SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
THE LESLIE FAY COMPANY, INC.
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(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
1) Title of each class of securities to which transaction
applies: Common Stock, par value $.01 per share
2) Aggregate number of securities to which transaction applies:
1,589,522
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined): $5.00
4) Proposed maximum aggregate value of transaction: $7,947,610
5) Total fee paid: $1,589.52
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed
THE LESLIE FAY COMPANY, INC.
1412 BROADWAY
NEW YORK, NEW YORK 10018
October 19, 2001
To the Stockholders of The Leslie Fay Company, Inc.:
You are cordially invited to attend a Special Meeting of Stockholders
of The Leslie Fay Company, Inc. (the "Company") to be held at the offices of
Jenkens & Gilchrist Parker Chapin LLP, The Chrysler Building, 405 Lexington
Avenue, 9th Floor, New York, New York 10174 on November 20, 2001, at 10:30
a.m., local time.
At the meeting, you will be asked to consider and vote upon a proposal
to adopt an Amended and Restated Agreement and Plan of Merger (the "Merger
Agreement") dated as of April 27, 2001 among the Company, Three Cities Fund II,
L.P., Three Cities Offshore II C.V., LF Acquisition, LLC ("Parent") and LF
Merger Co. ("Merger Sub"). You can find the full text of the Merger Agreement as
Annex A at the back of the accompanying Proxy Statement, and we urge you to read
it in its entirety. Your Board of Directors is seeking your vote on this
important transaction.
If the Merger Agreement is adopted, upon completion of the merger,
Merger Sub will be merged with and into the Company, and you will receive $5.00
in cash for each of your shares. Following completion of the merger, the
Company's shares will no longer be publicly traded.
THE BOARD OF DIRECTORS HAS ADOPTED THE MERGER AGREEMENT AND RECOMMENDS
THAT YOU VOTE "FOR" ADOPTION OF THE MERGER AGREEMENT.
Under the Company's Amended and Restated Certificate of Incorporation,
the affirmative vote of at least 66 2/3% of the outstanding shares of Common
Stock and the affirmative vote of more than 50% of the shares of Common Stock
voting on such matter that are not owned directly or indirectly by interested
stockholders or their affiliates are required for the adoption of the Merger
Agreement.
The accompanying Proxy Statement explains the proposed merger and
provides specific information concerning the meeting. We have also enclosed a
copy of our annual report for the year ended December 30, 2000 and a copy of our
quarterly report for the twenty-six weeks ended June 30, 2001, both of which
contain important information about the Company. Please read all of them
carefully.
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING,
WE URGE YOU TO PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN
IT IN THE ENCLOSED ENVELOPE AS SOON AS POSSIBLE.
Your prompt submission of a proxy card will be greatly appreciated.
Sincerely,
John J. Pomerantz
Chairman of the Board
THE LESLIE FAY COMPANY, INC.
1412 BROADWAY
NEW YORK, NEW YORK 10018
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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 20, 2001
To the Stockholders of The Leslie Fay Company, Inc.:
A Special Meeting of Stockholders (the ""Special Meeting") of The
Leslie Fay Company, Inc. (the "Company") will be held at the offices of Jenkens
& Gilchrist Parker Chapin LLP, The Chrysler Building, 405 Lexington Avenue, 9th
Floor, New York, New York 10174 on November 20, 2001, at 10:30 a.m.,
local time to:
1. Consider and vote upon a proposal to adopt an Amended and
Restated Agreement and Plan of Merger (the "Merger
Agreement"), dated as of April 27, 2001, among the Company,
Three Cities Fund II, L.P., Three Cities Offshore II C.V., LF
Acquisition, LLC ("Parent") and LF Merger Co. ("Merger Sub"),
pursuant to which Merger Sub will merge with and into the
Company and each stockholder of the Company, except for those
stockholders who have entered into a Subscription and
Contribution Agreement with Parent, will receive cash in the
amount of $5.00, without interest, for each of their shares.
The Merger Agreement is more fully described in the
accompanying Proxy Statement;
2. Adjourn the Special Meeting, if necessary, to permit further
solicitation of proxies in the event that there are not
sufficient votes at the time of the Special Meeting to adopt
the Merger Agreement; and
3. Consider such other matters as may properly come before the
Special Meeting or any adjournments or postponements thereof.
Information regarding the proposal proposals to be acted upon at the
Special Meeting is contained in the accompanying Proxy Statement. A copy of the
Merger Agreement is set forth as Annex A in to the accompanying Proxy Statement.
The close of business on October 16, 2001 has been fixed as the
record date (the "Record Date") for the determination of stockholders entitled
to notice of, and to vote at, the Special Meeting or any adjournments or
postponements thereof. Only holders of record at the close of business on the
Record Date are entitled to notice of, and to vote at, the Special Meeting or
any adjournments or postponements thereof.
Other important information about the Company is contained in our
annual report for the year ended December 30, 2000 and our quarterly report for
the twenty-six weeks ended June 30, 2001, both of which are being sent to you
along with this Proxy Statement. Please review all of these materials carefully
before completing the enclosed proxy card.
By Order of the Board of Directors,
WARREN T. WISHART
Secretary
New York, New York
October 19, 2001
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It is important that your shares be represented at the
Special Meeting. Whether or not you plan to attend the
Special Meeting, you are urged to, as promptly as
practicable, sign, date and return the enclosed form of
proxy, which requires no postage if mailed in the United
States. If you hold shares directly in your name and attend
the Special Meeting, you may vote your shares in person, even
if you have previously submitted a proxy card. Your proxy may
be revoked at any time before it is voted by submitting a
written revocation or a proxy bearing a later date to the
Secretary of the Company, or by attending and voting in
person at the Special Meeting. For shares held in "street
name," you may revoke or change your vote by submitting new
voting instructions to your broker or nominee.
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THE LESLIE FAY COMPANY, INC.
1412 BROADWAY
NEW YORK, NEW YORK 10018
PROXY STATEMENT
FOR
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 20, 2001
This Proxy Statement is furnished to the holders of shares of Common
Stock of The Leslie Fay Company, Inc. (the "Company") in connection with the
solicitation of proxies ("Proxies") by the Board of Directors of the Company
(the "Board") for use at the Special Meeting of Stockholders (the "Special
Meeting") to be held on November 20, 2001, at 10:30 a.m., local time, at the
offices of Jenkens & Gilchrist Parker Chapin LLP, The Chrysler Building, 405
Lexington Avenue, 9th Floor, New York, New York 10174 and at any adjournments or
postponements thereof, for the purposes set forth in the accompanying Notice of
Meeting.
The cost of preparing, assembling, printing, mailing and distributing
the Notice of Meeting, this Proxy Statement and Proxies is to be borne by the
Company. The Company also will reimburse brokers, banks and other custodians,
nominees and fiduciaries, who are holders of record of the Company's Common
Stock, for their reasonable out-of-pocket expenses in forwarding proxy
solicitation materials to the beneficial owners of shares of Common Stock. The
Company has retained D.F. King & Co., Inc., 77 Water Street, New York, New York
10005, a proxy solicitation firm, to solicit proxies. The fee to be paid to such
firm is not expected to exceed $7,500. In addition to the use of the mail,
Proxies may be solicited without extra compensation by directors, officers and
employees of the Company by personal interview, telephone, telegram, cablegram
or other means of electronic communication. The approximate mailing date of this
Proxy Statement is October 19, 2001.
Unless otherwise specified, all Proxies received will be voted in favor
of the proposal to adopt the merger agreement described in this Proxy Statement
and in favor of the other proposals. A stockholder may revoke a Proxy at any
time before its exercise by filing with the Secretary of the Company an
instrument of revocation or a duly executed proxy bearing a later date, or by
attending the Special Meeting and voting in person. Attendance at the Special
Meeting, without voting in person, will not constitute revocation of a Proxy.
The close of business on October 16, 2001 has been fixed by the Board
as the record date (the "Record Date") for the determination of stockholders
entitled to notice of, and to vote at, the Special Meeting and any adjournments
or postponements thereof. As of the Record Date, there were _________ shares of
Common Stock of the Company issued and outstanding. Each share of Common Stock
outstanding on the Record Date will be entitled to one vote on each matter to
come before the Special Meeting. The presence, in person or by proxy, of the
holders of a majority of the outstanding shares of the Company's Common Stock is
required to constitute a quorum for the transaction of business at the Special
Meeting. Proxies submitted which contain abstentions or broker non-votes will be
deemed present at the Special Meeting for the purpose of determining the
presence of a quorum.
YOUR BOARD OF DIRECTORS HAS RECOMMENDED A VOTE "FOR" ADOPTION OF THE
MERGER AGREEMENT.
TABLE OF CONTENTS
SUMMARY TERM SHEET..........................................................................2
CERTAIN QUESTIONS AND ANSWERS ABOUT VOTING AND THE MERGER..................................10
SUMMARY....................................................................................13
PROPOSAL 1 - APPROVAL OF THE MERGER AGREEMENT
SPECIAL FACTORS............................................................................21
Background of the Transaction.......................................................21
Recommendation of the Independent Committee and the Board of
Directors; Fairness of the Merger............................................24
Opinion of the Financial Advisor....................................................27
Analysis Performed by CDG in Arriving at its Opinion................................29
Certain Financial Projections.......................................................31
The Three Cities Affiliates', Management Stockholders' and Constable's
Purposes and Reasons for the Merger and Their Position As to the
Fairness of the Merger.......................................................32
Benefits and Detriments of the Merger to the Three Cities Affiliates,
the Management Stockholders and Contable.....................................33
Interests of Certain Persons in the Merger and the Company..........................33
Effects of the Merger...............................................................35
Federal Income Tax Consequences.....................................................36
Accounting Treatment................................................................36
Financing of the Merger.............................................................36
Regulatory Approvals................................................................37
Risk that the Merger will not be Consummated........................................37
Rights of Dissenting Stockholders...................................................37
THE MERGER AGREEMENT.......................................................................40
The Merger..........................................................................40
Capital Stock of the Constituent Corporations.......................................40
Surrender and Payment of Shares of Common Stock.....................................41
Treatment of Stock Options..........................................................41
Directors and Officers; Certificate of Incorporation and Bylaws Following
the Merger..................................................................41
Representations and Warranties......................................................41
Covenants...........................................................................41
Indemnification and Insurance.......................................................42
No Solicitation; Fiduciary Obligations of Directors.................................43
Conditions..........................................................................44
Termination.........................................................................44
Fees and Expenses...................................................................45
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TABLE OF CONTENTS (Cont'd)
Amendment and Waiver................................................................45
RELATED AGREEMENTS.........................................................................46
Subscription and Contribution Agreements............................................46
Stockholders' Agreements............................................................46
BUSINESS OF MERGER SUB.....................................................................46
BUSINESS OF THE COMPANY....................................................................46
General.............................................................................46
Acquisitions........................................................................47
Products............................................................................47
Design..............................................................................47
Trademarks and Licenses.............................................................48
Markets and Distribution............................................................49
Manufacturing.......................................................................49
Imports and Import Restrictions.....................................................50
Backlog.............................................................................51
Credit and Collection...............................................................51
Competition.........................................................................51
Employees...........................................................................52
Reorganization Under Chapter 11.....................................................52
Properties..........................................................................52
Legal Proceedings...................................................................52
MARKET PRICES OF AND DIVIDENDS ON THE COMMON STOCK AND OTHER
COMPARATIVE DATA...........................................................................54
Comparative Data....................................................................54
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.............................................................................55
SELECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY........................................56
Notes to Selected Financial Data....................................................58
VOTE REQUIRED AND RECOMMENDATION...........................................................58
PROPOSAL 2 - ADJOURNMENT PROPOSAL..........................................................59
Vote Required and Recommendation....................................................59
WHERE YOU CAN FIND MORE INFORMATION........................................................59
AVAILABLE INFORMATION......................................................................60
MISCELLANEOUS..............................................................................60
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TABLE OF CONTENTS (Cont'd)
Stockholder Proposals...............................................................60
Other Matters.......................................................................61
ANNEX A -- AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER..............................A-1
ANNEX B -- FAIRNESS OPINION OF CONWAY, DEL GENIO, GRIES & CO., LLC........................B-1
ANNEX C -- DELAWARE GENERAL CORPORATION LAW SECTION 262...................................C-1
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SUMMARY TERM SHEET
This summary term sheet does not contain all of the information that is
important to you. You should carefully read the entire proxy statement to fully
understand the merger. The merger agreement is attached as Annex A to this proxy
statement. We encourage you to read the merger agreement, as it is the legal
document that governs the merger.
THE PARTIES
The Leslie Fay Company, Inc., through its subsidiaries, is engaged
principally in the design, arranging for the manufacture, and the sale of
diversified lines of women's dresses and sportswear. See "BUSINESS OF THE
COMPANY."
LF Merger Co., a corporation that is wholly owned by LF Acquisition,
LLC, has been formed solely to effect the merger and does not conduct any
business activities.
LF Acquisition, LLC is a Delaware limited liability company organized
by Three Cities Fund II, L.P. and Three Cities Offshore II C.V. (who are
majority stockholders of Leslie Fay) to acquire the Leslie Fay business. John J.
Pomerantz and Warren T. Wishart, who are executive officers of Leslie Fay, H.
Whitney Wagner and Thomas G. Weld, who are employees of Three Cities Research,
Inc. (which serves as an advisor to and is an affiliate of Three Cities Fund II,
L.P. and Three Cities Offshore II C.V.) and respectively a former director and a
director of Leslie Fay, and entities controlled by John Constable (all of whom
are stockholders of Leslie Fay) will remain as equity holders of Leslie Fay
after the merger.
See "SUMMARY - Parties to the Merger."
PROPOSED ACQUISITION
STRUCTURE OF THE MERGER. LF Merger Co. will be merged with and into
Leslie Fay, the separate existence of LF Merger Co. will cease, and Leslie Fay
will continue as the surviving corporation.
STOCKHOLDER VOTE. You are being asked to vote to adopt the merger
agreement and you may be asked to vote to adjourn the Special Meeting under
certain circumstances.
EFFECTIVENESS OF THE MERGER. The merger will be effective upon the
filing of a Certificate of Merger with the Secretary of State of the State of
Delaware (or at such later date or time as is specified in such Certificate of
Merger) in accordance with the Delaware General Corporation Law or at such later
time as is specified in the Certificate of Merger. See "THE MERGER AGREEMENT --
The Merger."
PRICE FOR YOUR STOCK. As a result of the merger, you will receive $5.00
in cash for each of your shares of Leslie Fay's common stock. Three Cities has
available cash to pay the entire purchase price.
LESLIE FAY'S COMMON STOCK PRICE
Leslie Fay's common stock is listed on the Nasdaq SmallCap Market under
the symbol "LFAY." On January 12, 2001, the last full trading day before the
public announcement of the proposal by Three Cities to acquire all of the shares
of Leslie Fay's common stock not owned by them, the common stock closed at $2.81
per share. On March 23, 2001, which was the last
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trading day before the signing of the merger agreement was announced, the common
stock closed at $3.13 per share. On October 18, 2001, the last trading day
prior to the date of this proxy statement, the common stock closed at $___ per
share. See "MARKET PRICES OF AND DIVIDENDS ON THE COMMON STOCK AND OTHER
COMPARATIVE DATA."
COMPARATIVE DATA
o Purchase price - $5.00 per share
o Book value at March 31, 2001 - $ 9.64 per share
o Net Income for year ended December 30, 2000 - $1.47 per basic
share (of which $1.20 per share was attributable to the
nonrecurring sale of a trademark)
o Net income for six months ended June 30, 2001 - $0 per basic
share
o Dividends for year ended December 30, 2000 and the six months
ended June 30, 2001 - None
ADVANTAGES OF THE MERGER TO YOU
As a result of the merger, you will receive for your shares of common
stock a cash premium over the market price when the merger was announced. The
merger consideration of $5.00 per share represents a premium of approximately
60% over the closing price of the common stock of $3.13 on March 23, 2001, the
last trading day before the signing of the merger agreement was announced.
Following the merger, you will not bear the risk of any decrease in the value of
the common stock of Leslie Fay. See "SPECIAL FACTORS - Recommendation of the
Independent Committee and the Board of Directors; Fairness of the Merger".
DISADVANTAGES OF THE MERGER TO YOU
Following the merger, you will no longer own stock of Leslie Fay and
will no longer benefit from any earnings or growth of Leslie Fay or any possible
future appreciation of its stock price. Also, you may recognize a taxable gain
as a result of the merger. See "SPECIAL FACTORS -- Federal Income Tax
Consequences."
EFFECT OF MERGER ON LESLIE FAY AND ITS AFFILIATES
Following the merger, Leslie Fay will be a subsidiary of LF
Acquisition, LLC. Following the transactions described under "SPECIAL FACTORS-
Interests of Certain Persons in the Merger and the Company - Proposed Future
Transactions", Leslie Fay will be owned by Three Cities Fund II, L.P., Three
Cities Offshore II C.V., Messrs. Pomerantz, Wishart, Wagner and Weld and
entities controlled by John Constable, and its shares will no longer be traded
on the Nasdaq Small Cap Market or be registered under the Securities Exchange
Act of 1934. See "SPECIAL FACTORS - Benefits and Detriments of the Merger to
the Three Cities Affiliates, the Management Stockholders and Constable."
TREATMENT OF STOCK OPTIONS
Immediately following the effective time of the merger, each
outstanding option to purchase shares of Leslie Fay's common stock, whether or
not vested, will be assumed by LF Acquisition, LLC and shall be deemed to
constitute an option to acquire, on substantially the same terms and conditions
as were applicable under such Leslie Fay stock option (including without
limitation, as to vesting and expiration), the same number of limited liability
company interests of LF Acquisition, LLC as the number of common shares each
Leslie Fay stock option entitled the holder thereof to purchase. See "THE MERGER
AGREEMENT-- Treatment of Stock Options." Upon completion of the transactions
described under "SPECIAL FACTORS -
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Interests of Certain Persons in the Merger and the Company - Proposed Future
Transactions", each such stock option will become an option to purchase a
combination of shares of common stock and preferred stock and subordinated debt
of the successor company of Leslie Fay.
BOARD OF DIRECTORS RECOMMENDATION
The board of directors of Leslie Fay has approved the merger and the
merger agreement and determined that the merger is fair to, and in the best
interests of, Leslie Fay and its stockholders. The board of directors recommends
that all stockholders approve and adopt the merger agreement and all of the
transactions contemplated by the merger agreement, and vote to adjourn the
Special Meeting under certain circumstances.
FAIRNESS OPINION
Conway, Del Genio, Gries & Co., LLC has delivered to the independent
committee of Leslie Fay's board of directors its opinion that, as of March 23,
2001, based upon the assumptions made, matters considered and limits of the
review undertaken (as described in such opinion) the consideration to be
received by Leslie Fay's stockholders pursuant to the merger is fair to Leslie
Fay's stockholders, other than the Three Cities funds, from a financial point of
view. A copy of the written confirmation of this opinion is attached to this
proxy statement as Annex B and should be read in its entirety. See "SPECIAL
FACTORS - Opinion of the Financial Advisor."
LESLIE FAY'S REASONS FOR THE MERGER
A principal purpose of the merger is to provide Leslie Fay's
stockholders with a level of liquidity for their shares, currently unavailable
in the marketplace. Between October 10, 2000 and January 16, 2001, when Leslie
Fay announced that it had received an offer from Three Cities, the trading
volume of Leslie Fay common stock exceeded 20,000 shares on only four days (one
of which was the last trading day of the year) and the average trading volume
during such period was approximately 5,300 shares per day. Between January 19,
2001 and March 23, 2001, the day immediately preceding the announcement of the
signing of the merger agreement, the trading volume of Leslie Fay common stock
exceeded 20,000 shares on only two days and the average trading volume during
such period was approximately 3,800 shares per day. Since the trading volume of
Leslie Fay's common stock has generally not been extensive, it is reasonable to
assume that any effort by a stockholder to dispose of a significant number of
shares would adversely affect the market price.
Leslie Fay's board of directors decided to undertake the merger at
this time because of the timing of the Three Cities offer.
Leslie Fay's board of directors consulted with the independent
committee of the board, senior management and Leslie Fay's financial and legal
advisors and considered a number of factors in reaching its decision to approve
the merger, the merger agreement and the transactions contemplated by the merger
agreement, and to recommend that Leslie Fay's stockholders vote "FOR" adoption
of the merger agreement. See "SPECIAL FACTORS - Recommendation of the
Independent Committee and Board of Directors; Fairness of the Merger". Included
among these factors were:
(i) the financial condition, assets, results of operations, business
and prospects of Leslie Fay, and the risks inherent in achieving those
prospects;
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(ii) the terms and conditions of the merger agreement, including the
amount and form of consideration payable to the stockholders of Leslie Fay and
the voting requirement contained in Leslie Fay's Amended and Restated
Certificate of Incorporation whereby it is required that the merger agreement be
approved and adopted by the affirmative vote of at least 66 2/3% of the
outstanding common stock and by at least 50% of the outstanding common stock
voting on the matter that are not owned directly or indirectly by an interested
stockholder or any of its affiliates;
(iii) the negotiations which took place between Three Cities and the
independent committee of the board with respect to the merger consideration and
the belief of the members of the independent committee that $5.00 per share of
Leslie Fay's common stock was the highest price that Three Cities would agree to
pay;
(iv) the merger consideration of $5.00 per share to be received by
stockholders in the merger agreement represents a premium of approximately 78%
over the $2.81 per share closing price on January 12, 2001, the last full
trading day before the public announcement of the proposal by Three Cities to
acquire all of the shares of Leslie Fay's common stock not owned by them; and
that during the preceding six months, the merger consideration represented a
premium ranging from 8%, when the common stock traded at $4.63 on July 12, 2000
to 82% when the common stock traded at $2.75 on January 3, 2001;
(v) the trading prices and volumes at which the common stock traded in
the previous four years, which include the trading prices and volumes at the
time Three Cities became a stockholder of Leslie Fay by purchasing common stock
for prices ranging from $6.95 to $7.00 per share;
(vi) the opinion of Conway, Del Genio, Gries & Co., LLC as to the
fairness, from a financial point of view, of the merger consideration of $5.00
per share to be received by stockholders and the analysis underlying such
opinion presented to the independent committee of the board, as of March 23,
2001;
(vii) the availability of appraisal rights under the Delaware General
Corporation Law to holders of Leslie Fay's common stock who dissent from the
merger; and
(viii) the ability of the merger to provide Leslie Fay's stockholders
with a level of liquidity currently unavailable in the market place.
Each of the foregoing factors supported the decision of Leslie Fay's
board of directors. The board viewed all of the foregoing factors as important
in reaching its conclusion and did not assign any particular weight to any
individual factor. See "SPECIAL FACTORS -- Recommendation of the Independent
Committee and the Board of Directors; Fairness of the Merger."
Leslie Fay's board of directors did not consider other alternatives to
the merger because in its January 12, 2001 letter to Leslie Fay, Three Cities
stated that it was not interested in selling its Leslie Fay stock; consequently,
strategic alternatives involving third parties or the liquidation of Leslie Fay
were not feasible. See "SPECIAL FACTORS - Recommendation of the Independent
Committee and the Board of Directors; Fairness of the Merger."
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THE SPECIAL MEETING OF STOCKHOLDERS
PLACE, DATE AND TIME. The special meeting of Leslie Fay's stockholders will
be held at the offices of Jenkens & Gilchrist Parker Chapin LLP, The Chrysler
Building, 9th Floor, 405 Lexington Avenue, New York, New York, 10174 at 10:30
a.m., local time, on November 20, 2001.
WHAT VOTE IS REQUIRED FOR ADOPTION OF THE MERGER AGREEMENT. Under
Leslie Fay's Amended and Restated Certificate of Incorporation, the affirmative
vote of at least 66 2/3% of the outstanding shares of common stock and the
affirmative vote of more than 50% of the shares of common stock voting on such
matter that are not owned by an interested stockholder or any of its affiliates
are required for the adoption of the merger agreement. The presence in person or
by proxy of at least 50% of the outstanding common stock constitutes a quorum
for a stockholder vote on the adoption of the merger agreement at the special
meeting. There is no separate quorum requirement for unaffiliated stockholders
to meet the 50% test. Three Cities, John J. Pomerantz, Warren T. Wishart, H.
Whitney Wagner, Thomas G. Weld and John Constable, who beneficially own
approximately 73.1% of the Common Stock, each have advised Leslie Fay that they
intend to vote their shares of common stock in favor of adoption of the merger
agreement. Since such persons may be deemed to be interested stockholders, their
votes will not count in determining whether or not the 50% test is met. Proxies
submitted that contain abstentions or broker non-votes will be deemed present at
the special meeting for determining the presence of a quorum. Abstentions and
broker non-votes with respect to the vote on the merger will have the effect of
votes against such matter for purposes of the 66 2/3 % test, but only
abstentions will have such effect for purposes of the 50% test. Therefore,
broker non-votes will have no effect on the vote for purposes of the 50% test
WHAT VOTE IS REQUIRED FOR ADOPTION OF PROPOSAL 2. The affirmative vote
of more than 50% of the shares voting on such matter is required to adjourn the
Special Meeting under the circumstances described in Proposal 2. Leslie Fay's
Amended and Restated Certificate of Incorporation does not require and
affirmative vote of unaffiliated stockholders to approve Proposal 2. Three
Cities, John J. Pomerantz, Warren T. Wishart, H. Whitney Wagner, Thomas G. Weld
and John Constable, who beneficially own approximately 73.1% of the Common
Stock, each have advised Leslie Fay that they intend to vote their shares of
common stock in favor of adoption of Proposal 2, if Proposal 2 is submitted to a
vote.
WHO CAN VOTE AT THE SPECIAL MEETING. You can vote at the special
meeting all of the shares of common stock that you owned of record as of
October 16, 2001, which is the record date for the special meeting. If you own
shares that are registered in someone else's name (for example, a broker), you
need to direct that person to vote those shares or obtain an authorization from
them and vote the shares yourself at the meeting. As of the close of business on
October 16, 2001, there were 5,939,452 shares of the common stock outstanding
held by approximately _______ stockholders.
PROCEDURE FOR VOTING. You can vote your shares by attending the special
meeting and voting in person, or by mailing the enclosed proxy card. You may
revoke or change your proxy at any time prior to its use at the special meeting
by giving Leslie Fay a new proxy, a written direction to revoke your proxy, or
attending the special meeting and voting in person.
DISSENTERS' RIGHTS OF APPRAISAL
Delaware law provides you with appraisal rights in the merger. This
means that if you are not satisfied with the amount you are receiving in the
merger, you are entitled to have the
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value of your shares independently determined and to receive payment based on
that valuation. The ultimate amount you receive as a dissenting stockholder in
an appraisal proceeding may be more or less than, or the same as, the amount you
would have received in the merger. To exercise your appraisal rights, you must
strictly comply with the rules governing the exercise of appraisal rights or
lose those appraisal rights. We describe the procedures for exercising appraisal
rights in this proxy statement and we attach the provisions of Delaware law that
govern appraisal rights as Annex C. See "SPECIAL FACTORS -- Rights of Dissenting
Stockholders."
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The receipt of cash by you pursuant to the merger or the exercise of
appraisal rights will be taxable events for you for federal income tax purposes.
They may also be taxable events under applicable local, state and foreign tax
laws. The tax consequences for you will depend upon the facts and circumstances
applicable to you. Accordingly, you should consult your own tax advisor with
respect to the federal, state, local or foreign tax consequences of the merger.
See "SPECIAL FACTORS -- Federal Income Tax Consequences."
WHEN WILL THE MERGER BE COMPLETED; CONDITIONS TO COMPLETING THE MERGER
Leslie Fay and Three Cities are working to complete the merger as soon
as possible and anticipate completing the merger on November 20, 2001, following
the special meeting, subject to the satisfaction of certain conditions.
CONDITIONS TO COMPLETING THE MERGER
The completion of the merger depends on a number of conditions being
satisfied, including the following:
The respective obligations of each party to effect the merger are
subject to the following conditions:
o Leslie Fay will have received, from its stockholders, the required votes to
approve the merger; and
o no court or governmental entity of competent jurisdiction will have
enacted, issued, promulgated, enforced or entered any law, order,
injunction or decree that is in effect and restrains, enjoins or otherwise
prohibits consummation of the merger.
The obligations of Three Cities, LF Acquisition, LLC and LF Merger Co.
to effect the merger are subject to the following additional conditions:
o Leslie Fay will have performed in all material respects the covenants and
obligations required to be performed by it under the merger agreement on or
prior to the effective time of the merger; and
o the representations and warranties of Leslie Fay contained in the merger
agreement will be true and correct in all material respects on and as of
the effective time of the merger as if made on and as of such date.
The obligation of Leslie Fay to effect the merger is subject to the
following additional conditions:
-7-
o Three Cities, LF Acquisition, LLC and LF Merger Co. will have performed in
all material respects the covenants and obligations required to be
performed by them under the merger agreement on or prior to the effective
time of the merger; and
o the representations and warranties of Three Cities, LF Acquisition, LLC and
LF Merger Co. contained in the merger agreement will be true and correct in
all material respects on and as of the effective time of the merger as if
made on and as of such date.
See "THE MERGER AGREEMENT -- Conditions."
INTERESTS OF CERTAIN PERSONS IN THE MERGER THAT DIFFER FROM YOUR INTERESTS
John J. Pomerantz, Warren T. Wishart and Thomas G. Weld, who are
directors and/or members of management of Leslie Fay, have interests in the
merger that are different from, or are in addition to, their interests as Leslie
Fay stockholders since they will have the opportunity to remain as equity
holders of Leslie Fay. See "SPECIAL FACTORS -- Interests of Certain Persons in
the Merger and the Company."
THE MERGER
PROCEDURE FOR RECEIVING THE MERGER CONSIDERATION. Prior to the
effective time of the merger, Leslie Fay will authorize an exchange agent
satisfactory to Three Cities for the purpose of exchanging certificates
representing the shares of Leslie Fay's common stock entitled thereto, for the
merger consideration. Prior to the effective time of the merger, LF Acquisition,
LLC will deposit the aggregate merger consideration into an interest-bearing
account under the control of the exchange agent, and shall cause disbursements
to be made from such account from time to time in respect of payments of the
merger consideration. See "THE MERGER AGREEMENT--Surrender and Payment of Shares
of Common Stock."
TERMINATING THE MERGER AGREEMENT. Leslie Fay and Three Cities can
mutually agree at any time to terminate the merger agreement. Also, under
certain circumstances, either Leslie Fay or Three Cities can decide to terminate
the merger agreement if the merger has not been consummated on or before July
31, 2001. See "THE MERGER AGREEMENT- Termination."
FEES AND EXPENSES. All expenses incurred by the parties hereto in
connection with the merger agreement and the merger and the other transactions
contemplated thereby, whether or not the merger or any of such other
transactions are consummated, shall be paid by the party incurring such expense;
provided, however, that Leslie Fay shall pay all of Three Cities' expenses if
the merger is consummated. See "THE MERGER AGREEMENT -- Fees and Expenses."
ACCOUNTING TREATMENT. For accounting and financial reporting purposes,
the merger will be accounted for as a purchase.
NO SOLICITATION OF PROPOSALS
Leslie Fay has agreed not to solicit, initiate or encourage the
submission of any proposal with respect to a merger, consolidation or other
business combination involving Leslie Fay or any of its subsidiaries or the
acquisition of 10% or more of their assets or capital stock or participate in
discussions or negotiations or otherwise cooperate with any unsolicited proposal
that constitutes or may lead to a proposal for such a takeover transaction
during the period from the date of the merger agreement to the effective time of
the merger.
-8-
However, if the board of directors of Leslie Fay determines in good
faith, after consultation with independent outside legal counsel, that prior to
obtaining the requisite vote of stockholders, it is necessary to do so in order
to act in a manner consistent with its fiduciary duties to Leslie Fay's
stockholders under applicable law, Leslie Fay may, in response to a proposal for
a takeover transaction which was not solicited by it and which did not otherwise
result from a breach of Leslie Fay's covenants under the merger agreement, and
subject to providing prior written notice of its decision to take such action to
Three Cities, (1) furnish information with respect to Leslie Fay and any or all
of its subsidiaries to any person making such a proposal for a takeover
transaction pursuant to a customary confidentiality agreement and (2)
participate in discussions or negotiations regarding such takeover proposal. See
"THE MERGER AGREEMENT -- No Solicitation; Fiduciary Obligations of Directors"
REGULATORY FILINGS AND APPROVALS
Leslie Fay does not believe that any material federal or state
regulatory approvals, filings or notices are required by it in connection with
the merger.
