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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(d)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
SAFETY 1ST, INC.
(NAME OF SUBJECT COMPANY)
SAFETY 1ST, INC.
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(TITLE OF CLASS OF SECURITIES)
786475103
(CUSIP NUMBER OF CLASS OF SECURITIES)
MICHAEL LERNER
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
SAFETY 1ST, INC.
45 DAN ROAD
CANTON, MA 02021
(781) 364-3100
(NAME AND ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICE
AND COMMUNICATIONS ON BEHALF OF THE PERSON(S) FILING STATEMENT)
WITH COPIES TO:
STUART M. CABLE, P.C.
JOSEPH L. JOHNSON III, P.C.
GOODWIN, PROCTER & HOAR LLP
EXCHANGE PLACE
BOSTON, MASSACHUSETTS 02109-2881
(617) 570-1000
[ ] Check the box if the filing relates solely to preliminary communications
made before the commencement of a tender offer.
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ITEM 1. SUBJECT COMPANY INFORMATION.
(a) NAME AND ADDRESS. The name of the subject company is Safety 1st, Inc.,
a Massachusetts corporation (the "Company"), and the address of the principal
executive offices of the Company is 45 Dan Road, Canton, Massachusetts 02021.
The telephone number of the principal executive offices of the Company is (781)
364-3100.
(b) SECURITIES. The title of the class of equity securities to which this
statement relates is the common stock, par value $0.01 per share, of the Company
(the "Shares"). As of May 1, 2000, there were 8,680,682 Shares outstanding.
ITEM 2. IDENTITY AND BACKGROUND OF FILING PERSON.
(a) NAME AND ADDRESS. The name, address and telephone number of the
Company, which is the person filing this statement, are set forth in Item 1(a)
above.
(b) TENDER OFFER OF THE BIDDER. This Solicitation/Recommendation Statement
relates to the tender offer by Diamond Acquisition Subsidiary Inc., a
Massachusetts corporation ("Purchaser") and a wholly owned subsidiary of Dorel
Industries, Inc., a Quebec corporation ("Parent"), disclosed in a Tender Offer
Statement on Schedule TO, dated May 8, 2000 (the "Schedule TO"), to purchase all
of the outstanding Shares at a purchase price of $13.875 per Share, net to the
seller in cash, without interest thereon (the "Offer Price"), less applicable
withholding taxes, if any, and upon the terms and subject to the conditions set
forth in the Offer to Purchase, dated May 8, 2000 (the "Offer to Purchase"), and
in the related Letter of Transmittal (which, together with the Offer to
Purchase, constitutes the "Offer").
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of April 22, 2000 (the "Merger Agreement"), among Parent, Purchaser and the
Company. The Merger Agreement provides, among other things, that as soon as
practicable after the consummation of the Offer and the satisfaction or waiver
of certain conditions, Purchaser will be merged with and into the Company (the
"Merger"), with the Company as the surviving corporation (the "Surviving
Corporation"). Certain terms of the Merger Agreement are described below in Item
3(b)(2).
Parent has formed Purchaser in connection with the Offer and the Merger
Agreement. The principal executive offices of Parent are located at 1255 Greene
Avenue, Suite 300, Westmount, Quebec, Canada H3Z 2A4. The principal executive
offices of Purchaser are located at c/o CT Corporation Systems, 101 Federal
Street, Suite 300, Boston, MA 02110, and its telephone number is (617) 757-6401.
ITEM 3. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS.
The following describes material contracts, agreements, arrangements and
understandings and any actual or potential conflicts of interest between the
Company or its affiliates and the Company, its executive officers, directors or
affiliates:
THE MERGER AGREEMENT
In connection with the Offer, the Company has entered into the Merger
Agreement with Purchaser and Parent. A summary of the Merger Agreement is set
forth below. A copy of the Merger Agreement is attached hereto as Exhibit 1, and
the following summary is qualified in its entirety by reference to the text of
the Merger Agreement, which is incorporated herein by reference. Defined terms
used herein and not defined herein shall have the respective meanings assigned
to those terms in the Merger Agreement.
The Offer. The Merger Agreement provides for the commencement of the Offer
as soon as practicable after the date of the Merger Agreement. The obligation of
Purchaser to accept for payment Shares tendered pursuant to the Offer is subject
to the satisfaction of the Minimum Condition and certain other conditions that
are described in the Merger Agreement. Purchaser and Parent have agreed that no
change in the Offer may be made which decreases the price per Share payable in
the Offer, which changes the consideration into a form other than cash, which
reduces the maximum number of Shares to be purchased in the Offer, which imposes
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additional conditions to the Offer in addition to those set forth in the Merger
Agreement or amends the conditions to the Offer set forth in the Merger
Agreement.
The Merger. The Merger Agreement provides that, upon the terms and subject
to the conditions thereof, and in accordance with Massachusetts law, Purchaser
will be merged with and into the Company. As a result of the Merger, the
separate corporate existence of Purchaser will cease and the Company will
continue as the Surviving Corporation and will become a wholly owned subsidiary
of Parent. Upon consummation of the Merger, each issued and then outstanding
Share (other than any Shares held in the treasury of the Company, or owned by
Purchaser, Parent or any direct or indirect wholly owned subsidiary of Parent or
of the Company and any Shares which are held by stockholders who have not voted
in favor of the Merger or consented thereto in writing and who shall have
demanded properly in writing appraisal for such Shares in accordance with
Massachusetts law) shall be cancelled and converted automatically into the right
to receive the Merger Consideration.
The Merger Agreement provides that the directors of Purchaser immediately
prior to the Effective Time (as defined below) will be the initial directors of
the Surviving Corporation and that the officers of the Company immediately prior
to the Effective Time will be the initial officers of the Surviving Corporation.
Subject to the Merger Agreement, at the Effective Time the Articles of
Organization of Purchaser, as in effect immediately prior to the Effective Time,
will be the Articles of Organization of the Surviving Corporation; provided,
however, that, at the Effective Time, Article I of the Articles of Incorporation
of the Surviving Corporation will be amended to read as follows: "The name of
the corporation is Safety 1st, Inc." Subject to the Merger Agreement, at the
Effective Time, the Bylaws of Purchaser, as in effect immediately prior to the
Effective Time, will be the Bylaws of the Surviving Corporation.
Stockholders' Meeting. Pursuant to the Merger Agreement, the Company will
duly call, give notice of, convene and hold an annual or special meeting of its
stockholders as promptly as practicable following consummation of the Offer for
the purpose of considering and taking action on the Merger Agreement and the
Merger (the "Stockholders' Meeting"). If Purchaser acquires at least a majority
of the outstanding Shares, Purchaser will have sufficient voting power to
approve the Merger, even if no other stockholder votes in favor of the Merger.
Proxy Statement. The Merger Agreement provides that the Company will file
with the Commission under the Exchange Act a proxy statement and related proxy
materials (the "Proxy Statement") with respect to the Stockholders' Meeting and
shall cause the Proxy Statement and all required amendments and supplements
thereto to be mailed to the holders of Shares. The Company has agreed to include
in the Proxy Statement the recommendation of the Board that the stockholders of
the Company approve and adopt the Merger Agreement and the Merger and to obtain
such approval and adoption. Parent and Purchaser have agreed to cause all Shares
then owned by them and their subsidiaries to be voted in favor of approval and
adoption of the Merger Agreement and the Merger.
Conduct of Business by the Company Pending the Merger. Pursuant to the
Merger Agreement, the Company has covenanted and agreed that, between the date
of the Merger Agreement and the date the Articles of Merger have been examined
by and received approval of the Secretary of the Commonwealth of Massachusetts
pursuant to Massachusetts law (the "Effective Time"), the businesses of the
Company and its subsidiaries (the "Subsidiaries" and, individually, a
"Subsidiary") will be conducted only in, and the Company and the Subsidiaries
shall not take any action except in the usual, regular and ordinary course,
consistent with past practice, and use their best efforts to preserve intact
their present business organizations, keep available the services of their
present advisors, managers, officers and employees and preserve their
relationships with customers, suppliers, licensors and others having business
dealings with them and continue existing contracts as in effect on the date of
the Merger Agreement (for the term provided in such contracts). The Merger
Agreement provides that, without limitation, except as contemplated therein or
to the extent that Parent shall otherwise consent in writing, neither the
Company nor any Subsidiary will, between the date of the Merger Agreement and
the Effective Time, directly or indirectly, do any of the following: (a) split,
combine or reclassify any shares of capital stock of the Company or declare, set
aside or pay any dividend or other distribution (whether in cash, stock or
property or any combination thereof) in respect of any Shares,
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except for dividends paid by any Subsidiary to the Company or any Subsidiary
that is, directly or indirectly, wholly owned by the Company; (b) authorize for
issuance, issue or sell or agree or commit to issue or sell (whether through the
issuance or granting of options, warrants, commitments, subscriptions, rights to
purchase or otherwise) any stock of any class or any other securities or equity
equivalents (including, without limitation, stock appreciation rights) (other
than the issuance of Shares upon the exercise of Options outstanding on the date
of the Merger Agreement in accordance with their present terms); (c) acquire,
sell, lease, encumber, transfer or dispose of any assets outside the ordinary
course of business which are material to the Company or any of the Subsidiaries
(whether by asset acquisition, stock acquisition or otherwise), except pursuant
to obligations in effect on the date of the Merger Agreement or as set forth in
the disclosure schedules of the Merger Agreement; (d) except up to $10,000,000
pursuant to credit facilities in existence on the date hereof, incur any amount
of indebtedness for borrowed money, guarantee any indebtedness, issue or sell
debt securities, make any loans, advances or capital contributions, mortgage,
pledge or otherwise encumber any material assets, create or suffer any material
lien thereupon other than in the ordinary course of business, except, in each
case, pursuant to credit facilities in existence on the date of the Merger
Agreement; (e) except pursuant to any mandatory payments under any credit
facilities in existence on April 22, 2000, pay, discharge or satisfy any claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than any payment, discharge or satisfaction (i)
in the ordinary course of business consistent with past practice, or (ii) in
connection with the Offer and Merger; (f) change any of the accounting
principles or practices used by it (except as required by generally accepted
accounting principles, in which case written notice will be provided to Parent
and Purchaser prior to any such change); (g) except as required by law, (i)
enter into, adopt, amend or terminate any Company Benefit Plan (as defined in
the Merger Agreement), (ii) enter into, adopt, amend or terminate any agreement,
arrangement, plan or policy between the Company or any of the Subsidiaries and
one or more of their directors or officers, or (iii) except for normal increases
in the ordinary course of business consistent with past practice, increase in
any manner the compensation or fringe benefits of any non-executive officer or
employee or pay any benefit not required by any Company benefit plan or
arrangement as in effect as of April 22, 2000; (h) adopt any amendments to the
Articles of Organization or the Bylaws except as expressly provided by the terms
of the Merger Agreement; (i) adopt a plan of complete or partial liquidation or
resolutions providing for or authorizing such a liquidation or a dissolution,
merger, consolidation, restructuring, recapitalization or reorganization (other
than plans of complete or partial liquidation or dissolution of inactive
Subsidiaries); (j) settle or compromise any litigation (whether or not commenced
prior to April 22, 2000) other than settlements or compromises for litigation
where the amount paid (after giving effect to insurance proceeds actually
received) in settlement or compromise does not exceed $100,000; (k) amend any
term of any outstanding security of the Company or any Subsidiary; (l) other
than in the ordinary course of business, neither the Company nor any Subsidiary
shall modify or amend any Material Contract (as defined in the Merger Agreement)
to which the Company or any Subsidiary is a party or waive, release or assign
any material rights or claims under any such Material Contract; (m) authorize,
commit to or make any equipment purchases or capital expenditures other than in
the ordinary course of business and consistent with past practice; or (n) enter
into an agreement to take any of the foregoing actions.
Board Representation. The Merger Agreement provides that, promptly upon
the purchase by Purchaser of Shares pursuant to the Offer, Parent will be
entitled to designate up to such number of directors, rounded up to the next
whole number, on the Board of Directors of the Company (the "Board") as will
give Parent representation on the Board equal to the product of the total number
of directors on the Board (giving effect to the directors elected pursuant to
this sentence), multiplied by the percentage that the total votes represented by
such number of Shares purchased by Purchaser bears to the total votes
represented by the number of Shares then outstanding. The Company will, upon
request by Parent, promptly increase the size of the Board and/or exercise its
best efforts to secure the resignations of such number of its directors as is
necessary to enable Parent's designees to be elected to the Board and will take
all actions to cause Parent's designees to be so elected to the Board. The
Merger Agreement also provides that, at such time, the Company will take all
actions to cause persons designated by Parent to constitute the same percentage
(rounded up to the next whole number) as persons designated by Parent shall
constitute of the Board of (i) each committee of the Board, (ii) each board of
directors (or similar body) of each Subsidiary, and (iii) each committee (or
similar body)
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of each such board. Notwithstanding the foregoing, in the event that Parent's
designees are elected to the Board, until the Effective Time, the Company will
have at least two members of the Board who are directors as of the date of the
Merger Agreement to remain members of the Board ("Independent Directors").
