of holders of Shares remaining at such time, the interest in maintaining a
market in such Shares on the part of securities firms, the possible termination
of registration of such Shares under the Exchange Act, as described below, and
other factors.
If, as a result of the purchase of Shares pursuant to the Offer or
otherwise, trading of the Shares on the Nasdaq Stock Market is discontinued, the
liquidity of and market for the Shares could be adversely affected. Purchaser
cannot predict whether or to what extent the reduction in the number of Shares
that might otherwise trade publicly would have an adverse or beneficial effect
on the market price for or marketability of the Shares or whether it would cause
future prices to be greater or less than the Offer Price.
The Shares are currently registered under Section 12(g) of the Exchange
Act. Registration of the Shares under the Exchange Act may be terminated upon
application by the Company to the Commission if the Shares are not held by at
least 300 holders of record. Termination of registration of the Shares under the
Exchange Act would substantially reduce the information required to be furnished
by the Company to its stockholders and to the Commission and could make certain
provisions of the Exchange Act no longer applicable to the Company, such as the
short-swing profit recovery provisions of Section 16(b) of the Exchange Act, the
requirement of furnishing
11
<PAGE> 12
a proxy statement pursuant to Section 14(a) of the Exchange Act in connection
with stockholders' meetings and the related requirement of furnishing an annual
report to stockholders and the requirements of Rule 13e-3 under the Exchange Act
with respect to "going private" transactions. Furthermore, the ability of
"affiliates" of the Company and persons holding "restricted securities" of the
Company to dispose of such securities pursuant to Rule 144 or 144A promulgated
under the Securities Act of 1933, as amended, may be impaired or eliminated.
Purchaser intends to seek to cause the Company to terminate the
registration of the Shares under the Exchange Act as soon after the completion
of the Offer as the requirements for such termination are met. If registration
of the Shares is not terminated prior to the Merger, the registration of the
Shares under the Exchange Act will be terminated following consummation of the
Merger.
The Shares are currently "margin securities" under the regulations of the
Board of Governors of the Federal Reserve System (the "Federal Reserve Board"),
which has the effect, among other things, of allowing brokers to extend credit
on the loan value of the Shares. Depending upon factors similar to those
described above regarding listing and market quotations, it is possible that,
following the Offer, the Shares would no longer constitute "margin securities"
for the purposes of the margin regulations of the Federal Reserve Board and
therefore could no longer be used as collateral for loans made by brokers. If
registration of Shares under the Exchange Act were terminated, the Shares would
no longer be "margin securities" or be eligible for listing on the Nasdaq Stock
Market.
8. CERTAIN INFORMATION CONCERNING THE COMPANY
The Company is a Delaware corporation with its principal executive offices
located at 585 Slawin Court, Mount Prospect, Illinois 60056. According to the
Company's annual report on Form 10-K for the fiscal year ended December 31,
1996, the Company is a leading designer, manufacturer, importer and marketer of
licensed and branded children's leisure products. The Company's major products
are grouped into four business units: ERO Industries, Inc., which consists of
"Slumber Shoppe" and water sports; Amav Industries, Inc., which consists of
children's activities, arts and crafts; Impact, Inc., which consists of
back-to-school products; and Priss Prints, Inc., which consists of children's
room decor products. The Company's products are sold to all major mass merchants
and big box retailers such as toy stores, office superstores, home improvement
centers and specialty craft stores.
12
<PAGE> 13
Set forth below is certain selected consolidated financial information with
respect to the Company and its subsidiaries excerpted from the Company's annual
report on Form 10-K for the fiscal year ended December 31, 1996. More
comprehensive financial information is included in such reports and other
documents filed by the Company with the Commission, and the following summary is
qualified in its entirety by reference to such reports and other documents and
all of the financial information (including any related notes) contained
therein. Such reports and other documents should be available for inspection and
copies thereof should be obtainable in the manner set forth below under
"Available Information."
ERO, INC.
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Net sales.......................................... $157,913 $128,722 $126,734
Cost of sales...................................... 97,802 80,693 79,776
-------- -------- --------
Gross profit....................................... 60,111 48,029 46,958
Selling, general and administrative expense........ 38,896 33,183 34,078
-------- -------- --------
Operating income................................... 21,215 14,846 12,880
Interest expense................................... 9,062 1,997 1,939
-------- -------- --------
Income before income taxes......................... 12,153 12,849 10,941
Income tax provision............................... 4,395 5,167 4,482
-------- -------- --------
Net income......................................... $ 7,758 $ 7,682 $ 6,459
======== ======== ========
Net income per share............................... $ 0.75 $ 0.73 $ 0.61
Weighted average number of shares outstanding...... 10,316 10,487 10,580
</TABLE>
CONSOLIDATED BALANCE SHEET DATA:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1995
--------- ---------
<S> <C> <C>
Total current assets................................. $ 79,533 $ 58,496
Total assets......................................... 159,994 144,138
Current portion of long-term debt.................... 8,893 6,728
Total current liabilities............................ 29,697 29,804
Total long-term debt................................. 86,747 78,270
Deferred income tax liability........................ 536 --
Total liabilities.................................... 116,980 108,074
Total stockholders' equity........................... 43,014 36,064
</TABLE>
Available Information. The Company is subject to the informational filing
requirements of the Exchange Act. In accordance therewith, the Company files
periodic reports, proxy statements and other information with the Commission
under the Exchange Act relating to its business, financial condition and other
matters. The Company is required to disclose in such proxy statements certain
information, as of particular dates, concerning the Company's directors and
officers, their remuneration, stock options granted to them, the principal
holders of the Company's securities and any material interest of such persons in
transactions with the Company. Such reports, proxy statements and other
information may be inspected and copied at the Commission's office at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the regional offices of the
Commission located at Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511; and 7 World Trade Center, 13th Floor, New
York, New York 10048. Copies of such material may also be obtained upon payment
of the Commission's prescribed fees by writing to the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The
Commission also maintains a Web site
13
<PAGE> 14
(http://www.sec.gov) that contains reports, proxy and information statements
regarding registrants, such as the Company, that file electronically with the
Commission.
Except as otherwise stated in this Offer to Purchase, the information
concerning the Company contained herein has been taken from or based upon
publicly available documents on file with the Commission and other publicly
available information. Although Purchaser and Parent do not have any knowledge
that any such information is untrue, neither Purchaser nor Parent takes any
responsibility for the accuracy or completeness of such information or for any
failure by the Company to disclose events that may have occurred and may affect
the significance or accuracy of any such information.
A copy of the Offer to Purchase, and certain of the agreements referred to
herein, are attached as exhibits to Parent's and Purchaser's Tender Offer
Statement on Schedule 14D-1 and Statement on Schedule 13D, dated April 17, 1997
(the "Schedule 14D-1"), which has been filed with the Commission. The Schedule
14D-1 and the exhibits thereto, along with such documents as may be filed by
Parent and Purchaser with the Commission, may be examined and copied from the
offices of the Commission in the manner set forth above.
Projections. To the knowledge of Parent and Purchaser, the Company does not
as a matter of course make public forecasts as to its future economic
performance. However, in connection with Parent's due diligence investigation of
the Company, the Company provided Parent with estimates for net sales and net
income for the year ending on December 31, 1997 of $188.6 million and $10.5
million, respectively. Such estimates were part of a budget presented to and
approved by the Board. During the course of Parent's due diligence, an officer
of the Company also provided Parent with "best case" estimates of net sales and
net income for the same period of $192.5 million and $14.1 million,
respectively. The latter estimates were not part of the budget approved by the
Board and were prepared on an expedited basis without the benefit of any
research or analysis. In addition, these estimates were not relied upon by
Parent. The budgeted and non-budgeted estimates are hereinafter collectively
referred to as the "Projections."
THE PROJECTIONS WERE NOT PREPARED WITH A VIEW TO PUBLIC DISCLOSURE OR
COMPLIANCE WITH THE PUBLISHED GUIDELINES OF THE COMMISSION REGARDING
PROJECTIONS, NOR WERE THEY PREPARED IN ACCORDANCE WITH THE GUIDELINES
ESTABLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS FOR
PREPARATION AND PRESENTATION OF FINANCIAL PROJECTIONS. THE PROJECTIONS DO NOT
PURPORT TO PRESENT OPERATIONS IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES AND HAVE NOT BEEN AUDITED, COMPILED OR OTHERWISE EXAMINED BY
INDEPENDENT ACCOUNTANTS. THE PROJECTIONS ARE INCLUDED HEREIN ONLY BECAUSE SUCH
INFORMATION WAS PROVIDED TO PARENT AND PURCHASER IN CONNECTION WITH THEIR DUE
DILIGENCE INVESTIGATION OF THE COMPANY. THESE FORWARD-LOOKING STATEMENTS ARE
SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THE PROJECTIONS. THE PROJECTIONS REFLECT NUMEROUS
ASSUMPTIONS, ALL MADE BY MANAGEMENT OF THE COMPANY, WITH RESPECT TO INDUSTRY
PERFORMANCE, GENERAL BUSINESS, ECONOMIC, MARKET AND FINANCIAL CONDITIONS AND
OTHER MATTERS, ALL OF WHICH ARE DIFFICULT TO PREDICT, MANY OF WHICH ARE BEYOND
THE COMPANY'S CONTROL AND NONE OF WHICH WERE SUBJECT TO APPROVAL BY PARENT OR
THE PURCHASER. ACCORDINGLY, THERE CAN BE NO ASSURANCE THAT THE ASSUMPTIONS MADE
IN PREPARING THE PROJECTIONS WILL PROVE TO BE ACCURATE, AND ACTUAL RESULTS MAY
BE MATERIALLY GREATER OR LESS THAN THOSE CONTAINED IN THE PROJECTIONS.
THE INCLUSION OF THE PROJECTIONS HEREIN SHOULD NOT BE REGARDED AS AN
INDICATION THAT ANY OF PARENT, PURCHASER, THE COMPANY OR THEIR RESPECTIVE
FINANCIAL ADVISORS CONSIDERED OR CONSIDER THE PROJECTIONS TO BE A RELIABLE
PREDICTION OF FUTURE EVENTS, AND THE PROJECTIONS SHOULD NOT BE RELIED UPON AS
SUCH. NONE OF PARENT, PURCHASER, THE COMPANY AND THEIR RESPECTIVE FINANCIAL
ADVISORS ASSUMES ANY RESPONSIBILITY FOR THE VALIDITY, REASONABLENESS, ACCURACY
OR COMPLETENESS OF THE PROJECTIONS. NONE OF PARENT, PURCHASER, THE COMPANY OR
ANY OF THEIR FINANCIAL ADVISORS HAS MADE, OR MAKES, ANY REPRESENTATION TO ANY
PERSON REGARDING THE INFORMATION CONTAINED IN THE PROJECTIONS AND NONE OF THEM
INTENDS TO UPDATE OR OTHERWISE REVISE THE PROJECTIONS TO REFLECT CIRCUMSTANCES
EXISTING AFTER THE DATE WHEN MADE OR TO REFLECT THE OCCURRENCE OF FUTURE EVENTS
EVEN IN THE EVENT THAT ANY OR ALL OF THE ASSUMPTIONS UNDERLYING THE PROJECTIONS
ARE SHOWN TO BE IN ERROR.
14
<PAGE> 15
9. CERTAIN INFORMATION CONCERNING PURCHASER, PARENT AND HOLDINGS
Purchaser, a Delaware corporation, was organized to acquire all the
outstanding Shares pursuant to the Merger Agreement and has not conducted any
unrelated activities since its organization. All of the outstanding capital
stock of Purchaser is owned by Parent. The principal executive offices of
Purchaser are located at Cherrington Corporate Center, 300 Corporate Center
Drive, Suite 100, Coraopolis, Pennsylvania 15108.
Parent, a Delaware corporation, is a leading U.S. manufacturer of
children's leisure products that are sold primarily through national retailers.
Parent is organized into two divisions representing its principal product
categories, outdoor gym sets and play balls. Each division also manufactures a
wide variety of industrial and consumer products that are sold to original
equipment manufacturers. The principal executive offices of Parent are located
at Cherrington Corporate Center, 300 Corporate Center Drive, Suite 100,
Coraopolis, Pennsylvania 15108.
The following table presents selected operating, balance sheet and other
data of Parent as of and for the fiscal years ended July 31, 1995 and 1996 and
as of and for the five month period ended December 31, 1996.
<TABLE>
<CAPTION>
5 MONTHS
ENDED
YEAR ENDED ------------
-------------------- DECEMBER 31,
1995 1996 1996
-------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING DATA:
Net sales...................................... $133,862 $133,194 $23,994
Operating profit............................... 6,186 3,632 (5,619)
Other expense (income):
Interest.................................... 4,573 5,896 2,158
Recapitalization expense.................... -- 9,600 --
Other expense (income)...................... 46 110 (37)
Net earnings (loss)............................ 3,877 (7,735) (4,771)
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital................................ $ 1,720 $ 16,498 $ 9,373
Total assets................................... 70,287 85,697 72,395
Long-term debt, less current maturities........ 4,205 38,500 36,750
Stockholders' equity (deficit)................. 15,509 2,172 (2,599)
</TABLE>
Hedstrom Holdings, Inc., a Delaware corporation ("Holdings"), is a holding
company, the primary asset of which is the common stock of the Parent. The
principal executive offices of Holdings are located at Cherrington Corporate
Center, 300 Corporate Center Drive, Suite 100, Coraopolis, Pennsylvania 15108.
During the last five years, neither Purchaser, Parent nor Holdings nor, to
the knowledge of Purchaser or Parent, any of the persons listed in Schedule I
(i) has been convicted in a criminal proceeding (excluding traffic violations
and similar misdemeanors) or (ii) was a party to a civil proceeding of a
judicial or administrative body of competent jurisdiction and as a result of
such proceeding was or is subject to a judgment, decree or final order enjoining
future violations of, or prohibiting activities subject to, Federal or state
securities laws or finding any violation of such laws. The name, business
address, present principal occupation or employment, five-year employment
history and citizenship of each director and executive officer of Purchaser,
Parent and Holdings are set forth in Schedule I.
Neither of Purchaser, Parent nor Holdings nor, to the knowledge of
Purchaser or Parent, any of the persons listed in Schedule I or any associate or
majority owned subsidiary of any such persons, beneficially owns or has a right
to acquire any equity security of the Company. Neither of Purchaser, Parent nor
Holdings nor, to the knowledge of Purchaser or Parent, any of their respective
directors, executive officers or subsidiaries has effected any transaction in
any equity security of the Company during the past 60 days.
Except as described in this Offer to Purchase, (i) neither Purchaser,
Parent nor Holdings nor, to the knowledge of Purchaser or Parent, any of the
persons listed in Schedule I has any contract, arrangement,
15
<PAGE> 16
understanding or relationship (whether or not legally enforceable) with any
other person with respect to any securities of the Company, including, but not
limited to, any contract, arrangement, understanding or relationship concerning
the transfer or the voting of any such securities, joint ventures, loan or
option arrangements, puts or calls, guarantees of loans, guarantees against
loss, or the giving or withholding of proxies; (ii) there have been no contacts,
negotiations or transactions between Purchaser, Parent or Holdings, or any of
their respective subsidiaries or, to the knowledge of Purchaser, Parent or
Holdings, any of the persons listed on Schedule I on the one hand, and the
Company or any of its directors, officers or affiliates, on the other hand, that
are required to be disclosed pursuant to the rules and regulations of the
Commission.
10. SOURCE AND AMOUNT OF FUNDS
Parent and Purchaser estimate that the total amount of funds required by
the Purchaser to (i) purchase all of the 10,274,300 Shares issued and
outstanding, (ii) fund the net consideration payable in respect of outstanding
options to purchase 1,458,000 Shares, (iii) refinance certain existing
indebtedness of Parent and the Company, and (iv) pay fees and expenses incurred
in connection with the Offer and the Merger will be approximately $302 million.
Of these funds, $65 million will be contributed by Holdings to Parent, who will
in turn contribute such amount to Purchaser. Holdings intends to obtain $40
million of these funds pursuant to the sale of shares of its common stock to its
current majority stockholder, Hicks Muse Equity Fund II, L.P. ("HMF II"), an
affiliate of Hicks, Muse, Tate & Furst Incorporated ("Hicks Muse") (or to an
affiliate of HMF II) and to obtain $25 million of these funds pursuant to the
sale of senior discount notes (the "Holdings Senior Discount Notes"). Parent
intends to obtain $115 million of the required funds pursuant to the sale of
senior subordinated notes (the "Senior Subordinated Notes") (or in lieu thereof,
a bridge loan in a similar amount) and to contribute such amount to Purchaser.
The balance of the required funds will be borrowed by Parent under new senior
secured bank credit facilities of up to $180 million (the "Credit Facilities").
Parent has obtained commitments (the "Financing Commitments") with respect to
each of the foregoing financing transactions.
The following table has been prepared by Parent and Purchaser after
discussions with management of the Company and sets forth the approximate
amounts, proposed sources, and uses of funds necessary to consummate the Offer
and the Merger and the related refinancings:
<TABLE>
<CAPTION>
$ IN MILLIONS
-------------
<S> <C>
Sources:
Sale of Holdings Common Stock............................. $ 40.0
Sale of Holdings Senior Discount Notes.................... 25.0
Sale of Senior Subordinated Notes......................... 115.0
Borrowings under Credit Facilities........................ 127.4
------
Total............................................. $307.4
======
Uses:
Purchase Shares........................................... $115.6
Settlement of options..................................... 7.0
Refinance existing senior debt of Parent.................. 75.6
Refinance existing debt of Company........................ 88.3
Fees and expenses......................................... $ 20.8
------
Total............................................. $307.4
======
</TABLE>
The following is a summary of certain material terms of the Financing
Commitments. This summary is not a complete description of the terms and
conditions of these documents and is qualified in its entirety by reference to
the full texts of such documents which are incorporated herein by reference. A
copy of each of the Financing Commitments has been filed with the Commission as
an exhibit to the Schedule 14D-1 and each may be examined, and copies thereof
may be obtained, as set forth in Section 8.
16
<PAGE> 17
CSFB Engagement Letter.
CSFB and Parent are parties to an Engagement Letter (the "CSFB Engagement
Letter"), dated April 11, 1997, pursuant to which CSFB has committed to use its
best efforts to complete the private placement of the Senior Subordinated Notes
and the Holdings Senior Discount Notes. In the event that CSFB determines, after
consultation with Parent, that market conditions existing at the time of the
proposed commencement of such offerings make it unlikely that the offerings
could be successfully consummated, CSFB may elect to postpone such offerings
until market conditions, in CSFB's judgment, no longer preclude the successful
completion of such offerings.
Senior Subordinated Notes. Parent intends to issue $115 million of Senior
Subordinated Notes pursuant to the Commission's Rule 144A. The Senior
Subordinated Notes will mature ten years from the issue date, and interest will
accrue and be payable thereon in cash from the issue date.
The Senior Subordinated Notes will be unsecured and subordinated in right
of payment to all existing and future senior indebtedness of Parent (including
indebtedness under the Credit Facilities), senior in right of payment to all
existing and future subordinated indebtedness of Parent and will rank pari passu
with all existing and future senior subordinated indebtedness of the Parent. The
Senior Subordinated Notes will be guaranteed on a senior subordinated basis by
each domestic subsidiary of the Parent, and on a senior basis by Holdings (to
the extent the Credit Facilities are also guaranteed by Holdings).
In connection with the issuance of the Senior Subordinated Notes, Parent
will enter into a registration rights agreement containing terms customary for
Rule 144A offerings.
The Senior Subordinated Notes will contain negative covenants and events of
default customary for high yield securities.
Holdings Senior Discount Notes. Holdings intends to issue $25 million of
Holdings Senior Discount Notes pursuant to Rule 144A. The Holdings Senior
Discount Notes will mature twelve years from the issue date and no cash interest
will accrue or be payable thereon until the fifth anniversary of the issue date,
after which time interest will accrue and be payable in cash.
The Holdings Senior Discount Notes will be senior, unsecured obligations of
Holdings, ranking pari passu in right of payment with all existing and future
senior unsecured obligations of Holdings (including guarantees by Holdings of
the Credit Facilities and the Senior Subordinated Notes) and will rank senior to
all future subordinated debt of Holdings.
In connection with the issuance of the Holdings Senior Discount Notes,
Holdings will enter into a registration rights agreement containing terms
customary for Rule 144A offerings.
The Holdings Senior Discount Notes will contain negative covenants
customary for high yield securities.
Holdings Senior Discount Notes Commitment Letter.
CSFB and Holdings are parties to a Holdings Senior Discount Notes
Commitment Letter (the "Holdings Senior Discount Notes Commitment Letter"),
dated April 11, 1997, pursuant to which CSFB has committed to purchase, or to
cause one or more of its affiliates to purchase, Holdings Senior Discount Notes
for gross proceeds of up to $25 million, upon the written request of Parent to
do so if such Holding Senior Discount Notes cannot be sold on or prior to the
later of the Expiration Date or the date that is 60 days from the date of the
Holdings Senior Discount Notes Commitment Letter Expiration Date.
The Holdings Senior Discount Notes will be issued at an initial discount to
maturity that, calculated on a semi-annual bond equivalent basis, is an implied
interest rate equal to (a) in the event the offering of Senior Subordinated
Notes is consummated, the sum of the coupon rate of the Senior Subordinated
Notes plus 5%; or (b) in the event the offering of Senior Subordinated Notes is
not consummated, the sum of the yield on U.S. Government Treasury obligations
maturing on the day 12 years from the day immediately preceding the date of
issuance of such Senior Discount Notes plus 8.75%. In no event will the initial
discount to maturity exceed 15%.
17
<PAGE> 18
Holdings will be required to file within 30 days following the date of
issuance of the Holdings Senior Discount Notes, a shelf registration statement
with respect to resales of the Holdings Senior Discount Notes. If within 90 days
from the issue date, a shelf registration statement for resales of Holdings
Senior Discount Notes is not declared effective, or, if after becoming effective
the shelf registration statement ceases to be effective or ceases to be usable
in connection with resales of Holdings Senior Discount Notes (subject to
customary exceptions), the rate at which interest accrues and becomes payable on
the Holdings Senior Discount Notes will increase by 0.5% at the end of each
90-day period thereafter until such default shall be cured. In no event will the
interest on the Holdings Senior Discount Notes increase by more than an
aggregate of 2.0%.
In connection with its purchase of any of the Holdings Senior Discount
Notes pursuant to the request of Parent, CSFB will receive rights ("Initial
Purchaser Discount Note Rights") to acquire equity interests representing 10% of
the common stock of Holdings, subject to forfeiture in certain circumstances, at
no additional cost. The Initial Purchaser Discount Note Rights will be issued
pursuant to a rights agreement containing customary anti-dilution provisions and
registration rights.
Bridge Loan Commitment Letter.
Bridge Loans. Pursuant to a Bridge Loan Commitment Letter (the "Bridge Loan
Commitment Letter"), dated April 11, 1997, between CSFB and Parent, CSFB has
committed to provide a bridge loan of up to $115.0 million (the "Bridge Loan")
to Parent to the extent CSFB is unable to sell the Senior Subordinated Notes. In
the event that Parent has not issued the Senior Subordinated Notes prior to the
date on which Shares are acquired by Purchaser pursuant to the Offer, Parent
will use its reasonable best efforts to promptly refinance the Bridge Loans.
Subordination and guarantee provisions contained in the Bridge Loan
Commitment Letter are similar to those contained in the CSFB Engagement Letter
with respect to the Senior Subordinated Notes.
The Bridge Loans will mature on the date which is 364 days after the Date
on which Shares are acquired by Purchaser pursuant to the Offer (the "Bridge
Maturity Date"). If any Bridge Loan is not repaid in full on or prior to the
Bridge Maturity Date, the applicable Bridge Loan lender will have the option at
any time or from time to time to receive, in exchange for such Bridge Loan or
portion thereof, exchange notes of Parent (the "Exchange Notes") ranking pari
passu with the Bridge Loans and having the terms set forth in the term sheet
attached as Annex I to the Bridge Loan Commitment Letter.
Prior to the Bridge Maturity Date, the Bridge Loans will accrue interest at
a rate per annum equal to 3 month Adjusted LIBOR (adjusted to reflect statutory
reserve requirement) plus the applicable spread. The spread on the Bridge Loans
initially will be 600 basis points and will increase by 50 basis points at the
end of each three-month period until the Bridge Maturity Date; provided,
however, that the interest rate on Bridge Loans in effect at any time prior to
the Bridge Maturity Date shall not exceed 18% per annum, and cash interest on
the Bridge Loans shall not exceed 15% per annum.
Following the Bridge Maturity Date, all outstanding Bridge Loans will
accrue interest at the rate provided for in the Exchange Notes, subject to the
absolute and cash caps contained therein.
The making of the Bridge Loans shall be subject to the same conditions
precedent as each of the other debt financing transactions contemplated by the
Financing Commitments. The Bridge Loan documents will also contain
representations and warranties and convenants standard for such types of debt
financings.
Parent will be required to file a registration statement under the
Securities Act or prepare an offering memorandum covering senior subordinated
notes of Parent to be issued in a public offering or private placement to
refinance in full the Bridge Loans and to consummate such refinancing as soon as
possible after the date on which Shares are acquired by Purchaser pursuant to
the Offer in an amount sufficient to refinance all amounts outstanding under the
Bridge Loan and on such terms and conditions (including, without limitation,
interest rate, yield, redemption prices and dates) as CSFB may in its reasonable
judgment determine to be appropriate in light of prevailing circumstances and
market conditions and the financial condition and prospects of Parent, provided
that Parent will not be required to issue senior subordinated notes bearing
interest in excess of the maximum interest rates applicable to the Exchange
Notes.
18
<PAGE> 19
The events of default will be those customary for facilities similar to the
Bridge Loan facilities and others as are reasonably specified by the Agent,
including but not limited to nonpayment of principal, interest, fees or other
amounts when due and violation of covenants, among others.
Exchange Notes. The Exchange Notes will be available only in exchange for
the Bridge Loans. The face amount of any Exchange Note will equal 100% of the
aggregate principal amount (including any accrued interest not required to be
paid in cash) of the Bridge Loan for which it is exchanged. The Exchange Notes
will mature on the tenth anniversary of the date on which the Shares are
purchased by Parent pursuant to the Offer.
The Exchange Notes will bear interest at a rate per annum, subject to
certain exemptions, equal to the interest rate on the Bridge Loans on the Bridge
Loan Maturity Date. Notwithstanding the foregoing, the interest rate on Exchange
Notes in effect at any time shall not exceed 18% per annum, and to the extent
that the interest payable on Exchange Notes exceeds a rate of 15% per annum,
Parent may, at its option, cause such excess interest to be paid by issuing
additional Exchange Notes in a principal amount equal to such excess portion of
interest. Interest on Exchange Notes will be payable semiannually in arrears. In
no event shall the interest rate on the Exchange Notes exceed the highest lawful
rate permitted under applicable law.
Exchange Notes will rank pari passu with Bridge Loans.
Subject to the conditions precedent to fundings, Parent will use its
reasonable best efforts to cause to be filed within 30 days after the first
issuance of the Exchange Notes to any Bridge Loan lender and to become effective
within 120 days after such issuance, an exchange offer registration statement or
a shelf registration statement and Parent will use its best efforts to keep such
registration statement effective for customary periods, not to exceed three
years after final issuance of Exchange Notes, and to amend such registration
statement from time to time as necessary to include newly issued Exchange Notes
from time to time.
On the date Shares are purchased by the Purchaser pursuant to the Offer,
rights to acquire equity interests representing 12 1/2% of the fully diluted
common stock of Holdings will be delivered and held in an escrow account by a
mutually agreeable fiduciary at no cost to holders of Exchange Notes. Each Right
will be exercisable for a period of 10 years from the Closing Date and will have
mutually agreed provisions relating to antidilution and limited registration
rights in certain circumstances. After the Bridge Maturity Date, the Rights will
be released from the escrow under specified circumstances.
The applicable covenants and events of default are both typical of those
for an indenture governing a high-yield senior subordinated note issue.
Credit Facilities Commitment Letter.
Pursuant to the Credit Facilities Commitment Letter (the "Credit Facilities
Commitment Letter") dated as of April 10, 1997, between CSFB and Parent, which
CSFB has committed to provide senior secured credit facilities of up to $180
million (the "Credit Facilities") to Parent as an agent for a syndicate of
financial institutions (together with CSFB, the "Lenders") to provide all or a
portion of the Credit Facilities: The Credit Facilities will consist of a 6-year
senior secured term loan facility in the amount of $75 million (the "Tranche A
Facility"), an 8-year senior secured term loan facility in the amount of $35
million (the "Tranche B Facility"; together with the Tranche A Facility, the
"Term Loan Facilities") and a 6-year senior secured revolving credit facility in
the amount of $70 million (the "Revolving Credit Facility").
The Term Loan Facilities will be available in a single drawing on the date
upon which the conditions precedent to borrowing are satisfied (the "Closing
Date"). In addition, they shall amortize in quarterly installments (commencing
on December 31, 1997) to be mutually agreed upon.
The Revolving Credit Facility will be available on a revolving basis during
the period commencing on the Closing Date and ending on the maturity date for
the Tranche A Facility (the "Termination Date"). The availability under the
Revolving Credit Facility will be subject to a borrowing base in the amount from
time to time equal to the sum of 85% of certain qualifying receivables and 50%
of certain qualifying inventories of the Parent and its domestic subsidiaries. A
portion of the Revolving Credit Facility to be mutually agreed upon will be
available for the issuance of letters of credit by CSFB.
19
<PAGE> 20
Provided that Purchaser acquires at least 75% of the outstanding capital
shares of the Company pursuant to the Offer, Parent will be allowed to lend
proceeds of the Credit Facilities to the Company for the purpose of financing
the working capital needs of the Company pending the consummation of the Merger
(the "Specified Loans").
The Parent may elect that all or a portion of the loans borrowed by it bear
interest at a rate per annum equal to CSFB's prime rate (or equivalent rate)
("ABR") plus an applicable margin with respect thereto or (b) the Eurodollar
rate plus an applicable margin with respect thereto.
The applicable margin for the various credit facilities under Eurodollar
Loans is as follows: 2 1/2% for the Tranche A Facility; 3% for the Tranche B
Facility; and 2 1/2% for the Revolving Credit Facility. The applicable margin
for the various credit facilities under ABR Loans is as follows: 1 1/2% for the
Tranche A Facility; 2% for the Tranche B Facility; and 1 1/2% for the Revolving
Credit Facility. The foregoing margins for the Tranche A Facility and the
Revolving Credit Facility shall be adjusted from time to time by amounts to be
agreed upon based on the leverage ratio of Parent then in effect.
At any time when the Parent is in default in the payment of any amount due
under the Credit Facilities, the principal of all loans under the Credit
Facilities shall bear interest at 2% above the rate otherwise applicable
thereto. Overdue interest, fees and other amounts shall bear interest at 2%
above the rate applicable to ABR Loans.
Guarantees and Collateral. The Credit Facilities shall be guaranteed by
Holdings, Parent and each domestic subsidiary of the Parent.
The Credit Facilities will be secured by a pledge of the capital stock of
Parent and by substantially all assets of Parent and its domestic subsidiaries
(including, without limitation, the Company), subject to exceptions to be
mutually agreed upon. Prior to the date upon which the Merger is consummated,
the assets of the Company and its subsidiaries which constitute collateral
(other than any capital stock of the Company, which shall secure the full amount
of the Credit Facilities) shall secure only any outstanding Specified Loans. The
Credit Facilities also shall be secured by 65% (or such higher percentage as may
be pledged without the incurrence of material adverse legal or tax consequences)
of each foreign subsidiary the capital stock of which is owned directly by the
Parent or a domestic subsidiary thereof (subject to exceptions to be mutually
agreed upon based upon uneconomic transaction costs and/or adverse tax
consequences).
Certain Conditions Relating to Credit Facilities. The initial availability
of the Credit Facilities is conditioned upon satisfaction (on or prior to July
30, 1997) of, among other things, the conditions precedent applicable to the
other debt financing transactions described above. The making of each extension
of credit shall be conditioned upon certain ongoing conditions, including the
accuracy of representations and warranties in the Credit Documentation and the
absence of default at the time of, or after giving effect to the making of, such
extension of credit.
The Credit Documentation shall contain representations, warranties,
covenants and events of default customary for financings of this type and other
terms deemed appropriate by the Lenders.
HMF II Letter. In an agreement dated April 10, 1997, Hicks Muse committed
to invest (or to cause an affiliate to invest) up to $40 million in the common
equity of Holdings subject to certain terms and conditions and pursuant to a
purchase (the "Purchase") of the common equity of Holdings. The proceeds of this
equity investment will be used in connection with the Acquisition.
Conditions to the Purchase by Hicks Muse or an Affiliate. The Purchase is
subject to (i) negotiation and execution of mutually satisfactory definitive
stock purchase agreements containing representations, warranties, covenants,
conditions, and indemnifications customary for transactions of this type and
(ii) the consummation of the Offer by the Parent on its terms set forth in the
Merger Agreement, as it may be amended from time to time.
The agreement by Hicks Muse also contains provisions for indemnification,
expense reimbursement, termination fees paid by target, publicity, access to
information, conduct of business, closing date, further action, confidentiality,
term and non-disclosure.
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11. BACKGROUND OF THE OFFER
Set forth below is a description of the background of the Offer, including
a brief description of the material contacts between Parent and its affiliates
and the Company and its affiliates regarding the transactions described herein.
On August 13, 1996, representatives from Parent met with representatives
from the Company to discuss a possible business combination.
In late August 1996, representatives of the Company met with
representatives of Parent's financial advisors, HM2/Management Partners, L.P.
("HM2"), an affiliate of Hicks Muse.
During September 1996, the Company received inquiries from several
interested parties regarding a possible business combination. In order to assist
the Board of the Company in evaluating such inquiries, on October 1, 1996, the
Company retained Dean Witter Reynolds Inc. ("Dean Witter").
During October and November 1996, representatives from the Company met with
various parties.
On January 13, 1997, representatives of the Company met with
representatives of Parent and HM2.
During late February and early March 1997, representatives from the Company
met with representatives of the Parent on several occasions.
Negotiations among the Company, the Parent, and their respective
representatives continued through April 10, 1997 with respect to various
matters, including the economic terms of the Merger and the legal and financial
advisors of the Parent conducted their due diligence review of the Company and
representatives of the Company and Parent negotiated the Merger Agreement and
the details of the transactions contemplated thereby. On April 10, 1997, the
parties reached agreement on the final terms of the Merger Agreement and the
related transactions contemplated thereunder.
The Board of Directors of the Company held a meeting on April 10, 1997 to
discuss the proposed Offer and Merger, the Merger Agreement, and the related
transactions contemplated thereunder. After reviewing the transaction with the
Company's legal and financial advisors and hearing the presentation of Dean
Witter, the Company's financial advisor, the Board discussed the proposed Offer
and Merger and all transactions contemplated thereby. The Board unanimously
approved the Offer, the Merger, and the Merger Agreement, and resolved to
recommend that the stockholders of the Company tender their Shares pursuant to
the Offer and executed and delivered the Merger Agreement late in the evening on
April 10, 1997.
The Board of Directors of Parent also held a meeting on April 10, 1997 at
which the Board of Directors of Purchaser unanimously approved the Offer, the
Merger, the Merger Agreement, the Financing Commitments and the transactions
contemplated by each of the foregoing.
Late in the evening of April 10, 1997, HMF II delivered its commitment to
purchase up to $40 million of Holding's common equity and CSFB delivered each of
the other Financing Commitments and Parent delivered copies of the Financing
Commitments to representatives of the Company. Following delivery of the
Financing Commitments, the Merger Agreement was executed and delivered by
Parent, Purchaser and the Company.
On April 11, 1997, the first business day following the execution and
delivery of the Merger Agreement, each of Parent and the Company issued a press
release announcing the execution and delivery of the Merger Agreement.
On April 17, 1997, Purchaser commenced the Offer.
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12. PURPOSE OF THE OFFER AND THE MERGER; PLANS FOR THE COMPANY; MERGER
AGREEMENT; STOCKHOLDERS AGREEMENT; OTHER MATTERS
Purpose of the Offer and the Merger Plans for the Company
The purpose of the Offer and the Merger is to enable Parent, through
Purchaser, to acquire in one or more transactions control of the Board and the
entire equity interest in the Company. The Offer is intended to increase the
likelihood that the Merger will be completed promptly.
Parent intends, from time to time after completion of the Offer, to
evaluate and review the Company's assets, operations, management and personnel
and consider what, if any, changes would be desirable in light of circumstances
which then exist. Parent reserves the right to take such actions or effect such
changes as it deems advisable.
Except as noted in this Offer to Purchase, Purchaser and Parent have no
present plans or proposals that would result in an extraordinary corporate
transaction, such as a merger, reorganization, liquidation, or sale or transfer
of a material amount of assets, involving the Company or any other material
changes in the Company's capitalization, dividend policy, corporate structure,
business or composition of its management.
The Merger Agreement
The following is a summary of the material terms of the Merger 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 thereof, which is
incorporated herein by reference and a copy of which has been filed with the
Commission as an exhibit to the Schedule 14D-1. The Merger Agreement may be
examined, and copies thereof may be obtained, as set forth in Section 8 above.
The Offer. The Merger Agreement provides for the commencement of the Offer,
in connection with which the Purchaser has expressly reserved the right to amend
or modify the terms of the Offer and to waive certain conditions of the Offer;
however, without the prior written consent of the Company, Purchaser has agreed
not to (i) decrease the Offer Price or the form of consideration therefor or
decrease the number of Shares sought pursuant to the Offer, (ii) amend or waive
the condition that there shall be validly tendered and not withdrawn prior to
the time the Offer expires a number of Shares which constitutes at least a
majority of the Shares outstanding on a fully-diluted basis on the date of
purchase, (iii) extend the expiration date of the Offer (except that Purchaser
may extend the expiration date of the Offer (a) as required by any rule,
regulation or interpretation of the Commission, (b) for such periods as
Purchaser may reasonably deem necessary (but not to a date later than the 60th
calendar day after the date of commencement) in the event that any condition to
the Offer is not satisfied, or (c) for one or more times for an aggregate period
of up to 15 days (not to exceed 60 calendar days from the date of commencement)
for any reason other than those specified in the immediately preceding clause
(a) or clause (b)), or (iv) change any condition or impose additional conditions
to the Offer or amend any term of the Offer in any manner adverse to holders of
Shares; provided, however, that, except as set forth above, Purchaser may waive
any other condition to the Offer in its sole discretion; and provided further,
that the Offer (i) may be extended in connection with an increase in the
consideration to be paid pursuant to the Offer so as to comply with applicable
rules and regulations of the Commission and (ii) will, for one time only, be
automatically extended for a period which ends on the 15th business day from the
date the Company shall have received an Acquisition Proposal (as defined below)
in the event the Company shall receive such Acquisition Proposal less than ten
business days prior to the expiration of the Offer. Assuming the prior
satisfaction or waiver of the conditions to the Offer, Purchaser has agreed to
accept for payment, and pay for, in accordance with the terms of the Offer, all
Shares validly tendered and not withdrawn pursuant to the Offer as soon as
practicable after the expiration date thereof.
Board Representation. The Merger Agreement provides that upon the purchase
by Parent or any of its subsidiaries of such number of Shares which represents
at least a majority of the outstanding Shares on a fully-diluted basis, and from
time to time thereafter, Parent shall be entitled to designate such number of
directors, rounded up to the next whole number (but in no event more than one
less than the total number of directors on the Board of the Company), as will
give Parent, subject to compliance with Section 14(f) of the Exchange Act,
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representation on the Board equal to the product of (x) the number of directors
on the Board (giving effect to any increase in the number of directors pursuant
to the Merger Agreement) and (y) the percentage that such number of Shares so
purchased bears to the aggregate number of Shares outstanding (such number being
the "Board Percentage"). The Company has agreed, upon request of Parent and
subject to applicable law, to promptly satisfy the Board Percentage by
increasing the size of the Board or using its best efforts to secure the
resignations of such number of directors as is necessary to enable Parent's
designees to be elected to the Board and to cause Parent's designees promptly to
be so elected, provided that no such action shall be taken which would result in
there being, prior to the consummation of the Merger, less than two directors of
the Company that are not affiliated with Parent. The Company has agreed to take,
at its expense and at Parent's request, all lawful action necessary to effect
any such election, including, without limitation, mailing to the Stockholders
the information required by Section 14(f) of the Exchange Act and Rule 14f-1
promulgated thereunder, unless such information has previously been provided to
the Stockholders in the Schedule 14D-9. Parent has agreed to supply the Company
in writing and be solely responsible for any information with respect to itself
and its nominees, directors and affiliates required by Section 14(f) of the
Exchange Act and Rule 14f-1 thereunder. Following the election or appointment of
Parent's designees pursuant to the Merger Agreement and prior to the Effective
Time of the Merger, any amendment or termination of the Merger Agreement,
extension for the performance or waiver of the obligations or other acts of
Parent or Purchaser or waiver of the Company's rights thereunder shall require
the concurrence of a majority of the directors of the Company then in office who
are Continuing Directors. The term "Continuing Director" means (i) each member
of the Board on the date of the Merger Agreement who voted to approve the Merger
Agreement and (ii) any successor to any Continuing Director that was recommended
to succeed such Continuing Director by a majority of the Continuing Directors
then on the Board.
Consideration to be Paid in the Merger. The Merger Agreement provides that
upon the terms and subject to the conditions set forth in the Merger Agreement,
Purchaser will be merged with and into the Company, with the Company continuing
as the surviving corporation and as a direct wholly owned subsidiary of Parent.
At the Effective Time, by virtue of the Merger and without any action on the
part of Purchaser, the Company or the holders of any of the Shares, each Share
issued and outstanding immediately prior to the Effective Time (excluding Shares
owned directly or indirectly by the Company or by Parent, Purchaser or any other
subsidiary of Parent and Dissenting Shares) shall be converted into the right to
receive the per share amount actually paid in the Offer in cash, without any
interest thereon, less any required withholding taxes. Each share of the capital
stock of Purchaser issued and outstanding immediately prior to the Effective
Time shall be converted into and become one fully paid and nonassessable share
of common stock, par value $.01 per share, of the Surviving Corporation.
Stockholder Meeting. The Merger Agreement provides that as soon as
practicable following the acceptance for payment of and payment for Shares by
Purchaser in the Offer, the Company and Parent shall prepare and file with the
Commission a proxy statement (if required by applicable law) in definitive form
relating to a meeting of the Stockholders to approve the Merger (as may be
amended from time to time, the "Proxy Statement"). Pursuant to the Merger
Agreement, the Company is required to use all commercially reasonable efforts to
respond to all Commission comments with respect to the Proxy Statement and to
cause the Proxy Statement to be mailed to the Stockholders at the earliest
practicable date. The Merger Agreement also provides that the Company will, as
soon as practicable following the acceptance for payment of and payment for
Shares in the Offer, duly call, give notice of, convene and hold a meeting (the
"Special Meeting") of its Stockholders for the purpose of approving the Merger
Agreement and the transactions contemplated thereby. At the Special Meeting,
Parent shall cause all the Shares then owned by Parent and Purchaser to be voted
in favor of the Merger. Notwithstanding the foregoing, in the event Purchaser
acquires at least 90% of the outstanding Shares in the Offer, Parent, Purchaser
and the Company have agreed to take, at the request of Purchaser, all necessary
and appropriate action to cause the Merger to become effective, as soon as
practicable after the expiration of their Offer, without a meeting of the
Stockholders in accordance with Section 253 of the DGCL.
Representations and Warranties. The Merger Agreement contains various
representations and warranties of the parties thereto. These include
representations and warranties by the Company with respect to corporate
existence and power, capital structure, corporate authorization,
noncontravention, consents and approvals. Commission filings, information
supplied, compliance with applicable laws, litigation, taxes, pension and
benefit plans and ERISA, absence of certain changes or events, absence of
undisclosed material liabilities, opinion of
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financial advisor, vote required, labor matters, intangible property,
environmental matters, real property, board recommendation, material contracts,
related party transactions, indebtedness, liens, customers and suppliers and
other matters.
Parent and Purchaser have also made certain representations and warranties
with respect to corporate existence and power, corporate authorization,
noncontravention, consents and approvals, information supplied, board
recommendation, financing and other matters.
Conduct of Business Pending the Merger. The Company has agreed as to the
Company and its subsidiaries that during the period from the date of the Merger
Agreement to the Effective Time, except as otherwise provided in the Merger
Agreement or consented to by Parent in writing, each of the Company and its
subsidiaries will conduct its business in the usual, regular and ordinary course
of business in substantially the same manner as conducted prior to the date of
the Merger Agreement and shall use all reasonable efforts to preserve intact its
business organization, keep available the services of its current officers and
employees and preserve its relationships with customers, suppliers and others
with whom it has business dealings. The Company has further agreed that it shall
not: (i) declare or pay any dividends on or make any other distributions in
respect of any of its capital stock; (ii) split, combine or reclassify any of
its capital stock or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock; (iii) repurchase or otherwise acquire any shares of its capital
stock, except as contemplated by the Merger Agreement or as required by the
terms of its securities outstanding or any employee benefit plan in effect on
the date of the Merger Agreement; (iv) grant any options, warrants or rights to
purchase Shares; (v) except as contemplated by the Merger Agreement, amend the
terms of or reprice any option or amend the terms of any of the Stock Option
Plans; (vi) issue, deliver or sell, or authorize or propose to issue, deliver or
sell, any shares of its capital stock, any voting debt or any securities
convertible into, or any rights, warrants or options to acquire, any such
shares, voting debt or convertible securities, other than issuances of Shares
upon the exercise of options or warrants that were outstanding on the date of
the Merger Agreement; (vii) as to the Company only make or propose to make any
changes in its Certificate of Incorporation or Bylaws; (viii) merge or
consolidate with, or acquire any equity interest in, any corporation,
partnership, association or other business organization, or enter into an
agreement with respect thereto; (ix) acquire or agree to acquire any assets of
any corporation, partnership, association or other business organization or
division thereof, except for the purchase of inventory and supplies in the
ordinary course of business or the acquisition by the Company or any subsidiary
thereof of equity interests in any customer or supplier of the Company in
satisfaction of outstanding claims against such party in bankruptcy proceedings
consistent with past practice; (x) sell, lease, encumber or otherwise dispose
of, or agree to sell, lease (whether such lease is an operating or capital
lease), encumber or otherwise dispose of, any of its assets (including, without
limitation, any capital stock or other ownership interest of any subsidiary of
the Company) except sales of inventory or sales or returns of obsolete or
surplus equipment in the ordinary course of business consistent with past
practice; (xi) authorize, recommend, propose or announce an intention to adopt a
plan of complete or partial liquidation or dissolution of the Company; (xii)
except as expressly permitted by the terms of the Merger Agreement, knowingly or
intentionally take or agree or commit to take any action that is reasonably
likely to result in any of the Company's representations or warranties contained
in the Merger Agreement being untrue in any material respect or any of the
Company's covenants contained in the Merger Agreement or any of the conditions
to the Merger not being satisfied in all material respects; (xiii) without the
prior written consent of Parent, grant any increases in the compensation of its
directors, officers or key employees, pay or agree to pay any pension,
retirement allowance or other employee benefit not required or contemplated to
be paid prior to the Effective Time by any of its existing benefit plans or
employee arrangements as in effect on the date of the Merger Agreement to any
such director, officer or key employee, enter into any new, or materially amend
any existing, employment, severance or termination agreement with any such
director, officer or key employee or, except as may be required to comply with
applicable law, become obligated under any new employee benefit plan or employee
arrangement, which was not in existence on the date of the Merger Agreement, or
amend any such plan or arrangement in existence on the date of the Merger
Agreement if such amendment would have the effect of materially enhancing any
benefits thereunder; (xiv) without the consent of Parent (which shall not be
unreasonably withheld), assume or incur any indebtedness for borrowed money or
guarantee any such indebtedness, issue or sell any debt securities or warrants
or rights to acquire debt securities of the Company or any of its subsidiaries
or guarantee any debt securities of others, or enter into any lease (whether
such lease is an
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operating or a capital lease) or create any mortgages, liens, security interests
or other encumbrances on the property of the Company or any of its subsidiaries
or enter into any "keep well" or other agreement or arrangement to maintain the
financial condition of another person except for (x) indebtedness incurred by
the Company from time to time for working capital purposes in the ordinary
course of business under the Second Amended and Restated Credit Agreement, dated
as of December 14, 1995, among the Company, the financial institutions party
thereto and the First National Bank of Chicago, as agent (y) indebtedness
incurred to fund capital expenditures permitted by the Merger Agreement and (z)
entering into leases for personal property in the ordinary course of business
consistent with past practice; (xv) without the prior written consent of Parent
(which shall not reasonably be withheld), enter into any contracts involving
aggregate annual payments in excess of $250,000 except for license agreements
entered into in the ordinary course of business, consistent with past practice,
or, modify, rescind, terminate, waive, release or otherwise amend in any
material respect any of the terms or provisions of any material contract in any
manner material and adverse to the Company or any subsidiary thereof; (xvi) take
any action, other than in the ordinary course of business consistent with past
practice or as required by the Commission or by law, with respect to accounting
policies, procedures and practices; or (xvii) incur any capital expenditures in
excess of $100,000, except as permitted by the Merger Agreement.
Parent has agreed as to Parent and Purchaser and its subsidiaries that
during the period from the date of the Merger Agreement to the Effective time,
Parent will not knowingly or intentionally take or agree or commit to take, nor
will it permit Purchaser or any of the subsidiaries of Parent to take or agree
or commit to take, any action to prohibit or prevent the financing sources of
Parent and Purchaser from providing the debt and equity financing contemplated
by the Financing Commitments.
Other Agreements. The Company, Parent and Purchaser have agreed to use
their respective commercially reasonable efforts to take, or cause to be taken,
all action and to do, or cause to be done, all things necessary, proper or
advisable, under applicable laws and regulations or otherwise, to consummate and
make effective the transactions contemplated by the Merger Agreement, subject,
as applicable, to Stockholder approval, including cooperating fully with the
other party, including by provision of information and making of all necessary
filings in connection with, among other things, approvals under the HSR Act. The
Company has agreed to cooperate with Parent's and Purchaser's efforts to secure
the financing contemplated by the Financing Commitments, such cooperation to
include providing such information to Parent's and Purchaser's financing sources
as Parent or Purchaser may reasonably request and making available senior
officers and such other employees of the Company as Parent and Purchaser may
reasonably request to assist in preparing offering documents and marketing
materials and to participate in any marketing and sales efforts relating to the
Financing Commitments as reasonably requested by Parent consistent with their
other business obligation; provided that the Company shall incur no liability as
a result of participation by any officer or employee in such financing efforts.
Parent and the Company have also made certain agreements regarding publicity,
access to information and confidentiality. The Company has further agreed to use
its reasonable efforts to assist Parent, at Parent's expense, in obtaining any
consent from third parties necessary to allow the Company to continue operating
its business as presently conducted as a result of the consummation of the Offer
and the Merger.
No Solicitation. From and after the date of the Merger Agreement until the
termination thereof, neither the Company or any of its subsidiaries, nor any of
their respective officers, directors, representatives, agents or affiliates
(including, without limitation, any investment banker, attorney or accountant
retained by the Company or any of its subsidiaries) (such officers, directors,
employees, representatives, agents, affiliates, investment bankers, attorneys
and accountants being collectively referred to as "Representatives"), will, and
the Company will use its reasonable best efforts to cause the employees of the
Company and its subsidiaries not to, directly or indirectly, initiate, solicit
or encourage (including by way of furnishing information or assistance), or take
any other action to facilitate, any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any Acquisition Proposal
(as defined below), or enter into or maintain or continue discussions or
negotiate with any person or entity in furtherance of such inquiries or for the
purpose of obtaining an Acquisition Proposal, or agree to or endorse any
Acquisition Proposal, and neither the Company nor any of its subsidiaries will
authorize or permit any of its Representatives to take any such action, and the
Company shall notify Parent orally (within one business day) and in writing (as
promptly as practicable) of all of the relevant
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details relating to, and all material aspects of, all inquiries and proposals
which it or any of its subsidiaries or any of their respective Representatives
may receive relating to any of such matters and, if such inquiry or proposal is
in writing, the Company shall deliver to Parent a copy of such inquiry or
proposal as promptly as practicable; provided, however, that the Board is not
prohibited from (i) furnishing information to, or entering into discussions
with, any person or entity that makes an unsolicited written bona fide
Acquisition Proposal (provided that such person or entity has the necessary
funds or commitments to provide the funds to effect such Acquisition Proposal;
provided further, however that the Company shall have two business days from the
date it receives such Acquisition Proposal to determine whether such person or
entity has such funds or commitments) if, and only to the extent that, (A) the
Board, after consultation with and based upon the advice of independent legal
counsel (who may be the Company's regularly engaged independent legal counsel),
determines in good faith that such action is advisable for the Board to comply
with its fiduciary duties to Stockholders under applicable law, (B) prior to
taking such action, the Company (x) provides reasonable prior notice to Parent
to the effect that it is taking such action and (y) receives from such person or
entity an executed confidentiality agreement in reasonably customary form, and
(C) the Company shall, to the extent consistent with the Board's fiduciary
duties to Stockholders under applicable law, promptly and continuously advise
Parent as to all of the relevant details relating to, and all material aspects
of, any such discussions or negotiations; (ii) failing to make or reaffirm,
withdrawing, adversely modifying or taking a public position materially
inconsistent with its recommendation to the Stockholders (which may include
making any statement required by Rule 14e-2 under the Exchange Act) to approve
the Merger Agreement and the transactions contemplated thereby, including the
Merger, and to accept the Offer and tender their Shares pursuant thereto, if
there exists an Acquisition Proposal and the Board, after consultation with and
based upon the advice of independent legal counsel (who may be the Company's
regularly engaged independent counsel), determines in good faith that such
action is advisable for the Board to comply with its fiduciary duties to
Stockholders under applicable law; or (iii) making a "stop-look-and-listen"
communication with respect to an Acquisition Proposal of the nature contemplated
in, and otherwise in compliance with, Rule 14d-9 under the Exchange Act as a
result of an Acquisition Proposal. The term "Acquisition Proposal" means any of
the following transactions (other than the transactions among the Company,
Parent and Purchaser contemplated in the Merger Agreement) involving the Company
or any of its subsidiaries: (i) any merger, consolidation, share exchange,
recapitalization, business combination or other similar transaction; (ii) any
sale, lease, exchange, mortgage, pledge, transfer or other disposition of 10% or
more of the assets of the Company and its subsidiaries, taken as a whole, in a
single transaction or series of transactions; (iii) any tender offer or exchange
offer for 10% or more of the outstanding shares of capital stock of the Company
or the filing of a registration statement under the Securities Act in connection
therewith; or (iv) any public announcement of a proposal, plan or intention to
do any of the foregoing or any agreement to engage in any of the foregoing.
Fees and Expenses. The Merger Agreement provides that all costs and
expenses incurred in connection with the Merger Agreement and the transactions
contemplated thereby shall be paid by the party incurring such expense, except
as otherwise provided in the Merger Agreement and except with respect to claims
for damages incurred as a result of the breach of the Merger Agreement. In
addition, the Company has agreed to pay Parent a fee in immediately available
funds equal to $3,000,000 upon the termination of the Merger Agreement in
accordance with the terms thereof if either of the following events shall have
occurred (each, a "Trigger Event"): (i) the Board shall have (A) withdrawn or
adversely modified in any material respect or taken a public position materially
inconsistent with, its approval or recommendation of the Offer, the Merger, the
Merger Agreement or the Stockholders Agreement or (B) in the event an
Acquisition Proposal has been made to the Company prior to the expiration of the
Offer, the Company shall have failed to publicly reaffirm its approval or
recommendation of the Offer, the Merger, the Merger Agreement and the
Stockholders Agreement on or before the earlier to occur of (1) the tenth
business day following the date on which such Acquisition Proposal shall have
been made or (2) the third business day prior to the latest possible expiration
date of the Offer; provided that a "stop-look-and-listen" communication, by
itself, shall not constitute a Trigger Event; or (ii) an Acquisition Proposal
has been recommended or accepted by the Company or the Company shall have
entered into an agreement (other than a confidentiality agreement as
contemplated by the Merger Agreement) with respect to an Acquisition Proposal.
In addition, Parent has agreed to pay to the Company a fee in immediately
available funds equal to $3,000,000 upon the termination of the Merger Agreement
in the event the Offer expires or is withdrawn, abandoned or terminated
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if the sole reason for such expiration, withdrawal, abandonment or termination
is the failure of the debt financing sources for Parent and Holdings to provide
the debt financing pursuant to the Financing Commitments. Any amounts payable to
Parent pursuant to the foregoing that are not paid when due shall bear interest
at the prime rate from the date due through and including the date paid.