QUESTIONS
If you have any questions about the merger or if you need additional
copies of the proxy statement or the enclosed proxy card, you should contact
D.F. King & Co., Inc. at 1-800-290-6248.
-9-
CERTAIN QUESTIONS AND ANSWERS ABOUT VOTING AND THE MERGER
Q: WHY AM I RECEIVING THESE MATERIALS? proxy card is returned in the
enclosed postage prepaid envelope
and mailed in the United States.
A: The Board of Directors of The
Leslie Fay Company, Inc. is Q: WHAT DOES IT MEAN IF I RECEIVE MORE
providing these proxy materials to THAN ONE PROXY OR VOTING
give you information to determine INSTRUCTION CARD?
how to vote in connection with the
special meeting of stockholders A: It means your shares are registered
which will take place on differently or are held in more
November 20, 2001 at 10:30 a.m., than one account. Please provide
local time, at the offices of voting instructions for each proxy
Jenkens & Gilchrist Parker Chapin card that you receive.
LLP, The Chrysler Building, 9th
Floor, New York, New York 10174. Q: HOW CAN I VOTE SHARES HELD IN MY
BROKER'S NAME?
Q: WHAT WILL BE VOTED ON AT THE
MEETING? A: If your broker holds your shares in
its name (or in what is commonly
A: Whether to adopt a merger agreement called "street name"), then you
pursuant to which LF Merger Co. should give your broker
will merge with and into Leslie instructions on how to vote.
Fay, with Leslie Fay as the Otherwise your shares will not be
surviving corporation. voted with respect to the adoption
of the merger agreement.
Q: WILL ANY OTHER MATTERS BE VOTED ON
AT THE MEETING? Q: CAN I CHANGE MY VOTE?
A: Yes. The stockholders of Leslie Fay A: You may change your proxy
will also be asked to vote to instructions at any time prior to
adjourn the meeting if there are the vote at the meeting. For shares
not enough votes to adopt the held directly in your name, you may
merger agreement. accomplish this by completing a new
proxy or by attending the meeting
Q: WHO CAN VOTE? and voting in person. Attendance at
the meeting alone will not cause
A: All stockholders of record as of your previously granted proxy to be
the close of business on October revoked unless you vote in person.
16, 2001. For shares held in "street name,"
you may accomplish this by
Q: WHAT SHOULD I DO NOW? submitting new voting instructions
to your broker or nominee.
A: Please vote. You are invited to Q: WHAT VOTE IS REQUIRED TO ADOPT THE
attend the meeting. However, you MERGER AGREEMENT?
should mail your signed and dated
proxy card in the enclosed envelope A: For the merger to occur, the
as soon as possible, so that your affirmative vote of at least
shares will be represented at the two-thirds of all of the
meeting in case you are unable to outstanding shares of common stock
attend. No postage is required if and the
the
-10-
affirmative vote of more Q: WHY IS THE BOARD RECOMMENDING THAT
than 50% of the shares of common I VOTE TO ADOPT THE MERGER
stock voting on such matter that AGREEMENT?
are not owned by interested
stockholders are required for the A: In the opinion of your Board, the
adoption of the merger agreement merger and the merger agreement are
that is being submitted to a vote in the best interests of Leslie Fay
of the stockholders. and its stockholders. To review the
background and reasons for the
Q: HOW ARE VOTES COUNTED? merger in greater detail, see pages
21 to 27.
A: You may vote "FOR," "AGAINST" or
"ABSTAIN." If you "ABSTAIN" or do Q: SHOULD I SEND IN MY STOCK
not vote, it has the same effect as CERTIFICATES NOW?
a vote "AGAINST" with respect to
the vote that requires the merger A: No. Promptly after the effective
agreement to be adopted by time of the merger, a letter of
two-thirds of all outstanding transmittal containing instructions
shares of common stock of Leslie with respect to the surrender of
Fay. If you "ABSTAIN", it also has stock certificates will be
the same effect as a vote "AGAINST" furnished to you. You should
with respect to the vote that surrender certificates evidencing
requires the merger agreement to be shares only with the letter of
adopted by more than 50% of the transmittal and not with the
shares voted that are not owned by enclosed proxy card.
interested stockholders. If you
provide specific voting Q: WHEN DO YOU EXPECT THE MERGER TO BE
instructions, your shares will be COMPLETED?
voted as you instruct. If you sign
your proxy card or broker voting A: We hope to complete the merger
instruction card with no further promptly after the special
instructions, your shares will be stockholders' meeting.
voted in accordance with the
recommendation of the Board of Q: WILL I HAVE TO PAY FEDERAL INCOME
Directors of Leslie Fay. TAXES AS A RESULT OF THE
TRANSACTION?
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: Stockholders will generally be
A: If the merger agreement is adopted taxed at capital gains rates on the
by stockholders and the merger is excess of $5.00 per share over
consummated, you will receive $5.00 their tax basis in the shares.
in cash for each of your shares.
Q: WILL I HAVE APPRAISAL RIGHTS?
Q: WHAT IS THE RECOMMENDATION OF THE
BOARD OF DIRECTORS OF LESLIE FAY? A: Yes. See page 37.
A: The Board recommends that you vote Q: WHAT VOTE IS REQUIRED TO ADJOURN
your shares "FOR" adoption of the THE MEETING (PROPOSAL 2)?
merger agreement.
A: The affirmative vote of more than
50% of the shares voting on such
matter is required to adjourn the
meeting. If submitted to a vote,
this proposal will be approved
regardless
-11-
of your vote, so long as
the stockholders of Leslie Fay who
will be stockholders of the
surviving corporation after the
merger vote as they have advised
Leslie Fay they intend to.
Q: WHO CAN ANSWER MY QUESTIONS?
A: If you have more questions about
the merger or would like additional
copies of this Proxy Statement, you
should contact D.F. King at
1-800-290-6428 (toll free) or
American Stock Transfer & Trust
Company at 1-800-937-5449 (toll
free in the United States) or
1-718-921-8200 (call collect).
-12-
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROXY STATEMENT.
IT DOES NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. TO FULLY
UNDERSTAND THE PROPOSED MERGER AND THE OTHER MATTERS BEING PRESENTED FOR YOUR
CONSIDERATION, AND FOR A MORE COMPLETE DESCRIPTION OF THE TERMS OF THE PROPOSED
MERGER, YOU SHOULD READ THIS ENTIRE DOCUMENT CAREFULLY, INCLUDING THE ANNEXES,
AND THE OTHER DOCUMENTS TO WHICH WE REFER YOU. THOSE OTHER DOCUMENTS ARE LISTED
IN THE SECTION HEADED "WHERE YOU CAN FIND MORE INFORMATION" ON PAGES 59 AND 60.
FOR FURTHER INFORMATION, ALSO SEE THE SECTION HEADED "AVAILABLE INFORMATION" ON
PAGE 60.
All information contained in this Proxy Statement relating to Three
Cities Fund II, L.P. ("TCF II"), Three Cities Offshore II C.V. ("TCO" and,
together with TCF II, the "Buyers"), Three Cities Research, Inc., TCR
Associates, L.P., Three Cities Associates, N.V., J. William Uhrig, H. Whitney
Wagner, Thomas G. Weld, LF Acquisition, LLC ("Parent") and LF Merger Co.
("Merger Sub") (all of such entities and individuals collectively being referred
to herein as the "Three Cities Affiliates") has been supplied by the Buyers for
inclusion and has not been independently verified by the Company. No persons
have been authorized to give any information or to make any representations
other than those contained in this Proxy Statement.
INFORMATION CONCERNING THE SPECIAL MEETING
TIME, DATE AND PLACE. The Special Meeting of stockholders of the
Company will be held on November 20, 2001 at 10:30 a.m., local time, at the
offices of Jenkens & Gilchrist Parker Chapin LLP, The Chrysler Building, 9th
Floor, New York, New York 10174.
PURPOSE OF THE SPECIAL MEETING. At the Special Meeting, holders of the
Company's common stock, par value $.01 per share ("Common Stock"), at the close
of business on the Record Date, as defined below, will consider and vote upon a
proposal to adopt the Amended and Restated Agreement and Plan of Merger (the
"Merger Agreement") dated as of April 27, 2001 among the Company, the Buyers,
the Parent and Merger Sub. If the Merger Agreement is adopted at the Special
Meeting, Merger Sub will be merged with and into the Company (the "Merger"), and
the Company will be the surviving corporation of the Merger. Each stockholder of
the Company, except for the Buyers, John J. Pomerantz, Warren T. Wishart, H.
Whitney Wagner, Thomas G. Weld and entities controlled by John Constable
("Constable") (collectively, the "Continuing Stockholders"), will receive $5.00
per share in cash for each share of the Company's Common Stock held by such
stockholder. Immediately prior to the filing of the Certificate of Merger with
the Delaware Secretary of State or at such later time as Buyers and the Company
shall agree and as is specified in the Certificate of Merger (the "Effective
Time"), the Continuing Stockholders will become members of the Parent which,
after the Merger, will be the sole stockholder of the Company. Pursuant to the
Merger, the certificate of incorporation of Merger Sub in effect immediately
prior to the Effective Time shall be the certificate of incorporation of the
surviving corporation. At the Special Meeting, you will also vote upon a
proposal to adjourn the Special Meeting if there are not enough votes to adopt
the Merger Agreement and upon such other matters as may properly be brought
before the Special Meeting.
RECORD DATE FOR THE SPECIAL MEETING; QUORUM REQUIREMENTS. The close of
business on October 16, 2001 has been fixed as the Record Date for determining
stockholders entitled to notice of, and to vote at, the Special Meeting. Each
share of Common Stock outstanding on the Record Date is entitled to one vote at
the Special Meeting. As of the Record Date, 5,939,452 shares of Common Stock
were issued and outstanding. The presence, in person or by proxy, of a
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majority of all outstanding shares of Common Stock is required to constitute a
quorum for the transaction of business at the Special Meeting.
VOTING REQUIREMENTS. Under our certificate of incorporation, the
affirmative vote of at least 66 2/3% of the outstanding shares of Common Stock
and the affirmative vote of more than 50% of the outstanding shares of Common
Stock voting on such matter that are not owned directly or indirectly by an
Interested Stockholder or any of its Affiliates (the "Requisite Company Vote")
(as such terms are defined in the Company's Amended and Restated Certificate of
Incorporation) are required for the adoption of the Merger Agreement. The
Continuing Stockholders, who own approximately 73.1% of the Common Stock, each
have advised the Company that they intend to vote their shares of Common Stock
in favor of adoption of the Merger Agreement. Proxies submitted that contain
abstentions or broker non-votes will be deemed present at the Special Meeting
for determining the presence of a quorum. Since the Continuing Stockholders may
be deemed to be Interested Stockholders, their votes will not count in
determining whether the 50% test is met. Abstentions and broker non-votes with
respect to the vote on the Merger will have the effect of votes against such
matter for purposes of the 66 2/3 % test, but only abstentions will have such
effect for purposes of the 50% test. Therefore, broker non-votes will have no
effect on the vote for purposes of the 50% test. In addition, with respect to
the vote on the proposal to adjourn the Special Meeting (Proposal 2),
abstentions will have the effect of votes against such proposal while broker
non-votes will have no effect on the vote. There are 39,428 shares of Common
Stock issued in the name of the administrator of the Company's 1997 plan of
reorganization, who holds such shares for the benefit of the creditors of the
Company pending the resolution of certain creditor claims. He has advised the
Company that, in accordance with such administrator's practice since the first
meeting of the Company's stockholders held after its emergence from bankruptcy
in 1997, such shares will be voted in respect of each proposal submitted to the
Special Meeting in the same proportion as all affiliated and unaffiliated
stockholders (including the Continuing Stockholders) vote their shares at the
Special Meeting. The administrator is not an interested stockholder for purposes
of the 50% test. If the administrator is the only unaffiliated stockholder to
vote on the adoption of the Merger Agreement, the proposal will be affirmed.
PROXIES. A proxy card is enclosed for your use in voting by mail. A
Proxy may be revoked at any time prior to its exercise at the Special Meeting.
Common Stock represented by properly executed Proxies received at or prior to
the Special Meeting, and which have not been revoked, will be voted in
accordance with the instructions indicated on the Proxy.
PROPOSAL 1 - ADOPTION OF THE MERGER AGREEMENT
THE PARTIES TO THE MERGER AGREEMENT
THE COMPANY. The Company, through its subsidiaries, is engaged
principally in the design, arranging for the manufacture, and the sale of
diversified lines of women's dresses and sportswear. The Company emerged from
bankruptcy on June 4, 1997. See "BUSINESS OF THE COMPANY - Reorganization Under
Chapter 11." The address of the Company is 1412 Broadway, New York, NY 10018.
The Company's telephone number is 212-221-4000.
MERGER SUB. Merger Sub is a corporation that is indirectly wholly owned
by the Parent and has been formed solely to effect the Merger and does not
conduct any business activities. Pursuant to the Merger Agreement, Merger Sub
will be merged into the Company, with the Company as the surviving corporation
(the "Surviving Corporation"). The address of Merger Sub is c/o Three Cities
Research, Inc., 650 Madison Avenue, New York, NY 10022. The Merger Sub's
telephone number is 212-838-9660.
-14-
PARENT The Parent is a Delaware limited liability company organized by
the Buyers, which are majority stockholders of Leslie Fay. The Buyers are the
sole members of the Parent. Immediately prior to the Effective Time, Thomas G.
Weld and H. Whitney Wagner, who are managing directors of Three Cities Research,
Inc., which serves as an advisor to and is an affiliate of the Buyers, and
respectively, a director and a former director of the Company, John J. Pomerantz
and Warren T. Wishart, who are executive officers of the Company, and entities
controlled by John Constable (all of whom are stockholders of Leslie Fay) will
become members of the Parent. John J. Pomerantz and Warren T. Wishart are
collectively referred to herein as the "Management Stockholders."
THE BUYERS. The Buyers are Three Cities Fund II, L.P., a Delaware
limited partnership, and Three Cities Offshore II C.V., a Netherlands Antilles
limited partnership.
THE MERGER AGREEMENT
CAPITAL STOCK OF THE COMPANY AND MERGER SUB. If the Merger is
consummated, you will receive $5.00 in cash for each of your shares. See "THE
MERGER AGREEMENT - Capital Stock of the Constituent Corporations."
CONDITIONS TO, AND TERMINATION OF, THE MERGER. See "THE MERGER
AGREEMENT- Conditions" and "- Termination."
NO SOLICITATION. See "THE MERGER AGREEMENT - No Solicitation; Fiduciary
Obligations of Directors."
EXPENSES. All expenses incurred by the parties in connection with the
Merger Agreement and the Merger and the other transactions contemplated thereby,
whether or not the Merger or any such other transactions are consummated, shall
be paid by the party incurring such expense; provided, however, that the Company
shall pay all expenses of the Buyers if the Merger is consummated. All costs of
preparing, printing, mailing and distributing the Notice of Special Meeting, the
Proxy Statement and the proxies will be born by the Company.
DISSENTING SHARES
Under the Delaware General Corporation Law (the "DGCL"), the Company's
stockholders are entitled to rights of appraisal in connection with the Merger.
See "SPECIAL FACTORS - Rights of Dissenting Stockholders" for a discussion of
what you must do in order to exercise your right to an appraisal of your shares.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF THE COMPANY
The following selected historical consolidated financial data for each
of the years in the five-year period ended December 30, 2000 are derived from
and are incorporated by reference in this Proxy Statement to, the Company's
audited consolidated financial data and notes thereto included in the Company's
Annual Report for the year ended December 30, 2000, a copy of which accompanies
this Proxy Statement. The selected historical consolidated financial data for
the twenty-six weeks ended June 30, 2001 are derived from and are incorporated
by reference in this Proxy Statement to, the Company's unaudited consolidated
financial data and notes thereto included in the Company's Quarterly Report on
Form 10-Q for the twenty-six weeks ended June 30, 2001, a copy of which also
accompanies this Proxy Statement. The results for the twenty-six weeks ended
June 30, 2001 are not necessarily indicative of results for the full year. The
historical financial information presented for the Reorganized Company (i.e.,
the Company after
-15-
its emergence from bankruptcy) and the Predecessor Company (i.e., the Company
prior to its emergence from bankruptcy) are not comparable. The information
presented below should be read in conjunction with such financial statements and
notes thereto, and the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in the Company's Annual Report for
the year ended December 30, 2000 and the Company's Quarterly Report for the
twenty-six weeks ended June 30, 2001.
-16-
(In thousands, except per share data)
Reorganized Company
-------------------
For the Periods Ended
-----------------------------------------------------------------------------------------------------------------------------------
Twenty-Six Twenty-Six Fifty-Two Fifty-Two Fifty-Two Thirty-One
Weeks Ended Weeks Ended Weeks Ended Weeks Ended Weeks Ended Weeks Ended
June 30, -------------- December 30, January 1, January 2, January 3,
2001 July 1, 2000 2000 1999 1998 (a)
--------------- 2000 --------------- --------------- --------------- ---------------
(Unaudited) (Unaudited) (Audited) (Audited) (Audited) (Audited)
Net Sales $95,669 $112,234 $212,714 $197,446 $152,867 $ 73,091
Operating Income 1,663 5,877 4,000 14,439 13,020 4,322
Reorganization Costs -- --
-- -- -- --
Interest Expense and
Financing Costs 854 1,543 2,958 2,258 950 336
Tax Provision (6) 973
(Benefit) 4,147 2,654 3,212 677
Other Non-Recurring
Items -- -- (10,800)(f) 911(g) -- --
Net Income (10) 3,361 $7,695 $8,316 8,858 $3,309
Net Income per
Share - Basic $0.00 $0.66 $1.47 $1.46 $1.35 $0.49
- Diluted $0.00 $0.63 $1.44 $1.39 $1.31 $0.48
As of As of As of As of As of As of
6/30/01 7/1/00 12/30/2000 01/01/2000 01/02/99 01/03/98
------- ------ ---------- ---------- -------- --------
Total Assets $78,673 $77,910 $87,359 $69,000 $67,804 $61,051
Assets of Product
Lines
Held for Sale and -- --
Disposition -- -- -- --
Long-Term Debt
(Including Capital
Lease) 77 -- 3,126 4,052 17 49
Predecessor Company
-------------------
--------------------------------------------------------------------------------
Twenty-Two Fifty-Two
Weeks Ended Weeks Ended
June 4, ---------------
1997 (b) December 28,
--------------- 1996
(Audited) (Audited)
Net Sales $197,984 $429,676
Operating Income 14,355 17,965
Reorganization Costs
3,379(c) 5,144(c)
Interest Expense and
Financing Costs 1,372 3,932(d)
Tax Provision
(Benefit) 451 (839)(e)
Other Non-Recurring
Items 136,341(h) --
Net Income $145,494 $9,728
Net Income per
Share - Basic --(i) $0.52 (i)
- Diluted --(i) $0.52 (i)
As of As of
06/04/97 12/28/96
-------- --------
Total Assets $77,789 $237,661
Assets of Product
Lines
Held for Sale and
Disposition -- 3,003(i)
Long-Term Debt
(Including Capital
Lease) 108 --
-17-
NOTES TO SELECTED FINANCIAL DATA
--------------------------------
(a) Financial information for the thirty-one weeks ended January 3, 1998
represents the consolidated results of the reorganized entity after the
consummation of the plan of reorganization (the "Plan") confirmed by an
order of the Bankruptcy Court dated April 21, 1997.
(b) Financial information for the twenty-two weeks ended June 4, 1997
represents the audited consolidated results prior to the Company's
consummation of the Plan. The income statement information includes the
results of Castleberry and Sassco Fashions lines prior to their sale or
spin-off in connection with the consummation of the Plan.
(c) The Company incurred reorganization costs in 1997 and 1996 while
operating as a debtor in possession. Included in 1997 and 1996 is a
provision of $0 and $652,000, respectively, for a write-down of a
portion of the excess purchase price over net assets acquired in the
1984 leveraged buyout of The Leslie Fay Company, related to certain of
the Company's product lines, which the Company believes will be
unrecoverable.
(d) On January 2, 1994, the Company decided not to accrue interest on
approximately $253,000,000 of pre-petition debt. During 1996, the
Company had direct borrowings under a credit agreement with The First
National Bank of Boston on 102 days in the second and third quarters,
the highest amount of which was $28,672,000. Interest on direct
borrowings was incurred at a rate of prime plus 1.5%.
(e) The Company recognized an income tax credit of $1,103,000 in 1996,
representing a reduction of foreign income tax liabilities as a result
of negotiated settlements on prior years' estimated taxes. The Company
only paid state, local and foreign taxes in 1996.
(f) Amount reflects the gain recorded in the sale of the "HUE" trademark to
the Kayser-Roth Corporation.
(g) The Company incurred $911,000 of other non-recurring, non-operating
legal and administrative expense related to the August 25, 1999 merger
with an affiliate of TCF II and TCO.
(h) Amount consists of the following three components: gain on
sale/transfer of the Sassco Fashions line of $89,810,000 (net of
$3,728,000 of income taxes), charge for revaluation of assets and
liabilities pursuant to the adoption of fresh-start reporting of
($27,010,000) and gain on debt discharge (an extraordinary item) of
$73,541,000.
(i) Net income per share for the thirty-one weeks ended January 3, 1998 was
calculated based on 6,800,000 shares of new common stock, adjusted to
give effect to the 2 for 1 stock split effected in July 1998, issued in
connection with the consummation of the Plan. Earnings per common share
for the twenty-two weeks ended June 4, 1997 is not presented because
such presentation would not be meaningful. The old stock of 18,771,836
shares, used in calculating the net income per share in 1996, was
canceled under the Plan and the new stock was not issued until June 4,
1997.
-18-
MARKET PRICES OF AND DIVIDENDS ON THE COMMON STOCK
On December 8, 1998, the Common Stock of the Company began trading on
the Nasdaq SmallCap Market under the symbol "LFAY." The following table sets
forth the high bid and low asked prices on the Nasdaq SmallCap Market for each
quarter during 1999 and 2000 and the first, second and third quarters of 2001.
Period High Low
------ ---- ---
1999 First Quarter $ 6.75 $ 3.88
Second Quarter 6.88 4.25
Third Quarter 7.13 4.63
Fourth Quarter 6.94 4.38
2000 First Quarter $ 7.00 $ 4.06
Second Quarter 5.50 3.13
Third Quarter 4.63 3.13
Fourth Quarter 3.69 2.75
2001 First Quarter $ 4.81 $ 2.69
Second Quarter 4.84 4.69
Third Quarter 4.81 4.30
Fourth Quarter (through
October 18)
On January 16, 2001 the Company announced that on January 12, 2001,
Three Cities Research Inc., TCF II and TCO (collectively, "Three Cities Funds")
submitted a proposal to the Company to acquire all of the outstanding shares of
the Company's Common Stock not owned by Three Cities Funds for $3.50 per share.
The closing price of the Common Stock on the Nasdaq SmallCap Market on January
12, 2001 was $2.81 per share. On March 27, 2001, the Company announced that it
had signed the Merger Agreement with the Buyers, Parent and Merger Sub which
provides, among other things, that Three Cities Funds will acquire the
outstanding shares of the Company's Common Stock not held by the Continuing
Stockholders for $5.00 per share. On March 26, 2001, the closing price of the
Common Stock on the Nasdaq SmallCap Market was $3.13 per share. As of
October 18, 2001 the closing price of the Common Stock on the Nasdaq SmallCap
Market was $____ per share. YOU ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION
FOR YOUR SHARES OF COMMON STOCK. As of October 16, 2001, there were
approximately _______ holders of record of the Common Stock of the Company.
The Company did not pay any dividends on, or make any other
distributions with respect to, its Common Stock during 1999, 2000 or 2001.
-19-
PROPOSAL 2 - ADJOURNMENT PROPOSAL
The second matter that you will be asked to vote upon is the
adjournment of the Special Meeting, if necessary, to permit the further
solicitation of proxies in the event that there are not sufficient votes at the
time of the Special Meeting to approve the Merger. See "PROPOSAL 2 --Adjournment
Proposal."
The affirmative vote of more than 50% of the shares voting on such
matter is required to adjourn the Special Meeting. Three Cities, John J.
Pomerantz, Warren T. Wishart, H. Whitney Wagner, Thomas G. Weld and John
Constable, who beneficially own approximately 73.1% of the Common Stock, each
have advised Leslie Fay that they intend to vote their shares of common stock in
favor of adoption of Proposal 2, if Proposal 2 is submitted to a vote. As a
result, if submitted to a vote, this proposal will be approved regardless of
your vote, so long as the Continuing Stockholders vote as they have advised the
Company they intend to.
FORWARD-LOOKING INFORMATION
This Proxy Statement contains forward-looking statements, which are
generally identified by words such as "may," "should," "seeks," "believes,"
"expects," "intends," "estimates," "projects," "strategy" and similar
expressions or the negative of those words. Those statements appear in a number
of places in this Proxy Statement and include statements regarding the intent,
belief, expectation, strategies or projections of the Company, its directors,
its management, the Buyers or others at that time. Forward-looking statements
are subject to a number of known and unknown risks and uncertainties that could
cause actual results to differ materially from those projected, expressed or
implied in such forward-looking statements. These risks and uncertainties, many
of which are not within the Company's control, include, but are not limited to,
the uncertainty of potential manufacturing difficulties, the dependence on key
personnel, the possible impact of competitive products and pricing, the
Company's continued ability to finance its operations, general economic
conditions and the achievement and maintenance of profitable operations and
positive cash flow. The accompanying information contained in this Proxy
Statement identifies important factors that could cause expectations not to be
met. Forward-looking statements speak only as of the date made, and neither the
Company nor the Buyers undertake any obligation to update or revise any
forward-looking statements. It is likely that if one or more of the risks and
uncertainties materializes, the current expectations of the Company and its
management will not be recognized.
-20-
PROPOSAL 1
APPROVAL OF THE MERGER AGREEMENT
SPECIAL FACTORS
BACKGROUND OF THE TRANSACTION
During December 2000 and January 2001, the Buyers, who collectively own
approximately 55.2% of the outstanding Common Stock, evaluated the possibility
of acquiring up to all of the remaining outstanding shares of Common Stock.
Following such evaluation, on January 12, 2001, the Buyers sent a letter to the
Company proposing to purchase all remaining outstanding shares of Common Stock
not owned by the Buyers for $3.50 in cash per share (the "Initial Three Cities
Offer"). In the January 12 letter, the Buyers stated that they were not
interested in selling their interest in the Company. The Buyers' decision to
make an acquisition proposal was based on their assessment of general market
conditions and of other potential investments for the capital under their
management.
On January 19, 2001, the board of directors of the Company (the
"Board") met at the offices of the Company in New York and appointed Robert L.
Sind and Bernard Olsoff, the two members of the Board who were neither
affiliated with Three Cities nor employees of Leslie Fay, as members of the
independent committee of the Board (the "Independent Committee") to review the
Initial Three Cities Offer. The Board believed that given the knowledge Mr. Sind
and Mr. Olsoff, who were independent members of the Board, had of the business
of the Company and of the apparel industry generally and since they would retain
independent counsel and an independent financial advisor to assist them in
reviewing the Initial Three Cities Offer and to render a fairness opinion, it
was unnecessary to retain an unaffiliated representative to review the Initial
Three Cities Offer. The Board also authorized the payment by the Company of a
fee of $25,000 to each member of the Independent Committee and the
indemnification of them by the Company against certain claims. On the same date,
the Independent Committee met and resolved to engage Weil Gotshal & Manges LLP
as its Special Counsel. At the meeting of the Company's Board held on January
19, 2001, W. Robert Wright, a representative of the Buyers, reviewed the terms
of the Initial Three Cities Offer and responded to questions relating thereto.
He stated that the Buyers were willing to have the Company's management
participate as equity holders in the Surviving Corporation on the same basis as
the Buyers, and that outstanding options to acquire Common Stock would be
converted into options to acquire interests in the Parent on substantially the
same terms as those presently held by optionees. While the original January 12,
2001 offer letter from Three Cities was silent as to the inclusion of additional
equity participants, in order to avoid such equity participation being
misconstrued as a condition to the Buyers' offer, the Buyers had always
contemplated a substantial management equity participation in Leslie Fay
following the Merger, this being a typical component of investments made by the
Three Cities Affiliates.
On January 22, 2001 the Independent Committee resolved to engage
Conway, Del Genio, Gries & Co., LLC ("CDG") as its financial advisor. In late
January 2001, CDG began its formal evaluation of the Initial Three Cities Offer.
On February 1, 2001, the Buyers delivered a draft merger agreement to
the Company and its counsel and the Independent Committee and its counsel. The
draft merger agreement included the same material terms as the final merger
agreement summarized under "THE MERGER AGREEMENT" except for the following
provisions which were not included in the final merger agreement: (a)
representations and warranties of the Company relating to: the damage,
destruction or other loss of assets or properties, employee benefit plans and
labor matters, debt
-21-
instruments, intellectual property, title to properties, agreements with
regulatory agencies, suppliers and customers, and insurance, (b) closing
conditions relating to claims pending other than as set forth in the Company's
filings with the Securities and Exchange Commission (the "SEC") that had
resulted or could reasonably be expected to result in a material adverse effect,
and the consent of Leslie Fay's lenders and option holders necessary to
consummate the merger, and (c) a termination fee payable to the Buyers if the
Merger were not consummated under certain circumstances.
On March 13, 2001, Mr. Wright sent a letter on behalf of the Buyers to
Mr. Pomerantz, expressing concern over the amount of time it had taken the
Company to evaluate and respond to the Initial Three Cities Offer. Mr. Wright's
letter reiterated that the Buyers had expressly reserved the right to withdraw
or modify the Initial Three Cities Offer at any time.
At a meeting of the Independent Committee on March 14, 2001, CDG
presented an oral preliminary opinion (the "Preliminary Opinion") to the
Independent Committee regarding the fairness of the Initial Three Cities Offer.
The Preliminary Opinion stated the Initial Three Cities Offer was not fair, from
a financial point of view, to the Company's stockholders. The Preliminary
Opinion followed the same methodologies as the Final Opinion. These
methodologies included comparable company trading and transaction multiples and
a discounted cash flow analysis, as described in full under "Analysis Performed
by CDG in Arriving at its Opinion" on pages 29 and 30. These methodologies were
based on the exact same groupings of companies, transactions, and forecasts as
used in the Final Opinion, reflecting the fact that the Preliminary Opinion was
delivered only 9 days prior to the Final Opinion. Similarly, the fair value
ranges determined by CDG through these methodologies were the same as those
provided in the Final Opinion. The fair value ranges of the key methodologies
were as follows: LTM Comparable Company Trading of $4.40-$5.35, Precedent
Transaction of $4.40-$6.30, and Discounted Cash Flow (downside) of $5.10-$6.90.
Between the delivery of the Preliminary Opinion and Final Opinion, CDG made no
adjustments to the valuation multiples used in its analysis, and concluded in
both Opinions that the fair value range of Leslie Fay's equity was $4.80-$5.50.
The Initial Three Cities Offer fell below the fair value ranges as determined by
CDG through these valuation methodologies.
On March 15, 2001, Mr. Wright and Jeanette Welsh, representatives of
the Buyers, met with the Independent Committee at the offices of the Company.
During the course of the meeting, the Independent Committee advised Mr. Wright
and Ms. Welsh of the Preliminary Opinion and stated that, in light of the
Preliminary Opinion, the Independent Committee believed that the Initial Three
Cities Offer was inadequate. The parties continued to negotiate over the price
and at the end of the meeting, Mr. Wright and Ms. Welsh offered, on behalf of
the Buyers, to purchase all shares of Common Stock not owned by the Buyers for
$4.00 in cash per share (the "Second Three Cities Offer"). No agreement was
reached at the meeting with regard to the Second Three Cities Offer, but Mr.
Wright requested, and the Company agreed to facilitate, a meeting between
representatives of the Buyers and CDG.
On March 16, 2001, Mr. Wright and Ms. Welsh met with representatives of
CDG at CDG's offices in New York. During the course of the meeting, the parties
discussed the valuation methodologies used by CDG in arriving at its Preliminary
Opinion. Later the same day, Mr. Wright called Mr. Sind to discuss Mr. Wright's
and Ms. Welsh's meeting with CDG and the valuation methodologies that CDG had
used in its assessment of the Second Three Cities Offer. Later that day, Mr.
Sind called Mr. Wright and informed him that the Independent Committee had
determined that the Second Three Cities Offer was inadequate. The Independent
Committee determined that the Second Three Cities Offer was inadequate because
it fell below the share valuation range determined by CDG, as described more
fully herein.