The Merger Agreement provides that, following the election or appointment
of Parent's designees in accordance with the immediately preceding paragraph and
prior to the Effective Time, any amendment or termination of the Merger
Agreement by the Company, the exercise or waiver of any of the Company's rights,
benefits or remedies under the Merger Agreement or any extension by the Company
of the time for the performance of any of the obligations of Parent or Purchaser
under the Merger Agreement, will require the affirmative vote of a majority of
the Independent Directors.
In the Merger Agreement, the Company has agreed to take all action required
pursuant to Section 14(f) and Rule 14f-1 of the Exchange Act in order to fulfill
its obligations under the Merger Agreement, including mailing to stockholders
the information required by such Section 14(f) and Rule 14f-1 as is necessary to
enable Purchaser's designees to be elected to the Board.
Access to Information. Pursuant to the Merger Agreement, until the
Effective Time, the Company will, and will cause the Subsidiaries and the
officers, directors, employees, auditors and agents of the Company and the
Subsidiaries to, afford to Parent and the officers, employees and agents of
Parent complete access at all reasonable times to the officers, employees,
agents, properties, books, records and contracts of the Company and each
Subsidiary, and will furnish Parent with such financial, operating and other
data and information as Parent may reasonably request. Parent and Purchaser have
agreed to keep such information confidential, except in certain circumstances as
set out in the Confidentiality Agreement (as defined herein).
No Solicitation of Transactions. The Company has agreed that neither it
nor any Subsidiary or their respective officers, directors, or employees or any
investment banker, financial advisor, attorney, accountant or other
representative retained by it, directly or indirectly, shall (i) solicit,
initiate or encourage (including by way of furnishing non-public information),
or take any other action to facilitate, any inquiries or the making of any
proposal that constitutes an Acquisition Proposal (as defined herein), or (ii)
participate in any discussions or negotiations regarding an Acquisition
Proposal. Notwithstanding anything to the contrary in the Merger Agreement, if
the Company receives an Acquisition Proposal that was unsolicited or that did
not otherwise result from a breach of the Merger Agreement, and the Board
determines in good faith (after consulting with its outside legal counsel and
its financial advisor) that such Acquisition Proposal is reasonably likely to
lead to a Superior Proposal (as defined herein), the Company (x) may furnish
non-public information with respect to the Company and the Subsidiaries to the
person who made such Acquisition Proposal (a "Third Party") and (y) may
participate in negotiations regarding such Acquisition Proposal. Notwithstanding
anything to the contrary in the Merger Agreement, the Company will notify Parent
after receipt of any Acquisition Proposal, but shall not be required to disclose
to Parent or Purchaser the identity of the Third Party making any such
Acquisition Proposal and will have no duty to notify or update Parent or
Purchaser on the status of discussions or negotiations (including the status of
such Acquisition Proposal or any amendments or proposed amendments thereto)
between the Company and such Third Party.
The Company has represented to Parent and Purchaser that as of the
execution of the Merger Agreement it had terminated any discussions or
negotiations relating to, or that may have been reasonably expected to lead to
any Acquisition Proposal and agreed to promptly request the return of all
confidential information regarding the Company provided to any third party prior
to the date of the Merger Agreement pursuant to the terms of any confidentiality
agreements.
The Company has also agreed that the Board will not withdraw or modify, or
propose to withdraw or modify, in a manner adverse to Parent or Purchaser, its
approval or recommendation of the Merger Agreement, the Offer or the Merger
unless the Board shall have received an Acquisition Proposal reasonably likely
to lead to a Superior Proposal and shall have determined in good faith, after
consulting with its outside legal counsel and its financial advisor, that the
Merger Agreement, the Offer or the Merger is no longer in the best interests of
the Company's stockholders and that such withdrawal or modification is required
to satisfy its fiduciary duties to the Company's stockholders under applicable
law.
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As used herein, the term "Acquisition Proposal" shall mean any proposed or
actual (i) merger, consolidation or similar transaction involving the Company,
(ii) sale, lease or other disposition, directly or indirectly, by merger,
consolidation, share exchange or otherwise, of any assets of the Company or the
Subsidiaries representing 15% or more of the consolidated assets of the Company
and the Subsidiaries, (iii) issue, sale or other disposition by the Company of
(including by way of merger, consolidation, share exchange or any similar
transaction) securities (or options, rights or warrants to purchase, or
securities convertible into, such securities) representing 15% or more of the
votes associated with the outstanding securities of the Company, (iv) tender
offer or exchange offer in which any person shall acquire beneficial ownership
(as such term is defined in Rule 13d-3 under the Exchange Act), or the right to
acquire beneficial ownership, or any "group" (as such term is defined under the
Exchange Act), or the right to acquire beneficial ownership, or any "group" (as
such term is defined under the Exchange Act) shall have been formed which
beneficially owns or has the right to acquire beneficial ownership of, 15% or
more of the outstanding Shares, (v) recapitalization, restructuring,
liquidation, dissolution, or other similar type of transaction with respect to
the Company or (vi) transaction which is similar in form, substance or purpose
to any of the foregoing transactions; provided however, that the term
"Acquisition Proposal" will not include the Merger and the Offer.
As used herein, the term "Superior Proposal" will mean an Acquisition
Proposal that the Board determines in good faith, after consulting with its
outside legal counsel and its financial advisor, would, if consummated, result
in a transaction that is more favorable to the stockholders of the Company than
the Offer and the Merger.
Stock Options. The Merger Agreement also provides that each holder of an
option ("Option") granted under the Company Stock Option Plans (as defined in
the Merger Agreement) that is outstanding (whether or not currently exercisable)
as of immediately prior to the date on which Purchaser accepts for payment
Shares pursuant to the Offer (the "Acceptance Date") and which has not been
exercised or cancelled prior thereto shall, on the Acceptance Date, be cancelled
and in exchange for cash paid by Parent in an amount equal to the product of (i)
the number of Shares provided for in such Option and (ii) the excess, if any, of
the Offer Price over the exercise price per Share provided for in such Option,
which cash payment shall be treated as compensation and shall be net of any
applicable federal or state withholding tax. Notwithstanding the foregoing, if
the exercise price per Share provided for in any Option exceeds the Offer Price,
no cash shall be paid with regard to such Option to the holder of such Option.
In the Merger Agreement the Company agreed to take all actions necessary to
ensure that (i) all Options, to the extent not exercised prior to the Acceptance
Date, shall terminate and be cancelled as of the Acceptance Date and thereafter
be of no further force or effect, (ii) no Options are granted after the date of
the Merger Agreement, and (iii) as of the Acceptance Date, the Company Stock
Option Plans and all Options issued thereunder shall terminate.
Except as may be otherwise agreed to by Parent or Purchaser and the
Company, the Company Stock Option Plans shall terminate as of the Acceptance
Date and the provisions in any other plan, program or arrangement providing for
the issuance or grant of any other interest in respect of the capital stock of
the Company or any of the Subsidiaries shall be of no further force and effect
and shall be deemed to be deleted as of the Acceptance Date and no holder of an
Option or any participant in any Company Stock Option Plan or any other plans,
programs or arrangements shall have any right thereunder to acquire any equity
securities of the Company, the Surviving Corporation or any Subsidiary thereof.
Directors' and Officers' Indemnification. The Merger Agreement provides
for the indemnification of directors and officers of the Company by the Company
prior to the Effective Date and by the Surviving Corporation after the Effective
Time, subject to certain conditions.
The Merger Agreement further provides that Parent and Purchaser agree that
all rights to indemnification existing in favor of, and all limitations on the
personal liability of, the directors, officers, employees and agents of the
Company and the Subsidiaries provided for in the Articles of Organization or
Bylaws of the Company as in effect as of the date of the Merger Agreement with
respect to matters occurring prior to the Effective Time, and including the
Offer and the Merger, shall continue in full force and effect for a period of
not less then six years from the Effective Time; provided, however, that all
rights to indemnification in respect
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of any claims (each a "Claim") asserted or made within such period shall
continue until the disposition of such Claim. Prior to the Effective Time, the
Company will purchase an extended reporting period endorsement under the
Company's existing directors' and officers' liability insurance coverage for the
Company's directors and officers in a form acceptable to the Company which shall
provide such directors and officers with coverage for six years following the
Effective Time of not less than the existing coverage under, and have other
terms not materially less favorable on the whole to, the insured persons than
the directors' and officers' liability insurance coverage presently maintained
by the Company.
Parent, Purchaser and the Company have also agreed that in the event Parent
or the Surviving Corporation or any of their respective successors or assigns
(a) consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger or
(b) transfers or conveys all or substantially all of its properties and assets
to any person or entity, then and in each such case, proper provision will be
made so that the successors and assigns of Parent or the Surviving Corporation,
as the case may be, will assume the foregoing indemnity obligations.
Employee Benefit Arrangements. After the closing of the Merger, Parent
will cause Purchaser or the Company to honor all obligations under (i) the
existing terms of the employment and severance agreements to which the Company
or any Subsidiary is presently a party, except as may otherwise be agreed to by
the parties thereto, and (ii) the Company's and any Subsidiary's general
severance policy. Following the Effective Time, the Company's employees will be
permitted to participate in the employee benefit plans of Parent as in effect on
the date thereof on terms substantially similar to those provided to employees
of Parent. Until such time as Parent causes employees of the Company to
participate in the employee benefit plans of Parent, employees of the Company
will continue to participate in the currently existing benefit plans of the
Company (other than stock option or stock purchase plans) on substantially
similar terms to those currently in effect.
If any employee of the Company or any of the Subsidiaries becomes a
participant in any employee benefit plan, practice or policy of Parent, any of
its affiliates or the Surviving Corporation, such employee shall be given credit
under such plan for all service prior to the Effective Time with the Company and
the Subsidiaries and prior to the time such employee becomes such a participant,
for purposes of eligibility (including, without limitation, waiting periods) and
vesting, and such employees will be given credit for such service for purposes
of any vacation policy. In addition, if any employees of the Company or any of
the Subsidiaries employed as of the closing of the Merger become covered by a
medical plan of Parent, any of its affiliates or the Surviving Corporation, such
medical plan shall not impose any exclusion on coverage for preexisting medical
conditions with respect to these employees.
Further Action. The Merger Agreement provides that each of the parties
thereto shall use its best efforts to take all such action as may be necessary
or appropriate in order to effectuate the Merger under Massachusetts Law as
promptly as practicable following the purchase of the Shares pursuant to the
Offer. If at any time after the Effective Time any further action is necessary
or desirable to carry out the purposes of the Merger Agreement and to vest the
Surviving Corporation with full right, title and possession to all assets,
property, rights, privileges, powers and franchises of both of the Company and
Purchaser, the officers of such corporations are fully authorized in the name of
their corporation or otherwise to take, and shall take, all such lawful and
necessary action. In addition, to the extent Richard E. Wenz exercises stock
options prior to Monday, June 5, 2000, the Company agrees to use its best
efforts to have him enter into the Tender Agreement as soon as possible after
such exercise.
Representations and Warranties. The Merger Agreement contains various
customary representations and warranties of the parties thereto, including
representations by the Company as to the absence of certain changes or events
concerning the Company's business, compliance with law, absence of litigation,
employee benefit plans, labor matters, property and leases, intellectual
property, environmental matters, taxes, material contracts, opinion of financial
advisors and brokers.
Conditions to the Merger. Under the Merger Agreement, the respective
obligations of each party to effect the Merger are subject to the satisfaction,
at or prior to the Effective Time, of the following conditions: (a) if and to
the extent required by Massachusetts law, the Merger Agreement and the Merger
will have been approved and adopted by the affirmative vote of the stockholders
of the Company; (b) any waiting period
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(and any extension thereof) applicable to the consummation of the Merger under
the HSR Act shall have expired or been terminated; (c) all necessary approvals,
authorizations and consents of any governmental or regulatory entity required to
consummate the Merger will have been obtained and remain in full force and
effect, and all waiting periods relating to such approvals, authorizations and
consents will have expired or been terminated, except where such failure would
not have a material adverse effect with respect to the Company or Parent, as the
case may be, or would not affect adversely the ability of the Company or
Purchaser, as the case may be, to consummate the Merger; (d) no statute, order,
decree, ruling or permanent injunction will have been enacted, entered,
promulgated or enforced by any governmental entity which prohibits the
consummation of the Merger on the terms contemplated by the Merger Agreement;
provided that the party seeking to rely upon this condition has fully complied
with and performed its obligations to make all necessary filings with applicable
governmental entities as required by the Merger Agreement; (e) all consents
relating to any Material Contracts set forth in the Merger Agreement that are
necessary as a result of the consummation of the transactions contemplated by
the Merger Agreement will have been received; and (f) Parent, Purchaser or their
affiliates will have purchased all Shares validly tendered and not withdrawn
pursuant to the Offer.