Conditions to the Merger. Pursuant to the Merger Agreement, the respective
obligation of each party to effect the Merger is subject to the satisfaction
prior to the Closing Date of the following conditions: (i) the Merger Agreement
and the Merger shall have been approved and adopted by the affirmative vote or
written consent of the holders of a majority of the outstanding Shares entitled
to vote thereon or consent thereto if such vote or consent is required by
applicable law; provided that Parent and Purchaser shall vote all Shares
purchased pursuant to the Offer or the stockholders Agreement in favor of the
Merger, (ii) the waiting period (and any extension thereof) applicable to the
Merger under the HSR Act shall have been terminated or shall have expired, and
no restrictive order or other requirements shall have been placed on the
Company, Parent, Purchaser or the Surviving Corporation in connection therewith,
(iii) 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 prior to invoking the condition, each party
shall use all commercially reasonable efforts to have any such decree, ruling,
injunction or order vacated, (iv) no statute, rule, order, decree or regulation
shall have been enacted or promulgated by any government or governmental agency
or authority which prohibits the consummation of the Merger; and (v) Purchaser
shall have accepted for payment and paid for the Shares tendered in the Offer
such that, after such acceptance and payment, Parent and its affiliates shall
own, at consummation of the Offer, a majority of the outstanding Shares of the
Company on a fully diluted basis; provided that this condition shall be deemed
to have been satisfied if Purchaser fails to accept for payment and pay for
Shares pursuant to the Offer in violation of the terms and conditions of the
Offer. The obligations of Parent and Purchaser to effect the Merger is further
subject to (i) the receipt by Parent and Holdings of the debt and equity
financing pursuant to the Financing Commitments and (ii) there being no more
than ten percent of the Shares outstanding immediately prior to the Effective
Time which shall be Dissenting Shares.
Termination. The Merger Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, whether before or after
approval of the matters presented in connection with the Merger by the
stockholders of the Company or Parent by (i) mutual written consent of the
Company and Parent or by mutual action of their respective Boards of Directors;
(ii) either the Company or Parent, (a) so long as such party is not then in
material breach of its obligations under the Merger Agreement, if there has been
a breach of any representation, warranty, covenant or agreement (determined
without giving effect to any "Material Adverse Effect" (defined as any events,
changes or effects with respect to any person which, individually or in the
aggregate, could reasonably be expected to have a material adverse effect on the
business, results of operations or financial conditions of such party and its
subsidiaries taken as a whole, except for certain matters with respect to the
Company), "materiality" or similar qualification contained therein) on the part
of the other set forth in the Merger Agreement, which breach (other than a
breach of certain covenants and agreements specified in the Merger Agreement)
has not been cured within ten calendar days following receipt by the breaching
party of notice of such breach, unless such breach could not, individually or in
the aggregate with other breaches, be reasonably expected to (1) have a
"Material Adverse Effect" under the Merger Agreement or (2) materially adversely
affect the ability of the parties thereto to consummate the transactions
contemplated thereby, or (b) if any permanent injunction or other order of a
court or other competent authority preventing the consummation of the Offer or
the Merger shall have become final and non-appealable; (iii) either the Company
or Parent, so long as such party is not then in material breach of its
obligations under the Merger Agreement, if the Merger shall not have been
consummated on or before the 135th calendar day following the consummation of
the Offer; provided, that such right to terminate the Merger Agreement under
this clause shall not be available to any party whose failure to fulfill any
obligation under the Merger Agreement has been the cause of or resulted in the
failure of the Merger to occur on or before such date; (iv) Parent in the event
that a Trigger Event has occurred prior to the consummation of the Offer (see
"Fees and Expenses" above); (v) Parent in the event an Acquisition Proposal has
been made to the Company prior to the expiration of the Offer and the Company
shall fail to publicly reaffirm its approval or recommendation of the Offer, the
Merger, the Merger Agreement and the Stockholders Agreement on or before the
earlier to occur of (a) the tenth business day following the date on which such
Acquisition Proposal
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shall have been made or (b) the third business day prior to the latest possible
expiration of the Offer; (vi) Parent or the Company, if the Offer terminates, is
withdrawn, abandoned or expires by reason of the failure to satisfy any of the
conditions described in Section 14 of this Offer to Purchase; (vii) the Company,
if the Offer shall have expired or have been withdrawn, abandoned or terminated
without any Shares being purchased by Purchaser thereunder on or prior to the
60th calendar day after the date of commencement of the Offer; (viii) by the
Company, if (a) the Board of Directors of the Company shall fail to make or
reaffirm, withdraw, adversely modify or take a public position materially
inconsistent with its recommendation that the Stockholders approve the Merger
Agreement and the Merger and accept the Offer and tender their Shares pursuant
thereto if there exists an Acquisition Proposal and the Board of Directors of
the Company, after consultation with and based upon the advice of independent
legal counsel (who may be the Company's regularly engaged independent counsel),
determines in good faith that such action is advisable for the Board of
Directors of the Company to comply with its fiduciary duties to holders of
Shares under applicable law, and (b) the Company shall have paid a termination
fee to Parent or Parent's designee in the amount of $3,000,000, provided,
however, that if the excess of (A) the sum of (x) the average balance of the
Company's cash on hand for the ten day period preceding the date the Company
seeks to terminate this Agreement under this clause (h) plus (y) the average
available capacity under the Company Credit Agreement over the ten day period
preceding the date the Company wishes to terminate the Merger Agreement under
this clause (h) over (B) $2,000,000 (such excess being referred to as the
"Available Cash"), is less than $3,000,000, then in lieu of having paid the
$3,000,000 termination fee, the Company shall have (A) paid the entire amount of
the Available Cash to Parent or Parent's designee and (B) delivered to Parent a
written commitment by the Company (in a form satisfactory to Parent),
unconditionally guaranteed by a financially responsible and reputable entity (as
determined by Parent in its sole discretion), acknowledging the Company's
obligation to pay the difference between the $3,000,000 termination fee and the
amount of Available Cash paid by the Company to Parent or Parent's designee in
connection with the termination of the Merger Agreement (together with interest
at the prime rate accruing from the date on which payment of the termination fee
contemplated by this clause (h) would have been due and payable) on the earlier
of (A) such date as the Company shall have additional Available Cash sufficient
to pay such difference, (B) the closing of the tender offer relating to the
Acquisition Proposal with respect to which the Company terminated the Merger
Agreement (the "Competing Offer"), (C) the expiration of the Competing Offer or
(D) the date which is 60 calendar days after the date on which the Offer was
commenced; and (ix) the Company if Purchaser shall not have commenced the Offer
within ten business days after the execution and delivery of the Merger
Agreement by Parent and Purchaser. In the event of termination of the Merger
Agreement by either the Company or Parent as provided therein, the Merger
Agreement shall forthwith become void and there shall be no liability or
obligation on the part of Parent, Purchaser or the Company, or their respective
affiliates, officers, directors or shareholders, except to the extent that such
termination results from the material breach by a party to the Merger Agreement
of any of its representations or warranties, or of any of its covenants or
agreements, in each case, as set forth in the Merger Agreement.
Indemnification. The Merger Agreement provides that the Company shall, and
from and after the Effective Time, the Surviving Corporation shall, indemnify,
defend and hold harmless each person who was at the date of the Merger
Agreement, or had been at any time prior to the date of the Merger Agreement or
who becomes prior to the Effective Time, an officer, director, employee or agent
of the Company (the "Indemnified Parties") against all losses, claims, damages,
costs, expenses (including attorneys' fees and expenses), liabilities or
judgments or amounts paid in settlement with the approval of the indemnifying
party (which approval shall not be unreasonably withheld) of or in connection
with any threatened or actual claim, action, suit, proceeding or investigation
based in whole or in part on or arising in whole or in part out of the fact that
such person is or was a director, officer, employee or agent of the Company
whether pertaining to any matter existing or occurring at or prior to the
Effective Time or any acts or omissions occurring or existing at or prior to the
Effective Time and whether asserted or claimed prior to, or at or after, the
Effective Time ("Indemnified Liabilities"), including 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 or the transactions contemplated thereby,
in each case to the full extent a corporation is permitted under the DGCL to
indemnify its own directors or officers, as the case may be, and the Company and
the Surviving Corporation, as the case may be, 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. All rights to indemnification,
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including provisions relating to advances of expenses incurred in defense of any
action or suit, existing in favor of the Indemnified Parties with respect to
matters occurring through the Effective Time, shall survive the Merger and shall
continue in full force and effect for a period of not less than six years from
the Effective Time; provided, however, that all rights to indemnification in
respect of any Indemnified Liabilities asserted or made within such period shall
continue until the disposition of such Indemnified Liabilities.
Parent and Purchaser have also agreed to unconditionally waive and release
the Indemnified Parties from and have agreed to indemnify, defend and hold
harmless the Indemnified Parties from and against any and all claims, demands,
causes of action, liabilities, costs or expenses, whether arising under
contract, statute, common law or otherwise, with respect to environmental
matters (including, without limitation any of the foregoing arising under CERCLA
or other environmental laws).
Directors' and Officers' Insurance. For a period of six years after the
Effective Time, the Surviving Corporation shall cause to be maintained in effect
the current policies of directors' and officers' liability insurance maintained
by the Company and its subsidiaries (provided that Parent may substitute
therefor policies of at least the same coverage and amounts containing terms and
conditions which are no less advantageous in any material respect to the
Indemnified Parties) with respect to matters arising before the Effective Time
or any acts or omissions occurring or existing at or prior to the Effective
Time, provided that the Surviving Corporation shall not be required to pay an
annual premium for such insurance in excess of 200% of the last annual premium
paid by the Company prior to the date of the Merger Agreement, but in such case
shall purchase as much coverage as possible for such amount.
Amendment. Subject to applicable law, the Merger Agreement may be amended,
modified or supplemented only by written agreement of Parent, Purchaser and the
Company at any time prior to the Effective Time with respect to any of the terms
contained therein; provided however, that after the consummation of the Offer,
no term or condition relating to the procedural or financial aspects of the
Merger may be amended or modified in any manner adversely affecting the
Stockholders including, without limitation, by reducing the amount of or
changing the form of Merger Consideration.
Timing. The Merger Agreement provides that the closing of the Merger shall
occur on the second business day after satisfaction and/or waiver of the
conditions set forth in the Merger Agreement unless another date, time or place
is agreed to in writing by Parent, Purchaser and the Company. The Merger shall
become effective upon the filing of a certificate of merger or a certificate of
ownership and merger, as the case may be, or at such time thereafter as may be
provided in such certificate (as the Company and Purchaser shall agree), with
the Secretary of State of the State of Delaware, as provided in the DGCL, which
certificate shall be filed as soon as practicable on or after the date of the
closing of the Merger.
The exact timing and details of the Merger will depend upon legal
requirements and a variety of other factors, including the number of Shares
acquired by Purchaser pursuant to the Offer. Although Parent has agreed to cause
the Merger to be consummated on the terms set forth above, there can be no
assurance as to the timing of the Merger.
Other Agreements
Confidentiality Agreements. On December 10, 1996, the Parent and the
Company entered into a Confidentiality Agreement (the "Confidentiality
Agreement") pursuant to which the Company agreed to supply certain information
to the Parent and the Parent agreed to treat such information as confidential
and to use such information solely in connection with the evaluation of a
possible transaction with the Company. The Parent agreed that until December 10,
1997, it would not, among other things, take any action that would cause or
facilitate the acquisition by any person, including the Parent or its
affiliates, of any securities or assets of, or a merger or business combination
with, the Company.
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The Stockholders Agreement
The following is a summary of the material terms of the Stockholders
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 thereof which is incorporated herein by reference and a copy of which has
been filed with the Commission as an exhibit to the Schedule 14D-1. The
Stockholders Agreement may be examined, and copies thereof may be obtained, as
set forth in Section 8 above.
Tender of Shares. Simultaneously with the execution of the Merger
Agreement, Parent, Purchaser and the Selling Stockholder entered into the
Stockholders Agreement. Upon the terms and subject to the conditions of such
agreement, the Selling Stockholder has (i) 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 Shares owned
beneficially by it and (ii) agreed to permit Parent and Purchaser to publish and
disclose its identity and ownership of Shares and the nature of its commitments,
arrangements and understandings under the Stockholders Agreement in the
documents relating to the Offer and, if stockholder approval for the Merger is
required, in any proxy statement relating thereto (including all documents and
schedules filed with the Commission).
Voting. The Selling Stockholder has agreed that during the period
commencing on the date of the Stockholders Agreement and continuing until the
first to occur of the Effective Time, the termination of the Stockholders
Agreement or termination of the Merger Agreement in accordance with its terms,
at any meeting of the Stockholders, however called, the Selling Stockholder
shall vote (or cause to be voted) the Shares held of record or beneficially
owned by the Stockholder, (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
Stockholders 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 Stockholders Agreement; 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 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 Certificate of Incorporation or Bylaws; (3) any other
material change in the Company's corporate structure or business; or (4) any
other action which, in the case of each of the matters referred to in clauses
(c)(1), (2), or (3), 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 Stockholders Agreement and the Merger
Agreement. The Selling Stockholder further agreed not to enter into any
agreement or understanding with any person or entity the effect of which would
be inconsistent or violative of the provisions and agreements described above.
In addition, the Selling Stockholder granted to Parent a proxy to vote the
Shares of the Selling Stockholder in accordance with the provisions and
agreements described above and revoked any proxy previously granted by the
Selling Stockholder with respect to such Shares.
Representations, Warranties, Covenants and Other Agreements. In connection
with the Stockholders Agreement, the Selling Stockholder has made certain
customary representations, warranties and covenants, including with respect to
(i) its ownership of the Shares and its rights and powers with respect thereto,
(ii) its authority to enter into and perform its obligations under the
Stockholders Agreement, (iii) noncontravention and enforceability, (iv) absence
of conflicts, (v) the absence of liens and encumbrances on and in respect of its
Shares, (vi) restrictions on the transfer of its Shares and the granting of
proxies with respect thereto, (vii) the solicitation of Acquisition Proposals,
and (viii) the waiver of its appraisal rights.
Termination. Other than as provided therein, the Stockholders Agreement
terminates by its terms upon the termination of the Merger Agreement by Parent
or the Company. The Selling Stockholder also has the absolute right, exercisable
in its sole description, to terminate the Stockholders Agreement if the Merger
Agreement is
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amended in any respect in a manner that is adverse to the Selling Stockholder or
if the Offer is terminated, withdrawn, abandoned, expires or is modified in any
manner that is adverse to the Selling Stockholder.
Other Matters
Delaware Law. Section 203 of the DGCL prevents an "interested stockholder"
(generally, a stockholder owning 15% or more of a corporation's outstanding
voting stock or an affiliate or associate thereof) from engaging in a "business
combination" (defined to include a merger and certain other transactions) with a
Delaware corporation for a period of three years following the date on which
such stockholder became an interested stockholder unless (i) prior to such date,
the corporation's board of directors approved either the business combination or
the transaction which resulted in such stockholder becoming an interested stock
holder, (ii) upon consummation of the transaction which resulted in such
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the corporation's voting stock outstanding at the time the
transaction commenced (excluding shares owned by certain employee stock plans
and persons who are directors and also officers of the corporation) or (iii) on
or subsequent to such date, the business combination is approved by the
corporation's board of directors and authorized at an annual or special meeting
of stockholders, and not by written consent, by the affirmative vote of at least
66 2/3% of the outstanding voting stock not owned by the interested stockholder.
The Company, pursuant to a resolution of the Board, has rendered Section 203 of
the DGCL inapplicable to the Offer and the Merger. Accordingly, the restrictions
of Section 203 of the DGCL do not apply to the transactions contemplated by the
Offer or the Merger Agreement.
Charter Restrictions. The Company's certificate of incorporation provides
that any transaction or contract involving a merger of the Company or any of its
subsidiaries or certain other enumerated transactions with the Company or any of
its subsidiaries (a "Business Combination") with any Interested Stockholder (as
defined below) or affiliate of any Interested Stockholder shall require the
affirmative vote of the holders of at least eighty percent (80%) of the voting
power of the then outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of directors voting together as a
single class. Such vote is not required for any Business Combination if, among
other things, the Business Combination shall have been approved by a majority of
the Disinterested Directors (as defined below).
For purposes of the foregoing, (i) "Disinterested Director" means any
member of the Board not affiliated with the Interested Stockholder and who was a
member of the Board prior to the time the Interested Stockholder became an
Interested Stockholder, and any successor of a Disinterested Director
recommended by a majority of the Disinterested Directors and (ii) "Interested
Stockholder" means any person (other than the Company, any subsidiary of the
Company or any stockholder owning fifty percent (50%) or more of the Company's
outstanding securities on the date its certificate of incorporation was filed)
who or which: (A) is the beneficial owner of twenty percent (20%) or more of the
voting power of the outstanding stock of the company, or (B) is an affiliate of
the Company and at any time in the prior two (2) years owned twenty percent
(20%) or more of the then outstanding voting stock of the Company, or (C) is an
assignee of voting stock which at any time in the prior two (2) years was owned
by an Interested Stockholder and the assignment of such stock was not pursuant
to a public offering (in calculating beneficial ownership for purposes of the
foregoing, shares subject to options, etc. are included in determining the
number of shares owned but not included in determining the total number of
shares outstanding).
The Offer and the Merger have been approved by all of the Disinterested
Directors. Accordingly, the foregoing restrictions do not apply to the Offer or
the Merger.
Appraisal Rights. No appraisal rights are available to holders of Shares in
connection with the Offer. However, if the Merger is consummated, holders of
Shares will have certain rights under Section 262 of the DGCL to dissent and
demand appraisal of, and payment in cash for the fair value of, their Shares.
Such rights, if the statutory procedures are complied with, could lead to a
judicial determination of the fair value (excluding any element of value arising
from accomplishment or expectation of the Merger) required to be paid in cash to
such dissenting holders for their Shares. Any such judicial determination of the
fair value of Shares could be based upon considerations other than or in
addition to the Offer Price and the market value of the Shares, including
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asset values and the investment value of the Shares. The value so determined
could be more or less than the Offer Price or the Merger Consideration.
If any holder of Shares who demands appraisal under Section 262 of the DGCL
fails to perfect, or effectively withdraws or loses his right to appraisal, as
provided in the DGCL, the Shares of such holder will be converted into the
Merger Consideration in accordance with the Merger Agreement. A Stockholder may
withdraw his demand for appraisal by delivery to Parent of a written withdrawal
of his demand for appraisal and acceptance of the Merger.
Failure to follow the steps required by Section 262 of the DGCL for
perfecting appraisal rights may result in the loss of such rights.
Going Private Transactions. Rule 13e-3 under the Exchange Act is applicable
to certain "going-private" transactions. Purchaser does not believe that Rule
13e-3 will be applicable to the Merger unless, among other things, the Merger is
completed more than one year after termination of the Offer. If applicable, Rule
13e-3 would require, among other things, that certain financial information
regarding the Company and certain information regarding the fairness of the
Merger and the consideration offered to minority Stockholders be filed with the
Commission and disclosed to minority Stockholders prior to consummation of the
Merger.
13. DIVIDENDS AND DISTRIBUTIONS
If, on or after the date of the Merger Agreement, the Company should (a)
split, combine or otherwise change the Shares or its capitalization, (b) acquire
currently outstanding Shares or otherwise cause a reduction in the number of
outstanding Shares or (c) issue or sell additional Shares, shares of any other
class of capital stock, other voting securities or any securities convertible
into, or rights, warrants or operations, conditional or otherwise, to acquire,
any of the foregoing, then subject to the provisions of Section 14 below,
Purchaser, in its sole discretion, may make such adjustments as it deems
appropriate in the Offer Price and other terms of the Offer, including, without
limitation, the number or type of securities offered to be purchased.
If, on or after the date of the Merger Agreement, the Company should
declare or pay any cash dividend on the Shares or make other distributions on
the Shares or issue with respect to the Shares, any additional Shares, shares of
any other class of capital stock, other voting securities or any securities
convertible into, or rights, warrants or options, conditional or otherwise, to
acquire, any of the foregoing, payable or distributable to Stockholders of
record on a date prior to the transfer of the Shares purchased pursuant to the
Offer to Purchase or its nominee or transferee on the Company's stock transfer
records, then, subject to the provisions of Section 14 below, (i) the Offer
Price may, in the sole discretion of Purchaser, be reduced by the amount of any
such cash dividend or cash distribution and (ii) the whole of any such noncash
dividend, distribution or issuance to be received by the tendering Stockholders
will (A) be received and held by the tendering Stockholders for the account of
Purchaser and will be required to be promptly remitted and transferred by each
tendering Stockholder to the Depositary for the account of Purchaser,
accompanied by appropriate documentation of transfer, or (B) at the direction of
Purchaser, be exercised for the benefit of Purchaser, in which case the proceeds
of such exercise will promptly be remitted to Purchaser. Pending such remittance
and subject to applicable law, Purchaser will be entitled to all rights and
privileges as owner of any such noncash dividend, distribution, issuance or
proceeds and may withhold the entire Offer Price or deduct from the Offer Price
the amount or value thereof, as determined by Purchaser in its sole discretion.
Pursuant to the terms of the Merger Agreement, the Company is prohibited
from taking any of the actions described in the two preceding paragraphs and
nothing herein shall constitute a waiver by Purchaser or Parent of any of its
rights under the Merger Agreement or a limitation of remedies available to
Purchaser or Parent for any breach of the Merger Agreement, including
termination thereof.
14. CERTAIN CONDITIONS OF THE OFFER
Notwithstanding any other provision of the Offer, Purchaser shall not be
required to accept for payment or, subject to any applicable rules and
regulations of the Commission, including Rule 14e-l (c) under the Exchange Act
(relating to Purchaser's obligation to pay for or return tendered Shares
promptly after expiration or
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termination of the Offer), to pay for any Shares tendered, and may postpone the
acceptance for payment or, subject to the restriction referred to above, payment
for any Shares tendered, and may amend or terminate the Offer (whether or not
any Shares have theretofore been purchased or paid for) if, (i) there have not
been validly tendered and not withdrawn prior to the Expiration Date a number of
Shares which constitutes a majority of the Shares outstanding on a fully-diluted
basis on the date of purchase, (ii) any applicable waiting periods under the HSR
Act shall not have expired or been terminated prior to the Expiration Date, or
(iii) the debt financing sources for Parent and Holdings shall not have provided
the applicable debt financing to Parent and Purchaser pursuant to the Financing
Commitments, or (iv) at any time on or after the date of the Merger Agreement
and before acceptance for payment of, or payment for, such Shares any of the
following events shall have occurred:
(a) there shall be pending, as of the Expiration Date or at any time
thereafter, any litigation that seeks to (1) challenge the acquisition by
Parent, Purchaser or any of their respective affiliates or subsidiaries of
Shares pursuant to the Offer or restrain, prohibit or delay the making or
consummation of the Offer or the Merger, (2) make the purchase of or
payment for some or all of the Shares pursuant to the Offer or the Merger
illegal, (3) impose limitations on the ability of Parent, Purchaser or any
of their respective affiliates or subsidiaries effectively to acquire or
hold, or to require Parent, Purchaser, the Company or any of their
respective affiliates or subsidiaries to dispose of or hold separate, any
material portion of their assets or business, (4) impose material
limitations on the ability of Parent, Purchaser, the Company or any of
their respective affiliates or subsidiaries to continue to conduct, own or
operate, as heretofore conducted, owned or operated, all or any material
portion of their businesses or assets, (5) impose or result in material
limitations on the ability of Parent, Purchaser or any of their respective
affiliates or subsidiaries to exercise full rights of ownership of the
Shares purchased by them, including, without limitation, the right to vote
the Shares purchased by them on all matters properly presented to the
Stockholders, or (6) prohibit or restrict in a material manner the
financing of the Offer;
(b) there shall have been promulgated, enacted, entered, enforced or
deemed applicable to the Offer or the Merger, any Law (defined as any
judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Company or any of its subsidiaries or any of their
respective properties or assets), or there shall have been issued any
decree, order or injunction, that results in any of the consequences
referred to in subsection (a) above;
(c) except as set forth on Exhibit D or Schedule 4.1(j) to the Merger
Agreement, any event or events shall have occurred that, individually or in
the aggregate, could reasonably be expected to have a Material Adverse
Effect (as defined below) on the Company;
(d) there shall have occurred (1) any general suspension of trading
in, or limitation on prices for, securities on any national securities
exchange or in the over-the-counter market in the United States for a
period in excess of forty-eight hours, (2) the declaration of a banking
moratorium or any suspension of payments in respect of banks in the United
States, (3) the commencement of a war, armed hostilities or other
international or national calamity, directly or indirectly involving the
United States, (4) any limitations (whether or not mandatory) imposed by
any governmental authority on the nature or extension of credit or further
extension of credit by banks or other lending institutions, or (5) in the
case of clauses (3) and (4) above, a material acceleration or worsening
thereof;
(e) the representations and warranties of the Company contained in the
Merger Agreement (without giving effect to any "Material Adverse Effect",
"materiality" or similar qualifications contained therein) shall not be
true and correct in all respects as of the date of consummation of the
Offer as though made on and as of such date except (1) for changes
specifically permitted by the Merger Agreement, (2) that those
representations and warranties which address matters only as of a
particular date shall remain true and correct as of such date, and (3) for
breaches or inaccuracies which, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect on the Company;
(f) the obligations of the Company contained in the Merger Agreement
(without giving effect to any "Material Adverse Effect", "materiality" or
similar qualifications contained therein) to be performed at or prior to
the consummation of the Offer shall not have been performed or complied
with in all respects by the Company prior to the consummation of the Offer
except for failures to perform or comply which,
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individually or in the aggregate, could not (1) reasonably be expected to
have a Material Adverse Effect on the Company or (2) materially adversely
affect the ability of the parties to the Merger Agreement to consummate the
transactions contemplated thereby;
(g) the Merger Agreement shall have been terminated in accordance with
its terms;
(h) prior to the purchase of Shares pursuant to the Offer, an
Acquisition Proposal for the Company exists and the Board shall have
withdrawn or materially modified or changed (including by amendment of the
Schedule 14D-9) in a manner adverse to Purchaser its recommendation of the
Offer, the Merger Agreement or the Merger; or
(i) it shall have been publicly disclosed or Parent or Purchaser shall
have otherwise learned that any person, entity or "group" (as defined in
Section 13(d)(3) of the Exchange Act, other than Parent or its affiliates
or subsidiaries, or any group of which any of such persons or entities is a
member, or any party to the Stockholders Agreement), shall have acquired
beneficial ownership (determined pursuant to Rule 13d-3 promulgated under
the Exchange Act) of more than 20% of any class or series of capital stock
of the Company (including, without limitation, the Shares), through the
acquisition of stock, the formation of a group or otherwise, or shall have
been granted an option, right or warrant (conditional or otherwise) to
acquire beneficial ownership of more than 20% of any class or series of
capital stock of the Company (including, without limitation, the Shares).
The foregoing conditions are for the sole benefit of Purchaser and its
affiliates and may be asserted by Purchaser regardless of the circumstances
(including, without limitation, any action or inaction by Purchaser or any of
its affiliates) giving rise to any such condition or may be waived by Purchaser,
in whole or in part, from time to time in its sole discretion, except as
otherwise provided in the Merger Agreement. The failure by 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 and may be asserted
at any time and from time to time. Any determination by Purchaser concerning any
of the events described above shall be final and binding.
15. CERTAIN LEGAL MATTERS
Except as described in this Section 15, based on a review of publicly
available filings made by the Company with the Commission and other publicly
available information concerning the Company, but without any independent
investigation thereof, neither Purchaser nor Parent is aware of any license or
regulatory permit that appears to be material to the business of the Company and
its subsidiaries, taken as a whole, that might be adversely affected by
Purchaser's acquisition of Shares as contemplated herein or of any approval or
other action by any Governmental Authority that would be required for the
acquisition or ownership of Shares by Purchaser as contemplated herein. Should
any such approval or other action be required, Purchaser and Parent currently
contemplate that such approval or other action will be sought, except as
described below under "State Takeover Laws." While, except as otherwise
expressly described in this Section 15, Purchaser does not presently intend to
delay the acceptance for payment of or payment for Shares tendered pursuant to
the Offer pending the outcome of any such matter, there can be no assurance that
any such approval or other action, if needed, would be obtained or would be
obtained without substantial conditions or that failure to obtain any such
approval or other action might not result in consequences adverse to the
Company's business or that certain parts of the Company's business might not
have to be disposed of if such approvals were not obtained or such other actions
were not taken or in order to obtain any such approval or other action. If
certain types of adverse action are taken with respect to the matters discussed
below, Purchaser could decline to accept for payment or pay for any Shares
tendered. See Section 14 above for certain conditions to the Offer.
State Takeover Laws. A number of states throughout the United States have
enacted takeover statutes that purport, in varying degrees, to be applicable to
attempts to acquire securities of corporations that are incorporated or have
assets, stockholders, executive offices or places of business in such states. In
Edgar v. MITE Corp., the Supreme Court of the United States held that the
Illinois Business Takeover Act, which involved state securities laws, that made
the takeover of certain corporations more difficult, imposed a substantial
burden on interstate commerce and therefore was unconstitutional. In CTS Corp.
v. Dynamics Corp. of America, however, the
34
<PAGE> 35
Supreme Court of the United States held that a state may, as a matter of
corporate law and, in particular, those laws concerning corporate governance,
constitutionally disqualify a potential acquiror from voting on the affairs of a
target corporation without prior approval of the remaining stockholders,
provided that such laws were applicable only under certain conditions.
Section 203 of the DGCL limits the ability of a Delaware corporation to
engage in business combinations with "interested stockholders" (defined as any
beneficial owner of 15% or more of the outstanding voting stock of the
corporation) unless, among other things, the corporation's board of directors
has given its prior approval to either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder." As indicated above in Section 12, the Company, pursuant to a
resolution of the Board, has rendered Section 203 of the DGCL inapplicable to
the Offer and the Merger.
Based on information supplied by the Company and the Company's
representations in the Merger Agreement, Purchaser does not believe that any
state takeover statutes apply to the Offer or the Merger. Neither Purchaser nor
Parent has currently complied with any state takeover statute or regulation.
Purchaser reserves the right to challenge the applicability or validity of any
state law purportedly applicable to the Offer or the Merger and nothing in this
Offer to Purchase or any action taken in connection with the Offer or the Merger
is intended as a waiver of such right. If it is asserted that any state takeover
statute is applicable to the Offer or the Merger and an appropriate court does
not determine that it is inapplicable or invalid as applied to the Offer or the
Merger, Purchaser might be required to file certain information with, or to
receive approvals from, the relevant state authorities, and Purchaser might be
unable to accept for payment or pay for Shares tendered pursuant to the Offer,
or be delayed in consummating the Offer or the Merger. In such case, Purchaser
may not be obligated to accept for payment or pay for any Shares tendered
pursuant to the Offer.
Antitrust. Under the provisions of the HSR Act applicable to the Offer, the
purchase of Shares pursuant to the Offer may be consummated following the
expiration of a 15-calendar-day waiting period following the filing by Parent of
a Pre-Merger Notification and Report Form with respect to the Offer, unless
Parent receives a request for additional information or documentary material
from the Antitrust Division of the United States Department of Justice (the
"Antitrust Division") or the United States Federal Trade Commission ("FTC") or
unless early termination of the waiting period is granted. Parent expects to
file a Pre-Merger Notification and Report Form with respect to the Offer as soon
as practicable following commencement of the Offer. If, within the initial 15-
day waiting period, either the Antitrust Division or the FTC requests additional
information or documentary material from Parent concerning the Offer, the
waiting period will be extended and will expire at 11:59 p.m., New York City
time, on the tenth calendar day after the date of substantial compliance by
Parent with such request. Only one extension of the waiting period pursuant to a
request for additional information is authorized by the HSR Act. Thereafter,
such waiting period may be extended only by court order or with the consent of
Parent. In practice, complying with a request for additional information or
documentary material can take a significant amount of time. In addition, if the
Antitrust Division or the FTC raises substantive issues in connection with a
proposed transaction, the parties frequently engage in negotiations with the
relevant governmental agency concerning possible means of addressing those
issues and may agree to delay consummation of the transaction while such
negotiations continue. Moreover, the Merger Agreement generally provides that
the Offer may be extended for an aggregate period of not more than 60 days in
the event that any condition to the Offer is not satisfied.
The FTC and the Antitrust Division frequently scrutinize the legality under
the antitrust laws of transactions such as Purchaser's proposed acquisition of
the Company. At any time before or after Purchaser's purchase of Shares pursuant
to the Offer, the Antitrust Division or the FTC could take such action under the
antitrust laws as it deems necessary or desirable in the public interest,
including seeking to enjoin the purchase of Shares pursuant to the Offer or the
consummation of the Merger or seeking the divestiture of Shares acquired by
Purchaser or the divestiture of substantial assets of Parent or its
subsidiaries, or the Company or its subsidiaries. Private parties may also bring
legal action under certain circumstances. There can be no assurance that a
challenge to the Offer on antitrust grounds will not be made or, if such a
challenge is made, of the result thereof.
35
<PAGE> 36
In addition to the foregoing, certain filings, notices, and/or approvals
may be required under Canadian antitrust laws, including the Competition Act and
the Investment Canada Act. Parent and Purchaser intend to comply with all
applicable requirements under such laws, if any.
16. FEES AND EXPENSES
HM2 has provided certain financial advisory services to Parent in
connection with the proposed acquisition of the Company. Parent has agreed to
pay HM2 a fee of $406,000, which fee is payable upon the consummation of the
Offer. In addition, Parent has agreed to reimburse HM2 for all out-of-pocket
expenses incurred by HM2, including the reasonable fees of its counsel, and to
indemnify HM2 and certain related persons against certain liabilities and
expenses, including certain liabilities under the federal securities laws.
Parent and Purchaser have retained CSFB to act as the Dealer Manager in
connection with the Offer. CSFB will receive a fee in the amount of $100,000 for
its services as the Dealer Manager, will be reimbursed for certain reasonable
out-of-pocket expenses and will be indemnified against certain liabilities and
expenses in connection therewith, including certain liabilities under federal
securities laws.
Parent and Purchaser have retained MacKenzie Partners, Inc. to act as the
Information Agent and IBJ Schroder Bank & Trust Company to act as the Depositary
in connection with the Offer. The Information Agent and the Depositary will
receive reasonable and customary compensation for their services, will be
reimbursed for certain reasonable out-of-pocket expenses and will be indemnified
against certain liabilities and expenses in connection therewith, including
certain liabilities under the federal securities laws.
Except as set forth above, Purchaser will not pay any fees or commissions
to any broker or dealer or other person for soliciting tenders of Shares
pursuant to the Offer. Brokers, dealers, commercial banks and trust companies
will be reimbursed by Purchaser for customary mailing and handling expenses
incurred by them in forwarding the offering materials to their customers.
17. MISCELLANEOUS
The Offer is not being made to (nor will tenders be accepted from or on
behalf of) holders of Shares residing in any jurisdiction in which the making of
the Offer or the acceptance thereof would not be in compliance with the
securities, blue sky or other laws of such jurisdiction. However, the Purchaser
may, in its discretion, take such action as it may deem necessary to make the
Offer in any jurisdiction and extend the Offer to holders of Shares in such
jurisdiction. In those jurisdictions where securities, blue sky or other laws
require the Offer to be made by a licensed broker or dealer, the Offer shall be
deemed to be made on behalf of the Purchaser by CSFB or one or more registered
brokers or dealers that are licensed under the laws of such jurisdictions.
Purchaser has filed with the Commission the Schedule 14D-1 pursuant to Rule
14d-1 under the Exchange Act containing certain additional information with
respect to the Offer. Such Schedule and any amendments thereto, including
exhibits, may be examined and copies may be obtained from the principal office
of the Commission in the manner set forth in Section 8 above (except that they
will not be available at the regional offices of the Commission).
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ON BEHALF OF PURCHASER NOT CONTAINED IN THIS OFFER TO PURCHASE OR
IN THE LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
HC ACQUISITION CORP.
HEDSTROM CORPORATION
April 17, 1997
36
<PAGE> 37
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF HOLDINGS, PARENT AND PURCHASER
A. DIRECTORS AND EXECUTIVE OFFICERS OF HOLDINGS
The following table sets forth the name, present principal occupation or
employment and material occupation, positions, offices or employment for the
past five years of each director and executive officer of Parent. Unless
otherwise indicated below, the address of each director and officer is
Cherrington Corporate Center, 300 Corporate Center Drive, Suite 100, Coraopolis,
Pennsylvania 15108 and each such person is a citizen of the United States.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION
NAME AND OR EMPLOYMENT AND FIVE-YEAR
BUSINESS ADDRESS EMPLOYMENT HISTORY
---------------- ----------------------------
<S> <C>
John R. Muse................................ Chairman of the Board, Holdings
200 Crescent Court (1995-present); Managing Director and
Suite 1600 Principal, Hicks Muse (1989-present)
Dallas, Texas 75201
Arnold E. Ditri............................. Director and President, Holdings
(1991-present); Director and President,
Parent (1995-present); Chairman of the
Board, Parent (1991-1995)
Robert H. Elman............................. Director, Holdings (1995-present); Chairman
2701 Industrial Drive of the Board; DESA International, Inc.
Bowling Green, Kentucky 42101 (1985-present)
Alan B. Menkes.............................. Director and Vice President, Holdings (1995-
1325 Avenue of the Americas present); Managing Director and Principal,
25th Floor Hicks Muse (April 1996-present); Vice
New York, New York 10019 President, Hicks Muse (1992-March 1996);
Vice President, The Carlyle Group
(1988-1992)
David F. Crowley............................ Vice President and Chief Financial Officer,
Holdings (1994-present); Vice President and
Chief Financial Officer, Lineal Group, Inc.
(1992-1994); Chief Financial Officer,
Everlock Fastening Systems, Inc.,
(1986-1992)
</TABLE>
I-1
<PAGE> 38
SCHEDULE I
B. DIRECTORS AND EXECUTIVE OFFICERS OF PARENT
The following table sets forth the name, present principal occupation or
employment and material occupation, positions, offices or employment for the
past five years of each director and executive officer of Parent. Unless
otherwise indicated below, the address of each director and officer is
Cherrington Corporate Center, 300 Corporate Center Drive, Suite 100, Coraopolis,
Pennsylvania 15108 and each such person is a citizen of the United States.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION
NAME AND OR EMPLOYMENT AND FIVE-YEAR
BUSINESS ADDRESS EMPLOYMENT HISTORY
---------------- ----------------------------
<S> <C>
John R. Muse................................ Chairman of the Board, Parent
200 Crescent Court (1995-present); Managing Director and
Suite 1600 Principal, Hicks Muse (1989-present)
Dallas, Texas 75201
Arnold E. Ditri............................. Director and President, Parent
(1995-present); Chairman of Board, Parent
(1991-1995); Director and President,
Holdings (1991-present)
Robert H. Elman............................. Director, Parent (1995-present); Chairman of
2701 Industrial Drive the Board, DESA International Inc.
Bowling Green, Kentucky 42101 (1985-present)
Alan B. Menkes.............................. Director and Vice President, Parent
1325 Avenue of the Americas (1995-present); Managing Director and
25th Floor Principal, Hicks Muse (April 1996-present);
New York, New York 10019 The Carlyle Group (1988- 1992)
John D. Dellos.............................. Executive Vice President, Operations, Parent
(1994-present); Senior Vice President of
Manufacturing, PPM Cranes (1990-1994)
Alfred C. Carosi............................ Executive Vice President, Sales, Parent
(1996-present); Vice President -- Marketing,
Very Fine Products, (1995-1996); Senior Vice
President -- Marketing, Parker Bros.
division of Hasbro (1991-1995)
Alastair McKelvie........................... Director and Executive Vice President,
Parent (1991-present)
David F. Crowley............................ Vice President and Chief Financial Officer,
Parent (1994-present); Vice President and
Chief Financial Officer, Lineal Group, Inc.
(1992-1994); Chief Financial Officer,
Everlock Fastening Systems, Inc.,
(1986-1992)
</TABLE>
I-2
<PAGE> 39
SCHEDULE I
C. DIRECTORS AND EXECUTIVE OFFICERS OF PURCHASER
The following table sets forth the name, business address, present
principal occupation or employment and material occupations, positions, offices
or employment for the past five years of each director and executive officer of
Purchaser. Unless otherwise indicated below, the address of each director and
officer is: 1325 Avenue of the Americas, 25th Floor, New York, New York 10019
and each such person is a citizen of the United States.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION
NAME AND OR EMPLOYMENT AND FIVE-YEAR
BUSINESS ADDRESS EMPLOYMENT HISTORY
---------------- ----------------------------
<S> <C>
Alan B. Menkes.............................. Director, President and Secretary, Holdings
(April 9, 1997-present); Managing Director
and Principal, Hicks Muse (April
1996-present); Vice President, Hicks Muse
(1992-April 1996); The Carlyle Group
(1988-1992).
Andrew S. Rosen............................. Vice President and Secretary, Holdings
(April 9, 1997-present); Vice President,
Hicks Muse (January 1997-present);
Associate, Hicks Muse (August 1993-December
1996); Associate, The Carlyle Group (January
1992-June 1993).
</TABLE>
I-3
<PAGE> 40
Facsimile copies of the Letter of Transmittal, properly completed and duly
signed, will be accepted. The Letter of Transmittal, certificates for Shares and
any other required documents should be sent or delivered by each Stockholder or
his broker, dealer, commercial bank, trust company or other nominee to the
Depositary, at one of the addresses set forth below:
The Depositary for the Offer is:
IBJ SCHRODER BANK & TRUST COMPANY
<TABLE>
<S> <C> <C>
By Mail: By Facsimile Transmission: By Hand/Overnight Delivery:
IBJ Schroder Bank & Trust Company (212) 858-2611 IBJ Schroder Bank & Trust Company
P.O. Box 84 One State Street
Bowling Green Station To Confirm New York, New York 10004
New York, New York 10274-0084 Facsimile Transmissions Call Attn: Securities Processing
Attn: Reorganization Operations Window, Subcellar One,
Department (212) 858-2103 (SC-1)
</TABLE>
Any questions and request for assistance or additional copies of this Offer
to Purchase, the Letter of Transmittal and the Notice of Guaranteed Delivery may
be directed to the Information Agent at the telephone numbers and addresses
below. You may also contact your local broker, dealer, commercial bank or trust
company for assistance concerning the Offer.
The Information Agent for the Offer is:
[MACKENZIE LOGO]
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (Call Collect)
or
Call Toll-Free (800) 322-2885
The Dealer Manager for the Offer is:
CREDIT SUISSE FIRST BOSTON
Eleven Madison Avenue
New York, New York 10010-3629
Call Toll-Free (888) 671-4243
<PAGE> 1
LETTER OF TRANSMITTAL
TO TENDER SHARES OF COMMON STOCK
OF
ERO, INC.
PURSUANT TO THE OFFER TO PURCHASE
DATED APRIL 17, 1997
BY
HC ACQUISITION CORP.
A WHOLLY OWNED SUBSIDIARY OF
HEDSTROM CORPORATION
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON MONDAY, JUNE 2, 1997, UNLESS THE OFFER IS EXTENDED.
The Depositary for the Offer is:
IBJ SCHRODER BANK & TRUST COMPANY
<TABLE>
<S> <C> <C>
By Mail: By Facsimile Transmission: By Hand/Overnight Delivery:
IBJ Schroder Bank & Trust Company (212) 858-2611 IBJ Schroder Bank & Trust Company
P.O. Box 84 One State Street
Bowling Green Station To Confirm New York, New York 10004
New York, New York 10274-0084 Facsimile Transmissions Call Attn: Securities Processing
Attn: Reorganization Operations Window, Subcellar One,
Department (212) 858-2103 (SC-1)
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE TRANSMISSION TO A
NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. YOU
MUST SIGN THIS LETTER OF TRANSMITTAL IN THE APPROPRIATE SPACE THEREFOR PROVIDED
BELOW AND COMPLETE THE SUBSTITUTE FORM W-9 SET FORTH BELOW.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF SHARES TENDERED
- ----------------------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) SHARES NUMBER OF SHARES NUMBER OF
(PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S) CERTIFICATE REPRESENTED BY SHARES
APPEAR(S) ON THE CERTIFICATE(S) NUMBER(S)(1) CERTIFICATE(S)(1) TENDERED(2)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
------------------------------------------------------
------------------------------------------------------
AFFIX LABEL HERE
------------------------------------------------------
------------------------------------------------------
======================================================
Total Shares
- ----------------------------------------------------------------------------------------------------------------------
(1) Need not be completed by holders of Shares delivering Shares by Book-Entry Transfer.
(2) Unless otherwise indicated, it will be assumed that all Shares represented by Certificates delivered to the
Depositary are being tendered. See Instruction 4.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 2
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
This Letter of Transmittal is to be completed by holders of Shares (as
defined below) of ERO, Inc. ("Stockholders") if certificates evidencing Shares
("Certificates") are to be forwarded herewith or if delivery of Shares is to be
made by book-entry transfer to an account maintained by IBJ Schroder Bank &
Trust Company (the "Depositary") at The Depository Trust Company ("DTC") or the
Philadelphia Depository Trust Company ("PDTC") (each a "Book-Entry Transfer
Facility") pursuant to the procedures set forth under "Procedure for Tendering
Shares" in the Offer to Purchase (as defined below).
Stockholders whose Certificates are not immediately available or who cannot
deliver either their Certificates for, or a Book-Entry Confirmation (as defined
under "Procedure for Tendering Shares -- Book-Entry Transfer" in the Offer to
Purchase) with respect to, their Shares and all other required documents to the
Depositary prior to the Expiration Date (as defined under "Terms of the Offer"
in the Offer to Purchase) may tender their Shares according to the guaranteed
delivery procedure set forth under "Procedure for Tendering Shares -- Guaranteed
Delivery" in the Offer to Purchase. See Instruction 2 hereof. Delivery of
documents to a Book-Entry Transfer Facility does not constitute delivery to the
Depositary.
[ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO AN ACCOUNT MAINTAINED BY THE DEPOSITARY WITH A BOOK-ENTRY TRANSFER
FACILITY, AND COMPLETE THE FOLLOWING (ONLY PARTICIPANTS IN A BOOK-ENTRY
TRANSFER FACILITY MAY DELIVER SHARES BY BOOK-ENTRY TRANSFER).
Name of Tendering Institution:
-----------------------------------------------
Check Box of Book-Entry Transfer Facility:
[ ] DTC [ ] PDTC
Account Number:
--------------------------------------------------------------
Transaction Code Number:
-----------------------------------------------------
[ ] CHECK HERE IF SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING.
PLEASE ENCLOSE A PHOTOCOPY OF SUCH NOTICE OF GUARANTEED DELIVERY.
Name(s) of Registered Holder(s):
---------------------------------------------
Window Ticket Number (if any):
-----------------------------------------------
Date of Execution of Notice of Guaranteed Delivery:
--------------------------
Name of Institution that Guaranteed Delivery:
--------------------------------
------------------------------------------------------------------------------
If Delivered by Book-Entry Transfer, Check Box of Applicable Book-Entry
Transfer Facility:
[ ] DTC [ ] PDTC
Account Number:
--------------------------------------------------------------
Transaction Code Number:
-----------------------------------------------------
2
<PAGE> 3
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if Certificates for Shares not tendered or not accepted
for payment and/or the check for the purchase price of Shares accepted for
payment are to be issued in the name of someone other than the undersigned, or
if Shares delivered by book-entry transfer that are not accepted for payment are
to be returned by credit to an account maintained at a Book-Entry Transfer
Facility, other than to the account indicated above.
Issue (check appropriate box(es)):
[ ] Check to:
[ ] Certificate to:
Name:
---------------------------------------------------------------------------
(Please Type or Print)
Address:
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Include Zip Code)
- --------------------------------------------------------------------------------
(Tax Identification or Social Security No.)
(See Substitute Form W-9)
Credit unpurchased Shares delivered by book-entry transfer to the Book-Entry
Transfer Facility account set forth below:
[ ] DTC [ ] PDTC
(check one)
- --------------------------------------------------------------------------------
(DTC/PDTC Account Number)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if Certificates for Shares not tendered or not accepted
for payment and/or the check for the purchase price of Shares accepted for
payment are to be sent to someone other than the undersigned or to the
undersigned at an address other than that shown above.
Mail (check appropriate box(es)):
[ ] Check to:
[ ] Certificate to:
Name:
---------------------------------------------------------------------------
(Please Type or Print)
Address:
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Include Zip Code)
- --------------------------------------------------------------------------------
(Tax Identification or Social Security No.)
NOTE: SIGNATURE(S) MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
The undersigned hereby tenders to HC Acquisition Corp., a Delaware
corporation ("Purchaser") and wholly owned subsidiary of Hedstrom Corporation, a
Delaware corporation, the above-described shares of common stock, $.01 par value
per share (the "Shares"), of ERO, Inc., a Delaware corporation (the "Company"),
at a purchase price of $11.25 per Share, net to the seller in cash, upon the
terms and subject to the conditions set forth in the Offer to Purchase, dated
April 17, 1997 (the "Offer to Purchase"), receipt of which is hereby
acknowledged, and in this Letter of Transmittal (which, together with any
amendments or supplements hereto or thereto, collectively constitute the
"Offer").
Subject to, and effective upon, acceptance for payment of the Shares
tendered herewith in accordance with the terms and subject to the conditions of
the Offer, the undersigned hereby sells, assigns and transfers to, or upon the
order of, Purchaser all right, title and interest in and to all of the Shares
that are being tendered hereby
3
<PAGE> 4
and any and all other Shares or other securities issued or issuable in respect
of such Shares on or after April 17, 1997 (a "Distribution") and irrevocably
constitutes and appoints the Depositary the true and lawful agent and
attorney-in-fact of the undersigned with respect to such Shares (and any
Distributions), with full power of substitution (such power of attorney being
deemed to be an irrevocable power coupled with an interest), to (i) deliver
certificates (the "Certificates") evidencing such Shares (and any
Distributions), or transfer ownership of such Shares (and any Distributions) on
the account books maintained by a Book-Entry Transfer Facility together, in any
such case, with all accompanying evidences of transfer and authenticity to, or
upon the order of, Purchaser upon receipt by the Depositary, as the
undersigned's agent, of the purchase price with respect to such Shares, (ii)
present such Shares (and any Distributions) for transfer on the books of the
Company and (iii) receive all benefits and otherwise exercise all rights of
beneficial ownership of such Shares (and any Distributions), all in accordance
with the terms and subject to the Offer.
The undersigned hereby irrevocably appoints each designee of Purchaser as
the attorney-in-fact and proxy of the undersigned, each with full power of
substitution, to the full extent of the undersigned's rights with respect to all
Shares (and any Distributions) tendered hereby, including, without limitation,
the right to vote such Shares (and any Distributions) in such manner as each
such attorney and proxy or his substitute shall, in his sole discretion, deem
proper. All such powers of attorney and proxies shall be considered coupled with
an interest in the Shares tendered herewith and therefore be irrevocable. Such
appointment will be effective when, and only to the extent that, Purchaser
accepts such Shares for payment. Upon such acceptance for payment, all prior
powers of attorney and proxies given by the undersigned with respect to such
Shares (and any Distributions) will be revoked, without further action, and no
subsequent powers of attorney's and proxies may be given with respect thereto
(and, if given, will be deemed ineffective). The designees of Purchaser will,
with respect to the Shares (and any Distributions) for which such appointment is
effective, be empowered to exercise all voting and other rights of the
undersigned with respect to such Shares (and any Distributions) as they in their
sole discretion may deem proper, including, without limitation, in respect of
any annual or special meeting of the stockholders of the Company, or any
adjournment or postponement thereof, in connection with any action by written
consent in lieu of a meeting or otherwise. The undersigned acknowledges that
Purchaser reserves the absolute right to require that, in order for Shares to be
deemed validly tendered, immediately upon the acceptance for payment of such
Shares, Purchaser or its designees must be able to exercise full voting rights
with respect to such Shares (and any Distributions), including, without
limitation, the right to vote at any meeting of stockholders of the Company then
scheduled.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Shares (and
any Distributions) tendered hereby and that when such Shares (and any
Distributions) are accepted for payment and paid for by Purchaser, Purchaser
will acquire good, marketable and unencumbered title thereto, free and clear of
all liens, restrictions, charges and encumbrances, and that the Shares (and any
Distributions) tendered hereby will not be subject to any adverse claim. The
undersigned, upon request, will execute and deliver any additional documents
deemed by the Depositary or Purchaser to be necessary or desirable to complete
the sale, assignment and transfer of Shares (and any Distributions) tendered
hereby. In addition, the undersigned shall promptly remit and transfer to the
Depositary for the account of Purchaser any and all Distributions issued to the
undersigned on or after April 17, 1997 in respect of the Shares tendered hereby,
accompanied by appropriate documentation of transfer, and pending such
remittance and transfer or appropriate assurance thereof, Purchaser shall be
entitled to all rights and privileges as owner of any such Distributions and may
withhold the entire purchase price or deduct from the purchase price the amount
of value thereof, as determined by Purchaser in its sole discretion.
All authority conferred or agreed to be conferred in this Letter of
Transmittal shall be binding upon the successors, assigns, heirs, executors,
administrators and legal representatives of the undersigned and shall not be
affected by, and shall survive, the death or incapacity of the undersigned.
Except as stated in the Offer to Purchase, this tender is irrevocable.
The undersigned understands that the valid tender of Shares pursuant to any
one of the procedures described in "Procedure for Tendering Shares" in the Offer
to Purchase and in the instructions hereto will constitute a binding agreement
between the undersigned and Purchaser with respect to such Shares upon the terms
and subject to the conditions of the Offer. The undersigned recognizes that,
under certain circumstances
4
<PAGE> 5
set forth in the Offer to Purchase, Purchaser may not be required to accept for
payment any of the Shares tendered hereby or may accept for payment fewer than
all of the Shares tendered hereby.
Unless otherwise indicated herein under "Special Payment Instructions,"
please issue the check for the purchase price and/or return any Certificates
evidencing Shares not tendered or not accepted for payment in the name(s) of the
registered holder(s) appearing under "Description of Shares Tendered."
Similarly, unless otherwise indicated under "Special Delivery Instructions,"
please mail the check for the purchase price and/or return any Certificates
evidencing Shares not tendered or not accepted for payment (and accompanying
documents, as appropriate) to the address(es) of the registered holder(s)
appearing under "Description of Shares Tendered." In the event that both the
"Special Payment Instructions" and the "Special Delivery Instructions" are
completed, please issue the check for the purchase price and/or return any such
Certificates evidencing Shares not tendered or not accepted for payment (and
accompanying documents, as appropriate) to, the person(s) so indicated. Unless
otherwise indicated herein under "Special Payment Instructions," in the case of
a book-entry delivery of Shares, please credit the account maintained at the
Book-Entry Transfer Facility indicated above with respect to any Shares not
accepted for payment. The undersigned recognizes that Purchaser has no
obligation pursuant to the "Special Payment Instructions" to transfer any Shares
from the name of the registered holder thereof if Purchaser does not accept for
payment any of the Shares tendered hereby.
5
<PAGE> 6
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. GUARANTEE OF SIGNATURES. Except as otherwise provided below, signatures
on this Letter of Transmittal must be guaranteed by a financial institution
(including most commercial banks, savings and loan associations and brokerage
houses) that is a participant in the Security Transfer Agents Medallion Program,
the New York Stock Exchange Medallion Signature Guarantee Program or the Stock
Exchange Medallion Program (an "Eligible Institution"). Signatures on this
Letter of Transmittal need not be guaranteed (a) if this Letter of Transmittal
is signed by the registered holders (which term, for purposes of this section,
includes any participant in any of the Book-Entry Transfer Facilities' systems
whose name appears on a security position listing as the owner of the Shares) or
Shares tendered herewith and such registered holder has not completed the box
entitled "Special Payment Instructions" or the box entitled "Special Delivery
Instructions" on this Letter of Transmittal or (b) if such Shares are tendered
herewith for the account of an Eligible Institution. See Instruction 5. If the
Certificates are registered in the name of a person other than the signer of
this Letter of Transmittal or if Certificates evidencing Shares not accepted for
payment or not tendered are to be issued to a person other than the registered
holder, then the tendered Certificates must be endorsed or accompanied by duly
executed stock powers, in either case signed exactly as the name or names of the
registered owner or owners appear on the Certificates, with the signatures on
the Certificates or stock powers guaranteed by an Eligible Institution as
provided herein. See Instruction 5.
