<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
SCHEDULE 13E-3
RULE 13E-3 TRANSACTION STATEMENT
(PURSUANT TO SECTION 13(E) OF THE SECURITIES EXCHANGE ACT OF 1934)
------------------------
MAFCO CONSOLIDATED GROUP INC.
(NAME OF ISSUER)
------------------------
MAFCO CONSOLIDATED GROUP INC.
MAFCO CONSOLIDATED HOLDINGS INC.
MCG ACQUISITION INC.
(NAME OF PERSON(S) FILING STATEMENT)
------------------------
COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS OF SECURITIES)
------------------------
559025 10 1
(CUSIP NUMBERS OF CLASS OF SECURITIES)
------------------------
BARRY F. SCHWARTZ
EXECUTIVE VICE PRESIDENT
MAFCO CONSOLIDATED GROUP INC.
MAFCO CONSOLIDATED HOLDINGS INC.
MCG ACQUISITION INC.
35 EAST 62ND STREET
NEW YORK, NEW YORK 10021
(212) 572-8600
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSONS AUTHORIZED
TO RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF PERSON(S) FILING STATEMENT)
------------------------
with a copy to:
ALAN C. MYERS, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
919 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 735-3000
This statement is filed in connection with (check the appropriate box):
<TABLE>
<S> <C> <C>
(a) /x/ The filing of solicitation materials or an information statement subject to Regulation 14A,
Regulation 14C or Rule 13e-3(c) under the Securities Exchange Act of 1934.
(b) / / The filing of a registration statement under the Securities Act of 1933.
(c) / / A tender offer.
(d) / / None of the above.
</TABLE>
Check the following box if soliciting materials or information statement
referred to in checking box (a) are preliminary copies: /x/
CALCULATION OF FILING FEE
TRANSACTION AMOUNT OF
VALUATION* FILING FEE**
$115,896,198.00 $23,179.24
* For purposes of calculating the filing fee only. This calculation assumes
the purchase of 3,459,588 shares of Common Stock, par value $.01 per share,
of Mafco Consolidated Group Inc. at $33.50 net per share in cash.
** The amount of the filing fee, calculated in accordance with Rule 0-ll(c) of
the Securities Exchange Act of 1934, as amended, equals 1/50th of one
percent of the aggregate value of cash offered for such number of shares.
/x/ Check box if any part of the fee is offset by Rule 0-ll(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.
<TABLE>
<S> <C>
Amount Previously Paid: $23,179.24 Filing Parties: Mafco Consolidated Group Inc.
Form or Registration No.: Schedule 14C Date Filed: April 1, 1997
</TABLE>
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<PAGE>
INTRODUCTION
This Rule 13E-3 Transaction Statement (the 'Statement') relates to the
proposed merger (the 'Merger') of Mafco Consolidated Group Inc., a Delaware
corporation (the 'Company'), with and into MCG Acquisition Inc., a Delaware
corporation (the 'Purchaser'). The Purchaser is a wholly owned subsidiary of
Mafco Consolidated Holdings Inc., a Delaware corporation ('Parent'), which owns
approximately 85% of the outstanding common stock, par value $.01 per share (the
'Common Stock'), of the Company.
If the Merger is consummated, each share of Common Stock (collectively, the
'Shares') outstanding immediately prior to the time when the Merger becomes
effective (which will occur at the date and time a Certificate of Merger is
filed with the Secretary of State of the State of Delaware or such later time as
is specified in such certificate), other than Shares as to which dissenters'
rights of appraisal have been duly asserted and perfected under the Delaware
General Corporation Law and Shares held by the Company, Parent, the Purchaser or
any other subsidiary of Parent (which will be cancelled), will be converted into
the right to receive $33.50 in cash, subject to upward adjustment, without
interest, all as more fully described in the Information Statement referred to
herein.
This Statement is being filed jointly by the Company, Parent and the
Purchaser. By filing this Schedule 13e-3, none of the joint signatories concedes
that Rule 13e-3 under the Securities Exchange Act of 1934, as amended, is
applicable to the Merger or the other transactions contemplated by the Agreement
and Plan of Merger, dated as of February 20, 1997, by and among the Company,
Parent and the Purchaser.
The cross-reference sheet below is being supplied pursuant to General
Instruction F to Schedule 13E-3 and shows the location in the Company's
preliminary information statement (the 'Information Statement'), filed today
with the Securities and Exchange Commission, of the information required to be
included in response to the items of this Statement. A copy of the Information
Statement, including all exhibits and annexes thereto, is attached hereto as
exhibit (d)(l) and is hereby expressly incorporated herein by reference, and the
responses to each item in this Statement are qualified in their entirety by the
information contained in the Information Statement.
2
<PAGE>
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM IN SCHEDULE 13E-3 INFORMATION STATEMENT
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Item l(a)............................................... Front Cover Page of the Information Statement; CERTAIN
INFORMATION CONCERNING THE COMPANY--The Company
Item l(b)............................................... INTRODUCTION
Item 1(c)............................................... MARKET PRICES AND DIVIDENDS--Market Prices
Item 1(d)............................................... MARKET PRICES AND DIVIDENDS--Dividends
Item 1(e)............................................... *
Item 1(f)............................................... CERTAIN INFORMATION CONCERNING THE COMPANY--The Company
Item 2(a)-(d); (g)...................................... INTRODUCTION; CERTAIN INFORMATION CONCERNING THE
COMPANY; CERTAIN INFORMATION CONCERNING PARENT AND THE
PURCHASER; CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS--Relationship with Mafco Holdings
Item 2(e)-(f)........................................... *
Item 3(a)(1)............................................ SPECIAL FACTORS--Interests of Certain Persons in the
Merger; CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 3(a)(2), (b)....................................... SPECIAL FACTORS--Background of the Merger; THE MERGER
AGREEMENT; CERTAIN INFORMATION CONCERNING THE COMPANY
Item 4.................................................. INTRODUCTION; SUMMARY; SPECIAL FACTORS--Certain Effects
of the Merger; --Interests of Certain Persons in the
Merger; SOURCE AND AMOUNT OF FUNDS; THE MERGER
AGREEMENT;
Item 5.................................................. SPECIAL FACTORS--Purpose and Structure of the Merger; --Certain Effects
of the Merger;--Plans for the Company After the Merger; CERTAIN
INFORMATION CONCERNING PARENT AND THE PURCHASER--Directors and
Executive Officers
Item 6(a),(b)........................................... SOURCE AND AMOUNTS OF FUNDS; FEES AND EXPENSES
Item 6(c), (d).......................................... *
Item 7(a)-(c)........................................... SPECIAL FACTORS --Background of the
Merger;--Determinations of the Special Committee and
the Board; Fairness of the Merger;--Purpose and
Structure of the Merger; -- Plans for the Company After
the Merger
Item 7(d)............................................... SPECIAL FACTORS--Purpose and Structure of the
Merger;--Certain Effects of the Merger;--Plans for the
Company After the Merger; --Interests of Certain
Persons in the Merger;--Accounting Treatment of the
Merger;--Certain Federal Income Tax Consequences;
STOCKHOLDERS' RIGHTS OF APPRAISAL; CERTAIN INFORMATION
CONCERNING PARENT AND THE PURCHASER--Directors and
Executive Officers
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
ITEM IN SCHEDULE 13E-3 INFORMATION STATEMENT
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Item 8(a)-(e)........................................... INTRODUCTION; SPECIAL FACTORS--Background of the
Merger;--Determinations of the Special Committee and
the Board; Fairness of the Merger;--Financial
Advisors; Fairness Opinion;--Position of Parent and
the Purchaser;--Purpose and Structure of the Merger;
Annex B
Item 8(f)............................................... *
Item 9.................................................. INTRODUCTION; SPECIAL FACTORS--Background of the
Merger;--Determinations of the Special Committee and
the Board; Fairness of the Merger;--Financial
Advisors; Fairness Opinions; Annex B
Item 10................................................. INTRODUCTION; SPECIAL FACTORS--Interests of Certain
Persons in the Merger; THE MERGER AGREEMENT--Payment
Under Stock Options; CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS--Relationship with Mafco Holdings;--Option
Grant; SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Item 11................................................. INTRODUCTION; SPECIAL FACTORS--Interests of Certain
Persons in the Merger; THE MERGER AGREEMENT; CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Item 12................................................. INTRODUCTION; SPECIAL FACTORS--Background of the
Merger;--Determinations of the Special Committee and
the Board; Fairness of the Merger;--Position of Parent
and the Purchaser
Item 13(a).............................................. STOCKHOLDERS' RIGHTS OF APPRAISAL; THE MERGER
AGREEMENT--Dissenters' Rights; Annex C
Item 13(b), (c)......................................... *
Item 14(a).............................................. SUMMARY--Selected Consolidated Financial Data
Item 14(b).............................................. *
Item 15(a).............................................. SPECIAL FACTORS--Purpose and Structure of the
Merger;--Plans for the Company After the
Merger;--Interests of Certain Persons in the
Merger; SOURCE AND AMOUNT OF FUNDS; CERTAIN
INFORMATION CONCERNING PARENT AND THE
PURCHASER--Directors and Executive Officers; FEES AND
EXPENSES
Item 15(b).............................................. *
</TABLE>
- ------------------
* Omitted because the answer is negative or the Item is not applicable.
4
<PAGE>
ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION.
(a) The information set forth on the first page of the Information
Statement and under 'CERTAIN INFORMATION CONCERNING THE COMPANY--The Company' in
the Information Statement is incorporated herein by reference.
(b) The information set forth under 'INTRODUCTION' in the Information
Statement is incorporated herein by reference.
(c) The information set forth under 'MARKET PRICES AND DIVIDENDS--Market
Prices' in the Information Statement is incorporated herein by reference.
(d) The information set forth under 'MARKET PRICES AND
DIVIDENDS--Dividends' in the Information Statement is incorporated herein by
reference.
(e) Not applicable.
(f) The information set forth under 'CERTAIN INFORMATION CONCERNING THE
COMPANY--The Company' in the Information Statement is incorporated herein by
reference.
ITEM 2. IDENTITY AND BACKGROUND.
(a)-(d); (g) This Statement is being filed jointly by the Company (which is
the issuer of the class of equity securities that is the subject of the Rule
13e-3 transaction), Parent and the Purchaser. The information set forth under
'INTRODUCTION,' 'CERTAIN INFORMATION CONCERNING THE COMPANY,' 'CERTAIN
INFORMATION CONCERNING PARENT AND THE PURCHASER' and 'CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS--Relationship with Mafco Holdings' in the Information
Statement is incorporated herein by reference.
(e)-(f) During the last five years, none of the Company, Parent, the
Purchaser, nor, to the best of their knowledge, any of their directors and
executive officers (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 further 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.
(a)(l) The information set forth under 'SPECIAL FACTORS--Interests of
Certain Persons in the Merger' and 'CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS' in the Information Statement is incorporated herein by reference.
(a)(2), (b) The information set forth under 'SPECIAL FACTORS--Background of
the Merger,' 'THE MERGER AGREEMENT' and 'CERTAIN INFORMATION CONCERNING THE
COMPANY' in the Information Statement is incorporated herein by reference.
ITEM 4. TERMS OF THE TRANSACTION.
(a)-(b) The information set forth under 'INTRODUCTION,' 'SUMMARY,' 'SPECIAL
FACTORS--Certain Effects of the Merger,' '--Interests of Certain Persons in the
Merger,' 'SOURCE AND AMOUNT OF FUNDS' and 'THE MERGER AGREEMENT' in the
Information Statement is incorporated herein by reference.
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE.
(a)-(g) The information set forth under 'SPECIAL FACTORS -- Purpose and
Structure of the Merger,' '--Certain Effects of Merger,' '--Plans for the
Company After the Merger' and 'CERTAIN INFORMATION CONCERNING PARENT AND THE
PURCHASER--Directors and Executive Officers' in the Information Statement is
incorporated herein by reference.
5
<PAGE>
ITEM 6. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a),(b) The information set forth under 'SOURCE AND AMOUNT OF FUNDS' and
'FEES AND EXPENSES' in the Information Statement is incorporated herein by
reference.
(c), (d) Not applicable.
ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS.
(a)-(c) The information set forth under 'SPECIAL FACTORS--Background of the
Merger,' '--Determinations of the Special Committee and the Board; Fairness of
the Merger,' '--Purpose and Structure of the Merger' and '--Plans for the
Company After the Merger' in the Information Statement is incorporated herein
by reference.
(d) The information set forth under 'SPECIAL FACTORS--Purpose and Structure
of the Merger,' '--Certain Effects of the Merger,' '--Plans for the Company
After the Merger,' '--Interests of Certain Persons in the Merger,' '--Accounting
Treatment of the Merger,' '--Certain Federal Income Tax Consequences,'
'STOCKHOLDERS' RIGHTS OF APPRAISAL' and 'CERTAIN INFORMATION CONCERNING PARENT
AND THE PURCHASER--Directors and Executive Officers' in the Information
Statement is incorporated herein by reference.
ITEM 8. FAIRNESS OF THE TRANSACTION.
(a)-(e) The information set forth under 'INTRODUCTION,' 'SPECIAL
FACTORS--Background of the Merger,' '--Determinations of the Special Committee
and the Board; Fairness of the Merger,' '--Financial Advisors; Fairness
Opinion,' '--Position of Parent and the Purchaser' and '--Purpose and Structure
of the Merger' in the Information Statement and Annex B thereto is incorporated
herein by reference.
(f) Not applicable.
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS.
(a)-(c) The information set forth under 'INTRODUCTION,' 'SPECIAL
FACTORS--Background of the Merger,' '--Determinations of the Special Committee
and the Board; Fairness of the Merger' and '--Financial Advisors; Fairness
Opinions' in the Information Statement and Annex B thereto is incorporated
herein by reference.
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER.
(a)-(b) The information set forth under 'INTRODUCTION,' 'SPECIAL
FACTORS--Interests of Certain Persons in the Merger,' 'THE MERGER
AGREEMENT--Payment Under Stock Options,' 'CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS--Relationship with Mafco Holdings,' '--Option Grant' and 'SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT' in the Information
Statement is incorporated herein by reference.
ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE ISSUER'S
SECURITIES.
The information set forth under 'INTRODUCTION,' 'SPECIAL FACTORS--Interests
of Certain Persons in the Merger,' 'THE MERGER AGREEMENT' and 'CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS' in the Information Statement is
incorporated herein by reference.
ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH REGARD TO
THE TRANSACTION.
(a)-(b) The information set forth under 'INTRODUCTION,' 'SPECIAL
FACTORS--Background of the Merger,' '--Determinations of the Special Committee
and the Board; Fairness of the Merger' and '--Position of Parent and the
Purchaser' in the Information Statement is incorporated herein by reference.
6
<PAGE>
ITEM 13. OTHER PROVISIONS OF THE TRANSACTION.
(a) The information set forth under 'STOCKHOLDERS' RIGHTS OF APPRAISAL' and
'THE MERGER AGREEMENT--Dissenters' Rights' in the Information Statement and
Annex C thereto is incorporated herein by reference.
(b), (c) Not applicable.
ITEM 14. FINANCIAL INFORMATION.
(a) The information set forth under 'SUMMARY--Selected Consolidated
Financial Data' in the Information Statement and the information set forth on
pages F-1 through F-34 of the Mafco Consolidated Group Inc. Annual Report on
Form 10-K for the year ended December 31, 1996, filed as exhibit (g) hereto, are
incorporated herein by reference. Exhibit (g) is expressly incorporated
herein by reference pursuant to General Instruction D to Schedule 13E-3.
(b) Not applicable.
ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED.
(a) The information set forth under 'SPECIAL FACTORS--Purpose and Structure
of the Merger,' '--Plans for the Company After the Merger,' '--Interests of
Certain Persons in the Merger,' 'SOURCE AND AMOUNT OF FUNDS,' 'CERTAIN
INFORMATION CONCERNING PARENT AND THE PURCHASER--Directors and Executive
Officers' and 'FEES AND EXPENSES' in the Information Statement is incorporated
herein by reference.
(b) Not applicable.
ITEM 16. ADDITIONAL INFORMATION.
The information contained in the Information Statement is incorporated
herein by reference in its entirety.
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS.
(a) Not applicable.
(b)(1) Opinion of Morgan Stanley & Co., Incorporated (included as Annex B
to the Information Statement filed as Exhibit (d)(1) hereto).
(b)(2) Board presentation of Morgan Stanley & Co., Incorporated dated
February 20, 1997.
(c)(1) Agreement and Plan of Merger (included as Annex A to the Information
Statement filed as Exhibit (d)(1) hereto).
(c)(2) Registration Rights Agreement (incorporated by reference to Exhibit
2 to the Schedule 13D dated June 26, 1995 filed by Mafco Holdings Inc. and Mafco
Consolidated Holdings Inc. in connection with the Common Stock).
(d)(1) Information Statement and related Letter to Stockholders.
(d)(2) Press Release dated January 21, 1997.
(d)(3) Press Release dated January 30, 1997.
(d)(4) Press Release dated February 21, 1997.
(e) Section 262 of the DGCL (included as Annex C to the Information
Statement filed as Exhibit (d)(1) hereto).
(f) Not Applicable.
(g) Pages F-1 through F-34 of the Mafco Consolidated Group Inc. Annual
Report on Form 10-K for the year ended December 31, 1996.
7
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, the
undersigned certifies that the information set forth in this Statement is true,
complete and correct.
Dated: March 31, 1997 MAFCO CONSOLIDATED GROUP INC.
MAFCO CONSOLIDATED HOLDINGS INC.
MCG ACQUISITION INC.
By: /s/ Barry F. Schwartz
----------------------------
Name: Barry F. Schwartz
Title: Executive Vice President
8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- ------------------------------------------------------------------------------------------------
<S> <C> <C>
(a) -- Not applicable
(b)(1) -- Option of Morgan Stanley & Co., Incorporated (included as Annex B to the Information
Statement filed as Exhibit (d)(1) hereto)
(b)(2) -- Board presentation of Morgan Stanley & Co., Incorporated dated February 20, 1997
(c)(1) -- Agreement and Plan of Merger (included as Annex A to the Information Statement filed as
Exhibit (d)(1) hereto)
(c)(2) -- Registration Rights Agreement (incorporated by reference to Exhibit 2 to the Schedule 13D
dated June 26, 1995 filed by Mafco Holdings Inc. and Mafco Consolidated Holdings Inc. in
connection with the Common Stock)
(d)(1) -- Information Statement and related Letter to Stockholders
(d)(2) -- Press Release dated January 21, 1997
(d)(3) -- Press Release dated January 30, 1997
(d)(4) -- Press Release dated February 21, 1997
(e) -- Section 262 of the DGCL (included as Annex C to the Information Statement filed as Exhibit
(d)(1) hereto)
(f) -- Not Applicable
(g) -- Pages F-1 through F-34 of the Mafco Consolidated Group Inc. Annual Report on Form 10-K for
the year ended December 31, 1996
</TABLE>
9
<PAGE>
MAFCO CONSOLIDATED GROUP INC.
Presentation to the Special Committee
of the Board of Directors
February 20, 1997
<PAGE>
MAFCO CONSOLIDATED GROUP INC.
Pro Forma Ownership Structure
Ronald O. Perelman
|
100% |
|
Mafco Holdings Inc.
("Mafco Holdings")
|
85% |
| 36%
Mafco Consolidated Group Inc.-------------------Power Control Technologies Inc.
(the "Company") ("PCT")
| |
80.2% | (97.6% Voting) 100% |
| |
Consolidated Cigar Holdings Inc. PCT International Holdings Inc.
("Cigar Holdings") ("PCT International")
100% | 100% |
| |
Consolidated Cigar Corporation Flavors Holdings Inc.
("Consolidated Cigar") ("Flavors Holdings")
-1-
<PAGE>
MAFCO CONSOLIDATED GROUP INC.
- --------------------------------------------------------------------------------
Transaction Summary
Description o Acquisition by Mafco Holdings ("Holdings") of
the approximately 15% of the outstanding shares
of Mafco Consolidated Group Inc. ("Mafco") not
currently held by Holdings
Merger Consideration o $43.50 cash, $10.00 of which is payable
immediately as a special dividend, plus the
following percentages of the excess, if any,
between $33.00 and the closing stock price
(the "Excess Price") of Consolidated Cigar
Holding Inc. ("Cigar") 10 days prior to closing:
(i) 100% of the Excess Price if the gross sales
price per share of Cigar received in the
planned secondary offering (the "Cigar
Offering") exceeds $33.00 per share, or
(ii) Approximately 80% of the Excess
Price if the gross sales price per share
received in the Cigar Offering is less than
$33.00 per share
Premium to Unaffected Price o 60.4% (based on 1/20/97 closing
price of $27.125)
Cigar Secondary Offering o Not a condition to closing
Shareholder Vote Required o Yes (assured due to 85% parent ownership)
Fiduciary Out: o Yes, but not based on Cigar stock price
-2-
<PAGE>
MAFCO CONSOLIDATED GROUP INC.
Valuation Considerations Summary
Balance Sheet Information as of December 31, 1996
<TABLE>
<CAPTION>
Aggregate Value ($MM) Per Share
--------------------------------------------- -------------------------------------
M&F Expected Value M&F Expected Value
Estimate Range Estimate Range
----------- ---------------------------- ----------- ----------------------
<S> <C> <C> <C> <C>
Cash (12/31/96) $414.7 $ 414.7 - $ 414.7 $16.65 $16.65 - $16.65
Mafco Tax Liability (40.0) (40.0) (40.0) (1.61) (1.61) (1.61)
Flavors Transaction Costs (3.6) (3.6) (3.6) (0.14) (0.14) (0.14)
------- ------- --------- ------ ------ ------
$371.1 $ 371.1 $ 371.1 $14.90 $14.90 $14.90
Assets (1) 142.6 168.0 189.7 5.73 6.75 7.62
Liabilities (1) (188.0) (161.7) (121.0) (7.55) (6.50) (4.86)
Option Proceeds (2) 31.9 31.9 31.9 1.28 1.28 1.28
------- ------- --------- ------ ------ ------
Net Asset Value (excluding Cigar) $357.6 $ 409.3 $ 471.7 $14.36 $16.44 - $18.94
------ ------ ------
CIG
24.6MM common shares at $24.50 / Share (3) $602.7 $ 602.7 $ 602.7 $24.20 $24.20 $24.20
------- ------- --------- ------ ------ ------
Pre-Tax Value $960.3 $1,012.0 - $1,074.4 $38.57 $40.64 $43.15
------ ------ ------
Potential Cigar Tax Liability (4) (1.50) (1.50) (1.50)
------ ------ ------
Adjusted After-Tax Value $37.07 $39.14 - $41.65
====== ====== ======
</TABLE>
- ---------------------------
Notes:
(1) Refer to Assets / Liabilities Detail for breakdown.
(2) Assumes total shares of 23.2MM and options of 1.7MM (average exercise price
of $19.19/share).
(3) Market price as of 1/20/97, the day prior to the Mafco announcement.
(4) Assumes $1.50 per share tax liability which would be payable upon sale of
Cigar shares by Mafco. Reflects Mafco's negative tax basis in Cigar shares
and long-term capital gains tax paid.
-3-
<PAGE>
MAFCO CONSOLIDATED GROUP INC.
Assets / Liabilities Detail
Balance Sheet Information as of December 31, 1996
<TABLE>
<CAPTION>
Aggregate Value ($MM) Per Share
------------------------- ------------------------
M&F Expected Value M&F Expected Value
Estimate Range Estimate Range
Item (1) (1) Description
- ------------------------------------------ -------- -------------- -------- -------------- ----------------------------------
<S> <C> <C> <C> <C> <C>
ATP
5.9MM Common Shares at $7.375 / share (2) $ 43.8 $ 43.8-$ 43.8 $1.76 $1.76 - $1.76
Preferred 20.0 20.0 20.0 0.80 0.80 0.80
Fisher option 4.3 4.3 4.3 0.17 0.17 0.17 Represents an option to purchase
the Hampton, NH facility
Sale of properties, net of carrying costs 6.3 6.3 6.3 0.25 0.25 0.25 Home loans payable to the Company
by Abex employees
Receipt on Cigar note 48.7 48.7 48.7 1.96 1.96 1.96
Receipt on Flavors note 6.7 6.7 6.7 0.27 0.27 0.27 Payments accrued by Flavors
Release of investment (Insurance L/C) 3.5 3.5 3.5 0.14 0.14 0.14
Release of investment (Friction L/C) 9.3 9.3 9.3 0.37 0.37 0.37 Letters of credit to offset the
Friction asbestos claims
Pension asset (overfunding of $62.6MM) - 24.0 43.3 - 0.96 1.74 Pension asset on balance sheet at
$62.6MM (12/31/96)
Expected Value equal to $24MM
(based on amount that can offset
post-retirement liabilities) plus
50% of remaining pension
overfunding (assumes 40% taxes plus
10% non-deductible excise tax)
Asbestos Receivable - 1.4 3.8 - 0.06 0.15 Book value of $6.1MM; no assigned
value by M&F Expected Value range
is equal to $1.4MM (undisputed) to
$1.4MM plus 50% of the remainder
------ ------ ------ ----- ----- -----
Total Assets $142.6 $168.0-$189.7 $5.73 $6.75 - $7.62
</TABLE>
- ----------------------
Notes:
(1) Discounted at LIBOR + 4.5%.
(2) Market price as of 1/20/97, the day prior to the Mafco announcement.
-4-
<PAGE>
MAFCO CONSOLIDATED GROUP INC.
Assets / Liabilities Detail
Balance Sheet Information as of December 31, 1996
<TABLE>
<CAPTION>
Aggregate Value ($MM) Per Share
------------------------- ------------------------
M&F Expected Value M&F Expected Value
Estimate Range Estimate Range
Item (1) (1) Description
- ------------------------------------------ -------- -------------- -------- -------------- ----------------------------------
<S> <C> <C> <C> <C> <C>
Liabilities
Post-retirement medical $ 40.8 $ 40.8-$ 40.8 $1.64 $1.64 - $1.64 Covers 2,800 participants (former
Abex employees)
Post-retirement medical-third party admin. 2.7 2.7 2.7 0.11 0.11 0.11 Third party management costs of
administering post-retirement
medical benefits; 20 year run out
following year 2000
Non-qualified benefit plans 8.0 8.0 8.0 0.32 0.32 0.32 Covers 6 plans (former Abex
employees)
Benefit plan administration costs 4.2 4.2 4.2 0.17 0.17 0.17 Covers internal and external
administrative costs
Insurance 12.1 12.1 12.1 0.49 0.49 0.49 Represents premiums for product
liability claims (for "old and
closed" facilities)
Also includes workers'
compensation claims (actual
benefits) 15 year run out
following year 2000 ($600K per
year liability)
Separation agreement fee to Fisher 4.8 4.8 4.8 0.19 0.19 0.19
Leases 6.2 6.2 6.2 0.25 0.25 0.25 Represents primary lease
obligation net of sublease income
Assumes leases up for renewal are
renewed on similar terms
Litigation 3.9 1.0 3.9 0.16 0.04 0.16 Environmental liability related to
the CPC building; Whitman
indemnified
Environmental 1.0 1.0 1.0 0.04 0.04 0.04 Internal estimates to cover
indemnity
Friction asbestos, net of reimbursement 0.9 0.9 0.9 0.04 0.04 0.04 Asbestos liability currently
indemnified by Whitman
Sherwell 6.0 6.0 6.0 0.24 0.24 0.24 Includes both a consulting fee
payable to former CEO as well as
an airplane purchase
Internal mgt. of liabilities (non-benefits) 1.7 1.7 1.7 0.07 0.07 0.07
Executive compensation 8.8 8.8 8.8 0.35 0.35 0.35 Mafco executive compensation that
has been accrued but deferred for
tax purposes
Corporate Expenses 12.2 5.0 12.2 0.49 0.20 0.49 Capitalized value of future Mafco
operating expenses
Underwriting Discount 4.6 - - 0.18 - - 4.0% gross spread on 5.0MM Cigar
shares sold at $24.00 / share
Tax, net of refunds 30.0 8.0 20.0 1.20 0.32 0.80 Total potential tax liability
related to Koll real estate, WTI
basis and other issues;
VSR obligation, net of taxes 29.3 8.8 17.6 1.18 0.35 0.71 M&F records the full VSR liability
based on GAAP (full potential
liability);
Expected VSR liability is based on
range of $1.00-2.00 per VSR
Pullman asbestos, net of reimbursement 10.8 1.0 10.8 0.43 0.04 0.43 Asbestos-related class action
claims resulting from the Pullman
insulation removal Claims are new
since June 1995
There are currently 300 claims
growing at approximately 20 per
month
Expected Value reflects fact that
the liability may reside with
Wheelabrator
------ ------ ------ ----- ----- -----
Total Liabilities $188.0 $121.0-$161.7 $7.55 $4.86 - $6.50
</TABLE>
-5-
<PAGE>
MAFCO CONSOLIDATED GROUP INC.
================================================================================
Cigar Value Sensitivity Analysis
<TABLE>
<CAPTION>
Excluding Cigar Sale Tax Liability Including Cigar Sale Tax Liability (2)
------------------------------------------ --------------------------------------------
M&F Expected Value M&F Expected Value
Estimate Range Estimate Range
Net Asset Value Range ----------- ----------------------------- ------------- -----------------------------
(excluding Cigar) $14.36 $16.44 $18.94 $12.86 $14.94 $17.44
----------- -------------- ------------- ----------- ----------- ---------------
Implied 1997E
Cigar Price P/E (1)
- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
$24.50 15.8 x $38.86 $40.94 - $43.44 $37.36 $39.44 - $41.94
25.00 16.1 39.36 41.44 43.94 37.86 39.94 42.44
26.00 16.8 40.36 42.44 44.94 38.86 40.94 43.44
27.00 17.4 41.36 43.44 45.94 39.86 41.94 44.44
28.00 18.1 42.36 44.44 46.94 40.86 42.94 45.44
29.00 18.7 43.36 45.44 47.94 41.86 43.94 46.44
30.00 19.4 44.36 46.44 48.94 42.86 44.94 47.44
</TABLE>
Notes:
(1) Based on mean of internal management estimate range of $1.50-1.60
EPS for 1997E.
(2) Assumes $1.50 per share tax liability payable upon a distribution
of shares to public shareholders.
-6-
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC.
===============================================================================
Closing Share Price and Volume Analysis
16-Aug-96 to 19-Feb-97
[GRAPH]
DATE PRICE VOLUME
16-Aug-96 $28.375 4682300
19-Aug-96 30 830900
20-Aug-96 28.5 646500
21-Aug-96 28.75 264300
22-Aug-96 30.25 605200
23-Aug-96 31.25 340900
26-Aug-96 31 176000
27-Aug-96 31.25 90500
28-Aug-96 31.5 90000
29-Aug-96 31.5 38400
30-Aug-96 31.5 62800
02-Sep-96 31.50
03-Sep-96 30.5 147400
04-Sep-96 30.125 158800
05-Sep-96 30.125 119800
06-Sep-96 30.25 40500
09-Sep-96 30.875 44200
10-Sep-96 30.75 139600
11-Sep-96 30.875 104100
12-Sep-96 31.25 84900
13-Sep-96 30.75 93800
16-Sep-96 32 231700
17-Sep-96 32.125 65600
18-Sep-96 32.5 70000
19-Sep-96 32 52000
20-Sep-96 31.375 70400
23-Sep-96 31 42400
24-Sep-96 31.375 87300
25-Sep-96 31.125 19400
26-Sep-96 31 21800
27-Sep-96 30.75 29800
30-Sep-96 30.625 70900
01-Oct-96 30.375 51900
02-Oct-96 30.625 99000
03-Oct-96 30.625 53600
04-Oct-96 30.5 42200
07-Oct-96 30.375 46800
08-Oct-96 30 29900
09-Oct-96 29.375 114900
10-Oct-96 29.125 97400
11-Oct-96 28.75 157200
14-Oct-96 28.625 235800
15-Oct-96 29 80900
16-Oct-96 28 51900
17-Oct-96 27 194400
18-Oct-96 25.875 121100
21-Oct-96 25.875 192800
22-Oct-96 26.75 142400
23-Oct-96 27 87900
24-Oct-96 27.75 116600
25-Oct-96 27.75 26800
28-Oct-96 27.5 33900
29-Oct-96 26.25 53100
30-Oct-96 27 43900
31-Oct-96 27.25 437600
01-Nov-96 27.25 102700
04-Nov-96 26.125 14400
05-Nov-96 25.75 35500
06-Nov-96 26 28500
07-Nov-96 24.75 145900
08-Nov-96 24 70400
11-Nov-96 24.25 145300
12-Nov-96 25.5 46100
13-Nov-96 25.5 68100
14-Nov-96 24.625 67900
15-Nov-96 24.5 100200
18-Nov-96 24.875 12600
19-Nov-96 24.75 19500
20-Nov-96 24.75 58300
21-Nov-96 24.75 31200
22-Nov-96 25 44700
25-Nov-96 24.625 59200
26-Nov-96 24.75 38000
27-Nov-96 24.5 43500
28-Nov-96 24.50
29-Nov-96 24.375 13300
02-Dec-96 24.25 16200
03-Dec-96 24.875 24600
04-Dec-96 24.75 16500
05-Dec-96 25.5 83700
06-Dec-96 25 28900
09-Dec-96 26.125 73300
10-Dec-96 26 23800
11-Dec-96 25.875 25200
12-Dec-96 26.125 24500
13-Dec-96 26.5 20000
16-Dec-96 26.5 40000
17-Dec-96 26.125 19900
18-Dec-96 25.625 139400
19-Dec-96 25.375 33300
20-Dec-96 24.875 18900
23-Dec-96 25.5 29000
24-Dec-96 25.125 25800
25-Dec-96 25.125 0
26-Dec-96 25.25 18900
27-Dec-96 25.375 16300
30-Dec-96 24.875 46200
31-Dec-96 24.75 56600
01-Jan-97 24.75 0
02-Jan-97 24.625 88300
03-Jan-97 24.625 43900
06-Jan-97 24.75 83700
07-Jan-97 25 4100
08-Jan-97 25.625 15400
09-Jan-97 26.75 26400
10-Jan-97 27.125 29800
13-Jan-97 26.75 49700
14-Jan-97 25.875 57000
15-Jan-97 24.625 73500
16-Jan-97 24.875 127500
17-Jan-97 24.875 7900
20-Jan-97 24.5 214600
21-Jan-97 24.375 189000
22-Jan-97 24 127900
23-Jan-97 23.5 218300
24-Jan-97 23 82900
27-Jan-97 23 92200
28-Jan-97 23.375 163800
29-Jan-97 23.625 125700
30-Jan-97 23.75 34800
31-Jan-97 24.25 271400
07-Feb-97 24 78300
04-Feb-97 23.25 141600
05-Feb-97 22.875 101000
06-Feb-97 22.875 61100
07-Feb-97 23 31200
10-Feb-97 22.875 92600
11-Feb-97 22.25 24900
12-Feb-97 23.375 56100
13-Feb-97 24.25 188200
14-Feb-97 25.25 199300
17-Feb-97 25.25 0
18-Feb-97 25.25 85700
19-Feb-97 25 29000
<TABLE>
<S> <C> <C> <C>
8/30/96 10/31/96 12/24/96 1/30/97
Investment partnerships CIG reports record sales Culbro Corp. announces it Mafco revises its previously announced
affiliated with Martin and net earning for the will sell as much as "going private" transaction under which
Zweig acquire a 9.1% third quarter and the first $120.8MM in its General the $38.50 per share price will be
stake in CIG nine months of 1996 Cigar subsidiary as it adjusted upward to the extent that the
combines its cigar gross proceeds per share received by
holdings into a single Mafco on the closing of its proposed
company offering of shares of CIG is greater than
$24.50
9/5/96 11/13/96 1/21/97 1/30/97
BKP Capital BKP Capital Mafco announces the CIG reports record sales
Management Inc. Management Inc. cuts proposals to acquire the and net earnings for the
acquires a 6.6% stake in their stake in CIG to 15% of Mafco it does not fiscal year ended
CIG 2.1% from 6.6% already own, at $38.50 per share December 31, 1996
8/15/96 10/29/96 1/22/97 1/30/97
CIG prices 5.4MM Swisher Int'l files with Four Mafco CIG files with the SEC
shares at $23 per share the SEC to raise shareholders file suit to sell 5MM Class A
$140MM through an IPO claiming Mafco's common shares
"going private"
transaction is a breach
of fiduciary duty
</TABLE>
-7-
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC.
================================================================================
Trading Statistics of Comparable Companies
Data Through February 19, 1997
($MM, except per share amounts)
<TABLE>
<CAPTION>
Current Projected Market Value
Company Share Price as 5yr EPS ------------------------------
(Ticker) Price % High Growth Equity (1) Aggregate(2)
- ----------------------------------- ------------ --------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Branded Luxury/Lifestyle
Gucci (5) $66.000 82.0 % 25.0 % $3,861 $3,736
GUC
LVMH (6) 254.185 88.2 11.0 22,174 23,463
LVMHY
Oakley (7) 9.000 33.1 26.0 640 617
OO
Mean 20.7 %
Median 25.0
Specialty Beers
Boston Beer (8) $9.500 39.6 % 28.8 % $191 $156
SAM
Redhook (9) 10.500 41.6 30.0 81 97
HOOK
Pete's Brewing (10) 5.250 24.1 25.0 56 21
WIKD
Mean 27.9 %
Median 28.8
Culbro $79.750 98.9 % 15.0 % $360 $464
CBO
Swisher International Group Inc. (11) 14.500 77.3 NA 494 616
SWR
- -----------------------------------------------------------------------------------------------------------------------------------
Consolidated Cigar Holdings Inc. (12) $25.000 76.6 % 27.0 % $767 $944
CIG
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
P/E (3) Aggregate Value/ LTM
Company ----------------------------------------------- --------------------------------------------
(Ticker) 1996E 1997E 1998E Sales EBITDA EBIT
- ----------------------------------- ------------ --------------- -------------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Branded Luxury/Lifestyle
Gucci (5) 27.3 x 21.2 x 17.0 x 7.5 x 28.6 x 31.1 x
GUC
LVMH (6) 27.7 25.2 22.7 3.9 14.1 16.2
LVMHY
Oakley (7) 13.0 14.3 13.4 2.8 7.5 8.3
OO
22.7 x 20.2 x 17.7 x 4.7 x 16.8 x 18.5 x
27.3 21.2 17.0 3.9 14.1 16.2
Specialty Beers
Boston Beer (8) 23.2 x 17.3 x 14.0 x 0.8 x 10.2 x 11.4 x
SAM
Redhook (9) 30.9 27.6 22.3 2.8 13.6 18.0
HOOK
Pete's Brewing (10) 30.8 19.4 15.5 0.3 6.0 9.1
WIKD
28.3 x 21.4 x 17.3 x 1.3 x 9.9 x 12.8 x
30.8 19.4 15.5 0.8 10.2 11.4
Culbro 27.4 x 24.1 x NA x 2.0 x 13.2 x 16.8 x
CBO
Swisher International Group Inc. (11) 16.7 13.2 10.2 2.8 12.3 14.3
SWR
Consolidated Cigar Holdings Inc. (12) 22.5 x 19.1 x 16.7 x 4.8 x 18.0 x 20.9 x
CIG 16.1 (13)
</TABLE>
Aggregate Value/1996E (4)
Company --------------------------------------------
(Ticker) Sales EBITDA EBIT
- ----------------------------------- ---------- ----------- -------------
Branded Luxury/Lifestyle
Gucci (5) 3.6 x 12.7 x 13.5 x
GUC
LVMH (6) 4.2 15.4 18.0
LVMHY
Oakley (7) 2.7 6.5 7.1
OO
3.5 x 11.6 x 12.9 x
3.6 12.7 13.5
Specialty Beers
Boston Beer (8) 0.8 x 8.8 x 10.0 x
SAM
Redhook (9) 2.6 12.6 16.3
HOOK
Pete's Brewing (10) 0.3 5.5 7.9
WIKD
1.2 x 9.0 x 11.4 x
0.8 8.8 10.0
Culbro 1.9 x 12.1 x 15.4 x
CBO
Swisher International Group Inc. (11) 2.7 NA NA
SWR
Consolidated Cigar Holdings Inc. (12) 4.5 x 16.4 x 18.8 x
CIG
- ---------------------------------------
Notes: 1) Equity value defined as current price x shares outstanding
2) Aggregate Market Value is defined as Market Equity + Total Debt -
Cash and Equivalents.
3) Calendarized; Calculated using First Call estimates.
4) Calendarized; Calculated using latest Valueline estimates.
5) Sales, EBIT and EBITDA estimates from Barclays research report
dated October 8, 1996.
6) Sales, EBIT and earning estimates from UBS research report dated
August 16, 1996. D&A projected as constant from LTM.
7) Sales, and EBIT estimates from Oppenheimer research report dated
October 14, 1996. D&A projected as constant from LTM.
8) Sales, EBIT and EBITDA estimates from Alex, Brown research report
dated July 30, 1996.
9) Sales and EBIT estimates from Dean Witter research report dated
October 8, 1996. D&A projected as constant from LTM.
10) Sales and EBIT estimates from Dean Witter research report dated
October 2, 1996. D&A projected as constant from LTM.
11) Sales estimates from management.
12) Sales, EBIT and EBITDA estimates from Morgan Stanley research report
dated November 20, 1996.
13) Based on mean of internal management estimate range of $1.50-$1.60
EPS for 1997E.
-8-
<PAGE>
MAFCO CONSOLIDATED GROUP INC.