Termination. The Merger Agreement provides that it may be terminated and
the Merger may be abandoned at any time prior to the Effective Time, whether
before or after approval and adoption of the Merger Agreement and the Merger by
the stockholders of the Company (a) by mutual written consent of each of Parent,
Purchaser and the Company or (b) by either Parent, Purchaser or the Company (i)
if any Governmental Entity shall have enacted, entered, promulgated or enforced
a final and nonappealable injunction (which injunction the parties hereto shall
have used their best efforts to lift), which prohibits the consummation of the
Merger on the terms contemplated by the Merger Agreement (provided that the
party seeking to rely upon this condition has fully complied with and performed
its obligations pursuant to the Merger Agreement), or permanently enjoins the
acceptance for payment of, or payment for, Shares pursuant to the Offer or the
Merger; (ii) if, without any material breach by the terminating party of its
obligations under this Agreement, Parent or Acquisition Sub shall not have
purchased Shares pursuant to the Offer on or prior to the Expiration Date;
provided, however, that neither Parent, Purchaser nor the Company will terminate
the Merger Agreement prior to August 31, 2000 if Shares shall not have been
purchased by Purchaser by reason of any applicable waiting period (and any
extension thereof) under the HSR Act in respect of the Offer not having expired
or been terminated or the pendency of a non-final injunction, and Parent,
Purchaser and the Company will use their best efforts to cause such condition to
be satisfied (including, without limitation, by complying with the requirements
of the FTC or other comparable Governmental Entity to divest of assets or
otherwise in connection with the consummation of the Offer and Merger or in
settlement of any action brought by it) or have any such injunction stayed or
reversed; or (iii) by either the Company or Parent if, at the special meeting of
stockholders (including any adjournment or postponement thereof) called pursuant
to the Merger Agreement the requisite vote of the stockholders of the Company
for the Merger shall not have been obtained; (c) by the Company: (i) if Parent
or Purchaser shall have failed to commence the Offer on or prior to the tenth
business day following the date of the initial public announcement of the Offer;
(ii) if the Board shall have (A) withdrawn, or modified or changed in a manner
adverse to Parent its approval or recommendation of the Merger Agreement or the
Offer, or resolved to do any of the foregoing, and (B) determined in good faith,
after consultation with its outside legal counsel and its financial advisor,
that an Acquisition Proposal is a Superior Proposal; (iii) if Parent or
Purchaser shall have breached in any material respect any of their respective
representations, warranties, covenants or other agreements contained in the
Merger Agreement, which breach cannot be or has not been cured within 30 days
after the giving of written notice to Parent or Purchaser except, in any case,
for such breaches which would not affect adversely Parent's or Purchaser's
ability to consummate the Offer or the Merger provided, however, that no cure
period shall be applicable to the matters set forth in clause (i) of this
paragraph; or (iv) if the Minimum Condition shall not have been satisfied, in
which case neither Parent, Purchaser nor any of their affiliates shall be
permitted to accept for payment or pay for any Shares unless and until the
Company shall have provided Parent with written notice stating that the Company
is not exercising its right to terminate the Merger Agreement; (d) by Parent or
Purchaser if: (i) the Company will have breached any representation, warranty,
covenant or other agreement contained in the Merger Agreement which breach (A)
would give rise to the failure of a condition set forth in paragraph (b), (c) or
(e) of Annex A to the Merger Agreement, and
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(B) cannot be or has not been cured within 30 days after the giving of written
notice to the Company; or (ii) if the Board shall have withdrawn, modified or
changed in a manner adverse to Parent its approval or recommendation of the
Merger Agreement or the Offer or shall have executed an agreement in principle
or definitive agreement relating to an Acquisition Proposal with a person or
entity other than Parent or its affiliates or resolved to do any of the
foregoing.
Effect of Termination. In the event of the termination of the Merger
Agreement, the Merger Agreement shall forthwith become null and void and have no
effect, and there shall be no liability on the part of any party or its
affiliates, trustees, directors, officers or stockholders and all rights and
obligations of any party shall cease thereto, except (i) as set forth below
under the section entitled "Fees and Expenses" and (ii) nothing in the Merger
Agreement shall relieve any party from liability for any breach thereof prior to
the date of such termination, provided, however, that the Confidentiality
Agreement shall survive any termination of the Merger Agreement.
Fees and Expenses. The Merger Agreement provides that subject to the
termination of the Merger Agreement, whether or not the Merger is consummated,
all fees, costs and expenses incurred in connection with this Agreement and the
Offer and Merger shall be paid by the party incurring such fees, costs or
expenses.
If the Company or Parent terminates the Merger Agreement because of the
Board's decision to withdraw, modify or change in a manner adverse to Parent its
approval or recommendation of the Merger Agreement or the Offer or because the
Company has executed an agreement in principle or definitive agreement relating
to an Acquisition Proposal with a person or entity other than Parent or its
affiliates or resolved to do any of the foregoing, then the Company will as soon
as possible thereafter pay to Parent an amount in cash equal to 4% of the sum of
(a) the product of (i) the Merger Consideration and (ii) the total number of
issued and outstanding Shares, and (b) the amount to be paid for Options
pursuant to the Merger Agreement.
Executive Severance Arrangements with Executive Officers of the Company
The Company has entered into executive severance agreements with the
following executives of the Company: Michael Lerner, Richard Wenz, Joseph
Driscoll, Denis Horton, Stephen Orleans, Ronald Cardone, Paul Ware, Jason
Macari, Jeffery Hale, Brian Sundberg and Michael Goldberg. Michael Lerner and
Richard Wenz's severance agreements provide that in the event of the qualifying
termination (as defined in the agreement) of the executive's employment within
twelve months following a change in control (as defined in the agreement) of the
Company, the executive is entitled to a payment equal to two times: the sum of
(A) the executive's base salary immediately prior to the termination (or
immediately prior to the change in control, if higher) and (B) the executive's
most recent bonus paid prior to the change in control, payable in one lump-sum
payment no later than 31 days following the date of termination. Joseph
Driscoll's severance agreement provides that in the event of the qualifying
termination (as defined in the agreement) of the executive's employment within
twelve months following a change in control (as defined in the agreement) of the
Company, the executive is entitled to a payment equal to one time: the sum of
(A) the executive's base salary immediately prior to the termination (or
immediately prior to the change in control, if higher) and (B) the executive's
most recent bonus paid prior to the change in control, payable in one lump-sum
payment no later than 31 days following the date of termination. All other
severance agreements provide that in the event of the qualifying termination (as
defined in the agreement) of the executive's employment within twelve months
following a change in control (as defined in the agreement) of the Company, the
executive is entitled to a payment equal to half of: the sum of (A) the
executive's base salary immediately prior to the termination (or immediately
prior to the change in control, if higher) and (B) the executive's most recent
bonus paid prior to the change in control, payable in one lump-sum payment no
later than 31 days following the date of termination. Each severance agreement
also provides that in the event of the qualifying termination (as defined in the
agreement) of the executive's employment within twelve months following a change
in control (as defined in the agreement) of the Company, the executive is
entitled to the following severance benefits: (i) continuation of medical,
dental, long-term, disability, life and any other insurance coverages for up to
18 months following termination, (ii) continuation of COBRA benefits following
the end of the 18 month period referred to in (i) above, (iii) all reasonable
legal and arbitration fees and expenses incurred by the executive in
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obtaining or enforcing any right or benefit provided by the severance agreement,
except in cases involving frivolous or bad faith litigation. The severance
agreements also provide that in the event the receipt of the severance payments
causes the executive to become subject to the 20% excise tax imposed by Section
4999 of the Internal Revenue Code, the severance payments will be increased such
that the net amount retained by the executive, after deduction of any excise tax
on the severance payments, any federal, state and local income tax, employment
tax and any interest and/or penalties assessed with respect to such excise tax,
shall be equal to the severance payments. The consummation of the transactions
contemplated by the Merger Agreement will constitute a change in control under
each executive's severance agreement.
The following events, among others, are deemed "Qualifying Terminations"
under each severance agreement that would entitle the executive to receive
severance benefits: (i) an adverse change, not consented to by the executive, in
the nature or scope of the executive's responsibilities, authorities, powers,
functions or duties from the responsibilities, authorities, powers, functions or
duties exercised by the executive immediately prior to change of control; (ii) a
reduction in the executive's annual base salary as in effect on the date of the
severance agreement or as the same may be increased from time to time; (iii) the
relocation of the Company's offices at which the executive is principally
employed immediately prior to the date of a change in control to any other
location, or the requirement by the Company for the executive to be based
anywhere other than the current offices, except for required travel on the
Company's business to an extent substantially consistent with the executive's
business travel obligations immediately prior to the change in control; (iv) the
failure by the Company to pay the executive any portion of his compensation or
to pay to the executive any portion of an installment of deferred compensation
under any deferred compensation program of the Company within 15 days of the
date such compensation is due without prior written consent of the executive;
and (v) the failure by the Company to obtain an effective agreement from any
successor to assume and agree to perform the severance agreement.
A copy of the form of severance agreement entered into with each executive
is attached hereto as Exhibit 2. The form of severance agreement is incorporated
herein by reference.
STOCK OPTIONS
The Merger Agreement provides that each option to purchase Shares granted
under the Company Stock Option Plans (as defined below), which is outstanding
(whether or not currently exercisable) as of immediately prior to the date on
which Purchaser accepts for payment Shares pursuant to the Offer (the
"Acceptance Date") and which has not been exercised or canceled prior thereto
will, on the Acceptance Date, be canceled and in exchange therefor, Parent will
pay to the holder cash in an amount equal to the product of (i) the number of
Shares provided for in such Option and (ii) the excess, if any, of the Offer
Price over the exercise price per Share provided for in such Option, which cash
payment will be treated as compensation and will be net of any applicable
federal or state withholding tax. Notwithstanding the foregoing, if the exercise
price per Share provided for in any Option exceeds the Offer Price, no cash will
be paid with regard to such Option to the holder of such Option. The Company
will take all actions necessary to ensure that (i) all Options, to the extent
not exercised prior to the Acceptance Date, will terminate and be canceled as of
the Acceptance Date and thereafter be of no further force or effect, (ii) no
Options are granted after the date of the Merger Agreement, and (iii) as of the
Acceptance Date, the Company Stock Option Plans and all Options issued
thereunder shall terminate.
"Option" means any option to purchase Shares granted under any Company
Stock Option Plan. "Company Stock Option Plans" means the 1993 Incentive and
Nonqualified Stock Option Plan, 1993-A Employee and Director Stock Option Plan,
1996 Employee and Director Stock Option Plan, and 1996 Nonqualified Stock Option
Plan.
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The following table sets forth the options held by the Company's executive
officers which will become fully vested.
NAME NUMBER OF OPTION SHARES PER SHARE EXERCISE PRICE
- ---- ----------------------- ------------------------
Michael Lerner..................................... 20,000 $9.00
Michael Bernstein.................................. 250 $6.00
250 $6.50
Richard Wenz....................................... 250,000 $2.88
75,000 $7.25
250,000 $7.63
Joseph Driscoll.................................... 20,000 $2.88
50,000 $4.75
12,000 $6.00
Stephen Orleans.................................... 50,000 $2.88
5,000 $5.37
25,000 $6.00
10,750 $6.50
5,000 $8.63
10,000 $9.00
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) RECOMMENDATION OF THE BOARD OF DIRECTORS. At a meeting of the
Company's Board of Directors held on April 22, 2000, the Company's Board of
Directors, by a unanimous vote, determined that the Offer and the Merger is fair
to and in the best interests of the Company and its stockholders, unanimously
approved and adopted the Merger Agreement and the transactions contemplated
thereby and recommended that all holders of Shares tender their Shares pursuant
to the Offer.
(b) BACKGROUND; REASONS FOR THE RECOMMENDATION.
BACKGROUND
During the summer of 1998, the Company initiated a process with its
investment banker, Goldman, Sachs & Co. ("Goldman Sachs"), to explore
opportunities to enhance shareholder value through the possible sale of the
Company in a limited auction process. At that time, a number of parties
expressed interest in acquiring the Company and discussions were held with,
among others, Bidder A, the corporate parent of a leading industry competitor,
and Bidder B, a buyout firm. During the first quarter of 1999, the Board of
Directors terminated these discussions after determining that the discussions
were not likely to yield a price that adequately reflected the long-term value
of the Company.
On October 23, 1999, the President of Bidder A's subsidiary contacted
Michael Lerner, Chairman and Chief Executive Officer of the Company and
expressed interest in renewing discussions regarding a strategic combination of
the two companies. As a result of that conversation, senior executives of Bidder
A met with Michael Lerner and Richard Wenz, President and Chief Operating
Officer of the Company on November 2, 1999. During this meeting, the
participants discussed the status of the Company's overall business as well as
recent business developments. Following the discussion, the parties agreed to
consider further the possibility of a business combination and to contact each
other again if they were interested in pursuing such a transaction. On November
18, 1999, during a regularly scheduled meeting of the Board of Directors, as
part of a general discussion about the Company's stock price and business
prospects, Michael Lerner briefed the Board concerning the meeting with Bidder A
and the potential for renewed interest in a strategic transaction.
In a telephone conversation with Michael Lerner on December 21, 1999, the
President of Bidder A's subsidiary reemphasized Bidder A's interest in
continuing discussions concerning a potential business combination between the
two companies. In the same conversation, he also indicated that Bidder A's
initial indication of a proposed value of the Company would be provided by
mid-January 2000. Following this
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conversation, the Company informed Goldman Sachs of Bidder A's renewed interest
and Goldman Sachs became actively involved in advising the Company concerning
this renewed interest in a strategic transaction. During the week of January 10,
2000, Bidder B indicated to Michael Lerner and Richard Wenz that it was
interested in renewing discussions concerning pursuing a strategic transaction
with the Company and developing a formal proposal to acquire the Company at a
price of approximately $10 per share in a leveraged recapitalization transaction
that would include a management rollover of equity.