2. REQUIREMENTS OF TENDER. This Letter of Transmittal is to be completed by
Stockholders if Certificates are to be forwarded herewith or if delivery of
Shares is to be made pursuant to the procedures for book-entry transfer set
forth under "Procedure for Tendering Shares -- Book-Entry Transfer" in the Offer
to Purchase. For a Stockholder to validly tender Shares pursuant to the Offer,
either (a) a properly completed and duly executed Letter of Transmittal (or a
manually signed facsimile thereof), with all required signature guarantees and
all other documents required thereby, must be received by the Depositary at one
of its addresses set forth above prior to the Expiration Date (as defined in the
Offer to Purchase) and either (i) Certificates representing such tendered Shares
must be received by the Depositary at one of such addresses prior to the
Expiration Date or (ii) such Shares must he delivered pursuant to the procedures
for book-entry transfer set forth under "Procedure for Tendering
Shares -- Book-Entry Transfer" in the Offer to Purchase and a Book-Entry
Confirmation must be received by the Depositary prior to the Expiration Date or
(b) the tendering Stockholder must comply with the guaranteed delivery
procedures set forth below and under "Procedure for Tendering Shares --
Guaranteed Delivery" in the Offer to Purchase.
Stockholders whose Certificates are not immediately available or who cannot
deliver their Certificates and all other required documents to the Depositary or
complete the procedures for book-entry transfer prior to the Expiration Date may
tender their Shares by properly completing and duly executing a Notice of
Guaranteed Delivery pursuant to the guaranteed delivery procedures set forth in
"Procedure for Tendering Shares -- Guaranteed Delivery" in the Offer to
Purchase. Pursuant to such procedures (i) such tender must he made by or through
an Eligible Institution, (ii) a properly completed and duly executed Notice of
Guaranteed Delivery, substantially in the form made available by Purchaser, must
be received by the Depositary prior to the Expiration Date and (iii) the
Certificates representing all tendered Shares in proper form for transfer, or a
Book-Entry Confirmation with respect to all tendered Shares, together with a
properly completed and duly executed Letter of Transmittal (or a manually-signed
facsimile thereof), with all required signature guarantees and all other
documents required by this Letter of Transmittal, must be received by the
Depositary by 5:00 p.m., New York City time, on the third business day after the
date of execution of such Notice of Guaranteed Delivery. If Certificates are
forwarded separately to the Depositary, a properly completed and duly executed
Letter of Transmittal (or a manually signed facsimile thereof) must accompany
each such delivery.
THE METHOD OF DELIVERY OF CERTIFICATES, THIS LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER
FACILITY, IS AT THE OPTION AND SOLE RISK OF THE TENDERING STOCKHOLDER AND THE
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF
DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY
INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
ENSURE TIMELY DELIVERY.
6
<PAGE> 7
No alternative, conditional or contingent tenders will be accepted and no
fractional Shares will be purchased. All tendering Stockholders, by execution of
this Letter of Transmittal (or a facsimile thereof), waive any right to receive
any notice of the acceptance of their Shares for payment.
3. INADEQUATE SPACE. If the space provided herein is inadequate, the
information required under "Description of Shares Tendered" should be listed on
a separate signed schedule attached hereto.
4. PARTIAL TENDERS. If fewer than all of the Shares represented by any
Certificates delivered to the Depositary herewith are to he tendered hereby,
fill in the number of Shares which are to be tendered in the box entitled
"Number of Shares Tendered." In such case, a new Certificate for the remainder
of the Shares that were evidenced by your old Certificate(s) will be sent,
without expense, to the person(s) signing this Letter of Transmittal, unless
otherwise provided in the box entitled "Special Payment Instructions" or the box
entitled "Special Delivery Instructions" in this Letter of Transmittal, as soon
as practicable after the Expiration Date. All Shares represented by
Certificate(s) delivered to the Depositary will be deemed to have been tendered
unless otherwise indicated.
5. SIGNATURES ON LETTER OF TRANSMITTAL, INSTRUMENTS OF TRANSFER AND
ENDORSEMENTS. If this Letter of Transmittal is signed by the registered
holder(s) of the Shares tendered hereby, the signature(s) must correspond
exactly with the name(s) as written on the face of the Certificate(s) without
alteration, enlargement or any change whatsoever.
If any of the Shares tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If any of the tendered Shares are registered in different names on several
Certificates, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal as there are different registrations of Certificates.
If this Letter of Transmittal or any Certificates or instruments of
transfer are signed by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation or other person acting in a fiduciary
or representative capacity, such person should so indicate when signing, and
proper evidence satisfactory to Purchaser of each person's authority to so act
must be submitted.
If this Letter of Transmittal is signed by the registered holder(s) of the
Shares listed and transmitted hereby, NO ENDORSEMENTS OF CERTIFICATES OR
SEPARATE INSTRUMENTS OF TRANSFER ARE REQUIRED UNLESS CERTIFICATES NOT TENDERED
OR NOT PURCHASED ARE TO BE ISSUED OR RETURNED TO A PERSON OTHER THAN THE
REGISTERED HOLDER(S). Signatures on such Certificates or instruments of transfer
must be guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Shares evidenced by the Certificate(s) listed and
transmitted hereby, the Certificate(s) must be endorsed or accompanied by
appropriate instruments of transfer, in either case signed exactly as the
name(s) of the registered holder(s) appear on the Certificate(s). Signatures on
such Certificate(s) or instruments of transfer must be guaranteed by an Eligible
Institution.
6. TRANSFER TAXES. Except as set forth in this Instruction 6, Purchaser
will pay or cause to be paid any transfer taxes with respect to the transfer and
sale of Shares to it or its order pursuant to the Offer. If, however, payment of
the purchase price is to be made to, or (in the circumstances permitted hereby)
if Certificates for Shares not tendered or not purchased are to be registered in
the name of, any person other than the registered holder(s), or if tendered
Certificates are registered in the name of any person other than the person(s)
signing this Letter of Transmittal, the amount of any transfer taxes (whether
imposed on the registered holder(s) or such person) payable on account of the
transfer to such person will be deducted from the purchase price unless
satisfactory evidence of the payment of such taxes or exemption therefrom is
submitted.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the Certificate(s) listed in this Letter of
Transmittal.
7
<PAGE> 8
7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If a check and/or
Certificates for unpurchased Shares are to be issued in the name of a person
other than the signer of this Letter of Transmittal or if a check is to be sent
and/or such Certificates are to be returned to someone other than the signer of
this Letter of Transmittal or to an address other than that shown above, the
appropriate boxes on this Letter of Transmittal must be completed. If any
tendered Shares are not purchased for any reason and such Shares are delivered
by Book-Entry Transfer Facility, such shares will be credited to an account
maintained at the appropriate Book-Entry Transfer Facility.
8. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for
assistance may be directed to the Information Agent or the Dealer Manager at
their respective addresses or telephone numbers set forth below and requests for
additional copies of the Offer to Purchase, this Letter of Transmittal and the
Notice of Guaranteed Delivery may be directed to the Information Agent or
brokers, dealers, commercial banks and trust companies and such materials will
be furnished at Purchaser's expense.
9. WAIVER OF CONDITIONS. Subject to the Merger Agreement, the conditions of
the Offer may be waived by the Purchaser, in whole or in part, at any time or
from time to time, in the Purchaser's sole discretion.
10. BACKUP WITHHOLDING TAX. Except in the case of foreign persons, each
tendering Stockholder is required to provide the Depositary with a correct
Taxpayer Identification Number ("TIN") on Substitute Form W-9, which is provided
under "Important Tax Information" below, and to certify that such Stockholder is
not subject to backup withholding. Failure to provide the information on the
Substitute Form W-9 may subject the tendering Stockholder to 31% federal income
tax backup withholding on the payment of the purchase price for the Shares. The
tendering Stockholder should indicate in the box in Part I of the Substitute
Form W-9 if such stockholder has not been issued a TIN and has applied for a TIN
or intends to apply for a TIN in the near future. If the Stockholder has
indicated in the box in Part I that a TIN has been applied for and the
Depositary is not provided with a TIN by the time of payment, the Depositary
will withhold 31% of all payments of the purchase price, if any, made thereafter
pursuant to the Offer until a TIN is provided to the Depositary. A tendering
Stockholder who is a foreign person (i.e., who is not a citizen or resident of
the United States) should provide the Depositary with a completed Form W-8.
Please contact the Depositary, if necessary, in order to obtain a copy of Form
W-8.
11. LOST OR DESTROYED CERTIFICATES. If any Certificate(s) representing
Shares has been lost or destroyed, the holders should promptly notify the
Depositary, IBJ Schroder Bank & Trust Company, at (212) 858-2103. The holders
will then be instructed as to the procedure to be followed in order to replace
the Certificate(s). This Letter of Transmittal and related documents cannot be
processed until the procedures for replacing lost or destroyed Certificates have
been followed.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE THEREOF), PROPERLY
COMPLETED AND DULY EXECUTED, MUST BE RECEIVED BY THE DEPOSITARY (TOGETHER WITH
CERTIFICATES OR A BOOK-ENTRY CONFIRMATION FOR SHARES AND ALL OTHER REQUIRED
DOCUMENTS AND/OR SIGNATURES), OR A NOTICE OF GUARANTEED DELIVERY MUST BE
RECEIVED BY THE DEPOSITARY, PRIOR TO THE EXPIRATION DATE.
8
<PAGE> 9
IMPORTANT TAX INFORMATION
Under federal income tax law, a Stockholder whose tendered Shares are
accepted for payment is required to provide the Depositary (as payor) with such
stockholder's correct TIN on Substitute Form W-9 below. If such stockholder is
an individual, the TIN is such individual's social security number. If the
tendering Stockholder has not been issued a TIN and has applied for a number or
intends to apply for a number in the near future, such Stockholder should so
indicate on the Substitute Form W-9. See Instruction 10. If the Depositary is
not provided with the correct TIN, the Stockholder may be subject to a $50
penalty imposed by the Internal Revenue Service (the "IRS"). In addition,
payments that are made to such Stockholders with respect to Shares purchased
pursuant to the Offer may be subject to backup federal income tax withholding.
Certain Stockholders are not subject to these backup withholding and
reporting requirements. In order for a foreign person to qualify as an exempt
recipient, such Stockholder generally must submit a Form W-8. Form W-8 can be
obtained from the Depositary. See the enclosed Guidelines or Certification of
Taxpayer Identification Number on Substitute Form W-9 for additional
instructions. Other exempt recipients should complete Form W-9 in order to avoid
the possible imposition of backup withholding.
If backup withholding applies, the Depositary is required to withhold 31%
of any payments made to the Stockholder. Backup withholding is not an additional
tax. Rather, the tax liability of persons subject to backup withholding will be
reduced by the amount of tax withheld. If withholding results in an overpayment
of taxes, a refund may be obtained from the IRS.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup federal income tax withholding with respect to payment of
the purchase price for Shares purchased pursuant to the Offer, generally a
Stockholder must provide the Depositary with his correct TIN by completing the
Substitute Form W-9 below, certifying that the TIN provided on Substitute Form
W-9 is correct (or that such Stockholder is awaiting a TIN) and that (i) such
Stockholder is exempt from backup withholding or (ii) such Stockholder has not
been notified by the IRS that such Stockholder is subject to backup withholding
as a result of failure to report all interest or dividends or (iii) the IRS has
notified the Stockholder that such Stockholder is not longer subject to backup
withholding.
WHAT NUMBER TO GIVE THE DEPOSITARY
The Stockholder is required to give the Depositary the social security
number or employer identification number of the record holder of the Shares
tendered hereby. If the Shares are registered in more than one name or are not
in the name of the actual owner, consult the enclosed Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 for
additional guidance on which number to report.
9
<PAGE> 10
IMPORTANT
STOCKHOLDER: SIGN HERE AND COMPLETE SUBSTITUTE
FORM W-9 ON REVERSE
- --------------------------------------------------------------------------------
(Signature(s) of Stockholder(s)
Dated: , 1997
-------------------------------
(Must be signed by the registered holder(s) exactly as name(s) appears(s) on the
Certificate or on a security position listing or by person(s) authorized to
become registered holder(s) by Certificates and documents transmitted herewith.
If signature is by trustees, executors, administrators, guardians,
attorneys-in-fact, agents, officers of corporations or others acting in a
fiduciary or representative capacity, please provide the following information.
See Instruction 5.)
Name(s):
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please Type or Print)
Capacity (Full title):
----------------------------------------------------------
(See Instruction 5)
Address:
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Include Zip Code)
Area Codes and Telephone Numbers:
-----------------------------------------------
(Home)
-----------------------------------------------
(Business)
Taxpayer Identification or Social Security No.
----------------------------------
(Complete Substitution Form W-9 on
following page)
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS 1 AND 5)
- --------------------------------------------------------------------------------
Authorized Signature(s)
- --------------------------------------------------------------------------------
(Name)
- --------------------------------------------------------------------------------
(Name of Firm)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Address Including Zip Code)
- --------------------------------------------------------------------------------
10
<PAGE> 11
<TABLE>
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------------
PAYER'S NAME: IBJ SCHRODER BANK & TRUST COMPANY, AS DEPOSITARY
-------------------------------------------------------------------------------------------------------------------
SUBSTITUTE PLEASE PROVIDE YOUR TIN IN THE BOX AT PART I -- Social Security Number OR
FORM W-9 RIGHT AND CERTIFY BY SIGNING AND DATING Employer Identification Number
BELOW
DEPARTMENT OF THE ------------------------------------------ ------------------------------------------
TREASURY INTERNAL Name (If awaiting TIN, write "Applied For")
REVENUE SERVICE
------------------------------------------ ----------------------------------------
PAYER'S REQUEST FOR Business Name PART II -- For Payees exempt from backup
TAXPAYER IDENTIFICATION withholding, see the enclosed Guidelines
NUMBER (TIN) Please check appropriate box: for Certification of Taxpayer
Identification Number on Substitute Form
[ ] Individual/Sole Proprietor W-9, check the exempt box below, and
[ ] Corporation complete the Form W-9.
[ ] Partnership [ ] Other
------------------------------------------ Exempt [ ]
Address
------------------------------------------
City, State, Zip Code
- ------------------------------------------------------------------------------------------------------------------
CERTIFICATION. Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification Number (or I am waiting for a number to be
issued to me), and
(2) I am not subject to backup withholding either because (a) I am exempt from backup withholding, or (b) I have not
been notified by the Internal Revenue Service ("IRS") that I am subject to backup withholding as a result of a
failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to
backup withholding.
CERTIFICATION INSTRUCTIONS. You must cross out item (2) above if you have been notified by the IRS that you are
subject to backup withholding because of underreporting interest or dividends on your tax return. However, if after
being notified by the IRS that you were subject to backup withholding, you received another notification from the
IRS that you are no longer subject to backup withholding, do not cross out item (2). (Also see instructions in the
enclosed Guidelines).
-------------------------------------------------------------------------------------------------------------------
SIGNATURE: ______________________________________________ DATE:__________________________, 1997
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM W-9 MAY RESULT IN
BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE
OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL INSTRUCTIONS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU WROTE "APPLIED FOR" IN
PART I OF THE SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (1) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (2)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number by the time of payment, 31%
of all payments of the Offer Price made to me thereafter will be withheld until
I provide a number.
SIGNATURE: _____________________________ DATE:_____________, 1997
11
<PAGE> 12
The Information Agent for the Offer is:
[MACKENZIE LOGO]
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (call collect)
or
CALL TOLL-FREE (800) 322-2885
The Dealer Manager for the Offer is:
CREDIT SUISSE FIRST BOSTON
Eleven Madison Avenue
New York, New York 10010-3629
Telephone (888) 671-4243
<PAGE> 1
NOTICE OF GUARANTEED DELIVERY
for
TENDER OF SHARES OF COMMON STOCK
of
ERO, INC.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON MONDAY, JUNE 2, 1997, UNLESS THE OFFER IS EXTENDED.
HC Acquisition Corp., a Delaware corporation ("Purchaser") and wholly owned
subsidiary of Hedstrom Corporation, a Delaware corporation ("Parent"), has
offered to purchase all the outstanding shares of common stock, $.01 par value
per share ("Shares"), of ERO, Inc., a Delaware corporation (the "Company"), at a
purchase price of $11.25 per Share, net to the seller in cash, upon the terms
and subject to the conditions set forth in the Offer to Purchase, dated April
17, 1997 (the "Offer to Purchase"), and the related Letter of Transmittal
(which, together with any amendments or supplements thereto, collectively
constitute the "Offer").
This Notice of Guaranteed Delivery or one substantially equivalent hereto
must be used to accept the Offer if certificates representing the Shares (the
"Certificates") are not immediately available or the procedures for book-entry
transfer cannot be completed on a timely basis or time will not permit all
required documents to reach IBJ Schroder Bank & Trust Company (the "Depositary")
prior to the Expiration Date (as defined in the Offer to Purchase). This Notice
of Guaranteed Delivery may be delivered by hand or transmitted by facsimile
transmission or mailed to the Depositary. See "Procedure for Tendering
Shares -- Guaranteed Delivery" in the Offer to Purchase.
The Depositary for the Offer is:
IBJ SCHRODER BANK & TRUST COMPANY
<TABLE>
<S> <C> <C>
By Mail: By Facsimile Transmission: By Hand/Overnight Delivery:
IBJ Schroder Bank & Trust Company (212) 858-2611 IBJ Schroder Bank & Trust Company
P.O. Box 84 One State Street
Bowling Green Station To Confirm New York, New York 10004
New York, New York 10274-0084 Facsimile Transmissions Call Attn: Securities Processing
Attn: Reorganization Operations Window, Subcellar One,
Department (212) 858-2103 (SC-1)
</TABLE>
Delivery of this Notice of Guaranteed Delivery to an address other than as
set forth above or transmission of instructions via a facsimile transmission to
a number other than as set forth above will not constitute a valid delivery.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an "Eligible Institution" under the instructions thereto, such
signature guarantee must appear in the applicable space provided in the
signature box on the Letter of Transmittal.
The Eligible Institution that completes this form must communicate the
guarantee to the Depositary and must deliver the Letter of Transmittal and
certificates for Shares to the Depositary within the time period shown herein.
Failure to do so could result in a financial loss to such Eligible Institution.
THE GUARANTEE ON THE REVERSE SIDE MUST BE COMPLETED
<PAGE> 2
Ladies and Gentlemen:
The undersigned hereby tenders to HC Acquisition Corp., a Delaware
corporation ("Purchaser") and wholly owned subsidiary of Hedstrom Corporation, a
Delaware corporation, upon the terms and subject to the conditions set forth in
the Offer to Purchase, dated April 17, 1997 (the "Offer to Purchase"), and the
related Letter of Transmittal (which, together with any amendments or
supplements thereto, collectively constitute the "Offer"), receipt of each of
which is hereby acknowledged, the number of Shares indicated below pursuant to
the guaranteed delivery procedures set forth under "Procedure for Tendering
Shares -- Guaranteed Delivery" in the Offer to Purchase.
Number of Shares:
- --------------------------------------------------------------------------------
Certificate Nos. (if available):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Check ONE box if Shares will be tendered by
book-entry transfer:
[ ] The Depository Trust Company
[ ] Philadelphia Depository Trust Company
Account Number:
-----------------------------------------------------------------
Dated: , 1997
--------------------------------------------------------------------
Name(s) of Record Holder(s):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please type or Print)
Address(es):
--------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Zip Code)
Area Code and Tel. No.:
---------------------------------------------------------
Signature(s):
-------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE GUARANTEE SET FORTH BELOW MUST BE COMPLETED
GUARANTEE
(Not to be used for signature guarantee)
The undersigned, an Eligible Institution (as such term is defined under
"Procedure for Tendering Shares -- Signature Guarantee" in the Offer to
Purchase), hereby guarantees to deliver to the Depositary the Certificates
representing the Shares tendered hereby, in proper form for transfer, or a
Book-Entry Confirmation (as defined under "Procedure for Tendering
Shares -- Book-Entry Transfer" in the Offer to Purchase) with respect to such
Shares, in either case together with a properly completed and duly executed
Letter of Transmittal (or a manually signed facsimile thereof), with all
required signature guarantees and all other documents required by the Letter of
Transmittal, all by 5:00 p.m., New York City time, on the third business day
after the date hereof.
Name of Firm:
-------------------------------------------------------------------
Address:
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Zip Code)
Area Code and Tel. No.:
---------------------------------------------------------
- --------------------------------------------------------------------------------
(Authorized Signature)
- --------------------------------------------------------------------------------
(Please type or Print)
Title:
--------------------------------------------------------------------------
Dated: , 1997
--------------------------------------------------------------------
NOTE: DO NOT SEND CERTIFICATES FOR SHARES WITH THIS NOTICE OF GUARANTEED
DELIVERY. CERTIFICATES FOR SHARES SHOULD BE SENT ONLY TOGETHER WITH YOUR
LETTER OF TRANSMITTAL.
2
<PAGE> 1
<TABLE>
<S> <S> <C>
CREDIT FIRST CREDIT SUISSE FIRST BOSTON CORPORATION
SUISSE BOSTON Eleven Madison Avenue Telephone 212 325 2000
New York, NY 10010-3629
</TABLE>
Offer to Purchase for Cash
All Outstanding Shares of Common Stock
of
ERO, INC.
at
$11.25 NET PER SHARE
by
HC ACQUISITION CORP.
a wholly owned subsidiary of
HEDSTROM CORPORATION
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON MONDAY, JUNE 2, 1997, UNLESS THE OFFER IS EXTENDED.
April 17, 1997
To Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
We have been appointed by HC Acquisition Corp., a Delaware corporation
("Purchaser") and wholly owned subsidiary of Hedstrom Corporation, a Delaware
corporation ("Parent"), to act as Dealer Manager in connection with Purchaser's
offer to purchase all of the outstanding shares of common stock, par value $0.01
per share (the "Shares"), of ERO, Inc., a Delaware corporation (the "Company"),
at a purchase price of $11.25 per Share, net to the seller in cash, upon the
terms and subject to the conditions set forth in the Offer to Purchase, dated
April 17, 1997 (the "Offer to Purchase"), and the related Letter of Transmittal
(which, together with any amendments or supplements thereto, collectively
constitute the "Offer").
Enclosed herewith for your information and forwarding to your clients are
copies of the following documents:
1. Offer to Purchase, dated April 17, 1997.
2. The Letter of Transmittal to tender Shares is for your use and for
the information of your clients. Facsimile copies of the Letter of
Transmittal may be used to tender Shares.
3. A letter to stockholders of the Company from D. Richard Ryan, Jr.,
Chairman of the Board of Company, together with a
Solicitation/Recommendation Statement on Schedule 14D-9 filed with the
Securities and Exchange Commission by the Company and mailed to
stockholders of the Company.
4. The Notice of Guaranteed Delivery for Shares to be used to accept
the Offer if neither of the two procedures for tendering Shares set forth
in the Offer to Purchase can be completed on a timely basis.
5. A printed form of letter which may be sent to your clients for
whose accounts you hold Shares registered in your name or in the name of
your nominee, with space provided for obtaining such clients' instructions
with regard to the Offer.
6. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
<PAGE> 2
7. A return envelope addressed to IBJ Schroder Bank & Trust Company,
the Depositary.
Please furnish copies of the enclosed materials to those of your clients
for whose accounts you hold Shares in your name or in the name of your nominee.
YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS
PROMPTLY AS POSSIBLE. PLEASE NOTE THAT THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT
12:00 MIDNIGHT, NEW YORK CITY TIME, ON MONDAY, JUNE 2, 1997, UNLESS THE OFFER IS
EXTENDED.
Please note the following:
1. The offer price is $11.25 per Share, net to the seller in cash.
2. The Offer is conditioned upon, among other things, there being
validly tendered and not withdrawn prior to the expiration of the Offer
that number of Shares which would represent, on a fully-diluted basis, at
least a majority of the outstanding Shares. See "INTRODUCTION," "Terms of
the Offer" and "Certain Conditions of the Offer" in the Offer to Purchase.
3. The Offer is being made for all outstanding Shares.
4. Tendering stockholders will not be obligated to pay brokerage fees
or commissions to the Dealer Manager, the Depositary or the Information
Agent (as defined in the Offer to Purchase) or, except as set forth in
Instruction 6 to the Letter of Transmittal, transfer taxes on the sale of
Shares pursuant to the Offer. However, federal income tax backup
withholding at a rate of 31% may be required unless an exemption is
provided or unless the required taxpayer identification information is
provided. See Instruction 10 of, and "IMPORTANT TAX INFORMATION" in, the
Letter of Transmittal.
5. The Offer and withdrawal rights will expire at 12:00 midnight, New
York City time, on Monday, June 2, 1997, unless extended. See "Terms of
Offer" in the Offer to Purchase.
6. The Board of Directors of the Company has unanimously (A)
determined that each of the Merger Agreement (as defined in the Offer to
Purchase), the Offer and the Merger (as defined in the Offer to Purchase)
is fair to and in the best interests of the holders of Shares, (B) approved
the execution, delivery and performance of the Merger Agreement (as defined
in the Offer to Purchase) and the consummation of the transactions
contemplated thereby, including the Offer and the Merger such approval
constituting approval thereof for purposes of Section 203 of the Delaware
General Corporate Law, as amended, and for purposes of Article Nine of the
Company's Amended and Restated Certificate of Incorporation, and (C)
resolved to recommend acceptance of the Offer, and, if required, both the
approval and adoption of the Merger Agreement and the approval of the
Merger by the holders of Shares.
7. In all cases, payment for Shares purchased pursuant to the Offer
will be made only after timely receipt by the Depositary of certificates
for, or a Book-Entry Confirmation (as defined under "Procedure for
Tendering Shares -- Book-Entry Transfer" in the Offer to Purchase) with
respect to, such Shares and a Letter of Transmittal (or a manually signed
facsimile thereof), properly completed and duly executed with all required
signature guarantees and all other documents required by the Letter of
Transmittal. See "Procedures for Tendering Shares" in the Offer to
Purchase.
For Shares to be validly tendered pursuant to the Offer, either (a) a
Letter of Transmittal (or a manually signed facsimile thereof), properly
completed and duly executed, with all required signature guarantees and all
other documents required by the Letter of Transmittal, must be received by the
Depositary at one of its addresses set forth on the back cover of the Offer to
Purchase prior to the Expiration Date (as defined in the Offer to Purchase) and
either (i) certificates representing Shares must be received by the Depositary
at any such address prior to the Expiration Date or (ii) such Shares must be
delivered pursuant to the procedures for book-entry transfer set forth in the
Offer to Purchase and a Book-Entry Confirmation (as defined in the Offer to
Purchase) must be received by the Depositary prior to the Expiration Date or (b)
the tendering stockholder must comply with the guaranteed delivery procedures
set forth in the Offer to Purchase. No alternative, conditional or contingent
2
<PAGE> 3
tenders will be accepted. If a stockholder desires to tender Shares pursuant to
the Offer and such stockholder's certificates for such Shares are not
immediately available or the procedures for book-entry transfer set forth in the
Offer to Purchase cannot be completed on a timely basis or time will not permit
all required documents to reach IBJ Schroder Bank & Trust Company (the
"Depositary") prior to the Expiration Date, such Shares may nevertheless be
tendered according to the guaranteed delivery procedures under "Procedure for
Tendering Shares -- Guaranteed Delivery" in the Offer to Purchase.
Purchaser will not pay any fees or commission to any broker, dealer or
other persons for soliciting tenders of Shares pursuant to the Offer (other than
the Dealer Manager, the Depositary and the Information Agent as described in the
Offer to Purchase). Purchaser will, however, upon request, reimburse you for
customary mailing and handling expenses incurred by you in forwarding the
enclosed tender offer materials to your clients. Purchaser will pay or cause to
be paid any transfer taxes payable on the sale of Shares to it, except as
otherwise provided in Instruction 6 of the Letter of Transmittal.
Any inquiries you may have with respect to the Offer should be addressed to
Credit Suisse First Boston, the Dealer Manager for the Offer, at Eleven Madison
Avenue, New York, New York 10010-3629 ((888) 671-4243), or IBJ Schroder Bank &
Trust Company, the Depositary for the Offer, at P.O. Box 84, Bowling Green
Station, New York, New York 10274-0084, Attn: Reorganization Operations Dept.
((212) 858-2103) or MacKenzie Partners, Inc., the Information Agent for the
Offer at 156 Fifth Avenue, New York, New York 10010 ((212) 929-5500 (call
collect) or (800) 322-2885).
Requests for additional copies of the enclosed tender offer materials may
be directed to the Information Agent at the above address and telephone number.
Very truly yours,
CREDIT SUISSE FIRST BOSTON
CORPORATION
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU
OR ANY OTHER PERSON AS THE AGENT OF PURCHASER, PARENT, THE COMPANY, THE
DEPOSITARY, THE INFORMATION AGENT, THE DEALER MANAGER OR ANY AFFILIATE OF ANY OF
THEM, OR AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY STATEMENT OR USE ANY
DOCUMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE
ENCLOSED DOCUMENTS AND THE STATEMENTS CONTAINED THEREIN.
3
<PAGE> 1
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
of
ERO, INC.
at
$11.25 NET PER SHARE
by
HC ACQUISITION CORP.
a wholly owned subsidiary of
HEDSTROM CORPORATION
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON MONDAY, JUNE 2, 1997 UNLESS THE OFFER IS EXTENDED.
To Our Clients:
Enclosed for your consideration are the Offer to Purchase, dated April 17,
1997 (the "Offer to Purchase"), and the related Letter of Transmittal (which,
together with any amendments or supplements thereto, collectively constitute the
"Offer") relating to the offer by HC Acquisition Corp., a Delaware corporation
("Purchaser"), and wholly owned subsidiary of Hedstrom Corporation, a Delaware
corporation ("Parent"), to purchase all outstanding shares of common stock, $.01
par value per share ("Shares"), of ERO, Inc., a Delaware corporation (the
"Company"), at a purchase price of $11.25 per Share, net to the seller in cash,
upon the terms and subject to the conditions set forth in the Offer to Purchase
and the Letter of Transmittal. Holders who desire to tender Shares pursuant to
the Offer and whose certificates for such Shares (the "Certificates") are not
immediately available or the procedures for book-entry transfer set forth in the
Offer to Purchase cannot be completed on a timely basis or time will not permit
all required documents to reach IBJ Schroder Bank & Trust Company (the
"Depositary") prior to the Expiration Date (as defined in the Offer to Purchase)
may nevertheless tender their Shares according to the guaranteed delivery
procedures set forth under "Procedure of Tendering Shares -- Guaranteed
Delivery" in the Offer to Purchase.
We are (or our nominee is) the holder of record of Shares held by us for
your account. A TENDER OF SUCH SHARES CAN BE MADE ONLY BY US AS THE HOLDER OF
RECORD AND PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS FURNISHED
TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER SHARES HELD
BY US FOR YOUR ACCOUNT.
Accordingly, we request instructions as to whether you wish to have us
tender on your behalf any or all Shares held by us for your account pursuant to
the terms and conditions set forth in the Offer.
Please note the following:
1. The offer price is $11.25 per Share, net to the seller in cash.
2. The Offer is conditioned upon, among other things, there being
validly tendered and not withdrawn prior to the expiration of the Offer
that number of Shares which would represent, on a fully-diluted basis, at
least a majority of the outstanding Shares. See "INTRODUCTION," "Terms of
the Offer" and "Certain Conditions of the Offer" in the Offer to Purchase.
3. The Offer is being made for all outstanding Shares.
<PAGE> 2
4. Tendering stockholders will not be obligated to pay brokerage fees
or commissions to the Dealer Manager (as defined in the Offer to Purchase),
the Depositary or the Information Agent (as defined in the Offer to
Purchase) or, except as set forth in Instruction 6 to the Letter of
Transmittal, transfer taxes on the sale of Shares pursuant to the Offer.
However, federal income tax backup withholding at a rate of 31% may be
required unless an exemption is provided or unless the required taxpayer
identification information is provided. See Instruction 10 of, and
"IMPORTANT TAX INFORMATION" in, the Letter of Transmittal.
5. The Offer and withdrawal rights will expire at 12:00 midnight, New
York City time, on Monday, June 2, 1997, unless extended. See "Terms of the
Offer" in the Offer to Purchase.
6. The Board of Directors of the Company has unanimously (A)
determined that each of the Merger Agreement (as defined in the Offer to
Purchase), the Offer and the Merger (as defined in the Offer to Purchase)
is fair to and in the best interests of the holders of Shares, (B) approved
the execution, delivery and performance of the Merger Agreement (as defined
in the Offer to Purchase) and the consummation of the transactions
contemplated thereby, including the Offer and the Merger, such approval
constituting approval thereof for purposes of Section 203 of the Delaware
General Corporation Law, as amended, and for purposes of Article Nine of
the Company's Amended and Restated Certificate of Incorporation, and (C)
resolved to recommend acceptance of the Offer and, if required, both the
approval and adoption of the Merger Agreement and approval of the Merger by
the holders of Shares.
7. In all cases, payment for Shares purchased pursuant to the Offer
will be made only after timely receipt by the Depositary of certificates
for, or a Book-Entry Confirmation (as defined in the Offer to Purchase)
with respect to, such Shares and a Letter of Transmittal (or a manually
signed facsimile thereof), properly completed and duly executed, with all
required signature guarantees and all other documents required by the
Letter of Transmittal. See "Procedure for Tendering Shares" in the Offer to
Purchase.
If you wish to have us tender any or all of the Shares held by us for your
account, please so instruct us by completing, executing, detaching and returning
to us the instruction form set forth herein. If you authorize the tender of your
Shares, all such Shares will be tendered unless otherwise specified in the
instruction form. An envelope to return your instructions to us is enclosed.
Your instructions should be forwarded to us in ample time to permit us to submit
a tender on your behalf prior to the expiration of the Offer.
THE OFFER IS MADE SOLELY BY THE OFFER TO PURCHASE AND THE RELATED LETTER OF
TRANSMITTAL AND IS BEING MADE TO ALL HOLDERS OF SHARES.
The Offer is not being made to (nor will tenders be accepted from or on
behalf of) holders of Shares residing in any jurisdiction in which the making of
the Offer or the acceptance thereof would not be in compliance with the
securities, blue sky or other laws of such jurisdiction. However, Purchaser may,
in its discretion, take such actions as it may deem necessary to make the Offer
in any jurisdiction (including, without limitation, the extension of the Offer).
In those jurisdictions where securities, blue sky or other laws require the
Offer to be made by a licensed broker or dealer, the Offer will be deemed to be
made on behalf of Purchaser by Credit Suisse First Boston Corporation or one or
more registered brokers or dealers that are licensed under the laws of such
jurisdictions.
2
<PAGE> 3
INSTRUCTIONS WITH RESPECT TO THE
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
ERO, INC.
The undersigned acknowledge(s) receipt of your letter, the enclosed Offer
to Purchase dated April 17, 1997 (the "Offer to Purchase"), and the related
Letter of Transmittal (which, together with any amendments or supplements
thereto, collectively constitute the "Offer") in connection with the offer by HC
Acquisition Corp., a Delaware corporation ("Purchaser") and wholly owned
subsidiary of Hedstrom Corporation, a Delaware corporation, to purchase all
outstanding shares of common stock, $.01 par value per share ("Shares"), of ERO,
Inc., a Delaware corporation, at a purchase price of $11.25 per Share, net to
the seller in cash, upon the terms and subject to the conditions set forth in
the Offer.
This will instruct you to tender to Purchaser the number of Shares
indicated below (or if no number is indicated below, all Shares) which are held
by you for the account of the undersigned, upon the terms and subject to the
conditions set forth in the Offer.
Number of Shares to be Tendered:
------------------------------------------------
Date: , 1997
---------------------------------------------------------------------
- --------------------------------------------------------------------------------
SIGN HERE
Signature(s):
-------------------------------------------------------------------
Print or Type Name(s):
----------------------------------------------------------
Print or Type Address(es):
------------------------------------------------------
Area Code and Telephone Number(s):
----------------------------------------------
Taxpayer Identification or Social Security Number(s):
---------------------------
<PAGE> 1
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER -- Social Security Numbers have nine digits separated by two hyphens:
i.e., 000-00-0000. Employer Identification Numbers have nine digits separated by
only one hyphen: i.e., 00-0000000. The table below will help determine the type
of number to give the payer.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
- ---------------------------------------------------------------
GIVE THE
SOCIAL SECURITY
FOR THIS TYPE OF ACCOUNT: NUMBER OF --
- --------------------------------------------------------------
GIVE THE EMPLOYER
IDENTIFICATION
FOR THIS TYPE OF ACCOUNT: NUMBER OF --
- --------------------------------------------------------------
<C> <S> <C>
1. An individual's account The individual
2. Two or more individuals (joint The actual owner of the
account) account or, if combined
funds, any one of the
individuals(1)
3. Husband and wife (joint The actual owner of the
account) account or, if joint
funds, either person(1)
4. Custodian account of a minor The minor(2)
(Uniform Gift to Minors Act)
5. Adult and minor (joint account) The adult or, if the
minor is the only
contributor, the
minor(1)
6. Account in the name of guardian The ward, minor, or
or committee for a designated incompetent person(3)
ward, minor, or incompetent
person
7. a. The usual revocable savings The grantor-trustee(1)
trust account (grantor is
also trustee) The actual owner(1)
b. So-called trust account that
is not a legal or valid
trust under State law
8. Sole proprietorship account The owner(4)
9. A valid trust, estate, or The legal entity (Do not
pension trust furnish the identifying
number of the personal
representative or
trustee unless the legal
entity itself is not
designated in the
account title.)(5)
10. Corporate account The corporation
11. Religious, charitable, or The organization
educational organization
account
12. Partnership account held in the The partnership
name of the business
13. Association, club, or other The organization
tax-exempt organization
14. A broker or registered nominee The broker or nominee
15. Account with the Department of The public entity
Agriculture in the name of a
public entity (such as a State
or local government, school
district, or prison) that
receives agricultural program
payments
- ---------------------------------------------------------------
- ---------------------------------------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) You must show your individual name, but you may also enter your business or
"doing business" name. You may use either your Social Security Number or
Employer Identification Number.
(5) List first and circle the name of the legal trust, estate, or pension trust.
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
<PAGE> 2
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER OF SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service (the "IRS") and
apply for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments by brokers
include the following:
- - A corporation.
- - A financial institution.
- - An organization exempt from tax under section 501(a), or an individual
retirement plan or a custodial account under Section 403(b)(7) if the account
satisfies the requirements of section 401(F)(2).
- - The United States or any agency or instrumentality thereof.
- - A State, the District of Columbia, a possession of the United States, or any
subdivision or instrumentality thereof.
- - A foreign government, a political subdivision of a foreign government, or any
agency or instrumentality thereof.
- - An international organization or any agency, or instrumentality thereof.
- - A registered dealer in securities or commodities registered in the U.S. or a
possession of the U.S.
- - A real estate investment trust.
- - A common trust fund operated by a bank under section 584(a).
- - An entity registered at all times under the Investment Company Act of 1940.
- - A foreign central bank of issue.
- - A futures commission merchant registered with the Commodity Futures Trading
Commission.
- - A person registered under the Investment Advisors Act of 1940 who regularly
acts as a broker.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
- - Payments to nonresident aliens subject to withholding under section 1441.
- - Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one nonresident partner.
- - Payments of patronage dividends where the amount received is not paid in
money.
- - Payments made by certain foreign organizations.
- - Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
- - Payments of interest on obligations issued by individuals. Note: You may be
subject to backup withholding if this interest is $600 or more and is paid in
the course of the payer's trade or business and you have not provided your
correct taxpayer identification number to the payer.
- - Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
- - Payments described in section 6049(b)(5) to non-resident aliens.
- - Payments on tax-free covenant bonds under section 1451.
- - Payments made by certain foreign organizations.
- - Payments made to a nominee.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, CHECK "EXEMPT" IN PART II OF THE FORM, SIGN AND DATE THE
FORM AND RETURN IT TO THE PAYER.
Certain payments other than interest, dividends, and patronage dividends, that
are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6045, and 6050A.
PRIVACY ACT NOTICE. -- Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to IRS. IRS uses the numbers for identification
purposes. Payers must be given the numbers whether or not recipients are
required to file tax returns. Beginning January 1, 1993, payers must generally
withhold 31% of taxable interest, dividend, and certain other payments to a
payee who does not furnish a taxpayer identification number to a payer. Certain
penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. -- If you
fail to furnish your taxpayer identification number to a payer, you are subject
to a penalty of $50 for each such failure unless your failure is due to
reasonable cause and not to willful neglect.
(2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS -- If you fail to
include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being due
to negligence and will be subject to a penalty of 5% on any portion of an
under-payment attributable to that failure unless there is clear and convincing
evidence to the contrary.
(3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. -- If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. -- Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE
INTERNAL REVENUE SERVICE.
<PAGE> 1
EXHIBIT 99.(a)(7)
This announcement is neither an offer to purchase nor a solicitation of an
offer to sell Shares. The Offer is made solely by the Offer to Purchase
dated April 17, 1997 (the "Offer to Purchase") and the related Letter
of Transmittal, and any amendments or supplements thereto, and is being
made to all holders of Shares. The Offer is not being made to (nor
will tenders be accepted from or on behalf of) holders of Shares in
any jurisdiction in which the making of the Offer or the acceptance
thereof would not be in compliance with the laws of such jurisdiction.
In those jurisdictions where securities, blue sky or other laws
require the Offer to be made by the licensed broker or dealer, the
Offer shall be deemed to be made on behalf of Purchaser by Credit
Suisse First Boston Corporation ("Credit Suisse First Boston") or
one or more registered brokers or dealers licensed under the
laws of such jurisdiction.
NOTICE OF OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
ERO, INC.
AT
$11.25 NET PER SHARE
BY
HC ACQUISITION CORP.
A WHOLLY OWNED SUBSIDIARY OF
HEDSTROM CORPORATION
HC Acquisition Corp., a Delaware corporation ("Purchaser") and a
direct wholly owned subsidiary of Hedstrom Corporation, a Delaware corporation
("Parent"), is offering to purchase all outstanding shares of the common stock,
$.01 par value per share (the "Shares"), of ERO, Inc., a Delaware corporation
(the "Company"), at a purchase price of $11.25 per Share (the "Offer Price"),
net to the seller in cash, upon the terms and subject to the conditions set
forth in the Offer to Purchase dated April 17, 1997 and in the related Letter
of Transmittal (which, together with the Offer to Purchase and any amendments
or supplements thereto, collectively constitute the "Offer").
- -------------------------------------------------------------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON MONDAY, JUNE 2, 1997, UNLESS THE OFFER IS EXTENDED.
===============================================================================
The Offer is being made pursuant to an Agreement and Plan of Merger,
dated as of April 10, 1997, among Parent, Purchaser and the Company (the
"Merger Agreement"). The Merger Agreement provides, among other things, for
the commencement of the Offer by Purchaser and further provides that, subject
to the satisfaction or waiver of certain conditions, Purchaser will be merged
with and into the Company (the "Merger"), with the Company surviving the Merger
as a direct wholly owned subsidiary of Parent (the "Surviving Corporation").
In the Merger, each issued and outstanding Share (excluding Shares directly or
indirectly owned by the Company, Parent, Purchaser or any other subsidiary of
Parent and Shares owned by stockholders who shall have not voted in favor of the
Merger or consented thereto in writing and who shall have demanded properly in
writing appraisal for such shares under Delaware law) will be converted at the
effective time of the Merger (the "Effective Time") into the right to receive
the per Share Amount actually paid in the Offer, in cash, without any interest
thereon (the "Merger Consideration") less any required withholding (the "Merger
Consideration").
<PAGE> 2
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY (A) DETERMINED
THAT EACH OF THE MERGER AGREEMENT, THE OFFER AND THE MERGER IS FAIR TO AND IN
THE BEST INTERESTS OF THE HOLDERS OF SHARES (THE "STOCKHOLDERS"), (B) APPROVED
THE EXECUTION, DELIVERY AND PERFORMANCE OF THE MERGER AGREEMENT AND THE
CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE OFFER AND
THE MERGER, SUCH APPROVAL CONSTITUTING APPROVAL CONSTITUTING APPROVAL THEREOF
FOR PURPOSES OF SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW, AS AMENDED,
AND FOR PURPOSES OF ARTICLE NINE OF THE COMPANY'S AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION, AND (C) RESOLVED TO RECOMMEND ACCEPTANCE OF THE
OFFER, AND, IF REQUIRED, BOTH THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT
AND THE APPROVAL OF THE MERGER BY THE STOCKHOLDERS.
PARENT AND PURCHASER HAVE ENTERED INTO A STOCKHOLDERS AGREEMENT WITH
GOLDER, THOMA, CRESSEY FUND II LIMITED PARTNERSHIP (THE "SELLING
STOCKHOLDER"), PURSUANT TO WHICH, AMONG OTHER THINGS, THE SELLING STOCKHOLDER
HAS AGREED TO VALIDLY TENDER AND NOT WITHDRAW (AND NOT TO WITHDRAW) PURSUANT TO
AND IN ACCORDANCE WITH THE OFFER, APPROXIMATELY 33.6% OF THE OUTSTANDING SHARES
(CALCULATED ON A FULLY DILUTED BASIS) AT THE OFFER PRICE.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (A) THERE BEING
VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE (AS DEFINED
BELOW) A NUMBER OF SHARES WHICH CONSTITUTES A MAJORITY OF THE SHARES
OUTSTANDING, ON A FULLY DILUTED BASIS ON THE DATE OF PURCHASE, (B) THE DEBT
FINANCING SOURCES OF PARENT AND ITS PARENT COMPANY, HEDSTROM HOLDINGS, INC.
HAVING PROVIDED THE APPLICABLE DEBT FINANCING PURSUANT TO THEIR FINANCING
COMMITMENTS. THE OFFER IS ALSO SUBJECT TO CERTAIN OTHER CONDITIONS CONTAINED
IN THE OFFER TO PURCHASE.
For purposes of the Offer, the Purchaser will be deemed to have
accepted for payment (and thereby purchased) tendered Shares as, if and when
Purchaser gives oral or written notice to IBJ Schroder Bank & Trust Company,
as the Depositary (in such capacity, the "Depositary"), of Purchaser's
acceptance of such Shares for payment. In all cases, payment for Shares
purchased pursuant to the Offer will be made by deposit of the purchase price
therefor with the Depositary, which will act as agent for tendering Stockholders
for the purpose of receiving payment from Purchaser and transmitting payment to
tendering Stockholders whose shares have theretofore been accepted for payment.
In all cases, payment for Shares purchased pursuant to the Offer will be made
only after timely receipt by the Depositary of (i) certificates for such Shares
(or a confirmation of a book-entry transfer of Shares into the Depositary's
account at The Depository Trust Company or the Philadelphia Depository Trust
Company (each, a "Book-Entry Transfer Facility") pursuant to the procedures set
forth in Section 3 of the Offer to Purchase) and (ii) the Letter of Transmittal
(or a manually signed facsimile thereof), properly completed and duly executed
with all required signature guarantees, and all other documents required by the
Letter of Transmittal. Under no circumstances will interest on the Offer Price
be paid by the Purchaser, regardless of any delay in making such payment.
The term "Expiration Date" shall mean 12:00 Midnight, New York City
time, on Monday, June 2, 1997, unless and until Purchaser, in accordance with
the terms of the Offer and the Merger Agreement, shall have extended the period
of time during which the Offer is open, in which event the term "Expiration
Date" shall mean the latest time and date at which the Offer, as so extended by
Purchaser, shall expire. Subject to the terms of the Merger Agreement,
Purchaser expressly reserves the right, in its sole discretion, at any time or
from time to time, to extend the period of time during which the Offer is open
by giving oral or written notice of such extension to the Depositary and by
making a public announcement of such extension. There can be no assurance that
Purchaser will exercise its right to extend the Offer. Purchaser also expressly
reserves the right, subject to applicable laws (including applicable regulations
of the Securities and Exchange Commission promulgated under the Securities
Exchange Act of 1934, as amended), and to the terms of the Merger Agreement, at
any time or from time to time, (i) to delay acceptance for payment of or payment
for any Shares, regardless of whether the Shares were theretofore accepted for
payment, or to terminate the Offer and not accept for payment or pay for any
Shares not theretofore accepted for payment or paid for, upon the occurrence of
any of the conditions specified in Section 14 of the Offer to Purchase, by
giving oral or written notice of such delay in payment or termination to the
Depositary, and (ii) to amend the Offer in any respect, by giving oral or
written notice to the Depositary. Any extension, delay in payment, termination
or amendment will be followed as promptly as practicable by public announcement,
the announcement in the case of an extension to be issued no later than 9:00
a.m., New York City time, on the next business day after the previously
scheduled Expiration Date. Without limiting the manner in which Purchaser may
choose to make any public announcement, Purchaser will have no obligation to
publish, advertise or otherwise communicate any such announcement other than by
issuing a press release to the Dow Jones News Service (or a similar news
service) or as otherwise may be required by law.
2
<PAGE> 3
Tenders of Shares made pursuant to the Offer are irrevocable, except
as otherwise provided below. Shares tendered pursuant to the Offer may be
withdrawn any time prior to the Expiration Date and, unless theretofore accepted
for payment by the Purchaser, may also be withdrawn at any time after June 16,
1997. For a withdrawal to be effective, a written, telegraphic or facsimile
transmission notice of withdrawal must be timely received by the Depositary at
one of its addresses set forth on the back cover of the Offer to Purchase. Any
such notice of withdrawal must specify the name of the person who tendered the
Shares to be withdrawn, the number of Shares to be withdrawn and the name of the
registered holder, if different from that of the person who tendered such
Shares. If certificates evidencing Shares have been delivered or otherwise
identified to the Depositary, then prior to the release of such certificates,
the tendering Stockholder must also submit the serial numbers shown on the
particular certificates evidencing the Shares to be withdrawn, and the signature
on the notice of withdrawal must be guaranteed by an Eligible Institution (as
defined in Section 3 of the Offer to Purchase) (except in the case of Shares
tendered for the account of an Eligible Institution). If Shares have been
tendered pursuant to the procedure for book-entry transfer set forth in Section
3 of the Offer to Purchase, the notice of withdrawal must specify the name and
number of the account at the applicable Book-Entry Transfer Facility to be
credited with the withdrawn Shares. All questions as to form and validity
(including time of receipt) of notice of withdrawal will be determined by
Purchaser, in its sole discretion, whose determination shall be final and
binding on all parties. No withdrawal of Shares shall be deemed to have been
properly made until all defects and irregularities have been cured or waived.
None of Purchaser, Parent, the Dealer Manager, the Depositary, the Information
Agent or any other person will be under any duty to give notification of any
defects or irregularities in any notice of withdrawal or incur any liability for
failing to give such notification.
The Company has provided Purchaser with its stockholder list and
security position listings for the purpose of disseminating the Offer to
Stockholders. The Offer to Purchase, the related Letter of Transmittal and
other relevant materials will be mailed to record holders of Shares and will be
furnished to brokers, dealers, commercial banks, trust companies and similar
persons whose names, or the names of whose nominees, appear on the Company's
stockholder list or, if applicable, who are listed as participants in a
clearing agency's security position listing, for subsequent transmittal to
beneficial owners of Shares by Purchaser.
The information required to be disclosed by Rule 14d-6(e)(1)(vii) of
the General Rules and Regulations under the Securities Exchange Act of 1934, as
amended, is contained in the Offer to Purchase and is incorporated herein by
reference.
THE OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION THAT SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE
WITH RESPECT TO THE OFFER.
Requests for copies of the Offer to Purchase, the Letter of
Transmittal and other tender offer documents may be directed to the Information
Agent as set forth below, and copies will be furnished promptly at the
Purchaser's expenses. Questions or request for assistance may be directed to
the Information Agent or the Dealer Manger. No fees or commissions will be
payable to brokers, dealers or other persons (other than the Dealer Manager,
the Depositary and the Information Agent) in connection with the solicitation
of tenders of shares pursuant to the Offer.
The information Agent for the Offer is:
Mackenzie Partners, Inc.
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (Call Collect)
or
Call Toll-Free (800) 322-2885
3
<PAGE> 4
The Dealer Manager for the Offer is:
Credit Suisse First Boston
Eleven Madison Avenue
New York, New York 10010-3629
Call Toll-Free (888) 671-4243
April 17, 1997
4
<PAGE> 1
Exhibit 99.(a)(8)
Contact: Roy Winnick
Kekst and Company
212-593-2655
HEDSTROM CORPORATION, LEADING U.S. MAKER OF CHILDREN'S OUTDOOR
PLAY EQUIPMENT, TO ACQUIRE ERO, INC. IN TRANSACTION
VALUED AT APPROXIMATELY $203 MILLION
DALLAS and PITTSBURGH, April 11, 1997 -- Hicks, Muse, Tate & Furst Incorporated
today announced that Hedstrom Corporation, of Pittsburgh, the nation's leading
manufacturer of children's outdoor play equipment and play balls, has agreed to
acquire ERO, Inc. (Nasdaq: EROI), of Mount Prospect, Illinois, a major
manufacturer of children's leisure and activity products, in a transaction
valued at approximately $203 million. Hicks Muse acquired Hedstrom in October
1995. The parties expect to complete the transaction within sixty days.
Under the terms of the definitive agreement between Hedstrom and ERO, Hedstrom
will pay $11.25 per share in cash, or approximately $123 million, for the
equity of ERO and refinance ERO's existing debt of approximately $80 million.
ERO's Board of Directors has unanimously approved the transaction and
recommended approval of the transaction by ERO's shareholders. ERO's largest
shareholder, the private equity investment firm of Golder, Thoma, Cressey,
Rauner, Inc. (GTCR), has supported ERO's acquisition strategy since it took the
company private in 1988. GTCR, which currently owns about 38 percent of ERO's
common stock outstanding, has agreed to tender its shares in favor of the
proposed transaction.
Alan B. Menkes, a Managing Director of Hicks Muse and a Director of Hedstrom,
said: "When we acquired Hedstrom in October 1995, we believed that it would be
an excellent platform from which to make further acquisitions in the children's
indoor and outdoor play equipment businesses. The combination of these two fine
companies,
(more)
<PAGE> 2
2
Hedstrom and ERO, is the first major step in that process, and is consistent
with our firm's buy-and-build philosophy."
Arnold E. Ditrl, Chief Executive Officer of Hedstrom, said: "We are delighted
to be teaming up with ERO, Inc., whose products and distribution channels are
complementary to Hedstrom's. The combination of Hedstrom and ERO will create an
enterprise well-positioned for long-term success as a leading manufacturer and
marketer of play products for children."
D. Richard Ryan, Jr., Chairman, President and Chief Executive Officer of ERO,
said: "We clearly think this transaction is in the best interest of ERO
shareholders. The merger also represents a great opportunity for both companies
to become a more important factor in children's leisure products."
Completion of the transaction is contingent upon the tender of a majority of
ERO's outstanding shares, expiration of the applicable Hart-Scott Rodino
waiting period, and other customary closing conditions.
ERO is a leading marketer of children's leisure products in multiple market
segments through its four operating subsidiaries. ERO Industries sells licensed
Slumber Shoppe and children's water sports products through sporting goods and
toy channels. Amav Industries, a wholly-owned subsidiary of ERO, sells its arts,
crafts and activity products in toy and craft departments. ERO's Impact
subsidiary sells licensed and branded back-to-school products to stationary
buyers. ERO's Priss Prints unit markets a range of children's room decor
products through juvenile, paint and wallpaper and domestics departments. ERO's
manufacturing facilities are located in Montreal, Canada and Hazlehurst,
Georgia. On February 6, 1997, ERO reported that for its fiscal year ended
(more)
<PAGE> 3
3
December 31, 1996, the Company achieved net income of $7,758,000 on sales of
$157,913.000.
Founded in 1915, Hedstrom manufactures and distributes activity-oriented play
products for children. The Company's major product lines include swing sets,
wood gym kits and slides, play balls and ball pits, and ride-on products.
Hedstrom's manufacturing facilities are located in Bedford, Pennsylvania, and
Ashland, Ohio.
Since its formation in 1989, Hicks, Muse, Tate & Furst Incorporated has
completed or currently has pending more than 70 transactions with a total
capital value of approximately $19 billion. Headquartered in Dallas, the firm
also has offices in New York, St. Louis and Mexico City.
<PAGE> 1
EXHIBIT 99.(b)(1)
HICKS MUSE EQUITY FUND II, L.P.
200 Crescent Court, Suite 1600
Dallas, Texas 75201
April 10, 1997
Hedstrom Holdings, Inc.