-22-
On March 19, 2001, Mr. Wright and Ms. Welsh met with the Independent
Committee at the offices of the Company. During the meeting, the Independent
Committee related to Mr. Wright and Ms. Welsh the Independent Committee's belief
that the Second Three Cities Offer was inadequate. The parties continued to
negotiate over the price. As result of such negotiation, Mr. Wright and Ms.
Welsh offered, on behalf of the Buyers, to purchase all shares of Common Stock
not owned by the Buyers for $5.00 in cash per share (the "Third Three Cities
Offer"). No final agreement was reached at the meeting with regard to the Third
Three Cities Offer.
During the period between March 19, 2001 and March 23, 2001 the
Independent Committee and its representatives evaluated the Third Three Cities
Offer and the parties and their respective legal advisors negotiated the terms
of a definitive merger agreement. During this time, the parties discussed
various issues related to the proposed transaction, including conditions to
consummation of the merger and the terms, conditions and amount of any
termination fee that might be paid upon termination of the merger agreement.
Specifically, the Buyers agreed to eliminate certain representations and
warranties, to withdraw their request for a termination fee and to eliminate the
following conditions to their obligation to consummate the Merger: that there be
no claims pending other than as set forth in the Company's public filings with
the SEC that had resulted or could reasonably be expected to result in a
material adverse effect; the Company's receipt of any consents from option
holders and making of any amendments to its stock option plan necessary to
effect the changes to the stock option plan and stock options contemplated by
the Original Merger Agreement (as defined below); and the Company's receipt of
its lenders' consent to the Merger. The Company agreed to permit the Buyers to
enable Constable, the owner of approximately 8.7% of the Common Stock, to
participate in the transaction on the same basis as the other Continuing
Stockholders within a limited period of time following the date of the Original
Merger Agreement. While the Buyers believed that, as a fund with similar
investment objectives to their own, Constable might be interested in
participating, the Buyers did not want to approach Constable unless and until an
agreement with the Company had been reached. Constable was not and is not an
affiliate of the Buyers.
On March 23, 2001 CDG rendered its opinion to the Independent Committee
(the "Final Opinion") that the Third Three Cities Offer was fair, from a
financial point of view, to the Company's stockholders (other than the Buyers).
On that same day, the Independent Committee, based on the Final Opinion,
resolved to accept the Third Three Cities Offer and recommend that the Board
approve the merger agreement (the "Original Merger Agreement").
On March 26, 2001 the Board met and approved the Original Merger
Agreement on the basis of the Independent Committee's recommendation. At the
Board meeting, Vishal Mahadevia and Thomas G. Weld, who are directors of the
Company and a principal and managing director, respectively, of Three Cities
Research, Inc., which serves as an advisor to and is an affiliate of the Buyers,
abstained from voting. The Company, Parent, Merger Sub, and the Buyers executed
the Original Merger Agreement on such day.
Following the public announcement of the Original Merger Agreement, the
Buyers and their legal advisors had additional discussions regarding the most
efficient tax structure of the Company following consummation of the Merger.
Based on these discussions, in early April 2001, representatives of the Buyers
contacted representatives of the Company to request that the Original Merger
Agreement be amended (i) to reflect the fact that Parent was to be converted
from a Delaware corporation to a Delaware limited liability company and that
Continuing Stockholders would therefore receive an equal number of limited
liability company interests instead of common stock in exchange for the Common
Stock they were to contribute to the Parent and (ii) to provide that the shares
of Common Stock held by Parent would remain outstanding instead of being
canceled in the Merger. In addition, representatives of the Buyers requested
that
-23-
the Company and the Independent Committee consent to an extension of the period
within which Constable could agree to participate on the same terms as the other
Continuing Stockholders. The Independent Committee and the Board agreed to these
amendments and the participation by Constable because they did not affect the
terms (financial or otherwise) of the Merger to the Company's unaffiliated
stockholders. All of the representations and warranties of the Company contained
in the Original Merger Agreement were qualified by the Company's public filings
as of the date it was signed. Since the Amended Merger Agreement (as defined
below) was eventually dated as of April 27, 2001, all of the representations and
warranties of the Company contained in it were in effect updated and further
qualified by the additional disclosures in the Company's Annual Report on Form
10-K for the year ended December 30, 2000, which was filed with the SEC on March
30, 2001.
On April 26, 2001, the Independent Committee approved the amendments to
the Original Merger Agreement (as amended, the "Amended Merger Agreement") and
to the participation of Constable in the transaction. At the meeting, the
Independent Committee resolved to recommend that the Board approve the Amended
Merger Agreement. The Board met on April 27, 2001 and, based on the
recommendation of the Independent Committee, approved the Amended Merger
Agreement.
Immediately after the Board meeting on April 27, 2001, the Company,
Parent, Merger Sub and the Buyers executed the Amended Merger Agreement.
On May 1, 2001, the Parent and Constable entered into a Subscription
and Contribution Agreement, pursuant to which Constable agreed to contribute all
442,408 shares of Common Stock it owned to Parent in exchange for an equal
number of limited liability company interests of Parent.
RECOMMENDATION OF THE INDEPENDENT COMMITTEE AND THE BOARD OF DIRECTORS; FAIRNESS
OF THE MERGER
At a meeting held on March 26, 2001, the Board, based upon the
recommendation of the Independent Committee made on March 23, 2001, concluded
that the terms of the Merger Agreement were advisable, fair to, and in the best
interests of the Company and all of its stockholders, and thereafter approved
and adopted and declared advisable the Merger Agreement and the transactions
contemplated thereby, and recommended to all the stockholders of the Company
that such stockholders vote to approve and adopt the same at the Special
Meeting. At the Board meeting, Vishal Mahadevia and Thomas Weld, who are
directors of the Company, abstained from voting due to the fact that they are
also affiliates of the Three Cities Funds. The other four directors of Leslie
Fay, two of whom were independent directors and two of whom were executive
officers of Leslie Fay, voted in favor of the proposal.
Leslie Fay's board of directors did not consider other alternatives to
the merger because in its January 12, 2001 letter to Leslie Fay, Three Cities
stated that it was not interested in selling its Leslie Fay stock; consequently,
strategic alternatives involving third parties or the liquidation of Leslie Fay
were not feasible.
Bernard Olsoff, a member of the Independent Committee, has been engaged
in the apparel industry since 1955. Robert L. Sind, the other member of the
Independent Committee, has been engaged in providing crisis management to
troubled companies since 1984. Between them they have extensive knowledge
relating to the liquidation of entities in the apparel industry. As a result of
their knowledge and experience in this area, they recognized that if Leslie Fay
were to be liquidated, its inventory and receivables, which constituted
approximately 77% of its assets
-24-
at September 30, 2000 (the latest available balance sheet in January 2001 when
the Independent Committee began its deliberations) would be collectible only at
substantial discounts from book value, its good will, which constituted
approximately 7.5% of its assets at September 30, 2000, would have no value and
its property, plant and equipment, which constituted approximately 5% of its
assets at September 30, 2000, would be collectible at only a small fraction of
its book value. They also recognized that in addition to the liabilities on
Leslie Fay's balance sheet, which would have to be paid in full upon
liquidation, additional expenses peculiar to a liquidation would be incurred.
These expenses would include, among others, severance payments to employees,
payments to landlords for the early termination of leases, other payments
arising out of early termination of other contracts and certain other contingent
liabilities. Although the Independent Committee never quantified these items,
based on their experience in this area, the members of the Independent Committee
believed it was clear that the realizable amount in the event of a liquidation
of Leslie Fay would be substantially below $5.00 per share, even after giving
effect to any value attributable to trademarks and other off-balance sheet
items. In addition, amounts payable on liquidation would be distributed after
completion of a liquidation which the Independent Committee believed would be
substantially after the date when stockholders of Leslie Fay could expect to
receive the Merger Consideration. Believing all of the above, the Independent
Committee saw no reason to make a detailed quantified liquidation analysis or
ask CDG to analyze Leslie Fay's liquidation value.
Except to the extent a recommendation is made in Mr. Pomerantz's
capacity as a director, no executive officer of the Company, nor any affiliate
of the Buyers has made any recommendation with respect to adoption of the Merger
Agreement or any other transaction contemplated by the Merger Agreement. The
Buyers and the other Continuing Stockholders, who together own 73.1% of the
outstanding Common Stock of the Company, have advised the Company that they
intend to vote their shares of Common Stock in favor of adoption of the Merger
Agreement.
In determining to recommend to all of the stockholders of the Company
that they approve and adopt the Merger Agreement and the transactions
contemplated thereby, and in determining that the terms of the Merger Agreement
were advisable, fair to, and in the best interests of, the Company and all of
its unaffiliated stockholders, the Board and the Independent Committee
considered certain factors, including but not limited to, the following:
(i) the financial condition, assets, results of operations, business
and prospects of the Company, and the risks inherent in achieving those
prospects; in particular the fact that the women's apparel industry has
experienced significant stresses during the last several years. In part, this is
due to consolidation in the department store business reducing the number of
available customers; in part, it is a result of department stores requiring
greater discounts and allowances from apparel manufacturers. As a result, Leslie
Fay, as well as other apparel manufacturers, has experienced a decline in
earnings and a more competitive business environment.
(ii) the terms and conditions of the Merger Agreement, including the
amount and form of consideration payable to the stockholders of the Company and
the Requisite Company Vote contained in the Company's Amended and Restated
Certificate of Incorporation which requires that the Merger Agreement be
approved and adopted by the affirmative vote of at least 66 2/3% of the
outstanding Common Stock and at least 50% of the Common Stock voting on the
matter that are not owned directly or indirectly by an Interested Stockholder or
any of its Affiliates (as such terms are defined in the Company's Amended and
Restated Certificate of Incorporation), represented in person or by proxy at the
Special Meeting;
-25-
(iii) the negotiations which took place between the Buyers and the
Independent Committee with respect to the merger consideration of $5.00 per
share (the "Merger Consideration") and the belief by the members of the
Independent Committee that $5.00 per share was the highest price that the Buyers
would agree to pay;
(iv) that the Merger Consideration of $5.00 per share to be received by
stockholders in the Merger Agreement represents a premium of approximately 78%
over the $2.81 per share closing price on January 12, 2001, the last full
trading day before the public announcement of the proposal by the Buyers to
acquire all of the shares of Common Stock of the Company not owned by them; and
that during the preceding six months, the Merger Consideration represented a
premium ranging from 8%, when the Common Stock traded at $4.63 on July 12, 2000
to 82% when the Common Stock traded at $2.75 on January 3, 2001.
(v) the trading prices and volumes at which the Common Stock traded in
the previous 4 years, which include the trading prices and volumes at the time
the Buyers became stockholders of the Company by purchasing the Common Stock for
prices ranging from $6.95 to $7.00 per share; in particular the fact that the
closing price of the Common Stock had not reached $5.00 per share since April 7,
2000.
(vi) the Opinion of CDG as to the fairness, from a financial point of
view, of the Merger Consideration to be received by stockholders and the
analysis presented to the Independent Committee, as of March 23, 2001;
(vii) the availability of appraisal rights under the DGCL to holders of
Common Stock who dissent from the Merger; and
(viii) the ability of the Merger to provide the Company's stockholders
with a level of liquidity currently unavailable in the market place; in
particular the fact that (a) between October 10, 2000 and January 13, 2001 when
Leslie Fay announced that it had received an offer from Three Cities, the
trading volume of the Leslie Fay Common Stock exceeded 20,000 shares on only
four days (one of which was the last trading day of the year) and the average
trading volume during such period was approximately 5,300 shares per day and (b)
between January 19, 2001 and March 23, 2001, the day immediately preceding the
announcement of the signing of the Original Merger Agreement, the trading volume
of the Leslie Fay Common Stock exceeded
20,000 shares on only two days and the average trading volume during such period
was approximately 3,800 shares per day. Since the trading volume in Leslie Fay's
Common Stock has generally not been extensive, it is reasonable to assume that
any effort by a stockholder to dispose of a significant number of shares would
adversely affect the market price.
Each of these factors favored the conclusion that the Merger was fair
to unaffiliated stockholders.
In light of the number and variety of factors the Board and the
Independent Committee considered in connection with their evaluation of the
Merger, neither the Board nor the Independent Committee found it practicable to
assign relative weights to the foregoing factors, and, accordingly, neither the
Board nor the Independent Committee did so. Rather, the Independent Committee
and the Board based their recommendations on the totality of the information
presented to and considered by them, except that particular consideration was
placed on: (i) the opinion of CDG that the Merger Consideration was fair to the
holders of Common Stock (other than the Buyers), from a financial point of view;
(ii) the negotiation that took place between the Independent Committee, on the
one hand, and the Buyers, on the other hand, that resulted in the Merger
Consideration of $5.00 per share; and (iii) the fact that the Merger must be
-26-
approved by the Requisite Company Vote in order for the Merger to be
consummated. Based on its knowledge of the apparel industry and of the effect of
the liquidation of apparel manufacturers on the collectibility and realization
of their assets, the Independent Committee believed that the liquidation value
of the Company would be less than the going concern value thereof.
The foregoing discussion of the factors considered by the Independent
Committee and the Board is not meant to be exhaustive, but includes all material
factors considered by the Independent Committee and the Board to support their
respective decisions to recommend the Merger.
The Board believes that the Merger is procedurally fair because: (i)
the Board and the Independent Committee, based, in part, on advice received from
the Independent Committee's respective financial advisors, voted in favor of the
Merger Agreement (except that directors Vishal Mahadevia and Thomas Weld
abstained from voting due to the fact that they are also affiliated with the
Buyers); (ii) the Independent Committee retained CDG to advise it in evaluating
the fairness of the terms of the Merger (including without limitation, the
Merger Consideration); (iii) CDG delivered its opinion to the Independent
Committee that the Merger Consideration was fair, from a financial point of
view, to the stockholders, other than the Buyers; and (iv) the Merger Agreement
contains a condition to the consummation of the Merger, namely, the adoption of
the Merger Agreement by the Requisite Company Vote.
The Board, at a meeting held on March 26, 2001, considered the
recommendation of the Independent Committee, as well as the factors considered
by the Independent Committee, and determined that the proposed Merger is
advisable, fair to, and in the best interests of, the Company and all of its
stockholders, approved and adopted the Merger Agreement, and recommended that
such stockholders vote to approve and adopt the Merger Agreement and the
transactions contemplated thereby (Vishal Mahadevia and Thomas Weld, who are
directors of the Company, abstained from voting due to the fact that they are
also affiliated with the Buyers).
OPINION OF THE FINANCIAL ADVISOR
The Independent Committee retained CDG to act as its financial advisor
with respect to the Merger Agreement and related matters pursuant to an
Engagement Letter dated February 20, 2001. CDG is a financial advisory firm
providing services focused on restructuring, mergers and acquisitions and
valuation services. CDG possesses experience in a wide range of industries and
in particular the apparel industry. CDG's recent experience in the apparel
industry includes the acquisition of Anne Klein by Kasper A.S.L., Ltd. In
deciding to retain CDG, the following factors were considered by the Independent
Committee: (i) the independence of the financial advisor and whether there
existed an affiliation or recent business relationship between the financial
advisor and Leslie Fay; (ii) the financial advisor's knowledge of, and expertise
with respect to, the apparel industry; and (iii) the compensation of the
financial advisor. In light of the above, the Independent Committee decided to
retain CDG because it concluded that CDG was independent, highly qualified, had
extensive experience in the apparel industry and proposed to charge a reasonable
fee. In reaching the conclusion that CDG was independent, the Independent
Committee considered the fact that Mr. Sind, a member of the Independent
Committee, in his position as the CEO of Recovery Management Corporation, had
been retained by CDG to provide consulting services to CDG or its clients
beginning December 1, 2000. It was further disclosed that Mr. Sind had recused
himself of participating in any of the services that may be performed by CDG for
the Independent Committee of the Board of Directors of Leslie Fay, and he had no
beneficial interest, directly or indirectly, in any fees that may be received by
CDG for the performance of its services. It was also disclosed that CDG provided
consulting services to
-27-
Leslie Fay between March 1999 and May 1999 in exploring alternatives with third
parties and received $125,000 as compensation therefor.
At a meeting of the Independent Committee on March 23, 2001, CDG
delivered its final opinion that, based upon and subject to various limitations,
qualifications and assumptions set forth therein, the Merger Consideration to be
received by the stockholders in the Merger was fair, from a financial point of
view, to the Company's stockholders other than the Buyers.
The full text of the written opinion of CDG, dated as of March 23,
2001, which sets forth the limitations, qualifications and assumptions made,
matters considered and limits of the review undertaken in connection with the
opinion, is attached hereto as Annex B, and is incorporated herein by reference.
Stockholders of the Company are urged to read the opinion in its entirety. The
Company did not request, and the opinion does not address, the relative merits
of the Merger or any consideration that might be paid for the Common Stock other
than the Merger Consideration, nor does the opinion address any other
transactions or business strategies considered by the Board or the Independent
Committee as alternatives to the Merger or the decision of the Board to proceed
with the Merger Agreement and the Merger. The Independent Committee did not
place any limitations upon CDG with respect to the procedures followed or
factors considered in rendering its opinion. CDG's written opinion is addressed
to the Independent Committee, is directed only to the Merger Consideration to be
paid to the stockholders pursuant to the Merger Agreement and does not
constitute a recommendation to any stockholder of the Company as to how such
stockholder should vote at the Special Meeting. The summary of the opinion of
CDG set forth in this Proxy Statement is qualified in its entirety by reference
to the full text of such opinion, which is attached hereto as Annex B.
In arriving at its opinion, CDG, among other things: (1) reviewed the
terms of a final but unexecuted version of the Merger Agreement dated as of
March 23, 2001; (2) reviewed certain documents to which the Company is a party
and which were made available to CDG by the Company, including (i) a schedule of
aging of accounts receivable; (ii) a schedule of aging of accounts payable;
(iii) loan documents; (iv) customer lists; (v) a listing of key suppliers; (vi)
a schedule of outstanding options; and (vii) the management organization
structure; (3) held discussions with members of the management of the Company
regarding the Company, its operations, strategy, financial position, capital
resources and liquidity and prospects; (4) reviewed available information
concerning the Company which CDG deemed relevant, including without limitation,
those financial statements of the Company set forth in the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 2000 and the Company's
Annual Report on Form 10-K for the fiscal year ended January 1, 2000 which the
Company's management identified as being the most current financial statements
available; (5) reviewed a draft dated March 22, 2001, of the Company's Annual
Report on Form 10-K for the fiscal year ended December 30, 2000; (6) reviewed
financial projections for the Company for fiscal years 2001 to 2005, delivered
or communicated by the management of the Company and conducted interviews with
the management of the Company regarding, among other things, the material
assumptions that underlie such projections; (7) reviewed certain other operating
and financial information concerning the business and operations of the Company;
(8) reviewed certain publicly available information concerning certain other
companies that CDG believed to be generally comparable to the Company; (9)
reviewed certain publicly available information relating to the financial terms
of certain transactions; (10) reviewed other information that CDG considered
relevant to its analysis; and (11) reviewed the historical market prices and
trading volume of the Company's publicly traded securities.
In preparing its opinion, CDG relied on the accuracy and completeness
of all information that was publicly available or supplied or otherwise
communicated to CDG by or on behalf of the
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Company, and CDG did not assume any responsibility for independently verifying
such information. With respect to the financial forecasts examined by CDG, CDG
assumed that they were reasonably prepared on bases reflecting the best
currently available estimates and good faith judgments of the management of the
Company as to the future performance of the Company. CDG did not make any
independent evaluation or appraisal of the assets or liabilities (contingent or
otherwise) of the Company, nor was CDG furnished with any such evaluations or
appraisals. CDG's opinion is based upon general economic, monetary, regulatory
and market conditions existing on the date thereof.
CDG also assumed that there had been no material changes to the assets
and financial condition, business or prospects of the Company since the date of
the most recent financial information provided to it.
Since the April 27 amendment to the Merger Agreement did not modify the
Merger Consideration, the representations of the parties or the conditions to
the closing in a manner adverse to the Company and the unaffiliated
stockholders, CDG was not asked to present a revised fairness opinion as to the
effects of this amendment on the unaffiliated stockholders. Accordingly, the CDG
opinion was provided solely in connection with the Original Merger Agreement.
ANALYSIS PERFORMED BY CDG IN ARRIVING AT ITS OPINION
In arriving at its opinion, CDG reviewed the Company's operations and
conducted a valuation analysis. In reviewing the Company, CDG met with its
management, examined the Company's lines of business and concentration of
customers, analyzed historic and projected operating trends, and reviewed the
Company's past projected performance versus actual results. Additionally, CDG
reviewed the Company's stock performance over the past three years and recent
news regarding the Company.
In terms of a valuation analysis, CDG used three main valuation
methodologies: comparable company trading multiples, comparable transaction
multiples, and a discounted cash flow analysis.
COMPARABLE COMPANY TRADING MULTIPLE ANALYSIS: For the purposes of its
analysis, CDG selected twelve companies which it deemed to be a representative
grouping of the industry in which the Company operates. CDG chose these
companies after a thorough analysis of Leslie Fay, its lines of business, and
the markets it serves. The companies selected were considered a representative
grouping of the companies comparably similar to Leslie Fay and operating in
Leslie Fay's industry. The companies analyzed were: Jones Apparel Group Inc.,
Polo Ralph Lauren Corp., Liz Claiborne, Inc., Tommy Hilfiger Corp., Nautica,
Kellwood Company, Phillips Van Heusen Corp., McNaughton Apparel Group Inc.,
Oxford Industries Inc., Hartmarx Corp., Bernard Chaus, and Kasper A.S.L. Ltd.
These companies represented a diverse group in terms of size, operating
performance, brand recognition and capital structure. For the purposes of its
analysis, CDG selected three sub-groupings of these companies which provided the
best comparables for the Company. The groupings used were: (i) non-mega brands,
(ii) less than $1 billion in sales, and (iii) comparable profitability. Non-mega
brands consisted of Nautica, Kellwood, Philips Van Heusen, McNaughton, Oxford
Industries and Hartmarx. Less than $ 1 billion in sales consisted of Nautica,
McNaughton, Oxford Industries, and Hartmarx. Comparable profitability consisted
of Kellwood, Philips Van Heusen, Oxford Industries and Hartmarx. By examining
the current LTM (latest twelve months) EBITDA valuation multiples of the three
groupings, the average valuation
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multiple of the groupings, and the overall range of the valuation multiples of
the comparable companies, CDG selected an LTM EBITDA multiple of 5.5x. Based on
this multiple, CDG determined that the implied equity price per share of the
Company was $4.88. Furthermore, based on a trading multiple range relevant for
the Company, CDG believed the equity value per share to be $4.40-$5.35, based on
an LTM EBITDA valuation multiple range of 5.0x-6.0x. CDG noted that the Merger
Consideration fell within this valuation range.
COMPARABLE TRANSACTION MULTIPLE ANALYSIS: For the purposes of its
transaction analysis, CDG analyzed 19 transactions within the Company's industry
that occurred during the past four years. CDG selected the transactions from a
thorough review of transaction activity within Leslie Fay's industry, involving
companies similar to Leslie Fay in terms of business model and lines of
business, during the four year period. The 19 transactions analyzed were LVMH's
announced (pending) acquisition of Donna Karan, Holding di Partecipazioni
Industriali's acquisition of Joseph Abboud, Kasper A.S.L.'s acquisition of Anne
Klein, Tefron Ltd.'s acquisition of Alba-Waldensian, Inc.; Jones Apparel Group's
acquisition of Nine West Group, Liz Claiborne's acquisition of Segrets, Investor
Group's acquisition of St. John's Knits, Haggar Corp.'s acquisition of Jerell
Inc., Kellwood Co.'s acquisition of Fritzi of California Manufacturing Group;
Kellwood Co.'s acquisition of Koret Inc., Jones Apparel Group's acquisition of
Sun Apparel Inc., Oxford Industries' acquisition of Next Day Apparel, Tropical
Sportswear Intl. Corp.'s acquisition of Farah Inc., VF Corp.'s acquisition of
Bestform Group Inc., Pluma's acquisition of Frank L. Robinson Co., Warnaco
Group's acquisition of Designer Holdings, Brazos Inc.'s acquisition of CS Crable
Sportswear, Brazos Inc.'s acquisition of Premier Sports Group, and Brazos Inc.'s
acquisition of SolarCo. Based on its review of these transactions, CDG
identified several transactions that provided close comparables to the Company
in terms of products sold and distribution channels of the companies being
acquired. CDG determined that the two most comparable transactions to the
Company's proposed transaction with the Buyers were Haggar Corp.'s acquisition
of Jerell Inc. and Kellwood Company's acquisition of Koret Inc., each of which
occurred in 1998. By analyzing the 19 transactions, their range of valuations,
and through CDG's understanding of the apparel industry, an LTM EBITDA multiple
of 6.2x was selected. This multiple corresponded closely with the valuation
range provided by the Haggar Corp. and Kellwood acquisitions. Based on this
multiple, CDG determined that the implied equity price per share of the Company
was $5.54. Furthermore, based on a transaction multiple range of 5.0x-7.0x LTM
EBITDA, CDG believed the equity value per share to be $4.40-$6.30. CDG noted
that the Merger Consideration fell within this valuation range.
DISCOUNTED CASH FLOW ANALYSIS: As part of its due diligence request,
CDG asked management to provide five years of financial projections for the
Company. Using the previously selected comparable companies, CDG determined the
appropriate weighted average cost of capital (WACC) range for discounting the
cash flows. This range was determined to be 11.0% - 13.0%. Furthermore, based on
its review of the Company and its projections, understanding of the industry,
and the results of its comparable company analysis, CDG determined the
appropriate terminal EBITDA multiple range. This range was determined to be
3.0x-5.0x. Using management's projections, CDG then determined the equity value
per share of the Company's projections when applying the appropriate WACC and
terminal multiple ranges. Based on management's downside case projections, the
Company's equity value per share range was determined to be $5.10-$6.90. Due to
management's inability to meet previous forecasts, as examined by CDG, and
illustrated to the Independent Committee when it analyzed actual 1999-2000
results to previous management projections, this equity value per share range
was given less weight than other valuation methodologies when determining the
appropriate equity value range for the Company. As a result, CDG noted that the
Merger Consideration fell slightly below the bottom end of this valuation range.
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CERTAIN FINANCIAL PROJECTIONS
The Company does not as a matter of course make public forecasts or
projections as to future performance (including as to revenues, earnings, other
income statement items and cash flows) or financial position. However, in
January 2001, the Company's management prepared a business plan for the year
2001 for the Board's review. Although the information contained in said plan was
not provided to the Buyers, since two of the directors of the Company are
affiliates of the Buyers, the Buyers may be deemed to have had access to such
information. The projections set forth below are the same as included in the
materials presented to the Board. See "- Background of the Transaction." The
projections are included in this Proxy Statement solely because they were
provided to the Board, two of whose members are affiliates of the Buyer.
The projections were based upon numerous estimates and assumptions that
are inherently subject to significant uncertainties, are difficult to predict
and, in many cases, are influenced by factors beyond the Company's control. The
material assumptions used in preparing the projections are described in the
projections and related footnotes. Certain assumptions on which the projections
were based related to the achievement of strategic goals, objectives and targets
over the applicable period that were more favorable than recent historical
results. See "BUSINESS OF THE COMPANY." Accordingly, there can be no assurance
that the projected results will be realized or that actual results will not be
significantly higher or lower than those predicted. The Company's actual results
for the fiscal year ended December 30, 2000 did not meet the projections for
such year submitted to the Board by management in April 2000. See "SUMMARY-
Forward-Looking Information."
(In thousands)
------------------------------------------------------------
2001 2000 2000
(Projected) (Actual) (Projected)
------------------------------------------------------------
Net Sales............................................. $201,552 $212,714 $230,426
Gross Profit.......................................... 53,232 47,342 57,815
Operating Profit...................................... 9,390 4,000 15,310
Net Income............................................ 5,329 7,695(1) 7,882
-----------------
(1) $6,294 of such amount is attributable to the nonrecurring sale of a
trademark.
THE COMPANY DOES NOT AS A MATTER OF COURSE MAKE PUBLIC ANY PROJECTIONS
AS TO FUTURE PERFORMANCE OR EARNINGS, AND THE PROJECTIONS SET FORTH ABOVE ARE
INCLUDED IN THIS PROXY STATEMENT ONLY BECAUSE THE INFORMATION WAS MADE AVAILABLE
TO THE BUYERS BY THE COMPANY. THE COMPANY HAS INFORMED PARENT AND MERGER SUB
THAT THESE PROJECTIONS WERE NOT PREPARED WITH A VIEW TO PUBLIC DISCLOSURE OR
COMPLIANCE WITH THE PUBLISHED GUIDELINES OF THE SEC OR THE GUIDELINES
ESTABLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS REGARDING
PROJECTIONS AND FORECASTS. THE COMPANY HAS ALSO INFORMED PARENT AND MERGER SUB
THAT ITS INTERNAL FINANCIAL FORECASTS (UPON WHICH THE PROJECTIONS PROVIDED TO
PARENT AND MERGER SUB WERE BASED IN PART) ARE, IN GENERAL, PREPARED SOLELY FOR
INTERNAL USE AND CAPITAL BUDGETING AND OTHER MANAGEMENT DECISION-MAKING PURPOSES
AND ARE SUBJECTIVE IN MANY RESPECTS AND THUS SUSCEPTIBLE TO VARIOUS
INTERPRETATIONS AND PERIODIC REVISION BASED ON ACTUAL EXPERIENCE AND BUSINESS
DEVELOPMENTS. PROJECTED INFORMATION OF THIS TYPE IS BASED ON ESTIMATES AND
ASSUMPTIONS THAT ARE INHERENTLY SUBJECT TO SIGNIFICANT ECONOMIC AND COMPETITIVE
UNCERTAINTIES AND CONTINGENCIES, ALL OF WHICH ARE DIFFICULT TO PREDICT AND MANY
OF WHICH ARE BEYOND THE CONTROL OF THE COMPANY. MANY OF THE ASSUMPTIONS UPON
WHICH THE FOREGOING PROJECTIONS WERE BASED, NONE OF WHICH WERE APPROVED BY
PARENT OR MERGER SUB, ARE DEPENDENT UPON ECONOMIC FORECASTING (BOTH GENERAL AND
SPECIFIC TO THE COMPANY'S BUSINESS), WHICH IS INHERENTLY UNCERTAIN AND
SUBJECTIVE. INCLUSION OF THE FOREGOING PROJECTIONS SHOULD NOT BE REGARDED AS AN
INDICATION THAT THE PARENT, BUYERS, MERGER SUB, OR ANY OTHER PERSON WHO RECEIVED
SUCH INFORMATION CONSIDERS IT AN ACCURATE PREDICTION OF
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FUTURE EVENTS, AND NEITHER THE BUYERS NOR MERGER SUB HAS RELIED ON IT AS SUCH.
THE INCLUSION OF SUCH PROJECTIONS SHOULD NOT BE DEEMED AN INDICATION BY THE
COMPANY THAT IT WOULD FURNISH THE SAME PROJECTIONS TODAY.
NONE OF THE PARENT, BUYERS, MERGER SUB, THE COMPANY, THE FINANCIAL
ADVISOR TO THE INDEPENDENT COMMITTEE OR ANY OTHER PARTY INTENDS TO PUBLICLY
UPDATE OR OTHERWISE PUBLICLY REVISE THE PROJECTIONS SET FORTH ABOVE.
NONE OF THE INDEPENDENT ACCOUNTANTS FOR THE COMPANY, THE BUYERS, PARENT
OR MERGER SUB HAVE EXAMINED OR COMPILED THESE PROJECTIONS AND ACCORDINGLY DO NOT
EXPRESS AN OPINION OR ANY OTHER FORM OF ASSURANCE WITH RESPECT TO THEM.
----------------------
THE THREE CITIES AFFILIATES', MANAGEMENT STOCKHOLDERS' AND CONSTABLE'S PURPOSES
AND REASONS FOR THE MERGER AND THEIR POSITION AS TO THE FAIRNESS OF THE MERGER
THE THREE CITIES AFFILIATES' AND CONSTABLE'S PURPOSE AND REASONS FOR
THE MERGER. In the ordinary course of their business as investment funds and
managers of such funds, the Three Cities Affiliates and their representatives
continually evaluate investment opportunities for capital under their
management. The Three Cities Affiliates' decision to make an acquisition
proposal in January was based upon their determination that ownership of an
increased equity stake in the Company could provide an acceptable return on both
the capital that they had previously invested in the Company and the new capital
necessary to effect the Merger in relation to other investment opportunities
available to them. In part this determination was based on the Three Cities
Affiliates' belief that as a privately held entity, the Company would not be
subject to potential quarterly earnings pressures common to publicly traded
entities, and consequently would have greater flexibility to make decisions
based on long-term growth prospects than it does currently. There was no change
in general market conditions that led the Three Cities Affiliates to make their
acquisition proposal in January 2001. However, in determining to make their
proposal in January 2001, the Three Cities Affiliates took into account the fact
that the Company's stock price had gradually declined throughout 2000 from a
high of $7.00 per share in the first quarter of 2000 to a low of $2.75 per share
in the fourth quarter, thereby making an acquisition of shares relatively less
costly. Also, the size of the investment of new capital required was consistent
with the overall investment objectives of the funds that constitute the Three
Cities Affiliates. Constable, which is also an investment fund, had a similar
purpose and similar reasons for participating in the transaction.