On January 20, 2000, the Board of Directors met telephonically to receive
an update from Michael Lerner regarding the Company and its strategic
alternatives, including the potential sale of the Company to Bidder A or Bidder
B.
On January 21, 2000, Bidder A provided to the Company a request for
selected information for due diligence purposes. On February 3, 2000, senior
management of the Company and representatives of Goldman Sachs had a conference
call with the members of Bidder A's acquisition team and their investment banker
to discuss various matters relating to the due diligence information request and
the proposed due diligence process.
Also on February 3, 2000, Michael Lerner received an unsolicited telephone
call from Jeff Segel, Vice President of Sales and Marketing of Parent, another
industry competitor, expressing interest in exploring a strategic combination
between the Company and Parent. Michael Lerner agreed to meet with members of
Parent's senior management on February 5, 2000 to discuss a possible business
combination.
On February 4, 2000, Michael Lerner received a call from Bidder B
emphasizing its high level of interest in acquiring the Company and its desire
to visit the Company to conduct due diligence as soon as possible. Later that
same day, the Board of Directors met telephonically to discuss the status of
negotiations. During the meeting, the Board was updated on the status of
discussions with Bidder A, Bidder B and Parent.
On February 5, 2000, Michael Lerner met with Jeff Segel, Martin Schwartz,
President and Chief Executive Officer of Parent and Alan Schwartz, Vice
President of Operations of Parent. The parties discussed the Company's business
operations and prospects and possible synergies and strategic benefits from a
business combination between the two companies. Subsequent to the meeting,
Parent informed Michael Lerner that its preliminary indication of value for the
Company was approximately $11-12 cash per share. On February 17, 2000, Parent
executed a confidentiality agreement with the Company and, on February 22, 2000,
submitted a due diligence request for information to the Company.
On February 14, 2000, the Company received a due diligence request for
information from Bidder B. Upon receipt of a signed confidentiality agreement
from Bidder B, the Company made due diligence information available to Bidder B.
On February 24, 2000, Bidder A provided the Company and Goldman Sachs with a
letter of interest proposing an acquisition of the Company for a price of $11-13
cash per share.
At a telephonic Board meeting on February 29, 2000, Michael Lerner updated
the Board of Directors on the status of discussions involving the potential
acquisition of the Company. On March 1, 2000, the Company received a revised due
diligence information request from Bidder A and Bidder A executed a
confidentiality agreement. On March 2-3, 2000, the acquisition team from Bidder
A visited a "data room," which had been established, and conducted due diligence
procedures.
On March 6, 2000, the Company received a proposal from Bidder B offering
$11 per share and contemplating a management retaining a portion of its equity.
On March 7, 2000, the senior management of Parent visited the Company's
offices and attended a management presentation by Michael Lerner and Richard
Wenz. Subsequently, during the weeks of March 7 and March 14, representatives
from Parent and their acquisition team visited the Company's "data room" and
performed additional due diligence.
During a telephonic meeting on March 8, 2000, Michael Lerner updated the
Board with respect to the status of ongoing due diligence by the interested
parties. At this meeting, the Board agreed to meet via telephone once a week
while discussions of a possible acquisition were actively continuing. At this
stage, the Board believed that discussions should continue in the context of
negotiations over definitive documentation
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and, in connection with these negotiations, on March 8, 2000, the Company's
counsel, Goodwin, Procter & Hoar LLP distributed a draft Merger Agreement to
each of Bidder A and Parent.
Following consultation with Goldman Sachs, Michael Lerner met with the
senior management of Parent in Montreal on March 14, 2000 to discuss the
possible synergies and opportunities that could result from a combination of the
Company and Parent. On a March 15, 2000 conference call, the Board was updated
on the status of discussions with Parent.
On March 20, 2000, after consultation with Goldman Sachs, Michael Lerner
discussed with Bidder B the proposed terms of its offer to acquire the Company.
Given that $11 per share appeared to be the upper limit of the range that Bidder
B could offer and that the proposal would require that management retain their
equity in connection with the transaction, the parties agreed to terminate
discussions at that time.
During a telephonic meeting on March 22, 2000, Michael Lerner updated the
Board on the ongoing due diligence activities of both Bidder A and Parent and
the Company's response to Bidder B's offer. On March 28, 2000, senior management
of Bidder A and its subsidiary visited the Company's offices and listened to a
presentation by senior management concerning the Company.
At a telephonic meeting on March 29, 2000, Michael Lerner updated the Board
concerning the ongoing process of due diligence and contract negotiations
between the Company and each of Bidder A and Purchaser. On April 3, 2000, the
Board of Directors again met to discuss the status of ongoing discussions and
negotiations with the three interested parties. At this meeting, Goldman Sachs
presented an analysis of the financial terms of the three proposals that had
been received or were contemplated. Goodwin, Procter & Hoar LLP reviewed the
status of contract negotiations with each of Bidder A and Parent. Following
these presentations, the Board discussed the appropriate strategy for continued
discussions with the interested parties.
A senior executive of Bidder A telephoned Michael Lerner on April 4, 2000
to make a verbal cash offer of $11.75 per share for the acquisition of the
Company. Subsequently, the Company and its counsel engaged in contract
negotiations with Bidder A and its counsel that focused on, among other things,
the scope of the representations, warranties and covenants contained in the
merger agreement, the conditions under which the acquiring party would be
obligated to close the tender offer, the obligations of the parties with respect
to obtaining antitrust approval, the ability of the Company to terminate the
merger agreement and to enter into an agreement with a party who made a superior
proposal and the amount of the termination fee to be paid to Bidder A in such
circumstances.
On April 10, 2000, the President of Parent called Michael Lerner to make a
verbal cash offer of $13 per share for the acquisition of the Company. In the
subsequent week, the Company and its counsel negotiated with Parent and its
counsel a variety of points raised by Parent in its response. These discussions
focused on, among other things, the conditions under which Parent would be
obligated to close the tender offer, the amount of the termination fee to be
paid to Parent if the Company terminated the Merger Agreement in order to enter
into an agreement with a party who made a Superior Proposal, and issues relating
to Parent's financing arrangements for the transaction.
On April 11, 2000, the Company's counsel distributed a revised draft of the
Merger Agreement to Parent and, on April 12, 2000, the Company's counsel
distributed a revised draft of the Merger Agreement to Bidder A. Later on April
12, 2000, the Board held a telephonic meeting and the Company's legal and
financial advisors updated the Board on negotiations with both Bidder A and
Purchaser.
During the week of April 13, 2000, a senior executive of Bidder A called
Michael Lerner to inform him that they were contemplating increasing their offer
to the mid $12 range.
On April 13, 2000, Parent provided the Company with a draft of its
financing commitment letter. On April 14, 2000, the Company and Goldman Sachs
conveyed to Parent their comments on the draft of the commitment letter. On
April 18, 2000, Parent provided the Company with a final version of the
financing commitment letter, which responded to certain of the comments provided
to Parent. Later the same day, the Company's counsel distributed a revised draft
of the Merger Agreement to Parent.
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On April 19, 2000, after reviewing the status of both offers with
representatives of Goldman Sachs, Michael Lerner telephoned the Chief Financial
Officer of Bidder A and explained that their offer price was lower than another
interested party and that more substantial contract points remained unresolved
than remained with the other interested party. In response, the Chief Financial
Officer of Bidder A suggested that a face-to-face meeting might expedite
resolution of the outstanding contract issues. On the next day, April 20, 2000,
members of the Bidder A management team and their outside counsel met with
Michael Lerner and Richard Wenz, the Company's counsel and a representative of
Goldman, Sachs. While the parties made substantial progress in resolving
outstanding contract issues, significant points remained outstanding at the end
of the meeting, including the parties' obligations with respect to obtaining
antitrust approval, the ability of the Company to terminate the merger agreement
and to enter into an agreement with a party who made a superior proposal and the
amount of the termination fee. Bidder A indicated that they were contemplating
raising their offer price and would inform the Company the next day if they
decided to do so.
On April 21, 2000, the Board of Directors met telephonically to discuss the
status of negotiations with the interested parties. Michael Lerner informed the
Board that, at the Company's direction, Goldman Sachs instructed both Bidder A
and Parent to have their final bids and contracts submitted by 5:00 p.m. on
Friday, April 21, 2000. Bidder A responded by increasing its bid to $13.00 per
share and Parent increased its bid to $13.875 per share. Following the receipt
of the bids and contracts, additional discussions were held with both parties to
evaluate the specifics of their bids.
A Board meeting was held on Saturday April 22, 2000 to review the final
bids. During the meeting, Goldman Sachs presented to the Board an analysis of
the financial terms of the final offers of Parent and Bidder A and commented on
the price and structure of the two proposals. After extensive discussions among
the Board members and the Company's advisors, the Board concluded that Parent's
final bid of $13.875 per share represented a superior price to Bidder A's
proposed price of $13.00 per share and the Merger Agreement negotiated with
Parent contained more favorable terms than the one negotiated with Bidder A,
particularly with respect to the parties' obligations to obtain antitrust
approval. Goldman Sachs then delivered its oral opinion to the effect that the
consideration to be received from Parent by the Company's stockholders in the
Offer and the Merger was fair from a financial point of view to the Company's
stockholders. The Company's Board of Directors then determined that the Offer
and the Merger were fair to and in the best interest of the Company and its
stockholders, unanimously approved and adopted the Merger Agreement and the
transactions contemplated thereby, and recommended that all holders of shares
tender their Shares pursuant to the Offer. Subsequently, Parent, Purchaser and
the Company executed the Merger Agreement and publicly announced the
transaction.
REASONS FOR THE COMPANY'S BOARD'S RECOMMENDATIONS; FACTORS CONSIDERED
In reaching its determination described in paragraph (a) above, the
Company's Board of Directors considered a number of factors, including, without
limitation, the following:
(i) The fact that the $13.785 per Share price to be paid in the Offer
and the Merger represents (A) a premium of 9.9% over $12.63, the closing
price of the Shares on NASDAQ on April 20, 2000, (B) a premium of 19.3%
over $11.63, the ten day trading average of the Shares as of April 20,
2000, (C) a premium of 20.9% over $11.48, the 20 day trading average of the
Shares as of April 20, 2000, (D) a premium of 20.9% over $11.48, the one
month trading average of the Shares as of April 20, 2000, (E) a premium of
28.1% over $10.83, the two month trading average of the Shares as of April
20, 2000, (F) a premium of 41.6% over $9.80, the three month trading
average of the Shares as of April 20, 2000, (G) a premium of 63.4% over
$8.49, the six month trading average of the Shares as of April 20, 2000,
and, (H) a premium of 88.0% over $7.38, the one year trading average of the
Shares as of April 20, 2000.
(ii) The Company's business, financial condition, results of
operations, strategic objectives, competitive position and prospects.
(iii) The Company's historical financial information and projected
financial results, including management's most recent projections.
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(iv) A financial analysis of the valuation of the Company under
various methodologies, including a discounted cash flow analysis, a
leveraged buy out analysis, and pro forma merger analysis.
(v) The opinion of Goldman Sachs, delivered to the Company's Board of
Directors on April 22, 2000, that as of such date, and based upon and
subject to various considerations set forth therein, the consideration to
be received by the Company's stockholders in the Offer and the Merger was
fair from a financial point of view to such stockholders.
(vi) The results of the discussions with Bidder A and Bidder B
regarding a possible acquisition, leveraged recapitalization, leveraged
buyout, or similar transaction with the Company.
(vii) The limited ability of Purchaser to terminate the Offer or the
Merger
(viii) The terms and conditions of the Merger Agreement, including the
"all cash" nature of the transaction and the facts that (A) the Offer and
Merger are not subject to a financing condition, (B) Parent and Purchaser
have agreed that Shares not purchased in the Offer will receive pursuant to
the Merger the same form and amount of consideration as the Shares
purchased in the Offer, and (C) the Company, under certain circumstances
and subject to certain conditions (including the payment of a Liquidated
Amount) may terminate the Merger Agreement in order to execute an agreement
with a third party providing for the acquisition of the Company on terms
more favorable to the Company's stockholders than the Offer and the Merger.
The foregoing discussion of information and factors considered and given
weight by the Board of Directors is not intended to be exhaustive, but is
believed to include all of the material factors, both positive and negative,
considered by the Board of Directors in connection with its approval of the
Merger Agreement. In view of the variety of factors considered in connection
with its evaluation of the Offer and the Merger, the Board of Directors did not
find it practical to, and did not, quantify or otherwise assign relative weights
to the specific factors considered in reaching its determination and
recommendations. In addition, individual members of the Board of Directors may
have given different weights to different factors.
In analyzing the Offer and the Merger, the Company's management and Board
of Directors were assisted and advised by representatives of Goldman Sachs and
the Company's counsel, who reviewed various financial, legal and other
considerations in addition to the terms of the Merger Agreement. The full text
of the written opinion of Goldman Sachs, setting forth the procedures followed,
the matters considered, the scope of the review undertaken and the assumptions
made by Goldman Sachs in arriving at its opinion, is attached hereto as Exhibit
3 and is incorporated herein by reference. Stockholders are urged to, and
should, read such opinion carefully and in its entirety. The opinion was
provided for the information and assistance of the Company's Board of Directors
in connection with its consideration of the Offer and the Merger. Such opinion
addresses only the fairness from a financial point of view of the consideration
to be received by the stockholders of the Company in the Offer and the Merger
and does not constitute a recommendation to any stockholder as to whether to
tender shares in the Offer or to vote in favor of the Merger.