200 Crescent Court, Suite 1600
Dallas, Texas 75201
Gentlemen:
You have advised Hicks Muse Equity Fund II, L.P. ("Hicks
Muse") that Hedstrom Corporation (the "Company"), through a wholly-owned
subsidiary thereof ("Acquisition Co.") will make a cash tender offer (the
"Offer") at a price not to exceed $11.25 per share for all of the issued and
outstanding shares of common stock, par value $0.01 per share (the "Target
Stock"), of ERO, Inc. ("Target"), followed by a merger of Acquisition Co. with
and into Target (collectively, the "Acquisition"). This is to confirm that,
subject to the terms hereof and upon the satisfaction of the last to occur of
the conditions set forth below, Hicks Muse or an affiliate hereby commits to
invest up to $40 million in Hedstrom Holdings, Inc. ("Holdings") pursuant to a
purchase (the "Purchase") of the common equity of Holdings, the proceeds of
which will be used in connection with the Acquisition.
1. Conditions. The Purchase is subject to (i) negotiation and execution
of mutually satisfactory definitive stock purchase agreements containing
representations, warranties, covenants, conditions, and indemnifications
customary for transactions of this type and (ii) the consummation of the Offer
by the Company on the terms set forth in that certain Merger Agreement, dated
April 10, 1997, between the Company, Acquisition Co. and Target, as it may be
amended from time to time.
2. Indemnity. Holdings and the Company agree to indemnify Hicks Muse,
its affiliates, and their respective owners, officers, directors, agents, and
employees (collectively, the "Indemnified Persons") against all expenses,
damages, and liabilities suffered or incurred by any of them in connection with
the transactions contemplated hereby (including those resulting from Hicks
Muse's negligence), provided that the foregoing will not apply to any losses of
an Indemnified Person to the extent they are found by a final decision of a
court of competent jurisdiction to have resulted from the gross negligence or
willful misconduct of such Indemnified Person. Such indemnity shall be payable
as expenses, damages, and liabilities are incurred and shall survive any
termination of this letter. HOLDINGS HEREBY ACKNOWLEDGES THAT THE FOREGOING
INDEMNITY SHALL BE APPLICABLE TO ALL CLAIMS, LIABILITIES, LOSSES, DAMAGES OR
EXPENSES THAT HAVE RESULTED FROM OR ARE ALLEGED TO HAVE RESULTED FROM THE
ACTIVE OR PASSIVE OR THE SOLE, JOINT OR CONCURRENT ORDINARY NEGLIGENCE OF HICKS
MUSE OR ANY OTHER INDEMNIFIED PERSON.
3. Expense Reimbursement. In consideration of the Hicks Muse commitment
contained herein, Holdings and the Company agree to promptly pay or cause to be
paid upon receipt of any request
<PAGE> 2
Hedstrom Holdings, Inc.
April 10, 1997
Page 2
therefor all reasonable accounting, legal, banking and other out-of-pocket
expenses of Hicks Muse relating to the transaction contemplated hereby.
4. Termination Fees Paid by Target. In further consideration of the
Hicks Muse commitment contained herein, Holdings and the Company agree to
promptly pay or cause to be paid to HM2/Management Partners, L.P. that amount
of the fees required to be paid by Target to the Company or its designee in
connection with the termination of that certain Agreement and Plan of Merger,
dated April 10, 1997, by and among the Company, Acquisition Co. and Target
which remain after (i) payment by Holdings and the Company of their expenses
incurred in connection with the Acquisition and (ii) payment of a portion of
such fees to Holdings's and the Company's financing sources as specified in the
commitment letters of such financing sources.
5. Publicity. Hicks Muse and Holdings agree to consult with each other
and will mutually agree upon the content and timing of any press release or
other public statement with respect to the transactions contemplated herein.
6. Access to Information. Holdings and the Company shall provide Hicks
Muse and its representatives full and complete access to the books, records,
facilities, management and key personnel of Holdings and the Company.
7. Conduct of Business. From and after the date hereof until the
termination of this agreement Holdings and the Company shall conduct their
businesses only in the ordinary course.
8. Closing Date. The parties shall use their best efforts to close the
transaction within 195 days after the date this letter is accepted by Holdings.
9. Further Actions. Each of the parties hereto agrees to take, or cause
to be taken, all actions, and to do, or cause to be done as promptly as
practicable, all things necessary, proper and advisable under applicable laws
and regulations to consummate and make effective as promptly as practicable the
transactions contemplated by this letter and to negotiate in good faith with
respect to the same. If at any time after the Purchase any further actions is
necessary or desirable to carry out the purposes of this letter, including,
without limitation, the execution of additional instruments, the proper
officers and directors of each party to this letter shall take all such
necessary action.
10. Confidentiality. Each party hereto shall each keep confidential all
information obtained by it with respect to the other in connection with this
letter, and will use such information solely in connection with the
transactions contemplated hereby, and if the transactions contemplated hereby
are not consummated, each shall destroy, without retaining a copy thereof, any
schedules, documents or other written information obtained from the other in
connection with this letter and the transactions contemplated hereby.
Notwithstanding the foregoing, neither party shall be required to keep
confidential or destroy any information which (a) is known or available through
other lawful sources, not bound by a confidentiality agreement with the
disclosing party, (b) is or becomes publicly known through no fault of the
receiving party or its agents, (c) is required to be disclosed pursuant to an
order or request of a judicial authority or governmental entity (provided the
disclosing party is given reasonable prior notice), or (d) is developed by the
receiving party independently of the disclosure by the disclosing party.
2
<PAGE> 3
Hedstrom Holdings, Inc.
April 10, 1997
Page 3
11. Governing Law. This letter shall be governed by and construed in
accordance with the laws of the State of Texas without regard to the
conflict-of-laws titles thereof.
12. Term. The obligations of the parties hereto (except those set forth
in Sections 2, 3, 4 and 9) may be terminated, after 12:00 midnight, Dallas,
Texas time on the 195th day after the date this letter is accepted by the
Company, by either party by written notice delivered to the other.
13. Non-Disclosure. You agree that this letter and its terms and
conditions may not be disclosed, directly or indirectly, to any other person
except to your officers, agents and advisors who are directly involved in the
consideration of this matter, without the prior written consent of Hicks Muse.
14. Notice of Indemnity Provisions. THIS AGREEMENT CONTAINS
INDEMNIFICATION PROVISIONS IN PARAGRAPH 2, NOTICE OF WHICH IS HEREBY GIVEN.
Very truly yours,
HICKS MUSE TATE & FURST
EQUITY FUND II, L.P.
By: HM2/GP Partners, L.P.,
its General Partner
By: Hicks Muse GP Partners, L.P.
its General Partner
By: Hicks Muse Fund II Incorporated
its General Partner
By: /s/ ALAN B. MENKES
-------------------------------
Name: Alan B. Menkes
Managing Director and Principal
ACCEPTED AND AGREED TO:
HEDSTROM HOLDINGS, INC.
By: /s/ ANDREW S. ROSEN
-------------------------
Name: Andrew S. Rosen
-------------------------
Title: Vice President
-------------------------
Dated: April 10, 1997
3
<PAGE> 1
EXHIBIT 99.(b)(2)
CREDIT SUISSE FIRST BOSTON CORPORATION
Eleven Madison Avenue
New York, NY 10055
April 11, 1997
Hedstrom Corporation
Cherrington Corporate Center
300 Corporate Center Drive, Suite 100
Coraopolis, PA 15108
Attention: Mr. Arnold E. Ditri
Chief Executive Officer
Hedstrom Corporation
Engagement Letter
Dear Mr. Ditri:
You have advised us that Hedstrom Corporation ("Acquiror" or "you")
intend to acquire (the "Acquisition") all of the issued and outstanding capital
stock of a company you have identified to us as Gadget Corporation ("Target")
pursuant to a tender offer for all such shares (the "Tender Offer"). We
understand that the cash price per share to be paid in the Tender Offer will be
up to $11.25, representing a maximum aggregate purchase price for Target of
$220 million (including the outstanding debt of Target), subject to seasonal
working capital requirements.
You have further advised us that in connection with the Acquisition
(i) you will form a Delaware corporation ("AcquisitionCo"), and will make an
equity contribution of $40 million (the "Equity Contribution") to AcquisitionCo
in exchange for all of its outstanding capital stock, (ii) AcquisitionCo will
commence the Tender Offer and (iii) upon consummation of the Tender Offer, (a)
Hedstrom Holdings Corporation ("Holdings"), the holder of all the capital stock
of Acquiror, will issue senior discount notes, which will not require cash
interest payments by Holdings for at least 5 years after issuance (the
"Holdings Senior Discount Notes"), for aggregate gross proceeds, together with
the aggregate principal amount of the Senior Subordinated Notes (as defined),
of $140 million, (b) you
<PAGE> 2
2
will obtain senior secured credit facilities (the "Senior Bank Facilities") in
an aggregate principal amount of $180 million, consisting of a $110 million
term facility and a $70 million revolving credit facility (up to an amount to
be agreed upon of which may be borrowed in connection with the Acquisition for
the purpose of refinancing short-term indebtedness incurred to fund seasonal
working capital requirements), and (c) you will issue senior subordinated notes
(the "Senior Subordinated Notes" and, together with the Holdings Senior
Discount Notes, the "Notes")) in a principal amount, together with the gross
proceeds from the Holdings Senior Discount Note Offering (as defined), of $140
million or, in lieu thereof, incur a senior subordinated bridge loan in a
principal amount of $115 million.
Based upon and subject to the foregoing, and pursuant to the terms and
subject to the conditions set forth in the Summaries of Terms and Conditions
attached as Exhibits A and B hereto (each a "Summary of Terms"), and as further
provided below, Credit Suisse First Boston Corporation (the "Initial
Purchaser") hereby commits to use its reasonable best efforts, in cooperation
with you and Target, to complete the private placements of the Holdings Senior
Discount Notes (the "Holdings Senior Discount Note Offering") and the Senior
Subordinated Notes (the "Senior Subordinated Note Offering", and, together with
the Holdings Senior Discount Note Offering, the "Offerings") as soon as
reasonably practicable following the execution of definitive documentation
relating to the Acquisition; provided, however, that, in the event the Initial
Purchaser determines, after consultation with you, that market conditions
existing at the time of the proposed commencement the Offerings make it
unlikely that the Offerings could be successfully consummated on reasonable
terms, the Initial Purchaser may elect to postpone the Offerings until such
market conditions, in the Initial Purchaser's judgment, no longer preclude the
successful completion of the Offerings. The Tender Offer, the Equity
Contribution, the incurrence of the Senior Bank Facilities, the Acquisition,
the Offerings or the incurrence of the Bridge Loan are referred to herein
collectively as the "Transactions".
To assist the Initial Purchaser in a timely completion of the
Offerings, you agree, upon the Initial Purchaser's reasonable request, to (a)
promptly provide (and to use your reasonable best efforts to cause Target to
provide) to the Initial Purchaser all financial and other information in your
or their possession with respect to Target, the Transactions and any other
transactions contemplated therewith, including but not limited to
<PAGE> 3
3
information and projections prepared by you or by your advisors on your behalf
relating to Target, the Transactions and the other transactions contemplated
therewith, (b) make your (and to use your reasonable best efforts to cause
Target to make its) senior officers and representatives available to the
Initial Purchaser in connection with the Offerings (including any resale of the
Holdings Senior Discount Notes by the Initial Purchaser (a "Resale")),
including making them available to assist in the preparation of one or more
offering documents (including assistance in obtaining industry data), to
participate in due diligence sessions and to participate in one or more road
shows to market the Notes and (c) prepare, and to cause your affiliates and
advisors to prepare (and to use your reasonable best efforts to cause Target to
assist in the preparation of), one or more appropriate offering documents, and
to assist the Initial Purchaser in preparing other appropriate marketing
materials, in each case to be used in connection with the Offerings (including
any Resale). Without limiting the foregoing, in connection with your using
your reasonable best efforts to cause Target to assist in the undertakings
described in clauses (a), (b) and (c) above, you agree to use your reasonable
best efforts to include in the applicable documents relating to or effecting
the Acquisition a provision obligating Target to facilitate the Offerings in
the manner described in clauses (a), (b) and (c) above.
In consideration for the Initial Purchaser's commitment to use its
reasonable best efforts to complete the Offerings as soon as reasonably
practicable following the execution of definitive documentation relating to the
Transactions (the "Commitment"), you hereby agree that the Initial Purchaser
will be offered to be the lead placement agent (i) with respect to the
Offerings and (ii) in connection with any other offering or placement of
securities by you, Holdings or Target in lieu of the Offerings. You hereby
agree to pay in cash to the Initial Purchaser the fees set forth in the fee
letter dated the date hereof and delivered herewith among the Initial Purchaser
and Acquiror (in each case subject to the conditions set forth in such fee
letter).
It is understood and agreed that the Initial Purchaser shall not have
any obligation hereunder to act as underwriter, placement agent or purchaser
with respect to any Notes unless and until such time as the Initial Purchaser
has executed and delivered an underwriting, placement agent or purchase
agreement in the form customarily used by the Initial Purchaser for similar
transactions, setting forth the obligations of the Initial Purchaser.
<PAGE> 4
4
Based on current market conditions, the Initial Purchaser expects that
the Notes will be on terms substantially as set forth in Exhibits A and B,
respectively, although the actual terms of the Notes may vary and/or market
conditions may not permit the issuance of the Notes. It is understood that the
preceding sentence shall give rise to no liability (and does not constitute any
commitment) of the Initial Purchaser.
Upon consummating the sale of any Notes, the Initial Purchaser may
place customary "tombstone" advertisement(s) in publication(s) of the Initial
Purchaser's choice at its own expense with the prior approval of the Acquiror,
which approval shall not be unreasonably withheld.
The Commitment, and CSFB's obligation to consummate the Offerings, are
subject to the satisfaction of the closing conditions set forth in Annex I to
Exhibit A.
The Commitment will expire at 5:00 p.m., New York City time on April
18, 1997, unless accepted prior to such time and, if accepted prior to such
time, the Commitment will expire at 5:00 p.m. New York City time on the
earliest of (a) the date of the termination of the Tender Offer or the date
Acquiror purchases, or elects not to purchase shares of Target's Capital Stock,
(b) the incurrence of the Bridge Loan and (c) the date that is 75 days from the
date hereof. Expiration or termination of the Commitment shall not affect your
obligations under the following sentence or the second succeeding paragraph,
all of which obligations shall remain in full force and effect regardless of
any termination of the Commitment or the completion of the Acquisition and the
other Transactions. In connection with this Engagement Letter, the Initial
Purchaser and the Acquiror have executed the Indemnity Agreement attached as
Exhibit C hereto.
This letter shall be governed by and construed in accordance with the
laws of the State of New York. Delivery of an executed counterpart of this
letter by telecopier shall be effective as delivery of a manually executed
counterpart of this letter. You and we hereby irrevocably waive any right to
trial by jury in any action, claim, suit or proceeding (whether based on
contract, tort or otherwise) arising out of or relating to this letter or the
transactions contemplated hereby. This letter is not assignable by you to any
other person or entity, and, except as otherwise provided herein, this letter
is not assignable by us without your consent.
This letter has been delivered to you for your information and is not
to be distributed or disclosed to, or otherwise relied upon by, any other
person (including pursuant
<PAGE> 5
5
to any proxy statement or other publicly filed document) without the Initial
Purchaser's prior written consent, except that you may disclose this letter (a)
on a confidential need-to-know basis to Target and its advisors and to your
advisors and (b) as required by applicable law or compulsory legal process.
Very truly yours,
CREDIT SUISSE FIRST BOSTON CORPORATION,
By: /s/ Harold W. Bogle
------------------------------------
Harold W. Bogle
Managing Director
Agreed to and Accepted
HEDSTROM CORPORATION,
By /s/ Andrew S. Rosen
----------------------------
Date:
--------------------------
<PAGE> 6
Exhibit A
HEDSTROM CORPORATION
Offering of Senior Subordinated Notes
Preliminary Summary of Terms
Issuer and Issue: Hedstrom Corporation ("Hedstrom" and
the "Issuer") will issue Senior
Subordinated Notes (the "Notes") the
proceeds of which will fund a tender
offer (the "Tender Offer") by
AcquisitionCo ("AcquisitionCo") for
all of the issued and outstanding
capital stock of Target ("Target").
Amounts: The aggregate principal amount of
the Senior Subordinated Notes,
together with the aggregate gross
proceeds from the issuance of the
Holdings Senior Discount Notes, will
equal up to $140 million.
Maturity: 10 years.
Distribution Method: Pursuant to Rule 144A.
Use of Proceeds: To fund a portion of the purchase
price paid in the Acquisition of all
of the issued and outstanding shares
of Target.
Interest: Accruing and payable in cash from
the issue date.
Guarantees: The Senior Subordinated Notes will
be guaranteed, on a senior
subordinated basis, by each domestic
subsidiary of the Issuer (the
"Subsidiary Guarantors"). To the
extent the Senior Bank
<PAGE> 7
2
Facilities are guaranteed on a senior
basis by Hedstrom Holdings
Corporation ("Holdings"), the Senior
Subordinated Notes will be
guaranteed on a senior basis by
Holdings.
Ranking: The Senior Subordinated Notes will
be senior subordinated, unsecured
obligations of the Issuer,
subordinated in right of payment to
all existing and future Senior
Indebtedness of the Issuer
(including the Senior Bank
Facilities) to the extent set forth
in the Indenture, and senior in
right of payment to all existing and
future Subordinated Indebtedness of
the Issuer. The Senior Subordinated
Notes will rank pari passu with all
existing and future Senior
Subordinated Indebtedness of the
Issuer.
Mandatory
Redemption: None.
Optional Redemption: The Senior Subordinated Notes will
be non-callable for five years and
will be callable at par plus
one-half of the coupon following the
fifth anniversary of issuance,
declining ratably to par following
the eighth anniversary of issuance.
Equity Offering At any time prior to the third
Redemption: anniversary of issuance, the Issuer
may redeem an amount to be
determined of the Senior
Subordinated Notes from the proceeds
of one or more public
<PAGE> 8
3
equity offerings at a redemption
price to be fixed at the time of,
and as a function of, the pricing of
the Senior Subordinated Notes, plus
accrued and unpaid interest.
Registration The Issuer will enter into a
Requirement: registration agreement relating to
the Senior Subordinated Notes
containing terms customary for Rule
144A offerings. Pursuant to the
registration agreement, the Issuer
will be obligated to consummate an
exchange offer pursuant to an
effective registration statement or
to cause a shelf registration
statement with respect to resales of
the Senior Subordinated Notes to be
declared effective under the
Securities Act and, if one of such
events does not occur prior to the
date that is 150 days after the date
of issuance of the Senior
Subordinated Notes, interest on the
Senior Subordinated Notes will
increase by 0.5% per annum, payable
in cash, until such default shall be
cured.
SEC Reports: Notwithstanding that the Issuer may
not be, or may not be required to
remain, subject to the reporting
requirements of Section 13 or 15(d)
of the Exchange Act, the Issuer will
file with the SEC and provide the
Trustee and holders of the Senior
Subordinated Notes with such annual
reports and such information,
documents and other reports as are
specified in Sections 13 and 15(d)
of the Exchange Act.
<PAGE> 9
4
Negative Covenants: Customary for high yield securities
such as the Senior Subordinated
Notes and others to be reasonably
specified by the Initial Purchaser,
including but not limited to
limitation on other senior
subordinated indebtedness,
limitation on indebtedness and
preferred stock of restricted
subsidiaries, limitation on
indebtedness, limitation on
restricted payments, limitation on
transactions with affiliates,
limitation on the sale or issuance
of restricted subsidiaries' capital
stock, limitation on restrictions on
distributions from restricted
subsidiaries, limitation on asset
sales and limitation on merger,
consolidation or sale of assets.
Change of Control: In the event of a Change of Control,
each holder of Notes will have the
right to require the Issuer to
repurchase such holder's Notes at a
purchase price equal to 101% of the
principal amount thereof, plus
accrued and unpaid interest.
Events of Default: Customary for high yield
subordinated notes such as the
Senior Subordinated Notes and others
to be reasonably specified by the
Initial Purchaser, including but not
limited to nonpayment of principal
or interest, violation of covenants,
cross acceleration to other debt in
excess of an amount to be agreed
upon, bankruptcy and judgments.
Governing Law: New York.
<PAGE> 10
[ Annex II]
[to Exhibit A]
CLOSING CONDITIONS
Capitalized terms used but not defined herein shall, unless otherwise
specified, have the meanings assigned to such terms in the Letters (as
defined).
The Commitments of Credit Suisse First Boston or Credit Suisse First
Boston Corporation (collectively, "CSFB") pursuant to the Bridge Loan
Commitment Letter, the Engagement Letter and the Commitment Letter, each dated
as of April 11, 1997, as the case may be, between CSFB and Hedstrom Corporation
(together, the "Letters") shall be subject to the following conditions:
(i) there not becoming known to CSFB after the date of the
Letters any information or other matter relating to Acquiror or Target
which CSFB has reasonable cause to believe is accurate and which is
inconsistent in a material and adverse manner with any information or
other matter disclosed to CSFB by Acquiror or Target prior to the date
of the Letters;
(ii) the obligations of the parties thereto contained in the
Agreement and Plan of Merger dated April 11, 1997, among Acquiror,
AcquisitionCo and Target (the "Merger Agreement") to be performed at
or prior to the consummation of the Tender Offer shall have been
performed or complied with by Acquiror, AcquisitionCo and Target prior
to the consummation of the Tender Offer, except where the failure so
to perform or comply could not reasonably be expected to result in a
Material Adverse Effect (as defined);
(iii) there shall be no litigation or administrative
proceedings or other legal or regulatory developments, actual or
threatened, that, singly or in the aggregate, could have a Material
Adverse Effect on Acquiror or Target or the ability of Acquiror to
fully and timely perform its obligations under the documents executed
in connection with the Transactions, or the ability of the parties to
consummate the financing or
<PAGE> 11
2
the other Transactions contemplated by the Letters or the validity or
enforceability of any of the documents executed in connection with the
Transactions or the rights, remedies and benefits available to the
parties thereunder;
(iv) CSFB and, if applicable, the Lenders, shall have
received an opinion (and related going-concern valuation) reasonably
satisfactory in all respects to the Lenders and CSFB, as applicable,
from an independent valuation firm reasonably satisfactory to the
Lenders and CSFB, as applicable, in each case to the effect that,
after giving effect to the Transactions, Acquiror will not be
insolvent, will not be rendered insolvent by the indebtedness incurred
in connection therewith, will not be left with unreasonably small
capital with which to engage in its business and will not have
incurred debts beyond its ability to pay such debts as they mature;
(v) CSFB's and, if applicable, the Lenders', reasonable
satisfaction in all material respects with any amendments to any of
the terms of (i) the Tender Offer and all material documents relating
thereto, (ii) any definitive agreements relating to the Acquisition
and any other material agreements to be entered into in connection
with the Acquisition and (iii) the Senior Bank Facilities and the
Equity Contribution;
(vi) the receipt by CSFB and, if applicable, the Lenders', of
financial statements of Acquiror and Target (including notes thereto),
consisting of (a) audited and pro forma balance sheets for each period
in the 3 fiscal-year period ended December 31, 1996, and (b) audited
and pro forma statements of operations and cash flows for each period
in the 3 fiscal-year period ended December 31, 1996, and CSFB's and,
if applicable, the Lenders', receipt of any unaudited interim
financial statements deemed necessary or reasonably desirable in the
judgment of CSFB and the Lenders, if applicable, and all such
financial statements, historical or pro forma delivered pursuant
<PAGE> 12
3
to this paragraph (vi) to be in compliance with the requirements of
Regulation S-X for a public offering registered under the Securities
Act or 1933 (the "Securities Act");
(vii) the approval and/or recommendation by the Board of
Directors of Target of the Tender Offer and the Acquisition;
(viii) the waiting period (and any extension thereof)
applicable to the merger of AcquisitionCo and Target under the HSR Act
(as defined in the Merger Agreement) shall have been terminated or
shall have expired, and no restrictive order or other requirements
shall have been placed on Acquiror, AcquisitionCo, Target or the
surviving entity in connection therewith, except where such
restrictive order or other requirements could not reasonably be
expected to result in a Material Adverse Effect;
(ix) there not having occurred or becoming known to CSFB
(a)any event or events having occurred that, individually or in the
aggregate, could have a Material Adverse Effect on Acquiror or Target
or (b) (i) any general suspension of trading in, or limitation on
prices for, securities on any national securities exchange or in the
over-the-counter market in the United States for a period in excess of
forty-eight hours, (ii) the declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States, (iii)
the commencement of a war, armed hostilities or other international or
national calamity, directly or indirectly involving the United States,
(iv) any limitations (whether or not mandatory) imposed by any
governmental authority on the nature or extension of credit or further
extension of credit by banks or other lending institutions, (v) in the
case of the foregoing clauses (iii) and (iv), a material acceleration
or worsening thereof, or (vi) any other material adverse change in
bank or capital market conditions that has had a material adverse
effect on the syndication of leveraged bank credit facilities or
<PAGE> 13
4
the consummation of high yield offerings, as the case may be, that
CSFB shall reasonably determine makes it impracticable to consummate
the Offerings prior to the termination of the Offering Period or
syndication of the Bridge Loan, as the case may be;
(x) CSFB's satisfaction that, immediately prior to and during
the marketing period for any Offering or syndication of the Bridge
Loan, as the case may be, there shall be no competing issues of debt
securities or commercial bank facilities (other than the Senior Bank
Facilities the Senior Subordinated Note Offering or Bridge Loan and
the Holdings Senior Discount Note Offering, as applicable) of
Acquiror, Holdings or AcquisitionCo;
(xi) the negotiation, preparation, execution and delivery of
definitive documentation reasonably satisfactory to CSFB, in
connection with the Offerings, the Bridge Loan and the purchase of the
Holdings Senior Discount Notes, if applicable;
(xii) customary closing conditions for transactions similar to
the Bridge Loan, the Offerings and the purchase of the Holdings Senior
Discount Notes including the accuracy of all representations and
warranties contained in the Letters, the absence of any defaults, no
material change in the capital, corporate and organizational structure
of Holdings, Acquiror and its subsidiaries (after giving effect to the
Transactions), compliance with laws, adequate insurance, except where
the failure so to perform or comply with such customary closing
conditions could not reasonably be expected to result in a Material
Adverse Effect, and the receipt by CSFB of reasonably satisfactory
legal opinions from Acquiror's counsel in connection with the
Offerings and the Bridge Loan (including 10b-5 opinions relating to
any offering documents) and satisfactory accountant's "comfort"
letters in connection with the Offerings; and
(xiii) payment of fees.
<PAGE> 14
5
A "Material Adverse Effect" shall mean the result of one or
more events, changes or effects which, individually or in the aggregate, could
reasonably be expected to have a material adverse effect on (i) the business,
results of operations, financial condition or prospects of Acquiror,
AcquisitionCo or Target and each of their respective subsidiaries, in each
case, taken as a whole and (ii) the ability of CSFB to consummate the Offerings
prior to the Offering Period or syndicate the Bridge Loan.
<PAGE> 15
Exhibit B
HOLDINGS
Offering of Senior Discount Notes
Preliminary Summary of Terms
Issuer and Issue: Hedstrom Holdings Corporation
("Holdings" or "Issuer"), a
corporation which will own all the
equity interests of Hedstrom
Corporation ("Acquiror"), will issue
senior discount notes (the "Holdings
Senior Discount Notes").
Amounts: The aggregate principal amount of
the Holdings Senior Discount Notes,
together with the aggregate gross
proceeds from the issuance of the
Senior Subordinated Notes of
Acquiror, will equal up to $140
million.
Maturity: 12 years.
Distribution Method: Pursuant to Rule 144A.
Use of Proceeds: To fund a portion of the purchase
price paid in the Acquisition of all
of the issued and outstanding shares
of Target.
Interest: No cash interest accruing or payable
until the fifth anniversary of the
issue date and interest accruing and
payable in cash thereafter.
Security: The Holdings Senior Discount Notes
will be unsecured.
Guarantees: None.
<PAGE> 16
2
Ranking: The Holdings Senior Discount Notes
will be senior, unsecured
obligations of Holdings, ranking
pari passu in right of payment with
all existing and future senior
unsecured obligations of Holdings
(including guarantees by Holdings of
the Senior Bank Facilities and the
Senior Subordinated Notes) and will
rank senior to all future
subordinated debt of Holdings.
Mandatory
Redemption: None.
Optional Redemption: The Holdings Senior Discount Notes
will be non-callable for five years
and will be callable at par plus
one-half of the yield following the
fifth anniversary of issuance,
declining ratably to par following
the eighth anniversary of issuance.
Equity Offering At any time prior to the third
Redemption: anniversary of issuance, Holdings
may redeem up to an amount to be
determined of the Holdings Senior
Discount Notes, in each case from
the proceeds of one or more public
equity offerings at a redemption
price to be fixed at the time of,
and as a function of, the pricing of
the Holdings Senior Discount Notes,
plus accrued and unpaid interest.
Registration The Issuer will enter into a
Requirement: registration agreement relating to
the Holdings Senior Discount Notes,
which will contain terms customary
<PAGE> 17
3
for Rule 144A offerings. Pursuant
to the registration agreement,
Holdings will be obligated to
consummate an exchange offer
pursuant to an effective
registration statement or to cause a
shelf registration statement with
respect to resales of the Holdings
Senior Discount Notes, to be
declared effective under the
Securities Act and, if one of such
events does not occur prior to the
date that is 150 days after the date
of issuance of the Holdings Senior
Discount Notes, cash interest on the
Holdings Senior Discount Notes of
0.5% per annum will accrue and be
payable in cash until such default
shall be cured.
SEC Reports: Notwithstanding that Holdings may
not be, or may not be required to
remain, subject to the reporting
requirements of Section 13 or 15(d)
of the Exchange Act, Holdings will
file with the SEC and provide the
Trustee and holders of the Holdings
Senior Discount Notes with such
annual reports and such information,
documents and other reports as are
specified in Sections 13 and 15(d)
of the Exchange Act.
Negative Covenants: Customary for high yield discount
securities similar to the Holdings
Senior Discount Notes and others as
are reasonably specified by the
Initial Purchaser, including but not
limited to: limitation on
indebtedness, limitation on
indebtedness and preferred stock of
<PAGE> 18
4
restricted subsidiaries, limitation
on restricted payments, limitations
on transactions with affiliates,
limitation on the sale or issuance
of restricted subsidiaries' capital
stock, limitation on restrictions on
distributions from restricted
subsidiaries, limitation on asset
sales, limitation on liens and
limitation on merger, consolidation
or sale of assets.
Change of Control: In the event of a Change of Control,
each holder of Holdings Senior
Discount Notes will have the right
to require the Issuer to repurchase
such holder's Holdings Senior
Discount Notes at 101% of the
Accreted Value thereof, plus accrued
and unpaid interest.
Events of Default: Customary for high yield discount
securities such as the Holdings
Senior Discount Notes and others as
are reasonably specified by the
Initial Purchaser, including but not
limited to: nonpayment of principal
or interest, violation of covenants,
cross acceleration to other debt in
excess of an amount to be agreed
upon, bankruptcy and judgments.
Governing Law: New York.
<PAGE> 19
EXHIBIT C
April 11, 1997
TO: Credit Suisse First Boston Corporation
Eleven Madison Avenue
New York, New York 10010-3629
In connection with your engagement (the "engagement") to
advise and assist us with the private placements of the Holdings Senior
Discount Notes and the Senior Subordinated Notes (each as defined in the
Engagement Letter dated the date hereof between us and you), we agree to
indemnify and hold harmless CREDIT SUISSE FIRST BOSTON CORPORATION ("CSFB" or
"you") and its affiliates, the respective directors, officers, partners, agents
and employees of CSFB and its affiliates, and each other person, if any,
controlling CSFB or any of its affiliates (collectively, "Indemnified
Persons"), from and against, and we agree that no Indemnified Person shall have
any liability to us or our owners, parents, affiliates, security holders or
creditors for, any losses, claims, damages or liabilities (including actions or
proceedings in respect thereof) (collectively "Losses") (A) related to or
arising out of (i) our actions or failures to act (including statements or
omissions made, or information provided, by us or our agents) or (ii) actions
or failures to act by an Indemnified Person with our express consent or in
reasonable reliance on our actions or failures to act, or (B) otherwise related
to or arising out of the engagement or your performance thereof, except that
this indemnity shall not apply to any Losses that are judicially determined to
have resulted from your willful misconduct, bad faith or gross negligence. If
such indemnification is for any reason not available or insufficient to hold
you harmless, we agree to contribute to the Losses involved in such proportion
as is appropriate to reflect the relative benefits received (or anticipated to
be received) by us and by you with respect to the engagement or, if such
allocation is judicially determined unavailable, in such proportion as is
appropriate to reflect other equitable considerations such as the relative
fault of us on the one hand and of you on the other hand; provided, however,
that, to the extent permitted by applicable law,
<PAGE> 20
2
the Indemnified Persons shall not be responsible for amounts which in the
aggregate are in excess of the amount of all fees actually received by you from
us in connection with the engagement. Relative benefits to us, on the one
hand, and you, on the other hand, with respect to the engagement shall be
deemed to be in the same proportion as (i) the total value paid or proposed to
be paid or received or proposed to be received by us or our security holders,
as the case may be, pursuant to the transactions, whether or not consummated,
contemplated by the engagement bears to (ii) all fees proposed to be paid to
you in connection with the engagement.
We will reimburse each Indemnified Person for all expenses
(including without limitation reasonable fees and disbursements of counsel and
expenses incurred in connection with preparing for and responding to third
party subpoenas) as they are incurred by such Indemnified Person in connection
with investigating, preparing for or defending any action, claim,
investigation, inquiry, arbitration or other proceeding ("Action") referred to
above (or enforcing this agreement or the Engagement Letter), whether or not in
connection with pending or threatened litigation in which any Indemnified
Person is a party, and whether or not such Action is initiated or brought by
you; provided, however, that if it is finally judicially determined that Losses
resulted from the bad faith or gross negligence of an Indemnified Person as set
forth in the exception to clause (B) above, you agree to reimburse us for all
expenses actually advanced by us to you and any other Indemnified Person
hereunder to the extent applicable to such Losses. Promptly after receipt by
an Indemnified Person of notice of any complaint or the commencement of any
Action with respect to which indemnification is being sought hereunder, such
person will notify us in writing of such complaint or of the commencement of
such Action, but failure so to notify us will not relieve us from any liability
which we may have hereunder or otherwise, except to the extent that such
failure materially prejudices our rights. If we so elect or are requested by
such Indemnified Person, we will assume the defense of such Action, including
the employment of counsel reasonably satisfactory to you and the payments of
the fees
<PAGE> 21
3
and disbursements of such counsel. In the event, however, such Indemnified
Person reasonably determines in its judgment that having common counsel would
present such counsel with a conflict of interest or if we fail to assume the
defense of the Action in a timely manner, then such Indemnified Person may
employ separate counsel to represent or defend it in any such Action, and we
will pay the fees and disbursements of such counsel; provided, however, that we
will not be required to pay the fees and disbursements of more than one
separate counsel (in addition to local counsel) for all Indemnified Persons in
any jurisdiction in any single Action. In any Action the defense of which we
assume, the Indemnified Person will have the right to participate in such
litigation and to retain its own counsel at such Indemnified Person's own
expense. We further agree that we will not settle or compromise or consent to
the entry of any judgment in any pending or threatened Action in respect of
which indemnification may be sought hereunder (whether or not an Indemnified
Person is a party therein) unless we have given you reasonable prior written
notice thereof and used all reasonable efforts, after consultation with you, to
obtain an unconditional release of each Indemnified Person from all liability
arising therefrom.
Our obligations hereunder shall be in addition to any rights
that any Indemnified Person may have at common law or otherwise. Solely for
the purpose of enforcing this agreement, we hereby consent to personal
jurisdiction and to service and venue in any court in which any claim which is
subject to this agreement is brought by or against any Indemnified Person. We
acknowledge that in connection with the engagement you are acting as an
independent contractor with duties owing solely to us. YOU HEREBY AGREE, AND
WE HEREBY AGREE ON OUR OWN BEHALF AND, TO THE EXTENT PERMITTED BY APPLICABLE
LAW, ON BEHALF OF OUR SECURITY HOLDERS, TO WAIVE ANY RIGHT TO TRIAL BY JURY
WITH RESPECT TO ANY CLAIM, COUNTER-CLAIM OR ACTION ARISING OUT OF THE
ENGAGEMENT, YOUR PERFORMANCE THEREOF OR THIS AGREEMENT.
The provisions of this agreement shall apply to the engagement
(including related activities prior to the date hereof) and any modification
thereof and shall remain
<PAGE> 22
4
in full force and effect regardless of the completion or termination of the
engagement. This agreement and any other agreements relating to the engagement
shall be governed by and construed in accordance with the laws of the State of
New York, without regard to conflicts of law principles.
Very truly yours,
HEDSTROM CORPORATION,
By: /s/ Andrew S. Rosen
-----------------------------------
Name: Andrew S. Rosen
Title:Vice President
Accepted and agreed to
as of the date hereof:
CREDIT SUISSE
FIRST BOSTON CORPORATION
By: /s/ Harold W. Bogle
------------------------------------
Name: Harold W. Bogle
Title:Managing Director
<PAGE> 1
EXHIBIT 99.(b)(3)
CREDIT SUISSE FIRST BOSTON CORPORATION
Eleven Madison Avenue
New York, NY 10055
April 11, 1997
Hedstrom Corporation
Cherrington Corporate Center
300 Corporate Center Drive, Suite 100
Coraopolis, PA 15108
Attention: Mr. Arnold E. Ditri
Chief Executive Officer
Hedstrom Corporation
Commitment Letter
Senior Discount Notes
Dear Mr. Ditri:
You have advised us that you intend to acquire (the
"Acquisition") all of the issued and outstanding capital stock of a company you
have identified to us as Gadget Corporation ("Target") pursuant to a tender
offer for all such shares (the "Tender Offer"). We understand that the cash
price per share to be paid in the Tender Offer will be up to $11.25,
representing a maximum aggregate purchase price for Target of $220 million
(including the outstanding debt of Target), subject to seasonal working capital
requirements.
You have further advised us that in connection with the
Acquisition (i) you will form a Delaware corporation ("AcquisitionCo"), and
will make an equity contribution of $40 million (the "Equity Contribution") to
AcquisitionCo in exchange for all of its outstanding capital
<PAGE> 2
stock,(ii) AcquisitionCo will commence the Tender Offer and (iii) upon
consummation of the Tender Offer, (a) Hedstrom Holdings Corporation
("Holdings"), the holder of all the capital stock of the Acquiror, will issue
senior discount notes, which will not require cash interest payments by
Holdings for at least 5 years after issuance (the "Holdings Senior Discount
Notes"), for aggregate gross proceeds, together with the aggregate principal
amount of the Senior Subordinated Notes (as defined), of $140 million, (b) you
will obtain senior secured credit facilities (the "Senior Bank Facilities") in
an aggregate principal amount of $180 million, consisting of a $110 million
term facility and a $70 million revolving credit facility (up to an amount to
be agreed upon of which may be borrowed in connection with the Acquisition for
the purpose of refinancing short-term indebtedness incurred to fund seasonal
working capital requirements), and (c) you will issue senior subordinated notes
(the "Senior Subordinated Notes") in a principal amount, together with the
gross proceeds from the offering of the Holdings Senior Discount Notes, of $140
million or, in lieu thereof, incur a senior subordinated bridge loan in a
principal amount of $115 million.
Reference is made to the engagement letter dated the date
hereof between us and you (the "Engagement Letter"). Pursuant to the
Engagement Letter, Credit Suisse First Boston Corporation (the "Initial
Purchaser") has committed to use its best efforts to complete the private
placement of the Holdings Senior Discount Notes (the "Offering").
In connection with the Offering, you have requested that the
Initial Purchaser commit to purchase, or to cause one or more of its affiliates
to purchase, Holdings Senior Discount Notes for gross proceeds of up to $25
million, if such Notes cannot be sold pursuant to the Offering on or prior to
the later of the date that is 60 days from the date hereof and the expiration
date of the Tender Offer (the "Offering Period"). The Initial Purchaser is
pleased to hereby confirm that, in the event the Offering is not completed
within the Offering Period, it hereby commits (the "Commitment"), upon the
written request of
<PAGE> 3
Acquiror to do so (which written request (a "Purchase Request") must be
delivered no later than the final day of the Offering Period) and subject to
the terms and conditions described below, to purchase, or to cause one or more
of its affiliates to purchase, Holdings Senior Discount Notes, or to cause one
or more of its affiliates to make loans, for aggregate gross proceeds of $25
million on the terms set forth therefor (which shall also be applicable for
such loans) in Exhibit A attached hereto (the "Summary of Terms"). In the
event the Acquiror timely delivers a Purchase Request, the Initial Purchaser
will consummate the purchase of such Holdings Senior Discount Notes within five
business days following the expiration of the Offering Period. The Tender
Offer, the Equity Contribution, the incurrence of the Senior Bank Facilities,
the Acquisition, Offering and the offering of Senior Subordinated Notes or the
incurrence of the Bridge Loan are referred to herein collectively as the
"Transactions".
The Commitment is subject to the satisfaction of the closing
conditions set forth in Annex I to Exhibit A attached hereto.
Notwithstanding anything in this letter to the contrary, the
Commitment will expire at 5:00 p.m., New York City time on April 18, 1997,
unless accepted prior to such time and, if accepted prior to such time, the
Commitment will expire at 5:00 p.m. New York City time on the earliest of (i)
the termination of the Tender Offer or the date Acquiror purchases, or elects
not to purchase shares of Target's capital stock, (ii) the date of issuance of
the Holdings Senior Discount Notes and (iii) the date that is 75 days from the
date hereof. In addition, the Commitment shall terminate (a) in the event
that, after completion of an offering memorandum relating to the Offering, the
Initial Purchaser shall have delivered a written notice to Acquiror
recommending that Holdings proceed with the marketing effort for the Offering
and Acquiror elects (which election shall be made within two business days
following receipt of such notice) not to then proceed with such marketing
effort, or (b) following the marketing effort with respect to the Offering, (i)
the Initial Purchaser is prepared to enter into a customary
<PAGE> 4
purchase agreement providing for the purchase of the Holdings Senior Discount
Notes (and the terms of such Holdings Senior Discount Notes are consistent in
all material respects with the Summary of Terms and the Holdings Senior
Discount Notes have a total yield to maturity (determined in good faith and in
a manner consistent with this letter) equal to or less than the Initial
Purchaser Discount Note Yield (as defined in the Summary of Terms) and, if
warrants to purchase common stock are required, the amount of common stock
subject to such warrants (as determined) is equal to or less than the maximum
amount of common stock subject to the Initial Purchaser Discount Note Warrants
(as defined in the Summary of Terms)) and (ii) Acquiror elects not to enter
into such purchase agreement or, having entered into such purchase agreement,
such Offering is not consummated for any reason other than the failure by the
Initial Purchaser to comply with its obligations under such purchase agreement;
provided, however, that upon termination of the Commitment pursuant to clause
(a) or (b), the right of the Acquiror to deliver a Purchase Request shall
simultaneously terminate. Expiration or termination of the Commitment shall
not affect your obligations under the following sentence or the second
succeeding paragraph, all of which obligations shall remain in full force and
effect regardless of any termination of the Commitment or the completion of the
Acquisition and the other Transactions.
You hereby agree to indemnify and hold harmless the Initial
Purchaser, its affiliates and its directors, officers, employees, agents and
advisors (each, an "Indemnified Party"), from and against any and all claims,
damages, liabilities (including securities law liabilities), losses and
expenses, including without limitation fees, expenses and disbursements of
counsel, which may be incurred by or asserted against an Indemnified Party in
connection with the Initial Purchaser's commitment or participation in the
Transactions or the Commitment or any related matter or any investigation,
litigation or proceeding in connection therewith and whether or not the
Transactions or the note purchases by the Initial Purchaser pursuant to the
Commitment are consummated, except to the extent such claim, damage, loss,
liability or expenses is found in a final nonappealable judgment by a court
<PAGE> 5
of competent jurisdiction to have resulted from such Indemnified Party's own
gross negligence or willful misconduct or material breach of this Commitment
Letter. None of Acquiror, AcquisitionCo or the Initial Purchaser shall be
responsible or liable to any other party or any other person for consequential
damages which may be alleged as a result of this letter.
This letter shall be governed by and construed in accordance
with the laws of the State of New York. Delivery of an executed counterpart of
this letter by telecopier shall be effective as delivery of a manually executed
counterpart of this letter. You and we hereby irrevocably waive any right to
trial by jury in any action, claim, suit or proceeding (whether based on
contract, tort or otherwise) arising out of or relating to this letter or the
transactions contemplated hereby. This letter is not assignable by you to any
other person or entity, and, except as otherwise provided herein, this letter
is not assignable by us without your consent.
<PAGE> 6
This letter has been delivered to you for your information and
is not to be distributed or disclosed to, or otherwise relied upon by, any
other person (including pursuant to any proxy statement or other publicly filed
document) without the Initial Purchaser's prior written consent, except that
you may disclose this letter (a) on a confidential need-to-know basis to Target
and its advisors and to your advisors and (b) as required by applicable law or
compulsory legal process.
Very truly yours,
CREDIT SUISSE FIRST BOSTON CORPORATION,
By: /s/ Harold W. Bogle
-------------------------
Harold W. Bogle
Managing Director
Agreed to and Accepted
HEDSTROM CORPORATION,
By: /s/ Andrew S. Rosen
-------------------
Date: ____________________
<PAGE> 7
Exhibit A
HOLDINGS
Senior Discount Notes
Preliminary Summary of Terms
Issuer and Issue: Hedstrom Holdings Corporation ("Holdings" or
"Issuer"), a corporation which owns all the
equity interests of Hedstrom Corporation
("Acquiror"), will issue senior discount
notes (the "Holdings Senior Discount
Notes").
Amounts: Up to $25 million.
Maturity: 12 years.
Use of Proceeds: To fund a portion of the purchase price paid
in the Acquisition of all of the issued and
outstanding shares of Target.
Interest: No cash interest accruing or payable until
the fifth anniversary of the issue date and
interest accruing and payable in cash
thereafter.
Security: The Holdings Senior Discount Notes will be
unsecured.
Guarantees: None.
Ranking: The Holdings Senior Discount Notes will be
senior, unsecured obligations of Holdings,
ranking pari passu in right of payment with
all existing and future senior unsecured
obligations of Holdings (including
guarantees by Holdings
<PAGE> 8
of the Senior Bank Facilities and the Senior
Subordinated Notes) and will rank senior to
all future subordinated debt of Holdings.
Mandatory Redemption: None.
Optional Redemption: The Holdings Senior Discount Notes will be
non-callable for five years and will be
callable at par plus one-half of the yield
following the fifth anniversary of issuance,
declining ratably to par following the
eighth anniversary of issuance.
Equity Offering Redemption: At any time prior to the third anniversary
of issuance, Holdings may redeem up to an
agreed upon percentage of the Holdings
Senior Discount Notes, in each case from the
proceeds of one or more public equity
offerings at a redemption price to be fixed
at the time of, and as a function of, the
pricing of the Holdings Senior Discount
Notes, plus accrued and unpaid interest.
SEC Reports: Notwithstanding that Holdings may not be, or
may not be required to remain, subject to
the reporting requirements of Section 13 or
15(d) of the Exchange Act, Holdings will
file with the SEC and provide the Trustee
and holders of the Holdings Senior Discount
Notes with such annual reports and such
information, documents and other reports as
are specified in Sections 13 and 15(d) of
the Exchange Act.
<PAGE> 9
3
Negative Covenants: Customary for high yield discount securities
similar to the Holdings Senior Discount
Notes and others as are reasonably specified
by the Initial Purchaser, including but not
limited to: limitation on Indebtedness,
limitation on Indebtedness and preferred
stock of restricted subsidiaries, limitation
on restricted payments, limitations on
transactions with affiliates, limitation on
the sale or issuance of restricted
subsidiaries' capital stock, limitation on
restrictions on distributions from
restricted subsidiaries, limitation on asset
sales, limitation on liens and limitation on
merger, consolidation or sale of assets.
Change of Control: In the event of a Change of Control, each
holder of Holdings Senior Discount Notes
will have the right to require the Issuer to
repurchase such holder's Holdings Senior
Discount Notes at 101% of the Accreted Value
thereof, plus accrued and unpaid interest.
Events of Default: Customary for high yield discount securities
such as the Holdings Senior Discount Notes
and others as are reasonably specified by
the Initial Purchaser, including but not
limited to: nonpayment of principal or
interest, violation of covenants, cross
acceleration to other debt in excess of an
amount
<PAGE> 10
4
to be agreed upon, bankruptcy and judgments.
Governing Law: New York.
Yield: The Holdings Senior Discount Notes will be
purchased by the Initial Purchaser at a
discount to maturity (the "Initial Purchaser
Discount Note Yield") that, calculated on a
semi-annual bond equivalent basis, equals
(a) in the event the offering of Senior
Subordinated Notes is consummated, the sum
of (i) the coupon borne by the Senior
Subordinated Notes, plus (ii) 500 basis
points; or (b) in the event the offering of
Senior Subordinated Notes is not
consummated, the sum of (i) the yield, on
the Treasury Note maturing on the day 12
years from the day immediately preceding the
date of purchase of such Holdings Senior
Discount Notes by the Initial Purchaser (or,
if no Treasury Note matures on such day, the
yield determined by linear interpolation of
the yields on the Treasury Notes maturing
immediately prior to and immediately
following such date) plus (ii) 875 basis
points; provided that in no event shall the
Initial Purchaser Discount Note Yield
exceed 15%.
Consummation of It will be a condition to the purchase of
Tender Offer and any Holdings Senior Discount Notes (together
Acquisition: with the other conditions set forth in the
Commitment Letter) by the Initial Purchaser
that the Tender Offer and the Acquisition
be consummated
<PAGE> 11
5
concurrently with or prior to such purchase
of such Notes.
Registration Holdings will file within 30 days following
Rights and Cooperation: the date of issuance of such Holdings Senior
Discount Notes to the Initial Purchaser, and
will use its best efforts to cause to become
effective as soon thereafter as practicable,
a shelf registration statement with respect
to resales of such Holdings Senior Discount
Notes. Holdings will keep such shelf
registration statement effective and
available (subject to customary exceptions)
until it is no longer needed to permit
unrestricted resales of such Holdings Senior
Discount Notes by the Initial Purchaser, but
in no event longer than three years from the
date of issuance of such Holdings Senior
Discount Notes to the Initial Purchaser. If
within 90 days from the issue date of such
Holdings Senior Discount Notes, a shelf
registration statement for resales of such
Holdings Senior Discount Notes has not been
declared effective, or, if after becoming
effective the shelf registration statement
ceases to be effective or ceases to be
useable in connection with resales of such
Holdings Senior Discount Notes (subject to
customary exceptions), cash interest will
accrue and be payable at a rate of 0.5% per
annum at the end of each 90-day period
thereafter until such default shall be cured;
provided, however, that in no event shall the
interest on
<PAGE> 12
6
the Holdings Senior Discount Notes increase
by more than an aggregate of 2.0% per annum.
Holdings agrees, at its expense, to assist
the Initial Purchaser in connection with
resales of any of the Holdings Senior
Discount Notes, including making its (and
using its best efforts to cause Target to
make its) senior officers available to the
Initial Purchaser, including making them
available to assist in the preparation of
marketing materials relating to any resales,
to participate in due diligence sessions and
to participate in road shows or other
presentations to prospective purchasers of
such Holdings Senior Discount Notes.
Rights: In connection with its purchase of any of the
Holdings Senior Discount Notes pursuant to a
Purchase Request, the Initial Purchaser will
receive rights (the "Initial Purchaser
Discount Note Rights") to acquire equity
interests without an exercise price
representing 10% of the common stock of
Holdings; provided, however, that if within
60 days after such purchase of any of the
Holdings Senior Discount Notes, the Initial
Purchaser resells such Holdings Senior
Discount Notes to a third party, then the
Initial Purchaser shall return to Holdings
Initial Purchaser Discount Note Rights equal
to 50% of the difference between the amount
of Initial Purchaser Discount Note Rights
<PAGE> 13
7
representing 10% of the common stock of
Holdings and the aggregate amount of Initial
Purchaser Discount Note Rights transferred to
such third party in connection with such
resale. The Initial Purchaser Discount Note
Rights will be issued pursuant to a rights
agreement containing customary anti-dilution
provisions and registration rights.
Notwithstanding the reference to the issuance
of the Initial Purchase Discount Note Rights,
Holdings will instead issue shares of its
common stock directly in an amount equal to
the amount for which the Rights would have
been exercisable.
<PAGE> 14
[ Annex II]
[to Exhibit A]
CLOSING CONDITIONS
Capitalized terms used but not defined herein shall, unless otherwise
specified, have the meanings assigned to such terms in the Letters (as
defined).
The Commitments of Credit Suisse First Boston or Credit Suisse First
Boston Corporation (collectively, "CSFB") pursuant to the Bridge Loan
Commitment Letter, the Engagement Letter and the Commitment Letter, each dated
as of April 11, 1997, as the case may be, between CSFB and Hedstrom Corporation
(together, the "Letters") shall be subject to the following conditions:
(i) there not becoming known to CSFB after the date of the
Letters any information or other matter relating to Acquiror or Target
which CSFB has reasonable cause to believe is accurate and which is
inconsistent in a material and adverse manner with any information or
other matter disclosed to CSFB by Acquiror or Target prior to the date
of the Letters;
(ii) the obligations of the parties thereto contained in the
Agreement and Plan of Merger dated April 11, 1997, among Acquiror,
AcquisitionCo and Target (the "Merger Agreement") to be performed at
or prior to the consummation of the Tender Offer shall have been
performed or complied with by Acquiror, AcquisitionCo and Target prior
to the consummation of the Tender Offer, except where the failure so
to perform or comply could not reasonably be expected to result in a
Material Adverse Effect (as defined);
(iii) there shall be no litigation or administrative
proceedings or other legal or regulatory developments, actual or
threatened, that, singly or in the aggregate, could have a Material
Adverse Effect on Acquiror or Target or the ability of Acquiror to
fully and timely perform its obligations under the documents executed
in connection with the Transactions, or the ability of the parties to
consummate the financing or
<PAGE> 15
2
the other Transactions contemplated by the Letters or the validity or
enforceability of any of the documents executed in connection with the
Transactions or the rights, remedies and benefits available to the
parties thereunder;
(iv) CSFB and, if applicable, the Lenders, shall have
received an opinion (and related going-concern valuation) reasonably
satisfactory in all respects to the Lenders and CSFB, as applicable,
from an independent valuation firm reasonably satisfactory to the
Lenders and CSFB, as applicable, in each case to the effect that,
after giving effect to the Transactions, Acquiror will not be
insolvent, will not be rendered insolvent by the indebtedness incurred
in connection therewith, will not be left with unreasonably small
capital with which to engage in its business and will not have
incurred debts beyond its ability to pay such debts as they mature;
(v) CSFB's and, if applicable, the Lenders', reasonable
satisfaction in all material respects with any amendments to any of
the terms of (i) the Tender Offer and all material documents relating
thereto, (ii) any definitive agreements relating to the Acquisition
and any other material agreements to be entered into in connection
with the Acquisition and (iii) the Senior Bank Facilities and the
Equity Contribution;
(vi) the receipt by CSFB and, if applicable, the Lenders', of
financial statements of Acquiror and Target (including notes thereto),
consisting of (a) audited and pro forma balance sheets for each period
in the 3 fiscal-year period ended December 31, 1996, and (b) audited
and pro forma statements of operations and cash flows for each period
in the 3 fiscal-year period ended December 31, 1996, and CSFB's and,
if applicable, the Lenders', receipt of any unaudited interim
financial statements deemed necessary or reasonably desirable in the
judgment of CSFB and the Lenders, if applicable, and all such
financial statements, historical or pro forma delivered pursuant
<PAGE> 16
3
to this paragraph (vi) to be in compliance with the requirements of
Regulation S-X for a public offering registered under the Securities
Act or 1933 (the "Securities Act");
(vii) the approval and/or recommendation by the Board of
Directors of Target of the Tender Offer and the Acquisition;
(viii) the waiting period (and any extension thereof)
applicable to the merger of AcquisitionCo and Target under the HSR Act
(as defined in the Merger Agreement) shall have been terminated or
shall have expired, and no restrictive order or other requirements
shall have been placed on Acquiror, AcquisitionCo, Target or the
surviving entity in connection therewith, except where such
restrictive order or other requirements could not reasonably be
expected to result in a Material Adverse Effect;
(ix) there not having occurred or becoming known to CSFB
(a)any event or events having occurred that, individually or in the
aggregate, could have a Material Adverse Effect on Acquiror or Target
or (b) (i) any general suspension of trading in, or limitation on
prices for, securities on any national securities exchange or in the
over-the-counter market in the United States for a period in excess of
forty-eight hours, (ii) the declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States, (iii)
the commencement of a war, armed hostilities or other international or
national calamity, directly or indirectly involving the United States,
(iv) any limitations (whether or not mandatory) imposed by any
governmental authority on the nature or extension of credit or further
extension of credit by banks or other lending institutions, (v) in the
case of the foregoing clauses (iii) and (iv), a material acceleration
or worsening thereof, or (vi) any other material adverse change in
bank or capital market conditions that has had a material adverse
effect on the syndication of leveraged bank credit facilities or
<PAGE> 17
4
the consummation of high yield offerings, as the case may be, that
CSFB shall reasonably determine makes it impracticable to consummate
the Offerings prior to the termination of the Offering Period or
syndication of the Bridge Loan, as the case may be;
(x) CSFB's satisfaction that, immediately prior to and during
the marketing period for any Offering or syndication of the Bridge
Loan, as the case may be, there shall be no competing issues of debt
securities or commercial bank facilities (other than the Senior Bank
Facilities the Senior Subordinated Note Offering or Bridge Loan and
the Holdings Senior Discount Note Offering, as applicable) of
Acquiror, Holdings or AcquisitionCo;
(xi) the negotiation, preparation, execution and delivery of
definitive documentation reasonably satisfactory to CSFB, in
connection with the Offerings, the Bridge Loan and the purchase of the
Holdings Senior Discount Notes, if applicable;
(xii) customary closing conditions for transactions similar to
the Bridge Loan, the Offerings and the purchase of the Holdings Senior
Discount Notes including the accuracy of all representations and
warranties contained in the Letters, the absence of any defaults, no
material change in the capital, corporate and organizational structure
of Holdings, Acquiror and its subsidiaries (after giving effect to the
Transactions), compliance with laws, adequate insurance, except where
the failure so to perform or comply with such customary closing
conditions could not reasonably be expected to result in a Material
Adverse Effect, and the receipt by CSFB of reasonably satisfactory
legal opinions from Acquiror's counsel in connection with the
Offerings and the Bridge Loan (including 10b-5 opinions relating to
any offering documents) and satisfactory accountant's "comfort"
letters in connection with the Offerings; and
(xiii) payment of fees.