- --------------------------------------------------------------------------------
Analysis of Selected Minority Squeeze-Out Transactions
1987 to Present
<TABLE>
<CAPTION>
Year of Premium Offered Over Market
Date of Initial Initial Final Purchase ------------------------
Pub. Ownership Ownership Considera- Value Unaffected Day Prior
Anc. Acquiree/Acquiror(1) Acquiree's Industry Position(2) Position(2) tion(3) Offered Price To Pub. Anc.
- ------- -------------------- ------------------- ---------- ----------- -------- --------- ----------- -----------
($MM)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
01/13/97 Systemix Inc./ Biotechnology 73.20% 1991 $19.50 $75.80 29% 27%
Novartis AG (Pending)
10/18/95 Applied Immune Sciences/ Biotechnology 46.00 1974 11.75 84.40 47 68
Rhone-Poulenc Rorer*
05/19/95 Bic Corp./ Consumer and 77.00 1971 40.50 218.80 30 13
Bic SA** Stationary
products
03/07/95 Lin Broadcasting Corp./ Communication 52.00 1994 129.50 3,323.30 (7) (3)
AT&T Co.***
12/29/94 Fleet Mortgage Group Inc./ Mortgage Banking 81.00 1974 20.00 190.00 21 15
(Mortgage Assoc.)
Fleet Financial Group Inc.**
11/02/94 Pacific Telecom/Pacificorp Cellular Phone 86.60 N/A 30.00 159.00 21 24
Services
09/27/94 Ogden Projects Inc./Ogden Corp. Heavy Construction, 84.20 N/A 18.38 110.30 6 6
Waste Management
09/08/94 Contel Cellular Inc./ Cellular services, 90.00 1991 25.50 254.26 39 43
GTE Corp.** telecommunications
08/24/94 Castle & Cooke Inc./ Real estate development 83.00 N/A 15.75 81.50 52 35
Dole Foods
07/28/94 Chemical Waste Management/ Waste Management 78.60 1986 8.85 397.10 4 11
WMX Technologies**
</TABLE>
-9-
<PAGE>
MAFCO CONSOLIDATED GROUP INC.
- --------------------------------------------------------------------------------
Analysis of Selected Minority Squeeze-Out Transactions
1987 to Present
(continued)
<TABLE>
<CAPTION>
Year of Premium Offered Over Market
Date of Initial Initial Final Purchase ------------------------
Pub. Ownership Ownership Considera- Value Unaffected Day Prior
Anc. Acquiree/Acquiror(1) Acquiree's Industry Position(2) Position(2) tion(3) Offered Price To Pub. Anc.
- ------- -------------------- ------------------- --------- ------------ -------- --------- ---------- ----------
($MM)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
04/28/94 Enquirer/Star Group Inc./ Printing, Publishing, and 77.00% N/A $17.50 $636.00 2% 20%
MacFadden Holdings Inc. & Allied Industries
Boston Ventures L.P****
03/01/94 Foxmeyer Corp. Wholesale Drug Distributor 80.50 1993 14.75 82.44 (3) (6)
(Foxmeyer Health Corp.)/
National Intergroup Inc.
11/23/93 Southeastern Public Conglomerate-utilities, gas 71.00 1970 22.20 69.00 (5) 3
Service Co./Triarc Co. and insurance
(DWG)
10/13/93 Medical Marketing Group Marketing for 54.20 1993 27.25 157.63 (8) (18)
Inc./Medco Containment Pharmaceuticals
Services Inc.***(4)
02/22/93 United Investors Financial Services 83.00 1991 31.25 216.00 13 16
Management Company/
Torchmark Corp.***
08/17/92 PHLCorp Inc./ Motivation Service, 63.00 1987 25.78 140.00 28 12
Leucadia National Corp. Trading Stamps
03/02/92 Grace Energy Corp./ Divested Energy Company 83.40 1989 19.00 80.10 60 31
W.R. Grace & Co.**
02/24/92 Unocal Exploration Corp./ Oil and Gas 96.00 1985 11.68 116.78 18 21
Unocal Corp.**
</TABLE>
-10-
<PAGE>
MAFCO CONSOLIDATED GROUP INC.
- --------------------------------------------------------------------------------
Analysis of Selected Minority Squeeze-Out Transactions
1987 to Present
(continued)
<TABLE>
<CAPTION>
Year of Premium Offered Over Market
Date of Initial Initial Final Purchase --------------------------
Pub. Ownership Ownership Considera- Value Unaffected Day Prior
Anc. Acquiree/Acquiror(1) Acquiree's Industry Position(2) Position(2) tion(3) Offered Price To Pub. Anc.
- ------- -------------------- ------------------- --------- ------------ -------- --------- ---------- -----------
($MM)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
10/29/91 American Television & Communications 82.00% 1986 $82.50 $65.00 70% 61%
Communications Corp./
Time Warner Inc.**
09/16/91 Arkla Exploration Co./ Oil and Gas Extraction 82.00 N/A 15.43 92.60 30 22
Arkla Inc.**
05/01/91 United Artists Entertainment Media and Cable 57.20 N/A 17.70 1,190.79 41 31
Corp./Tele-Communications Inc.
02/08/91 Bond International Gold Inc./ Metal mining 75.00 N/A 5.59 131.80 43 67
LAC Minerals Ltd.
02/06/91 Hamilton Oil Corp./ Oil and Gas 50.10 1987 40.00 296.39 21 18
Broken Hill Proprietary Co.*** Exploration
01/03/91 Ocean Drilling & Exploration Oil and Gas 61.00 1954 19.12 389.50 9 12
Co./Murphy Oil Corp.** Exploration
09/11/90 Sizzler Restaurants Restaurants 66.00 N/A 13.50 100.00 (27) (19)
International Inc./
Collins Foods
07/31/90 Freeport-McMoran Oil & Gas Oil and Gas 81.50 N/A 11.00 252.70 49 37
Co./Freeport-McMoran Inc.** Exploration
07/19/90 Caesars New Jersey Inc./ Hotels, Rooming 86.60 1978 22.58 45.82 35 36
Caesars World Inc.** Houses, Camps & Other
</TABLE>
-11-
<PAGE>
MAFCO CONSOLIDATED GROUP INC.
- --------------------------------------------------------------------------------
Analysis of Selected Minority Squeeze-Out Transactions
1987 to Present
(continued)
<TABLE>
<CAPTION>
Year of Premium Offered Over Market
Date of Initial Initial Final Purchase --------------------------
Pub. Ownership Ownership Considera- Value Unaffected Day Prior
Anc. Acquiree/Acquiror(1) Acquiree's Industry Position(2) Position(2) tion(3) Offered Price To Pub. Anc.
- ------- -------------------- ------------------- --------- ------------ -------- --------- ---------- -----------
($MM)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
05/17/90 DST Systems Inc./ Proprietary Software 87.10% N/A $15.85 $39.00 54% 24%
Kansas City Southern Systems
Industries Inc.
05/09/90 American Capital Management Financial Services 82.60 N/A 11.50 50.70 28 31
& Research Inc./Travelers Inc.
(Primerica)
03/19/90 LPL Technologies Inc./ Fiber Optics and Cable 51.00 N/A 25.00 325.10 44 28
Cheshire Acquisition
Corp.****(5)
03/02/90 Triton Group Ltd./ Financial Buyer 51.60 1986 12.42 76.20 13 3
Intermark Inc.***
02/16/90 National Mine Service Co./ Mining Supplies and 51.20 1983 8.87 20.15 11 20
Anderson Group PLC Health and Safety Products
01/24/90 Copperweld Corp./ Primary Metal Industries 55.60 1975 17.00 78.16 34 47
Imetal S.A.
12/22/89 PCS Inc./ Health Plans Consulting 86.00 N/A 20.00 41.08 -- --
McKesson Corp.
10/19/89 Soo Line Corp./ Railroad Transportation 56.00 1984 21.50 82.30 24 22
Canadian Pacific Ltd.
07/37/89 Erbamont NV/ Pharmaceuticals 72.00 N/A 37.00 653.02 33 18
Montedison SPA
07/31/89 Himont/ Chemicals 81.00 N/A 49.00 688.20 32 15
Montedison SPA
</TABLE>
-12-
<PAGE>
MAFCO CONSOLIDATED GROUP INC.
- --------------------------------------------------------------------------------
Analysis of Selected Minority Squeeze-Out Transactions
1987 to Present
(continued)
<TABLE>
<CAPTION>
Year of Premium Offered Over Market
Date of Initial Initial Final Purchase --------------------------
Pub. Ownership Ownership Considera- Value Unaffected Day Prior
Anc. Acquiree/Acquiror(1) Acquiree's Industry Position(2) Position(2) tion(3) Offered Price To Pub. Anc.
- ------- -------------------- ------------------- --------- ----------- -------- --------- ---------- -----------
($MM)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
06/08/89 Fisher Scientific Group Inc./ Instrumentation Chemicals 81.00% N/A $22.25 $183.50 14% 15%
Henley Group Inc.**
05/24/89 Westmarc Communications Inc./ Tele-Communications 75.00 1984 32.25 209.63 55 19
Tele-Communications Inc.**
05/19/89 TGI Friday's Inc./ Restaurants 81.00 1988 14.87 53.53 14 12
Carlson Companies, Inc.
04/06/89 Ocean Drilling & Exploration Oil and Gas Exploration 61.00 N/A 19.12 372.13 -- 12
Co./Murphy Oil Corp.
12/14/88 Micro D, Inc./ Microcomputer Software 59.00 N/A 14.75 43.90 57 40
Ingram Industries Inc.
12/05/88 TJX Cox./ Retail 83.00 N/A 34.80 313.60 47 42
Zayre Corp.
08/15/88 Malrite Communications Television 75.00 N/A 11.12 329.00 28 39
Group Inc./Private Investors -
Malrite Communications
Group's Management****(6)
06/14/88 Arthur D. Little Inc./ Business Services 75.00 N/A 60.00 39.00 8 0
Memorial Drive Trust****(7)
06/10/88 Gruen Marketing Corp./ Watches 77.00 N/A 11.75 22.00 16 5
S.H. Holdings Inc.****(8)
</TABLE>
-13-
<PAGE>
MAFCO CONSOLIDATED GROUP INC.
- --------------------------------------------------------------------------------
Analysis of Selected Minority Squeeze-Out Transactions
1987 to Present
(continued)
<TABLE>
<CAPTION>
Year of Premium Offered Over Market
Date of Initial Initial Final Purchase --------------------------
Pub. Ownership Ownership Considera- Value Unaffected Day Prior
Anc. Acquiree/Acquiror(1) Acquiree's Industry Position(2) Position(2) tion(3) Offered Price To Pub. Anc.
- ------- -------------------- ------------------- ---------- ----------- -------- --------- ---------- -----------
($MM)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
03/10/88 Ideal School Supply Corp./ Education and Learning 55.30% 1987 $12.00 $22.20 7% 14%
ISSC Holdings Inc.**** Materials
03/01/88 Certainteed Corporation/ Stone, Clay, Glass and 57.10 N/A 47.50 387.00 85 3
Cie De Saint-Gobain SA Concrete
02/17/88 Genmar Industries Inc./ Recreational Powerboats 83.50 N/A 12.50 98.00 51 36
Minstar Inc.****(9)
06/22/87 Camco Inc./ Electrical & Electronic 65.00 N/A 29.00 80.00 19 20
Pearson PLC Machinery
03/26/87 Standard Oil Co./ Oil and Gas 55.00 N/A 73.50 7,900.00 33 13
British Petroleum Co. PLC
</TABLE>
Total Mean: 27% 21%
Median: 28 20
1994-present Mean: 19 21
Median: 21 18
1992-93 Mean: 18 11
Median: 16 14
1990-91 Mean: 30 28
Median: 34 28
1987-89 Mean: 33 19
Median: 30 15
-14-
<PAGE>
MAFCO CONSOLIDATED GROUP INC.
- --------------------------------------------------------------------------------
Analysis of Selected Minority Squeeze-Out Transactions
1987 to Present
(continued)
Description of transaction provided, when available, and when acquisition of
50%+ majority was not conducted through public market acquisition or acquired
via another company.
* Original ownership stake does not exceed 50%
** Public Spin-Off of Sub. Buy Back of publicly held shares
*** Stake acquired through acquisition of another company by parent
**** LBO/MBO Acquisition
Transactions included have the following characteristics: (1) significant period
(more than 1 year) between purchase of majority interest and purchase of
remaining outstanding shares, (2) majority interest position exceeds 50% of the
total number of outstanding shares, (3) purchase of back-end occurs after 1986,
(4) transaction is completed. Data based on information provided in publicly
filed documents, Securities Data Corp., Moody's and Morgan Stanley databases.
Notes: (1) Names listed in parentheses ( ) reflect previous name of
company.
(2) Based on level of ownership prior back-end acquisition.
For spin-off and buy back transactions, year of IPO
provided.
(3) Based on final offer price per share.
(4) In connection with Merck/Medco Merger Agreement, Merck and
Old Medco decided Medco after the merger would acquire the
remaining equity interest in MMG.
(5) Acquiring group consisted of LPL Technologies Chairman and
CEO, Lawrence J. DeGeorge and his son, Lawrence F.
DeGeorge, president.
(6) Acquirors comprised of Malrite Chairman and CEO, Milton
Maltz and management group.
(7) Company ESOP.
(8) S.H. Holdings controlled by Seymour Holtzman, Chairman and
CEO of Gruen Marketing.
(9) Minstar controlled by Irwin Jacobs.
-15-
<PAGE>
PRELIMINARY COPIES
MAFCO CONSOLIDATED GROUP INC.
35 EAST 62ND STREET
NEW YORK, NEW YORK 10021
(212) 572-8600
April , 1997
The attached Information Statement, Notice of Action Taken Without a
Meeting and Notice of Appraisal Rights (collectively, the 'Information
Statement') is being furnished to holders of common stock of Mafco Consolidated
Group Inc. (the 'Company') in connection with the proposed merger (the 'Merger')
of MCG Acquisition Inc. (the 'Purchaser') with and into the Company pursuant to
an Agreement and Plan of Merger, dated as of February 20, 1997, by and among the
Company, Mafco Consolidated Holdings Inc. ('Parent') and the Purchaser, a copy
of which is attached as Annex A to the Information Statement (the 'Merger
Agreement'). The Purchaser is a wholly owned subsidiary of Parent, which owns
approximately 85.0% of the outstanding shares of common stock of the Company. As
a result of the Merger, the Company will become a wholly owned subsidiary of
Parent.
Pursuant to the Merger Agreement, each outstanding share of common stock,
other than shares of common stock as to which dissenters' rights of appraisal
have been duly asserted and perfected under Delaware law and other than shares
of common stock held by the Company, Parent, the Purchaser or any other
subsidiary of Parent (which will be cancelled), will be converted into the right
to receive $33.50 in cash, subject to upward adjustment (the 'Merger
Consideration'), as set forth in the Merger Agreement and more fully described
in the Information Statement. In addition, on February 20, 1997, in connection
with entering into the Merger Agreement, the board of directors of the Company
(the "Board") declared, and on March 14, 1997 the Company paid,
a $10.00 special cash dividend to holders of record of common stock as of the
close of business on March 10, 1997.
The Board, based upon the unanimous recommendation of a special committee
(the 'Special Committee') of independent directors of the Board, has unanimously
determined that the Merger Agreement and the Merger are fair to stockholders of
the Company (other than Parent and its affiliates). In arriving at its
recommendation, the Special Committee considered a number of factors described
in the Information Statement, including, among other things, the opinion of
Morgan Stanley & Co. Incorporated, financial advisor to the Special Committee,
that the consideration to be received by the holders of shares of common stock
(other than Parent and its affiliates) was fair to such holders from a financial
point of view. The full text of such opinion, which sets forth, among other
things, the opinion expressed, procedures followed, matters considered and
limitations on review undertaken in connection with such opinion, is attached as
Annex B to the Information Statement. Stockholders are urged to read the opinion
in its entirety.
The Company is not seeking the consent, authorization or proxy of its
stockholders to approve the Merger because the Merger has been approved by
Parent acting as a stockholder by written consent without a meeting in
accordance with the provisions of Section 228 of the Delaware General
Corporation Law (the 'DGCL'). The Information Statement also constitutes the
notice of action taken without a meeting required by Section 228(d) of the DGCL
and notice of appraisal rights required by Section 262(d) of the DGCL. A
Certificate of Merger, giving effect to the Merger, will not be filed with the
Secretary of State of the State of Delaware for at least 20 business days after
the date the Information Statement is mailed to stockholders. The Company and
Parent currently anticipate that the effective time (the 'Effective Time') for
the Merger will occur on or about , 1997. No further notice of
the occurrence of the Effective Time will be given to stockholders before the
Effective Time.
PLEASE DO NOT SEND US YOUR STOCK CERTIFICATES AT THIS TIME. ONCE THE MERGER
BECOMES EFFECTIVE, YOU WILL BE ADVISED OF THE PROCEDURE FOR SURRENDERING YOUR
CERTIFICATES FOR THE MERGER CONSIDERATION.
------------------------
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR
MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE
INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO
THE CONTRARY IS UNLAWFUL.
<PAGE>
PRELIMINARY COPIES
MAFCO CONSOLIDATED GROUP INC.
35 EAST 62ND STREET
NEW YORK, NEW YORK 10021
(212) 572-8600
------------------------
INFORMATION STATEMENT,
NOTICE OF ACTION TAKEN WITHOUT A MEETING
AND
NOTICE OF APPRAISAL RIGHTS
------------------------
INTRODUCTION
This Information Statement, Notice of Action Taken Without a Meeting and
Notice of Appraisal Rights (collectively, this 'Information Statement') is being
furnished to holders of record of the common stock, par value $.01 per share
('Common Stock'), of Mafco Consolidated Group Inc., a Delaware corporation (the
'Company'), as of the close of business on April , 1997 (the 'Record Date') in
connection with the proposed merger (the 'Merger') of MCG Acquisition Inc., a
Delaware corporation (the 'Purchaser'), with and into the Company pursuant to
the Agreement and Plan of Merger, dated as of February 20, 1997, by and among
the Company, Mafco Consolidated Holdings Inc., a Delaware corporation
('Parent'), and the Purchaser, a copy of which is attached hereto as Annex A
(the 'Merger Agreement'). The Purchaser is a wholly owned subsidiary of Parent,
which owns approximately 85.0% of the outstanding shares of Common Stock. As a
result of the Merger, the Company will become a wholly owned subsidiary of
Parent. This Information Statement is first being mailed to stockholders on or
about April , 1997.
Pursuant to the Merger Agreement, each outstanding share of Common Stock,
other than shares of Common Stock as to which dissenters' rights of appraisal
have been duly asserted and perfected under Delaware law and other than shares
of Common Stock held by the Company, Parent, the Purchaser or any other
subsidiary of Parent (which will be cancelled), will be converted into the right
to receive the Merger Consideration, as described below. In addition, on
February 20, 1997, in connection with entering into the Merger Agreement, the
board of directors of the Company (the "Board") declared, and on March
14, 1997 the Company paid, a $10.00 special cash dividend (the 'Special
Dividend') to holders of record of Common Stock as of the close of business on
March 10, 1997.
The 'Merger Consideration' shall be equal to the sum of (x) $33.50 plus (y)
an amount, if any (the 'Additional Amount'), equal to the Excess (as defined
below) multiplied by 79.7%. The Additional Amount shall be payable only if the
average of the per share closing prices (the 'Average') of the common stock, par
value $.01 per share ('Cigar Common Stock'), of Consolidated Cigar Holdings
Inc., a subsidiary of the Company ('Cigar Holdings'), on the New York Stock
Exchange (the 'NYSE') for the ten trading days ending two trading days prior to
the effectiveness of the Merger, exceeds $33.00 (the amount by which the Average
exceeds $33.00, the 'Excess'). Stockholders will be entitled to receive the
Merger Consideration in cash, without interest, upon surrender of the
certificate formerly representing shares of Common Stock. See 'THE MERGER
AGREEMENT--Procedure for Payment.'
------------------------
WE ARE NOT ASKING YOU FOR A PROXY, AND YOU
ARE REQUESTED NOT TO SEND US A PROXY.
------------------------
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR
MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE
INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO
THE CONTRARY IS UNLAWFUL.
The date of this Information Statement is April , 1997.
<PAGE>
The Board, based upon the unanimous recommendation of a special committee
(the 'Special Committee') of independent directors of the Board, has unanimously
determined that the Merger Agreement and the Merger are fair to stockholders of
the Company (other than Parent and its affiliates). In arriving at its
recommendation, the Special Committee considered a number of factors described
in this Information Statement, including, among other things, the opinion of
Morgan Stanley & Co. Incorporated ('Morgan Stanley') financial advisor to the
Special Committee, that the consideration to be received by the holders of
shares of Common Stock (other than shares held by Parent and its affiliates) was
fair to such holders from a financial point of view. The full text of such
opinion, which sets forth, among other things, the opinion expressed, procedures
followed, matters considered and limitations on review undertaken in connection
with such opinion, is attached hereto as Annex B. Stockholders are urged to read
the opinion in its entirety.
The Company is not seeking the consent, authorization or proxy of its
stockholders to approve the Merger because the Merger has been approved by
Parent acting as a stockholder by written consent without a meeting in
accordance with the provisions of Section 228 of the Delaware General
Corporation Law (the 'DGCL'). See 'The Merger Agreement--Certain Other
Covenants--Action by Written Consent; Information Statement.' This Information
Statement also constitutes the notice of action taken without a meeting required
by Section 228(d) of the DGCL and notice of appraisal rights required by Section
262(d) of the DGCL. A Certificate of Merger, giving effect to the Merger, will
not be filed with the Secretary of State of the State of Delaware for at least
20 business days after the date of this Information Statement is mailed to
stockholders. The Company and Parent currently anticipate that the effective
time (the 'Effective Time') for the Merger will occur on or about
, 1997. No further notice of the occurrence of the Effective Time
will be given to stockholders before the Effective Time.
As of April , 1997, the date of the written consent and the Record Date
for determining stockholders entitled to receive this Information Statement,
there were 23,237,340 shares of Common Stock outstanding, including 19,777,752
shares owned by Parent, and approximately 4,310 stockholders of record. Each
share of Common Stock entitles the holder thereof to one vote.
PLEASE DO NOT SEND US YOUR STOCK CERTIFICATES AT THIS TIME. ONCE THE MERGER
BECOMES EFFECTIVE, YOU WILL BE ADVISED OF THE PROCEDURE FOR SURRENDERING YOUR
CERTIFICATES FOR THE MERGER CONSIDERATION.
2
<PAGE>
AVAILABLE INFORMATION
The Company, Parent and the Purchaser have filed a Rule 13e-3 Transaction
Statement on Schedule 13e-3 (the 'Schedule 13E-3') with the Securities and
Exchange Commission (the 'Commission' or the 'SEC') with respect to the
transactions described in this Information Statement. As permitted by the rules
and regulations of the Commission, this Information Statement omits certain
exhibits contained in the Schedule 13E-3. The Company is subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the 'Exchange Act'), and in accordance therewith files reports, proxy
statements and other information with the Commission. The Schedule 13E-3 and the
exhibits thereto, as well as such reports, proxy statements, and other
information, can be inspected and copied at the public reference facilities of
the Commission at its principal office at Judiciary Plaza, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549, and at its regional offices at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661, and 7 World Trade Center, 13th Floor, New York, New York 10048.
Any interested party may obtain copies of such material at prescribed rates from
the Public Reference Section of the Commission at its principal office at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. The
Commission also maintains a web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the SEC at http://www.sec.gov. In addition, the Common Stock
is listed and traded on the NYSE. Reports, proxy statements and other
information can also be inspected and copied at the New York Stock Exchange,
Inc., 20 Broad Street, New York, New York 10005.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS INFORMATION STATEMENT INCORPORATES BY REFERENCE THE COMPANY'S ANNUAL
REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996 (THE 'COMPANY 10-K'),
WHICH WAS PREVIOUSLY FILED WITH THE COMMISSION. THE COMPANY 10-K IS NOT
PRESENTED HEREIN OR DELIVERED HEREWITH, BUT IT IS AVAILABLE (WITHOUT EXHIBITS,
UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED HEREIN BY REFERENCE) TO ANY
PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS INFORMATION STATEMENT IS
DELIVERED, WITHOUT CHARGE ON WRITTEN REQUEST DIRECTED TO MAFCO CONSOLIDATED
GROUP INC., 35 EAST 62ND STREET, NEW YORK, NEW YORK, 10021, OR BY CALLING (212)
572-8600. COPIES OF THE COMPANY 10-K SO REQUESTED WILL BE SENT BY FIRST CLASS
MAIL, POSTAGE PAID.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Information Statement and prior
to the date of the Effective Time shall be deemed to be incorporated by
reference in this Information Statement and to be a part hereof from the
respective dates of filing of such documents. Any statement contained herein or
in a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Information
Statement to the extent that a statement contained in any subsequently filed
document that also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Information Statement.
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED, OR INCORPORATED BY REFERENCE, IN
THIS INFORMATION STATEMENT, AND IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR ANY OTHER PERSON. ALL INFORMATION CONTAINED IN THIS INFORMATION STATEMENT
RELATING TO THE COMPANY HAS BEEN SUPPLIED BY THE COMPANY, AND ALL INFORMATION
CONTAINED IN THIS INFORMATION STATEMENT RELATING TO PARENT, THE PURCHASER AND
THEIR AFFILIATES HAS BEEN SUPPLIED BY PARENT.
3
<PAGE>
TABLE OF CONTENTS
Page
----
INTRODUCTION................................... 1
AVAILABLE INFORMATION.......................... 3
INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE.................................... 3
SUMMARY........................................ 5
SPECIAL FACTORS................................ 10
Background of the Merger..................... 10
Determinations of the Special Committee and
the Board; Fairness of the
Merger.................................... 14
Financial Advisor; Fairness Opinion.......... 15
Position of Parent and the Purchaser......... 19
Purpose and Structure of the Merger.......... 19
Certain Effects of the Merger................ 20
Plans for the Company After the
Merger.................................... 21
Interests of Certain Persons in the
Merger.................................... 21
Accounting Treatment of the Merger........... 22
Certain Federal Income Tax Consequences to
Stockholders.............................. 22
Litigation................................... 22
SOURCE AND AMOUNT OF FUNDS..................... 22
STOCKHOLDERS' RIGHTS OF APPRAISAL.............. 23
THE MERGER AGREEMENT........................... 25
Effective Time............................... 25
Merger Consideration; Conversion of Shares... 25
Procedure for Payment........................ 26
Dissenter's Rights........................... 26
Payments under Stock Options................. 26
Page
----
Certain Representations and Warranties....... 27
Conduct of Business Pending the
Closing................................... 27
Certain Other Covenants...................... 27
Conditions to Consummation of the Merger..... 28
Termination.................................. 28
Miscellaneous................................ 29
REGULATORY MATTERS............................. 29
CERTAIN INFORMATION CONCERNING THE COMPANY..... 30
The Company.................................. 30
Directors and Executive Officers............. 31
CERTAIN INFORMATION CONCERNING PARENT AND THE
PURCHASER.................................... 32
Parent and the Purchaser..................... 32
Directors and Executive Officers............. 33
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS................................. 33
Relationship with Mafco Holdings............. 33
Promissory Note.............................. 34
Option Grant................................. 34
Registration Rights Agreement................ 34
FEES AND EXPENSES.............................. 34
MARKET PRICES AND DIVIDENDS.................... 35
Market Prices................................ 35
Dividends.................................... 35
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT............................... 36
ANNEXES
Annex A--Agreement and Plan of Merger
Annex B--Opinion of Morgan Stanley & Co.,
Incorporated.
Annex C--Section 262 of the DGCL
4
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in
this Information Statement and is presented herein solely to furnish limited
introductory information regarding the proposed Merger (as defined herein) and
the parties thereto. This Summary is not intended to be complete and is
qualified in its entirety by the more detailed information contained, or
incorporated by reference, in this Information Statement and the Annexes hereto,
to which reference is made for a complete statement of the matters discussed
below. Stockholders are urged to read this Information Statement, including the
Annexes hereto, and the documents incorporated herein by reference, in their
entirety and to consider them carefully. Unless otherwise defined herein,
capitalized terms used in this summary have the respective meanings ascribed to
them elsewhere in this Information Statement.
THE COMPANY
Mafco Consolidated Group Inc., a Delaware corporation (the 'Company'), is a
holding company with no business operations of its own. The Company's only
material assets are (i) its ownership of 63.9% of the outstanding shares of
common stock, par value $.01 per share ('Cigar Common Stock'), of Consolidated
Cigar Holdings Inc. ('Cigar Holdings') (representing approximately 94.7% of the
combined voting power of Cigar Holdings), which owns 100% of the outstanding
shares of capital stock of Consolidated Cigar Corporation ('Consolidated
Cigar'), (ii) its ownership of 100% of the outstanding shares of convertible
preferred stock of Power Control Technologies Inc. ('PCT') and approximately 29%
of the outstanding shares of common stock of PCT (together, representing
beneficial ownership of approximately 36% of the outstanding shares of common
stock of PCT), (iii) approximately $413.9 million in cash and marketable
securities at December 31, 1996 (or approximately $239.9 million as of such
date, adjusted to give effect to the Special Dividend (as defined below in
'--The Merger') and the proceeds from the underwritten secondary offering by the
Company of 5,000,000 shares of Cigar Common Stock), (iv) a non-interest bearing,
unsecured, subordinated promissory note of Cigar Holdings in the original
principal amount of $70.0 million and (v) a pension plan asset with a book value
of approximately $62.7 million at December 31, 1996. In addition, the Company
has certain assets and certain contingent and other liabilities, as more fully
discussed in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996 (the 'Company 10-K'). See 'AVAILABLE INFORMATION' and
'INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.' Through Cigar Holdings and
Consolidated Cigar, the Company manufactures and distributes cigars and pipe
tobacco products. See 'CERTAIN INFORMATION CONCERNING THE COMPANY.'
PARENT AND THE PURCHASER
Mafco Consolidated Holdings Inc., a Delaware corporation ('Parent'), is a
holding company with no business operations of its own. Parent's only material
asset is its ownership of approximately 85.0% of the outstanding shares of
common stock, par value $.01 per share ('Common Stock'), of the Company. MCG
Acquisition Inc., a Delaware corporation and a wholly owned subsidiary of Parent
(the 'Purchaser'), was recently incorporated and organized for the purpose of
acquiring all the Common Stock pursuant to the merger (the 'Merger') of the
Purchaser with and into the Company. The Purchaser has conducted no business to
date except in conjunction with the transactions contemplated by the Agreement
and Plan of Merger, dated as of February 20, 1997, by and among the Company,
Parent and the Purchaser (the 'Merger Agreement'). See 'CERTAIN INFORMATION
CONCERNING PARENT AND THE PURCHASER.'
THE MERGER
General. Pursuant to the Merger Agreement, the Purchaser will merge with
and into the Company and the separate corporate existence of the Purchaser will
cease. The Company, as the surviving corporation (the 'Surviving Corporation')
in the Merger, will be a wholly owned subsidiary of Parent. See 'SPECIAL
FACTORS--Certain Effects of the Merger.'
As a result of the Merger, each outstanding share of Common Stock, other
than shares of Common Stock as to which dissenters' rights have been duly
asserted and perfected under the DGCL and other than shares held by the Company,
Parent, the Purchaser or any other subsidiary of Parent) (which will be
cancelled), will be converted into the right to receive the Merger
Consideration, as described below. In addition, on March 14, 1997,
5
<PAGE>
the Company paid a $10.00 special cash dividend (the 'Special Dividend') to
holders of record of Common Stock as of the close of business on March 10, 1997.
The 'Merger Consideration' shall be equal to the sum of (x) $33.50 plus (y)
an amount, if any (the 'Additional Amount'), equal to the Excess (as defined
below) multiplied by 79.7%. The Additional Amount shall be payable only if the
average of the per share closing prices (the 'Average') of Cigar Common Stock on
the New York Stock Exchange (the 'NYSE') for the ten trading days ending two
trading days prior to the effectiveness of the Merger, exceeds $33.00 (the
amount by which the Average exceeds $33.00, the 'Excess'). Stockholders will be
entitled to receive the Merger Consideration in cash, without interest, upon
surrender of the certificate formerly representing shares of Common Stock. See
'THE MERGER AGREEMENT--Procedure for Payment.'
Effective Time. The Merger will become effective when a certificate of
merger is filed with the Secretary of State of the State of Delaware or such
later time as is agreed to by the parties and specified in such certificate (the
'Effective Time'). It is currently anticipated that such filing will be made as
promptly as practicable following the closing date under the Merger Agreement,
which will take place only after the satisfaction or waiver of all of the
conditions set forth in the Merger Agreement. Accordingly, there can be no
assurance as to when and if the Merger will be consummated. The Company and
Parent currently anticipate that the Effective Time will occur on or about
, 1997. No further notice of the occurrence of the Effective Time
will be given to stockholders before the Effective Time. See 'THE MERGER
AGREEMENT--Effective Time' and '--Conditions to Consummation of the Merger.'
Conditions to Consummation of the Merger. The obligations of the Company,
Parent and the Purchaser to consummate the Merger are subject to a number of
conditions. See 'THE MERGER AGREEMENT-- Conditions to Consummation of the
Merger.'
Background of the Merger. For a description of the events leading to
approval of the Merger Agreement by the Board of Directors (the 'Board') of the
Company, see 'SPECIAL FACTORS--Background of the Merger.'
Determinations of the Special Committee and the Board; Fairness of the
Merger. At its meeting held on February 20, 1997, the Board, based upon the
unanimous recommendation of a special committee of independent directors of the
Board (the 'Special Committee'), unanimously determined that the Merger
Agreement and the Merger are fair to stockholders of the Company (other than
Parent and its affiliates). For a discussion of the factors that the Special
Committee and the Board considered in arriving at their determinations, see
'SPECIAL FACTORS--Determinations of the Special Committee and the Board;
Fairness of the Merger.'
Financial Advisor; Fairness Opinion. The Special Committee engaged Morgan
Stanley & Co. Incorporated ('Morgan Stanley') to act as its financial advisor to
assist in its review of Parent's proposal. At the February 20, 1997 meeting of
the Special Committee at which the Merger Agreement was approved by the Special
Committee, Morgan Stanley delivered its oral opinion (which it subsequently
confirmed in writing) to the effect that the consideration to be received by the
holders of shares of Common Stock (other than Parent and its affiliates) was
fair to such holders from a financial point of view. The full text of the
opinion of Morgan Stanley, which sets forth the assumptions made, matters
considered and limits on review undertaken, is attached hereto as Annex B and is
incorporated herein by reference. STOCKHOLDERS ARE URGED TO READ THE OPINION OF
MORGAN STANLEY CAREFULLY IN ITS ENTIRETY. For a discussion of the factors that
Morgan Stanley considered in reaching its opinion, see 'SPECIAL
FACTORS--Financial Advisor; Fairness Opinion.'
Position of Parent and the Purchaser. Parent and the Purchaser had no
involvement in the Special Committee's evaluation of the fairness of the Merger
Consideration to stockholders of the Company (other than Parent and its
affiliates), and neither has undertaken any formal evaluation of its own as to
the fairness of the Merger Consideration. Although four directors or officers of
Parent and its affiliates serve as directors of the Company, none served on the
Special Committee. Parent and the Purchaser, however, have considered the
factors set forth under 'SPECIAL FACTORS--Determinations of the Special
Committee and the Board; Fairness of the Merger,' and based on such factors,
Parent and the Purchaser have each determined that the Merger Consideration is
fair to and in the best interests of holders of Common Stock (other than Parent
and its affiliates).
6
<PAGE>
For a discussion of Parent and the Purchaser's position regarding the Merger,
see 'SPECIAL FACTORS-- Position of Parent and the Purchaser.'
Purpose and Structure of the Merger. Parent and the Purchaser entered into
the Merger Agreement in order to acquire beneficial ownership of the entire
equity interest in the Company because they believe that, due to the Company's
complex corporate structure, the historic trading prices of a share of Common
Stock on the NYSE, prior to Parent's proposal, did not adequately reflect the
net asset value of the Company's assets or its future prospects. Accordingly,
the acquisition of the shares of Common Stock from holders of such shares has
been structured as a cash merger in order to transfer ownership of the remaining
equity interest in the Company to Parent in one transaction, and, at the same
time, provide cash (including the Special Dividend) to the holders of such
shares in an amount representing a premium to historic trading prices. See
'SPECIAL FACTORS-- Purpose and Structure of the Merger.'
Plans for the Company After the Merger. It is expected that, following the
Merger, the business and operations of the Company will be continued by the
Surviving Corporation substantially as they have been and are currently being
conducted. After the Merger, the Company will become a wholly owned subsidiary
of Parent and the public will no longer own a minority equity interest in the
Company. Accordingly, Parent will be able to direct and control the policies of
the Company and its subsidiaries, including with respect to any extraordinary
corporate transaction such as a merger, reorganization or liquidation involving
the Company or any of its subsidiaries, a sale or transfer of a material amount
of assets of the Company or any of its subsidiaries, a change in the
capitalization or other changes in the Company's corporate structure or business
or the composition of the Company's Board or management, without taking into
account the current public minority equity interest. Any such extraordinary
transaction may occur with affiliates of the Company, Parent or the Purchaser.
For a more detailed discussion of the plans for the Company following the
Merger, see 'SPECIAL FACTORS--Plans for the Company After the Merger.'
Interests of Certain Persons in the Merger. Certain members of the
Company's management and the Board may be deemed to have certain interests in
the Merger that are in addition to their interests as stockholders of the
Company generally. In particular, (i) a majority of the directors of the Company
are employees and/or directors of Parent and various of its affiliates and (ii)
pursuant to the Merger Agreement, the Company has agreed to take all actions
necessary to provide that each outstanding option to purchase Common Stock
('Stock Option') held by directors and officers of the Company becomes fully
vested and exercisable prior to the Effective Time, to cancel such Stock Option
and to make certain cash payments to the holders of such Stock Option in
consideration for such cancellation. For a discussion of these and other
interests of certain persons in the Merger not shared pro rata by all
stockholders of the Company, see 'THE MERGER AGREEMENT--Payments Under Stock
Options' and 'SPECIAL FACTORS--Interests of Certain Persons in the Merger.' The
Special Committee and the Board were aware of these interests and considered
them, among other matters, in approving the Merger Agreement. See 'SPECIAL
FACTORS--Determinations of the Special Committee and the Board; Fairness of the
Merger.'
Federal Income Tax Consequences. The receipt of cash by a stockholder
pursuant to the Merger or pursuant to the exercise of stockholders' rights of
appraisal will be a taxable event to such stockholder for federal income tax
purposes and may also be a taxable event under applicable local, state and
foreign tax laws. For a more complete description of certain federal income tax
consequences of the Merger, see 'SPECIAL FACTORS-- Certain Federal Income Tax
Consequences to Stockholders.'
SOURCE AND AMOUNT OF FUNDS
The total amount of funds required to consummate the transactions
contemplated by the Merger Agreement and to pay related fees and expenses is
estimated to be approximately $389 million. The total amount of funds will be
paid from the Surviving Corporation's available cash and marketable securities.
See 'SOURCE AND AMOUNT OF FUNDS.'
7
<PAGE>
STOCKHOLDERS' RIGHTS OF APPRAISAL
The DGCL provides that, as a result of the Merger, any stockholders who
shall have perfected appraisal rights will be entitled to receive, in lieu of
the Merger Consideration, payment in cash of the 'fair value' of their shares of
Common Stock as determined pursuant to the procedures set forth in Section 262
of the DGCL. For a summary of the procedures applicable to the perfection of
appraisal rights, see 'STOCKHOLDERS' RIGHTS OF APPRAISAL' and Annex C hereto.
Because of the complexity of the procedures for exercising these rights,
stockholders who consider exercising such rights should seek the advice of
counsel. Stockholders electing to exercise their appraisal rights must comply
with Section 262 of the DGCL. Failure to take any step in connection with the
exercise of appraisal rights may result in the termination or waiver of such
rights. See 'STOCKHOLDERS' RIGHTS OF APPRAISAL.'
MARKET PRICES AND DIVIDENDS
The principal market on which the Common Stock is traded is the NYSE under
the ticker symbol 'MFO.' On April , 1997, the last trading day before the
printing of this Information Statement, the high and low sales prices of the
Common Stock were and , respectively. On January 20, 1997, the last
trading day before the public announcement of Parents' proposal to the Company,
the high and low sales prices of the Common Stock were 27 1/8 and 27,
respectively. For information relating to market prices of and dividends on the
Common Stock during the current year and the past two years, see 'MARKET PRICES
AND DIVIDENDS.' STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR
THE COMMON STOCK.
8
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
Prior to the merger (the 'C&F Merger') on June 15, 1995, of C&F Merger Inc.
('C&F'), a wholly-owned subsidiary of Mafco Holdings Inc. ('Mafco Holdings'),
with and into Abex Inc.('Abex'), Mafco Holdings contributed all of the
outstanding capital stock of Flavors Holdings Inc. ('Flavors Holdings') and
Cigar Holdings, the immediate parent companies of Mafco Worldwide Corporation
('Mafco Worldwide') and Consolidated Cigar, respectively, to C&F. C&F and Abex
merged, with Abex as the surviving corporation and renamed Mafco Consolidated
Group Inc. As a result of the C&F Merger and the purchase on July 17, 1995, by
the Company of shares of Common Stock from Libra Invest & Trade Ltd., the
Company owned directly or indirectly 100% of Mafco Worldwide and Consolidated
Cigar, all of the outstanding shares of preferred stock of PCT and a common
equity interest in PCT. See 'CERTAIN INFORMATION CONCERNING THE COMPANY.' In
accordance with generally accepted accounting principles, the C&F Merger was
accounted for as a purchase of certain assets and the assumption of certain
liabilities of Abex, with C&F treated as the acquiror for accounting purposes.