(c) INTENT TO TENDER. To the Company's knowledge after reasonable inquiry,
all of the Company's executive officers, directors and affiliates currently
intend to either (i) tender all Shares held of record or beneficially by them
pursuant to the Offer, or (ii) vote all Shares held of record or beneficially by
them for the approval and to tender their Shares. Concurrently with execution of
the Merger Agreement, Michael Lerner, Michael Bernstein and Mark Owens, three of
the Company's directors, and Bear Stearns & Co. and DB Capital Partners, Inc.
(formerly known as BT Capital Partners), two of the Company's stockholders,
collectively owning approximately 58% of the outstanding Shares, entered into a
tender agreement pursuant to which they are contractually bound to tender their
shares pursuant to the Offer. The foregoing does not include any Shares over
which, or with respect to which, any such executive officer, director or
affiliate acts in a fiduciary or representative capacity or is subject to the
instructions of a third party with respect to such tender or vote.
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ITEM 5. PERSON/ASSETS RETAINED, EMPLOYED, COMPENSATED OR USED.
(a) SOLICITATIONS OR RECOMMENDATIONS. Goldman Sachs is acting as the
Company's financial advisor in connection with the Offer and the Merger. The
Company entered into an engagement letter with Goldman Sachs, dated August 23,
1996, as amended from time to time by the Company and Goldman Sachs
(collectively, the "Engagement Letter"), pursuant to which the Company engaged
Goldman Sachs as a financial advisor in connection with the possible sale of all
or a portion of the Company. Pursuant to the terms of the Engagement Letter, the
Company will pay Goldman Sachs a fee equal to 1.5% of the aggregate
consideration paid for the Shares, upon completion of the Offer. In addition,
the Company has agreed to reimburse Goldman Sachs for its reasonable expenses
incurred during its engagement and to indemnify Goldman Sachs against certain
liabilities incurred in connection with its engagement, including liabilities
under federal securities laws.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. In the ordinary course
of business, Goldman Sachs and its affiliates may actively trade or hold the
securities of the Company and Parent for their own account or for the accounts
of customers and, accordingly, may at any time hold a long or short position in
such securities.
Except as set forth above, neither the Company nor any person acting on its
behalf currently intends to employ, retain or compensate any other person to
make solicitations or recommendations to stockholders on its behalf with respect
to the Offer.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
No transaction in the Shares has been effected during the past sixty (60)
days by the Company, or to the best of the Company's knowledge, by any executive
officer, director, affiliate or subsidiary of the Company.
ITEM 7. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS.
(a) Except as set forth in this Statement, the Company is not engaged in
any negotiation in response to the Offer which relates to or would result in (i)
an extraordinary transaction such as a merger or reorganization involving the
Company or any subsidiary of the Company; (ii) a purchase, sale or transfer of a
material amount of assets by the Company or any subsidiary of the Company; (iii)
a tender offer for or other acquisition of securities by or of the Company; or
(iv) any material change in the present capitalization or dividend policy of the
Company.
(b) Except as set forth in this Statement, there are no transactions, board
resolutions, agreements in principle or signed contracts in response to the
Offer which relate to or would result in one or more of the events referred to
in Item 7(a) above.
ITEM 8. ADDITIONAL INFORMATION.
(a) State Takeover Laws. Massachusetts has enacted three takeover laws,
Chapters 110C, 110D and 110F of the MGL. Chapter 110D of the MGL (the "Control
Share Act") regulates "control share acquisitions," defined as the acquisition
of stock in certain "issuing public corporations" organized in Massachusetts
which increases the voting power of the acquiror above certain specified levels
(i.e., 20%, 33 1/3% and 50%). The Control Share Act disqualifies the voting
rights of Shares acquired in a "control share acquisition" unless, among other
things, such acquisition is pursuant to a merger agreement to which the issuing
public corporation is a party. In accordance with the provisions of Chapter
110D, on April 22, 2000, the Board of Directors of the Company consented to and
approved the Merger Agreement, the Offer, and the Merger and Purchaser's and
Parent's acquisition of Shares pursuant to the Offer and the Merger, and
accordingly, the Control Share Act is inapplicable to the offer and the Merger.
Chapter 110C of the MGL (the "Take-Over Bid Statute") imposes procedural
requirements in connection with certain take-over bids. A take-over bid
("Take-Over Bid") is the acquisition or offer to
15
17
acquire stock which would result in the acquiror possessing more than 10% of the
voting power of any class of an issuer's stock. A Take-Over Bid does not
include, among other things, any offer which the board of directors of the
issuer has consented to and approved and has recommended its stockholders
accept, if the terms of such bid, including any inducements to officers or
directors which are not made available to all stockholders, have been furnished
to the stockholders. In accordance with the provisions of Chapter 110C, on April
22, 2000, the Board of Directors of the Company consented to and approved the
Merger Agreement, the Offer and the Merger and Purchaser's and Parent's
acquisition of Shares pursuant to the Offer and the Merger and complied with all
applicable disclosure requirements, therefore, the Take-Over Bid Statute is
inapplicable to the Offer and the Merger.
Chapter 110F of the MGL (the "Business Combination Statute") limits the
ability of a Massachusetts corporation to engage in business combinations with
"interested stockholders" (defined as any beneficial owner of 5% or more of the
outstanding voting stock of the corporation) unless, among other things, the
corporation's board of directors has given its prior approval to either the
business combination or the transaction which resulted in the stockholder
becoming an "interested stockholder". On April 22, 2000, the Board of Directors
of the Company consented to and approved the Merger Agreement, the Offer and the
Merger and Purchaser's and Parent's acquisition of Shares pursuant to the Offer
and the Merger and, therefore, the Business Combination Statute is inapplicable
to the Offer and the Merger.
(b) Antitrust. The Offer and Merger are subject to the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the "HSR Act"), which provides that certain
acquisition transactions may not be consummated unless certain information has
been furnished to the Federal Trade Commission ("FTC") and the Antitrust
Division of the Department of Justice ("Antitrust Division") and certain waiting
period requirements have been satisfied. Each of Parent and the Company intends
to file a Notification and Report Form under the HSR Act with respect to the
Offer as soon as practicable.
The FTC and the Antitrust Division frequently scrutinize the legality under
the antitrust laws of transactions such as Purchaser's acquisition of Shares
pursuant to the Offer. At any time before or after Purchaser's acceptance for
payment of Shares, the FTC or the Antitrust Division could take such action
under the antitrust laws as it deems necessary or desirable in the public
interest, including seeking to enjoin the acquisition of Shares pursuant to the
Offer or otherwise or seeking divestiture of Shares acquired by Purchaser or
divestiture of substantial assets of Purchaser or its subsidiaries. Private
parties and state attorney generals may also bring legal action under the
antitrust laws under certain circumstances. Based upon Purchaser's discussions
with the Company and its examination of publicly available information with
respect to the Company, Purchaser believes that the acquisition by Purchaser of
the Shares will not violate the antitrust laws. Nevertheless, there can be no
assurance that a challenge to the Offer on antitrust grounds will not be made,
or, if such a challenge is made, of the result.
(c) Section 14(f) Information Statement. The Information Statement
attached as Schedule I hereto is being furnished in connection with the possible
designation by Purchaser, pursuant to the Merger Agreement, of certain persons
to be appointed to the Company Board of Directors other than at a meeting of the
Company's stockholders.
ITEM 9. EXHIBITS.
Exhibit 1 Agreement and Plan of Merger dated April 22, 2000 among
Safety 1st, Inc., Dorel Industries, Inc. and Diamond
Acquisition Subsidiary, Inc.
Exhibit 2 Form of Severance Agreement. Safety 1st has entered into
such agreements with the following officers: Michael Lerner,
Richard Wenz, Joseph Driscoll, Denis Horton, Stephen
Orleans, Ronald Cardone, Paul Ware, Jason Macari, Jeffery
Hale, Brian Sundberg and Michael Goldberg.
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Exhibit 3* Opinion dated April 22, 2000 of Goldman, Sachs & Co.*
Exhibit 4* Letter to Stockholders of Safety 1st, Inc., dated May 8,
2000 from Michael Lerner, Chairman and Chief Executive
Officer of Safety 1st, Inc.*
Exhibit 5 Joint Press Release issued by Safety 1st, Inc. and Dorel
Industries, Inc., dated April 24, 2000.
- ---------------
* Included in copies mailed to stockholders by Safety 1st, Inc. and Dorel
Industries, Inc.
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
Dated: May 8, 2000 SAFETY 1ST, INC.
By: /s/ MICHAEL LERNER
------------------------------------
Michael Lerner
Chairman and Chief Executive Officer
17
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SCHEDULE I
SAFETY 1ST, INC.
45 DAN ROAD
CANTON, MASSACHUSETTS 02021
INFORMATION STATEMENT PURSUANT TO
SECTION 14(f) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
------------------------
This Information Statement is being mailed on or about May 8, 2000 as part
of the Solicitation/ Recommendation Statement on Schedule 14D-9 (the "Schedule
14D-9") of Safety 1st, Inc., a Massachusetts corporation (the "Company"), to the
holders of shares of common stock, par value $.01 per share, of the Company (the
"Shares"). You are receiving this Information Statement in connection with the
possible election of the Purchaser Designees (as hereinafter defined) to seats
on the Board of Directors of the Company (the "Company Board").
The Company, Dorel Industries, a Canadian corporation ("Parent"), and
Diamond Acquisition Subsidiary Inc., a Massachusetts corporation and a
wholly-owned subsidiary of Parent ("Purchaser"), entered into an Agreement and
Plan of Merger dated as of April 22, 2000 (the "Merger Agreement"), pursuant to
which (i) Parent has caused the Company to commence a tender offer (the "Offer")
for all outstanding Shares at a price of $13.875 per Share, net to the seller in
cash, without interest, and (ii) the Purchaser will be merged with and into the
Company (the "Merger"). As a result of the Offer and the Merger, the Company
will become a wholly owned subsidiary of Parent.
The Merger Agreement requires the Company to take action to cause the
Purchaser Designees to be elected to the Company Board under the circumstances
described therein. See "Right to Designate Directors; Purchaser Designees"
below.
You are urged to read this Information Statement carefully. You are not,
however, required to take any action.
Pursuant to the Merger Agreement, the Purchaser commenced the Offer on May
8, 2000. The Offer is scheduled to expire at 12:00 Midnight, New York City time,
on June 5, 2000. In certain circumstances, the Offer may be extended.
The information contained in this Information Statement concerning Parent,
the Purchaser and the Purchaser Designees has been furnished to the Company by
Parent, and the Company assumes no responsibility for the accuracy or
completeness of such information.
RIGHT TO DESIGNATE DIRECTORS; PURCHASER DESIGNEES
The Merger Agreement provides that, promptly upon the purchase of Shares
pursuant to the Offer, Parent shall be entitled to designate such number of
directors, rounded up to the next whole number, on the Company Board as is equal
to the product of (a) the total number of directors on the Company Board (after
giving effect to the directors designated by Parent pursuant to this sentence)
and (b) the percentage that the total votes represented by such number of Shares
so purchased by the Purchaser bears to the total votes represented by the number
of Shares outstanding. In order to effect the foregoing, the Company has agreed
that it shall, upon request by Parent, promptly increase the size of the Company
Board and/or exercise its best efforts to secure the resignations of such number
of its directors as is necessary to enable Parent's designees (the "Purchaser
Designees") to be elected to the Company Board and shall take all actions to
cause Purchaser Designees to be so elected to the Company Board. In the event
that Purchaser Designees are elected to the Company Board, until the effective
time of the Merger (the "Effective Time"), the Company Board shall have at least
two directors who are directors on the date of the Merger Agreement (the
20
"Independent Directors"); provided that, in such event, if the number of
Independent Directors shall be reduced below two for any reason whatsoever, the
remaining Independent Director shall be entitled to designate the person to fill
such vacancy who shall be deemed to be an Independent Director for purposes of
the Merger Agreement or, if no Independent Director then remains, the other
directors shall designate two persons to fill such vacancies who shall not be
stockholders, affiliates or associates of Parent or Purchaser and such persons
shall be deemed to be Independent Directors for purposes of the Merger
Agreement. In addition, in the event that Purchaser Designees are elected to the
Company Board, after the acceptance for payment of Shares pursuant to the Offer
and prior to the Effective Time, the affirmative vote of a majority of the
Independent Directors shall be required in addition to any other applicable
requirement to (a) amend or terminate the Merger Agreement by the Company, (b)
exercise or waive any of the Company's material rights, benefits or remedies
hereunder, or (c) extend the time for performance of Parent's or Purchaser's
respective obligations under the Merger Agreement.
As of the date of this Information Statement, Parent has not determined the
identity of the Purchaser Designees. However, the Purchaser Designees are
expected to be selected from among the directors and executive officers of
Parent. Certain information regarding the directors and executive officers of
Parent is contained in Annex I hereto. The Company also has not yet determined
the identity of the Independent Directors, although the Independent Directors
will be selected from among the current directors of the Company. Certain
information regarding the Company's directors is set forth below in "Information
Regarding Directors and Executive Officers of the Company."