THE MANAGEMENT STOCKHOLDERS' PURPOSE AND REASONS FOR THE MERGER. Upon
being offered the opportunity to participate as Continuing Stockholders in the
Merger, the Management Stockholders agreed to do so because they believed a
continuing equity participation in the Company would be a profitable investment
for them.
THE THREE CITIES AFFILIATES', MANAGEMENT STOCKHOLDERS' AND CONSTABLE'S
POSITION AS TO THE FAIRNESS OF THE MERGER. Based on the opinion of CDG, the
financial advisor to the Independent Committee, and the same factors considered
by the Independent Committee, each of the Three Cities Affiliates, the
Management Stockholders and Constable believes that the terms of the Merger,
including the Merger Consideration (as defined below) and the procedure for
approving the Merger, are fair to, and in the best interests of, the Company's
unaffiliated stockholders, and expressly adopts CDG's analysis as set forth
above under the heading "Analysis Performed by CDG in Arriving at its Opinion."
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BENEFITS AND DETRIMENTS OF THE MERGER TO THE THREE CITIES AFFILIATES, THE
MANAGEMENT STOCKHOLDERS AND CONSTABLE
BENEFITS OF THE MERGER TO THE THREE CITIES AFFILIATES, THE MANAGEMENT
STOCKHOLDERS AND CONSTABLE. Following the Merger, the Three Cities Affiliates,
the Management Stockholders and Constable will continue to have an ownership
interest in the Company and therefore will potentially benefit from any earnings
or growth of the Company following the Merger or any possible future
appreciation of the price of its securities. The Three Cities Affiliates and
Constable will also increase their ownership interest in the Company,
effectively buying up the stock of the Company currently held by the
unaffiliated stockholders of the Company. The ownership interest of the Three
Cities Affiliates will increase from approximately 55% to approximately 79% and
the ownership interest of Constable will increase from approximately 7% to
approximately 10%, while the ownership interest of the Management Stockholders
will not change. This, together with the fact that the Company will be a
privately-held entity after the Merger, will give the Three Cities Affiliates
greater control over the management and direction of the Company, and may make
the Company more profitable since it will be less subject to quarterly earnings
pressures common to publicly traded entities, thereby giving it greater
flexibility to make decisions based on long-term growth prospects than it does
currently. The Three Cities Affiliates, the Management Stockholders and
Constable do not believe the Merger will have any material tax effect on them,
other than as described below under the heading "Interests of Certain Persons in
the Merger and the Company--Proposed Future Transactions," or any material
effect on the book value of their interests in the Company (if an entity), other
then, in the case of the Three Cities Affiliates and Constable, as a result
solely of the proportionate increase in their respective ownership interests in
the Company, or their net worth (if an individual).
DETRIMENTS OF THE MERGER TO THE THREE CITIES AFFILIATES, THE MANAGEMENT
STOCKHOLDERS AND CONSTABLE. The Management Stockholders and Constable, by
agreeing to be Continuing Stockholders in the Company, are giving up the right
available to all other stockholders of the Company to receive for their shares
of Common Stock a cash premium in the Merger over the market price when the
Merger was announced. They will also bear the risk of any decrease in the value
of the securities of the Company they will hold after the Mergers and
Liquidation (as described below). The Three Cities Affiliates and Constable are
paying a substantial cash premium in the Merger over the market price when the
Merger was announced for their increased ownership stake in the Company. The
Three Cities Affiliates, like the Management Stockholders and Constable, will
also bear the risk of any decrease in the value of the securities of the Company
they will hold after the Mergers and Liquidation.
INTERESTS OF CERTAIN PERSONS IN THE MERGER AND THE COMPANY
In considering the recommendation of the Board, you should be aware
that directors and executive officers of the Company have certain relationships
or interests in the Merger and the Company, including those referred to below,
that are different from the interests of other stockholders and that may present
actual or potential conflicts of interest. The Board was aware of these
potential and actual conflicts of interest and considered them in evaluating the
proposed Merger.
STOCK OWNERSHIP. As of the Record Date the Buyers owned 3,269,966
shares of Common Stock, representing approximately 55.2% of the total
outstanding shares of Common Stock of the Company on that date. As of the Record
Date, Thomas Weld and Whitney Wagner, who are affiliates of the Buyers and
respectively, a director and a former director of the Company owned 8,000 shares
of Common Stock. As of the Record Date, John J. Pomerantz, Chairman of the
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Board of the Company, owned 390,798 shares of Common Stock representing
approximately 6.9% of the Common Stock on that date. As of the Record Date,
Warren T. Wishart, the Chief Financial Officer of the Company, owned 218,758
shares of Common Stock representing approximately 3.9% of the Common Stock on
that date. As of the Record Date; Robert L. Sind and Bernard Olsoff, directors
of the Company, each owned 6,000 shares of Common Stock.
STOCK OPTIONS. As of the date of the Merger Agreement, there were an
aggregate of 854,318 stock options outstanding under the Company's stock option
plans ("Company Stock Options"), of which 381,560 were held by directors and
executive officers of the Company. John Ward, President of the Company, held
331,560 of such Company Stock Options, and the balance were held by Robert Sind
(20,000 Company Stock Options) and Bernard Olsoff, Thomas Weld and Vishal
Mahadevia (10,000 Company Stock Options each), all of whom are non-employee
directors of the Company. All such options will at the Effective Time become
options for a like number of limited liability company interests of the Parent
and upon the Second Merger described under "Proposed Future Transactions" will
become comparable options to acquire a combination of shares of common stock and
preferred stock and principal amounts of subordinated debt of New Corp., as
further described under "Proposed Future Transactions." Thus, Robert Sind,
Bernard Olsoff, Thomas Weld and Vishal Mahadevia will ultimately have options
equivalent to those Company Stock Options they currently hold, to acquire a
combination of shares of common stock, preferred stock and principal amounts of
subordinated debt of New Corp.
DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. Under the terms of
the Merger Agreement, upon consummation of the Merger, the directors of the
Merger Sub immediately prior to the Effective Time, will be the directors of the
Surviving Corporation. The officers of the Company immediately prior to the
Effective Time will be the officers of the Surviving Corporation. The directors
of Merger Sub will be W. Robert Wright, J. William Uhrig and Jeanette M. Welsh.
EMPLOYMENT AGREEMENTS. There are no plans, proposals or negotiations
that relate to, or would result in, a change in the material terms of the
employment agreements of Leslie Fay's executive officers.
COMPENSATION OF DIRECTORS. Each director who is not a full-time
employee of or consultant to the Company receives an annual director's fee of
$12,500 and 2,000 shares of the Company's common stock. Each initial
non-employee director, upon becoming a director, received stock options to
purchase 20,000 shares of Common Stock, vesting one-third each year, and each
subsequent non-employee director, upon becoming a director, has received or will
receive stock options to purchase 10,000 shares of Common Stock, vesting
one-third each year.
In addition, the Chairmen of the Audit and Compensation Committees
receive an additional $2,500 per annum and members of such committees receive an
additional $1,000 per annum.
INDEMNIFICATION ARRANGEMENTS. For a discussion of certain requirements
in the Merger Agreement for the indemnification of directors and officers of the
Company and the maintenance of directors' and officers' insurance, see "THE
MERGER AGREEMENT -Indemnification and Insurance."
PRIOR TRANSACTIONS. On August 25, 1999, TCR Acquisition Sub Co., all of
whose stock was owned by the Buyers, was merged into the Company. In connection
with the merger, the holders of 2,111,966 shares of the Company's common stock
each received $7.00 in cash per
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share for their shares. Three Cities provided $7,683,762 in return for 1,111,966
shares of the Company while the remaining 1,000,000 shares were placed in the
Company's treasury.
PROPOSED FUTURE TRANSACTIONS. In order to facilitate the desired
capital structure of the Company following the Merger, it is the intention of
the Buyers that, following the Merger, there will be an additional merger (the
"Second Merger" and, together with the Merger, the "Mergers"). In the Second
Merger, LF New Corp., a Delaware corporation and a direct wholly owned
subsidiary of Parent ("New Corp."), which will hold approximately 27% of the
common stock of the Surviving Corporation after the Merger, will merge with and
into the Surviving Corporation, with New Corp. surviving. In the Second Merger,
the common stock of the Surviving Corporation held by Parent will be converted
into approximately $1 million of common stock, $2 million of preferred stock and
$27 million of subordinated debt of New Corp., and the common stock of New Corp.
held by Parent will be canceled. In the Second Merger, New Corp. will be renamed
"The Leslie Fay Company, Inc." Immediately subsequent to the Second Merger,
Parent will be liquidated (the "Liquidation") and the common stock, preferred
stock and subordinated debt of New Corp. held by Parent will be distributed to
the Continuing Stockholders pro rata according to their respective ownership
interests in Parent. As a result of the Mergers and the Liquidation, the
Continuing Stockholders will hold a combination of common stock, preferred stock
and subordinated debt of New Corp. The Buyers view the Mergers and the
Liquidation as the most advantageous method of achieving the desired post
transaction ownership structure of the Company from both a corporate and a tax
perspective. The Mergers and the Liquidation will result in direct ownership of
New Corp. by the Continuing Stockholders and will result in sale or exchange
treatment with respect to the issuance of subordinated debt to the Continuing
Stockholders in connection with the Second Merger. The Buyers are exploring a
potential refinancing after the Liquidation of the subordinated debt of New
Corp. (referred to above) to be issued in the Second Merger. The Buyers have had
discussions with potential financing sources on the subject of refinancing a
portion of the subordinated debt of New Corp., but no understandings or
agreements have been reached.
EFFECTS OF THE MERGER
CERTIFICATE OF INCORPORATION AND BYLAWS OF THE SURVIVING CORPORATION.
Pursuant to the Merger Agreement, the certificate of incorporation and bylaws of
Merger Sub in effect immediately prior to the Effective Time will be the
certificate of incorporation and bylaws of the Surviving Corporation. See "THE
MERGER AGREEMENT - Directors and Officers; Certificate of Incorporation and
Bylaws Following the Merger."
MARKET FOR THE SHARES. The Company's shares are currently listed and
traded on the Nasdaq SmallCap Market under the symbol "LFAY." Upon consummation
of the Merger, the Company will no longer meet the criteria for continued
listing on the Nasdaq SmallCap Market.
MARGIN REGULATIONS. The Company's shares are currently "margin
securities" under the rules of the Federal Reserve Board. This has the effect,
among other things, of allowing brokers to extend credit on the shares as
collateral. Following consummation of the Merger, the shares will no longer
qualify as margin securities.
REGISTRATION UNDER THE EXCHANGE ACT. The Company's shares are currently
registered under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), which requires, among other things, that the Company furnish certain
information to its stockholders and to the SEC and comply with the SEC's proxy
rules in connection with meetings of the Company's stockholders. Upon
consummation of the Merger, the Company intends to file with the SEC a
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certification to the effect that there are fewer than 500 holders of record and
therefore would cease to be registered under the Exchange Act.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a general summary of the U.S. federal
income tax consequences of the Merger, based on current tax law (which is
subject to change retroactively as well as prospectively). This summary does not
purport to cover all aspects of federal income taxation that may be relevant to
a stockholder. This summary does not discuss any aspect of state, local, foreign
or other tax laws. In addition, insurance companies, tax-exempt organizations,
financial institutions, foreign persons, broker dealers, stockholders who have
acquired shares of Common Stock upon the exercise of an option or otherwise as
compensation and persons who are holding their shares as part of a hedge,
hedging transaction or straddle and dissenting stockholders may be subject to
special rules not discussed below. This summary assumes that the shares of
Common Stock are held as a "capital asset" within the meaning of section 1221 of
the Internal Revenue Code of 1986, as amended (the "Code").
The Merger will be a taxable transaction for federal income tax
purposes and may also be taxable under applicable state, local and other tax
laws. Gain or loss recognized by a stockholder as a result of the Merger will be
in an amount equal to the difference between (i) the cash received pursuant to
the Merger and (ii) the stockholder's adjusted tax basis in the shares exchanged
therefor. Such gain or loss will be a capital gain or loss, and a long-term
capital gain or loss if the stockholder's holding period at the Effective Time
of the Merger is more than one year. If the holding period at the Effective Time
of the Merger is one year or less, such capital gain or loss will be short-term
capital gain or loss.
THE TAX CONSEQUENCES OF THE MERGER TO ANY PARTICULAR STOCKHOLDER MAY
DIFFER DEPENDING UPON THAT STOCKHOLDER'S OWN CIRCUMSTANCES AND TAX POSITION.
FURTHERMORE, THIS SUMMARY DOES NOT DISCUSS ANY ASPECTS OF STATE, LOCAL, FOREIGN
OR OTHER TAX LAWS. EACH STOCKHOLDER IS URGED TO CONSULT WITH SUCH STOCKHOLDER'S
OWN TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO SUCH STOCKHOLDER OF THE
MERGER.
ACCOUNTING TREATMENT
For accounting and financial reporting purposes, the Merger will be
accounted for as a purchase.
FINANCING OF THE MERGER
Parent will receive as capital contributions the necessary funds to
contribute to Merger Sub to effectuate payment of the Merger Consideration (as
defined below) from the existing capital resources of the Three Cities
Affiliates and the available cash on hand of Constable, and from the Three
Cities Affiliates' previously existing firm funding commitments. The sources of
the Three Cities Affiliates' funding commitments are limited partnership
agreements, pursuant to which the limited partners are obligated to fund
investments within ten (10) days of receiving a capital call. The Three Cities
Affiliates have aggregate funding commitments of in excess of $240 million under
their existing limited partnership agreements, from which they have previously
invested an aggregate of approximately $190 million on a timely basis. The
Merger is not conditioned on any financing arrangements.
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REGULATORY APPROVALS
The Company does not believe that any material federal or state
regulatory approvals, filings or notices are required by the Company in
connection with the Merger.
RISK THAT THE MERGER WILL NOT BE CONSUMMATED
Consummation of the Merger is subject to certain conditions, including
stockholder adoption of the Merger Agreement. See "THE MERGER AGREEMENT -
Conditions." Even if the requisite approval by stockholders is obtained, there
can be no assurance that the Merger will be consummated.
RIGHTS OF DISSENTING STOCKHOLDERS
Record holders of the Common Stock of the Company (the "Shares") are
entitled to appraisal rights under Section 262 of the DGCL in connection with
the Merger. The following discussion is not a complete statement of the law
pertaining to appraisal rights under the DGCL and is qualified in its entirety
by reference to the full text of Section 262 which is reprinted in its entirety
as Annex C to this Proxy Statement. Except as set forth herein and in Annex C,
holders of Shares will not be entitled to appraisal rights in connection with
the Merger.
Under the DGCL, record holders of Shares who follow the procedures set
forth in Section 262 and who have not voted in favor of the Merger (including
record holders who abstain from voting) will be entitled to have their Shares
appraised by the Delaware Court of Chancery and to receive payment of the "fair
value" of such shares, EXCLUSIVE OF ANY ELEMENT OF VALUE ARISING FROM THE
ACCOMPLISHMENT OR EXPECTATION OF THE MERGER, together with a fair rate of
interest, as determined by such court.
Under Section 262, where a merger agreement is to be submitted for
adoption at a meeting of stockholders, as in the case of the Special Meeting,
not less than 20 days prior to such meeting, the Company must notify each of the
holders of Shares at the close of business on the record date for such meeting
that such appraisal rights are available and include in each such notice a copy
of Section 262. This Proxy Statement constitutes such notice for purposes of the
Special Meeting. Any stockholder of record who wishes to exercise appraisal
rights should review the following discussion and Annex C carefully because
failure to timely and properly to comply with the procedures specified in
Section 262 will result in the loss of appraisal rights under the DGCL.
A holder of Shares wishing to exercise appraisal rights must deliver to
the Company, before the vote on the approval and adoption of the Merger
Agreement at the Special Meeting, a written demand for appraisal of such
holder's Shares. A holder of Shares will not satisfy the notice requirement
under Section 262, if the holder merely votes against the merger. In addition, a
holder of Shares wishing to exercise appraisal rights must hold of record such
Shares on the date the written demand for appraisal is made and must continue to
hold such Shares through the Effective Time.
Only a holder of record of Shares is entitled to assert appraisal
rights for the Shares registered in that holder's name. A demand for appraisal
should reasonably inform the Company of the holder's identity and that the
holder intends to demand an appraisal with respect to such holder's Shares.
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Within 10 days after the Effective Time, the Company, as the Surviving
Corporation, must send a notice as to the effectiveness of the Merger to each
person who has satisfied the appropriate provisions of Section 262 and who has
not voted in favor of the Merger as of the Effective Time. Within 120 days after
the Effective Time, but not thereafter, the Surviving Corporation or any such
stockholder who has satisfied the foregoing conditions and is otherwise entitled
to appraisal rights, may file a petition in the Delaware Court of Chancery
demanding a determination of the fair value of the Shares held by such
stockholder. If no such petition is filed, appraisal rights will be lost for all
stockholders who had previously demanded appraisal of their Shares. Stockholders
of the Company who wish to exercise their appraisal rights should therefore
regard it as their obligation to take all steps necessary to perfect their
appraisal rights in the manner prescribed in Section 262.
Within 120 days after the Effective Time, any record holder of Shares
who has complied with the provisions of Section 262 will be entitled, upon
written request, to receive from the Surviving Corporation a statement setting
forth the aggregate number of Shares not voted in favor of approval of the
Merger Agreement and with respect to which demands for appraisal were received
by the Company, and the aggregate number of holders of such Shares. Such
statement must be mailed within ten days after the written request therefor has
been received by the Surviving Corporation or within ten days after expiration
of the time for delivery of demands for appraisal under Section 262, whichever
is later.
If a petition for appraisal is timely filed, after a hearing on such
petition, the Delaware Court of Chancery (the "Court") will determine the
holders of Shares entitled to appraisal rights and will appraise the "fair
value" of the shares of Common Stock, 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.
Holders 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 value of the Merger Consideration that they would otherwise
receive if they had not sought appraisal of their Shares. The Delaware Supreme
Court has stated that "proof of value by any techniques or methods which are
generally considered acceptable in the financial community are otherwise
admissible in court" should be considered in the appraisal proceedings. In
addition, Delaware courts have decided that the statutory appraisal remedy,
depending on factual circumstances, may or may not be a dissenter's exclusive
remedy. The Court will also determine the amount of interest, if any, to be paid
upon the amounts to be received by persons whose Shares have been appraised. The
costs of the action may be determined by the Court and taxed upon the parties as
the Court deems equitable. Upon application of a holder, the Court may also
order that all or a portion of the expenses incurred by any holder of Shares in
connection with an appraisal, 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.
Any stockholder of the Company who has duly demanded an appraisal in
compliance with Section 262 will not, after the Effective Time, be entitled to
vote his or her Shares for any purpose nor, after the Effective Time, be
entitled to the payment of dividends or other distributions thereon (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the Effective Time).
If no petition for an appraisal is filed within the time provided, or
if a stockholder of the Company delivers to the Surviving Corporation a written
withdrawal of his or her demand for an appraisal and an acceptance of the
Merger, within 60 days after the Effective Time or with the written approval of
the Surviving Corporation thereafter, then the right of such stockholder to an
appraisal will cease and such stockholder shall be entitled to receive the
Merger Consideration.
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No pending appraisal proceeding in the Court of Chancery will be dismissed as to
any stockholder without the approval of the Court, which approval may be
conditioned on such terms as the Court deems just.
STOCKHOLDERS DESIRING TO EXERCISE THEIR APPRAISAL RIGHTS SHOULD STRICTLY COMPLY
WITH THE PROCEDURES SET FORTH IN SECTION 262 OF THE DGCL. FAILURE TO FOLLOW ANY
OF SUCH PROCEDURES MAY RESULT IN A TERMINATION OR WAIVER OF APPRAISAL RIGHTS
UNDER SECTION 262 OF THE DGCL.
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THE MERGER AGREEMENT
The following is a summary of certain provisions of the Merger
Agreement. This summary is qualified in its entirety by reference to the full
text of the Merger Agreement, a copy of which is attached as Annex A to this
Proxy Statement and incorporated herein by reference. Any capitalized terms used
and not defined below have the meaning given to them in the Merger Agreement.
THE MERGER
The Merger Agreement provides that the Merger will become effective
upon the filing of the Certificate of Merger with the Secretary of State of the
State of Delaware or at such later time as is specified in the Certificate of
Merger.
At the Effective Time, Merger Sub will be merged with and into the
Company, the separate existence of Merger Sub will cease, and the Company will
continue as the Surviving Corporation. Subject to the applicable provisions of
the DGCL, all property of the Company and Merger Sub will be property of the
Surviving Corporation, and all liabilities and obligations of the Company and
Merger Sub will be liabilities and obligations of the Surviving Corporation.
CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS
The Merger Agreement provides that, except with respect to shares of
Common Stock of the Company as to which appraisal rights have been effectively
exercised, each share of Common Stock issued and outstanding immediately prior
to the Effective Time:
(a) in the case of Common Stock owned by the Company as treasury shares
("Treasury Shares") immediately prior to the Effective Time, shall, by virtue of
the Merger and without any action on the part of the holder any such share of
Common Stock, no longer be outstanding and shall be canceled;
(b) in the case of Common Stock other than Treasury Shares,
Parent-Owned Shares (as each term is defined above and below) and dissenting
shares, each shall, by virtue of the Merger and without any action on the part
of the holder of any such shares of Common Stock, be converted into and become a
right to receive the Merger Consideration in cash, without interest, and when so
converted, shall automatically be canceled, and each holder of a certificate
representing any such shares of Common Stock shall cease to have any rights with
respect thereto, except the right to receive the Merger Consideration allocable
to the Shares formerly represented by such certificate upon surrender of such
certificate; and
(c) in the case of Common Stock owned by the Parent or Merger Sub
immediately prior to the Effective Time ("Parent-Owned Shares"), each shall
remain outstanding as a share of Common Stock of the Surviving Corporation.
The Merger Agreement further provides that each share of common stock
of Merger Sub issued and outstanding immediately prior to the Effective Time,
shall, by virtue of the Merger and without any action on the part of the holder
thereof, automatically be converted into one share of common stock of the
Surviving Corporation.
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SURRENDER AND PAYMENT OF SHARES OF COMMON STOCK
Prior to the Effective Time, the Company will authorize an exchange
agent (the "Exchange Agent") satisfactory to the Buyers to be appointed for the
purpose of exchanging certificates representing the shares of Common Stock
entitled thereto, for Merger Consideration. Prior to the Effective Time, Parent
will deposit the aggregate Merger Consideration into an interest-bearing account
under the control of the Exchange Agent, and shall cause disbursements to be
made from such account from time to time in respect of payments of the Merger
Consideration.
TREATMENT OF STOCK OPTIONS
Immediately following the Effective Time, each outstanding Company
Stock Option, whether or not vested, will be assumed by Parent and shall be
deemed to constitute an option to acquire, on substantially the same terms and
conditions as were applicable under such Company Stock Option (including without
limitation, as to vesting and expiration), the same number of limited liability
company interests as the number of shares of Common Stock such Company Stock
Option entitled the holder thereof to purchase.
DIRECTORS AND OFFICERS; CERTIFICATE OF INCORPORATION AND BYLAWS FOLLOWING THE
MERGER
Under the terms of the Merger Agreement, upon consummation of the
Merger, the directors of the Merger Sub immediately prior to the Effective Time
will be the directors of the Surviving Corporation (currently W. Robert Wright,
J. William Uhrig and Jeanette M. Welsh). The officers of the Company immediately
prior to the Effective time will be the officers of the Surviving Corporation.
The certificate of incorporation of Merger Sub in effect immediately
prior to the Effective Time will be the certificate of incorporation of the
Surviving Corporation.
The bylaws of Merger Sub in effect immediately prior to the Effective
Time will be the bylaws of the Surviving Corporation, until thereafter changed
or amended as provided therein or by applicable law.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains certain representations and warranties of
the Company, Parent, the Buyers and Merger Sub. The representations of the
Company relate to, among other things, its organization, capitalization, power
and authority to enter into the Merger Agreement and the transactions
contemplated thereby, compliance with required filings, the law and consents
under applicable law, and the absence of conflicts with corporate documents and
agreements. The representations and warranties of Buyers, Parent and Merger Sub
relate to, among other things, organization of the Buyers, Parent and Merger
Sub, capitalization of Merger Sub, power and authority of the Buyers, Parent and
Merger Sub to enter into the Merger Agreement and the transactions contemplated
thereby, the absence of conflicts with any provision of any Merger Sub charter
document, Parent charter document or the Buyers' partnership agreements, and
compliance with required filings and consents under applicable law.
COVENANTS
The Company has agreed that, during the period from the date of the
Merger Agreement to the Effective Time, the Company will, and will cause each of
its subsidiaries to, conduct its
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operations only in the ordinary course of business consistent with past practice
and will use its reasonable best efforts to and to cause each of the Company's
subsidiaries to, preserve intact the business organization of the Company and
each of the Company's subsidiaries, to keep available the services of the
present officers and key employees of the Company and its subsidiaries, and to
preserve the goodwill of customers, suppliers and all other persons or entities
having business relationships with the Company or its subsidiaries.
The Buyers, Parent and Merger Sub have agreed that (1) except as
contemplated by the Merger Agreement, prior to the Effective Time, without the
prior written consent of the Company, the Buyers will cause Merger Sub not to do
any business other than with respect to, or in connection with, the Merger
Agreement and the transactions contemplated thereby; (2) they will not purchase
or contract to purchase any Common Stock other than as contemplated by the
Merger Agreement without the consent of the Independent Committee of the
Company's Board; and (3) between the date of the Merger Agreement and the
Effective Time, they will not, and Buyers will not permit Parent or Merger Sub
to, take any action that would, or that could reasonably be expected to, result
in any of the conditions to the Merger not being satisfied.
In addition, the Buyers, Parent, Company and Merger Sub have made
further agreements regarding access to the Company's and Buyers' records, the
calling of the Special Meeting, the preparation and filing of this Proxy
Statement with the SEC and the mailing of copies of this Proxy Statement to
NASDAQ, the obtaining of consents of third parties and governmental authorities
and making public announcements.
Subject to the terms and conditions provided in the Merger Agreement
and the fiduciary duties under applicable law of the directors of the Company,
each of the parties has agreed to use its reasonable best efforts consistent
with applicable legal requirements to take, or cause to be taken, all
appropriate 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 the Merger Agreement. The Buyers,
Parent, Merger Sub and the Company also have agreed to use their best efforts to
obtain all material consents of third parties and governmental authorities, and
to make all governmental filings, necessary for the consummation of the
transactions contemplated by the Merger Agreement.
INDEMNIFICATION AND INSURANCE
The DGCL permits, in general, a Delaware corporation such as the
Company, to indemnify any person made, or threatened to be made, a party to an
action or proceeding by reason of the fact that he or she was a director or
officer of the corporation, or served in any capacity at the request of the
corporation, against any judgment, fine, amounts paid in settlement and
reasonable expenses, including attorney's fees actually and necessarily incurred
as a result of such action or proceeding, or any appeal therein, if such
director or officer acted in good faith, for a purpose he or she reasonably
believes to be in, or, in the case of service for another entity, not opposed
to, the best interests of the corporation and, in criminal actions or
proceedings, in addition, had no reasonable cause to believe that his or her
conduct was unlawful. The DGCL also permits the corporation to pay in advance of
a final disposition of such action or proceeding the expenses incurred in
defending such action or proceeding upon receipt of an undertaking by or on
behalf of such person to repay such amount as, and to the extent, required by
law. The DGCL provides that indemnification and advancement of expense
provisions contained in the DGCL are not exclusive of any rights to which a
person seeking indemnification or advancement of expenses may be entitled,
whether contained in the certificate of incorporation or the bylaws of the
corporation or, when authorized by such certificate of incorporation or bylaws:
(1) a resolution of stockholders, (2) a resolution of directors or (3) an
agreement providing for
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indemnification. However, the DGCL also provides that no indemnification may
be made on behalf of any such person if a judgment or other final adjudication
adverse to the person establishes that his or her acts were committed in bad
faith or were the result of active or deliberate dishonesty and were material to
the cause of action so adjudicated, or that he or she personally gained, in
fact, a financial profit or other advantage to which he or she was not legally
entitled.
The Company's Amended and Restated Certificate of Incorporation
provides, in accordance with the DGCL, that a director will not be personally
liable to the Company or its stockholders for monetary damages for any breach of
fiduciary duty as a director unless it is established that: (1) a breach
involved the director's duty of loyalty to the Company or its stockholders, (2)
the director's acts or omissions were not in good faith or involved intentional
misconduct or knowing violation of law, (3) the director gained an improper
personal benefit or (4) the director's acts violated provisions of the DGCL that
impose liability upon directors in certain instances for declarations of
dividends, stock repurchases or redemptions, distributions of assets following a
dissolution, or loans to directors, when made contrary to provisions of the
DGCL.
The Company's bylaws, provide, among other things, that the Company
will indemnify any officer or director (including officers and directors serving
another entity in any capacity at the Company's request) to the fullest extent
permitted by law.
The Merger Agreement provides that the Company will indemnify each
present and former director, officer or employee of the Company or any of its
subsidiaries (collectively, the "Indemnified Parties") against any costs or
expenses (including attorneys' fees), judgments, fines, losses, claims, damages,
liabilities and amounts paid in settlement in connection with any claim, action,
suit, proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of such individuals' services as directors, officers
or employees of the Company or any of its subsidiaries: (1) arising out of or
pertaining to the transactions contemplated by the Merger Agreement or, (2)
otherwise with respect to any acts or omissions occurring at or prior to the
Effective Time, to the same extent as provided in the Company's Certificate of
Incorporation and Bylaws or any applicable contract as in effect on March 26,
2001.
The Surviving Corporation has agreed to maintain, for a period of not
less than six years after the Effective Time, the current policies of directors'
and officers' liability insurance maintained by the Company for the Company's
directors and officers prior to the date of the Merger Agreement and as of the
date of the Merger Agreement for the directors and officers for events occurring
at or prior to the Effective Time (the "D&O Insurance"); provided that the
Surviving Corporation may substitute therefor policies that are no less
favorable than the existing policy or, if substantially equivalent insurance
coverage is unavailable, the best available coverage; provided however, that,
the Surviving Corporation will not be required to pay an annual premium for the
D&O Insurance in excess of 150% of the annual premium currently paid by the
Company for such insurance, but in such case shall purchase as much such
coverage as possible for such amount.
NO SOLICITATION; FIDUCIARY OBLIGATIONS OF DIRECTORS
The Company has agreed that it will not, and will not authorize or
permit any of its representatives to: (1) solicit, initiate or encourage any
discussions or inquiries or the making of any proposal for (each of the
following, a "Takeover Proposal") (a) any merger or other business combination
involving the Company or any of its subsidiaries or (b) the acquisition of 10%
or more of the assets or capital stock of the Company or any of its
subsidiaries, except for the
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transactions contemplated under the Merger Agreement or (2) enter into any
agreement, arrangement or understanding requiring it to abandon, terminate or
fail to consummate the Merger. However, if the Board determines in good faith,
after consultation with independent outside legal counsel, that prior to
obtaining the requisite vote of stockholders, it is necessary to do so in order
to act in a manner consistent with its fiduciary duties to the Company's
stockholders under applicable law, the Company may, in response to a Takeover
Proposal which was not solicited by it and which did not otherwise result from a
breach of the Company's covenants under the Merger Agreement, and subject to
providing prior written notice of its decision to take such action to the
Buyers, (1) furnish information with respect to the Company and any or all of
its subsidiaries to any person making such Takeover Proposal pursuant to a
customary confidentiality agreement and (2) participate in discussions or
negotiations regarding such Takeover Proposal. In addition, the Company is
required to promptly advise the Buyers of any Takeover Proposal or request for
information, the material terms and conditions of any request for information or
Takeover Proposal and the identity of the person making such request or Takeover
Proposal. The Company will also keep the Buyers informed of the status and
details of any such request or Takeover Proposal. The Merger Agreement does not
prohibit the Company from making a statement to its stockholders that is
required by Rule 14e-2(a) promulgated under the Exchange Act or from making any
other disclosure to its stockholders if, in the good faith judgment of the
Board, after consultation with independent outside counsel, failure to make such
a disclosure would breach its fiduciary duties to the Company's stockholders
under applicable law.