On August 21, 1996, Cigar Holdings completed an initial public offering, in
which it issued and sold 6,075,000 shares of Cigar Common Stock, thereby
reducing the Company's ownership in Cigar Holdings to approximately 80.2%.
On November 25, 1996, the Company completed the sale (the 'Flavors
Disposition') of all of the outstanding shares of Flavors Holdings common stock
and 23,156,502 Value Support Rights to a subsidiary of PCT. See 'CERTAIN
INFORMATION CONCERNING THE COMPANY.'
On March 3, 1993, Mafco Holdings completed the acquisition of Consolidated
Cigar. Therefore, the historical financial data for the periods preceding March
3, 1993, are not comparable to the financial data for the periods after March 3,
1993, due to the acquisition of Consolidated Cigar.
The following table sets forth selected consolidated financial data of the
Company and its subsidiaries for each of the five fiscal years ended December
31, 1992 through 1996. The year-end data have been derived from, should be read
in conjunction with, and are qualified in their entirety by, the audited
consolidated financial statements of the Company, including the notes thereto,
which are included in the Company 10-K. See 'AVAILABLE INFORMATION' and
'INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.'
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1992(1) 1993(1)(2) 1994 1995(3) 1996
------- ---------- ------ ------- ------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................................... $ 100.1 $202.6 $226.9 $ 261.1 $310.7
Income from continuing operations........................... 8.2 10.0 16.3 23.1 243.6(4)
Net Income.................................................. 8.2 10.0 13.7 24.4 258.6(4)
Income from continuing operations per share................. 0.41 0.50 0.82 1.06 10.48
Net income per share........................................ 0.03 0.50 0.69 1.12 11.13
OTHER DATA:
Book Value per share........................................ (3.42) (1.28) (0.55) 4.76 15.51
Ratio of earnings to fixed charges(5)....................... 1.7x 1.5x 1.8x 2.1x 13.8x
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1992 1993 1994 1995 1996
------- ---------- ------ ------- ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets................................................ $ 82.6 $293.6 $282.9 $ 560.6 $769.5
Long-term debt (including current portion and short-term
borrowings)............................................... 134.2 276.4 250.2 229.6 97.5
Total stockholders' equity (deficit)........................ (67.6) (25.4) (10.8) 103.7 360.5(4)
</TABLE>
- ------------------
(1) Reflects the results of Flavors Holdings or its predecessor prior to March
3, 1993.
(2) Reflects the combined results of Flavors Holdings and Cigar Holdings since
March 3, 1993 (the first date that Flavors Holdings and Cigar Holdings were
under common control of Mafco Holdings).
(3) Reflects the assets and liabilities of Abex acquired in a merger from June
15, 1995.
(4) Reflects the gains in 1996 on the initial public offering of Cigar Holdings
of $127.8 and the Flavors Disposition of $151.7.
(5) Ratio of earnings to fixed charges is expressed as the ratio of earnings
from continuing operations before income taxes, plus fixed charges to fixed
charges. Fixed charges consist principally of interest on debt,
amortization of deferred charges and interest component of rental expense.
9
<PAGE>
SPECIAL FACTORS
THE DISCUSSION IN THIS INFORMATION STATEMENT OF THE MERGER AND THE
DESCRIPTION OF THE PRINCIPAL TERMS THEREOF ARE SUBJECT TO AND QUALIFIED IN THEIR
ENTIRETY BY REFERENCE TO THE MERGER AGREEMENT, A COPY OF WHICH IS ATTACHED AS
ANNEX A TO THIS INFORMATION STATEMENT AND WHICH IS INCORPORATED HEREIN BY
REFERENCE. STOCKHOLDERS ARE URGED TO READ THE MERGER AGREEMENT IN ITS ENTIRETY
AND TO CONSIDER IT CAREFULLY.
BACKGROUND OF THE MERGER
The Company is a holding company with no operating assets of its own. Its
principal assets are its substantial equity interests in two public companies,
Cigar Holdings and Power Control Technologies Inc. ('PCT'). Cigar Holdings, in
turn, is the holding company for Consolidated Cigar Corporation ('Consolidated
Cigar') and has no operating assets of its own. PCT, through an indirect wholly
owned subsidiary, now operates the licorice and flavorings business formerly
operated by a subsidiary of the Company. This multi-tiered corporate structure
has made it difficult for the public equity market to evaluate the Company's
assets and future prospects. In Parent's view, this has contributed to the
historical trading prices of a share of Common Stock being substantially below
the Company's net asset value per share. Moreover, since the Company was
acquired by Mafco Holdings Inc. ('Mafco Holdings') in June 1995, it has
continuously, but unsuccessfully, sought acquisition candidates in order to
maximize stockholder value. As a result, the Company has not been able to
effectively utilize its
substantial amount of working capital. Parent and the Purchaser believe that
this has also depressed the historical trading prices of a share of Common Stock
on the NYSE.
On January 21, 1997, Parent delivered to the Company a proposal to acquire
all publicly held shares of Common Stock at a price of $38.50 per share, such
price to be adjusted, up or down, to the extent that the proceeds per share in
the underwritten secondary offering by the Company of 5,000,000 shares of Cigar
Common Stock (the 'Cigar Secondary Offering') were greater or less than $24.50,
the closing price per share of Cigar Common Stock on the NYSE on January 20,
1997. Also on January 21, the Company announced its intention to offer
approximately 4 million shares of Cigar Common Stock in the Cigar Secondary
Offering and to make an underwritten offering of $150 million principal amount
of notes exchangeable for other shares of Cigar Common Stock held by the
Company.
In light of the overlapping equity ownership between Parent and the
Company, Parent suggested that the Company form a special committee of
independent directors to consider its proposal. At a meeting held on January 21,
1997, the Board formed a special committee (the 'Special Committee') comprised
of independent directors (i.e., not employees of the Company, Parent, the
Purchaser or their respective affiliates) to consider the proposal. The Special
Committee was comprised of Philip E. Beekman, Jewel S. Lafontant--Mankarious and
Drew Lewis, with Mr. Beekman serving as Chairman.
In January 1997, six purported class-action lawsuits and one purported
derivative and class-action lawsuit were filed in the Delaware Court of Chancery
(the 'Chancery Court'), under the captions Alan R. Kahn v. Ronald O. Perelman,
et al., C.A. No. 15450; Sandy Rywell v. Ronald O. Perelman, et al., C.A. No.
15468; Crandon Capital Partners v. Ronald O. Perelman, et al., C.A. No. 15469;
Harry Voege v. Ronald O. Perelman, et al., C.A. No. 15470, Harry Polikoff v.
Mafco Consolidated Group Inc. et al., C.A. No. 15471; Sal S. Shiry v. Ronald O.
Perelman, et al., C.A. No. 15475; and Jack Fishbaum v. Mafco Consolidated Group
Inc., et al., C.A. No. 15481 (the 'Actions'). The Actions challenge certain acts
allegedly taken or not taken by the Company and the members of the Board in
connection with the proposed transaction that ultimately culminated in the
execution of the Merger Agreement and the price originally proposed to be paid
for the Common Stock and allege that Andrews Group Incorporated and the Board
breached fiduciary obligations to the Company's stockholders by entering into
certain transactions with Marvel Entertainment Group, Inc. and Toy Biz, Inc.
(the 'Marvel and Toy Biz Transactions'), which were allegedly corporate
opportunities of the Company. The Actions seek to enjoin the consummation of the
Merger Agreement and the Marvel and Toy Biz Transactions, as well as damages and
an award of attorneys fees. As discussed below, the parties to all of the
Actions except Fishbaum executed a Memorandum of Understanding setting forth the
terms of their agreement in principle to settle these Actions.
On or about January 22, 1997, Morgan Stanley was retained to act as the
Special Committee's financial advisor, and the Special Committee also retained
independent counsel to assist in its review of and response to Parent's
proposal.
10
<PAGE>
On January 23, 1997, Mr. Beekman met with representatives of Morgan Stanley
and counsel to the Special Committee to review the proposal received from
Parent.
On January 27, 1997, counsel to the Special Committee sent a letter to
Parent requesting, among other things, clarification of the terms of Parent's
proposal, confirmation of the official appointment of the Special Committee,
certain due diligence information concerning the Company and the proposed
transaction and the scheduling of a meeting at which due diligence and other
related matters could be addressed with senior representatives of the Company
and Parent. In response, Parent confirmed the appointment of the Special
Committee, provided substantial written due diligence materials for review and
agreed to clarify its proposal during the parties' next scheduled meeting.
On January 29, 1997, representatives from Morgan Stanley and counsel to the
Special Committee met with representatives of the Company, Parent and counsel to
Parent to discuss Parent's proposal. At such meeting, a representative of Parent
stated that Parent was considering a revision of its proposal in order to remove
any downward adjustment in the consideration to be received by the Company's
stockholders based upon the price of a share of Cigar Common Stock to be sold in
the Cigar Secondary Offering, and to clarify that such consideration would be
based upon the gross, and not the net, sales price per share of Cigar Common
Stock. At this meeting, counsel to the Special Committee asked certain questions
with respect to the proposal, including whether Parent's proposal was
conditioned upon the Cigar Secondary Offering, and if so, the anticipated timing
of such transactions. A representative of Parent answered that Parent had not
determined whether to condition its proposal upon the Cigar Secondary Offering.
A representative of Morgan Stanley asked whether Parent had considered any
alternatives to its current proposal, such as paying to the Company's
stockholders a dividend of Cigar Common Stock plus a cash amount, a cash
election merger pursuant to which stockholders of the Company could choose to
receive either cash or a share of Cigar Common Stock plus cash, or the
liquidation of the Company. Parent indicated that because of potential tax
liability that would result to the Company's stockholders from its distribution
of Cigar Common Stock and the fact that such stockholders may not desire to own
shares of Cigar Common Stock, it favored the form of the proposed transaction.
Parent also was concerned that a distribution of Cigar Common Stock to the
Company's stockholders might lead to downward selling pressure on the Cigar
Common Stock, thereby diminishing the value of the consideration to be received
by the Company's stockholders. Moreover, the proposed transaction would provide
cash to the Company's stockholders, thereby enabling them to pay any tax
liability associated with the transaction and providing them the flexibility to
invest the proceeds as they see fit. Parent indicated, however, that it would be
willing to consider other alternatives that might be proposed by the Special
Committee.
Also at this meeting, Parent distributed a schedule setting forth Parent's
estimates of the various assets and liabilities of the Company (the 'Parent
Estimates').
Later in the day on January 29th, the Chairman of the Special Committee met
with the Special Committee's financial and legal advisors to review the
background of the transaction. At this meeting, representatives of Morgan
Stanley stated that, in their view, the transaction was similar to a negotiated
liquidation of the Company and therefore, the net equity value of the Company,
based on the items covered by the Parent Estimates, would be key to the
financial and fairness evaluation of the proposed transaction. The parties
reviewed the assets and liabilities covered by the Parent Estimates and noted
those items that could be easily confirmed based on publicly available
information as well as those that would require additional work. Among the more
noteworthy of the liabilities were the Company's future liabilities under
certain tax and employee benefits matters, as to which the Special Committee's
legal advisors were authorized to retain an outside expert for advice.
On January 30, 1997, Parent delivered a revised written proposal to the
Company confirming the removal of the downward adjustment from its proposal and
the clarification of the use of the gross sales price of a share of Cigar Common
Stock to determine the consideration to be received by the Company's public
stockholders. On such date, the Company publicly announced, among other things,
Parent's revised proposal, the filing of a registration statement with the
Securities and Exchange Commission (the 'Commission' or 'SEC') covering the
Cigar Secondary Offering and its determination not to proceed with its proposed
offering of $150 million principal amount of notes exchangeable for other shares
of Cigar Common Stock.
11
<PAGE>
On February 3, 1997, Morgan Stanley discussed with management of Cigar
Holdings current conditions and future prospects for Cigar Holdings. During the
discussion, Morgan Stanley learned that Cigar Holdings' management's estimated
range for 1997 earnings per share was $1.50-$1.60.
Also on February 3, 1997, counsel to the Special Committee met with
representatives of Parent to discuss certain of the Company's contingent
litigation liabilities, such as liabilities relating to asbestos and
environmental matters. At the meeting, Parent's representatives explained that
the Parent Estimates with respect to asbestos and environmental matters were
based on a variety of factors, including the Company's historical experience
with such matters and its knowledge regarding similar claims made against
others, the nature and geographic situs of pending claims, available information
regarding environmental sites and the availability and scope of insurance or
indemnification arrangements with respect to these matters.
On the morning of February 7, 1997, the Special Committee met with its
advisors to discuss Parent's revised proposal. The Special Committee, together
with its advisors, reviewed the background of Parent's proposed transaction,
including the terms of Parent's original and revised proposals, and were advised
by counsel with respect to its fiduciary duties in such a situation.
Specifically, the Special Committee was advised that it was not required to
approve a transaction or to enter into negotiations with respect to a
transaction unless it was felt that it was appropriate to do so. The Special
Committee received preliminary advice from Morgan Stanley that, in its view, the
current market price for shares of Cigar Common Stock was low given Cigar
Holdings' earnings expectations, and that, as a result, Parent's $38.50 proposed
price was too low. However, a formal decision with respect to the revised
proposal was not taken. The Special Committee and its advisors reviewed various
valuation considerations applicable to both the Company and to Cigar Holdings
and discussed the timing and process involved in a response to Parent's
proposals and various issues with respect thereto. The principal valuation
issues appeared to be the value of the Cigar Common Stock and the Company's
contingent liabilities, especially with respect to employee benefits, asbestos,
environmental and tax matters, as the value of the Company's non-Cigar Holdings
assets and other liabilities appeared more readily ascertainable.
Later on February 7, 1997, Parent's counsel sent a draft merger agreement
to counsel to the Special Committee and to Morgan Stanley for review and
comment.
Over the course of the following 10 days, the Special Committee and its
advisors continued their due diligence and had numerous discussions with
representatives of Parent concerning due diligence matters to better understand
the basis for the Parent Estimates and to derive other estimated values where
the due diligence investigation showed the Parent Estimates to be challengeable
in the Company's favor.
On February 11, 1997, the Special Committee met with its advisors to
continue its evaluation of Parent's revised proposal. The Special Committee
received preliminary advice from Morgan Stanley on valuation considerations as
well as its preliminary view of estimated asset and liability values versus the
Parent Estimates. Morgan Stanley advised the Special Committee that the current
proposal valued Cigar Common Stock at $24.50 per share, which, in Morgan
Stanley's preliminary view, was low and that certain liabilities might be
overstated in the Parent Estimates. The Special Committee discussed with its
advisors various values that might be attributable to the Cigar Common Stock and
the implication of such values in relation to the price for the Common Stock to
be paid in the proposed transaction. A representative of Morgan Stanley
explained that, because the number of outstanding shares of Common Stock was
approximately equal to the number of shares of Cigar Common Stock then
beneficially owned by the Company, the value of each share of Common Stock
should be viewed as including the value of one share of Cigar Common Stock. The
Special Committee also considered various possible counterproposals that might
be made in response to Parent's proposal and agreed to communicate to Parent
that the $38.50 proposed price per share was too low and to request a price of
$46.00 per share, reflecting both the Special Committee's higher estimate
regarding the value of Cigar Holdings and the Special Committee's lower estimate
regarding the Company's liabilities. Morgan Stanley also advised, however, that,
based on its preliminary analysis, any price in excess of $43.00 per share would
be extremely favorable to the holders of Common Stock. Finally, Morgan Stanley
advised the Special Committee that it had inquired as to whether it would be
permitted to approach third parties with respect to an acquisition of the
Company or Cigar Holdings and had been told that it would not be permitted to do
so, and had been informed that Parent would not sell its interest in the Company
or Cigar Holdings. The Special Committee authorized Morgan Stanley to
communicate the proposed $46.00 price, on a preliminary basis and subject to
further due diligence, to
12
<PAGE>
representatives of Parent, such communication to be followed by more in depth
discussions between Mr. Beekman, on behalf of the Special Committee, and a
representative of Parent.
In addition, the Special Committee reviewed the principal terms of the
proposed merger agreement and discussed areas of concern. The Special Committee
authorized its counsel to convey its comments and concerns with respect to the
proposed agreement to Parent's counsel. Among the points to be raised in this
regard were the Special Committee's desire that the Merger not be conditioned on
consummation of the Cigar Secondary Offering; that the agreement's 'fiduciary
out' be revised so as to provide the Special Committee additional flexibility as
to when it could be exercised; that the agreement address the consequences of a
change in the price of Cigar Common Stock; that the agreement be terminable or
subject to amendment by the Company only by action of the Special Committee;
that the scope of the representations and warranties to be given by the Company
to Parent be reduced; that the Merger not be conditioned on the absence of a
material adverse effect as to the Company; and that the Merger be conditioned on
approval by a majority of the Company's stockholders other than Parent and its
affiliates. In subsequent negotiations, these points were all addressed and,
save for the suggestion that the Merger be conditioned on approval by a majority
of the Company's stockholders other than Parent and its affiliates, which was
not acceptable to Parent, resolved in a manner satisfactory to the Special
Committee. After deliberation on the subject, the Special Committee determined
that, in light of all of the other elements of the Merger, and including, not
unimportantly, its financial fairness, it was acceptable that the Merger not be
conditioned on approval by a majority of the Company's stockholders other than
Parent and its affiliates.
Later on February 11, Morgan Stanley communicated the proposed $46.00 price
to a representative of Parent, and Mr. Lewis also discussed with a
representative of Parent the Special Committee's preliminary views as to an
appropriate transaction price. Also on February 11 and 12, the Chairman of the
Special Committee and the Special Committee's financial and legal advisors had
conversations with representatives of Parent as to the position of the Special
Committee and the further prosecution of due diligence.
On February 19, 1997, representatives of Morgan Stanley met with a
representative of the Company and further discussed the valuation of the Common
Stock, including particularly the liabilities of the Company and the expected
future value of the Cigar Common Stock. At this meeting, a representative of the
Company conveyed to Morgan Stanley Parent's position that it was unwilling to
offer more than $43.00 per share of Common Stock. Morgan Stanley indicated that
a price of less than $44.00 per share would be difficult for the Special
Committee to accept and that a revised fiduciary out, as described above, was
required. Morgan Stanley reported on the meeting to Mr. Beekman following its
conclusion. There followed a conversation between Mr. Beekman and a
representative of Parent, at which a price of $43.50 per share, subject to
upward adjustment in the event the price of the Cigar Common Stock was in excess
of $33.00, was provisionally negotiated, subject to finalizing the fairness and
due diligence reviews, and subject to approval by the Special Committee,
including the receipt of an appropriate opinion from Morgan Stanley.
On the morning of February 20, 1997, the Special Committee met with its
advisors to discuss the status of the proposed transaction with Parent. Mr.
Beekman explained that a meeting had taken place the prior day between a
representative of Parent and Morgan Stanley, at which Parent offered $43.00 per
share and Morgan Stanley, on behalf of the Special Committee, had requested
$44.00 per share, and that this meeting had been followed by a conversation
between Mr. Beekman and a representative of Parent, at which a price of $43.50
per share had been provisionally negotiated, subject to the matters described in
the prior paragraph. The proposal also contemplated that, in addition to the
$43.50 per share, the merger consideration would be adjusted upward in the event
that the price of Cigar Common Stock was in excess of $33.00 per share at the
time of the Merger, and that the merger agreement fiduciary-out provision would
not be exercisable based upon a change in the trading value of the Cigar Common
Stock. The Special Committee was advised by its counsel that the legal due
diligence process had been substantially completed and revealed no material
issues not already known to the Special Committee and that the merger agreement
had been substantially completed and should be finalized shortly. The Special
Committee was further advised by Morgan Stanley that its due diligence was
substantially completed, that outside consultants had evaluated the liabilities
for certain employee benefits as requested and concluded that these liabilities
were not overstated and that, in its view, the $43.50 per share price, subject
to upward adjustment, was fair from a financial point of view. Morgan Stanley
representatives also reminded the Special Committee that they had been
specifically prohibited from approaching third parties with respect to an
acquisition of the Company or Cigar Holdings and had been informed that Parent
would not sell the Company or Cigar Holdings.
13
<PAGE>
During the afternoon of February 20, 1997, negotiations with respect to the
remaining open issues in the merger agreement continued.
On the evening of February 20, 1997, the Special Committee was convened to
evaluate the final report on the proposed merger with Parent and to take action
with respect thereto. The Special Committee was advised by its financial advisor
of the various final estimated ranges that applied to the assets and liabilities
of the Company, which implied an estimated net equity value per share of between
$16.44 and $18.94, exclusive of any holdings of Cigar Common Stock, without
taking into account any corporate level liability and transaction costs that
would arise upon the sale of the Company's shares of Cigar Common Stock, and
$14.94 to $17.44 after taking such liability into account. Morgan Stanley
clarified that this analysis implied that, at $43.50 per share, Cigar Holdings
was implicitly valued at approximately $27.00 per share if the tax liability
were not included, and between $28.00 and $29.00 per share taking into account
the potential tax liability, in either case well in excess of recent trading
prices of Cigar Common Stock.
The Special Committee was advised by Morgan Stanley that, in Morgan
Stanley's view, the per share amount to be received in the Merger was fair from
a financial point of view to the holders of shares of Common Stock (other than
Parent and its affiliates), at the then current market price for Cigar Common
Stock, as well as at possible higher or lower prices, taking into consideration
the price adjustment mechanism contained in the Merger Agreement (but
recognizing that the merger consideration would not be adjusted upward unless
the price of Cigar Common Stock was in excess of $33.00 per share at the time of
the Merger), and that the fact that $10.00 per share of the proposed merger
consideration would be paid as a dividend sooner than the remaining merger
consideration represented a slightly greater value on a present value basis. The
Special Committee was advised by its counsel that the language of the merger
agreement had been substantially resolved. After further discussion and
deliberation, a motion determining the Merger and the Merger Agreement to be
fair and in the best interests of the Company's stockholders (other than Parent
and its affiliates) and to approve the Merger and the Merger Agreement was made
and carried unanimously, and the Special Committee resolved to recommend that
similar action be taken by the full Board of Directors of the Company.
Later in the evening on February 20, 1997, the Boards of Directors of each
of Parent, the Purchaser and the Company unanimously approved the Merger
Agreement, and the Merger Agreement was executed.
Morgan Stanley's oral opinion delivered to the Special Committee was
subsequently confirmed in a written opinion, dated February 20, 1997, stating
that, as of such date and based upon the factors and assumptions set forth in
such opinion, the consideration to be received by holders of shares of the
Company's Common Stock pursuant to the Merger Agreement was fair from a
financial point of view to such holders (other than Parent and its affiliates).
On March 17, 1997, the parties to all of the Actions except Fishbaum
executed a Memorandum of Understanding setting forth the terms of their
agreement in principle to settle these Actions. The Memorandum of Understanding
acknowledges the enhanced terms for stockholders set forth in the Merger
Agreement and provides that settling plaintiffs may seek up to $1.25 million in
attorney's fees. The Memorandum of Understanding contemplates the drafting and
execution of a Stipulation of Settlement by the parties and its approval by the
Chancery Court, which approval is expected to occur in the third quarter of
1997.
DETERMINATIONS OF THE SPECIAL COMMITTEE AND THE BOARD; FAIRNESS OF THE MERGER
As discussed under '--Background of the Merger,' the Special Committee
unanimously recommended the Merger Agreement and the Merger to the Board,
determining the Merger Agreement and the Merger to be fair to and in the best
interests of the Company's stockholders (other than Parent and its affiliates).
In reaching this conclusion, the Special Committee considered a number of
factors, including, among other things, the opinion of Morgan Stanley, dated
February 20, 1997, that, as of such date and subject to the assumptions and
limitations therein, the consideration to be received by holders of Common Stock
pursuant to the Merger Agreement is fair from a financial point of view to such
holders (other than Parent and its affiliates). The full text of such opinion,
which sets forth, among other things, the opinion expressed, procedures
followed, matters considered and limitations on review undertaken in connection
with such opinion, is attached as Annex B to this Information Statement.
Stockholders are urged to read the opinion in its entirety.
14
<PAGE>
Reasons for the Special Committee's Determination. In reaching its
recommendation, the Special Committee considered, among other things, the
factors listed below:
(a) the terms of the proposed Merger, including, among other things,
the consideration to be paid to holders of Common Stock, including the
potential upward adjustment, the 60% premium to the closing price of the
Common Stock the day prior to the announcement of Parent's proposal and the
circumstances under which the Merger Agreement could be terminated;
(b) the presentation and opinion of Morgan Stanley, which included,
among other things, analyses of the value of the Company and of the value
of the Company in relation to the price of Cigar Common Stock and
comparisons with similar companies and similar transactions, and which
indicated that the consideration to be received by the holders of shares of
Common Stock (other than shares held by Parent and its affiliates) was fair
to such holders from a financial point of view (such opinion of Morgan
Stanley was given subject to certain limitations, qualifications and
assumptions specified therein; see '--Financial Advisor; Fairness
Opinion');
(c) the Company's business, condition and prospects, and the current
and historical trading prices for the Company's and Cigar Holdings' shares;
and
(d) the risks to stockholders associated with the Common Stock,
including, without limitation, the potential risk involved with Cigar
Holdings and with certain potential legal liabilities, such as ongoing
asbestos litigation.
The foregoing discussion of the information and factors considered and
given weight by the Special Committee is not intended to be exhaustive. In view
of the wide variety of the factors considered in connection with its evaluation
of the proposed Merger, the Special Committee did not find it practicable to,
and did not, quantify or otherwise attempt to assign relative weights to the
foregoing factors or determine that any factor was of particular importance.
Rather, the Special Committee viewed its position and recommendation as being
based on the totality of the information presented and considered by it.
Reasons for the Board's Determination. In reaching its decision to approve
the Merger Agreement, the Board relied on the Special Committee's recommendation
and the factors relied on by the Special Committee as described above. In view
of the wide variety of factors considered in connection with its evaluation of
the proposed Merger, the Board did not find it practicable to, and did not,
quantify or otherwise attempt to assign relative weights to the foregoing
factors or determine that any factor was of particular importance. Rather, the
Board viewed its position as being based on the totality of the information
presented and considered by it. Because of the appointment of the Special
Committee and its engagement of independent counsel and Morgan Stanley, neither
the Special Committee nor the Board considered it necessary to retain an
unaffiliated representative to act solely on behalf of unaffiliated stockholders
for purposes of negotiating the terms of the Merger and the Merger Agreement.
Similarly, and for same reasons that the Special Committee and the Board
determined that the Merger Agreement and the Merger are fair to and in the best
interests of Company's stockholders (other than Parent and its affiliates), the
Special Committee and the Board did not believe it necessary to structure the
Merger to require the approval of a majority of the unaffiliated stockholders.
FINANCIAL ADVISOR; FAIRNESS OPINION
Morgan Stanley was engaged to act as the Special Committee's financial
advisor on or about January 22, 1997 in connection with the Special Committee's
review of Parent's proposal. This engagement was subsequently confirmed in a
letter dated February 11, 1997. No limitations were imposed by the Company, its
Board of Directors or the Special Committee upon Morgan Stanley with respect to
the investigations made or the procedures followed by it in rendering its
opinion, except that, at Parent's instruction, Morgan Stanley was not authorized
to, and did not, solicit any indications of interest from any potential third
party, either financial or strategic, to acquire all or any part of the Company
or any of its assets. On February 20, 1997, Morgan Stanley rendered its oral
opinion to the Special Committee and to the Board, and subsequently confirmed
such oral opinion in a written opinion (the 'Morgan Stanley Opinion') dated
February 20, 1997, that, as of such date and based upon the assumptions noted
therein, matters considered and limits of review in connection with such
15
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opinion, the consideration to be received by the holders of shares of Common
Stock pursuant to the Merger Agreement was fair from a financial point of view
to such holders (other than Parent and its affiliates).
A COPY OF THE MORGAN STANLEY OPINION, DATED FEBRUARY 20, 1997, WHICH SETS
FORTH THE ASSUMPTIONS NOTED THEREIN, MATTERS CONSIDERED, AND CERTAIN LIMITATIONS
ON THE SCOPE OF REVIEW UNDERTAKEN BY MORGAN STANLEY, IS ATTACHED AS ANNEX B TO
THIS INFORMATION STATEMENT, AND STOCKHOLDERS ARE URGED TO READ THIS OPINION IN
ITS ENTIRETY. THE MORGAN STANLEY OPINION WAS DIRECTED ONLY TO THE FAIRNESS, FROM
A FINANCIAL POINT OF VIEW, OF THE CONSIDERATION TO BE RECEIVED BY THE HOLDERS OF
THE SHARES OF COMMON STOCK (OTHER THAN PARENT AND ITS AFFILIATES). THE MORGAN
STANLEY OPINION WAS DELIVERED FOR THE INFORMATION OF THE SPECIAL COMMITTEE AND
THE BOARD AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER AS TO
WHETHER ANY STOCKHOLDER SHOULD EXERCISE APPRAISAL RIGHTS IN RESPECT OF THE
MERGER OR OTHERWISE ACT IN RESPECT OF THE MERGER AGREEMENT AND THE MERGER. THIS
SUMMARY OF THE MORGAN STANLEY OPINION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO THE FULL TEXT OF SUCH OPINION.
In rendering its opinion, Morgan Stanley, among other things, (i) reviewed
certain publicly available financial statements and other information of the
Company and Cigar Holdings; (ii) reviewed certain internal financial statements
and other financial and operating data concerning the Company and Cigar Holdings
prepared by the managements of the Company and Cigar Holdings; (iii) analyzed
certain estimates of assets and liabilities prepared by the managements of the
Company and Cigar Holdings; (iv) discussed past and current operations and the
financial condition and prospects of the Company and Cigar Holdings with senior
executives of the Company and Cigar Holdings; (v) reviewed the reported prices
and trading activity for the Common Stock and Cigar Common Stock; (vi) compared
the financial performance of the Company and Cigar Holdings and the prices and
trading activity of the Common Stock and Cigar Common Stock with that of certain
other comparable publicly traded companies and their securities; (vii) reviewed
the financial terms, to the extent publicly available, of certain comparable
acquisition transactions; (viii) participated in discussions and negotiations
among representatives of the Company, Parent and their legal advisors; (ix)
reviewed the Merger Agreement and certain related documents; (x) reviewed and
discussed with Price Waterhouse LLC certain issues regarding the assets and
liabilities of the Company; and (xi) performed such other analyses and
considered such other factors as it deemed appropriate.
In rendering its opinion, Morgan Stanley assumed and relied upon without
independent verification the accuracy and completeness of the information it
reviewed. With respect to the financial estimates, Morgan Stanley assumed that
they were reasonably prepared on bases reflecting the best currently available
judgments of the future financial performance of the Company and Cigar Holdings.
Morgan Stanley did not make any independent valuation or appraisal of the assets
or liabilities of the Company or Cigar Holdings, nor were such appraisals
furnished to Morgan Stanley. The Morgan Stanley Opinion was necessarily based
upon economic, market and other conditions as in effect on, and the information
made available to Morgan Stanley as of, the date of the opinion.
In arriving at its opinion, Morgan Stanley was not authorized to solicit,
and did not solicit, interest from any party with respect to the acquisition of
the Company or any of its assets or businesses, nor did it negotiate with any
such party, other than Parent, as to the possible acquisition of the Company or
any of its assets or businesses.
The following is a summary of certain financial and comparative analyses
performed by Morgan Stanley in arriving at its opinion dated February 20, 1997,
and reviewed with the Special Committee in connection with such opinion:
Liquidation Value Analysis. Morgan Stanley performed an analysis to
determine a range of valuation for (i) the assets of the Company, excluding the
Company's interest in Cigar Holdings; (ii) the Company's interest in Cigar
Holdings; and (iii) the Company's liabilities. Morgan Stanley estimated the
value of the Company's non-Cigar Holdings assets (not counting cash, cash
equivalents and option proceeds) to be between $168.0 and $189.7 million, as
opposed to the estimate proposed by Parent of $142.6 million. Morgan Stanley
estimated the value of the Company's liabilities (not counting potential tax
liability on the sale of shares of Cigar Common Stock in the Cigar Secondary
Offering) to be between $121.0 and $161.7 million, as opposed to the estimate
proposed by Parent of $188.0 million. Using a price per share for Cigar Common
Stock of $24.50, the market price as of January 20, 1997, such ranges implied a
liquidation value per Company share of $39.14 to $41.65.
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Due to the significant proportion of the Company's value represented by its
interest in Cigar Holdings, Morgan Stanley performed the following analysis with
respect to Cigar Holdings:
Value Sensitivity Analysis. Morgan Stanley analyzed the price per share of
Common Stock implied by (i) various stock prices for Cigar Holdings ranging from
$24.50 to $30.00 per share, assuming a one-to-one correlation between Cigar
Holdings shares and Common Stock, and (ii) various ranges for the Company's
non-Cigar Holdings assets and liabilities discussed above. Such analysis showed,
based on a Cigar Common Stock price of $27.00 per share and the Morgan Stanley
estimated ranges discussed above, a value per share of Common Stock of $41.94 to
$44.44, and based on a Cigar Common Stock price of $24.50 per share, a value per
share of Common Stock of $39.44 to $41.94.
Cigar Common Stock Price Analysis. Morgan Stanley analyzed the stock price
and trading volume history for Cigar Common Stock from its initial public
offering on August 16, 1996, through February 19, 1997, taking note of
significant events during the period. Such analysis showed an all-time high
closing price of $32.50 and general stock price decline from September 1996 to
January 1997.
Cigar Holdings Comparable Company Analysis. Using publicly available
information, Morgan Stanley compared certain financial and operating information
for Cigar Holdings with corresponding financial and operating information for a
group of publicly traded companies that Morgan Stanley deemed to be in lines of
business with certain characteristics reasonably similar to the Cigar Holdings',
understanding that no public company is directly comparable to Cigar Holdings.
The public companies included in the comparable company analysis were: Gucci
Group N.V., LVMH Moet Hennessy Louis Vuitton, Oakley, Inc., The Boston Beer
Company, Inc., Redhook Ale Brewery, Incorporated, Pete's Brewing Company, Culbro
Corporation and Swisher International Group Inc. (collectively, the
'Comparables'). Morgan Stanley's analysis indicated that: (i) Cigar Holdings'
current share price as a percentage of its highest share price was 76.6%, as
compared to a range of 24.1% to 98.9% for Comparables; (ii) Cigar Holdings'
estimated five-year earnings-per-share growth rate, as estimated by Wall Street
analysts, was 27.0%, as compared to a range of 11.0% to 30.0% for Comparables;
(iii) Cigar Holdings' equity market value, defined as current share price
multiplied by shares outstanding, was $767 million, as compared to a range of
$56 million to $22.174 billion for Comparables; (iv) Cigar Holdings' aggregate
market value, defined as market equity plus total debt minus cash and
equivalents, was $944 million, as compared to a range of $21 million to $23.463
billion for Comparables; (v) Cigar Holdings' price-to-earnings ratio estimates
for 1996, 1997, and 1998 were 22.5x, 19.1x, and 16.7x, respectively, as compared
to ranges of 13.0x to 30.9x, 13.2x to 27.6x, and 10.2x to 22.7x, respectively,
for Comparables; (vi) Cigar Holdings' aggregate values for the last twelve
months for sales, earnings before interest, taxes, depreciation and amortization
('EBITDA') and earnings before interest and taxes ('EBIT') were 4.8x, 18.0x and
20.9x, respectively, as compared to ranges of 0.3x to 7.5x, 6.0x to 28.6x, and
8.3x to 31.1x, respectively, for Comparables; and (vii) Cigar Holdings' 1996
aggregate value estimates for sales, EBITDA and EBIT were 4.5x, 16.4x and 18.8x,
respectively, as compared to ranges of 0.3x to 4.2x, 5.5x to 15.4x, and 7.1x to
18.0x, respectively, for Comparables.
Comparable Transactions Analysis. Morgan Stanley reviewed certain publicly
available information regarding 51 selected minority squeeze-out transactions
since March 1987 (the 'Transaction Comparables'). The Transaction Comparables
were generally completed transactions in which the majority interest position
exceeded 50% of the total number of outstanding shares and over one year elapsed
between the purchase of the majority interest and the purchase of the remaining
shares. The Transaction Comparables and the dates the transactions were
announced were as follows: the acquisition of Systemix, Inc. by Novartis Inc.
(January 1997); the acquisition of Applied Immune Sciences, Inc. by RhonePoulenc
Rorer (October 1995); the acquisition of Bic Corporation by Bic SA (May 1995);
the acquisition of Lin Broadcasting Corporation by AT&T Corp. (March 1995); the
acquisition of Fleet Mortgage Group, Inc. by Fleet Financial Group, Inc.
(December 1994); the acquisition of Pacific Telecom, Inc. by Pacificorp
(November 1994); the acquisition of Ogden Projects Inc. by Ogden Corporation
(September 1994); the acquisition of Contel Cellular Inc. by GTE Corporation
(September 1994); the acquisition of Castle & Cooke, Inc. by Dole Food Company,
Inc. (August 1994); the acquisition of Chemical Waste Management, Inc. by WMX
Technologies, Inc. (July 1994); the acquisition of Enquirer/Star Group, Inc. by
MacFadden Holdings Inc. & Boston Ventures L.P. (April 1994); the acquisition of
Foxmeyer Corporation by National Intergroup, Inc. (March 1994); the acquisition
of Southeastern Public Service Company by Triarc Companies, Inc. (November
1993); the acquisition of Medical Marketing Group, Inc. by Medco
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<PAGE>
Containment Services, Inc. (October 1993); the acquisition of United Investors
Management Company by Torchmark Corporation (February 1993); the acquisition of
PHLCorp Inc. by Leucadia National Corporation (August 1992); the acquisition of
Grace Energy Corporation by W.R. Grace & Co. (March 1992); the acquisition of
Unocal Exploration Corporation by Unocal Corporation (February 1992); the
acquisition of American Television & Communications Corporation by Time Warner
Inc. (October 1991); the acquisition of Arkla Exploration Company by Arkla, Inc.
(September 1991); the acquisition of United Artists Entertainment Company by
Tele-Communications, Inc. (May 1991); the acquisition of Bond International
Gold, Inc. by LAC Minerals Ltd. (February 1991); the acquisition of Hamilton Oil
Corp. by The Broken Hill Proprietary Company Limited (February 1991); the
acquisition of Ocean Drilling & Exploration Company by Murphy Oil Corporation
(January 1991); the acquisition of Sizzler Restaurants International, Inc. by
Collins Foods, Inc. (September 1990); the acquisition of Freeport-McMoRan Oil &
Gas Company by Freeport-McMoRan Inc. (July 1990); the acquisition of Caesars New
Jersey, Inc. by Caesars World, Inc. (July 1990); the acquisition of DST Systems,
Inc. by Kansas City Southern Industries, Inc. (May 1990); the acquisition of
American Capital Management & Research, Inc. by The Travelers Inc. (May 1990);
the acquisition of LPL Technologies Inc. by Cheshire Financial Corporation
(March 1990); the acquisition of Titan Group Ltd. by Intermark, Inc. (March
1990); the acquisition of National Mine Service Company by Anderson Group PLC
(February 1990); the acquisition of Copperweld Corporation by Imetal S.A.
(January 1990); the acquisition of PCS, Inc. by McKesson Corporation (December
1989); the acquisition of Soo Line Corporation by Canadian Pacific Limited
(October 1989); the acquisition of Erbamont NV by Montedison S.p.A (July 1989);
the acquisition of Himont Incorporated by Montedison SPA (July 1989); the
acquisition of Fisher Scientific Group Inc. by The Henley Group, Inc. (June
1989); the acquisition of Westmarc Communications, Inc. by Tele-Communications,
Inc. (May 1989); the acquisition of TGI Friday's Inc. by Carlson Companies, Inc.
(May 1989); the acquisition of Ocean Drilling & Exploration Company by Murphy
Oil Corporation (April 1989); the acquisition of Micro D, Inc. by Ingram
Industries Inc. (December 1988); the acquisition of The TJX Companies, Inc. by
Zayre Corp. (December 1988); the acquisition of Malrite Communications Group,
Inc. by private investors and Malrite Communications Group's management (August
1988); the acquisition of Arthur D. Little Inc. by Memorial Drive Trust (June
1988); the acquisition of Gruen Marketing Corp. by S.H. Holdings Inc. (June
1988); the acquisition of Ideal School Supply Corp. by ISSC Holdings Inc. (March
1988); the acquisition of Certainteed Corporation by Cie De Saint-Gobain SA
(March 1988); the acquisition of Gemnar Industries Inc. by Mistar, Inc.
(February 1988); the acquisition of Camco Inc. by Pearson PLC (June 1987); and
the acquisition of Standard Oil Co. by British Petroleum Company p.l.c. (March
1987). Morgan Stanley's analysis showed that the premium over unaffected market
price was 60.4% for the Company (based on the Company's January 20, 1997 closing
price of $27.125), as compared to a mean of 27% for Transaction Comparables. The
premium over market price the day prior to public announcement was 60.4% for the
Company (based on the Company's January 20, 1997 closing price of $27.125), as
compared to a mean of 21% for Transaction Comparables. Considering only
Transaction Comparables from 1994 to the present, the mean premium over
unaffected market price was only 19%, and the mean premium over market price the
day prior to public announcement was 21%.
The summary set forth above does not purport to be a complete description
of the analyses performed by Morgan Stanley. Arriving at a fairness opinion is a
complex process not necessarily amenable to partial or summary description.
