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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 11, 1997
REGISTRATION NO. 333-16917
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SYRATECH CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 3914 13-3354944
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
------------------------
175 MCCLELLAN HIGHWAY
EAST BOSTON, MA 02128-9114
PHONE: (617) 561-2200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
E. MERLE RANDOLPH
VICE PRESIDENT, TREASURER AND
CHIEF FINANCIAL OFFICER
SYRATECH CORPORATION
175 MCCLELLAN HIGHWAY
EAST BOSTON, MA 02128-9114
PHONE: (617) 561-2200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
WITH COPIES TO:
JAMES L. PURCELL, ESQ. JAMES WESTRA, ESQ.
PAUL, WEISS, RIFKIND, WHARTON & GARRISON HUTCHINS, WHEELER & DITTMAR
1285 AVENUE OF THE AMERICAS A PROFESSIONAL CORPORATION
NEW YORK, NEW YORK 10019-6064 101 FEDERAL STREET
(212) 373-3000 BOSTON, MASSACHUSETTS 02110
(617) 951-6600
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after this Registration Statement becomes
effective and the effective time of the merger (the "Merger") of THL Transaction
I Corp., ("THL I"), a corporation that has been organized by Thomas H. Lee
Company, with and into Syratech Corporation ("Syratech" or the "Company"),
pursuant to the Restated Agreement and Plan of Merger (the "Merger Agreement")
between THL I and Syratech, dated as of November 27, 1996, effective as of
October 23, 1996, as amended, which is attached as Annex I to the Proxy
Statement/Prospectus forming a part of this Registration Statement.
If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
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SYRATECH CORPORATION
175 MCCLELLAN HIGHWAY
EAST BOSTON, MASSACHUSETTS 02128-9114
March 17, 1997
Dear Fellow Stockholders:
You are invited to attend a Special Meeting of Stockholders of Syratech
Corporation ("Syratech") to vote on the proposed merger (the "Merger") of
Syratech with THL Transaction I Corp., a corporation that has been organized by
Thomas H. Lee Company. Details of the Merger are discussed in the enclosed
Syratech Corporation Proxy Statement/Prospectus (the "Proxy
Statement/Prospectus"), the forepart of which includes a summary of the terms of
the Merger and certain other information relating to the proposed transaction.
At the special meeting, Syratech stockholders will be asked to approve and
adopt the Restated Agreement and Plan of Merger, dated as of November 27, 1996,
effective as of October 23, 1996, as amended on February 14, 1997 and the
transactions contemplated thereby, including the Merger. Copies of the Restated
Agreement and Plan of Merger and the Amendment thereto, dated as of February 14,
1997 (together, the "Merger Agreement"), are together attached as ANNEX I to the
enclosed Proxy Statement/Prospectus.
At its meeting on October 22, 1996, Syratech's Board of Directors, by
unanimous vote of those present and voting, determined, among other things, that
the transactions then contemplated by the Merger Agreement, including the
Merger, taken together, are advisable and in the best interests of Syratech and
its stockholders; and the Board recommends that holders of Syratech Common Stock
vote FOR the approval and adoption of the Merger Agreement and the transactions
contemplated thereby, including the Merger. In reaching its decision, the Board
of Directors considered, among other things, the written opinion of Merrill
Lynch & Co., to the effect that the cash consideration to be received in the
Merger by Syratech's stockholders (other than with respect to shares to be
retained, shares to be cancelled pursuant to the Merger Agreement and dissenting
shares) is fair to the holders of Syratech Common Stock from a financial point
of view. The changes embodied in the Restated Agreement and Plan of Merger and
in the Amendment thereto dated as of February 14, 1997 were formally approved by
Syratech's Board of Directors at a special meeting held on February 14, 1997.
Holders of Syratech Common Stock will be entitled to appraisal rights under
Delaware law in connection with the Merger as described in the accompanying
Proxy Statement/Prospectus.
The special meeting will be held at Syratech's Corporate Headquarters, 175
McClellan Highway, East Boston, Massachusetts 02128, on April 14, 1997,
beginning at 9:00 a.m., Eastern Standard Time.
IT IS VERY IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE SPECIAL
MEETING, WHETHER OR NOT YOU PLAN TO ATTEND PERSONALLY. THEREFORE, YOU SHOULD
COMPLETE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT AS SOON AS POSSIBLE IN
THE ENCLOSED POSTAGE-PAID ENVELOPE. THIS WILL ENSURE THAT YOUR SHARES ARE
REPRESENTED AT THE SPECIAL MEETING.
Very truly yours,
LEONARD FLORENCE
Chairman of the Board, President
and Chief Executive Officer
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SYRATECH CORPORATION
175 MCCLELLAN HIGHWAY
EAST BOSTON, MASSACHUSETTS 02128
(617) 561-2200
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 14, 1997
------------------------
To the Stockholders of Syratech Corporation
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (including
any adjournments or postponements thereof, the "Special Meeting") of Syratech
Corporation, a Delaware corporation ("Syratech"), will be held at Syratech's
Corporate Headquarters located at 175 McClellan Highway, East Boston,
Massachusetts 02128, on April 14, 1997, beginning at 9:00 a.m., Eastern Standard
Time for the following purposes, which are more fully described in the
accompanying Proxy Statement/Prospectus (the "Proxy Statement/Prospectus"):
1. To consider and vote upon a proposal to approve and adopt the
Restated Agreement and Plan of Merger, dated as of November 27, 1996,
effective as of October 23, 1996, as amended on February 14, 1997 (the
"Merger Agreement"), between Syratech and THL Transaction I Corp., a
Delaware corporation ("THL I") organized by Thomas H. Lee Company, and the
transactions contemplated thereby, including the merger of THL I with and
into Syratech (the "Merger"). Pursuant to the Merger, each share of
Syratech Common Stock, $0.01 par value per share ("Syratech Common Stock")
(other than (i) shares of Syratech Common Stock held by Syratech or any
wholly-owned subsidiary thereof, which will be canceled and retired, (ii)
35,232 shares of Syratech Common Stock which will be contributed to the
Company by Leonard Florence upon the Merger and which will then be canceled
and retired and (iii) shares of Syratech Common Stock, the holders of which
have duly perfected their appraisal rights), will be entitled, at the
election of the holder thereof and subject to the terms described herein,
either (a) to receive $32.00 in cash (except that Leonard Florence will be
entitled to receive only $28.00 in cash) or (b) to retain one share of
Syratech Common Stock. The right to retain Syratech Common Stock will be
limited in the case of each stockholder to 34.75% of such stockholder's
shares of Syratech Common Stock, other than (i) Leonard Florence who is
required by the Merger Agreement to retain 528,472 shares of Syratech
Common Stock and (ii) Faye A. Florence, Alan R. Kanter, Melvin L. Levine
and E. Merle Randolph, who intend to retain an aggregate of 123,766 shares
of Syratech Common Stock. In addition, because no more than an aggregate of
868,250 shares of Syratech Common Stock may be retained by existing
Syratech stockholders (other than any person listed as an executive officer
in Syratech's 1996 Proxy Statement (each a "Management Stockholder")), the
right to retain shares of Syratech Common Stock may be subject to
proration, as set forth in the Merger Agreement and described in the
accompanying Proxy Statement/Prospectus. A copy of the Merger Agreement
(including the principal exhibits thereto) is attached as ANNEX I to the
accompanying Proxy Statement/Prospectus.
2. To transact such other and further business as may properly come
before the Special Meeting or any adjournments or postponements thereof.
The affirmative vote of a majority of the outstanding shares of Syratech
Common Stock is required to approve and adopt the Merger Agreement and the
transactions contemplated thereby, including the Merger.
The record date for the determination of stockholders entitled to notice
of, and to vote at, the Special Meeting, and any adjournments or postponements
thereof, is March 5, 1997 (the "Record Date"). Only holders of record of shares
of Syratech Common Stock at the close of business on the Record Date are
entitled to notice of, and to vote at, the Special Meeting. A list of Syratech
stockholders entitled to vote at the Special Meeting will be available for
examination by any holder of Syratech Common Stock, for proper purposes, during
normal business hours, at Syratech's corporate offices, 175 McClellan Highway,
East Boston,
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Massachusetts 02128, commencing two business days after the date of this Notice
of Special Meeting and continuing through the date of the Special Meeting.
Holders of Syratech Common Stock have a right to dissent from the Merger,
and, if the Merger is consummated, to receive "fair value" for their shares in
cash by complying with the provisions of Delaware law, including Section 262 of
the Delaware General Corporation Law. The full text of Section 262 of the
Delaware General Corporation Law relating to the rights of stockholders to
dissent from the Merger is attached as ANNEX III to the accompanying Proxy
Statement/Prospectus.
YOUR VOTE IS VERY IMPORTANT REGARDLESS OF HOW MANY SHARES OF SYRATECH
COMMON STOCK YOU OWN. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, YOU
ARE REQUESTED TO SIGN, DATE AND RETURN THE ENCLOSED PROXY WITHOUT DELAY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE. YOU MAY REVOKE YOUR PROXY AT ANY TIME PRIOR TO
ITS EXERCISE. IF YOU ARE PRESENT AT THE SPECIAL MEETING OR ANY ADJOURNMENTS OR
POSTPONEMENTS THEREOF, YOU MAY REVOKE YOUR PROXY AND VOTE PERSONALLY ON THE
MATTERS PROPERLY BROUGHT BEFORE THE SPECIAL MEETING.
BY ORDER OF THE BOARD OF DIRECTORS
LEONARD FLORENCE
Chairman of the Board, President and
Chief Executive Officer
March 17, 1997
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PLEASE SIGN AND DATE THE ENCLOSED PROXY AND
RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE
------------------------
STOCKHOLDERS ELECTING TO RETAIN SYRATECH COMMON STOCK
SHOULD RETURN THE ENCLOSED FORM OF NON-CASH ELECTION
TOGETHER WITH DULY ENDORSED SYRATECH STOCK
CERTIFICATES AS INSTRUCTED IN THE PROXY STATEMENT/PROSPECTUS.
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SYRATECH CORPORATION
PROXY STATEMENT/PROSPECTUS
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This Proxy Statement/Prospectus (the "Proxy Statement/Prospectus") is being
furnished to stockholders of Syratech Corporation, a Delaware corporation
("Syratech" or the "Company"), in connection with the solicitation of proxies by
the Board of Directors of the Company for use at the Special Meeting of
Stockholders of the Company, including any adjournments or postponements
thereof, scheduled to be held on April 14, 1997 at 9:00 a.m., Eastern Standard
Time, at Syratech's Corporate Headquarters located at 175 McClellan Highway,
East, Boston, Massachusetts 02128 (the "Special Meeting"). This Proxy
Statement/Prospectus relates to the proposed merger (the "Merger") of THL
Transaction I Corp., a Delaware corporation ("THL I") that has been organized by
Thomas H. Lee Company, with and into the Company pursuant to the Restated
Agreement and Plan of Merger, dated as of November 27, 1996, effective as of
October 23, 1996, as amended on February 14, 1997 (the "Merger Agreement"),
between THL I and the Company, and the transactions contemplated thereby.
Pursuant to the Merger, each share of Syratech Common Stock, par value
$0.01 per share ("Syratech Common Stock"), issued and outstanding immediately
prior to the effective time of the Merger (the "Effective Time") (other than (i)
shares of Syratech Common Stock held by Syratech or any wholly owned subsidiary
thereof, (ii) 35,232 shares of Syratech Common Stock which will be contributed
to the Company by Leonard Florence upon the Merger and which will then be
canceled and retired and (iii) shares of Syratech Common Stock, the holders of
which shall have duly perfected their appraisal rights) will be entitled, at the
election of the holder thereof and subject to the terms described herein, either
(a) to receive $32.00 in cash (except that Leonard Florence will be entitled to
receive only $28.00 in cash) or (b) to retain one fully paid and nonassessable
share of Syratech Common Stock. The right to retain Syratech Common Stock will
be limited in the case of each stockholder to 34.75% of such stockholder's
shares of Syratech Common Stock, other than (i) Leonard Florence who is required
by the Merger Agreement to retain 528,472 shares of Syratech Common Stock and
(ii) Faye A. Florence, Alan R. Kanter, Melvin L. Levine and E. Merle Randolph,
who intend to retain an aggregate of 123,766 shares of Syratech Common Stock. In
addition, because no more than an aggregate of 868,250 shares of Syratech Common
Stock may be retained by existing stockholders (other than any person listed as
an executive officer in Syratech's 1996 Proxy Statement (each a "Management
Stockholder")), the right to retain Syratech Common Stock may be subject to
proration as set forth in the Merger Agreement and described in this Proxy
Statement/Prospectus. See "THE MERGER -- Merger Consideration."
This Proxy Statement/Prospectus also constitutes a prospectus of the
Company with respect to the shares of Syratech Common Stock to be retained by
stockholders in the Merger.
The Merger requires the approval at the Special Meeting of the holders of
not less than a majority of the shares of Syratech Common Stock entitled to vote
thereon. Holders of Syratech Common Stock will be entitled to appraisal rights
under Delaware law in connection with the Merger as described herein. See
"DISSENTING STOCKHOLDERS' RIGHTS."
At its meeting on October 22, 1996, the Board of Directors of Syratech (the
"Board"), by unanimous vote of those present and voting (the three Directors
present at the meeting who are also officers of the Company having abstained
from voting), approved the Merger and determined, among other things, that the
Merger Agreement and the transactions contemplated thereby, including the
Merger, taken together, are advisable and in the best interests of Syratech and
its stockholders and resolved to recommend that holders of Syratech Common Stock
approve the Merger Agreement, including the Merger and the other transactions
contemplated by the Merger Agreement. The changes embodied in the Restated
Agreement and Plan of Merger and in the Amendment thereto dated as of February
14, 1997 were formally approved by the Board of Directors at a Special Meeting
of the Board of Directors held on February 14, 1997.
Syratech Common Stock is listed for trading on the New York Stock Exchange,
Inc. (the "NYSE") under the symbol "SYR." On March 10, 1997, the last reported
sale price of Syratech Common Stock was $31 3/4 per share. On October 22, 1996,
the last trading day before public announcement of the execution of the Merger
Agreement, the last sale price of Syratech Common Stock as reported on the NYSE
was $26 1/4 per share. If the Merger is approved, the Company anticipates that
it will seek to have Syratech Common Stock delisted from the NYSE. See "SPECIAL
FACTORS/RISK FACTORS -- Delisting; Loss of Liquidity; Reporting Obligations."
This Proxy Statement/Prospectus, the accompanying form of proxy (the
"Proxy") and the other enclosed documents are first being mailed to stockholders
of the Company on or about March 17, 1997.
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SEE "SPECIAL FACTORS/RISK FACTORS" BEGINNING ON PAGE 18 FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS OF SYRATECH COMMON STOCK IN
CONNECTION WITH THEIR CONSIDERATION OF THE MERGER.
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NEITHER THIS TRANSACTION NOR THESE SECURITIES HAVE BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION. THE COMMISSION HAS NOT PASSED UPON
THE FAIRNESS OR MERITS OF THIS TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF
THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
------------------------
The date of this Proxy Statement/Prospectus is March 17, 1997.
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TABLE OF CONTENTS
PAGE
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AVAILABLE INFORMATION................................................................. 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....................................... 2
FORWARD-LOOKING STATEMENTS............................................................ 3
SUMMARY............................................................................... 4
The Special Meeting................................................................. 4
The Merger.......................................................................... 6
Selected Consolidated Historical Financial Data of Syratech Corporation............. 14
Price of Syratech Common Stock...................................................... 17
INTRODUCTION.......................................................................... 18
SPECIAL FACTORS/RISK FACTORS.......................................................... 18
Purposes of the Merger, Structure................................................... 18
Timing of the Transaction........................................................... 18
Advantages of the Merger............................................................ 19
Disadvantages of the Merger......................................................... 19
Effect on Affiliate................................................................. 21
Federal Income Tax Consequences..................................................... 22
Fairness of the Merger; Recommendation of the Board of Directors.................... 23
Opinion of Financial Advisor........................................................ 25
Non-Cash Election and Proration into Cash........................................... 30
Forecasts; Limits of Reliability.................................................... 30
Competition......................................................................... 30
Difficulty in Achieving Post-Merger Business Strategy............................... 31
Dependence Upon Key Personnel....................................................... 31
Uncertainty Associated with the Retail Industry..................................... 31
Seasonality......................................................................... 31
Dependence upon Foreign Sources of Supply........................................... 31
Price and Availability of Raw Materials............................................. 32
Environmental Regulation............................................................ 32
Importance of Trademarks, Copyrights and Patents.................................... 32
Labor Relations..................................................................... 32
THE COMPANY........................................................................... 34
General............................................................................. 34
Recent Acquisitions................................................................. 35
Integration Strategy for Recent Acquisitions........................................ 36
THE SPECIAL MEETING................................................................... 36
Matters to Be Considered............................................................ 36
Required Votes...................................................................... 37
Voting and Revocation of Proxies.................................................... 37
Record Date; Stock Entitled to Vote; Quorum......................................... 38
Solicitation of Proxies............................................................. 38
THE MERGER............................................................................ 39
Background of the Merger............................................................ 39
Recommendation of the Board; Reasons for the Merger................................. 45
Opinion of Financial Advisor........................................................ 46
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PAGE
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Certain Forecasts................................................................... 48
Merger Consideration................................................................ 49
Non-Cash Election................................................................... 50
Non-Cash Election Procedure......................................................... 50
Effective Time...................................................................... 50
Conversion/Retention of Shares; Procedures for Exchange of Certificates............. 51
Fractional Shares................................................................... 52
Conduct of Business Pending the Merger.............................................. 52
Conditions to the Consummation of the Merger........................................ 52
Federal Income Tax Considerations................................................... 52
Anticipated Accounting Treatment.................................................... 54
Effect on Stock and Employee Benefit Matters........................................ 54
Interests of Certain Persons in the Merger.......................................... 55
Employment Agreements............................................................... 55
NYSE De-Listing..................................................................... 59
Effect of the Merger on Rights of Holders of Syratech Common Stock.................. 59
Resale of Syratech Common Stock Following the Merger................................ 59
Merger Financings................................................................... 59
Conversion of THL I Stock........................................................... 61
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS................................. 62
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)................................................... 64
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS THE YEAR ENDED
DECEMBER 31, 1996 (IN THOUSANDS, EXCEPT SHARE DATA)................................. 67
DESCRIPTION OF SYRATECH CAPITAL STOCK................................................. 69
General............................................................................. 69
Syratech Common Stock............................................................... 69
Syratech Common Stock Following the Merger.......................................... 69
Preferred Stock..................................................................... 69
CERTAIN PROVISIONS OF THE MERGER AGREEMENT............................................ 70
The Merger.......................................................................... 70
Representations and Warranties...................................................... 71
Certain Pre-Closing Covenants....................................................... 71
No Solicitation of Alternative Transactions......................................... 73
Certificate of Incorporation and By-laws............................................ 73
Board of Directors and Officers of the Company Following the Merger................. 73
Stock and Employee Benefit Plans.................................................... 74
Access to Information and Confidentiality........................................... 74
Best Efforts........................................................................ 74
Indemnification and Insurance....................................................... 74
Conditions to the Consummation of the Merger........................................ 74
Termination......................................................................... 76
Amendment and Waiver................................................................ 76
Expenses and Certain Required Payments.............................................. 76
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........................ 77
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PAGE
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.......................................................................... 79
BUSINESS.............................................................................. 86
REGULATORY APPROVALS.................................................................. 96
THL I AND THOMAS H. LEE COMPANY....................................................... 97
DISSENTING STOCKHOLDERS' RIGHTS....................................................... 97
EXPERTS............................................................................... 98
Financial Statements................................................................ 98
Legal Opinions...................................................................... 99
OTHER INFORMATION AND STOCKHOLDER PROPOSALS........................................... 99
SYRATECH CORPORATION CONSOLIDATED FINANCIAL STATEMENTS................................ F-1
SCHEDULE I Certain Information Regarding THL Transaction I Corp. and Thomas H. Lee
Company
ANNEX I Restated Agreement and Plan of Merger, as amended
ANNEX II Opinion of Merrill Lynch & Co. dated October 23, 1996
ANNEX III Excerpts from Delaware General Corporation Law Relating to
Dissenters' Rights
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AVAILABLE INFORMATION
No person is authorized to give any information or to make any
representations, other than as contained in this Proxy Statement/Prospectus, in
connection with the Merger, and, if given or made, such information or
representations may not be relied upon as having been authorized by Syratech,
THL I or Thomas H. Lee Company. This Proxy Statement/Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy the securities
to which it relates in any jurisdiction in which, or to any person to whom, it
is unlawful to make such an offer or solicitation. Neither the delivery of this
Proxy Statement/Prospectus nor any offer or sale made hereunder shall, under any
circumstances, create any implication that there has been no change in the
information set forth herein or in the affairs of the Company since the date
hereof.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy statements
and other information filed by the Company with the Commission can be inspected
and copied at the public reference facilities maintained by the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 or at
its regional offices located at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661, and 7 World Trade Center, Suite 1300, New York, New York 10048.
Copies of such material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission at http://www.sec.gov. The Company's Common
Stock is listed on the NYSE, and reports, proxy statements and other information
concerning the Company may be inspected and copied at the offices of the New
York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
This Proxy Statement/Prospectus also constitutes a Prospectus of the
Company filed as part of a Registration Statement on Form S-4 under the
Securities Act of 1933, as amended. This Proxy Statement/Prospectus omits
certain information contained in the Registration Statement and the Exhibits
thereto. Reference is made to the Registration Statement and related exhibits
for further information with respect to the Company and the retention of
Syratech Common Stock. For the complete text of any document, the material
provisions of which are described herein, reference is made in each instance to
the copy of the document filed as an exhibit to the Registration Statement or
otherwise filed with the Commission.
A copy of each report and opinion referred to in this Proxy
Statement/Prospectus shall be made available for inspection and copying at the
principal executive offices of the Company during its regular business hours by
any interested equity security holder of the Company or his representative who
has been so designated in writing.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF ANY SUCH DOCUMENTS
RELATING TO THE COMPANY, OTHER THAN EXHIBITS TO SUCH DOCUMENTS (UNLESS SUCH
EXHIBITS SPECIFICALLY ARE INCORPORATED BY REFERENCE IN SUCH DOCUMENTS), ARE
AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM SYRATECH
CORPORATION, 175 MCCLELLAN HIGHWAY EAST BOSTON, MASSACHUSETTS 02128-9114,
ATTENTION: FAYE A. FLORENCE, ESQ., VICE PRESIDENT, SECRETARY AND GENERAL
COUNSEL, TELEPHONE: (617) 561-2200. IN ORDER TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS REQUESTED, ANY SUCH REQUEST SHOULD BE MADE BY APRIL 1, 1997.
The following documents previously filed by the Company (File No. 1-12624)
with the Commission are incorporated in this Proxy Statement/Prospectus by
reference:
(1) The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995.
(2) The Company's Proxy Statement, dated April 8, 1996 which was
mailed to the Company's stockholders in connection with the Annual Meeting
of Stockholders held on May 9, 1996.
(3) The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1996.
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(4) The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 1996.
(5) The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 1996.
(6) The description of Syratech Common Stock set forth in the
Company's Registration Statement on Form 8-A, filed on October 5, 1993, as
amended.
(7) The Company's Current Report on Form 8-K dated February 29, 1996,
as amended by the Current Report on Form 8-K/A dated February 27, 1997
(which supersedes a current Report on Form 8-K/A dated April 29, 1996);
Current Report on Form 8-K dated April 17, 1996, as amended by the Current
Report on Form 8-K/A dated August 26, 1996; Current Report on Form 8-K
dated May 1, 1996; Current Report on Form 8-K dated July 11, 1996; Current
Report on Form 8-K dated September 17, 1996; Current Report on Form 8-K
dated October 25, 1996; and Current Report on Form 8-K dated November 12,
1996.
All reports and other documents subsequently filed by the Company pursuant
to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act prior to the date of
the Special Meeting shall be deemed to be incorporated by reference herein and
to be part hereof from the date of the filing of such reports and documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement/Prospectus to the extent that a statement
contained herein, or in any other subsequently filed document that also is or is
deemed to be incorporated by reference herein, modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute part of this Proxy
Statement/Prospectus.
FORWARD-LOOKING STATEMENTS
Except for the historical information contained or incorporated by
reference in this Proxy Statement/Prospectus, the matters discussed or
incorporated by reference herein are forward-looking statements. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the Company, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the risk factors
set forth under "Special Factors/Risk Factors" as well as the following: general
economic and business conditions; industry capacity; industry trends; overseas
expansion; the loss of major customers; changes in demand for the Company's
products; the timing of orders received from customers; cost and availability of
raw materials; dependence on foreign sources of supply; changes in business
strategy or development plans; availability and quality of management;
availability, terms and deployment of capital; and the seasonal nature of the
business. SPECIAL ATTENTION SHOULD BE PAID TO SUCH FORWARD-LOOKING STATEMENTS
INCLUDING, BUT NOT LIMITED TO, STATEMENTS RELATING TO (I) THE COMPANY'S ABILITY
TO EXECUTE ITS GROWTH STRATEGIES AND TO REALIZE ITS GROWTH OBJECTIVES, (II) THE
COMPANY'S PLANNED EXPANSION OF ITS PRODUCT OFFERINGS, (III) THE COMPANY'S
ABILITY TO OBTAIN SUFFICIENT RESOURCES TO FINANCE ITS WORKING CAPITAL AND
CAPITAL EXPENDITURE NEEDS AND PROVIDE FOR ITS KNOWN OBLIGATIONS, AND (IV) THE
CONTINUATION OF, AND THE COMPANY'S ABILITY TO BENEFIT FROM, THE VENDOR
CONSOLIDATION TREND IN THE RETAIL INDUSTRY DESCRIBED ELSEWHERE IN THIS PROXY
STATEMENT/PROSPECTUS.
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SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement/Prospectus. Reference is made to the more detailed
information contained or incorporated by reference in this Proxy
Statement/Prospectus and the ANNEXES hereto. Stockholders of the Company are
urged to read this Proxy Statement/Prospectus and the ANNEXES hereto in their
entirety.
FOR A DISCUSSION OF CERTAIN IMPORTANT FACTORS THAT SHOULD BE CONSIDERED BY
HOLDERS OF SYRATECH COMMON STOCK IN CONNECTION WITH THEIR CONSIDERATION OF THE
MERGER, INCLUDING CERTAIN RISKS RELATED TO CONTINUING TO HOLD SYRATECH COMMON
STOCK, SEE "SPECIAL FACTORS/RISK FACTORS."
THE SPECIAL MEETING
Time and Place; Record Date... A Special Meeting of the Stockholders of
Syratech will be held on April 14, 1997, at
9:00 a.m. Eastern Standard Time at Syratech's
Corporate Headquarters, 175 McClellan Highway,
East Boston, Massachusetts 02128. Stockholders
of record at the close of business on March 5,
1997 (the "Record Date") will be entitled to
notice of, and to vote at, the Special Meeting.
The date of the mailing of this Proxy
Statement/Prospectus to stockholders of the
Company will be on or about March 17, 1997. At
the close of business on the Record Date, there
were outstanding and entitled to vote 8,699,231
shares of Syratech Common Stock.
Matters to be Considered...... The purpose of the Special Meeting is to vote
upon a proposal to approve and adopt the Merger
Agreement and the transactions contemplated
thereby, including the Merger, pursuant to
which (a) THL I will merge with and into
Syratech, (b) the stockholders of Syratech will
receive the consideration described below in
the Summary under "THE MERGER -- Effect of the
Merger" and (c) the stock of THL I, all of
which will be owned immediately prior to the
Effective Time by affiliates of Thomas H. Lee
Company ("Lee Affiliates"), will be converted
into 3,131,780 shares of Syratech Common Stock
less the number of shares (not to exceed
781,250) of Syratech Common Stock retained by
existing stockholders (other than shares
retained by Management Stockholders). After the
Effective Time, there will be no fewer than
3,784,018, and no more than 3,871,018 shares of
Syratech Common Stock issued and outstanding
(including 528,472 shares to be retained by Mr.
Florence, 123,766 shares to be retained by
Management Stockholders other than Leonard
Florence and up to an aggregate of 868,250
shares of Syratech Common Stock retained by
existing stockholders (other than Management
Stockholders)); and, if the warrants to be
issued to lenders in connection with the
financing of the transactions contemplated by
the Merger Agreement (the "Warrants") are
exercised in full after the Merger, there will
be no fewer than 4,025,551, and no more than
4,112,551 shares of Syratech Common Stock
issued and outstanding.
Required Votes................ Approval of the Merger Agreement requires the
affirmative vote of stockholders holding a
majority of the shares of Syratech Common Stock
entitled to vote thereon. All of the directors
and officers of the Company holding Syratech
Common Stock have indicated that
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12
they intend to vote their shares of Syratech
Common Stock in favor of the resolution to
approve and adopt the Merger Agreement and the
transactions contemplated thereby, including
the Merger. See "THE SPECIAL
MEETING -- Required Votes" and "THE
MERGER -- Interests of Certain Persons in the
Merger."
Risks of the Transaction...... The transaction entails certain special risks
to the stockholders who elect to retain
Syratech Common Stock in the Merger, in
addition to those risks (described under
"Special Factors/Risk Factors") that are
inherent in Syratech's business. The special
risks include (i) the fact that at least 60.7%
and up to 82.8% of the outstanding shares of
Syratech Common Stock will be held by Lee
Affiliates, including Thomas H. Lee Equity Fund
III LP (the "Fund"), which will own at least
50% and thereby control the Company and have
the power to elect all of its directors,
appoint new management and approve any action
requiring the approval of the holders of
Syratech Common Stock, (ii) termination of the
listing of Syratech Common Stock on the NYSE,
with the expectation that such delisting,
coupled with concentration of power in
affiliates of Thomas H. Lee Company and the
Management Stockholders, can be expected to
result in a substantial decrease in the
liquidity of Syratech Common Stock and (iii)
the substantial increase in the consolidated
indebtedness of the Company and its
subsidiaries with the result that following the
Merger stockholders' equity will decline from
its present level to $22.048 million on a pro
forma basis at December 31, 1996 and negatively
impact Syratech's earnings due to substantially
increased interest costs (with the further
possibility that the equity and income
impairments could adversely affect Syratech's
ability to achieve its business strategies and
prospects). See "SPECIAL FACTORS/RISK FACTORS
-- Disadvantages of the Merger -- Control by
Affiliates of the Thomas H. Lee Company,
Delisting; Reporting Obligations," "--
Substantial Leverage; Stockholders' Deficit;
Liquidity," "-- Dilution in Equity
Participation of Existing Syratech
Stockholders."
Also note that incident to the Merger the
employment agreement of Leonard Florence will
be modified to provide that his guaranteed
annual compensation will be no less than his
total compensation in 1996, which will affect
the retirement and survivor's benefits payable
to Mr. Florence and his wife, respectively.
Also, three other executive officers (two of
whom are Directors of the Company) have
received or will receive, pursuant to
agreements between Mr. Florence, the Company,
THL I and each of the executive officers (i)
compensatory stock grants (ii) and cash
payments equal to Syratech's tax benefits from
the grants. Moreover, certain Management
Stockholders hold options to purchase Syratech
Common Stock that will vest on the Merger. The
aggregate number of shares subject to such
options is 41,000, and the aggregate amount
that will be payable by Syratech as a result of
the vesting and cash-out of such options will
be $674,270. See "THE MERGER -- Interests of
Certain Persons in the Merger."
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Voting of Proxies............. Shares of Syratech Common Stock represented by
a properly executed Proxy received in time for
the Special Meeting will be voted in the manner
specified in the Proxy. Proxies that do not
contain any instruction to vote for or against
or to abstain from voting on a particular
matter will be voted in favor of such matter.
See "THE SPECIAL MEETING -- Required Vote." It
is not expected that any matter other than the
proposal to approve and adopt the Merger
Agreement will be brought before the
stockholders at the Special Meeting. If,
however, other matters are properly presented,
the persons named as proxies will vote in
accordance with their best judgment with
respect to such matters.
Adjournments; Revocability
of Proxies.................. If the Special Meeting is adjourned, for
whatever reason, the approval of the Merger
Agreement shall be considered and voted upon by
stockholders at the subsequent, reconvened
meeting, if any. You may revoke your Proxy at
any time prior to its exercise by (i) attending
the Special Meeting and voting in person
(although attendance at the Special Meeting
will not in and of itself constitute revocation
of a Proxy), (ii) giving notice of revocation
of your Proxy at the Special Meeting, or (iii)
delivering (a) a written notice of revocation
of your Proxy, or (b) a duly executed Proxy
relating to the matters to be considered at the
Special Meeting, bearing a date later than the
Proxy previously executed, to the Secretary of
Syratech, 175 McClellan Highway, East Boston,
Massachusetts 02128-9114. Unless revoked in one
of the manners set forth above, Proxies in the
form enclosed will be voted at the Special
Meeting in accordance with your instructions.
Solicitation of Proxies....... The cost of soliciting Proxies will be borne by
the Company. The Company may solicit Proxies
and the Company's directors, officers and
employees may also solicit Proxies by
telephone, telegram or personal interview.
These persons will receive no additional
compensation for their services. Arrangements
will be made to furnish copies of Proxy
materials to fiduciaries, custodians and
brokerage houses for forwarding to beneficial
owners of Syratech Common Stock. Such persons
will be reimbursed for their reasonable out-of-
pocket expenses. MORROW & CO., INC. WILL ASSIST
IN THE SOLICITATION OF PROXIES BY THE COMPANY
FOR A FEE OF $4,000.00, PLUS REASONABLE
OUT-OF-POCKET EXPENSES. HOLDERS OF SYRATECH
COMMON STOCK SHOULD NOT SEND STOCK CERTIFICATES
WITH THEIR PROXY CARDS. SEE "THE
MERGER -- NON-CASH ELECTION" FOR INSTRUCTIONS
FOR STOCKHOLDERS ELECTING TO RETAIN SHARES.
Security Ownership of
Management.................... As of January 31, 1997, directors and executive
officers of the Company and their affiliates
were beneficial owners of an aggregate of
3,541,370 shares of Syratech Common Stock
(approximately 40.7% of the outstanding
shares).
THE MERGER
Effect of the Merger.......... At the Effective Time, THL I will be merged
with and into Syratech and Syratech will
continue as the surviving corporation in
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the Merger. Subject to certain provisions as
described herein with respect to shares owned
by Syratech or any wholly owned subsidiary of
Syratech, and with respect to Dissenting Shares
(as defined under "Dissenting Stockholders'
Rights" below), (i) each issued and outstanding
share of Syratech Common Stock (other than
Electing Shares (as defined below)) will be
entitled to receive in cash from Syratech
following the Merger an amount equal to $32.00
(except that Leonard Florence will be entitled
to receive only $28.00 in cash) (the "Cash
Price") and (ii) subject to the limitations
hereinafter set forth, each issued and
outstanding share of Syratech Common Stock with
respect to which an election to retain Syratech
Common Stock has been made and not withdrawn in
accordance with the Merger Agreement (an
"Electing Share") will be entitled to retain
one fully paid and nonassessable share of
Syratech Common Stock (a "Non-Cash Election
Share"). Each stockholder of Syratech (other
than Leonard Florence and the other Management
Stockholders identified above) shall receive
the Cash Price with respect to all of the
stockholder's shares of Syratech Common Stock,
unless such holder makes an election (a
"Non-Cash Election") to take a portion of the
consideration to be received by such holder in
Non-Cash Election Shares. Stockholders may make
a Non-Cash Election to take up to 34.75% of
such consideration in Non-Cash Election Shares;
provided, that the aggregate number of shares
of Syratech Common Stock to be retained at the
Effective Time by stockholders (other than
Management Stockholders, whose Non-Cash
Election Shares will not be counted toward the
Non-Cash Election Number, as defined below)
shall not exceed 868,250 (the "Non-Cash
Election Number"). The Merger Agreement permits
stockholders (other than Management
Stockholders) to retain up to an aggregate of
868,250 shares of Syratech Common Stock and
contemplates that the remaining issued and
outstanding shares of Syratech Common Stock
(other than shares of Syratech Common Stock
held by Management Stockholders) will be
converted into cash, as described above. In
addition, the Merger Agreement requires Leonard
Florence to retain 528,472 shares, and receive
cash at $28 per share for all other shares he
owns other than 35,232 shares of Syratech
Common Stock which he will contribute to the
Company upon the Merger and which will then be
cancelled and retired. Management Stockholders
identified above other than Leonard Florence
intend to retain an aggregate of 123,766 shares
of Syratech Common Stock. Because no more than
868,250 shares may be retained by stockholders
(other than Management Stockholders) in the
Merger, stockholders who elect to retain shares
may, due to proration, be required to retain
fewer shares of Syratech Common Stock than is
specified in their election. SEE "THE
MERGER -- Merger Consideration." Because the
total number of issued and outstanding shares
of Syratech Common Stock will decrease from
approximately 8,699,231 to 3,871,018 (if the
existing stockholders retain the maximum number
of outstanding shares permitted by the Merger
Agreement), the maximum number of outstanding
shares of Syratech Common Stock to be retained
by existing stockholders (other than Management
Stock-
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15
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holders) in the Merger (868,250 shares) will
represent approximately 22.4% of the shares
outstanding immediately after the Merger, and
the maximum number of shares to be owned by THL
I (3,131,780 shares) will represent
approximately 82.8% of the shares outstanding
immediately after the Merger if no stockholders
make a Non-Cash Election. If the Warrants are
exercised in full pursuant to their terms, the
percentages specified herein will decline to
21.1% and 76.0%, respectively.
Recommendation of the Board of
Directors................... At its October 22, 1996 meeting, the Board of
Directors of the Company, with all but two
members in attendance, by unanimous vote of
those members attending and voting (the three
Directors present who are also officers of the
Company having abstained) (i) determined that
the Merger Agreement and the transactions
contemplated thereby, including the Merger,
taken together, are advisable and in the best
interests of the Company and its stockholders,
and (ii) subject to the Board's fiduciary
duties, resolved to recommend that the holders
of Syratech Common Stock approve the Merger
Agreement and the transactions contemplated
thereby, including the Merger. The changes
embodied in the Restated Agreement and Plan of
Merger and in the Amendment thereto dated as of
February 14, 1997 were formally approved by
Syratech's Board of Directors at a special
meeting held on February 14, 1997. See "SPECIAL
FACTORS/RISK FACTORS -- Fairness of the Merger;
Recommendation of the Board of Directors" and
"THE MERGER -- Background of the Merger" and
"-- Reasons for the Merger; Recommendation of
the Board of Directors."
Opinion of Financial
Advisor....................... On October 22, 1996, Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch")
delivered its verbal opinion, which was
confirmed in writing on October 23, 1996, to
Syratech's Board of Directors to the effect
that, as of such date, the cash consideration
to be received in the Merger by the holders of
Syratech Common Stock (other than with respect
to shares held by Leonard Florence, shares to
be cancelled pursuant to the Merger Agreement
and Dissenting Shares) is fair to such
stockholders from a financial point of view. In
arriving at its opinion, Merrill Lynch, among
other things, reviewed certain information and
conducted certain analyses with respect to
Syratech Common Stock and the Merger. For
information on the assumptions made, matters
considered, limits of the review by Merrill
Lynch and the relationships between Merrill
Lynch and THL I, see "SPECIAL FACTORS/RISK
FACTORS -- Opinion of Financial Advisor" and
"THE MERGER -- Opinion of Financial Advisor."
Holders of Syratech Common Stock are urged to
read in its entirety the opinion of Merrill
Lynch, dated October 23, 1996, a copy of which
appears as Annex II to this Proxy
Statement/Prospectus. The opinion of Merrill
Lynch was limited to the cash consideration
only and was silent as to the non-cash portion
that stockholders may elect; and no
determination of fairness was made by Merrill
Lynch as to the Non-Cash Election feature.
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8
16
Non-Cash Election............. Subject to proration as described below, record
holders of shares of Syratech Common Stock
(other than Management Stockholders) will be
entitled to make an unconditional Non-Cash
Election, on or prior to the Election Date (as
defined below), to retain Non-Cash Election
Shares for up to 34.75% of their present
holdings of Syratech Common Stock. If the
number of Electing Shares of all stockholders
(other than Management Stockholders) exceeds
the 868,250, then (i) the number of such
Electing Shares covered by each Non-Cash
Election will be determined by multiplying the
total number of such Electing Shares covered by
such Non-Cash Election by a proration factor
determined by dividing the 868,250 by the total
number of such Electing Shares and (ii) such
number of Electing Shares will be so retained.