CONDITIONS
The respective obligations of each party to effect the Merger are
subject to the following conditions: (1) the Company will have received the
Requisite Company Vote and (2) no court or governmental entity of competent
jurisdiction will have enacted, issued, promulgated, enforced or entered any
law, order, injunction or decree that is in effect and restrains, enjoins or
otherwise prohibits consummation of the Merger.
The obligations of the Buyers, Parent and Merger Sub to effect the
Merger are subject to the following additional conditions: (1) the Company will
have performed in all material respects the covenants and obligations required
to be performed by it under the Merger Agreement on or prior to the Effective
Time; (2) the representations and warranties of the Company contained in the
Merger Agreement will be true and correct in all material respects on and as of
the Effective Time as if made on and as of such date; and (3) Buyers shall have
received a certificate signed by an executive officer of the Company as to the
compliance by the Company with its covenants and representations.
The obligation of the Company to effect the Merger is subject to the
following additional conditions: (1) Buyers, Parent and Merger Sub will have
performed in all material respects the covenants and obligations required to be
performed by them under the Merger Agreement on or prior to the Effective Time;
(2) the representations and warranties of Buyers, Parent and Merger Sub
contained in the Merger Agreement will be true and correct in all material
respects on and as of the Effective Time as if made on and as of such date; and
(3) the Company will have received a certificate signed by the general partner
of each Buyer as to the compliance by the Buyers, Parent and Merger Sub of their
covenants and representations.
TERMINATION
The Merger Agreement may be terminated at any time prior to the
Effective Time, notwithstanding the vote of the Company's stockholders: (1) by
mutual written consent of Buyers
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and the Company; (2) by either the Buyers or the Company if the Merger has not
been consummated on or before July 31, 2001 (provided, however, that the right
to terminate the Merger Agreement after this date will not be available to any
party whose failure to fulfill any obligation under the Merger Agreement has
been the cause of, or resulted in, the failure of the Effective Time to occur on
or before such date); (3) by either the Buyers or the Company if a statute,
rule, regulation or executive order has been enacted, entered or promulgated
prohibiting the consummation of the Merger substantially on the terms
contemplated by the Merger Agreement; (4) by either the Buyers or the Company if
an order, decree, ruling or injunction has been entered permanently restraining,
enjoining or otherwise prohibiting the consummation of the Merger substantially
on the terms contemplated by the Merger Agreement and such order, decree, ruling
or injunction has become final and non-appealable; (5) by the Buyers, if the
Board of the Company, with the concurrence of the Independent Committee, or the
Independent Committee shall have (a) withdrawn or modified, or proposed publicly
to withdraw or modify, in a manner adverse to the Buyers, its approval of the
Merger Agreement or recommendation to the Company's stockholders, (b) approved
or recommended, or proposed publicly to approve or recommend, any Takeover
Proposal, (c) caused the Company to enter into any agreement with respect to any
Superior Proposal (defined in the Merger Agreement as any Takeover Proposal that
the Board determines in good faith contains terms that are more favorable to the
Company's stockholders than the Merger and for which financing, to the extent
required, is then committed), or (d) the Board, the Independent Committee or any
other committee thereof shall have resolved to take any of the actions
enumerated in (a), (b) or (c); (6) by the Company, if the Company receives a
Superior Proposal and the Board, based on the advice of independent outside
legal counsel, determines in good faith that such action is necessary for the
Board to avoid breaching its fiduciary duties to the Company's stockholders
under applicable law; or (7) by the Buyers or the Company, if the Requisite
Company Vote has not been obtained at the relevant stockholder's meeting or
completion of the consent solicitation process, if applicable.
The Merger Agreement provides that in the event of its termination,
written notice thereof will forthwith be given to the other party or parties
specifying the provision of the Merger Agreement pursuant to which such
termination is made, and the Merger Agreement will terminate and be of no
further force and effect and there shall be no other liability on the part of
Buyers, Parent, Merger Sub or the Company, except liability, if any, for a
breach of the Merger Agreement.
FEES AND EXPENSES
All expenses incurred by the parties in connection with the Merger
Agreement and the Merger and the other transactions contemplated thereby,
whether or not the Merger or any of such other transactions are consummated,
shall be paid by the party incurring such expense; provided, however, that the
Company shall pay all expenses of the Buyers if the Merger is consummated.
AMENDMENT AND WAIVER
At any time prior to the Effective Time and subject to applicable Law,
the Merger Agreement may be amended, superseded, canceled, modified, renewed or
extended, and the terms thereof may be waived, only by a written agreement
signed by each of the parties thereto or, with the consent of the Independent
Committee, or in the case of a waiver, by the party waiving compliance.
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RELATED AGREEMENTS
SUBSCRIPTION AND CONTRIBUTION AGREEMENTS
On March 26, 2001, the Parent entered into Subscription and
Contribution Agreements with each of the following: TCF II, TCO, Thomas G. Weld,
H. Whitney Wagner, John J. Pomerantz and Warren T. Wishart. These agreements
were amended and restated on April 27, 2001. In addition, Constable entered into
a Subscription and Contribution Agreement with the Parent on May 1, 2001. In
each Subscription and Contribution Agreement, the Parent and the designated
stockholder (the "Contributing Stockholder") agreed that the Contributing
Stockholder will contribute common stock of the Company (the "Contributed
Shares") to the Parent and the Parent will then issue and deliver to the
Contributing Stockholder an equal number of limited liability company interests
in itself in exchange for the Contributed Shares. These transactions will occur
immediately prior to the Effective Time of the Merger.
STOCKHOLDERS' AGREEMENTS
The Parent, Buyers and Constable will also enter into a Stockholders'
Agreement immediately prior to the consummation of the Merger that will restrict
the Buyers' and Constable's ability to transfer limited liability company
interests of Parent following the Merger and provide for rights of first offer,
tag along, drag along, pre-emption rights and certain obligations with respect
to such interests. The rights of first refusal will give the Buyers and
Constable the right, but not the obligation, to purchase all (but not less than
all) of the limited liability company interests in the Parent that are
involuntarily transferred by the other. The Buyers and Constable will be
permitted to purchase the limited liability company interests in proportion to
their respective share fractions. The tag along right will allow the Buyers and
Constable to participate in certain sales of limited liability company interests
by the other. The drag along right will allow any shareholder or group of
shareholders holding the power to vote in the aggregate 50% or more of the
issued and outstanding shares the right to cause the other shareholders to
accept any bona fide, third-party offer to buy all of the outstanding limited
liability company interests. Messrs. Weld, Wagner, Pomerantz and Wishart will
also enter into similar arrangements with the Parent and Buyers restricting
their ability to transfer their limited liability company interests in Parent
and providing for certain similar rights of first refusal, tag along and drag
along rights with respect to such interests.
BUSINESS OF MERGER SUB
Merger Sub is a corporation that is wholly-owned by the Buyers that
does not conduct any business activities and has been formed solely to effect
the Merger. Pursuant to the Merger Agreement, Merger Sub will be merged into the
Company, with the Company as the Surviving Corporation.
BUSINESS OF THE COMPANY
GENERAL
The Company (through its subsidiaries) is engaged principally in the
design, arranging for the manufacture, and the sale of diversified lines of
women's dresses and sportswear. The Company's products focus on career, social
occasion and evening clothing that cover a broad retail price range and offer
the consumer a wide selection of styles, fabrics and colors suitable for
different ages, sizes and fashion preferences. Based on its knowledge of the
industry and its belief as to its market share, the Company believes that it is
among the major producers of
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moderate-price dresses and that it is considered one of the major resources to
department store retailers of such products. The Leslie Fay business has been in
continuous operation as an apparel company since 1947.
The Company's business is seasonal in nature, with sales being greatest
in the first and third quarters. Accordingly, the inventory purchase levels are
highest during the second and fourth quarters.
ACQUISITIONS
On February 15, 2000, the Company entered into a license agreement with
the licensing subsidiary of Liz Claiborne, Inc. ("Liz Claiborne") to manufacture
dresses and suits under the Liz Claiborne and Elisabeth trademarks. The Company
also purchased the dress finished goods and raw materials inventory of Liz
Claiborne and agreed to honor related manufacturing commitments that had been
made by Liz Claiborne as of February 15, 2000. Beginning with the Holiday 2000
season that shipped in October 2000, the Company designed and arranged for the
manufacture of Liz Claiborne and Elisabeth dresses. Liz Claiborne and Elisabeth
dresses are sold in department and specialty stores throughout the United States
and, to a much lesser extent, in Canada, Mexico and other parts of the world.
The agreements with Liz Claiborne provide that the Company will pay
royalties including guaranteed minimum average annual royalty payments of up to
approximately $2,000,000 per year throughout the five-year initial term of the
agreement, or, if sales exceed the minimum defined in the royalty agreement, 6%
of the net sales of Liz Claiborne and Elisabeth dresses and suits. The Company
also reimbursed Liz Claiborne for certain operating costs on a transitional
basis.
This transaction generated intangible assets of approximately $940,000,
which the Company is amortizing over the initial five-year period of the
agreement ending February 2005. This transaction has been accounted for as a
purchase, and accordingly, the operating results of Liz Claiborne dresses have
been included in the Company's consolidated financial statements since the date
of the acquisition. Net sales from the date of acquisition through December 30,
2000 were approximately $24,823,000.
On May 9, 2000, the Company purchased substantially all the assets of
Cynthia Steffe, Inc. Cynthia Steffe also licensed her trade names to the Company
in perpetuity (subject to certain rights of termination). Cynthia Steffe markets
to both department and specialty stores in the contemporary and designer
sportswear categories. This transaction generated intangible assets of
approximately $1,033,000, which the Company is amortizing over fifteen years.
Net sales from the date of acquisition through December 30, 2000 were
approximately $2,967,000. The full year 1999 net sales for Cynthia Steffe, Inc.
were approximately $7,000,000. Cynthia Steffe and Richard Roberts, principals of
Cynthia Steffe, Inc., have entered into employment agreements with the Company,
which will expire in 2005.
PRODUCTS
During 2000, 1999, and 1998, respectively, dresses accounted for
approximately 78%, 73% and 64% of the Company's net sales and sportswear
accounted for approximately 22%, 27% and 36%, respectively. During 2001, dresses
are expected to account for approximately 74% of total sales and sportswear 26%.
-47-
DRESS PRODUCT LINES. The Company sells moderately-priced one and two
piece dresses, pant dresses and dresses with coordinated jackets under the
"Leslie Fay", "Leslie Fay Petite", "Leslie Fay Women" and "Leslie Fay Women's
Petite" brands. The Company also sells moderate to bridge-priced career, social
and evening occasion dresses under the "David Warren", "Warren Petite",
"Rimini", and "Leslie Fay Evening" brands. In conjunction with the licensing
arrangement with Liz Claiborne, the Company manufactures and sells dresses and
suits under the "Liz Claiborne" and "Elisabeth" brands. All of the Company's
dress products are offered in petite, misses and large sizes. The "Reggio" line
was discontinued during the year 2000.
SPORTSWEAR PRODUCT LINES. The Company markets moderately-priced
coordinated sportswear and related separates under the "Leslie Fay Sportswear",
"Leslie Fay Sportswear Petite", "Leslie Fay Sportswear Woman", "Joan Leslie" and
"Leslie Fay Haberdashery" brands. The Company consolidated the Leslie Fay
Sportswear and Haberdashery brands into Leslie Fay Haberdashery to better serve
the retail needs of its customers without duplicate product offerings. The
Company also offers contemporary and designer sportswear under brands including
"Cynthia Cynthia Steffe", "Cynthia Steffe", "Francess & Rita", and also brands
owned by certain customers. The Company's products include skirts, blouses,
sweaters, pants and jackets which are related in color and material and are
intended to be sold as coordinated outfits. These products are offered in
petite, misses and large sizes.
DESIGN
The Company's fashion designers or stylists create the styles that are
produced under the brands used by the Company. The Company has its own designers
and in some instances utilizes separate design staffs for different products
within a particular brand. The design staffs work closely with the
merchandising, production and sales staffs to review the status of each
collection and to discuss adjustments which may be necessary in line
composition, pricing, fabric selection, construction and product mix.
The Company's product lines generally offer four or five of the
following seasonal lines: Resort, Spring, Summer, Fall I, Fall II and Holiday.
The Company typically offers these seasonal lines in ten to thirteen week
selling periods.
TRADEMARKS AND LICENSES
The brands used by the Company, except for limited private label
programs with selected customers, are registered trademarks, which are owned or
licensed by the Company. The Company considers its trademarks and license
agreements to have significant value in the marketing of its products. The
Company has licensed certain of its names and trademarks to various companies
for their use in connection with the manufacture and distribution of their
respective products. These products are in categories that are not offered by
the Company and during 2000 included women's and children's sheer hosiery,
handbags and small leather goods.
On February 15, 2000, the Company entered into a license agreement to
produce and distribute the Liz Claiborne and Elisabeth dresses and suits.
On May 9, 2000, Cynthia Steffe licensed her trade names to the Company
to produce and distribute contemporary and designer sportswear.
On November 14, 2000, the Company sold the "HUE" trademark to the
Kayser-Roth Corporation, the principal licensee of such trademark.
-48-
MARKETS AND DISTRIBUTION
During 2000, the Company's products were sold principally to department
and specialty stores located throughout the United States. During 2000, 1999,
and 1998 the Company's Dress and Sportswear lines' products were sold to 1,330,
1,515, and 1,012 customers, respectively. Dillard's Department Stores, Inc.
accounted for 34%, 31% and 30%, Federated Department Stores, Inc. accounted for
10%, 10%, and 7%, May Department Stores, Inc. accounted for 11%, 10%, and 7%, JC
Penney accounted for 6%, 8% and 11%, and Marshalls\T.J. Maxx accounted for 11%,
8%, and 9% of the Company's Dress and Sportswear sales during the respective
periods. No other customer accounted for as much as 10% of the Company's Dress
and Sportswear sales during these three years. The Company believes that the
loss of any of these businesses would have a material adverse effect on its
operations.
The Company maintains its own employee and commission sales force and
exhibits its products in its principal showroom in New York, New York and
additional showrooms in Dallas, Texas and Atlanta, Georgia. For further
discussion, see "Properties". As of February 28, 2001, the Company had an
employee sales force consisting of 3 people in Dallas and 28 in New York. While
in some instances the Company's brands may compete with each other, as a
practical matter, such competition is limited because of the differences in
products, price points and market segments.
To most effectively reach its ultimate consumers, the Company assists
retailers in merchandising and marketing the Company's products. The Company
promotes its products through special in-store events, as well as through
various sales, promotions and cooperative advertising.
The Company's products are sold under brand names that are advertised
and promoted in newspapers and trade publications.
MANUFACTURING
Apparel sold by the Company is produced in accordance with its designs,
specifications and production schedules. All of such apparel is produced by a
number of independent contractors located domestically and abroad. In 2000,
products representing approximately 89% of dress and sportswear sales were
produced abroad and imported into the United States from the Caribbean Basin
countries of Guatemala and El Salvador and selected contractors in the Far
Eastern countries of Taiwan, South Korea and the People's Republic of China,
including Hong Kong.
In 2000, three operating subsidiaries of Cambridge Corp. and Anthony
Fashion Corp., SA DE CV manufactured 37% and 14%, respectively, of the Company's
total production. No other contractor produced more than 10% of the Company's
total production. The Company has had satisfactory, long-standing relationships
with most of its contractors. In 2000, one of the Company's contracted
production providers worked exclusively for the Company. The Company monitors
production at each contractor's facility, in the United States and abroad, to
ensure quality control, compliance with its specifications and fair labor
standards and timely delivery of finished goods to the Company's distribution
center. The Company believes it will be able to obtain the services of a
sufficient number of independent suppliers to produce quality products in
conformity with its requirements.
The Company manufactures in accordance with plans prepared each season,
which are based primarily on projected orders and to a lesser extent, on current
orders and consultations
-49-
with customers. These plans take into account current fashion trends and
economic conditions. The average lead time from the commitment of piece goods
through the production and shipping of goods ranges from two to four months for
domestic products and four to six months for imported products. These lead times
impose substantial time constraints on the Company in that they require
production planning and other manufacturing decisions and piece good commitments
to be made substantially in advance of the receipt of orders from customers for
the bulk of the items to be produced.
The purchase of raw materials is controlled and coordinated by a
centralized purchasing function that works with the manufacturing, design, and
sales staffs. Most often, the Company purchases and ships the raw materials to
its domestic contractors and certain of its foreign contractors. Otherwise, the
raw materials are purchased directly by the contractors in accordance with the
Company's specifications. Raw materials, which are in most instances made and/or
colored especially for the Company, consist principally of piece goods and yarn
and are purchased by the Company from a number of domestic and foreign textile
mills and converters. The Company does not have long-term, formal arrangements
with any of its suppliers of raw materials. The Company, however, has
experienced little difficulty in satisfying its raw material requirements and
considers its sources of supply adequate.
IMPORTS AND IMPORT RESTRICTIONS
The Company's import operations are subject to constraints imposed by
bilateral textile agreements between the United States and a number of foreign
countries, including Taiwan, the Peoples' Republic of China (including Hong
Kong), South Korea, Guatemala and El Salvador (the principal countries from
which the Company imports goods). These agreements impose quotas on the amount
and type of goods that can be imported into the United States from these
countries. In addition, each of the countries in which the Company's products
are sold has laws and regulations regarding import restrictions that are
controlled and regulated. Because the United States and other countries in which
the Company's products are manufactured and sold may, from time to time, impose
new quotas, duties, tariffs, surcharges or other import controls or
restrictions, or adjust presently prevailing quota allocations or duty or tariff
rates or levels, the Company monitors import and quota-related developments. The
Company continually seeks to minimize its potential exposure to import and
quota-related risks through allocation of production to merchandise categories
that are not subject to quota pressures, adjustments in product design and
fabrication, shifts of production among countries and manufacturers, and
geographical diversification of its sources of supply and other measures. The
United States may enter into bilateral trade agreements with additional
countries and may, in the future, include other types of garments in existing
agreements.
Imports are also affected by the higher cost and additional time needed
to transport product into the United States and by the increased competition
resulting from greater production demands abroad.
The Company's imported products are subject to United States Customs
duties and, in the ordinary course of its business, the Company is from time to
time subject to claims by the United States Customs Service for additional
duties and other charges.
The Company currently imports a substantial majority of its raw
materials, primarily fabric, and a significant portion of its finished goods
through Far East based service bureaus. These service bureaus secure the
manufacture of raw materials from a number of factories (about 20) located
throughout the Far East. The Company's senior management also meets with these
manufacturers prior to placing orders with them. The Company believes its
primary risk is the
-50-
timely receipt of its raw materials and finished goods to allow the timely
shipment of its product. Through the present time, the Company has received its
products in a timely manner. The Company continually monitors the status of its
orders through its Far East service bureaus. Payment for the raw materials and
finished goods is guaranteed through letters of credit which require, among
other items, timely delivery and satisfaction of quality standards.
The Company does not "hedge" its foreign purchases as all contracts are
quoted in United States dollars. The typical contract extends for sixty days.
Prices are re-negotiated with each new contract.
In addition to the factors outlined above, the Company's future import
operations may be adversely affected by: political or financial instability
resulting in the disruption or delay of trade from exporting countries; the
imposition of additional regulations relating to, or duties, taxes and other
charges on, imports; any significant fluctuation in the value of the dollar
against foreign currencies; and restrictions on the transfer of funds.
BACKLOG
On March 23, 2001, the Company had unfilled orders of approximately
$80,690,000. The Company had approximately $72,836,000 of unfilled orders at a
comparable date in 2000. The amount of unfilled orders at a particular time is
affected by a number of factors, including the scheduling of the manufacture and
shipment of the product, which in some instances is dependent on the desires of
the customer. Accordingly, a comparison of unfilled orders from period to period
is not necessarily meaningful and may not be indicative of eventual actual
shipments.
CREDIT AND COLLECTION
In June 1997, the Company entered an agreement with the CIT
Group/Commercial Services, Inc. This agreement provided that CIT purchase the
Company's approved accounts receivable and guarantee collection thereof, except
for disputed amounts. On April 9, 2001 this agreement was amended to provide
that the Company will perform its own collection and cash processing functions
and bad debts will be shared equally with CIT on aggregate losses in excess of
$50,000 in any fiscal year.
COMPETITION
The sectors of the apparel industry for which the Company designs,
manufactures and markets products are highly competitive. The Company competes
with many other manufacturers, including manufacturers of one or more apparel
items. In addition, department stores, including some of the Company's major
customers, have from time to time varied the amount of goods manufactured
specifically for them and sold under their own brands. Many such stores have
also changed their manner of presentation of merchandise and in recent years
have become increasingly promotional. Some of the Company's competitors are
larger and have greater resources than the Company. Based upon its knowledge of
the industry, the Company believes that it is among the leading producers of
moderately-priced dresses in the United States and that it is considered one of
the major resources to department store retailers of such products. The
Company's business is dependent upon its ability to evaluate and respond to
changing consumer demand and tastes and to remain competitive in the areas of
style, quality and price, while operating within the significant domestic and
foreign production and delivery constraints of the industry.
-51-
EMPLOYEES
In June 2001, the Company employed 454 persons, of whom approximately
27% were in production, 28% in distribution, 18% in merchandising and design, 7%
in sales and 20% in administrative and financial operations. Approximately 37%
of the Company's employees were members of unions, primarily the Union of
Needletrades, Industrial and Textile Employees ("UNITE"). In May 2001, the
Company and UNITE reached an agreement on a 3-year collective bargaining
agreement, terminating on May 31, 2004 covering non-supervisory production,
maintenance, packing and shipping employees. The Company believes that its
relationship with its employees is satisfactory.
REORGANIZATION UNDER CHAPTER 11
On April 5, 1993, the Company and several of its subsidiaries filed
voluntary petitions in the Bankruptcy Court under Chapter 11 of the Bankruptcy
Code. By an order dated April 21, 1997, the Bankruptcy Court confirmed a plan of
reorganization (the "Plan").
The proposed Merger has not been motivated, in whole or in part, by the
bankruptcy proceedings.
PROPERTIES
Executive and sales offices, as well as design facilities, are located
in New York City under a lease expiring in 2008 (60,990 square feet). The
Company also leases additional sales offices and showrooms in New York City
(8,000 square feet and 3,500 square feet), sales offices and showrooms in
Dallas, Texas (4,396 square feet) and a showroom in Atlanta, Georgia (737 square
feet). In addition, the Company operates two small manufacturing support
facilities - one located in Pittston, Pennsylvania and owned by the Company
(11,368 square feet) and another leased by the Company in Guatemala (5,202
square feet). Furthermore, the Company leases a major distribution and
administrative center of approximately 194,685 square feet through August 2008
and a storage facility of 6,160 square feet in Laflin, Pennsylvania.
All of the Company's facilities are in good condition. None of the
Company's principal facilities are idle. The machinery and equipment contained
in the Company's facilities are modern and efficient.
LEGAL PROCEEDINGS
The Company and several of its subsidiaries filed voluntary petitions
in the Bankruptcy Court under Chapter 11 of the Bankruptcy Code in April 1993.
By an order dated April 21, 1997, (the "Confirmation Order"), the Bankruptcy
Court confirmed the Plan. The Plan was consummated on June 4, 1997. Certain
alleged creditors who asserted age and other discrimination claims against the
Company and whose claims were expunged (the "Claimants") pursuant to an order of
the Bankruptcy Court (see below) appealed the Confirmation Order to the United
States District Court for the Southern District of New York. The Company moved
to dismiss the appeal from the Confirmation Order and the motion was granted and
the appeal was dismissed. An appeal to the United States Court of Appeals for
the Second Circuit from the order dismissing the appeal taken by the Claimants
subsequently was withdrawn, without prejudice, and may be refiled in the future.
In addition, the Claimants and two other persons commenced a separate adversary
proceeding in the Bankruptcy Court to revoke the Confirmation Order. The Company
has moved to dismiss the adversary proceeding to revoke the Confirmation Order
and that motion has been fully briefed, but has not yet been argued to the
Bankruptcy Court.
-52-
However, that matter is now moot based upon the proceedings described in the
next paragraph and the Claimants' lack of standing.
The Claimants, who are former employees of the Company and who were
discharged prior to the filing of the Chapter 11 cases, asserted age and other
discrimination claims, including punitive damage claims against the Company in
the approximate aggregate sum of $80 million. Following a trial on the merits,
the Bankruptcy Court expunged and dismissed those claims in their entirety. The
Claimants appealed that decision to the United States District Court for the
Southern District of New York, and on July 17, 1998, that Court affirmed the
decision of the Bankruptcy Court. The Claimants took a further appeal to the
United States Court of Appeals for the Second Circuit, which affirmed the
decision of the United States District Court in a summary order dated June 28,
1999. On September 27, 1999, the Claimants filed a petition for certiorari
review by the United States Supreme Court for relief. The petition for
certiorari was denied on January 10, 2000.
Five of the Claimants in the above-described appeal commenced an action
alleging employment discrimination against certain former officers and directors
of the Company in the United States District Court for the Southern District of
New York. The Court dismissed all of the causes of action arising under federal
and state statutes, and the only remaining claims are those arising under the
New York City Human Rights Law. Discovery is complete and it is expected that a
summary judgment motion will be filed by the defending officers and directors in
the near future.
In February 1993, the SEC obtained an order directing a private
investigation of the Company in connection with, among other things, the filing
by the Company of annual and other reports that may have contained
misstatements, and the purported failure of the Company to maintain books and
records that accurately reflected its financial condition and operating results.
In March 1993, a stockholder derivative action entitled "Isidore
Langer, derivatively on behalf of The Leslie Fay Companies, Inc. v. John J.
Pomerantz et al." was instituted in the Supreme Court of the State of New York,
County of New York, against certain officers and directors of the Company and
its then auditors. This complaint alleges that the defendants knew or should
have known material facts relating to the sales and earnings of the Company
which they failed to disclose. The time to answer, move or otherwise respond to
the complaint has not yet expired. The plaintiff seeks an unspecified amount of
monetary damages, together with interest thereon, and costs and expenses
incurred in the action, including reasonable attorneys' and experts' fees. The
Company cannot presently determine the ultimate outcome of this litigation, but
believes that it should not have any unfavorable impact on its financial
statements. Pursuant to the Plan, a Derivative Action Board, comprised of three
persons or entities nominated by the Creditors' Committee and appointed by the
Bankruptcy Court, is the only entity authorized to prosecute, compromise and
settle or discontinue the derivative action.
The Company is a party to litigation from time to time in the ordinary
course of its business. The Company does not believe any such litigation is
material.
The legal proceedings described above played no role in the decision of
the Board of Directors of the Company to approve the proposed Merger.
-53-
MARKET PRICES OF AND DIVIDENDS ON THE COMMON STOCK AND OTHER COMPARATIVE DATA
On December 8, 1998, the Common Stock began trading on the Nasdaq
SmallCap Market under the symbol "LFAY." The following table sets forth the high
bid and low asked prices on the Nasdaq SmallCap Market for each quarter during
1999 and 2000 and the first, second and third quarters of 2001.
Period High Low
------ ---- ---
1999 First Quarter $ 6.75 $ 3.88
Second Quarter 6.88 4.25
Third Quarter 7.13 4.63
Fourth Quarter 6.94 4.38
2000 First Quarter $ 7.00 $ 4.06
Second Quarter 5.50 3.13
Third Quarter 4.63 3.13
Fourth Quarter 3.69 2.75
2001 First Quarter $ 4.81 $ 2.69
Second Quarter 4.84 4.69
Third Quarter 4.81 4.30
Fourth Quarter (through
October 18)
On January 16, 2001 the Company announced that on January 12, 2001,
Three Cities Funds submitted a proposal to the Company to acquire all of the
outstanding shares of the Company's Common Stock not owned by Three Cities Funds
for $3.50 per share. The closing price of the Common Stock on the Nasdaq
SmallCap Market on January 12, 2001 was $2.81 per share. On March 27, 2001, the
Company announced that it had signed the Merger Agreement with the Buyers,
Parent and Merger Sub which provides, among other things, that Three Cities
Funds will acquire the outstanding shares of the Company's Common Stock not held
by Continuing Stockholders for $5.00 per share. On March 26, 2001, the closing
price of the Common Stock on the Nasdaq SmallCap Market was $3.13 per share. As
of October 18, 2001, the closing price of the Common Stock on the Nasdaq
SmallCap Market was $____ per share. YOU ARE URGED TO OBTAIN A CURRENT MARKET
QUOTATION FOR YOUR SHARES OF COMMON STOCK. As of October 16, 2001, there were
approximately_______ holders of record of the Common Stock of the Company.
The Company did not pay any dividends on, or make any other
distributions with respect to, its Common Stock during 1999, 2000 or 2001.
COMPARATIVE DATA
o Purchase price - $5.00 per share
o Book value at March 31, 2001 - $ 9.64 per share
o Net Income for year ended December 30, 2000 - $1.47 per basic
share (of which $1.20 per share was attributable to the
nonrecurring sale of a trademark)
o Net income for six months ended June 30, 2001 - $0 per basic
share
o Dividends for year ended December 30, 2000 and the six
months ended June 30, 2001 - None
-54-
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of September 30, 2001 by (1) each person or
entity who owns of record or beneficially five percent or more of the shares of
Common Stock, (2) each director of the Company, and (3) each executive officer
of the Company and (4) all directors and executive officers of the Company as a
group. To the knowledge of the Company, each of such stockholders has sole
voting and investment power as to the shares shown unless otherwise noted.
Percentage of
Number of Shares Ownership of
Name and Address of Beneficial Owners Beneficially Owned Common Stock
-------------------------------------- ------------------- ------------
Three Cities Research Inc. 3,660,764(1) 61.8%
John J. Pomerantz 3,660,764(2) 61.8%
John Constable d/b/a Constable Asset Management, 442,408(3) 7.5%
Ltd.
John A. Ward 331,560(4) 5.3%
Warren T. Wishart 218,758 3.7%
Robert L. Sind 26,000(5) (8)
Bernard Olsoff 16,000(6) (8)
Vishal Mahadevia 10,000(6) (8)
Thomas G. Weld 14,000(6) (8)
Executive Officers and Directors as a group 4,277,082(7) 67.9%
---------------------
(1) Includes 1,215,081 and 2,054,885 shares of Common Stock directly owned
by TCF II and TCO, respectively. Pursuant to Rule 13d-5 under the
Exchange Act, TCF II and TCO may each be considered the beneficial
owner of 3,660,764 shares of Common Stock. TCR Associates, L.P. ("TCR
Associates") is the sole general partner of TCF II and may be deemed
the beneficial owner of all of the shares beneficially owned by TCF II.
Three Cities Research Inc. ("TCR") is the sole general partner of TCR
Associates and is the investment advisor to TCF II and TCO. Pursuant to
a management agreement, TCR has voting and dispositive power over all
of the shares of Common Stock beneficially owned by TCF II and TCO and
may be deemed the beneficial owner of all of such shares. TCR Offshore
Associates ("TCR Offshore") is the sole general partner of TCO and may
be deemed the beneficial owner of all of the shares of Common stock
beneficially owned by TCO. Three Cities Associates, N.V. ("TCA, N.V.")
is the sole general partner of TCR Offshore and may be deemed the
beneficial owner of all of the shares of Common Stock beneficially
owned by TCR Offshore. J. William Uhrig is the sole stockholder,
President and sole director of TCA, N.V. and, pursuant to Rules 13d-3
and 13d-5 under the Exchange Act, may be deemed the beneficial owner of
all of the shares beneficially owned by TCA, N.V. The information
provided above was obtained from Amendment No. 5 to a Schedule 13D
filed with the SEC on May 4, 2001. Also
-55-
includes 390,798 shares of Common Stock beneficially owned by John
J. Pomerantz, as described in note (2) below.
(2) Includes 3,269,966 shares directly owned by TCF II and TCO. Mr.
Pomerantz has entered into a letter agreement dated July 26, 1999 with
TCF II and TCO which provides that as long as he has a contractual
right to designate at least one member of the Board, Mr. Pomerantz, TCF
II and TCO will agree on the identity of all nominees.