Morgan Stanley believes that its analyses must be considered as a whole and that
selecting portions of its analyses and of the factors considered by it, without
considering all such factors and analyses, could create a misleading view of the
process underlying the analyses set forth in the Morgan Stanley Opinion. The
matters considered by Morgan Stanley in its analyses are based on numerous
macroeconomic, operating and financial assumptions with respect to industry
performance, general business and economic conditions and other matters, many of
which are beyond the Company's control. Any estimates incorporated in the
analyses performed by Morgan Stanley are not necessarily indicative of actual
past or future results or values, which may be significantly more or less
favorable than such estimates. Estimated values do not purport to be appraisals
and do not necessarily reflect the prices at which businesses or companies may
be sold in the future, and such estimates are inherently subject to uncertainty.
No public company utilized as a comparison is identical to the Company or to
Cigar Holdings, and none of the Transaction Comparables or other business
combinations utilized as a comparison is identical to the proposed Merger.
Accordingly, analyses of publicly traded comparable companies and comparable
business combinations are not mathematical; rather they involve complex
considerations and judgments concerning differences in financial and operating
characteristics of the comparable companies and
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<PAGE>
other factors that could affect the public trading value of the comparable
companies or company to which it is being compared. In addition, as described
above, Morgan Stanley's opinion and presentation to the Special Committee was
one of a number of factors taken into consideration by the Special Committee in
making its determination to approve the Merger. Consequently, the Morgan Stanley
analyses described above should not be viewed as determinative of the opinion of
the Special Committee with respect to the value of the Company or Cigar
Holdings.
Morgan Stanley is a recognized investment banking firm and, as a customary
part of its investment banking activities, is regularly engaged in the valuation
of businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, private placements, and valuations for corporate and
other purposes. Morgan Stanley was selected because of its expertise, reputation
and familiarity with the Company and Cigar Holdings and their businesses and
with transactions similar to the Merger.
Pursuant to a letter agreement dated February 11, 1997 (the 'Engagement
Letter'), Morgan Stanley was engaged to provide investment banking advice and
services to the Special Committee in connection with its review and analysis of
the transaction proposal. The Company agreed to pay Morgan Stanley a fee of $1.5
million for its services. In addition, the Company has agreed to reimburse
Morgan Stanley for reasonable expenses incurred by Morgan Stanley and indemnify
Morgan Stanley against certain liabilities in connection with its engagement,
including certain liabilities under the federal securities laws.
In the ordinary course of its trading and brokerage activities, Morgan
Stanley or its affiliates may at any time hold long or short positions, and may
trade or otherwise effect transactions, for its own account or the accounts of
its customers, in debt or equity securities of the Company or Cigar Holdings.
Morgan Stanley has in the past undertaken, and may in the future undertake, a
variety of advisory and capital market assignments for Parent and various of its
affiliates, with respect to all of which Morgan Stanley has been or would expect
to be compensated, reimbursed and indemnified by Parent or the relevant
affiliate. In early January 1997, Morgan Stanley engaged in preliminary
discussions with representatives of Parent as to Parent's various strategic
options, including as to possible transactions involving the Company. In
addition, Morgan Stanley acted as a co-managing underwriter in connection with a
Cigar Secondary Offering, in respect of which Morgan Stanley received customary
compensation.
POSITION OF PARENT AND THE PURCHASER
Parent and the Purchaser had no involvement in the Special Committee's
evaluation of the fairness of the Merger Consideration to stockholders of the
Company (other than Parent and its affiliates) and neither has undertaken any
formal evaluation of its own as to the fairness of the Merger Consideration.
Parent and the Purchaser, however, have considered the factors set forth above
under '--Determinations of the Special Committee and the Board; Fairness of the
Merger' and '--Financial Advisor; Fairness Opinion' and based on such factors,
Parent and the Purchaser have each determined that the Merger Consideration is
fair to and in the best interests of holders of Common Stock (other than Parent
and its affiliates). Although four directors or officers of Parent and its
affiliates serve as directors of the Company, none served on the Special
Committee. Because the vote of stockholders is not being sought by the Company
in connection with the approval of the Merger, none of the directors and
executive officers of the Company, Parent or the Purchaser will vote on the
Merger or make any recommendation to stockholders of the Company regarding the
Merger.
In view of the wide variety of factors considered in connection with their
evaluation of the proposed Merger, Parent and the Purchaser did not find it
practicable to, and did not, quantify or otherwise attempt to assign relative
weights to the factors or determine that any factor was of particular
importance. Rather, Parent and the Purchaser each viewed its position as being
based on the totality of the information presented and considered by it.
PURPOSE AND STRUCTURE OF THE MERGER
Parent and the Purchaser entered into the Merger Agreement in order to
acquire beneficial ownership of the entire equity interest in the Company
because they believe that, due to the Company's complex corporate structure, the
historic trading prices of a share of Common Stock on the NYSE, prior to
Parent's proposal, did not
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<PAGE>
adequately reflect the net asset value of the Company's assets or its future
prospects. The Merger was not structured to require the approval of a majority
of unaffiliated stockholders.
The Company is a holding company with no operating assets of its own. Its
principal assets are its substantial equity interests in two public companies,
Cigar Holdings and PCT. Cigar Holdings, in turn, is the holding company for
Consolidated Cigar and has no operating assets of its own. PCT, through an
indirect wholly owned subsidiary, now operates the licorice and flavorings
business formerly operated by a subsidiary of the Company. This multi-tiered
corporate structure has made it difficult for the public equity market to
evaluate the Company's assets and future prospects, and, in Parent's view,
contributed to the historical trading prices of a share of Common Stock being
substantially below the Company's net asset value per share. Moreover, since the
Company was acquired by Mafco Holdings in June 1995, it has continuously, but
unsuccessfully, sought acquisition candidates in order to maximize stockholder
value. As a result, the Company has not been able to effectively utilize its
substantial amount of working capital. Parent and the Purchaser believe that
this has also depressed the historical trading prices of a share of Common Stock
on the NYSE. Accordingly, the acquisition of the shares of Common Stock from
holders of such shares has been structured as a cash merger in order to transfer
ownership of the remaining equity interest in the Company to Parent in one
transaction and at the same time provide cash (including the Special Dividend)
to the holders of such shares at a premium to historic trading prices. See
'MARKET PRICES AND DIVIDENDS' and 'SOURCE AND AMOUNT OF FUNDS.'
The Merger has been structured as a merger of the Purchaser with and into
the Company, with the Company being the surviving corporation in the Merger (the
'Surviving Corporation'), in order to provide flexibility with respect to
certain financial, operational and tax planning considerations. After the
Merger, the Surviving Corporation will be a wholly owned subsidiary of Parent,
and subject to applicable law and contractual limitations, if any, Parent will
be able to distribute, by way of dividend, loan or otherwise, some or all of the
assets of the Company, or otherwise make use of such assets for investment in
affiliates or other transactions as Parent may determine. See '--Plans for the
Company After the Merger.'
For additional information concerning the purpose of the Merger, see
'--Background of the Merger,' '--Determinations of the Special Committee and
the Board; Fairness of the Merger.'
CERTAIN EFFECTS OF THE MERGER
At the Effective Time, (i) the Purchaser will merge with and into the
Company and the separate corporate existence of the Purchaser will cease, (ii)
the Surviving Corporation will be a wholly owned subsidiary of Parent, (iii) all
the rights, privileges, immunities, powers and franchises of the Company and the
Purchaser will vest in the Surviving Corporation and (iv) all obligations,
duties, debts and liabilities of the Company and the Purchaser will be the
obligations, duties, debts and liabilities of the Surviving Corporation. The
Certificate of Incorporation of the Purchaser, as in effect immediately prior to
the Effective Time, will be the Certificate of Incorporation of the Surviving
Corporation and the By-laws of the Purchaser, as in effect immediately prior to
the Effective Time, will be the By-laws of the Surviving Corporation. The
directors and officers of the Purchaser immediately prior to the Effective Time
will, from and after the Effective Time, be the directors and officers of the
Surviving Corporation.
As a result of the Merger, the Common Stock will no longer be publicly
traded and Parent will become the sole stockholder of the Surviving Corporation.
Following the Merger, persons who were stockholders of the Company immediately
prior to the Merger will no longer have an opportunity to continue their
interests in the Company as an ongoing corporation and therefore will not share
in its future earnings and potential growth. Trading in the shares of Common
Stock on the NYSE will cease immediately following the Effective Time. At the
Effective Time, the shares of Common Stock will be delisted from the NYSE.
Registration of the Common Stock under the Exchange Act also will be terminated,
as will the ongoing disclosure requirements thereunder, except to the extent
that such disclosure is required as a result of the outstanding value support
rights of the Company.
Stockholders who properly perfect their statutory appraisal rights under
and in accordance with Section 262 of the DGCL will have the right to seek
appraisal of their Common Stock. See 'STOCKHOLDERS' RIGHTS OF APPRAISAL.'
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PLANS FOR THE COMPANY AFTER THE MERGER
It is expected that following the Merger, the business and operations of
the Company will be continued by the Surviving Corporation substantially as they
have been and are currently being conducted. The directors and officers of the
Purchaser immediately prior to the Effective Time will, from and after the
Effective Time, be the directors and officers of the Surviving Corporation.
After the Merger, the Company will become a wholly owned subsidiary of
Parent and the public will no longer own a minority equity interest in the
Company. Accordingly, Parent will be able to direct and control the policies of
the Company and its subsidiaries, including with respect to any extraordinary
corporate transaction such as a merger, reorganization or liquidation involving
the Company or any of its subsidiaries, a sale or transfer of a material amount
of assets of the Company or any of its subsidiaries, a change in the
capitalization or other changes in the Company's corporate structure or business
or the composition of the Company's Board or management, without taking into
account the current public minority equity interest. Any such extraordinary
transaction may occur with affiliates of the Company, Parent or the Purchaser.
Except as described in this Information Statement, Parent and the Purchaser
do not have any present plans or proposals that relate to or would result in an
extraordinary corporate transaction, such as a merger, reorganization or
liquidation involving the Company or any of its subsidiaries, a sale or transfer
of a material amount of assets of the Company or any of its subsidiaries, a
change in the capitalization or other changes in the Company's corporate
structure or business or the composition of its Board or management.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
General. In considering the Merger Agreement and the transactions
contemplated thereby, stockholders of the Company should be aware that certain
members of the Company's management and the Board have certain interests in the
Merger that may present them with actual or potential conflicts of interests
with respect to the Merger.
The following Board members also are directors and/or officers of Parent
and its affiliates: Ronald O. Perelman, Howard Gittis, Theo Folz and James R.
Maher. In addition, Mr. Perelman is the beneficial owner of all the capital
stock of Parent and the Purchaser. The Special Committee was comprised of Philip
E. Beekman, Jewel S. Lafontant-Mankarious and Drew Lewis, none of whom is an
officer or employee of Parent, the Purchaser or any of their affiliates.
Employment Agreements. The following executive officers are parties to
employment agreements with the Company or Consolidated Cigar: James R. Maher,
Theo W. Folz and Gary R. Ellis. The terms of their employment agreements will
not be affected by the Merger. Messrs. Maher and Folz serve on the Board of the
Company.
Directors' and Officers' Indemnification Insurance. Pursuant to the Merger
Agreement, Parent will cause the Surviving Corporation (or any successor to the
Surviving Corporation) to indemnify, defend and hold harmless the present and
former officers, directors, employees and agents of the Company and its
subsidiaries against all losses, claims, damages, liabilities, fees and expenses
arising out of actions or omissions occurring at or prior to the Effective Time
to the fullest extent permitted under Delaware law as in effect at the date
hereof. Subject to certain limitations, Parent or the Surviving Corporation
shall also maintain the Company's existing officers' and directors' liability
insurance for a period of not less than seven years after the Effective Time.
See 'THE MERGER AGREEMENT--Certain Other Covenants--Directors' and Officers'
Insurance and Indemnification.'
Stock Options. Pursuant to the Merger Agreement, the Company has agreed to
take all actions necessary to provide that each outstanding option to purchase
Common Stock ('Stock Option') becomes fully vested and exercisable prior to the
Effective Time, to cancel such Stock Option and to make certain cash payments to
the holders of such Stock Option in consideration for such cancellation. Ronald
O. Perelman, James R. Maher, Theo W. Folz and Will Nesbitt will receive
$16,500,000, $19,593,750, $2,150,000 and $537,500, respectively, in respect of
their Stock Options pursuant to the Merger Agreement. See 'THE MERGER
AGREEMENT-- Payments Under Stock Options.'
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ACCOUNTING TREATMENT OF THE MERGER
The Merger will be accounted for under the 'purchase' method of accounting
in accordance with generally accepted accounting principles. Therefore, the
aggregate consideration paid by Parent and the Purchaser in connection with the
Merger will be allocated to the Company's identifiable assets and liabilities
based on their fair market values, with any excess being treated as goodwill.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO STOCKHOLDERS
In general, under the Internal Revenue Code of 1986, as amended (the
'Code'), the receipt of cash by a stockholder pursuant to the Merger or pursuant
to the exercise of stockholders' rights of appraisal will be a taxable event for
federal income tax purposes. Generally, a stockholder will recognize capital
gain or loss equal to the difference between (i) the amount of cash received and
(ii) such stockholder's tax basis in the Common Stock surrendered in exchange
therefor. Such capital gain or loss will be a long-term capital gain or loss if
such stockholder has held such Common Stock for more than one year at the
Effective Time. Such gain or loss must be calculated separately for each block
of shares of Common Stock (e.g., shares acquired at the same price in a single
transaction) held by the stockholder. Stockholders will not be entitled to use
the installment method to report any gain with respect to the exchange of the
Common Stock because the Common Stock is publicly traded.
The preceding discussion describes the material federal income tax
consequences of the Merger, and does not address any potentially applicable
local, state or foreign tax laws. The discussion assumes that stockholders hold
their shares of Common Stock as capital assets within the meaning of Section
1221 of the Code. Moreover, it does not discuss all aspects of federal income
taxation that may be relevant to a stockholder and may not apply to (i) Common
Stock acquired upon exercise of incentive stock options, non-qualified stock
options or otherwise as compensation; (ii) certain tax-exempt stockholders;
(iii) stockholders that are subject to special tax provisions, such as banks and
insurance companies; and (iv) certain nonresident aliens and foreign
corporations.
A stockholder may be subject to information reporting and to backup
withholding at a rate of 31% of all amounts paid to the stockholder, unless such
stockholder provides a correct taxpayer identification number or proof of an
applicable exemption to the Company, and otherwise complies with applicable
requirements under the Code. THE DISCUSSION OF FEDERAL INCOME TAX CONSEQUENCES
SET FORTH ABOVE IS FOR GENERAL INFORMATION ONLY AND IS BASED ON EXISTING LAW AS
OF THE DATE OF THIS INFORMATION STATEMENT. EACH STOCKHOLDER IS URGED TO CONSULT
HIS OR HER TAX ADVISOR TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO HIM OR
HER OF THE MERGER (INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL,
FOREIGN AND OTHER TAX LAWS).
LITIGATION
In January 1997, seven Actions were filed in the Chancery Court objecting
to the proposed transaction that ultimately culminated in the execution of the
Merger Agreement and the price originally proposed to be paid for the Common
Stock. See 'SPECIAL FACTORS--Background of the Merger.' On March 17, 1997, the
parties to all of the Actions except Fishbaum executed a Memorandum of
Understanding setting forth the terms of their agreement in principle to settle
these Actions. The Memorandum of Understanding acknowledges the enhanced terms
for stockholders set forth in the Merger Agreement and provides that settling
plaintiffs may seek up to $1.25 million in attorney's fees. The Memorandum of
Understanding contemplates the drafting and execution of a Stipulation of
Settlement by the parties and its approval by the Chancery Court, which approval
is expected to occur in the third quarter of 1997.
SOURCE AND AMOUNT OF FUNDS
The total amount of funds required to consummate the transactions
contemplated by the Merger Agreement and to pay related fees and expenses is
estimated to be approximately $389 million, which includes (i) approximately
$115.9 million to pay the Merger Consideration (not including the amount, if
any, necessary to pay the Additional Amount), (ii) approximately $38.8 million
to pay amounts owing in respect of Stock Options (iii) approximately $232.4
million to pay the Special Dividend and (iv) approximately $1.9 million to pay
related
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fees and expenses. The total amount of funds will be paid from the Surviving
Corporation's available cash and marketable securities.
STOCKHOLDERS' RIGHTS OF APPRAISAL
Pursuant to Section 262 of the DGCL, any holder of Common Stock who does
not wish to accept the consideration to be paid pursuant to the Merger Agreement
may dissent from the Merger and elect to have the fair value of such
stockholder's shares (the 'Dissenting Shares') of Common Stock (exclusive of any
element of value arising from the accomplishment or expectation of the Merger)
judicially determined and paid to such stockholder in cash, together with a fair
rate of interest, if any, provided that such stockholder complies with the
provisions of Section 262. The following discussion is not a complete statement
of the law pertaining to appraisal rights under Delaware law, and is qualified
in its entirety by the full text of Section 262, which is provided in its
entirety as Annex C to this Information Statement. All references in Section 262
and in this summary to a 'stockholder' are to the record holder of the shares of
Common Stock as to which appraisal rights are asserted.
Under Section 262, where a proposed merger is approved by written consent
of stockholders, the corporation must notify each of its stockholders that
appraisal rights are available, and must include in such notice a copy of
Section 262. This Information Statement constitutes such notice to stockholders
of the Company. Any stockholder who wishes to exercise such appraisal rights or
who wishes to preserve the right to do so should review carefully Annex C to
this Information Statement because failure to comply with the procedures
specified in Section 262 timely and properly will result in the loss of
appraisal rights. Moreover, because of the complexity of the procedures for
exercising the right to seek appraisal of the Common Stock, the Company believes
that stockholders who consider exercising such rights should seek the advice of
counsel.
Any holder of Common Stock wishing to exercise the right to dissent from
the Merger and demand appraisal under Section 262 of the DGCL must satisfy each
of the following conditions:
(i) Such stockholder must deliver to the Company a written demand for
appraisal of such stockholder's shares within 20 days after the date of
mailing of this notice of appraisal, which demand will be sufficient if it
reasonably informs the Company of the identity of the stockholder and that
the stockholder intends thereby to demand the appraisal of such holder's
shares; and
(ii) Such stockholder must continuously hold such shares from the date
of making the demand through the Effective Time. Accordingly, a stockholder
who is the record holder of shares of Common Stock on the date the written
demand for appraisal is made but who thereafter transfers such shares prior
to the Effective Time will lose any right to appraisal in respect of such
shares.
A demand for appraisal should be executed by or on behalf of the
stockholder of record, fully and correctly, as such stockholder's name appears
on such stock certificates, should specify the stockholder's name and mailing
address, the number of shares of Common Stock owned and that such stockholder
intends thereby to demand appraisal of such stockholder's Common Stock. If the
shares are owned of record in a fiduciary capacity, such as by a trustee,
guardian or custodian, execution of the demand should be made in that capacity,
and if the shares are owned of record by more than one person as in a joint
tenancy or tenancy in common, the demand should be executed by or on behalf of
all owners. An authorized agent, including one or more joint owners, may execute
a demand for appraisal on behalf of a stockholder; however, the agent must
identify the record owner or owners and expressly disclose the fact that, in
executing the demand, the agent is acting as agent for such owner or owners. A
record holder such as a broker who holds shares as nominee for several
beneficial owners may exercise appraisal rights with respect to the shares held
for one or more beneficial owners while not exercising such rights with respect
to the shares held for one or more beneficial owners; in such case, the written
demand should set forth the number of shares as to which appraisal is sought,
and where no number of shares is expressly mentioned the demand will be presumed
to cover all shares held in the name of the record owner. Stockholders who hold
their shares in brokerage accounts or other nominee forms and who wish to
exercise appraisal rights are urged to consult with their brokers to determine
the appropriate procedures for the making of a demand for appraisal by such a
nominee.
A stockholder who elects to exercise appraisal rights should mail or
deliver a written demand to: Mafco Consolidated Group Inc., 35 East 62nd Street,
New York, New York 10021, Attention: General Counsel.
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Within 120 days after the Effective Time, but not thereafter, either the
Surviving Corporation or any Stockholder who has complied with the requirements
of Section 262 may file a petition in the Delaware Chancery Court demanding a
determination of the value of the shares of Common Stock held by all dissenting
stockholders. The Company does not presently intend to file such a petition, and
stockholders seeking to exercise appraisal rights should not assume that the
Surviving Corporation will file such a petition or that the Surviving
Corporation will initiate any negotiations with respect to the fair value of
such shares. Accordingly, stockholders who desire to have their shares appraised
should initiate any petitions necessary for the perfection of their appraisal
rights within the time periods and in the manner prescribed in Section 262.
Inasmuch as the Company has no obligation to file such a petition, the failure
of a stockholder to do so within the period specified could nullify such
stockholder's previous written demand for appraisal. In any event, at any time
within 60 days after the Effective Time (or at any time thereafter with the
written consent of the Company), any stockholder who has demanded appraisal has
the right to withdraw the demand and to accept payment of the consideration
provided in the Merger Agreement.
Pursuant to the Merger Agreement, the Company has agreed to give the
Purchaser prompt notice of any demands for appraisal received by the Company,
and, prior to the Effective Time, (i) the Purchaser shall have the right to
participate in all negotiations and proceedings with respect to such demands and
(ii) the Company will not, except with the prior written consent of the
Purchaser, make any payment with respect to or offer to settle, any such
demands. See 'THE MERGER AGREEMENT--Dissenter's Rights.'
Within 120 days after the Effective Time, any stockholder who has complied
with the provisions of Section 262 to that point in time will be entitled to
receive from the Surviving Corporation, upon written request, a statement
setting forth the aggregate number of shares not voted in favor of the Merger
Agreement and with respect to which demands for appraisal have been received and
the aggregate number of holders of such shares. The Surviving Corporation must
mail such statement to the stockholder within 10 days of receipt of such
request.
If a petition for an appraisal is timely filed, after a hearing on such
petition, the Delaware Chancery Court will determine which stockholders are
entitled to appraisal rights and will appraise the 'fair value' of their shares,
exclusive of any element of value arising from the accomplishment or expectation
of the Merger, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. The costs of the action may be
determined by the Delaware Chancery Court and taxed upon the parties as the
Delaware Chancery Court deems equitable. Upon application of a dissenting
stockholder, the Delaware Chancery Court may also order that all or a portion of
the expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorneys' fees and the
fees and expenses of experts, be charged pro rata against the value of all of
the shares entitled to appraisal. STOCKHOLDERS CONSIDERING SEEKING APPRAISAL
SHOULD BE AWARE THAT THE FAIR VALUE OF THEIR SHARES AS DETERMINED UNDER SECTION
262 COULD BE MORE THAN, THE SAME AS OR LESS THAN THE CONSIDERATION THEY WOULD
RECEIVE PURSUANT TO THE MERGER AGREEMENT IF THEY DID NOT SEEK APPRAISAL OF THEIR
SHARES AND THAT INVESTMENT BANKING OPINIONS ARE NOT OPINIONS AS TO FAIR VALUE
UNDER SECTION 262.
In determining fair value, the Delaware Chancery Court is to take into
account all relevant factors. In Weinberger v. UOP, Inc., the Delaware Supreme
Court discussed the factors that could be considered in determining fair value
in an appraisal proceeding, stating that 'proof of value by any techniques or
methods that are generally considered acceptable in the financial community and
otherwise admissible in court' should be considered, and that 'fair price
obviously requires consideration of all relevant factors involving the value of
a company.' The Delaware Supreme Court stated that, in making this determination
of fair value, the court must consider market value, asset value, dividends,
earnings prospects, the nature of the enterprise and any other facts that could
be ascertained as of the date of the merger that throw any light on future
prospects of the merged corporation. In Weinberger, the Delaware Supreme Court
stated that 'elements of future value, including the nature of the enterprise,
that are known or susceptible of proof as of the date of the merger and not the
product of speculation, may be considered.' Section 262 provides that fair value
is to be 'exclusive of any element of value arising from the accomplishment or
expectation of the merger.'
Any stockholder who has duly demanded an appraisal in compliance with
Section 262 will not, after the Effective Time, be entitled to vote the shares
subject to such demand for any purpose or be entitled to the
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payment of dividends or other distributions on those shares (except dividends or
other distributions payable to holders of record of shares as of a record date
prior to the Effective Time).
At any time within 60 days after the Effective Time, any stockholder who
has demanded appraisal rights will have the right to withdraw such demand for
appraisal and to accept the terms offered in the Merger; after this period, the
stockholder may withdraw such demand for appraisal only with the consent of the
Surviving Corporation. If no petition for appraisal is filed with the Delaware
Chancery Court within 120 days after the Effective Time, or if such stockholder
has withdrawn such demand for appraisal as discussed in the preceding sentence,
stockholders' rights to appraisal shall cease, and all holders of shares of
Common Stock will be entitled to receive the Merger Consideration. Any
stockholder may withdraw such stockholder's demand for appraisal by delivering
to the Surviving Corporation a written withdrawal of such stockholder's demand
for appraisal and acceptance of the Merger, except that (i) any such attempt to
withdraw made more than 60 days after the Effective Time will require written
approval of the Surviving Corporation and (ii) no appraisal proceeding in the
Delaware Chancery Court shall be dismissed as to any stockholder without the
approval of the Delaware Chancery Court, and such approval may be conditioned
upon such terms as the Delaware Chancery Court deems just.
FAILURE TO COMPLY STRICTLY WITH THE PROCEDURES SET FORTH IN SECTION 262 OF
THE DGCL WILL RESULT IN THE LOSS OF A STOCKHOLDER'S STATUTORY APPRAISAL RIGHTS.
CONSEQUENTLY, ANY STOCKHOLDER WISHING TO EXERCISE APPRAISAL RIGHTS IS URGED TO
CONSULT LEGAL COUNSEL BEFORE ATTEMPTING TO EXERCISE SUCH RIGHTS.
THE MERGER AGREEMENT
THE FOLLOWING IS A SUMMARY OF THE MATERIAL PROVISIONS OF THE MERGER
AGREEMENT NOT SUMMARIZED ELSEWHERE IN THIS INFORMATION STATEMENT. THE FOLLOWING
SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE MERGER AGREEMENT, WHICH IS ATTACHED AS ANNEX A TO THIS
INFORMATION STATEMENT AND IS INCORPORATED HEREIN BY REFERENCE. STOCKHOLDERS ARE
URGED TO READ THE MERGER AGREEMENT IN ITS ENTIRETY AND TO CONSIDER IT CAREFULLY.
EFFECTIVE TIME
The Merger will become effective, and the Effective Time will occur, upon
the filing of a Certificate of Merger with the Secretary of State of the State
of Delaware as required by the DGCL or such later time as is agreed to by the
parties and specified in such certificate. Such filing will be made on or as
promptly as practicable following the closing date under the Merger Agreement,
which will take place not later than the second business day after the
satisfaction or waiver of all of the conditions set forth in the Merger
Agreement, or such other time as agreed by the Company, Parent and the Purchaser
(the 'Closing Date'). There can be no assurance as to when and if the Merger
will be consummated. If the Merger has not been consummated on or prior to
September 30, 1997, the Merger Agreement may be terminated by either the Company
or Parent. See '--Conditions to Consummation of the Merger' and '--Termination.'
MERGER CONSIDERATION; CONVERSION OF SHARES
At the Effective Time, each share of Common Stock (other than shares as to
which dissenters' rights have been duly asserted and perfected under the DGCL
and shares held by the Company, Parent, the Purchaser or any other subsidiary of
Parent) will be converted into the right to receive the Merger Consideration.
Stockholders will be entitled to receive the Merger Consideration in cash,
without interest, upon surrender of the certificates formerly representing such
shares of Common Stock. See '--Procedure for Payment.' All such shares of Common
Stock, when so converted, will no longer be outstanding and will automatically
be cancelled and retired and will cease to exist, and each holder of a
certificate representing any such shares will cease to have any rights with
respect thereto, except the right to receive the Merger Consideration therefor
upon the surrender of such certificate.
All shares of Common Stock that are held by the Company as treasury stock
and any shares of Common Stock owned by Parent, the Purchaser or any other
subsidiary of Parent will be cancelled and retired and will cease to exist and
no Merger Consideration will be delivered in exchange therefor.
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PROCEDURE FOR PAYMENT
Prior to the Effective Time, Parent will designate an agent (the 'Paying
Agent') to receive the funds, as needed, to effect the payment of the Merger
Consideration. Promptly after the Effective Time, the Paying Agent will mail to
each record holder of a certificate or certificates, which immediately prior to
the Effective Time represented outstanding shares of Common Stock (the
'Certificates'), whose shares were converted into the right to receive the
Merger Consideration, a letter of transmittal (which will specify that delivery
will be effected, and risk of loss and title to the Certificates will pass, only
upon delivery of the Certificates to the Paying Agent) and instructions for use
in effecting the surrender of the Certificates in exchange for payment of the
Merger Consideration. Upon surrender of a Certificate to the Paying Agent for
cancellation, together with such letter of transmittal, duly executed, the
holder of such Certificate will receive in exchange therefor the Merger
Consideration for each share of Common Stock formerly represented by such
Certificate, to be mailed within three business days of receipt thereof, and the
Certificate so surrendered shall forthwith be cancelled.
STOCKHOLDERS SHOULD NOT FORWARD CERTIFICATES TO THE PAYING AGENT UNTIL THEY
HAVE RECEIVED TRANSMITTAL FORMS.
If payment of the Merger Consideration is to be made to a person other than
the person in whose name the surrendered Certificate is registered, it will be a
condition of payment that the Certificate so surrendered be properly endorsed or
otherwise be in proper form for transfer and that the person requesting such
payment shall have paid any transfer and other taxes required by reason of the
payment of the Merger Consideration to a person other than the registered holder
of the Certificate surrendered or shall have established to the satisfaction of
the Surviving Corporation that such tax either has been paid or is not
applicable. Until surrendered, each Certificate (other than Certificates
representing Common Stock held by Parent or any of its subsidiaries, or those
stockholders who perfect their appraisal rights pursuant to the DGCL) will be
deemed at any time after the Effective Time to represent only the right to
receive the Merger Consideration.
In the event any Certificate has been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person claiming such Certificate to
be lost, stolen or destroyed, the Paying Agent will issue in exchange for such
lost, stolen or destroyed Certificate the Merger Consideration deliverable in
respect thereof, provided that the person to whom the Merger Consideration is
paid shall, as a condition precedent to the payment thereof, give the Surviving
Corporation a bond in such sum as it may direct or otherwise indemnify the
Surviving Corporation in a manner satisfactory to it against any claim that may
be made against the Surviving Corporation with respect to the Certificate
claimed to have been lost, stolen or destroyed.
DISSENTER'S RIGHTS
The Merger Agreement provides that Common Stock outstanding immediately
prior to the Effective Time and held by a stockholder who has delivered a
written demand for appraisal in accordance with Section 262 of the DGCL will not
be converted into the right to receive the Merger Consideration unless and until
such stockholder fails to perfect or effectively withdraws or otherwise loses
the right to appraisal and payment under the DGCL. See 'STOCKHOLDERS' RIGHTS OF
APPRAISAL.' The Merger Agreement further provides that, if after the Effective
Time, any such stockholder fails to perfect or effectively withdraws or loses
the right to appraisal, such Dissenting Shares will be treated as if they had
been converted as of the Effective Time into the right to receive the Merger
Consideration to which such stockholder is entitled, without interest or
dividends thereon. The Company has agreed in the Merger Agreement to give the
Purchaser prompt notice of any demands for appraisal received by the Company,
and, prior to the Effective Time, (i) the Purchaser shall have the right to
participate in all negotiations and proceedings with respect to such demands and
(ii) the Company will not, except with the prior written consent of the
Purchaser, make any payment with respect to, or offer to settle, any such
demands.
PAYMENTS UNDER STOCK OPTIONS
Except as Parent or the Purchaser and the holder of any Stock Option
otherwise agree, upon the Effective Time, (i) each outstanding Stock Option
whether or not then exercisable or vested, will become fully exercisable and
vested, (ii) each outstanding Stock Option will be cancelled and (iii) in
consideration of such cancellation, the Company will pay to the holder of each
Stock Option an amount in respect thereof equal to the product of
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(A) the Applicable Amount, multiplied by (B) the number of shares subject
thereto; provided that the foregoing shall not require any action that violates
any agreement in effect in respect thereof. The term 'Applicable Amount' shall
mean the excess, if any, of (A) the sum of (x) $10.00 (the amount of the Special
Dividend) and (y) the Merger Consideration over (B) the applicable exercise
price of each such Stock Option.
CERTAIN REPRESENTATIONS AND WARRANTIES
The Company. Pursuant to the Merger Agreement, the Company has made
representations and warranties regarding, among other things, (i) the Company's
organization, existence and qualification to do business and similar corporate
matters, (ii) the Company's capitalization, (iii) the Company's authority to
enter into and perform its obligations under the Merger Agreement, (iv) the
absence of conflict of the Merger Agreement and the transactions contemplated
thereby with the Company's certificate of incorporation, by-laws, certain
agreements and applicable laws, (v) certain regulatory consents and approvals,
(vi) certain filings with the SEC and the financial statements contained
therein, (vii) the accuracy of information contained in this Information
Statement and certain other SEC filings relating to the transactions
contemplated by the Merger Agreement and (viii) opinion of the Special
Committee's financial advisor.
Parent and the Purchaser. Pursuant to the Merger Agreement, Parent and the
Purchaser have made representations and warranties regarding, among other
things, (i) Parent's and the Purchaser's organization, existence and
qualification to do business and similar corporate matters, (ii) Parent's and
the Purchaser's authority to enter into and perform their respective obligations
under the Merger Agreement, (iii) the absence of conflict of the Merger
Agreement and the transactions contemplated thereby with Parent's and the
Purchaser's respective certificates of incorporation, by-laws, certain
agreements and applicable laws, (iv) certain regulatory consents and approvals
and (v) the accuracy of information, supplied by Parent and the Purchaser,
contained in this Information Statement and certain other SEC filings relating
to the transactions contemplated by the Merger Agreement.
CONDUCT OF BUSINESS PENDING THE CLOSING
The Merger Agreement provides that except as expressly contemplated by the
Merger Agreement or as agreed to in writing by Parent and the Purchaser, after
the date of the Merger Agreement and prior to the Effective Time, the business
of the Company and certain of its subsidiaries shall be conducted only in the
ordinary and usual course. In particular, the Company will not, directly or
indirectly, (i) sell, transfer or pledge or agree to sell, transfer or pledge
any of the shares of Common Stock or capital stock of its subsidiaries
beneficially owned by it (other than pursuant to the Cigar Secondary Offering);
(ii) amend its Certificate of Incorporation or By-laws; (iii) split, combine or
reclassify the outstanding shares of Common Stock; (iv) declare, set aside or
pay any dividend or other distribution payable in cash, stock or property with
respect to its capital stock (other than the Special Dividend); or (v) redeem,
purchase or otherwise acquire directly or indirectly any of its capital stock.
CERTAIN OTHER COVENANTS
Further Action; Reasonable Efforts. Pursuant to the Merger Agreement, each
of the parties has also agreed to use its reasonable efforts to take all actions
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by the Merger
Agreement, including using reasonable efforts to satisfy the conditions
precedent to the obligations of any of the parties, to obtain all necessary
authorizations, consents and approvals, and to effect all necessary
registrations and filings. In addition, Parent, the Purchaser and the Company
shall use their respective reasonable efforts to resolve such objections, if
any, as may be asserted with respect to the transactions contemplated hereby
under the laws, rules, guidelines or regulations of any federal, state, local or
foreign court, legislative, executive or regulatory authority or agency (a
'Governmental Entity').
Action by Written Consent; Information Statement. Parent has agreed to
vote, or cause to be voted, by written consent, all of the shares of Common
Stock owned by it or the Purchaser in favor of the approval and adoption of the
Merger Agreement and to provide the Company with all information concerning
Parent or the Purchaser necessary or reasonably appropriate to be included in
this Information Statement.
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Publicity. The Merger Agreement also provides that no party to the Merger
Agreement will issue or cause the publication of any press release or other
announcement with respect to the Merger, the Merger Agreement or the other
transactions contemplated thereby without the prior consultation of the other
parties, except as may be required by law or by any listing agreement with a
national securities exchange if all reasonable efforts have been made to consult
with the other parties.
Directors' and Officers' Insurance and Indemnification. Pursuant to the
Merger Agreement, Parent will cause the Surviving Corporation (or any successor
to the Surviving Corporation) to indemnify, defend and hold harmless the present
and former officers, directors, employees and agents of the Company and its
subsidiaries against all losses, claims, damages, liabilities, fees and expenses
arising out of actions or omissions occurring at or prior to the Effective Time
to the fullest extent permitted under Delaware law as in effect at the date of
the Merger Agreement. Parent or the Surviving Corporation shall also maintain
the Company's existing officers' and directors' liability insurance for a period
of not less than seven years after the Effective Time. Parent may substitute
therefor policies of substantially similar coverage and amounts containing terms
no less favorable to such former directors or officers; provided, that in no
event shall Parent or the Surviving Corporation be required to pay annual
premiums for insurance in excess of that which is commercially reasonable;
provided further, that if the annual premiums for such insurance coverage exceed
that which is commercially reasonable, Parent or the Surviving Corporation shall
be obligated to obtain a policy with the greatest coverage at a cost that is
commercially reasonable.
CONDITIONS TO CONSUMMATION OF THE MERGER
The Merger Agreement provides that the obligation of each party to the
Merger Agreement to effect the Merger is subject to the satisfaction on or prior
to the Closing Date of the following conditions (any or all of which may be
waived by the parties thereto): (i) no statute, rule, regulation, order, decree
or injunction shall have been enacted, entered, promulgated or enforced by any
Governmental Entity that prohibits the consummation of the Merger and shall be
in effect, and no proceeding that has a reasonable probability of resulting in
such relief shall be pending; (ii) all material authorizations, consents and
approvals required to be obtained prior to consummation of the Merger shall have
been obtained; (iii) the Merger Agreement shall have been approved and adopted
by the affirmative vote of the holders of a majority of the outstanding shares
of Common Stock; (iv) the representations and warranties of each of the parties
to the Merger Agreement shall be true and correct in all material respects at
and as of the Closing Date and (v) each of the parties to the Merger Agreement
shall have performed in all material respects its obligations under the Merger
Agreement required to be performed at or prior to the Closing Date pursuant to
the terms of the Merger Agreement.
The obligations of Parent and the Purchaser to effect the Merger are also
conditioned upon there being no proceeding pending (other than those pending on
the date of the Merger Agreement) that has a reasonable probability of having,
singularly or in the aggregate with all such proceedings, a Material Adverse
Effect (as defined in the Merger Agreement).
The obligation of the Company to effect the Merger was conditioned upon the
payment of the Special Dividend, which was paid on March 14, 1997.
TERMINATION
Subject to the approval of the Special Committee, the Merger Agreement may
be terminated and the Merger may be abandoned at any time prior to the Effective
Time, whether before or after stockholder approval thereof:
(a) by the mutual consent of Parent, the Purchaser and the Company; or
(b) by either the Company, on the one hand, or Parent and the
Purchaser, on the other hand, if: (i) the Merger has not been consummated
on or prior to September 30, 1997; provided, however, such right shall not
be available to any party whose failure to fulfill any obligation has been
the cause of, or resulted in, the failure of the Merger to occur on or
prior to such date, (ii) the stockholders of the Company fail to approve
the Merger Agreement; provided, however, such right shall not be available
to any party whose failure to fulfill any obligation has been the cause of,
or resulted in, the failure of stockholders to approve the Merger
Agreement, (iii) any Governmental Entity has issued a statute, order,
decree or regulation or taken any other
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action, in each case permanently restraining, enjoining or otherwise
prohibiting the Merger and such statute, order, decree, regulation or other
action shall have become final and non-appealable or (iv) if the Special
Committee withdraws, or modifies or changes in any manner adverse to Parent
or the Purchaser its approval of the Merger Agreement after having
concluded in good faith after consultation with independent legal counsel
that there is a reasonable probability that the failure to take such action
would result in a violation of fiduciary obligations under applicable law;
provided, however, that the Special Committee shall not be entitled to
exercise this right of termination based upon a change in the trading price
per share of Cigar Common Stock because the effect of such change on the
Merger Consideration has been specifically addressed in the Merger
Agreement. See '--Miscellaneous--Amendment; Waiver; Termination.'
Upon termination, the Merger Agreement will become null and void, without
liability on the part of any party thereto, except as set forth below. See
'--Miscellaneous; Fees and Expenses.' Nothing shall relieve any party, however,
from any liability or obligation with respect to any willful breach of the
Merger Agreement.
MISCELLANEOUS
Fees and Expenses. The Merger Agreement provides that all costs and
expenses incurred in connection with the Merger Agreement and the consummation
of the transactions contemplated thereby will be paid by the party incurring
such expenses.
Amendment; Waiver; Termination. Notwithstanding any provision of the
Merger Agreement to the contrary, without the approval of the Special Committee,
the Company shall not amend, terminate or waive any right under the Merger
Agreement (including the right to terminate or any actual or potential cause of
action).
The Merger Agreement may be amended by the parties thereto at any time
before or after approval by the stockholders of the Company of the matters
presented in connection with the Merger, but after any such approval no
amendment may be made without the approval of such stockholders if such approval
is required by law or if such amendment changes the Merger Consideration or
alters or changes any of the other terms or conditions of the Merger Agreement
if such alteration or change would adversely affect the rights of stockholders
unaffiliated with Parent.