<PAGE> 18
5
A "Material Adverse Effect" shall mean the result of one or
more events, changes or effects which, individually or in the aggregate, could
reasonably be expected to have a material adverse effect on (i) the business,
results of operations, financial condition or prospects of Acquiror,
AcquisitionCo or Target and each of their respective subsidiaries, in each
case, taken as a whole and (ii) the ability of CSFB to consummate the Offerings
prior to the Offering Period or syndicate the Bridge Loan.
<PAGE> 1
EXHIBIT 99.(b)(4)
April 11, 1997
Hedstrom Corporation
Cherrington Corporate Center
300 Corporate Center Drive, Suite 100
Coraopolis, PA 15108
Attention: Mr. Arnold E. Ditri
Chief Executive Officer
Hedstrom Corporation
Bridge Loan Commitment Letter
Dear Mr. Ditri:
You have advised CREDIT SUISSE FIRST BOSTON CORPORATION
("CSFB" or "we" or "us") that Hedstrom Corporation (the "Acquiror" or "you"),
intends to acquire (the "Acquisition") all of the issued and outstanding shares
of capital stock of a company you have identified to us as Gadget Corporation
("Target") pursuant to a tender offer for all such shares (the "Tender Offer").
We understand that the cash price per share to be paid in the Tender Offer will
be $11.25, representing a maximum aggregate purchase price for Target of
approximately $220 million (including the outstanding debt of Target), subject
to seasonal working capital requirements.
You have further advised us that in connection with the
Acquisition (i) you will form a Delaware corporation ("AcquisitionCo"), and
will make an equity contribution of $40 million (the "Equity Contribution") to
AcquisitionCo in exchange for all of its outstanding capital stock, (ii)
AcquisitionCo will commence the Tender Offer and (iii) upon consummation of the
Tender Offer, (a) Hedstrom Holdings Corporation ("Holdings"), the holder of all
the capital stock of Acquiror, will issue senior discount notes, which will not
require cash interest payments by Holdings for at least 5 years after issuance
(the "Holdings Senior Discount Notes"), for aggregate gross proceeds, together
with the aggregate principal amount of the Notes (as defined), of $140 million,
(b) you will obtain senior secured credit facilities (the "Senior Bank
Facilities") in an aggregate principal amount of $180 million, consisting of a
$110 million term facility and a $70 million revolving credit facility (up to
an amount to be agreed upon of which may be borrowed in connection with the
Acquisition for the
<PAGE> 2
2
purpose of refinancing short-term indebtedness incurred to fund seasonal
working capital requirements), and (c) you will issue senior subordinated notes
(the "Notes") in a principal amount, together with the gross proceeds from the
offering of the Holdings Senior Discount Notes, of $140 million or, in lieu
thereof, incur the Bridge Loan (as defined) in a principal amount of $115
million.
In connection with the Acquisition, you have requested that
CSFB commit to provide a bridge term loan of up to $115.0 million (the "Bridge
Loan") to you. CSFB is pleased to confirm that it hereby commits to provide
the entire amount of the Bridge Loan on the terms and subject to customary
closing conditions to be set forth in the definitive documentation relating to
the Bridge Loan, including without limitation those conditions set forth in
Annex II to the Summary of Principal Terms and Conditions attached as Exhibit A
(the "Term Sheet"). The Tender Offer, the Equity Contribution, the incurrence
of the Senior Bank Facilities, the issuance of the Holdings Senior Discount
Notes, the Acquisition and the issuance of the Notes or the incurrence of the
Bridge Loan are referred to herein collectively as the "Transactions".
CSFB reserves the right and intends, prior to or after the
execution of the Bridge Loan Documents, to syndicate all or a portion of its
commitment to one or more financial institutions (such financial institutions,
together with CSFB, the "Lenders") reasonably satisfactory to you and CSFB that
will become parties to the Bridge Loan Documents. It is agreed that CSFB will
act as the sole administrative agent for, and sole arranger and syndication
manager of, the Bridge Loan and that no additional agents or co-agents or
arrangers will be appointed without the prior written consent of CSFB.
Completion of the syndication of the Bridge Loan is not a condition to CSFB's
funding the Bridge Loan.
You agree to assist CSFB in forming any such syndicate and to
provide the Lenders, promptly upon request, with all information reasonably
requested by them to complete successfully the syndication, including but not
limited to (a) an information package for delivery to potential Lenders and
participants and (b) all information and projections prepared by you or your
advisers relating to the transactions described herein. You also agree to use
your reasonable best efforts to ensure that CSFB's syndication efforts benefit
from your existing lending
<PAGE> 3
3
relationships. You further agree to make appropriate senior officers and
representatives of Acquiror and to use your reasonable best efforts to make the
appropriate senior officers and representatives of Target available to
participate in informational meetings for potential Lenders and participants at
such times and places as CSFB may reasonably request.
You represent and warrant and covenant that:
(a) all information (other than projections) which has been or
is hereafter furnished to CSFB by you or any of your representatives
in connection with the Transactions is and will be complete and
correct in all material respects as of the time furnished and does not
and will not as of the time furnished contain any untrue statement of
a material fact or omit to state a material fact necessary in order to
make the statements contained therein not materially misleading in
light of the circumstances under which such statements were made; and
(b) all financial projections that have been or are hereafter
prepared by you or on your behalf and made available to CSFB have been
or will be prepared in good faith based upon reasonable assumptions.
You agree to supplement the information and projections
referred to in clauses (a) and (b) above from time to time until completion of
the syndication so that the representations and warranties in the preceding
sentence remain correct without regard to when such information and projections
were furnished. In arranging and syndicating the Bridge Loan, CSFB will be
entitled to use and rely on such information and projections without
independent verification thereof.
In connection with the syndication of the Bridge Loan, CSFB
may, in its discretion, allocate to other Lenders portions of any fees payable
to CSFB in connection with the Bridge Loan. You agree that no Lender will
receive any compensation of any kind for its participation in the Bridge Loan
except as expressly provided for in this letter or in the bridge fee letter
dated the date hereof (the "Bridge Fee Letter").
Subject to the consummation of the Transactions, you agree to
reimburse CSFB and its affiliates, upon
<PAGE> 4
4
request, for their reasonable fees and expenses incurred in connection with the
preparation, execution and delivery of this letter and the Bridge Loan
Documents and the activities thereunder or contemplated thereby, including
syndication expenses (other than fees allocated in accordance with the
preceding paragraph); provided, however, that you agree to reimburse CSFB and
its affiliates, upon request, for the reasonable fees and expenses of their
counsel, whether or not the Transactions are consummated and whether incurred
before or after the execution of this letter.
You hereby agree to indemnify and hold harmless CSFB and each
other Lender, their respective affiliates and each of their respective
directors, officers, employees, agents and advisors (each, an "Indemnified
Party"), from and against any and all claims, damages, liabilities (including
securities law liabilities), losses and expenses, including without limitation
reasonable fees, expenses and disbursements of counsel, which may be incurred
by or asserted against an Indemnified Party in connection with CSFB's or any
Lender's commitment or participation in the Transactions or the Bridge Loan or
any related matter or any investigation, litigation or proceeding in connection
therewith and whether or not the Transactions or the Bridge Loan are
consummated, except to the extent such claim, damage, loss, liability or
expense is found in a final nonappealable judgment by a court of competent
jurisdiction to have resulted from such Indemnified Party's own gross
negligence or willful misconduct or material breach of this Commitment Letter.
None of Acquiror, AcquisitionCo, CSFB or any other Lender shall be responsible
or liable to any other party or any other person for consequential damages
which may be alleged as a result of this letter.
This letter is confidential and shall not be disclosed by you
to any person other than (i) accountants, attorneys and advisors for you or any
of your affiliates, (ii) rating agencies, (iii) to the extent approved by CSFB,
other advisors in connection with the Acquisition, and then only on a
confidential basis, (iv) as required by applicable law and compulsory legal
process, and (v) Target and its accountants, attorneys and advisors; provided
that these restrictions shall expire on the later of (a) your acceptance of
this Letter and (b) approval of the Acquisition by the Board of Directors of
Target.
Our offer to provide the Bridge Loan will terminate at 5:00
p.m. New York time, (i) on April 18, 1997,
<PAGE> 5
5
unless on or before that date you sign and return an enclosed counterpart of
this letter and the Bridge Fee Letter, and (ii) if accepted by April 18, 1997,
on the earliest of (a) the date of the termination of the Tender Offer or the
date Acquiror purchases, or elects not to purchase shares of Target's capital
stock (after funding pursuant to this Commitment Letter), (b) the date of
issuance of the Notes and (c) the date that is 75 days from the date hereof.
In any event, your obligations with respect to reimbursement, indemnification
and confidentiality shall remain in full force and effect, regardless of any
termination of the commitment of CSFB made hereunder.
This letter is intended to be solely for the benefit of the
parties hereto and is not intended to confer any benefits upon, or create any
rights in favor of, any person other than the parties hereto. This letter and
CSFB's commitment hereunder may not be assigned by you without the prior
written consent of CSFB, and attempted assignment without such consent shall be
void. CSFB's commitment hereunder may be assigned by CSFB to any of its
affiliates or any Lender, but any such assignment to an affiliate shall not
relieve CSFB from any of its obligations hereunder unless and until the Bridge
Loan shall have been funded in full by such affiliate. This letter may not be
amended or modified or any provisions hereof waived except in writing signed by
CSFB and you. This letter agreement shall be governed by and construed in
accordance with the internal laws of the State of New York. This letter
agreement may be executed in any number of counterparts, each of which when so
executed and delivered shall be deemed an original and all of which together
shall constitute one and the same instrument. Delivery of an executed
counterpart of a signature page of this letter by facsimile
<PAGE> 6
6
transmission shall be effective as delivery of a manually signed counterpart
hereof.
We appreciate the opportunity to assist you in this very
important transaction.
Very truly yours,
CREDIT SUISSE FIRST BOSTON CORPORATION,
By: /s/ Harold W. Bogle
-------------------------
Harold W. Bogle
Managing Director
AGREED TO AND ACCEPTED
HEDSTROM CORPORATION,
By: /s/ Andrew S. Rosen
-------------------
Name: Andrew S. Rosen
Title: Vice President
<PAGE> 7
Exhibit A
Bridge Loan Facility
Summary of Principal Terms and Conditions 1/
Arranger and
Administrative Agent: CREDIT SUISSE FIRST BOSTON ("CSFB" or the
"Agent").
Lenders: A syndicate of lenders (the "Lenders")
arranged by CSFB and reasonably acceptable to
Borrower.
Borrower: Hedstrom Corporation ("Acquiror" or the
"Borrower"), a wholly owned subsidiary of
Hedstrom Holdings Corporation ("Holdings").
Amount: Up to $115.0 million aggregate principal
amount.
Rank: The loans to be made hereunder by each of the
Lenders (the "Bridge Loans") will be senior
subordinated debt of Acquiror, subordinated
in right of payment to all existing and
future Senior Indebtedness of Acquiror,
including the borrowings under the Senior
Bank Facilities.
Guarantees: The Borrower's obligations under the Bridge
Loans will be guaranteed by Holdings, to the
extent the Senior Bank Facilities are
guaranteed by Holdings, on a pari passu basis
with the guarantee of the Senior Bank
Facilities and the Holdings Senior Discount
Notes and on a senior subordinated basis by
each direct or indirect domestic subsidiary
of Acquiror.
Use of Proceeds: The proceeds of the Bridge Loans, together
with the proceeds of the Holdings Senior
Discount Notes and
__________________________________
1/ All capitalized terms used but not defined herein have the meanings
given to them in the Commitment Letter to which this term sheet is attached.
<PAGE> 8
2
the Senior Bank Facilities, will be used to
consummate the Acquisition.
Funding: The Lenders will make the Bridge Loans
simultaneously with the consummation of the
other Transactions (the "Closing Date").
Notes: The Borrower will use its reasonable best
efforts to issue up to $115.0 million
principal amount of senior subordinated notes
(the "Notes") in lieu of borrowing the Bridge
Loans. In the event that Acquiror has not
issued the Notes prior to the Closing Date,
Acquiror will use its reasonable best efforts
to refinance the Bridge Loans as promptly as
practicable after the Closing Date, as
further described under "Affirmative
Covenants".
Maturity/Exchange: The Bridge Loans will mature on the date
which is 364 days after the Closing Date (the
"Bridge Maturity Date"). If any Bridge Loan
is not repaid in full on or prior to the
Bridge Maturity Date, the Lender thereof will
have the option at any time or from time to
time to receive, in exchange for such Bridge
Loan or portion thereof, exchange notes of
Acquiror (the "Exchange Notes") ranking pari
passu with the Bridge Loans and having the
terms set forth in the term sheet attached
hereto as Annex I. If any Lender does not
exchange its Bridge Loan for Exchange Notes
on the Bridge Maturity Date, such Lender
shall be required to extend the maturity of
such loan to another date selected by such
Lender. If, at such extended maturity, such
Lender does not exchange its Bridge Loan,
such Lender shall be required again to
<PAGE> 9
3
extend the maturity of such Bridge Loan to
another date selected by such Lender
(provided, that such Lender shall not be
required to extend the maturity of its loans
beyond the tenth anniversary of the Closing
Date (the "Final Maturity Date")) and this
sentence shall apply to each extended
maturity of its Bridge Loan prior to the
Final Maturity Date.
Interest Rates: Prior to the Bridge Maturity Date, the Bridge
Loans will accrue interest at a rate per
annum equal to 3 month Adjusted LIBOR plus
the applicable spread.
The spread on the Bridge Loans will initially
be 600 basis points and will increase by 50
basis points at the end of each three-month
period until the Bridge Maturity Date;
provided, however, that the interest rate on
Bridge Loans in effect at any time prior to
the Bridge Maturity Date shall not exceed 18%
per annum, and cash interest on the Bridge
Loans shall not exceed 15% per annum.
Adjusted LIBOR will at all times include any
applicable statutory reserves.
In the event that Adjusted LIBOR cannot be
determined, or any Lender is unable lawfully
to maintain a loan accruing interest at
Adjusted LIBOR, the affected Bridge Loans
will accrue interest until the Bridge
Maturity Date at the "Alternate Base Rate"
which will be the higher of (i) CSFB's Prime
Rate less 1% and (ii) the Federal Funds
Effective Rate plus 1/2 of 1%, plus in each
case the applicable spread less 100 basis
points.
<PAGE> 10
4
Following the Bridge Maturity Date, all
outstanding Bridge Loans will accrue interest
at the rate provided for the Exchange Notes
in Annex I hereto, subject to the absolute
and cash caps therein.
Calculation of interest shall be on the basis
of actual days elapsed in a year of 360 days
(or 365 or 366 days, as the case may be, in
the case of Bridge Loans based on the Prime
Rate).
Interest Payments: Interest will be payable in arrears (a) for
Bridge Loans accruing interest at a rate
based on Adjusted LIBOR, at the end of each
Adjusted LIBOR period and on the Bridge
Maturity Date, (b) for Bridge Loans accruing
interest at the Alternate Base Rate, at the
end of each fiscal quarter of Acquiror
following the Closing Date and on the Bridge
Maturity Date and (c) for Bridge Loans
outstanding after the Bridge Maturity Date,
at the end of each fiscal quarter of Acquiror
following the Bridge Maturity Date.
Mandatory Prepayments: Subject to the terms of the Senior Bank
Facilities, the Bridge Loans will be required
to be prepaid with:
(a) subject to limited exceptions, 100%
of the net cash proceeds of the
issuance or incurrence of debt or of
any sale and lease-back; and
(b) 100% of the net cash proceeds from
any issuance of equity securities in
any public offering or private
placement
<PAGE> 11
5
or from any capital contribution.
Optional
Prepayments: Bridge Loans may be repaid at any time upon
ten days' prior notice to the Agent, in whole
or in part at the option of Acquiror in a
minimum principal amount and in multiples to
be agreed upon, without premium or penalty
(except breakage costs in the case of
Adjusted LIBOR loans).
Conditions to Closing: The making of the Bridge Loans shall be
subject to conditions precedent that are
usual for facilities and transactions of this
type including but not limited to those
conditions specified in Annex II attached
hereto (all such conditions to be satisfied
in a manner reasonably satisfactory in all
respects to the Agent).
Representations and Warranties: Customary for loans similar to the Bridge
Loans and such additional representations and
warranties as may reasonably be required by
the Agent, including but not limited to: no
Default or Event of Default; absence of
material adverse change; financial
statements; absence of undisclosed
liabilities or material contingent
liabilities not known to the Agent prior to
the date hereof; compliance with laws;
solvency; no conflicts with laws, charter
documents or agreements; good standing;
payment of taxes; ownership of properties;
and absence of liens and security interests.
<PAGE> 12
6
Affirmative Covenants: Customary for loans similar to the Bridge
Loans and such others as may reasonably be
required by the Agent, including but not
limited to: maintenance of corporate
existence and rights; compliance with laws;
performance of obligations; maintenance of
properties in good repair; maintenance of
appropriate and adequate insurance;
inspection of books and properties; payment
of taxes and other liabilities; notice of
defaults, litigation and other adverse
action; delivery of financial statements,
financial projections and compliance
certificates; and further assurances.
In addition, Acquiror will agree to file a
registration statement under the Securities
Act or prepare an offering memorandum
covering senior subordinated notes of
Acquiror (the "Securities") to be issued in a
public offering or private placement to
refinance in full the Bridge Loans (the "Loan
Refinancing") and to consummate such Loan
Refinancing as soon as possible after the
Closing Date in an amount sufficient to
refinance all amounts outstanding under the
Bridge Loan Documents and on such terms and
conditions (including without limitation
interest rate, yield, redemption prices and
dates) as CSFB may in its reasonable judgment
determine to be appropriate in light of
prevailing circumstances and market
conditions and the financial condition and
prospects of Acquiror, provided that Acquiror
shall not be required to issue senior
subordinated notes bearing interest in excess
of the maximum interest rate (and maximum
<PAGE> 13
7
cash interest rate) set forth in Annex I
applicable to Exchange Notes. The indenture
for the Securities will be substantially in
the form of CSFB's standard indenture for
high-yield debt securities, modified as
appropriate to reflect the terms of this
transaction and the financial condition and
prospects of the Borrower and its
subsidiaries, and in form and substance
reasonably satisfactory to CSFB and the
Borrower. If any Securities are issued in a
transaction not registered under the
Securities Act to effect the Loan
Refinancing, all such Securities shall be
entitled to the benefit of registration
rights agreements to be entered into by the
Borrower in customary form acceptable to
CSFB.
Negative Covenants: Customary for loans similar to the Bridge
Loans and such others as may reasonably be
required by the Agent, including but not
limited to: limitations on incurrence of
indebtedness (including no Senior
Subordinated Debt other than the Bridge
Loans); limitations on loans, investments and
joint ventures; limitations on guarantees or
other contingent obligations; limitations on
restricted payments (including dividends,
redemptions and repurchases of capital
stock); limitations on fundamental changes
(including limitations on mergers,
acquisitions and asset sales); limitations on
operating leases; limitations on
sale-leaseback transactions; limitations on
transactions with affiliates; limitations on
dividend and other payment restrictions
affecting subsidiaries; limitations on
capital expenditures; limitations
<PAGE> 14
8
on lines of business; limitations on
amendment of indebtedness and other material
documents; and limitations on prepayment or
repurchase of other indebtedness.
Events of Default: Customary for facilities similar to the
Bridge Loan facilities and others as are
reasonably specified by the Agent, including
but not limited to: nonpayment of principal,
interest, fees or other amounts when due;
violation of covenants; failure of any
representation or warranty to be true in all
material respects; cross-default and
cross-acceleration; Change in Control;
bankruptcy events; material judgments; ERISA;
and actual or asserted invalidity of any
Bridge Loan Document.
Yield Protection and
Increased Costs: Customary for facilities of this type.
Assignments and
Participations: Acquiror may not assign its rights or
obligations in connection with the Bridge
Loan Documents without the prior written
consent of all the Lenders.
Lenders will have the absolute and
unconditional right to assign Bridge Loans
and commitments without the consent of the
Borrower, and assignments will be by novation
which will release the obligation of the
assigning Lender; provided, that CSFB shall
retain voting control with respect to at
least a majority of the aggregate amount of
loans and commitments under the Bridge Loan
facilities. During the syndication process,
CSFB will inform the Borrower of
<PAGE> 15
9
the names of potential Lenders that it is
approaching. CSFB will act as Agent for all
assignees (if any) holding the Bridge Loans
from time to time.
Lenders will be permitted to participate
their Bridge Loans to other financial
institutions; provided that the Lenders
granting participations retain the voting
rights to such participated amounts.
Participants will have the same benefits as
the selling Lenders would have with regard to
yield protection and increased costs,
collateral benefits and provision of
information on Acquiror and Target.
Voting: Amendments and waivers of any provision of
any Bridge Loan Documents will require the
approval of Lenders holding loans and
commitments representing a majority of the
aggregate amount of the loans and commitments
under the Bridge Loan facilities, except that
the consent of all affected Lenders shall be
required with respect to (a) increases in
commitments, (b) reductions of principal,
interest or fees and (c) extensions of the
Bridge Maturity Date.
Expenses and Indemnification: In addition to those out-of-pocket expenses
reimbursable under the Commitment Letter, all
out-of-pocket expenses of the Agent (and the
Lenders for enforcement costs and documentary
taxes) associated with the preparation,
execution and delivery of any waiver or
modification (whether or not effective) of,
and the enforcement of, any Bridge Loan
Document or any document relating to the
<PAGE> 16
10
refinancing of the Bridge Loans (including
the reasonable fees, disbursements and other
charges of counsel for the Agent) are to be
paid by Acquiror. Acquiror will indemnify the
Agent and the other Lenders and hold them
harmless from and against all costs, expenses
(including fees, disbursements and other
charges of counsel) and liabilities arising
out of or relating to any litigation or other
proceeding (regardless of whether the Agent
or any such other Lender is a party thereto)
that relate to the Transactions, the Bridge
Loans or the refinancing thereof; provided,
that neither the Agent nor any such other
Lender will be indemnified for any costs,
expense or liability to the extent determined
by a court of competent jurisdiction in a
final and nonappealable judgment to have
resulted from any such person's gross
negligence or willful misconduct or material
breach of a Bridge Loan Document.
Governing Law and Forum: New York.
<PAGE> 17
Annex I
to Exhibit A
Exchange Notes
Summary of Principal Terms and Conditions 1/
Issuer: Acquiror will issue Exchange Notes under an
indenture which complies with the Trust
Indenture Act (the "Indenture").
Principal Amount: The Exchange Notes will be available only in
exchange for the Bridge Loans. The face
amount of any Exchange Note will equal 100%
of the aggregate principal amount (including
any accrued interest not required to be paid
in cash) of the Bridge Loan for which it is
exchanged.
Maturity: The Exchange Notes will mature on the tenth
anniversary of the Closing Date.
Interest Rate: Exchange Notes will bear interest at a rate
equal to the Initial Rate (as defined below)
plus the Exchange Spread (as defined below).
Notwithstanding the foregoing, the interest
rate on Exchange Notes in effect at any time
shall not exceed 18% per annum, and to the
extent that the interest payable on Exchange
Notes exceeds a rate of 15% per annum,
Acquiror may, at its option, cause such
excess interest to be paid by issuing
additional Exchange Notes in a principal
amount equal to such excess portion of
interest. Interest on Exchange Notes will be
payable semiannually in arrears.
__________________________________
1/ All capitalized terms used but not defined herein have the meanings
given in the Summary of Principal Terms and Conditions of the Bridge Loan
Facilities to which this Annex I is attached.
<PAGE> 18
2
In no event shall the interest rate on the
Exchange Notes exceed the highest lawful rate
permitted under applicable law.
"Exchange Spread" shall mean 50 basis points
during the three-month period commencing on
the Bridge Maturity Date and shall increase
by 50 basis points at the beginning of each
subsequent three-month period.
"Initial Rate" shall be determined on the
Bridge Maturity Date and shall be equal to
the greatest of (a) the interest rate borne
by Bridge Loans on the day immediately
preceding the Bridge Maturity Date, (b) the
Treasury Rate (as defined below) on the
Bridge Maturity Date plus 650 basis points
and (c) the CREDIT SUISSE FIRST BOSTON
CORPORATION High Yield Index Rate on the
Bridge Maturity Date plus 200 basis points.
"Treasury Rate" means (i) the rate borne by
direct obligations of the United States
maturing on the tenth anniversary of the
Closing Date and (ii) if there are no such
obligations, the rate determined by linear
interpolation between the rates borne by the
two direct obligations of the United States
maturing closest to, but straddling, the
tenth anniversary of the Closing Date, in
each case as published by the Board of
Governors of the Federal Reserve System.
Rank: Exchange Notes will rank pari passu with
Bridge Loans.
Mandatory Redemption: Same as Bridge Loans.
<PAGE> 19
3
Optional Redemption: Same as Bridge Loans.
Registration Rights: Subject to the conditions precedent to
fundings, Acquiror will use its reasonable
best efforts to cause to be filed within 30
days after the first issuance of the Exchange
Notes to any Lender and to become effective
within 120 days after such issuance, an
exchange offer registration statement or a
shelf registration statement and Acquiror
will use its best efforts to keep such
registration statement effective for
customary periods, not to exceed three years
after final issuance of Exchange Notes, and
to amend such registration statement from
time to time as necessary to include newly
issued Exchange Notes from time to time.
Exchange Notes Escrowed: The Exchange Notes will be delivered on the
Closing Date and held, undated, in escrow by
a mutually agreeable fiduciary.
Right To Transfer
Exchange Notes: The holders of the Exchange Notes shall have
the absolute and unconditional right to
transfer such Exchange Notes to any third
parties in compliance with applicable law.
Equity Amount
Escrowed: On the Closing Date, rights to acquire equity
interests without an exercise price (the
"Rights") representing 12 1/2% of the fully
diluted common stock of Holdings will be
delivered and held in an escrow account by a
mutually agreeable fiduciary.
Each Right will be exercisable for a period
of 10 years from the Closing Date and will
have mutually
<PAGE> 20
4
agreed provisions relating to antidilution
and limited registration rights in certain
circumstances.
After the Bridge Maturity Date, the Rights
will be released from the escrow under two
alternative circumstances: release for resale
in connection with a bona fide, arms'-length
sale of Bridge Loans or Exchange Notes and
release pursuant to an "earn-in" formula.
Notwithstanding the reference to the issuance
of the Rights, Holdings will instead issue
shares of its common stock directly in an
amount equal to the amount for which the
Rights would have been exercisable.
Release of Rights for
Resale: With respect to release for resale, Rights
will be released from escrow at the request
of a holder of Exchange Notes or Bridge Loans
(in an amount not to exceed such holder's
share of the Rights initially placed in
escrow, such share to be equal to such
holder's pro rata share of the aggregate
principal amount of Exchange Notes and Bridge
Loans calculated immediately following the
Bridge Maturity Date) in connection with a
transfer by such holder of any Exchange Notes
or Bridge Loans and such Rights to a third
party. Rights shall be released for resale
only upon the representation of the holder
that the Rights are necessary for a resale of
the Bridge Loans or Exchange Notes, and only
to the extent necessary so that the sale
price (including the Rights) does not exceed
the principal amount of the Bridge Loans or
Exchange Notes so sold.
<PAGE> 21
5
"Earn-in" of Rights: With respect to an "earn-in" release, the
holder of any Bridge Loans or Exchange Notes
immediately following the Bridge Maturity
Date shall be entitled to receive (i) on the
Bridge Maturity Date, Rights representing
such holder's pro rata share of 5% of the
fully diluted common stock of Holdings; and
(ii) six months after the Bridge Maturity
Date, additional Rights representing such
holder's pro rata share of 3 3/4% of the
fully diluted common stock of Holdings; and
(iii) one year after the Bridge Maturity
Date, additional Rights representing such
holder's pro rata share of 3 3/4% of the
fully diluted common stock of Holdings.
Rights will be released from escrow pursuant
to the "earn-in" provisions to the extent
earned by a holder, in accordance with the
foregoing, and requested by such holder.
Unless previously released pursuant to the
preceding sentence, all Rights earned by a
holder pursuant to the "earn-in" provisions
shall be released to such holder upon such
holder ceasing to own any Bridge Loans or
Exchange Notes.
Cancellation of Rights: Any Rights to which none of the holders of
Exchange Notes or the Bridge Loans is, or may
become, entitled as set forth above shall be
returned to Holdings for cancellation.
Covenants: Those typical for an indenture governing a
high-yield senior subordinated note issue.
Events of Default: Those typical for an indenture governing a
high-yield senior subordinated note issue.
<PAGE> 22
6
Governing Law and Forum: New York.
<PAGE> 23
[ Annex II]
[to Exhibit A]
CLOSING CONDITIONS
Capitalized terms used but not defined herein shall, unless otherwise
specified, have the meanings assigned to such terms in the Letters (as
defined).
The Commitments of Credit Suisse First Boston or Credit Suisse First
Boston Corporation (collectively, "CSFB") pursuant to the Bridge Loan
Commitment Letter, the Engagement Letter and the Commitment Letter, each dated
as of April 11, 1997, as the case may be, between CSFB and Hedstrom Corporation
(together, the "Letters") shall be subject to the following conditions:
(i) there not becoming known to CSFB after the date of the
Letters any information or other matter relating to Acquiror or Target
which CSFB has reasonable cause to believe is accurate and which is
inconsistent in a material and adverse manner with any information or
other matter disclosed to CSFB by Acquiror or Target prior to the date
of the Letters;
(ii) the obligations of the parties thereto contained in the
Agreement and Plan of Merger dated April 11, 1997, among Acquiror,
AcquisitionCo and Target (the "Merger Agreement") to be performed at
or prior to the consummation of the Tender Offer shall have been
performed or complied with by Acquiror, AcquisitionCo and Target prior
to the consummation of the Tender Offer, except where the failure so
to perform or comply could not reasonably be expected to result in a
Material Adverse Effect (as defined);
(iii) there shall be no litigation or administrative
proceedings or other legal or regulatory developments, actual or
threatened, that, singly or in the aggregate, could have a Material
Adverse Effect on Acquiror or Target or the ability of Acquiror to
fully and timely perform its obligations under the documents executed
in connection with the Transactions, or the ability of the parties to
consummate the financing or
<PAGE> 24
2
the other Transactions contemplated by the Letters or the validity or
enforceability of any of the documents executed in connection with the
Transactions or the rights, remedies and benefits available to the
parties thereunder;
(iv) CSFB and, if applicable, the Lenders, shall have
received an opinion (and related going-concern valuation) reasonably
satisfactory in all respects to the Lenders and CSFB, as applicable,
from an independent valuation firm reasonably satisfactory to the
Lenders and CSFB, as applicable, in each case to the effect that,
after giving effect to the Transactions, Acquiror will not be
insolvent, will not be rendered insolvent by the indebtedness incurred
in connection therewith, will not be left with unreasonably small
capital with which to engage in its business and will not have
incurred debts beyond its ability to pay such debts as they mature;
(v) CSFB's and, if applicable, the Lenders', reasonable
satisfaction in all material respects with any amendments to any of
the terms of (i) the Tender Offer and all material documents relating
thereto, (ii) any definitive agreements relating to the Acquisition
and any other material agreements to be entered into in connection
with the Acquisition and (iii) the Senior Bank Facilities and the
Equity Contribution;
(vi) the receipt by CSFB and, if applicable, the Lenders', of
financial statements of Acquiror and Target (including notes thereto),
consisting of (a) audited and pro forma balance sheets for each period
in the 3 fiscal-year period ended December 31, 1996, and (b) audited
and pro forma statements of operations and cash flows for each period
in the 3 fiscal-year period ended December 31, 1996, and CSFB's and,
if applicable, the Lenders', receipt of any unaudited interim
financial statements deemed necessary or reasonably desirable in the
judgment of CSFB and the Lenders, if applicable, and all such
financial statements, historical or pro forma delivered pursuant
<PAGE> 25
3
to this paragraph (vi) to be in compliance with the requirements of
Regulation S-X for a public offering registered under the Securities
Act or 1933 (the "Securities Act");
(vii) the approval and/or recommendation by the Board of
Directors of Target of the Tender Offer and the Acquisition;
(viii) the waiting period (and any extension thereof)
applicable to the merger of AcquisitionCo and Target under the HSR Act
(as defined in the Merger Agreement) shall have been terminated or
shall have expired, and no restrictive order or other requirements
shall have been placed on Acquiror, AcquisitionCo, Target or the
surviving entity in connection therewith, except where such
restrictive order or other requirements could not reasonably be
expected to result in a Material Adverse Effect;
(ix) there not having occurred or becoming known to CSFB
(a)any event or events having occurred that, individually or in the
aggregate, could have a Material Adverse Effect on Acquiror or Target
or (b) (i) any general suspension of trading in, or limitation on
prices for, securities on any national securities exchange or in the
over-the-counter market in the United States for a period in excess of
forty-eight hours, (ii) the declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States, (iii)
the commencement of a war, armed hostilities or other international or
national calamity, directly or indirectly involving the United States,
(iv) any limitations (whether or not mandatory) imposed by any
governmental authority on the nature or extension of credit or further
extension of credit by banks or other lending institutions, (v) in the
case of the foregoing clauses (iii) and (iv), a material acceleration
or worsening thereof, or (vi) any other material adverse change in
bank or capital market conditions that has had a material adverse
effect on the syndication of leveraged bank credit facilities or
<PAGE> 26
4
the consummation of high yield offerings, as the case may be, that
CSFB shall reasonably determine makes it impracticable to consummate
the Offerings prior to the termination of the Offering Period or
syndication of the Bridge Loan, as the case may be;
(x) CSFB's satisfaction that, immediately prior to and during
the marketing period for any Offering or syndication of the Bridge
Loan, as the case may be, there shall be no competing issues of debt
securities or commercial bank facilities (other than the Senior Bank
Facilities the Senior Subordinated Note Offering or Bridge Loan and
the Holdings Senior Discount Note Offering, as applicable) of
Acquiror, Holdings or AcquisitionCo;
(xi) the negotiation, preparation, execution and delivery of
definitive documentation reasonably satisfactory to CSFB, in
connection with the Offerings, the Bridge Loan and the purchase of the
Holdings Senior Discount Notes, if applicable;
(xii) customary closing conditions for transactions similar to
the Bridge Loan, the Offerings and the purchase of the Holdings Senior
Discount Notes including the accuracy of all representations and
warranties contained in the Letters, the absence of any defaults, no
material change in the capital, corporate and organizational structure
of Holdings, Acquiror and its subsidiaries (after giving effect to the
Transactions), compliance with laws, adequate insurance, except where
the failure so to perform or comply with such customary closing
conditions could not reasonably be expected to result in a Material
Adverse Effect, and the receipt by CSFB of reasonably satisfactory
legal opinions from Acquiror's counsel in connection with the
Offerings and the Bridge Loan (including 10b-5 opinions relating to
any offering documents) and satisfactory accountant's "comfort"
letters in connection with the Offerings; and
(xiii) payment of fees.
<PAGE> 27
5
A "Material Adverse Effect" shall mean the result of one or
more events, changes or effects which, individually or in the aggregate, could
reasonably be expected to have a material adverse effect on (i) the business,
results of operations, financial condition or prospects of Acquiror,
AcquisitionCo or Target and each of their respective subsidiaries, in each
case, taken as a whole and (ii) the ability of CSFB to consummate the Offerings
prior to the Offering Period or syndicate the Bridge Loan.
<PAGE> 1
EXHIBIT 99.(b)(5)
CREDIT FIRST
SUISSE BOSTON CREDIT SUISSE FIRST BOSTON
Eleven Madison Avenue
New York, NY 10010-3629
April 10, 1997
Hedstrom Corporation
Cherrington Corporate Center
300 Corporate Center Drive, Suite 100
Pittsburgh, Pennsylvania 15108
Attention: Arnold E. Ditri, Chief Executive Officer
Re: Commitment Letter
Proposed Acquisition Credit Facilities
Dear Sirs:
We understand that (a) Hedstrom Corporation (the "Borrower")
intends to form an acquisition vehicle ("AcquisitionCo") to commence a tender
offer for all of the issued and outstanding capital stock of a company which
you have identified to us and which we have referred to as "Gadgets" (the
"Target") at a price of $11.25 per share (the "Tender Offer") and (b) promptly
following the purchase by AcquisitionCo of the shares of capital stock of the
Target which are validly tendered (and not withdrawn) pursuant to the Tender
Offer (the "Tendered Shares"), the Target will be merged with and into
AcquisitionCo, with AcquisitionCo being the surviving entity of such merger
(the "Merger"; together with the Tender Offer, the "Acquisition"). You have
informed us that Golder, Thoma, Cressey, Rauner, Inc. has agreed to tender the
full amount of its equity interest in the Target pursuant to the Tender Offer.
You have informed us that the total consideration for the
Acquisition will be approximately $220,000,000 (subject to seasonal working
capital requirements) and that a portion of such consideration will be financed
through:
(a) the issuance and sale by the Borrower of approximately $115,000,000 of
senior subordinated notes of the Borrower;
(b) the issuance and sale by a holding company ("HoldingCo") for the
Borrower of approximately $25,000,000 of senior discount notes; and
(c) the contribution by HoldingCo to the Borrower of not less than
$40,000,000 in common equity.
<PAGE> 2
2
We understand that the Borrower will require $180,000,000 in senior secured
credit facilities (the "Credit Facilities") in order to (w) finance the
remainder of the consideration for the Acquisition, (x) refinance certain
existing indebtedness of the Borrower and its subsidiaries (including, without
limitation, the Target and its subsidiaries), (y) provide working capital for
the Borrower and its subsidiaries (including, without limitation, the Target
and its subsidiaries) and (z) pay fees and expenses in connection with the
transactions contemplated hereby.
Credit Suisse First Boston ("CSFB") is pleased to inform you
that it is willing to commit to provide the full amount of the Credit
Facilities. Although CSFB is committing to provide all of the Credit
Facilities, it expects to act as agent for a syndicate of financial
institutions (together with CSFB, the "Lenders") to provide all or a portion of
the Credit Facilities. Additionally, we shall be entitled, after consultation
with you, to reallocate the amounts of the individual tranches of the Credit
Facilities (including, without limitation, to eliminate any such tranche) if
CSFB determines that such changes are advisable in order to ensure a successful
syndication or an optimal credit structure; provided that the aggregate amount
of the Credit Facilities shall not be reduced.
Attached as Exhibit A to this letter is a Statement of Terms
and Conditions (the "Term Sheet") setting forth the principal terms and
conditions on and subject to which CSFB is willing to make available its
portion of the Credit Facilities. The terms and conditions of CSFB's
commitment hereunder and of the Credit Facilities are not limited to those set
forth herein and in the Term Sheet, and any matters that are not covered by the
provisions hereof and of the Term Sheet shall be subject to our mutual
agreement.
It is agreed that CSFB will act as the sole administrative
agent for, and sole arranger and syndication manager of, the Credit Facilities
and that no additional agents or co-agents or arrangers will be appointed
without the prior written consent of CSFB. You hereby agree that, in providing
the services contemplated by this letter, CSFB and its affiliates may share
with each other such confidential or other information relating to Hicks, Muse,
Tate & Furst, Inc. ("HMT&F"), the Borrower, the Target, their respective
subsidiaries and investments and the Acquisition as from time to time may be in
their possession; provided that each recipient of such information shall agree
to maintain the confidentiality thereof in accordance with our customary
practice.
You agree to assist CSFB in forming any such syndicate and to
provide CSFB and the other Lenders, promptly upon request, with all information
reasonably requested by them to complete successfully the syndication,
including, but not limited to, (a) an information package for delivery to
potential syndicate members and participants (the "Information Memorandum") and
(b) all information and projections prepared by you or your advisers relating
to the transaction described herein. You also agree to use your best efforts
to ensure that CSFB's syndication efforts benefit from the existing lending
relationships of HMT&F and the Borrower. You further agree to make appropriate
senior officers and representatives of HMT&F and the Borrower available to
participate in information meetings for potential syndicate members and
participants at such times and places as CSFB may reasonably request.
<PAGE> 3
3
You represent and warrant and covenant that:
(a) all information (other than any financial projections
contemplated by clause (b) below) which has been or is hereafter made
available to CSFB by you or any of your representatives in connection
with the transaction contemplated hereby is and will be complete and
correct in all material respects and does not and will not contain any
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained therein not
materially misleading in light of the circumstances under which such
statements are made; and
(b) all financial projections that have been or are hereafter
prepared by you or on your behalf and made available to CSFB or any
other participants in the Credit Facilities have been or will be
prepared in good faith based upon reasonable assumptions.
You agree to supplement the information and projections referred to in clauses
(a) and (b) above from time to time until completion of the syndication so that
the representations and warranties in the preceding sentence remain correct.
In arranging and syndicating the Credit Facilities, CSFB will use and rely on
such information and projections without independent verification thereof.
In connection with the syndication of the Credit Facilities,
CSFB may, in its discretion, allocate to other Lenders portions of any fees
payable to CSFB in connection with the Credit Facilities. You agree that no
Lender will receive any compensation of any kind for its participation in the
Credit Facilities, except as expressly provided for in this letter or in the
Fee Letter referred to below.
The reasonable costs and expenses (including, without
limitation, the fees and expenses of outside counsel to CSFB, the allocated
fees and expenses of in-house counsel to CSFB and CSFB's syndication and other
out-of- pocket expenses) arising in connection with the preparation, execution
and delivery of this letter and the definitive financing agreements shall be
for your account; provided that, in the event that the Tender Offer is not
consummated and you are not able to obtain reimbursement of the foregoing
expenses from the Target, your liability pursuant to this sentence shall be
limited to the reasonable fees and expenses of outside counsel (including,
without limitation, any local counsel) to CSFB. You further agree to indemnify
and hold harmless each Lender (including CSFB) and each director, officer,
employee, affiliate (including, without limitation, CSFB) and agent thereof
(each, an "indemnified person") against, and to reimburse each indemnified
person, upon its demand, for, any losses, claims, damages, liabilities or other
expenses ("Losses") to which such indemnified person may become subject insofar
as such Losses arise out of or in any way relate to or result from the
Acquisition, this letter or the financing contemplated hereby, including,
without limitation, Losses consisting of legal or other expenses incurred in
connection with investigating, defending or participating in any legal
proceeding relating to any of the foregoing (whether or not such indemnified
person is a party thereto); provided that the foregoing will not apply to any
Losses to the extent they are found by a final decision of a court of competent
jurisdiction to have resulted from the gross negligence or
<PAGE> 4
4
willful misconduct of, or the breach of this Commitment Letter by, such
indemnified person. The obligations of the Borrower under this paragraph shall
remain effective whether or not definitive financing documentation is executed
and notwithstanding any termination of this letter; provided, however, that, if
such definitive financing documentation is executed, the terms of such
definitive financing documentation shall supersede the terms hereof. Neither
CSFB nor any other indemnified person shall be responsible or liable to any
other person for consequential damages which may be alleged as a result of this
letter or the financing contemplated hereby and neither CSFB nor any other
indemnified person shall be responsible or liable for any damages which may be
alleged as a result of its failure, in accordance with the terms of this
letter, to provide the Credit Facilities.
The provisions of this letter are supplemented as set forth in
a separate fee letter dated the date hereof from us to you (the "Fee Letter")
and are subject to the terms of such Fee Letter. By executing this letter, you
acknowledge that this letter and the Fee Letter are the only agreements between
you and CSFB with respect to the Credit Facilities and set forth the entire
understanding of the parties with respect thereto. Neither this letter nor the
Fee Letter may be changed except pursuant to a writing signed by each of the
parties hereto. THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK.
Prior to your acceptance hereof, you agree that neither this
letter, the Fee Letter, nor any of their terms or substance, shall be
disclosed, directly or indirectly, to any other person except to (a) the
Target, (b) such of your employees, agents and advisers who are directly
involved in the consideration of this matter and (c) as disclosure may be
compelled in a judicial or administrative proceeding or as otherwise required
by law; provided that you may freely disclose this letter (but not the Fee
Letter), and its terms and substance, at any time following your acceptance
hereof.
<PAGE> 5
5
If you are in agreement with the foregoing, please sign and
return to CSFB the enclosed copies of this letter and the Fee Letter by no
later than 5:00 p.m., New York time, on Friday, April 11, 1997. This offer
shall terminate at such time unless prior thereto we shall have received signed
copies of such letters.
We look forward to working with you on this transaction.
Very truly yours,
CREDIT SUISSE FIRST BOSTON
By: /s/ Ann F. Lopez
-----------------------------
Name: Ann F. Lopez
Title: Managing Director
By: /s/ Richard D. Carey
-----------------------------
Name: Richard D. Carey
Title: Director
Accepted and agreed to as of
the date first above written :
HEDSTROM CORPORATION
By: /s/ Andrew S. Rosen
-----------------------------
Name: Andrew S. Rosen
Title: Vice President
<PAGE> 6
EXHIBIT A
US$180,000,000 CREDIT FACILITIES
Summary of Terms and Conditions
April 10, 1997
----------
I. Parties
Borrower: Hedstrom Corporation (the "Borrower").
Lenders: The banks, financial institutions and other
entities, including Credit Suisse First
Boston ("CSFB"), selected in the syndication
effort (collectively, the "Lenders").
Lenders shall not be required to participate
ratably in the Credit Facilities described
below.
Administrative Agent
and Arranger: CSFB (in such capacity, the "Administrative
Agent").
II. Type and Amount of Credit Facilities
A. Tranche A Term Loan Facility
Type of Facility: 6-year senior, secured, term loan facility in
the amount of $75,000,000 (the "Tranche A
Facility").
Availability: The Tranche A Facility shall be available in
a single drawing on the date upon which the
conditions precedent to borrowing are
satisfied (the "Closing Date").
Amortization: The Tranche A Facility shall amortize in
quarterly installments (commencing on
December 31, 1997) to be mutually agreed
upon.
Use of Proceeds: To (a) finance a portion of the consideration
for the acquisition of the shares of capital
stock of ERO, Inc. (the "Target") which are
validly tendered and not withdrawn (the
"Tendered Shares") pursuant to a tender offer
to be commenced by an acquisition vehicle
("AcquisitionCo") to be organized by the
Borrower (the "Tender Offer"), (b) to finance
the merger of the Target with and into
AcquisitionCo, with AcquisitionCo being the
surviving corporation thereof (the "Merger";
together with the Tender Offer, the
"Acquisition"), (c) refinance certain
outstanding indebtedness of the Borrower, the
Target and their respective subsidiaries and
(d) pay fees and expenses relating thereto.
<PAGE> 7
2
B. Tranche B Term Loan Facility
Type of Facility: 8-year senior, secured, term loan facility in
the amount of $35,000,000 (the "Tranche B
Facility"; together with the Tranche A
Facility, the "Term Loan Facilities").
Availability: The Tranche B Facility shall be available in
a single drawing on the Closing Date.
Amortization: The Tranche B Facility shall amortize in
quarterly installments (commencing on
December 31, 1997) to be mutually agreed
upon.
Use of Proceeds: To (a) finance a portion of the consideration
for the Acquisition, (b) refinance certain
outstanding indebtedness of the Borrower, the
Target and their respective subsidiaries and
(c) pay fees and expenses relating thereto.
C. Revolving Credit Facility
Revolving Credit Facility: 6-year senior, secured revolving credit
facility in the amount of $70,000,000 (the
"Revolving Credit Facility"; together with
the Term Loan Facilities, the "Credit
Facilities")
Availability: The Revolving Credit Facility shall be
available on a revolving basis during the
period commencing on the Closing Date and
ending on the maturity date for the Tranche A
Facility (the "Termination Date"). In
addition, ABR Loans (as defined on Annex I)
under the Revolving Credit Facility shall be
available to the Borrower on a same-day
basis.
The availability of the Revolving Credit
Facility shall be subject to a borrowing base
in the amount from time to time equal to 85%
of "Eligible Receivables" and 50% of
"Eligible Inventory" (each of which terms
shall be defined in the definitive credit
agreement and related documentation (the
"Credit Documentation") for the Credit
Facilities) of the Borrower and its domestic
subsidiaries. The Borrowing Base will be
computed at least monthly by the Borrower and
a Borrowing Base certificate presenting the
Borrower's computation will be delivered to
the Administrative Agent promptly, but in no
event later than the 15th day of the
following month.
In the event that AcquisitionCo has acquired
at least 75% of the issued and outstanding
capital stock of the Target pursuant to the
Tender Offer, the Borrower may make loans to
the Target for the purpose of financing the
working capital needs of the Target
<PAGE> 8
3
pending the consummation of the Merger (the
"Specified Loans").
Letters of Credit: A portion of the Revolving Credit Facility to
be mutually agreed upon shall be available
for the issuance of letters of credit (the
"Letters of Credit") by CSFB (in such
capacity, the "Issuing Lender"). No Letter
of Credit shall have an expiration date after
the earlier of (a) one year after the date of
issuance and (b) five business days prior to
the Termination Date; provided that any
Letter of Credit with a one-year tenor may
provide for the renewal thereof for
additional one-year periods (which shall in
no event extend beyond the date referred to
in clause (b) above). Drawings under any
Letter of Credit shall be reimbursed by the
Borrower (whether with its own funds or with
the proceeds of loans under the Revolving
Credit Facility) on the same business day.
To the extent that the Borrower does not so
reimburse the Issuing Lender, the Lenders
under the Revolving Credit Facility shall be
irrevocably and unconditionally obligated to
reimburse the Issuing Lender on a pro rata
basis.
Swing Line Loans: A portion of the Revolving Credit Facility
not in excess of $10,000,000 shall be
available for swing line loans (the "Swing
Line Loans") from CSFB on same-day notice.
Any such Swing Line Loans will reduce
availability under the Revolving Credit
Facility on a dollar-for-dollar basis. Each
Lender under the Revolving Credit Facility
shall acquire, under certain circumstances,
an irrevocable and unconditional pro rata
participation in each such Swing Line Loan.
Clean-Up: The outstanding principal amount of all loans
under the Revolving Credit Facility may not
exceed an amount to be mutually agreed upon
for a period to be mutually agreed upon
during each calendar year.
Maturity: The Termination Date.
Purpose: The proceeds of the loans under the Revolving
Credit Facility shall be used by the Borrower
and its subsidiaries for working capital and
other general corporate purposes (including,
without limitation, for the same purposes as
the Term Loan Facilities).
III. General Payment Provisions
Fees and Interest Rates: As set forth on Annex I.
Optional Prepayments and
<PAGE> 9
4
Commitment Reductions: Loans may be prepaid and commitments may be
reduced by the Borrower in minimum amounts to
be agreed upon.
Mandatory Prepayments
and Commitment
Reductions: The Credit Facilities shall be reduced with
(a) 100% of the net proceeds of asset sales
by the Borrower and its subsidiaries, (b)
100% of the net proceeds from the incurrence
of debt by the Borrower and its subsidiaries,
(c) 100% of the net proceeds from the
offering and sale of equity by the Borrower
and its subsidiaries and (d) commencing with
the 1998 fiscal year of the Borrower, 75% of
excess cash flow of the Borrower and its
subsidiaries (in each case, subject to
exceptions to be mutually agreed upon). All
such reductions shall be applied, first, to
prepay the remaining installments of the Term
Loan Facility (ratably between the Tranche A
Facility and the Tranche B Facility and in
ratably among the scheduled maturities of
each such Tranche based upon the number of
remaining installments) and, second, to
reduce the Revolving Credit Facility (and, to
the extent necessary, to repay the loans and
cash collateralize the Letters of Credit
outstanding thereunder).
IV. Guarantees and Collateral
Guarantees: The Credit Facilities shall be guaranteed by
(a) the HoldingCo, (b) the Borrower and (c)
each domestic subsidiary of the Borrower
(each, a "Guarantor"; together with the
Borrower, the "Credit Parties").
Collateral: The Credit Facilities shall be secured by the
capital stock of the Borrower and by
substantially all assets of the Borrower and
its domestic subsidiaries (including, without
limitation, the Target), subject to
exceptions to be mutually agreed upon. Prior
to the date upon which the Merger is
consummated, the assets of the Target and its
Subsidiaries which constitute collateral
(other than any capital stock of the Target,
which shall secure the full amount of the
Credit Facilities) shall secure only any
outstanding Specified Loans.
The Credit Facilities also shall be secured
by 65% (or such higher percentage as may be
pledged without the incurrence of material
adverse legal or tax consequences) of each
foreign subsidiary the capital stock of which
is owned directly by the Borrower or a
domestic subsidiary thereof (subject to
exceptions to be mutually agreed upon based
upon uneconomic transaction costs and/or
adverse tax consequences).
<PAGE> 10
5
V. Certain Conditions
Initial Conditions: The availability of the Credit Facilities
shall be conditioned upon satisfaction (on or
prior to July 30, 1997) of, among other
things, the conditions precedent described in
Annex II and those set forth below (the date
upon which all such conditions precedent
shall be satisfied, the "Closing Date"):
1. The Lenders shall have received the
results of a recent lien search in
each of the jurisdictions and
offices where assets of the
Borrower, the Target or any of their
respective subsidiaries are located
or recorded, and such search shall
reveal no liens on any of the assets
of any such entities, except for
liens permitted by the Credit
Documentation or otherwise approved
by the Administrative Agent.
2. The Administrative Agent shall have
received all documentation necessary
to grant to it, and to perfect, a
security interest in all assets
described opposite the caption
"Collateral" above.
On-Going Conditions: The making of each extension of credit shall
be conditioned upon (a) all representations
and warranties in the Credit Documentation
(including, without limitation, the material
adverse change and litigation
representations) being true and correct in
all material respects and (b) there being no
default or event of default in existence at
the time of, or after giving effect to the
making of, such extension of credit.
As used herein and in the Credit
Documentation a "material adverse change"
shall mean any event, development or
circumstance that has had or could reasonably
be expected to have a material adverse effect
on (a) the Acquisition, (b) the business,
assets, property, condition (financial or
otherwise) or prospects of the Target or of
the Borrower and its subsidiaries taken as a
whole (after giving effect to the
consummation of the Acquisition) or (c) the
validity or enforceability of any of the
Credit Documentation or the rights and
remedies of the Administrative Agent and the
Lenders thereunder.
<PAGE> 11
6
VI. Representations, Warranties,
Covenants and Events of Default
The Credit Documentation shall contain representations, warranties, covenants
and events of default customary for financings of this type and other terms
deemed appropriate by the Lenders, including, without limitation:
Representations
and Warranties: Accuracy of financial statements (including
pro forma financial statements); absence of
undisclosed liabilities; no material adverse
change; corporate existence; compliance with
law; corporate power and authority;
enforceability of Credit Documentation; no
conflict with law or contractual obligations;
no material litigation; no default; ownership
of property; liens; intellectual property; no
burdensome restrictions; taxes; Federal
Reserve regulations; ERISA; Investment
Company Act; subsidiaries; environmental
matters; accuracy of disclosure; and creation
and perfection of security interests.