(3) Consists of (a) 392,108, (b) 13,800 and (c) 4,100 shares of Common
Stock directly owned by Constable Partners, L.P., Constable Partners
II, L.P. and Constable Group Profit Sharing Plan and Trust ("Constable
Trust") and 32,400 shares of Common stock held in certain selected
accounts with respect to which John Constable acts as investment
advisor. John Constable is the General Partner of Constable Partners,
L.P. and Constable Partners II, L.P. and the Trustee of Constable
Trust. John Constable has, with such partnerships, Constable Trust and
other entities, shared voting and dispositive power with respect to the
shares of Common Stock directly owned by them.
(4) Consists of shares of Common Stock issuable upon exercise of presently
exercisable stock options.
(5) Includes 20,000 shares of Common Stock issuable upon exercise of
presently exercisable stock options.
(6) Includes 10,000 shares of Common Stock issuable upon exercise of
presently exercisable stock options.
(7) Includes 381,560 shares of Common Stock issuable upon exercise of
presently exercisable stock options and 3,269,966 shares beneficially
owned by Three Cities as to which Mr. Pomerantz shares certain voting
rights as to the election of directors, as described in note (2) above.
(8) Less than 1% of the outstanding shares of Common Stock.
SELECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY
The following selected historical consolidated financial data for each
of the years in the five-year period ended December 30, 2000 are derived from
and are incorporated by reference in this Proxy Statement to, the Company's
audited consolidated financial data and notes thereto included in the Company's
Annual Report for the year ended December 30, 2000, a copy of which accompanies
this Proxy Statement. The selected historical consolidated financial data for
the twenty-six weeks ended June 30, 2001 are derived from, and are incorporated
by reference in this Proxy Statement to, the Company's unaudited consolidated
financial data and notes thereto included in the Company's Quarterly Report on
Form 10-Q for the twenty-six weeks ended June 30, 2001, a copy of which
accompanies this Proxy Statement. The results for the twenty-six weeks ended
June 30, 2001 are not necessarily indicative of results for the full year. The
historical financial information presented for the Reorganized Company and the
Predecessor Company are not comparable. The information presented below should
be read in conjunction with such financial statements and notes thereto, and the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in the Company's Annual Report for the year ended December
30, 2000 and the Company's Quarterly Report for the twenty-six weeks ended June
30, 2001.
-56-
(In thousands, except per share data)
Reorganized Company
-------------------
For the Periods Ended
-----------------------------------------------------------------------------------------------------------------------------------
Twenty-Six Twenty-Six Fifty-Two Fifty-Two Fifty-Two Thirty-One
Weeks Ended Weeks Ended Weeks Ended Weeks Ended Weeks Ended Weeks Ended
June 30, -------------- December 30, January 1, January 2, January 3,
2001 July 1, 2000 2000 1999 1998 (a)
--------------- 2000 --------------- --------------- --------------- ---------------
(Unaudited) (Unaudited) (Audited) (Audited) (Audited) (Audited)
Net Sales $95,669 $112,234 $212,714 $197,446 $152,867 $ 73,091
Operating Income 1,663 5,877 4,000 14,439 13,020 4,322
Reorganization Costs -- --
-- -- -- --
Interest Expense and
Financing Costs 854 1,543 2,958 2,258 950 336
Tax Provision (6) 973
(Benefit) 4,147 2,654 3,212 677
Other Non-Recurring
Items -- -- (10,800)(f) 911(g) -- --
Net Income (10) 3,361 $7,695 $8,316 8,858 $3,309
Net Income per
Share - Basic $0.00 $0.66 $1.47 $1.46 $1.35 $0.49
- Diluted $0.00 $0.63 $1.44 $1.39 $1.31 $0.48
As of As of As of As of As of As of
6/30/01 7/1/00 12/30/2000 01/01/2000 01/02/99 01/03/98
------- ------ ---------- ---------- -------- --------
Total Assets $78,673 $77,910 $87,359 $69,000 $67,804 $61,051
Assets of Product
Lines
Held for Sale and -- --
Disposition -- -- -- --
Long-Term Debt
(Including Capital
Lease) 77 -- 3,126 4,052 17 49
Predecessor Company
-------------------
--------------------------------------------------------------------------------
Twenty-Two Fifty-Two
Weeks Ended Weeks Ended
June 4, December 28,
1997 (b) 1996
--------------- ---------------
(Audited) (Audited)
Net Sales $197,984 $429,676
Operating Income 14,355 17,965
Reorganization Costs
3,379(c) 5,144(c)
Interest Expense and
Financing Costs 1,372 3,932(d)
Tax Provision
(Benefit) 451 (839)(e)
Other Non-Recurring
Items 136,341(h) --
Net Income $145,494 $9,728
Net Income per
Share - Basic --(i) $0.52 (i)
- Diluted --(i) $0.52 (i)
As of As of
06/04/97 12/28/96
-------- --------
Total Assets $77,789 $237,661
Assets of Product
Lines
Held for Sale and
Disposition -- 3,003(i)
Long-Term Debt
(Including Capital
Lease) 108 --
-57-
NOTES TO SELECTED FINANCIAL DATA
--------------------------------
(a) Financial information for the thirty-one weeks ended January 3, 1998
represents the consolidated results of the reorganized entity after the
consummation of the Plan.
(b) Financial information for the twenty-two weeks ended June 4, 1997
represents the audited consolidated results prior to the Company's
consummation of the Plan. The income statement information includes the
results of Castleberry and Sassco Fashions lines prior to their sale or
spin-off in connection with the consummation of the Plan.
(c) The Company incurred reorganization costs in 1997 and 1996 while
operating as a debtor in possession. Included in 1997 and 1996 is a
provision of $0 and $652,000, respectively, for a write-down of a
portion of the excess purchase price over net assets acquired in the
1984 leveraged buyout of The Leslie Fay Company, related to certain of
the Company's product lines, which the Company believes will be
unrecoverable.
(d) On January 2, 1994, the Company decided not to accrue interest on
approximately $253,000,000 of pre-petition debt. During 1996, the
Company had direct borrowings under a credit agreement with The First
National Bank of Boston on 102 days in the second and third quarters,
the highest amount of which was $28,672,000. Interest on direct
borrowings was incurred at a rate of prime plus 1.5%.
(e) The Company recognized an income tax credit of $1,103,000 in 1996,
representing a reduction of foreign income tax liabilities as a result
of negotiated settlements on prior years' estimated taxes. The Company
only paid state, local and foreign taxes in 1996.
(f) Amount reflects the gain recorded in the sale of the "HUE" trademark to
the Kayser-Roth Corporation.
(g) The Company incurred $911,000 of other non-recurring, non-operating
legal and administrative expense related to the August 25, 1999 merger
with an affiliate of TCF II and TCO.
(h) Amount consists of the following three components: gain on
sale/transfer of the Sassco Fashions line of $89,810,000 (net of
$3,728,000 of income taxes), charge for revaluation of assets and
liabilities pursuant to the adoption of fresh-start reporting of
($27,010,000) and gain on debt discharge (an extraordinary item) of
$73,541,000.
(i) Net income per share for the thirty-one weeks ended January 3, 1998 was
calculated based on 6,800,000 shares of new common stock, adjusted to
give effect to the 2 for 1 stock split effected in July 1998, issued in
connection with the consummation of the Plan. Earnings per common share
for the twenty-two weeks ended June 4, 1997 is not presented because
such presentation would not be meaningful. The old stock of 18,771,836
shares, used in calculating the net income per share in 1996, was
canceled under the Plan and the new stock was not issued until June 4,
1997.
VOTE REQUIRED AND RECOMMENDATION
Approval of this proposal requires the affirmative vote of at least
two-thirds of the outstanding shares of Common Stock on the Record Date and the
affirmative vote of more than 50% of the shares of Common Stock voting on such
matter that are not owned directly or indirectly by any of the Continuing
Stockholders or any of their affiliates.
-58-
THE BOARD RECOMMENDS A VOTE "FOR" APPROVAL OF THE PROPOSAL TO ADOPT THE
MERGER AGREEMENT.
PROPOSAL 2 - ADJOURNMENT PROPOSAL
The Company is submitting to its stockholders a proposal to authorize
the named attorneys-in-fact to vote in favor of the adjournment of the Special
Meeting in the event that there are not sufficient votes to approve the Merger
Agreement at the time of the Special Meeting. Even though a quorum may be
present at the Special Meeting, it is possible that the Company may not have
received sufficient votes to approve the Merger Agreement at the time of the
Special Meeting. In that event, such proposal could not be approved unless the
Special Meeting were adjourned in order to permit further solicitation of
Proxies.
In order to allow the Proxies that have been received by the Company at
the time of the Special Meeting to be voted for the Adjournment Proposal, if
necessary, the Company has submitted the question of adjournment under such
circumstances, and only under such circumstances, to the Company's stockholders
for their consideration. A majority of shares present at the Special Meeting is
required in order to approve the Adjournment Proposal.
The Board recommends that the Company's stockholders vote their Proxies
in favor of the Adjournment Proposal so that their Proxies may be used for such
purpose should it become necessary. Properly executed Proxies will be voted in
favor of the Adjournment Proposal unless otherwise noted thereon. If it is
necessary to adjourn the Special Meeting, no notice of the time and place of the
adjourned meeting is required to be given to the Company's stockholders other
than an announcement of such time and place at the Special Meeting. The
Adjournment Proposal relates only to an adjournment occurring for purposes of
soliciting additional Proxies for approval of the Merger Agreement in the event
that there are insufficient votes to approve such proposal at the Special
Meeting. Any other adjournment (E.G., an adjournment required because of the
absence of a quorum) would be voted upon pursuant to the discretionary authority
granted by the Proxies.
The Board retains full authority to postpone the Special Meeting prior
to the Special Meeting being convened without the consent of any of the
Company's stockholders.
VOTE REQUIRED AND RECOMMENDATION
Approval of this proposal requires the affirmative vote of a majority
of the votes cast by the holders of the shares of Common Stock, in person or by
proxy, at the Special Meeting and entitled to vote on this proposal. The
Continuing Stockholders have advised the Company that they intend to vote their
shares of Common Stock in favor of the Adjournment Proposal if submitted to a
vote at the Special Meeting. As a result, if submitted to a vote, this proposal
will be approved regardless of your vote, so long as the Continuing Stockholders
vote as they have advised the Company they intend to.
THE BOARD RECOMMENDS A VOTE "FOR" APPROVAL OF THIS PROPOSAL.
WHERE YOU CAN FIND MORE INFORMATION
The Commission allows the Company to "incorporate by reference"
information into its Proxy Statement, which means that the Company can disclose
certain important information by referring you to another document that is sent
to you with this Proxy Statement. The following
-59-
documents are incorporated by reference in this Proxy Statement and are deemed
to be a part hereof:
(1) The Company's Annual Report on Form 10-K for the fiscal year ended
December 30, 2000, as amended; and
(2) The Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 2001.
This Proxy Statement is accompanied by a copy of the Company's Annual
Report on Form 10-K for the fiscal year ended December 30, 2000, as amended and
the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001.
Any statement contained in a document or report all or a portion of
which is incorporated or deemed to be incorporated by reference herein, shall be
deemed to be modified or superseded for purposes of this Proxy Statement to the
extent that a statement contained 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 Proxy Statement.
The Company will provide without charge to any person to whom this
Proxy Statement is delivered, on the written or oral request of such person, a
copy of any or all of the foregoing documents (other than exhibits not
specifically incorporated by reference into the texts of such documents).
Requests for such documents should be directed to 1 Passan Drive, Laflin, Pa.
18702, Attention: Treasurer.
AVAILABLE INFORMATION
The Company files reports, proxy statements and other information with
the SEC. You may read and copy any report, proxy statement or other information
the Company files with the SEC at the Public Reference Room at 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the SEC's Regional Offices at 75 Park Place,
Room 1400, New York, New York 10007 and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. You may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In
addition, the Company files electronic versions of these documents on the SEC's
Electronic Data Gathering Analysis and Retrieval, or EDGAR, System. The SEC
maintains a web site at http.//www.sec.gov that contains reports, proxy
statements and other information filed with the SEC.
MISCELLANEOUS
STOCKHOLDER PROPOSALS
If the Merger is not consummated, the Company intends to hold its 2001
Annual Meeting of Stockholders on or about February 12, 2002. If this 2001
Annual Meeting is held, stockholder proposals that are intended to be considered
in the Company's Proxy Statement and proxy card for that meeting, must be
received at the Company's principal executive offices not later than November
15, 2001. As to any proposal that a stockholder intends to present to
stockholders without including it in the Company's Proxy Statement for the
Company's 2001 Annual Meeting of Stockholders, the proxies named in the Board's
proxy for that meeting will be entitled to exercise their discretionary
authority on that proposal unless the Company receives notice of the matter to
be proposed not later than November 28, 2001. Even if proper notice is received
on or prior to November 28, 2001, the proxies named in the Board's proxy for
that meeting may
-60-
nevertheless exercise their discretionary authority with respect to such matter
by advising stockholders of such proposal and how they intend to exercise their
discretion to vote on such matter, unless the stockholder making the proposal
solicits proxies with respect to such proposal as required by Rule 14a-4(c)(2)
under the Exchange Act.
OTHER MATTERS
The Board does not intend to bring before the Special Meeting for
action any matters other than those specifically referred to above and is not
aware of any other matters which are proposed to be presented by others. If any
other matters or motions should properly come before the Special Meeting, the
persons named in the Proxy intend to vote thereon in accordance with their
judgment on such matters or motions, including any matters or motions dealing
with the conduct of the Special Meeting.
No person is authorized to give any information or to make any
representations with respect to the matters described in this Proxy Statement
other than those contained herein. Any information or representations with
respect to such matters not contained herein or therein must not be relied upon
as having been authorized by the Company or the Buyers. The delivery of this
Proxy Statement shall not under any circumstances create any implication that
there has been no change in the affairs of the Company or the Buyers since the
date hereof or that the information in this Proxy Statement is correct as of any
time subsequent to the date hereof.
By Order of the Board of Directors,
WARREN T. WISHART
Secretary
October 19, 2001
-61-
EXECUTION COPY
--------------
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
BY AND AMONG
THREE CITIES FUND II, L.P.,
THREE CITIES OFFSHORE II C. V.,
LF ACQUISITION, LLC,
LF MERGER CO.
AND
THE LESLIE FAY COMPANY, INC.
DATED AS OF APRIL 27, 2001
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I THE MERGER........................................................................................2
Section 1.1 The Merger............................................................................2
Section 1.2 Closing...............................................................................2
Section 1.3 Effective Time........................................................................2
Section 1.4 Effects of the Merger.................................................................2
Section 1.5 Certificate of Incorporation and By-laws of the Surviving
Corporation........................................................................2
Section 1.6 Officers and Directors of the Surviving Corporation...................................2
ARTICLE II EFFECT OF MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS..................................................................................3
Section 2.1 Company Common Stock..................................................................3
Section 2.2 Merger Sub Shares.....................................................................3
Section 2.3 Exchange of Certificates..............................................................3
Section 2.4 Dissenting Shares.....................................................................5
Section 2.5 Stock Options.........................................................................5
Section 2.6 Lost, Stolen or Destroyed Certificates................................................6
Section 2.7 Adjustments to Prevent Dilution.......................................................6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY...................................................6
Section 3.1 Organization and Qualification; Subsidiaries..........................................6
Section 3.2 Certificate of Incorporation and By-Laws..............................................6
Section 3.3 Capitalization........................................................................7
Section 3.4 Authority.............................................................................7
Section 3.5 No Conflict...........................................................................8
Section 3.6 Required Filings and Consents.........................................................8
Section 3.7 Permits; Compliance with Law..........................................................8
Section 3.8 SEC Filings; Financial Statements.....................................................9
Section 3.9 Absence of Certain Changes or Events..................................................9
Section 3.10 Litigation............................................................................9
Section 3.11 Environmental Matters................................................................10
Section 3.12 Contracts............................................................................10
Section 3.13 Taxes................................................................................10
Section 3.14 Brokers..............................................................................10
Section 3.15 Certain Statutes.....................................................................10
Section 3.16 Information..........................................................................10
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYERS, PARENT AND
MERGER SUB...............................................................................................11
Section 4.1 Organization.........................................................................11
Section 4.2 Certificate of Incorporation and By-Laws.............................................11
Section 4.3 Capitalization of Merger Sub.........................................................11
i
TABLE OF CONTENTS
-----------------
Page
----
Section 4.4 Authority............................................................................11
Section 4.5 No Conflict..........................................................................11
Section 4.6 Required Filings and Consents........................................................12
Section 4.7 Brokers..............................................................................12
Section 4.8 Information..........................................................................12
Section 4.9 Interim Operations of Merger Sub.....................................................12
ARTICLE V COVENANTS........................................................................................13
Section 5.1 Conduct of Business of the Company...................................................13
Section 5.2 Certain Interim Operations...........................................................13
Section 5.3 Other Actions........................................................................13
Section 5.4 Notification of Certain Matters......................................................13
Section 5.5 Proxy Statement......................................................................13
Section 5.6 Stockholders' Meeting................................................................15
Section 5.7 Access to Information................................................................15
Section 5.8 No Solicitation......................................................................15
Section 5.9 Directors' and Officers' Indemnification.............................................16
Section 5.10 Consents; Filings; Further Action....................................................17
Section 5.11 Public Announcements.................................................................17
Section 5.12 Expenses.............................................................................18
Section 5.13 Takeover Statutes....................................................................18
ARTICLE VI CONDITIONS......................................................................................18
Section 6.1 Conditions to Each Party's Obligation to Effect the Merger...........................18
Section 6.2 Conditions to Obligation of Buyers, Parent and the Merger
Sub...............................................................................18
Section 6.3 Conditions to Obligation of the Company..............................................18
ARTICLE VII TERMINATION....................................................................................19
Section 7.1 Termination..........................................................................19
Section 7.2 Effect of Termination................................................................20
ARTICLE VIII MISCELLANEOUS.................................................................................20
Section 8.1 Defined Terms........................................................................20
Section 8.2 Non-Survival of Representations and Warranties.......................................22
Section 8.3 Venue; Waiver Of Jury Trial..........................................................22
Section 8.4 Notices..............................................................................23
Section 8.5 Entire Agreement.....................................................................24
Section 8.6 No Third-Party Beneficiaries.........................................................24
Section 8.7 Obligations of Buyers and of the Company.............................................25
Section 8.8 Counterparts.........................................................................25
Section 8.9 Interpretation.......................................................................25
Section 8.10 Assignment...........................................................................25
Section 8.11 Specific Performance.................................................................25
ii
Section 8.12 Waivers and Amendments; Non-Contractual Remedies;
Preservation of Remedies..........................................................25
Section 8.13 Usage................................................................................25
Section 8.14 Headings.............................................................................26
Section 8.15 Further Assurances...................................................................26
iii
INDEX OF DEFINED TERMS
----------------------
Page
Agreement......................................................................1
Blue Sky Laws..................................................................8
Buyers.........................................................................1
Certificate of Merger..........................................................2
Charter Documents..............................................................6
Closing........................................................................2
Closing Date...................................................................2
Code...........................................................................5
Common Shares..................................................................1
Company........................................................................1
Company Disclosure Letter......................................................7
Company Option Plans...........................................................5
Company Permits................................................................9
Company Preferred Stock........................................................7
Company SEC Reports............................................................9
Company Stock Option...........................................................5
Company Stockholders Meeting..................................................14
Company Subsidiaries...........................................................6
Consideration Certificates.....................................................4
D&O Insurance.................................................................17
Delaware State Secretary.......................................................2
DGCL...........................................................................1
Dissenting Shares..............................................................5
Dissenting Stockholder.........................................................5
Effective Time.................................................................2
Exchange Agent.................................................................4
Financial Advisor.............................................................10
Form 10-K......................................................................7
Indemnified Parties...........................................................17
Merger.........................................................................1
Merger Consideration...........................................................1
Merger Convertible Shares......................................................3
Merger Sub.....................................................................1
Merger Sub Charter Documents..................................................11
Merger Sub Common Stock........................................................3
Original Agreement.............................................................1
Parent.........................................................................1
Parent Charter Documents......................................................11
Proxy Statement...............................................................14
Representatives...............................................................15
Requisite Company Vote.........................................................7
Securities Act.................................................................8
Special Committee..............................................................1
Surviving Corporation..........................................................1
i
Surviving Corporation Common Shares............................................1
Takeover Proposal.............................................................16
TCF II.........................................................................1
TCO............................................................................1
Treasury Shares................................................................3
ii
ANNEX A
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
-------------------------------------------------
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER, is made and
entered into as of this 27th day of April, 2001 (the "Agreement"), by and among
THREE CITIES FUND II, L.P., a Delaware limited partnership ("TCF II"), THREE
CITIES OFFSHORE II C.V., a Netherlands Antilles limited partnership ("TCO" and,
together with TCF II, "Buyers"), LF ACQUISITION, LLC, a Delaware limited
liability company organized by Buyers and formerly known as LF Acquisition Co.
("Parent"), LF MERGER CO., a Delaware corporation owned by Parent ("Merger
Sub"), and THE LESLIE FAY COMPANY, INC., a Delaware corporation (the "Company").
WHEREAS, Buyers, Parent and the Company desire that Merger Sub merge
with and into the Company (the "Merger"), upon the terms and conditions set
forth herein and in accordance with the General Corporation Law of the State of
Delaware (the "DGCL") with the result that the Company shall continue as the
surviving corporation (the "Surviving Corporation") and the separate existence
of Merger Sub shall cease;
WHEREAS, Buyers, Parent and the Company desire that upon the Merger, at
the Effective Time (as hereinafter defined), each issued and outstanding share
of common stock, par value $.01 per share, of the Company (collectively, the
"Common Shares"), other than Parent-Owned Shares, Treasury Shares and Dissenting
Shares (each as hereinafter defined) be converted into the right to receive
$5.00 per Common Share in cash (the "Merger Consideration"), upon the terms and
subject to the conditions provided for herein;
WHEREAS, Buyers, Parent and the Company desire that upon the Merger, at
the Effective Time, each issued and outstanding share of capital stock of Merger
Sub be converted into one (1) validly issued, fully paid and non-assessable
share of common stock, par value $.01 per share, of the Surviving Corporation
(collectively, the "Surviving Corporation Common Shares");
WHEREAS, a Special Committee (the "Special Committee") of the Board of
Directors of the Company (composed entirely of directors who have no direct or
indirect interest in the transactions contemplated hereby) and the respective
Boards of Directors of the Company, Parent and Merger Sub have each approved
this Agreement and declared it to be advisable;
WHEREAS, Buyers own 3,269,966 Common Shares in the aggregate which,
together with an aggregate of 609,556 Common Shares owned by management of the
Company, 8,000 Common Shares owned by certain affiliates of Buyers and 442,408
Common Shares owned by Constable Asset Management, Ltd., will be exchanged for
an equal number of limited liability company interests of Parent immediately
prior to the Effective Time; and
WHEREAS, Buyers, Parent, Merger Sub and the Company have previously
entered into an Agreement and Plan of Merger, dated March 26, 2001 (the
"Original Agreement") and the parties desire to amend and restate the Original
Agreement to provide that Common Shares held by Parent or Merger Sub shall
remain outstanding Surviving Corporation Common Shares and not be cancelled in
the Merger;
NOW, THEREFORE, in consideration of the premises and representations,
warranties, covenants and agreements contained herein, the parties hereto,
intending to be legally bound, agree as follows:
A-1
ARTICLE I
THE MERGER
Section 1.1 The Merger. Upon the terms and subject to the conditions
set forth in this Agreement, and in accordance with the DGCL at the Effective
Time (as defined herein), Merger Sub shall be merged with and into the Company,
whereupon the separate existence of Merger Sub shall cease, and the Company
shall continue as the Surviving Corporation.
Section 1.2 Closing. Upon the terms and subject to the conditions of
this Agreement, the closing of the Merger (the "Closing") shall take place as
soon as practicable, but in no event later than the second business day (the
"Closing Date") following satisfaction or waiver of all of the conditions set
forth in Article VI, at the offices of Paul, Weiss, Rifkind, Wharton & Garrison,
1285 Avenue of the Americas, New York, New York or at such other place and time
and/or other date as agreed to in writing by the parties hereto.
Section 1.3 Effective Time. At the Closing Date (or on such other date
as the parties hereto agree may agree), the Company will cause a Certificate of
Merger (the "Certificate of Merger") and all other filings required by Delaware
law in connection with the Merger to be executed in accordance with the relevant
provisions of the DGCL, and delivered for filing with the Secretary of State of
the State of Delaware (the "Delaware State Secretary"). The Merger shall become
effective upon the filing of the Certificate of Merger with the Delaware State
Secretary or at such later time as Buyers and the Company shall agree and as is
specified in the Certificate of Merger (the "Effective Time").
Section 1.4 Effects of the Merger. The Merger shall have the effects
set forth in the applicable provisions of the DGCL. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time, all
property of the Company and Merger Sub shall vest in the Surviving Corporation,
and all liabilities and obligations of the Company and Merger Sub shall become
liabilities and obligations of the Surviving Corporation.
Section 1.5 Certificate of Incorporation and By-laws of the Surviving
Corporation. Pursuant to the Merger, the Certificate of Incorporation of the
Surviving Corporation shall be the Certificate of Incorporation of Merger Sub in
effect immediately prior to the Effective Time, until thereafter changed or
amended as provided therein or by applicable law, except that as of the
Effective Time, Article I of such Certificate of Incorporation shall be amended
to read as follows: "The name of the Corporation is The Leslie Fay Company,
Inc." The By-laws of the Surviving Corporation shall be the By-laws of Merger
Sub in effect immediately prior to the Effective Time, until thereafter changed
or amended as provided therein or by applicable law.
Section 1.6 Officers and Directors of the Surviving Corporation.
(a) The directors of the Merger Sub immediately prior to the
Effective Time will be the directors of the Surviving Corporation, and they
shall hold office until their respective successors are duly elected or
appointed or qualified or until their earlier death, resignation or removal in
accordance with the Certificate of Incorporation and By-laws as in effect from
time to time of the Surviving Corporation. (b) The officers of the Company
immediately prior to the Effective Time will be the officers of the Surviving
Corporation, and they shall hold office until their respective successors are
duly elected or appointed or qualified or until their earlier death, resignation
or removal in accordance with the Certificate of Incorporation and By-laws as in
effect from time to time of the Surviving Corporation.
A-2
ARTICLE II EFFECT OF MERGER ON THE
CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS
Section 2.1 Company Common Stock. Except as otherwise provided in
Section 2.4 with respect to Common Shares as to which appraisal rights have been
exercised, at the Effective Time, each Common Share issued and outstanding
immediately prior to the Effective Time:
(a) in the case of Common Shares owned by the Company as treasury
shares ("Treasury Shares") immediately prior to the Effective Time, each shall,
by virtue of the Merger and without any action on the part of the holder of any
such Common Shares, no longer be outstanding, shall be cancelled and retired
without payment of any consideration therefor and shall cease to exist;
(b) in the case of Common Shares other than Treasury Shares,
Parent-Owned Shares and Dissenting Shares (as each such term is defined above
and below), each shall, by virtue of the Merger and without any action on the
part of the holder of any such Common Shares, be converted into and become a
right to receive the Merger Consideration in cash, without interest, and when so
converted, shall automatically be canceled and retired and shall cease to exist,
and each holder of a certificate representing any such Common Shares (the
"Merger Convertible Shares") shall cease to have any rights with respect
thereto, except the right to receive the Merger Consideration allocable to the
shares formerly represented by such certificate upon surrender of such
certificate in accordance with Section 2.3; and
(c) in the case of Common Shares owned by the Parent or Merger
Sub immediately prior to the Effective Time ("Parent Owned Shares") each shall
remain outstanding as a Surviving Corporation Common Share.
Section 2.2 Merger Sub Shares. At the Effective Time, each of the
shares of common stock, par value $0.01 per share, of Merger Sub ("Merger Sub
Common Stock") issued and outstanding immediately prior to the Effective Time
shall, by virtue of the Merger and without any action on the part of the holder
thereof, automatically be converted into one (1) Surviving Corporation Common
Share.
Section 2.3 Exchange of Certificates.
(a) Exchange Agent. Prior to the Effective Time, the Company
shall authorize an exchange agent satisfactory to Buyers to act as Exchange
Agent hereunder (the "Exchange Agent") for the purpose of exchanging
certificates representing Common Shares for the Merger Consideration. Prior to
the Effective Time, Parent shall deposit the aggregate Merger Consideration into
an interest-bearing account under the control of the Exchange Agent, and shall
A-3
cause disbursements to be made from such account from time to time in respect of
payments of the Merger Consideration. For purposes of determining the Merger
Consideration to be so deposited, Parent shall assume that no holder of Common
Shares will perfect its right to appraisal of its Common Shares.
(b) Exchange Procedures. Promptly after the Effective Time, the
Exchange Agent shall mail to each holder of record of Merger Convertible Shares
(i) a letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the certificates representing such
Merger Convertible Shares (the "Consideration Certificates") shall pass, only
upon delivery of the Consideration Certificates to the Exchange Agent and shall
be in such form and have such other provisions as the Exchange Agent may
reasonably specify), and (ii) instructions for use in effecting the surrender of
the Consideration Certificates in exchange for the Merger Consideration. Upon
surrender to the Exchange Agent of one or more Consideration Certificates,
together with a properly completed and duly executed letter of transmittal, and
acceptance thereof by the Exchange Agent, the holder thereof shall be entitled
to the amount of cash into which the number of Merger Convertible Shares
represented by such Consideration Certificates surrendered shall have been
converted pursuant to this Agreement. The Exchange Agent shall accept such
Consideration Certificates upon compliance with such reasonable terms and
conditions as the Exchange Agent may impose to effect an orderly exchange
thereof in accordance with normal exchange practices. After the Effective Time,
there shall be no further transfer on the records of the Company or its transfer
agent of certificates representing Common Shares and if such certificates are
presented to the Company for transfer, they shall be canceled against delivery
of the Merger Consideration allocable to the Common Shares represented by such
certificate or certificates. If any Merger Consideration is to be remitted to a
name other than that in which the Consideration Certificate surrendered for
exchange is registered, it shall be a condition of such exchange that the
Consideration Certificate so surrendered shall be properly endorsed, with
signature guaranteed, or otherwise be in proper form for transfer and that the
person requesting such exchange shall pay to the Company, or its transfer agent,
any transfer or other taxes required by reason of the payment of the Merger
Consideration to a name other than that of the registered holder of the
Consideration Certificate surrendered, or establish to the satisfaction of the
Company or its transfer agent that such tax has been paid or is not applicable.
Until surrendered as contemplated by this Section 2.3, each certificate for
Common Shares (with the exception of Dissenting Shares, Parent-Owned Shares and
Treasury Shares) shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender the Merger Consideration
allocable to the shares represented by such certificate as contemplated by
Section 2.1(b). No interest will be paid or will accrue on any amount payable as
Merger Consideration.
(c) No Further Ownership Rights in the Company Stock. The Merger
Consideration paid upon the surrender for exchange of Consideration Certificates
in accordance with the terms of this Section 2.3 shall be deemed to have been
paid in full satisfaction of all rights pertaining to the Common Shares formerly
represented by such certificates.
(d) Undistributed Merger Consideration. Any portion of the Merger
Consideration (including any interest and other income received in respect of
all such funds) which remains undistributed to the holders of the certificates
formerly representing Common Shares for six months after the Effective Time
shall be delivered to the Surviving Corporation, upon demand and to the extent
demand has been made, and any holders of Common Shares prior to the Merger who
have not theretofore complied with this Section 2.3 shall
A-4
thereafter look only to the Surviving Corporation, and only as general creditors
thereof, for payment of their claim for Merger Consideration to which such
holders may be entitled.
(e) No Liability. No party to this Agreement shall be liable to
any Person in respect of any amount from the funds deposited pursuant to this
Article II delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law.
(f) Withholding Rights. The Company shall be entitled to deduct
and withhold from the Merger Consideration otherwise payable pursuant to this
Agreement to any holder of Common Shares such amounts as the Company is required
to deduct and withhold with respect to the making of such payment under the
Internal Revenue Code of 1986, as amended (the "Code"), or any provision of
state, local or foreign tax law. To the extent that amounts are so withheld by
the Company, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the Common Shares in respect of
which such deduction and withholding was made by the Company.