All Electing Shares of stockholders (other than
Management Stockholders), other than those
shares retained as described in the immediately
preceding sentence, will be converted into the
right to receive cash as if such shares were
not Electing Shares. See also "THE MERGER --
Federal Income Tax Consequences -- Stockholders
Receiving Cash" for a discussion of the tax
consequences of receiving cash.
Non-Cash Election Procedure... Holders of Syratech Common Stock electing to
retain Non-Cash Election Shares must properly
complete and sign the Non-Cash Election Form
(the "Form of Election") accompanying this
Proxy Statement/Prospectus, and such Form of
Election, together with all of such Holder's
certificates representing shares of Syratech
Common Stock duly endorsed in blank or
otherwise in form acceptable for transfer on
the books of the Company (or by appropriate
guarantee of delivery, as set forth in such
Form of Election), must be received by State
Street Bank and Trust Company (the "Exchange
Agent") at one of the addresses listed on the
Form of Election by 5:00 p.m., Eastern Standard
Time, on the business day next preceding the
date of the Special Meeting (the "Election
Date") and must not be withdrawn. See "THE
MERGER -- Non-Cash Election Procedure."
Fractional Shares............. Fractional shares of Syratech Common Stock will
not be issued in the Merger. Holders of
Syratech's Common Stock otherwise entitled to a
fractional share of Syratech's Common Stock
following the Merger will be paid cash in lieu
of such fractional share determined and paid as
described in "THE MERGER -- Fractional Shares."
Conditions to the Merger...... The obligations of Syratech and THL I to
consummate the Merger are subject to various
conditions, including, without limitation, the
approval of the Merger Agreement and the
transactions contemplated thereby by the
holders of the requisite number of shares of
Syratech Common Stock, the termination or
expiration of the relevant waiting period under
the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act") (which
has occurred), the effectiveness of the
Company's registration statement on Form S-4,
and the absence of any injunction or other
legal restraint or prohibition preventing the
consummation of the Merger. See "REGULATORY
APPROVALS."
THL I's obligations to effect the Merger are
further subject to the continuing truth of the
Company's representations made in the
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Merger Agreement, performance of material
obligations of the Company under the Merger
Agreement, the absence of pending or threatened
material litigation intended to prevent the
Merger, the satisfaction of certain
environmental matters and the receipt of
financing proceeds, on terms set forth in
commitment letters attached to the Merger
Agreement or such other terms as the Company
and THL I reasonably agree and are not
materially more onerous, in an amount
sufficient to consummate the transactions
contemplated by the Merger, including an amount
sufficient to (i) pay the Cash Election Price,
(ii) refinance Syratech's outstanding
indebtedness, (iii) pay transaction fees
associated with the Merger and (iv) provide for
the Company's working capital needs following
the Merger. If the Merger had been consummated
as of December 31, 1996, financing proceeds,
capital from THL I obtained by it from an
equity contribution by its stockholders and
existing cash on the Company's balance sheet,
together aggregating approximately $301.2
million, would have been required to consummate
such transactions. The equity contribution to
be made to THL I will constitute approximately
(i) $100.2 million in Common Stock (less the
value of the shares (not to exceed 781,250)
retained by stockholders other than Management
Stockholders) and (ii) up to $18.0 million of
cumulative preferred stock (the "Cumulative
Redeemable Preferred Stock") of such $301.2
million. See "THE MERGER -- Merger Financing."
The Company's obligations to effect the Merger
are further subject to the continuing truth of
THL I's representations made in the Merger
Agreement, performance of all material
obligations of THL I under the Merger Agreement
and the absence of litigation intended to
prevent the Merger. See "CERTAIN PROVISIONS OF
THE MERGER AGREEMENT -- Conditions to the
Consummation of the Merger" and "REGULATORY
APPROVALS." See "CERTAIN PROVISIONS OF THE
MERGER AGREEMENT -- Expenses and Certain
Required Payments."
Regulatory Approvals.......... On November 25, 1996, the Federal Trade
Commission and the Antitrust Division granted
early termination of the waiting period under
the HSR Act with respect to the Merger. See
"REGULATORY APPROVALS."
Merger Financing.............. Syratech is expected to enter into debt
financing arrangements aggregating
approximately $285 million, which will consist
of both debt securities (the "Debt Securities")
and a senior revolving credit facility (the
"Revolving Credit Facility"). It is anticipated
that the full proceeds of the Debt Securities
and the Cumulative Redeemable Preferred Stock
and a portion of the proceeds available
pursuant to the Revolving Credit Facility would
be used to finance the conversion into cash of
the shares of Syratech Common Stock currently
outstanding which are not retained by existing
stockholders, and to refinance Syratech's
outstanding indebtedness. In addition, the
Revolving Credit Facility would be used to
provide for Syratech's working capital
requirements at the time of the Merger. On
February 14, 1997, THL I received commitment
letters to provide such financing. See "THE
MERGER -- Merger Financing."
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Certain Federal Income Tax
Consequences................ The receipt of cash by a stockholder pursuant
to the Merger will be treated as a sale of
stock generating capital gain equal to the cash
received less the stockholder's basis in the
stock sold. Syratech may, in certain
circumstances, be required to withhold tax from
cash paid to stockholders. See "THE
MERGER -- Federal Income Tax Consequences."
Treatment of Company
Stock Options............... At the Effective Time (x) each Company Stock
Option granted under the 1986 and 1993 Stock
Plans (as defined under "THE MERGER -- Effect
on Stock and Employee Benefit Matters")
outstanding immediately prior to the Effective
Time will vest as a consequence of the Merger
and will be canceled in exchange for a payment
from the Company after the Merger (subject to
any applicable withholding taxes) equal to the
product of (1) the total number of shares of
Syratech Common Stock subject to such Company
Stock Option and (2) the excess of $32 over the
exercise price per share of Syratech Common
Stock subject to such Company Stock Option,
payable in cash immediately following the
Effective Time, and (y) each unexercised and
outstanding Company Stock Option granted under
the 1995 Stock Plan (as defined under "THE
MERGER -- Effect on Stock and Employee Benefit
Matters") shall be terminated and canceled
without consideration, unless the holder of
such Company Stock Option consents in writing
to the amendment of such Company Stock Option
to provide the holder thereof with the right to
receive upon exercise of the Company Stock
Option, a conditional deferred payment from the
Company (subject to any applicable withholding
taxes) equal to the product of (1) the total
number of shares of Syratech Common Stock
subject to such Company Stock Option and (2)
the excess, if any, of $32 over the exercise
price per share of Syratech Common Stock
subject to such Company Stock Option, payable
in equal installments on each remaining vesting
date of such Company Stock Option, subject to
the continued employment with the Company of
the holder of such Company Stock Option on such
vesting dates. The Stock Plans will terminate
as of the Effective Time, and following the
Effective Time no holder of a Company Stock
Option or participant in any Stock Plan will
have any right thereunder to acquire equity
securities of the Company following the Merger.
Interests of Certain Persons
in the Merger................. Certain directors and officers of the Company
have interests, described herein, that may
present them with potential conflicts of
interest in connection with the Merger. The
Board of Directors is aware of the conflicts
and considered them in addition to the other
matters described or referred to under "SPECIAL
FACTORS/RISK FACTORS -- Fairness of the Merger;
Recommendation of the Board of Directors" and
under "THE MERGER -- Reasons for the Merger;
Recommendation of the Board of Directors."
Leonard Florence will be required to contribute
35,232 shares of his Syratech Common Stock to
the Company and is required to retain 528,472
of his shares of Syratech Common
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11
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Stock which will not be subject to proration;
such shares will constitute approximately 14%
of the shares of Syratech Common Stock
outstanding immediately after the Merger. The
other Management Stockholders will not be
subject to proration with respect to the shares
that they elect to retain. Four executive
officers of the Company, Leonard Florence,
Melvin L. Levine, Alan R. Kanter and E. Merle
Randolph, are parties to Employment Agreements,
and Faye A. Florence, also an executive
officer, has a Retirement Benefit Agreement,
each of which provides (among other things in
the Employment Agreements) for the payment of
retirement benefits to such person at the later
of age 65 or termination of his or her
employment equal to a multiple of a percentage
of his or her average annual compensation for
the three fiscal years ended immediately prior
to termination of his or her employment. At the
Effective Time, the Employment Agreement with
Leonard Florence will be amended so as to (i)
change his term of full-time employment from a
rolling five-year term to a fixed five-year
term, (ii) provide for a minimum base salary of
$1,150,000 per annum, (iii) establish
$1,150,000 as the minimum amount upon which his
retirement benefit (and the survivor's benefit
of his surviving spouse) will be computed and
(iv) create contractual rights with respect to
certain perquisites that he is accorded
informally under his present arrangements with
the Company. Additionally, at the Effective
Time, the Employment Agreement with Melvin L.
Levine will be amended to change his term of
full-time employment from a rolling five-year
term to a fixed five-year term. In addition,
Thomas H. Lee Company and its affiliates will
receive certain fees. See "SUMMARY -- Risks of
the Transaction" and "THE MERGER -- Interests
of Certain Persons in the Merger."
Termination of the Merger
Agreement................... The Merger Agreement may be terminated at any
time prior to the Effective Time: (i) by mutual
consent of THL I and Syratech; (ii) by either
THL I or Syratech (a) if a court or other
governmental entity shall have issued a final
and nonappealable order, decree or ruling or
taken any other final and nonappealable action
permanently enjoining or otherwise prohibiting
the Merger; or (b) if the Merger shall not have
been consummated on or before April 30, 1997
(other than due to the failure of the party
seeking to terminate the Merger Agreement to
perform its obligations under the Merger
Agreement at or prior to the Effective Time);
or (iii) by THL I or Syratech in certain other
situations, including in connection with an
alternative transaction. Under certain
circumstances related to a third party
transaction, termination of the Merger
Agreement prior to the Effective Time will
result in the payment of a fee and expenses
aggregating $9 million from the Company to THL
I. See "CERTAIN PROVISIONS OF THE MERGER
AGREEMENT -- Termination" and "-- Expenses and
Certain Required Payments."
THL I......................... THL I, a Delaware corporation, was organized by
Thomas H. Lee Company in connection with the
Merger and has not carried on any activities to
date other than those incident to its formation
and the transactions contemplated by the Merger
Agreement. The
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principal offices of THL I are located at c/o
Thomas H. Lee Company, 75 State Street, Boston,
Massachusetts 02109; telephone number (617)
227-1050.
Conversion of THL I Stock..... As a result of the Merger, THL I will make an
equity contribution of approximately $100.2
million of Common Stock less the value of the
shares (not to exceed 781,250) retained by
stockholders (other than Management
Stockholders) and up to $18.0 million of
Cumulative Redeemable Preferred Stock. The Fund
and the Lee Affiliates will receive an
aggregate of 3,131,780 shares of Syratech
Common Stock, less the number of shares (not
exceeding 781,250) of Syratech Common Stock
retained by stockholders (other than shares
retained by Management Stockholders) and up to
18,000 shares of Cumulative Redeemable
Preferred Stock. These shares of Syratech
Common Stock will represent approximately 82.8%
of the shares of Syratech Common Stock
outstanding immediately after the Merger if no
stockholders make a Non-Cash Election, and
these shares of Cumulative Redeemable Preferred
Stock will represent 100% of the shares of
Cumulative Redeemable Preferred Stock
outstanding.
Dissenting Stockholders'
Appraisal Rights.............. Under Section 262 of the Delaware General
Corporation Law (the "DGCL"), a stockholder of
the Company may dissent from the Merger, demand
appraisal of, and obtain payment for, the fair
value of such holder's shares of Syratech
Common Stock. In order to dissent, (i) the
dissenting stockholder must deliver to the
Company, prior to the vote being taken on the
Merger at the Special Meeting, written notice
of such holder's intent to demand payment for
such holder's shares of Syratech Common Stock
if the Merger is effected and (ii) the
dissenting stockholder must not vote in favor
of the Merger. See "DISSENTING STOCKHOLDERS'
RIGHTS" and ANNEX III.
Selected Financial Data....... Set forth on the following pages are certain
selected historical and pro forma financial and
other data relating to Syratech and the Merger.
The selected historical data should be read in
conjunction with Syratech's historical
financial statements, including the notes
thereto, incorporated by reference in this
Proxy Statement/Prospectus. The selected pro
forma financial data should be read in
conjunction with the Pro Forma Consolidated
Financial Statements, including the notes
thereto, appearing elsewhere in this Proxy
Statement/Prospectus.
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SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
OF SYRATECH CORPORATION
The following selected consolidated financial information as of December
31, 1992 through 1996 and for each of the years in the five-year period ended
December 31, 1996 has been derived from the consolidated financial statements of
the Company. The consolidated balance sheets of the Company as of December 31,
1995 and 1996 and the consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1996, together with the notes thereto and the related report of Deloitte &
Touche LLP, independent auditors, are included elsewhere herein. The information
set forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements and Notes thereto of the Company included elsewhere in this
Proxy Statement/Prospectus.
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA(1):
Net sales................................................. $103,735 $122,682 $147,291 $169,520 $270,931
Cost of sales............................................. 70,361 84,643 104,600 119,836 194,113
-------- -------- -------- -------- --------
Gross profit.............................................. 33,374 38,039 42,691 49,684 76,818
Selling, general and administrative expenses.............. 24,364 27,727 31,613 34,239 57,664
Other operating income.................................... 3,948(2)
-------- -------- -------- -------- --------
Income from operations.................................... 9,010 10,312 11,078 15,445 23,102
Interest expense.......................................... (2,757) (948) (559) (287) (3,150)
Interest income........................................... 23 82 98 4,881 771
Other income.............................................. 11,900(3)
-------- -------- -------- -------- --------
Income before income taxes................................ 6,276 9,446 10,617 20,039 32,623
Provision for income taxes................................ 1,657 2,390 2,758 6,863 12,234
-------- -------- -------- -------- --------
Income from continuing operations......................... 4,619 7,056 7,859 13,176 20,389
Discontinued operations:
Income from discontinued operations, net of income
taxes................................................. 10,284 10,838 12,068 2,572
Gain on sale of Syroco, Inc., net of income
taxes................................................. 30,451
-------- -------- -------- -------- --------
Net income................................................ $ 14,903 $ 17,894 $ 19,927 $ 46,199 $ 20,389
======== ======== ======== ======== ========
Earnings Per Share:
Continuing operations................................... $ .55 $ .60 $ .67 $ 1.12 $ 2.32
Discontinued operations................................. 1.10 .92 1.02 2.79
-------- -------- -------- -------- --------
Net income.............................................. $ 1.65 $ 1.52 $ 1.69 $ 3.91 $ 2.32
======== ======== ======== ======== ========
Weighted average common shares and common share
equivalents outstanding................................. 9,312 11,768 11,809 11,803 8,799
======== ======== ======== ======== ========
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
OTHER FINANCIAL DATA:
EBITDA(4)................................................. $ 11,824 $ 13,363 $ 14,348 $ 18,698 $ 24,357
Adjusted EBITDA(5)........................................ -- -- -- -- 30,528
Net cash provided by (used in) operating activities....... (18,550) 7,839 (10,592) (39,616) 23,777
Net cash provided by (used in) investing activities....... (5,536) (2,857) (2,796) 131,313 (40,014)
Net cash provided by (used in) financing activities....... 23,965 (2,502) 11,425 (15,070) (58,947)
Depreciation and amortization............................. 2,814 3,051 3,270 3,253 4,767
Ratio of earnings to fixed charges(6)..................... 2.9x 7.4x 10.2x 23.4x 7.7x
14
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DECEMBER 31,
-----------------------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- -------------
BALANCE SHEET DATA:
Working capital..................................... $ 87,458 $105,115 $125,136 $122,050 $ 119,918
Total assets........................................ 141,294 152,060 190,684 220,566 227,254
Total debt(7)....................................... 6,446 5,060 15,379 51,735(8) 6,636
Stockholders' equity................................ 112,381 131,005 152,100 146,596 170,248
Book value per share................................ 10.55 11.25 13.01 16.91 19.58
- ---------------
(1) The income statement has been restated to reflect Syroco, Inc. as a
discontinued operation. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Recent Transactions."
(2) Consists of income from the sale of Farberware inventory and other operating
income, net of certain selling, general and administrative expenses.
(3) Consists of nonrecurring pre-tax income related to licensing the Farberware
name on cookware and bakeware.
(4) "EBITDA" is defined herein as income before income taxes, plus depreciation
and amortization expense and interest expense less other income related to
the sale of Farberware inventory, less the non-recurring pre-tax income
related to licensing the Farberware name on cookware and bakeware. EBITDA is
presented because the Company believes it is a widely accepted financial
indicator of a company's ability to service and/or incur indebtedness.
However, EBITDA should not be considered as an alternative to net income as
a measure of operating results or to cash flows as a measure of liquidity in
accordance with generally accepted accounting principles.
(5) "Adjusted EBITDA" is defined herein as EBITDA adjusted for certain items of
expense which are not expected to be continuing costs to the Company. These
items consist of Rauch salaries and related benefits of $623, Silvestri
expenses of $712, including showroom, warehouse and freight expenses,
compensation expense of $3,953 related to the transfer of shares to three
executive officers and pension expense of $883.
(6) For purposes of computing this ratio, earnings consist of income before
income taxes plus fixed charges. Fixed charges consist of interest expense,
and one-third of the rent expense from operating leases, which management
believes is a reasonable approximation of an interest factor.
(7) Consists of long-term debt, notes payable and current maturities of
long-term debt.
(8) Reflects temporary borrowings of $51,735 made on December 29, 1995 in
connection with the purchase by the Company for retirement of 3,065 shares
of Common Stock owned by affiliates of Katy Industries, Inc. (the "Katy
Stock Repurchase"). These borrowings were paid on January 2, 1996.
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SELECTED PRO FORMA CONSOLIDATED FINANCIAL DATA
OF SYRATECH CORPORATION
The following table sets forth unaudited selected pro forma consolidated
financial data of the Company, as adjusted to give effect to the Merger and the
Rauch Acquisition which have been derived from, and should be read in
conjunction with, the unaudited Pro Forma Condensed Consolidated Financial
Statements, including the notes thereto, appearing elsewhere in this Proxy
Statement/Prospectus. See "PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS." The selected pro forma consolidated financial data are presented
for illustrative purposes only and are not necessarily indicative of the
operating results or financial position that would have occurred if the Merger
or other transactions had been consummated on the dates indicated, nor are they
necessarily indicative of future operating results or financial position.
PRO FORMA UNAUDITED
----------------------
YEAR ENDED
DECEMBER 31, 1996
----------------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
SELECTED INCOME STATEMENT DATA:
Net sales................................................................ $271,540
Cost of goods sold....................................................... 194,544
--------
Gross profit........................................................... 76,996
Selling, general and administrative expenses............................. 58,870
Other operating income................................................... 3,948(1)
--------
Income from operations................................................. 22,074
Interest expense......................................................... (22,713)(2)
Interest income.......................................................... 792
Other income............................................................. 11,900
--------
Income before provision for income taxes............................... 12,053
Provision for income taxes............................................... 4,520
--------
Net income............................................................. 7,533
Preferred stock dividends accrued........................................ 2,160
--------
Net income for common stockholders..................................... $ 5,373
========
Income per common share.................................................. $ 1.42
========
Weighted average common and common equivalent shares outstanding......... 3,784
========
Ratio of earnings to fixed charges(3).................................... 1.3x
SELECTED BALANCE SHEET DATA:
Working capital.......................................................... $116,630
Property, plant and equipment, net....................................... 63,955
Total assets............................................................. 234,737
Total debt(4)............................................................ 162,319
Cumulative redeemable preferred stock.................................... 18,000
Common stockholders' equity.............................................. 4,048
Book value per common share.............................................. 1.07
- ---------------
(1) Consists of income from the sale of Farberware inventory and other operating
income, net of certain selling, general and administrative expenses.
(2) The pro forma statements give effect to the recapitalization and the
corresponding increase in debt levels and interest expense. Because interest
rates in connection with the Merger Financings have not been determined as
of the date of this Proxy Statement/Prospectus, the Company has estimated
pro forma interest expense for purposes of this presentation. See "Pro Forma
Condensed Consolidated Financial Statements" for additional information on
assumed interest rates and the effects on certain income statement items of
incremental changes in such assumed interest rates. The pro forma statements
do not reflect the warrants which may be issued in connection with the
financing of the transactions contemplated by the Merger Agreement. Assuming
that the Company was unable to consummate the issuance and sale of the Debt
Securities prior to the consummation of the Recapitalization and therefore
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24
borrowed pursuant to the terms of the Senior Bridge Financing, the pro forma
interest expense for the year ended December 31, 1996 would have increased
by $2,712.
(3) For purposes of computing this ratio, earnings consist of income before
income taxes plus fixed charges. Fixed charges consist of interest expense,
cumulative redeemable preferred stock dividends, amortization of debt
issuance costs and one-third of the rent expense from operating leases,
which management believes is a reasonable approximation of an interest
factor.
(4) Consists of long-term debt, notes payable, and borrowings under the
revolving line of credit.
PRICE OF SYRATECH COMMON STOCK
Syratech Common Stock is listed and traded on NYSE under the symbol "SYR."
The following table sets forth, for the periods indicated, the high and low
sales closing prices per share of Syratech Common Stock.
HIGH LOW
---- ---
FISCAL 1994
First Quarter (ended March 31, 1994).............................. $19 1/4 $15 3/4
Second Quarter (ended June 30, 1994).............................. 17 5/8 15 1/8
Third Quarter (ended September 30, 1994).......................... 18 7/8 15 5/8
Fourth Quarter (ended December 31, 1994).......................... 19 17
FISCAL 1995
First Quarter (ended March 31, 1995).............................. $19 1/4 $15
Second Quarter (ended June 30, 1995).............................. 19 16 3/4
Third Quarter (ended September 30, 1995).......................... 20 5/8 17 7/8
Fourth Quarter (ended December 31, 1995).......................... 23 19 3/4
FISCAL 1996
First Quarter (ended March 31, 1996).............................. $26 3/8 $20 1/2
Second Quarter (ended June 30, 1996).............................. 27 5/8 22 3/8
Third Quarter (ended September 30, 1996).......................... 24 1/2 22
Fourth Quarter (ended December 31, 1996).......................... 31 3/4 23 3/8
On October 22, 1996, the last trading day before public announcement of
execution of the Merger Agreement, the last sale price of Syratech Common Stock
as reported on the NYSE was $26 1/4 per share. The average of the closing prices
for the 20 consecutive trading days ended October 22, 1996 was $24.59 per share.
On March 10, 1997, the most recent practicable date prior to the printing
of this Proxy Statement/Prospectus, the last sale price of Syratech Common Stock
as reported on the NYSE was $31 3/4 per share.
SYRATECH STOCKHOLDERS SHOULD OBTAIN CURRENT MARKET QUOTATIONS FOR SYRATECH
COMMON STOCK.
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25
INTRODUCTION
This Proxy Statement/Prospectus is being furnished to holders of Syratech
Common Stock in connection with the solicitation of proxies by the Board of
Directors of Syratech for use at the Special Meeting of Stockholders of Syratech
Corporation to be held at Syratech's Corporate Headquarters located at 175
McClellan Highway, East Boston, Massachusetts 02128 on April 14, 1997, beginning
at 9:00 a.m. Eastern Standard Time, and at any adjournments or postponements
thereof. This Proxy Statement/Prospectus is accompanied by a form of Proxy for
use at the Special Meeting. At the Special Meeting, Syratech stockholders will
be asked to approve a Merger Agreement, pursuant to which THL I will merge with
and into Syratech, and Lee Affiliates will become the owners of 3,131,780 shares
of Syratech Common Stock, less the number of shares (not to exceed 781,250)
retained by stockholders (other than shares retained by Management
Stockholders), representing a maximum of approximately 82.8% of the issued and
outstanding shares of Syratech Common Stock.
This Proxy Statement/Prospectus also constitutes a prospectus of the
Company with respect to the shares of Syratech Common Stock to be retained by
stockholders pursuant to the Merger, which prospectus is part of a Registration
Statement on Form S-4 filed by the Company with the Commission under the
Securities Act of 1933, as amended (the "Securities Act").
This Proxy Statement/Prospectus and the accompanying form of proxy are
being mailed to stockholders of the Company on or about March 17, 1997.
SPECIAL FACTORS/RISK FACTORS
Holders of Syratech Common Stock should carefully consider the following
factors in connection with their consideration of the Merger. See also
"FORWARD-LOOKING STATEMENTS" elsewhere in this Proxy Statement/Prospectus.
PURPOSES OF THE MERGER, STRUCTURE
The purposes of the Merger are to enable the Lee Affiliates through THL I
to make an investment in the Company, and to enable existing stockholders of the
Company to realize a substantial premium on the shares of Syratech Common Stock
owned by them without paying sales commissions; and at the same time, to afford
to those stockholders who wish to do so the opportunity to retain a limited
participation in the Company's future growth. THL I was formed by the Lee
Affiliates for the purpose of making an investment in Syratech because they felt
that there is potential future value attributable to an investment in a
recapitalized Company. THL I elected to proceed with the Merger for the same
purpose that motivated the Lee Affiliates.
The transaction has been structured as a merger so that it can be accounted
for as a recapitalization and so that stockholders of the Company will have an
opportunity to vote for or against the transaction prior to any transfer of
control.
TIMING OF THE TRANSACTION
Neither the Board nor the Company's officers had considered a merger or
business combination or any similar transaction prior to July, 1996. Discussions
leading to the proposed Merger grew out of negotiations initiated by the Company
relating to its possible acquisition of the interests of certain funds
affiliated with Thomas H. Lee Company in FFSC, Inc. During April 1996, the
Company purchased its Silvestri line from FFSC, Inc. See "THE
MERGER -- Background of the Merger" and "THE COMPANY -- Recent Acquisitions."
When representatives of the Thomas H. Lee Company proposed a transaction that
would result in a change of control, officers of the Company considered the
proposal to be of sufficient merit to require its submission to the Board for
its consideration. The Board, in turn, concluded that the proposal was worthy of
exploration and appointed a Special Committee composed entirely of independent
directors to examine the proposal; and it authorized the Special Committee to
select and retain an investment banking firm to act as its financial advisor and
legal counsel independent of the Company to act as its legal advisor. The
financial advisor selected by the Special Committee was, in turn, authorized by
the Company to make a limited
18
26
solicitation of potential participants in alternative transactions -- a
solicitation that in fact yielded no meaningful expressions of interest on the
part of those solicited. The lack of interest by other potential buyers, coupled
with an evaluation of the advantages and disadvantages of the Thomas H. Lee
Company's proposal, led the Board to the conclusion that it would serve the best
interests of the stockholders of the Company to make available to them the
benefit of the one transaction at hand, i.e., the Thomas H. Lee Company's
proposal. See "THE MERGER -- Background of the Merger."
ADVANTAGES OF THE MERGER
The principal advantage of the Merger is that it makes available to the
stockholders of the Company an opportunity to realize a substantial premium
(i.e., $7.41 or 30%, above the average of the closing prices of Syratech Common
Stock for the twenty consecutive trading days ended October 22, 1996, the last
day preceding public announcement of the execution of the Merger Agreement) on
disposition of their shares without payment of sales commissions. In addition,
the Merger permits stockholders to dispose of shares of Syratech Common Stock
without confronting the obstacles of a ready and orderly disposition of Syratech
Common Stock that results from the low historical volume of trading in Syratech
Common Stock. At the same time the Merger, as structured, permits those
stockholders who wish to do so to retain a limited portion of their shares in
the Company and thus to participate in the future prospects of the Company.
Because of the uncertainties affecting the Company's future, including the
Special Factors/Risk Factors referred to herein, it is not possible to quantify
the advantage, if any, to stockholders of the right to retain a limited portion
of their shares in the Company and thus to participate in the future prospects
of the Company.
DISADVANTAGES OF THE MERGER
The Merger will result in significant changes in the affairs and financial
condition of the Company, including the following:
CONTROL BY AFFILIATES OF THE THOMAS H. LEE COMPANY. Upon completion of the
Merger, at least 60.7% and up to 82.8% of the outstanding shares of Syratech
Common Stock will be held by Lee Affiliates, including the Fund, which will own
at least 50%. Accordingly, the Fund will control the Company and have the power
to elect all of its directors, appoint new management and to approve any action
requiring the approval of the holders of Syratech Common Stock, including
adopting amendments to the Company's Certificate of Incorporation and approving
mergers or sales of substantially all of the Company's assets. The directors
elected by the Fund will have the authority to effect decisions affecting the
capital structure of the Company, including the issuance of additional capital
stock, the implementation of stock repurchase programs and the declaration of
dividends. There can be no assurance that the policies of the Company in effect
prior to the Merger will continue after the Merger.
DELISTING; LOSS OF LIQUIDITY; REPORTING OBLIGATIONS. Following the
consummation of the Merger, the Company anticipates that it will seek to have
Syratech Common Stock, which currently is traded on the NYSE, delisted. Any
delisting of Syratech Common Stock, together with the substantial decrease in
the number of shares of Syratech Common Stock to be held by holders thereof
other than Lee Affiliates and Management Stockholders, is expected to result in
a substantial decrease in the liquidity of Syratech Common Stock, EVEN IF THE
COMPANY CONTINUES TO BE A REPORTING COMPANY UNDER THE EXCHANGE ACT AND CONTINUES
TO FILE THE PERIODIC REPORTS (INCLUDING ANNUAL AND QUARTERLY REPORTS) REQUIRED
TO BE FILED THEREUNDER.
The Company expects to continue to be a reporting company under the
Exchange Act and to continue to file periodic reports (including annual and
quarterly reports) following the Merger. The Company will also continue to
provide proxy statements to its stockholders under the Exchange Act if as a
result of Non-Cash Elections the Company has 300 or more holders of Syratech
Common Stock following consummation of the Merger. If, however, after one year
following the Merger and related offering of Debt Securities (as defined
herein), there are fewer than 300 holders of Debt Securities and fewer than 300
holders of Syratech Common Stock, the Company, subject to any contractual
limitations set forth in the Indenture governing the Debt Securities, may cease
to be a reporting company under the Exchange Act. If the Company were to cease
to be a reporting company under the Exchange Act the information now available
to stockholders in the annual,
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27
quarterly and other reports required to be filed by the Company would not be
available to them as a matter of right.
Upon any such delisting, shares of Syratech Common Stock would trade only
in the over-the-counter market. Although prices in respect of trades may be
published by the National Association of Securities Dealers, Inc. on its
electronic bulletin board and "pink sheets," quotes for such shares would not be
as readily available. As a result, it is anticipated that the shares will trade
much less frequently relative to the trading volume of Syratech Common Stock
prior to the Merger, and stockholders may experience difficulty selling such
shares or obtaining prices that reflect the value thereof.
SUBSTANTIAL LEVERAGE; STOCKHOLDERS' DEFICIT; LIQUIDITY. The Company is
expected (i) to issue up to $18.0 million of 12% Cumulative Redeemable Preferred
Stock to the Lee Affiliates for up to $18.0 million in cash (see "DESCRIPTION OF
SYRATECH CAPITAL STOCK -- Preferred Stock -- Cumulative Redeemable Preferred
Stock") and (ii) to enter into a syndicated senior secured revolving credit
facility and issue debt securities (collectively, the "Merger Financings") to
finance a substantial portion of the cash consideration to be paid to the
stockholders of Syratech Common Stock in the Merger, to refinance the
outstanding indebtedness of the Company and to provide for working capital
requirements. Upon completion of the Merger Financings, the Company will have
consolidated indebtedness that will be substantial in relation to its
stockholders' equity and substantially greater than the Company's pre-Merger
indebtedness. Upon consummation of the Merger, it is expected that based upon
the Pro Forma Condensed Consolidated Financial Statements of Syratech
Corporation as at December 31, 1996, the Company will have consolidated
indebtedness of approximately $162.3 million. The increased indebtedness and
higher debt-to-equity ratio of the Company in comparison to that of the Company
on an historical basis may have the effect of reducing the flexibility of the
Company to respond to changing business and economic conditions, as well as
limiting capital expenditures. On a pro forma basis the Company's ratio of
earnings to fixed charges would have been 1.3 to 1 for the year ended December
31, 1996. It is expected that the Company will have common stockholders' equity
of $22.0 million on a pro forma basis at December 31, 1996 considering the
effects of the Merger because the redemption of certain shares of Common Stock,
as well as approximately one-third of the Merger expenses, will reduce common
stockholders' equity. The Company expects that the definitive terms of the debt
instruments in the Merger Financings will include significant operating and
financial restrictions, such as limits on the Company's ability to incur
indebtedness, create liens, sell assets, engage in mergers or consolidations,
make investments or acquisitions and pay dividends. See "-- Difficulty in
Achieving Post-Merger Business Strategy."
In addition, the substantial leverage will have a negative effect on the
Company's net income for common stockholders. For the fiscal year ended December
31, 1996, the Company's net income for common stockholders on a pro forma basis
as adjusted to give effect to the Merger and the Merger Financings, would have
been $5.373 million, compared to the historical amount for such period of
$20.389 million. Pro forma interest expense would have been $22.713 million for
the year ended December 31, 1996 as compared to $3.243 million for the same
period on an historical basis for the Company and Rauch. Assuming that the
Company was unable to consummate the issuance and sale of the Debt Securities
prior to the consummation of the Recapitalization and therefore borrowed
pursuant to the terms of the Senior Bridge Financing, the pro forma interest
expense for the year ended December 31, 1996 would have increased by $2.712
million.
After the Merger is consummated, the Company's principal sources of
liquidity are expected to be cash flow from operations and borrowings under the
revolving credit portion of the senior secured credit facility. It is
anticipated that the Company's principal uses of liquidity will be to provide
working capital, meet debt service requirements, finance capital expenditures
and finance the Company's strategic plans. The revolving credit facility will be
available for the issuance of letters of credit. Substantially all of the credit
facilities will be drawn in full upon consummation of the Merger. See "THE
MERGER -- Merger Financings" and "FORWARD LOOKING STATEMENTS."
Based upon the current and anticipated level of operations, the Company
believes that its cash flow from operations, together with amounts available
under the credit facilities, will be adequate to meet its anticipated
requirements for working capital, capital expenditures, interest payments and
scheduled principal payments through the fiscal year ending December 31, 1998.
There can be no assurance, however, that the Company's
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28
business will continue to generate cash flow at or above current levels. If the
Company is unable to generate sufficient cash flow from operations in the future
to service its debt, it may be required to refinance all or a portion of its
existing debt or to obtain additional financing. See also "Less Favorable
Financing Terms if Debt Offering is not Consummated" immediately below. There
can be no assurance that any such refinancing would be possible or that any
additional financing could be obtained. The inability to obtain additional
financing could have a material adverse effect on the Company.
LESS FAVORABLE FINANCING TERMS IF DEBT OFFERING IS NOT CONSUMMATED. If the
Company is unable to consummate the issuance and sale of the Debt Securities,
the Company will rely on other financing (the "Senior Bridge Financing") to
finance a substantial portion of the cash consideration to be paid to the
holders of Syratech Common Stock in the Merger, to refinance the outstanding
indebtedness of the Company and to provide for working capital requirements. The
Company has received commitment letters with respect to the Senior Bridge
Financing. The Senior Bridge Financing will be on terms which differ from, and
are less favorable to the Company than, the terms of the Debt Securities.
Assuming that the Company was unable to consummate the issuance and sale of the
Debt Securities prior to the consummation of the Recapitalization and therefore
borrowed pursuant to the terms of the Senior Bridge Financing, the pro forma
interest expense for the year ended December 31, 1996 would have increased by
$2.71 million.
Interest under the Senior Bridge Financing would be payable at a floating
rate higher than the interest rate on the Debt Securities, which rate would
increase at the end of each three-month interval from the date of issuance for
as long as the Senior Bridge Financing is outstanding subject to certain caps
and certain cash interest and non-cash interest caps. The Senior Bridge
Financing matures twelve (12) months from the date of funding (the "Maturity
Date"), and if not repaid in full by the Maturity Date it may be satisfied at
that time (thereafter, the "Rollover Date") through the issuance and delivery of
Senior Rollover Notes with a maturity of nine (9) years.
DILUTION IN EQUITY PARTICIPATION OF EXISTING SYRATECH STOCKHOLDERS. Upon
completion of the Merger, the existing stockholders of the Company (other than
Management Stockholders) will own a maximum of 868,250 shares of Syratech Common
Stock in the aggregate, or 22.4% of the outstanding shares, and affiliates of
Thomas H. Lee Company will own a maximum of 3,131,780 shares of Syratech Common
Stock in the aggregate, or 82.8% of the outstanding shares. In certain
circumstances, providers of the debt facilities may hold Warrants, which will
entitle the holders to purchase after the Effective Time up to 241,533 shares of
Syratech Common Stock at an exercise price of $0.01 per share, subject to
certain anti-dilution adjustments. The Warrants are exercisable at a nominal
price for up to 9 years. If the Warrants were exercised in full by the payment
of the aggregate exercise price, the present holders of Syratech Common Stock
(other than Management Stockholders) would own, in the aggregate, a maximum of
approximately 21.1% of the outstanding shares (as compared to 22.4% of the
outstanding shares without giving effect to the exercise of the Warrants). In
addition, such holders will experience a similar dilution in the proportionate
voting power of such shares.
Following the Merger, the Company also intends to grant to members of
management, options to purchase up to 273,438 shares of Syratech Common Stock,
the exercise of which would further dilute the holdings of such stockholders and
also dilute the holdings of Lee Affiliates.
Following the Merger, pursuant to their investment in THL I, Lee Affiliates
will hold up to $18.0 million of Cumulative Redeemable Preferred Stock. Holders
of Cumulative Redeemable Preferred Stock will be entitled to receive cumulative
dividends when and as may be declared from time to time by the Board of
Directors of the Company. Such dividends shall accrue on a daily basis (whether
or not declared) from the date of issue at an annual rate per share equal to 12%
of the original purchase price per share with such amount to be compounded
annually on each December 31, so that if the dividend is not paid for any year
the unpaid amount shall be added to the original purchase price of the
Cumulative Redeemable Preferred Stock plus accrued but not declared dividends
for the purpose of calculating succeeding years' dividends. As a consequence
there will be an ever-increasing preferred call upon the assets of the Company
before any of such assets will be available to holders of Syratech Common Stock.
See " -- Effects of Cumulative Redeemable Preferred Stock."
EFFECT ON AFFILIATE. Leonard Florence, who as of January 31, 1997 was the
beneficial owner of 32.1% of the outstanding Syratech Common Stock, may be
deemed to be an affiliate of the Company. The Merger
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Agreement requires him to retain 528,472 shares of Syratech Common Stock, which
will constitute approximately 14% of the outstanding Syratech Common Stock
following the Merger. The shares to be retained by Mr. Florence are expected to
then have a book value of $1.07 each or an aggregate of $0.565 million.
It has been agreed that upon completion of the Merger, the existing
employment agreement with Mr. Florence will be modified in ways that may be
deemed beneficial to Mr. Florence. See "THE MERGER - Interests of Certain
Persons in the Merger."
EFFECTS OF CUMULATIVE REDEEMABLE PREFERRED STOCK. In connection with
financing the transactions contemplated by the Merger Agreement, the Company
will issue up to 18,000 shares of Cumulative Redeemable Preferred Stock to Lee
Affiliates. Dividends thereon will be cumulative from the date of issue at the
dividend rate of 12% per annum and, unless paid currently, will compound
annually. As a consequence of the compounding of dividends on the Cumulative
Redeemable Preferred Stock, there will be an ever-increasing preferred call upon
the assets of the Company. The rights of holders of the Cumulative Redeemable
Preferred Stock upon liquidation of the Company will rank prior to the rights of
holders of Syratech Common Stock. Upon liquidation of the Company, all
cumulative dividends on the Cumulative Redeemable Preferred Stock will have to
be paid before any assets of the Company will be available to holders of
Syratech Common Stock. See "DESCRIPTION OF SYRATECH CAPITAL STOCK -- Preferred
Stock -- Cumulative Redeemable Preferred Stock."
Because certain of the Risk Factors referred to herein (e.g., Competition,
Dependence upon Key Personnel, Hazards of the Retail Industry, Seasonality,
Dependence upon Foreign Sources of Supply, Price and Availability of Raw
Materials, Environmental Regulation, Importance of Trademarks, Copyrights and
Patents and Labor Relations), which are inherent in the business of the Company
and apply whether or not the Merger is completed, are not susceptible of
numerical evaluation, and because the effect of other factors applicable only if
the Merger is completed are largely dependent upon future events (some of which
may be beyond the Company's control), it is not practicable to quantify the
disadvantages of the Merger.