Affirmative Covenants: Delivery of audited and unaudited financial
statements, reports, accountants' letters,
projections, officers' certificates and other
information requested by the Lenders; payment
of other obligations; continuation of
business and maintenance of existence and
material rights and privileges; compliance
with laws and material contractual
obligations; maintenance of property and
insurance; maintenance of books and records;
right of the Lenders to inspect property and
books and records; notices of defaults,
litigation and other material events;
compliance with environmental laws; and
agreement to grant security interests in
after-acquired property. Certain of the
affirmative covenants shall be subject to
customary "baskets" and exceptions to be
mutually agreed upon.
Financial Covenants: To include minimum interest coverage ratio,
maximum leverage ratio and limitation on
capital expenditures (including, without
limitations, capital expenditures relating to
acquisitions), with relevant definitions and
covenant levels to be mutually agreed upon.
Negative Covenants: Limitations on: indebtedness (including
preferred stock); liens; guarantee
obligations; mergers, consolidations,
liquidations and dissolutions; sales of
assets; investments, loans and advances;
dividends and other restricted payments;
leases; payments and modifications of
subordinated and other debt instruments;
transactions with affiliates; sale and
leasebacks; changes in fiscal year; negative
pledge clauses; and changes in lines of
business.
<PAGE> 12
7
Certain of the negative covenants shall be
subject to customary "baskets" and exceptions
to be mutually agreed upon.
Events of Default: Nonpayment of principal when due; nonpayment
of interest, fees or other amounts within 5
days after the date when due; material
inaccuracy of representations and warranties;
violation of covenants (subject, in the case
of certain affirmative covenants, to a 30-day
grace period); cross-default; bankruptcy;
certain ERISA events; material judgments;
actual or asserted invalidity of any
guarantee or security document, subordination
provisions or security interest; and a change
of control to be mutually agreed upon. It
also shall be an event of default if
HoldingCo shall have any material liabilities
(other than the HoldingCo Discount Notes) or
assets (other than its equity interest in the
Borrower). Certain of the events of default
shall include customary grace periods and/or
baskets to be mutually agreed upon.
VII. Certain Other Terms
Voting: Amendments and waivers with respect to the
Credit Documentation shall require the
approval of Lenders holding commitments
representing not less than a majority of the
aggregate amount of the commitments under the
Credit Facilities (the "Required Lenders"),
except that (a) the consent of each Lender
directly affected thereby shall be required
with respect to (i) reductions in the
principal amount of the loans or other
extensions of credit (absent an actual
repayment thereof) or extensions of the
Termination Date, (ii) reductions in the rate
of interest or any fee or extensions of any
due date thereof, (iii) increases in the
amount of any Lender's commitment and (b) the
consent of 100% of the Lenders shall be
required with respect to (i) releases of all
or substantially all of the collateral or
guarantees and (ii) modifications to any of
the voting percentages.
Assignments
and Participations: The Lenders shall be permitted to assign and
sell participations in their extensions of
credit and commitments, subject, in the case
of assignments to Eligible Assignees (to be
defined in a manner to be mutually agreed
upon), to the consent of the Administrative
Agent (which consent shall not be
unreasonably withheld) and to the payment by
the assigning Lender to the Administrative
Agent of a $3,500 transfer fee. In the case
of partial assignments, the minimum
assignment amount shall be $5,000,000, and,
after giving effect thereto, the assigning
Lender shall have commitments and extensions
of credit
<PAGE> 13
8
aggregating at least $5,000,000.
Participants shall have the same benefits as
the Lenders with respect to yield protection
and increased cost provisions. Voting rights
of participants shall be limited to the
customary "sacred rights." Pledges of loans
in accordance with applicable law shall be
permitted without restriction. Promissory
notes shall be issued under the Credit
Facilities only upon request. Non-pro rata
assignments shall be permitted.
Yield Protection: The Credit Documentation shall contain
customary provisions (a) protecting the
Lenders against loss of yield resulting from
changes in reserve, tax, capital adequacy and
other requirements of law and from the
imposition of withholding or other taxes and
(b) indemnifying the Lenders for "breakage
costs" incurred in connection with, among
other things, prepayment of a Eurocurrency
Loan (as defined in Annex I) on a day other
than the last day of an interest period with
respect thereto.
Expenses and
Indemnification: The Credit Documentation shall provide that
the Borrower shall pay (a) all reasonable
out-of-pocket expenses of the Administrative
Agent associated with the syndication of the
Credit Facilities and the preparation,
execution, delivery and administration of the
Credit Documentation and any amendment or
waiver with respect thereto (including the
reasonable fees and disbursements and other
charges of counsel to the Administrative
Agent) and (b) all out-of-pocket expenses of
the Administrative Agent and a single counsel
to the Lenders in connection with the
enforcement of the Credit Documentation
(including the fees and disbursements and
other charges of counsel).
The Borrower shall indemnify, pay and hold
harmless the Administrative Agent, the
Arranger and the Lenders (and their
respective directors, officers, employees and
agents) against any loss, liability, cost or
expense incurred in respect of the financing
contemplated hereby or the use or the
proposed use of proceeds thereof (except to
the extent resulting from the gross
negligence or willful misconduct of, or a
breach of the Credit Documentation by, the
indemnified party).
Governing Law and Forum: State of New York.
Counsel to the
Administrative Agent: Simpson Thacher & Bartlett.
<PAGE> 14
9
Commitment
Termination Date: The Credit Documentation must have been
entered into on or before June 30, 1997.
<PAGE> 15
Annex I
Interest and Certain Fees
Interest Rate Options: The Borrower may elect that all or a portion
of the loans borrowed by it bear interest at
a rate per annum equal to (a) the ABR plus
the Applicable Margin with respect thereto or
(b) the Eurocurrency Rate plus the Applicable
Margin with respect thereto; provided that
Swing Line Loans shall bear interest only at
a rate based upon the ABR. For purposes
hereof:
"ABR" means the higher of (i) the rate
of interest publicly announced by
CSFB as its prime rate in effect at
its principal office in New York
City (the "Prime Rate") and (ii) the
federal funds effective rate from
time to time plus 0.5%;
"Eurocurrency Rate" means the rate
(grossed-up for maximum statutory
reserve requirements for
eurocurrency liabilities) at which
eurocurrency deposits in the
relevant denomination currency for
one, two, three, six or (subject to
availability) nine months (as
selected by the Borrower) are
offered by CSFB in the relevant
interbank eurocurrency market.
Applicable Margin: Initially, the rates per annum set forth
below:
<TABLE>
<CAPTION>
=======================================================
Applicable Margin
--------------------------
Eurodollar ABR Loans
Facility Loans
-------------------------------------------------------
<S> <C> <C>
Tranche A Facility 2-1/2% 1-1/2%
-------------------------------------------------------
Tranche B Facility 3% 2%
-------------------------------------------------------
Revolving Credit Facility 2-1/2% 1-1/2%
=======================================================
</TABLE>
The foregoing margins for the Tranche A
Facility and the Revolving Credit Facility
shall be adjusted from time to time by
amounts to be agreed upon based on the
leverage ratio of the Borrower then in
effect.
Interest Payment Dates: In the case of loans bearing interest based
upon the ABR ("ABR Loans"), in arrears on the
last business day of each calendar quarter.
<PAGE> 16
2
In the case of loans bearing interest based
upon the Eurocurrency Rate ("Eurocurrency
Loans"), on the last day of each relevant
interest period and, in the case of any
interest period longer than three months, on
each successive date three months after the
first day of such interest period.
Letter of Credit Fees: The Borrower shall pay a commission on all
outstanding Letters of Credit at a per annum
rate equal to the Applicable Margin then in
effect with respect to Eurodollar Loans on
the face amount of each such Letter of Credit
(of which 1/4 of 1% of the face amount of
each such Letter of Credit shall be for the
account of the Issuing Lender and the
remainder shall be for the account of the
Lenders). Such commission shall be shared
ratably among the Lenders participating in
the Revolving Credit Facility and shall be
payable quarterly in arrears. In addition,
customary administrative, issuance,
amendment, payment and negotiation charges
shall be payable to the Issuing Lender for
its own account.
Commitment Fees: The Borrower shall pay to the Administrative
Agent, for the ratable benefit of the
Lenders, a commitment fee calculated at the
rate of 1/2 of 1% per annum on the average
daily unused portion of the Credit
Facilities, payable in arrears on the last
business day of each calendar quarter. Swing
Line Loans shall, for purposes of the
commitment fee calculations only, not be
deemed to be a utilization of the Revolving
Credit Facility.
Default Rate: At any time when the Borrower is in default
in the payment of any amount due under the
Credit Facilities, the principal of all loans
under the Credit Facilities shall bear
interest at 2% above the rate otherwise
applicable thereto. Overdue interest, fees
and other amounts shall bear interest at 2%
above the rate applicable to ABR Loans.
Rate and Fee Basis: All per annum rates shall be calculated on
the basis of a year of 360 days (or 365/366
days, in the case of ABR Loans the interest
rate payable on which is then based on the
Prime Rate) for actual days elapsed.
<PAGE> 17
Annex II
Initial Conditions
For purposes of determining the satisfaction of the closing conditions attached
hereto, (a) unless otherwise defined herein or therein, capitalized terms which
are used in such closing conditions shall have the meanings assigned thereto in
the Letters, (b) the term "Offerings" shall include, in any event, the
syndication of the Credit Facilities and (c) the term "Offering Period" shall
include, in any event, the period from the date hereof through June 30, 1997.
<PAGE> 18
[ Annex II]
[to Exhibit A]
CLOSING CONDITIONS
Capitalized terms used but not defined herein shall, unless otherwise
specified, have the meanings assigned to such terms in the Letters (as
defined).
The Commitments of Credit Suisse First Boston or Credit Suisse First
Boston Corporation (collectively, "CSFB") pursuant to the Bridge Loan
Commitment Letter, the Engagement Letter and the Commitment Letter, each dated
as of April 11, 1997, as the case may be, between CSFB and Hedstrom Corporation
(together, the "Letters") shall be subject to the following conditions:
(i) there not becoming known to CSFB after the date of the
Letters any information or other matter relating to Acquiror or Target
which CSFB has reasonable cause to believe is accurate and which is
inconsistent in a material and adverse manner with any information or
other matter disclosed to CSFB by Acquiror or Target prior to the date
of the Letters;
(ii) the obligations of the parties thereto contained in the
Agreement and Plan of Merger dated April 11, 1997, among Acquiror,
AcquisitionCo and Target (the "Merger Agreement") to be performed at
or prior to the consummation of the Tender Offer shall have been
performed or complied with by Acquiror, AcquisitionCo and Target prior
to the consummation of the Tender Offer, except where the failure so
to perform or comply could not reasonably be expected to result in a
Material Adverse Effect (as defined);
(iii) there shall be no litigation or administrative
proceedings or other legal or regulatory developments, actual or
threatened, that, singly or in the aggregate, could have a Material
Adverse Effect on Acquiror or Target or the ability of Acquiror to
fully and timely perform its obligations under the documents executed
in connection with the Transactions, or the ability of the parties to
consummate the financing or
<PAGE> 19
2
the other Transactions contemplated by the Letters or the validity or
enforceability of any of the documents executed in connection with the
Transactions or the rights, remedies and benefits available to the
parties thereunder;
(iv) CSFB and, if applicable, the Lenders, shall have
received an opinion (and related going-concern valuation) reasonably
satisfactory in all respects to the Lenders and CSFB, as applicable,
from an independent valuation firm reasonably satisfactory to the
Lenders and CSFB, as applicable, in each case to the effect that,
after giving effect to the Transactions, Acquiror will not be
insolvent, will not be rendered insolvent by the indebtedness incurred
in connection therewith, will not be left with unreasonably small
capital with which to engage in its business and will not have
incurred debts beyond its ability to pay such debts as they mature;
(v) CSFB's and, if applicable, the Lenders', reasonable
satisfaction in all material respects with any amendments to any of
the terms of (i) the Tender Offer and all material documents relating
thereto, (ii) any definitive agreements relating to the Acquisition
and any other material agreements to be entered into in connection
with the Acquisition and (iii) the Senior Bank Facilities and the
Equity Contribution;
(vi) the receipt by CSFB and, if applicable, the Lenders', of
financial statements of Acquiror and Target (including notes thereto),
consisting of (a) audited and pro forma balance sheets for each period
in the 3 fiscal-year period ended December 31, 1996, and (b) audited
and pro forma statements of operations and cash flows for each period
in the 3 fiscal-year period ended December 31, 1996, and CSFB's and,
if applicable, the Lenders', receipt of any unaudited interim
financial statements deemed necessary or reasonably desirable in the
judgment of CSFB and the Lenders, if applicable, and all such
financial statements, historical or pro forma delivered pursuant
<PAGE> 20
3
to this paragraph (vi) to be in compliance with the requirements of
Regulation S-X for a public offering registered under the Securities
Act or 1933 (the "Securities Act");
(vii) the approval and/or recommendation by the Board of
Directors of Target of the Tender Offer and the Acquisition;
(viii) the waiting period (and any extension thereof)
applicable to the merger of AcquisitionCo and Target under the HSR Act
(as defined in the Merger Agreement) shall have been terminated or
shall have expired, and no restrictive order or other requirements
shall have been placed on Acquiror, AcquisitionCo, Target or the
surviving entity in connection therewith, except where such
restrictive order or other requirements could not reasonably be
expected to result in a Material Adverse Effect;
(ix) there not having occurred or becoming known to CSFB
(a)any event or events having occurred that, individually or in the
aggregate, could have a Material Adverse Effect on Acquiror or Target
or (b) (i) any general suspension of trading in, or limitation on
prices for, securities on any national securities exchange or in the
over-the-counter market in the United States for a period in excess of
forty-eight hours, (ii) the declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States, (iii)
the commencement of a war, armed hostilities or other international or
national calamity, directly or indirectly involving the United States,
(iv) any limitations (whether or not mandatory) imposed by any
governmental authority on the nature or extension of credit or further
extension of credit by banks or other lending institutions, (v) in the
case of the foregoing clauses (iii) and (iv), a material acceleration
or worsening thereof, or (vi) any other material adverse change in
bank or capital market conditions that has had a material adverse
effect on the syndication of leveraged bank credit facilities or
<PAGE> 21
4
the consummation of high yield offerings, as the case may be, that
CSFB shall reasonably determine makes it impracticable to consummate
the Offerings prior to the termination of the Offering Period or
syndication of the Bridge Loan, as the case may be;
(x) CSFB's satisfaction that, immediately prior to and during
the marketing period for any Offering or syndication of the Bridge
Loan, as the case may be, there shall be no competing issues of debt
securities or commercial bank facilities (other than the Senior Bank
Facilities the Senior Subordinated Note Offering or Bridge Loan and
the Holdings Senior Discount Note Offering, as applicable) of
Acquiror, Holdings or AcquisitionCo;
(xi) the negotiation, preparation, execution and delivery of
definitive documentation reasonably satisfactory to CSFB, in
connection with the Offerings, the Bridge Loan and the purchase of the
Holdings Senior Discount Notes, if applicable;
(xii) customary closing conditions for transactions similar to
the Bridge Loan, the Offerings and the purchase of the Holdings Senior
Discount Notes including the accuracy of all representations and
warranties contained in the Letters, the absence of any defaults, no
material change in the capital, corporate and organizational structure
of Holdings, Acquiror and its subsidiaries (after giving effect to the
Transactions), compliance with laws, adequate insurance, except where
the failure so to perform or comply with such customary closing
conditions could not reasonably be expected to result in a Material
Adverse Effect, and the receipt by CSFB of reasonably satisfactory
legal opinions from Acquiror's counsel in connection with the
Offerings and the Bridge Loan (including 10b-5 opinions relating to
any offering documents) and satisfactory accountant's "comfort"
letters in connection with the Offerings; and
(xiii) payment of fees.
<PAGE> 22
5
A "Material Adverse Effect" shall mean the result of one or
more events, changes or effects which, individually or in the aggregate, could
reasonably be expected to have a material adverse effect on (i) the business,
results of operations, financial condition or prospects of Acquiror,
AcquisitionCo or Target and each of their respective subsidiaries, in each
case, taken as a whole and (ii) the ability of CSFB to consummate the Offerings
prior to the Offering Period or syndicate the Bridge Loan.
<PAGE> 1
EXHIBIT 99.(c)(1)
AGREEMENT AND
PLAN OF MERGER
AMONG
HEDSTROM CORPORATION,
HC ACQUISITION CORP.
AND
ERO, INC.
dated as of April 10, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C> <C>
ARTICLE I
THE OFFER
1.1 The Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Offer Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.3 Company Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.4 Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE II
THE MERGER
2.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.3 Effective Time of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.4 Effects of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE III
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF
THE CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
3.1 Effect on Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.2 Conversion of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.3 Payment for Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.4 Stock Transfer Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.5 Stock Option Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.6 Dissenting Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of the Company . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.2 Representations and Warranties of Parent and Sub . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
5.1 Covenants of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Preparation of the Proxy Statement; Company Stockholders Meeting; Merger without a Company
Stockholders Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.2 Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.3 [Intentionally Omitted] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.4 Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.5 Brokers or Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.6 Indemnification; Directors' and Officers' Insurance . . . . . . . . . . . . . . . . . . . . . . 42
6.7 Commercially Reasonable Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
6.8 Conduct of Business of Sub . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
6.9 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
6.10 Withholding Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
6.11 Continuation of Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
ARTICLE VII
CONDITIONS PRECEDENT
7.1 Conditions to Each Party's Obligation to Effect the Merger . . . . . . . . . . . . . . . . . . . 47
7.2 Conditions to Obligation of Parent and Sub . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
ARTICLE VIII
TERMINATION AND AMENDMENT
8.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
8.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
8.3 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
8.4 Extension; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
ARTICLE IX
GENERAL PROVISIONS
9.1 Nonsurvival of Representations, Warranties and Agreements . . . . . . . . . . . . . . . . . . . 51
9.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
9.3 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
9.4 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
9.5 Entire Agreement; No Third Party Beneficiaries; Rights of Ownership . . . . . . . . . . . . . . 53
9.6 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
9.7 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
</TABLE>
<PAGE> 4
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of April 10, 1997
(the "Agreement"), is made and entered into by and among Hedstrom Corporation,
a Delaware corporation ("Parent"), HC Acquisition Corp., a Delaware corporation
and a wholly owned subsidiary of Parent ("Sub"), and ERO, Inc., a Delaware
corporation (the "Company").
WHEREAS, the respective Boards of Directors of Parent, Sub and
the Company have unanimously approved the acquisition of the Company by Parent,
by means of the merger (the "Merger") of Sub with and into the Company, upon
the terms and subject to the conditions set forth in this Agreement;
WHEREAS, to effectuate the acquisition, Parent and the Company
each desire that Sub commence a cash tender offer to purchase all of the
outstanding shares of common stock, par value $0.01 per share, of the Company
("Shares" or "Company Common Stock") upon the terms and subject to the
conditions set forth in this Agreement and the Offer Documents (as defined in
Section 1.2), and the Board of Directors of the Company has unanimously
approved such Offer (as defined in Section 1.1) and agreed to recommend to the
stockholders of the Company that they accept the Offer and tender their Company
Common Stock pursuant thereto; and
WHEREAS, Parent and Sub are unwilling to enter into this
Agreement (and effect the transactions contemplated hereby) unless,
contemporaneously with the execution and delivery hereof, certain beneficial
and record holders of the Company Common Stock enter into agreements
(collectively, the "Stockholders Agreement") providing for certain matters with
respect to their Shares (including the tender of their Shares and certain other
actions relating to the Offer) and the other transactions contemplated by this
Agreement, and, in order to induce Parent and Sub to enter into this Agreement,
the Company has approved the execution and delivery by Parent and such
stockholders of the Stockholders Agreement, and such stockholders have agreed
to execute and deliver the Stockholders Agreement; and
WHEREAS, Parent, Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Offer and the Merger and also to prescribe various conditions to the
consummation thereof;
<PAGE> 5
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements herein contained, the
parties hereto, intending to be legally bound, hereby agree as follows:
ARTICLE I
THE OFFER
1.1 The Offer. (a) Provided that none of the events set
forth in Exhibit A hereto shall have occurred and be continuing, as promptly as
practicable (but in any event not later than five business days after the
public announcement of the execution and delivery of this Agreement), Sub shall
commence (within the meaning of Rule 14d-2 under the Securities Exchange Act of
1934, as amended (the "Exchange Act")), an offer to purchase (the "Offer") all
outstanding shares of the Company Common Stock at a price of $11.25 per share,
net to the seller in cash (the "Offer Consideration"). The obligation of
Parent and Sub to commence the Offer, consummate the Offer, accept for payment
and to pay for shares of Company Common Stock validly tendered in the Offer and
not withdrawn shall be subject only to those conditions set forth in Exhibit A
hereto.
(b) Parent and Sub expressly reserve the right to amend or
modify the terms of the Offer, except that, without the prior written consent
of the Company, Sub shall not (and Parent shall not cause Sub to): (i) decrease
the Offer Consideration, change the form of the Offer Consideration or decrease
the number of Shares sought pursuant to the Offer, (ii) amend or waive the
condition that there shall be validly tendered and not withdrawn prior to the
time the Offer expires a number of shares of Company Common Stock which
constitutes a majority of the Shares outstanding on a fully-diluted basis on
the date of purchase ("on a fully-diluted basis" having the following meaning,
as of any date: the number of shares of Company Common Stock outstanding,
together with Shares which the Company may be required, now or in the future,
to issue pursuant to options, warrants or other rights or obligations
outstanding at that date), (iii) extend the expiration date of the Offer
(except that Sub may extend the expiration date of the Offer (a) as required by
any rule, regulation or interpretation of the United States Securities and
Exchange Commission (the "SEC"), (b) for such periods as Sub may reasonably
deem necessary (but not to a date later than the 60th calendar day after the
date of commencement) in the event that any condition to the Offer is not
satisfied, or (c) for one or more times for an aggregate period of up to 15
days (not to exceed 60 calendar days from the date of commencement) for any
reason other than those specified in the immediately preceding
2
<PAGE> 6
clause (a) or clause (b)), or (iv) change any condition or impose additional
conditions to the Offer or amend any term of the Offer in any manner adverse to
holders of shares of Company Common Stock; provided, however, that, except as
set forth above, Sub may waive any other condition to the Offer in its sole
discretion; and provided further, that the Offer (i) may be extended in
connection with an increase in the consideration to be paid pursuant to the
Offer so as to comply with applicable rules and regulations of the SEC, and
(ii) will, for one time only, be automatically extended for a period which ends
on the 15th business day from the date the Company shall have received an
Acquisition Proposal (as hereinafter defined) in the event the Company shall
receive such Acquisition Proposal less than ten business days prior to the
expiration of the Offer. Assuming the prior satisfaction or waiver of the
conditions to the Offer, Sub shall accept for payment, and pay for, in
accordance with the terms of the Offer, all shares of Company Common Stock
validly tendered and not withdrawn pursuant to the Offer as soon as practicable
after the expiration date thereof.
1.2 Offer Documents. As soon as practicable on the date
of commencement of the Offer, Parent and Sub shall file or cause to be filed
with the SEC a Tender Offer Statement on Schedule 14D-1 (the "Schedule 14D- 1")
with respect to the Offer which shall contain the offer to purchase, related
letter of transmittal and other ancillary Offer documents and instruments
pursuant to which the Offer will be made (collectively with any supplements or
amendments thereto, the "Offer Documents"). The Offer Documents (i) shall
contain (or shall be amended in a timely manner to contain) all information
which is required to be included therein in accordance with the Exchange Act
and the rules and regulations thereunder and any other applicable law and (ii)
shall conform in all material respects with the requirements of the Exchange
Act and any other applicable law. Notwithstanding the foregoing, no agreement
or representation hereby is made or shall be made by Parent or Sub with respect
to information supplied by the Company expressly for inclusion in, or with
respect to Company information derived from the Company's public SEC filings
that is included or incorporated by reference in, the Offer Documents. Parent,
Sub and the Company each agree promptly to correct any information provided by
them for use in the Offer Documents if and to the extent that it shall have
become false or misleading in any material respect and Sub further agrees to
take all lawful action necessary to cause the Offer Documents as so corrected
to be filed promptly with the SEC and to be disseminated to holders of Company
Common Stock, in each case as and to the extent required by applicable law. In
conducting the Offer, Parent and Sub shall comply in all material respects with
the Exchange Act and any other applicable law. The
3
<PAGE> 7
Company and its counsel shall be given reasonable opportunity to review and
comment on the Offer Documents and any amendments or supplements thereto prior
to the filing thereof with the SEC. To the extent practicable, the Company and
its counsel shall also be given reasonable opportunity to review and comment on
correspondence with the SEC concerning the Offer Documents prior to the
delivery thereof to the SEC.
1.3 Company Actions. The Company hereby consents to the
Offer and the Merger and represents that (a) its Board of Directors (at a
meeting duly called and held) has unanimously (i) determined that each of this
Agreement, the Offer and the Merger are fair to and in the best interests of
the stockholders of the Company, (ii) approved the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby and thereby, including the Offer and the Merger, and such
approval constitutes approval of the foregoing for purposes of Section 203 of
the Delaware General Corporation Law, as amended (the "DGCL"), and for purposes
of Article Nine of the Company's Amended and Restated Certificate of
Incorporation, (iii) resolved to recommend (x) acceptance of the Offer, (y)
approval and adoption of this Agreement (if required) and (z) approval of the
Merger, by the holders of Company Common Stock, and (b) Dean Witter Reynolds
Inc. (the "Financial Advisor") has delivered to the Board of Directors of the
Company its written opinion that, as of such date and based upon and subject to
the matters set forth therein, the Offer Consideration to be received by the
holders of Company Common Stock (other than Parent, Sub and any other
Subsidiary of Parent) in the Offer is fair, from a financial point of view, to
such holders. The Company acknowledges and agrees that the Board of Directors
of the Company may not withdraw, modify or amend its approval or recommendation
of the Offer, this Agreement, the Stockholders Agreement or the Merger except
in accordance with Section 5.1(e)(ii). The Company hereby consents to the
inclusion in the Offer Documents of the recommendation referred to in this
Section 1.3. The Company hereby agrees to file with the SEC, simultaneously
with the filing by Parent and Sub of the Schedule 14D-1 (or promptly after such
filing), a Solicitation/Recommendation Statement on Schedule 14D-9 (together
with all amendments and supplements thereto, the "Schedule 14D-9") containing
such recommendations of the Board of Directors of the Company in favor of the
Offer and the Merger and otherwise complying with Rule 14d-9 under the Exchange
Act. The Schedule 14D-9 shall comply in all material respects with the
Exchange Act and any other applicable law and shall contain (or shall be
amended in a timely manner to contain) all information that is required to be
included therein in accordance with the Exchange Act and the rules and
regulations promulgated thereunder
4
<PAGE> 8
and any other applicable law. Notwithstanding the foregoing, no agreement or
representation hereby is made or shall be made by the Company with respect to
Parent, Sub or any other Subsidiary of Parent. The Company, Parent and Sub
each agree promptly to correct any information provided by them for use in the
Schedule 14D-9 if and to the extent that it shall have become false or
misleading in any material respect and the Company further agrees to take all
lawful action necessary to cause the Schedule 14D-9 as so corrected to be
promptly filed with the SEC and disseminated to the holders of Company Common
Stock, in each case as and to the extent required by applicable law. Parent,
Sub and their counsel shall be given an opportunity to review and comment on
the Schedule 14D-9 and any amendments thereto prior to the filing thereof with
the SEC. To the extent practicable, Parent, Sub and their counsel shall also
be given reasonable opportunity to review and comment on correspondence with
the SEC concerning the Schedule 14D-9 prior to the delivery thereof to the SEC.
In connection with the Offer, the Company shall promptly furnish, or cause its
transfer agent to furnish, Parent with mailing labels, security position
listings and all available listings or computer files containing the names and
addresses of the record holders of the Company Common Stock as of the latest
practicable date and shall furnish, or cause its transfer agent to furnish,
Parent with such information and assistance (including updated lists of
stockholders, mailing labels and lists of security positions) as Parent or its
agents may reasonably request in communicating the Offer to the record and
beneficial holders of Company Common Stock. Subject to the requirements of
applicable law, and except for such actions as are necessary to disseminate the
Offer Documents and any other documents necessary to consummate the Offer and
the Merger, Parent and Sub and each of their affiliates, associates, partners,
employees, agents and advisors shall hold in confidence the information
contained in such labels and lists, shall use such information only in
connection with the Offer and the Merger, and, if this Agreement is terminated
for any reason, shall deliver promptly to the Company all copies of such
information then in their possession or control.
1.4 Directors. (a) Upon the purchase pursuant to the
Offer by Sub of such number of shares of Company Common Stock which represents
a majority of the outstanding shares of Company Common Stock (on a fully
diluted basis), and from time to time thereafter, Parent shall be entitled to
designate such number of directors, rounded up to the next whole number (but in
no event more than one less than the total number of directors on the Board of
Directors of the Company) as will give Parent, subject to compliance with
Section 14(f) of the Exchange Act, representation on the Board of Directors of
the Company equal to
5
<PAGE> 9
the product of (x) the number of directors on the Board of Directors of the
Company (giving effect to any increase in the number of directors pursuant to
this Section 1.4) and (y) the percentage that such number of Shares so
purchased bears to the aggregate number of Shares outstanding (such number
being, the "Board Percentage"), and the Company shall, upon request by Parent
and subject to applicable law, promptly satisfy the Board Percentage by (i)
increasing the size of the Board of Directors of the Company or (ii) using its
best efforts to secure the resignations of such number of directors as is
necessary to enable Parent's designees to be elected to the Board of Directors
of the Company and shall cause Parent's designees promptly to be so elected,
provided that no such action shall be taken which would result in there being,
prior to the consummation of the Merger, less than two directors of the Company
that are not affiliated with Parent. At the request of Parent, the Company
shall take, at the Company's expense, all lawful action necessary to effect any
such election, including, without limitation, mailing to its stockholders the
information required by Section 14(f) of the Exchange Act and Rule 14f-1
promulgated thereunder, unless such information has previously been provided to
the Company's stockholders in the Schedule 14D-9. Parent will supply to the
Company in writing and be solely responsible for any information with respect
to itself and its nominees, directors and affiliates required by Section 14(f)
of the Exchange Act and Rule 14f-1 thereunder.
(b) Following the election or appointment of Parent's
designees pursuant to this Section 1.4 and prior to the Effective Time of the
Merger, any amendment or termination of this Agreement, extension for the
performance or waiver of the obligations or other acts of Parent or Sub or
waiver of the Company's rights thereunder shall require the concurrence of a
majority of directors of the Company then in office who are Continuing
Directors. The term "Continuing Director" shall mean (i) each member of the
board of directors on the date hereof who voted to approve this Agreement and
(ii) any successor to any Continuing Director that was recommended to succeed
such Continuing Director by a majority of the Continuing Directors then on the
board of directors.
ARTICLE II
THE MERGER
2.1 The Merger. Upon the terms and subject to the
conditions set forth in this Agreement, and in accordance with the DGCL, Sub
shall be merged with and into the Company at the Effective Time. At the
Effective Time, the separate corporate
6
<PAGE> 10
existence of Sub shall cease, and the Company shall continue as the surviving
corporation and a direct wholly owned subsidiary of Parent (Sub and the Company
are sometimes hereinafter referred to as "Constituent Corporations" and, as the
context requires, the Company is sometimes hereinafter referred to as the
"Surviving Corporation"), and shall continue under the name "ERO, Inc.".
2.2 Closing. Unless this Agreement shall have been
terminated and the transactions herein contemplated shall have been abandoned
pursuant to Section 8.1, and subject to the satisfaction or waiver of the
conditions set forth in Article VII, the closing of the Merger (the "Closing")
shall take place at 10:00 a.m., New York time, on the second business day after
satisfaction and/or waiver of all of the conditions set forth in Article VII
(the "Closing Date"), at the offices of Weil, Gotshal & Manges LLP, 767 Fifth
Avenue, New York, New York 10153, unless another date, time or place is agreed
to in writing by the parties hereto.
2.3 Effective Time of the Merger. Subject to the
provisions of this Agreement, the parties hereto shall cause the Merger to be
consummated by filing a certificate of merger (the "Certificate of Merger")
with the Secretary of State of the State of Delaware, as provided in the DGCL,
as soon as practicable on or after the Closing Date. The Merger shall become
effective upon such filing or at such time thereafter as is provided in the
Certificate of Merger as the Company and Sub shall agree (the "Effective
Time").
2.4 Effects of the Merger. (a) The Merger shall have the
effects as set forth in the applicable provisions of the DGCL.
(b) The directors of Sub and the officers of the Company
immediately prior to the Effective Time shall, from and after the Effective
Time, be the initial directors and officers of the Surviving Corporation until
their successors have been duly elected or appointed and qualified, or until
their earlier death, resignation or removal in accordance with the Surviving
Corporation's Certificate of Incorporation and Bylaws.
(c) The Certificate of Incorporation of the Company shall
be amended and restated in its entirety as set forth on Exhibit B hereto, and,
from and after the Effective Time, such amended and restated Certificate of
Incorporation shall be the Certificate of Incorporation of the Surviving
Corporation, until duly amended in accordance with the terms thereof and the
DGCL.
7
<PAGE> 11
(d) The Bylaws of the Company shall be amended and
restated in their entirety as set forth on Exhibit C hereto and, from and after
the Effective Time, such amended and restated Bylaws shall be the Bylaws of the
Surviving Corporation until thereafter amended as provided by applicable law,
the Certificate of Incorporation or the Bylaws.
ARTICLE III
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF
THE CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
3.1 Effect on Capital Stock. At the Effective Time, by
virtue of the Merger and without any action on the part of any holder of shares
of Company Common Stock or any holder of shares of capital stock of Sub:
(a) Capital Stock of Sub. Each share of the capital stock
of Sub issued and outstanding immediately prior to the Effective Time shall be
converted into and become one fully paid and nonassessable share of Common
Stock, par value $0.01 per share, of the Surviving Corporation.
(b) Cancellation of Treasury Stock and Parent-Owned Stock.
Each share of Company Common Stock and all other shares of capital stock of the
Company that are owned by the Company and all shares of Company Common Stock
and other shares of capital stock of the Company owned by Parent or Sub shall
be canceled and retired and shall cease to exist and no consideration shall be
delivered or deliverable in exchange therefor.
3.2 Conversion of Securities. At the Effective Time, by
virtue of the Merger and without any action on the part of Sub, the Company or
the holders of any of the shares thereof:
(a)(i) Subject to the other provisions of this Section 3.2,
each share of Company Common Stock issued and outstanding immediately prior to
the Effective Time (excluding shares owned, directly or indirectly, by the
Company or by Parent, Sub or any other Subsidiary of Parent and Dissenting
Shares (as defined in Section 3.6)) shall be converted into the right to
receive the per share amount actually paid in the Offer, payable to the holder
thereof in cash, without any interest thereon (the amount so paid in the Offer,
in cash, is herein referred to as the "Merger Consideration"), upon surrender
and exchange of the Certificate (as defined in Section 3.3) representing such
share of Company Common Stock. As used in this Agreement, the word
"Subsidiary", with respect to any party,
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<PAGE> 12
means any corporation, partnership, joint venture or other organization,
whether incorporated or unincorporated, of which: (i) such party or any other
Subsidiary of such party is a general partner; (ii) voting power to elect a
majority of the Board of Directors or others performing similar functions with
respect to such corporation, partnership, joint venture or other organization
is held by such party or by any one or more of its Subsidiaries, or by such
party and any one or more of its Subsidiaries; or (iii) at least 25% of the
equity, other securities or other interests is, directly or indirectly, owned
or controlled by such party or by any one or more of its Subsidiaries, or by
such party and any one or more of its Subsidiaries.
(ii) All such shares of Company Common
Stock, when converted as provided in Section 3.2(a)(i), no longer shall be
outstanding and shall automatically be canceled and retired and shall cease to
exist, and each Certificate previously evidencing such Shares shall thereafter
represent only the right to receive the Merger Consideration. The holders of
Certificates previously evidencing Shares outstanding immediately prior to the
Effective Time shall cease to have any rights with respect to the Company
Common Stock except as otherwise provided herein or by law and, upon the
surrender of Certificates in accordance with the provisions of Section 3.3,
shall only represent the right to receive for their Shares, the Merger
Consideration, without any interest thereon.
3.3 Payment for Shares. (a) Paying Agent. Prior to
the Effective Time, Parent shall appoint a United States bank or trust company
reasonably acceptable to the Company to act as paying agent (the "Paying
Agent") for the payment of the Merger Consideration, and Parent shall cause the
Surviving Corporation to deposit with the Paying Agent in a separate fund
established for the benefit of the holders of shares of Company Common Stock,
for payment in accordance with this Article III, through the Paying Agent (the
"Payment Fund"), immediately available funds in amounts necessary to make the
payments pursuant to Section 3.2(a)(i) and this Section 3.3 to holders (other
than the Company or Parent, Sub or any other Subsidiary of Parent, or holders
of Dissenting Shares). The Paying Agent shall, pursuant to irrevocable
instructions, pay the Merger Consideration out of the Payment Fund.
If for any reason (including losses) the Payment Fund is
inadequate to pay the amounts to which holders of shares of Company Common
Stock shall be entitled under this Section 3.3, Parent shall take all steps
necessary to enable or cause the Surviving Corporation to deposit in trust
additional cash with
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the Paying Agent sufficient to make all payments required under this Agreement,
and Parent and the Surviving Corporation shall in any event be liable for
payment thereof. The Payment Fund shall not be used for any purpose except as
expressly provided in this Agreement.
(b) Payment Procedures. As soon as reasonably practicable
after the Effective Time, the Surviving Corporation shall instruct the Paying
Agent to mail to each holder of record (other than the Company or Parent, Sub
or any other Subsidiary of Parent) of a Certificate or Certificates which,
immediately prior to the Effective Time, evidenced outstanding shares of
Company Common Stock (the "Certificates"), (i) a form of letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and
title to the Certificates shall pass, only upon proper delivery of the
Certificates to the Paying Agent, and shall be in such form and have such other
provisions as the Surviving Corporation reasonably may specify) and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for payment of the Merger Consideration. Upon surrender of a Certificate for
cancellation to the Paying Agent together with such letter of transmittal, duly
executed, and such other customary documents as may be required pursuant to
such instructions, the holder of such Certificate shall be entitled to receive
in respect thereof cash in an amount equal to the product of (x) the number of
shares of Company Common Stock represented by such Certificate and (y) the
Merger Consideration, and the Certificate so surrendered shall forthwith be
canceled. No interest shall be paid or accrued on the Merger Consideration
payable upon the surrender of any Certificate. If payment is to be made to a
person other than the person in whose name the surrendered Certificate is
registered, it shall be a condition of payment that the Certificate so
surrendered shall be properly endorsed or otherwise in proper form for transfer
and that the person requesting such payment shall pay any transfer or other
taxes required by reason of the payment to a person other than the registered
holder of the surrendered Certificate or established to the satisfaction of the
Surviving Corporation that such tax has been paid or is not applicable. Until
surrendered in accordance with the provisions of this Section 3.3(b), each
Certificate (other than Certificates representing Shares owned by the Company
or Parent, Sub or any other Subsidiary of Parent) shall be deemed at any time
after the Effective Time to represent for all purposes only the right to
receive the Merger Consideration.
(c) Termination of Payment Fund; Interest. Any portion of
the Payment Fund which remains undistributed to the holders of Company Common
Stock for 270 days after the Effective
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Time shall be delivered to the Surviving Corporation, upon demand, and any
holders of Company Common Stock who have not theretofore complied with this
Article III and the instructions set forth in the letter of transmittal mailed
to such holder after the Effective Time shall thereafter look only to the
Surviving Corporation for payment of the Merger Consideration to which they are
entitled. All interest accrued in respect of the Payment Fund shall inure to
the benefit of and be paid to the Surviving Corporation.
(d) No Liability. None of Parent, the Company or the
Surviving Corporation shall be liable to any holder of shares of Company Common
Stock for any cash from the Payment Fund delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
3.4 Stock Transfer Books. At the Effective Time, the
stock transfer books of the Company shall be closed and there shall be no
further registration of transfers of shares of Company Common Stock thereafter
on the records of the Company. On or after the Effective Time, any
certificates presented to the Paying Agent or Parent for any reason, except
notation thereon that a stockholder has elected to exercise his rights to
appraisal pursuant to the DGCL, shall be converted into the Merger
Consideration as provided in this Article III.
3.5 Stock Option Plans. At the Effective Time, each
holder of a then outstanding option to purchase Shares under any of the
Company's 1988 Key Employee Stock Option Plan, 1992 Key Employee Stock Option
Plan and 1992 Directors' Stock Option Plan (collectively, the "Stock Option
Plans"), or otherwise set forth on Schedule 4.1(b), whether or not then
exercisable or vested (collectively, the "Options"), shall, in cancellation and
settlement thereof, receive for each Share subject to such Option an amount
(subject to any applicable withholding tax) in cash equal to the difference
between the amount per share actually paid in the Offer and the per Share
exercise price of such Option to the extent such difference is a positive
number (such amount being hereinafter referred to as, the "Option
Consideration"); provided, however, that with respect to any person subject to
Section 16(a) of the Exchange Act, any such amount shall be paid as soon as
practicable after the first date payment can be made without liability to such
person under Section 16(b) of the Exchange Act. Upon receipt of the Option
Consideration, the Option shall be canceled. The surrender of an Option to the
Company in exchange for the Option Consideration shall be deemed a release of
any and all rights the holder had or may have had in respect of such Option.
Prior to the expiration of the Offer, the Company shall use its reasonable
efforts to obtain all
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<PAGE> 15
necessary consents or releases from holders of Options under the Stock Option
Plans and take all such other lawful action as may be reasonably necessary to
give effect to the transactions contemplated by this Section 3.5. The Stock
Option Plans shall terminate as of the Effective Time, and the provisions in
any other plan, program or arrangement providing for the issuance or grant of
any other interest in respect of the capital stock of the Company or any
Subsidiary thereof shall be canceled as of the Effective Time. Prior to the
expiration of the Offer, the Company shall use its reasonable efforts to take
all action necessary (including causing the Board of Directors of the Company
to take such actions as are allowed by the Stock Option Plans) to (i) ensure
that, following the Effective Time, no participant in the Stock Option Plans or
any other plans, programs or arrangements shall have any right thereunder to
acquire equity securities of the Company, the Surviving Corporation or any
Subsidiary thereof and (ii) terminate all such plans, programs and
arrangements.
3.6 Dissenting Shares. Notwithstanding any other
provisions of this Agreement to the contrary, shares of Company Common Stock
that are outstanding immediately prior to the Effective Time and which are held
by stockholders who shall have not voted in favor of the Merger or consented
thereto in writing and who shall have demanded properly appraisal for such
shares in accordance with Section 262 of the DGCL (collectively, the
"Dissenting Shares") shall not be converted into or represent the right to
receive the Merger Consideration. Such stockholders instead shall be entitled
to receive payment of the appraised value of such shares of Company Common
Stock held by them in accordance with the provisions of such Section 262 of the
DGCL, except that all Dissenting Shares held by stockholders who shall have
failed to perfect or who effectively shall have withdrawn or otherwise lost
their rights to appraisal of such shares of Company Common Stock under such
Section 262 of the DGCL shall thereupon be deemed to have been converted into
and to have become exchangeable, as of the Effective Time, for the right to
receive, without any interest thereon, the Merger Consideration upon surrender
in the manner provided in Section 3.3, of the Certificate or Certificates that,
immediately prior to the Effective Time, evidenced such shares of Company
Common Stock.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of the Company. The
Company represents and warrants to Parent and Sub as follows:
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<PAGE> 16
(a) Organization, Standing and Power. Each of the Company
and its Subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of its respective jurisdiction of incorporation,
has all requisite power and authority to own, lease and operate its properties
and to carry on its business as now being conducted, and is duly qualified to
do business as a foreign corporation and in good standing to conduct business
in each jurisdiction in which the business it is conducting, or the operation,
ownership or leasing of its properties, makes such qualification necessary,
other than in such jurisdictions where the failure so to qualify could not
reasonably be expected to (i) have a Material Adverse Effect (as defined below)
with respect to the Company or (ii) materially impair the ability of the
Company to consummate the transactions contemplated by this Agreement. The
Company has heretofore made available to Parent complete and correct copies of
its and its Subsidiaries' respective Certificates of Incorporation and Bylaws.
All Subsidiaries of the Company and their respective jurisdictions of
incorporation or organization are identified on Schedule 4.1(a). As used in
this Agreement: a "Material Adverse Effect" shall mean, with respect to any
party, any events, changes or effects which, individually or in the aggregate,
could reasonably be expected to have a material adverse effect on the business,
results of operations or financial condition of such party and its
Subsidiaries, taken as a whole; provided, however, that the matters disclosed
on Exhibit D hereto shall not be considered in determining whether one or more
events, changes or effects could reasonably be expected to have a Material
Adverse Effect on the Company.
(b) Capital Structure. As of the date hereof, the
authorized capital stock of the Company consists of 50,000,000 Shares and
9,947,700 shares of preferred stock, par value $.01 per share (the "Preferred
Stock"). As of the date hereof: (i) 10,274,300 Shares are issued and
outstanding; (ii) no shares of Preferred Stock are issued and outstanding; and
(iii) 1,458,000 Shares are reserved for issuance pursuant to Options
outstanding under the Stock Option Plans. Except for the issuance of Shares
pursuant to the exercise of outstanding Options, there are no employment,
executive termination or similar agreements providing for the issuance of
Shares. As of the date hereof, 120,000 Shares are held by the Company and no
Shares are held by Subsidiaries of the Company. No bonds, debentures, notes or
other instruments or evidence of indebtedness having the right to vote (or
convertible into, or exercisable or exchangeable for, securities having the
right to vote) on any matters on which the Company stockholders may vote
("Company Voting Debt") were issued or outstanding. All outstanding Shares are
validly issued, fully paid and
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<PAGE> 17
nonassessable and are not subject to preemptive or other similar rights.
Except as set forth on Schedule 4.1(b), all outstanding shares of capital stock
of the Subsidiaries of the Company are owned by the Company or a direct or
indirect Subsidiary of the Company, free and clear of all liens, charges,
encumbrances, claims and options of any nature. Except as set forth in this
Section 4.1(b), there are outstanding: (i) no shares of capital stock, Company
Voting Debt or other voting securities of the Company; (ii) no securities of
the Company or any Subsidiary of the Company convertible into, or exchangeable
or exercisable for, shares of capital stock, Company Voting Debt or other
voting securities of the Company or any Subsidiary of the Company; and (iii) no
options, warrants, calls, rights (including preemptive rights), commitments or
agreements to which the Company or any Subsidiary of the Company is a party or
by which it is bound, in any case obligating the Company or any Subsidiary of
the Company to issue, deliver, sell, purchase, redeem or acquire, or cause to
be issued, delivered, sold, purchased, redeemed or acquired, additional shares
of capital stock or any Company Voting Debt or other voting securities of the
Company or of any Subsidiary of the Company, or obligating the Company or any
Subsidiary of the Company to grant, extend or enter into any such option,
warrant, call, right, commitment or agreement. Except as set forth on Schedule
4.1(b), since December 31, 1996, the Company has not (i) granted any options,
warrants or rights to purchase shares of Company Common Stock or (ii) amended
or repriced any Option or any of the Stock Option Plans. Set forth on Schedule
4.1(b) is a list of all outstanding options, warrants and rights to purchase
shares of Company Common Stock and the exercise prices relating thereto.
Except as disclosed in the Company SEC Documents (as defined below), there are
not as of the date hereof and there will not be at the Effective Time any
stockholder agreements, voting trusts or other agreements or understandings to
which the Company is a party or by which it is bound relating to the voting of
any shares of the capital stock of the Company which will limit in any way the
solicitation of proxies by or on behalf of the Company from, or the casting of
votes by, the stockholders of the Company with respect to the Merger. There
are no restrictions on the Company to vote the stock of any of its
Subsidiaries.
(c) Authority; No Violations; Consents and Approvals.
(i) The Company has all requisite corporate power
and authority to enter into this Agreement and, subject to the Company
Stockholder Approval (as defined in Section 4.1(c)(iii)), to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of the Company,
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<PAGE> 18
subject, if required with respect to consummation of the Merger, to the Company
Stockholder Approval. This Agreement has been duly executed and delivered by
the Company and, subject, if required with respect to consummation of the
Merger, to the Company Stockholder Approval, and assuming that this Agreement
constitutes the valid and binding agreement of Parent and Sub, constitutes a
valid and binding obligation of the Company enforceable in accordance with its
terms and conditions except that the enforcement hereof may be limited by (a)
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or other similar laws now or hereafter in effect relating to
creditors' rights generally and (b) general principles of equity (regardless of
whether enforceability is considered in a proceeding at law or in equity).
(ii) Except as set forth on Schedule 4.1(c)(ii),
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby by the Company will not conflict with, or
result in any violation of, or default (with or without notice or lapse of
time, or both) under, or give rise to a right of termination, cancellation or
acceleration (including pursuant to any put right) of any obligation or the
loss of a material benefit under, or the creation of a lien, pledge, security
interest or other encumbrance on assets or property, or right of first refusal
with respect to any asset or property (any such conflict, violation, default,
right of termination, cancellation or acceleration, loss, creation or right of
first refusal, a "Violation"), pursuant to, (A) any provision of the
Certificate of Incorporation or Bylaws of the Company or any of its
Subsidiaries or (B) except as to which requisite waivers or consents have been
obtained and assuming the consents, approvals, authorizations or permits and
filings or notifications referred to in paragraph (iii) of this Section 4.1(c)
are duly and timely obtained or made and, if required, the Company Stockholder
Approval has been obtained, result in any Violation of (1) any loan or credit
agreement, note, mortgage, deed of trust, indenture, lease, Benefit Plan (as
defined in Section 4.1(i)), Company Permit (as defined in Section 4.1(f)), or
any other agreement, obligation, instrument, concession, franchise, or license
or (2) any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Company or any of its Subsidiaries or their respective
properties or assets (collectively, "Laws"), except in the case of clause (1)
and (2) for any Violations that, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect on the Company. The
Board of Directors of the Company has taken all actions necessary under the
Company's Amended and Restated Certificate of Incorporation, including
approving the transactions contemplated by this Agreement, to ensure that
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Section 1 of Article Nine of the Company's Amended and Restated Certificate of
Incorporation does not, and will not, apply to the transactions contemplated in
this Agreement. The Board of Directors of the Company has taken all actions
necessary under the DGCL, including approving the transactions contemplated by
this Agreement and the Stockholders Agreement, to ensure that Section 203 of
the DGCL does not, and will not, apply to the transactions contemplated in this
Agreement or the Stockholders Agreement.
(iii) No consent, approval, order or authorization
of, or registration, declaration or filing with, notice to, or permit from any
court, administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign (a "Governmental Entity"), is required by
or with respect to the Company or any of its Subsidiaries in connection with
the execution and delivery of this Agreement by the Company or the consummation
by the Company of the transactions contemplated hereby, except for: (A) the
filing of a pre-merger notification and report form by the Company under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), and the expiration or termination of the applicable waiting period
thereunder; (B) the filing with the SEC of (x) a proxy statement (if required
by applicable law) in definitive form relating to a meeting of the holders of
Company Common Stock to approve the Merger (such proxy statement as amended or
supplemented from time to time being hereinafter referred to as the "Proxy
Statement"), (y) the Schedule 14D-9 in connection with the Offer, and (z) such
reports under and such other compliance with the Exchange Act and the rules and
regulations thereunder as may be required in connection with this Agreement and
the transactions contemplated hereby; (C) the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware and appropriate
documents with the relevant authorities of other states in which the Company
does business; (D) such filings and approvals as may be required by any
applicable state securities, "blue sky" or takeover laws; (E) such filings and
approvals as may be required by any foreign pre-merger notification,
securities, corporate or other law, rule or regulation (including the
Investment Canada Act); (F) such filings in connection with any state or local
tax which is attributable to the beneficial ownership of the Company's or its
Subsidiaries' real property, if any (collectively, the "Gains and Transfer
Taxes"); (G) such other filings and consents as may be required under any
environmental, health or safety law or regulation pertaining to any
notification, disclosure or required approval necessitated by the Merger or the
transactions contemplated by this Agreement; (H) the approval of this Agreement
and the Merger by the holders of a majority of the
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outstanding Shares ("Company Stockholder Approval") and (I) such other
consents, approvals, orders, authorizations, registrations, declarations,
filings, notices or permits the failure of which to be obtained or made could
not reasonably be expected to have a Material Adverse Effect on the Company.
(d) SEC Documents. The Company has made available to
Parent a true and complete copy of each report, schedule, registration
statement and definitive proxy statement filed by the Company with the SEC
since January 1, 1995 and prior to the date of this Agreement (the "Company SEC
Documents"), which are all the documents (other than preliminary material) that
the Company was required to file with the SEC since such date. As of their
respective dates, the Company SEC Documents complied in all material respects
with the requirements of the Securities Act of 1933, as amended (the
"Securities Act"), or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such Company SEC
Documents, and none of the Company SEC Documents contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Except as disclosed
on Schedule 4.1(d), the financial statements of the Company included in the
Company SEC Documents complied as to form in all material respects with the
published rules and regulations of the SEC with respect thereto, were prepared
in accordance with generally accepted accounting principles ("GAAP") applied on
a consistent basis during the periods involved (except as may be indicated in
the notes thereto or, in the case of the unaudited statements, as permitted by
Rule 10-01 of Regulation S-X of the SEC) and fairly present in accordance with
applicable requirements of GAAP (subject, in the case of the unaudited
statements, to normal, recurring adjustments, which will not be material,
either individually or in the aggregate) the consolidated financial position of
the Company and its consolidated Subsidiaries as of their respective dates and
the consolidated results of operations and the consolidated cash flows of the
Company and its consolidated Subsidiaries for the periods presented therein.
(e) Information Supplied. None of the information
supplied or to be supplied by the Company specifically for inclusion or
incorporation by reference in (i) any of the Offer Documents will, at the time
the Offer Documents are first published, sent or given to holders of Company
Common Stock, and at any time they are amended or supplemented, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they are made,
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<PAGE> 21
not misleading, and (ii) the Proxy Statement will, on the date it is first
mailed to the holders of the Company Common Stock or at the Effective Time,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. If, at any time prior to the expiration of the Offer or the
Effective Time, any event with respect to the Company or any of its
Subsidiaries, or with respect to other information supplied by the Company
specifically for inclusion in the Offer Documents or the Proxy Statement, shall
occur which is required to be described in an amendment of, or a supplement to,
the Offer Documents or the Proxy Statement, as the case may be, such event
shall be so described, and such amendment or supplement shall be promptly filed
with the SEC and, as required by law, disseminated to the stockholders of the
Company. The Proxy Statement, insofar as it relates to the Company or its
Subsidiaries or other information supplied by the Company specifically for
inclusion therein will comply as to form, in all material respects, with the
provisions of the Exchange Act or the rules and regulations thereunder.
Notwithstanding the foregoing, the Company makes no representation or warranty
with respect to (i) the information supplied or to be supplied by Parent or Sub
for inclusion in the Offer Documents or the Proxy Statement or (ii) except as
provided in the immediately following sentence, any projections,
forward-looking statements or similar information provided to Parent or Sub
that is not of a historical nature. The budget prepared by the Company and
attached to Schedule 4.1(e) hereto was prepared in good faith based upon
reasonable assumptions.
(f) Compliance with Applicable Laws. The Company and its
Subsidiaries hold all permits, licenses, variances, exemptions, orders,
franchises and approvals of all Governmental Entities necessary for the lawful
conduct of their respective businesses (the "Company Permits"), except where
the failure to hold any such Company Permits could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on the
Company. The Company and its Subsidiaries are in compliance with the terms of
the Company Permits, except where the failure to be in compliance could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on the Company. A list of the material Company Permits is set
forth on Schedule 4.1(f). Except as disclosed in Schedule 4.1(f), the
businesses of the Company and its Subsidiaries are not being conducted in
violation of any law, ordinance or regulation of any Governmental Entity except
for any such violations which could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on the Company. As of
the date of this Agreement, no investigation or
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<PAGE> 22
review by any Governmental Entity with respect to the Company or any of its
Subsidiaries is pending or, to the knowledge of the Company, has been
threatened which could reasonably be expected to have a Material Adverse Effect
on the Company.