Section 2.4 Dissenting Shares. Notwithstanding anything in this
Agreement to the contrary, Common Shares issued and outstanding immediately
prior to the Effective Time held by any Person who has the right to demand, and
who properly demands (a "Dissenting Stockholder"), an appraisal of such shares
("Dissenting Shares"), in accordance with Section 262 of the DGCL (or any
successor provision) shall not be converted into a right to receive the Merger
Consideration, unless such holder fails to perfect, withdraws or otherwise loses
such holder's right to such appraisal, if any. If, upon or after the Effective
Time, such holder fails to perfect, withdraws or otherwise loses any such right
to appraisal and payment under the DGCL, then, as of the Effective Time or the
occurrence of such event, whichever last occurs, each such share of such holder
shall cease to be Dissenting Shares and shall be converted into and represent
the right to receive Merger Consideration, in accordance with Section 2.1(b).
The Company shall provide Merger Sub (i) prompt notice of any written demand for
appraisal or payment of the fair value of any Common Shares, withdrawals of such
demands, and any other instruments served pursuant to the DGCL received by or on
behalf of the Company and (ii) the opportunity to direct all negotiations and
proceedings with respect to demands for appraisal under the DGCL. The Company
shall not, except with the prior written consent of Merger Sub, make any payment
with respect to, or settle or offer to settle, any such demands.
Section 2.5 Stock Options.
(a) Pursuant to the Merger, at the Effective Time, the Company
shall assign to, and Parent shall assume: (i) the 1997 Management Stock Option
Plan and (ii) the 1997 Non-Employee Director Stock Option and Stock Incentive
Plan (collectively, the "Company Option Plans").
(b) Each outstanding option to purchase Common Shares (a "Company
Stock Option"), whether or not vested, will be assumed by Parent and shall be
deemed to constitute an option to acquire, on substantially the same terms and
conditions as were applicable under such Company Stock Option (including,
without limitation, as to vesting and expiration), the same number of limited
liability company interests as the number of Common Shares such Company Stock
Option entitled the holder thereof to purchase as set forth in Schedule 3.3(c)
of the Company Disclosure Letter (as defined below).
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(c) Prior to the Effective Time, the Company shall use its best
efforts to (i) obtain any consents from holders of the Company Stock Options and
(ii) make any amendments to the terms of the Company Stock Option Plans and any
options granted thereunder that are necessary or appropriate to give effect to
the transactions contemplated by this Section 2.5.
Section 2.6 Lost, Stolen or Destroyed Certificates. In the event any
certificate shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the Person claiming such certificate to be lost,
stolen or destroyed and the posting by such Person of a bond in the form
customarily required by the Company as indemnity against any claim that may be
made against it with respect to such certificate, the Exchange Agent will issue
in exchange for such lost, stolen or destroyed certificate the Merger
Consideration in respect of that certificate payable under this Article II,
without interest.
Section 2.7 Adjustments to Prevent Dilution. In the event that prior
to the Effective Time there is a change in the number of Common Shares or
securities convertible or exchangeable into or exercisable for Common Shares
issued and outstanding as a result of a distribution, reclassification, stock
split (including a reverse stock split), stock dividend or distribution or other
similar transaction, the numbers of Common Shares set forth herein, and the
Merger Consideration, shall be equitably adjusted to eliminate the effects of
that event.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Buyers, Parent and Merger Sub
that, except as set forth in the Company SEC Reports (as defined in Section 3.8)
that are publicly available prior to the date of this Agreement:
Section 3.1 Organization and Qualification; Subsidiaries.
(a) Each of the Company and each subsidiary of the Company
(collectively, the "Company Subsidiaries") has been duly organized and is
validly existing and in good standing under the laws of the jurisdiction of its
incorporation or organization, as the case may be, and has the requisite power
and authority and all necessary governmental approvals to own, lease and operate
its properties and to carry on its business as it is now being conducted.
Section 3.2 Certificate of Incorporation and By-Laws. Copies of the
Company's Amended and Restated Certificate of Incorporation and By-laws, each as
amended through the date of this Agreement (collectively, the "Charter
Documents") that are listed as exhibits in the Company's Annual Report on Form
10-K for the fiscal year ended January 1, 2000 ("Form 10-K") are complete and
correct copies of those documents. The Company Charter Documents and all
comparable corporate organizational documents of the Company Subsidiaries are in
full force and effect. The Company is not in violation of any of the provisions
of the Company Charter Documents.
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Section 3.3 Capitalization.
(a) The authorized capital stock of the Company consists of (i)
20,000,000 Common Shares and (ii) 500,000 shares of preferred stock, par value
$0.01 per share, of the Company ("Company Preferred Stock"). As of the date
hereof, (i) 5,919,452 Common Shares are issued and outstanding, all of which
were duly authorized and validly issued and are fully paid, nonassessable and
not subject to preemptive rights, (ii) 1,817,100 Common Shares are held in the
treasury of the Company and (iii) no shares of Company Preferred Stock are
issued and outstanding.
(b) Other than in connection with this Agreement, there are no
outstanding contractual obligations of the Company or any Company Subsidiary to
repurchase, redeem or otherwise acquire any Common Shares or any capital stock
of any Company Subsidiary.
(c) As of the date hereof, an aggregate of 588,060 Company Stock
Options are outstanding under the Company Option Plans. Except (i) for such
Company Stock Options and (ii) under agreements or arrangements set forth in
Schedule 3.3(c) of the Company Disclosure Letter, there are no options,
warrants, conversion rights, stock appreciation rights, redemption rights,
repurchase rights or other rights, agreements, arrangements or commitments of
any character to which the Company is a party or by which the Company is bound
relating to the issued or unissued capital stock of the Company or any Company
Subsidiary or obligating the Company or any Company Subsidiary to issue or sell
any shares of capital stock of, or other equity interests in, the Company or any
Company Subsidiary. Schedule 3.3(c) of the letter from the Company, dated the
date hereof, addressed to Buyers and Merger Sub (the "Company Disclosure
Letter") sets forth, as of the date of this Agreement, (x) the Persons to whom
Company Stock Options have been granted, (y) the exercise price for the Company
Stock Options held by each such Person and (z) whether such Company Stock
Options are subject to vesting and, if subject to vesting, the dates on which
each of those Company Stock Options vest.
Section 3.4 Authority.
(a) The Company has all necessary corporate power and authority
to execute and deliver this Agreement, to perform its obligations under this
Agreement and to consummate the Merger and the other transactions contemplated
by this Agreement to be consummated by the Company. The execution and delivery
of this Agreement by the Company and the consummation by the Company of such
transactions have been duly and validly authorized by all necessary corporate
action and no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement or to consummate such transactions, other
than the adoption of this Agreement by a vote of (i) at least 66 2/3% of the
outstanding Common Shares, and (ii) at least 50% of the outstanding Common
Shares voting on the matter not owned directly or indirectly by Buyers or any
affiliate of Buyers (the "Requisite Company Vote"). This Agreement (assuming
receipt of the Requisite Company Vote) has been duly authorized and validly
executed and delivered by the Company and constitutes a legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms.
(b) The Board of Directors (i) has unanimously adopted the plan
of merger set forth in this Agreement and approved this Agreement and the other
transactions contemplated by this Agreement, and (ii) has declared that the
Merger is advisable and subject to Section 5.8(b), will recommend that the
stockholders vote in favor of this Agreement.
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Section 3.5 No Conflict.
(a) Assuming that the Requisite Company Vote is obtained, the
execution and delivery of this Agreement by the Company do not, and the
performance of this Agreement by the Company will not:
(i) conflict with or violate any provision of any Company
Charter Document or any equivalent organizational documents of any Company
Subsidiary;
(ii) assuming that all consents, approvals, authorizations
and other actions described in Section 3.5(b) have been obtained and all
filings described in Section 3.6 have been made, conflict with or violate
any Law applicable to the Company or any Company Subsidiary or by which any
property or asset of the Company or any Company Subsidiary is or may be
bound or affected except for lack of consents, approvals, authorizations
and other actions which, individually or in the aggregate, have not
resulted and could not reasonably be expected to result in a Company
Material Adverse Effect; or
(b) result in any breach of or constitute a default (or an event
which with or without notice or lapse of time or both would become a default)
under, or give to others any right of termination, amendment, acceleration or
cancellation of, or result in the creation of a Lien on any property or asset of
the Company or any Company Subsidiary under any Contract to which the Company or
any Company Subsidiary is a party or by which any of them or their assets or
properties is or may be bound or affected, except for such breaches, defaults or
other occurrences which, individually or in the aggregate, have not resulted and
could not reasonably be expected to result in a Company Material Adverse Effect.
Section 3.6 Required Filings and Consents. The execution and delivery
of this Agreement by the Company do not, and the performance of this Agreement
by the Company will not, require any consent, approval, authorization or permit
of, or filing with or notification to, any Governmental Entity, except for (i)
applicable filings required pursuant to the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), Securities Act of 1933, as amended (the
"Securities Act"), and applicable state securities or "blue sky" laws ("Blue Sky
Laws"), if any, (ii) the filing of the Certificate of Merger as required by the
DGCL and (iii) where failure to obtain such consents, approvals, authorizations
or permits, or to make such filings or notifications, individually or in the
aggregate, have not resulted and could not reasonably be expected to result in a
Company Material Adverse Effect.
Section 3.7 Permits; Compliance with Law. Each of the Company and the
Company Subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exceptions, consents, certificates,
approvals and orders of any Governmental Entity necessary for the Company or any
Company Subsidiary to own, lease and operate its properties or to carry on its
business as it is now being conducted (collectively, the "Company Permits") (but
not including, however, Company Permits relating to compliance with Safety and
Environmental Laws (as defined herein), which are addressed in Section 3.11),
except where the failure to have, or the suspension or cancellation of, any of
the Company Permits, individually or in the aggregate, has not resulted and
could not reasonably be expected to result in a Company Material Adverse Effect,
and, as of the date of this Agreement, no suspension or cancellation of any of
the Company Permits is pending or, to the knowledge of the Company,
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threatened, except where the failure to have, or the suspension or cancellation
of, any of the Company Permits, individually or in the aggregate, has not
resulted and could not reasonably be expected to result in a Company Material
Adverse Effect. Neither the Company nor any Company Subsidiary is in conflict
with, or in default or violation of, (i) any Law (but not including, however,
any Safety and Environmental Laws, which is addressed in Section 3.11)
applicable to the Company or any Company Subsidiary or by which any property or
asset of the Company or any Company Subsidiary is or may be bound or affected or
(ii) any Company Permits, except for any such conflicts, defaults or violations
that, individually or in the aggregate, have not resulted and could not
reasonably be expected to result in a Company Material Adverse Effect.
Section 3.8 SEC Filings; Financial Statements.
(a) The Company has filed all forms, reports, statements and
other documents (including all exhibits, annexes, supplements and amendments to
such documents) required to be filed by it under the Exchange Act and the
Securities Act since June 4, 1997 (collectively, including any such documents
filed subsequent to the date of this Agreement, the "Company SEC Reports") and
the Company has made available to Buyers, Parent and Merger Sub all of the
Company SEC Reports filed with the SEC. The Company SEC Reports, including any
financial statements or schedules included or incorporated by reference, (i)
comply in all material respects with the requirements of the Exchange Act or the
Securities Act or both, as the case may be, applicable to those Company SEC
Reports and (ii) did not at the time they were filed contain any untrue
statement of a material fact or omit to state a material fact required to be
stated or necessary in order to make the statements made in those Company SEC
Reports, in the light of the circumstances under which they were made, not
misleading. No Company Subsidiary is subject to the periodic reporting
requirements of the Exchange Act or is otherwise required to file any documents
with the SEC or any national securities exchange or quotation service or
comparable Governmental Entity.
(b) Each of the consolidated balance sheets included in or
incorporated by reference into the Company SEC Reports (including the related
notes and schedules) fairly presented, in all material respects, the
consolidated financial position of the Company as of the dates set forth in
those consolidated balance sheets. Each of the consolidated statements of income
and of cash flows included in or incorporated by reference into the Company SEC
Reports (including any related notes and schedules), fairly presented, in all
material respects, the consolidated results of operations and cash flows, as the
case may be, of the Company and the consolidated Company Subsidiaries for the
periods set forth in those consolidated statements of income and of cash flows
(subject, in the case of unaudited quarterly statements, to notes and normal
year-end audit adjustments that will not be material in amount or effect), in
each case in conformity with GAAP (except, in the case of unaudited quarterly or
other interim statements, as permitted by Form 10-Q of the SEC) consistently
applied throughout the periods indicated.
Section 3.9 Absence of Certain Changes or Events. Since December 30,
2000, the Company and the Company Subsidiaries have conducted their businesses
only in the ordinary course and in a manner consistent with past practice and,
since February 28, 2001, there has not been any Company Material Adverse Effect.
Section 3.10 Litigation. There are no claims pending or, to the
knowledge of the Company, threatened against the Company or any Company
Subsidiary before any Governmental
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Entity, which if adversely determined, individually or in the aggregate, could
reasonably be expected to result in a Company Material Adverse Effect. Neither
the Company nor any Company Subsidiary is subject to any outstanding order,
writ, injunction or decree, which, individually or in the aggregate, has
resulted or could reasonably be expected to result in a Company Material Adverse
Effect. The foregoing representation shall not apply to any claims disclosed in
the Company SEC Reports filed prior to the date of this Agreement.
Section 3.11 Environmental Matters. Except as has not had or could not
reasonably be expected to have a Company Material Adverse Effect, (i) each of
the Company and Company Subsidiaries is and has been in material compliance with
all applicable Safety and Environmental Laws and (ii) there is no Environmental
Claim (as defined herein) pending or threatened against either of the Company or
Company Subsidiaries and there is no civil, criminal or administrative judgment
or notice of violation against either of the Company and Company Subsidiaries
pursuant to Safety and Environmental Laws or principles of common law relating
to pollution, protection of the Environment (as defined herein) or health and
safety.
Section 3.12 Contracts. Neither the Company nor any Company Subsidiary
is, or, as a result of the execution and delivery of this Agreement or the
performance of its obligations under this Agreement, will be, in violation of
any Contract, except for violations that, individually or in the aggregate, have
not resulted and could not reasonably be expected to result in a Company
Material Adverse Effect.
Section 3.13 Taxes. Except to the extent that failure to do so,
individually or in the aggregate, has not resulted and could not reasonably be
expected to result in a Company Material Adverse Effect, the Company and the
Company Subsidiaries have filed all Tax returns and reports to be filed by them
and have paid, or established adequate reserves for, all Taxes required to be
paid by them. Except for deficiencies which, individually or in the aggregate,
have not resulted and could not reasonably be expected to result in a Company
Material Adverse Effect, no deficiencies for any Taxes have been proposed,
asserted or assessed against the Company or any Company Subsidiaries, and no
requests for waivers of the time to assess any such Taxes are pending.
Section 3.14 Brokers. Except for Conway, Del Genio Gries & Co. LLC
(the "Financial Advisor"), no broker, finder or investment banker is entitled to
any brokerage, finder's or other fee or commission in connection with the Merger
or the other transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Company. Prior to the date of this Agreement, the
Company has made available to Buyers, Parent and Merger Sub a complete and
correct copy of all agreements between the Company and the Financial Advisor
under which the Financial Advisor would be entitled to any payment relating to
the Merger and any other transactions contemplated hereby.
Section 3.15 Certain Statutes. The Board of Directors of the Company
has taken all appropriate and necessary actions to ensure that the restrictions
on "business combinations" in Section 203 of the DGCL will not apply to this
Agreement, the Merger or the other transactions contemplated by this Agreement.
Section 3.16 Information. None of the information to be supplied by
the Company for inclusion or incorporation by reference in the Proxy Statement
will, at the time of the mailing of the Proxy Statement and any amendments
thereof or supplements thereto and at the time of the Company Stockholders
Meeting (as defined in Section 5.5), contain any untrue
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statement of a material fact or omit to state any material fact required to be
stated in that Proxy Statement, amendment thereof or supplement thereto, or
necessary in order to make the statements in that Proxy Statement, amendment
thereof or supplement thereto, in light of the circumstances under which they
are made, not misleading. The Proxy Statement and amendments thereof or
supplements thereto, if any, will comply as to form in all material respects
with all applicable provisions of the Securities Act and the Exchange Act.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF BUYERS, PARENT AND MERGER SUB
Each of Buyers, Parent and Merger Sub, as the case may be, represents
and warrants to the Company that:
Section 4.1 Organization. Each of Buyers, Parent and Merger Sub has
been duly organized and is validly existing and in good standing under the laws
of its jurisdiction of organization, and has the requisite power and authority
and all necessary governmental approvals to own, lease and operate its
properties and to carry on its business as it is now being conducted.
Section 4.2 Certificate of Incorporation and By-Laws. Complete copies
of the certificate of incorporation and by-laws of Merger Sub (collectively, the
"Merger Sub Charter Documents") and the organizational documents of Parent
(collectively, the "Parent Charter Documents") have been made available to the
Company. The Merger Sub is not in violation of any of the provisions of Merger
Sub Charter Documents. The Parent is not in violation of any of the provisions
of Parent Charter Documents.
Section 4.3 Capitalization of Merger Sub. Parent owns, directly or
indirectly, all of the outstanding capital stock of Merger Sub. Other than the
shares of Merger Sub Common Stock outstanding on the date hereof, Merger Sub has
no capital stock, options, warrants or other securities of any type outstanding
on the date hereof.
Section 4.4 Authority. Each of Buyers, Parent and Merger Sub has all
necessary partnership, limited liability company and corporate power, as the
case may be, and authority to execute and deliver this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated hereby to
be consummated by it. The execution and delivery of this Agreement by each of
Buyers, Parent and Merger Sub and the consummation by each of Buyers, Parent and
Merger Sub of such transactions have been duly and validly authorized by all
necessary partnership, limited liability company and corporate action, as the
case may be, and no other company proceedings on the part of Buyers, Parent or
Merger Sub are necessary to authorize this Agreement or to consummate such
transactions. This Agreement has been duly authorized and validly executed and
delivered by each of Buyers, Parent and Merger Sub and constitutes a legal,
valid and binding obligation of each of Buyers, Parent and Merger Sub,
enforceable against each of Buyers, Parent and Merger Sub in accordance with its
terms.
Section 4.5 No Conflict. The execution and delivery of this Agreement
by Buyers, Parent and Merger Sub do not, and the performance of this Agreement
by each of Buyers, Parent and Merger Sub will not:
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(a) conflict with or violate any provision of any Merger Sub
Charter Document, Parent Charter Document or the partnership agreements of
Buyers;
(b) assuming that all consents, approvals, authorizations and
other actions described in Section 4.6 have been obtained and all filings and
obligations described in Section 4.6 have been made, conflict with or violate
any Law applicable to Buyers, Parent or Merger Sub or by which any property or
asset of Buyers, Parent or Merger Sub is or may be bound or affected; or
(c) result in any breach of or constitute a default (or an event
which with or without notice or lapse of time or both would become a default)
under, or give to others any right of termination, amendment, acceleration or
cancellation of, or result in the creation of a Lien on any property or asset of
Buyers, Parent or Merger Sub under any Contract to which Buyers, Parent or
Merger Sub is a party or by which any of them or their assets or properties is
or may be bound or affected except for such breaches, defaults or other
occurrences which, individually or in the aggregate, have not resulted and could
not reasonably be expected to result in a Buyer Material Adverse Effect.
Section 4.6 Required Filings and Consents. The execution and delivery
of this Agreement by Buyers, Parent and Merger Sub do not, and the performance
of this Agreement by Buyers, Parent and Merger Sub will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any Government Entity except (i) for applicable filings required pursuant to
the Exchange Act, Securities Act, and applicable state securities or Blue Sky
Laws, if any, (ii) the filing of the Certificate of Merger as required by the
DGCL and (iii) where failure to obtain such consents, approvals, authorizations
or permits, or to make such filings or notifications, individually or in the
aggregate, have not resulted and could not reasonably be expected to result in a
Buyer Material Adverse Effect.
Section 4.7 Brokers. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the Merger and the other transactions contemplated hereby based upon
arrangements made by or on behalf of Buyers, Parent or Merger Sub.
Section 4.8 Information. None of the information to be supplied by
Buyers, Parent or Merger Sub for inclusion or incorporation by reference in the
Proxy Statement will, at the time of the mailing of the Proxy Statement and any
amendments thereof or supplements thereto and at the time of the Company
Stockholders Meeting, contain any untrue statement of a material fact or omit to
state any material fact required to be stated in that Proxy Statement, amendment
thereof or supplement thereto, or necessary in order to make the statements in
that Proxy Statement, amendment thereof or supplement thereto, in light of the
circumstances under which they are made, not misleading.
Section 4.9 Interim Operations of Merger Sub. Merger Sub was formed
solely for the purpose of engaging in the transactions contemplated by this
Agreement, has not engaged in any business activities or conducted any
operations, and Merger Sub does not have any liabilities, other than in
connection with the transactions contemplated by this Agreement. Financing.
Buyers have, or will have as of the Closing Date, funded Parent, and Parent will
have funded Merger Sub with cash in the form of a contribution to capital in an
amount equal to the
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product of (a) the Merger Consideration and (b) the number of issued and
outstanding Common Shares other than Treasury Shares and Parent-Owned Shares.
ARTICLE V
COVENANTS
Section 5.1 Conduct of Business of the Company. Except as contemplated
by this Agreement or with the prior written consent of Buyers, during the period
from the date of this Agreement to the Effective Time, the Company will, and
will cause each of the Company Subsidiaries to, conduct its operations only in
the ordinary course of business consistent with past practice and will use its
reasonable best efforts to, and to cause each Company Subsidiary to, preserve
intact the business organization of the Company and each of the Company
Subsidiaries, to keep available the services of the present officers and key
employees of the Company and the Company Subsidiaries, and to preserve the
goodwill of customers, suppliers and all other Persons having business
relationships with the Company and the Company Subsidiaries.
Section 5.2 Certain Interim Operations. Buyers, Parent and Merger Sub
covenant and agree that, except as contemplated by this Agreement, prior to the
Effective Time, without the prior written consent of the Company, Buyers will
cause Merger Sub not to do any business other than with respect to, or in
connection with, this Agreement and the transactions contemplated hereby. The
Parent, Merger Sub and Buyers shall not purchase or contract to purchase any
Common Shares other than as contemplated in the fifth Whereas clause to this
Agreement without the consent of the Special Committee and the Company.
Section 5.3 Other Actions. During the period from the date hereof to
the Effective Time, the Company and Buyers shall not, and Buyers shall not
permit Parent or the Merger Sub to, take any action that would, or that could
reasonably be expected to, result in any of the conditions to the Merger set
forth in Article 6 hereof not being satisfied.
Section 5.4 Notification of Certain Matters. Buyers, Parent and Merger
Sub and the Company shall promptly notify each other of (a) the occurrence or
non-occurrence of any fact or event which could reasonably be expected (i) to
cause any representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect at any time from the date hereof to the
Effective Time, (ii) to cause any material covenant, condition or agreement
hereunder not to be complied with or satisfied in all material respects or (iii)
to result in, in the case of Buyers, Parent or Merger Sub, a Buyer Material
Adverse Effect; and, in the case of the Company, a Company Material Adverse
Effect, (b) any failure of the Company, Buyers, Parent or Merger Sub, as the
case may be, to comply with or satisfy any covenant, condition or agreement to
be complied with or satisfied by it hereunder in any material respect, (c) any
notice or other material communications from any Governmental Entity in
connection with the transactions contemplated by this Agreement and (d) the
commencement of any suit, action or proceeding that seeks to prevent or seek
damages in respect of, or otherwise relates to, the consummation of the
transactions contemplated by this Agreement; provided, however, that in the case
of (a) or (b), no such notification shall affect the representations or
warranties of any party or the conditions to the obligations of any party
hereunder.
Section 5.5 Proxy Statement.
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(a) As promptly as practicable after the execution of this
Agreement, the Company shall prepare a proxy statement or information statement,
as appropriate, of the Company relating to the meeting of the Company's
stockholders (the "Company Stockholders Meeting") to be held to consider
adoption of this Agreement (together with any amendments thereto, the "Proxy
Statement"). Such meeting may be a special meeting or combined with the
Company's annual meeting with respect to the Company's fiscal year ended
December 30, 2000. The Company shall cause the Proxy Statement to comply as to
form and substance in all material respects with the applicable requirements of
(i) the Exchange Act, (ii) the Securities Act, (iii) the rules and regulations
of NASDAQ and (iv) the DGCL. Substantially contemporaneously with the filing of
the Proxy Statement with the SEC, copies of the Proxy Statement shall be
provided to NASDAQ. Buyers shall furnish all information concerning Parent,
Merger Sub and Buyers as the Company may reasonably request in connection with
such actions and the preparation of the Proxy Statement. The Company shall
prepare and file the Proxy Statement. The Company shall use its reasonable best
efforts to have the Proxy Statement declared effective by the SEC as promptly as
practicable. As promptly as practicable after the date hereof, the Proxy
Statement will be mailed to the stockholders of the Company; provided, however,
that the Proxy Statement shall not be distributed, and no amendment or
supplement thereto shall be made by the Company, without the prior consent of
Buyers and their counsel.
(b) The Proxy Statement shall include the unanimous and
unconditional recommendation of the Board of Directors of the Company and of the
Special Committee to the stockholders of the Company that they vote in favor of
the adoption of this Agreement; provided, however, that the Special Committee
may, at any time prior to the Closing Date, to the extent permitted by Section
5.8, withdraw, modify or change any such recommendation if the Special Committee
determines in good faith that failure to so withdraw, modify or change its
recommendation would be inconsistent with the Special Committee's fiduciary
duties to the Company's stockholders under applicable Laws after receipt of
advice to such effect from independent legal counsel.
(c) No amendment of or supplement to the Proxy Statement will be
made without the approval of Buyers and the Company, which approval shall not be
unreasonably withheld or delayed. Each of Buyers and the Company will advise the
other, promptly after it receives notice thereof, of the issuance of any stop
order or of any request by the SEC or NASDAQ for amendment of the Proxy
Statement or comments thereon and responses thereto or requests by the SEC for
additional information.
(d) The information supplied by the Company for inclusion in the
Proxy Statement shall not, at (i) the time the Proxy Statement (or any amendment
thereof or supplement thereto) are first mailed to the stockholders of the
Company, (ii) the time of the Company Stockholders Meeting, and (iii) the
Effective Time, contain any untrue statement of a material fact or fails to
state any material fact required to be stated in the Proxy Statement or
necessary in order to make the statements in the Proxy Statement not misleading.
If at any time prior to the Effective Time any event or circumstance relating to
the Company or any Company Subsidiary, or their respective officers or
directors, should be discovered by the Company that should be set forth in an
amendment of or a supplement to the Proxy Statement, the Company shall promptly
inform Buyers.
(e) The information supplied by Buyers for inclusion in the Proxy
Statement shall not, at (i) the time the Proxy Statement (or any amendment of or
supplement to the Proxy Statement) is first mailed to the stockholders of the
Company, (ii) the time of the
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Company Stockholders Meeting and (iii) the Effective Time, contain any untrue
statement of a material fact or fail to state any material fact required to be
stated in the Proxy Statement or necessary in order to make the statements in
the Proxy Statement not misleading. If, at any time prior to the Effective Time,
any event or circumstance relating to Buyers, Parent or Merger Sub, or their
respective officers or directors, should be discovered by Buyers that should be
set forth in an amendment of or a supplement to the Proxy Statement, Buyers
shall promptly inform the Company.
Section 5.6 Stockholders' Meeting. The Company shall call and hold the
Company Stockholders Meeting as promptly as practicable after the date hereof
for the purpose of voting upon the adoption of this Agreement. The Company shall
use its reasonable best efforts (through its agents or otherwise) to solicit
from its stockholders, proxies in favor of the adoption of this Agreement and
shall take all other action necessary or advisable to secure the Requisite
Company Vote, except to the extent that the Board of Directors of the Company
determines in good faith that doing so would cause the Board of Directors of the
Company to breach its fiduciary duties to the Company's stockholders under
applicable Law after receipt of advice to such effect from independent legal
counsel (who may be the Company's regularly engaged independent legal counsel).
Section 5.7 Access to Information. Except as required under and
subject to the provisions of any confidentiality agreement or similar agreement
or arrangement to which Buyers or the Company or any of their respective
subsidiaries is a party or under applicable Law or the regulations or
requirements of any securities exchange or quotation service or other
self-regulatory organization with whose rules the parties are required to
comply, from the date of this Agreement to the Effective Time, the Company and
Buyers shall (and shall cause their respective subsidiaries to): (i) provide to
the other (and its officers, directors, employees, accountants, consultants,
legal counsel, financial advisors, investment bankers, agents and other
representatives (collectively, "Representatives")) access at reasonable times
upon prior notice to the officers, employees, agents, properties, offices and
other facilities of the other and its subsidiaries and to the books and records
thereof and (ii) furnish promptly such information concerning the business,
properties, Contracts, assets, liabilities, personnel and other aspects of the
other party and its subsidiaries as the other party or its Representatives may
reasonably request. No investigation conducted under this Section 5.7 shall
affect or be deemed to modify any representation or warranty made in this
Agreement.
Section 5.8 No Solicitation.
(a) The Company agrees that, prior to the Effective Time, it
shall not, and shall not authorize or permit any Company Subsidiaries or any of
their Representatives, directly or indirectly, to solicit, initiate or encourage
any discussions or inquiries or the making of any proposal with respect to any
merger, consolidation or other business combination involving the Company or the
Company Subsidiaries or acquisition of 10% or more of the assets or capital
stock of the Company and the Company Subsidiaries taken as a whole (a "Takeover
Proposal") or negotiate, explore or otherwise engage in substantive discussions
with any Person (other than Buyers) with respect to any Takeover Proposal (it
being understood that the passive receipt of communications from third parties
shall not be deemed participation in discussions or negotiations) or enter into
any agreement, arrangement or understanding requiring it to abandon, terminate
or fail to consummate the Merger; provided, however, that if the Board of
Directors of the Company and the Special Committee determine in good faith,
after consultation with independent outside legal counsel, that prior to
obtaining the Requisite Company Vote, it is
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necessary to do so in order to act in a manner consistent with its fiduciary
duties to the Company's stockholders under applicable law, the Company may,
prior to obtaining the Requisite Company Vote, in response to a Takeover
Proposal, which proposal is supported by fully committed financing, was not
solicited by it and which did not otherwise result from a breach of this Section
5.8, and subject to providing prior written notice of its decision to take such
action to Buyers and compliance with the other requirements of this Section 5.8,
(i) furnish information with respect to the Company and the Company Subsidiaries
to any Person making such Takeover Proposal pursuant to a customary
confidentiality agreement (as determined in good faith by the Company based on
the advice of its independent outside legal counsel) and (ii) participate in
discussions or negotiations regarding such Takeover Proposal.
(b) Except in connection with a Superior Proposal, provided that
there has been no violation of this Section 5.8, neither the Board of Directors
of the Company nor any committee thereof shall (i) withdraw or modify, or
propose publicly to withdraw or modify, in a manner adverse to Buyers, the
approval or recommendation by the Board of Directors of the Company or such
committee of this Agreement, (ii) approve or recommend, or propose publicly to
approve or recommend, any Takeover Proposal, or (iii) cause the Company to enter
into any Acquisition Agreement.
(c) The Company shall promptly advise Buyers orally and in
writing of any request for information of the type referred to in Section 5.8(a)
or of any Takeover Proposal, the material terms and conditions of such request
or Takeover Proposal and the identity of the Person making such request or
Takeover Proposal. The Company will keep Buyers informed of the status and
details (including amendments or proposed amendments) of any such request or
Takeover Proposal.
(d) Nothing contained in this Section 5.8 shall prohibit the
Company from taking and disclosing to its stockholders a position contemplated
by Rule 14e-2(a) promulgated under the Exchange Act or from making any
disclosure to the Company's stockholders if, in the good faith judgment of the
Board of Directors of the Company, after consultation with independent outside
legal counsel and based as to legal matters on the written advice of the
Company's independent outside legal consent, failure so to disclose would be
inconsistent with its obligations under applicable law; provided, however, that,
except as contemplated by Section 5.8(b), neither the Company nor the Board of
Directors of the Company nor any committee thereof shall withdraw or modify, or
propose publicly to withdraw or modify, its position with respect to this
Agreement, the Offer or Merger, or approve or recommend, or propose publicly to
approve or recommend, a Takeover Proposal.
Section 5.9 Directors' and Officers' Indemnification.
(a) The Surviving Corporation shall, to the fullest extent
permitted under applicable law or under the Surviving Corporation's Certificate
of Incorporation or Bylaws, indemnify and hold harmless, each present and former
director, officer or employee of the Company or any of its subsidiaries
(collectively, the "Indemnified Parties") against any costs or expenses
(including attorneys' fees), judgments, fines, losses, claims, damages,
liabilities and amounts paid in settlement in connection with any claim, action,
suit, proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of such individuals' services as directors, officers
or employees of the Company or any of its subsidiaries (x) arising out of or
pertaining to the transactions contemplated by this Agreement or (y) otherwise
with respect to
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any acts or omissions occurring at or prior to the Effective Time, to the same
extent as provided in the Company Charter Documents or any applicable Contract
as in effect on the date hereof.