FEDERAL INCOME TAX CONSEQUENCES
Characterization of the Merger for U.S. Federal Income Tax Purposes. For
U.S. federal income tax purposes, THL I will be disregarded as a transitory
entity, and the Merger of THL I with and into the Company will be treated as a
sale of a portion of a tendering stockholder's Syratech Common Stock to
affiliates of Thomas H. Lee Company and as a redemption of a portion of the
stockholder's Syratech Common Stock by the Company.
Treatment of Stockholders. To the extent that a stockholder is considered
to have sold Syratech Common Stock to affiliates of the Thomas H. Lee Company,
such stockholder will recognize either capital gain or loss (assuming the
Syratech Common Stock is held by such stockholder as a capital asset) equal to
the difference between the amount realized on the stockholder's deemed sale of
Syratech Common Stock to affiliates of the Thomas H. Lee Company (i.e., the cash
proceeds properly allocated to such sale) and the stockholder's adjusted tax
basis in such Syratech Common Stock.
To the extent such redemption is treated as a sale or exchange under
Section 302 of the Internal Revenue Code of 1986, as amended (the "Code") with
respect to such stockholder a stockholder also will recognize either capital
gain or loss equal to the difference between the cash proceeds allocable to the
redemption of such stockholder's Syratech Common Stock by the Company and the
stockholder's adjusted tax basis in such Syratech Common Stock. In each case,
such gain or loss generally will be long-term capital gain or loss if the
Syratech Common Stock is held as a capital asset by the stockholder for more
than one year. If such redemption of Syratech Common Stock is not treated as a
sale or exchange, it will be treated as a dividend to the extent of the
Company's current and accumulated earnings and profits. Any excess will be
applied first against the adjusted basis of the shares treated as redeemed, with
any remainder treated as gain from the sale or exchange of such Syratech Common
Stock.
Under Section 302 of the Code, a redemption of Syratech Common Stock
pursuant to the Merger will, as a general rule, be treated as a sale or exchange
if such redemption (a) is "substantially disproportionate" with
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respect to the stockholder, or (b) results in a "complete redemption" of the
stockholder's interest in the Company.
In determining whether either of those Section 302 tests is satisfied,
stockholders must take into account not only the Syratech Common Stock that they
actually own, but also any Syratech Common Stock they are deemed to own under
the constructive ownership rules set forth in Section 318 of the Code. Pursuant
to these constructive ownership rules, a stockholder is deemed to constructively
own any Syratech Common Stock that is owned (actually and in some cases
constructively) by certain related individuals or entities and any Syratech
Common Stock that the stockholder has the right to acquire by exercise of an
option or by conversion or exchange of a security.
The redemption of a stockholder's Syratech Common Stock will be
"substantially disproportionate" with respect to such stockholder if the
percentage of Syratech Common Stock actually and constructively owned by such
stockholder immediately following the Merger is less than 80% of the percentage
of Syratech Common Stock actually and constructively owned by such stockholder
immediately prior to the Merger.
The redemption of a stockholder's Syratech Common Stock will result in a
"complete redemption" of a stockholder's interest in the Company if either (a)
all the Syratech Common Stock actually and constructively owned by the
stockholder is redeemed pursuant to the Merger or (b) all the Syratech Common
Stock actually owned by the stockholder is redeemed pursuant to the Merger and
the stockholder is eligible to waive, and does effectively waive in accordance
with Section 302(c) of the Code, attribution of all Syratech Common Stock which
otherwise would be considered to be constructively owned by such stockholder.
Stockholders in this position should consult their tax advisor as to the
availability of such a waiver.
Based on the rules described above, a stockholder who does not make a
Non-Cash Election and who is not treated as owning any Syratech Common Stock
following the Merger, either directly or by operation of the constructive
ownership rules described above, will satisfy the "complete redemption" test,
and accordingly will recognize a capital gain or loss with respect to the entire
amount of cash received in exchange for his shares. In addition, based on the
limitation on the amount of Syratech Common Stock that shareholders are
permitted to retain under the Non-Cash Election, shareholders making the
Non-Cash Election (as well as shareholders who receive all cash but to whom
ownership of shares of Syratech Common Stock will be attributed from persons who
do make the Non-Cash Election) will satisfy the "substantially disproportionate"
test, and accordingly will also recognize a capital gain or loss with respect to
the entire amount of cash received in exchange for their shares.
THOUGH THE FOREGOING ARE THE MATERIAL U.S. FEDERAL INCOME TAX
CONSIDERATIONS APPLICABLE TO THE MERGER, THE DISCUSSION DOES NOT ADDRESS EVERY
FEDERAL INCOME TAX CONCERN THAT MAY BE APPLICABLE TO A PARTICULAR STOCKHOLDER.
EACH STOCKHOLDER IS URGED TO CONSULT SUCH STOCKHOLDER'S OWN TAX ADVISOR TO
DETERMINE THE TAX CONSEQUENCES TO SUCH STOCKHOLDER, IN THE LIGHT OF SUCH
STOCKHOLDER'S PARTICULAR CIRCUMSTANCES, OF THE DISPOSITION OF SYRATECH COMMON
STOCK PURSUANT TO THE MERGER.
FAIRNESS OF THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS
References to the "Merger Agreement" in this section and in "-- Opinion of
Financial Advisor" below refer to the Merger Agreement as of October 23, 1996.
Neither the Special Committee nor Merrill Lynch reviewed the Merger Agreement as
amended.
The Company and its Board, Leonard Florence and THL I all reasonably
believe that the Merger is fair to unaffiliated stockholders because (i) the
terms of the Merger are the products of arms-length negotiations between
representatives of THL I and a Special Committee and its financial and legal
advisors, (ii) the consideration to be paid to stockholders for their Syratech
Common Stock (a) represents a premium over current and historical market prices
for such shares, (b) is approximately 168% of the net book value per share of
Syratech Common Stock at September 30, 1996, (c) is approximately seventeen (17)
times projected 1996 earnings per share of $1.87 (exclusive of earnings
attributable to the disposition of certain assets of Farberware Inc. that are
expected to be non-recurring, but adjusted to give effect to assumed 1996
earnings attributable to Farberware licensing royalties in an amount equal to
the Company's projected 1997 Farberware licensing
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royalties, in each case after giving effect to income taxes), and (d) is
approximately 188% of the $17 per share price at which affiliates of Katy
Industries, Inc. (collectively the Company's largest stockholder) sold their
block of 3,064,751 shares of Syratech Common Stock to the Company in December,
1995, (iii) Syratech Common Stock lacked market support and there was only
limited trading of such shares on the New York Stock Exchange, (iv) the
forecasted results of the Company's operations through 2001 and (v) the opinion
of the financial advisor to the Special Committee that the cash consideration to
be received by unaffiliated stockholders in the Merger is fair from a financial
point of view. The Board did not assign weights to each of the above factors.
The Merger was not structured so that approval of at least a majority of
unaffiliated stockholders is required.
A majority of directors who are not employees of the Company has not
retained an unaffiliated representative to act solely on behalf of unaffiliated
security holders for the purpose of negotiating the terms of the Merger and/or
preparing a report concerning the fairness of the transaction, but a Special
Committee (composed entirely of non-employee directors) selected an independent
financial and legal advisor to assist it in negotiating the terms of the Merger;
and the financial advisor selected by the Special Committee has rendered an
opinion concerning the fairness of the cash consideration to be received by
unaffiliated stockholders in the Merger.
The Merger has been approved by a majority of the directors of the Company
who are not employees of the Company.
No firm offer of which the Company is aware has been made by any
unaffiliated person (other than the Merger discussed herein) during the eighteen
months preceding the date of the Merger Agreement for (A) a merger or
consolidation, (B) a sale or other transfer of the Company's assets or (C) the
purchase of securities of the Company that would enable the purchaser to
exercise control of the Company.
As stated above, the Board has determined the Merger to be fair to and in
the best interests of Syratech and its stockholders. ACCORDINGLY, THE BOARD HAS
BY THE UNANIMOUS VOTE OF THOSE DIRECTORS PRESENT AND VOTING APPROVED THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGER; AND
THE BOARD RECOMMENDS THAT SYRATECH STOCKHOLDERS VOTE "FOR" APPROVAL AND ADOPTION
OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE
MERGER.
THE RECOMMENDATION BY THE BOARD THAT THE COMPANY'S STOCKHOLDERS APPROVE AND
ADOPT THE MERGER AGREEMENT IS NOT, AND SHOULD NOT BE CONSIDERED TO BE, A
RECOMMENDATION THAT STOCKHOLDERS ELECT TO RETAIN OR, ALTERNATIVELY, THAT
STOCKHOLDERS DO NOT ELECT TO RETAIN SHARES OF SYRATECH COMMON STOCK HELD BY THEM
IN THE MERGER.
The decision of the Board to approve, and recommend adoption and approval
by Syratech stockholders of, the Merger Agreement and the transactions
contemplated thereby, including the Merger followed extensive negotiations
between a Special Committee of the Board (composed entirely of independent
Directors) and representatives of THL I and the Lee Group regarding the terms of
the Merger, presentations to the Board by the Special Committee and its counsel,
a presentation to the Board by Merrill Lynch and disclosures by Directors who
are also Management Stockholders of the conflicts of interest perceived by them.
See "THE MERGER -- Background of the Merger." The Board's deliberations included
a detailed review of Syratech's business, results of operations and prospects,
including the likelihood of effecting an alternative transaction and the ranges
of values to Syratech stockholders that might be achievable in an alternative
transaction and the financial and other terms of the proposed Merger.
In connection with its approval and recommendation, the Board considered
the following factors (which it believed to be all of the relevant material
factors):
(a) the terms of the proposed Merger including the price to be paid to
holders of Syratech Common Stock (and the premium represented thereby), the
conditions to the Merger, the circumstances under which the Merger
Agreement could be terminated and the termination fees and expense
reimbursements payable in connection therewith (all of which were products
of arm's-length negotiations between representatives of THL I and the
Special Committee and its financial and legal advisors);
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(b) the opportunity under the Merger Agreement for Syratech
stockholders, subject to certain limitations, to elect to continue to
participate in future results through the retention of some equity in
Syratech while receiving a premium for the remainder;
(c) the presentation of Merrill Lynch which included valuation
analyses of Syratech indicating that Syratech Common Stock was relatively
undervalued in market trading, that the proposed Merger was toward the top
of the range that a leveraged buyout purchaser (such as the Lee Group)
might be able to pay to acquire the Company and that there had been no
significant indication of interest from any of the potential strategic
buyers it had been authorized to contact (see "-- Opinion of Financial
Advisor");
(d) the opinion of Merrill Lynch that the proposed cash consideration
to be received by the holders of shares of Syratech Common Stock (other
than shares held by Mr. Florence, shares to be canceled pursuant to the
Merger Agreement and dissenting shares) pursuant to the Merger is fair to
such stockholders from a financial point of view (such opinion of Merrill
Lynch was given subject to certain limitations, qualifications and
assumptions specified therein including the fact that the opinion of
Merrill Lynch was limited to the cash consideration only and did not
consider the fairness of the Non-Cash Election Option; see "-- Opinion of
Financial Advisor");
(e) the ability to enter into an agreement for an alternative
transaction under certain circumstances under the Merger Agreement;
(f) the risks to stockholders associated with Syratech Common Stock
including, without limitation, the fact that Syratech had recently
completed acquisitions that could affect future results in a manner that
could not be assured; the relative lack of liquidity for holders of
Syratech Common Stock, in light of historically low trading volume and the
related lack of institutional following; and the dependence of Syratech on
the continued employment and efforts of Mr. Florence, as Syratech's Chief
Executive Officer, and other executive officers, and the consequences that
could result if Mr. Florence and such other executive officers were
unavailable for such positions; and
(g) the tax treatment of the transaction to Syratech and Syratech's
stockholders.
In reaching the determination to approve and adopt, and recommend approval
and adoption of, the Merger Agreement and the Merger, the Board did not assign
any relative or specific weights to the foregoing factors.
Although Leonard Florence abstained from voting on the proposal to approve
the Merger Agreement and related transactions and recommend that stockholders
vote for approval and the transactions contemplated thereby, including the
Merger, he agrees with the Board's conclusion that the Merger is fair and in the
best interests of Syratech and its stockholders based upon his personal
consideration of the material factors considered by the Board as outlined above.
THL I believes that the Merger is fair and in the best interests of
Syratech and its stockholders because the terms of the Merger Agreement were the
products of arm's-length negotiations between its representatives and the
Special Committee and its financial and legal advisors.
THE BOARD RECOMMENDS THAT SYRATECH STOCKHOLDERS VOTE FOR APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT AND THE TRANSACTION CONTEMPLATED THEREBY,
INCLUDING THE MERGER.
Five of the six members of the Board who voted to approve the Merger
Agreement and the transactions contemplated thereby, including the Merger, were
non-employees of the Company and its subsidiaries. The sixth voting member is an
officer of a subsidiary of the Company.
OPINION OF FINANCIAL ADVISOR
Merrill Lynch was retained to act as the financial advisor to the Special
Committee (composed entirely of independent directors) in the Merger. On October
22, 1996, Merrill Lynch rendered its oral opinion to the Company's Board of
Directors which was subsequently confirmed in a written opinion (the "Merrill
Lynch Opinion") dated October 23, 1996, a copy of which is included herein as
Annex II that, as of such dates and based upon the assumptions made, matters
considered and limits of review in connection with such opinions, the cash
consideration to be received by the holders of shares of Common Stock of the
Company (other than shares held by Mr. Leonard Florence, shares to be canceled
pursuant to the Merger Agreement and dissenting shares) in the Merger was fair
to such holders from a financial point of view. The Merrill Lynch Opinion was
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limited to the cash consideration only and was silent as to the non-cash portion
that stockholders may elect; and no determination of fairness was made by
Merrill Lynch as to the Non-Cash Election option. The Merrill Lynch Opinion does
not constitute a recommendation to any stockholder of the Company as to how such
stockholder should vote at the Special Meeting or any other meeting of the
Company's stockholders called to consider the Merger, and it does not constitute
a recommendation that stockholders elect to retain, or alternatively, that
stockholders do not elect to retain, shares of Syratech Common Stock in the
Merger. The summary of the Merrill Lynch Opinion is qualified in its entirety by
reference to the full text of such opinion, a copy of which is attached as Annex
II to this Proxy Statement/Prospectus. See "THE MERGER -- Opinion of Financial
Advisor."
No limitations were imposed by the Company's Board of Directors upon
Merrill Lynch with respect to the investigations made or the procedures followed
by it in rendering its opinion except that Merrill Lynch was not authorized to,
and did not, solicit any indications of interest from any potential third party,
either financial or strategic, to acquire all or any part of the Company other
than a group of potential strategic buyers selected by the Company in
consultation with Merrill Lynch, as described under "THE MERGER -- Background of
the Merger."
In rendering its opinion, Merrill Lynch (i) reviewed Syratech's Annual
Reports, Forms 10-K and related financial information for the five fiscal years
ended December 31, 1995 and Syratech's Forms 10-K and the related unaudited
financial information for the quarterly periods ending March 31, 1996, and June
30, 1996; (ii) reviewed a draft of Syratech's Form S-3 dated September 12, 1996;
(iii) reviewed certain information, including the Management Forecasts relating
to the business, earnings, cash flow, assets and prospects of Syratech,
furnished to Merrill Lynch by Syratech; (iv) conducted discussions with members
of senior management of Syratech concerning its businesses and prospects; (v)
reviewed the historical market prices and trading activity for Syratech's Common
Stock and compared them with that of certain publicly traded companies which
Merrill Lynch deemed to be reasonably similar to Syratech; (vi) compared the
results of operations of Syratech with that of certain publicly traded companies
which Merrill Lynch deemed to be reasonably similar to Syratech; (vii) compared
the proposed financial terms of the transactions contemplated by the Agreement
with the financial terms of certain other mergers and acquisitions which Merrill
Lynch deemed to be relevant; (viii) reviewed the Merger Agreement, including the
financing commitment letters attached thereto; and (ix) reviewed such other
financial studies and analyses and performed such other investigations and took
into account such other matters as Merrill Lynch deemed necessary, including
Merrill Lynch's assessment of general economic, market and monetary conditions.
In rendering its opinion, Merrill Lynch assumed and relied upon the
accuracy and completeness of the financial and other information used by it and,
with the Company's approval, did not assume any responsibility for independent
verification of such information. Merrill Lynch further relied upon the
assurances of Management that they were not aware of any facts that would make
such information inaccurate or misleading. With respect to the Management
Forecasts, Merrill Lynch assumed, with the Company's approval, that (i) such
forecasts and projections were reasonably prepared on bases reflecting the best
currently available estimates and judgments of Management as to the future
financial performance of the Company, and (ii) the Company would perform in
accordance with such projections. Merrill Lynch did not conduct a physical
inspection of the properties and facilities of the Company and did not undertake
or obtain any evaluations or appraisals of the assets or liabilities of the
Company. The Merrill Lynch Opinion was necessarily based upon market, economic
and other conditions as they existed and could be evaluated as of the date of
the opinion.
The following is a summary of certain financial and comparative analyses
performed by Merrill Lynch in arriving at its oral opinion delivered to the
Company's Board of Directors on October 22, 1996 and its written opinion
delivered to the Company's Board of Directors on October 23, 1996 as to the
fairness of the proposed cash consideration to be received by the shareholders
of the Company (other than with respect to shares held by Mr. Leonard Florence,
shares to be canceled pursuant to the Merger Agreement and dissenting shares)
pursuant to the Merger Agreement, from a financial point of view. Merrill Lynch
was not asked to value the stock of the surviving entity and did not do so. In
addition, the 1996 and 1997 estimated pro forma EPS (as defined below) and
EBITDA (which, for purposes of the analyses set forth below (with respect to
EBITDA for companies other than the Company), is defined as income before income
taxes, plus depreciation and
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amortization expense and net interest expense, adjusted for non-recurring or
extraordinary items) numbers used by Merrill Lynch in its analyses were derived
from the Management Forecasts and adjusted by Merrill Lynch to exclude
extraordinary and nonrecurring items for 1996 and 1997 and to include the full
year 1996 effect of acquisitions.
Historical Stock Trading Analysis. Merrill Lynch analyzed the cash
consideration to be received by holders of the Company's Common Stock pursuant
to the Merger Agreement in relation to the historical trading levels of the
Company's Common Stock in light of the fact that Syratech was not directly
comparable to any other company and had had a limited opportunity to tell its
story, that Syratech had limited research coverage and a limited number of
shares held by non-affiliates, reducing the liquidity of Syratech's Common
Stock, and that, in Merrill Lynch's view, its common stock was undervalued. For
the 52 weeks prior to the offer, the Company's Common Stock traded at a high of
$27.625 and a low of $19.75. In addition, Merrill Lynch analyzed the cash
consideration to be received by holders of the Company's Common Stock pursuant
to the Merger Agreement in relation to the market price of the Company's Common
Stock on October 18, 1996, October 14, 1996 and for the 20 consecutive trading
days ended September 24, 1996, as well as from the period beginning with the
Company's initial public offering in December 1992, which was at a price of $17
per share. The highest price achieved following the initial public offering and
prior to receipt of the Lee Group's proposal was $27.625 on April 30, 1996. Such
analysis indicated that the cash price per share of the Company's Common Stock
to be paid pursuant to the Merger Agreement represented a premium of (i) 21.9%
based on the October 18, 1996 closing price of $26.25 per share, (ii) 35.4%
based on the October 14, 1996 closing price of $23.625 per share and (iii) 36.7%
based on the average of the closing prices for the 20 consecutive trading days
ended September 24, 1996 of $23.41 per share.
Publicly Traded Comparable Company Analysis. Using publicly available
information, Merrill Lynch compared certain financial and operating information
and ratios (described below) for the Company with corresponding financial and
operating information and ratios for a group of publicly traded companies that
Merrill Lynch deemed to be in lines of business reasonably similar to the
Company's business lines (understanding that no public company is directly
comparable to the Company). The public companies included in the comparable
company analysis were: American Greetings Corporation, CSS Industries Inc.,
Department 56, Inc., Ekco Group, Inc., General Housewares Corp., Libbey Inc.,
Lifetime Hoan Corporation, Newell Co., Oneida Ltd., Rubbermaid Incorporated,
Stanhome Inc., and Tupperware Corporation (collectively, the "Comparables").
Merrill Lynch compared ratios of the Company's (A) market price per share as a
multiple of (i) 1996 estimated pro forma earnings per share ("EPS") (the "P/E
Ratio") to the 1996 P/E Ratios of the Comparables which ratios ranged from
approximately 9.9x to 22.4x compared to 14.0x for the Company and the Lee
Group's offer price of 17.1x and (ii) 1997 estimated pro forma EPS to the 1997
P/E Ratios for the Comparables which ranged from approximately 8.0x to 18.3x
compared to 9.2x for the Company and the Lee Group's offer price of 11.3x; (B)
market capitalization as a multiple of estimated 1996 pro forma EBITDA to such
ratio for the Comparables which ratios ranged from approximately 3.9x to 10.3 x
compared to 8.1x for the Company and the Lee Group's offer price of 9.9x. Based
on the Comparables deemed to be most comparable to the Company, Merrill Lynch
applied a range of 10.5x to 12x to the 1997 pro forma estimated EPS of $2.84 for
the Company. Utilizing this methodology, the implied value of the Company's
Common Stock was estimated at between approximately $30.00 and $34.00 per share.
P/E to Growth Rate Analysis. Using publicly available information, Merrill
Lynch compared the 1996 estimated P/E Ratios to the five year estimated future
EPS growth rate for each of the Comparables. Based on the Comparables deemed to
be most comparable to the Company, Merrill Lynch applied a range of 0.90x to
1.10x to the estimated future pro forma EPS growth rate of 19.4% for the Company
and the 1996 estimated pro forma EPS of $1.87 for the Company. Utilizing this
methodology, the implied value of the Company's Common Stock was estimated at
between approximately $33.00 and $40.00 per share.
Comparable Acquisition Transaction Analysis. Merrill Lynch reviewed
certain publicly available information regarding 12 selected business
combinations since May 1991 (the "Acquisition Comparables"). The Acquisition
Comparables and the dates the transactions were announced were as follows: the
acquisition of Holson Burnes Group Inc. by Newell Co. (December 1995), the
acquisition of Rauch Industries Inc. by Syratech (December 1995), the
acquisition of Bonny Products Inc. from American Brands Inc. by Frederick
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Cooper PLC (November 1995), the acquisition of Syracuse China Corp. from The
Pfaltzgraff Co. by Libbey Inc. (May 1995), the acquisition of Olfa Products
Corp. from Walter Absil Co. Ltd. by General Housewares Corp. (October 1994), the
acquisition of Stylemaster Inc. by Glacier Holdings Inc. (February 1993), the
acquisition of OXO International LP by General Housewares Corp. (October 1992),
the acquisition of Intercraft Industries Corp. by Newell Co. (September 1992),
the acquisition of Mennen Co. Paper Products Business from Colgate-Palmolive Co.
by James River Corp. of Virginia (July 1992), the acquisition of Frem Corp. by
Ekco Group Inc. (November 1992), the acquisition of Spearhead Industries Inc. by
Paper Magic Group (July 1992) and the acquisition of Dansk International Designs
Ltd. by Brown-Forman Corp. (May 1991). Merrill Lynch compared multiples of
transaction value (as defined below) to (i) trailing 12 month EBITDA for the
Acquisition Comparables which multiples ranged from approximately 6.6x to 11.1x
as compared to the Lee Group's offer price of 9.9x (based on the 1996 estimated
pro forma EBITDA for the Company) and (ii) trailing 12 month sales for the
Acquisition Comparables which multiples ranged from approximately 0.40x to 1.71x
as compared to the Lee Group's offer price of 1.12x (based on the 1996 pro forma
sales estimate for the Company). Based on the Acquisition Comparables deemed to
be the most comparable to the Company, Merrill Lynch applied a range of 9x to
11x to the 1996 pro forma estimated EBITDA for the Company of $32.0 million.
Utilizing this methodology, the implied value of the Company's Common Stock was
estimated at between approximately $29.00 and $36.00 per share.
In undertaking the above-mentioned comparable company and comparable
acquisitions analyses, Merrill Lynch compared the (A) "offer value" (defined to
be the offer price per share multiplied by the sum of the number of shares
outstanding and the number of exercisable options outstanding (net of option
proceeds)) of each such transactions a multiple of, among other things, then
publicly available 1996 and 1997 EPS estimates and (B) "transaction value"
(defined to be the offer value plus the liquidation value of preferred stock
plus short-term debt plus long-term debt plus minority interests minus cash and
cash equivalents (net of option proceeds)) of each such transaction as a
multiple of, among other things, then publicly available 1996 and 1997 EBITDA
and sales estimates.
Discounted Cash Flow Analysis. Merrill Lynch performed a discounted cash
flow analysis ("DCF") of the Company using projections for the years 1997 (on a
pro forma basis) through year end 2001. The DCF as of December 31, 1996 was
calculated assuming discount rates ranging from 10% to 13%, and was comprised of
the sum of the present value of (i) the projected unlevered free cash flows for
the years 1997 (on a pro forma basis) through year end 2001, (ii) the year end
2001 terminal values based upon a range of multiples from approximately 6x to 8x
projected year 2001 EBITDA. The various ranges for discount rates and terminal
value multiples were chosen to reflect theoretical analyses of cost of capital
and range of trading values for comparable companies. Using this methodology,
the implied values of the Company's Common Stock ranged from $28.00 to $39.00
per share.
Leveraged Buy-Out Analysis. Merrill Lynch prepared an analysis based on
projections provided to it by the Company's management on October 1, 1996 and on
market and economic conditions at that time as to the consideration a leveraged
buyout purchaser (such as the Lee Group) might be able to pay to acquire the
Company. The maximum price was determined based on certain criteria required by
the high yield debt market and the bank financing market for acquisition
financing for the Company and also based upon estimated return on investment
requirements for such purchasers. Among the criteria utilized by Merrill Lynch
were the following: (i) minimum 1996 estimated pro forma EBITDA to total
interest coverage of 1.6x; (ii) minimum size of a public offering of senior
subordinated notes of $100 million; (iii) working capital revolving credit
availability limited to 75% of accounts receivable and 50% of inventory; (iv)
bank term loan maturity within 7 years; (v) minimum equity investment of 20% of
total capital structure; and (vi) minimum internal rate of return on equity of
20% invested during a 5 year period. Based on the above criteria, Merrill Lynch
determined that the range that such a prospective purchaser might be able to pay
was $30.00 to $33.00 per share.
Possible Acquiror Pro Forma Analysis. For those companies that Merrill
Lynch had been authorized to contact, Merrill Lynch prepared an analysis to
determine the maximum price that such potential strategic acquirors might be
willing to pay for the Company without sustaining any dilution in 1997 estimated
EPS (based upon publicly available EPS estimates). The purpose of the analysis
was not to determine how much
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36
any particular company would pay, or to express any judgement as to whether any
such entity would be interested in pursuing an acquisition, but rather to
attempt to determine what hypothetically such strategic buyers might be able to
afford to pay for the Company, and in what form of consideration, should it have
been determined that these companies had an interest in acquiring the Company.
For each company, two scenarios were analyzed: (1) an all cash acquisition of
the Company accounted for as a purchase transaction and (2) an all stock
transaction with the Company accounted for as a pooling-of-interests
transaction. For each company, Merrill Lynch estimated the average cost of
financing a cash acquisition and the then-current market prices of the
acquiror's stock in the case of a stock transaction. For the group of strategic
acquirors, the range at which there was no 1997 pre-share earnings accretion or
dilution was $28.00 to $50.00 per share. As noted in "THE MERGER -- Background
of the Merger", none of the potential strategic acquirors contacted by Merrill
Lynch had expressed interest in proceeding with an acquisition or conducting the
requisite due diligence.
For a statement of the qualifications of Merrill Lynch, the terms upon
which it was engaged and the disclosure of certain relationships between Merrill
Lynch, on the one hand, and Thomas H. Lee and/or Lee Affiliates, on the other,
see "SPECIAL FACTORS/RISK FACTORS -- Opinion of Financial Advisor."
The summary set forth above does not purport to be a complete description
of the analyses performed by Merrill Lynch. Arriving at a fairness opinion is a
complex process not necessarily amenable to partial or summary description.
Merrill Lynch believes that its analysis must considered as a whole and that
selecting portions of its analyses and of the factors considered by it, without
considering all such factors and analyses, could create a misleading view of the
process underlying its analyses set forth in the Merrill Lynch Opinion. The
matters considered by Merrill Lynch in its analyses are based on numerous
macroeconomic, operating and financial assumptions with respect to industry
performance, general business and economic conditions and other matters, many of
which are beyond the Company's control. Any estimates incorporated in the
analyses performed by Merrill Lynch are not necessarily indicative of actual
past or future results or values, which may be significantly more or less
favorable than such estimates. Estimated values do not purport to be appraisals
and do not necessarily reflect the prices at which business or companies may be
sold in the future, and such estimates are inherently subject to uncertainty. No
public company utilized as a comparison is identical to the Company, and none of
the Acquisition Comparables or other business combinations utilized as a
comparison is identical to the proposed Merger. Accordingly, an analysis of
publicly traded comparable companies and comparable business combinations is not
mathematical; rather it involves complex considerations and judgments concerning
differences in financial and operating characteristics of the comparable
companies and other factors that could affect the public trading value of the
comparable companies or company to which it is being compared.
Pursuant to a letter agreement dated September 26, 1996 (the "Engagement
Letter"), the Company engaged Merrill Lynch to provide investment banking advice
and services to the Special Committee in connection with its review and analysis
of the Lee Group's proposal. The Company agreed to pay Merrill Lynch a fee of
$100,000 (the "Advisory Fee") as a retainer upon execution of the Engagement
Letter. In addition, if the Merger is consummated, the Company has agreed to pay
Merrill Lynch additional compensation, based on a percentage of the total
consideration for Syratech Common Stock, less the amount of the Advisory Fee. If
the Merger is consummated, this additional compensation will be equal to 0.85%
of the aggregate consideration to be paid or delivered to stockholders (computed
as if all outstanding shares (on a fully diluted basis) were being acquired in
the transaction), plus the amount of all indebtedness of the Company assumed,
acquired, retired or defeased in the Merger (adjusted for average annual
seasonal working capital borrowings), which would total approximately $2.7
million, toward which the Advisory Fee would be credited. Pursuant to the
Engagement Letter, the Company has agreed to reimburse Merrill Lynch for
reasonable expenses incurred by Merrill Lynch, subject to certain limitations,
including fees and disbursements of counsel, and to indemnify Merrill Lynch
against certain liabilities in connection with its engagement, including certain
liabilities under the federal securities laws.
In addition, an affiliate of Merrill Lynch acts as the managing general
partner for three publicly registered investment funds (but not THL I) in which
Thomas H. Lee is an individual general partner and for which an affiliate of
Thomas H. Lee acts as the investment advisor. Merrill Lynch has also provided in
the past financial advisory and financing services to Thomas H. Lee and to
certain companies affiliated with Thomas H. Lee and
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37
such funds. Merrill Lynch identified such relationships to the Company and
informed the Company that it did not believe that such relationships would
create a conflict of interest for Merrill Lynch in connection with it rendering
the Merrill Lynch Opinion. In the ordinary course of business, Merrill Lynch has
traded the equity securities of the Company for its own account and the accounts
of its customers and, accordingly, may at any time hold a long or short position
in such securities. The Company concurs in Merrill Lynch's belief that the
relationships described herein did not create a conflict of interest for Merrill
Lynch in connection with its rendering of the Merrill Lynch Opinion.
See "THE MERGER -- Background of the Merger" and "-- Opinion of Financial
Advisor."
NON-CASH ELECTION AND PRORATION INTO CASH
As described herein, a stockholder may make a Non-Cash Election in respect
of up to 34.75% of such stockholder's holdings and thereby elect to retain
shares of Syratech Common Stock in the Merger. However, if the aggregate number
of Electing Shares of all stockholders (other than Management Stockholders)
exceeds 868,250, such electing stockholder will receive cash for a portion of
such holder's Syratech Common Stock as to which such holder had made a Non-Cash
Election as a result of the proration procedures described herein under "THE
MERGER -- Non-Cash Election." See "THE MERGER -- Federal Income Tax
Consequences -- Stockholders Receiving Cash" for a discussion of the tax
consequences of receiving cash.
FORECASTS; LIMITS OF RELIABILITY
The forecasts set forth under the "THE MERGER -- Certain Forecasts" (which
were provided to Merrill Lynch and the Lee Group, including THL I), while
presented with numerical specificity, are based upon a number of estimates and
assumptions which, though considered reasonable by the Company, are inherently
subject to significant business, economic and competitive uncertainties and
contingencies, including those set forth herein under "SPECIAL FACTORS/RISK
FACTORS," many of which are beyond the control of the Company, and upon
assumptions with respect to future business strategies and decisions which are
subject to change. The forecasts were not prepared with a view toward compliance
with published guidelines of the Commission, the American Institute of Certified
Public Accountants, any regulatory or professional agency or body or generally
accepted accounting principles. Moreover, Deloitte & Touche LLP, the Company's
independent public accountants, has not compiled or examined the forecasts and
accordingly, does not express any opinion or any other form of assurance with
respect thereto, assume no responsibility for and disclaim any association with
the forecasts. While the Company believes the forecasts are based upon
reasonable assumptions and estimates, actual results will vary and such
variations may be material. Forecasts are necessarily speculative in nature, and
it is usually the case that one or more of the assumptions underlying the
forecasts will not materialize. Furthermore, the Company does not intend to
update or revise the forecasts to reflect events or circumstances after the date
thereof or to reflect the occurrence of unanticipated events. Stockholders are
cautioned not to place undue reliance on any of the forecasts included herein.
Except for the Management Forecasts provided by the Company, the Lee Group
(including THL I) did not receive any report, opinion or approval in formulating
its decision to proceed with the Merger. See "THE MERGER -- Certain Forecasts."
COMPETITION
The tabletop, giftware and seasonal products markets are highly
competitive. Competition is affected not only by the large number of domestic
manufacturers, but also by the large volume of foreign imports. Several of the
Company's competitors are larger and may have greater financial resources than
the Company. The Company's products may compete indirectly with a broad range of
products not offered by the Company. A number of factors affect competition in
the sale of tabletop, giftware, seasonal and other products of the types
manufactured, imported and sold by the Company. Among these are brand
identification, style, design, packaging, price, quality, promotion and the
level of service provided to customers. The importance of these competitive
factors varies from customer to customer and from product to product. See "THE
COMPANY -- Business -- Competition."
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DIFFICULTY IN ACHIEVING POST-MERGER BUSINESS STRATEGY
The post-merger business strategy that has been developed by the Company is
based on the Company's operations and the operations of other companies in the
tabletop and giftware industries. See "THE COMPANY -- General." After the Merger
and after gaining experience with the Company's operations, the Company's
management may decide to alter or discontinue certain parts of the post-Merger
business strategy described herein and may adopt alternative or additional
strategies. In addition, there can be no assurance that such a strategy, if
implemented, will be successful or will improve operating results. Moreover,
there can be no assurance that the successful implementation of such a strategy
will result in improved operating results. Further, other conditions may exist,
such as increased competition, or an economic downturn, which may offset any
improved operating results that are attributable to such a strategy.
DEPENDENCE UPON KEY PERSONNEL
The Company is currently dependent upon the ability and experience of its
senior management team, including Leonard Florence, Chairman of the Board,
President and Chief Executive Officer, E. Merle Randolph, Vice President,
Treasurer and Chief Financial Officer, Melvin L. Levine, Vice President of
Purchasing, and Alan R. Kanter, Vice President of Sales. The loss of any of
these executives could adversely affect the Company. In connection with the
Merger, these executives will continue to be employed by the Company pursuant to
their current employment agreements with certain modifications. The terms of the
employment agreements for these four executives will be five years in the case
of Messrs. Florence and Levine and three years in the case of Messrs. Randolph
and Kanter. The Company does not maintain policies of "key person" life
insurance on the life of any of its executives.
UNCERTAINTY ASSOCIATED WITH THE RETAIL INDUSTRY
The Company sells its products to retailers, including department and
specialty stores, mass market merchandisers, catalogue showrooms, discount
wholesalers, warehouse clubs, premium and incentive marketers, drug and
supermarket chains, jewelers and home centers and through other channels of
distribution. Certain of such retailers have engaged in leveraged buyouts or
transactions in which they incurred a significant amount of debt, and some are
currently operating under the protection of the federal bankruptcy laws.
As is customary in the retail industry, the Company generally does not
enter into written agreements with customers but relies on orders that are
cancelable until shipment.
The Company's business is sensitive to consumer spending patterns, which in
turn are subject to prevailing economic conditions. Future economic recessions
could have a material adverse effect on the Company's financial condition and
results of operations.
SEASONALITY
Historically, the Company has realized its highest sales and profit levels
in its third and fourth quarters as a result of the buying patterns associated
with the Christmas selling season. The Company expects that the recent Rauch
acquisition and the acquisitions of certain assets of Potpourri Press and
Silvestri (hereinafter described) will intensify the degree of seasonality that
the Company historically has experienced as the vast majority of Rauch,
Silvestri and Potpourri Press products are Christmas items.
DEPENDENCE UPON FOREIGN SOURCES OF SUPPLY
Many of the Company's products are manufactured to its specifications by
foreign manufacturers located principally in Hong Kong, India, Korea, Taiwan,
the People's Republic of China and Japan. In 1996, the Company purchased an
aggregate of approximately $104 million of products from approximately 480
foreign manufacturers. No vendor accounted for 10% or more of such purchases in
1996. The Company does not have information on the financial condition of its
major foreign vendors, all of which are privately held. Of the Company's foreign
purchases in 1996, approximately 92% were from vendors located in the Far East,
approximately 4% were from vendors located in India and 4% from vendors in other
locations. The Company's
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arrangements with its manufacturers are subject to the risks of doing business
abroad, including risks associated with economic or political instability in
countries in which such manufacturers are located, labor strikes and risks
associated with foreign currency and potential import restrictions. The Company
also is subject to risks associated with the availability of, and time required
for, the transportation of products from foreign countries, including shipping
losses or lost sales that may result from delays or interruptions in shipping.
PRICE AND AVAILABILITY OF RAW MATERIALS
Silver used by the Company in the manufacture of its tabletop and giftware
products represents less than 5% of its Cost of Goods Sold. Collectively, the
Company and its four major competitors in the sterling silver flatware market
account for substantially all sterling silver flatware sales in the United
States. Prices of silver are subject to fluctuation. The price of silver has
ranged, according to the closing prices of Handy & Harman Inc. (the "Handy &
Harman Price"), from $3.54 per troy ounce to $6.01 per troy ounce during the
five-year period ended December 31, 1996. A prolonged significant increase in
silver prices could have a material adverse effect on the Company's results of
operations. The Handy & Harman Price for a troy ounce of silver on February 21,
1997 was $5.23. See "BUSINESS -- Manufacturing and Raw Materials."
ENVIRONMENTAL REGULATION
The Company's silverplating, chrome plating, tool making and painting
operations routinely involve the handling of waste materials that are classified
as hazardous. The Company also refabricates certain materials used in its
silverplating operations. The Company is subject to certain domestic federal,
state, local and foreign laws and regulations concerning the containment and
disposal of hazardous materials, and therefore, in the ordinary course of its
business, the Company incurs compliance costs and may be required to incur
clean-up costs. Based upon currently available information, the Company does not
expect that the costs of such compliance and clean-up costs will be material. In
addition, the Company's C.J. Vander facility is subject to many environmental
regulations related to its plating operations in the United Kingdom. However,
compliance costs are not expected to be material. Actions by federal, state,
local and foreign governments concerning environmental matters could result in
laws or regulations that could increase the cost of producing the products
manufactured by the Company or otherwise adversely affect the demand for its
products. In addition, the future costs of compliance with environmental laws
and regulations and liabilities resulting from currently unknown circumstances
or developments could be substantial and could have a material adverse effect on
the Company.