At any time prior to the Effective Time, the parties to the Merger
Agreement may (i) extend the time for the performance of any of the obligations
or other acts of the other parties thereto, (ii) waive any inaccuracies in the
representations and warranties of the other parties contained therein or in any
document, certificate or writing delivered pursuant thereto or (iii) waive
compliance with any of the agreements or conditions of the other parties thereto
contained therein.
REGULATORY MATTERS
The Company, Parent and the Purchaser are not aware of any governmental
consents or approvals that are required prior to the parties' consummation of
the Merger. It is presently contemplated that if such governmental consents and
approvals are required, such consents and approvals will be sought. There can be
no assurance that any such consents and approvals will be obtained.
29
<PAGE>
CERTAIN INFORMATION CONCERNING THE COMPANY
THE COMPANY
The Company is a holding company with no business operations of its own.
The Company's only material assets are (i) its ownership of 63.9% of the
outstanding shares of Cigar Common Stock (representing approximately 94.7% of
the combined voting power of Cigar Holdings), which owns 100% of the outstanding
shares of capital stock of Consolidated Cigar, (ii) its ownership of 100% of the
outstanding shares of convertible preferred stock of PCT and approximately 29%
of the outstanding shares of common stock of PCT (together, representing
beneficial ownership of approximately 36% of the outstanding shares of common
stock of PCT), (iii) approximately $413.9 million in cash and marketable
securities at December 31, 1996 (or approximately $239.9 million as of such
date, adjusted to give effect to the Special Dividend and the proceeds from the
Cigar Secondary Offering), (iv) a non-interest bearing, unsecured, subordinated
promissory note of Cigar Holdings in the original principal amount of $70.0
million and (v) a pension plan asset with a book value of approximately $62.7
million at December 31, 1996. In addition, the Company has certain assets and
certain contingent and other liabilities, as more fully discussed in the Company
10-K. See 'AVAILABLE INFORMATION' and 'INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE.' Through Cigar Holdings and Consolidated Cigar,
the Company manufactures and distributes cigars and pipe tobacco products. The
principal executive offices of the Company are located at 35 East 62nd Street,
New York, New York 10021, and its telephone number is (212) 572-8600.
On June 15, 1995, as part of a series of transactions (collectively, the
'Abex Transactions'), C&F Merger Inc., a wholly owned subsidiary of Mafco
Holdings, which then owned 100% of the outstanding capital stock of Cigar
Holdings and Flavors Holdings Inc. ('Flavors Holdings'), merged with and into
Abex Inc. ('Abex'), with Abex being the surviving corporation in the merger and
being renamed Mafco Consolidated Group Inc. Prior to the Abex Transactions, Abex
was engaged in an aerospace business through its then wholly owned subsidiary,
PCT. In connection with the Abex Transactions, (i) holders of Abex common stock
and related rights to acquire Abex common stock received in exchange therefor,
among other consideration, 20% of the Common Stock and all of the outstanding
shares of PCT common stock; (ii) Mafco Holdings, through Parent, its indirect
wholly owned subsidiary, received 80% of the Common Stock; and (iii) the Company
retained PCT preferred stock convertible into approximately 11% of the PCT
common stock on a fully diluted basis (in each case, such percentages reflect
the outstanding capital stock immediately following consummation of the Abex
Transactions).
Subsequently, and in a separate transaction, on July 17, 1995, the Company
purchased 5,939,400 shares of PCT common stock (thereby increasing its
investment in PCT to approximately 36% of the shares of PCT common stock then
outstanding on a fully diluted basis) and 1,484,850 shares of Common Stock from
Libra Invest & Trade Ltd. for approximately $63.9 million in cash. In connection
with such purchase, the Company entered into an agreement with PCT that, subject
to certain exceptions, limits the Company's ability to dispose of its shares of
PCT capital stock for a period of three years.
On November 25, 1996, pursuant to a Stock and VSR Purchase Agreement, the
Company sold to PCT International Holdings Inc., a wholly owned subsidiary of
PCT ('PCT International'), (i) all of the outstanding shares of Flavors Holdings
common stock and (ii) 23,156,502 Value Support Rights ('VSRs') for aggregate
consideration of approximately $297.3 million, consisting of $180.0 million
cash, the assumption of approximately $110.1 million of indebtedness of Mafco
Worldwide Corporation, a subsidiary of Flavors Holdings ('Mafco Worldwide'), and
deferred cash payments from PCT International aggregating $7.2 million, $3.7
million of which will be paid on June 30, 1997 and $3.5 million of which will be
paid on December 31, 1997. The VSRs were subsequently distributed to PCT's
stockholders in December 1996. Immediately following the sale of Flavors
Holdings common stock, Mafco Worldwide was, through a series of transactions,
merged with and into Pneumo Abex Corporation, an indirect wholly owned
subsidiary of PCT ('Pneumo Abex').
On August 21, 1996, Cigar Holdings completed an initial public offering
(the 'Cigar IPO'), in which it issued and sold 6,075,000 shares of Cigar Common
Stock, thereby reducing the Company's ownership in Cigar Holdings to
approximately 80.2%. On March 26, 1997, the Company completed the Cigar
Secondary Offering, thereby reducing its ownership in Cigar Holdings to
approximately 63.9%.
30
<PAGE>
Additional information concerning the Company and its subsidiaries is
contained in the Company 10-K and its other public filings. See 'AVAILABLE
INFORMATION' and 'INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.'
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below are the name, age, business address, present principal
occupation or employment and five-year employment history of each director and
executive officer of the Company. All directors serve terms of one year or until
the election of their respective successors. Unless otherwise indicated, the
business address of each person listed below is Mafco Consolidated Group Inc.,
35 East 62nd Street, New York, New York 10021. Each named person is a citizen of
the United States.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- --------------------------------------------------
<S> <C> <C>
Ronald O. Perelman................. 53 Chairman of the Board of Directors and a Director
Howard Gittis...................... 63 Vice Chairman and a Director
James R. Maher..................... 47 President, Chief Executive Officer and a Director
Irwin Engelman..................... 62 Executive Vice President and Chief Financial Officer
Barry F. Schwartz.................. 47 Executive Vice President and General Counsel
President and Chief Executive Officer of Tobacco Products Group and a
Theo W. Folz....................... 53 Director
Senior Vice President and Chief Financial Officer of Tobacco Products
Gary R. Ellis...................... 43 Group
Philip E. Beekman.................. 65 Director
Jewel S. Lafontant-Mankarious...... 73 Director
Drew Lewis......................... 65 Director
</TABLE>
Mr. Perelman has been Chairman of the Board of the Company since June 1995.
Mr. Perelman has been Chairman of the Board and Chief Executive Officer of Mafco
Holdings and MacAndrews & Forbes Holdings Inc. (together with Mafco Holdings,
'MacAndrews & Forbes') and various of their affiliates since 1980. Mr. Perelman
also is Chairman of the Board of Andrews Group Incorporated ('Andrews Group'),
Cigar Holdings, Meridian Sports Incorporated ('Meridian Sports') and PCT and is
the Chairman of the Executive Committee of the Boards of Directors of Marvel
Entertainment Group, Inc. ('Marvel'), Revlon Consumer Products Corporation
('Revlon Products') and Revlon, Inc. ('Revlon'). Mr. Perelman is a Director of
the following corporations that file reports pursuant to the Exchange Act:
Andrews Group, Cigar Holdings, Consolidated Cigar, The Coleman Company, Inc.
('Coleman'), Coleman Holdings Inc., Coleman Worldwide Corporation ('Coleman
Worldwide'), California Federal Bank, a Federal Savings Bank ('CalFed Bank'),
First Nationwide Holdings Inc. ('First Nationwide'), First Nationwide (Parent)
Holdings Inc. ('First Nationwide Parent'), Marvel, Marvel Holdings Inc. ('Marvel
Holdings'), Marvel (Parent) Holdings Inc. ('Marvel Parent'), Marvel III Holdings
Inc. ('Marvel III'), Meridian Sports, PCT, Pneumo Abex, Revlon, Inc., Revlon
Products, Revlon Worldwide Corporation ('Revlon Worldwide') and Toy Biz, Inc.
('Toy Biz'). On December 27, 1996, Marvel Holdings, Marvel (Parent), Marvel III
and Marvel and its subsidiaries, other than Toy Biz and Panini S.p.A., Marvel
Restaurant Ventures Corp., a general partner in Marvel's Marvel Mania restaurant
joint venture, and inactive subsidiaries, filed voluntary petitions for
reorganization under Chapter 11 of the U.S. Bankruptcy Code.
Mr. Gittis has been Vice Chairman and a Director of the Company since June
1995. Mr. Gittis has been Vice Chairman and a Director of MacAndrews & Forbes
and various of its affiliates since 1985. Mr. Gittis is a Director of the
following corporations that file reports pursuant to the Exchange Act: Andrews
Group, Cigar Holdings, Consolidated Cigar, First Nationwide, CalFed Bank, First
Nationwide Parent, Jones Apparel Group, Inc., Loral Space and Communications
Ltd., PCT, Pneumo Abex, Revlon Worldwide, Revlon and Revlon Products and
Rutherford-Moran Oil Corporation.
Mr. Maher has been President, Chief Executive Officer and a Director of the
Company since June 1995. Mr. Maher was Chairman of the Board of Laboratory
Corporation of America Holdings, a clinical laboratory company, from 1995 to
April 1996 and was President and Chief Executive Officer of National Health
Laboratories Holdings Inc., a clinical laboratory company, from 1992 to 1995.
Mr. Maher was Vice Chairman of
31
<PAGE>
The First Boston Corporation, an investment bank, from 1990 to 1992 and Managing
Director of The First Boston Corporation from 1982 to 1990. Mr. Maher is a
Director of First Brands Corporation, which files reports pursuant to the
Exchange Act.
Mr. Engelman has been the Executive Vice President and Chief Financial
Officer of the Company since June 1995 and has been the Executive Vice President
and Chief Financial Officer of MacAndrews & Forbes and various of its affiliates
since February 1992. Mr. Engelman was Executive Vice President and Chief
Financial Officer of GAF Corporation, a specialty chemical and building
materials company, from 1990 to February 1992. Mr. Engelman was President and
Chief Operating Officer of Citytrust Bancorp Inc. from 1988 to 1990; Executive
Vice President of the Blackstone Group LP from 1987 to 1988; and Executive Vice
President of General Foods Corporation for more than five years prior to 1987.
On December 27, 1996, Marvel Holdings, Marvel (Parent) and Marvel III, of which
Mr. Engelman is an executive officer, filed voluntary petitions for
reorganization under Chapter 11 of the U.S. Bankruptcy Code.
Mr. Schwartz has been Executive Vice President and General Counsel of the
Company since June 1995. He has been Executive Vice President and General
Counsel of MacAndrews & Forbes and various of its affiliates, including Cigar
Holdings, since 1993. Mr. Schwartz was Senior Vice President of MacAndrews &
Forbes from 1989 to 1993. On December 27, 1996, Marvel Holdings, Marvel (Parent)
and Marvel III, of which Mr. Schwartz is an executive officer, filed voluntary
petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code.
Mr. Folz has been President and Chief Executive Officer of the Tobacco
Products Group and a Director of the Company since June 1995. Mr. Folz has been
a Director and President and Chief Executive Officer of Cigar Holdings since
June 1996, Consolidated Cigar since August 1984 and Vice Chairman, Director and
Chief Executive Officer of Pneumo Abex (successor by merger to Mafco Worldwide)
since January 1995.
Mr. Ellis has been Senior Vice President and Chief Financial Officer of the
Tobacco Products Group of the Company since June 1995. Mr. Ellis has been Senior
Vice President, Chief Financial Officer and Treasurer of Cigar Holdings since
June 1996 and Consolidated Cigar since November 1988.
Mr. Beekman has been a Director of the Company since June 1995. Mr. Beekman
has been President of Owl Hollow Enterprises, a consulting and investment
company, for more than the past five years. Prior to that time Mr. Beekman was
Chairman of the Board of Directors and Chief Executive Officer of Hook-SuperRx,
Inc. Mr. Beekman also is a Director of Fisher Scientific International Inc.
which files reports pursuant to the Exchange Act.
Ms. LaFontant-Mankarious has been a Director of the Company since June
1995. Ms. LaFontant-Mankarious has been a Partner in the law firm of Holleb &
Coff since 1993. From 1989 to 1993, Ms. LaFontant-Mankarious was a United States
Ambassador-at-Large. Ms. LaFontant-Mankarious also is a Director of Trans World
Airlines, Inc.
Mr. Lewis has been a Director of the Company since May 1996. Mr. Lewis has
been Chairman and Chief Executive Officer of Union Pacific Corporation, a
diversified holding company, since 1994 and, for more than five years prior to
such date, was President and Chief Executive Officer of Union Pacific
Corporation ('Union Pacific'). Mr. Lewis also is a Director of the following
corporations that file reports pursuant to the Exchange Act: American Express
Company, Ford Motor Company, FPL Group, Inc., Gannett Co., Inc., Lucent
Technologies Inc, Union Pacific and Union Pacific Resources Group.
CERTAIN INFORMATION CONCERNING PARENT AND THE PURCHASER
PARENT AND THE PURCHASER
Parent, a Delaware corporation, is a holding company with no business
operations of its own. Parent's only material asset is its ownership of
approximately 85.0% of the outstanding shares of Common Stock of the Company.
The Purchaser, a Delaware corporation and a wholly owned subsidiary of Parent,
was recently incorporated and organized for the purpose of acquiring all the
common equity of the Company pursuant to the Merger. The Purchaser has conducted
no business to date except in conjunction with the transactions
32
<PAGE>
contemplated by the Merger Agreement. The principal business address and
telephone number of each of Parent and the Purchaser is 35 East 62nd Street, New
York, New York, 10021 and (212) 572-8600.
DIRECTORS AND EXECUTIVE OFFICERS
Parent
Set forth below are the name, age and business address of each director and
executive officer of Parent. All directors serve terms of one year or until the
election of their respective successors. Unless otherwise indicated, the
business address of each person listed below is Mafco Consolidated Holdings
Inc., 35 East 62nd Street, New York, New York 10021. Each named person is a
citizen of the United States.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- -------------------------------------------------
<S> <C> <C>
Ronald O. Perelman................. 54 Chairman of the Board of Directors and a Director
Howard Gittis...................... 63 Vice Chairman and a Director
Theo W. Folz....................... 53 President
Irwin Engelman..................... 62 Executive Vice President and Chief Financial Officer
Barry F. Schwartz.................. 47 Executive Vice President and General Counsel
</TABLE>
Each of the named individuals has been a director and/or officer of Parent
since June 1995. For additional information concerning the present principal
occupation or employment and five-year employment history of these individuals,
see 'CERTAIN INFORMATION CONCERNING THE COMPANY.'
The Purchaser
Set forth below are the name, age and business address of each director and
executive officer of the Company. All directors serve terms of one year or until
the election of their respective successors. Unless otherwise indicated, the
business address of each person listed below is MCG Acquisition Inc., 35 East
62nd Street, New York, New York 10021. Each named person is a citizen of the
United States. The directors and the officers of the Purchaser immediately prior
to the Merger will be the directors and officers of the Surviving Corporation
immediately after the Effective Time.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- ----------------------------------------------------------------------
<S> <C> <C>
Ronald O. Perelman................. 54 Chairman of the Board of Directors and a Director
Howard Gittis...................... 63 Vice Chairman and a Director
James R. Maher..................... 47 President and Chief Executive Officer
Irwin Engelman..................... 62 Executive Vice President and Chief Financial Officer
Barry F. Schwartz.................. 47 Executive Vice President and General Counsel
</TABLE>
Each of the named individuals has been a director and/or officer of the
Purchaser since February 1997. For additional information concerning the present
principal occupation or employment and five-year employment history of these
individuals, see 'CERTAIN INFORMATION CONCERNING THE COMPANY.'
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RELATIONSHIP WITH MAFCO HOLDINGS
Mafco Holdings, a Delaware corporation, currently indirectly owns
approximately 85.0% of the outstanding shares of Common Stock. Mafco Holdings is
wholly owned by Ronald O. Perelman. As a result of Mafco Holdings' stock
ownership, the Company's Board of Directors is, and is expected to continue to
be, comprised entirely of designees of Mafco Holdings, and Mafco Holdings is,
and is expected to continue to be, able to direct and control the policies of
the Company and its subsidiaries, including with respect to mergers, sales of
assets and similar transactions.
Mafco Holdings is a diversified holding company with interests in several
industries. Through its 83% ownership of Revlon, Mafco Holdings is engaged in
the cosmetics and skin care, fragrance and personal care products business.
Mafco Holdings also owns 83% of Coleman, which is engaged in the manufacture and
marketing of outdoor recreational products, portable generators, air
compressors, smoke alarms and carbon
33
<PAGE>
monoxide detectors and 65% of Meridian Sports, a manufacturer and marketer of
specialized boats and water sports equipment. Marvel, a youth entertainment
company, is 80% owned by Mafco Holdings. Mafco Holdings, through its 85%
ownership of the Company, is engaged in the manufacture and distribution of
cigars and pipe tobacco. Mafco Holdings also is in the financial services
business through its 80% ownership of CalFed Bank. The principal executive
offices of Mafco Holdings are located at 35 East 62nd Street, New York, New
York 10021.
PROMISSORY NOTE
In connection with the Cigar IPO, Cigar Holdings issued a promissory note
(the 'Promissory Note') in an original principal amount of $70 million to the
Company. The Promissory Note is non-interest bearing, unsecured, subordinated to
senior indebtedness (as defined in the Promissory Note) and repayable in whole
or in part at any time or from time to time without premium or penalty. The
Promissory Note is payable in quarterly installments of $2.5 million beginning
March 31, 1997 with the final installment payable on December 31, 2003.
OPTION GRANT
On July 22, 1996, the Company granted options to acquire 750,000 shares of
Common Stock to Mr. Perelman as compensation for services rendered and to be
rendered to the Company by Mr. Perelman in his capacity as Chairman of the Board
of Directors. Such options have an exercise price of $21.50 per share (market
price on the date of grant) and vest with respect to one third of the shares
subject to the options on the date of grant, and with respect to an additional
one third of such shares on each of July 22, 1997 and July 22, 1998. The options
expire on July 22, 2006.
Pursuant to the Merger Agreement, the Company has agreed to take all
actions necessary to provide that each outstanding Stock Option becomes fully
vested and exercisable prior to the Effective Time, to cancel such Stock Option
and to make certain cash payments to the holders of such Stock Option in
consideration for such cancellation. See 'THE MERGER AGREEMENT--Payments Under
Stock Options' and 'SPECIAL FACTORS--Interests of Certain Persons in the
Merger.'
REGISTRATION RIGHTS AGREEMENTS
Pursuant to a Registration Rights Agreement, Parent has the right to
require the Company to use its best efforts to register under the Securities
Act of 1933, as amended (the 'Securities Act') and the securities or blue sky
laws of any jurisdiction designated by Parent all or a portion of certain shares
of Common Stock acquired by Parent (the 'Registrable Shares'). The Company is
not required to (i) effect a demand registration more than once in any 12 month
period, (ii) effect more than two demand registrations with respect to the
Registrable Shares or (iii) file a registration statement during periods (not to
exceed 60 days) when (a) the Company is contemplating a public offering, (b) the
Company is in possession of certain material non-public information or (c)
audited financial statements are not available and their inclusion in a
registration statement is required. In addition, and subject to certain
conditions described in the Registration Rights Agreement, if at any time the
Company proposes to register under the Securities Act an offering of shares of
Common Stock or any other classes of equity securities, then Parent would have
the right to require the Company to use its best efforts to effect the
registration under the Securities Act and the securities or blue sky laws of any
jurisdiction designated by Parent of all or a portion of the Registrable Shares
as designated by Parent. The Company is responsible for all expenses relating to
the performance of, or compliance with, the Registration Rights Agreement,
except that Parent is responsible for underwriters' discounts and selling
commissions with respect to the Registrable Shares being sold.
FEES AND EXPENSES
Estimated fees and expenses incurred or to be incurred by the Company in
connection with the Merger are approximately as follows:
<TABLE>
<S> <C>
Investment banking fees and expenses......................................... $1,500,000.00
Legal fees and expenses...................................................... $ 200,000.00
SEC filing fee............................................................... $ 23,179.24
Accounting fees.............................................................. $ 25,000.00
Printing and mailing fees.................................................... $ 140,000.00
Miscellaneous expenses....................................................... $ 11,820.76
-------------
Total................................................................... $1,900,000.00
-------------
-------------
</TABLE>
34
<PAGE>
MARKET PRICES AND DIVIDENDS
MARKET PRICES
The principal market on which the Common Stock is traded is the NYSE under
the ticker symbol 'MFO.' From July 17, 1992 through June 15, 1995, the Common
Stock traded on the NYSE under the ticker symbol 'ABE.' On April , 1997, the
last trading day before the printing of this Information Statement, the high and
low sales prices of the Common Stock were and , respectively. On January 20,
1997, the last trading day before the public announcement of Parent's proposal
to the Company, the high and low sales prices of the Common Stock were 27 1/8
and 27, respectively. STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET
QUOTATION FOR THE COMMON STOCK.
The following table sets forth, for the calendar quarters indicated, the
high and low closing prices per share of the Common Stock as reported by the
NYSE:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1995
First Quarter............................................................. $ 8 $ 7
Second Quarter (through June 15, 1995).................................... 10 1/2 7 5/8
Second Quarter (from June 16, 1995)....................................... 22 3/8 19 3/4
Third Quarter............................................................. 29 1/8 21 1/8
Fourth Quarter............................................................ 26 17 1/4
1996
First Quarter............................................................. $20 1/4 $14
Second Quarter............................................................ 24 7/8 15 5/8
Third Quarter............................................................. 30 5/8 19 7/8
Fourth Quarter............................................................ 30 1/4 23 7/8
1997
First Quarter (through March 31).......................................... $42 1/2 $25 3/8
</TABLE>
DIVIDENDS
On March 14, 1997, the Company paid the Special Dividend. The Board will
review its dividend policy from time to time in light of the Company's results
of operations and financial position and such other business considerations the
Board deems relevant. The terms of the credit agreement and Senior Subordinated
Notes due 2003 of Consolidated Cigar limit the payment of dividends or
distributions by Consolidated Cigar to an amount equal to approximately $9.3
million as of December 31, 1996. Therefore, the Company is limited in its
ability to pay dividends to stockholders.
35
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth, as of March 31, 1997, the total number of
shares of Common Stock beneficially owned, and the percent so owned, by each
director of the Company, by each person known to the Company to be the
beneficial owner of more than 5% of the outstanding shares of Common Stock, by
each named executive officer and by all directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIAL OWNER BENEFICIALLY OWNED(A) PERCENTAGE OF CLASS
- ------------------------------------------------------------------------ --------------------- -------------------
<S> <C> <C>
Ronald O. Perelman(b) .................................................. 20,027,752 85 %
35 East 62nd Street
New York, New York 10021
James R. Maher(c)....................................................... 500,000 2 %
Philip E. Beekman....................................................... 5,000 *
Howard Gittis........................................................... 5,000 *
Drew Lewis.............................................................. 2,000 *
Barry F. Schwartz....................................................... 3,000 *
Theo W. Folz(d)......................................................... 33,334 *
Gary R. Ellis........................................................... 1,000 *
All directors and executive officers as a group ........................ 20,577,086 86 %
(10 persons)(e)(f)
</TABLE>
- ------------------
* Less than 1%
(a) Shares of Common Stock that an individual or group has a right to acquire
within 60 days after March 31, 1997 pursuant to the exercise of options,
warrants or other rights are deemed to be outstanding for the purpose of
computing the percentage ownership of such individual or group, but are not
deemed to be outstanding for the purpose of computing the percentage
ownership of any other person shown in the table.
(b) All but 250,000 of such shares of Common Stock are indirectly owned by Mr.
Perelman through Mafco Holdings. The remaining 250,000 shares represent
shares of Common Stock as to which Mr. Perelman has the right to acquire
beneficial ownership upon the exercise of stock options. All of the shares
owned by Mafco Holdings are, and shares of intermediate holding companies
may from time to time be, pledged by Mafco Holdings to secure obligations.
(c) Represents shares of Common Stock as to which Mr. Maher has the right to
acquire beneficial ownership upon the exercise of stock options.
(d) Represents shares of Common Stock as to which Mr. Folz has the right to
acquire beneficial ownership upon the exercise of stock options.
(e) Includes 250,000, 500,000 and 33,334 shares of Common Stock as to which
Messrs. Perelman, Maher and Folz, respectively, have the right to acquire
beneficial ownership upon the exercise of stock options.
(f) Neither Ms. LaFontant-Mankarious who is a director of the Company, nor Mr.
Engelman, Executive Vice President and Chief Financial Officer of the
Company, beneficially owns any shares of Common Stock.
36
<PAGE>
Annex A
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
by and among
MAFCO CONSOLIDATED GROUP INC.,
MAFCO CONSOLIDATED HOLDINGS INC.
and
MCG ACQUISITION INC.
dated as of
February 20, 1997
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
ARTICLE I
THE MERGER
Section 1.1 The Merger............ .........................................A-1
Section 1.2 Effective Time.. ...............................................A-1
Section 1.3 Closing.........................................................A-1
Section 1.4 Certificate of Incorporation; By-Laws...........................A-2
Section 1.5 Directors and Officers of the Surviving Corporation.............A-2
ARTICLE II
CONVERSION OF SHARES
Section 2.1 Conversion of Capital Stock.....................................A-2
Section 2.2 Exchange of Certificates........................................A-3
Section 2.3 Company Stock Options...........................................A-4
Section 2.4 Dissenter's Rights..............................................A-4
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 3.1 Organization....................................................A-5
Section 3.2 Capitalization..................................................A-5
Section 3.3 Authorization; Validity of Agreement............................A-6
Section 3.4 No Violations; Consents and Approvals...........................A-6
Section 3.5 SEC Reports and Financial Statements............................A-7
Section 3.6 Information Statement; Schedule 13E-3...........................A-7
Section 3.7 Opinion of Financial Advisor....................................A-7
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT
AND THE PURCHASER
Section 4.1 Organization....................................................A-8
Section 4.2 Authorization; Validity of Agreement............................A-8
Section 4.3 Consents and Approvals; No Violations...........................A-8
Section 4.4 Information in Information Statement; Schedule 13E-3............A-9
ARTICLE V
COVENANTS
Section 5.1 Interim Operations of the Company...............................A-9
Section 5.2 Further Action; Reasonable Efforts.............................A-10
Section 5.3 Action by Written Consent; Information Statement...............A-10
Section 5.4 Notification of Certain Matters................................A-11
Section 5.5 Publicity......................................................A-11
A-i
<PAGE>
Section 5.6 Directors' and Officers' Insurance and Indemnification.........A-11
Section 5.7 Brokers or Finders.............................................A-11
ARTICLE VI
CONDITIONS
Section 6.1 Conditions to Each Party's Obligation To Effect the Merger.....A-12
Section 6.2 Conditions to the Obligation of the Company to Effect
the Merger.....................................................A-12
Section 6.3 Conditions to Obligations of Parent and the Purchaser to
Effect the Merger..............................................A-12
ARTICLE VII
TERMINATION
Section 7.1 Termination....................................................A-13
Section 7.2 Effect of Termination..........................................A-14
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Fees and Expenses..............................................A-14
Section 8.2 Amendment; Waiver; Termination.................................A-14
Section 8.3 Nonsurvival of Representations and Warranties..................A-15
Section 8.4 Notices........................................................A-15
Section 8.5 Interpretation.................................................A-16
Section 8.6 Headings.......................................................A-16
Section 8.7 Counterparts...................................................A-16
Section 8.8 Entire Agreement; No Third Party Beneficiaries; Rights
of Ownership...................................................A-16
Section 8.9 Severability...................................................A-16
Section 8.10 Governing Law..................................................A-16
Section 8.11 Assignment.....................................................A-16
A-ii
<PAGE>
TABLE OF DEFINED TERMS
affiliates..................................................................A-13
Applicable Amount........................................................... A-3
Average..................................................................... A-2
beneficial ownership........................................................A-13
Board ...................................................................... A-4
By-laws..................................................................... A-1
Certificate of Incorporation................................................ A-1
Certificate of Merger....................................................... A-1
Certificates................................................................ A-2
Cigar Common Stock.......................................................... A-2
Cigar Secondary Offering.................................................... A-4
Closing .................................................................... A-1
Closing Date................................................................ A-1
Company .................................................................... A-1
Company Common Stock........................................................ A-2
Company SEC Documents....................................................... A-5
Consolidated Cigar.......................................................... A-2
DGCL........................................................................ A-1
Dissenting Shares........................................................... A-3
Effective Time.............................................................. A-1
Excess...................................................................... A-2
Exchange Act................................................................ A-5
GAAP........................................................................ A-5
Governmental Entity......................................................... A-5
include.....................................................................A-13
Information Statement....................................................... A-8
Laws........................................................................ A-5
made available..............................................................A-13
Material Adverse Effect..................................................... A-4
Merger .................................................................... A-1
Merger Consideration........................................................ A-2
Parent...................................................................... A-1
Paying Agent................................................................ A-2
Person...................................................................... A-4
Public Subsidiary........................................................... A-4
Purchaser................................................................... A-1
Purchaser Common Stock...................................................... A-2
Preferred Stock............................................................. A-4
Schedule 13E-3.............................................................. A-6
SEC .................................................................... A-4
Secretary of State.......................................................... A-1
Securities Act.............................................................. A-5
Shares .................................................................... A-2
Special Committee........................................................... A-1
Stock Option................................................................ A-3
Surviving Corporation....................................................... A-1
Subsidiary.................................................................. A-4
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<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of February 20, 1997,
by and among Mafco Consolidated Group Inc., a Delaware corporation (the
"Company"), Mafco Consolidated Holdings Inc., a Delaware corporation ("Parent"),
and MCG Acquisition Inc., a wholly owned subsidiary of Parent and a Delaware
corporation (the "Purchaser").
WHEREAS, the Boards of Directors of Parent and the Purchaser
and the Board of Directors of the Company, upon the recommendation of its
special committee (the "Special Committee"), have each approved, and deem it
advisable and in the best interests of their respective stockholders to
consummate, the acquisition of the Company by Parent upon the terms and subject
to the conditions set forth herein; and
WHEREAS, in furtherance of such acquisition, the Boards of
Directors of Parent, the Purchaser and the Company and Parent as the sole
stockholder of the Purchaser have each approved this Agreement and the merger of
the Purchaser with and into the Company in accordance with the terms, and
subject to the conditions, of this Agreement and in accordance with the General
Corporation Law of the State of Delaware (the "DGCL");
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants and agreements set forth
herein, the parties hereto agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. Upon the terms and subject to the
conditions of this Agreement and in accordance with the DGCL, at the Effective
Time (as defined in Section 1.2 hereof), the Purchaser shall be merged with and
into the Company (the "Merger") and the separate corporate existence of the
Purchaser shall cease. After the Merger, the Company shall continue as the
surviving corporation (sometimes hereinafter referred to as the "Surviving
Corporation"). The Merger shall have the effect as provided in the applicable
provisions of the DGCL. Without limiting the generality of the foregoing, upon
the Merger, all the rights, privileges, immunities, powers and franchises of the
Company and the Purchaser shall vest in the Surviving Corporation and all
obligations, duties, debts and liabilities of the Company and the Purchaser
shall be the obligations, duties, debts and liabilities of the Surviving
Corporation.
Section 1.2 Effective Time. On or as promptly as practicable
following the Closing Date (as defined in Section 1.3), the Purchaser and the
Company will cause an appropriate Certificate of Merger (the "Certificate of
Merger") to be executed and filed with the Secretary of State of the State of
Delaware (the "Secretary of State") in such form and executed as provided in the
DGCL. The Merger shall become effective on the date on which the Certificate of
Merger has been duly filed with the Secretary of State or such time as is agreed
upon by the parties and specified in the Certificate of Merger, and such time is
hereinafter referred to as the "Effective Time."
Section 1.3 Closing. The closing of the Merger (the "Closing")
will take place at 10:00 a.m., New York time, on a date to be specified by the
parties, which shall be no later than the second business day after satisfaction
or waiver of all of the conditions set forth in Article VI hereof (the "Closing
Date"), at the
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offices of Skadden, Arps, Slate, Meagher & Flom LLP, 919 Third Avenue, New York,
New York 10022-3897, unless another date, time or place is agreed to in writing
by the parties hereto.
Section 1.4 Certificate of Incorporation; By-Laws. Pursuant to
the Merger, (x) the certificate of incorporation of the Company, as amended, as
in effect immediately prior to the Effective Time (the "Certificate of
Incorporation"), shall be amended as set forth in Exhibit A hereto and such
Certificate of Incorporation, as so amended at the Effective Time, shall be the
certificate of incorporation of the Surviving Corporation until thereafter
amended in accordance with applicable law and (y) the by-laws of the Purchaser,
as in effect immediately prior to the Effective Time (the "By-laws"), shall be
the by-laws of the Surviving Corporation until thereafter amended in accordance
with applicable law.
Section 1.5 Directors and Officers of the Surviving
Corporation. The directors and officers of the Purchaser immediately prior to
the Effective Time shall, from and after the Effective Time, be the directors
and officers of the Surviving Corporation until their successors shall 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 by-laws.
ARTICLE II
CONVERSION OF SHARES
Section 2.1 Conversion of Capital Stock. As of the Effective
Time, by virtue of the Merger and without any action on the part of the holders
of any shares of common stock, par value $.0l per share, of the Company
(referred to herein as "Shares" or "Company Common Stock") or the common stock,
par value $.01 per share, of the Purchaser (the "Purchaser Common Stock"):
(a) Each issued and outstanding share of Company Common Stock
(other than Shares to be cancelled in accordance with Section 2.1(c) and other
than Dissenting Shares covered by Section 2.4) shall be converted into the right
to receive the sum of:
(x) $33.50; and
(y) if the average of the per share closing prices
of the common stock, par value $.01 per share ("Cigar Common Stock"), of
Consolidated Cigar Holdings Inc., a Delaware corporation and a subsidiary of
the Company ("Consolidated Cigar"), on the New York Stock Exchange for the ten
trading days ending two trading days prior to effectiveness of the action by
written consent contemplated by Section 5.3 hereof (the "Average") exceeds $33
(the amount by which the Average exceeds $33, the "Excess"), then
(i) if the Company shall not have sold shares of
Cigar Common Stock in the Cigar Secondary Offering (as defined in
Section 3.2 hereof) or shall have sold shares of Cigar Common Stock in
the Cigar Secondary Offering at a gross sales price per share in excess
of $33, an amount equal to the Excess, or
(ii) if the Company shall have sold shares of Cigar
Common Stock in the Cigar Secondary Offering at a gross sales price per
share of $33 or less, an amount equal to the Excess multiplied by a
fraction, the numerator of which shall be the number of shares of Cigar
Common Stock beneficially owned by the Company immediately following,
and the denominator of which shall be the
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number of shares of Cigar Common Stock beneficially owned by the Company
immediately prior to, the consummation of the Offering ((x) and (y),
collectively, the "Merger Consideration").
All such shares of Company Common Stock, when so converted, shall no longer be
outstanding and shall automatically be cancelled and retired and shall cease to
exist, and each holder of a certificate representing any such Shares shall cease
to have any rights with respect thereto, except the right to receive the Merger
Consideration therefor upon the surrender of such certificate in accordance with
Section 2.2. Any payment made pursuant to this Section 2.1(a) shall be made net
of applicable withholding taxes to the extent such withholding is required by
law.
(b) Each issued and outstanding share of the Purchaser Common
Stock shall be converted into and become one fully paid and nonassessable share
of common stock of the Surviving Corporation.
(c) All shares of Company Common Stock that are held by the
Company as treasury stock and any shares of Company Common Stock owned by
Parent, the Purchaser or any other subsidiary of Parent shall be cancelled and
retired and shall cease to exist and no Merger Consideration shall be delivered
in exchange therefor.
Section 2.2 Exchange of Certificates.
(a) Prior to the Effective Time, Parent shall designate a bank
or trust company to act as agent for the holders of the Shares in connection
with the Merger (the "Paying Agent") to receive the funds, as needed, to
which holders of the Shares shall become entitled pursuant to Section 2.1(a).
Such funds shall be invested by the Paying Agent as directed by Parent or the
Surviving Corporation. All interest earned on such funds shall be paid to
Parent.
(b) At the Effective Time, Parent will instruct the Paying
Agent to promptly, and in any event not later than three business days following
the Effective Time, mail to each holder of record of a certificate or
certificates, which immediately prior to the Effective Time represented
outstanding shares of Company Common Stock (the "Certificates"), whose Shares
were converted pursuant to Section 2.1(a) into the right to receive the Merger
Consideration (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Paying Agent and shall be in such
form and have such other provisions as Parent and the Company may reasonably
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 or to such other agent or
agents as may be appointed by the Company, together with such letter of
transmittal, duly executed, the holder of such Certificate shall be entitled to
receive in exchange therefor the Merger Consideration for each share of Company
Common Stock formerly represented by such Certificate, to be mailed within three
business days of receipt thereof, and the Certificate so surrendered shall
forthwith be cancelled. If payment of the Merger Consideration 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 shall be otherwise in proper form for
transfer and that the person requesting such payment shall have paid any
transfer and other taxes required by reason of the payment of the Merger
Consideration to a person other than the registered holder of the Certificate
surrendered or shall have established to the satisfaction of the Surviving
Corporation that such tax either has been paid or is not applicable. Until
surrendered as contemplated by this Section 2.2, each Certificate (other than
Certificates representing Company Common Stock held by Parent or the Purchaser,
or any subsidiary of Parent or the Purchaser, or Dissenting Shares (as defined
in Section 2.4))
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<PAGE>
shall be deemed at any time after the Effective Time to represent only the right
to receive the Merger Consideration as contemplated by this Section 2.2.
(c) In the event any Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the Person (as
defined in Section 3.1) claiming such Certificate to be lost, stolen or
destroyed, the Paying Agent will issue in exchange for such lost, stolen or
destroyed Certificate the Merger Consideration deliverable in respect thereof as
determined in accordance with this Article II, provided that the Person to whom
the Merger Consideration is paid shall, as a condition precedent to the payment
thereof, give the Surviving Corporation a bond in such sum as it may direct or
otherwise indemnify the Surviving Corporation in a manner satisfactory to it
against any claim that may be made against the Surviving Corporation with
respect to the Certificate claimed to have been lost, stolen or destroyed.
(d) After the Effective Time, the stock transfer books of the
Company shall be closed and there shall be no transfers on the stock transfer
books of the Surviving Corporation of Shares which were outstanding immediately
prior to the Effective Time. If, after the Effective Time, Certificates are
presented to the Surviving Corporation, they shall be cancelled and exchanged
for the Merger Consideration as provided in this Article II.
Section 2.3 Company Stock Options. Except as Parent or the
Purchaser and the holder of any option ("Stock Option") to purchase Company
Common Stock otherwise agree, the Company shall take all actions necessary to
provide that, upon the Effective Time, (i) each outstanding Stock Option,
whether or not then exercisable or vested, shall become fully exercisable and
vested, (ii) each outstanding Stock Option shall be cancelled and (iii) in
consideration of such cancellation the Company shall pay to the holder of each
Stock Option an amount in respect thereof equal to the product of (A) the
Applicable Amount, multiplied by (B) the number of shares subject thereto;
provided that the foregoing shall not require any action which violates any
agreement in effect in respect thereof. The term "Applicable Amount" shall mean
the excess, if any, of (A) the sum of (x) the dividend referred to in Section
6.2(c) and (y) the Merger Consideration over (B) the applicable exercise price
of each such Stock Option.
Section 2.4 Dissenter's Rights. Notwithstanding anything in
this Agreement to the contrary, Shares outstanding immediately prior to the
Effective Time and held by a holder who has not voted in favor of the Merger or
consented thereto in writing and who has delivered a written demand for
appraisal of such shares in accordance with Section 262 of the DGCL ("Dissenting
Shares"), shall not be converted into the right to receive the Merger
Consideration, as provided in Section 2.1(a) hereof, unless and until such
holder fails to perfect or effectively withdraws or otherwise loses his right to
appraisal and payment under the DGCL. If, after the Effective Time, any such
holder fails to perfect or effectively withdraws or loses his right to
appraisal, such Dissenting Shares shall thereupon be treated as if they had been
converted as of the Effective Time into the right to receive the Merger
Consideration to which such holder is entitled, without interest or dividends
thereon. The Company shall give the Purchaser prompt notice of any demands
received by the Company for appraisal of Shares, and, prior to the Effective
Time, the Purchaser shall have the right to participate in all negotiations and
proceedings with respect to such demands. Prior to the Effective Time, the
Company shall not, except with the prior written consent of the Purchaser, make
any payment with respect to or offer to settle, any such demands.
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<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and the
Purchaser, as of the date hereof and as of and at the Closing Date, except as
disclosed in the Company SEC Documents (as defined in Section 3.5), as follows:
Section 3.1 Organization. Each of the Company and its Public
Subsidiaries (as defined below) is a corporation duly organized, validly
existing, and in good standing under the laws of Delaware, and has all requisite
corporate power and authority to own, lease, use and operate its properties and
to carry on its business as it is now being conducted. Each of the Company and
its Public Subsidiaries is qualified or licensed to do business as a foreign
corporation and is in good standing in each jurisdiction in which it owns real
property or in which the nature of the business conducted by it makes such
qualification or licensing necessary, except where the failure to be so
qualified or licensed individually and in the aggregate would not have or result
in a Material Adverse Effect. The term "Material Adverse Effect" means a
material adverse effect on the business, assets, liabilities, results of
operations or financial condition of the Company, its Public Subsidiaries and
their respective Subsidiaries, taken as a whole. None of the Company or any of
its Public Subsidiaries is in breach or violation of any of its certificate of
incorporation, by-laws or other organizational documents. The term "Public
Subsidiary" means Consolidated Cigar and Power Control Technologies, Inc. The
term "Subsidiary" means, with respect to any Person, any corporation or other
entity of which 50% or more of the securities or other interests having by their
terms ordinary voting power for the election of directors or others performing
similar functions with respect to such entity is directly or indirectly owned by
such Person. The term "Person" means any natural person, firm, individual,
partnership, joint venture, business trust, trust, association, corporation,
company, unincorporated entity or Governmental Entity (as defined in Section
3.4(b)).