(g) Litigation. Except as set forth on Schedule 4.1(g),
there is no suit, action or proceeding pending or, to the knowledge of the
Company, threatened against the Company or any Subsidiary of the Company
("Company Litigation"), nor is there any material judgment, decree, injunction,
rule or order of any Governmental Entity or arbitrator outstanding against the
Company or any Subsidiary of the Company ("Company Order"). In addition,
except as expressly set forth on Schedule 4.1(g) as having such effect, none of
the claims and judgments pending, or to the knowledge of the Company,
threatened pursuant to all Company Litigation and Company Orders, could,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on the Company.
(h) Taxes. Except as set forth on Schedule 4.1(h) hereto:
(i) All Tax Returns required to be filed by or
with respect to the Company and each of its Subsidiaries have been duly
and timely filed (taking into account all valid extensions of filing
dates), except where the failure to file such Tax Returns would not
have a Material Adverse Effect on the Company, and all such Tax Returns
are true, correct and complete in all material respects. The Company
and each of its Subsidiaries has duly and timely paid (or there has
been paid on its behalf) all Taxes that are due, except to the extent
that the failure to pay such Taxes would not have a Material Adverse
Effect the Company and except for Taxes being contested in good faith
by appropriate proceedings and for which adequate reserves have been
established in the Company's audited financial statements for the year
ended December 31, 1996 in accordance with generally accepted
accounting principles. With respect to any period for which Taxes are
not yet due with respect to the Company or any Subsidiary, the Company
and each of its Subsidiaries has made due and sufficient current
accruals for such Taxes in accordance with GAAP in the most recent
financial statements contained in the Company SEC Documents. The
Company and each of its Subsidiaries has made (or there has been made
on its behalf) all required estimated Tax payments sufficient to avoid
any material underpayment penalties. The Company and each of its
Subsidiaries has withheld and paid all material Taxes required by all
applicable laws to be withheld or paid in
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connection with any amounts paid or owing to any employee, creditor,
independent contractor or other third party.
(ii) There are no outstanding agreements, waivers,
or arrangements extending the statutory period of limitation applicable
to any claim for, or the period for the collection or assessment of,
material Taxes due from or with respect to the Company or any of its
Subsidiaries for any taxable period. No audit or other proceeding by
any court, governmental or regulatory authority, or similar person is
pending or, to the knowledge of the Company, threatened in regard to
any material Taxes due from or with respect to the Company or any of
the Subsidiaries or any material Tax Return filed by or with respect to
the Company or any Subsidiary other than normal and routine audits by
nonfederal governmental authorities. Neither the Company nor any
Subsidiary of the Company has received notice that any assessment of
Taxes is proposed against the Company or any of its Subsidiaries or any
of their assets which, if ultimately paid by the Company or any
Subsidiary of the Company would have a Material Adverse Effect on the
Company.
(iii) No consent to the application of Section
341(f)(2) of the Code (or any predecessor provision) has been made or
filed by or with respect to the Company or any of its Subsidiaries or
any of their assets. None of the Company or any of its Subsidiaries
has agreed to make any adjustment pursuant to Section 481(a) of the
Code (or any predecessor provision) by reason of any change in any
accounting method, and there is no application pending with any taxing
authority requesting permission for any changes in any accounting
method of the Company or any of its Subsidiaries which, in each
respective case, will or would reasonably cause the Company or any of
is Subsidiaries to include any material adjustment in taxable income
for any taxable period (or portion thereof) ending after the Closing
Date.
(iv) None of the Company or any of its
Subsidiaries is a party to, is bound by, or has any obligation under,
any Tax sharing agreement, Tax allocation agreement or similar contract
other than any agreement to which the Company and its Subsidiaries are
the sole parties.
(v) There is no contract, agreement, plan or
arrangement covering any person that, individually or collectively,
could give rise to the payment of any amount that would not be
deductible by the Company or any of its Subsidiaries by reason of
Section 280G of the Code.
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(vi) The term "Code" shall mean the Internal
Revenue Code of 1986, as amended. The term "Taxes" shall mean all
taxes, charges, fees, levies, or other similar assessments or
liabilities, including without limitation (a) income, gross receipts,
ad valorem, premium, excise, real property, personal property, sales,
use, transfer, withholding, employment, payroll, and franchise taxes
imposed by the United States of America, or by any state, local, or
foreign government, or any subdivision, agency, or other similar person
of the United States or any such government; and (b) any interest,
fines, penalties, assessments, or additions to taxes resulting from,
attributable to, or incurred in connection with any Tax or any contest,
dispute, or refund thereof. The term "Tax Returns" shall mean any
report, return, or statement required to be supplied to a taxing
authority in connection with Taxes.
(i) Pension And Benefit Plans; ERISA.
(i) Schedule 4.1(i)(i) sets forth a complete and
correct list of:
(A) all "employee benefit plans", as defined in
Section 3(3) of ERISA, maintained by the Company or
any of its Subsidiaries to which Company or any of its
Subsidiaries has any obligation or liability,
contingent or otherwise ("Benefit Plans"); and
(B) all employment or consulting agreements, and
all bonus or other incentive compensation, deferred
compensation, salary continuation, disability, stock
award, stock option, stock purchase or other material
employee benefit policies or arrangements which the
Company or any of its Subsidiaries maintains or to
which the Company or any of its Subsidiaries has any
obligation or liability (contingent or otherwise) (the
"Employee Arrangements").
(ii) With respect to each Benefit Plan and
Employee Arrangement, a complete and correct copy of each of the
following documents (if applicable) has been made available to
Purchaser: (i) the most recent plan and related trust documents, and
all amendments thereto; (ii) the most recent summary plan description,
and all related summaries of material modifications thereto; (iii) the
most recent Form 5500 (including schedules and attachments); (iv) the
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most recent IRS determination letter; and (v) the most recent actuarial
reports.
(iii) To the Company's knowledge, the Company and
its Subsidiaries do not currently have and have not during the
preceding six years had any obligation or liability (contingent or
otherwise) under Title IV of ERISA.
(iv) The Benefit Plans and their related trusts
intended to qualify under Sections 401(a) and 501(a) of the Code,
respectively, are qualified under such sections.
(v) All contributions or other payments required
to have been made by the Company or any of its Subsidiaries to or under
any Benefit Plan or Employee Arrangement by applicable law or the terms
of such Benefit Plan or Employee Arrangement (or any agreement relating
thereto) have been timely and properly made or are properly accrued on
the Company's audited financial statements for the year ended December
31, 1996 in accordance with generally accepted accounting principles.
(vi) The Benefit Plans and Employee Arrangements
have been maintained and administered in all material respects in
accordance with their terms and applicable laws.
(vii) Except as disclosed in Schedule 4.1(i)(vii),
there are no pending or, to the best knowledge of the Company,
threatened actions, claims or proceedings against or relating to any
Benefit Plan or Employee Arrangement other than routine benefit claims
by persons entitled to benefits thereunder and other than actions,
claims or proceedings which, individually or in the aggregate, could
not reasonably be expected to have a Material Adverse Effect on the
Company.
(viii) Except as disclosed in Schedule
4.1(i)(viii), the Company and its Subsidiaries do not maintain or have
an obligation to contribute to retiree life or retiree health plans
which provide for continuing benefits or coverage for current or former
officers, directors or employees of the Company or any of its
Subsidiaries except (i) as may be required under Part 6 of Title I of
ERISA) and at the sole expense of the participant or the participant's
beneficiary or (ii) a medical expense reimbursement account plan
pursuant to Section 125 of the Code.
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(j) Absence of Certain Changes or Events. Except as set
forth on Exhibit D or Schedule 4.1(j) or as contemplated by this Agreement,
since December 31, 1996, the business of the Company and its Subsidiaries has
been carried on only in the ordinary and usual course and no event or events
has or have occurred that (either individually or in the aggregate) has had, or
reasonably could be expected to have, a Material Adverse Effect on the Company.
(k) No Undisclosed Material Liabilities. Except as
specifically and individually set forth on Schedule 4.1(k) or the other
schedules hereto (specific reference to which shall be made on Schedule
4.1(k)), there are no liabilities of the Company or any Subsidiary of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable or
otherwise, that are material to the Company and its Subsidiaries considered as
a whole other than: (i) liabilities reflected on the Company's audited
financial statements (together with the related notes thereto) filed with the
Company's Annual Report on Form 10-K for the year ended December 31, 1996 (as
filed with the SEC); and (ii) liabilities under this Agreement.
(l) Opinion of Financial Advisor. The Company has
received the opinion of the Financial Advisor dated April 10, 1997, to the
effect that, as of the date thereof, the Offer Consideration to be received by
the holders of Company Common Stock in the Offer and the Merger Consideration
to be received by the holders of Company Common Stock in the Merger is fair
from a financial point of view to such holders, a signed, true and complete
copy of which opinion shall be delivered to Parent, and such opinion has not
been withdrawn or modified. True and complete copies of all agreements and
understandings between the Company or any of its affiliates and the Financial
Advisor relating to the transactions contemplated by this Agreement are
attached hereto as Schedule 4.1(l).
(m) Vote Required. In the event that Section 253 of the
DGCL is inapplicable and unavailable to effectuate the Merger, the affirmative
vote of the holders of a majority of the outstanding shares of Company Common
Stock is the only vote of the holders of any class or series of the Company's
capital stock necessary (under applicable law or otherwise) to approve the
Merger and this Agreement and the transactions contemplated hereby.
(n) Labor Matters. Except to the extent as such could not
reasonably be expected to have a Material Adverse Effect on the Company or as
set forth on Schedule 4.1(n):
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(i) Neither the Company nor any of its
Subsidiaries is a party to any labor or collective bargaining
agreement, and no employees of Company or any of its Subsidiaries are
represented by any labor organization. Within the preceding three
years, there have been no representation or certification proceedings,
or petitions seeking a representation proceeding, pending or, to the
knowledge of the Company, threatened to be brought or filed with the
National Labor Relations Board or any other labor relations tribunal or
authority. Within the preceding three years, to the knowledge of
Company, there have been no organizing activities involving Company or
any of its Subsidiaries with respect to any group of employees of
Company or any of its Subsidiaries.
(ii) There are no strikes, work stoppages,
slowdowns, lockouts, material arbitrations or material grievances or
other material labor disputes pending or, to the knowledge of the
Company, threatened against or involving Company or any of its
Subsidiaries. There are no unfair labor practice charges, grievances
or complaints pending or, to the knowledge of Company, threatened by or
on behalf of any employee or group of employees of Company or any of
its Subsidiaries.
(iii) There are no complaints, charges or claims
against Company or any of its Subsidiaries pending or, to the knowledge
of Company, threatened to be brought or filed with any governmental
authority, arbitrator or court based on, arising out of, in connection
with, or otherwise relating to the employment or termination of
employment of any individual by Company or any of its Subsidiaries.
(iv) Each of the Company and its Subsidiaries is
in material compliance with all laws, regulations and orders relating
to the employment of labor, including all such laws, regulations and
orders relating to wages, hours, collective bargaining, discrimination,
civil rights, safety and health, workers' compensation and the
collection and payment of withholding and/or social security taxes and
any similar tax.
(v) Since July 31, 1996, there has been no "mass
layoff" or "plant closing" (as defined by the Worker Adjustment
Retraining and Notification Act of 1988, as amended ("WARN Act") with
respect to the Company or any of its Subsidiaries.
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(o) Intangible Property. Each of the Company and its
Subsidiaries owns or has a right to use each trademark, trade name, patent,
service mark, brand mark, brand name, computer program, database, industrial
design and copyright owned or used in connection with the operation of its
businesses, including any registrations thereof and pending applications
therefor, and each license or other contract relating thereto (collectively,
the "Company Intangible Property"), free and clear of any and all liens, claims
or encumbrances, except where the failure to own or have a right to use such
property could not reasonably be expected to have a Material Adverse Effect on
the Company. To the Company's knowledge, Schedule 4.1(o) hereto sets forth a
complete list of the Company Intangible Property. Except to the extent that
such could not reasonably be expected to have a Material Adverse Effect on the
Company, the use of the Company Intangible Property by the Company or its
Subsidiaries does not conflict with, infringe upon, violate or interfere with
or constitute an appropriation of any right, title, interest or goodwill,
including, without limitation, any intellectual property right, trademark,
trade name, patent, service mark, brand mark, brand name, computer program,
database, industrial design, copyright or any pending application therefor of
any other person.
(p) Environmental Matters.
(i) For purposes of this Agreement:
(A) "Environmental Costs and Liabilities" means
any and all losses, liabilities, obligations, damages, fines,
penalties, judgments, actions, claims, costs and expenses
(including, without limitation, fees, disbursements and
expenses of legal counsel, experts, engineers and consultants
and the reasonable costs of investigation and feasibility
studies and the reasonable costs to clean up, remove, treat,
or in any other way address any Hazardous Materials) arising
with respect to any violation of or liability arising pursuant
to or under any Environmental Law.
(B) "Environmental Law" means any applicable law
regulating or prohibiting Releases of Hazardous Materials into
any part of the natural environment, or pertaining to the
protection of natural resources, the environment and public
and employee health and safety from Hazardous Materials
including, without limitation, the Comprehensive Environmental
Response, Compensation, and Liability Act ("CERCLA") (42
U.S.C. Section 9601 et seq.), the Hazardous Materials
Transportation Act
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(49 U.S.C. Section 1801 et seq.), the Resource Conservation
and Recovery Act (42 U.S.C. Section 6901 et seq.), the Clean
Water Act (33 U.S.C. Section 1251 et seq.), the Clean Air
Act (33 U.S.C. Section 7401 et seq.), the Toxic Substances
Control Act (15 U.S.C. Section 7401 et seq.), the Federal
Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. Section
136 et seq.), and the Occupational Safety and Health Act (29
U.S.C. Section 651 et seq.) ("OSHA") and the regulations
promulgated pursuant thereto, and any such applicable state
or local statutes, including, without limitation, the
Industrial Site Recovery Act ("IRSA"), and the regulations
promulgated pursuant thereto, as such laws have been and may
be amended or supplemented through the Closing Date;
(C) "Hazardous Material" means any substance,
material or waste which is regulated with respect to its toxic
or otherwise hazardous character by any public or governmental
authority in the jurisdictions in which the applicable party
or its Subsidiaries conducts business, or the United States,
including, without limitation, any material or substance which
is defined as a "hazardous waste," "hazardous material,"
"hazardous substance," "extremely hazardous waste" or
"restricted hazardous waste," "contaminant," "toxic waste" or
"toxic substance" under any provision of Environmental Law and
shall also include, without limitation, petroleum, petroleum
products, asbestos, polychlorinated biphenyls and radioactive
materials;
(D) "Release" means any release, spill, effluent,
emission, leaking, pumping, injection, deposit, disposal,
discharge, dispersal, leaching, or migration into the
environment; and
(E) "Remedial Action" means all actions,
including, without limitation, any capital expenditures,
required by a governmental entity or required under any
Environmental Law, or voluntarily undertaken to (I) clean up,
remove, treat, or in any other way ameliorate or address any
Hazardous Materials or other substance in the environment;
(II) prevent the Release or threat of Release, or minimize the
further Release of any Hazardous Material so it does not
endanger or threaten to endanger the public health or welfare
or the environment; (III) perform pre-remedial studies and
investigations or post-remedial monitoring and care pertaining
or relating to a Release; or
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(IV) bring the applicable party into compliance with any
Environmental Law.
(ii) Except as set forth on Schedule
4.1(p) hereto: (A) The operations of the Company and its
Subsidiaries have been and, as of the Closing Date, will be,
in compliance in all respects with all Environmental Laws
except for any such noncompliance which could not reasonably
be expected to result in a Material Adverse Effect on the
Company;
(B) The Company and its Subsidiaries have
obtained and will, as of the Closing Date, maintain all
permits required under applicable Environmental Laws for the
continued operations of their respective businesses, except
such permits the lack of which would not materially impair the
ability of the Company and its Subsidiaries to continue
operations;
(C) The Company and its Subsidiaries are not
subject to any outstanding material written orders from, or
material written agreements with, any Governmental Entity or
other person respecting (A) violations or liability pursuant
to Environmental Laws, (B) Remedial Action or (C) any Release
or threatened Release of a Hazardous Material;
(D) The Company and its Subsidiaries have not
received any written communication alleging, with respect to
any such party, the material violation of or material
liability under any Environmental Law, which violation or
liability is outstanding;
(E) Neither the Company nor any of its
Subsidiaries has any contingent liability in connection with
the Release of any Hazardous Material into the environment
(whether on-site or off- site) which would be reasonably
likely to result in the Company and its Subsidiaries incurring
Environmental Costs and Liabilities which could reasonably be
expected to result in a Material Adverse Effect on the
Company;
(F) The operations of the Company or its
Subsidiaries do not involve the transportation, treatment,
storage or disposal of hazardous waste, as defined and
regulated under permit requirements set forth in 40 C.F.R.
Parts 260-270 (in effect as of the date of this Agreement) or
any state equivalent;
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(G) To the knowledge of the Company, there is not
now nor has there been in the past, on or in any property of
the Company or its Subsidiaries any of the following: (A) any
underground storage tanks or surface impoundments containing
Hazardous Materials, (B) any asbestos-containing materials, or
(C) any polychlorinated biphenyls in regulated quantities; and
(H) No judicial or administrative proceedings or
governmental investigations are pending or, to the knowledge
of the Company, threatened against the Company or any of its
Subsidiaries alleging the violation of or seeking to impose
liability pursuant to any Environmental Law, except for any
such proceedings or investigations that could not reasonably
be expected to result in a Material Adverse Effect on the
Company.
(iii) This Section 4.1(p) sets forth the
sole and exclusive representations and warranties of the
Company relating to Environmental Matters, including, without
limitation, any matters arising under Environmental Laws.
(q) Real Property.
(i) Schedule 4.1(q)(i) sets forth all of the real
property owned in fee by the Company and its Subsidiaries. Each of the
Company and its Subsidiaries has good and marketable title to each
parcel of real property owned by it free and clear of all mortgages,
pledges, liens, encumbrances and security interests, except (1) those
described in the Company SEC Documents, (2) those reflected or reserved
against in the audited balance sheet of the Company dated as of
December 31, 1996, and (3) to the extent that such could not reasonably
be expected to have a Material Adverse Effect on the Company, (A) taxes
and general and special assessments not in default and payable without
penalty and interest, (B) mechanics and similar statutory liens arising
or incurred in the ordinary course of business for amounts that are not
delinquent, (C) any zoning, building, and land use regulation imposed
by any Governmental Entity, and (D) any covenant, restriction, or
easement expressly set forth in the title documents governing such real
property filed with the appropriate Governmental Entity.
(ii) Schedule 4.1(q)(ii) sets forth each lease,
sublease or other agreement (collectively, the "Real Property Leases")
under which the Company or any of its
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Subsidiaries uses or occupies or has the right to use or occupy, now or
in the future, any real property. Each Real Property Lease is valid,
binding and in full force and effect, all rent and other sums and
charges payable by the Company and its Subsidiaries as tenants
thereunder are current, no termination event or condition or uncured
default of a material nature on the part of the Company or any
Subsidiary of the Company exists under any Real Property Lease. Each
of the Company and its Subsidiaries has a good and valid leasehold
interest in each parcel of real property leased by it free and clear of
all mortgages, pledges, liens, encumbrances and security interests,
except (i) those disclosed in the Company's SEC Documents, (ii) those
reflected or reserved against in the balance sheet of the Company dated
as of December 31, 1996, (iii) taxes and general and special
assessments not in default and payable without penalty and interest and
(iv) those which could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on the
Company.
(r) Board Recommendation. As of the date hereof, the
Board of Directors of the Company, at a meeting duly called and held, has by
the vote of those directors present (who constituted 100% of the directors then
in office) (i) determined that this Agreement and the transactions contemplated
hereby, including the Offer and the Merger, taken together, are fair to and in
the best interests of the stockholders of the Company and has approved the
same, and (ii) resolved to recommend that the holders of the shares of Company
Common Stock approve this Agreement and the transactions contemplated herein,
including the Merger (if required), and accept the Offer and tender their
shares of Company Common Stock pursuant thereto.
(s) Material Contracts. The Company has made available to
Parent (i) true and complete copies of all written contracts, agreements,
commitments, arrangements, leases (including with respect to personal
property), policies and other instruments to which it or any of its
Subsidiaries is a party or by which it or any such Subsidiary is bound which
(A) require payments to be made in excess of $250,000 per year for goods and/or
services, (B) require payments to be made in excess of $100,000 with respect to
any licenses granted to the Company or any of its Subsidiaries, or (C) do not
by their terms expire and are not subject to termination within 60 days from
the date of the execution and delivery thereof (collectively, "Material
Contracts"), and (ii) a written description of each Material Contract of which
the Company is aware that has not been reduced to writing; provided, however,
that blanket purchase orders or similar arrangements shall not be considered
Material Contracts
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<PAGE> 33
for purposes of this Agreement. Each of the Material Contracts is listed on
Schedule 4.1(s). Neither the Company nor any of its Subsidiaries is, or has
received any written notice that any other party is, in default in any respect
under any such Material Contract, except for those defaults which could not,
either individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect with respect to the Company; and, to the Company's
knowledge, there has not occurred any event or events that with the lapse of
time or the giving of notice or both would constitute such a material default,
except for those defaults which could not, either individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect with
respect to the Company.
(t) Related Party Transactions. Except as set forth on
Schedule 4.1(t) or as disclosed in the Company SEC Documents, no director,
officer, "affiliate" or "associate" (as such terms are defined in Rule 12b-2
under the Exchange Act) of the Company or any of its Subsidiaries (i) has
borrowed any monies from or has outstanding any indebtedness or other similar
obligations to the Company or any of its Subsidiaries, or (ii) is otherwise a
party to any contract, arrangement or understanding with the Company or any of
its Subsidiaries.
(u) Indebtedness. Except as set forth on Schedule 4.1(u)
hereto or in the Company's audited financial statements as of December 31,
1996, on the date hereof neither the Company nor any of its Subsidiaries has
any outstanding indebtedness for borrowed money or representing the deferred
purchase price of property or services or similar liabilities or obligations,
including any guarantee in respect thereof ("Indebtedness"), or is a party to
any agreement, arrangement or understanding providing for the creation,
incurrence or assumption thereof.
(v) Liens. Neither the Company nor any of its
Subsidiaries has granted, created, or suffered to exist with respect to any of
its assets, any mortgage, pledge, charge, hypothecation, collateral assignment,
lien (statutory or otherwise), encumbrance or security agreement of any kind or
nature whatsoever, except (1) those described in the Company SEC Documents, (2)
those reflected or reserved against in the audited balance sheet of the Company
dated as of December 31, 1996, and (3) to the extent that such could not
reasonably be expected to have a Material Adverse Effect on the Company, (A)
taxes and general and special assessments not in default and payable without
penalty and interest, (B) mechanics and similar statutory liens arising or
incurred in the ordinary course of business for amounts that are not
delinquent, (C) any zoning, building, and
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<PAGE> 34
land use regulation imposed by any Governmental Entity, and (D) any covenant,
restriction, or easement expressly set forth in the title documents governing
real property of the Company or any of its Subsidiaries and filed with the
appropriate Governmental Entity.
(w) Customers and Suppliers. Schedule 4.1(w) sets forth
(a) a list of the ten largest customers of the Company and its Subsidiaries
based on sales during the fiscal year ended December 31, 1996, showing the
approximate total sales to each such customer during such fiscal year and (b) a
list of the ten largest suppliers of the Company and its Subsidiaries based on
purchases during the fiscal year ended December 31, 1996, showing the
approximate total purchases from each such supplier during such fiscal year.
Except as described on Schedule 4.1(w), to the Company's knowledge there has
not been any adverse change in the business relationship of the Company or any
Subsidiary of the Company with any customer or supplier named in Schedule
4.1(w) which could reasonably be expected to have a Material Adverse Change on
the Company.
4.2 Representations and Warranties of Parent and Sub. Parent and
Sub represent and warrant to the Company as follows:
(a) Organization, Standing and Power. Each of Parent and
Sub is a corporation duly organized, validly existing and in good standing
under the laws of its state of incorporation or organization, has all requisite
power and authority to own, lease and operate its properties and to carry on
its business as now being conducted, and is duly qualified to do business as a
foreign corporation and in good standing to conduct business in each
jurisdiction in which the business it is conducting, or the operation,
ownership or leasing of its properties, makes such qualification necessary,
other than in such jurisdictions where the failure so to qualify could not have
a Material Adverse Effect with respect to Parent. Parent and Sub have
heretofore made available to the Company complete and correct copies of their
respective Certificates of Incorporation and Bylaws.
(b) Authority; No Violations; Consents and Approvals.
(i) Each of Parent and Sub has all requisite
corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary
corporate action on the part of Parent and Sub. This Agreement has
been duly executed and delivered by each of Parent and Sub and
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assuming this Agreement constitutes the valid and binding agreement of
the Company, constitutes a valid and binding obligation of Parent and
Sub enforceable in accordance with its terms and conditions except that
the enforcement hereof may be limited by (a) applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or other
similar laws now or hereafter in effect relating to creditors' rights
generally and (b) general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity).
(ii) The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby by each of
Parent and Sub will not result in any Violation pursuant to any
provision of the respective Articles or Certificates of Incorporation
or Bylaws of Parent or Sub or, except as to which requisite waivers or
consents have been obtained and assuming the consents, approvals,
authorizations or permits and filings or notifications referred to in
paragraph (iii) of this Section 4.2(b) are duly and timely obtained or
made, and, if required, the Company Stockholder Approval has been
obtained, result in any Violation of any loan or credit agreement,
note, mortgage, indenture, lease, or other agreement, obligation,
instrument, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Parent or Sub
or their respective properties or assets, which could have a Material
Adverse Effect with respect to Parent.
(iii) No consent, approval, order or authorization
of, or registration, declaration or filing with, notice to, or permit
from any Governmental Entity, is required by or with respect to Parent
or Sub in connection with the execution and delivery of this Agreement
by each of Parent and Sub or the consummation by each of Parent or Sub
of the transactions contemplated hereby, except for: (A) filings under
the HSR Act; (B) the filing with the SEC of (x) the Schedule 14D-1 in
connection with the commencement and consummation of the Offer and (y)
such reports under and such other compliance with the Exchange Act and
the rules and regulations thereunder, as may be required in connection
with this Agreement and the transactions contemplated hereby; (C) the
filing of the Certificate of Merger with the Secretary of State of the
State of Delaware; (D) such filings and approvals as may be required by
any applicable state securities, "blue sky" or takeover laws; (E) such
filings and approvals as may be required by any foreign pre-merger
notification, securities, corporate or other law,
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rule or regulation; (F) such filings in connection with any Gains and
Transfer Taxes; and (G) such other such filings and consents as may be
required under any environmental, health or safety law or regulation
pertaining to any notification, disclosure or required approval
necessitated by the Merger or the transactions contemplated by this
Agreement.
(c) Information Supplied. None of the information
supplied or to be supplied by Parent or Sub for inclusion or incorporation by
reference in (i) the Schedule 14D-9 will, at the time the Schedule 14D-9 is
filed with the SEC, and at any time it is amended or supplemented, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they are made, not misleading, and (ii) the Proxy
Statement will, at the date it is first mailed to the Company's stockholders or
at the Effective Time, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
are made, not misleading. If, at any time prior to the Effective Time, any
event with respect to Parent or Sub, or with respect to information supplied by
Parent or Sub for inclusion in the Schedule 14D-9 or the Proxy Statement, shall
occur which is required to be described in an amendment of, or a supplement to,
any of such documents, such event shall be so described to the Company.
(d) Board Recommendation. The Board of Directors of the
Parent, at a meeting duly called and held, has by the vote of those directors
present determined that this Agreement and the transactions contemplated
hereby, including the Offer and the Merger, taken together, are fair to and in
the best interests of Parent and has approved the same.
(e) Financing. Parent and Sub have delivered to the
Company a true and complete copy of (i) a letter of commitment obtained by
Parent from Credit Suisse First Boston to provide debt financing for the
transactions contemplated hereby pursuant to a senior credit facility; (ii) a
letter of commitment obtained by Parent from Credit Suisse First Boston with
respect to senior subordinated debt financing for the transactions contemplated
hereby pursuant to the sale by Parent of senior subordinated notes; (iii) a
letter of commitment obtained by Hedstrom Holdings, Inc., the sole stockholder
of Parent ("Holdings"), from Credit Suisse First Boston with respect to senior
debt financing for the transactions contemplated hereby pursuant to the sale by
Holdings of senior notes; and (iv) from Hicks Muse Equity Fund
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II, L.P. to provide certain equity financing pursuant to the sale by Holdings
of shares of its common stock (collectively, the "Financing Commitments").
Executed copies of the Financing Commitments are attached hereto as Exhibit
4.2(e). Assuming that the financing contemplated by the Financing Commitments
is consummated in accordance with the terms thereof, the funds to be borrowed
and/or provided thereunder by Parent and Holdings will provide sufficient funds
to pay the Offer Consideration, the Merger Consideration and all related fees
and expenses. As of the date of this Agreement, Parent is not aware of any
facts or circumstances that create a reasonable basis for Parent to believe
that Parent and Holdings will not be able to obtain financing in accordance
with the terms of the Financing Commitments. Parent agrees to promptly notify
the Company if the statements in the immediately preceding sentence are no
longer true and correct. Parent and Sub agree with the Company that they will
not waive, release, modify, rescind, terminate or otherwise amend any of the
material terms or conditions in the commitment letters referred to in this
Section 4.2(e), without the prior written consent of the Company.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
5.1 Covenants of the Company. During the period from the
date of this Agreement and continuing until the Effective Time, the Company
agrees as to the Company and its Subsidiaries that (except as expressly
contemplated or permitted by this Agreement, or to the extent that Parent shall
otherwise consent in writing):
(a) Ordinary Course. Each of the Company and its
Subsidiaries shall carry on its businesses in the usual, regular and ordinary
course in substantially the same manner as heretofore conducted and shall use
all reasonable efforts to preserve intact its present business organization,
keep available the services of its current officers and employees and preserve
its relationships with customers, suppliers and others having business dealings
with it.
(b) Dividends; Changes in Stock. The Company shall not,
nor shall it permit any of its Subsidiaries to: (i) declare or pay any
dividends on or make other distributions in respect of any of its capital
stock; (ii) split, combine or reclassify any of its capital stock or issue or
authorize or propose the issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock; or (iii) repurchase
or otherwise acquire, or permit any Subsidiary to purchase or
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otherwise acquire, any shares of its capital stock, except (A) as contemplated
by Section 3.5 of this Agreement and (B) as required by the terms of its
securities outstanding or any employee benefit plan in effect on the date
hereof.
(c) Issuance of Securities. The Company shall not, nor
shall it permit any of its Subsidiaries to, (i) grant any options, warrants or
rights, to purchase shares of Company Common Stock, (ii) except as contemplated
by Section 3.5 of this Agreement, amend the terms of or reprice any Option or
amend the terms of any of the Stock Option Plans, or (iii) issue, deliver or
sell, or authorize or propose to issue, deliver or sell, any shares of its
capital stock of any class or series, any Company Voting Debt or any securities
convertible into, or any rights, warrants or options to acquire, any such
shares, Company Voting Debt or convertible securities, other than the issuance
of Shares upon the exercise of Options or Warrants that are outstanding on the
date hereof.
(d) Governing Documents. The Company shall not amend or
propose to amend its Certificate of Incorporation or Bylaws.
(e) No Solicitation. From and after the date hereof until
the termination of this Agreement, neither the Company or any of its
Subsidiaries, nor any of their respective officers, directors, representatives,
agents or affiliates (including, without limitation, any investment banker,
attorney or accountant retained by the Company or any of its Subsidiaries)
(such officers, directors, employees, representatives, agents, affiliates,
investment bankers, attorneys and accountants being referred to herein,
collectively, as "Representatives"), will, and the Company will use its
reasonable best efforts to cause the employees of the Company and its
Subsidiaries not to, directly or indirectly, initiate, solicit or encourage
(including by way of furnishing information or assistance), or take any other
action to facilitate, any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any Acquisition Proposal
(as defined below), or enter into or maintain or continue discussions or
negotiate with any person or entity in furtherance of such inquiries or for the
purpose of obtaining an Acquisition Proposal, or agree to or endorse any
Acquisition Proposal, and neither the Company nor any of its Subsidiaries will
authorize or permit any of its Representatives to take any such action, and the
Company shall notify Parent orally (within one business day) and in writing (as
promptly as practicable) of all of the relevant details relating to, and all
material aspects of, all inquiries and proposals which it or any of its
Subsidiaries or any of their respective Representatives may receive relating to
any of such matters and, if such inquiry
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or proposal is in writing, the Company shall deliver to Parent a copy of such
inquiry or proposal as promptly as practicable; provided, however, that nothing
contained in this Section 5.1(e) shall prohibit the Board of Directors of the
Company from:
(i) furnishing information to, or entering into
discussions or negotiations with, any person or entity that makes an
unsolicited written, bona fide Acquisition Proposal (provided that such
person or entity has the necessary funds or commitments to provide the
funds to effect such Acquisition Proposal; provided further, however,
that the Company shall have two business days from the date it receives
such Acquisition Proposal to determine whether such person or entity
has such funds or commitments) if, and only to the extent that, (A) the
Board of Directors of the Company, after consultation with and based
upon the advice of independent legal counsel (who may be the Company's
regularly engaged independent legal counsel), determines in good faith
that such action is advisable for the Board of Directors of the Company
to comply with its fiduciary duties to stockholders under applicable
law, (B) prior to taking such action, the Company (x) provides
reasonable prior notice to Parent to the effect that it is taking such
action and (y) receives from such person or entity an executed
confidentiality agreement in reasonably customary form, and (C) the
Company shall , to the extent consistent with the Board of Directors
fiduciary duties to stockholders under applicable law, promptly and
continuously advise Parent as to all of the relevant details relating
to, and all material aspects, of any such discussions or negotiations;
(ii) failing to make or reaffirm, withdrawing,
adversely modifying or taking a public position materially inconsistent
with its recommendation referred to in Section 4.1(r) (which may
include making any statement required by Rule 14e-2 under the Exchange
Act) if there exists an Acquisition Proposal and the Board of Directors
of the Company, after consultation with and based upon the advice of
independent legal counsel (who may be the Company's regularly engaged
independent counsel), determines in good faith that such action is
advisable for the Board of Directors of the Company to comply with its
fiduciary duties to holders of Shares under applicable law; or
(iii) making a "stop-look-and-listen" communication
with respect to an Acquisition Proposal, the Offer or this Agreement of
the nature contemplated in, and otherwise in compliance with, Rule
14d-9 under the Exchange Act as a result of receiving an Acquisition
Proposal.
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For purposes of this Agreement, "Acquisition Proposal" shall mean any of the
following (other than the transactions among the Company, Parent and Sub
contemplated hereunder) involving the Company or any of its Subsidiaries: (i)
any merger, consolidation, share exchange, recapitalization, business
combination, or other similar transaction; (ii) any sale, lease, exchange,
mortgage, pledge, transfer or other disposition of 10% or more of the assets
(computed based on the fair market value of such assets as determined by the
Board of Directors of the Company in good faith) of the Company and its
Subsidiaries, taken as a whole, in a single transaction or series of
transactions; (iii) any tender offer or exchange offer for 10% or more of the
outstanding shares of capital stock of the Company or the filing of a
registration statement under the Securities Act in connection therewith; or
(iv) any public announcement of a proposal, plan or intention to do any of the
foregoing or any agreement to engage in any of the foregoing.
(f) No Acquisitions. The Company shall not, nor shall it
permit any of its Subsidiaries to: (i) merge or consolidate with, or acquire
any equity interest in, any corporation, partnership, association or other
business organization, or enter into an agreement with respect thereto or (ii)
acquire or agree to acquire any assets of any corporation, partnership,
association or other business organization or division thereof, except for the
purchase of inventory and supplies in the ordinary course of business or the
acquisition by the Company or any Subsidiary of equity interests in any
customer or supplier of the Company in satisfaction of outstanding claims
against such party in bankruptcy proceedings consistent with past practice.
(g) No Dispositions. Other than sales of inventory or
sales or returns of obselete or surplus equipment in the ordinary course of
business consistent with past practice, the Company shall not, nor shall it
permit any of its Subsidiaries to, sell, lease, encumber or otherwise dispose
of, or agree to sell, lease (whether such lease is an operating or capital
lease), encumber or otherwise dispose of, any of its assets (including, without
limitation, any capital stock or other ownership interest of any Subsidiary of
the Company).
(h) Governmental Filings. The Company shall promptly
provide Parent (or its counsel) with copies of all filings made by the Company
with the SEC or any other state or federal Governmental Entity in connection
with this Agreement and the transactions contemplated hereby.
(i) No Dissolution, Etc. The Company shall not authorize,
recommend, propose or announce an intention to adopt a
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plan of complete or partial liquidation or dissolution of the Company or any of
its Subsidiaries.
(j) Other Actions.
(i) Except as expressly permitted by the terms of
this Agreement, the Company will not knowingly or intentionally take or
agree or commit to take, nor will it permit any of its Subsidiaries to
take or agree or commit to take, any action that is reasonably likely
to result in any of the Company's representations or warranties
hereunder being untrue in any material respect or in any of the
Company's covenants hereunder or any of the conditions to the Merger
not being satisfied in all material respects.
(ii) Parent will not knowingly or intentionally
take or agree or commit to take, nor will it permit Holdings or any of
the Subsidiaries of Parent to take or agree or commit to take, any
action to prohibit or prevent the financing sources of Parent and
Holdings from providing the debt and equity financing contemplated by
the Financing Commitments.
(k) Certain Employee Matters. The Company and its
Subsidiaries shall not (without the prior written consent of Parent): (i)
grant any increases in the compensation of any of its directors, officers or
key employees; (ii) pay or agree to pay any pension, retirement allowance or
other employee benefit not required or contemplated to be paid prior to the
Effective Time by any of the existing Benefit Plans or Employee Arrangements as
in effect on the date hereof to any such director, officer or key employee,
whether past or present; (iii) enter into any new, or materially amend any
existing, employment or severance or termination agreement with any such
director, officer or key employee; or (iv) except as may be required to comply
with applicable law, become obligated under any new Benefit Plan or Employee
Arrangement, which was not in existence on the date hereof, or amend any such
plan or arrangement in existence on the date hereof if such amendment would
have the effect of materially enhancing any benefits thereunder.
(l) Indebtedness; Agreements.
(i) Except for indebtedness incurred by the
Company from time to time for working capital purposes in the ordinary
course of business under that certain Second Amended and Restated
Credit Agreement, dated as of December 14, 1995 among the Company, the
financial institutions party
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thereto and the First National Bank of Chicago, as agent (the "Company
Credit Agreement"), indebtedness incurred to fund capital expenditures
permitted under Section 5.1(n) of this Agreement and entering into
leases for personal property in the ordinary course of business
consistent with past practice, the Company shall not, nor shall the
Company permit any of its Subsidiaries to, without the prior written
consent of Parent (which shall not be unreasonably withheld), assume or
incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or warrants or rights
to acquire any debt securities of the Company or any of its
Subsidiaries or guarantee any debt securities of others or enter into
any lease (whether such lease is an operating or capital lease) or
create any mortgages, liens, security interests or other encumbrances
on the property of the Company or any of its Subsidiaries in connection
with any indebtedness thereof, or enter into any "keep well" or other
agreement or arrangement to maintain the financial condition of another
person.
(ii) Without the prior written consent of Parent
(which shall not be unreasonably withheld), the Company shall not, nor
shall the Company permit any of its Subsidiaries to, (A) enter into any
contracts involving aggregate annual payments not in excess of
$250,000, except for license agreements entered into in the ordinary
course of the Company's business consistent with past practice, or (b)
modify, rescind, terminate, waive, release or otherwise amend in any
material respect any of the terms or provisions of any Material
Contract in any manner that is material and adverse to the Company or
the respective Subsidiary of the Company party thereto.
(m) Accounting. The Company shall not take any action,
other than in the ordinary course of business, consistent with past practice or
as required by the SEC or by law, with respect to accounting policies,
procedures and practices.
(n) Capital Expenditures. Except for the capital
expenditures set forth on Schedule 5.1(n), the Company and its Subsidiaries
shall not incur any capital expenditures in excess of $100,000.
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ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Preparation of the Proxy Statement; Company
Stockholders Meeting; Merger without a Company Stockholders Meeting.
(a) The Company and Parent will, as soon as practicable
following the acceptance for payment of and payment for shares of the Company
Common Stock by Sub in the Offer, prepare and file the Proxy Statement with the
SEC. The Company will use all commercially reasonable efforts to respond to
all SEC comments with respect to the Proxy Statement and to cause the Proxy
Statement to be mailed to the Company's stockholders at the earliest
practicable date.
(b) The Company will, as soon as practicable following the
acceptance for payment of and payment for shares of the Company Common Stock by
Sub in the Offer, duly call, give notice of, convene and hold a meeting of the
Company's stockholders for the purpose of approving this Agreement and the
transactions contemplated hereby. At such stockholders meeting, Parent shall
cause all of the shares of Company Common Stock then owned by Parent and Sub to
be voted in favor of the Merger.
(c) Notwithstanding the foregoing clauses (a) and (b), in
the event that Parent and Sub shall acquire at least 90% of the outstanding
shares of Company Common Stock in the Offer, the parties hereto agree, at the
request of Sub, to take all necessary and appropriate action to cause the
Merger to become effective, as soon as practicable after the expiration of the
Offer, without a meeting of stockholders of the Company, in accordance with
Section 253 of the DGCL.
(d) Sub shall promptly submit this Agreement and the
transactions contemplated hereby for approval and adoption by Parent, as its
sole stockholder, by written consent.
6.2 Access to Information. Upon reasonable notice, each
of the Company or Parent, as the case may be, shall (and shall cause each of
its Subsidiaries to) afford to the officers, employees, accountants, counsel
and other representatives of the other party (including, in the case of Parent
and Sub, potential financing sources and their employees, accountants, counsel
and other representatives), access, during normal business hours during the
period prior to the Effective Time, to all its properties, books, contracts,
commitments and records and, during such period, such party shall (and shall
cause each of its Subsidiaries to) furnish promptly to the other party, (a) a
copy
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of each report, schedule, registration statement and other document filed or
received by it during such period pursuant to SEC requirements and (b) all
other information concerning its business, properties and personnel as such
other party may reasonably request. The Confidentiality Agreement, dated as of
December 10, 1996, between Parent and the Company (the "Confidentiality
Agreement") shall apply with respect to information furnished thereunder or
hereunder and any other activities contemplated thereby.
6.3 [Intentionally Omitted].
6.4 Fees and Expenses. (a) Except as otherwise
provided in this Section 6.4 and except with respect to claims for damages
incurred as a result of the breach of this Agreement, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expense.
(b) The Company agrees to pay Parent or Parent's designee
a fee in immediately available funds equal to $3,000,000 upon the termination
of this Agreement under Section 8.1(d) or Section 8.1(e), if any of the events
set forth in either clause (i) or clause (ii) below occurs (each, a "Trigger
Event"):
(i) the Board of Directors of the Company shall have (A)
withdrawn or adversely modified, or taken a public position materially
inconsistent with, its approval or recommendation of the Offer, the
Merger, this Agreement or the Stockholders Agreement, or (B) failed to
reaffirm its approval or recommendation of the Offer, the Merger and
this Agreement under the circumstances set forth in Section 8.1(e);
provided that a Company action permitted by Section 5.1(e)(iii) hereof
shall not, by itself, constitute a Trigger Event; or
(ii) an Acquisition Proposal has been recommended or
accepted by the Company or the Company shall have entered into an
agreement (other than a confidentiality agreement as contemplated by
Section 5.1(e)) with respect to an Acquisition Proposal.
(c) Parent agrees to pay to the Company a fee in
immediately available funds equal to $3,000,000 upon the termination of this
Agreement under Section 8.1(f) in the event that the Offer expires or is
withdrawn, abandoned or terminated if the sole reason for such expiration,
withdrawal, abandonment or termination is the failure of the condition
described in item (iii) on Exhibit A hereto.
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(d) Any amounts due under this Section 6.4 that are not
paid when due shall bear interest at the prime rate from the date due through
and including the date paid.
6.5 Brokers or Finders. (a) The Company represents, as
to itself, its Subsidiaries and its affiliates, that no agent, broker,
investment banker, financial advisor or other firm or person is or will be
entitled to any broker's or finders fee or any other commission or similar fee
in connection with any of the transactions contemplated by this Agreement,
except the Financial Advisor, whose fees and expenses will be paid by the
Company in accordance with the Company's agreements with such firm (copies of
which have been delivered by the Company to Parent prior to the date of this
Agreement).
(b) Parent represents, as to itself, its Subsidiaries and
its affiliates, that no agent, broker, investment banker, financial advisor or
other firm or person is or will be entitled to any broker's or finders fee or
any other commission or similar fee in connection with any of the transactions
contemplated by this Agreement, except for Hicks, Muse, Tate & Furst
Incorporated, whose fees and expenses will be paid by Parent in accordance with
the Parent's agreements with such firm (copies of which have been made
available to the Company prior to the date of this Agreement).
6.6 Indemnification; Directors' and Officers' Insurance.
(a) The Company shall, and from and after the Effective Time, the Surviving
Corporation shall, indemnify, defend and hold harmless each person who is now,
or has been at any time prior to the date hereof or who becomes prior to the
Effective Time, an officer, director, employee or agent of the Company or any
of its Subsidiaries(the "Indemnified Parties") against all losses, claims,
damages, costs, expenses (including attorneys' fees and expenses), liabilities
or judgments or amounts that are paid in settlement with the approval of the
indemnifying party (which approval shall not be unreasonably withheld) of or in
connection with any threatened or actual claim, action, suit, proceeding or
investigation based in whole or in part on or arising in whole or in part out
of the fact that such person is or was a director, officer, employee or agent
of the Company or any of its Subsidiaries whether pertaining to any matter
existing or occurring at or prior to the Effective Time or any acts or
omissions occurring or existing at or prior to the Effective Time and whether
asserted or claimed prior to, or at or after, the Effective Time ("Indemnified
Liabilities"), including all Indemnified Liabilities based in whole or in part
on, or arising in whole or in part out of, or pertaining to this Agreement or
the transactions contemplated hereby, in each case
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to the full extent a corporation is permitted under the DGCL to indemnify its
own directors or officers as the case may be (and the Company and the
Surviving Corporation, as the case may be, 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). Without limiting the foregoing, in the
event any such claim, action, suit, proceeding or investigation is brought
against any Indemnified Parties (whether arising before or after the Effective
Time), (i) the Indemnified Parties may retain the Company's regularly engaged
independent legal counsel or counsel satisfactory to them and reasonably
satisfactory to the Company (or them and reasonably satisfactory to the
Surviving Corporation after the Effective Time) and the Company (or after the
Effective Time, the Surviving Corporation) shall pay all reasonable fees and
expenses of such counsel for the Indemnified Parties promptly as statements
therefor are received; and (ii) the Company (or after the Effective Time, the
Surviving Corporation) will use all reasonable best efforts to assist in the
vigorous defense of any such matter, provided that neither the Company nor the
Surviving Corporation shall be liable for any settlement effected without its
prior written consent which consent shall not unreasonably be withheld. Any
Indemnified Party wishing to claim indemnification under this Section 6.6, upon
learning of any such claim, action, suit, proceeding or investigation, shall
notify the Company (or after the Effective Time, the Surviving Corporation)
(but the failure so to notify shall not relieve a party from any liability
which it may have under this Section 6.6 except to the extent such failure
materially prejudices such party's position with respect to such claims), and
shall deliver to the Company (or after the Effective Time, the Surviving
Corporation) the undertaking contemplated by Section 145(e) of the DGCL. The
Indemnified Parties as a group may retain only one law firm to represent them
with respect to each such matter unless there is, under applicable standards of
professional conduct, a conflict on any significant issue between the positions
of any two or more Indemnified Parties in which case such additional counsel as
may be required (as shall be reasonably determined by the Indemnified Parties
and the Company or the Surviving Corporation, as the case may be) may be
retained by the Indemnified Parties at the cost and expense of the Company (or
Surviving Corporation). The Company and Sub agree that the foregoing rights to
indemnification, including provisions relating to advances of expenses incurred
in defense of any action or suit, existing in favor of the Indemnified Parties
with respect to matters occurring through the Effective Time, shall survive the
Merger and shall continue in full force and effect for a period of not less
than six years from the Effective Time; provided, however, that all rights to
indemnification in respect of any Indemnified
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Liabilities asserted or made within such period shall continue until the
disposition of such Indemnified Liabilities. Furthermore, the provisions with
respect to indemnification set forth in the certificate of incorporation of the
Surviving Corporation shall not be amended for a period of six years following
the Effective Time if such amendment would materially and adversely affect the
rights thereunder of individuals who at any time prior to the Effective Time
were directors, officers, employees or agents of the Company in respect of
actions or omissions occurring at or prior to the Effective Time.
(b) Parent and Sub hereby unconditionally waive and release
the Indemnified Parties from and agrees to indemnify, defend and hold harmless
the Indemnified Parties from and against any and all claims, demands, causes of
action, liabilities, costs or expenses, whether arising under contract,
statute, common law or otherwise, with respect to environmental matters
(including without limitation any of the foregoing arising under CERCLA or any
other Environmental Laws).
(c) For a period of six years after the Effective Time,
the Surviving Corporation shall cause to be maintained in effect the current
policies of directors' and officers' liability insurance maintained by the
Company and its Subsidiaries (provided that Parent may substitute therefor
policies of at least the same coverage and amounts containing terms and
conditions which are no less advantageous in any material respect to the
Indemnified Parties) with respect to matters arising before and acts or
omissions occurring or existing at or prior to the Effective Time including the
transactions contemplated by this Agreement, provided that Parent shall not be
required to pay an annual premium for such insurance in excess of 200% of the
last annual premium paid by the Company prior to the date hereof, but in such
case shall purchase as much coverage as possible for such amount. The last
annual premium paid by the Company was $85,000.
(d) The provisions of this Section 6.6 are intended to be
for the benefit of, and shall be enforceable by, each Indemnified Party, his
heirs and his personal representatives and shall be binding on all successors
and assigns of Sub, the Company and the Surviving Corporation.
6.7 Commercially Reasonable Efforts. Subject to the terms
and conditions of this Agreement, each of the parties hereto agrees to use all
commercially reasonable efforts to take, or cause to be taken, all action and
to do, or cause to be done, all things necessary, proper or advisable, under
applicable laws and regulations or otherwise, to consummate and make effective
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the transactions contemplated by this Agreement and the Stockholders Agreement,
subject, as applicable, to the Company Stockholder Approval, including
cooperating fully with the other party, including by provision of information
and making of all necessary filings in connection with, among other things,
approvals under the HSR Act. The Company will use its reasonable efforts to
assist Parent, at Parent's expense, in obtaining any consent from third parties
necessary to allow the Company to continue operating its business as presently
conducted as a result of the consummation of the transactions contemplated
hereby. In case at any time after the Effective Time, any further action is
necessary or desirable to carry out the purposes of this Agreement or to vest
the Surviving Corporation with full title to all properties, assets, rights,
approvals, immunities and franchises of either of the Constituent Corporations,
the proper officers and directors of each party to this Agreement shall take
all such necessary action. Without limiting the generality of the foregoing,
the Company agrees to cooperate with Parent's and Sub's efforts to secure the
financing contemplated by the Financing Commitments, such cooperation to
include providing such information to Parent's and Sub's financing sources as
Parent or Sub may reasonably request and making available to such financing
sources senior officers and such other employees of the Company as Parent and
Sub may reasonably request to assist in the preparation of one or more offering
documents and other appropriate marketing materials and to otherwise
participate in such marketing and sales efforts relating to the Financing
Commitments as Parent and Sub may reasonably request upon reasonable notice and
consistent with such officers' and employees' other business responsibilities
to the Company; provided, that the Company shall incur no liability hereunder
as a result of any participation by any officer or employee in such financing
efforts.
6.8 Conduct of Business of Sub. During the period of time
from the date of this Agreement to the Effective Time, Sub shall not engage in
any activities of any nature except as provided in or contemplated by this
Agreement.
6.9 Publicity. The parties will consult with each other
and will mutually agree upon any press release or public announcement
pertaining to the Offer and the Merger and shall not issue any such press
release or make any such public announcement prior to such consultation and
agreement, except as may be required by applicable law, in which case the party
proposing to issue such press release or make such public announcement shall
use reasonable efforts to consult in good faith with the other party before
issuing any such press release or making any such public announcement.
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6.10 Withholding Rights. Sub and the Surviving
Corporation, as applicable, shall be entitled to deduct and withhold from the
consideration otherwise payable pursuant to this Agreement to any holder of
shares of Company Common Stock such amounts as Sub or the Surviving
Corporation, as applicable, is required to deduct and withhold with respect to
the making of such payment under the Code or any provision of state, local or
foreign tax law. To the extent that amounts are so withheld by Sub or the
Surviving Corporation, such withheld amounts shall be treated for all purposes
of this Agreement as having been paid to the holder of the shares of Company
Common Stock in respect of which such deduction and withholding was made by Sub
or the Surviving Corporation, as applicable.
6.11 Continuation of Employee Benefits. Until at least
December 31, 1997, Parent shall maintain or cause to be maintained employee
benefits and programs for retirees, directors, officers and employees of the
Company and its Subsidiaries that are no less favorable in the aggregate than
those set forth on Schedule 4.1(i) taking into account that the Company will be
a private company without stock options and the like; provided, however, that
Parent shall not be obligated to continue (i) the Company's Nonqualified
Deferred Compensation Plan and the Company agrees that it shall cause such plan
to be terminated prior to the consummation of the Offer or (ii) any individual
employment agreement. On or after January 1, 1998, the retirees, directors,
officers and employees of the Company and its Subsidiaries shall be eligible
for employee benefits, plans and programs (including but not limited to
incentive compensation, deferred compensation, pension, life insurance,
medical, profit sharing (including 401(k)), severance salary continuation and
fringe benefits) which are no less favorable in the aggregate than those
generally available to similarly situated retirees, directors, officers and
employees of the Parent and its significant Subsidiaries. For purposes of
eligibility to participate in and vesting in all benefits provided to retirees,
directors, officers and employees, the retirees, directors, officers and
employees of the Company and its Subsidiaries will be credited with their years
of service with prior employers to the extent service with prior employers is
taken into account under plans of the Company. Upon termination of any medical
plan of the Company, individuals who were directors, officers or employees of
the Company or its Subsidiaries at the Effective Time shall become eligible to
participate in the medical plan of Parent, provided that no condition that was
eligible for coverage under any medical plan of the Company at the time of such
termination shall be excluded from coverage under the medical plan of Parent as
a pre-existing condition. Amounts paid before the Effective Time by retirees,
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directors, officers and employees of the Company under any medical plans of the
Company shall after the Effective Time be taken into account in applying
deductible and out-of-pocket limits applicable under the medical plan of Parent
provided as of the Effective Time to the same extent as if such amounts had
been paid under such medical plan of Parent.
ARTICLE VII
CONDITIONS PRECEDENT
7.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligation of each party to effect the Merger shall be
subject to the satisfaction prior to the Closing Date of the following
conditions:
(a) Stockholder Approval. This Agreement and the Merger
shall have been approved and adopted by the affirmative vote of the holders of
a majority of the outstanding Shares entitled to vote thereon if such vote is
required by applicable law; provided that the Parent and Sub shall vote all
Shares purchased pursuant to the Offer or the Stockholders Agreement in favor
of the Merger.
(b) HSR Act. The waiting period (and any extension
thereof) applicable to the Merger under the HSR Act shall have been terminated
or shall have expired, and no restrictive order or other requirements shall
have been placed on the Company, Parent, Sub or the Surviving Corporation in
connection therewith.
(c) No Injunctions or Restraints. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or prohibition (an
"Injunction") preventing the consummation of the Merger shall be in effect;
provided, however, that prior to invoking this condition, each party shall use
all commercially reasonable efforts to have any such decree, ruling, injunction
or order vacated.
(d) Statutes. No statute, rule, order, decree or
regulation shall have been enacted or promulgated by any government or
governmental agency or authority which prohibits the consummation of the
Merger.
(e) Payment for Shares. Sub shall have accepted for
payment and paid for the shares of Company Common Stock tendered in the Offer
such that, after such acceptance and payment, Parent and its affiliates shall
own, at consummation of the Offer, a majority of the outstanding shares of the
Company Common Stock on
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a fully diluted basis; provided that this condition shall be deemed to have
been satisfied if Sub fails to accept for payment and pay for Shares pursuant
to the Offer in violation of the terms and conditions of the Offer.