None of the Purchaser Designees (i) is currently a director of, or holds
any position with, the Company, (ii) has a familial relationship with any
directors or executive officers of the Company or (iii) to the best knowledge of
Parent, beneficially owns any securities (or rights to acquire securities) of
the Company. The Company has been advised by Parent that, to the best of
Parent's knowledge, none of the Purchaser Designees has been involved in any
transactions with the Company or any of its directors, executive officers or
affiliates which are required to be disclosed pursuant to the rules and
regulations of the Securities and Exchange Commission (the "Commission"), except
as may be disclosed herein or in the Schedule 14D-9.
It is expected that the Purchaser Designees may assume office promptly
following the purchase by the Purchaser of such number of shares which satisfies
the Minimum Condition (as defined in the Merger Agreement) and the satisfaction
or waiver of certain other conditions set forth in the Merger Agreement, and
that, upon assuming office, the Purchaser Designees will thereafter constitute
at least two-thirds of the Company Board.
SHARE INFORMATION
The Shares are the only class of voting securities of the Company
outstanding. Each Share is entitled to one vote on each matter properly brought
before an annual or special meeting of stockholders of the Company. As of May 1,
2000, there were 8,680,682 Shares outstanding.
INFORMATION REGARDING DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
BOARD OF DIRECTORS OF THE COMPANY AND COMMITTEES THEREOF
The Company Board currently consists of six members. The Company Board is
composed of Michael Lerner, Michael Bernstein, John Howard, Joseph Wood, Mark
Owens and Frank Haydu. All directors hold office until the next annual meeting
of stockholders and the election and qualification of their successors. Officers
of the Company hold office until the first meeting of directors following the
next annual meeting of stockholders, and in the case of the President, Treasurer
and Clerk, until their successors are duly chosen and qualified.
The Board of Directors held a total of five meetings during 1999 (and acted
by written consent four times). All incumbent directors attended at least 75
percent of those meetings, and of the committees of which they were members,
that were held while they were serving on the board or such committee.
S-2
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Audit Committee.
The Audit Committee of the Board of Directors, which consisted of Frank
Haydu, Mark Owens, and John Howard held one meeting during 1999. The Audit
Committee recommends engagement of the Company's independent accountants and is
primarily responsible for reviewing their performance and their fees and for
reviewing and evaluating with the independent auditors and management the
Company's accounting policies and its system of internal accounting controls.
Compensation Committee.
The Compensation Committee of the Board of Directors, which consisted of
Mark Owens, John Howard and Michael Batal (who resigned from the Board on
September 1, 1999) met once during 1999. The Compensation Committee recommends
to the Board of Directors the compensation of executive officers of the Company.
Stock Option Committee.
The Stock Option Committee met once during 1999. The members of the Stock
Option Committee are Michael Lerner and Michael Bernstein. The Stock Option
Committee has in the past administered and made awards under the Company's 1993
Incentive and Non-Qualified Stock Option Plan and the 1993-A Employee and
Director Stock Option Plan. It is expected that the Stock Option Committee will
continue to administer and make awards under the Company's 1996 Employee and
Director Stock Option Plan and the Company's 1996 Nonqualified Stock Option
Plan, except to those persons who are executive officers, directors or 10%
shareholders, whose awards are administered by the Board of Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mark Owens, Michael Batal, and John Howard served as members of the
Company's Compensation Committee during 1999, and Curt Feuer served as a member
of the Company's Compensation Committee in 1999 until his resignation from the
positions of Clerk and Director of the Company on January 25, 1999. Curt Feuer
was a member of the law firm of Kassler & Feuer, P.C. in Boston, Massachusetts,
which was corporate counsel to the Company until January 25, 1999. Kassler &
Feuer, P.C. was paid approximately $211,000 during 1999 in fees for services
rendered to the Company. Michael Batal was a Managing Director with DB Capital,
with which the Company has entered into certain transactions described under the
heading "Certain Relationships and Related Transactions" for which DB Capital
received a closing fee of $150,000 in 1997 and an additional fee in the amount
of $225,000 payable (under certain conditions) over four years. In addition, BT
Commercial Corporation, an affiliate of DB Capital, has and will be receiving
fees, as the Company's lender, and as agent for a group of lenders providing the
Company's credit facility, as discussed under the heading "Certain Relationships
and Related Transactions".
BIOGRAPHICAL INFORMATION REGARDING DIRECTORS
The following biographical descriptions set forth certain information with
respect to the members of the Company Board, based on information furnished to
the Company by each director.
Michael Lerner, a co-founder of the Company, has served as Chief Executive
Officer and Chairman of the Board of Directors of the Company since its
organization in 1984 and as its President until 1997. From 1976 to 1984, Michael
Lerner served as Executive Vice President of Career Management Services, Inc.,
an executive placement service.
Michael Bernstein has served as Executive Vice President of the Company
since November 1992 and as a Director since March 1996. Michael Bernstein joined
the Company in 1986 as Vice President of Sales and Marketing. From 1984 to 1986,
Michael Bernstein served as Executive Vice President of Monterey Labs, an infant
feeding manufacturer. From 1975 to 1984, he served in various capacities,
including Vice President, with Sanitoy, Inc., a baby products manufacturer.
Michael Bernstein became a consultant to the company effective January 1, 2000.
S-3
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Mark Owens, a Director of the Company since May 1997, is President of Haja
Capital Corporation, a private investment firm which he founded in 1997. From
1972 to 1997 Mark Owens was President of Medo Industries, Inc., a manufacturer
of consumer goods. Mark Owens also served as Vice President of Quaker State Oil
Corporation from October 1996, when it acquired Medo Industries, Inc., until
October 1997.
Frank Haydu, a Director of the Company since June 1999, is Vice Chairman of
Haydu & Lind, a senior living development and management company, and is a
member of Albany Molecular Research, Inc.'s Board of Directors. For five years,
Frank Haydu was a Managing Director at Kidder Peabody & Company. Frank Haydu
also served as interim Chief Executive Officer of the Tufts New England Medical
Center.
John Howard, a Director of the Company since July 1997, has been a Senior
Managing Director in the Merchant Banking Division of Bear, Stearns & Co., Inc.,
an investment banking firm, since March 1997. Prior to joining Bear, Stearns &
Co., Inc., John Howard served as the Chief Executive Officer of Gryphon Capital
Partners, a private investment firm, from June 1996 to March 1997 and as
Co-Chief Executive Officer of Vestar Capital Partners, Inc., a private
investment firm, from 1990 to 1996. John Howard is a director of Dyersburg Corp.
and Celestial Seasonings, Inc.
Joseph Wood, a Director of the Company since November 1999 replaced Michael
Batal as DB Capital Partners Inc. representative in November of 1999. Joseph
Wood has been a senior member of DB Capital and its predecessor BT Capital for
12 years. Since 1989, Joseph Wood has played a critical role in a majority of DB
Capital's investments. He serves as a board member for several of DB Capital's
portfolio companies. He has worked for Deutsche Bank and its predecessor Bankers
Trust since 1970 in the corporate lending, credit and money market areas.
On July 30, 1997 in connection with the purchase by DB Capital and Bear
Stearns of shares of the Company's preferred stock and of warrants to purchase
the Company's Common Stock, Bear Stearns and DB Capital entered into a Voting
Agreement with the Company, Michael Lerner and Michael Bernstein pursuant to
which each party to the Agreement (with the exception of the Company) agreed to
vote all of their respective holdings of Common Stock to elect one person
designated by Bear Stearns (subject to the satisfaction of a minimum percentage
holding of Common Stock equivalents by Bear Stearns) and one person designated
by DB Capital (subject to the satisfaction of a minimum percentage holding of
Common Stock equivalents by DB Capital) to the Company's Board of Directors. In
addition, under the terms of the Voting Agreement, the Company agreed to use its
best efforts to cause the persons designated by DB Capital and Bear Stearns to
be nominated to the Company's Board of Directors. Joseph Wood and John Howard
are the persons designated by DB Capital and Bear Stearns, respectively.
BIOGRAPHICAL INFORMATION REGARDING EXECUTIVE OFFICERS OF THE COMPANY
The following biographical descriptions set forth certain information with
respect to the executive officers of the Company, based on information furnished
to the Company by each executive officer.
Michael Lerner is the Company's Chief Executive Officer. For Biographical
information regarding Michael Lerner see "-- Biographical Information Regarding
Directors" above.
Richard Wenz became the Company's President and Chief Operating Officer in
February 1997. During 1995 and 1996, Richard Wenz was a Partner with the Lucas
Group, a strategy consulting firm in Boston, Mass. From 1992 to 1994, Richard
Wenz served as President and Chief Executive Officer of Professional Golf
Corporation.
Joseph Driscoll joined the Company in April 1997 as Controller, and was
named the Company's Chief Financial Officer in September 1998. From 1993 to
1997, Joseph Driscoll served in various capacities, including Assistant
Corporate Controller, for Staples, Inc., a retailer of office supplies and
equipment.
Stephen Orleans, President of Safety 1st Home Products Canada Inc. (the
Company's wholly owned subsidiary located in Montreal, Canada), founded Orleans
Juvenile Products Inc. in 1989 and as its President developed it into one of the
leading distributors of juvenile products in Canada. Orleans Juvenile Products
Inc. was acquired by the Company effective February 1996.
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COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS.
Directors who are not full-time employees of the Company receive a fee of
$500 for each Board meeting attended and $250 for each Committee meeting not
held on the same day as a Board meeting. Directors are entitled to receive
reimbursement for traveling costs and other out-of-pocket expenses incurred in
attending Board and Committee meetings.
Options were granted to non-employee directors during the 1999 fiscal year
as follows: Frank Haydu received a grant of 25,000 options at an exercise price
of $5.37 per share on July 19, 1999.
EXECUTIVE OFFICERS.
The following table sets forth the compensation earned for services
rendered to the Company and its subsidiaries for each of the last three fiscal
years by: the Company's Chief Executive Officer and the four other highest paid
executive officers whose salary and bonus earned during the 1999 fiscal year
were in excess of $100,000 and who were serving as executive officers at the end
of the 1999 fiscal year. The individuals included in the table are collectively
referred to as the "Named Executive Officers".
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
AWARDS
SECURITIES
ANNUAL COMPENSATION UNDERLYING
--------------------- OPTIONS/
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) SAR(S)(#)
- --------------------------- ---- --------- -------- ------------
Michael Lerner.................................... 1999 337,800 0 0
Chairman and Chief Executive Officer 1998 330,288 0 0
1997 230,769 0 0
Richard Wenz(1)................................... 1999 327,406 0 250,000
President and Chief Operating Officer 1998 320,481 45,000 75,000
1997 252,692 60,000 250,000
Michael Bernstein................................. 1999 200,081 0 0
Executive Vice President 1998 195,663 0 0
1997 134,616 0 0
Joseph Driscoll (2)............................... 1999 175,000 40,000 20,000
Chief Financial Officer and Treasurer 1998 139,489 12,500 50,000
1997 90,465 20,000 12,000
Stephen Orleans(3)................................ 1999 158,501 25,000 55,000
President, Safety 1st Home Products Canada, Inc. 1998 124,112 5,000 5,000
1997 109,711 (4)7,500 (4)25,000
- ---------------
(1) Richard Wenz became employed by the Company in 1997.
(2) Joseph Driscoll became employed by the Company in 1997 and became an
executive officer of the Company in 1998.
(3) Stephen Orleans became an executive officer of the Company in 1996. Amounts
exclude consideration received in connection with the Company's acquisition
of Orleans Juvenile Products Inc. See "Certain Relationships and Related
Transactions".
(4) In lieu of a guaranteed minimum bonus of approximately $25,000 due Stephen
Orleans under his employment agreement in respect of 1996, Stephen Orleans
agreed to accept options to acquire 25,000 shares of Common Stock, which
were awarded to him on April 1, 1997 at an exercise price of $6.00 per share
(the fair market value of the Common Stock on the date of grant).
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Option Exercises and Year-End Holdings
The following table sets forth information with respect to the stock option
grants made during the last completed fiscal year to each of the Named Executive
Officers.
OPTION GRANTS IN LAST FISCAL YEAR
PERCENT OF POTENTIAL REALIZED
TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF
SECURITIES GRANTED TO STOCK APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERM(2)
OPTIONS IN FISCAL PRICE EXPIRATION ---------------------
NAME GRANTED(#) YEAR ($/SHARE) DATE 5% 10%
- ---- ---------- ---------- --------- ---------- -------- ----------
Michael Lerner............ 0 -- -- -- -- --
Richard Wenz.............. 250,000 26.6% 2.88 3/11/2009 $452,804 $1,147,495
Michael Bernstein......... 0 -- -- -- -- --
Joseph Driscoll........... 20,000 2.1% 2.88 3/11/2009 $ 36,224 $ 91,800
Stephen Orleans........... 50,000 5.3% 2.88 3/11/2009 $ 90,561 $ 229,499
5,000 0.6% 5.37 7/19/2009 $ 16,886 $ 42,792
- ---------------
(1) When granted, each option had a term of ten years and vests as follows:
33.3% of the options vest 6 months after the grant date, an additional 33.3%
vest 18 months after the grant date, and the final 33.3% vest 30 months
after the grant date. The exercise price for each option is the fair market
value of the Common Stock on the date of grant. The option exercise period
may be reduced in the event of death, disability or other termination of
service to the Company, and such period may also be reduced, and the time at
which options become exercisable may be accelerated, upon changes in control
or other fundamental corporate changes. Richard Wenz's grant of 250,000
options vest as follows: 125,000, 6 months after grant date, 62,500, 12
months after grant date and 62,500, 18 months after grant date. Stephen
Orleans's grant of 5,000 options vest as follows: 2,500 vest at grant date
and the remaining 2,500 options vest 12 months after grant date.