Section 3.2 Capitalization.
(a) The authorized capital stock of the Company consists of
250,000,000 shares of Company Common Stock and 100,000,000 preferred shares, par
value $.01 per share (the "Preferred Stock"). The number of shares of Company
Common Stock issued and outstanding is 23,224,307 shares on the date hereof.
There are 1,484,850 shares of Company Common Stock issued and held in the
treasury of the Company, and there are no shares of Preferred Stock issued and
outstanding. All the outstanding shares of the Company's capital stock are duly
authorized, validly issued, fully paid and nonassessable. Except as disclosed in
the Company SEC Documents or pursuant to the Stock Options or the offering by
the Company of shares of Cigar Common Stock (the "Cigar Secondary Offering") to
be made pursuant to a registration statement on Form S-1 filed by Consolidated
Cigar with the Securities and Exchange Commission (the "SEC"), there are no
existing (i) options, warrants, calls, preemptive rights, subscriptions or other
rights, convertible securities, agreements or commitments of any character
obligating the Company or any of its Subsidiaries to issue, transfer or sell any
shares of capital stock or other equity interest in, the Company or any of its
Subsidiaries or securities convertible into or exchangeable for such shares or
equity interests, (ii) contractual obligations of the Company or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any capital stock of the
Company or any of its Subsidiaries or (iii) voting trusts or similar agreements
to which the Company or any of its Subsidiaries is a party with respect to the
voting of the capital stock of the Company or any of its Subsidiaries.
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Section 3.3 Authorization; Validity of Agreement.
(a) The Company has the requisite corporate power and
authority to execute and deliver this Agreement and, subject to approval of its
stockholders as contemplated by Section 5.3 hereof, to consummate the
transactions contemplated hereby. The execution, delivery and performance by the
Company of this Agreement and the consummation by the Company of the
transactions contemplated hereby have been duly authorized by the Board of
Directors of the Company (the "Board") and, other than approval and adoption of
this Agreement by the holders of a majority of the outstanding shares of Company
Common Stock, no other corporate proceedings on the part of the Company are
necessary to authorize the execution, delivery and performance of this Agreement
by the Company and the consummation by the Company of the transactions
contemplated hereby. This Agreement has been duly executed and delivered by the
Company and, assuming due authorization, execution and delivery of this
Agreement by Parent and the Purchaser, is a valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms, except
that such enforcement may be subject to or limited by (i) bankruptcy, insolvency
or other similar laws, now or hereafter in effect, affecting creditors' rights
generally, and (ii) the effect of general principles of equity (regardless of
whether enforceability is considered in a proceeding at law or in equity).
(b) The provisions of Section 203 of the DGCL are inapplicable
to the transactions contemplated by this Agreement.
Section 3.4 No Violations; Consents and Approvals.
(a) Neither the execution, delivery and performance of this
Agreement by the Company nor the consummation by the Company of the transactions
contemplated hereby will (i) violate any provision of the certificate of
incorporation or By-laws of the Company or its Public Subsidiaries, (ii)
conflict with, result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, amendment, cancellation or acceleration or to the
imposition of any lien) under, or result in the acceleration or trigger of any
payment, time of payment, vesting or increase in the amount of any compensation
or benefit payable pursuant to, the terms, conditions or provisions of any note,
bond, mortgage, indenture, guarantee or other evidence of indebtedness, lease,
license, contract, agreement, plan or other instrument or obligation to which
the Company or any of its Public Subsidiaries is a party or by which any of them
or any of their assets may be bound or (iii) conflict with or violate any
federal, state, local or foreign order, writ, injunction, judgment, award,
decree, statute, law, rule or regulation (collectively, "Laws") applicable to
the Company, any of its Public Subsidiaries or any of their properties or
assets; except in the case of clauses (ii) or (iii) for such conflicts,
violations, breaches, defaults or liens which individually and in the aggregate
would not have or result in a Material Adverse Effect or materially impair or
delay the consummation of the transactions contemplated hereby.
(b) No filing or registration with, declaration or
notification to, or order, authorization, consent or approval of, any federal,
state, local or foreign court, legislative, executive or regulatory authority or
agency (a "Governmental Entity") or any other Person is required in connection
with the execution, delivery and performance of this Agreement by the Company or
the consummation by the Company of the transactions contemplated hereby, except
(i) applicable requirements under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), (ii) the filing of the Certificate of Merger with
the Secretary of State and (iii) such other consents, approvals, orders,
authorizations, notifications, registrations, declarations and filings the
failure of which to be obtained or made individually and in the aggregate would
not have or result in a Material Adverse Effect or materially impair or delay
the consummation of the transactions contemplated hereby.
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Section 3.5 SEC Reports and Financial Statements. The Company
has filed with the SEC, all forms and documents required to be filed by it since
January 1, 1994 under the Exchange Act and has heretofore made available to
Parent (i) its Annual Reports on Form 10-K for the years ended December 31,
1993, December 31, 1994 and December 31, 1995, respectively, and (ii) all proxy
statements relating to meetings of stockholders of the Company since January 1,
1994 and (iii) all other forms, reports and registration statements filed by the
Company with the SEC since January 1, 1994. The documents described in clauses
(i)-(iii) above (whether filed before, on or after the date hereof) are referred
to in this Agreement collectively as the "Company SEC Documents". As of their
respective dates, the Company SEC Documents (a) did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading and (b) complied in
all material respects with the applicable requirements of the Exchange Act and
the Securities Act of 1933 (the "Securities Act"), as the case may be, and the
applicable rules and regulations of the SEC thereunder. The consolidated
financial statements included in the Company SEC Documents have been prepared in
accordance with United States generally accepted accounting principles ("GAAP")
applied on a consistent basis during the periods involved and fairly present the
consolidated financial position and the consolidated results of operations and
cash flows of the Company and its consolidated Subsidiaries as of and at the
dates thereof or for the periods presented therein.
Section 3.6 Information Statement; Schedule 13E-3.
(a) The Information Statement (as defined in Section 5.3(b))
(and any amendment thereof or supplement thereto), at the date mailed to
stockholders of the Company and at the Effective Time, (i) will not 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 and (ii)
will comply in all material respects with the provisions of the Exchange Act and
the rules and regulations thereunder; except that no representation is made by
the Company with respect to statements made in the Information Statement based
on information supplied by Parent or the Purchaser specifically for inclusion
therein.
(b) The information provided by the Company specifically for
use in any Rule 13e-3 Transaction Statement on Schedule 13E-3 required to be
filed with the SEC under the Exchange Act and mailed to the stockholders of the
Company in connection with the Merger (the "Schedule 13E-3") (and any amendment
thereto or supplement thereof), at the date filed with the SEC and at the time
mailed to the stockholders of the Company, will not 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.
Section 3.7 Opinion of Financial Advisor. The Company has
received an opinion of Morgan Stanley & Co. Incorporated to the effect that, as
of the date hereof, the Merger Consideration to be received by the holders of
Shares (other than Parent and its affiliates) in the Merger is fair, from a
financial point of view, to such holders.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT
AND THE PURCHASER
Parent and the Purchaser represent and warrant to the Company,
as of the date hereof and as of and at the Closing Date, as follows:
Section 4.1 Organization. Each of Parent and the Purchaser is
a corporation duly organized, validly existing and in good standing under the
laws of Delaware. Each of Parent and the Purchaser has all requisite corporate
power and authority to own, lease, use and operate its properties and to carry
on its business as it is now being conducted. Each of Parent and the Purchaser
is qualified or licensed to do business as a foreign corporation and is in good
standing in each jurisdiction in which it owns real property or in which the
nature of the business conducted by it makes such qualification or licensing
necessary, except where the failure to be so qualified or licensed individually
and in the aggregate would not have or result in a material adverse effect on
the business, assets, liabilities, results of operations or financial condition
of Parent and the Purchaser, taken as a whole.
Section 4.2 Authorization; Validity of Agreement. Each of
Parent and the Purchaser has the requisite corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution, delivery and performance by Parent and the
Purchaser of this Agreement and the consummation by Parent and the Purchaser of
the transactions contemplated hereby have been duly authorized by the respective
Boards of Directors of Parent and the Purchaser and by Parent as the sole
stockholder of Purchaser and no other corporate proceedings on the part of
Parent or the Purchaser are necessary to authorize the execution, delivery and
performance of this Agreement by Parent and the Purchaser and the consummation
by Parent and the Purchaser of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by Parent and the Purchaser and,
assuming due authorization, execution and delivery of this Agreement by the
Company, is a valid and binding obligation of each of Parent and the Purchaser,
enforceable against each of them in accordance with its terms, except that such
enforcement may be subject to or limited by (i) bankruptcy, insolvency or other
similar laws, now or hereafter in effect, affecting creditors' rights generally,
and (ii) the effect of general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity). Parent is the
legal and beneficial owner of 19,777,752 Shares, all of which Parent has the
right to vote with respect to the transaction contemplated hereby.
Section 4.3 Consents and Approvals; No Violations.
(a) Neither the execution, delivery and performance of this
Agreement by Parent and the Purchaser nor the consummation by Parent and the
Purchaser of the transactions contemplated hereby will (i) violate any provision
of the respective certificate of incorporation or by-laws of Parent or the
Purchaser, (ii) conflict with, result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give rise to
any right of termination, amendment, cancellation or acceleration or to the
imposition of any lien) under, or result in the acceleration or trigger of any
payment, time of payment, vesting or increase in the amount of any compensation
or benefit payable pursuant to, the terms, conditions or provisions of any note,
bond, mortgage, indenture, guarantee or other evidence of indebtedness, lease,
license, contract, agreement, plan or other instrument or obligation to which
Parent or the Purchaser is a party or by which any of them or any of their
assets may be bound or (iii) conflict with or violate any Laws applicable to
Parent, the Purchaser or any of their properties or assets; except in the case
of clauses (ii) and (iii) for such conflicts, violations, breaches, defaults or
liens which individually and in the aggregate would not have or result in a
material adverse effect on the business, results of operations or financial
condition of Parent and the
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Purchaser, taken as a whole, or materially impair or delay the consummation of
the transactions contemplated hereby.
(b) No filing or registration with, declaration or
notification to, or order, authorization, consent or approval of, any
Governmental Entity is required in connection with the execution, delivery and
performance of this Agreement by Parent or the Purchaser or the consummation by
Parent or the Purchaser of the transactions contemplated hereby, except (i)
applicable requirements under the Exchange Act, (ii) the filing of the
Certificate of Merger with the Secretary of State and (iii) such other consents,
approvals, orders, authorizations, notifications, registrations, declarations
and filings the failure of which to be obtained or made individually and in the
aggregate would not have a material adverse effect on the business, results of
operations or financial condition of Parent and the Purchaser, taken as a whole,
or materially impair or delay the consummation of the transactions contemplated
hereby.
Section 4.4 Information in Information Statement;
Schedule 13E-3.
(a) The information supplied in writing by Parent or the
Purchaser specifically for inclusion in the Information Statement (and any
amendment thereof or supplement thereto), at the date mailed to stockholders of
the Company and at the Effective Time, will not 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.
(b) The Schedule 13E-3 (and any amendment thereto or
supplement thereof,) at the date filed with the SEC and at the time mailed to
stockholders of the Company, (i) will not 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 were made, not misleading and (ii) will comply in
all material respects with the provisions of the Exchange Act and the rules and
regulations there-under; except that no representation is made by Parent or the
Purchaser with respect to statements made in the Schedule 13E-3 based on
information supplied by the Company specifically for inclusion therein.
ARTICLE V
COVENANTS
Section 5.1 Interim Operations of the Company. The Company
covenants and agrees that, except (i) as expressly contemplated by this
Agreement or (ii) as agreed to in writing by Parent and the Purchaser, after the
date hereof and prior to the Effective Time, the business of the Company, its
Public Subsidiaries and their Subsidiaries shall be conducted only in the
ordinary and usual course, and, in particular: the Company will not, directly or
indirectly, (a) sell, transfer or pledge or agree to sell, transfer or pledge
any of the Shares or capital stock of its Subsidiaries beneficially owned by it
(other than pursuant to the Cigar Secondary Offering); (b) amend its Certificate
of Incorporation or By-laws; (c) split, combine or reclassify the outstanding
Shares; (d) declare, set aside or pay any dividend or other distribution payable
in cash, stock or property with respect to its capital stock (other than a
special cash dividend in the amount of $10 per share of Company Common Stock);
or (e) redeem, purchase or otherwise acquire directly or indirectly any of its
capital stock.
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<PAGE>
Section 5.2 Further Action; Reasonable Efforts.
(a) Upon the terms and subject to the conditions herein
provided, each of the parties hereto shall use its 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 to
consummate and make effective the transactions contemplated by this Agreement,
including using reasonable efforts to satisfy the conditions precedent to the
obligations of any of the parties hereto, to obtain all necessary
authorizations, consents and approvals, and to effect all necessary
registrations and filings. Each of the parties hereto shall promptly consult
with the other parties with respect to, provide any necessary information that
is not subject to legal privilege with respect to, and provide the other parties
(or their counsel) copies of, all filings made by such party with any
Governmental Entity or any other information supplied by such party to a
Governmental Entity in connection with this Agreement and the transactions
contemplated hereby. Each of the parties hereto shall promptly inform the other
of any communication from any Governmental Entity regarding any of the
transactions contemplated by this Agreement. If such party receives a request
from any such Governmental Entity with respect to the transactions contemplated
by this Agreement, then such party will endeavor in good faith to make, or cause
to be made, as soon as reasonably practicable and after consultation with the
other parties, an appropriate response in compliance with such request.
(b) Parent, the Purchaser and the Company shall use their
respective reasonable efforts to resolve such objections, if any, as may be
asserted with respect to the transactions contemplated hereby under the laws,
rules, guidelines or regulations of any Governmental Entity.
Section 5.3 Action by Written Consent; Information Statement.
(a) As promptly as practicable after the date hereof, Parent
will (i) vote, or cause to be voted, by written consent, all of the Shares owned
by it or the Purchaser in favor of the approval and adoption of this Agreement
and the transactions contemplated hereby and (ii) provide the Company with all
information concerning Parent or the Purchaser necessary or reasonably
appropriate to be included in the Information Statement.
(b) As promptly as practicable after the date hereof, the
Company shall prepare and file with the SEC, and Parent and the Purchaser shall
cooperate with the Company in such preparation and filing, a preliminary
information statement relating to this Agreement and the transactions
contemplated hereby and use its best efforts to furnish the information required
to be included by the SEC in the Information Statement and, after consultation
with Parent, to respond promptly to any comments made by the SEC with respect to
the preliminary information statement and cause a definitive Information
Statement (the "Information Statement") to be mailed to its stockholders.
(c) The Company, Parent and Purchaser shall cooperate with one
another in the preparation and filing of the Schedule 13E-3 and shall use all
reasonable efforts to promptly obtain and furnish the information required to be
included in the Schedule 13E-3 and to respond promptly to any comments or
requests made by the SEC with respect to the Schedule 13E-3. Each party hereto
shall promptly notify the other parties of the receipt of comments of, or any
requests by, the SEC with respect to the Schedule 13E-3, and shall promptly
supply the other parties with copies of all correspondence between such party
(or its representatives) and the SEC (or its staff) relating thereto. The
Company, Parent and Purchaser each shall correct any information provided by it
for use in the Schedule 13E-3 which shall have become, or is, false or
misleading.
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Section 5.4 Notification of Certain Matters.
(a) The Company shall give prompt notice to Parent and Parent
shall give prompt notice to the Company, of (i) the occurrence or nonoccurrence
of any event the occurrence or nonoccurrence of which would cause any
representation or warranty of the Company, or of Parent and the Purchaser, as
the case may be, contained in this Agreement to be untrue or inaccurate in any
material respect at the Effective Time and (ii) any material failure of the
Company, or Parent or the Purchaser, as the case may be, to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder.
(b) If at any time prior to the Effective Time any event or
circumstance relating to the Company or any of its Subsidiaries or affiliates,
or their respective officers or directors, should be discovered by the Company
that is required to be set forth in a supplement to the Information Statement,
the Company shall promptly inform Parent and the Purchaser, so supplement the
Information Statement and mail such supplement to its stockholders. If at any
time prior to the Effective Time any event or circumstance relating to Parent or
the Purchaser or their respective officers or directors, should be discovered by
Parent that is required to be set forth in a supplement to the Information
Statement, Parent shall promptly inform the Company; and upon receipt of such
information the Company shall promptly supplement the Information Statement and
mail such supplement to its stockholders.
Section 5.5 Publicity. Neither the Company, Parent nor any of
their respective affiliates shall issue or cause the publication of any press
release or other announcement with respect to the Merger, this Agreement or the
other transactions contemplated hereby without the prior consultation of the
other party, except as may be required by law or by any listing agreement with a
national securities exchange if all reasonable efforts have been made to consult
with the other party.
Section 5.6 Directors' and Officers' Insurance and
Indemnification. (a) Parent shall cause the Surviving Corporation (or any
successor to the Surviving Corporation) to indemnify, defend and hold harmless
the present and former officers, directors, employees and agents of the Company
and its Subsidiaries against all losses, claims, damages, liabilities, fees and
expenses arising out of actions or omissions occurring at or prior to the
Effective Time to the fullest extent permitted under Delaware law as in effect
at the date hereof.
(b) Parent or the Surviving Corporation shall maintain the
Company's existing officers' and directors' liability insurance for a period of
not less than 7 years after the Effective Time; provided, that the Parent may
substitute therefor policies of substantially similar coverage and amounts
containing terms no less favorable to such former directors or officers;
provided, further, that in no event shall Parent or the Surviving Corporation be
required to pay annual premiums for insurance under this Section in excess of
that which is commercially reasonably; and provided further, however, that if
the annual premiums for such insurance coverage exceed that which is
commercially reasonable, Parent or the Surviving Corporation shall be obligated
to obtain a policy with the greatest coverage at a cost which is commercially
reasonable.
Section 5.7 Brokers or Finders. Each of Parent and the Company
represents, as to itself, its Subsidiaries and its affiliates (other, than in
the case of Parent, the Company and its Subsidiaries, and in the case of the
Company, Parent or any of its affiliates, other than the Company and its
Subsidiaries), that no agent, broker, investment banker, financial advisor or
other firm or person is or will be entitled to any brokers' or finders' fee or
any other commission or similar fee in connection with any of the transactions
contemplated by this Agreement and each of Parent and the Company shall
indemnify and hold the other harmless from and against any and all claims,
liabilities or obligations with respect to any other fees, commissions or
expenses as-
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<PAGE>
serted by any person on the basis of any act or statement alleged to have been
made by such party or its affiliates.
ARTICLE VI
CONDITIONS
Section 6.1 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 on or prior to the Closing Date of each of the
following conditions (any or all of which may be waived by the parties hereto in
writing, in whole or in part, to the extent permitted by applicable law):
(a) No statute, rule, regulation, order, decree or injunction
shall have been enacted, entered, promulgated or enforced by a Governmental
Entity which prohibits the consummation of the Merger and shall be in effect,
and no proceeding which has a reasonable probability of resulting in such relief
shall be pending;
(b) Other than filing the Certificate of Merger in accordance
with the DGCL, all authorizations, consents and approvals required to be
obtained prior to consummation of the Merger shall have been obtained, except
for such authorizations, consents, and approvals the failure of which to be
obtained individually and in the aggregate would not have or result in a
Material Adverse Effect; and
(c) This Agreement shall have been approved and adopted by the
affirmative vote of the holders of a majority of the outstanding shares of
Company Common Stock.
Section 6.2 Conditions to the Obligation of the Company to
Effect the Merger. The obligation of the Company to effect the Merger is further
subject to the satisfaction or waiver at or prior to the Closing Date of the
following conditions:
(a) The representations and warranties of Parent and the
Purchaser contained in this Agreement shall be true and correct in all material
respects at and as of the date hereof, and true and correct in all material
respects at and as of the Closing Date as if made at and as of such time;
(b) Each of Parent and the Purchaser shall have performed in
all material respects its obligations under this Agreement required to be
performed by it at or prior to the Closing Date pursuant to the terms hereof;
and
(c) A special cash dividend of $10.00 per share of Company
Common Stock shall have been paid; provided, however, if such dividend shall not
have been paid, this condition shall be satisfied if the Merger Consideration
shall have been increased by $10.00 per share in cash.
Section 6.3 Conditions to Obligations of Parent and the
Purchaser to Effect the Merger. The obligations of Parent and the Purchaser to
effect the Merger are further subject to the satisfaction or waiver at or prior
to the Closing Date of the following conditions:
(a) The representations and warranties of the Company
contained in this Agreement shall be true and correct in all material respects
at and as of the date hereof, and true and correct in all material respects at
and as of the Closing Date as if made at and as such time; provided, however,
that, for purposes of this Section, such representations and warranties shall be
deemed to be true and correct in all material respects
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<PAGE>
unless the failure or failures of such representations and warranties to be so
true and correct, individually or in the aggregate, would result in a Material
Adverse Effect;
(b) The Company shall have performed in all material respects
each of its obligations under this Agreement required to be performed by it at
or prior to the Closing Date pursuant to the terms hereof; provided, however,
that, for purposes of this Section, such obligations shall be deemed to have
been performed in all material respects unless the failure or failures to so
perform, individually or in the aggregate, would result in a Material Adverse
Effect; and
(c) No proceeding not pending on the date hereof shall be
pending which has a reasonable probability of having, singularly or in the
aggregate with all such proceedings, a Material Adverse Effect.
ARTICLE VII
TERMINATION
Section 7.1 Termination. Subject to Section 8.2(c), this
Agreement may be terminated and the Merger may be abandoned at any time prior to
the Effective Time, whether before or after stockholder approval thereof:
(a) By the mutual consent of Parent, the Purchaser and the
Company.
(b) By either the Company, on the one hand, or Parent and
the Purchaser, on the other hand, if:
(i) the Merger has not been consummated on or prior
to September 30, 1997; provided, however, that the right to terminate
this Agreement under this Section 7.1(b)(i) 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 prior to such date;
(ii) the stockholders of the Company fail to approve
and adopt this Agreement and the transactions contemplated hereby;
provided, however, that the right to terminate this Agreement under this
Section 7.1(b)(ii) 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 stockholders of the Company to approve
and adopt this Agreement;
(iii) any Governmental Entity shall have issued a
statute, order, decree or regulation or taken any other action, in each
case permanently restraining, enjoining or otherwise prohibiting the
Merger and such statute, order, decree, regulation or other action shall
have become final and non-appealable; or
(iv) if, prior to the consummation of the Merger, the
Special Committee shall have withdrawn, or modified or changed in any
manner adverse to Parent or the Purchaser its approval of this Agreement
or the Merger after having concluded in good faith after consultation
with independent legal counsel that there is a reasonable probability
that the failure to take such action would result in a violation of
fiduciary obligations under applicable law; provided, however, that the
Special Committee shall not be entitled to exercise a right of
termination pursuant to this Section 7.1(b)(iv) based upon a
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<PAGE>
change in the trading price per share of Cigar Common Stock, it being
understood that the effect of such change on the Merger Consideration
has been specifically addressed in Section 2.1(a) hereof.
Section 7.2 Effect of Termination. In the event of the
termination of this Agreement as provided in Section 7.1, written notice thereof
shall forthwith be given by the terminating party or parties to the other party
or parties specifying the provision hereof pursuant to which such termination is
made, and this Agreement shall forthwith become null and void, and there shall
be no liability on the part of Parent, the Purchaser or the Company (except as
set forth in this Section 7.2 and Section 8.1 hereof; each which shall survive
any termination of this Agreement); provided that nothing herein shall relieve
any party from any liability or obligation with respect to any willful breach of
this Agreement.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Fees and Expenses. Except as contemplated by this
Agreement, all costs and expenses incurred in connection with this Agreement and
the consummation of the transactions contemplated hereby shall be paid by the
party incurring such expenses.
Section 8.2 Amendment; Waiver; Termination.
(a) Subject to Section 8.2(c), this Agreement may be amended
by the parties hereto at any time before or after approval by the stockholders
of the Company of the matters presented in connection with the Merger, but after
any such approval no amendment shall be made without the approval of such
stockholders if required by law or if such amendment changes the Merger
Consideration or alters or changes any of the other terms or conditions of this
Agreement if such alteration or change would adversely affect the rights of
stockholders unaffiliated with Parent. This Agreement may not be amended except
by an instrument in writing signed on behalf of each of the parties hereto.
(b) Subject to Section 8.2(c), at any time prior to the
Effective Time, the parties may (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 of the other parties
contained herein or in any document, certificate or writing delivered pursuant
hereto or (iii) waive compliance with any of the agreements or conditions of the
other parties hereto contained herein. Any agreement on the part of any party to
any such extension or waiver shall be valid only if set forth in an instrument
in writing signed on behalf of such party. Any such waiver shall constitute a
waiver only with respect to the specific matter described in such writing and
shall in no way impair the rights of the party granting such waiver in any other
respect or at any other time. Neither the waiver by any of the parties hereto of
a breach of or a default under any of the provisions of this Agreement, nor the
failure by any of the parties, on one or more occasions, to enforce any of the
provisions of this Agreement or to exercise any right or privilege hereunder,
shall be construed as a waiver of any other breach or default of a similar
nature, or as a waiver of any of such provisions, rights or privileges
hereunder. The rights and remedies herein provided are cumulative and none is
exclusive of any other, or of any rights or remedies that any party may
otherwise have at law or in equity.
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<PAGE>
(c) Notwithstanding any provision of this Agreement to the
contrary, without the approval of the Special Committee, the Company shall not
amend, terminate or waive any right under this Agreement (including any right to
terminate or any actual or potential cause of action).
Section 8.3 Nonsurvival of Representations and Warranties.
None of the representations and warranties in this Agreement or in any schedule,
instrument or other document delivered pursuant to this Agreement shall survive
the Effective Time.
Section 8.4 Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given upon (a) transmitter's
confirmation of a receipt of a facsimile transmission, (b) confirmed delivery by
a standard overnight carrier or when delivered by hand, (c) the expiration of
five business days after the day when mailed in the United States by certified
or registered mail, postage prepaid, or (d) delivery in person, addressed at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(a) if to the Company, to:
Mafco Consolidated Group Inc.
35 East 62nd Street
New York, New York 10021
Telephone: (212) 572-8600
Facsimile: (212) 572-5056
Attention: General Counsel
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019-6150
Telephone: (212) 403-1000
Facsimile: (212) 403-2000
Attention: Adam O. Emmerich, Esq.
(b) if to the Parent or the Purchaser, to:
Mafco Consolidated Holdings Inc.
35 East 62nd Street
New York, New York 10021
Telephone: (212) 572-8600
Facsimile: (212) 572-5056
Attention: General Counsel
with a copy to:
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<PAGE>
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Telephone: (212) 735-3000
Facsimile: (212) 735-2001
Attention: Alan C. Myers, Esq.
Section 8.5 Interpretation. When a reference is made in this
Agreement to Sections, such reference shall be to a Section of this Agreement
unless otherwise indicated. Whenever the words "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" when used in this
Agreement shall mean that the information referred to has been made available to
the party to whom such information is to be made available. The word
"affiliates" when used in this Agreement shall have the meaning ascribed to it
in Rule 12b-2 under the Exchange Act. The phrase "beneficial ownership" and
words of similar import when used in this Agreement shall have the meaning
ascribed to it in Rule 13d-3 under the Exchange Act.
Section 8.6 Headings. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 8.7 Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an original but all of
which shall be considered one and the same agreement.
Section 8.8 Entire Agreement; No Third Party Beneficiaries;
Rights of Ownership. This Agreement (including the documents and the instruments
referred to herein): (a) 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 (b) except as provided in Section
5.6 is not intended to confer upon any person other than the parties hereto any
rights or remedies hereunder.
Section 8.9 Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void, unenforceable or against its regulatory
policy, the remainder of the terms, provisions, covenants and restrictions of
this Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
Section 8.10 Governing Law. This Agreement shall be governed,
construed and enforced in accordance with the laws of the State of Delaware
without giving effect to the principles of conflicts of law thereof.
Section 8.11 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; provided, however, Parent or the Purchaser
may assign this Agreement to any Subsidiary of Parent or the Purchaser. No such
assignment shall relieve either Parent or the Purchaser of its obligations under
this Agreement. Subject to the first sentence of this Section 8.11, this
Agreement will be binding upon, inure to the benefit of and be enforceable by,
the parties hereto and their respective successors and assigns.
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<PAGE>
IN WITNESS WHEREOF, Parent, the Purchaser and the Company have
caused this Agreement to be signed by their respective officers thereunto duly
authorized as of the date first written above.
MAFCO CONSOLIDATED GROUP INC.
By: /s/ Glenn P. Dickes
----------------------
Name: Glenn P. Dickes
Title: Vice President
MAFCO CONSOLIDATED HOLDINGS INC.
By: /s/ Glenn P. Dickes
--------------------------
Name: Glenn P. Dickes
Title: Vice President
MCG ACQUISITION INC.
By: /s/ Glenn P. Dickes
---------------------------
Name: Glenn P. Dickes
Title: Vice President
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<PAGE>
EXHIBIT A
RESTATED CERTIFICATE OF INCORPORATION
OF
MAFCO CONSOLIDATED GROUP INC.
FIRST: The name of the Corporation is Mafco Consolidated
Group Inc. (hereinafter the "Corporation").
SECOND: The address of the registered office of the
Corporation in the State of Delaware is 1013 Centre Road, in the City of
Wilmington, County of New Castle. The name of its registered agent at that
address is The Prentice-Hall Corporation System, Inc.
THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which a corporation may be organized under the
General Corporation Law of the State of Delaware as set forth in Title 8 of the
Delaware Code (the "GCL").
FOURTH: The total number of shares of stock which the
Corporation shall have authority to issue is 1,000 shares of Common Stock, each
having a par value of one dollar ($1.00).
FIFTH: The following provisions are inserted for the
management of the business and the conduct of the affairs of the Corporation,
and for further definition, limitation and regulation of the powers of the
Corporation and of its directors and stockholders:
(1) The business and affairs of the Corporation shall be
managed by or under the direction of the Board of Directors.
(2) The directors shall have concurrent power with the
stockholders to make, alter, amend, change, add to or repeal the By-Laws
of the Corporation.
(3) The number of directors of the Corporation shall be as
from time to time fixed by, or in the manner provided in, the By-Laws of
the Corporation. Election of directors need not be by written ballot
unless the By-Laws so provide.
(4) No director shall be personally liable to the Corporation
or any of its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii)
for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) pursuant to Section 174
of the Delaware General Corporation Law or (iv) for any transaction from
which the director derived an improper personal benefit. Any repeal or
modification of this Article FIFTH by the stockholders of the
Corporation shall not adversely affect any right or protection of a
director of the Corporation existing at the time of such repeal or
modification with respect to acts or omissions occurring prior to such
repeal or modification.
(5) In addition to the powers and authority hereinbefore or by
statute expressly conferred upon them, the directors are hereby
empowered to exercise all such powers and do all such acts and things as
may be exercised or done by the Corporation, subject, nevertheless, to
the
<PAGE>
provisions of the GCL, this Certificate of Incorporation, and any
By-Laws adopted by the stockholders; provided, however, that no By-Laws
hereafter adopted by the stockholders shall invalidate any prior act of
the directors which would have been valid if such By-Laws had not been
adopted.
SIXTH: Meetings of stockholders may be held within or without
the State of Delaware, as the By-Laws may provide. The books of the Corporation
may be kept (subject to any provision contained in the GCL) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the By-Laws of the Corporation.
SEVENTH: The Corporation reserves the right to amend, alter,
change or repeal any provision contained in this Certificate of Incorporation,
in the manner now or hereafter prescribed by statute, and all rights conferred
upon stockholders herein are granted subject to this reservation.
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Annex B
MORGAN STANLEY
MORGAN STANLEY & CO
INCORPORATED
1585 BROADWAY
NEW YORK, NEW YORK 10036
(212) 761-4000
February 20, 1997
Independent Committee of the Board of Directors
Mafco Consolidated Group Inc.
35 East 62nd Street
New York, NY 10021
Gentlemen and Madam:
We understand that Mafco Consolidated Group Inc. ("Mafco" or the "Company"),
Mafco Consolidated Holdings Inc. ("Holdings") and MCG Acquisition Inc.
("Acquisition Sub"), a wholly owned subsidiary of Holdings, propose to enter
into an Agreement and Plan of Merger, substantially in the form of the draft
dated February 20, 1997 (the "Merger Agreement"), which provides, among other
things, for (i) the payment of a $10.00 per share special cash dividend to each
share of common stock, par value $.01 per share (the "Mafco Common Stock") of
Mafco on or prior to the closing of the transaction (or, in lieu thereof, a $10
increase in the cash consideration to be paid in the Merger (as defined
herein)), and (ii) the merger (the "Merger") of Acquisition Sub with and into
Mafco. Pursuant to the Merger, Mafco will become a wholly owned subsidiary of
Holdings and each outstanding share of Mafco Common Stock, other than shares
held in treasury or held by Holdings or any affiliate of Holdings or as to which
dissenters' rights have been perfected, will be converted into the right to
receive $33.50 per share in cash, unless the average of the per share closing
prices of the common stock, par value $.01 per share ("Cigar Common Stock"), of
Consolidated Cigar Holdings Inc., a Delaware corporation and a subsidiary of
Mafco ("Cigar"), on the New York Stock Exchange for the ten trading days ending
two trading days prior to effectiveness of the Merger (the "Average Cigar
Price"), exceeds $33.00, in which case the consideration to be received by the
holders of shares of Mafco Common Stock pursuant to the Merger Agreement will be
increased as set forth in the Merger Agreement (as adjusted, the
"Consideration"). We further understand that pursuant to the Merger Agreement
the Consideration to be received by the holders of shares of Mafco Common Stock
pursuant to the Merger Agreement will not vary unless the Average Cigar Price
exceeds $33.00, and that the Merger Agreement is not terminable based upon a
change in the trading price per share of Cigar Common Stock. The terms and
conditions of the Merger are more fully set forth in the Merger Agreement. We
further understand that approximately 85% of the outstanding shares of Mafco
Common Stock is owned by Holdings.
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MORGAN STANLEY
You have asked for our opinion as to whether the Consideration to
be received by the holders of shares of Mafco Common Stock pursuant to
the Merger Agreement is fair from a financial point of view to such
holders (other than Holdings and its affiliates).
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements
and other information of the Company and Cigar;
(ii) reviewed certain internal financial statements and other
financial and operating data concerning the Company and
Cigar, including estimates of certain liabilities of
Mafco, prepared by the managements of the Company and
Cigar;
(iii) analyzed certain earnings estimates prepared by the
management of Cigar;
(iv) discussed the past and current operations and financial
condition and the prospects of the Company and Cigar with
senior executives of the Company and Cigar;
(v) reviewed the reported prices and trading activity for the
Mafco Common Stock and the Cigar Common Stock;
(vi) compared the financial performance of the Company and
Cigar and the prices and trading activity of the Mafco
Common Stock and Cigar Common Stock with that of certain
other comparable publicly traded companies and their
securities;
(vii) reviewed the financial terms, to the extent publicly available,
of certain comparable acquisition transactions;
(viii) participated in discussions and negotiations among
representatives of the Company, Holdings and their financial
and legal advisors;
(ix) reviewed the Merger Agreement, and certain related documents;
(x) reviewed and discussed with Price Waterhouse LLC certain
issues regarding the assets and liabilities of the Company;
and
(xi) performed such other analyses and considered such other
factors as we have deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the
purposes of this opinion. With respect to the earnings estimates and
estimates of certain liabilities of Mafco, we have assumed that they
have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial performance of
the Company and Cigar. We have not made any independent valuation or
appraisal of the assets or liabilities of the Company and Cigar nor have
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<PAGE>
MORGAN STANLEY
we been furnished with any such appraisals. For purposes of this
opinion, we have taken into account the adjustment mechanism set forth
in the Merger Agreement pursuant to which the Consideration to be
received by the holders of shares of Mafco Common Stock is determined
including that the Consideration will not vary unless the Average Cigar
Price exceeds $33.00 and that the Merger Agreement is not terminable
based upon a change in the trading price per share of Cigar Common
Stock. Our opinion is necessarily based on economic, market and other
conditions as in effect on, and the information made available to us as
of, the date hereof.
In arriving at our opinion, we were not authorized to solicit, and did
not solicit, interest from any party with respect to the acquisition of
the Company or any of its assets, nor did we negotiate with any of the
parties, other than Holdings, which expressed interest to us in the
possible acquisition of the Company or certain of its constituent
businesses.
We have acted as financial advisor to the Independent Committee of the
Board of Directors of the Company in connection with this transaction
and will receive a fee for our services. In the past, Morgan Stanley &
Co. Incorporated and its affiliates have provided financial advisory and
financing services for the Company, Holdings and certain of their
affiliates and have received fees for the rendering of these services.
In addition, Morgan Stanley has received a mandate from Cigar to act as
a co-managing underwriter in connection with a proposed secondary
offering of Cigar common shares, in respect of which Morgan Stanley will
receive customary compensation.
Based on the foregoing, we are of the opinion on the date hereof that
the Consideration to be received by the holders of shares of Mafco Common
Stock pursuant to the Merger Agreement is fair from a financial point of
view to such holders (other than Holdings and its affiliates).
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ William R. Reid
-------------------
William R. Reid
Managing Director
B-3
<PAGE>
Annex C
EXCERPTS FROM THE GENERAL CORPORATION LAW OF THE
STATE OF DELAWARE RELATING TO THE RIGHTS
OF DISSENTING STOCKHOLDERS
262 APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to ss. 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of his shares of stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the word
"stockholder" means a holder of record of stock in a stock corporation and also
a member of record of a nonstock corporation; the words "stock" and "share" mean
and include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and the words
"depository receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to ss. 251 (other than a merger effected pursuant to
subsection (g) of Section 251), 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this
section shall be available for the shares of any class or series of
stock, which stock, or depository receipts in respect thereof, at the
record date fixed to determine the stockholders entitled to receive
notice of and to vote at the meeting of stockholders to act upon the
agreement of merger or consolidation, were either (i) listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000
holders; and further provided that no appraisal rights shall be
available for any shares of stock of the constituent corporation
surviving a merger if the merger did not require for its approval the
vote of the holders of the surviving corporation as provided in
subsection (f) of ss. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection,
appraisal rights under this section shall be available for the shares of
any class or series of stock of a constituent corporation if the holders
thereof are required by the terms of an agreement of merger or
consolidation pursuant to ss. ss. 251, 252, 254, 257, 258, 263 and 264
of this title to accept for such stock anything except:
a. Shares of stock of the corporation surviving or
resulting from such merger or consolidation, or depository
receipts in respect thereof;
b. Shares of stock of any other corporation, or
depository receipts in respect thereof, which shares of stock
or depository receipts at the effective date of the merger or
consolidation will be either listed on a national securities
exchange or designated as a national market system security on
an interdealer quotation system by the National Association of
Securities Dealers, Inc. or held of record by more than 2,000
holders;
C-1
<PAGE>
c. Cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs
a. and b. of this paragraph; or
d. Any combination of the shares of stock,
depository receipts and cash in lieu of fractional shares or
fractional depository receipts described in the foregoing
subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under ss. 253 of this title is
not owned by the parent corporation immediately prior to the merger,
appraisal rights shall be available for the shares of the subsidiary
Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal
rights are provided under this section is to be submitted for approval
at a meeting of stockholders, the corporation, not less than 20 days
prior to the meeting, shall notify each of its stockholders who was such
on the record date for such meeting with respect to shares for which
appraisal rights are available pursuant to subsections (b) or (c) hereof
that appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of
this section. Each stockholder electing to demand the appraisal of his
shares shall deliver to the corporation, before the taking of the vote
on the merger or consolidation, a written demand for appraisal of his
shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of his shares. A proxy or vote
against the merger or consolidation shall not constitute such a demand.
A stockholder electing to take such action must do so by a separate
written demand as herein provided. Within 10 days after the effective
date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that
the merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to
ss. 228 or ss. 253 of this title, each constituent corporation, either
before the effective date of the merger or consolidation or within ten
days thereafter, shall notify each of the holders of any class or series
of stock of such constituent corporation who are entitled to appraisal
rights of the approval of the merger or consolidation and that appraisal
rights are available for any or all shares of such class or series of
stock of such constituent corporation, and shall include in such notice
a copy of this section; provided that, if the notice is given on or
after the effective date of the merger or consolidation, such notice
shall be given by the surviving or resulting corporation to all such
holders of any class or series of stock of a constituent corporation
that are entitled to appraisal rights. Such notice may, and, if given on
or after the effective date of the merger or consolidation, shall, also
notify such stockholders of the effective date of the merger or
consolidation. Any stockholder entitled to appraisal rights may, within
twenty days after the date of mailing of such notice, demand in writing
from the surviving or resulting corporation the appraisal of such
holder's
C-2
<PAGE>
shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such holder's shares. If such
notice did not notify stockholders of the effective date of the merger
or consolidation, either (i) each such constituent corporation shall
send a second notice before the effective date of the merger or
consolidation notifying each of the holders of any class or series of
stock of such constituent corporation that are entitled to appraisal
rights of the effective date of the merger or consolidation or (ii) the
surviving or resulting corporation shall send such a second notice to
all such holders on or within 10 days after such effective date;
provided, however, that if such second notice is sent more than 20 days
following the sending of the first notice, such second notice need only
be sent to each stockholder who is entitled to appraisal rights and who
has demanded appraisal of such holder's shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein. For purposes of
determining the stockholder entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given; provided
that, if the notice is given on or after the effective date of the
merger or consolidation, the record date shall be such effective date.