IMPORTANCE OF TRADEMARKS, COPYRIGHTS AND PATENTS
The Company markets its products under many well-recognized tradenames,
including WALLACE SILVERSMITHS(R), INTERNATIONAL SILVER COMPANY(R), TOWLE
SILVERSMITHS(R), FARBERWARE(R), TUTTLE STERLING(R), C.J. VANDER LTD.(TM), RAUCH
INDUSTRIES, INC.(R), SILVESTRI(R), ROCHARD(R), ELEMENTS(R) and 1847 ROGERS
BROS.(R) The success of the Company's various businesses depends in part on the
Company's ability to exploit these tradenames as well as certain proprietary
designs and trademarks on an exclusive basis in reliance upon the protections
afforded by applicable copyright, patent and trademark laws and regulations. The
loss of certain of the Company's rights to such designs, trademarks and
tradenames or the inability of the Company effectively to protect or enforce
such rights could adversely affect the Company. The Company does not believe
that there is a significant danger that it will lose its rights to any of its
material trademarks and tradenames or be unable effectively to protect or
enforce such rights. Although the loss of any other rights to designs,
trademarks and tradenames could have negative effects, any such effects are
unlikely to be material.
LABOR RELATIONS
The Company believes that its relationship with its employees is good. The
Company's employees are not represented by labor unions; however, Rauch, which
merged with the Company on February 15, 1996, was a subject of efforts by UNITE
(the "Union") in the fall of 1995 to organize Rauch's employees. A scheduled
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Union election was postponed because the Union filed unfair labor practice
charges against Rauch with the National Labor Relations Board (the "NLRB").
These charges, which related to allegations of threats and promises by Rauch
officials and the termination of certain employees, were settled pursuant to an
agreement between Rauch and the Union. On May 2, 1996, the NLRB approved the
agreement and the Union's request that the petition for an election be withdrawn
with prejudice.
On March 31, 1994 an Administrative Law Judge ("ALJ") designated by the
National Labor Relations Board ("NLRB") determined that the Company's
subsidiaries Wallace International de P.R., Inc. and International Silver de
P.R., Inc. (the "P.R. Subsidiaries") had engaged in unfair labor practices
incident to a union election (won by the P.R. Subsidiaries) held in February,
1993 and ordered the P.R. Subsidiaries to refrain from certain conduct and to
take certain affirmative action. The ALJ's decision was affirmed by the NLRB on
September 22, 1994. Incident to a second union election (also won by the P.R.
Subsidiaries) held on June 22, 1994 pursuant to stipulation, the P.R.
Subsidiaries were again charged with unfair labor practices. The ALJ again found
that the P.R. Subsidiaries had engaged in unfair labor practices. The Company
has appealed to the NLRB, and the appeal is pending.
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THE COMPANY
GENERAL
Syratech designs, manufactures, imports and markets a diverse portfolio of
tabletop, giftware and seasonal products, including: sterling silver,
silverplated and stainless steel flatware; sterling silver, silverplated and
brass hollowware; picture frames and photo albums; glassware, woodenware and
ceramics; fine porcelain boxes; figurines, waterglobes and Christmas ornaments,
trim, lighting and tree skirts.
The Company's net sales have grown from $82.9 million in 1991 to $169.5
million in 1995, a compounded annual growth rate of approximately 20.0%. For the
year ended December 31, 1996, the Company had net sales of $270.9 million, an
increase of 59.8% from the same period in 1995. Such growth was achieved
primarily through the recent acquisitions, the addition of new products and
product categories and expanded distribution of existing products. The addition
of new products and product categories has been implemented through both
internal development and the acquisition of complementary brands. The Company
has grown these acquired brands into substantial product categories by expanding
and improving their product lines and distributing them through the Company's
distribution channels.
The Company's strategic goal is to be the leading domestic supplier of
tabletop, giftware and seasonal products to retailers. In order to achieve this
goal, the Company intends to rely on what it believes to be certain competitive
strengths, including its market leadership in key product categories, a broad
portfolio of products with well-recognized tradenames, a significant presence
within major distribution channels, strong relationships with retailers, its
product development expertise and its manufacturing and sourcing capabilities.
The Company offers a broad portfolio of tabletop, giftware and seasonal
products both in terms of the different product categories and multiple retail
price points through its "good-better-best" strategy. The Company believes that
it is one of the leading domestic manufacturers and marketers of sterling silver
flatware and sterling silver and silverplated hollowware, which products are
sold under many well-recognized tradenames including Wallace Silversmiths(R),
International Silver Company(R), Towle Silversmiths(R) and Tuttle Sterling(R).
In addition, the Company believes it is one of the leading domestic
manufacturers of Christmas ornaments which, together with other seasonal
products, are sold under the Rauch(R), Silvestri(R) and Holiday Workshop(TM)
tradenames.
The Company's products are sold through approximately 30,000 customers,
including retail specialty stores, such as jewelry, seasonal and nonseasonal
giftware and collectible stores, department stores, mass market merchandisers,
catalogue showrooms and warehouse clubs. The Company believes that the recent
Rauch, Silvestri and Potpourri Press acquisitions (see "-- Recent Acquisitions"
below) will strengthen the Company's presence across multiple distribution
channels. In addition, the Company believes it has benefited from the vendor
consolidation trend in the retail industry, which has resulted in increased
demand for vendors that have the ability to make timely deliveries of a broad
range of quality products and provide advertising and other sales support. The
Company has a policy of not owning or operating Company outlet stores and
believes that this policy further strengthens its relationships with its
customers.
The Company aims at delivering quality products at competitive prices to
its customers. The Company relies both on its own domestic manufacturing
capabilities and on over 480 vendors located primarily in the Asia Pacific Rim.
The Company's products, including imported products, are designed by the
Company's design team and independent designers in conjunction with the
Company's product development and marketing team. In order to ensure quality,
products are generally manufactured using Company-owned tools and dies.
The Company's post-merger strategy for future growth focuses primarily on
(i) integrating its recent acquisitions, in particular Rauch, Silvestri and
Potpourri Press, into the Company's marketing and distribution structure, (ii)
continuing to expand the distribution of its existing product lines, both
domestically and internationally, by adding new customers and increasing sales
to existing customers, (iii) continuing to expand its product lines by
introducing new products and product categories, (iv) enhancing its
manufacturing, warehousing and distribution capabilities and productivity
through investments in new facilities, tools and dies
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and machinery, rationalization of existing facilities and investments in
technology, and (v) pursuing selected acquisitions of complementary product
lines and businesses, thereby capitalizing on the Company's distribution
capabilities. See "FORWARD-LOOKING STATEMENTS" and "SPECIAL FACTORS/RISK
FACTORS -- Difficulty in Achieving Post-Merger Business Strategy."
RECENT ACQUISITIONS
Rauch. Rauch Industries, Inc. ("Rauch"), a leading domestic manufacturer
and marketer of Christmas and other seasonal products, in particular glass and
satin tree ornaments, was acquired in February 1996 for approximately $49.6
million. Rauch distributes its products primarily to mass market merchandisers
through its own sales force and independent representatives. The acquisition
included Rochard, Inc. ("Rochard"), a marketer of fine porcelain boxes sold
primarily to high-end specialty and department stores.
Farberware. In April 1996, the Company acquired certain assets of
Farberware Inc., including its name, trademarks and other intellectual property,
inventory, tools and dies and machinery and equipment. The purchase price paid
by the Company was $32.6 million, subject to adjustment. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --
Recent Transactions." The Company has been selling the inventory initially
purchased and subsequently acquired pursuant to a manufacturing services
agreement and, in three separate transactions, has entered into licensing
agreements for use by third parties of the Farberware tradename in connection
with the sourcing, manufacturing and marketing of (a) certain cookware and
bakeware products for a one-time payment of $25.5 million, (b) certain electric
products for home use for an annual royalty payment, and (c) Commercial Products
(defined as six specified urns and a specified convection oven plus other
products to be developed with the prior approval of Farberware Inc.) for annual
royalty payments. Pursuant to an agreement made with Lifetime Hoan Corporation
("LHC") contemporaneously with the agreement for acquisition of assets of
Farberware Inc., the Company and LHC agreed to share the rights to receive, and
the obligation to pay certain commissions in respect of, royalties under
specified license agreements assigned to the Company by the prior owner of the
Farberware trade name. Through a joint venture to be, but which has not yet
been, formally established pursuant to the agreement with LHC and subject to
certain intellectual property rights that the Company has reserved exclusively
for itself, the Company and LHC expect to continue to grant licenses to third
parties for use of the Farberware trade name. The Company itself also intends to
market specific products from time to time under the Farberware trade name. The
agreement with LHC provides that for a period of sixty days following a change
of control of either Syratech or LHC, the other co-owner of the joint venture
will have the right to require the co-owner that has experienced the change in
control to set a price for a one-half interest in the venture, and thereupon the
other co-owner (i.e., the one that has not experienced a change of control) can
elect either to buy its co-owner's interest at the price so set or to sell its
own interest at such price to the co-owner that set it. See "FORWARD LOOKING
STATEMENTS."
Silvestri. In April 1996, the Company acquired certain inventory and
intangibles of the Silvestri Division of FFSC, Inc. ("Silvestri") for
approximately $8.6 million. The Silvestri product line consists of high-end
Christmas ornaments, collectibles, lighting and trim, as well as other seasonal
and nonseasonal giftware and decorative accessories, distributed primarily to
specialty and department stores.
C.J. Vander. In May 1996, the Company acquired C.J. Vander Ltd. ("C.J.
Vander"), a manufacturer and marketer of prestigious sterling silver flatware
and hollowware with manufacturing locations in Sheffield and London, England for
approximately $1.0 million. C.J. Vander's products are distributed primarily to
jewelry and other specialty stores in the United Kingdom and Europe.
Potpourri Press. On November 26, 1996, a wholly-owned subsidiary of the
Company acquired inventory, tangible property, intellectual property rights,
certain key records (including customer lists, customer files, supplier
information, catalogs) and certain contract rights (selected by the Company's
subsidiary) of Potpourri Press, a North Carolina-based manufacturer and marketer
of Christmas products for a purchase price of approximately $2.3 million plus a
$0.2 million promissory note.
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INTEGRATION STRATEGY FOR RECENT ACQUISITIONS
The Company believes that significant opportunities for growth in sales and
operating income exist if it can successfully integrate its recent acquisitions
into the Company's sales and marketing organization and consolidate and
rationalize certain operations. See "FORWARD LOOKING STATEMENTS."
The Company plans to expand the distribution of Rauch, Silvestri and
Potpourri products by marketing them through the Company's established
distribution channels and also plans to add new products to their existing
lines. By integrating Rauch, Silvestri and Potpourri with the Company's
internally developed Holiday Workshop line of seasonal products, the Company has
significantly expanded its offerings in this product category, both in terms of
types of product and retail price points, and strengthened its presence in major
retail channels. In addition, the Company believes that such strengthened
presence should provide it with substantial opportunities to cross-sell the
Company's tabletop and giftware product lines through Rauch and Silvestri
distribution channels. See "FORWARD LOOKING STATEMENTS" and "SPECIAL
FACTORS/RISK FACTORS -- Difficulty in Achieving Post-Merger Business Strategy."
In order to support the growth in its seasonal business, the Company is in
the process of investing in excess of $15 million to expand its manufacturing,
warehousing and distribution capabilities, primarily by consolidating warehouse
and distribution facilities, building a new customer showroom and acquiring new
tools and dies and machinery. These investments, along with the consolidation of
certain selling, general and
administrative functions, are also designed to generate significant cost
savings.
Through the acquisition of C.J. Vander, the Company believes that it will
be able to expand the distribution of its Wallace and Towle sterling silver and
silverplated product lines into the European market, primarily through C.J.
Vander's existing distribution channels. In addition, the Company intends to
expand the distribution of C.J. Vander products in the United States, in
particular through the Rochard sales force, which consists of independent
representatives who sell to high-end specialty and department stores.
During the summer of 1996, the Company commenced marketing a
water-purification device under the name "Glacier Pure by Farberware." The
Company also intends to capitalize on the Farberware brand name recognition by
introducing new tabletop products under that tradename beginning in 1997.
THE SPECIAL MEETING
MATTERS TO BE CONSIDERED
The purpose of the Special Meeting is to consider and vote upon a proposal
to approve and adopt the Merger Agreement entered into between THL I and
Syratech, and the transactions contemplated thereby, including the Merger. If
the Merger is approved by the stockholders of Syratech, THL I will merge with
and into Syratech, and each share of Syratech Common Stock issued and
outstanding immediately prior to the Effective Time (other than (i) shares of
Syratech Common Stock held by Syratech or any wholly owned subsidiary thereof
(ii) 35,232 shares of Syratech Common Stock which will be contributed to the
Company by Leonard Florence upon the Merger and which will then be canceled and
retired and (iii) shares of Syratech Common Stock subject to appraisal rights)
will be entitled, at the election of the holder and subject to the terms
described herein, either (a) to receive $32.00 in cash (except that Leonard
Florence will be entitled to receive only $28.00 in cash) or (b) to retain one
fully paid and nonassessable share of Syratech Common Stock. The right to retain
Syratech Common Stock will be limited in the case of each stockholder to 34.75%
of such holder's shares of Syratech Common Stock, other than (i) Leonard
Florence who is required by the Merger Agreement to retain 528,472 shares of
Syratech Common Stock and (ii) Faye A. Florence, Alan R. Kanter, Melvin L.
Levine and E. Merle Randolph, who intend to retain an aggregate of 123,766
shares of Syratech Common Stock. In addition, because no more than an aggregate
of 868,250 shares of Syratech Common Stock may be retained by existing
stockholders (other than Management Stockholders), such stockholder's right to
retain Syratech Common Stock is subject to proration as set forth in the Merger
Agreement and described in this Proxy Statement/Prospectus. If the Merger is
approved, the common stock of THL I will be converted into 3,131,780 shares of
Syratech Common Stock less the number of shares (not to exceed 781,250) retained
by existing stockholders (other than Management Stockholders). The shares of
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Syratech Common Stock to be owned by the affiliates of Thomas H. Lee Company
immediately following the Merger will represent a maximum of approximately 82.8%
of the Syratech Common Stock expected to be issued and outstanding after the
Merger (see "THE MERGER -- Conversion of THL I Stock").
Immediately after the Effective Time, no fewer than 3,784,018, and no more
than 3,871,018 shares of Syratech Common Stock will be issued and outstanding.
If the Warrants are exercised in full immediately following the Merger, 241,533
additional shares of Syratech Common Stock will be issued, resulting in a total
of no fewer than 4,025,551, and no more than 4,112,551, shares of Syratech
Common Stock issued and outstanding at such time. The Merger Agreement
(including the principal exhibits thereto) is attached to this Proxy
Statement/Prospectus as ANNEX I. See "THE MERGER" and "CERTAIN PROVISIONS OF THE
MERGER AGREEMENT." The Board of Directors of Syratech has, by unanimous vote of
those members attending and voting (certain of those Directors present who are
also officers of the Company having abstained), approved the Merger Agreement
and recommended that the Company's stockholders vote FOR approval of the Merger
Agreement and the transactions contemplated thereby, including the Merger.
REQUIRED VOTES
The affirmative vote of stockholders holding 4,349,616 shares of Syratech
Common Stock, being a majority of the shares of Syratech Common Stock entitled
to vote thereon, is required to adopt and approve the Merger Agreement and the
transactions contemplated thereby, including the Merger.
As at January 31, 1997, directors and officers of the Company, their
affiliates and associates and certain of their relatives and advisers,
collectively owned of record 3,659,101 shares (approximately 42%) of the
outstanding Syratech Common Stock. All of such persons have informed the Company
that they intend to vote their shares of Syratech Common Stock in favor of the
resolution to approve and adopt the Merger Agreement and the transactions
contemplated thereby, including the Merger. Approval of the Merger Agreement and
the transactions contemplated thereby, including the Merger, by at least a
majority of unaffiliated holders of Syratech Common Stock is not required.
VOTING AND REVOCATION OF PROXIES
Shares of Syratech Common Stock that are entitled to vote and are
represented by a Proxy properly signed and received at or prior to the Special
Meeting, unless subsequently properly revoked, will be voted in accordance with
the instructions indicated thereon. If a Proxy is signed and returned without
indicating any voting instructions, shares of Syratech Common Stock represented
by such Proxy will be voted FOR the proposal to approve and adopt the Merger
Agreement and the transactions contemplated thereby, including the Merger. The
Board of Directors of Syratech is not currently aware of any business to be
acted upon at the Special Meeting other than as described herein. If, however,
other matters are properly brought before the Special Meeting or any
adjournments or postponements thereof, the persons appointed as proxies will
have discretion to vote or act thereon in accordance with their best judgment.
The persons appointed as proxies may not exercise their discretionary voting
authority to vote any Proxy in favor of any adjournments or postponements of the
Special Meeting if such proxy contains an instruction to vote against the
approval of the Merger Agreement.
Any Proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before the shares represented by such Proxy are voted at
the Special Meeting by (i) attending and voting in person at the Special
Meeting, (ii) giving notice of revocation of the Proxy at the Special Meeting,
or (iii) delivering to the Secretary of Syratech (a) a written notice of
revocation or (b) a duly executed Proxy relating to the same shares and matters
to be considered at the Special Meeting, bearing a date later than the Proxy,
previously executed. Attendance at the Special Meeting will not in and of itself
constitute a revocation of a Proxy. All written notices of revocation and other
communications with respect to revocation of proxies should be addressed as
follows: Syratech Corporation, 175 McClellan Highway, East Boston, Massachusetts
02128-9114, Attention: Secretary, and must be received before the taking of the
votes at the Special Meeting.
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RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM
Only holders of Syratech Common Stock at the close of business on March 5,
1997 will be entitled to receive notice of and to vote at the Special Meeting.
At the close of business on the Record Date, the Company had outstanding and
entitled to vote 8,699,231 shares of Syratech Common Stock. Shares of Syratech
Common Stock represented by Proxies which are marked "abstain" or which are not
marked as to any particular matter or matters will be counted as shares present
for purposes of determining the presence of a quorum on all matters. Proxies
relating to "street name" shares that are voted by brokers will be counted as
shares present for purposes of determining the presence of a quorum on all
matters, but will not be treated as shares having voted at the Special Meeting
as to any proposal as to which authority to vote is withheld by the broker.
The presence, in person or by proxy, at the Special Meeting of the holders
of at least 4,349,616 shares of Syratech Common Stock, i.e., a majority of the
shares of Syratech Common Stock outstanding on the record date, is necessary to
constitute a quorum for the transaction of business. The affirmative vote of the
holders of 4,349,616 shares of Syratech Common Stock, i.e., a majority of the
votes entitled to be cast by the holders of all outstanding shares of Syratech
Common Stock, is necessary to approve the Merger Agreement and the transactions
contemplated thereby, including the Merger. THE TRANSACTION HAS NOT BEEN
STRUCTURED SO THAT APPROVAL OF AT LEAST A MAJORITY OF UNAFFILIATED HOLDERS OF
SYRATECH COMMON STOCK IS REQUIRED. Abstentions will be counted as present for
the purposes of determining whether a quorum is present but will not be counted
as votes cast in favor of the Merger Agreement. Because the vote on the Merger
Agreement and the transactions contemplated thereby, including the Merger,
requires the approval of a majority of the votes entitled to be cast by the
holders of all outstanding shares of Syratech Common Stock, abstentions will
have the same effect as a vote against this proposal.
SOLICITATION OF PROXIES
The Company will bear the cost of the solicitation of Proxies and the cost
of printing and mailing this Proxy Statement/Prospectus. In addition to
solicitation by mail, the directors, officers and employees of the Company may
solicit Proxies from stockholders of the Company by telephone, telegram or in
person. Such directors, officers and employees will not be additionally
compensated for any such solicitation but may be reimbursed for outstanding
out-of-pocket expenses in connection therewith. Arrangements will also be made
with brokerage houses and other custodians, nominees and fiduciaries for their
forwarding of solicitation material to the beneficial owners of shares held of
record by such persons and the Company will reimburse such custodians, nominees
and fiduciaries for their reasonable out-of-pocket expenses in connection
therewith.
Morrow & Co., Inc. will assist in the solicitation of Proxies by the
Company for a fee of $4,000.00, plus reasonable out-of-pocket expenses.
HOLDERS OF SYRATECH COMMON STOCK SHOULD NOT SEND STOCK CERTIFICATES WITH
THEIR PROXY CARDS. ONLY HOLDERS OF SYRATECH COMMON STOCK WHO WISH TO MAKE A
NON-CASH ELECTION ARE REQUIRED TO SEND STOCK CERTIFICATES WITH THEIR FORM OF
ELECTION (AS DEFINED BELOW). SEE "THE MERGER -- NON-CASH ELECTION" AND
"-- NON-CASH ELECTION PROCEDURE."
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THE MERGER
BACKGROUND OF THE MERGER
References to the "Merger Agreement" in this section and in "-- Opinion of
Financial Advisor" below refer to the Merger Agreement as of October 23, 1996.
Neither the Special Committee nor Merrill Lynch reviewed the Merger Agreement as
amended.
Representatives of the Thomas H. Lee Company first met with Mr. Leonard
Florence to discuss the possible purchase by Syratech of the interests of
certain funds affiliated with Thomas H. Lee Company in FFSC, Inc. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Recent Transactions."
In the late spring of 1996, partly to increase the visibility and daily
trading volume of Syratech Common Stock, Syratech retained Merrill Lynch in
connection with a contemplated public offering of Syratech Common Stock.
In early July 1996, representatives of the Thomas H. Lee Company indicated
to Leonard Florence an interest in exploring the potential acquisition of
Syratech by Thomas H. Lee Equity Fund III, L.P., the Thomas H. Lee Company and
certain of its affiliates (collectively, the "Lee Group"). In connection
therewith, a confidentiality agreement was executed on July 11, 1996. The Lee
Group pursued its preliminary due diligence investigation in July and early
August 1996, and meetings were held on August 7, 1996 and August 21, 1996
between representatives of the Lee Group and Mr. Florence and other
representatives of Syratech with regard to such due diligence.
On August 21, 1996, the Lee Group furnished to Syratech a due diligence
request list. Thereafter, the Lee Group continued its due diligence
investigation, including visits to Syratech facilities. Further meetings between
the parties occurred on September 9, 1996, September 16, 1996, September 19,
1996 at which the Lee Group's due diligence investigation was pursued and the
parties' divergent views regarding the terms of the transaction were discussed.
On September 11, 1996, Mr. Florence contacted Merrill Lynch regarding the
meetings to date. On September 13, 1996, at the request of Mr. Florence,
representatives of Merrill Lynch met with Mr. Florence at the Company's
headquarters. At this meeting, Mr. Florence disclosed to Merrill Lynch the
progress of the discussions with the Lee Group to date. The representatives of
Merrill Lynch suggested that the Company's contemplated public offering be held
in abeyance pending resolution of this matter, that the Board of Directors be
informed of the discussions with the Lee Group and that a Special Committee of
the Board be established to act on behalf of the Board with respect to this
matter.
On September 24, 1996, the Lee Group delivered to Mr. Florence the
following letter:
September 24, 1996
Mr. Leonard Florence
Chairman of the Board,
Chief Executive Officer,
President and Director
Syratech Corporation
175 McClellan Highway
East Boston, MA 02128
Dear Mr. Florence:
The Thomas H. Lee Company is interested in pursuing with you a transaction
which would result in our acquiring all of the outstanding capital stock of
Syratech Corporation (the "Company"). Based on our review of available
information to date, we believe a price per share of $28 to $30, payable in
cash, is feasible based on the assumption that there are approximately 8.9
million shares currently outstanding on a fully diluted basis. This would
represent a total equity value of approximately $249 to $267 million.
In our view, this transaction would position the Company and its employees
for an exciting future while maximizing value for the Company's
shareholders. In order to move forward, we request that you grant to
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us and to our representatives and prospective financing sources access to
the Company's books, records and senior management subject, of course, to
appropriate confidentiality provisions.
We believe that the commitment and involvement of you and your management
team are critical to the future success of the Company, and our preliminary
proposal contemplates your retention of an appropriate ownership interest
in the Company and agreements with respect to the future employment of you
and your management team with the Company. Simultaneously with the
performance of due diligence, we would hope to discuss with management
their roles in the future of the Company.
Thomas H. Lee Equity Fund III, L.P. has available equity commitments of
over $1 billion, and is prepared to make a significant investment in the
Company. In addition, we have had discussions with prospective financing
sources, and based on those discussions, we are confident that we can
secure commitments for the balance of the financing needed to fund the
acquisition of the Company. We expect that such commitments can be obtained
promptly.
We are only interested in pursuing a transaction that has the endorsement
of the Company's Board of Directors. In light of our approach to the
transaction and while we recognize that your Board must take appropriate
action in the best interest of your shareholders, we are not prepared to
participate in a public auction process. Of course, we trust that the
contents of this letter and its existence will remain confidential.
The Thomas H. Lee Company has been in existence since 1974 and during that
time has completed over 100 transactions. We look for attractive investment
opportunities in companies which we can help grow through the use of our
capital and expertise. Many of our portfolio companies have grown
dramatically, providing job opportunities and other economic benefits for
the communities in which they operate. We intend to continue the current
operations and facilities of the Company and believe that our acquisition
of the Company will provide significant benefits to the many stakeholders
in the Company, including its employees, suppliers and customers and the
communities in which the Company operates.
We believe that our proposal presents an attractive opportunity for the
Company and its shareholders and are eager to proceed. If given the
opportunity, we would expect to complete our diligence review, reach
agreement with management on its role in the future of the Company and
negotiate a definitive acquisition agreement within the next few weeks. Our
legal and financial advisers stand ready to commence work.
We would be pleased to make a presentation to your Board of Directors, and
if this is deemed desirable, request that a meeting be scheduled as soon as
practicable. In the meantime, should you have any questions, please direct
them to myself, Scott A. Schoen or Thomas M. Hagerty. We can be reached at
617-227-1050.
Sincerely,
THOMAS H. LEE EQUITY FUND III, L.P.
By: /s/ David V. Harkins
------------------------------------
David V. Harkins
President
THL Equity Trust, III General
Partner
THL Equity Advisors III, Limited
Partnership, General Partner
THL Equity Fund III, Limited
Partnership
On the same date, Mr. Florence convened a Special Meeting of the Board. At
the meeting Mr. Florence disclosed that he had received the foregoing letter,
which was the first written proposal, from the Lee Group expressing an interest
in pursuing an acquisition of Syratech at a price of $28 to $30 per share in
cash. Mr. Florence informed the Board that, as mentioned in the letter, the
acquisition was predicated upon and would involve the continuing commitment and
involvement of Mr. Florence and other members of Syratech
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management, the retention by Mr. Florence of an ownership interest in the
enterprise following the acquisition and the execution of agreements with
respect to future employment. At that meeting, the Board decided that the
preliminary proposal and discussions with the Lee Group regarding a definitive
proposal should be evaluated and, if advanced to a definitive proposal that
merited negotiation of a definitive agreement, that negotiations to such end
should be conducted. In addition, in light of the contemplated participation by
Mr. Florence and, possibly, other members of Syratech management in the
transaction, the Board designated Messrs. Irwin Chafetz, Harold Cohen and Jerry
R. Jacob as members of a Special Committee, with Mr. Chafetz as Chairman, for
the purpose of evaluating any proposal received from the Lee Group and
conducting any further discussions with the Lee Group; and it authorized the
retention by the Special Committee of financial and legal advisors at Syratech's
expense.
During the following week, the Special Committee interviewed
representatives of various investment banking and law firms for the purpose of
retaining independent financial and legal advisors. As a result of such
interviews, the Special Committee retained Merrill Lynch (which, as noted above,
had previously been retained by the Company to be the underwriter of a
contemplated offering of Syratech Common Stock, which was being held in
abeyance) and Wachtell, Lipton, Rosen & Katz, as its financial and legal
advisors, respectively. On September 27, 1996, Merrill Lynch, the Lee Group,
Morgan Stanley and potential financing sources conducted due diligence, both at
Syratech headquarters and at the offices of Thomas H. Lee Company. Such due
diligence, with the Lee Group, Morgan Stanley and potential financing sources,
continued during the following week.
On September 27, 1996, the Company provided Merrill Lynch with a
preliminary draft of the Management Forecasts and Merrill Lynch conducted oral
inquiries and due diligence with respect thereto. On October 4, 1996, the
Company provided Merrill Lynch and the Lee Group with the Management Forecasts
reprinted herein.
On Friday, October 4, 1996, the Special Committee met with its advisors for
the purpose of beginning its evaluation of the Lee Group's proposal. At this
meeting, the Special Committee, together with its advisors, reviewed the terms
of the Lee Group's proposal and received preliminary advice from Merrill Lynch
that the financial terms of the proposal appeared to be below preliminary
valuation ranges. The Special Committee also considered alternatives that might
be available to Syratech, such as the possibility of rejecting an acquisition
transaction in favor of a public equity offering and the possibility of seeking
a potential strategic partner that would be willing to purchase Syratech at a
higher price. At the end of this meeting, the Special Committee undertook to
consider further the Lee Group's proposal during the following week, with a view
toward a further meeting of the Special Committee to consider the proposal on
October 11.
On Monday, October 7, 1996, representatives of the Lee Group, potential
financing sources and Morgan Stanley met with representatives of Syratech,
including Mr. Florence, to conduct further due diligence. Also during the week
of October 7, 1996, representatives of the Lee Group sent to the Special
Committee's advisors a proposed Merger Agreement with respect to the
transaction, and the Special Committee's legal advisors gave general preliminary
comments with respect thereto. Among the items proposed therein were shareholder
agreements on the part of Mr. Florence and other participating members of
management to vote shares of Syratech's Common Stock held by them in favor of
the Merger and/or to grant proxies with respect to such shares in favor of the
Lee Group so that such shares could be voted directly by the Lee Group in favor
of the Merger. The Special Committee's legal advisors informed the Lee Group's
legal advisors that such proposal was unacceptable and insisted that ways in
which Mr. Florence's equity position would not determine the outcome of the
stockholder vote with respect to the Merger should be explored.
On Friday, October 11, 1996, the Special Committee met with its advisors
and continued its evaluation of the Lee Group's proposal. At this meeting, the
Special Committee received oral advice of Merrill Lynch that the financial terms
of the Lee Group's proposal were unfair and inadequate from a financial point of
view. In addition, the Special Committee's legal advisors reviewed with the
Special Committee various structural issues with respect to the Lee Group's
proposal. After this meeting, the Special Committee's advisors contacted
representatives of the Lee Group, informed them that the current proposal was
unfair and inadequate and did not merit beginning negotiations with respect to a
definitive agreement and urged them to
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improve the terms of their offer if they wished to pursue an acquisition of the
Company. Within a few days thereafter, during the week of October 14, the Lee
Group's legal advisors sent to the Special Committee's legal advisors a revised
proposed Merger Agreement.
On Tuesday, October 15, 1996, representatives of the Lee Group contacted
the Special Committee's advisors to inform them that the Lee Group had raised
the proposed price to be paid to Syratech stockholders in the Merger to $31 per
share in cash and that the request for the shareholder and lockup agreements on
the part of Mr. Florence and other participating members of management had been
dropped. On October 15 and October 16, the Special Committee was briefed on and
considered the revised offer with its advisors, as well as the terms of the
revised proposed Merger Agreement. On October 15, the Special Committee received
oral advice from Merrill Lynch that the financial terms of the Lee Group's
proposal were inadequate from a financial point of view and that a strategic
buyer for Syratech, if one could be found, might be better able and willing to
pay more to acquire Syratech than a financial buyer.
On October 16, the Special Committee's advisors contacted representatives
of the Lee Group to inform them that the $31 per share offer was inadequate to
commence negotiations with respect to a definitive agreement and to urge the Lee
Group to put their best offer forward so that the Special Committee could
determine whether the transaction merited pursuing. In addition, with respect to
the revised proposed Merger Agreement, the Special Committee's advisors asked
for a specific quantitative proposal with respect to the termination fees and
expense reimbursements contemplated by the agreement, to restructure the
termination fee so that it would be more in the nature of a "topping" fee
payable in the event that a superior transaction were obtained, to supply
commitment letters with respect to financing for the transaction and to consider
alternative structures more responsive to the Special Committee's concern that
Mr. Florence's equity position would determine the outcome of the stockholder
vote with respect to the transaction. On the same date, the Lee Group's legal
advisors sent to the Special Committee's legal advisors a revised proposed
Merger Agreement.
Also, on October 16, 1996, Merrill Lynch was given authority by the
Company, the Special Committee and the Lee Group to solicit expressions of
interest in an acquisition from certain potential strategic buyers selected by
the Company in consultation with Merrill Lynch, which process was begun on such
date by Merrill Lynch. Merrill Lynch continued its efforts with respect to such
solicitation regularly through October 22, and the Special Committee was kept
abreast of all developments.
On the evening of Friday, October 18, 1996, representatives of the Lee
Group contacted the Special Committee's legal advisors and informed them that,
in response to the Special Committee's request, the Lee Group had increased its
offer to a price of $32 per share in cash, for a transaction structured
substantially along the lines of the proposed Merger Agreement most recently
delivered, and that this price was the best and last offer of the Lee Group,
with no incremental value to be delivered thereafter. At this time,
representatives of the Lee Group provided draft financing commitments consistent
with this proposal to the Special Committee's legal advisors. The Lee Group
requested that negotiations toward definitive documentation and Board approval
occur over the following weekend with a view toward announcing that a definitive
agreement had been entered into by the morning of Monday, October 21.
Thereafter, on the evening of October 18, the Chairman of the Special Committee
spoke with the Special Committee's advisors, and it was decided that, due to the
need for adequate time to review and consider the Lee Group's most recent
proposal and convene a meeting of the Special Committee and the pendency of
inquiries by the Special Committee's financial advisors to potential strategic
acquirors, the Special Committee would meet on Monday, October 21, to review the
most recent proposal with a view toward a definitive response to the Lee Group
immediately thereafter, and that the Special Committee's legal advisors would
deliver comments with respect to the revised proposed Merger Agreement over the
intervening weekend. This proposed course of action was then communicated to
representatives of the Lee Group. At this time, representatives of the Lee Group
were requested to provide revised draft financing commitments reflecting the
improved offer.
Over the weekend of Saturday and Sunday, October 19 and 20, 1996, the
Special Committee's legal advisors discussed the revised proposed draft Merger
Agreement with the Lee Group's legal advisors and reached substantial agreement
with respect to certain issues, but sought improvements with respect to
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(i) price, (ii) the voting of shares held by Mr. Florence, (iii) Syratech's
ability to respond to indications of interest following execution of the Merger
Agreement, (iv) the circumstances under which Syratech or the Lee Group could
terminate the Merger Agreement and a termination fee become payable and (v) the
size of the termination fee and expense reimbursements. The Special Committee's
legal advisors also stated that, in connection with entering into the Merger
Agreement, the possibility of obtaining a superior proposal thereafter should be
preserved, subject to the termination fee provisions under discussion, and that
outstanding Rights under Syratech's Rights Agreement should be redeemed promptly
to provide fewer obstacles with respect thereto.
The Special Committee met with its advisors on the morning of Monday,
October 21, 1996. At this meeting, the developments over the preceding week,
both with respect to the Lee Group and potential strategic acquirors, were
reviewed, as well as the terms of the Merger Agreement, including unresolved
issues. In this connection, Merrill Lynch told the Special Committee that, while
certain inquiries were still pending, no potential strategic acquiror had shown
significant interest in acquiring the Company. Thereafter, at the direction of
the Special Committee, the Special Committee's advisors spoke with
representatives of the Lee Group and communicated to them that the Special
Committee requested improvements in the proposal with respect to each of the
five issues listed above, and particularly with respect to price, but that
in-person negotiations could begin. In particular, the Special Committee's
advisors noted that one way in which the price to the public stockholders could
be raised would involve an acquisition in which Mr. Florence received a lower
price per share than other stockholders. The Special Committee's advisors
suggested that this possibility be considered in that, unlike other
stockholders, Mr. Florence would retain an opportunity to participate in
Syratech's future results through his continued equity interest. Representatives
of the Lee Group stated that the group would need time to consider the Special
Committee's request and would reply later that day. On the afternoon of October
21, representatives of the Lee Group contacted the Special Committee's advisors
to inform them that this two-tiered pricing structure was being considered, but
that the Lee Group would not raise the $32 per share offer to Syratech
stockholders and that, following a review of recent comparable transactions, the
Lee Group was proposing that the transaction have a termination fee of 3.75% of
the total equity value and that expense reimbursements be up to a maximum of
0.75% of the total equity value. This contrasted with the Lee Group's prior
proposal of 4.25% plus an unlimited amount for out of pocket expenses. The
Special Committee's advisors informed the Lee Group's representatives that a
price increase was still being sought and that the two-tiered pricing structure
should be seriously considered for the reasons described above. Later on the
evening of October 21, representatives of the Lee Group contacted the Special
Committee's legal advisors to inform them that a two-tiered pricing structure
had been considered and discussed with Mr. Florence and that Mr. Florence had
been unwilling to agree to such a structure.
The Special Committee met again with its advisors beginning on the morning
of Tuesday, October 22, 1996 and continuing intermittently throughout the day.
At this meeting, the developments over the preceding day and the open issues
with respect to the Merger Agreement were reviewed. In this connection, Merrill
Lynch told the Special Committee that it had completed its solicitation of
expressions of interest from those potential strategic acquirors that it had
been authorized to contact, that none of such parties had expressed interest in
proceeding with an acquisition and that none of such parties had expressed a
willingness to conduct the requisite due diligence with respect to Syratech. The
Special Committee continued to request improvements with respect to the five
issues listed above. In addition, the Special Committee, through its advisors,
sought to have the Lee Group improve its $32 per share offer by adding a
contingent value right to the cash consideration offered. The Lee Group rejected
this proposal, stating that $32 was the highest price it would be willing to pay
for shares of Syratech Common Stock. The Chairman of the Special Committee and
the Special Committee's advisors then met with representatives of the Lee Group
and the Lee Group's advisors to discuss remaining issues, particularly price and
the size of the termination fee and expense reimbursements. Thereafter, on the
evening of October 22, in-person negotiations were begun among representatives
of the Lee Group and its advisors, the Special Committee and its advisors and
Syratech's legal advisors, in which the Lee Group reiterated that no improvement
in the $32 price per share would be offered, but proposed that, to be responsive
to the interests of the Special Committee and to afford Syratech stockholders in
addition to Mr. Florence the opportunity to participate in future results, the
Lee Group would permit all stockholders, subject to certain limitations, to
elect to receive consideration in the form of continuing equity. Negotiations
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continued until late on the evening of October 22 for improvements in all
issues, at which time agreement was reached with respect to all principal terms
of the Merger.
In reaching the conclusion that the initial and interim proposals of the
Lee Group were inadequate, the Committee was influenced primarily by the advice
of Merrill Lynch that the prices offered were not within the range preliminarily
computed by Merrill Lynch; and the Committee's conclusions were also influenced
by the belief that, based upon comparable transactions, the breakup fees and
expense allowances proposed by the Lee Group were at unacceptable levels.
Late on the evening of October 22, a meeting of Syratech's Board of
Directors was convened and continued into the early morning of October 23, 1996.
All of the Directors of the Company were present, except Messrs. Alan Perlman
and Harold Roitenberg, each of whom had previously informed the Company that he
would be unable to attend. Also present at the meeting were Faye A. Florence,
Vice President, Secretary and General Counsel of the Company, representatives of
Paul, Weiss, Rifkind, Wharton & Garrison, regular outside counsel to the
Company, representatives of Merrill Lynch & Co., financial advisor to the
Special Committee, a representative of Wachtell Lipton Rosen & Katz, counsel to
the Special Committee, and representatives of Skadden Arps, Meagher, Slate &
Flom, special counsel to Mr. Florence and certain other Management Stockholders.
At such meeting, the Special Committee unanimously recommended that the Board
approve and adopt the Merger and the Merger Agreement. The Special Committee and
its advisors reported to the Board in detail the reasons for its recommendation
of the Merger and the Merger Agreement.
At the beginning of the Board meeting, the Special Committee's legal
advisor requested that each Director disclose any potential conflict that such
Director may have in connection with the proposed Merger. Mr. Florence noted
that, unlike the other stockholders, he is required by the terms of the proposed
merger agreement to retain 714,400 shares (since reduced to 528,472 shares to
take into account the contribution to the Company by Mr. Florence of 63,696
shares, an additional contribution of 35,232 shares to the Company that will be
made by him concurrent with the Merger and a charitable contribution of 87,000
shares made by him) of his Syratech Common Stock and he is not subject to any
proration. E. Merle Randolph and Melvin L. Levine, Directors of the Company, who
are also executive officers thereof, each stated that he planned to elect to
retain a certain portion of his shares and that he was aware that the Management
Stockholders would not be subject to proration with respect to the shares that
they elected to retain and that he expected to continue as an executive officer
of the Company following the Merger.
The Special Committee's legal advisor then reviewed at length the
activities of the Special Committee and its advisors since appointment of the
Special Committee, discussing in his presentation the matters set forth above.