(2) There is no assurance provided to any executive officer or any other holder
of the Common Stock that the actual stock price appreciation over any term
will be the assumed 5% or 10% rates of compounded stock price appreciation
or at any other defined level. Unless the market price of the Common Stock
appreciates over the exercise price during the option term, no value will be
realized from the option grants made to the executive officers.
The following table sets forth each exercise of stock options during the
last completed fiscal year by each of the Named Executive Officers, the number
of unexercised options at year-end and the fiscal year-end value of unexercised
options:
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED ON VALUE OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END($)(1)
EXERCISE REALIZED --------------------------- ---------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
Michael Lerner.............. 0 0 20,000 0 $ 0 $ 0
Richard Wenz................ 0 0 487,500 87,500 $878,750 $295,000
Michael Bernstein........... 0 0 500 0 $ 0 $ 0
Joseph Driscoll............. 0 0 52,001 29,999 $140,470 $107,430
Stephen Orleans............. 0 0 64,917 35,833 $130,577 $159,323
- ---------------
(1) Based upon the market price of $7.50 per share, which was the closing
selling price per share of the Common Stock on the Nasdaq Stock Market on
the last day of the 1999 fiscal year, less the option exercise price payable
per share.
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AGREEMENTS WITH MANAGEMENT
In April 1993, the Company entered into five-year employment agreements
with each of Michael Lerner and Michael Bernstein, pursuant to which Michael
Lerner and Michael Bernstein are employed as Chief Executive Officer and
Executive Vice President, respectively, and have agreed to devote their full
time and efforts to the Company. Under the agreements, the Company agreed to pay
Michael Lerner and Michael Bernstein base salaries of $275,000 and $135,000,
respectively, subject to increase in future years at the discretion of the Board
of Directors. The employment agreements further provide for bonuses to Michael
Lerner and Michael Bernstein in each year of such amounts as may be determined
at the discretion of the Board of Directors, but not to exceed the amount of the
respective employee's base salary for such year. Each agreement also prohibits
the employee from competing with the Company for a period of three years after
termination of employment. The agreements expired in April 1998. (See also
"Severance Agreements" below.)
Effective January 1, 2000, Michael Bernstein entered into a one year
contract as a consultant to the Company. The contract pays Michael Bernstein
$200,000 over the one year period. Prior to January 1, 2000, Michael Bernstein
had been the Company's Executive Vice President.
On February 19, 1997, the Company entered into a three year employment
agreement with Richard Wenz, pursuant to which Richard Wenz became employed as
the Company's President and Chief Operating Officer and has agreed to devote his
full time and efforts to the Company. Under the agreement, Richard Wenz is
entitled to receive an annual base salary of $300,000, subject to annual
increases at the discretion of the Company's Board of Directors or Compensation
Committee. Richard Wenz is also entitled to receive incentive compensation,
based on performance of Richard Wenz and the Company, not to exceed 35% of base
salary and, in the case of the first year of employment, not to be less than 20%
of base salary. The employment agreement also provided for the grant of the
250,000 options in 1997. The agreement further provides that the Company may
terminate the agreement without cause upon either one year's prior written
notice or a payment of base salary for one year from the date of termination.
The agreement prohibits Richard Wenz from competing with the Company for a
period of two years after termination of employment for any reason. (See also
"Severance Agreements" below.)
On February 1, 1996, the Company's subsidiary, Safety 1st Home Products
Canada Inc. ("Safety 1st Canada"), entered into a five-year employment agreement
with Stephen Orleans, pursuant to which Stephen Orleans is employed as the
President of Safety 1st Canada, and has agreed to devote his full time and
efforts to Safety 1st Canada. Under the agreement, Safety 1st Canada has agreed
to pay Stephen Orleans a base salary of Canadian $135,000, subject to increase
in future years at the discretion of Safety 1st Canada's Board of Directors. The
employment agreement further provides for bonuses to Stephen Orleans in each
year in such amounts as may be determined at the discretion of Safety 1st
Canada's Board of Directors (with a guaranteed minimum bonus of Canadian $35,000
in 1996), but not to exceed the amount of his base salary for such year. (See
also "Severance Agreements" below.)
SEVERANCE AGREEMENTS
The Company has entered into executive severance agreements with the
following executives of the Company: Michael Lerner, Richard Wenz, Joseph
Driscoll, Denis Horton, Stephen Orleans, Ronald Cardone, Paul Ware, Jason
Macari, Jeffery Hale, Brian Sundberg and Michael Goldberg. Michael Lerner and
Richard Wenz's severance agreements provide that in the event of the qualifying
termination (as defined in the agreement) of the executive's employment within
twelve months following a change in control (as defined in the agreement) of the
Company, the executive is entitled to a payment equal to two times: the sum of
(A) the executive's base salary immediately prior to the termination (or
immediately prior to the change in control, if higher) and (B) the executive's
most recent bonus paid prior to the change in control, payable in one lump-sum
payment no later than 31 days following the date of termination. Joseph
Driscoll's severance agreement provides that in the event of the qualifying
termination (as defined in the agreement) of the executive's employment within
twelve months following a change in control (as defined in the agreement) of the
Company, the executive is entitled to a payment equal to one time: the sum of
(A) the executive's base salary
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immediately prior to the termination (or immediately prior to the change in
control, if higher) and (B) the executive's most recent bonus paid prior to the
change in control, payable in one lump-sum payment no later than 31 days
following the date of termination. All other severance agreements provide that
in the event of the qualifying termination (as defined in the agreement) of the
executive's employment within twelve months following a change in control (as
defined in the agreement) of the Company, the executive is entitled to a payment
equal to half of: the sum of (A) the executive's base salary immediately prior
to the termination (or immediately prior to the change in control, if higher)
and (B) the executive's most recent bonus paid prior to the change in control,
payable in one lump-sum payment no later than 31 days following the date of
termination. Each severance agreement also provides that in the event of the
qualifying termination (as defined in the agreement) of the executive's
employment within twelve months following a change in control (as defined in the
agreement) of the Company, the executive is entitled to the following severance
benefits: (i) continuation of medical, dental, long-term, disability, life and
any other insurance coverages for up to 18 months following termination, (ii)
continuation of COBRA benefits following the end of the 18 month period referred
to in (i) above, (iii) all reasonable legal and arbitration fees and expenses
incurred by the executive in obtaining or enforcing any right or benefit
provided by the severance agreement, except in cases involving frivolous or bad
faith litigation. The severance agreements also provide that in the event the
receipt of the severance payments causes the executive to become subject to the
20% excise tax imposed by Section 4999 of the Internal Revenue Code, the
severance payments will be increased such that the net amount retained by the
executive, after deduction of any excise tax on the severance payments, any
federal, state and local income tax, employment tax and any interest and/or
penalties assessed with respect to such excise tax, shall be equal to the
severance payments. The consummation of the transactions contemplated by the
Merger Agreement will constitute a change in control under each executive's
severance agreement.
The following events, among others, are deemed "Qualifying Terminations"
under each severance agreement that would entitle the executive to receive
severance benefits: (i) an adverse change, not consented to by the executive, in
the nature or scope of the executive's responsibilities, authorities, powers,
functions or duties from the responsibilities, authorities, powers, functions or
duties exercised by the executive immediately prior to change of control; (ii) a
reduction in the executive's annual base salary as in effect on the date of the
severance agreement or as the same may be increased from time to time; (iii) the
relocation of the Company's offices at which the executive is principally
employed immediately prior to the date of a change in control to any other
location, or the requirement by the Company for the executive to be based
anywhere other than the current offices, except for required travel on the
Company's business to an extent substantially consistent with the executive's
business travel obligations immediately prior to the change in control; (iv) the
failure by the Company to pay the executive any portion of his compensation or
to pay to the executive any portion of an installment of deferred compensation
under any deferred compensation program of the Company within 15 days of the
date such compensation is due without prior written consent of the executive;
and (v) the failure by the Company to obtain an effective agreement from any
successor to assume and agree to perform the severance agreement.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Joseph Wood, a director of the Company, is a Managing Director with DB
Capital and John Howard, a director of the Company, is a Senior Managing
Director of Bear Stearns. DB Capital and Bear Stearns are each beneficial owners
of more than 5% of the Company's Common Stock and have engaged in the following
transactions with the Company. On July 30, 1997, the Company entered into a $55
million refinancing of its then existing credit facility. The refinancing
consisted of a $15 million equity investment by DB Capital and Bear Stearns and
a $40 million credit facility (which was subsequently increased to a $47.5
million credit facility) provided in part by an affiliate of DB Capital.
The equity investment consisted of a $15 million private placement of
15,000 shares of the Company's redeemable preferred stock, $1.00 par value per
share (the "Preferred Shares") and warrants to purchase 1,268,346 shares of the
Company's Common Stock (the "Warrants"). The investment was made 50% by DB
Capital and 50% by Bear Stearns. At the closing, the Company paid DB Capital and
Bear Stearns each a closing fee of $150,000 and agreed to pay additional fees in
the amount of $225,000 to each (under certain
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conditions) over four years. Dividends on the Preferred Shares are payable, at
the option of the Company, either in cash at an annual rate of 10%, compounded
quarterly, or in the form of an increase in the liquidation value of the
Preferred Shares at an annual rate of 13.25%, compounded quarterly. On October
21, 1999 the company paid $9,685,000 to both DB Capital and Bear Stearns to
redeem the Company's outstanding preferred stock and accrued dividends in
connection with the refinancing of their primary credit facility.
Pursuant to the above, Bear Stearns and DB Capital exercised their warrants
to purchase the Company's Common Stock on June 24, 1999 and August 1, 1999,
respectively, at an exercise price of $.01 per share of Common Stock. Bear
Stearns received 633,009 shares (cashless exercise) and DB Capital received
634,173 shares. DB Capital and Bear Stearns have each been granted one demand
registration right for the Common Stock underlying the Warrants (subject to
customary timing limitations) as well as piggyback registration rights. Pursuant
to the equity investment, DB Capital and Bear Stearns is each entitled to
designate one person to be nominated to the Company's Board of Directors so long
as each such investor owns Common Stock (or Warrants to purchase Common Stock)
which, in the aggregate, represents 5% or more of the Common Stock Equivalents
(as defined) outstanding at July 30, 1997; and as long as either DB Capital or
Bear Stearns has a right to designate one person to the Board of Directors, the
Board of Directors shall not exceed 10 members. Pursuant to a Voting Agreement,
Michael Lerner, Chief Executive Officer and a director of the Company, and
Michael Bernstein, Executive Vice President and a director of the Company, have
agreed to vote in favor of the persons designated by DB Capital or Bear Stearns
to the extent such investor is entitled to designate a person to the Board of
Directors. Effective with the closing of the equity investment, the Company's
Board of Directors decreased its size from 8 to 6 members, and Michael Batal was
elected as director of the Company. Michael Batal resigned as director on
September 1, 1999 and was replaced by Joseph Wood as representative of DB
Capital.
An affiliate of DB Capital, BT Commercial Corporation ("BTCC"), acted as
lender and as agent for a group of lenders which provided the Company's primary
credit facility. BTCC's participation in the credit facility was approximately
20%. The annual rate of interest for the revolving credit portion of the
facility ($35 million maximum) was, at the Company's option, either prime plus
1.75% or LIBOR plus 2.75%. The annual rate of interest for the term loan portion
of the facility ($12.5 million maximum) was, at the Company's option, either
prime plus 2.00% or LIBOR plus 3.00%. The credit facility was secured primarily
by all corporate assets of the Company and contained certain financial
covenants. The credit agreement required the Company to pay certain fees to
BTCC, as agent, including a monthly unused line fee equal to 0.50% per annum of
the average unused commitment during the preceding month and letter of credit
fees in an amount equal to 2.50% per annum of the daily average amount of
standby letter of credit obligations outstanding during the previous month and
1.375% per annum of the daily average amount of documentary letter of credit
obligations outstanding during the previous month. The Company and BTCC also
entered into a separate letter agreement pursuant to which the Company paid to
BTCC a fee of $1,000,000 and was required to pay BTCC an annual agent's fee of
$75,000 and letter of credit facing fees equal to 0.25% per annum on the undrawn
amount of each letter of credit. Bankers Trust Company, an affiliate of DB
Capital and BTCC, provided services under the credit facility as issuer of
letters of credit for the Company, and received customary fees for such
services. On October 21, 1999 the Company refinanced its existing bank debt and
preferred stock with a new $70,000,000 credit facility. In connection with the
refinancing the Company paid $35,232,000 to BTCC to extinguish it previous bank
facility.
The transactions with DB Capital (and its affiliates) and Bear Stearns
described above were entered into in arms-length negotiations at a time when
neither party had a representative on the Company's Board of Directors.