If no record date is fixed and the notice is given prior to the
effective date, the record date shall be the close of business on the
day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
C-3
<PAGE>
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
C-4
<PAGE>
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
C-5
<PAGE>
Exh. (d)(2)
FOR IMMEDIATE RELEASE
Contact: James T. Conroy
(212) 572-5980
MAFCO HOLDINGS PROPOSES
GOING PRIVATE TRANSACTION
FOR MAFCO CONSOLIDATED GROUP
NEW YORK, N.Y., January 21, 1997 -- Mafco Consolidated Group Inc.
(NYSE:MFO) announced today that its 85% stockholder, Mafco Holdings
Inc., had proposed a transaction to the Mafco Consolidated Board of Directors
pursuant to which Mafco Consolidated would acquire all publicly held shares of
Mafco Consolidated common stock at a price of $38.50 per share in cash.
Under the proposal, the $38.50 per share price would be adjusted -- up
or down -- to the extent that the proceeds per share in a proposed
secondary offering by Mafco Consolidated of shares of Consolidated Cigar
Holdings Inc. (NYSE: CIG), its 80.2% owned subsidiary, was greater or
less than $24.50, the closing price of a share of Consolidated Cigar on
the NYSE on January 20, 1997.
In light of the overlapping equity ownership between Mafco Holdings
and Mafco Consolidated, Mafco Holdings has requested that Mafco
Consolidated form a special committee of independent directors to
consider its proposal.
Mafco Consolidated also announced that it intends to make
underwritten offerings of approximately 4,000,000 of its Consolidated
Cigar common shares and $150,000,000 principal amount of Mafco
Consolidated notes exchangeable for other Consolidated Cigar common
shares held by it.
James Maher, President and Chief Executive Officer of Mafco
Consolidated Group, said, "The public market was not assigning adequate
value to the stock of Mafco Consolidated Group.
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<PAGE>
2
This transaction will provide the Mafco Consolidated public shareholders
a substantial premium over the current market price as well as simplify
the holding company structure."
Mafco Consolidated is a holding company which, in addition to its
interest in Consolidated Cigar, owns approximately 36% of the common
stock of Power Control Technologies, Inc. (NYSE: ATP) on a fully diluted
basis. Consolidated Cigar is the largest manufacturer and marketer of
cigars sold in the United States in terms of dollar sales. Power Control
Technologies, through its subsidiary Mafco Worldwide Corporation, is the
world's largest producer of licorice extract.
*********
This press release shall not be deemed to be an offer to sell or a
solicitation of an offer to buy the Mafco Consolidated notes or the
Consolidated Cigar common stock, which will be made only by means of
prospectuses included in one or more registration statements to be filed
with the Securities and Exchange Commission.
# # #
<PAGE>
Exh. (d)(3)
FOR IMMEDIATE RELEASE
Contact: James T. Conroy
(212) 572-5980
MAFCO HOLDINGS REVISES GOING PRIVATE TRANSACTION
NEW YORK, N.Y., January 30, 1997 -- Mafco Consolidated Group Inc.
(NYSE: MFO) announced today that its 85% stockholder, Mafco Holdings Inc., has
revised its previously announced proposal to acquire all publicly held shares of
Mafco Consolidated common stock at a price of $38.50 per share, in cash. Under
the revised proposal, the $38.50 per share price would be adjusted upward to the
extent that the gross proceeds per share received by Mafco Consolidated on the
closing of its proposed offering of shares of Consolidated Cigar Holdings Inc.
(NYSE: CIG) was greater than $24.50. Under the original proposal, the $38.50 per
share price would also have been adjusted downward for any decrease below
$24.50 per share received by Mafco Consolidated in the Consolidated Cigar
offering. Under the revised proposal, the downward adjustment has been
eliminated.
Mafco Consolidated also announced that Consolidated Cigar has filed a
registration statement with the Securities and Exchange Commission covering an
offering of 5,000,000 Consolidated Cigar Class A common shares, to be
underwritten by a group led by Goldman, Sachs & Co., subject to prevailing
market conditions. All of the Consolidated Cigar shares to be sold are owned by
Mafco Consolidated. Consolidated Cigar will not be selling any shares. Mafco
Consolidated also said it has determined not to proceed with a proposed
offering of $150,000,000 principal amount of Mafco Consolidated notes
exchangeable for Consolidated Cigar shares.
In response to Mafco Holdings' proposal, Mafco Consolidated has formed
a special committee of independent directors, to be chaired by Phillip E.
Beekman, and the special committee has retained Morgan Stanley & Co.
Incorporated as its financial advisor to assist in
-More-
<PAGE>
2
evaluating Mafco Holdings' proposal and negotiating any possible transaction
with Mafco Holdings.
Mafco Consolidated is a holding company which, in addition to its
interest in Consolidated Cigar, owns approximately 36% of the common stock of
Power Control Technologies, Inc. (NYSE: ATP) on a fully diluted basis.
Consolidated Cigar is the largest manufacturer and marketer of cigars sold in
the United States in terms of dollar sales. Power Control Technologies, through
its Mafco Worldwide business, is the world's largest producer of licorice
extract.
**********
This press release shall not be deemed to be an offer to sell or a
solicitation of an offer to buy the Mafco Consolidated common stock or the
Consolidated Cigar common stock, which will be made only by means of
prospectuses included in one or more registration statements to be filed with
the Securities and Exchange Commission.
# # #
<PAGE>
FOR IMMEDIATE RELEASE
Contact: James T. Conroy
(212) 572-5980
MAFCO CONSOLIDATED ANNOUNCES SIGNING OF DEFINITIVE MERGER
AGREEMENT AND DECLARATION OF SPECIAL CASH DIVIDEND;
COMBINED VALUE $43.50 PER SHARE
New York, N.Y., February 21, 1997--Mafco Consolidated Group Inc. (NYSE: MFO)
today announced that it had signed a definitive merger agreement, and that its
board of directors had declared a special cash dividend, which together would
result in its stockholders receiving $43.50 per share in cash. The definitive
merger agreement provides that Mafco Consolidated's 85% stockholder, Mafco
Holdings Inc., will acquire all publicly held shares of Mafco Consolidated
common stock for $33.50 per share in cash. The special cash dividend, in the
amount of $10 per share, is payable on March 14, 1997 to stockholders of record
as of the close of business on March 10, 1997. The payment of the special cash
dividend is not conditioned upon the completion of the merger.
The merger price would be adjusted upward in the event that the average
closing price on the New York Stock Exchange of shares of Mafco Consolidated's
subsidiary, Consolidated Cigar Holdings Inc. (NYSE: CIG), for the ten trading
days ending two trading days prior to the Mafco Consolidated merger, exceeds
$33. The merger is not conditioned upon Mafco Consolidated completing its
previously announced proposed offering of 5,000,000 shares of Consolidated Cigar
held by it.
The merger agreement has been unanimously approved by the boards of directors
of each company and, in the case of Mafco Consolidated, by a special committee
of independent directors formed to consider the transaction. Completion of the
merger is subject to the approval of Mafco Consolidated stockholders, the filing
with and review by the Securities and Exchange Commission of an information
statement to be sent to Mafco Consolidated stockholders, and other customary
conditions. Mafco Holdings, the holder of 85% of the outstanding Mafco
Consolidated common stock, has agreed to vote in favor of the transaction. The
merger is expected to close during the second quarter of 1997.
Mafco Consolidated is a holding company which owns 80.2% of the common stock
of Consolidated Cigar and approximately 36% of the common stock of Power Control
Technologies, Inc. (NYSE: ATP) on a fully diluted basis. Consolidated Cigar is
the largest manufacturer and marketer of cigars sold in the United States in
terms of dollar sales. Power Control Technologies, through its Mafco Worldwide
business, is the world's largest producer of licorice extract.
# # #
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
--------------------------
Item 8, Item 14 (a)(1) and (2) and (d)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Pages
The following consolidated financial statements of Mafco Consolidated
Group Inc. and Subsidiaries are included in Item 8:
<S> <C>
Report of Independent Auditors ...............................................................................F-2
Consolidated Balance Sheets as of December 31, 1996 and 1995..................................................F-3
Consolidated Statements of Earnings
for the years ended December 31, 1996, 1995 and 1994.................................................F-4
Consolidated Statements of Stockholders' Equity (Deficit)
for the years ended December 31, 1996, 1995 and 1994.................................................F-5
Consolidated Statements of Cash Flows
for the years ended December 31, 1996, 1995 and 1994.................................................F-6
Notes to Consolidated Financial Statements....................................................................F-7
The following financial statement schedule of Mafco Consolidated Group Inc. is included in
Item 14(d):
Schedule II- Valuation and Qualifying Accounts................................................................F-34
</TABLE>
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and, therefore, have been omitted.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Mafco Consolidated Group Inc.
We have audited the accompanying consolidated balance sheets of Mafco
Consolidated Group Inc. and subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of earnings, stockholders' equity (deficit)
and cash flows for each of the three years in the period ended December 31,
1996. Our audits also included the financial statement schedule listed in the
Index at Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits. The 1995
financial statements of Power Control Technologies Inc. (a corporation in which
the Company has a 29% common equity interest), have been audited by other
auditors whose report has been furnished to us; insofar as our opinion on the
1995 consolidated financial statements relates to data included for Power
Control Technologies Inc., it is based solely on their report.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Mafco Consolidated
Group Inc. and subsidiaries at December 31, 1996 and 1995 and the consolidated
results of their operations and their consolidated cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects, the
information set forth therein.
Ernst & Young LLP
New York, New York
February 11, 1997
F-2
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
<TABLE>
<CAPTION>
December 31,
--------------------------------
ASSETS 1996 1995
-------------- ---------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,222 $ 93,417
Trading securities 409,605 190
Notes and trade receivables, net 19,498 25,211
Inventories 45,957 84,494
Prepaid expenses and other 25,396 25,420
--------- ---------
Total current assets 506,678 228,732
Property, plant and equipment, net 37,277 46,052
Pension asset 62,738 57,245
Investment in PCT preferred and common stock 12,996 55,547
Trademarks, net 31,155 32,021
Intangible assets related to businesses acquired, net 59,723 62,770
Other assets 58,934 78,232
========= =========
$ 769,501 $ 560,599
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and short-term borrowings $ - $ 10,960
Accounts payable 7,323 9,595
Accrued expenses and other 100,847 55,515
--------- ---------
Total current liabilities 108,170 76,070
Long-term debt 97,500 218,678
Deferred income taxes 36,109 5,280
Other liabilities 167,230 156,850
Commitments and contingencies
Stockholders' equity:
Common stock, par value $.01 per share, 250,000,000 shares
authorized, 24,722,190 shares issued in 1996 and 1995 247 247
Additional paid-in-capital 167,105 167,105
Retained earnings (accumulated deficit) 223,043 (35,605)
Currency translation adjustment - 1,877
Treasury stock at cost (1,484,850 shares) (29,903) (29,903)
--------- ---------
Total stockholders' equity 360,492 103,721
========= =========
$ 769,501 $ 560,599
========= =========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Net sales $ 310,659 $ 261,126 $ 226,879
Cost of sales 177,854 154,022 135,967
--------- --------- ---------
Gross profit 132,805 107,104 90,912
Selling, general and administrative expenses 54,161 51,360 37,906
--------- --------- ---------
Operating income 78,644 55,744 53,006
Interest expense (24,589) (27,174) (27,547)
Interest and investment income 13,045 5,958 242
Amortization of deferred charges and bank fees (1,945) (2,095) (2,044)
Equity in earnings from continuing operations and preferred
dividends of PCT 3,850 727 -
Gain on Flavors Disposition 151,747 - -
Gain on Cigar IPO 127,809 - -
Other (expense) income, net (141) (366) 156
--------- --------- ---------
Income from continuing operations before income taxes 348,420 32,794 23,813
Provision for income taxes (104,824) (9,703) (7,478)
--------- --------- ---------
Income from continuing operations 243,596 23,091 16,335
Discontinued operations
Equity in discontinued operations of PCT,
net of income taxes of $1,311 and $712 15,052 1,322 -
--------- --------- ---------
Income before before extraordinary item 258,648 24,413 16,335
Extraordinary item, net of tax benefit of $1,698 - - (2,667)
--------- --------- ---------
Net income $ 258,648 $ 24,413 $ 13,668
========= ========= =========
Income per share:
Continuing operations $ 10.48 $ 1.06 $ 0.82
Discontinued operations 0.65 0.06 -
Extraordinary item - - (0.13)
--------- --------- ---------
$ 11.13 $ 1.12 $ 0.69
========= ========= =========
Weighted average common shares outstanding 23,237 21,794 19,778
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands)
<TABLE>
<CAPTION>
Common Common Common Retained
Stock of Stock of Stock of Additional Earnings/ Currency
MC Flavors Cigar Paid-in (Accumulated Translation Treasury
Group Holdings Holdings Capital Deficit) Adjustment Stock Total
---------- ---------- ---------- ----------- -------------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $ - $ 1 $ 1 $ 43,290 $ (68,686) $ (4) $ - $ (25,428)
Net income 13,668 13,668
Currency translation adjustment 960 960
---------- ---------- ---------- ----------- ------------- ------------ ---------- ---------
Balance at December 31, 1994 - 1 1 43,290 (55,018) 926 - (10,800)
Net income 24,413 24,413
Currency translation adjustment 951 951
Dividends (9,000) (5,000) (14,000)
Abex merger, net of transaction costs 247 (1) (1) 71,197 71,442
Treasury stock (29,903) (29,903)
Retirement of value support rights 61,618 61,618
---------- ---------- ---------- ----------- ------------- ------------ ---------- ---------
Balance at December 31, 1995 247 - - 167,105 (35,605) 1,877 (29,903) 103,721
Net income 258,648 258,648
Currency translation adjustment (1,877) (1,877)
---------- ---------- ---------- ----------- ------------- ------------ ---------- ---------
Balance at December 31, 1996 $ 247 $ - $ - $ 167,105 $ 223,043 $ - $ (29,903) $ 360,492
========== ========== ========== =========== ============= ============ ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 258,648 $ 24,413 $ 13,668
-------- --------- ---------
Adjustments to reconcile net income to net cash flows (used in)
provided by operating activities:
Extraordinary item -- -- 4,365
Gain on Flavors Disposition (151,747) -- --
Gain on Cigar IPO (127,809) -- --
Depreciation and amortization 10,088 10,483 10,407
Equity in earnings of affiliates in excess of distributions (18,613) (1,894) --
Changes in assets and liabilities net of acquisitions
and dispositions:
Net increase in trading securities (409,415) -- --
Increase in notes and trade receivables (5,512) (4,483) (1,952)
(Increase) decrease in inventories (6,768) 1,449 5,503
Increase (decrease) in accounts payable 2,684 (2,353) 912
Decrease (increase) in restricted deposits 1,987 (16,623) --
Deferred taxes, income taxes payable and other, net 87,662 (4,888) (87)
-------- -------- --------
(617,443) (18,309) 19,148
-------- -------- --------
Net cash flows (used in) provided by operating activities (358,795) 6,104 32,816
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash acquired in Abex Merger, net of transaction costs -- 174,837 --
Net proceeds from the Flavors Disposition 172,005 -- --
Capital expenditures (6,997) (3,318) (2,686)
Purchase of PCT Common Stock -- (33,653) --
Proceeds from the sale of fixed and other assets 10 3,318 6,232
Other, net (607) (7) (8)
-------- -------- --------
Net cash flows provided by investing activities 164,411 141,177 3,538
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings -- -- 50,000
Repayment of borrowings (8,731) (5,725) (57,439)
Repayment of revolving loans, net (13,803) (14,872) (19,100)
Purchase of Company Common Stock and Abex VSRs -- (29,903) --
Net proceeds from the Cigar IPO 127,809 -- --
Dividends paid -- (14,000) --
Due to affiliates and other, net 1,984 1,233 (3,654)
-------- -------- --------
Net cash flows provided by (used in) financing activities 107,259 (63,267) (30,193)
-------- -------- --------
Effect of exchange rate changes on cash (70) 80 64
-------- -------- --------
Net (decrease) increase in cash and cash equivalents (87,195) 84,094 6,225
Cash and cash equivalents at beginning of period 93,417 9,323 3,098
-------- -------- --------
Cash and cash equivalents at end of period $ 6,222 $ 93,417 $ 9,323
======== ======== ========
Supplemental schedule of cash flow information
Interest paid $ 23,059 $ 28,278 $ 27,128
Income taxes paid, net of refunds 3,590 6,789 7,731
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Background and Basis of Presentation
On June 15, 1995, stockholders of Abex Inc. ("Abex") approved and
adopted an Agreement and Plan of Merger dated as of January 6, 1995 (as amended,
the "Merger Agreement") by and between Abex and Mafco Holdings Inc. ("Mafco
Holdings") and certain related agreements. Pursuant to the Merger Agreement and
related agreements, on June 15, 1995, the following occurred: (i) the transfer
(the "Transfer"), to a subsidiary of Abex of substantially all of Abex's
consolidated assets and liabilities, other than those relating principally to
its Abex NWL Aerospace division and such division's overseas subsidiaries which
continued to be owned indirectly by Power Control Technologies Inc. ("PCT"),
(ii) the recapitalization of the capital stock of PCT into shares of common
stock, par value $.01 per share (the "PCT Common Stock") and shares of Series A
8% Convertible Redeemable Preferred Stock (the "PCT Preferred Stock") with an
aggregate liquidation preference of $20.0 million and is convertible, at the
option of MC Group, into 2.5 million shares of PCT Common Stock, subject to
adjustments and (iii) the merger (the "Merger") of Abex and C&F Merger Inc.
("C&F"), a wholly owned subsidiary of Mafco Holdings which owned indirectly 100%
of the outstanding stock of Consolidated Cigar Holdings Inc. ("Cigar Holdings"),
and Flavors Holdings Inc. ("Flavors") with Abex, which was renamed Mafco
Consolidated Group Inc. ("MC Group" or the "Company"), as the surviving
corporation in the Merger. Cigar Holdings and Flavors conduct their business
operations through their respective wholly owned subsidiaries, Consolidated
Cigar Corporation ("Consolidated Cigar") and Mafco Worldwide Corporation ("Mafco
Worldwide"). As a result of the Merger, the Company acquired certain
non-aerospace assets and assumed certain liabilities of Abex as well as acquired
an interest in the PCT Preferred Stock. PCT, which became a separate
publicly-traded company, continued to operate the aerospace business until April
1996 (See Note 3).
Pursuant to the Merger, Abex's stockholders immediately prior to the
effective time of the Merger (the "Effective Time"), received for each share of
common stock, par value $.01 per share, of Abex (the "Abex Common Stock") held,
in cancellation thereof, (a) one-quarter of one share of common stock of the
Company, par value $.01 per share (the "MC Group Common Stock") and, where
applicable, cash in lieu of a fractional share of MC Group Common Stock, (b) one
share of PCT Common Stock, and (c) one value support right ("Abex VSR") issued
by MVR Inc. ("MVR"), a wholly-owned subsidiary of the Company, and guaranteed by
the Company. Shares of MC Group Common Stock were also issued upon cancellation
of restricted units of Abex (the "Restricted Units") outstanding under Abex's
Restricted Unit Plan for Non-Employee Directors immediately prior to the
Effective Time, and shares of PCT Common Stock were also issued upon
cancellation of Restricted Units and stock appreciation rights of Abex (the
"SARs") outstanding under the 1992 Stock Plan for Executive Employees of Abex
and its Subsidiaries immediately prior to the Effective Time. On an aggregate
basis, Abex's stockholders and the holders of Restricted Units and SAR's
received 100% of the shares of PCT Common Stock and Abex VSRs; Abex's
stockholders and the holders of Restricted Units received 20% of the shares of
MC Group Common Stock; and Mafco Consolidated Holdings Inc., formerly known as
C&F (Parent) Holdings Inc. ("Mafco Consolidated Holdings"), a wholly owned
subsidiary of Mafco Holdings, received 80% of the shares of MC Group Common
Stock, in each case the percentages reflecting the amount outstanding
immediately following completion of the Merger.
As part of the Merger Agreement, Mafco Worldwide paid a dividend of
$9.0 million and Consolidated Cigar paid a dividend of $5.0 million which were
distributed to Mafco Holdings immediately before the Merger.
F-7
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Merger was accounted for as a purchase of certain assets and the
assumption of certain liabilities of Abex, with C&F treated as the acquiror for
accounting purposes. Beginning June 15, 1995, the date of the Merger, the
financial statements of the Company reflect the consolidated results of Flavors
through November 25, 1996, the date of the Flavors Disposition, as described
below, Cigar Holdings and the assets and liabilities of Abex acquired in the
Merger. For all periods from March 3, 1993, the first date that Flavors and
Cigar Holdings were under the common control of Mafco Holdings, to June 15,
1995, the financial statements reflect the combined results of Flavors and Cigar
Holdings. In connection with the Merger, the Company recorded the assets
acquired and liabilities assumed at their estimated fair market value, with the
difference recorded as a credit to additional paid-in-capital, as follows (in
millions):
<TABLE>
<S> <C>
Cash, net of transaction expenses of $6.7........................................... $174.8
Other current assets................................................................ 12.9
Pension asset....................................................................... 60.8
Other long term assets.............................................................. 98.5
Accrued expense and other........................................................... 37.2
Abex VSR obligation................................................................. 62.0
Other liabilities................................................................... 176.4
Stockholders' equity................................................................ 71.4
</TABLE>
The Abex VSRs were designed to help ensure that, within a stated time
period and subject to certain limitations, the combined market values of the
securities received in the Merger by Abex's stockholders was at least $10 per
share. The Abex VSRs were valued based on 20,667,142 Abex VSRs issued at the
maximum payment per Abex VSR of $3.00. The Abex VSRs expired in accordance with
their terms without the need for any payment on September 19, 1995. As a result
of the purchase of Abex VSRs by the Company and the expiration of all the Abex
VSRs, stockholders' equity increased by $61.6 million.
On December 11, 1992, Triple C, Mafco Holdings and its wholly owned
subsidiary Consolidated Cigar Holdings Inc. ("CCC Holdings"), entered into an
agreement and plan of merger (the "Cigar Merger Agreement"), pursuant to which
CCC Holdings was merged into Triple C with Triple C being the surviving
corporation. Pursuant to the merger which was consummated on March 3, 1993,
Mafco Holdings acquired all the outstanding shares of Triple C common stock and
warrants to purchase Triple C common stock (the "1993 Acquisition"), for an
aggregate purchase price of approximately $188.0 million, including fees and
expenses. Immediately following the 1993 Acquisition, Triple C merged into
Consolidated Cigar with Consolidated Cigar being the surviving corporation. As a
result, Consolidated Cigar became an indirect wholly owned subsidiary of Mafco
Holdings.
On November 25, 1996, MC Group and PCT consummated the transactions
contemplated by a Stock and VSR Purchase Agreement (the "Purchase Agreement").
Pursuant to the Purchase Agreement, among other things, all the issued and
outstanding shares (the "Shares") of capital stock of Flavors were sold (see
Note 3).
The financial statements have been restated to reflect the Company's
equity in the discontinued operations of PCT. Certain financial statement items
and financial statement disclosures for prior years have been reclassified to be
comparable with the 1995 presentation.
F-8
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company currently operates in the tobacco products business. The
Company's tobacco products include cigars and pipe tobacco products manufactured
and distributed by Consolidated Cigar and licorice extract and flavoring agents
manufactured and distributed by Mafco Worldwide through November 25, 1996, the
date of the Flavors Disposition (See Note 3).
2. Significant Accounting Policies
Principles of Consolidation:
The consolidated financial statements include the accounts of the
Company and its majority and wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Investments of less than 50% but greater than 20% in affiliates are accounted
for on the equity method.
Revenue Recognition:
Revenue is recognized from product sales upon shipment. Allowances for
sales returns, customer incentive programs and promotions are recorded at the
time of sale.
Restricted Cash:
Restricted cash of $14.6 million and $16.6 million included in other
assets at December 31, 1996 and 1995, respectively, reflects segregated cash
held for the benefit of certain parties to cover obligations related to certain
prior dispositions and certain environmental and insurance matters.
Inventories:
Leaf tobacco is carried at the lower of average cost or market. In
accordance with generally recognized industry practice, all leaf tobacco
inventory is classified as current although portions of such inventory, because
of the duration of the aging process, ordinarily would not be utilized within
one year. Cigar and other inventories are generally valued at the lower of cost
(using the first-in, first-out method) or market.
Property, Plant and Equipment:
Property, plant and equipment is recorded at cost and depreciated on a
straight-line basis over the estimated useful lives of such assets ranging from
3 to 20 years. Leasehold improvements are amortized over their estimated useful
lives or the terms of the leases, whichever is shorter. Repairs and maintenance
are charged to operations as incurred, and expenditures for additions and
improvements are capitalized.
Trademarks:
Trademarks consist of registered and unregistered tradenames of cigars
or other tobacco brands which are being amortized on a straight-line basis over
40 years. Accumulated amortization of trademarks was $3.3 million and $2.5
million in 1996 and 1995, respectively.
F-9
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Intangible Assets Related to Businesses Acquired:
Intangible assets related to businesses acquired primarily represents
goodwill related to the 1993 Acquisition which is being amortized on a
straight-line basis over 40 years, consistent with industry practice. The
Company's accounting policy regarding the assessment of the recoverability of
the carrying value of goodwill is to review the carrying value of goodwill if
the facts and circumstances suggest that it may be impaired. If this review
indicates that goodwill will not be recoverable, as determined based on the
undiscounted future cash flows of the Company, the carrying value of goodwill
will be reduced to its estimated fair value. Accumulated amortization of
intangible assets related to businesses acquired was $6.6 million and $5.3
million in 1996 and 1995, respectively.
Impairment of Long-Lived Assets:
The Company accounts for the impairment of long-lived assets under
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of
("SFAS 121"). SFAS 121 requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. The adoption of SFAS 121 did not impact the results
of operations of the Company.
Advertising:
The Company expenses advertising costs as incurred. Amounts charged to
advertising expense totaled $2.1 million, $1.2 million and $0.9 million for the
years ended December 31, 1996, 1995 and 1994, respectively.
Earnings Per Share:
Earnings per share has been computed using the weighted average number
of common shares outstanding. For periods prior to the Merger, the weighted
average number of shares outstanding reflect the number of shares issued to
Mafco Consolidated Holdings in the Merger. The dilutive effect of options
outstanding under the Company's stock option plan is not material.
Interest Rate Swaps:
The Company entered into interest rate swap agreements to modify the
interest characteristics of its outstanding debt from a fixed to a floating rate
basis. These agreements involve the receipt of fixed rate amounts in exchange
for floating rate interest payments over the life of the agreement without an
exchange of the underlying principal amount. The differential to be paid or
received is accrued as interest rates change and recognized as an adjustment to
interest expense related to the debt. The related amount payable to or
receivable from counterparties is included in accrued expenses. To the extent
previous interest rate swap agreements have been terminated, the resulting gain
is being recognized over the remaining original life of the terminated
agreements. The fair values of the swap agreements (See Note 8), are not
recognized in the financial statements.
F-10
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Issuance of Subsidiary Stock:
The Company recognizes gains and losses on issuances of subsidiary
stock in its Consolidated Statements of Earnings.
Stock-Based Compensation:
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). SFAS 123, encourages, but does not require companies
to record compensation cost for stock-based employee compensation plans at fair
value. The Company has chosen to account for stock-based compensation plans
using the intrinsic value method prescribed in Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and
related Interpretations. Accordingly, compensation cost for stock options is
measured as the excess, if any, of the quoted market price of the Company's
stock at the date of the grant over the amount an employee must pay to acquire
the stock. (See Note 12.)
Income Taxes:
The Company computes income taxes under the liability method. Under the
liability method, deferred income taxes are generally determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse. Net deferred tax assets are recorded when
it is more likely than not that such tax benefits will be realized.
Concentration of Credit Risk:
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of trade receivables. The
Company's customers are geographically dispersed but are concentrated in the
tobacco industry. The Company historically has had no material losses on its
trade receivables from customers in the tobacco industry in excess of allowances
provided.
Cash Flow Information:
Cash equivalents are considered to be all highly liquid investments
with maturities of three months or less when acquired and exclude restricted
cash.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates. The most
significant estimates included in the preparation of the financial statements
are related to actuarial assumptions used in the determination of the pension
asset and liability, postretirement benefit liability and the valuation of
deferred tax assets.
F-11
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Acquisitions and Dispositions
On July 17, 1995, pursuant to a securities purchase agreement dated as
of June 26, 1995, MC Group purchased from Libra Invest & Trade Ltd. ("Libra")
for approximately $63.9 million, including expenses, 5,939,400 shares of PCT
Common Stock, 5,939,400 Abex VSRs, and 1,484,850 shares of MC Group Common Stock
(the "Libra Purchase"). Of the total purchase price of approximately $63.9
million, approximately $29.9 million was allocated to the purchase of 1,484,850
shares of MC Group Common Stock and is classified as treasury stock. In
connection with such purchase, the Company entered into an agreement with PCT
which, subject to certain exceptions, will limit the Company's ability to
dispose of its shares of PCT Preferred Stock and PCT Common Stock for a period
of three years. As a result of this transaction, the Company's investment in PCT
increased to approximately 29% of PCT Common Stock (36% on a fully diluted
basis).
The Company accounts for its investment in PCT on the equity method. At
December 31, 1996, PCT had total assets, total liabilities, redeemable
convertible preferred stock, and stockholders' equity of $318.1 million, $132.1
million, $20.0 million and $166.0 million, respectively. At December 31, 1995,
PCT had total assets, total liabilities, redeemable preferred stock and
stockholders' equity of $51.3 million, $8.8 million, $20.0 million and $22.5
million, respectively. For the year ended December 31, 1996, PCT had income from
continuing operations, income from discontinued operations and net income of
$10.4 million, $158.1 million and $168.5 million, respectively. For the year
ended December 31, 1995, PCT had a loss from continuing operations, income from
discontinued operations and net income of $4.0 million, $16.9 million and $11.3
million, respectively. At December 31, 1996 the market value of PCT Common Stock
owned by the Company was $44.5 million.
On April 15, 1996, PCT sold its aerospace operations, including
substantially all of its assets, to Parker Hannifin Corporation ("Parker
Hannifin") for an aggregate cash consideration of approximately $201.1 million
before transaction costs and recognized a gain in discontinued operations of
$153.7 million.
On August 21, 1996, Cigar Holdings completed an initial public offering
of 6,075,000 shares of its Class A common stock (the "Cigar IPO"). The net
proceeds to Cigar Holdings from the Cigar IPO of approximately $127.8 million
were paid as a dividend to the Company. As a result of the Cigar IPO, the
Company beneficially owns 80.2% of the outstanding shares of capital stock of
Cigar Holdings (representing approximately 97.6% of the combined voting power),
which owns 100% of the outstanding shares of capital stock of Consolidated
Cigar. In connection with the Cigar IPO, the Company recorded a gain of $127.8
million.
On November 25, 1996, the Company sold (the "Flavors Disposition") to a
subsidiary of PCT (i) all of the outstanding shares of Flavors common stock and
(ii) 23,156,502 Value Support Rights ("VSRs") for aggregate consideration of
approximately $297.3 million, consisting of $180.0 million in cash, the
assumption of approximately $110.1 million of indebtedness and deferred cash
payments to the Company of $3.7 million payable on June 30, 1997 and $3.5
million payable on December 31, 1997. The VSRs were subsequently distributed to
PCT shareholders, including 8,439,400 to the Company due to its ownership of PCT
Common Stock and PCT Preferred Stock.
F-12
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Each VSR, subject to certain limitations, entitles its holder to
receive a payment, if any, of up to $3.25 per VSR if the 30-Day Average Market
Price (as defined in the VSR Agreement) of PCT Common Stock is below $11.00 per
share, subject to adjustment, on January 1, 1999; provided, however, the Company
has an optional right to call the VSRs each April 1, July 1, October 1 and
January 1 from and including April 1, 1997 to and including October 1, 1998
(each, an "Optional Call Date"). If the Company calls the VSRs on or before
January 1, 1998, holders will be entitled to receive a payment of at least $0.50
and up to $3.25 per VSR if the 30-Day Average Market Price is below $10.25 per
share, subject to adjustment, as of such Optional Call Date. If the Company
calls the VSRs after January 1, 1998, each VSR will entitle its holder to a
payment, if any, of up to $3.25 per VSR if the 30-Day Average Market Price is
below $11.00 per share, subject to adjustment, on such Optional Call Date.
The Company's VSR obligation (which excludes the 8,439,400 VSR's
received by the Company as a distribution from PCT) was accounted for at the
fair value on the date of issuance and was subsequently marked to the closing
market price of the security on December 31, 1996. The VSR obligation will be
marked to the closing market price of the security at each financial statement
date. As a result, income in future periods may be affected by any positive or
negative mark to market adjustment.
The Company recorded a gain of $151.7 million in connection with the
Flavors Disposition, which is net of a deferral of $61.2 million corresponding
to the Company's continuing approximate 29% equity interest in PCT following the
Flavors Disposition. The deferral of $61.2 million was recorded as a reduction
of the Company's investment in PCT preferred and common stock.
4. Inventories
Inventories consisted of the following:
(in thousands)
December 31,
-----------------------------------------
1996 1995
------------------ --------------------
Raw materials $ 34,469 $ 59,742
Work-in progress 1,974 1,988
Finished goods 9,514 22,764
------------------ --------------------
$ 45,957 $ 84,494
================== ====================
F-13
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Property, Plant and Equipment
Property, plant and equipment consisted of:
(in thousands)
December 31,
----------------------------------
1996 1995
-------------- -------------
Land $ 1,884 $ 2,259
Buildings 14,140 19,814
Machinery and equipment 33,220 47,888
Furniture and fixtures 1,614 2,190
Leasehold improvements 361 276
Construction-in-progress - 640
-------------- -------------
51,219 73,067
Accumulated depreciation (13,942) (27,015)
-------------- -------------
$ 37,277 $ 46,052
============== =============
Depreciation expense was $5.8 million, $5.5 million and $5.5
million for the years ended December 31, 1996, 1995 and 1994, respectively.
6. Accrued Expenses
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
(in thousands)
December 31,
-----------------------------------------------
1996 1995
---------------------- ----------------------
<S> <C> <C>
Employee benefits, severance and other compensation $ 21,535 $ 21,614
Interest 3,388 4,737
Taxes payable 42,179 219
Indemnification reserve and other tax reserves (see Note 9) 11,500 11,500
Other 22,245 17,445
--------------------- ----------------------
$ 100,847 $ 55,515
===================== ======================
</TABLE>
The increase in accrued expenses primarily reflects the tax liability
related to the Flavors Disposition.
F-14
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Other Liabilities
Other liabilities consisted of the following:
<TABLE>
<CAPTION>
(in thousands)
December 31,
----------------------------------------------
1996 1995
---------------------- ---------------------
<S> <C> <C>
Casualty reserves $ 10,718 $ 11,583
Employee benefits and other compensation 75,005 72,916
Indemnification reserve and other tax reserves (see Note 9) 15,900 15,900
VSR obligation 13,797 -
Other 51,810 56,451
--------------------- --------------------
$ 167,230 $ 156,850
===================== ====================
</TABLE>
8. Long-Term Debt
<TABLE>
<CAPTION>
(in thousands)
December 31,
---------------------------------------
1996 1995
----------------- -------------------
<S> <C> <C>
Consolidated Cigar:
Bank Borrowings (a) $ 7,500 $ 20,600
Senior Subordinated Notes (b) 90,000 90,000
Mafco Worldwide (c):
Senior Credit:
Tranche A Term Loans $ - $ 14,000
Tranche B Term Loans - 19,800
11 7/8% Senior Subordinated Notes Due 2002 - 84,510
---------------- -----------------
97,500 228,910
Less: current portion - (10,232)
---------------- -----------------
$ 97,500 $ 218,678
================ =================
</TABLE>
- -------------
(a) Represents borrowings under a credit agreement (the "Cigar Credit
Agreement") with Chase dated February 23, 1993, which provides for a
revolving credit facility (the "Revolving Credit Facility") and a
working capital facility (the "Working Capital Facility"). The
Revolving Credit Facility and the Working Capital Facility have final
maturities on April 3, 1999. The Revolving Credit Facility was
subject to quarterly commitment reductions of $2.5 million through
the end of 1996. The Cigar Credit Agreement was amended on February
3, 1997 to reduce the amount of various interest rate margins
charged against outstanding borrowings and waive any further
scheduled amortization of the commitment on the Revolving Credit
Facility.
The maximum borrowings under the Cigar Credit Agreement, as amended, at
the end of December 31, 1996 and through maturity are $20 million under
the Working Capital Facility and $14.9 million under the Revolving
Credit Facility. Outstanding letters of credit of
F-15
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
approximately $1.7 million reduced the available borrowings under the
Cigar Credit Agreement at December 31, 1996.
The following indicates the Cigar Credit Agreement's established and
amended interest payment rates available at the option of Consolidated
Cigar:
<TABLE>
<CAPTION>
Initial 1996 Rate Effective
Rate Rate March 1997
---- ---- ----------
<S> <C> <C> <C> <C>
Base Rate Loans Prime plus 1 3/4% 1% 0%
936 Loans 936 Rate plus 2 3/4% 2% 1%
Eurodollar Funds Eurodollar plus 2 3/4% 2% 1%
</TABLE>
The average interest rate under the Cigar Credit Agreement was
approximately 7.7% at December 31, 1996.
The Cigar Credit Agreement is secured by perfected first priority liens
on all of the material assets of Consolidated Cigar and its domestic
subsidiaries and perfected pledges of the stock of all Consolidated
Cigar's subsidiaries (with certain exceptions for the stock of foreign
subsidiaries). The Cigar Credit Agreement is guaranteed by the Company
and by all of the domestic subsidiaries of Consolidated Cigar. The
guarantee by the Company is secured by a pledge of all the outstanding
stock of Consolidated Cigar.
The Cigar Credit Agreement contains various covenants which govern,
among other things, the ability to incur indebtedness, pay dividends,
incur lease rental obligations, make capital expenditures, use proceeds
from asset sales, participate in mergers and other activities. The
Cigar Credit Agreement also requires Consolidated Cigar to satisfy
certain financial covenants related to net worth, capital expenditures
and various ratios.
(b) Represents the $90.0 million in principal amount of 10 1/2% Senior
Subordinated Notes Due 2003 (the "Senior Subordinated Notes") issued in
connection with the 1993 Acquisition.
The Senior Subordinated Notes bear interest at the rate of 10 1/2% per
annum, mature on March 1, 2003 and are redeemable at a premium prior to
maturity starting March 1, 1998. The Senior Subordinated Notes are
redeemable earlier at a premium in the event of a change of control.
The indenture relating to the Senior Subordinated Notes limits, among
other things, dividends and other distributions, certain types of
indebtedness, certain mergers, consolidations and sales of assets.
The terms of the Cigar Credit Agreement and the Senior Subordinated
Notes of Consolidated Cigar limit the payment of dividends or distributions by
Consolidated Cigar to an amount equal to approximately $9.3 million as of
December 31, 1996.
F-16
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(c) In connection with the Flavors Disposition, PCT assumed Mafco
Worldwide's obligations under the Senior Credit and its 117/8% Senior
Subordinated Note indenture. Obligations under the Senior Credit bore
interest at November 25, 1996 at approximately 8.20%.
The fair value of the Company's long-term debt at December 31, 1996 is
estimated based on the quoted market prices for the same issues or on the
current rates offered to the Company for debt of the same remaining maturities.
The estimated fair value of long-term debt was approximately $3.6 million more
than the carrying value of $97.5 million.
In 1994, the Company recorded an extraordinary loss of $2.7 million,
net of $1.7 million tax benefit, as a result of the June 1994 refinancing of
certain indebtedness. Prepayment premiums, original issue discounts and certain
other capitalized costs of the refinanced indebtedness were expensed as such
extraordinary loss.
Because judgment is required in interpreting market data to develop
estimates of fair value, the estimates are not necessarily indicative of the
amounts that could be realized or would be paid in a current market exchange.
The effect of using different market assumptions or estimation methodologies may
be material to the estimated fair value amounts.
Consolidated Cigar entered into two five year interest rate swap
agreements in an aggregate notional amount of $85.0 million. Under the terms of
the agreements, Consolidated Cigar receives a fixed interest rate averaging 5
4/5% and pays a variable interest rate equal to the six month LIBOR.
Consolidated Cigar entered into such agreements to take advantage of the
differential between long-term and short-term interest rates and effectively
converted the interest rate on $85.0 million of fixed-rate indebtedness to a
variable rate. From inception of the agreements through January 1997
Consolidated Cigar has paid $0.8 million in settlement, which occurs at the end
of each six month period of the agreements. Had Consolidated Cigar terminated
these agreements, which the Company considers to be held for other than trading
purposes, on January 31, 1997, a combined loss of approximately $1.1 million
would have been realized. Future positive or negative cash flows associated with
these agreements will depend upon the trend of short-term interest rates during
the remaining life of the agreements. In the event of non-performance of the
counterparties at anytime during the remaining lives of these agreements which
expire at December 1998 and January 1999, the Company could lose some or all of
any future positive cash flows. However, the Company does not anticipate
non-performance by such counterparties.