7.2 Conditions to Obligation of Parent and Sub. The
obligations of Parent and Sub to effect the Merger shall be subject to the
satisfaction prior to the Closing Date of the following conditions, any or all
of which may be waived in whole or in part by Parent and Sub:
(a) Financing. Holdings and Parent shall have received
the debt and equity financing for the transactions contemplated hereby on terms
substantially as outlined in the Financing Commitments.
(b) Dissenting Shares. No more than ten percent (10%) of
the shares of Company Common Stock outstanding immediately prior to the
Effective Time shall be Dissenting Shares.
ARTICLE VIII
TERMINATION AND AMENDMENT
8.1 Termination. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, whether before
or after approval of the matters presented in connection with the Merger by the
stockholders of the Company or by Parent:
(a) by mutual written consent of the Company and Parent,
or by mutual action of their respective Boards of Directors;
(b) by either the Company or Parent (i) if any permanent
injunction or other order of a court or other competent authority preventing
the consummation of the Offer or the Merger shall have become final and non-
appealable, or (ii) so long as such party is not then in material breach of its
obligations hereunder, if there has been a breach of any representation,
warranty, covenant or agreement (determined without giving effect to any
"Material Adverse Effect", "materiality" or similar qualifications contained
therein) on the part of the other set forth in this Agreement which breach
(other than a breach of any covenant or agreement set forth in Article I,
Section 4.2(e) or Section 5.1(e)) has not been cured within ten calendar days
following receipt by the breaching party of notice of such breach, unless such
breach could not, individually or in the aggregate with other breaches, be
reasonably expected to (A) have
48
<PAGE> 52
a Material Adverse Effect on the Company or (B) materially adversely affect the
ability of the parties hereto to consummate the transactions contemplated
hereby;
(c) by either the Company or Parent, so long as such party
is not then in material breach of its obligations hereunder, if the Merger
shall not have been consummated on or before the 135th calendar day following
the consummation of the Offer; provided, that the right to terminate this
Agreement under this Section 8.1(c) shall not be available to any party whose
failure to fulfill any obligation under this Agreement has been the cause of or
resulted in the failure of the Merger to occur on or before such date;
(d) by Parent in the event that a Trigger Event has
occurred under Section 6.4(b) prior to the consummation of the Offer;
(e) by Parent in the event an Acquisition Proposal has
been made to the Company prior to the expiration of the Offer and the Company
shall fail to publicly reaffirm its approval or recommendation of the Offer,
the Merger, this Agreement and the Stockholders Agreement on or before the
earlier to occur of (i) the tenth business day following the date on which such
Acquisition Proposal shall have been made or (ii) the third business day prior
to the latest possible expiration date of the Offer hereunder;
(f) by either the Company or Parent, if the Offer
terminates, is withdrawn, abandoned or expires by reason of the failure to
satisfy any condition set forth in Exhibit A hereto;
(g) by the Company, if the Offer shall have expired or
shall have been withdrawn, abandoned or terminated without any shares of
Company Common Stock being purchased by Sub thereunder on or prior to the 60th
calendar day after the date of commencement of the Offer pursuant to Section
1.2 hereof;
(h) by the Company, if (i) the Board of Directors of the
Company shall take any of the actions permitted by Section 5.1(e)(ii) of this
Agreement and (ii) the Company shall have paid a termination fee to Parent or
Parent's designee in the amount of $3,000,000; provided, however, that if the
excess of (A) the sum of (1) the average balance of the Company's cash on hand
for the ten day period preceding the date the Company seeks to terminate this
Agreement under this paragraph (h) plus (2) the average available capacity
under the Company Credit Agreement (as defined in Section 5.1(l)) over the ten
day period preceding the date the Company wishes to terminate this Agreement
under this
49
<PAGE> 53
paragraph (h) over (B) $2,000,000 (such excess being referred to hereinafter as
the "Available Cash"), is less than $3,000,000, then in lieu of having paid the
$3,000,000 termination fee, the Company shall have (x) paid the entire amount
of the Available Cash to Parent or Parent's designee and (y) delivered to
Parent a written commitment by the Company (in a form satisfactory to Parent),
unconditionally guaranteed by a financially responsible and reputable entity
(as determined by Parent in its sole discretion), acknowledging the Company's
obligation to pay the difference between the $3,000,000 termination fee and the
amount of Available Cash paid by the Company to Parent or Parent's designee in
connection with the termination of this Agreement (together with interest at
the prime rate accruing from the date on which payment of the termination fee
contemplated by this paragraph (h) would have been due and payable) on the
earlier of (i) such date as the Company shall have additional Available Cash
sufficient to pay such difference, (ii) the closing of the tender offer
relating to the Acquisition Proposal with respect to which the Company
terminated this Agreement (the "Competing Offer"), (iii) the expiration of the
Competing Offer, or (iv) the date which is 60 calendar days after the date on
which the Offer was commenced; or
(i) by the Company if Sub shall not have commenced the
Offer within 10 business days after the execution and delivery of this
Agreement by Parent and Sub.
8.2 Effect of Termination. In the event of termination of
this Agreement by either the Company or Parent as provided in Section 8.1, this
Agreement shall forthwith become void and there shall be no liability or
obligation on the part of Parent, Sub or the Company or their respective
affiliates, officers, directors or shareholders except (i) with respect to this
Section 8.2, the second sentence of Section 6.2, and Section 6.4, and (ii) that
no such termination shall relieve any party from liability for a material
breach hereof. In addition, in the event that this Agreement is validly
terminated, Parent and Sub agree that, immediately following such termination
(and, in the event Parent is entitled to be paid a fee in connection with such
termination pursuant to Section 6.4(b) or Section 8.1(h) hereof, immediately
following receipt by Parent of such fee) Parent and Sub shall terminate the
Offer and not purchase any Shares pursuant to the Offer or otherwise, and
Parent further agrees that following such termination, it shall continue to be
bound by all of the terms and conditions contained in the Confidentiality
Agreement dated December 10, 1996 between Parent and the Company.
50
<PAGE> 54
8.3 Amendment. Subject to applicable law, this Agreement
may be amended, modified or supplemented only by written agreement of Parent,
Sub and the Company at any time prior to the Effective Date with respect to any
of the terms contained herein; provided, however, that, after the consummation
of the Offer, no term or condition contained in this Agreement shall be amended
or modified in any manner adverse to the holders of the Company Common Stock
(including, without limitation, by reducing the amount of or changing the form
of the Merger Consideration).
8.4 Extension; Waiver. Subject to Section 1.4(b), at any
time prior to the Effective Time, the parties hereto, by action taken or
authorized by their respective Boards of Directors, may, to the extent legally
allowed: (i) extend the time for the performance of any of the obligations or
other acts of the other parties hereto; (ii) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto; and (iii) waive compliance with any of the agreements or
conditions contained herein; provided, however, that, after the consummation of
the Offer, no term or condition contained in this Agreement shall be amended,
modified or waived in any manner adverse to the holders of the Company Common
Stock. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in a written instrument signed on
behalf of such party. The failure of any party hereto to assert any of its
rights hereunder shall not constitute a waiver of such rights.
ARTICLE IX
GENERAL PROVISIONS
9.1 Nonsurvival of Representations, Warranties and
Agreements. None of the representations and warranties in this Agreement or in
any instrument delivered pursuant to this Agreement shall survive the
acceptance for payment of, and the payment for the Shares by Sub in the Offer
or the expiration of the Offer. None of the covenants and agreements in this
Agreement or in any instrument delivered pursuant to this Agreement shall
survive the Effective Time, except for the covenants and agreements contained
in Article III, Section 6.6 and Section 6.11 hereof and any other covenant or
agreement that contemplates performance after the Effective Date. The
Confidentiality Agreement shall survive the execution and delivery of this
Agreement, and the provisions of the Confidentiality Agreement shall apply to
all information and material delivered by any party hereunder.
51
<PAGE> 55
9.2 Notices. Any notice or communication required or
permitted hereunder shall be in writing and either delivered personally,
telegraphed or telecopied or sent by certified or registered mail, postage
prepaid, and shall be deemed to be given, dated and received when so delivered
personally, telegraphed or telecopied or, if mailed, five business days after
the date of mailing to the following address or telecopy number, or to such
other address or addresses as such person may subsequently designate by notice
given hereunder:
(a) if to Parent or Sub, to:
Hedstrom Corporation
300 Corporate Center Drive, Suite 110
Coraopolis, Pennsylvania 15108
Attn: David Crowley
Telephone: (412) 269-9530
Telecopy: (412) 269-9655
with copies to:
Hicks, Muse, Tate & Furst Incorporated
1325 Avenue of the Americas, 25th Floor
New York, New York 10019
Attn: Alan B. Menkes
Telephone: (212) 424-1400
Telecopy: (212) 424-1450
Hicks, Muse, Tate & Furst Incorporated
200 Crescent Court, Suite 1600
Dallas, Texas 75201
Attn: Lawrence D. Stuart, Jr.
Telephone: (214) 740-7300
Telecopy: (214) 740-7313
Weil, Gotshal & Manges LLP
100 Crescent Court
Suite 1300
Dallas, Texas 75201-6950
Attn: Glenn D. West
Telephone: (214) 746-7738
Telecopy: (214) 746-7777
52
<PAGE> 56
(b) if to the Company, to:
ERO, Inc.
585 Slawin Court
Mount Prospect, Illinois
Attn: Mark Renfree
Telephone: (847) 803-9200
Telecopy: (847) 803-1971
with a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attention: H. Kurt von Moltke
Telephone: (312) 861-2000
Telecopy: (312) 861-2200
9.3 Interpretation. When a reference is made in this
Agreement to Articles or Sections, such reference shall be to an Article or
Section of this Agreement unless otherwise indicated. The table of contents,
glossary of defined terms and headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the word "include", "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation". The phrase "made available" in this Agreement
shall mean that the information referred to has been made available if
requested by the party to whom such information is to be made available.
9.4 Counterparts. This Agreement may be executed in two
or more counterparts, all of which shall be considered one and the same
agreement and shall become effective when two or more counterparts have been
signed by each of the parties and delivered to the other parties, it being
understood that all parties need not sign the same counterpart.
9.5 Entire Agreement; No Third Party Beneficiaries; Rights
of Ownership. This Agreement (together with the Confidentiality Agreement, the
Stockholders Agreement and any other documents and instruments referred to
herein) constitutes the entire agreement and supersedes all prior agreements
and understandings, both written and oral, among the parties with respect to
the subject matter hereof and, except as provided in Section 6.6, is not
intended to confer upon any person other than the parties hereto any rights or
remedies hereunder.
53
<PAGE> 57
9.6 Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of Delaware, without giving
effect to the principles of conflicts of law thereof.
9.7 Assignment. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties, except that Sub may assign, in its sole
discretion, any or all of its rights, interests and obligations hereunder (i)
to any newly-formed direct wholly-owned Subsidiary of Parent or Sub or (ii) in
the form of a collateral assignment to any institutional lender who provides
funds to Purchaser for the consummation of the transactions contemplated
hereby. Subject to the preceding sentence, this Agreement will be binding
upon, inure to the benefit of and be enforceable by the parties and their
respective successors and assigns.
[Remainder of page intentionally left blank]
54
<PAGE> 58
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the date first written above.
PARENT:
------
HEDSTROM CORPORATION
By: /s/ ANDREW S. ROSEN
------------------------------------------
Name: Andrew S. Rosen
----------------------------------------
Title: Vice President
---------------------------------------
SUB:
---
HC ACQUISITION CORP.
By: /s/ ANDREW S. ROSEN
------------------------------------------
Name: Andrew S. Rosen
----------------------------------------
Title: Vice President
---------------------------------------
COMPANY:
-------
ERO, INC.
By: /s/ D. R. Ryan
------------------------------------------
Name: D. R. Ryan
----------------------------------------
Title: Chairman, CEO & President
---------------------------------------
<PAGE> 59
EXHIBIT A
The capitalized terms used in this Exhibit A shall have the
respective meanings given to such terms in the Agreement and Plan of Merger,
dated as of April 10, 1997 (the "Merger Agreement"), by and among Hedstrom
Corporation, a Delaware corporation ("Parent"), HC Acquisition Corp., a
Delaware corporation and wholly owned subsidiary of Parent ("Sub"), and ERO,
Inc., a Delaware corporation (the "Company"), to which this Exhibit A is
attached.
CONDITIONS TO THE OFFER
Notwithstanding any other provision of the Offer, Sub 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 Exchange Act
(relating to Sub's obligation to pay for or return tendered Shares promptly
after expiration or termination of the Offer), to pay for any Shares tendered,
and may postpone the acceptance for payment or, subject to the restriction
referred to above, payment for any Shares tendered, and may amend or terminate
the Offer (whether or not any Shares have theretofore been purchased or paid
for), if (i) there have not been validly tendered and not withdrawn prior to
the time the Offer shall otherwise expire a number of Shares which constitutes
a majority of the Shares outstanding on a fully-diluted basis on the date of
purchase ("on a fully-diluted basis" having the following meaning, as of any
date: the number of Shares outstanding, together with Shares the Company may
be required, now or in the future, to issue pursuant to options, warrants, or
other obligations outstanding at that date); (ii) any applicable waiting
periods under the HSR Act shall not have expired or been terminated prior to
the expiration of the Offer; (iii) the debt financing sources for Parent and
Holdings shall not have provided the applicable debt financing to Parent and
Holdings pursuant to the Financing Commitments; or (iv) at any time on or after
the date of the Merger Agreement and before acceptance for payment of, or
payment for, such Shares any of the following events shall have occurred:
(A) there shall be pending, as of the expiration of the Offer
or at any time thereafter, any litigation that seeks to (1) challenge
the acquisition by Parent, Sub or any of their respective affiliates or
Subsidiaries of Shares pursuant to the Offer or restrain, prohibit or
delay the making or consummation of the Offer or the Merger, (2) make
the purchase of or payment for some or all of the Shares pursuant to
the Offer or the Merger illegal, (3) impose
A-1
<PAGE> 60
limitations on the ability of Parent, Sub, or any of their respective
affiliates or Subsidiaries effectively to acquire or hold, or to
require Parent, Sub, the Company or any of their respective affiliates
or Subsidiaries to dispose of or hold separate, any material portion of
their assets or business, (4) impose material limitations on the
ability of Parent, Sub, the Company or any of their respective
affiliates or Subsidiaries to continue to conduct, own or operate, as
heretofore conducted, owned or operated, all or any material portion of
their businesses or assets; (5) impose or result in material
limitations on the ability of Parent, Sub or any of their respective
affiliates or Subsidiaries to exercise full rights of ownership of the
Shares purchased by them, including, without limitation, the right to
vote the Shares purchased by them on all matters properly presented to
the stockholders of the Company; or (6) prohibit or restrict in a
material manner the financing of the Offer;
(B) there shall have been promulgated, enacted, entered,
enforced or deemed applicable to the Offer or the Merger, any Law, or
there shall have been issued any decree, order or injunction, that
results in any of the consequences referred to in subsection (A) above;
(C) except as set forth on Exhibit D or Schedule 4.1(j) to
the Merger Agreement, any event or events shall have occurred that,
individually or in the aggregate, could reasonably be expected to have
a Material Adverse Effect on the Company;
(D) there shall have occurred (1) any general suspension of
trading in, or limitation on prices for, securities on any national
securities exchange or in the over-the-counter market in the United
States for a period in excess of 48 hours, (2) the declaration of a
banking moratorium or any suspension of payments in respect of banks in
the United States, (3) the commencement of a war, armed hostilities or
other international or national calamity, directly or indirectly
involving the United States, (4) any limitations (whether or not
mandatory) imposed by any governmental authority on the nature or
extension of credit or further extension of credit by banks or other
lending institutions, or (5) in the case of clauses (3) and (4) of this
paragraph (D), a material acceleration or worsening thereof;
A-2
<PAGE> 61
(E) the representations and warranties of the Company
contained in the Merger Agreement (without giving effect to any
"Material Adverse Effect", "materiality" or similar qualifications
contained therein) shall not be true and correct in all respects as of
the date of consummation of the Offer as though made on and as of such
date except (1) for changes specifically permitted by the Merger
Agreement, (2) that those representations and warranties which address
matters only as of a particular date shall remain true and correct as
of such date, and (3) for breaches or inaccuracies which, individually
or in the aggregate, could not reasonably be expected to (a) have a
Material Adverse Effect on the Company or (b) materially adversely
affect the ability of the parties hereto to consummate the transactions
contemplated hereby;
(F) the obligations of the Company contained in the Merger
Agreement (without giving effect to any "Material Adverse Effect",
"materiality" or similar qualifications contained therein) to be
performed at or prior to the consummation of the Offer shall not have
been performed or complied with in all respects by the Company prior to
the consummation of the Offer except for failures to perform or comply
which, individually or in the aggregate, could not reasonably be
expected to (a) have a Material Adverse Effect on the Company or (b)
materially adversely affect the ability of the parties hereto to
consummate the transactions contemplated hereby;
(G) the Merger Agreement shall have been terminated in
accordance with its terms;
(H) prior to the purchase of Shares pursuant to the Offer, an
Acquisition Proposal for the Company exists and the Board shall have
withdrawn or materially modified or changed (including by amendment of
the Schedule 14D-9) in a manner adverse to Sub its recommendation of
the Offer, the Merger Agreement or the Merger; or
(I) it shall have been publicly disclosed or Parent or Sub
shall have otherwise learned that any person, entity or "group" (as
defined in Section 13(d)(3) of the Exchange Act, other than Parent or
its affiliates or Subsidiaries, or any group of which any of such
persons or entities is a member, or any party to the Stockholders
Agreement, shall have acquired beneficial ownership (determined
pursuant to Rule 13d-3 promulgated under the Exchange Act) of more than
20% of any class or series of capital stock of the Company (including,
without limitation, the Shares), through the
A-3
<PAGE> 62
acquisition of stock, the formation of a group or otherwise, or shall
have been granted an option, right or warrant (conditional or
otherwise) to acquire beneficial ownership of more than 20% of any
class or series of capital stock of the Company (including, without
limitation, the Shares).
The foregoing conditions are for the sole benefit of Sub and
its affiliates and may be asserted by Sub regardless of the circumstances
(including, without limitation, any action or inaction by Sub or any of its
affiliates) giving rise to any such condition or may be waived by Sub, in whole
or in part, from time to time in its sole discretion, except as otherwise
provided in the Agreement. The failure by Sub 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 and may be asserted at any time and
from time to time. Any determination by Sub concerning any of the events
described herein shall be final and binding.
A-4
<PAGE> 63
GLOSSARY OF DEFINED TERMS
<TABLE>
<CAPTION>
Term: Page:
- ---- ----
<S> <C>
Agreement 1
Acquisition Proposal 37
Benefit Plans 21
Board Percentage 6
CERCLA 26
Certificate of Merger 7
Certificates 10
Closing 7
Closing Date 7
Code 21, 45
Company 1
Company Common Stock 1
Company Intangible Property 25
Company Litigation 19
Company Order 19
Company Permits 18
Company SEC Documents 17
Company Stockholder Approval 16
Company Voting Debt 13
Confidentiality Agreement 40
Constituent Corporations 7
Continuing Directors 6
DGCL 4
Dissenting Shares 12
Effective Time 7
Employee Arrangements 21
Environmental Costs and Liabilities 25
Environmental Law 25
Exchange Act 2
Financial Advisor 4
Financing Commitments 34
GAAP 17
Gains and Transfer Taxes 16
Governmental Entity 16
Hazardous Material 26
HSR Act 16
Indebtedness 30
Indemnified Liabilities 42
Indemnified Parties 42
Injunction 46
IRSA 26
Laws 15
Material Adverse Effect 13
Material Contracts 29
Merger 1
</TABLE>
A-5
<PAGE> 64
<TABLE>
<CAPTION>
TERM: PAGE:
- ---- ----
<S> <C>
Merger Consideration 8
Offer 2
Offer Consideration 2
Offer Documents 3
On a fully-diluted basis 2
Option Consideration 11
Options 11
OSHA 26
Parent 1
Paying Agent 9
Payment Fund 9
Preferred Stock 13
Proxy Statement 16
Real Property Leases 28
Release 26
Remedial Action 26
Representatives 35
Schedule 14D-1 3
Schedule 14D-9 4
SEC 2
Securities Act 17
Shares 1
Stock Option Plans 11
Stockholders Agreement 1
Sub 1
Subsidiary 8
Surviving Corporation 7
Tax Returns 21
Taxes 21
Trigger Event 41
Violation 15
WARN Act 25
</TABLE>
A-6
<PAGE> 65
EXHIBIT D
Amav returns in the first quarter of 1997.
Impact close-outs in the first quarter of 1997.
Estimated first quarter results on the following schedule.
The Company's business is highly cyclical in nature with substantially all of
the Company's net income produced in the third and fourth quarters.
<PAGE> 66
(ERO, INC. LETTERHEAD)
CONFIDENTIAL
March 27, 1997
TO: ERO, Inc. Board of Directors;
Thomas M. Gasner Arthur S. Nicholas
Robert J. Lipsig Bruce V. Rauner
Lee M. Mitchell D. R. Ryan
FROM: Mark D. Renfree
RE: FIRST QUARTER FLASH REPORT
Gentlemen:
Our preliminary look at the first quarter results indicates the following:
<TABLE>
<CAPTION>
Forecast Budget Prior Year
-------- ------ ----------
<S> <C> <C> <C>
- - Sales $19.6 $21.6 $18.9
- - Margins 6.5 7.2 5.6
% 33.1% 33.3% 29.8%
- - Operating Expenses 8.0 8.8 7.6
- - EBIT (1.5) (1.6) (1.9)
- - Net Income (2.1) (2.1) (2.2)
- - EPS $(.20) $(.20) $(.21)
Analyst EPS Estimate $(.20)
</TABLE>
<PAGE> 67
ERO, INC.
Page 2
First Quarter Flash Report
SALES: ERO Industries - will outperform budget and prior year on strong
Slumber Shoppe sales. Water Sports in line with expectations.
AMAV - sales decline driven by: on-time holiday season
deliveries have eliminated traditional carryover of backlog into
first quarter; $1 million special arts and crafts promo for
Walmart in 1996 not repeated; and first quarter returns of bulk
toys higher than anticipated.
PRISS PRINTS - strong performance continues with sales expected
to outperform budget and prior year. February revenues of $1.9
million, largest month ever.
IMPACT - should surpass last year but fall short of budget this
quarter. Strong order position for second quarter.
MARGINS: Manufacturing and purchase price variances at Hazelhurst have
generated $450,000 in favorable variances vs. a budget of
$150,000 unfavorable variances.
OPERATING Up from last year but under budget as a result of sales
EXPENSES: shortfall. ERO Industries and AMAV posting significant savings
to budget.
NET INCOME: $(.20) per share - loss will be on line with analyst estimate.
<PAGE> 68
ERO, INC. 3/27/97
1997 PROJECTION 5:24 PM
INCOME STATEMENTS
(Dollars in thousands)
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
-----------------------
1997 1997 1996
PROJECTED BUDGET ACTUAL
--------- ------ ------
<S> <C> <C> <C>
SALES - SLUMBER SHOPPE $3,131 $2,400 $1,199
SALES - WATER SPORTS 5,920 5,900 5,374
SALES - OTHER (INCLUDES INTERNATIONAL) 220 338 303
SALES - AMAV INDUSTRIES, INC. 5,721 7,500 6,435
SALES - IMPACT, INC. 614 1,517 487
SALES - PRISS PRINTS, INC. 3,744 3,569 2,947
SALES - ERO CANADA, INC. 229 332 138
------------------------------------
NET SALES 19,579 21,556 18,883
COST OF SALES 13,098 14,359 13,284
------------------------------------
GROSS PROFIT 6,481 7,196 5,619
33.10% 33.38% 29.76%
S, G, & A EXPENSE 6,000 8,845 7,552
------------------------------------
OPERATING EARNINGS (1,519) (1,649) (1,933)
-7.78% -7.65% -10.24%
INTEREST EXPENSE 2,000 1,875 1,846
------------------------------------
INCOME BEFORE TAXES (3,519) (3,524) (3,779)
INCOME TAX PROVISION (1,442) (1,444) (1,551)
------------------------------------
NET INCOME ($2,077) ($2,080) ($2,228)
====================================
NET INCOME PER SHARE ($0.20) ($0.20) ($0.21)
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING (IN THOUSANDS) 10,650 10,500 10,364
ANALYST ESTIMATE ($0.20)
</TABLE>
<PAGE> 69
ERO, INC. 3/27/97
1997 PROJECTION 5:27 PM
INCOME STATEMENTS
(Dollars in thousands)
<TABLE>
<CAPTION>
ACTUAL PROJECTION
----------------------------------------------------
JANUARY FEBRUARY MARCH TOTAL
1997 1997 1997 1997
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
SALES - SLUMBER SHOPPE $686 $395 $1,550 $3,131
SALES - WATER SPORTS 2,100 1,745 2,075 5,920
SALES - OTHER (43) 143 120 220
SALES - AMAV INDUSTRIES, INC. 2,518 1,703 1,500 5,721
SALES - IMPACT, INC. 238 176 200 614
SALES - PRISS PRINTS, INC. 581 1,863 1,300 3,744
SALES - ERO CANADA, INC. 49 60 100 229
---------------------------------------------------------------------
TOTAL SALES 6,129 6,605 6,845 19,579
COST OF SALES @ STANDARD 4,327 4,589 4,640 13,556
---------------------------------------------------------------------
GROSS PROFIT @ STANDARD 1,802 2,016 2,205 6,023
29.4% 30.5% 32.2% 30.8%
VARIANCES (51) (280) (127) (458)
---------------------------------------------------------------------
NET GROSS PROFIT 1,853 2,296 2,331 6,481
30.2% 34.8% 34.1% 33.1%
ROYALTIES AND GUARANTEES 312 479 504 1,295
---------------------------------------------------------------------
TOTAL CONTRIBUTION TO PROFIT 1,541 1,817 1,828 5,186
---------------------------------------------------------------------
25.1% 27.5% 26.7% 26.5%
COMMISSIONS 86 153 150 389
SALES AND MARKETING EXPENSE 1,075 1,160 1,061 3,296
GENERAL & ADMINISTRATIVE 889 786 813 2,488
ALLOCATED G&A - - - -
---------------------------------------------------------------------
TOTAL S, G & A EXPENSE 2,050 2,099 2,025 6,174
---------------------------------------------------------------------
OPERATING EARNINGS (509) (282) (197) (987)
-8.3% -4.3% -2.9%
PURCHASE ACCOUNTING 190 190 190 570
INTEREST EXPENSE (INCOME) 721 628 651 2,000
MISCELLANEOUS EXPENSE (INCOME) (19) (22) 3 (38)
---------------------------------------------------------------------
INCOME (LOSS) BEFORE TAXES (1,401) (1,078) (1,041) (3,519)
INCOME TAX PROVISION (BENEFIT) (575) (441) (426) (1,442)
---------------------------------------------------------------------
NET INCOME (LOSS) ($826) ($637) ($615) ($2,077)
=====================================================================
NET INCOME (LOSS) PER SHARE ($0.08) ($0.06) ($0.06) ($0.20)
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING (IN THOUSANDS) 10,316 10,316 10,650 10,650
</TABLE>
<PAGE> 70
ERO Industries, Inc. 27-Mar-97
1997 Projection 05:27 PM
Profit & Loss Statements
(Dollars In Thousands)
<TABLE>
<CAPTION>
ACTUAL PROJECTION
-----------------------------
Jan Feb Mar Total
--------------------------------------
<S> <C> <C> <C> <C>
Slumber $737 $930 $1,565 $3,232
Water Sports 2,132 1,896 2,180 6,208
Other (126) (43) - (169)
--------------------------------------
Total Net Sales 2,743 2,783 3,745 9,271
--------------------------------------
Slumber 269 181 569 1,019
Water Sports 519 527 582 1,628
Other (144) (56) - (200)
--------------------------------------
Total GM 644 652 1,151 2,447
--------------------------------------
Slumber 36.5% 19.5% 35.4% 38.0%
Water Sports 24.3% 27.8% 26.7% 24.8%
Other 114.3% 130.2% 100.0% 100.0%
--------------------------------------
Total GM % 23.5% 23.4% 30.7% 34.2%
--------------------------------------
Variances (Fav)/Unfav 7 (276) (117) (386)
--------------------------------------
Net Gross Profit 637 928 1,268 2,833
--------------------------------------
23.2% 33.3% 33.9% 30.6%
Royalties & Guarantees 180 217 284 681
--------------------------------------
6.6% 7.8% 7.6% 7.3%
Net Contribution 457 711 985 2,153
--------------------------------------
Commissions 51 84 110 245
Sales & Marketing 330 392 392 1,114
G&A Allocation 225 225 225 675
--------------------------------------
Total G&A 606 701 727 2,034
--------------------------------------
% 22.1% 26.2% 19.4% 21.9%
Operating Income (149) 10 256 119
--------------------------------------
% -5.4% 0.4% 6.9% 1.3%
Interest Expense 246 213 185 644
Purchase Accounting 70 70 70 210
Misc. Expense/(Income) 8 12 - 20
--------------------------------------
Income Before Taxes (473) (285) 3 (755)
Income Taxes (194) (117) 1 (310)
--------------------------------------
Net Income ($279) ($158) $2 ($445)
======================================
Earnings per Share ($0.03) ($0.02) $0.00 ($0.04)
</TABLE>
<PAGE> 71
AMAV Industries, Inc. 27-Mar-97
Profit & Loss Statements 05:24 PM
1997 Projection
(Dollars in Thousands)
<TABLE>
<CAPTION>
ACTUAL PROJECTION
-------------------------------
Jan Feb Mar Total
---------------------------------------
<S> <C> <C> <C> <C>
Total Net Sales $2,518 $1,703 $1,500 $5,721
Total GM 777 541 396 1,714
---------------------------------------
Total GM % 30.9% 31.8% 26.4% 30.0%
Variances (Fav)/Unfav - - - -
---------------------------------------
Net Gross Profit 777 541 396 1,714
30.9% 31.8% 26.4% 30.0%
Royalties & Guarantees - - - -
---------------------------------------
Net Contribution 777 541 398 1,714
30.9% 31.8% 26.4% 30.0%
Commissions 19 18 11 48
Sales & Marketing 248 233 233 714
G&A 349 340 340 1,029
G&A Allocation 75 75 75 225
---------------------------------------
Total G&A 691 666 659 2,016
---------------------------------------
% 27.4% 39.1% 43.9% 35.2%
Operating Income 86 (125) (263) (302)
---------------------------------------
% 3.4% -7.3% -17.5% -5.3%
Interest Expense 475 415 486 1,356
Purchase Accounting 94 94 94 282
Misc. Expense/(Income) (23) (38) - (61)
---------------------------------------
Income Before Taxes (480) (596) (823) (1,879)
Income Taxes (189) (244) (337) (770)
---------------------------------------
Net Income ($271) ($352) ($486) ($1,109)
=======================================
Earnings per Share ($0.03) ($0.03) ($0.05) ($0.11)
</TABLE>
<PAGE> 72
Impact, Inc. 27-Mar-97
Profit & Loss Statements 05:27 PM
1997 Projection
(Dollars in Thousands)
<TABLE>
<CAPTION>
ACTUAL PROJECTION
-------------------------------
Jan Feb Mar Total
---------------------------------------
<S> <C> <C> <C> <C>
Total Net Sales $238 $176 $200 $614
Total GM 87 (26) 50 111
---------------------------------------
Total GM % 36.6% -14.8% 25.0% 18.1%
Variances (Fav)/Unfav 43 19 48 110
---------------------------------------
Net Gross Profit 44 (45) 2 1
18.5% -25.6% 1.0% 0.2%
Royalties & Guarantees 54 44 24 122
---------------------------------------
Net Contribution (10) (89) (22) (121)
-4.2% -50.6% -11.2% -19.5%
Commissions 5 2 2 9
Sales & Marketing 307 262 265 834
G&A 0 0 0 -
G&A Allocation 29 29 29 87
---------------------------------------
Total G&A 341 293 296 930
---------------------------------------
% 143.3% 166.5% 148.1% 151.5%
Operating Income (351) (382) (319) (1,052)
---------------------------------------
% -147.5% -217.0% -159.5% -171.3%
Interest Expense - - - -
Purchase Accounting 21 21 21 63
Misc. Expense/(Income) 1 2 2 5
---------------------------------------
Income Before Taxes (373) (405) (342) (1,120)
Income Taxes (153) (166) (140) (459)
---------------------------------------
Net Income ($220) ($239) ($202) ($661)
=======================================
Earnings per Share ($0.02) ($0.02) ($0.02) ($0.06)
</TABLE>
<PAGE> 73
Priss Prints, Inc. 27-Mar-97
Profit & Loss Statements 05:27 PM
1997 Projection
(Dollars In Thousands)
<TABLE>
<CAPTION>
ACTUAL PROJECTION
-----------------------------
Jan Feb Mar Total
--------------------------------------
<S> <C> <C> <C> <C>
Total Net Sales $711 $1,898 $1,300 $3,909
Total GM 335 851 567 1,753
--------------------------------------
Total GM % 47.1% 44.8% 43.7% 44.9%
Variances (Fav)/Unfav (103) (34) (63) (200)
--------------------------------------
Net Gross Profit 438 885 630 1,953
61.6% 45.5% 48.5% 50.0%
Royalties & Guarantees 86 216 183 485
--------------------------------------
Net Contribution 352 669 447 1,468
49.5% 35.2% 34.4% 37.6%
Commissions 19 55 25 99
Sales & Marketing 169 254 153 576
G&A 0 0 0 0
G&A Allocation 25 25 25 75
--------------------------------------
Total G&A 213 334 203 750
--------------------------------------
% 63.6% 39.2% 35.8% 42.8%
Operating Income 139 335 244 718
--------------------------------------
% 41.5% 39.4% 43.0% 41.0%
Interest Expense - - - 0
Purchase Accounting 5 5 5 15
Misc. Expense/(Income) (1) 1 1 1
--------------------------------------
Income Before Taxes 135 329 238 702
Income Taxes 55 135 98 288
--------------------------------------
Net Income $80 $194 $140 $414
======================================
Earnings per Share $0.01 $0.02 $0.01 $0.04
</TABLE>
<PAGE> 1
EXHIBIT 99.(c)(2)
STOCKHOLDERS AGREEMENT
THIS STOCKHOLDERS AGREEMENT, dated as of April 10, 1997, is
made and entered into by Hedstrom Corporation, a Delaware corporation
("Parent"), HC Acquisition Corp., a Delaware corporation and a direct
wholly-owned subsidiary of Parent ("Sub"), and Golder, Thoma, Cressey Fund III
Limited Partnership (the "Stockholder").
W I T N E S S E T H:
WHEREAS, concurrently herewith, Parent, Sub and ERO, Inc., a
Delaware corporation (the "Company"), are entering into an Agreement and Plan
of Merger (as such agreement may hereafter be amended from time to time, the
"Merger Agreement"; capitalized terms used and not defined herein have the
respective meanings ascribed to them in the Merger Agreement), pursuant to
which Sub will be merged with and into the Company (the "Merger");
WHEREAS, in furtherance of the Merger, Parent and the Company
desire that, as soon as practicable (and not later than five business days)
after the execution and delivery of the Merger Agreement, Sub commence a cash
tender offer to purchase any and all outstanding shares of Company Common Stock
(as defined in Section 1), including all of the Shares (as defined in Section
2) owned beneficially by the Stockholder; and
WHEREAS, as an inducement and a condition to entering into the
Merger Agreement, Parent has required that the Stockholder agree, and the
Stockholder has agreed, to enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements contained herein, the
parties hereto, intending to be legally bound, hereby agree as follows:
1. Definitions. For purposes of this Agreement:
(a) "Beneficially Own" or "Beneficial Ownership" with
respect to any securities shall mean having "beneficial ownership" of such
securities (as determined pursuant to Rule 13d-3 under the Securities Exchange
Act of 1934, as amended (the "Exchange Act")), including pursuant to any
agreement, arrangement or understanding, whether or not in writing. Without
duplicative counting of the same securities by the same holder, securities
Beneficially Owned by a Person shall include securities Beneficially Owned by
all other Persons with whom such
<PAGE> 2
Person would constitute a "group" as within the meanings of Section 13(d)(3) of
the Exchange Act.
(b) "Company Common Stock" shall mean at any time the
common stock, $.01 par value, of the Company.
(c) "Person" shall mean an individual, corporation,
partnership, joint venture, association, trust, unincorporated organization or
other entity.
2. Tender of Shares.
(a) The Stockholder hereby agrees 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 pursuant to
Section 1.1 of the Merger Agreement and Rule 14d-2 under the Exchange Act, the
number of shares of Company Common Stock set forth opposite the Stockholder's
name on Schedule I hereto (the "Existing Shares", and together with any shares
of Company Common Stock acquired by the Stockholder after the date hereof and
prior to the termination of this Agreement whether upon the exercise of
options, warrants or rights, the conversion or exchange of convertible or
exchangeable securities, or by means of purchase, dividend, distribution or
otherwise, the "Shares"), Beneficially Owned by him or it. The Stockholder
shall satisfy its obligations hereunder to the extent that it tenders or causes
to be tendered Shares which it Beneficially Owns and over which it has the
legal and unconditional right to dispose of. The Stockholder hereby
acknowledges and agrees that Sub's obligation to accept for payment and pay for
Shares in the Offer, including the Shares Beneficially Owned by the
Stockholder, is subject to the terms and conditions of the Offer.
(b) The Stockholder hereby agrees to permit Parent and
Sub to publish and disclose in the Offer Documents and, if Company Stockholder
Approval is required under applicable law, the Proxy Statement (including all
documents and schedules filed with the SEC) his or its identity and ownership
of Company Common Stock and the nature of his or its commitments, arrangements
and understandings under this Agreement.
3. Provisions Concerning Company Common Stock.
(a) The Stockholder hereby agrees that during the period
commencing on the date hereof and continuing until the first to occur of the
Effective Time, the termination of this Agreement or termination of the Merger
Agreement in accordance with its terms, at any meeting of the holders of
Company Common Stock, however called, the Stockholder shall vote (or cause to
be
2
<PAGE> 3
voted) the Shares held of record or Beneficially Owned by the 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 this Agreement and any actions required in furtherance
thereof and hereof; (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 this
Agreement; 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 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 Certificate of
Incorporation or Bylaws; (3) any other material change in the Company's
corporate structure or business; or (4) any other action which, in the case of
each of the matters referred to in clauses C (1), (2), (3) or (4), is intended,
or could reasonably be expected, to impede, interfere with, delay, postpone, or
materially adversely affect the Merger and the transactions contemplated by
this Agreement and the Merger Agreement, and during such period the Stockholder
shall not enter into any agreement or understanding with any person or entity
the effect of which would be inconsistent or violative of the provisions and
agreements contained in this Section 3.
(b) The Stockholder hereby grants to Parent a proxy to
vote the Shares of the Stockholder as indicated in Section 3(a). The
Stockholder intends such proxy to be irrevocable and coupled with an interest
and will take such further action or execute such other instruments as may be
necessary to effectuate the intent of this proxy and hereby revokes any proxy
previously granted by the Stockholder with respect to such Shares.
4. Other Covenants, Representations and Warranties.
(A) The Stockholder hereby represents and warrants to Parent as follows:
(a) Ownership of Shares. The Stockholder is either (i)
the record and Beneficial Owner of, or (ii) the Beneficial Owner but not the
record holder of, the number of Shares set forth opposite the Stockholder's
name on Schedule I hereto. On
3
<PAGE> 4
the date hereof, except for such Shares that may be deemed to be Beneficially
Owned by the Stockholder as a result of that certain Voting Agreement, dated as
of July 15, 1988, by and among the Company, the Stockholder and the other
parties thereto, as amended, the Existing Shares set forth opposite the
Stockholder's name on Schedule I hereto constitute all of the Shares owned of
record or Beneficially Owned by the Stockholder. The Stockholder has sole
voting power and sole power to issue instructions with respect to the matters
set forth in Sections 2 and 3 hereof, sole power of disposition, sole power of
conversion, sole power to demand appraisal rights and sole power to agree to
all of the matters set forth in this Agreement, in each case with respect to
all of the Existing Shares set forth opposite the Stockholder's name on
Schedule I hereto, with no material limitations, qualifications or restrictions
on such rights, subject to applicable securities laws and the terms of this
Agreement.
(b) Power; Binding Agreement. The Stockholder has the
legal capacity, power and authority to enter into and perform all of the
Stockholder's obligations under this Agreement. The execution, delivery and
performance of this Agreement by the Stockholder will not violate any other
agreement to which the Stockholder is a party including, without limitation,
any voting agreement, stockholders agreement or voting trust. This Agreement
has been duly and validly executed and delivered by the Stockholder and
constitutes a valid and binding agreement of the Stockholder, enforceable
against the Stockholder in accordance with its terms. There is no beneficiary
or holder of a voting trust certificate or other interest of any trust of which
the Stockholder is trustee whose consent is required for the execution and
delivery of this Agreement or the consummation by the Stockholder of the
transactions contemplated hereby.
(c) No Conflicts. Except for filings under the HSR Act,
if applicable, and the filings required under the Merger Agreement (A) no filing
with, and no permit, authorization, consent or approval of, any state or
federal public body or authority is necessary for the execution of this
Agreement by the Stockholder and the consummation by the Stockholder of the
transactions contemplated hereby, except where the failure to obtain such
consent, permit, authorization, approval or filing would not interfere with the
Stockholder's ability to perform its obligations hereunder, and (B) none of the
execution and delivery of this Agreement by the Stockholder, the consummation
by the Stockholder of the transactions contemplated hereby or compliance by the
Stockholder with any of the provisions hereof shall (1) conflict with or result
in any breach of any applicable organizational documents applicable to the
Stockholder, (2) result in a violation or breach of, or constitute (with or
without notice or lapse of time or both) a default (or give rise
4
<PAGE> 5
to any third party right of termination, cancellation, material modification or
acceleration) under any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, license, contract, commitment, arrangement,
understanding, agreement or other instrument or obligation of any kind to which
the Stockholder is a party or by which such Stockholder or any of the
Stockholder's properties or assets may be bound, or (3) violate any order,
writ, injunction, decree, judgment, order, statute, rule or regulation
applicable to the Stockholder or any of the Stockholder's properties or assets,
in each such case except to the extent that any conflict, breach, default or
violation would not interfere with the ability of the Stockholder to perform
its obligations hereunder.
(d) No Encumbrances. Except as required by Section 2 and
for the proxy granted under Section 3(b), the Stockholder's Shares and the
certificates representing such Shares are now, and at all times during the term
hereof will be, held by the Stockholder, or by a nominee or custodian for the
benefit of the Stockholder, free and clear of all liens, claims, security
interests, proxies, voting trusts or agreements, understandings or arrangements
or any other encumbrances whatsoever.
(e) No Solicitation. The Stockholder shall, in its
capacity as such, comply with the terms of Section 5.1(e) of the Merger
Agreement.
(f) Restriction on Transfer, Proxies and
Non-Interference. Except as required by Section 2 or Section 3(b), at any time
during the period beginning on the date hereof and ending upon the earlier to
occur of the Effective Time or the termination of this Agreement, the
Stockholder shall not, directly or indirectly: (i) offer for sale, sell,
transfer, tender, pledge, encumber, assign or otherwise dispose of, or enter
into any contract, option or other arrangement or understanding with respect to
or consent to the offer for sale, sale, transfer, tender, pledge, encumbrance,
assignment or other disposition of, any or all of the Stockholder's Shares or
any interest therein; (ii) grant any proxies or powers of attorney, deposit any
Shares into a voting trust or enter into a voting agreement with respect to any
Shares; or (iii) take any action that could reasonably be expected to have the
effect of preventing or disabling the Stockholder from performing the
Stockholder's obligations under this Agreement.
(g) Waiver of Appraisal Rights. The Stockholder hereby
waives any rights of appraisal or rights to dissent from the Merger that the
Stockholder may have.
5
<PAGE> 6
(h) Reliance by Parent. The Stockholder understands and
acknowledges that Parent is entering into, and causing Sub to enter into, the
Merger Agreement in reliance upon the Stockholder's execution and delivery of
this Agreement.
(i) Further Assurances. From time to time, at the other
party's request and without further consideration, each party hereto shall
execute and deliver such additional documents and take all such further action
as may be necessary or desirable to consummate and make effective, in the most
expeditious manner practicable, the transactions contemplated by this
Agreement.
(B) Parent and Sub hereby represent and warrant to Stockholder
as follows:
(a) Power; Binding Agreement. Each of Parent and Sub has
the legal capacity, power and authority to enter into and perform all of its
obligations under this Agreement and the Merger Agreement. The execution,
delivery and performance of this Agreement and the Merger Agreement by Parent
and Sub will not violate any other agreement to which Parent or Sub is a party.
This Agreement and the Merger Agreement has been duly and validly executed and
delivered by each of Parent and Sub and constitutes a valid and binding
agreement of Parent and Sub enforceable against each of them in accordance with
its terms.
(b) No Conflicts. Except for filings under the HSR Act,
if applicable, and the filings required under the Merger Areement (A) no filing
with, and no permit, authorization, consent or approval of, any state or
federal public body or authority is necessary for the execution of this
Agreement and the Merger Agreement by Parent or Sub and the consummation by
Parent or Sub of the transactions contemplated hereby, except where the failure
to obtain such consent, permit, authorization, approval or filing would not
interfere with Parent or Sub's ability to perform its obligations hereunder,
and (B) none of the execution and delivery of this Agreement and the Merger
Agreement by Parent or Sub, the consummation by Parent or Sub of the
transactions contemplated hereby or compliance by Parent or Sub with any of the
provisions hereof shall (1) conflict with or result in any breach of any
applicable organizational documents applicable to Parent or Sub, (2) result in
a violation or breach of, or constitute (with or without notice or lapse of
time or both) a default (or give rise to any third party right of termination,
cancellation, material modification or acceleration) under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
contract, commitment, arrangement, understanding, agreement or other instrument
or obligation of any kind to which Parent or Sub is a party or by which Parent
or Sub or any of Parent's or Sub's properties or
6
<PAGE> 7
assets may be bound, or (3) violate any order, writ, injunction, decree,
judgment, order, statute, rule or regulation applicable to Parent or Sub or any
of its properties or assets, in each such case except to the extent that any
conflict, breach, default or violation would not interfere with the ability of
Parent or Sub to perform its obligations hereunder.
(c) Financing. Parent and Sub have delivered to the
Company a true and complete copy of (i) a letter of commitment obtained by
Parent from Credit Suisse First Boston to provide debt financing for the
transactions contemplated hereby pursuant to a senior credit facility; (ii) a
letter of commitment obtained by Parent from Credit Suisse First Boston with
respect to senior subordinated debt financing for the transactions contemplated
hereby pursuant to the sale by Parent of senior subordinated notes; (iii) a
letter of commitment obtained by Hedstrom Holdings, Inc., the sole stockholder
of Parent ("Holdings"), from Credit Suisse First Boston with respect to senior
debt financing for the transactions contemplated hereby pursuant to the sale by
Holdings of senior notes; and (iv) from Hicks Muse Equity Fund II, L.P. to
provide certain equity financing pursuant to the sale by Holdings of shares of
its common stock (collectively, the "Financing Commitments"). Assuming that the
financing contemplated by the Financing Commitments is consummated in
accordance with the terms thereof, the funds to be borrowed and/or provided
thereunder by Parent and Holdings will provide sufficient funds to pay the
Offer Consideration, the Merger Consideration and all related fees and
expenses. As of the date of this Agreement, Parent is not aware of any facts
or circumstances that create a reasonable basis for Parent to believe that
Parent and Holdings will not be able to obtain financing in accordance with the
terms of the Financing Commitments.
5. Stop Transfer. The Stockholder agrees with, and
covenants to, Parent that, except with respect to the tender of the
Stockholder's Shares into the Offer, the Stockholder shall not request that the
Company register the transfer (book-entry or otherwise) of any certificate or
uncertificated interest representing any of the Stockholder's Shares, unless
such transfer is made in compliance with this Agreement (including the
provisions of Section 2 hereof). In the event of a stock dividend or
distribution, or any change in the Company Common Stock by reason of any stock
dividend, split-up, recapitalization, combination, exchange of shares or the
like, the term "Shares" shall be deemed to refer to and include the Shares as
well as all such stock dividends and distributions and any shares into which or
for which any or all of the Shares may be changed or exchanged.
7
<PAGE> 8
6. Termination. Except as otherwise provided herein,
the covenants and agreements contained herein with respect to the Shares shall
terminate upon the termination of the Merger Agreement in accordance with its
terms by Parent or the Company. Notwithstanding anything contained herein to
the contrary, the Stockholder shall have the absolute right, exercisable in its
sole discretion, to terminate this Agreement if the Merger Agreement is amended
in any respect in a manner that is adverse to the Stockholder or if the Offer
is terminated, withdrawn, abandoned, expires or is modified in any manner that
is adverse to the Stockholder.
7. Stockholder Capacity. No person executing this
Agreement who is or becomes during the term hereof a director of the Company
makes any agreement or understanding herein in his or her capacity as such
director. The Stockholder signs solely in his or her capacity as the record
and beneficial owner of, or the trustee of a trust whose beneficiaries are the
beneficial owners of, the Stockholder's Shares.
8. Confidentiality. The Stockholder recognizes that
successful consummation of the transactions contemplated by this Agreement may
be dependent upon confidentiality with respect to the matters referred to
herein. In this connection, pending public disclosure thereof, the Stockholder
hereby agrees not to disclose or discuss such matters with anyone not a party
to this Agreement (other than the Stockholder's counsel and advisors, if any)
without the prior written consent of Parent, except for filings required
pursuant to the Exchange Act and the rules and regulations thereunder or
disclosures the Stockholder's counsel advises are necessary in order to fulfill
the Stockholder's obligations imposed by law, in which event the Stockholder
shall give notice of such disclosure to Parent as promptly as practicable so as
to enable Parent to seek a protective order from a court of competent
jurisdiction with respect thereto.
9. Miscellaneous.
(a) Entire Agreement. This Agreement and the Merger
Agreement constitute the entire agreement between the parties with respect to
the subject matter hereof and supersedes all other prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof.
(b) Certain Events. The Stockholder agrees that this
Agreement and the obligations hereunder shall attach to the Stockholder's
Shares and shall be binding upon any person or entity to which legal or
beneficial ownership of such Shares shall pass, whether by operation of law or
otherwise, including, without limitation, the Stockholder's heirs, guardians,
8
<PAGE> 9
administrators or successors. Notwithstanding any transfer of Shares, the
transferor shall remain liable for the performance of all obligations under
this Agreement of the transferor.
(c) Assignment. This Agreement shall not be assigned by
operation of law or otherwise without the prior written consent of the other
party, provided that Parent may assign, in its sole discretion, its rights and
obligations hereunder to any direct or indirect wholly owned subsidiary of
Parent, but no such assignment shall relieve Parent of its obligations
hereunder if such assignee does not perform such obligations.
(d) Amendments, Waivers, Etc. This Agreement may not be
amended, changed, supplemented, waived or otherwise modified or terminated,
except upon the execution and delivery of a written agreement executed by the
parties hereto; provided that Schedule I hereto may be supplemented by Parent
by adding the name and other relevant information concerning any stockholder of
the Company who agrees to be bound by the terms of this Agreement without the
agreement of any other party hereto, and thereafter such added stockholder
shall be treated as a "Stockholder" for all purposes of this Agreement.
(e) Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given (and
shall be deemed to have been duly received if so given) by hand delivery,
telegram, telex or telecopy, or by mail (registered or certified mail, postage
prepaid, return receipt requested) or by any courier service, such as Federal
Express, providing proof of delivery. All communications hereunder shall be
delivered to the respective parties at the following addresses:
If to Stockholder: At the addresses set forth on Schedule I
hereto
If to Parent: Hedstrom Corporation
300 Corporate Center Drive, Suite 110
Coraopolis, Pennsylvania 15108
Telecopy: (412) 269-9655
Attn: David Crowley
copies to: Hicks, Muse, Tate & Furst Incorporated
200 Crescent Court
Suite 1600
Dallas, Texas 75201
Telecopy: (214) 740-7313
Attention: Lawrence D. Stuart, Jr.
9
<PAGE> 10
Hicks, Muse, Tate & Furst Incorporated
1325 Avenue of the Americas, 25th Floor
New York, New York 10019
Telecopy: (212) 424-1450
Attn: Alan B. Menkes
Weil, Gotshal & Manges
100 Crescent Court
Suite 1300
Dallas, Texas 75201
Telecopy: (214) 746-7777
Attention: Glenn D. West
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
(f) Severability. Whenever possible, each provision or
portion of any provision of this Agreement will be interpreted in such manner
as to be effective and valid under applicable law but if any provision or
portion of any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or portion of any provision in such jurisdiction, and this
Agreement will be reformed, construed and enforced in such jurisdiction as if
such invalid, illegal or unenforceable provision or portion of any provision
had never been contained herein.
(g) Specific Performance. Each of the parties hereto
recognizes and acknowledges that a breach by it of any covenants or agreements
contained in this Agreement will cause the other party to sustain damages for
which it would not have an adequate remedy at law for money damages, and
therefore each of the parties hereto agrees that in the event of any such
breach the aggrieved party shall be entitled to the remedy of specific
performance of such covenants and agreements and injunctive and other equitable
relief in addition to any other remedy to which it may be entitled, at law or
in equity.
(h) Remedies Cumulative. All rights, powers and remedies
provided under this Agreement or otherwise available in respect hereof at law
or in equity shall be cumulative and not alternative, and the exercise of any
thereof by any party shall not preclude the simultaneous or later exercise of
any other such right, power or remedy by such party.
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<PAGE> 11
(i) No Waiver. The failure of any party hereto to
exercise any right, power or remedy provided under this Agreement or otherwise
available in respect hereof at law or in equity, or to insist upon compliance
by any other party hereto with its obligations hereunder, and any custom or
practice of the parties at variance with the terms hereof, shall not constitute
a waiver by such party of its right to exercise any such or other right, power
or remedy or to demand such compliance.
(j) No Third Party Beneficiaries. This Agreement is not
intended to be for the benefit of, and shall not be enforceable by, any person
or entity who or which is not a party hereto.
(k) Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of Delaware, without giving
effect to the principles of conflicts of law thereof.
(l) Jurisdiction. Each party hereby irrevocably submits
to the exclusive jurisdiction of the Court of Chancery in the State of Delaware
in any action, suit or proceeding arising in connection with this Agreement,
and agrees that any such action, suit or proceeding shall be brought only in
such court (and waives any objection based on forum non conveniens or any other
objection to venue therein); provided, however, that such consent to
jurisdiction is solely for the purpose referred to in this paragraph (l) and
shall not be deemed to be a general submission to the jurisdiction of said
Court or in the State of Delaware other than for such purposes. Each party
hereto hereby waives any right to a trial by jury in connection with any such
action, suit or proceeding.
(m) Descriptive Headings. The descriptive headings used
herein are inserted for convenience of reference only and are not intended to
be part of or to affect the meaning or interpretation of this Agreement.
(n) Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original, but all of
which, taken together, shall constitute one and the same Agreement.
(o) Nonsurvival of Representations and Warranties. None
of the representations and warranties in this Agreement shall survive the
acceptance for payment of, and the payment for the Shares by Sub in the Offer
or the expiration of the Offer.
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IN WITNESS WHEREOF, Parent and the Stockholder have caused
this Agreement to be duly executed as of the day and year first above written.
HEDSTROM CORPORATION
By: /s/ ANDREW S. ROSEN
------------------------------
Andrew S. Rosen,
Vice President
HC ACQUISITION CORP.
BY: /s/ ANDREW S. ROSEN
--------------------------------
Andrew S. Rosen,
Vice President
STOCKHOLDER:
GOLDER, THOMA, CRESSEY FUND III
LIMITED PARTNERSHIP
By: GOLDER, THOMA, CRESSEY &
RAUNER, L.P., its General
Partner
By: /s/ ILLEGIBLE
------------------------
Name:
Title: General Partner
AGREED TO AND ACKNOWLEDGED
(with respect to Section 5):
ERO, INC.
By: /s/ D. R. Ryan
------------------------
Name:
Title:
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SCHEDULE 1 TO
STOCKHOLDERS AGREEMENT
<TABLE>
<CAPTION>
Name and Address of Stockholder Number of Shares Owned
- ------------------------------- ----------------------
<S> <C>
1. Golder, Thoma, Cressey 3,940,000
Fund III Limited Partnership
c/o Golder, Thoma, Cressey, Rauner, Inc.
6100 Sears Tower
Chicago, Illinois 60606
with a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attention: H. Kurt von Moltke
Telephone: (312) 861-2000
Telecopy: (312) 861-2200
</TABLE>
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