Following this presentation a representative of Merrill Lynch described the
four-week negotiations between the Special Committee and its advisors, on the
one hand, and representatives of the Lee Group, on the other hand.
Representatives of Merrill Lynch then distributed copies of analyses prepared by
Merrill Lynch in the process of formulating its view of the proposed merger.
Merrill Lynch's valuation analyses as set forth in the presentation
materials distributed to the members of the Board were then described in detail.
The Merrill Lynch representative noted, based on the financial data and its
analyses, that Syratech was not directly comparable to any other company and had
had a limited opportunity to tell its story, that Syratech had limited research
coverage and a limited number of shares held by non-affiliates reducing the
liquidity of Syratech's common stock and that in Merrill Lynch's view, its
common stock was undervalued. Possible alternatives for Syratech, including a
public offering of stock, were then discussed.
The Merrill Lynch representative noted that based on its analyses a
strategic buyer, if available, would probably be able to offer the highest price
for Syratech. He stated that in a limited time period, Merrill Lynch had
conducted the strategic market check as described above, that Merrill Lynch had
been authorized to contact and solicit interest from certain potential strategic
buyers selected by the Company in consultation with Merrill Lynch, and that
Merrill Lynch believed that such potential buyers were among those most likely
to be interested in a possible acquisition of Syratech and among those most
likely to ascribe the highest value
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to the Company. The Merrill Lynch representative stated that none of the
strategic buyers it had been authorized to contact had expressed interest in
proceeding with an acquisition or conducting the requisite due diligence.
Merrill Lynch did not make inquiries concerning the interest of potential
financial buyers because it had not been authorized to do so.
At the conclusion of his presentation, the Merrill Lynch representative
delivered an oral opinion that the cash consideration to be received by the
holders of shares of Common Stock of the Company (other than shares held by Mr.
Leonard Florence, shares to be cancelled pursuant to the Merger Agreement and
dissenting shares) in the Merger was fair to such holders from a financial point
of view.
The Chairman of the Special Committee then made a presentation on behalf of
the Special Committee. He noted the extensive work that had been done by the
Committee with the assistance of its financial and legal advisors and expressed
the view that the process had been exhausted and that, based in part on the
Merrill Lynch presentation, it would not be possible to obtain a better price
from the Lee Group or from any other potential buyer in the near term. The other
members of the Committee expressed a similar view and suggested that, based on
the past market performance of Syratech Common Stock and, in part on the Merrill
Lynch presentation, without an acquisition transaction, it seemed unlikely that
Syratech's Common Stock would reach the level of the Lee Group's offer in the
near term. The members of the Special Committee stated that they were
unanimously of the conclusion that the transaction proposed by the Lee Group was
in the best interest of the Company and its stockholders.
The Special Committee's legal advisor next described in detail the terms of
the Merger Agreement and certain legal matters.
The Special Committee and its advisors then responded to a series of
questions, and Mr. Florence then expressed his view that the proposed Merger was
in the best interest of the Company and its stockholders. After further
extensive discussion and deliberation (including consideration of the factors
noted below under "Reasons for the Merger; Recommendation of the Board") a
motion to approve the Merger Agreement and the transactions contemplated thereby
and to recommend approval thereof to the stockholders of the Corporation was
made, seconded and unanimously carried by vote of those Directors present and
voting. Messrs. Florence, Levine and Randolph, the directors who abstained from
that vote, expressed concurrence with the Board's action but abstained from
voting on the motion because of their perceived conflicts of interest as above
and elsewhere herein described.
On February 10, 1997, the Company released its operating results for the
year ended December 31, 1996. After reviewing these operating results with its
proposed financing sources during the week of February 10, THL I determined that
a new financing structure was required to effect the Merger. On February 13,
representatives of THL I and their counsel met with Mr. Florence and other
executive officers of the Company. At that meeting, it was agreed that: (i) Mr.
Florence would receive $28.00 per share for those shares of Company Common Stock
being cashed out; (ii) Mr. Florence would retain 528,472 shares of Company
Common Stock and would contribute 35,232 shares of Company Common Stock to the
Company; (iii) the aggregate number of shares which public stockholders could
retain would be increased by 87,000 shares; and (iv) THL I's investment in the
Company following the Merger would be comprised of not more than $100.2 million
in Company Common Stock and up to $18.0 million in Cumulative Redeemable
Preferred Stock. On February 14, 1997, THL I received (and delivered to the
Company) executed financing commitment letters in connection with this new
financing arrangement.
On Friday, February 14, 1997, the Company's Board of Directors approved an
amendment to the Restated Agreement and Plan of Merger, which embodied the terms
agreed upon by the Company's Management and representatives of THL I. Because
the amendment did not affect the price payable to or otherwise adversely affect
any stockholders other than Mr. Florence, the Company's Board of Directors did
not reconvene the Special Committee or seek a supplemental opinion from Merrill
Lynch.
RECOMMENDATION OF THE BOARD; REASONS FOR THE MERGER
The Board has determined the Merger to be fair to and in the best interests
of Syratech and its stockholders. See "SPECIAL FACTORS/RISK FACTORS."
ACCORDINGLY, AS STATED ABOVE, THE BOARD HAS
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BY THE UNANIMOUS VOTE OF THOSE DIRECTORS PRESENT AND VOTING APPROVED THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGER; AND
THE BOARD RECOMMENDS THAT SYRATECH STOCKHOLDERS VOTE "FOR" APPROVAL AND ADOPTION
OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE
MERGER. THE RECOMMENDATION BY THE BOARD THAT THE COMPANY'S STOCKHOLDERS APPROVE
AND ADOPT THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY IS NOT,
AND SHOULD NOT BE CONSIDERED TO BE, A RECOMMENDATION THAT STOCKHOLDERS ELECT TO
RETAIN OR, ALTERNATIVELY, THAT STOCKHOLDERS DO NOT ELECT TO RETAIN SHARES OF
SYRATECH COMMON STOCK HELD BY THEM IN THE MERGER.
As described above, the decision of the Board to approve, and recommend
adoption and approval by Syratech stockholders of, the Merger Agreement and the
transactions contemplated thereby, including the Merger followed extensive
negotiations between the Special Committee and the Lee Group regarding the terms
of the Merger. The Board's deliberations included a detailed review of
Syratech's business, results of operations and prospects, including the
likelihood of effecting an alternative transaction and the ranges of values to
Syratech stockholders that might be achievable in an alternative transaction and
the financial and other terms of the proposed Merger. For a statement of the
material factors considered by the Board in connection with its approval and
recommendation, See "SPECIAL FACTORS/RISK FACTORS -- Reasons for the Merger;
Recommendation of the Board."
THE BOARD RECOMMENDS THAT SYRATECH STOCKHOLDERS VOTE FOR APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT AND THE TRANSACTION CONTEMPLATED THEREBY,
INCLUDING THE MERGER.
Five of the six members of the Board who voted to approve the Merger
Agreement and the transactions contemplated thereby, including the Merger, were
non-employees of the Company and its subsidiaries. The sixth voting member is an
officer of a subsidiary of the Company.
OPINION OF FINANCIAL ADVISOR
As stated above, Merrill Lynch was retained to act as the financial advisor
to the Special Committee (composed entirely of independent directors) in the
Merger. On October 22, 1996, Merrill Lynch rendered its oral opinion to the
Company's Board of Directors which was subsequently confirmed in a written
opinion (the "Merrill Lynch Opinion") dated October 23, 1996, a copy of which is
included herein as Annex II that, as of such dates and based upon the
assumptions made, matters considered and limits of review in connection with
such opinions, the cash consideration to be received by the holders of shares of
Common Stock of the Company (other then shares held by Mr. Leonard Florence,
shares to be canceled pursuant to the Merger Agreement and dissenting shares) in
the Merger was fair to such holders from a financial point of view. No
limitations were imposed by the Company's Board of Directors upon Merrill Lynch
with respect to the investigations made or the procedures followed by it in
rendering its opinion except that Merrill Lynch was not authorized to, and did
not, solicit any indications of interest from any potential third party, either
financial or strategic, to acquire all or any part of the Company other than a
group of potential strategic buyers selected by the Company in consultation with
Merrill Lynch, as described above.
In rendering its opinion, Merrill Lynch, (i) reviewed Syratech's Annual
Reports, Forms 10-K and related financial information for the five fiscal years
ended December 31, 1995 and Syratech's Forms 10-K and the related unaudited
financial information for the quarterly periods ending March 31, 1996, and June
30, 1996; (ii) reviewed a draft of Syratech's Form S-3 dated September 12, 1996;
(iii) reviewed certain information, including the Management Forecasts relating
to the business, earnings, cash flow, assets and prospects of Syratech,
furnished to Merrill Lynch by Syratech; (iv) conducted discussions with members
of senior management of Syratech concerning its businesses and prospects; (v)
reviewed the historical market prices and trading activity for Syratech's Common
Stock and compared them with that of certain publicly traded companies which
Merrill Lynch deemed to be reasonably similar to Syratech; (vi) compared the
results of operations of Syratech with that of certain publicly traded companies
which Merrill Lynch deemed to be reasonably similar to Syratech; (vii) compared
the proposed financial terms of the transactions contemplated by the Agreement
with the financial terms of certain other mergers and acquisitions which Merrill
Lynch deemed to be relevant; (viii) reviewed the Merger Agreement, including the
financing commitment letters attached thereto; and (ix) reviewed such other
financial studies and analyses and performed such other
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investigations and took into account such other matters as Merrill Lynch deemed
necessary, including Merrill Lynch's assessment of general economic, market and
monetary conditions.
In rendering its opinion, Merrill Lynch assumed and relied upon the
accuracy and completeness of the financial and other information used by it and,
with the Company's approval, did not assume any responsibility for independent
verification of such information. Merrill Lynch further relied upon the
assurances of Management that they were not aware of any facts that would make
such information inaccurate or misleading. With respect to the Management
Forecasts, Merrill Lynch assumed, with the Company's approval, that (i) such
forecasts and projections were reasonably prepared on bases reflecting the best
currently available estimates and judgments of Management as to the future
financial performance of the Company, and (ii) the Company would perform in
accordance with such projections. Merrill Lynch did not conduct a physical
inspection of the properties and facilities of the Company and did not undertake
or obtain any evaluations or appraisals of the assets or liabilities of the
Company. The Merrill Lynch Opinion was necessarily based upon market, economic
and other conditions as they existed and could be evaluated as of the date of
the opinion.
A COPY OF THE MERRILL LYNCH OPINION, DATED OCTOBER 23, 1996, WHICH SETS
FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED, AND CERTAIN LIMITATIONS ON THE
SCOPE OF REVIEW UNDERTAKEN BY MERRILL LYNCH, APPEARS AS ANNEX II TO THIS PROXY
STATEMENT. THE COMPANY'S STOCKHOLDERS ARE URGED TO READ THIS OPINION IN ITS
ENTIRETY. THE MERRILL LYNCH OPINION WAS ADDRESSED TO THE COMPANY'S BOARD, WAS
DIRECTED ONLY TO THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF THE CASH
CONSIDERATION TO BE RECEIVED BY THE STOCKHOLDERS OF THE COMPANY OTHER THAN WITH
RESPECT TO SHARES HELD BY MR. LEONARD FLORENCE, SHARES TO BE CANCELED PURSUANT
TO THE MERGER AGREEMENT AND DISSENTING SHARES AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY STOCKHOLDER OF THE COMPANY AS TO HOW SUCH STOCKHOLDER
SHOULD VOTE AT THE SPECIAL MEETING OR ANY OTHER MEETING OF THE COMPANY'S
STOCKHOLDERS CALLED TO CONSIDER THE MERGER, AND IT DOES NOT CONSTITUTE A
RECOMMENDATION THAT STOCKHOLDERS ELECT TO RETAIN, OR ALTERNATIVELY, THAT
STOCKHOLDERS DO NOT ELECT TO RETAIN, SHARES OF SYRATECH COMMON STOCK IN THE
MERGER. THIS SUMMARY OF THE MERRILL LYNCH OPINION IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
For a summary of certain financial and comparative analyses performed by
Merrill Lynch in arriving at its oral opinion delivered to the Company's Board
of Directors on October 22, 1996 and its written opinion delivered to the
Company's Board of Directors on October 23, 1996 as to the fairness of the
proposed cash consideration to be received by the shareholders of the Company
(other than with respect to shares held by Mr. Leonard Florence, shares to be
canceled pursuant to the Merger Agreement and dissenting shares) pursuant to the
Merger Agreement, from a financial point of view see "SPECIAL FACTORS/RISK
FACTORS -- Opinion of Financial Advisor."
Merrill Lynch was not asked to value the stock of the surviving entity and
did not do so. In addition, the 1996 and 1997 estimated pro forma EPS and EBITDA
numbers used by Merrill Lynch in its analyses were derived from the Management
Forecasts and adjusted by Merrill Lynch to exclude extraordinary and
nonrecurring items for 1996 and 1997 and to include the full year 1996 effect of
acquisitions.
For a statement of the terms upon which Merrill Lynch was engaged and the
disclosure of certain relationships between Merrill Lynch, on the one hand, and
Thomas H. Lee and/or Lee Affiliates, on the other, see "SPECIAL FACTORS/RISK
FACTORS -- Opinion of Financial Advisor."
Merrill Lynch is a recognized investment banking firm and, as a customary
part of its investment banking activities, is regularly engaged in the valuation
of businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, private placements, and valuations for corporate and
other purposes. The Special Committee selected Merrill Lynch because of its
expertise, reputation and familiarity with the Company, its business and
transactions similar to the Merger.
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CERTAIN FORECASTS
See "FORWARD-LOOKING STATEMENTS" elsewhere in this Proxy
Statement/Prospectus.
Syratech does not as a matter of course make public projections or
forecasts as to future sales, earnings or other results, but does prepare
forecasts on a confidential basis for internal management use. However, in
connection with the negotiation of the Merger Agreement, Merrill Lynch and the
Lee Group were provided with certain forecasts for Syratech (the "Management
Forecasts"). These forecasts were not prepared with a view towards complying
with published guidelines regarding projections and forecasts, but, in the view
of Syratech management, were prepared on a reasonable basis and reflect the best
currently available estimates and judgments as to the expected future financial
performance of Syratech. The fact that the Management Forecasts were furnished
to Merrill Lynch and the Lee Group (including THL I) or reprinted herein should
not be regarded as an indication that any persons who received the Management
Forecasts considered them to be an accurate prediction of future events. The
Management Forecasts are included herein only because such forecasts were
provided to Merrill Lynch and the Lee Group on October 4, 1996 in connection
with the negotiation of the Merger Agreement, and Syratech does not intend to
update the Management Forecasts. Except for the Management Forecasts provided to
the Lee Group (including THL I) by the Company, the Lee Group (including THL I)
did not receive any report, opinion or appraisal in formulating its decision to
proceed with the Merger.
THE MANAGEMENT FORECASTS PROVIDED TO MERRILL LYNCH ON OCTOBER 4, 1996 WERE
BASED UPON ESTIMATES AND ASSUMPTIONS AS TO THE MARKET RECEPTION OF THE COMPANY'S
FUTURE PRODUCT OFFERINGS AND ABOUT ECONOMIC AND OPERATING FACTORS WITH RESPECT
TO INDUSTRY PERFORMANCE, GENERAL BUSINESS AND ECONOMIC CONDITIONS AND OTHER
MATTERS THAT CANNOT BE PREDICTED ACCURATELY AND THAT ARE SUBJECT TO
CONTINGENCIES OVER WHICH SYRATECH DOES NOT HAVE CONTROL, INCLUDING THOSE SET
FORTH ABOVE UNDER "SPECIAL FACTORS/RISK FACTORS." ACCORDINGLY, THERE CAN BE NO
ASSURANCE THAT FORECASTED RESULTS ARE INDICATIVE OF FUTURE PERFORMANCE OR THAT
ACTUAL RESULTS WILL NOT BE MATERIALLY HIGHER OR LOWER THAN THOSE FORECAST. IN
ADDITION, THE MANAGEMENT FORECASTS WERE NOT PREPARED WITH A VIEW TO PUBLIC
DISCLOSURE OR IN COMPLIANCE WITH THE PUBLISHED GUIDELINES OF THE COMMISSION OR
THE GUIDELINES ESTABLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC
ACCOUNTANTS REGARDING PROJECTIONS OR FORECASTS. THE ASSUMPTIONS MADE IN
FORMULATING THE FORECASTS WERE NOT REDUCED TO WRITING AND WERE NOT PROVIDED TO
MERRILL LYNCH. MOREOVER, AS NOTED ABOVE UNDER "THE MERGER -- OPINION OF
FINANCIAL ADVISOR," ALTHOUGH THE PRO FORMA EPS AND EBITDA NUMBERS USED BY
MERRILL LYNCH IN ITS ANALYSES WERE DERIVED FROM SUCH FORECASTS, THEY WERE
ADJUSTED BY MERRILL LYNCH IN CONNECTION WITH ITS PRESENTATION TO THE BOARD.
MOREOVER, THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS, NEITHER COMPILED
NOR EXAMINED THE FORECASTS AND ACCORDINGLY, DO NOT EXPRESS ANY OPINION OR ANY
OTHER FORM OF ASSURANCE WITH RESPECT THERETO, ASSUMES NO RESPONSIBILITY FOR, AND
DISCLAIMS ANY ASSOCIATION WITH, THE FORECASTS.
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The Management Forecasts do not give effect to the Merger and should be
read together with the consolidated financial statements of Syratech contained
herein or incorporated herein by reference, with the caveat that past results do
not necessarily foreshadow or provide assurance of future performance or
results.
MANAGEMENT FORECASTS
FULL FULL FULL FULL FULL FULL FULL
YEAR YEAR YEAR YEAR YEAR YEAR YEAR
1995 1996(F) 1997(F) 1998(F) 1999(F) 2000(F) 2001(F)
-------- -------- -------- -------- -------- -------- --------
Sales......................... $169,520 $282,409 $326,833 $367,687 $408,133 $450,987 $496,085
Cost of Sales................. 119,836 203,022 231,754 261,058 289,366 319,299 350,732
-------- -------- -------- -------- -------- -------- --------
Gross Margin.................. 49,684 79,387 95,080 106,629 118,767 131,688 145,353
29.3% 28.1% 29.1% 29.0% 29.1% 29.2% 29.3%
Selling and Administrative.... 34,239 54,622 58,996 66,184 73,464 81,178 89,295
20.2% 19.3% 18.1% 18.0% 18.0% 18.0% 18.0%
Other Income Farberware....... (6,044) (250)
-------- -------- -------- -------- -------- -------- --------
Operating Income.............. 15,445 30,810 36,334 40,446 45,303 50,511 56,058
9.1% 10.9% 11.1% 11.0% 11.1% 11.2% 11.3%
Interest Expense.............. 287 2,805 377
Interest Income............... (4,881) (604) 0 (678) (2,199) (4,332) (6,953)
Other Income.................. 0 (12,350) (2,600) (3,000) (3,000) (3,000) (3,500)
-------- -------- -------- -------- -------- -------- --------
Income Before Taxes........... 20,039 40,959 38,557 44,123 50,502 57,843 66,511
-------- -------- -------- -------- -------- -------- --------
Income Taxes (35%)............ 6,863 14,335 13,495 16,105 19,191 22,559 26,604
-------- -------- -------- -------- -------- -------- --------
Income From Continuing
Operations.................. 13,176 26,624 25,062 28,018 31,311 35,284 39,906
Sale of Syroco, Inc........... 33,023 0
-------- -------- -------- -------- -------- -------- --------
Net Income.................... $ 46,199 $ 26,624 $ 25,062 $ 28,018 $ 31,311 $ 35,284 $ 39,906
======== ======== ======== ======== ======== ======== ========
Average Shares................ 11,803 8,793 8,793 8,793 8,793 8,793 8,793
Earnings Per Share
Continuing.................. $ 1.12 $ 3.03 $ 2.85 $ 3.19 $ 3.56 $ 4.01 $ 4.54
Earnings Per Share Other...... $ 2.79(1) $ 0.00
Total Earnings Per Share...... $ 3.91(1) $ 3.03 $ 2.85 $ 3.19 $ 3.56 $ 4.01 $ 4.54
- ---------------
(1) 1995 includes the sale of Syroco, Inc.
For the calendar year 1996: Sales were $270,931 -- $11,478 below forecast;
Operating Income was $23,102 -- $7,708 below forecast of which $3,953 related to
the transfer of shares to three executive officers; Income from Continuing
Operations was $25,062 -- $1,562 below forecast; Net Income was $20,389 --
$6,235 below forecast; and Earnings per share were $2.32 -- $0.71 below
forecast.
MERGER CONSIDERATION
Subject to certain provisions as described herein with respect to shares of
Syratech Common Stock owned by the Company or any wholly owned subsidiary of the
Company, and with respect to Dissenting Shares, (i) each issued and outstanding
share of Syratech Common Stock (other than Electing Shares as defined below)
will be entitled to receive in cash from the Company following the Merger an
amount equal to $32.00 (except that Leonard Florence will be entitled to receive
only $28.00 in cash) (the "Cash Price") and (ii) each issued and outstanding
share of Syratech Common Stock with respect to which an election to retain
Syratech Common Stock has been made and not withdrawn in accordance with the
Merger Agreement (an "Electing Share") will be entitled to retain one fully paid
and nonassessable share of Syratech Common Stock (a "Non-Cash Election Share").
The right to retain Syratech Common Stock will be limited in the case of each
holder to 35% of such holder's shares of Syratech Common Stock, other than (i)
Leonard Florence who is required by the Merger Agreement to retain 528,472
shares of Syratech Common Stock and (ii) Faye A. Florence, Alan R. Kanter,
Melvin L. Levine and E. Merle Randolph, who intend to retain an aggregate of
123,766 shares of Syratech Common Stock. In addition, because no more than
868,250 shares in the aggregate of Syratech Common Stock may be retained by
existing stockholders (other than Management Stockholders), the right to retain
Syratech Common Stock is subject to proration as set forth in the Merger
Agreement
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and described in this Proxy Statement/Prospectus. If all stockholders (other
than Management Stockholders) elect to retain 34.75% of their shares of Syratech
Common Stock, as a result of the proration, each holder will have the right
after proration, to retain approximately 16.2% of such holder's shares of
Syratech Common Stock. With respect to certain risks related to continuing to
hold Syratech Common Stock, see "SPECIAL FACTORS/RISK FACTORS" above.
Fractional shares of Syratech Common Stock will not be issued in the
Merger. Holders of Syratech Common Stock otherwise entitled to a fractional
share of Syratech Common Stock following the Merger will be paid cash in lieu of
such fractional share determined and paid as described under "--Fractional
Shares" below.
Any shares of Syratech Common Stock owned by the Company or by any wholly
owned subsidiary of the Company, will automatically be canceled at the Effective
Time and will cease to exist.
NON-CASH ELECTION
Record holders of shares of Syratech Common Stock will be entitled, with
respect to up to 35% of such holder's shares, to make an unconditional election
(a "Non-Cash Election") on or prior to the Election Date (as defined below) to
retain Non-Cash Election Shares, other than (i) Leonard Florence who is required
by the Merger Agreement to retain 528,472 shares of Syratech Common Stock and
(ii) Faye A. Florence, Alan R. Kanter, Melvin L. Levine and E. Merle Randolph,
who intend to retain an aggregate of 123,766 shares of Syratech Common Stock. If
the number of Electing Shares (other than shares retained by Management
Stockholders) exceeds 868,250, then (i) the number of such Electing Shares
covered by each Non-Cash Election will be determined by multiplying the total
number of such Electing Shares covered by such Non-Cash Election by a proration
factor (the "Non-Cash Proration Factor") determined by dividing 868,250 by the
total number of such Electing Shares and (ii) such number of Electing Shares
will be so retained. All Electing Shares, other than those shares retained as
described in the two immediately preceding sentences, will be converted into
cash as if such shares were not Electing Shares.
With respect to certain risks related to continuing to hold Syratech Common
Stock, see "RISK FACTORS" above.
NON-CASH ELECTION PROCEDURE
The form for making a Non-Cash Election (the "Form of Election") is being
mailed to holders of record of Syratech Common Stock together with this Proxy
Statement/Prospectus. FOR A FORM OF ELECTION TO BE EFFECTIVE, HOLDERS OF
SYRATECH COMMON STOCK MUST PROPERLY COMPLETE SUCH FORM OF ELECTION, AND SUCH
FORM OF ELECTION, TOGETHER WITH ALL CERTIFICATES FOR SHARES OF SYRATECH COMMON
STOCK HELD BY SUCH HOLDER, DULY ENDORSED IN BLANK OR OTHERWISE IN FORM
ACCEPTABLE FOR TRANSFER ON THE BOOKS OF THE COMPANY (OR BY APPROPRIATE GUARANTEE
OF DELIVERY AS SET FORTH IN SUCH FORM OF ELECTION), MUST BE RECEIVED BY THE
EXCHANGE AGENT AT ONE OF THE ADDRESSES LISTED ON THE FORM OF ELECTION AND NOT
WITHDRAWN, BY 5:00 P.M., EASTERN TIME, ON THE BUSINESS DAY NEXT PRECEDING THE
DATE OF THE SPECIAL MEETING (THE "ELECTION DATE").
The determinations of the Exchange Agent as to whether or not Non-Cash
Elections have been properly made or revoked, and when such election or
revocations were received, will be binding.
EFFECTIVE TIME
The Merger will become effective upon the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware or such other date
as is specified in such Certificate of the Merger in accordance with the
Delaware General Corporation Law and as THL I and the Company shall agree (the
"Effective Time"). Subject to certain limitations, the Merger Agreement may be
terminated by either party if, among other reasons, the Merger has not been
consummated on or before April 30, 1997. See "CERTAIN PROVISIONS
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OF THE MERGER AGREEMENT -- Conditions to the Consummation of the Merger" and
"-- Termination."
CONVERSION/RETENTION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES
At the Effective Time, shares of Syratech Common Stock (other than shares
as to which appraisal rights are properly exercised) will either be entitled to
(i) the right to receive cash or (ii) retain shares of Syratech Common Stock
following the Merger.
As soon as practicable following the Effective Time, the Exchange Agent
will send a letter of transmittal to each holder of Syratech Common Stock. The
letter of transmittal will contain instructions with respect to the surrender of
certificates representing shares of Syratech Common Stock in exchange for cash
and, under certain circumstances, certificates representing shares of Syratech
Common Stock to be retained in the Merger, or the amount of cash in lieu of any
fractional interest in a share of Syratech Common Stock for which the shares
represented by the certificates so surrendered are exchangeable pursuant to the
Merger Agreement.
EXCEPT FOR SYRATECH COMMON STOCK CERTIFICATES SURRENDERED WITH A FORM OF
ELECTION AS DESCRIBED ABOVE UNDER "-- NON-CASH ELECTION PROCEDURE," STOCKHOLDERS
OF THE COMPANY SHOULD NOT FORWARD STOCK CERTIFICATES TO THE EXCHANGE AGENT UNTIL
THEY HAVE RECEIVED THE LETTER OF TRANSMITTAL.
As soon as practicable after the Effective Time, each holder of an
outstanding certificate or certificates at such time which prior thereto
represented shares of Syratech Common Stock shall, upon surrender to the
Exchange Agent of such certificate or certificates and acceptance thereof by the
Exchange Agent, be entitled to the amount of cash, into which the number of
shares of Syratech Common Stock previously represented by such certificate or
certificates surrendered shall have been converted pursuant to the Merger
Agreement and a certificate or certificates representing the number of full
shares of Syratech Common Stock, if any, to be retained by the holder thereof
pursuant to the Merger Agreement. The Exchange Agent will accept such
certificates upon compliance with such reasonable terms and conditions as the
Exchange Agent may impose to effect an orderly exchange thereof in accordance
with normal exchange practices. After the Effective Time, there will be no
further transfer on the records of the Company or its transfer agent of
certificates representing shares of Syratech Common Stock which have been
converted, in whole or in part, pursuant to the Merger Agreement into the right
to receive cash, and if such certificates are presented to the Company for
transfer, they will be canceled against delivery of cash and, if appropriate,
certificates for retained Syratech Common Stock. Until surrendered as
contemplated by the Merger Agreement, each certificate for shares of Syratech
Common Stock will be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender the consideration contemplated by
the Merger Agreement. No interest will be paid or will accrue on any cash
payable as consideration in the Merger or in lieu of any fractional shares of
retained Syratech Common Stock.
No dividends or other distributions with respect to retained Syratech
Common Stock with a record date after the Effective Time will be paid to the
holder of any unsurrendered certificate for shares of Syratech Common Stock with
respect to the shares of retained Syratech Common Stock represented thereby and
no cash payment in lieu of a fractional share shall be paid to any such holder
pursuant to the Merger Agreement until the surrender of such certificate in
accordance with the Merger Agreement. Subject to the effect of applicable laws,
following surrender of any such certificate, there shall be paid to the holder
of the certificate representing whole shares of retained Syratech Common Stock
issued in connection therewith, without interest, (i) at the time of such
surrender, the amount of any cash payable in lieu of a fractional share of
retained Syratech Common Stock to which such holder is entitled pursuant to the
Merger Agreement and the proportionate amount of dividends or other
distributions, if any, with a record date after the Effective Time theretofore
paid with respect to such whole shares of retained Syratech Common Stock, and
(ii) at the appropriate payment date, the proportionate amount of dividends or
other distributions, if any, with a record
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date after the Effective Time but prior to such surrender and a payment date
subsequent to such surrender payable with respect to such whole shares of
retained Syratech Common Stock.
FRACTIONAL SHARES
No certificates or scrip representing fractional shares of retained
Syratech Common Stock will be issued in connection with the Merger, and such
fractional share interests will not entitle the owner thereof to vote or to any
rights of a stockholder of the Company after the Merger. Each holder of shares
of Syratech Common Stock exchanged pursuant to the Merger who would otherwise
have been entitled to receive a fraction of a share of retained Syratech Common
Stock (after taking into account all shares of Syratech Common Stock delivered
by such holder) will receive, in lieu thereof, a cash payment (without interest)
equal to the product obtained by multiplying $32 by a fraction equal to the
fraction of a share of Syratech Common Stock to which such holder would be
entitled if fractional shares were being issued.
CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the Merger Agreement, the Company has agreed to carry on its
business and that of its subsidiaries prior to the Effective Time in the usual,
regular and ordinary course of business consistent with past practice. See
"CERTAIN PROVISIONS OF THE MERGER AGREEMENT -- Certain Pre-Closing Covenants."
CONDITIONS TO THE CONSUMMATION OF THE MERGER
The obligation of the Company and THL I to consummate the Merger are
subject to various conditions, including, without limitation, obtaining
requisite stockholder approval, the termination or expiration of the relevant
waiting period under the HSR Act and the absence of any injunction or other
legal restraint or prohibition preventing the consummation of the Merger. See
"CERTAIN PROVISIONS OF THE MERGER AGREEMENT -- Conditions to the Consummation of
the Merger" and "REGULATORY APPROVALS."
FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Paul, Weiss, Rifkind, Wharton & Garrison concerning the
tax consequences of the Merger, the following are, under currently applicable
law, the material United States federal income tax considerations applicable to
the Merger. The tax treatment described herein may vary depending upon each
stockholder's particular circumstances and tax position. Certain stockholders
(including insurance companies, tax-exempt organizations, financial institutions
or broker-dealers, foreign corporations, persons who are not citizens or
residents of the United States ("U.S."), stockholders who do not hold their
shares as capital assets and stockholders who have acquired their existing stock
upon the exercise of options or otherwise as compensation) may be subject to
special rules not discussed below. In addition, the discussion set forth below
assumes that, immediately after the Merger, no stockholder will own (or will be
treated as owning under the attribution rules of Section 318 of the Code) any
Syratech Common Stock (through the stockholder of THL I or otherwise) other than
Syratech Common Stock retained by each stockholder or person related to each
stockholder pursuant to a Non-Cash Election. No ruling from the Internal Revenue
Service ("IRS") will be applied for with respect to the federal income tax
consequences discussed herein and, accordingly, there can be no assurance that
the IRS will agree with the conclusions stated herein. In addition, this
discussion does not consider the effect of any applicable foreign, state, local
or other tax laws. Each stockholder should consult his or her own tax advisor as
to the particular tax consequences to him or her of the Merger, including the
applicability and effect of any foreign, state, or local or other tax laws, any
recent changes in applicable tax laws and any proposed legislation.
Characterization of the Merger for U.S. Federal Income Tax Purposes. For
U.S. federal income tax purposes, THL I will be disregarded as a transitory
entity, and the Merger of THL I with and into the Company will be treated as a
sale of a portion of a tendering stockholder's Syratech Common Stock to
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affiliates of Thomas H. Lee Company and as a redemption of a portion of the
stockholder's Syratech Common Stock by the Company.
Treatment of Stockholders. To the extent that a stockholder is considered
to have sold Syratech Common Stock to affiliates of Thomas H. Lee Company, such
stockholder will recognize either capital gain or loss (assuming the Syratech
Common Stock is held by such stockholder as a capital asset) equal to the
difference between the amount realized on its deemed sale of Syratech Common
Stock to affiliates of Thomas H. Lee Company (i.e., the cash proceeds properly
allocated to such sale) and the stockholder's adjusted tax basis in such
Syratech Common Stock.
To the extent that a stockholder is considered to have received cash in the
Merger in redemption of a portion of the stockholder's Syratech Common Stock by
the Company and to the extent such redemption is treated as a sale or exchange
under Section 302 of the Internal Revenue Code of 1986, as amended ("the Code")
such stockholder also will recognize either capital gain or loss equal to the
difference between the cash proceeds allocable to the redemption of such
stockholder's Syratech Common Stock by the Company and the stockholder's
adjusted tax basis in such Syratech Common Stock. In each case, such gain or
loss generally will be long-term capital gain or loss if the Syratech Common
Stock is held as a capital asset by the stockholder for more than one year. To
the extent that such redemption of Syratech Common Stock is not treated as a
sale or exchange, it will be treated as a dividend to the extent of the
Company's current and accumulated earnings and profits. Any excess will be
applied first against the adjusted basis of the shares treated as redeemed, with
any remainder treated as gain from the sale or exchange of such Syratech Common
Stock.
Under Section 302 of the Code, a redemption of Syratech Common Stock
pursuant to the Merger will, as a general rule, be treated as a sale or exchange
if such redemption (a) is "substantially disproportionate" with respect to the
stockholder, or (b) results in a "complete redemption" of the stockholder's
interest in the Company.
In determining whether either of these Section 302 tests is satisfied,
stockholders must take into account not only the Syratech Common Stock that they
actually own, but also any Syratech Common Stock they are deemed to own under
the constructive ownership rules set forth in Section 318 of the Code. Pursuant
to these constructive ownership rules, a stockholder is deemed to constructively
own any Syratech Common Stock that is owned (actually and in some cases
constructively) by certain related individuals or entities and any Syratech
Common Stock that the stockholder has the right to acquire by exercise of an
option or by conversion or exchange of a security.
The redemption of a stockholder's Syratech Common Stock will be
"substantially disproportionate" with respect to such stockholder if the
percentage of Syratech Common Stock actually and constructively owned by such
stockholder immediately following the Merger is less than 80% of the percentage
of Syratech Common Stock actually and constructively owned by such stockholder
immediately prior to the Merger.
The redemption of a stockholder's Syratech Common Stock will result in a
"complete redemption" of a stockholder's interest in the Company if either (a)
all the Syratech Common Stock actually and constructively owned by the
stockholder is redeemed pursuant to the Merger or (b) all the Syratech Common
Stock actually owned by the stockholder is redeemed pursuant to the Merger and
the stockholder is eligible to waive, and does effectively waive in accordance
with Section 302(c) of the Code, attribution of all Syratech Common Stock which
otherwise would be considered to be constructively owned by such stockholder.
Stockholders in this position should consult their tax advisors as to the
availability of such a waiver.
Based on the rules described above, a stockholder who does not make a
Non-Cash Election and who is not treated as owning any Syratech Common Stock
following the Merger, either directly or by operation of the constructive
ownership rules described above, will satisfy the "complete redemption" test,
and accordingly will recognize a capital gain or loss with respect to the entire
amount of cash received in exchange for his shares. In addition, based on the
limitation on the amount of Syratech Common Stock that shareholders are
permitted to retain under the Non-Cash Election, shareholders making the
Non-Cash Election (as well as shareholders who receive all cash but to whom
ownership of shares of Syratech Common Stock will be attributed from
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persons who do make the Non-Cash Election) will satisfy the "substantially
disproportionate" test, and accordingly will also recognize a capital gain or
loss with respect to the entire amount of cash received in exchange for their
shares.
Information Reporting and Backup Withholding. The Company must report
annually to the IRS and to each stockholder the amount of dividends paid to such
stockholder and the backup withholding, if any, tax withheld with respect to
such dividends. Copies of these information returns also may be made available
to the tax authorities in the country in which a foreign stockholder resides
under the provisions of an applicable income tax treaty.
Backup withholding (which generally is a withholding tax imposed at the
rate of 31% on certain payments to persons that fail to furnish certain
information under the United States information reporting requirements)
generally will not apply to dividends paid to a foreign stockholder at an
address outside the United States (unless the payor has knowledge that the payee
is a U.S. person).
Payment of the proceeds of a sale of Syratech Common Stock by or through a
United States office of a broker is subject to both backup withholdings and
information reporting unless the beneficial owner certifies under penalties of
perjury that it is a foreign stockholder, or otherwise establishes an exemption.
In general, backup withholding and information reporting will not apply to a
payment of the proceeds of a sale of Syratech Common Stock by or through a
foreign office of a broker. If, however, such broker is, for United States
federal income tax purposes, a U.S. person, a controlled foreign corporation, or
a foreign person that derives 50% or more of its gross income for certain
periods from the conduct of a trade or business in the United States, such
payments will be subject to information reporting, but not backup withholding,
unless (1) such broker has documentary evidence in its records that the
beneficial owner is a foreign holder and certain other conditions are met, or
(2) the beneficial owner otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules may be allowed as a
refund or a credit against the holder's U.S. federal income tax liability
provided the required information is furnished to the IRS.
The backup withholding and information reporting rules are currently under
review by the Treasury Department and their application to the Syratech Common
Stock could be changed by future regulations.
THOUGH THE FOREGOING ARE THE MATERIAL U.S. FEDERAL INCOME TAX
CONSIDERATIONS GENERALLY APPLICABLE TO THE MERGER, THE DISCUSSION DOES NOT
ADDRESS EVERY FEDERAL INCOME TAX CONCERN THAT MAY BE APPLICABLE TO A PARTICULAR
STOCKHOLDER. EACH STOCKHOLDER IS URGED TO CONSULT SUCH STOCKHOLDER'S OWN TAX
ADVISOR TO DETERMINE THE TAX CONSEQUENCES TO SUCH STOCKHOLDER, IN THE LIGHT OF
SUCH STOCKHOLDER'S PARTICULAR CIRCUMSTANCES, OF THE DISPOSITION OF SYRATECH
COMMON STOCK PURSUANT TO THE MERGER.
ANTICIPATED ACCOUNTING TREATMENT
The Company intends that the Merger will be accounted for as a
recapitalization. Accordingly, the historical basis of the Company's assets and
liabilities will not be impacted by the transaction. See "PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS."
EFFECT ON STOCK AND EMPLOYEE BENEFIT MATTERS
At the Effective Time (x) each stock option to purchase shares of Syratech
Common Stock ("Company Stock Options") granted under the 1986 Key Employees'
Stock Option Plan and the 1993 Key Employees' Stock Option Plan (collectively,
the "1986 and 1993 Stock Plans") outstanding immediately prior to the Effective
Time will vest as a consequence of the Merger and (y) each such Company Stock
Option will be canceled in exchange for a payment from the Company after the
Merger (subject to any applicable withholding taxes) of an amount equal to the
product of (1) the total number of shares of Syratech Common Stock subject to
such Company Stock Option and (2) the excess of $32.00 over the exercise price
per share of
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Syratech Common Stock subject to such Company Stock Option, payable in cash
immediately following the Effective Time, representing approximately $3.8
million in the aggregate.
At the Effective Time, each unexercised and outstanding Company Stock
Option granted under the 1995 Key Employees' Stock Option Plan (the "1995 Stock
Plan" and, together with the 1986 and 1993 Stock Plans, the "Stock Plans") shall
be terminated and canceled without consideration, unless the holder of such
Common Stock Option consents in writing to the amendment of such Company Stock
Option to provide the holder thereof with the right to receive upon exercise
under the Company Stock Option, a conditional deferred payment from the Company
(subject to any applicable withholding taxes) equal to the product of (1) the
total number of shares of Syratech Common Stock subject to such Company Stock
Option and (2) the excess of $32 over the exercise price per share of Syratech
Common Stock subject to such Company Stock Option, payable in equal installments
on each remaining vesting date of such Company Stock Option, subject to the
continued employment with the Company of the holder of such Company Stock Option
on such vesting dates.