9. Income Taxes
Information pertaining to consolidated income from continuing
operations before income taxes and extraordinary item and the applicable
provision for income taxes, excluding amounts related to discontinued operations
and to the extraordinary item, is as follows:
F-17
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
(in thousands)
Year ended December 31,
-----------------------------------------------------
1996 1995 1994
----------------- --------------- -------------
<S> <C> <C> <C>
Income from continuing operations before income taxes:
Domestic $ 320,035 $ 13,437 $ 8,567
Foreign (includes Puerto Rico) 28,385 19,357 15,246
-------------- ------------- ----------
$ 348,420 $ 32,794 $ 23,813
============== ============= ==========
Provision (benefit) for income taxes:
Current:
Federal $ 41,215 $ 2,827 $ 3,477
State and local 9,995 1,442 809
Foreign 2,712 1,941 2,036
-------------- ------------- ----------
53,922 6,210 6,322
Deferred:
Federal 50,699 2,794 963
State and local (675) 108 174
Foreign 878 591 19
-------------- ------------- ----------
$ 104,824 $ 9,703 $ 7,478
=============== ============= ==========
</TABLE>
The effective tax rate on consolidated income from continuing
operations before income taxes varies from the current statutory federal income
tax rate as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Statutory rate 35.0% 35.0% 35.0%
Foreign income taxed at other than the (1.0) (8.5) (7.4)
statutory tax rate
Non-deductible amortization 0.2 1.9 2.7
Permanent benefit on sale of Flavors resulting from
basis difference in goodwill (11.9) - -
State and local taxes, net 1.7 3.1 3.0
Increase (Decrease) in valuation allowance 6.1 (1.8) (2.5)
Other, net - (0.1) 0.6
=============== =============== ===============
30.1% 29.6% 31.4%
=============== =============== ===============
</TABLE>
The approximate effect of the temporary differences that gave rise to
deferred tax balances were as follows:
F-18
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
(in thousands)
December 31,
---------------------------------
1996 1995
---------------- -------------
<S> <C> <C>
Deferred tax assets:
Accounts receivable $ 1,930 $ 2,078
Inventory - 466
Prepaid and other 2,914 2,914
Property, plant and equipment - 933
Long term investments and other 23,184 4,277
Pension liability - 607
Accrued expenses and other 6,654 7,116
Employee benefits and other compensation 27,092 25,108
Other long term liabilities 11,109 5,384
Net operating loss carryforwards - 4,900
--------------- -------------
Total deferred tax asset 72,883 53,783
Valuation allowance (23,864) -
--------------- -------------
Total deferred tax asset net of valuation allowance 49,019 53,783
--------------- -------------
Deferred tax liabilities:
Subsidiary stock issuance $ 44,769 $ -
Property, plant and equipment 3,473 3,474
Pension asset 22,199 20,035
Unremitted foreign earnings 2,521 2,179
Other 385 403
--------------- -------------
Total deferred tax liability 73,347 26,091
--------------- -------------
Net deferred tax asset (liability) $ (24,328) $ 27,692
=============== =============
</TABLE>
As a result of the pension plan merger in 1995 (see Note 10), a
deferred tax asset in the amount of $2.4 million which was related to the
unfunded pension liability at the date of the 1993 Acquisition was recorded with
a resulting reduction of goodwill.
As a result of the Merger, MC Group and its domestic subsidiaries (the
"Mafco Group") have, for federal income tax purposes, become members of an
affiliated group of corporations of which Mafco Holdings is the common parent
(the "Holdings Group"). Accordingly, the Mafco Group will be included in the
consolidated federal income tax returns and, to the extent permitted by
applicable law, any combined state or local income tax returns filed on behalf
of the Holdings Group. Mafco Holdings and MC Group are parties to a tax sharing
agreement pursuant to which MC Group will pay to Mafco Holdings with respect to
each taxable year an amount equal to the consolidated federal and state and
local income taxes that would have been incurred by the Mafco Group had it not
been included in the consolidated federal and any combined state or local income
tax returns filed by the Holdings Group for such period. Prior to the Merger,
Consolidated Cigar and Mafco Worldwide were party to tax sharing agreements with
Mafco Holdings pursuant to which Consolidated Cigar and Mafco Worldwide were
required to pay to Mafco Holdings with respect to each taxable year an amount
equal to the consolidated federal and state and local income taxes that would
have been incurred by Consolidated Cigar and Mafco Worldwide had they not been
included in the consolidated federal and any combined state and local income tax
returns filed by Mafco Holdings. For all periods presented, federal and state
income taxes are provided as if the Company filed its own income tax returns.
F-19
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Foreign income primarily consists of Puerto Rico and Dominican Republic
income. Pursuant to a grant of industrial tax exemption which expires in 2002,
90% of the income earned from the manufacture of cigars in Puerto Rico is tax
exempt from Puerto Rican income taxes. The remaining 10% of such income is taxed
at a maximum surtax rate of 45%, resulting in an effective income tax rate of
approximately 4.5%. The benefit to the Company amounted to approximately $3.5
million for the year ended December 31, 1994, $5.1 million for the year ended
December 31, 1995, and $7.4 million for the year ended December 31, 1996.
Funds repatriated to the Company from its Puerto Rico subsidiary are
subject to a maximum Puerto Rico tollgate tax of 10%. Legislation enacted in
Puerto Rico in 1993 included a provision for prepaying a portion of these
tollgate taxes effective for the 1993 fiscal year and subsequent periods.
The Company manufactures cigars in the Dominican Republic pursuant to a
100% exemption from Dominican Republic income taxes, which exemption expires in
2010.
Income earned from Puerto Rico operations is generally exempt from
federal income tax. Section 936 of the Internal Revenue Code allows a
"possessions tax credit" against U.S. income tax attributable to the Puerto Rico
taxable earnings. As part of OBRA 1993, the Internal Revenue Service has limited
this exemption based upon a percentage of qualified wages in Puerto Rico, plus
certain amounts of depreciation. The Company believes that it qualified for the
possessions tax credit during each of the fiscal years ended 1994, 1995 and
1996.
On August 20, 1996, the Small Business Job Protection Act of 1996 (the
"SBJPA") was enacted into law. Under the SBJPA, Section 936 of the Internal
Revenue Code, the possessions tax credit was repealed, subject to special
grandfather rules for which the Company would be eligible, provided that the
Company does not add a "substantial new line of business." Under the grandfather
rules, for the Company's taxable years beginning December 31, 2001 and before
January 1, 2006, the Company's business income from its Puerto Rico operations
eligible for the possessions tax credit would, in addition to the current
limitation based upon a percentage of qualified wages in Puerto Rico, plus
certain amounts of depreciation, generally be limited to its average annual
income from its Puerto Rico operations, adjusted for inflation, computed during
the Company's five most recent taxable years ending before October 14, 1995 and
excluding the highest and lowest years (the "Income Limitation"). For taxable
years after December 31, 2005, the possessions tax credit would be eliminated.
The repeal of the possessions tax credit could have a material adverse effect on
the Company for taxable years beginning after December 31, 2001 and before
January 2006 to the extent that the Company's annual income from its Puerto Rico
operations exceeds its average annual income from its Puerto Rico operations (as
computed in the manner described in the preceding sentence), and for taxable
years after December 31, 2005. Although it does not currently have any
definitive plans with respect thereto, the Company expects to evaluate
alternatives that may be available to it in order to mitigate the effects of the
SBJPA. On February 6, 1997, President Clinton proposed certain tax law changes
which, if enacted, would eliminate the Income Limitation, extend the possession
tax credit indefinitely and make the credit available to newly established
business operations.
F-20
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In connection with the Merger, MC Group entered into a tax sharing
agreement with its former subsidiary, PCT, pursuant to which MC Group will
indemnify PCT with respect to all taxes applicable to periods prior to June 15,
1995 except for foreign taxes related to PCT's aerospace business.
In connection with the July 16, 1992 distribution of Abex, the
predecessor of MC Group, from its prior parent, The Henley Group, Inc.
("Henley"), Abex entered into a tax sharing agreement with Henley in which Abex
indemnified Henley for tax liabilities resulting from certain adjustments to the
tax liabilities of Abex entities and for certain tax liabilities of a prior
affiliated company, Wheelabrator Technologies, Inc. for the period May 26, 1986
through December 31, 1988. All federal tax liabilities related to this period
were settled prior to 1995; however, certain state tax liabilities of
approximately $7.0 million, which is an obligation of the Company, remain open
as of December 31, 1996.
Abex had been included in the consolidated federal income tax return of
Henley for 1990 and 1991. The Internal Revenue Service has asserted deficiencies
against Henley for these periods of approximately $23 million, plus interest.
Koll Real Estate Group, Inc. ("Koll"), as the parent of Henley, has indicated
that it will vigorously contest the deficiencies through the administrative
appeals process as well as in court and that a final conclusion to this matter
could take several years. In any event, the adjustments creating these
deficiencies do not relate to Abex entities and are therefore not liabilities of
the Company as successor to Abex under the tax sharing agreement. However, if
Henley or Koll were unable to pay any deficiency remaining after the review
process, then the Internal Revenue Service, in accordance with Treasury
Regulation 1.1502-06, could seek payment from any of the other entities that
were included in the federal consolidated return of Henley for 1990 and 1991,
including the Company as successor to Abex.
While the Company expects that Koll will discharge its ultimate tax
obligations, the Company is aware that Koll has a history of operating losses
and retained deficits. Thus, there can be no assurance that Koll will have the
financial ability to discharge such obligations. In addition, Koll has announced
that it is soliciting consents from its debtholders for a financial
restructuring, but the Company is presently unable to determine the effect, if
any, of a financial restructuring on the ability of Koll to pay any remaining
deficiency.
Management believes that reserves as of December 31, 1996 are adequate
for all tax liabilities associated with these tax sharing agreements as well as
any potential liability asserted by the IRS in accordance with Treasury
Regulation 1.1502-06.
10. Pension Plans
The Company maintains tax qualified defined benefit pension plans
covering substantially all hourly and salaried employees in the U.S. and Puerto
Rico. In addition, certain employees of Abex's former subsidiaries are covered
under various tax qualified MC Group retirement plans (the "MC Group Retirement
Plan"). The fair value of the assets and liabilities of the former Abex plans
were recognized in the financial statements of the Company as of June 15, 1995
in connection with the Merger.
Plans covering salaried employees generally provide pension benefits
based on years of service and compensation. Plans covering hourly employees and
union members generally provide stated
F-21
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
benefits for each year of service. Plan assets consist primarily of equity and
fixed income securities and mutual funds.
Effective December 31, 1995, Consolidated Cigar's tax qualified
non-contributory defined benefit pension plans (the "Cigar Plans") covering
substantially all hourly and salaried employees in the U.S. and Puerto Rico were
merged with and into the MC Group Retirement Plan. The MC Group Retirement Plan
was the surviving plan with all the assets and liabilities of the Cigar Plans
becoming assets and liabilities of the surviving MC Group Retirement Plan.
In addition, certain employees of Abex's former subsidiaries are
covered under a non-qualified executive defined benefit plan (the "Executive
Defined Benefit Plan") and a defined contribution plan (the "Executive Defined
Contribution Plan"). Assets of these plans of $27.1 million and $26.1 million at
December 31, 1996 and 1995, respectively, are held by a rabbi trust and are
presented as other assets in the Company's balance sheet because they will be
available to general creditors of the Company in the event of the Company's
insolvency. The liability related to the Executive Defined Contribution Plan was
$2.1 million and $2.6 million at December 31, 1996 and 1995, respectively, and
is included in other liabilities.
The following table reconciles the funded status of the Company's
significant pension plans as of the date indicated:
<TABLE>
<CAPTION>
(in thousands)
December 31,
-----------------------------------------------------------------------------
1996 1995
--------------------------------------- ----------------------------------
Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
Benefits Assets Benefits Assets
----------------- ------------------ ------------------ ------------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligation:
Accumulated benefit obligation includes
vested benefits of $127,258 and $27,874 in 1996
and $127,847 and $28,527 in 1995 $ 127,834 $ 27,938 $ 128,935 $ 28,535
================= ================== ================== =============
Projected benefit obligation for service
rendered to date 133,095 28,259 135,180 28,684
Less: plan assets at fair value (202,211) - (195,579) -
----------------- ------------------ ------------------ ------------
Projected benefit obligation in excess
of (less than) plan assets (69,116) 28,259 (60,399) 28,684
Unrecognized transition asset (obligation) 62 - (182) -
Unrecognized prior service benefit (cost) 219 (541) 1 (309)
Unrecognized net (loss) gain 6,080 404 5,264 (452)
Adjustment for minimum liability - 198 - -
----------------- ------------------ ------------------ -------------
Net pension (asset) liability $ (62,755) $ 28,320 $ (55,316) $ 27,923
================= ================== ================== =============
</TABLE>
Pension liabilities are included in accrued expenses and other
liabilities.
F-22
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The weighted-average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7 1/4% in 1996 and
7 1/4%-7 1/2% in 1995. The rate of increase in future compensation levels
reflected in such determination was 4 1/2% in 1996 and 4%-5% in 1995. The
assumed long-term rate of return on assets was 8-9% for 1996, 6 1/2%-9% for
1995 and 7%-8 1/4% for 1994. The Company's funding policy is to contribute
annually an amount necessary to satisfy the Internal Revenue Service's minimum
funding standards.
Pension (income) expense includes the following components for the
years ended December 31, 1996, 1995 and 1994 respectively:
<TABLE>
<CAPTION>
(in thousands)
1996 1995 1994
------------- ------------ -------------
<S> <C> <C> <C>
Service cost-benefits earned during the period $ 1,047 $ 800 $ 893
Interest cost on projected benefit obligation 12,525 7,416 2,194
Actual return on plan assets (31,945) (20,732) (827)
Net amortization and deferrals 14,548 11,594 (685)
------------- ------------ -------------
Net pension (income) expense $ (3,825) $ (922) $ 1,575
============= ============ =============
</TABLE>
In addition, the Company maintains certain 401(k) plans for which the
expense for matching contributions was $436,000, $273,000 and $280,000 for the
years ended December 31, 1996, 1995 and 1994, respectively.
11. Postretirement Benefits Other Than Pensions
MC Group, generally at its sole discretion, provides certain employees
of Abex and its former subsidiaries retiring on or after attaining age 55, who
have rendered at least 10 years of service and who have participated in Abex's
pension plans, with postretirement health care coverage. In 1993, Abex amended
its existing postretirement health care programs primarily to adjust certain
cost sharing provisions. MC Group funds the cost of this benefit on a
claims-paid basis and made payments of $4.3 million in 1996 and $2.6 million in
1995 from the date of the Merger. The liability related to these benefits was
recognized as of June 15, 1995 in connection with the Merger. The plans have no
assets.
The accumulated postretirement benefit obligation consists of the
following components at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
(in thousands)
-----------------------------------------
1996 1995
----------------- --------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ 41,681 $ 41,800
Fully eligible active plan participants - 1,300
-------- --------
Postretirement benefit liability $ 41,681 $ 43,100
======== ========
</TABLE>
Unrecognized items at December 31, 1996 and 1995 were not significant.
Net periodic postretirement benefit costs other than pensions attributable to
interest on the accumulated post-
F-23
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
retirement benefit obligation was $2.9 million for December 31, 1996 and $1.7
million in 1995 from the date of the Merger on June 15, 1995. For measurement
purposes, a 5.5%-8% annual rate of increase in the per capita cost of covered
health care benefits was assumed for 1997 declining to 5.5% thereafter. An
increase of 1% in the health care cost trend rate will not have a significant
effect on the amounts reported because of cost sharing provisions. The weighted
average discount rate used in determining the accumulated postretirement
benefit obligation was 7.25% at December 31, 1996 and 1995.
12. Stock Based Compensation
Under the terms of the Company's 1995 stock option plan (the "MC Group
Stock Option Plan"), stock options and stock appreciation rights may be granted
to key employees of the Company. A maximum of 1,250,000 shares of MC Group
Common Stock have been reserved for issuance under the MC Group Stock Option
Plan. The MC Group options vest one-third each year beginning on the first
anniversary of the date of grant and become 100% vested on the third anniversary
of the date of grant.
The following table summarizes the stock option transactions under the
MC Group Stock Option Plan and the grant of 750,000 options to the Chairman of
the Board of Directors for services rendered and to be rendered to the Company:
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------------------------------------------------
1996 1995
------------------------------------ ------------------------------------
Exercise Exercise
Options Price Options Price
------------------ --------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Outstanding - beginning of year 750,000 $17.38 - $ -
Granted 875,000 21.57 750,000 17.38
------------------ ----------------
Outstanding at year end 1,625,000 19.63 750,000 17.38
Exercisable at year end 791,667 250,000
Weighted average fair value of
options granted during the year 10.08 7.31
Weighted average remaining contractual life
of options outstanding (in years) 9.27 9.92
</TABLE>
Cigar Holdings adopted its 1996 stock plan (the "Cigar Stock Option
Plan") prior to the effectiveness of the Cigar IPO. Under the Cigar Stock Option
Plan, incentive stock options, non-qualified stock options, stock appreciation
rights, restricted and unrestricted stock (collectively "Awards"), may be
granted to selected employees, consultants and directors of Cigar Holdings, and
any of its affiliates, from time to time. The aggregate number of shares of
Cigar Holdings common stock as to which options and rights may be granted under
the Cigar Stock Option Plan may not exceed 3,000,000. As of December 31, 1996
there were 1,237,500 shares of Cigar Holdings non-qualified options outstanding
that were issued to officers and employees, 1,150,000 shares at an exercise
price equal to the initial public offering price of $23.00 per share and 87,500
shares at $25.00 per share. None of the Cigar Holdings option shares were
exercisable at December 31, 1996 and 1,762,500 shares remained available for
future grants. These Cigar Holdings options vest one-third each year
F-24
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
beginning on the first anniversary of the date of grant and become 100% vested
on the third anniversary of the date of grant. The weighted average fair value
of Cigar Holdings options granted in 1996 is $16.91 per share. At December 31,
1996 the weighted average exercise price of the Cigar Holdings options
outstanding is $23.14 and the weighted average remaining contractual life of
those options is 9.75 years.
The exercise price of the stock options issued were equal to the market
price of the respective companies' stock on the dates of grant, accordingly, no
compensation cost has been recognized for stock options issued. Had compensation
cost for the stock options issued by the Company and Cigar Holdings been
determined based on the fair value at grant date for awards in 1995 and 1996
consistent with the provisions of SFAS 123, the Company's net earnings and
earnings per share would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------
1996 1995
------------------- --------------------
(In thousands,
except per share amounts)
<S> <C> <C>
Net income - as reported $ 258,648 $ 24,413
Net income - pro forma 250,338 21,063
Income per share - as reported 11.13 1.12
Income per share - pro forma 10.77 0.97
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model. The following weighted-average
assumptions were used for grants under the MC Group Stock Option Plan in 1996
and 1995, respectively: dividend yield of 0.0%; expected volatility of 50.9% and
45.6%; risk-free interest rate of 6.52% and 5.37%; and expected life of 4 years.
The following weighted-average assumptions were used for grants under the Cigar
Stock Option Plan in 1996: dividend yield of 0.0%; expected volatility of 90%;
risk-free interest rate of 6.13%; and expected life of 5 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
The Chief Executive Officer of the Company has been granted the right
to receive a special payment of up to $5.5 million which is deferred and is
dependent upon the overall performance of the Company's Common Stock. At
December 31, 1996, the Company has accrued the earned and vested portion of the
special payment right.
F-25
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. Related Party Transactions
Employees of affiliates of the Company provide services to the Company
in connection with insurance and legal services, benefit plan administration and
other services and the Company reimburses such affiliates for the allocated
share of the costs related to such employees. In 1996 and 1995, the amount
allocated to the Company was $624,549 and $436,414, respectively. The Company
believes that the terms of such allocated services are at least as favorable to
the Company as would be available from unaffiliated third parties.
The Company performs certain services for a subsidiary of Mafco
Holdings. Revenues for such services were $958,000, $874,000 and $763,000 for
the years ended December 31, 1996, 1995 and 1994.
Included in accrued expenses and other liabilities are payables to
Mafco Holdings and affiliates in the amount of $39.1 million and $2.0 million at
December 31, 1996 and 1995, respectively, principally related to income taxes
payable to Mafco Holdings pursuant to a tax sharing agreement (See Note 9).
14. Commitments and Contingencies
Rental expense, which includes rent for facilities, equipment and
automobiles under operating leases expiring through 2008, amounted to $2.5
million, $2.3 million and $2.3 million for the years ended December 31, 1996,
1995 and 1994 respectively. Future minimum rental commitments, which include
obligations related to former operations of Abex, for operating leases with
noncancelable terms in excess of one year from December 31, 1996, net of
sublease payments of $11.9 million, are as follows:
(in thousands)
---------------------------
1997 $ 2,717
1998 2,836
1999 2,678
2000 1,670
2001 and thereafter 2,790
---------------------------
$12,691
===========================
At December 31, 1996, outstanding contracts to purchase tobacco
amounted to $7.3 million which were all U.S. dollar obligations.
Under a June 15, 1995 Transfer Agreement to which PCT and a subsidiary
of MC Group are parties, such subsidiary will reimburse PCT for amounts spent in
excess of $1.5 million during each of the years 1996, 1997 and 1998 in
connection with certain public company costs. The amount spent for such costs by
PCT in the 1996 and 1995 periods did not exceed $1.5 million; therefore, no
reimbursement was made.
F-26
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On February 5, 1996, MC Group entered into a reimbursement agreement
with Chemical Bank and PCT, through its wholly owned subsidiary Pneumo Abex
Corporation ("Pneumo Abex"). The agreement provides for letters of credit
totaling $20.8 million covering certain environmental issues, not related
to the aerospace business of PCT. In connection with such agreement, MC
Group pledged the PCT Preferred Stock and its ownership of 5,939,400 shares
of PCT Common Stock.
At March 21, 1997, 19,777,752 shares, or approximately 85% of
the Company's stock were pledged and shares of intermediary holding
companies may from time to time be pledged, to secure indebtedness of
Mafco Holdings or its affiliates.
In connection with the Abex Transactions, the Company entered into a
transfer agreement (the "Transfer Agreement"), which allocated assets and
liabilities, along with responsibility for various matters, between the Company
and PCT. Pursuant to the Transfer Agreement, the Company assumed and agreed to
indemnify PCT against, or to manage on PCT's behalf, all liabilities not
relating to Abex's then existing aerospace business, including various
contingent and other liabilities as set forth below. PCT assumed, and
indemnified the Company against, all liabilities of the aerospace business and
certain other liabilities. A discussion of the material liabilities for which
PCT has agreed to indemnify the Company is set forth below. The Company has also
assumed responsibility for various other matters relating to businesses formerly
conducted by Abex or its predecessors.
Certain of Abex's former subsidiaries have been named parties in
several government enforcement and private actions seeking cleanup costs and/or
damages for personal injury or property damage under the Federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA") and related federal and state laws. In addition, certain of these
subsidiaries have been identified by governmental authorities as being
potentially responsible for cleanup costs and/or natural resource damages or
have received inquiries from governmental authorities regarding their possible
involvement with hazardous waste sites. One such site in Portsmouth, Virginia,
which was formerly operated by Abex and a portion of which is owned by MC Group,
has been placed on the National Priorities List under CERCLA. The potential
costs related to such matters and the possible impact thereof on future
operations are uncertain due to, among other factors, the following: uncertainty
regarding the extent of prior pollution; the complexity of laws and regulations
and their interpretations; the varying costs and effectiveness of alternative
cleanup technologies and methods; and the questionable and varying degrees of
responsibility and/or involvement by Abex subsidiaries.
Under applicable state and federal law, including CERCLA, each
potentially responsible party ("PRP") can be held jointly and severally liable
for all cleanup and related costs at each site. For the reasons noted above, it
is impossible to predict the extent to which remediation will be required at a
particular site and the ultimate cost thereof. However, the aggregate cost of
cleanup and related expenses with respect to sites at which Abex and its
subsidiaries, together with numerous other third parties, have been named PRPs
could exceed $200 million, including approximately $20 million in remedial
action costs, as estimated by the EPA, in respect of the Portsmouth, Virginia
site.
As a result of the Transfer, MC Group will indemnify PCT with respect
to all environmental matters associated with Abex's former operations to the
extent not paid by third party indemnitors or insurers, other than the
operations relating to PCT's aerospace business which were recently sold to
F-27
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Parker Hannifin. Pursuant to the Stock Purchase Agreement, dated April 28, 1988,
as amended, between Pneumo Abex and Whitman Corporation ("Whitman") and the
related Settlement Agreement, dated September 23, 1991, between Pneumo Abex and
Whitman (collectively, the "Whitman Agreements"), Whitman is obligated to
indemnify Pneumo Abex for costs, expenses and liabilities relating to
environmental and natural resource matters to the extent attributable to the
operation of the businesses acquired from Whitman prior to their acquisition in
1988, subject to certain conditions and limitations principally relating to
compliance with notice, cooperation and other procedural requirements.
Generally, known and unknown liabilities arising after the 1988 Whitman
acquisition that relate to PCT's current facilities will be the responsibility
of PCT. Whitman is generally discharging the related liabilities in the ordinary
course. In addition to the remedial action costs for the Portsmouth, Virginia
site, as to which Whitman has acknowledged its indemnification responsibilities,
Pneumo Abex is party to a number of cases involving tort claims concerning such
site alleging exposure to lead for which Whitman has declined to accept
responsibility. MC Group and Whitman are currently sharing equally the defense
costs for such cases, subject to a reservation of their respective rights.
Whitman is actively managing a significant number of indemnified matters,
including the potential cleanup of the Portsmouth, Virginia site, and MC Group's
involvement varies and is limited for those matters being managed by Whitman.
Based upon MC Group's experience to date (including the existence of
the indemnification arrangements referred to above), the cost of compliance with
environmental laws is not expected to have a material adverse effect on MC
Group's earnings, liquidity or competitive position. However, future events,
such as changes in existing laws or enforcement policies, may give rise to
additional compliance and/or other costs which could have a material adverse
effect on MC Group's financial condition or results of operations.
MC Group has not recognized any liability in its financial statements
for environmental matters occurring prior to the 1988 Whitman acquisition which
are covered by Whitman's indemnification obligations under the Whitman
Agreements. Management of MC Group considers these obligations to be Whitman's
and monitors the financial position of Whitman to determine the level of
uncertainty associated with Whitman's ability to satisfy its obligations. Based
upon Whitman's active management of indemnifiable matters, its discharging of
the related liabilities when required, and its financial position based upon
publicly filed financial statements, MC Group believes that the likelihood of
Whitman failing to satisfy its obligations is remote.
A predecessor of Pneumo Abex, a wholly owned subsidiary of PCT, has
been named as a defendant in personal injury lawsuits claiming damages relating
to asbestos-containing friction products formerly manufactured by such
predecessor. The predecessor, which discontinued the manufacture and sale of
asbestos-containing friction products in the United States in 1987, has never
been found liable in any such case. As of January 31, 1997, Pneumo Abex or the
predecessor has been named as a defendant in approximately 50,000 pending
claims, typically with 10 to 30 or more co-defendants.
Pursuant to the Whitman Agreements, Whitman has retained ultimate
responsibility for all asbestos-related claims made through August 1998 and for
certain asbestos-related claims asserted thereafter. In connection with the sale
by Abex in December 1994 of its Friction Products Division (the "Friction
Products Sale"), a subsidiary of Cooper Industries, Inc. ("Cooper") assumed
responsibility for substantially all of the asbestos-related claims made after
August 1998 and therefore
F-28
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
such claims are not subject to the Whitman indemnity. Pneumo Abex maintained
product liability insurance covering substantially all of the period during
which asbestos-containing products were manufactured and both the Company and
Whitman have the benefit of such insurance. Pursuant to court rulings and
interim agreements reached with certain insurance carriers, Pneumo Abex is
being reimbursed for approximately 90% of the aggregate defense and settlement
costs associated with such claims, and continues to seek recovery of the
remaining amount of unreimbursed costs from its carriers in an ongoing
insurance coverage litigation commenced by Abex in 1982. As of December 31,
1996, the Company has approximately $8.8 million in unreimbursed costs pending
receipt from the insurance carriers or Whitman.
MC Group is unable to forecast with precision the amount of future
defense and settlement costs associated with asbestos litigation, but consistent
with Abex's historical treatment, MC Group has not recognized any liability in
its financial statements for asbestos-related claims as substantially all of
these costs are expected to be insured and, to the extent not insured entirely,
are covered by Whitman's indemnifications under the Whitman Agreements or by
Cooper.
Although PCT retains ultimate responsibility and indemnifies MC Group
for such matters under the Transfer Agreement, a subsidiary of MC Group
undertakes administrative and funding obligations with respect to such matters,
including as to such unreimbursed costs, subject to certain termination events
as described below. PCT's obligation to make reimbursement for the amounts so
funded will be limited to amounts received by PCT under related indemnification
and insurance arrangements. The Company's administrative and funding obligations
would be terminated in the case of a bankruptcy of Pneumo Abex or PCT or,
following an exhaustion of available insurance, either a bankruptcy of Whitman
or Cooper or Whitman or Cooper failing to make required indemnification payments
other than for reasons primarily caused by actions or inactions taken by MC
Group.
Various legal proceedings, claims and investigations are pending
against MC Group and its subsidiaries related to commercial transactions,
product liability, safety and health matters and other matters relating to MC
Group, including those for which MC Group assumed responsibility under the
Transfer Agreement. Most of these legal proceedings are related to matters
covered by insurance, subject to deductibles and maximum limits, and by third
party indemnities. MC Group does not believe, based on currently available
information, that the outcome of these other matters, irrespective of insurance
coverage and third party indemnities, will have a material adverse effect on its
financial position or results of operations.
In connection with the 1992 Distribution, Abex and Henley allocated
between them certain liabilities related to the businesses of Henley or its
predecessors, including certain liabilities relating to self-insurance programs,
and each indemnified the other against loss associated with liabilities assumed
by the indemnifying party. In addition, Abex guaranteed certain contingent
obligations of Koll relating to a predecessor company pension plan and
environmental liabilities of Henley and certain of its predecessors, and Koll
agreed to indemnify Abex in respect thereof. During the first quarter of 1997,
the Company, Koll and certain of its subsidiaries entered into certain
agreements (the "1997 Koll Agreements") pursuant to which, among other things,
the parties re-allocated certain liabilities relating to the self-insurance
programs, the Company agreed to assume sponsorship of, and financial
responsibility for, the predecessor Company pension plan referred to above, the
Company paid to Koll $2.3 million, and the Company received $0.5 million from a
third party in connection with the sale
F-29
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
of an asset by Koll. The Company believes that its balance sheet at December
31, 1996 reflects adequate reserves for its remaining obligations under the
1997 Koll Agreements with respect to these matters. Furthermore, Koll has been
discharging its assumed and indemnification responsibilities in the ordinary
course. The Company does not believe, based on currently available information,
including information filed with the Securities and Exchange Commission and the
EPA regarding such environmental liabilities, that liability for the discharge
of the Company's remaining guarantee and indemnification obligations would have
a material adverse effect on its financial position or results of operations
even if Koll's financial circumstances, as described in Note 9, were to cause
Koll to stop discharging its responsibilities.
In connection with the 1997 Koll Agreements, the Company also agreed to
assume whatever liability, if any, Koll or certain of its subsidiaries may have
with respect to personal injury claims arising out of the operations of either
the passenger rail car business of Pullman Incorporated ("Pullman"), a
predecessor of Koll and the Company, or the business of Pullman Passenger Car
Company, a subsidiary of Koll (collectively, the "Pullman Claims"). Koll also
transferred to the Company all of the rights that Koll and such subsidiaries may
have against Wheelabrator Technologies Inc., another predecessor of Koll and the
Company, with respect to the Pullman Claims. As of the date of the Company's
assumption of the Pullman Claims, Koll was defending approximately 360 claims
that individuals had contracted asbestos-related diseases by reason of their
work maintaining or repairing Pullman cars. Management believes that costs
related to these approximately 360 claims will not have a material adverse
effect on the Company.
15. Geographic Information
Information related to the Company's geographic areas are presented
below with the following definitions:
Operating profit, as indicated below, represents net sales less
operating expenses, amortization of identifiable goodwill, equity in earning
from continuing operations of PCT, foreign currency transaction income (loss)
and other income (expense).
Identifiable assets are those used by each geographic area. Corporate
assets are principally cash, restricted cash, deferred charges and the assets
acquired in connection with the Merger and Libra Purchase.
F-30
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Geographic Areas:
<TABLE>
<CAPTION>
(dollars in thousands)
Year ended December 31,
-----------------------------------------------------------
1996 1995 1994
---------------------- ------------------ -----------
<S> <C> <C> <C>
Net Sales (a):
Domestic - U.S. $ 269,725 $ 217,394 $ 187,513
- Export 24,877 26,032 25,425
Foreign 16,057 17,700 13,941
---------------------- ------------------ -----------
$ 310,659 $ 261,126 $ 226,879
====================== ================== ============
Operating Profit:
Domestic $ 85,684 $ 61,502 $ 50,656
Foreign (b) 4,139 3,476 2,506
Corporate (9,070) (9,740) -
---------------------- ------------------ -----------
$ 80,753 $ 55,238 $ 53,162
Net interest expense and financing charges (11,889) (22,444) (29,349)
Gain on Cigar IPO and Flavors Disposition 279,556 - -
---------------------- ------------------ -----------
Income from continuing operations before income taxes $ 348,420 $ 32,794 $ 23,813
====================== ================== ===========
</TABLE>
<TABLE>
<CAPTION>
(dollars in thousands)
December 31,
--------------------------------------------
1996 1995
---------------------- ------------------
<S> <C> <C>
Identifiable assets:
Domestic (c) $ 193,867 $ 237,303
Foreign 1,852 18,919
Corporate 573,782 304,377
---------------------- ------------------
$ 769,501 $ 560,599
====================== ==================
</TABLE>
- ------------
(a) The Company had no intercompany sales from their U.S. businesses to
their foreign businesses in 1996, 1995 and 1994. Sales from their
foreign businesses to their U.S. businesses were $39,457, $23,084
and $17,473 for the years ended December 31, 1996, 1995 and 1994,
respectively. Such amounts are excluded from the above table.
(b) Includes foreign currency transaction gain of $756, $40 and $215 in
1996, 1995 and 1994, respectively.
(c) Includes assets located in foreign countries of $15,161 and
$14,071 at December 31, 1996 and 1995, respectively.
F-31
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. Unaudited Quarterly Financial Information
The following is a summary of unaudited quarterly financial information
for the quarterly periods in 1996 and 1995:
<TABLE>
<CAPTION>
(dollars in thousands, except share data)
1996
------------------------------------------------------------------------
First Second Third Fourth
----------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Net sales $66,168 $78,577 $85,635 $ 80,279
Gross profit 27,866 34,212 36,434 34,293
Income from continuing operations 7,640 9,886 98,025 (a) 128,045 (b)
Net income 8,311 23,883 98,409 (a) 128,045 (b)
Net income per share $ .36 $ 1.03 $ 4.24 $ 5.51
<CAPTION>
(dollars in thousands, except share data))
1995
------------------------------------------------------------------------
First Second Third Fourth
------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
Net sales $58,353 $68,236 $68,679 $65,858
Gross profit 23,804 28,210 27,984 27,106
Income from continuing operations 4,556 7,885 3,944 6,706
Net income 4,556 7,885 4,604 7,368
Net income per share $ .23 $ .38 $ .20 $ .32
</TABLE>
- ------------------
(a) Reflects the gain on the Cigar IPO.
(b) Reflects the gain on the Flavors Disposition.
17. Subsequent Events
On February 20, 1997, Mafco Consolidated Holdings entered into an
Agreement and Plan of Merger (the "1997 Merger Agreement") with MC Group whereby
Mafco Consolidated Holdings will buy the remaining 15% of MC Group that it does
not already own. Pursuant to the 1997 Merger Agreement, each outstanding share
of MC Group Common Stock (other than shares held by Mafco Consolidated Holdings)
will be converted into the right to receive $33.50 in cash, subject to upward
adjustment (the "Merger Consideration"). Additionally, on February 20, 1997, in
connection with the 1997 Merger Agreement, MC Group declared a special cash
dividend of $10 per share which was paid on March 14, 1997 to stockholders of
record as of the close of business on March 10, 1997. In addition, pursuant to
the 1997 Merger Agreement the Company has agreed to make cash payments
aggregating $38.8 in respect of outstanding stock options.
The Merger Consideration shall be equal to the sum of (x) $33.50 plus
(y) an amount, if any (the "Additional Amount"), equal to the Excess (as defined
below) multiplied by 79.7%. The Additional Amount shall be payable only if the
average of the per share closing prices (the "Average") of Cigar Common Stock on
the New York Stock Exchange for the ten trading days ending two trading days
prior to the effectiveness of the Merger, exceeds $33.00 (the amount by which
the Average exceeds $33.00, the "Excess"). MC Group stockholders will be
entitled to receive the Merger Consideration in cash, without interest, upon
surrender of the certificate formerly representing shares
F-32
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
of Cigar Common Stock.
The 1997 Merger Agreement has been unanimously approved by the Boards
of Directors of each company and, in the case of MC Group, by a special
committee of independent directors formed to consider the transaction. The
consummation of the transaction is subject to the approval of MC Group
stockholders, the filing with and review by the Securities and Exchange
Commission of an information statement to be sent to Mafco stockholders, and
other customary conditions. Mafco Consolidated Holdings, which owns
approximately 85% of the outstanding shares of MC Group common stock, has agreed
to vote in favor of the transaction, which is expected to close during the
second quarter of 1997.
In January 1997, six purported class-action lawsuits and one
purported derivative and class-action lawsuit were filed in the Delaware
Court of Chancery (the "Chancery Court"), under the captions Alan R. Kahn v.
Ronald O. Perelman, et al., C.A. No. 15450; Sandy Rywell v. Ronald O.
Perelman, et al., C.A. No. 15468; Crandon Capital Partners v. Ronald O.
Perelman, et al., C.A. No. 15469; Harry Voege v. Ronald O. Perelman, et al.,
C.A. No. 15470; Harry Polikoff v. Mafco Consolidated Group Inc., et al.,
C.A. No. 15471; Sal S. Shiry v. Ronald O. Perelman, et al., C.A. No. 15475;
and Jack Fishbaum v. Mafco Consolidated Group Inc., et al., C.A. No. 15481
(collectively, the "Actions"). The Actions allege certain acts allegedly
taken or not taken by the Company and the members of the board of directors in
connection with the proposed transaction that ultimately culminated in the
1997 Merger Agreement and the price originally proposed to be paid for the
Company Common Stock and allege that Andrews Group Incorporated and MC Group's
board of directors breached fiduciary obligations to the Company's
stockholders by entering into certain transactions with Marvel Entertainment
Group, Inc. and Toy Biz, Inc. (the "Marvel and Toy Biz Transactions"), which
transactions were allegedly corporate opportunities of the Company. The
Actions seek to enjoin the consummation of the Merger Agreement and the Marvel
and Toy Biz Transactions, as well as damages and an award of attorneys'
fees. On March 17, 1997, the parties to all of the Actions except Fishbaum
executed a Memorandum of Understanding setting forth the terms of their
agreement in principle to settle these Actions. The Memorandum of
Understanding acknowledges the enhanced terms for stockholders set forth
in the Merger Agreement and provides that settling plaintiffs may seek up
to $1.25 million in attorney's fees. The Memorandum of Understanding
contemplates the drafting and execution of a Stipulation of Settlement by the
parties and its approval by the Chancery Court, which approval is expected to
occur in the third quarter of 1997.
On March 26, 1997, Cigar Holdings completed a public offering of
5,000,000 shares of the Cigar Common Stock at an offering price of $23.75 per
share. All of the shares sold were owned by MC Group. In addition, the
underwriters have been granted an overallotment option to purchase an additional
750,000 shares, which as of the date hereof has not been exercised.
F-33
<PAGE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
<TABLE>
<CAPTION>
Balance at Charged to Balance at
Beginning Costs and Other End of
Description of Period Expenses Deductions (1) Period
- --------------------------------------- ---------- --------- -------------- ---------
<S> <C> <C> <C> <C>
Year ended December 31, 1994
Deducted from asset accounts:
Sales allowances $ 2,734 $ - $ - $ 2,734
Allowance for doubtful accounts 1,867 145 (61) 1,951
Inventory reserves 514 247 - 761
------- ------- ------- -------
Totals $ 5,115 $ 392 $ (61) 5,446
======= ======= ======= =======
Year ended December 31, 1995
Deducted from asset accounts:
Sales allowances $ 2,734 $ 650 $ - 3,384
Allowance for doubtful accounts 1,951 206 (190) 1,967
Inventory reserves 761 198 (137) 822
------- ------- ------- -------
Totals $ 5,446 1,054 $ (327) 6,173
======= ======= ======= =======
Year ended December 31, 1996
Deducted from asset accounts:
Sales allowances $ 3,384 1,557 $ - 4,941
Allowance for doubtful accounts 1,967 (634) (670) 663
Inventory reserves 822 818 (339) 1,301
------- ------- ------- -------
Totals $ 6,173 $ 1,741 $(1,009) $ 6,905
======= ======= ======= =======
</TABLE>
(1) Doubtful accounts written off, less recoveries, reclassifications and
foreign translation adjustment and effects of business sold.
F-34