(b) The Surviving Corporation will maintain, for a period of not
less than six years after the Effective Time, the current policies of directors'
and officers' liability insurance maintained by the Company for the Company's
directors and officers as of the date prior to the date of this Agreement and as
of the date hereof directors and officers for events occurring at or prior to
the Effective Time (the "D&O Insurance"); provided that the Surviving
Corporation may substitute therefor policies that are no less favorable than the
existing policy or, if substantially equivalent insurance coverage is
unavailable, the best available coverage; provided, however, that the Surviving
Corporation shall not be required to pay an annual premium for the D&O Insurance
in excess of 150% of the annual premium currently paid by the Company for such
insurance, but in such case shall purchase as much such coverage as possible for
such amount.
(c) This Section shall survive the consummation of the Merger at
the Effective Time, is intended to benefit the Company, the Surviving
Corporation and the Indemnified Parties, shall be binding on all successors and
assigns of the Surviving Corporation and shall be enforceable by the Indemnified
Parties.
Section 5.10 Consents; Filings; Further Action. Upon the terms and
subject to the conditions hereof, each of the parties hereto shall use its
reasonable best efforts to (i) take, or cause to be taken, all appropriate
action, and do, or cause to be done, all things necessary, proper or advisable
under applicable Law or otherwise to consummate and make effective as promptly
as practicable the Merger and the other transactions contemplated hereby, (ii)
obtain from Governmental Entities any consents, licenses, permits, waivers,
approvals, authorizations or orders required to be obtained or made by the
Company or Buyers or any of their respective subsidiaries in connection with the
authorization, execution and delivery of this Agreement and the consummation of
the Merger and the other transactions contemplated hereby, (iii) obtain all
consents, amendments to or waivers under the terms of any Contracts required by
the transactions contemplated by this Agreement, and (iv) make all necessary
filings, and thereafter make any other submissions either required or deemed
appropriate by each of the parties, with respect to this Agreement and the
Merger and the other transactions contemplated hereby required under (A) the
Securities Act, the Exchange Act and any applicable state securities laws or
Blue Sky Laws, (B) the DGCL, (C) any other applicable Law and (D) the rules and
regulations of NASDAQ. The parties hereto shall cooperate and consult with each
other in connection with the making of all such filings, including by providing
copies of all such documents to the nonfiling party and its advisors prior to
filing, and none of the parties will file any such document if any of the other
parties shall have reasonably objected to the filing of such document. No party
to this Agreement shall consent to any voluntary extension of any statutory
deadline or waiting party or to any voluntary delay of the consummation of the
Merger and the other transactions contemplated hereby at the behest of any
Governmental Entity without the consent and agreement of the other parties to
this Agreement, which consent shall not be unreasonably withheld or delayed.
Section 5.11 Public Announcements. The initial press release
concerning the Merger shall be a joint press release and, thereafter, the
Company and Buyers shall consult with each other before issuing any press
release or otherwise making any public statements with respect to this Agreement
or any of the transactions contemplated hereby and shall not issue any such
press release or make any such public statement prior to such consultation,
except to the
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extent required by applicable Law or the requirements of NASDAQ, in which
case the issuing party shall use its reasonable best efforts to consult with the
other parties before issuing any such release or making any such public
statement.
Section 5.12 Expenses. All expenses incurred by the parties hereto in
connection with this Agreement and the Merger and the other transactions
contemplated hereby, whether or not the Merger or any of such other transactions
are consummated, shall be paid by the party incurring such expense; provided,
however, that the Company shall pay all expenses of the Buyers if the Merger is
consummated.
Section 5.13 Takeover Statutes. If any Takeover Statute is or may
become applicable to the Merger or the other transactions contemplated hereby,
each of the Company and Buyers and its respective board of directors or similar
body shall grant such approvals and take such actions as are necessary so that
such transactions may be consummated as promptly as practicable on the terms
contemplated by this Agreement and otherwise act to eliminate or minimize the
effects of such statute or regulation on such transactions.
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 is subject
to the satisfaction or waiver at or prior to the Effective Time of each of the
following conditions:
(a) The Company shall have received the Requisite Company Vote;
and
(b) No court or Governmental Entity of competent jurisdiction
shall have enacted, issued, promulgated, enforced or entered any Law, order,
injunction or decree (whether temporary, preliminary or permanent) that is in
effect and restrains, enjoins or otherwise prohibits consummation of the Merger.
Section 6.2 Conditions to Obligation of Buyers, Parent and the Merger
Sub. The obligation of Buyers, Parent and the Merger Sub to effect the Merger
shall be subject to the fulfillment or waiver at the Effective Time of the
following additional conditions:
(a) The Company shall have performed in all material respects the
covenants and obligations required to be performed by it under this Agreement on
or prior to the Effective Time;
(b) The representations and warranties of the Company contained
in this Agreement shall be true and correct in all material respects on and as
of the Effective Time as if made on and as of such date (except to the extent
that any such representation or warranty had by its terms been made as of a
specific date in which case such representation or warranty shall have been true
and correct as of such specific date); and
(c) Buyers shall have received a certificate signed by an
executive officer of the Company to the effect of Sections 6.2(a) and (b).
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Section 6.3 Conditions to Obligation of the Company. The obligation of
the Company to effect the Merger shall be subject to the fulfillment or waiver
at the Effective Time of the following additional conditions:
(a) Buyers, Parent and the Merger Sub shall have performed in all
material respects the covenants and obligations required to be performed by them
under this Agreement on or prior to the Effective Time;
(b) The representations and warranties of Buyers, Parent and the
Merger Sub contained in this Agreement shall be true and correct in all material
respects on and as of the Effective Time as if made on and as of such date
(except to the extent that any such representation or warranty had by its terms
been made as of a specific date in which case such representation or warranty
shall have been true and correct as of such specific date); and
(c) The Company shall have received a certificate signed by the
general partner of each Buyer to the effect of Sections 6.3(a) and (b).
ARTICLE VII
TERMINATION
Section 7.1 Termination. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, notwithstanding
the Requisite Company Vote, as follows:
(a) by mutual written consent of Buyers and the Company;
(b) by either Buyers or the Company if:
(i) the Merger has not been consummated on or before July
31, 2001; provided, however, that the right to terminate this Agreement
pursuant to 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 Effective Time to occur on or
before such date;
(ii) a statute, rule, regulation or executive order shall
have been enacted, entered or promulgated prohibiting the consummation of
the Merger substantially on the terms contemplated hereby; or
(iii) an order, decree, ruling or injunction shall have been
entered permanently restraining, enjoining or otherwise prohibiting the
consummation of the Merger substantially on the terms contemplated hereby
and such order, decree, ruling or injunction shall have become final and
non-appealable;
(c) by Buyers, if the Board of Directors of the Company, with the
concurrence of the Special Committee, or the Special Committee shall have (i)
withdrawn or modified, or proposed publicly to withdraw or modify, in a manner
adverse to Buyers, its approval of this Agreement or recommendation to the
Company's stockholders, (ii) approved or recommended, or proposed publicly to
approve or recommend, any Takeover Proposal, (iii)
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caused the Company to enter into any agreement with respect to any Superior
Proposal, in each case in accordance with Section 5.8 of this Agreement, or (iv)
the Board, the Special Committee or any other committee thereof shall have
resolved to take any of the foregoing actions;
(d) by the Company, if the Company receives a Superior Proposal
and the Board of Directors of the Company or the Special Committee, based on the
advice of independent outside legal counsel, determines in good faith that such
action is necessary for the Board of Directors or the Special Committee to avoid
breaching its fiduciary duties to the Company's stockholders under applicable
law; or
(e) by Buyers or the Company, if the Requisite Company Vote has
not been obtained at the relevant stockholders' meeting or completion of the
consent solicitation process, as applicable.
Section 7.2 Effect of Termination. In the event of termination of this
Agreement pursuant to Section 7.1, written notice thereof shall forthwith be
given to the other party or parties specifying the provision hereof pursuant to
which such termination is made, and this Agreement shall terminate and be of no
further force and effect (except for the provisions of Sections 5.11 and 5.12
and Article VIII), and there shall be no other liability on the part of Buyers,
Parent, Merger Sub or the Company, except liability, if any, for a breach of
this Agreement.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Defined Terms.
"Acquisition Agreement" shall mean any letter of intent, agreement in
principle, acquisition agreement or other similar agreement, contract or
commitment related to any Takeover Proposal.
"affiliate," as applied to any Person, shall mean any other Person
directly or indirectly, through one or more intermediaries, controlling,
controlled by, or under common control with, that Person. For the purposes of
this definition, "control" (including, with correlative meanings, the terms
"controlling," "controlled by" and "under common control with"), as applied to
any Person, means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of that Person, whether
through the ownership of voting securities, by contract or otherwise.
"Buyer Material Adverse Effect" shall mean any change in or effect on
the business, assets, properties, results of operations or financial condition,
prospects or condition (financial or otherwise) of Buyers, Parent or Merger Sub
that is or could reasonably be expected to be materially adverse to the Buyers,
Parent and Merger Sub, taken as a whole, or that could reasonably be expected to
materially impair the ability of Buyers to perform their obligations under this
Agreement or consummate the Merger and the other transactions contemplated
hereby.
"Claims" shall mean any suit, claim, action, proceeding or
investigation.
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"Company Material Adverse Effect" shall mean any change in or effect
on the business, assets, properties, results of operations or financial
condition or condition (financial or otherwise) of the Company or any Company
Subsidiaries that is or could reasonably be expected to be materially adverse to
the Company and the Company Subsidiaries, taken as a whole, or that could
reasonably be expected to materially impair the ability of the Company to
perform its obligations under this Agreement or consummate the Merger and the
other transactions contemplated hereby.
"Contract" shall mean any note, bond, mortgage, indenture, contract,
agreement, commitment, lease, license, permit, franchise or other instrument or
obligation.
"Environment" means navigable waters, waters of the contiguous zone,
ocean waters, natural resources, surface waters, ground water, drinking water
supply, land surface, subsurface strata, ambient air, both inside and outside of
buildings and structures, man-made buildings and structures, and plant and
animal life on earth.
"Environmental Claims" means any notification, whether direct or
indirect, formal or informal, written or oral, pursuant to Safety and
Environmental Laws or principles of common law relating to pollution, protection
of the Environment or health and safety, that any of the current or past
operations of the Company or any Company Subsidiary, as the case may be, or any
by-product thereof, or any of the property currently or formerly owned, leased
or operated by the Company or any Company Subsidiary, or the operations or
property of any predecessor of the Company or any Company Subsidiary is or may
be implicated in or subject to any proceeding, action, investigation, claim,
lawsuit, order, agreement or evaluation by any Governmental Entity or any other
person.
"GAAP" shall mean United States generally accepted accounting
principles, as currently in effect.
"Governmental Entity" shall mean any domestic or foreign national,
federal, state, provincial or local governmental, regulatory or administrative
authority, agency, commission, court, tribunal or arbitral body or
self-regulated entity.
"including" shall mean, unless the context clearly requires otherwise,
including but not limited to the things or matters named or listed after that
term.
"Indebtedness" shall mean (i) indebtedness of or any obligation of the
Company and Company Subsidiaries for borrowed money, whether current,
short-term, or long-term, secured or unsecured, (ii) all lease obligations of
the Company and Company Subsidiaries, (iii) any payment obligations of the
Company or Company Subsidiaries in respect of banker's acceptances or letters of
credit and (iv) any present, future or contingent obligations of the Company or
Company Subsidiaries.
"knowledge," shall mean, as applied to the Company, the actual
knowledge of the directors and executive officers of the Company.
"Law" shall mean foreign or domestic law, statute, ordinance, rule,
regulation, order, judgment or decree.
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"Liens" shall mean any mortgage, security interest, lien, encumbrance,
claim, pledge, option, right of first refusal, agreement or limitation of any
kind on the Company's or Company Subsidiary's voting rights, charges and other
encumbrances or any nature whatsoever.
"NASDAQ" shall mean either the Nasdaq National Market System or Nasdaq
Small Cap Market.
"Person" means an individual, a corporation, a limited liability
company, a partnership, an association, a trust or any other entity or
organization, including a government or political subdivision or any agency or
instrumentality thereof.
"Safety and Environmental Laws" means all federal, state and local
laws and orders relating to pollution, protection of the Environment, public or
worker health and safety, or the emission, discharge, release or threatened
release of pollutants, contaminants or industrial, toxic or hazardous substances
or wastes into the Environment or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants or industrial, toxic or hazardous
substances or wastes.
"subsidiary" or "subsidiaries" shall mean, with respect to Buyers, the
Company or any other Person, any entity of which any of Buyers, the Company or
such other Person, as the case may be (either alone or through or together with
any other subsidiary), owns, directly or indirectly, stock or other equity
interests constituting more than 50% of the voting or economic interest in such
entity.
"Superior Proposal" shall mean any proposal made by a third party to
acquire, directly or indirectly, including pursuant to a tender offer, exchange
offer, merger, consolidation, business combination, recapitalization,
reorganization, liquidation, dissolution or similar transaction, for
consideration to the Company's stockholders consisting of cash and/or
securities, at least all of the shares of the Company's capital stock then
outstanding that are not owned by Buyers, Parent or their respective affiliates
or all or substantially all the assets of the Company, on terms which the Board
of Directors of the Company and the Special Committee determine in their good
faith judgment to be more favorable to the Company's stockholders than the
Merger and for which financing, to the extent required, is then committed.
"Takeover Statute" shall mean a "fair price," "moratorium," "control
share acquisition" or other similar state or federal anti-takeover statute or
regulation.
"Taxes" shall mean all federal, state, local and foreign income,
property, sales, excise and other taxes, tariffs, assessments, or governmental
charges of any nature whatsoever.
Section 8.2 Non-Survival of Representations and Warranties. The
representations and warranties in this Agreement shall not survive the Closing.
Each party agrees that, except for the representations and warranties contained
in this Agreement and the Company Disclosure Letter, no party to this Agreement
has made any other representations and warranties, and each party disclaims any
other representations and warranties, made by itself or any of its
Representatives with respect to the execution and delivery of this Agreement or
the transactions contemplated by this Agreement, notwithstanding the delivery of
disclosure to any other party or any party's Representatives of any
documentation or other information with respect to any one or more of the
foregoing.
Section 8.3 VENUE; WAIVER OF JURY TRIAL.
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(a) THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL
RESPECTS SHALL BE INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH
THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICT OF LAW
PRINCIPLES, EXCEPT THAT DELAWARE LAW SHALL APPLY TO THE EXTENT REQUIRED IN
CONNECTION WITH THE EFFECTUATION OF THE MERGER. The parties irrevocably submit
to the jurisdiction of the federal courts of the United States of America
located in the State of New York solely in respect of the interpretation and
enforcement of the provisions of this Agreement and of the documents referred to
in this Agreement, and in respect of the transactions contemplated by this
Agreement and by those documents, and hereby waive, and agree not to assert, as
a defense in any action, suit or proceeding for the interpretation or
enforcement of this Agreement or of any such document, that it is not subject to
this Agreement or that such action, suit or proceeding may not be brought or is
not maintainable in said courts or that the venue thereof may not be appropriate
or that this Agreement or any such document may not be enforced in or by such
courts, and the parties hereto irrevocably agree that all claims with respect to
such action or proceeding shall be heard and determined in such a federal court.
The parties hereby consent to and grant any such court jurisdiction over the
Person of such parties and over the subject matter of such dispute and agree
that mailing of process or other papers in connection with any such action or
proceeding in the manner provided in Section 8.4 or in such other manner as may
be permitted by Law, shall be valid and sufficient service thereof.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH
MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT
ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT,
OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND
ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH SUCH PARTY
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH SUCH
PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH SUCH PARTY HAS BEEN INDUCED
TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION 8.3.
Section 8.4 Notices. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally, sent
by facsimile transmission or sent by certified, registered or express mail,
postage prepaid. Any such notice shall be deemed given when so delivered
personally or sent by facsimile transmission or, if mailed, five days after the
date of deposit in the United States mails, as follows:
If to Buyers, Parent or Merger Sub:
Three Cities Research, Inc.
650 Madison Avenue
New York, New York 10022
Attention: Willem F. P. de Vogel
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Telephone: (212) 838-9660
Facsimile: (212) 980-1142
with copies to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Mark A. Underberg, Esq.
Telephone: (212) 373-3000
Facsimile: (212) 757-3990
If to the Company:
The Leslie Fay Company, Inc.
1412 Broadway
New York, New York 10018
Attention: John J. Pomerantz
Telephone: (212) 221-4141
Facsimile: (212) 221-4287
with copies to:
Jenkens & Gilchrist Parker Chapin LLP
The Chrysler Building
405 Lexington Avenue
New York, NY 10174
Attention: Michael J. Shef, Esq.
Telephone: (212) 704-6140
Facsimile: (212) 704-6288
and
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, NY 10153
Attention: Stephen Jacobs, Esq.
Telephone: (212) 310-8000
Facsimile: (212) 310-8007
or to such other persons or addresses as may be designated in writing by the
party to receive such notice as provided above.
Section 8.5 Entire Agreement. This Agreement (including any exhibits
and annexes to this Agreement) and the Company Disclosure Letter constitute the
entire agreement and supersede all other prior agreements, understandings,
representations and warranties, both written and oral, among the parties, with
respect to the subject matter of this Agreement.
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Section 8.6 No Third-Party Beneficiaries. Except as provided in
Section 5.9, this Agreement is not intended to confer upon any Person other than
the parties to this Agreement any rights or remedies under this Agreement.
Section 8.7 Obligations of Buyers and of the Company. Whenever this
Agreement requires Parent or Merger Sub to take any action, that requirement
shall be deemed to include an undertaking on the part of Buyers to cause Parent
or Merger Sub to take that action. Whenever this Agreement requires a Company
Subsidiary to take any action, that requirement shall be deemed to include an
undertaking on the part of the Company to cause that Company Subsidiary to take
that action.
Section 8.8 Counterparts. This Agreement may be executed in any number
of counterparts, each such counterpart being deemed to be an original
instrument, and all such counterparts shall together constitute the same
agreement.
Section 8.9 Interpretation. The table of contents and headings in this
Agreement are for convenience of reference only, do not constitute part of this
Agreement and shall not be deemed to limit or otherwise affect any of the
provisions of this Agreement. Where a reference in this Agreement is made to a
section, exhibit or annex, that reference shall be to a section of or exhibit or
annex to this Agreement unless otherwise indicated.
Section 8.10 Assignment. This Agreement shall not be assignable by
operation of law or otherwise, except that Buyers, Parent or Merger Sub may
designate, by written notice to the Company, another subsidiary that is wholly
owned directly or indirectly either by Buyers or Parent or that is owned
directly or indirectly jointly by Buyers or Parent to be merged with and into
the Company in lieu of Merger Sub, in which event all references in this
Agreement to Merger Sub shall be deemed references to such other subsidiary, and
in that case, all representations and warranties made in this Agreement with
respect to Merger Sub as of the date of this Agreement shall be deemed
representations and warranties made with respect to such other subsidiary as of
the date of such designation.
Section 8.11 Specific Performance. The parties to this Agreement agree
that irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions of this Agreement in any
court of the United States or any state having jurisdiction, this being in
addition to any other remedy to which they are entitled at Law or in equity.
Section 8.12 Waivers and Amendments; Non-Contractual Remedies;
Preservation of Remedies. At any time prior to the Effective Time and subject to
applicable Law, this Agreement may be amended, superseded, canceled, modified,
renewed or extended, and the terms hereof may be waived, only by a written
agreement signed by each of the parties, with the consent of the Special
Committee, or, in the case of a waiver, by the party waiving compliance, with
the consent of the Special Committee, if applicable. No delay on the part of any
party in exercising any right, power or privilege hereunder shall operate as a
waiver thereof, nor shall any waiver on the part of any party of any such right,
power or privilege, nor any single or partial exercise of any such right, power
or privilege, preclude any further exercise thereof or the exercise of any other
such right, power or privilege. The rights and remedies herein provided are
A-25
cumulative and are not exclusive of any rights or remedies that any party may
otherwise have at Law or in equity.
Section 8.13 Usage. All pronouns and any variations thereof refer to
the masculine, feminine or neuter, singular or plural, as the context may
require. All terms defined in this Agreement in their singular or plural forms
have correlative meanings when used herein in their plural or singular forms,
respectively.
Section 8.14 Headings. The headings in this Agreement are for
reference only, and shall not affect the interpretation of this Agreement.
Section 8.15 Further Assurances. Each of the parties agree to execute
any and all documents and take any and actions as may be reasonably required or
necessary to carry out the provisions of this Agreement.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
THE LESLIE FAY COMPANY, INC.
By:
-----------------------------
Name:
Title:
THREE CITIES FUND II, L.P.
By: TCR ASSOCIATES, L.P.,
its general partner
By:
-----------------------------
Name:
Title: General Partner
THREE CITIES OFFSHORE II C.V.
By: THREE CITIES ASSOCIATES, N.V.,
its general partner
By:
--------------------------
Name: J. William Uhrig
Title: Managing Director
LF ACQUISITION, LLC
By:
-----------------------------
Name:
Title:
LF MERGER CO.
By:
-----------------------------
Name:
Title:
A-27
ANNEX B
FAIRNESS OPINION OF CONWAY, DEL GENIO, GRIES & CO., LLC
March 23, 2001
Bernard Olsoff and Robert L. Sind
Special Committee of the Board of Directors
The Leslie Fay Company, Inc.
1412 Broadway
New York, NY 10018
Dear Special Committee of the Board of Directors:
You have requested our opinion as to the fairness, from a financial
point of view, to the shareholders of The Leslie Fay Company, Inc. (the
"Company" or "Leslie Fay") of the consideration (the "Consideration") to be
received in connection with the proposed acquisition of all outstanding shares
of common stock, par value $.01 per share, of the Company not currently owned by
Three Cities Funds for a cash price per share of $5.00 (the "Transaction"), as
contemplated by that certain Securities Purchase Agreement and the documents
referred to therein.
For purposes of the opinion set forth herein, we have, among other
things:
1. Reviewed the terms of a final but unexecuted version of the Agreement and
Plan of Merger dated as of March 23, 2001;
2. Reviewed certain documents to which the Company is a party and that were
made available to us by the Company;
3. Held discussions with members of the management regarding the Company, its
operations, strategy, financial position, capital resources and liquidity
and prospects;
4. Reviewed available information concerning the Company which we
deemed relevant, including without limitation, those financial statements
of the Company set forth in the Company's Quarterly Report of Form 10-Q for
the quarter ended September 30, 2000 and the Company's Annual Report on
Form 10-K for the fiscal year ended January 1, 2000 which the Company's
management has identified as being the most current financial statements
available;
5. Reviewed a draft as of March 22, 2001, of the Company's Annual Report on
Form 10-K for the fiscal year ended January 1, 2001;
6. Reviewed financial projections for the Company for fiscal years 2001 to
2005, delivered or communicated to us by management of the Company and
conducted interviews with the management of the Company regarding, among
other things, the material assumptions that underlie such projections;
7. Reviewed certain other operating and financial information concerning the
business and operations of the Company;
B-1
8. Reviewed certain publicly available information concerning certain other
companies that we believed to be generally comparable to the Company;
9. Reviewed certain publicly available information relating to the financial
terms of certain transactions;
10. Reviewed other information that we considered relevant to our analysis; and
11. Reviewed the historical market prices and trading volume for the Company's
publicly traded securities.
The foregoing is, of course, only a summary of the information reviewed and
factors considered by us that have influenced our opinion and does not recite in
detail all of such information and factors that we have taken into consideration
in connection with our opinion.
We have assumed and relied upon, without independent verification, the
accuracy and completeness of all of the information reviewed by us for purposes
of this opinion. With regard to the Company's financial projections,
observations and other estimates supplied or communicated to us by the Company,
we have assumed that they have been reasonably prepared on the bases reflecting
the best currently available estimates and judgments of the future financial
performance of the Company. We have not made any independent valuation or
appraisal of any of the assets or liabilities of the Company nor have we been
furnished with any such appraisals. We have also assumed that there has been no
material change in the assets, financial condition, business or prospects of the
Company since the date of the most recent financial statements made available to
us. We have not independently verified the accuracy and completeness of the
information supplied to us with respect to the Company and do not assume any
responsibility with respect to it.
Our opinion is necessarily based upon financial, economic, market and other
conditions in effect on, and the information made available to us as of, the
date hereof. It should be understood that, although subsequent developments may
affect this opinion, we do not have any obligation to update, revise or reaffirm
our opinion. We have assumed that the Transaction will be consummated in
accordance with the applicable agreements governing the Transaction, as such
agreements existed at the time of our review, and that all conditions to the
Transaction will be satisfied without waiver of such conditions.
Our opinion is addressed to and is provided for the information of the
Special Committee of the Board of Directors of the Company in its evaluation of
the proposed Transaction, and our opinion is not intended to be and does not
constitute a recommendation to any shareholder with respect to the Transaction.
This opinion may be reproduced in full in any proxy or information statement
mailed to the shareholders of the Company but may not otherwise be disclosed
publicly in any manner without prior written consent. Our opinion does not
address the relative merits of the Transaction nor does it address other
business strategies that may have been or are being considered by the Company's
Special Committee of the Board of Directors. This opinion does not address the
Company's underlying business decision to effect the Transaction. In arriving at
our opinion set forth herein, we were not authorized to solicit and did not
solicit interest from any party regarding any alternative financing strategies
on behalf of the Company. Furthermore, at your request, we have not negotiated
the Transaction or advised you with respect to alternatives to it.
B-2
Based upon and subject to the foregoing, we are of the opinion that the
Consideration to be received by the shareholders of the Company (other than
Three Cities Funds) in the Transaction is fair, from a financial point of view.
Very truly yours,
CONWAY, DEL GENIO, GRIES & CO., LLC
By:/s/ Robert A. Del Genio
-----------------------------------
Robert A. Del Genio
B-3
ANNEX C
DELAWARE GENERAL CORPORATION LAW SECTION 262
DELAWARE CODE ANNOTATED
Copyright(c) 1975-2001 by The State of Delaware
All rights reserved.
*** CURRENT THROUGH 2000 REGULAR SESSION ***
TITLE 8. CORPORATIONS
CHAPTER 1. GENERAL CORPORATION LAW
SUBCHAPTER IX. MERGER, CONSOLIDATION OR CONVERSION
8 Del. C. ss. 262 (2000)
ss. 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 the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to ss. 251 (other than a merger effected pursuant to ss.
251(g) of this title), ss. 252, ss. 254, ss. 257, ss. 258, ss. 263 or ss. 264 of
this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of ss. 251 of this title.
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(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 in respect
thereof) or depository receipts at the effective date of the merger or
consolidation will be either listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or held of record
by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and cash
in lieu of fractional shares or fractional depository receipts described in the
foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under 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
subsection (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
such stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of such
stockholder's shares. Such demand will be sufficient if it reasonably informs
the corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such stockholder's 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
C-2
(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 20 days after the date of mailing of such notice,
demand in writing from the surviving or resulting corporation the appraisal of
such holder's shares. Such demand will be sufficient if it reasonably informs
the corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such holder's shares. If such notice
did not notify stockholders of the effective date of the merger or
consolidation, either (i) each such constituent corporation shall send a second
notice before the effective date of the merger or consolidation notifying each
of the holders of any class or series of stock of such constituent corporation
that are entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send such a
second notice to all such holders on or within 10 days after such effective
date; provided, however, that if such second notice is sent more than 20 days
following the sending of the first notice, such second notice need only be sent
to each stockholder who is entitled to appraisal rights and who has demanded
appraisal of such holder's shares in accordance with this subsection. An
affidavit of the secretary or assistant secretary or of the transfer agent of
the corporation that is required to give either notice that such notice has been
given shall, in the absence of fraud, be prima facie evidence of the facts
stated therein. For purposes of determining the stockholders entitled to receive
either notice, each constituent corporation may fix, in advance, a record date
that shall be not more than 10 days prior to the date the notice is given,
provided, that if the notice is given on or after the effective date of the
merger or consolidation, the record date shall be such effective date. If no
record date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the day on
which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's 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 such stockholder's 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
C-3
service file in the office of the Register in Chancery in which the petition was
filed a duly verified list containing the names and addresses of all
stockholders who have demanded payment for their shares and with whom agreements
as to the value of their shares have not been reached by the surviving or
resulting corporation. If the petition shall be filed by the surviving or
resulting corporation, the petition shall be accompanied by such a duly verified
list. The Register in Chancery, if so ordered by the Court, shall give notice of
the time and place fixed for the hearing of such petition by registered or
certified mail to the surviving or resulting corporation and to the stockholders
shown on the list at the addresses therein stated. Such notice shall also be
given by 1 or more publications at least 1 week before the day of the hearing,
in a newspaper of general circulation published in the City of Wilmington,
Delaware or such publication as the Court deems advisable. The forms of the
notices by mail and by publication shall be approved by the Court, and the costs
thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder 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.
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(k) From and after the effective date of the merger or consolidation,
no stockholder who has demanded 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 such
stockholder's demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this section or thereafter with
the written approval of the corporation, then the right of such stockholder to
an appraisal shall cease. Notwithstanding the foregoing, no appraisal proceeding
in the Court of Chancery shall be dismissed as to any stockholder without the
approval of the Court, and such approval may be conditioned upon such terms as
the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
C-5
PRELIMINARY PROXY MATERIALS --
CONFIDENTIAL, FOR THE USE OF THE
SECURITIES AND EXCHANGE COMMISSION ONLY
THE LESLIE FAY COMPANY, INC.
1412 Broadway
New York, New York 10018
THIS PROXY IS SOLICITED BY LESLIE FAY'S
BOARD OF DIRECTORS FOR THE
SPECIAL MEETING OF STOCKHOLDERS
To be held on November 20, 2001
The undersigned holder of Common Stock of The Leslie Fay Company, Inc.,
a Delaware corporation (the "Company"), hereby appoints John J. Pomerantz, John
A. Ward and Warren T. Wishart, and each of them, as proxies for the undersigned,
each with full power of substitution, for and in the name of the undersigned to
act for the undersigned and to vote, as designated below, all of the shares of
stock of the Company that the undersigned is entitled to vote at the Special
Meeting of Stockholders of the Company, to be held on November 20, 2001 at 10:30
a.m. local time, at the offices of Jenkens & Gilchrist Parker Chapin LLP, The
Chrysler Building, 405 Lexington Avenue, 9th Floor, New York, New York 10174 and
at any adjournment or postponement thereof.
The Board of Directors recommends a vote FOR approval and adoption of
the Amended and Restated Agreement and Plan of Merger.
1. Approval and adoption of the Amended and Restated Agreement and Plan
of Merger as described in the Company's Proxy Statement.
/ / FOR / / AGAINST / / ABSTAIN
2. Proposal to adjourn the Special Meeting, if necessary, to permit
further solicitation of proxies in the event that there are not sufficient votes
at the time of the Special Meeting to adopt the Amended and Restated Agreement
and Plan of Merger.
/ / FOR / / AGAINST / / ABSTAIN
3. Upon such other matters as may properly come before the Special
Meeting.
(Continue and Sign on Other Side)
(Continued from other side)
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED "FOR" THE PROPOSALS SET FORTH IN ITEM 1 AND 2 AND WITH
REGARD TO OTHER MATTERS THAT MAY COME BEFORE THE MEETING OR ANY POSTPONEMENT OR
ADJOURNMENT THEREOF, IN THE DISCRETION OF THE PROXYHOLDERS AS DESCRIBED IN THE
PROXY STATEMENT.
The undersigned hereby acknowledges receipt of the Notice of the
Special Meeting and the accompanying Proxy Statement.
----------------------------------------------------
(Signature)
----------------------------------------------------
(Signature if held jointly)
Date , 2001
-----------------------------------------
Please sign exactly as name appears hereon and mail it promptly even though you
now plan to attend the Special Meeting. When shares are held by joint tenants,
both should sign. When signing as Attorney, Executor, Administrator, Guardian or
Trustee, please add your full title as such. If a corporation, please sign in
full corporate name by president or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
PLEASE MARK, SIGN AND DATE THIS PROXY CARD
AND PROMPTLY RETURN IT IN THE ENVELOPE PROVIDED.
NO POSTAGE NECESSARY IF MAILED IN THE UNITED STATES.