The Stock Option Plans will terminate as of the Effective Time, and
following the Effective Time no holder of a Company Stock Option nor any
participant in any Stock Plan will have any right thereunder to acquire equity
securities of the Company following the Merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain directors and officers of the Company have interests, described
below, that may present them with potential conflicts of interest in connection
with the Merger. The Board of Directors is aware of the conflicts described
below and considered them in addition to the other matters described under
"-- Background of the Merger" and "-- Recommendation of the Board; Reasons for
the Merger."
EMPLOYMENT AGREEMENTS
Effective August 16, 1991, the Company entered into an employment agreement
with Leonard Florence (the "Florence Employment Agreement") providing for the
employment of Mr. Florence as Chief Executive Officer of the Company at an
annual base salary, payable in month installments, of not less than $0.35
million as well as for certain other benefits and the reimbursement of expenses.
Unless otherwise terminated by the Company as provided in the Florence
Employment Agreement, Mr. Florence's term of full-time employment will continue
until the earlier of (i) the fifth anniversary of receipt of a notice of
termination given by either party to the other or (ii) the first anniversary of
receipt of a notice of termination given by Mr. Florence to the Company on or
after his 64th birthday. The Company may, at its discretion, but without any
obligation, increase Mr. Florence's base salary during the term of full-time
employment. Once the base salary shall have been increased, it shall not
thereafter be decreased without his written consent. Mr. Florence's current base
salary is $0.7 million per annum. The Florence Employment Agreement obligates
Mr. Florence to provide certain advisory services to the Company during the
five-year period following the term of Mr. Florence's full-time employment (the
"Advisory Period") and provides for Mr. Florence to receive annual compensation
during the Advisory Period in an amount equal to not less than 25% of his base
salary during the final year of his full-time employment. During the period of
his full-time employment and the Advisory Period, Mr. Florence is prohibited
from engaging in any business that is competitive with any line of business in
which the Company is engaged that contributes three percent or more of the gross
revenues of the Company. The Florence Employment Agreement also provides for
payment to Mr. Florence of a retirement benefit.
The Company entered into a similar employment agreement, also effective as
of August 16, 1991, with Melvin L. Levine, Vice President of Purchasing of the
Company, except in Mr. Levine's case the base salary was $0.225 million for the
year ended December 31, 1992. Mr. Levine's current base salary is $0.350 million
per annum.
As of May 1995 and July 1995, the employment agreements with Messrs. Levine
and Florence were amended with respect to the computation and payment of
retirement benefits to each and, in the case of Mr. Florence, to provide for
payment of a survivor's benefit to his surviving spouse. Specifically, the
amendments provided for annual retirement benefit payments in amounts equal to
2% of their respective average total compensation (i.e., base salary and bonus
compensation) in the three years preceding attainment
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by the relevant executive of age sixty-five or termination of such executive's
full time employment, whichever occurs later, multiplied by the number of years
of such executive's employment by the Company.
The Employment Agreements with Messrs. Florence and Levine, as amended,
provide for retirement benefit payments determined and payable in accordance
with the agreements. The following table shows the estimated annual benefits
payable to Messrs. Florence and Levine upon retirement based upon various
compensation levels and years of service.
PENSION PLAN TABLE
YEARS OF SERVICE
-------------------------------
RENUMERATION 5 10 15
- ------------ ------- ------- -------
400,000 40,000 80,000 120,000
500,000 50,000 100,000 150,000
600,000 60,000 120,000 180,000
700,000 70,000 140,000 210,000
800,000 80,000 160,000 240,000
900,000 90,000 180,000 270,000
1,000,000 100,000 200,000 300,000
1,100,000 110,000 220,000 330,000
1,200,000 120,000 240,000 360,000
1,300,000 130,000 260,000 390,000
1,400,000 140,000 280,000 420,000
Messrs. Florence and Levine have each completed ten years of credited
service. Retirement benefits under the employment agreements are computed on the
basis of a straight-life annuity and are not reduced by the benefits received
under Social Security, but would be reduced by any benefits received under any
Company funded pension plan that hereafter may be adopted.
At the Effective Time, the Employment Agreement with Leonard Florence will
be amended so as to (i) change his term of full-time employment from a rolling
five-year term to a fixed five-year term, (ii) provide for a minimum base
compensation of $1.15 million per annum, (iii) establish $1.15 million as the
minimum amount upon which his retirement benefit (and the survivor's benefit of
his surviving spouse) will be computed and (iv) create contractual rights with
respect to certain perquisites that are accorded to him informally under his
present arrangements with the Company. Under Section 162(m) of the Internal
Revenue Code, so much of the compensation paid to Mr. Florence as exceeds $1
million annually may not be deductible by the Company for federal income tax
purposes. The Employment Agreement with Melvin L. Levine will be amended, as of
the Effective Time, to change his term of full-time employment from a rolling
five-year term to a fixed five-year term.
The Company has also entered into employment agreements, effective as of
August 16, 1991, with E. Merle Randolph, Vice President, Chief Financial Officer
and Treasurer, and Alan R. Kanter, Vice President of Sales of the Company. The
agreements with Messrs. Randolph and Kanter are similar to those with Messrs.
Florence and Levine described above, except that (i) the term of full-time
employment of each of Messrs. Randolph and Kanter will continue until the third
anniversary of receipt of a notice of termination given by the Company to the
executive involved or by such executive to the Company, (ii) the period during
which each of Messrs. Randolph and Kanter has agreed to provide advisory
services to the Company (and to be bound by a non-competition agreement)
following the term of his full-time employment will be the lesser of three years
or six months for each year of his full-time employment beginning with the date
of the employment agreement, with such advisory period and the coextensive
non-competition covenant being subject to termination at the election of the
Company on six months prior notice to the executive involved, and (iii) no
provision was originally made therein for a payment of a retirement benefit.
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The employment agreements of Messrs. Randolph and Kanter were amended in
July 1996, to provide, and during the same month Faye A. Florence and the
Company entered into a Retirement Benefit Agreement that provides, inter alia,
for the payment at age 65 or upon termination of such officer's employment,
whichever is later, of an annual retirement benefit to each such officer equal
to a percentage of his or her average annual compensation for the three fiscal
years ended immediately prior to the date on which such officer ceases to be a
full time employee of the Company multiplied by the number of years of such
officer's service to the Company. The minimum annual retirement benefit for each
such officer will be $75,000.
It is not contemplated that any changes will be made in the agreements with
Messrs. Randolph and Kanter and Ms. Florence.
On December 31, 1996, the Company, THL I and Leonard Florence entered into
three separate agreements, one with each of Alan R. Kanter, Melvin L. Levine and
E. Merle Randolph (each an "Executive Party"). Pursuant to each of the three
agreements (i) Mr. Florence agreed to contribute to the Company (a) on December
31, 1996, 10,604 shares of Syratech Common Stock, (b) on January 14, 1997,
10,628 shares of Syratech Common Stock and (c) on January 14, 1998, the largest
number (not exceeding 3,124) of shares of Syratech Common Stock as shall have an
aggregate value of approximately $99,991, (ii) on each of the dates of
contribution of such shares of Syratech Common Stock by Mr. Florence to the
Company, such shares were to be canceled and the Company was to issue to the
Executive Party, that number of shares of Syratech Common Stock that would be
equal to the number of shares of Syratech Common Stock contributed to the
Company on such date by Mr. Florence; (iii) on December 31, 1996 the Company was
to pay to each Executive Party the sum of $234,346; (iv) on January 14, 1997 the
Company was to pay to each Executive Party an amount equal to the lesser of (x)
the income tax benefit to the Company from the issuance of shares of Syratech
Common Stock and the cash payment required to be made to him on such date or (y)
the aggregate amount of federal, state and local income taxes to be owed by each
Executive Party as a result of the issuance of such shares and the making of
such cash payment; and (v) on January 14, 1998 the Company is required to pay to
each Executive Party an amount equal to the lesser of (x) the income tax benefit
to the Company from the issuance of shares of Common Stock and the cash payment
to be made to each Executive Party on such date or (y) the aggregate amount of
federal, state and local income taxes that will be owed by each Executive Party
as a result of the issuance of shares of Common Stock and cash payment to be
made to him on such date. Each agreement provides that the manner in which the
payments to be made to each Executive Party for the purpose of transferring to
each Executive Party the tax benefits to the Company from such transactions are
to be calculated and subsequently adjusted is to be in the sole discretion of
the Company.
The Company and each Executive Party also entered into an amendment to the
respective Executive Party's Employment Agreement (each an "Amendment No. 2 to
Employment Agreement") dated January 31, 1997, to be effective as of December
31, 1996, to clarify and ensure that the transfer of shares referenced in the
above paragraph did not alter the base salary of the relevant Executive Party
for purposes of calculating the Executive Party's retirement benefit.
Faye A. Florence, Alan R. Kanter, Melvin L. Levine and E. Merle Randolph
hold options to purchase shares of Syratech Common Stock which will become fully
vested as a consequence of the Merger and be terminated and canceled in exchange
for a payment from the Company (subject to applicable withholding taxes)
immediately following the Effective Time equal to the product of (i) the total
number of shares of Syratech Common Stock subject to such options times (ii) the
excess of $32.00 over the exercise price of such options. The aggregate number
of shares subject to the options held by such executive officers is 41,000, and
the aggregate amount that will be payable by the Company as a result of the
vesting and cash out of the options held by them will be $674,270.
In connection with the Fund's commitment to purchase common stock of THL I,
THL I agreed, whether or not the transactions contemplated by the commitment
letter provided by the Fund are consummated, to pay and save the Fund harmless
against any liability for all reasonable out-of-pocket expenses of the Fund for
attorneys, accountants and other professional services required in connection
with (i) the preparation of the commitment letter, (ii) the due diligence
process involved in valuing the status of the affairs of Syratech, (iii) the
negotiation, documentation and closing of the business transactions contemplated
by the commit-
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ment letter, and (iv) all related printing, reproduction or similar
transactional costs. In addition, Thomas H. Lee Company, an affiliate of the
Fund, is to receive a fee of $3 million, payable upon consummation of the
Merger, and an annual management fee in the amount of $0.45 million. In
addition, THL I agreed to indemnify and hold the Fund harmless from and against
any and all actions, suits, proceedings, losses, claims, damages, liabilities or
expenses of any kind which may be incurred by or asserted against or involved
the Fund or any of its partners, officers, agents or employees as a result of or
arising out of or in any way related to the transactions described in the
commitment letter, except that the Fund will not be entitled to indemnity for
its own gross negligence or willful misconduct as determined by a court of
competent jurisdiction. THL I further agreed to pay or reimburse the Fund for
any legal or other expenses incurred by the Fund in connection with
investigating, defending or preparing to defend any action, suit, claim or
proceeding (including any inquiry or investigation). If the Merger is
consummated, the agreement between the Fund and THL I will become and be binding
upon Syratech.
Ocean State Jobbers, Inc. ("Ocean State") purchased from the Company
merchandise in the amount of approximately $2.450 million for the year ended
December 31, 1996. Alan Perlman, a director of the Company, has been an officer
and director of Ocean State since 1977.
Service Merchandise Co. Inc., ("Service") purchased from the Company
merchandise in the amount of approximately $22.598 million for the year ended
December 31, 1996. On July 12, 1996, Farberware granted to Service, in
consideration of royalty payments to be made by Service, the exclusive license
to use and exploit the Farberware name and related intellectual property in
connection with the sourcing, manufacture, marketing and sale of certain
electric products. An indirect beneficial owner of less than 1% of the Company's
Common Stock holds a significant management position in Service. Harold
Roitenberg, a director of the Company, is also a director of Service.
Wacker Industrial Company ("Wacker"), a major supplier, is owned by a
holder of less than 1% of Syratech Common Stock. For the year ended December 31,
1996, the Company had purchases from Wacker of approximately $4.478 million.
Lifetime Hoan Corporation ("Lifetime") purchased from the Company
merchandise in the amount of approximately $5.033 million during the year ended
December 31, 1996. In April 1996, the Company and Lifetime, acting together,
acquired certain assets of Farberware, including the rights to share in certain
royalties under certain license agreements entered into and assigned to the
Company by the prior owner of the Farberware trade name. In addition, the
Company expects to continue to grant licenses with respect to the Farberware
trade name in conjunction with Lifetime.
The Company believes that the transactions described or referred to above
were effected on terms no less favorable to the Company than those that could
have been obtained from unaffiliated third parties.
Shares of Syratech Common Stock held by executive officers and directors of
the Company will be entitled to receive the same consideration as shares of
Syratech Common Stock held by other stockholders, except that (i) Leonard
Florence (a) will be required to contribute 35,232 of his shares of Syratech
Common Stock to the Company, (b) will be required to retain 528,472 of his
shares of Syratech Common Stock and (c) will receive only $28.00 per share for
all remaining shares of his Syratech Common Stock; and (ii) Faye A. Florence,
Alan R. Kanter, Melvin L. Levine and E. Merle Randolph who intend to retain an
aggregate of 123,766 shares of Syratech Common Stock.
Mr. Florence and THL I have agreed that, following the Merger, (i) the
parties will agree to vote their shares of Syratech Common Stock in favor of a
Board of Directors, the majority of whom will be designated by the Lee
Affiliates and certain members of which will be designated by management, (ii)
the Lee Affiliates and management will have certain rights in connection with
certain sales of shares by the other, including the right to participate in such
sale, (iii) the Lee Affiliates and Mr. Florence will have certain registration
rights with respect to sales of Syratech Common Stock and (iv) it is intended
that Syratech establish an option plan granting Management options to purchase
273,438 shares of Syratech Common Stock (such options to be allocated as
determined by the Board of Directors in consultation with Mr. Florence).
Pursuant to the Merger Agreement, the Company has agreed for six years
after the Effective Time to indemnify all present and former directors and
officers of the Company and its subsidiaries and will, subject to
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certain limitations, maintain for six years its current directors' and officers'
insurance and indemnification policy. See "CERTAIN PROVISIONS OF THE MERGER
AGREEMENT -- Indemnification and Insurance."
Additional information relating to executive compensation and various
benefit arrangements of the Company is set forth and incorporated herein by
reference to the Company's Proxy Statement for its Annual Meeting of
Stockholders held on May 9, 1996. See "AVAILABLE INFORMATION" and "INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE."
NYSE DE-LISTING
Following the consummation of the Merger, the Company anticipates that it
will seek to have the Syratech Common Stock, which is currently traded on the
NYSE delisted. See "RISK FACTORS -- Delisting; Loss of Liquidity."
EFFECT OF THE MERGER ON RIGHTS OF HOLDERS OF SYRATECH COMMON STOCK
As a result of the Merger, Syratech Common Stock will no longer be traded
on the NYSE. See "SPECIAL FACTORS/RISK FACTORS -- Disadvantages of the
Merger -- Delisting; Loss of Liquidity; Reporting Obligations." In addition, as
required by the Merger Agreement, Syratech has redeemed all outstanding Rights
(as defined below) and terminated the Rights Agreement pursuant to which they
were issued. See "DESCRIPTION OF SYRATECH CAPITAL STOCK -- Preferred
Stock -- Rights." Also, at the Effective Time of the Merger, the Company's
Certificate of Incorporation will be amended to permit holders of Syratech
Common Stock to act by written consent in lieu of a meeting.
RESALE OF SYRATECH COMMON STOCK FOLLOWING THE MERGER
The Syratech Common Stock to be retained in connection with the Merger will
be freely transferable, except that shares retained by any stockholder who may
be deemed to be an "affiliate" (as defined under the Securities Act and
generally including, without limitation, directors, certain executive officers
and beneficial owners of 10% or more of a class of capital stock) of the Company
for purposes of Rule 145 under the Securities Act will not be transferable
except in compliance with the Securities Act. This proxy statement does not
cover sales of Syratech Common Stock retained by any person who may be deemed to
be an affiliate of the Company.
MERGER FINANCINGS
Syratech is expected to enter into debt financing arrangements aggregating
approximately $285 million, which will consist of both debt securities (the
"Debt Securities") and a senior revolving credit facility (the "Revolving Credit
Facility"). It is anticipated that the full proceeds of the Debt Securities and
a portion of the proceeds available pursuant to the Revolving Credit Facility
would be used to finance the conversion into cash of the shares of Syratech
Common Stock currently outstanding which are not retained by existing
stockholders, and to refinance Syratech's outstanding indebtedness. In addition,
the Revolving Credit Facility would be used to provide for Syratech's working
capital requirements at the time of the Merger. On February 14, 1997, THL I
received commitment letters to provide such financing. The commitments are
subject to customary conditions, including the negotiation, execution and
delivery of definitive documentation with respect to the financings contemplated
by the commitments.
Under the Revolving Credit Facility, NationsBank, N.A. ("NationsBank") will
provide the Company with $130.0 million of revolving credit borrowings. The
Revolving Credit Facility will include a $30.0 million sublimit for the issuance
of standby and commercial letters of credit. Borrowings made under the Revolving
Credit Facility will bear interest at a rate equal to, at the Company's option,
NationsBank's Eurodollar Rate plus 225 basis points or the Prime Rate plus 50
basis points. The "Prime Rate" is a fluctuating interest rate equal to the
higher of (i) the rate of interest announced publicly by NationsBank as its
prime rate and (ii) a rate equal to 1/2 of 1% per annum above the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers, as determined
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for any day by NationsBank. The Eurodollar Rate and Prime Rate margins will be
subject to step-downs commencing twelve months from the Closing, based on the
Company's performance. Interest based on the base rate will be payable monthly
in arrears. Interest based on the Eurodollar Rate will be payable in arrears at
the earlier of the end of (a) the applicable interest period and (b) month-end.
Eurodollar Rate borrowings are available in 1-, 2- 3- or 6-month interest
periods.
The Revolving Credit Facility expires five (5) years from the consummation
of the Merger. Pursuant to the terms of the Revolving Credit Facility, the
Company is required during February and March of each year to maintain excess
availability (i.e. borrowing capacity in excess of the borrowings under the
Revolving Credit Facility) of at least $45.0 million. The obligations of the
Company under the Revolving Credit Facility are secured by inventory, accounts
receivable and the proceeds of the foregoing of the Company and its domestic
subsidiaries.
The Revolving Credit Facility contains customary covenants of the Company
and the subsidiary borrowers, including, without limitation, restrictions on (i)
the incurrence of debt, (ii) the sale of assets, (iii) mergers, acquisitions and
other business combinations, (iv) voluntary prepayment of other debt of the
Company, (v) transactions with affiliates (as defined in the Revolving Credit
Facility) and (vi) investments, as well as prohibitions on the payment of
dividends to, or the repurchase or redemption of stock from, shareholders and
various financial covenants. Pursuant to the terms of the Revolving Credit
Facility, the Company would be in default under the Revolving Credit Facility
upon the non-payment of principal or interest when due under the notes issued in
connection with the Revolving Credit Facility or, subject to applicable grace
periods in certain circumstances (ranging form zero to ten days), upon the
non-fulfillment of the covenants described above, certain changes in control of
the ownership of the Company or various other defaults described in the
Revolving Credit Facility. If such a default occurs, the banks will be entitled
to take all actions permitted to be taken by a secured creditor under the
Uniform Commercial Code and to accelerate the amounts due under the Revolving
Credit Facility and may require all such amounts to be immediately paid in full.
The Company plans to issue $155 million original principal amount of Debt
Securities, with an interest rate of % per annum. The Debt Securities will
have a maturity of ten years from the date of issue. Interest shall be payable
semi-annually. The Debt Securities will be general unsecured obligations of the
Company, ranking senior to all existing and future subordinated indebtedness of
the Company and pari passu in right of payment with all other existing and
future unsubordinated indebtedness of the Company, including the Revolving
Credit Facility. The payment of principal, premium, if any, and interest on the
Debt Securities will be unconditionally guaranteed on a joint and several basis
by each of the Company's domestic subsidiaries. See Note 15 to Notes to
Financial Statements.
On or after five years from the date of issue, the Company may redeem the
Debt Securities in whole or in part pursuant to the terms thereof.
Notwithstanding the foregoing, at any time on or before three years from the
date of issue, the Company may redeem up to 37 1/2% of the original aggregate
principal amount of Debt Securities at a redemption price of % of the
principal amount thereof, provided that at least $100.0 million of Debt
Securities remain outstanding immediately after the occurrence of such
redemption. Upon a Change of Control (as defined in the Indenture pursuant to
which the Debt Securities will be issued (the "Indenture"))(1), the Company will
be required to make an offer to purchase all outstanding Debt Securities
- ---------------
(1) The Company expects that the definition of Change of Control in the
Indenture shall mean the occurrence of any of the following: (i) the sale,
lease, transfer, conveyance or other disposition (other than by way of merger or
consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange
Act), other than principals or their related parties, (ii) the adoption of a
plan relating to the liquidation or dissolution of the Company, (iii) the
consummation of any transaction (including, without limitation, any merger or
consolidation) the result of which is that any "person" (as defined above),
other than the principals or their related parties, becomes the "beneficial
owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange
Act, except that a person shall be deemed to have "beneficial ownership" of all
securities that such person has the right to acquire, whether such right is
currently exercisable or is exercisable only upon the occurrence of a subsequent
condition), directly or
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at 101% of the principal amount thereof. In addition, a Change of Control
would also require the Company to redeem the Cumulative Redeemable Preferred
Stock and to repay outstanding indebtedness under the Revolving Credit Facility.
There can be no assurance that in the event of a Change of Control the Company
will have, or will have access to, sufficient funds to repurchase the Notes,
redeem the Cumulative Redeemable Preferred Stock and to repay indebtedness under
the Revolving Credit Facility.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all Senior Notes validly tendered and not withdrawn under such Change
of Control Offer.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precise established definition of the phrase under applicable
law. Accordingly, the ability of a Holder of Senior Notes to require the Company
to repurchase such Senior Notes as a result of a sale, lease, transfer,
conveyance or other disposition of less than all of the assets of the Company
and its Subsidiaries taken as a whole to another Person or group may be
uncertain.
In addition, the Indenture will restrict, among other things, the ability
of the Company and its subsidiaries to incur additional indebtedness, pay
dividends or make certain other restricted payments, incur liens, engage in any
sale and leaseback transaction, sell stock of subsidiaries, apply net proceeds
from certain asset sales, merge or consolidate with any other person, sell,
assign, transfer, lease, convey or otherwise dispose of substantially all of the
assets of the Company, enter into certain transactions with affiliates, or incur
indebtedness that is subordinate in right of payment to any Indebtedness and
senior in right of payment to the Debt Securities.
Certain affiliates of Thomas H. Lee Company expect to make an equity
contribution to THL I of (i) approximately $100.2 million of Common Stock less
an amount which is equal to the product obtained by multiplying $32 by the
number of shares of Syratech Common Stock (not to exceed 781,250) retained by
existing stockholders other than Management Stockholders and (ii) up to $18.0
million of Cumulative Redeemable Preferred Stock. The equity contribution to THL
I of up to $118.2 million assumes that stockholders (other than Management
Stockholders) do not elect to retain any Syratech Common Stock.
CONVERSION OF THL I STOCK
In the Merger, the shares of stock of THL I issued and outstanding
immediately prior to the Effective Time will be converted into such aggregate
number of shares of Syratech Common Stock as equals 3,131,780 less the number of
shares of Syratech Common Stock (not to exceed 781,250) retained by stockholders
(other than shares retained by Management Stockholders). Such shares of Syratech
Common Stock will be held by Lee Affiliates, including the Fund.
- --------------------------------------------------------------------------------
indirectly, of more than 50% of the voting stock of the Company (measured by
voting power rather than number of shares), (iv) the first day on which a
majority of the members of the Board of Directors are not continuing directors
or (v) the Company consolidates with, or merges with or into, any Person or
sells, assigns, conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any Person, or any person consolidates with,
or merges with or into, the Company, in any such event pursuant to a transaction
in which any of the outstanding voting stock of the Company is converted into or
exchanged for cash, securities or other property, other than any such
transaction where the voting stock of the Company outstanding immediately prior
to such transaction is converted into or exchanged for voting stock (other than
disqualified stock) of the surviving or transferee Person constituting a
majority of the outstanding share of such voting stock of such surviving or
transferee Person (immediately after giving effect to such issuance). For
purposes of this definition, any transfer of an equity interest of an entity
that was formed for the purposes of acquiring voting stock of the Company will
be deemed to be a transfer of such portion of such voting stock as corresponds
to the portion of the equity of such entity that has been so transferred.
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PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated financial
statements (the "Pro Forma Condensed Consolidated Financial Statements") have
been derived by the application of pro forma adjustments to the Company's
historical financial statements included in this Proxy Statement/Prospectus. The
pro forma condensed consolidated statement of operations for the year ended
December 31, 1996 give effect to the Merger and related transactions and the
acquisition of Rauch as if such transactions were consummated on January 1,
1996. The acquisition of C. J. Vander and the Silvestri and Potpourri Press
product lines were not material to the condensed consolidated financial
statements and as such are not included in the Pro Forma Condensed Consolidated
Financial Statements. The pro forma balance sheet gives effect to the Merger and
related transactions as if such transactions had occurred as of December 31,
1996. The adjustments are described in the accompanying notes. The Pro Forma
Financial Statements should not be considered indicative of actual results that
would have been achieved had the Merger and related transactions been
consummated on the date or for the period indicated and do not purport to
indicate balance sheet data or results of operations as of any future date or
for any future period. The Pro Forma Condensed Consolidated Financial Statements
should be read in conjunction with the Company's historical financial statements
and the notes thereto included in this Proxy Statement/Prospectus. See
"AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
The pro forma adjustments were applied to the respective historical
financial statements to reflect and account for the Merger as a
recapitalization. Accordingly, the historical basis of the Company's assets and
liabilities has not been impacted by the transaction.
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PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(IN THOUSANDS)
DECEMBER 31, 1996
-----------------------------------------------
HISTORICAL PRO FORMA
SYRATECH TRANSACTION SYRATECH
CORPORATION ADJUSTMENTS(a) CORPORATION
----------- ----------- -----------
ASSETS
Current assets:
Cash and equivalents............................... $ 3,605 $ (2,605)(a) $ 1,000
Accounts receivable, net........................... 60,020 60,020
Inventories........................................ 79,355 79,355
Deferred income taxes.............................. 8,940 8,940
Prepaid expenses and other......................... 3,803 3,803
-------- --------- --------
Total current assets....................... 155,723 (2,605) 153,118
Property, plant and equipment, net................... 63,955 63,955
Purchase price in excess of net assets acquired...... 7,032 7,032
Other assets......................................... 544 10,088(b) 10,632
-------- --------- --------
Total...................................... $ 227,254 $ 7,483 $ 234,737
======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving loan and notes payable................... $ 6,636 $ 683(c) $ 7,319
Accounts payable................................... 9,689 9,689
Accrued expenses................................... 11,049 11,049
Accrued compensation............................... 4,228 4,228
Accrued advertising................................ 3,273 3,273
Income taxes payable............................... 930 930
-------- --------- --------
Total current liabilities.................. 35,805 683 36,488
Long-term debt....................................... 155,000(d) 155,000
Deferred income taxes................................ 17,706 17,706
Pension liability.................................... 3,495 3,495
Commitments and contingencies........................
Stockholders' equity:
Cumulative redeemable preferred stock.............. 18,000(e) 18,000
Common stock....................................... 87 (49)(f)(g) 38
Additional paid-in capital......................... 12,480 (12,480)(g) --
Retained earnings.................................. 157,117 (153,674)(b)(g) 3,443
Cumulative translation adjustment.................. 567 567
Less: Treasury stock............................... (3) 3(g)(h) --
-------- --------- --------
Total stockholders' equity................. 170,248 (148,200) 22,048
-------- --------- --------
Total...................................... $ 227,254 $ 7,483 $ 234,737
======== ========= ========
See notes to pro forma condensed consolidated balance sheet.
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NOTES TO PRO FORMA
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
The pro forma financial data have been derived by the application of pro
forma adjustments to the Company's historical financial statements for the
period noted. The Merger has been accounted for as a recapitalization which will
have no impact on the historical basis of assets and liabilities. The pro forma
financial data assumes that there are no dissenting shareholders to the Merger.
(a) The net effect of the Merger, as if it occurred on December 31, 1996,
reflects the following:
Sources of Funds:
New Revolving Credit Facility proceeds(1)............................... $ 7,119
Debt Securities proceeds................................................ 155,000
Syratech cash at December 31, 1996...................................... 2,605
Cash from exercise of employee stock options............................ 2,874
Equity contribution:
THL I
Common stock(2).................................................... 100,217
Cumulative Redeemable Preferred Stock.............................. 18,000
Retained by Management(3)............................................ 20,872
--------
Total Sources $306,687
========
Uses of Funds:
Merger consideration(3)................................................. $275,251
Repayment of existing debt.............................................. 6,436
Fees and expenses....................................................... 25,000
--------
Total Uses......................................................... $306,687
========
- ---------------
(1) The Company expects that a $130,000 new Revolving Credit Facility,
including a letter of credit sub-limit of $30,000, will be available for
working capital and general corporate purposes. The amount shown
excludes $10,348 of letters of credit which will be issued to replace
existing letters of credit.
(2) Assumes non-management stockholders do not elect to retain shares.
(3) Includes 528,472 shares to be retained by Mr. Florence and 123,766
shares to be retained by other members of Management.
(b) The adjustment to retained earnings reflects the total fees and expenses of
$25,000 anticipated to be paid to effect the Merger, net of the adjustment
to other assets of $10,088 of capitalized debt issuance fees. Such
estimated fees and expenses are anticipated to consist of (i) fees and
expenses related to the Merger Financings, including bank commitment fees
and underwriting discounts and commissions, (ii) fees and expenses in
connection with the prepayment of historical debt and (iii) professional,
advisory and investment banking fees and expenses and (iv) miscellaneous
fees and expenses such as printing and filing fees.
(c) The pro forma adjustment to short-term borrowings reflects the repayment of
historical revolving debt outstanding of $6,436 and the addition of $7,119
under the new Revolving Credit Facility, excluding $10,348 of letters of
credit which will be issued to replace existing letters of credit.
(d) The pro forma adjustment to long-term debt reflects the issuance of
$155,000 of Debt Securities.
This presentation is the Company's best current estimate of the types of
financing which may be used in connection with the Merger.
The Company expects that a $130,000 Revolving Credit Facility, including a
letter of credit sub-limit of $30,000, will be available for working
capital and general corporate purposes. See "THE MERGER -- Merger
Financings."
The pro forma statements do not reflect the Warrants which may be issued in
connection with the financing of the transactions contemplated by the
Merger Agreement.
Subject to market conditions, the Company may increase the aggregate amount
of Debt Securities it will issue pursuant to its registration statement on
Form S-3 to up to $180 million. The amount of Cumulative
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Redeemable Preferred Stock to be issued to THL I shall be reduced
dollar-for-dollar by the net proceeds of Debt Securities issued by the
Company in excess of $155 million.
(e) The adjustment reflects the issuance of up to 18,000 shares of Cumulative
Redeemable Preferred Stock to Lee Affiliates. Dividends are cumulative and
accrue daily at the rate of 12% per annum. The liquidation preference of
the Cumulative Redeemable Preferred Stock is $1,000 per share plus all
accrued and unpaid dividends. Holders of the Cumulative Redeemable
Preferred Stock are entitled, subject to the rights of creditors, in the
event of any voluntary or involuntary liquidation of the Company, to an
amount in cash equal to $1,000 for each share outstanding plus all accrued
and unpaid dividends compounded annually. The rights of holders of the
Cumulative Redeemable Preferred Stock upon liquidation of the Company rank
prior to those of the holders of Syratech Common Stock. See "DESCRIPTION OF
SYRATECH CAPITAL STOCK -- Preferred Stock -- Cumulative Redeemable
Preferred Stock." The Cumulative Redeemable Preferred Stock will be
redeemable at any time at the option of the Company, in whole or in part,
at $1,000 per share plus all accumulated and unpaid dividends, if any, to
the date of redemption. Subject to the Company's existing debt agreements,
the Company must redeem all outstanding Cumulative Redeemable Preferred
Stock in the event of a public offering of equity, a change of control, or
certain sales of assets. As used in the designation of the Cumulative
Redeemable Preferred Stock, the term "Change of Control" has the same
meaning as is ascribed to that term in the Indenture governing the issuance
of the Debt Securities. See "THE MERGER -- Merger Financings" and footnote
(1) thereto.
(f) The adjustment reflects the effect of the Merger on the 8,659,999 shares
outstanding, excluding the 35,232 shares to be cancelled and retired, at
$.01 par value per share. There will be 3,784,018 shares outstanding
subsequent to the Merger.
(g) The adjustment reflects amounts distributed to convert up to 8,217,261
shares of Syratech Common Stock to cash, including those converted under
the Employee Stock Option Plan, for total consideration of $275,251 less
the retention of shares by existing shareholders. Combining the retained
shares with the receipt of proceeds of up to 3,131,780 shares issued as
part of the Merger to THL I results in total equity of $121,089.
Historical retained earnings.............................................. $157,117
Common stock converted by existing stockholders(1)........................ (254,379)
Equity contribution(2).................................................... 100,217
Cash proceeds from exercise of employee stock options..................... 2,874
Costs and expenses incurred, net of deferred financing costs
capitalized............................................................. (14,912)
Allocation to par value of the common stock as a result of the Merger..... 49
Allocation to reduce additional paid in capital to zero................... 12,480
Allocation to cancel treasury stock....................................... (3)
--------
Pro forma retained earnings............................................... $ 3,443
========
- ---------------
(1) Assumes no stockholders other than Management elect to retain shares of
Syratech Common Stock.
(2) Assumes non-management stockholders do not elect to retain Syratech
Common Stock.
(h) The adjustment reflects the cancellation of the 218 shares of treasury
stock.
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PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, 1996
-------------------------------------------------------------------------------------------
MERGER
HISTORICAL PRO FORMA PRO FORMA PRO FORMA
SYRATECH RAUCH(A) ADJUSTMENTS COMBINED ADJUSTMENTS COMBINED
---------- ---------- ----------- -------- ----------- ---------
Net sales.................. $ 270,931 $ 609 $ $271,540 $ 271,540
Cost of sales.............. 194,113 330 101(b) 194,544 194,544
-------- ------- ------ -------- ---------
Gross profit..... 76,818 279 (101) 76,996 76,996
Selling, general and
administrative
expenses................. 57,664 1,806 30(c) 58,420 $ 450(g) 58,870
(94)(d)
(986)(e)
Other operating income..... 3,948(1) 3,948 3,948
-------- ------- ------ -------- -------- ---------
Income (loss)
from
operations..... 23,102 (1,527) 949 22,524 (450) 22,074
Interest expense........... (3,150) (93) (519)(f) (3,762) (18,951)(h) (22,713)
Interest income............ 771 21 792 792
Other income............... 11,900(2) 11,900 11,900
-------- ------- ------ -------- -------- ---------
Income (loss)
before
provision
(benefit) for
income taxes... 32,623 (1,599) 430 31,454 (19,401) 12,053
Provision (benefit) for
income taxes............. 12,234 (439)(i) 11,795 (7,275)(j) 4,520
-------- ------- ------ -------- -------- ---------
Net income
(loss)......... 20,389 (1,599) 869 19,659 (12,126) 7,533
Preferred stock dividends
accrued.................. 2,160(i) 2,160
-------- ------- ------ -------- -------- ---------
Net income (loss)
for common
stockholders... $ 20,389 $ (1,599) $ 869 $ 19,659 $ (14,286) $ 5,373
======== ======= ====== ======== ======== =========
Income per common share.... $ 2.32 $ 2.23 $ 1.42
======== ======== =========
Weighted average common
shares and
common share equivalents
outstanding.............. 8,799 8,799 (5,015)(k) 3,784(k)
======== ======== ======== =========
- ---------------
(1) Income from the sale of Farberware inventory and other operating income, net
of certain selling, general and administrative expenses.
(2) Nonrecurring pre-tax income related to licensing the Farberware name on
cookware and bakeware.
See notes to pro forma condensed consolidated statement of operations.
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NOTES TO PRO FORMA
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
The pro forma condensed consolidated financial data have been derived by
the application of pro forma adjustments to the Company's historical financial
statements for the period noted. The Merger has been accounted for as a
recapitalization which will have no impact on the historical basis of assets and
liabilities. The pro forma financial data assumes that there are no dissenting
shareholders to the Merger.
(a) Includes the results of operations for the 45 day period, beginning January
1, 1996, prior to the Company's acquisition of Rauch.
(b) Reflects additional depreciation expense as a result of an allocation of a
portion of the Rauch purchase price to property, plant and equipment.
(c) Reflects additional amortization expense as a result of amortizing, over 30
years, the $7,224 allocation of Rauch purchase price in excess of net
assets acquired.
(d) Reflects an adjustment for certain acquisition related costs incurred by
Rauch.
(e) Reflects an adjustment for a stock option buy out by Rauch.
(f) Reflects an increase in interest expense had the acquisition of Rauch taken
place on January 1, 1996, using an interest rate of 8.3% per annum, which
represents the Company's weighted average interest costs for the period.
(g) The pro forma adjustment to selling, general and administrative expenses
reflects the annual management fee the Company will pay to the Thomas H. Lee
Company.
(h) The pro forma adjustment to interest expense reflects the following:
Interest expense on the new Revolving Credit Facility (assumed 9.0%
rate).................................................................... $ 1,656
Interest expense on the Debt Securities (assumed 10.25% rate).............. 15,888
Amortization of debt issuance costs over 6-10 years........................ 1,407
-------
Total adjustment................................................. $18,951
=======
Because interest rates in connection with the Merger Financings have not
been determined as of the date of this Proxy Statement/Prospectus, this
presentation is the Company's best current estimate of interest rates.
A 0.125% increase or decrease in the assumed average interest rate on the
Debt Securities would change the pro forma interest expense by $193. The
pro forma net income would change by $126 and the pro forma earnings per
share would change by $0.03.
If the Company is unable to consummate the issuance and sale of the Debt
Securities, the Company will rely on the Senior Bridge Financing which will
be on terms less favorable to the Company than the terms of the Debt
Securities. The Senior Bridge Financing would initially bear interest at a
rate in excess of the expected interest rate on the Debt Securities, which
rate would increase over time subject to certain caps. Assuming that the
Company was unable to consummate the issuance and sale of the Debt
Securities prior to the consummation of the Recapitalization and therefore
borrowed pursuant to the terms of the Senior Bridge Financing, the pro
forma interest expense for the year ended December 31, 1996 would have
increased by $2,712.
(i) Dividends on shares of Cumulative Redeemable Preferred Stock are cumulative
from the date of issue and are payable when and as may be declared from
time to time by the Board of Directors of the Company. Such dividends shall
accrue on a daily basis (whether or not declared) from the original date of
issue at an annual rate per share equal to 12% of the original purchase
price per share, with such
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amount to be compounded annually on each December 31 so that if the dividend
is not paid for any year the unpaid amount shall be added to the original
purchase price of the Cumulative Redeemable Preferred Stock for the purpose
of calculating succeeding years' dividends.
(j) The adjustment reflects the tax effect of the pro forma adjustments at a
37.5% effective tax rate.
(k) Reflects the reduction in weighted average common shares and common share
equivalents outstanding as a result of the reduction in shares in connection
with the Merger assuming stockholders other than Management do not make a
Non-Cash Election.
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DESCRIPTION OF SYRATECH CAPITAL STOCK
GENERAL
Syratech is authorized by its Restated Certificate of Incorporation, to
issue an aggregate of 20,000,000 shares of Common Stock, par value $.01 per
share and 500,000 shares of Preferred Stock, par value $.10 per share. The
following is a summary of certain of the rights and privileges pertaining to
Syratech Capital Stock. For a full description of Syratech Capital Stock,
reference is made to the Company's Restated Certificate of Incorporation, a copy
of which is on file with the Commission.
SYRATECH COMMON STOCK
The holders of Syratech Common Stock are entitled to one vote per share on
all matters submitted for action by the stockholders. Stockholders holding a
majority of the shares of Syratech Common Stock can, if they elect to do so,
approve the Merger. There is no provision for cumulative voting with respect to
the election of directors. Accordingly, the holders of more than 50% of the
shares of Syratech Common Stock can, if they choose to do so, elect all of the
directors. In such event, the holders of the remaining shares will not be able
to elect any directors.