Michael Lerner and Michael Bernstein have agreed to pay in the aggregate
$300,000 to former lenders of the Company as part of the consideration for such
former lenders' agreement to sell at discount their loans with the Company to a
successor lender. The obligations of Michael Lerner and Michael Bernstein to the
Company's former lenders are payable over five years and are secured by a pledge
of 27,043 shares and 6,761 shares, respectively, of their stock in the Company.
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Stephen Orleans, President of the Company's wholly-owned subsidiary Safety
1st Home Products Canada, Inc., was sole stockholder of Orleans Juvenile
Products Inc. when it was acquired by the Company effective February 1, 1996.
Stephen Orleans received an aggregate consideration of $2,750,000 for the sale
of his business, of which amount, $1,100,000 was paid in cash at the closing,
and the balance of $1,650,000 was paid by promissory notes as follows: $825,000
was paid on March 15, 1997; and the balance was paid in March and April 1998.
Prior to the acquisition, Orleans Juvenile Products Inc. was the Company's
exclusive distributor in Canada.
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TOTAL STOCKHOLDER RETURN
Set forth below is a graph comparing cumulative total stockholder returns
of the Company; the CRSP Total Return Index for The Nasdaq National Market and
the Nasdaq SmallCap Market; and a self-determined peer group of 9 companies. The
graph assumes $100 invested in the Company on December 30, 1994 and in each of
the indices and assumes that any dividends were reinvested.
[Line Graph]
NASDAQ STOCK MARKET (US SELF-DETERMINED PEER
SAFETY 1ST, INC. COMPANIES) GROUP
---------------- ----------------------- --------------------
12/1994 $100.00 $100.00 $100.00
12/1995 50.43 141.34 119.74
12/1996 35.04 173.90 135.37
12/1997 21.37 214.53 177.98
12/1998 11.97 300.43 163.30
12/1999 25.64 555.99 113.06
COMPANIES IN THE SELF-DETERMINED PEER GROUP:
Dorel Industries, Inc. First Years Inc.
Hasbro Inc. Mattel Inc.
Newell Rubbermaid Inc. Playtex Products Inc.
NOTES:
A. The lines represent monthly index levels derived from
compounded daily returns that include all dividends.
B. The indices are reweighted daily, using the market
capitalization on the previous trading day.
C. If the monthly interval, based on the fiscal year-end, is
not a trading day, the preceding trading day is used.
D. The index level for all series was set to $100.00 on
12/30/94.
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COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee has the responsibility for recommending to the
Board of Directors the compensation of the executive officers of the Company.
The Compensation Committee believes that the compensation provided to executive
officers of the Company must be competitive for the Company to attract and
retain highly qualified and experienced employees. Compensation of the Company's
executive officers has historically consisted of three components: base salary,
annual bonuses and stock option grants. Generally, the Committee believes that
the Company's salaries and annual bonuses for executive officers should be
positioned within the range of compensation levels for comparable positions and
responsibilities in the market, taking into account the Company's performance,
including the level of Company revenues and earnings, rate of shareholder return
and return on equity, and that the individual salaries and bonuses may be higher
or lower based on the qualifications and experience of the individual. Base
salary levels have been developed in order to attract and retain executives
based on their level of responsibility within the Company. Annual bonuses link
executive pay with performance in areas that are directly related to the
Company's short-term operating success.
Stock option grants are intended to create incentives for retaining
qualified and competent employees and maximizing long-term stockholder values.
The Company's stock option plans are long-term incentive plans for executive
officers, pursuant to which options are awarded to the executive officers by the
entire Board of Directors. Stock option grants are intended to provide long-term
incentives for the achievement of the Company's strategic business plan and to
align the executive officers' interests with those of the Company's
stockholders. Under the stock option plans, the stock options may be awarded to
executives for terms not to exceed ten years at an exercise price which is no
less than the fair market value of the Company Common Stock on the date of
grant. The size of any stock option grant is related principally to the
Company's performance and to the individual's performance and level of
responsibility within the organization.
The compensation of the Company's Chairman of the Board of Directors and
Chief Executive Officer, Michael Lerner, was established pursuant to a five year
employment agreement which expired in April 1998. See "Agreements with
Management." Michael Lerner's employment agreement provided that his base
salary, specified at $275,000, is subject to increase each year at the
discretion of the Board of Directors and that annual bonuses may be paid at the
discretion of the Board of Directors, but limited to the amounts of Michael
Lerner's base salary for such year. Based upon the Committee's review of the
criteria described above, the Committee recommended an increase in Michael
Lerner's salary to $338,000 in 1999 from $325,000 in 1998. Michael Lerner
received no bonus in 1999. In addition, the Compensation Committee recommended
an increase in the salary of Richard Wenz to $327,600 in 1999 from $315,000 in
1998 and an increase in the salary of Michael Bernstein to $200,200 in 1999 from
$192,500 in 1998. Michael Bernstein became a consultant to the company effective
January 1, 2000. His consulting agreement provides for a term of one year and
will pay Michael Bernstein $200,000 for his services.
The Compensation Committee will continue to examine and evaluate the
performance of the Company's executive officers, through discussions with senior
management and otherwise, and will make recommendations to the Board of
Directors with respect to base salary, annual bonuses and any other elements of
compensation in light of an overriding Company philosophy linking pay and
performance.
COMPENSATION COMMITTEE
Mark Owens
John Howard
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SECURITY OWNERSHIP OF MANAGEMENT AND
CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of April 14, 2000, certain information
with respect to the shares of Common Stock "beneficially owned", as that term is
defined by Rule 13d-3 under the Exchange Act, by (a) each person who is known by
the Company to be the beneficial owner of 5% or more of the outstanding Common
Stock, (b) each director of the Company, (c) each of the "Named Executive
Officers" of the Company who are listed in the Summary Compensation Table above
and (d) all directors and executive officers of the Company as a group. Except
as otherwise indicated in the footnotes to the table, to the knowledge of the
Company, the beneficial owners listed have sole voting and investment power as
to all of the shares beneficially owned by them.
SHARES OF
COMMON
NAME AND ADDRESS STOCK PERCENT OF
BENEFICIAL OWNER OWNED(1) OUTSTANDING
- ---------------- --------- -----------
Michael Lerner(2)........................................... 2,764,000 25.4%
c/o Safety 1st, Inc
Canton Commerce Center
45 Dan Road
Canton, MA 02021
Michael Bernstein(3)........................................ 566,151 5.2%
c/o Safety 1st, Inc
Canton Commerce Center
45 Dan Road
Canton, MA 02021
Wynnfield Capital(4)........................................ 711,050 6.5%
One Penn Plaza, Suite 4720
New York, NY 10119
DB Capital Partners, Inc.................................... 634,173 5.8%
130 Liberty Street
New York, NY 10006
Bear, Stearns & Co., Inc.................................... 633,009 5.8%
245 Park Avenue
New York, NY 10167
Richard Wenz................................................ 487,500 4.5%
Joseph Driscoll............................................. 52,001 *
Stephen Orleans............................................. 64,917 *
Frank Haydu................................................. 9,034 *
Mark Owens.................................................. 422,000 3.9%
Joseph Wood(5).............................................. 634,173 5.8%
John Howard(6).............................................. 633,009 5.8%
All directors and officers as a group (9 persons)(7)........ 5,632,785 51.8%
- ---------------
* Represents beneficial ownership of less than 1%.
(1) Includes or represents, as the case may be, shares of Common Stock which the
following named individuals have the right to acquire from the Company
currently or within 60 days after April 14, 2000 pursuant to outstanding
stock options, as follows: Michael Lerner -- 20,000; Richard
Wenz -- 487,500; Joseph Driscoll -- 52,001; Stephen Orleans -- 64,917; Mark
Owens -- 12,000. The total outstanding shares for purposes of computing the
percentage owned is 10,870,481, which consists of 8,612,681 common shares
outstanding plus 2,257,800 outstanding stock options which are exercisable
within 60 days after April 14, 2000.
(2) Michael Lerner has shared investment powers with respect to 27,043 of such
shares, which are pledged to certain parties to secure obligations of
Michael Lerner, as described under "Certain Relationships and Related
Transactions".
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(3) Michael Bernstein has shared investment powers with respect to 6,761 of such
shares, which are pledged to certain parties to secure obligations of
Michael Bernstein, as described under "Certain Relationships and Related
Transactions".
(4) Information is based on a Schedule 13G filing dated April 6, 2000, filed by
Wynnfield Capital Management, LLC.
(5) Joseph Wood is a Managing Director of DB Capital Partners, Inc. and, as a
result, may be deemed to be the beneficial owner of the shares of Common
Stock beneficially owned by DB Capital Partners, Inc. Joseph Wood disclaims
beneficial ownership of such shares.
(6) John Howard is a Senior Managing Director of Bear, Stearns & Co., Inc. and,
as a result, may be deemed to be beneficial owner the shares of Common Stock
beneficially owned by Bear, Stearns & Co., Inc. John Howard disclaims
beneficial ownership of such shares.
(7) Includes shares of Common Stock which all executive officers and directors,
as a group, have a right to acquire from the Company within 60 days after
April 14, 2000 pursuant to outstanding stock options, namely: (i) those
shares referred to in footnote (1). Also includes shares of Common Stock
which may be deemed beneficially owned by Joseph Wood and John Howard as set
forth in footnotes (5) and (6).
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.
Under Section 16(a) of the Exchange Act, the Company's directors, its
executive officers, and any persons holding more than ten percent of the
Company's Common Stock are required to report their ownership of the Company's
Common Stock and any changes in that ownership to the Securities and Exchange
Commission (the "SEC"). Such persons are required by SEC regulations to furnish
the Company with copies of all Section 16(a) forms they file. Specific due dates
for these reports have been established, and the Company is required to report
in this Proxy Statement any failure to file by these dates during or with
respect to 1999.
Based solely on review of the copies of such forms furnished to the
Company, or written representations that no Forms 5 were required, the Company
believes that all of these filing requirements were satisfied by its directors,
executive officers and ten percent holders with respect to transactions during
its 1999 fiscal year.
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ANNEX I
DIRECTORS AND EXECUTIVE OFFICERS OF THE PURCHASER AND PARENT
1. Directors and Executive Officers of Dorel. The following table sets
forth the name, current business address, citizenship and present principal
occupation or employment, and material occupations, positions, offices or
employments and business addresses thereof for the past five years of each
director and executive officer of Dorel. Unless otherwise indicated, the current
business address of each person is 1255 Greene Avenue, Suite 300, Westmount,
Quebec, Canada H3Z 2A4. Unless otherwise indicated, each such person is a
citizen of Canada and has held his or her present position as set forth below
for the past five years. Unless otherwise indicated, each occupation set forth
opposite an individual's name refers to employment with Dorel.
PRESENT PRINCIPAL OCCUPATION AND FIVE YEAR
NAME EMPLOYMENT HISTORY
- ---- ------------------------------------------
Martin Schwartz President and Chief Executive Officer
Jeff Segel Vice-President, Sales and Marketing
Alan Schwartz Vice-President, Operations
Jeffrey Schwartz Vice-President, Finance
Pierre Dupuis Chief Operating Officer. Prior to joining Dorel in October
1999, Mr. Dupuis held senior positions in building materials
and printing industries in Canada and the United States.
Frank Rana Treasurer, Corporate Controller
Nick Costides President of Cosco Inc., a subsidiary of Dorel (United
States citizen)
Richard Jackson President of Ameriwood Industries Inc., a subsidiary of
Dorel since 1998 and prior to that President of Charleswood
Corporation, a subsidiary of Dorel (United States Citizen)
Robert Klassen Executive Vice-President, Chief Operating Officer of
Ameriwood Industries Inc. since 1998 and prior to that the
Chief Operating Officer of Ridgewood Corporation, a
subsidiary of Dorel
Douglas Crozier Chief Operating Officer of Dorel Home Products division
Kees Spreeuwenberg Managing Director of Maxi-Miliaan B.V., a subsidiary of
Dorel (citizen of the Netherlands)
Michael Silberstein President of Infantino, Inc. a subsidiary of Dorel (United
States citizen)
Michael Caplan Managing Director (U.K.) Limited (since 1996). Prior to
1996, Mr. Caplan was Managing Director of Write On Demand
and Stylus Music Limited (citizen of the United Kingdom)
Dr. Laurent Picard Director, Retired Professor of McGill University and a
director of The Jean Coutu Group (PJC) Inc.
Bruce Kaufman Director, President, Kaufel Group Ltd.
Maurice Tousson Director, President, Medi-Trust Pharmacy Inc.
2. Directors and Executive Officers of Purchaser. The following table sets
forth the name, current business address, citizenship and present principal
occupation or employment, and material occupations, positions, offices or
employments and business addresses thereof for the past five years of each
director and executive officer of Purchaser. Unless otherwise indicated, the
current business address of each person is 1255 Greene Avenue, Suite 300,
Westmount, Quebec, Canada H3Z 2A4. Unless otherwise indicated, each such person
is a citizen of Canada, and each occupation set forth opposite an individual's
name, refers to employment with Purchaser.
PRESENT PRINCIPAL OCCUPATION AND FIVE YEAR
NAME EMPLOYMENT HISTORY
- ---- ------------------------------------------
Jeffrey Schwartz Treasurer since 2000, Vice-President, Finance of Dorel
Frank Rana President and Vice-President and Secretary since 2000,
Treasurer of Dorel
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