Subject to the rights of any holders of outstanding Preferred Stock, all
shares of Syratech Common Stock are entitled to share in such dividends as the
Board of Directors may from time to time declare from sources legally available
therefor.
Subject to the rights of any holders of outstanding Preferred Stock, upon
liquidation or dissolution of the Company, whether voluntary or involuntary, all
shares of Syratech Common Stock are entitled to share equally in the assets
available for distribution to stockholders after payment of all prior
obligations of the Company.
SYRATECH COMMON STOCK FOLLOWING THE MERGER
If the Merger is approved by the requisite vote of the stockholders of
Syratech Common Stock at the Special Meeting, at the Effective Time the
Certificate of Incorporation of the Company will be amended and restated so as
to read in its entirety in the form set forth as Exhibit A to the Merger
Agreement which is attached hereto as ANNEX II, and, as so amended, until
thereafter further amended as provided therein and under the Delaware General
Corporation Law, will be the certificate of incorporation of the Company
following the Merger.
PREFERRED STOCK
The Board of Directors is also empowered under the Company's Restated
Certificate of Incorporation and without further stockholder action to divide
any and all shares of the Preferred Stock into series and to fix and determine
the relative rights and preferences of the shares of any series so established.
The issuance of Preferred Stock by the Board of Directors could affect the
rights of holders of shares of Common Stock. For example, issuance of the
Preferred Stock could result in a class of securities outstanding that will have
certain preferences with respect to dividends and in liquidation over the Common
Stock, and may enjoy certain voting rights, contingent or otherwise, in addition
to that of the Common Stock, and could result in the dilution of the voting
rights, net income per share and net book value of the Common Stock.
The Amended and Restated Certificate of Incorporation will reduce the
number of shares of Preferred Stock that the Company is authorized to issue from
500,000 to 25,000 and change the par value of Preferred Stock from $0.10 to
$0.01 per share and will amend the terms of the Preferred Stock to conform with
the Cumulative Redeemable Preferred Stock described below.
Rights
On October 26, 1992, the Board authorized and declared a dividend of one
preferred share purchase right (a "Right") for each share of Syratech Common
Stock outstanding at the close of business on October 31,
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1992, and further authorized the issuance of one Right with respect to each
share of Syratech Common Stock that would become outstanding (whether originally
issued or delivered from the Company's treasury after October 31, 1992). As
required by the Merger Agreement, effective on November 8, 1996, Syratech
redeemed all outstanding Rights and terminated the Rights Agreement pursuant to
which they were issued. The redemption price for each Right is one cent and if
holders of Rights have not received payment of the redemption price prior to the
Effective Time they will have the redemption price of their Rights added to the
payment of the cash price for their shares of Syratech Common Stock in the
Merger.
Cumulative Redeemable Preferred Stock
Following the consummation of the Merger, 25,000 shares will be designated
as Cumulative Redeemable Preferred Stock, par value $.01 per share. In
connection with financing the transactions contemplated by the Merger Agreement,
the Company will issue up to 18,000 shares of Cumulative Redeemable Preferred
Stock to Lee Affiliates.
The liquidation preference of the Cumulative Redeemable Preferred Stock
will be $1,000 per share plus accrued but unpaid dividends. Holders of the
Cumulative Redeemable Preferred Stock will be entitled, subject to the rights of
creditors, in the event of any voluntary or involuntary liquidation of the
Company, to an amount in cash equal to $1,000 for each share outstanding plus
all accrued and unpaid dividends. The rights of holders of the Cumulative
Redeemable Preferred Stock upon liquidation of the Company rank prior to those
of the holders of Syratech Common Stock.
Dividends on shares of Cumulative Redeemable Preferred Stock will be
cumulative from the date of issue and will be payable when and as may be
declared from time to time by the Board of Directors of the Company. Such
dividends will accrue on a daily basis (whether or not declared) from the
original date of issue at an annual rate per share equal to 12% of the original
purchase price per share, with such amount to be compounded annually on each
December 31 so that if the dividend is not paid for any year the unpaid amount
will be added to the original purchase price of the Cumulative Redeemable
Preferred stock for the purpose of calculating succeeding years' dividends.
The Cumulative Redeemable Preferred Stock will be redeemable at any time at
the option of the Company, in whole or in part, at $1,000 per share plus all
accumulated and unpaid dividends, if any, to the date of redemption. Subject to
the Company's existing debt agreements, the Company must redeem all outstanding
Cumulative Redeemable Preferred Stock in the event of a public offering of
equity, a change of control or certain sales of assets.
The holders of Cumulative Redeemable Preferred Stock will have no voting
rights with respect to their Cumulative Redeemable Preferred Stock except as may
be required by applicable law.
CERTAIN PROVISIONS OF THE MERGER AGREEMENT
The following is a brief summary of certain provisions of the Merger
Agreement, as amended, which appears as ANNEX I to this Proxy
Statement/Prospectus and is incorporated herein by reference. Such summary is
qualified in its entirety by reference to the Merger Agreement.
THE MERGER
The Merger Agreement provides that, following the approval of the Merger
and the adoption of the Merger Agreement by the vote of holders of a majority of
the shares of Syratech Common Stock entitled to vote thereon and the
satisfaction or waiver of the other conditions to the Merger, THL I will be
merged with and into the Company, and the Company will continue as the surviving
corporation in the Merger.
If the conditions to the Merger are satisfied or waived, the parties will
file with the Secretary of State of the State of Delaware a duly executed
Certificate of Merger, and the Merger will become effective upon the filing and
acceptance thereof or at such other time as is provided in the Certificate of
Merger in accordance with the Delaware General Corporation Law and as THL I and
the Company agree.
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Each share of Syratech Common Stock outstanding at the Effective Time
(other than shares of Syratech Common Stock held by Syratech or any wholly owned
subsidiary thereof and Dissenting Shares) will be entitled either (i) to the
Cash Price or (ii) to retain a share, subject to certain restrictions, as more
fully described under "THE MERGER -- Merger Consideration" and "-- Non-Cash
Election." With regard to the treatment of fractional share interests, see
"-- Fractional Shares."
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains customary representations and warranties of
the Company relating, with respect to the Company and its subsidiaries, to,
among other things, (a) organization, standing and similar corporate matters;
(b) subsidiaries; (c) the Company's capital structure; (d) the authorization,
execution, delivery, performance and enforceability of the Merger Agreement and
related matters; (e) documents filed by the Company with the Commission, the
accuracy of information contained therein and the absence of undisclosed
liabilities; (f) the accuracy of information supplied by the Company in
connection with this Proxy Statement/Prospectus; (g) the absence of certain
changes or events since the date of the most recent financial statements filed
with the Commission, including material adverse changes with respect to the
Company; (h) the absence of pending or threatened material litigation, certain
labor matters and compliance with applicable laws; (i) benefit plans and other
matters relating to the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") and employment matters; (j) filing of tax returns and payment
of taxes; (k) the absence of defaults under material contracts; (l) brokers's
fees and expenses; (m) the receipt of an opinion of the Company's financial
advisor; (n) the recommendation of the Board of Directors of the Company with
respect to the Merger Agreement, the Merger and related transactions; (o) the
required vote of the Company's stockholders; (p) the lack of any provisions in
the Company's organizational documents restricting, and the inapplicability of
any state takeover or similar statutes to, the Merger Agreement, the Merger or
related agreements and transactions; (q) the ownership of Company trade names;
and (r) related party transactions.
The Merger Agreement also contains customary representations and warranties
of THL I relating to, among other things, (a) organization, standing and similar
corporate matters; (b) subsidiaries; (c) THL I's capital structure; (d) the
authorization, execution, delivery, performance and enforceability of the Merger
Agreement and related matters; (e) broker's fees and expenses; (f) financing;
(g) the accuracy of information supplied by THL I in connection with this Proxy
Statement/Prospectus; and (h) participation by Syratech's management in the
transaction contemplated by the Agreement.
CERTAIN PRE-CLOSING COVENANTS
Pursuant to the Merger Agreement, the Company has agreed, until the
Effective Time (except as otherwise specifically required by the terms of the
Merger Agreement), that it will, and it will cause its subsidiaries to, act and
carry on their respective businesses in the usual, regular and ordinary course
of business consistent with past practice and use its and their respective
reasonable best efforts to preserve intact their current business organizations,
keep available the services of their current officers and employees and preserve
their relationships with customers, suppliers, licensors, licensees,
advertisers, distributors and others having business dealings with them and to
preserve goodwill. Without limiting the generality of the foregoing, until the
Effective Time, the Company has agreed that it will not, and will not permit any
of its subsidiaries, without the prior consent of THL I, which shall not be
unreasonably withheld to, (i) declare, set aside or pay any dividends on, or
make any other distributions in respect of, any of its capital stock, other than
dividends and distributions by a direct or indirect wholly owned subsidiary of
the Company to its parent, (ii) split, combine or reclassify any of its capital
stock or issue or authorize the issuance of any other securities in respect of,
in lieu of or in substitution for shares of its capital stock (except pursuant
to the Company's Rights Agreement), or (iii) purchase, redeem or otherwise
acquire any shares of capital stock of the Company or any of its subsidiaries or
any other securities thereof or any rights, warrants or options to acquire any
such shares or other securities, except, in the case of this clause (iii), for
the acquisition of shares of Syratech Common Stock from holders of Company Stock
Options in full or partial payment of the exercise price payable by such holder
upon exercise of Company Stock Options outstanding on the date of the Merger
Agreement (except
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pursuant to the Company's Rights Agreement); (iv) subject to certain exceptions,
authorize for issuance, issue, deliver, sell, pledge or otherwise encumber any
shares of its capital stock or the capital stock of any of its subsidiaries, any
other voting securities or any securities convertible into, or any rights,
warrants or options to acquire, any such shares, voting securities or
convertible securities or any other securities or equity equivalents; (v) amend
its articles of incorporation, by-laws or other comparable charter or
organizational documents; (vi) acquire or agree to acquire any business or any
corporation, partnership, joint venture, association or other business
organization or division thereof material to the Company; (vii) subject to
certain exceptions, sell, encumber or otherwise dispose of any of its properties
or assets other than properties or assets that meet certain specified criteria,
except transactions in the ordinary course of business consistent with past
practice, sales of inventory and entering into leases for showrooms and sales or
dispositions of buildings no longer usable by the Company in its operations;
(viii) incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or warrants or
other rights to acquire any debt securities of the Company or any of its
subsidiaries, guarantee any debt securities of another person, enter into any
"keep well" or other agreement to maintain any financial statement condition of
another person or enter into any arrangement having the economic effect of any
of the foregoing, except for short-term borrowings and for lease obligations, in
each case incurred in the ordinary course of business consistent with past
practice, (ix) make any material loans, advances or capital contributions to, or
investments in, any other person, other than to the Company or any direct or
indirect wholly owned subsidiary of the Company; (x) acquire or agree to acquire
any assets that are material, individually or in the aggregate, to the Company
and its subsidiaries taken as a whole, or, make or agree to make any capital
expenditures in excess of the amount budgeted therefor by the Company; (xi)
subject to certain exceptions, pay, discharge or satisfy any claims (including
claims of stockholders), liabilities or obligations (absolute, accrued, asserted
or unasserted, contingent or otherwise), or waive, release, grant or transfer
any rights of material value or modify or change in any material respect any
existing license, lease, contract or other document, other than in the ordinary
course of business consistent with past practice; (xii) 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; (xiii) enter into any new collective
bargaining agreement or any successor collective bargaining agreement to any
collective bargaining agreement, except in the ordinary course of business;
(xiv) change any material accounting principle; (xv) settle or compromise any
litigation, other than settlements or compromises where the amount paid (after
giving effect to insurance proceeds actually received) in settlement or
compromise is not material to the Company; or (xvi) authorize any of, or commit
or agree to take any of, the foregoing actions.
Under the Merger Agreement, the Company has also agreed, subject to certain
exceptions, that neither it nor any of its subsidiaries will adopt or amend
(except as required by law) any employee benefit plan, agreement, trust, fund or
other arrangement for the benefit or welfare of any employee, director or former
director or employee, other than increases for individuals (other than officers
and directors) in the ordinary course of business consistent with past practice
or increase the compensation or fringe benefits of any director, employee or
former director or employee or pay any benefit not required by an existing plan,
arrangement or agreement.
Pursuant to the Merger Agreement, the Company has also agreed that neither
it nor any of its subsidiaries will (i) grant any new or modified severance or
termination arrangement or increase or accelerate any benefits payable under its
severance or termination pay policies in effect on the date of the Merger
Agreement, (ii) effectuate a "plant closing" or "mass layoff," as defined in the
Worker Adjustment and Retraining Notification Act of 1988, affecting in whole or
in part any site of employment, facility, operating unit or employee of the
Company or any subsidiary, without notifying THL I or its affiliates in advance
and without complying with the notice requirements and other provisions of such
Act or (iii) except in the ordinary course of business and consistent with past
practice, make any tax election or settle or compromise any federal, state,
local or foreign tax liability.
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NO SOLICITATION OF ALTERNATIVE TRANSACTIONS
The Merger Agreement provides that neither Syratech nor any of its
subsidiaries (nor any of their respective officers, directors, employees,
representatives, agents or other affiliates), will directly or indirectly
initiate, solicit or knowingly encourage or take any other action to facilitate
knowingly any inquiries or the making of any proposal that constitutes, or may
reasonably be expected to lead to (i) any merger consolidation, share exchange,
recapitalization, business combination, or other similar transaction involving
40% more of the assets of the Company, (ii) any sale, lease exchange, mortgage,
pledge, transfer or other disposition of 40% or more of the assets of the
Company and subsidiaries, taken as a whole, in a single transaction or series of
transactions, (iii) any tender offer or exchange offer for 40% or more of the
outstanding shares of capital stock of the Company or any filing of a
registration statement under the Securities Act in connection therewith, or (iv)
any public announcement or a proposal, plan or intention to do any of the
foregoing or any agreement to engage in any of the foregoing (each a
"Transaction Proposal"), or enter into or maintain or continue discussions or
negotiate with any person or entity in furtherance of such inquiries or to
obtain a Transaction Proposal or agree to or endorse any Transaction Proposal or
authorize or permit any of its officers, directors or employees or any of its
subsidiaries or any investment banker, financial advisor, attorney, accountant
or other representative retained by any of its subsidiaries to take any such
actions. By the terms of the Merger Agreement, the foregoing provision will not
prohibit the Company from (i) furnishing information to or entering into
discussions or negotiations with, any person or entity that makes an unsolicited
written, bona fide proposal to acquire the Company and/or its subsidiaries
pursuant to a merger, consolidation, share exchange, business combination,
tender or exchange offer or other similar transaction if, and only to the extent
that (A) the Board (or a special committee thereof), after consultation with and
based upon the advice of independent legal counsel (who may be the Company's
regularly engaged independent legal counsel), determines in good faith that such
action is necessary for the Board to comply with its fiduciary duties to
stockholders under applicable law and (B) prior to taking such action the
Company (x) provides reasonable notice to THL I to the effect that it is taking
such action and (y) receives from such person or entity an executed
confidentiality agreement in reasonably customary form, (ii) failing to make or
withdrawing or modifying its recommendation of the Merger if the Board, after
consultation with and based upon the advice of independent legal counsel (who
may be the Company's regularly engaged independent counsel), determines in good
faith that such action is necessary for the Board to comply with its fiduciary
duties to stockholders under applicable law or (iii) making to the Company's
stockholders any recommendation and related filing with the SEC as required by
Rule 14e-2 and 14d-9 under the Exchange Act, with respect to any tender offer,
or taking any other legally required action (including, without limitation, the
making of public disclosures as may be necessary or advisable under applicable
securities laws). For a description of the effects that a Transaction Proposal
prior to the Effective Time could have under the Merger Agreement, see
"-- Termination" below.
CERTIFICATE OF INCORPORATION AND BY-LAWS
Attached to the Merger Agreement as Exhibit A is the Amended and Restated
Certificate of Incorporation of the Company as it will be amended to read as a
result of and following the Merger until thereafter amended as provided therein
and under the Delaware General Corporation Laws.
The By-Laws of Syratech as in effect at the Effective Time shall be the
By-laws of the Company following the Merger until thereafter changed or amended
as provided therein or by applicable law.
BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY FOLLOWING THE MERGER
The Merger Agreement provides that the following nine persons David A.
Harkins, Scott A. Schoen, Thomas M. Hagerty, Kent R. Weldon, Seth W. Lawry,
Melvin L. Levine, Alan R. Kanter, E. Merle Randolph and Leonard Florence will be
the directors of the Company following the Merger. See Schedule 1 for more
information on these persons other than existing directors of the Company. The
Board of Directors will be subject to change from time to time. See "SPECIAL
FACTORS/RISK FACTORS -- Control by Affiliates of the Thomas H. Lee Company."
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The Merger Agreement also provides that the officers of the Company at the
Effective Time will be officers of the Company following the Merger, until the
earlier of their resignation or removal or until their respective successors are
duly elected and qualified, as the case may be.
STOCK AND EMPLOYEE BENEFIT PLANS
The treatment in the Merger of outstanding Company Stock Options and of the
Company's employee benefit plans will be as described in "THE MERGER -- Effect
on Stock and Employee Benefit Matters."
ACCESS TO INFORMATION AND CONFIDENTIALITY
Subject to applicable provisions regarding confidentiality, the Company has
agreed in the Merger Agreement to, and to cause each of its subsidiaries,
officers, employees, counsel, financial advisors and other representatives to,
afford to THL I and its representatives and to potential financing sources,
reasonable access, in a coordinated manner, during normal business hours during
the period prior to the Effective Time to all its properties, books, contracts,
commitments, personnel and records and, during such period, to, and to cause
each of its subsidiaries to, furnish promptly to THL I a copy of all documents
filed by it during such period pursuant to Federal and State securities laws and
such information concerning its business, properties, financial condition,
operations and personnel as THL I may from time to time reasonably request.
BEST EFFORTS
Pursuant to the Merger Agreement and subject to certain conditions and
limitations described therein, the parties have agreed to cooperate with each
other and to use their respective best efforts do all things necessary, proper
or advisable, so that the transactions contemplated by the Merger Agreement may
be consummated. Under the Merger Agreement, the Company and THL I will take all
actions necessary to delist the Company's Common Stock from the NYSE, effective
after the Effective Time.
INDEMNIFICATION AND INSURANCE
Under the Merger Agreement, for six years after the Effective Time, the
Company will indemnify all present and former directors and officers of the
Company and its subsidiaries for matters existing or occurring at or prior to
the Effective Time to the fullest extent currently provided in their respective
certificates of incorporation or by-laws on the date of the Merger Agreement
consistent with applicable law, to the extent that such costs have not been paid
for by insurance.
The Company will, for six years following the Effective Time, maintain its
current directors' and officers' insurance and indemnification policy to the
extent that it provides coverage for events occurring prior to the Effective
Time for all persons who are directors and officers of the Company on the date
of the Merger Agreement; provided, that the Company will not be required in any
year to spend in excess of 200% of the annual premium paid for directors' and
officers' insurance prior to the date of the Merger Agreement; provided that the
Company shall be obligated to provide such coverage as may be obtained for such
amount.
CONDITIONS TO THE CONSUMMATION OF THE MERGER
The respective obligations of the Company and THL I to effect the Merger
are subject to various conditions which include, in addition to certain other
customary closing conditions, the following:
(a) the Merger Agreement shall have been approved by the requisite
vote of holders of outstanding shares of Syratech Common Stock and not more
than 10% of the outstanding shares of Syratech Common Stock shall be
Dissenting Shares;
(b) the waiting period (and any extension thereof) applicable to the
Merger under the HSR Act shall have been terminated or shall have expired;
(c) no temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction or
other legal restraint or prohibition preventing the consummation of
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the Merger shall be in effect; provided that the Company and THL I are
required to use their best efforts to have any such injunction, order,
restraint or prohibition vacated; and
(d) any registration statement used in connection with the Merger on
Form S-4 shall have become effective under the Securities Act and shall not
be the subject of any stop order or proceeding seeking a stop order, and
any material "blue sky" and other state securities laws applicable to the
registration and qualification of Syratech Common Stock to be retained in
the Merger shall have been complied with.
THL I's obligations to effect the Merger are further subject, in addition
to certain other customary conditions, to the following additional conditions:
(a) THL I shall have received evidence, in form and substance
reasonably satisfactory to it, that all licenses, permits, consents,
approvals, authorizations, qualifications and orders of governmental
authorities and other third parties as are necessary in connection with the
transactions contemplated by the Merger Agreement have been obtained,
except such licenses, permits, consents, approvals, authorizations,
qualifications and orders which are not, individually or in the aggregate,
material to the Company and its subsidiaries, taken as a whole.
(b) there shall not be pending or threatened by any governmental
entity any suit, action or proceeding (or by any other person any suit,
action or proceeding which has a reasonable likelihood of success), (i)
challenging or seeking to restrain or prohibit the consummation of the
Merger or any of the other transactions contemplated by the Merger
Agreement or seeking to obtain from THL I or any of its affiliates any
damages that are material to such party, (ii) seeking to prohibit or limit
the ownership or operation by the Company or any of its subsidiaries of any
material portion of the business or assets of the Company or any of its
subsidiaries, to dispose of or hold separate any material portion of the
business or assets of the Company or any of its subsidiaries, as a result
of the Merger or any of the other transactions contemplated by the Merger
Agreement, or (iii) seeking to impose limitations on the ability of THL I
(or any designee of THL I) to acquire or hold, or exercise full rights of
ownership of, any shares of Syratech Common Stock, including, without
limitation, the right to vote the Syratech Common Stock on all matters
properly presented to the stockholders of the Company.
(c) THL I shall have received certain agreements from each person
identified by the Company to be an "affiliate" of the Company for purposes
of Rule 145 under the Securities Act;
(d) the Company shall have received the proceeds of financing pursuant
to the commitment letters attached to the Merger Agreement (or from such
other financing sources as THL I and the Company reasonably agree) in
amounts sufficient to consummate the transactions contemplated by the
Merger Agreement, including, without limitation, (i) to pay the Cash Price,
(ii) to refinance the outstanding indebtedness of the Company, (iii) to pay
fees and expenses in connection with the Merger Agreement or the financing
thereof and (iv) to provide for the working capital needs of the Company
following the Merger. It is anticipated that financing proceeds (including
proceeds from the issuance of the Cumulative Redeemable Preferred Stock)
and an equity contribution aggregating up to $301.2 million will be
required to consummate such transactions. The equity contribution to be
made by affiliates of Thomas H. Lee Company to THL I will constitute
approximately $100.2 million of Common Stock (less the value of the shares
(not to exceed 781,250) retained by stockholders other than Management
Stockholders) and up to $18.0 million of Cumulative Redeemable Preferred
Stock of such $301.2 million; and
(e) except as disclosed in the Disclosure Schedule there shall have
been no Material Adverse Effect with respect to the Company relating to
Environmental Matters as set out in Schedule 7.2(a) to the Merger
Agreement. The obligations of the Company to effect the Merger are further
subject, in addition to certain other customary closing conditions, to the
following condition: there shall not be pending or threatened by any party
any suit, action or proceeding challenging or seeking to restrain or
prohibit the consummation of the Merger or any of the other transactions
contemplated by the Merger Agreement or seeking to obtain from the Company
(or any director) any significant damages. See "REGULATORY APPROVALS."
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TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of the Merger by the stockholders of the
Company:
(a) by mutual written consent of THL I and the Company;
(b) by either THL I or the Company if:
(i) any federal, state or local government or any court,
administrative agency or commission or other governmental authority or
agency, domestic or foreign, shall have issued a final and nonappealable
order, decree or ruling or taken any other final and nonappealable
action permanently enjoining, restraining or otherwise prohibiting the
Merger and such order, decree, ruling or action shall have become final
and nonappealable; or
(ii) if the Merger shall not have been consummated on or before
April 30, 1997 (other than due to the failure of the party seeking to
terminate the Merger Agreement to perform its obligations under the
Merger Agreement required to be performed at or prior to the Effective
Time);
(iii) if the required approval of the stockholders of the Company
shall not have been obtained by reason of the failure to obtain the
required vote upon a vote held at a duly held meeting of stockholders or
at any adjournment thereof;
(c) by THL I if the Company shall have (1) withdrawn, modified or
amended in any respect adverse to THL I its approval or recommendation of
the Merger Agreement or any of the transactions contemplated therein, (2)
failed to include such recommendation in the Proxy Statement/Prospectus
mailed to the Company's stockholders, (3) recommended any Transaction
Proposal from a person other than THL I or any of its affiliates or (4)
resolved to do any of the foregoing; or
(d) by either THL I or the Company shall enter into any agreement with
a third party with respect to a Transaction Proposal.
In the event of termination of the Merger Agreement by either the Company
or THL I, the Merger Agreement will become void and will have no effect, without
any liability or obligation on the part of the Company or THL I, other than
under certain specified provisions of the Merger Agreement relating to brokers'
fees, payment of fees and expenses, confidentiality agreements, the effect of
termination of the Merger Agreement and third party beneficiaries.
See "-- Expenses and Certain Required Payments."
AMENDMENT AND WAIVER
The Merger Agreement may be amended by the parties at any time before or
after any required approval of matters presented in connection with the Merger
by the stockholders of the Company; provided, that after any such approval,
there shall be made no amendment that by law requires further approval by such
stockholders without the further approval by such stockholders. At any time
prior to the Effective Time, the parties may (a) extend the time for the
performance of any of the obligations or other acts of the parties, (b) waive
any inaccuracies in the representations and warranties in the Merger Agreement
or any document delivered pursuant thereto, or (c) subject to the approval of
stockholders required by law, waive compliance with any of the agreements or
conditions contained in the Merger Agreement. The failure of the Company or THL
I to assert any of its rights under the Merger Agreement will not constitute a
waiver of such rights.
EXPENSES AND CERTAIN REQUIRED PAYMENTS
In addition to any other amounts which may be payable or become payable
pursuant to the provisions described in the next succeeding paragraph, the
Company has agreed (provided that THL I is not then in material breach of the
Merger Agreement) promptly, but in no event later than one business day after
the termination of the Merger Agreement pursuant to the provisions described in
paragraphs (c) and (d) under "Termination" (or from time to time after Closing),
to reimburse THL I for all its out-of-pocket expenses and fees up to an
aggregate amount of $2.25 million in connection with the Merger and the
consummation of the transactions contemplated by the Merger Agreement and the
financing thereof.
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If any person (other than THL I or any of its affiliates) shall have made,
or proposed, communicated or disclosed in a manner which is or otherwise becomes
public a Transaction Proposal and the Merger Agreement is terminated pursuant to
the provisions described in paragraphs (c) and (d) under "Termination," then the
Company shall, promptly but in no event later than one business day after the
termination of the Merger Agreement, pay THL I a fee of $6.75 million.
Except as otherwise provided above, all costs and expenses incurred in
connection with the Merger Agreement and the transactions contemplated thereby
shall be paid by the party incurring such expenses, except that the Company will
pay all costs and expenses (x) in connection with printing and mailing the Proxy
Statement/Prospectus, as well as all SEC filing fees relating to the
transactions contemplated therein and (y) of obtaining any consents of any third
party.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning the
beneficial ownership of Syratech Common Stock (i) by each stockholder who is
known by the Company to own beneficially in excess of 5% of the outstanding
Common Stock, (ii) by each director, and (iii) by all officers and directors as
a group, as of January 31, 1997. Except as otherwise indicated, all persons
listed below have (i) sole voting power and investment power with respect to
their shares of Common Stock, except to the extent that authority is shared by
spouses under applicable law, and (ii) record and beneficial ownership with
respect to their shares of Common Stock.
SHARES OF
COMMON STOCK
BENEFICIALLY
NAME OWNED PERCENTAGE
- ------------------------------------------------------------------ ------------ ---------
Leonard Florence(a)............................................... 2,794,304(b)(c) 32.1%
E. Merle Randolph................................................. 91,197(d,e) (f)
Melvin L. Levine.................................................. 224,232(d) 2.6%
Alan R. Kanter.................................................... 204,914(d) 2.4%
Faye A. Florence.................................................. 27,633(g) (f)
Irwin Chafetz..................................................... 18,461(h) (f)
Frederick H. Chicos............................................... 4,400(i) (f)
Harold Cohen...................................................... 94,925(j) 1.1%
Jerry R. Jacob.................................................... 20,505 (f)
Alan Perlman...................................................... 104,337(k,l) 1.2%
Harold Roitenberg................................................. 54,462(m) (f)
Jacob Saliba...................................................... 0 (f)
Officers and Directors as a group (12 persons).................... 3,639,370 41.7%
Gabelli Funds, Inc. & related entities(n)......................... 913,100 10.5%
Artisan Partners L.P. & related entities(o)(p).................... 461,200 5.3%
- ---------------
(a) The business address for Leonard Florence is c/o Syratech Corporation, 175
McClellan Highway, East Boston, Massachusetts, 02128-9114.
(b) Includes 87,000 shares held by the Florence Family Foundation.
(c) Includes Common Stock held of record by Mr. Florence's wife.
(d) Includes 4,000 shares of Common Stock issuable upon exercise of vested
employee stock options.
(e) Includes an aggregate of 2,975 shares of Common Stock held of record by Mr.
Randolph's wife, and dependent daughter.
(f) Represents less than 1% of the issued and outstanding shares of Common
Stock.
(g) Includes 10,000 shares of Common Stock issuable upon exercise of vested
employee stock options.
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(h) Includes 6,000 shares held by the Chafetz Family Charitable Trust.
(i) Represents shares of Common Stock held of record by Transeo Trust No. 2, of
which the mother of Frederick H. Chicos, Mary L. Chicos is trustee.
(j) Includes 5,000 shares of Common Stock held of record in trust for Brian S.
Cohen, Mr. Cohen's son.
(k) Includes 16,000 shares held by the Pisa Foundation Under Indenture of Trust
in which Alan Perlman and Ann P. Perlman, his wife, are Co-Trustees.
(l) Includes Common Stock held of record by Mr. Perlman's wife, and Common
Stock held of record in trusts for Mr. Perlman's children and nephews,
aggregating 35,800 shares as to which Mr. Perlman disclaims beneficial
ownership.
(m) Represents shares of Common Stock held of record by Roitenberg Investments,
Inc., of which Harold Roitenberg is President.
(n) The business address for Gabelli Funds, Inc. and related entities is One
Center, Rye, NY 10580.
(o) Represents Artisan Partners L.P. and related entities' holdings as of
September 30, 1996.
(p) The business address for Artisan Partners L.P. and related entities is 1000
North Water Street, Suite 1770, Milwaukee, WI 53202.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SEE "FORWARD-LOOKING STATEMENTS"
RECENT TRANSACTIONS
Rauch Industries, Inc.
On February 15, 1996, the Company, through an indirect wholly owned
subsidiary, acquired the outstanding shares of Rauch for approximately $49.6
million, including costs of the transaction. The acquisition was accounted for
under the purchase method of accounting, and the results of operations of Rauch
have been included with the results of the Company from February 15, 1996. The
purchase price in excess of net assets acquired of $7.2 million is being
amortized on the straight line basis over 30 years. During the year ended
December 31, 1996, the Company received $23.8 million in connection with an
insurance claim relating to a 1994 fire at Rauch. During the fiscal year ended
December 31, 1995, net sales of Rauch were $58.9 million.
Farberware
On April 2, 1996, the Company, through its indirect wholly owned
subsidiary, Far-B Acquisition Corp. ("Far-B"), together with Lifetime Hoan
Corporation ("Lifetime"), acquired certain assets from Farberware Inc., a
subsidiary of U.S. Industries, Inc. ("USI"). Lifetime and the Company are not
affiliates.
Farberware Inc. was a manufacturer of aluminum clad, stainless steel
cookware and bakeware and small electric kitchen appliances. The aggregate
consideration paid by Far-B and Lifetime was approximately $45.8 million,
subject to adjustment, of which Far-B paid approximately, $32.6 million. The
amount of the adjustment was the subject of a dispute, as noted below. The
assets acquired by the Company included certain of the inventory, the tradename
"Farberware" and the intellectual property (including the intellectual property
that relates to cookware and bakeware and electric products other than major
kitchen appliances) and certain tools and dies and machinery and equipment.
Effective April 2, 1996, the Company, through Far-B, entered into a
manufacturing services agreement with Farberware Inc. for transitional
manufacturing services for certain finished goods previously produced by
Farberware Inc. The Company entered into the manufacturing services agreement in
part to provide continuity of product during a transition period in order to
protect the strength of the Farberware name in the marketplace. The
manufacturing services agreement has terminated.
The Company acquired Farberware Inc. assets in order to expand Farberware's
licensing activities and to use the Farberware name on certain of the Company's
existing and new products.
Upon disposal of acquired inventory, the Company will not manufacture or
sell Farberware cookware and bakeware products or noncommercial electric
products. Accordingly, net sales for the year ended December 31, 1996 exclude
sales of Farberware inventory, and $3.5 million, net of certain selling, general
and administrative expenses, from these sales has been recorded as other
operating income.
In a separate transaction, the Company and Far-B entered into an agreement
with Lifetime, which provided for the allocation between them of those assets
acquired from Farberware Inc., which had not been acquired by Lifetime directly
from Farberware Inc. the granting of a long-term license to Lifetime for use of
the Farberware name in connection with an extensive list of products, the
granting to Lifetime of long-term exclusive rights to operate Farberware outlet
stores, the reservation of certain exclusive rights to Far-B (including
exclusive rights to use of the Farberware name for corporate purposes and for
the marketing of cookware and bakeware products as well as electric products)
and for the future formation of a joint venture to administer certain licensing
rights.
On June 27, 1996, the Company's Farberware Inc. subsidiary (formerly Far-B)
("Farberware") entered into a license agreement with Meyer Marketing Co. Ltd.
("Meyer") pursuant to which Meyer was granted for a term of 200 years (i) an
exclusive worldwide license to use and exploit the Farberware name and certain
related intellectual property rights in connection with the sourcing,
manufacture and distribution of cookware and bakeware products for home use and
commercial, industrial and institutional size pots, pans and roasters,
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and (ii) non-exclusive (shared) rights to use certain Farberware technology and
other intellectual property. For such grant, Meyer made a one-time payment to
the Company of $25.5 million, which resulted in recognition by the Company of
$11.9 million of non-recurring income. Under the terms of the licensing
agreement, the Company has no further obligation with respect to the amount paid
by Meyer. As such, the entire proceeds received were recognized as revenue. On
July 12, 1996, Farberware granted to a major retail chain the exclusive license
to use and exploit the Farberware name and related intellectual property in
connection with the sourcing, manufacture, marketing and sale of certain
electric products for annual royalty payments. On October 25, 1996 Farberware
granted to FCI Corp. a license to use and exploit the Farberware name in
connection with the sourcing, manufacturing, marketing and sale of certain
Commercial Products (defined as six specified commercial urns and one specified
commercial convection oven plus cookware, bakeware and electric products
developed by the Licensee solely and exclusively for commercial, industrial or
institutional use with the prior written approval of Farberware) for the payment
of annual royalties.
On February 3, 1997 the Company, Farberware, and Lifetime reached an
agreement (the "Settlement Agreement"), with USI and Bruckner Manufacturing
Corp. (formerly Farberware Inc., the USI subsidiary)("BMC") to settle all
previous outstanding legal disputes arising out of the Farberware asset purchase
agreement and the manufacturing services agreement. The Settlement Agreement
provides for no change to the aggregate consideration paid for the acquired
assets, and eliminates certain restrictions on the disposition of acquired
tools, machinery and equipment. The Company expects to recognize a gain of
approximately $2.5 million before taxes in 1997 on the disposition and sale of
certain of the tools and equipment. Under the terms of the Settlement Agreement,
Farberware will receive certain finished goods inventory at no cost which the
Company estimates has a net realizable value of approximately $1.2 million, and
agreed to pay for certain finished goods inventories purchased under the
manufacturing services agreement. The Settlement Agreement also resolved
outstanding claims and disputes related to purchase price adjustments, trade
accounts receivable, advertising commitments, and the administration of consumer
warranties.
Silvestri
On April 16, 1996, the Company purchased finished goods inventory and
intangible assets of the Silvestri division of FFSC, Inc. for approximately $8.6
million. Prior to the Company's purchase of such assets, FFSC, Inc., its
subsidiaries and affiliated companies had filed for protection under Chapter 11
of the Bankruptcy Code in the United States Bankruptcy Court for the Northern
District of Texas (the "Bankruptcy Court"). The Bankruptcy Court approved this
acquisition by the Company. Silvestri products include Christmas ornaments,
collectibles, lighting and trim as well as other seasonal and nonseasonal
giftware and decorative accessories.
The Company has given a Guaranty (limited to $4 million), dated as of May
21, 1996, of the obligations of FF Holding Company, FFSC, Inc. and certain
related entities to The CIT Group/Business Credit, Inc. under a certain debtor
in possession financing agreement dated May 21, 1996 and, at the request of the
Company, NationsBank N.A. (South) has issued its letter of credit, dated May 21,
1996 in the amount of $4 million to CIT Group/Business Credit, Inc. to secure
the Company's aforesaid guaranty. Certain funds which are affiliates of the
Thomas H. Lee Company are creditors of FFSC, Inc. See "Agreement and Plan of
Merger" below.
C.J. Vander
On May 8, 1996, the Company, through one of its subsidiaries, acquired all
of the outstanding common stock of C.J. Vander, a manufacturer of sterling
silver and silverplated flatware and hollowware in Sheffield and London,
England. The purchase price was immaterial to the Company's consolidated
financial statements. The acquisition was accounted for under the purchase
method of accounting.
Potpourri Press
On November 26, 1996, a wholly-owned subsidiary of the Company acquired
inventory, tangible property, intellectual property rights, certain key records
(including customer lists, customer files, supplier
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information, catalogs) and certain contract rights (selected by the Company's
subsidiary) of Potpourri Press, a North Carolina-based manufacturer of Christmas
products for a purchase price of approximately $2.3 million plus a $0.2 million
promissory note.
Syroco
On April 11, 1995, pursuant to an agreement entered into on March 28, 1995,
the Company, through its subsidiary, Syratech Holding Corporation, sold Syroco,
Inc. ("Syroco"). The net proceeds received after costs of the sale and income
taxes were $133.9 million. On September 25, 1995, the Company reached a final
settlement regarding the sale of Syroco. Under the terms of the settlement, the
Company reacquired certain assets and reassumed certain liabilities of Syroco
which have been recorded at their estimated net fair value amounting to $1.8
million at December 31, 1995. The Company does not expect that the liquidation
of the assets will have a material effect on the previously recognized gain on
disposal. The sale resulted in the discontinuance of the Company's casual
furniture and accessories business and resulted in an after tax gain on disposal
of $30.5 million which was recognized in the second quarter of 1995. The assets
and liabilities relating to the discontinued business are included in the
caption, net assets of discontinued operations, in the Consolidated Balance
Sheets at December 31, 1994 and 1995. The results of operations for the
discontinued segment are included in discontinued operations in the Consolidated
Income Statements and Statements of Cash Flows for the years ended December 31,
1994 and 1995.
AGREEMENT AND PLAN OF MERGER
On October 23, 1996, the Company and THL I, entered into the Merger
Agreement (which was restated on November 27, 1996 and was further amended on
February 14, 1997) and pursuant to which THL I will be merged into the Company.
Pursuant to the transaction, stockholders of the Company will receive $32 in
cash for each share of Syratech Common Stock owned by them (other than Leonard
Florence who will receive $28 per share) or may elect to receive a portion of
their consideration by retaining stock of the surviving entity. See "CERTAIN
PROVISIONS OF THE MERGER AGREEMENT -- Conditions to the Consummation of the
Merger."
RESULTS OF OPERATIONS
The following table sets forth certain financial data as a percentage of
net sales of the Company for each of the periods presented.
PERCENTAGE OF NET SALES
---------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------
1994 1995 1996
----- ----- -----
Net Sales................................................. 100.0% 100.0% 100.0%
Cost of sales............................................. 71.0 70.7 71.6
----- ----- -----
Gross profit............................................ 29.0 29.3 28.4
Selling, general and administrative expenses.............. 21.5 20.2 21.3
Other operating income (1)................................ 1.4
----- ----- -----
Income from operations.................................. 7.5 9.1 8.5
Interest income (expense), net............................ (0.3) 2.7 (0.9)
Other income (2).......................................... 4.4
----- ----- -----
Income before income taxes.............................. 7.2 11.8 12.0
Provision for income taxes................................ 1.9 4.0 4.5
----- ----- -----
Income from continuing operations....................... 5.3% 7.8% 7.5%
===== ===== =====
- ---------------
(1) Includes income from the sale of Farberware inventory and other operating
income, net of certain selling, general and administrative expenses.
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(2) Consists of non-recurring pre-tax income related to licensing the Farberware
name on cookware and bakeware.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net sales increased 59.8% to $270.9 million for the year ended December 31,
1996 from 169.5 million for the year ended December 31, 1995. Excluding the
impact of acquisitions of businesses and productlines completed in 1996, net
sales increased 8.1%. This increase reflects primarily increased sales volume of
giftware items (including seasonal items, picture frames and silver plated
items) and of sterling silver flatware. The changes in product prices did not
materially impact net sales.
Gross profit increased 54.6% to $76.8 million for the year ended December
31, 1996 from $49.7 million for the year ended December 31, 1995. Gross profit
as a percentage of sales was 28.4% for the year ended December 31, 1996 compared
to 29.3% for the year ended December 31, 1995. The decrease in gross profit
percentage was primarily a result of the acquisition of Rauch, which gross
profit margin is lower than that of certain of the Company's other product lines
and a $1.3 million nonrecurring compensation expense charge related to the
transfer of shares to one of the executive officers. See note 11 to the
Company's consolidated financial statements. Partially offsetting this decrease
was the gross profit on the recently acquired high end Silvestri seasonal
productline. Excluding the impact of acquisitions, the gross profit percentage
was 30.3% for the year ended December 31, 1996. This increase in gross profit
percentage, exclusive of acquisitions, was due to increased sterling flatware
sales which have a higher profit margin than other tabletop and giftware items
and also to a change in product mix in the giftware lines to higher margin items
including frames and certain seasonal products. The increase in gross profit
margin was not materially impacted by change in product prices.
Selling, general and administrative expenses ("S,G & A expenses") increased
to 21.3% as a percentage of net sales or $57.7 million for the year ended
December 31, 1996 from 20.2% or $34.2 million for the year ended December 31,
1995. S,G & A expenses were $39.5 million or 21.5% as a percentage of net sales
excluding S,G & A expenses incurred at Rauch, Silvestri, C.J. Vander and
Potpourri. These acquired companies had $18.2 million of S,G & A expenses
including the allocation of existing and continuing corporate expenses.
Substantial resources were dedicated and additional expenses were incurred as a
result of acquiring productlines, integrating functions (including selling and
marketing, customer service and general and administrative functions) and in the
case of Farberware, general and administrative costs of disposing of the
productline during 1996. Allocated corporate costs incurred to sell the
Farberware product line of $2.6 million are not included in the other operating
income line and are included in the Company's S,G & A expenses. Also included in
S,G & A expenses in 1996 was $2.6 million of nonrecurring compensation expense
related to the transfer of shares to two other executive officers. See note 11
to the Company's consolidated financial statements.
Income from operations increased 49.6% to $23.1 million in the year ended
December 31, 1996. Included in income from operations for the year ended
December 31, 1996, was $3.5 million, net of certain S,G & A expenses, from the
disposal of Farberware inventory. The Company does not expect to incur any loss
on the disposal of the remaining Farberware inventory at December 31, 1996 of
$3.3 million.
Interest expense, net was $2.4 million for the year ended December 31, 1996
compared to interest income, net of $4.6 million for the year ended December 31,
1995. This change results from a reduction in invested cash used to purchase and
retire 3,064,751 shares of the Company's Common Stock, for recent acquisitions
and for seasonal working capital needs.
The provision for income taxes was $12.2 million for the year ended
December 31, 1996 compared to $6.9 million for the year ended December 31, 1995.
The effective income tax rate was 37.5% for the year ended December 31, 1996
compared to 34.3% for the year ended December 31, 1995. This increase in the
effective income tax rate in 1996 is due to a higher proportion of income earned
in tax jurisdictions with higher income tax rates, including but not limited to
the Farberware income.
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Net income for the year ended December 31, 1996, all of which was income
from continuing operations, was $20.4 million or $2.32 per share, on shares of
8,799,000, compared to income from continuing operations of $13.2 million, or
$1.12 per share, on shares of 11,803,000, for the year ended December 31, 1995.
The year ended December 31, 1996 included non-recurring pre-tax income of $11.9
million, net of costs, resulting from a license agreement. Net income for the
year ended December 31, 1995 was $46.2 million or $3.91 per share. The year
ended December 31, 1995 included income from discontinued operations, net of
income taxes, of $2.6 million and the gain on sale of Syroco, Inc. of $30.5
million totaling $2.79 per share.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net sales increased by 15.1% to $169.5 million in 1995 from $147.3 million
in 1994 primarily due to increased sales volume as a result of expanded product
offerings within the giftware line, as well as increased demand for the
Company's giftware products and an increase in its seasonal product category.
Changes in product prices did not materially impact net sales. The Company's
sales increased despite a difficult retail environment in 1995.
The Company's gross profit increased 16.4% to $49.7 million in 1995 from
$42.7 million in 1994. The gross profit as a percentage of net sales increased
to 29.3% in 1995 from 29.0% in 1994. This increase is due primarily to improved
product mix in the giftware lines.
Selling, general and administrative expenses increased to $34.2 million in
1995 from $31.6 million in 1994 but decreased as a percentage of net sales to
20.2% in 1995 from 21.5% in 1994. The decrease of 1.3 percentage points is due
to the Company's cost reduction program following the sale of Syroco.
Income from operations increased 39.4% to $15.4 million in 1995 from $11.1
million in 1994 as a result of the factors discussed above.
Interest income, net, was $4.6 million in 1995 compared to net interest
expense of $0.5 million in 1994. Interest income was earned primarily as a
result of investing the net proceeds from the sale of Syroco in short-term,
investment grade securities.
The provision for income taxes in 1995 was $6.9 million compared with $2.8
million in 1994. The effective income tax rate increased to 34.3% in 1995 from
26.0% in 1994. The 1995 effective income tax rate increased primarily due to an
increase in the proportion of the Company's earnings in tax jurisdictions with
higher tax rates, primarily interest income earned in the United States.
LIQUIDITY AND CAPITAL RESOURCES
On March 28, 1995, the Company sold its casual furniture and accessories
business to Marley plc for net proceeds of $133.9 million after transaction
costs and income taxes. The Company has used the net proceeds from the sale of
Syroco for working capital requirements to grow its existing business, to effect
the Katy Stock Repurchase and to make several acquisitions in 1996.
Net cash provided by operating activities for the year ended December 31,
1996 was approximately $23.8 million. The primary sources of cash were the
decrease in marketable securities as a result of the repayment of temporary
borrowings used to effect the Katy Stock Repurchase and income generated which
includes the non-recurring pre-tax Farberware gain of $11.9 million. Partially
offsetting these sources was acquisition related increases in accounts
receivable and inventories.
At December 31, 1996, accounts receivable increased to $60.0 million from
$31.9 million at December 31, 1995. This increase is primarily the result of
sales of Farberware inventory, seasonality, the recent acquisitions and
increased sales volume in the tabletop and giftware product lines. The increase
in inventory from $41.2 million at December 31, 1995 to $79.4 million at
December 31, 1996 is due to recent acquisitions, including purchased Farberware
inventory. During 1996, $23.8 million was collected from the final settlement
agreement for the Rauch fire loss which occurred prior to the Company's
acquisition of Rauch.
The Company's working capital requirements are seasonal and tend to be
highest in the period from September through December due to the Christmas
selling season. Accounts receivable tend to decline during
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the first quarter as receivables generated during the third and fourth quarters
are collected and remain lower until the next peak season beginning in
September. This seasonality has increased as a result of the acquisition of
Rauch and the Silvestri product line.
Capital expenditures were approximately $15.1 million for the year ended
December 31, 1996. These expenditures were primarily for a warehouse in South
Carolina, computer software and hardware, improvements at the Company's East
Boston facility, machinery, tools and dies for the Company's manufacturing
facilities and for a building and equipment for C.J. Vander.
The Company expects capital expenditures for the year ended December 31,
1997 to be approximately $17 million, including land and construction costs for
a warehouse facility on the West Coast, and the cost of certain machinery and
equipment for Rauch.
On December 29, 1995, the Company effected the Katy Stock Repurchase. The
aggregate purchase price of $52.1 million represented approximately $17 per
share. The purchase was substantially financed by the issuance of two promissory
notes due January 2, 1996 to subsidiaries of Katy and the assumption of short
term bank debt, all aggregating $51.7 million. The two promissory notes and the
short-term bank debt were paid on January 2, 1996.
Effective October 31, 1996, the Company's Loan Agreement was amended to add
Rauch, Farberware and Silvestri as borrowers and limited total borrowings,
including amounts reserved for drawings on letters of credit, to $100.0 million
through December 31, 1996 and thereafter to $60.0 million until the earlier of
April 30, 1997 or the completion of refinancing contemplated with respect to the
Merger. As of December 31, 1996, the amount of outstanding borrowings under the
Loan Agreement was $5.9 million.
The revolving credit facility of one of the Company's Puerto Rican
subsidiaries expired on May 30, 1996; however, the Company received a letter of
commitment increasing the line from $4.0 million to $10.0 million and extending
it to May 31, 1997. On October 15, 1996, the Puerto Rican subsidiary and the
lender entered into an Amended and Restated Line of Credit Agreement increasing
the facility to $10.0 million and renewing it to May 31, 1997. As of December
31, 1996, the amount of outstanding borrowings under the line was $0.6 million.
On December 31, 1996, credit availability, net of $10.3 million of
outstanding letters of credit, under the Company Loan Agreement and the Puerto
Rican subsidiary's line totaled $83.8 million and $9.4 million, respectively. On
January 1, 1997, the availability under the Company Loan Agreement is reduced by
$40.0 million.
Upon consummation of the Merger, the Company would have on a pro forma
basis (as of December 31, 1996) outstanding debt of approximately $162.3 million
plus up to $18.0 million of Cumulative Redeemable Preferred Stock which accrues
at 12% per annum. The transaction is expected to close in the first quarter of
1997. It is intended that the transaction will be accounted for as a
recapitalization.
The Company believes that the 1996 acquisitions of the businesses and
product lines together with the growth in the Company's existing businesses will
generate sufficient income from operations to cover the increased level of
interest to be incurred as a result of the Merger and allow the Company to
remain profitable. The Company has already begun to capitalize on the synergies
of the newly acquired businesses. As the new acquisitions continue to be
integrated with the core business, and with each other, cost savings are
expected to be realized as redundant functions, services and facilities are
eliminated. In addition, the construction of the West Coast warehouse and
distribution facility is expected to create significant savings beginning in
1998 when the warehouse becomes operational.
The Company believes that funds generated from operations and borrowings
available under existing revolving loan facilities will be sufficient to finance
the Company's working capital requirements, provide for all known obligations of
the Company (including the obligations of the Company under its operating
leases) and fund planned capital expenditures through December 31, 1998. See
"FORWARD-LOOKING STATEMENTS" and "SPECIAL FACTORS/RISK FACTORS -- Substantial
Leverage; Stockholders Deficit; Liquidity."
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ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting For Stock-Based Compensation"
("Statement 123"). The Company has continued to account for its stock-based
transactions to employees in accordance with Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" and will include the pro
forma disclosures required by Statement 123, if material, in its annual
financial statements. For stock option grants to non-employees, the Company
follows the provisions of Statement 123, calculates compensation expense using a
fair value based method and amortizes compensation expense over the vesting
period. During the year ended December 31, 1996, the Company did not grant any
options to purchase shares of common stock to non-employees.
Also, effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" ("Statement 121"). Statement
121 requires that long-lived assets held and used by an entity be reviewed for
impairment whenever circumstances indicate that the carrying amount of an asset
may not be recoverable. It also requires that long-lived assets to be disposed
of be reported at the lower of the carrying amount or fair value less the cost
to sell. The adoption of Statement 121 did not have a material effect on the
Company's financial position or results of operations for the year ended
December 31, 1996.
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BUSINESS
OVERVIEW
The Company designs, manufactures, imports and markets a diverse portfolio
of tabletop, giftware and seasonal products, including: sterling silver,
silverplated and stainless steel flatware; sterling silver, silverplated and
brass hollowware; picture frames and photo albums; glassware, woodenware and
ceramics; fine porcelain boxes; figurines, waterglobes and Christmas ornaments,
trim, lighting and tree skirts.
The Company's net sales have grown from $82.9 million in 1991 to $169.5
million in 1995, a compounded annual growth rate of approximately 20%. For the
year ended December 31, 1996, the Company had net sales of $270.9 million, an
increase of 59.8% from the same period in 1995. Such growth was achieved through
the recent acquisitions, the addition of new products and product categories and
expanded distribution of existing products. The addition of new products and
product categories has been implemented through both internal development and
the acquisition of complementary brands. The Company has grown these acquired
brands into substantial product categories by expanding and improving their
product lines and distributing them through the Company's distribution channels.
RECENT ACQUISITIONS
Rauch. Rauch, a leading domestic manufacturer and marketer of Christmas
and other seasonal products, in particular glass and satin tree ornaments, was
acquired in February 1996 for approximately $49.6 million. Rauch distributes its
products primarily to mass market merchandisers through its own sales force and
independent representatives. The acquisition included Rochard, a marketer of
fine porcelain boxes sold primarily to high-end specialty and department stores.
Farberware. In April 1996, the Company acquired certain assets of
Farberware Inc., including its name, trademarks and other intellectual property,
inventory, tools and dies and machinery and equipment. The purchase price paid
by the Company was $32.6 million, subject to adjustment. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Agreement and Plan of Merger." The Company has been selling the
inventory initially purchased and subsequently acquired pursuant to a
manufacturing services agreement and, in three separate transactions, has
entered into licensing agreements for use by third parties of the Farberware
tradename in connection with the sourcing, manufacturing and marketing of (a)
certain cookware and bakeware products for a one-time payment of $25.5 million,
(b) certain electric products for home use for an annual royalty payments and
(c) Commercial Products (defined as six specified urns and a specified
convection oven plus other products to be developed with the prior approval of
Farberware) for annual royalty payments. The Company expects to continue to
grant licenses and intends from time to time to market specific products under
the Farberware tradename.
Silvestri. In April 1996, the Company acquired certain inventory and
intangibles of the Silvestri Division of FFSC, Inc. for approximately $8.6
million. The Silvestri product line consists of high-end Christmas ornaments,
collectibles, lighting and trim, as well as other seasonal and nonseasonal
giftware and decorative accessories, distributed primarily to specialty and
department stores.
C.J. Vander. In May 1996, the Company acquired C. J. Vander, a
manufacturer and marketer of prestigious sterling silver flatware and hollowware
with manufacturing locations in Sheffield and London, England. C.J. Vander's
products are distributed primarily to jewelry and other specialty stores in the
United Kingdom and Europe for approximately $1.0 million.
Potpourri Press. On November 26, 1996, a wholly-owned subsidiary of the
Company acquired inventory, tangible property, intellectual property rights,
certain key records (including customer lists, customer files, supplier
information, catalogs) and certain contract rights (selected by the Company's
subsidiary) of Potpourri Press, a North Carolina-based manufacturer and marketer
of Christmas products for a purchase price of approximately $2.3 million plus a
$0.2 million promissory note.
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COMPETITIVE STRENGTHS AND OPERATING STRATEGY
The Company's strategic goal is to be the leading domestic, one-source
supplier of tabletop, giftware and seasonal products to retailers. In order to
achieve this goal, the Company intends to rely on what it believes to be certain
competitive strengths and on certain operating strategies including:
Leadership in Key Product Categories. The Company believes that it is one
of the leading domestic manufacturers and marketers of sterling silver flatware
and sterling silver and silverplated hollowware, which products are sold under
many well-recognized tradenames. In addition, the Company believes it is one of
the leading domestic manufacturers of Christmas ornaments. Historically, the
Company has been able to increase sales by leveraging its strong presence with
retailers in certain categories, such as sterling silver flatware, to introduce
new products and product categories.
Broad Portfolio of Products with Well-Recognized Tradenames. The Company
offers a broad portfolio of tabletop, giftware and seasonal products both in
terms of the different product categories and multiple retail price points
through its "good-better-best" strategy. Wallace, Towle and International Silver
are among the best recognized tradenames for sterling silver flatware in the
United States, dating back to the colonial period. Rauch and Silvestri are well
established brands for Christmas and other seasonal merchandise. The Company's
giftware products are marketed under well-recognized tradenames such as
International Silver Company, Rochard and Melannco. The Company believes that
certain of its strongest brands draw customers into retail stores specifically
to purchase products bearing those tradenames. In addition to its own
tradenames, the Company produces a variety of products under license from
certain entities including The Walt Disney Company(R), Cuisinart(R), Victoria &
Albert Museum(R) and Faberge, Inc.(R)
Diversified Distribution Channels. The Company sells in products to
approximately 30,000 customers in most major distribution channels, including
retail specialty stores, such as jewelry, seasonal and nonseasonal giftware and
collectible stores, department stores, mass market merchandisers, catalogue
showrooms and warehouse clubs. The Company believes that the recent Rauch and
Silvestri acquisitions will strengthen the Company's presence with mass market
merchandisers and department and specialty stores, respectively. The Company's
broad customer base, both in terms of number of customers and channels of
distribution, reduces its exposure to any single customer or channel of
distribution. In 1996, no single customer accounted for 10% or more of the
Company's net sales.
Strong Relationships with Retailers. The Company attributes the successful
development of its retail channels to a number of factors. The Company believes
that it has benefited from the vendor consolidation trend in the retail
industry, which has resulted in increased demand for vendors that have the
ability to make timely deliveries of a broad range of quality products and
provide advertising and other sales support. The Company also believes that the
maintenance of separate sales forces for its product categories has allowed the
Company to provide its customers with specialized sales and marketing expertise.
In addition, the Company has a policy of not owning or operating Company outlet
stores and believes that this policy further strengthens its relationships with
its customers.
Product Development Expertise. The vast majority of the Company's
products, including products that are sourced from outside vendors, are designed
by the Company's design team and independent designers in conjunction with the
Company's product development and marketing team. The Company's design and
product development and marketing teams work closely to (i) introduce innovative
new products and product categories, such as the Holiday Workshop line of
seasonal products, the Hostess Helpers(R) sterling accessory line and a
dinnerware category that coordinates with sterling silver flatware and (ii)
develop acquired brands into substantial product lines for the Company, such as
the Melannco lines of picture frames and photo albums and the Elements glassware
lines.
Integrated Manufacturing and Sourcing. The Company aims at delivering
quality products at competitive prices to its customers. In order to pursue this
goal, the Company relies both on its own domestic manufacturing capabilities and
on a variety of suppliers located primarily in the Asia Pacific Rim. The
Company's decision on whether to manufacture or import is based upon, among
other criteria, expertise, quality, availability and cost. The Company's
imported products are designed by the Company's design team
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with the assistance of independent designers in conjunction with the Company's
marketing team. In addition, in order to ensure quality, products are generally
manufactured using Company-owned tools and dies. In 1996, through its import
organization comprised of approximately 150 employees, both in the U.S. and
overseas, the Company sourced products from over 480 manufacturers, with whom in
many cases it has long-standing relationships. The Company can rely on multiple
manufacturers and countries with respect to most of its imported products.
GROWTH STRATEGY
The Company's strategy for future growth focuses on the integration of its
recent acquisitions and on its continued ability to expand its product lines,
expand its distribution, both domestically and internationally, improve the
efficiency of its operations and pursue selected acquisitions of complementary
product lines and businesses.
Integration of Recent and Pending Acquisitions. The Company believes that
significant opportunities for growth in sales and operating income exist if it
can successfully integrate its recent acquisitions into the Company's sales and
marketing organization and consolidate and rationalize certain operations.
The Company plans to expand the distribution of Rauch and Silvestri
products by marketing them through the Company's established distribution
channels and also plans to add new products to their existing lines. By
integrating Rauch, Silvestri and Potpourri with the Company's internally
developed Holiday Workshop line of seasonal products, the Company has
significantly expanded its product offerings in this product category, both in
terms of types of product and retail price points, and strengthened its presence
in major retail channels. In addition, the Company believes that such
strengthened presence will provide the Company with substantial opportunities to
cross-sell the Company's tabletop and giftware product lines through Rauch and
Silvestri distribution channels.
In order to support the growth in its seasonal business, the Company is in
the process of investing $15 million to expand its manufacturing, warehousing
and distribution capabilities, primarily by consolidating warehouse and
distribution facilities, building a new centralized customer showroom for
seasonal products and acquiring new tools and dies and machinery. These
investments, along with the consolidation of certain selling, general and
administrative functions, are also designed to generate significant cost
savings.
Through the acquisition of C.J. Vander, the Company believes that it will
be able to expand the distribution of Wallace and Towle sterling silver and
silverplated product lines into the European market, primarily through C.J.
Vander's existing distribution channels. In addition, the Company intends to
expand the distribution of C.J. Vander products in the United States, in
particular through the Rochard sales force, which consists of independent
representatives who sell to high-end specialty and department stores. The
Company also intends to capitalize on the Farberware brand name recognition to
introduce new tabletop products under that tradename beginning in 1997.
Expanded Distribution. In addition to the opportunities offered by the
recent acquisitions discussed above, the Company believes that it has
significant opportunities to expand the distribution of its existing product
lines by increasing the penetration of existing retailer customers and the
number of retail outlets to which it sells. Beginning in 1994, the Company
implemented a program with a specialty retailer and franchisee, whereby the
Company sources, markets and distributes giftware products for the customer's
retail system comprised of several thousand stores. With respect to this
program, the Company has identified several growth opportunities, both in terms
of expanded product offerings and additional store coverage. In addition, the
Company intends to expand the distribution of several product lines introduced
in the past several years, such as Melannco and Elements, which the Company
believes are not currently fully exploited.
New Product Introduction. The Company intends to continue to introduce
many new products each year. As a result of the planned investments in tools,
dies and machinery, the Company believes that it will be able to broaden
significantly its offering of Christmas and other seasonal merchandise beginning
in 1997. The Company intends to capitalize on the Farberware tradename
recognition for quality housewares to introduce new products beginning in 1997.
In addition, the Company continuously expands and upgrades its line of sterling
silver, silverplated and other tabletop and giftware products.
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Continued Investment in Technology and Productivity. The Company, through
one of its indirect wholly-owned subsidiaries, has entered into a purchase and
sale agreement to acquire approximately 42 acres of land in Mira Loma,
California. The Company intends to construct a warehouse and distribution center
on the property to serve as its western region warehouse and distribution
center. The Company intends to invest in additional application solutions to
enhance its Electronic Data Interchange (EDI) and warehousing capabilities. The
Company plans to add a Warehouse Management System (WMS) to each of its
warehouses that would enhance the Company's ability to service its customers by
improving its order processing and logistics and storage utilization, minimize
order cycle times, enhance inventory management, and ensure that customer orders
are processed efficiently.
Acquisitions. The Company believes that the giftware and seasonal markets
and, to a lesser extent, the tabletop market are highly fragmented with a number
of small manufacturers and marketers of a limited line of products. The Company
believes that these industry characteristics and the continuing trend among
retailers to consolidate their vendor base will generate attractive
opportunities to acquire complementary brands, products, product categories and
businesses.
Limitations on Growth Strategy. The Company's ability to follow the growth
plans outlined in preceding paragraphs may be constrained by the availability
and cost of capital following the Merger. As noted above, immediately following
the Merger there will be a deficit in Stockholders' equity, and, as a
consequence, the Company may find it necessary to curtail or abandon some or all
of its growth plans.
PRODUCTS
The Company designs, manufactures, imports and markets a diverse offering
of quality tabletop, giftware and seasonal products. The Company defines
seasonal products as Christmas tree ornaments, other Christmas decorations and a
variety of other products sold for Halloween, Easter, Thanksgiving, Mothers Day
and Valentines Day. Seasonal products are marketed under a variety of the
Company's tradenames. As noted in the last paragraph on page 88 of this Proxy
Statement/Prospectus, seasonal products are included in the Tabletop and
Giftware product category and are marketed under the Wallace, Towle, and
International Silver tradenames. For example, the Company considers picture
frames a tabletop and giftware item and also considers it seasonal just by
changing the packaging slightly (e.g., a red colored box at Christmas time).
Therefore, a number of the Company's products and/or product lines cannot be
categorized between Tabletop and Giftware and Seasonal.
The majority of the Company's products are sold through the same
distribution channels. Customers in each distribution channel purchase a wide
range of the Company's products. Distribution costs are not tracked by product
category and therefore are not distinguishable between Tabletop and Giftware and
Seasonal. In addition, selling and marketing costs, including product design,
trade shows and travel, are not tracked separately and are not reasonably
allocable by product category.
A significant portion of the Company's products are also sourced overseas.
This function is also not performed by product or product line and is therefore
not reasonably allocable by product category.
The Company also believes that a significant change in sales of specific
products will not materially impact operating results.
The following table presents a breakdown of the Company's net sales by
major product categories for the periods presented. For the purpose of this
table, seasonal products include the Rauch (including Rochard), Silvestri and
Holiday Workshop product lines. Certain seasonal products marketed under
Wallace, Towle and International Silver trademarks are included in the tabletop
and giftware product category.
YEAR ENDED DECEMBER 31,
--------------------------------------
1994 1995 1996
-------- -------- --------
(IN THOUSANDS)
Tabletop and Giftware.................................. $139,510 $153,170 $171,824
Seasonal............................................... 7,781 16,350 99,107
-------- -------- --------
Total........................................ $147,291 $169,520 $270,931
======== ======== ========
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The Company's products include those shown in the table below, all of which
are marketed under one of the Company's many well-recognized tradenames as shown
in the table:
PRODUCT CATEGORY REPRESENTATIVE PRODUCTS PRINCIPAL TRADENAMES
- ------------------ -------------------------------- --------------------------------
TABLETOP AND Sterling Silver Flatware and Wallace Silversmiths(R), Towle
GIFTWARE Hollowware, Silverplated Silversmiths(R), International
Flatware and Hollowware, Silver Company(R),
Stainless Steel Flatware, Farberware(R), C.J. Vander,
Picture Frames and Photo Albums, Ltd.(TM), Roberts and Belk,
Porcelain Boxes, Candlesticks, Ltd.(TM), Tuttle Sterling(R),
Cosmetic Accessories, Glassware, Rochard(TM), Melannco(R), 1847
Woodenware, Ceramics, Brassware Rogers Bros.(R), Elements(R)
SEASONAL Waterglobes, Figurines, Rauch Industries(R),
Collectibles Silvestri(R), Holiday
Christmas Ornaments, Christmas Workshop(R), International
Stockings, Tree Skirts, Trim, Christmas(TM), Holiday
Lighting Products(TM), Rochard(TM)
Tabletop and Giftware
Sterling Silver and Silverplated Flatware and Hollowware. The Company
designs, markets and distributes a variety of products in these categories,
including flatware, serving pieces, cosmetic accessories and hollowware, such as
candlesticks, casseroles and coffee and tea services, that are marketed under
the tradenames Wallace Silversmiths(R), Towle Silversmiths(R), International
Silver Company(R), C.J. Vander(TM) and Tuttle Sterling(R). A vast majority of
the Company's products in this category are manufactured at the Company's plants
in Puerto Rico and Massachusetts. These products are sold primarily to specialty
stores, including jewelry stores and gift stores, and department stores and are
generally included in bridal registries.
Stainless Steel Flatware. The Company designs, markets and distributes
several lines of stainless steel flatware ranging from premium mass-produced
sets to high-end flatware place settings. The Company markets these products
under tradenames such as Wallace Silversmiths(R), Towle Silversmiths(R),
International Silver Company(R), 1847 Rogers Bros.(R) and, under a license
agreement, the tradename Cuisinart(R). The Company's products in this category
are imported from the Company's third-party vendors located primarily in the
Asia Pacific Rim. The primary channels of distribution include department
stores, mass market merchandisers, warehouse clubs and specialty stores and are
also included in bridal registries.
Picture Frames and Photo Albums. The Company designs, markets and
distributes several product lines of picture frames and photo albums. The
picture frames range from sterling silver on the high end to a variety of other
frames produced in wood, resin, ceramic, metal and other mediums. The photo
albums are produced in metal, fabric and resin. The Company markets these
products under tradenames such as Melannco International(R), International
Silver Company(R), Wallace Silversmiths(R) and Towle Silversmiths(R) and under
license from The Walt Disney Company(R). The Company's products in this category
are imported from the Company's third-party vendors located primarily in the
Asia Pacific Rim. The channels of distribution include department stores,
including stationery departments, specialty stores and mass market
merchandisers.
Glassware, Woodenware and Ceramics. The Company designs, markets and
distributes several lines of glassware products, including beverageware, glass
dinnerware and salad sets. The Company markets these products under the
tradenames International Silver Company(R) and Elements(R). The Company intends
to market a woodenware and ceramics line in 1997. The Company's products in this
category are imported from the Company's third-party vendors located primarily
in the Asia Pacific Rim. The channels of distribution of the Company's glassware
line include mass market merchandisers, warehouse clubs and specialty stores.
Porcelain Boxes. The Company designs, markets and distributes a diverse
range of high-end, hand-painted porcelain boxes under the Rochard(TM) tradename
which are primarily manufactured by third-party vendors located primarily in
France. The channels of distribution include specialty stores, including jewelry
stores and department stores.
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Other Tabletop and Giftware. The Company designs, markets and distributes
a wide range of other tabletop and giftware products, including premium products
such as picture frames and cosmetic accessories as "gift with purchase" items,
brassware, napkin rings and decorative clocks. The primary channels of
distribution include department stores, mass market merchandisers, warehouse
clubs and specialty stores.
Seasonal Products
Christmas Ornaments. The Company designs, markets and distributes
Christmas tree ornaments made of glass, satin, ceramic and resin. The Company's
products are distributed through specialty stores, department stores, jewelry
stores, mass market merchandisers and warehouse clubs. These products are
marketed under the tradenames Rauch(R), Silvestri(R), Holiday Workshop(R) and
International Christmas(TM). The Company also manufactures limited edition,
sterling silver Christmas ornaments that are marketed under the tradenames
Wallace Silversmiths(R) and Towle Silversmiths(R).
Other Christmas Decorations. The Company designs, markets and distributes
a diverse product offering of other Christmas decorations including figurines,
waterglobes, collectibles, trim, lighting, tree skirts and other decorative
items produced in wood, resin, metal, paper, textiles, glass and ceramic. These
products are marketed under the tradenames Silvestri(R), Rauch(R), Holiday
Workshop(R), International Christmas(TM) and Elements(R). These products are
distributed through specialty stores, department stores, mass market
merchandisers and warehouse clubs.
Other Seasonal Products. The Company designs, markets and distributes a
variety of other seasonal products for Halloween, Easter, Thanksgiving, Mothers
Day and Valentines Day. These products include figurines, vases, bowls, trays
and other items comprised of metal, resin, wood, ceramic and glass. These
products are distributed through specialty stores, department stores, mass
market merchandisers and warehouse clubs.
SALES, MARKETING AND DISTRIBUTION
On January 17, 1997, the Company, through one of its indirect wholly-owned
subsidiaries acquired approximately 42 acres of land in Mira Loma, California.
The Company intends to construct a warehouse and distribution center on the
property to serve as its western region warehouse and distribution center.
The Company sells many different types of products, with a variety of price
points and target customers. Accordingly, the Company sells its products through
a variety of distribution channels including department and speciality stores,
mass market merchandisers, warehouse clubs, catalogue showrooms, drugstores,
supermarkets, incentive marketers and jewelry stores. The Company maintains
separate sales forces for its product lines so as to provide the specialized
expertise and attention necessary to service its customer base. The Company's
sales and marketing staff coordinates with individual retailers to devise
marketing strategies and merchandising concepts and to furnish advice on
advertising and product promotion. The Company has developed several promotional
programs for use in the ordinary course of business to promote sales throughout
the year.
The Company's various sales and marketing efforts are supported from its
principal office and showroom in East Boston, Massachusetts and, for certain of
its products, from its offices and showrooms in Hong Kong and London. The
Company maintains additional showrooms in New York, Los Angeles, Atlanta, Dallas
and Chicago. The Company's sales and marketing staff at December 31, 1996,
consisted of approximately 150 employees who are salaried, paid commissions
based on sales or, in some instances, paid a base salary plus commissions. The
Company also distributes certain of its products through independent sales
representatives who work on a commission basis only.
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RETAILING CUSTOMERS
During 1996, 20 customers accounted for approximately 43% of the Company's
net sales. No one customer represented 10% or more of the Company's net sales.
1996 CHANNELS OF DISTRIBUTION % OF 1996 NET SALES
----------------------------------------------------------------- ----------------------
Mass Market Merchandisers, Catalogue Showrooms, Warehouse Clubs,
Drug Stores, Supermarkets...................................... 39%
Department Stores................................................ 19%
Specialty Stores, Jewelry Stores, Premium and Incentive
Marketers...................................................... 42%
In order better to service its customers, the Company has invested in
equipment and software to allow its customers to transmit their orders
electronically throughout the EDI system.
MANUFACTURING AND RAW MATERIALS
The Company produces its sterling silver flatware at its manufacturing
facility in San German, Puerto Rico, where it fabricates and manufactures
sterling silver into finished products for the Wallace, International, Towle and
Tuttle lines, and in Sheffield, England for C.J. Vander, Ltd. and Roberts and
Belk. The Company also designs, produces and maintains the tools required for
manufacturing sterling silver flatware.
The Company has maintained, in the aggregate, approximately six months of
inventory. The Company's silver fabrication operation in its Puerto Rico
manufacturing plant became fully operational during 1994. This process reduces
the need for purchasing fabricated silver from outside vendors. The Company uses
substantial quantities of fabricated silver in its manufacturing operations.
Fabricated sterling silver made from fine silver purchased by the Company may be
readily obtainable from outside resources as well. The Company purchases fine
silver in the spot market in quantities the Company believes are adequate to
meet reasonably foreseeable consumer demand for its silver products. The Company
does not engage in speculative purchases of fine silver. In the five-year period
ended December 31, 1996, the closing price of silver as quoted by Handy & Harman
Inc. has ranged from $3.54 per troy ounce to $6.01 per troy ounce ($5.23 at
February 21, 1997).
The Company manufactures silverplated giftware and tabletop products,
including hollowware, at its manufacturing and silverplating facilities in North
Dighton, Massachusetts and Sheffield, England. These facilities have all the
stamping, processing, soldering, finishing, polishing, silverplating and
packaging capabilities necessary to turn unfinished metal into finished
products.
The Company's imported products originate as designs created by its
internal design staff or by independent designers, in each case in conjunction
with the Company's product development and marketing staffs. Products based on
these designs are manufactured to the Company's specifications in various
countries including Hong Kong, India, Korea, Taiwan, China, Japan, Indonesia,
Malaysia and certain European countries.
In 1996, the Company purchased an aggregate of approximately $104 million
of products from approximately 480 foreign manufacturers. No vendor accounted
for ten percent or more of such purchases in 1996. The Company does not have
information on the financial condition of its major foreign vendors, all of
which are privately held, but is not aware of any unfavorable information
related to their respective financial condition. Of the Company's foreign
purchases in 1996, approximately 92% were from vendors located in the Far East,
approximately 4% were from vendors located in India and approximately 4% in the
aggregate from vendors in other locations. The Company's arrangements with its
manufacturers are subject to the risks of doing business abroad, including risks
associated with economic or political instability in countries in which such
manufacturers are located, labor strikes and risks associated with foreign
currency and potential import restrictions. The Company does not believe that
the loss of any single foreign supplier would have a material long-term adverse
impact on the Company's source of supply, because other manufacturers with whom
the Company does business would be able to increase production to fulfill the
Company's requirements. The Company is also subject to risks associated with the
availability of, and time required for, the transportation of products from
foreign countries, including shipping losses or lost sales that may result from
delays or interruptions in shipping.
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The Company intends to invest in increasing production capacity and
improving productivity related to its Rauch operations. For several of the prior
selling seasons, the Company believes that Rauch had operated under capacity
constraints. The Company has developed and is in the process of installing new
automatic machinery with a production capacity exceeding 150% of the capacity of
its current machines. The Company expects that the new machinery will start
operating during the first quarter of 1997. The Company also purchased an
828,000 (approximately) square foot building in Chester, South Carolina, which
is in close proximity to the existing Rauch manufacturing plant. This new
facility will provide adequate space for the new machinery and allow for
automated material handling which is expected to reduce costs substantially.
This large warehouse and distribution center will also provide the Company an
opportunity to consolidate its outside warehouse and manufacturing. The Company
continuously looks for opportunities for new equipment to reduce production
costs.
The recently acquired Rauch Christmas decoration manufacturing process uses
three basic raw materials: (i) expandable polystyrene ("EPS") for unbreakable
ornaments, (ii) glass ornament blanks and (iii) acetate or polyester yarn
materials including boxes and packaging. To produce Christmas stockings, tree
skirts and Santa Claus hats and suits, Rauch purchases non-woven and knitted
pile fabric. Rauch has not experienced difficulty in obtaining raw materials or
other supplies from its suppliers and does not anticipate any such difficulty in
the foreseeable future. Rauch imports ornament hangers, small glass and satin
balls and assorted tree and off-the-tree decorations from Taiwan, Hong Kong,
Mexico and Colombia.
COMPETITION
The tabletop, giftware and seasonal products industries in which the
Company is engaged are highly competitive. Competition is affected not only by
the large number of domestic manufacturers, but also by the large volume of
foreign imports. Several of the Company's competitors are larger and have
greater financial resources than the Company. The Company's products compete
indirectly with a broad range of household products not offered by the Company.
Within the overall tabletop products industry, the production of sterling silver
flatware in the United States is relatively concentrated, with five
manufacturers, including the Company, accounting for substantially all of the
sterling silver flatware manufactured and sold in the United States. The other
principal manufacturers and marketers of sterling silver flatware are Gorham,
Inc. and its affiliate The Kirk Steiff Company, Reed & Barton Corp. and Lunt
Silversmiths, all of which have been in business for many years. The giftware
and seasonal products industries, however, are very fragmented with numerous
small manufacturers and marketers of a limited number of products. The Company
is not aware of any competitor having the same product line breadth.
A number of factors affect competition in the sale of products of the type
manufactured, imported and sold by the Company. Among these are brand
identification, style, design, packaging, price, quality, promotion, sales staff
and the level of service provided to customers. The importance of these
competitive factors varies from customer to customer and from product to product
and no one of these factors is dominant in all cases. The Company believes that
its ability to compete effectively can be attributed to its performance in all
of these areas. Certain of the Company's foreign competitors have tried to gain
market share in the United States by producing low-cost items and by taking
advantage of the increased purchasing power of the dollar in times when the
dollar is relatively strong as compared to foreign countries. Rising labor costs
in many foreign countries and the relative weakness of the dollar, as compared
to the exchange rates prevailing in the mid-1980's, have reduced these
advantages to some extent in recent years.
TRADEMARKS, COPYRIGHTS AND PATENTS
The success of the Company's various businesses depends in part on the
Company's ability to exploit certain proprietary designs, trademarks and brand
names on an exclusive basis in reliance upon the protections afforded by
applicable copyright, patent and trademark laws and regulations. The loss of
certain of the Company's rights to such designs, trademarks and brand names or
the inability of the Company effectively to protect or enforce such rights could
adversely affect the Company. The Company does not believe that there is a
significant danger that it will lose its rights to any of its material
trademarks and tradenames or be unable
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effectively to protect or enforce such rights. Although the loss of any right to
designs, trademarks and tradenames could have negative effects, any such effects
are unlikely to be material.
SEASONALITY
Sales are generally higher in the third and fourth quarters and are
strongly influenced by the buying patterns associated with the Christmas season.
The acquisitions of Rauch and Silvestri will intensify the seasonality of the
Company since the majority of Rauch and Silvestri products are Christmas items
and sales of these products are strongest in the third and fourth quarters. The
Company continues to introduce products appropriate to other holidays and
seasons in order to increase sales during the first and second quarters.
BACKLOG
Orders for the Company's products are generally subject to cancellation
until shipment. The Company's backlog consists of cancelable orders and is
dependent upon trends in consumer demand throughout the year. Customer order
patterns vary from year to year, largely because of annual differences in
consumer acceptance of product lines, product availability, marketing
strategies, inventory levels of retailers and differences in overall economic
and weather conditions. As a result, comparison of backlog as of any date in a
given year with backlog at the same date in a prior year are not necessarily
indicative of sales trends. The Company had (exclusive of Farberware) a backlog
of approximately $24.3 million as of December 31, 1996, compared to
approximately $24.0 million as of December 31, 1995. See "Seasonality." The
Company does not believe that backlog is necessarily indicative of the Company's
future results of operations or prospects.
The Company's warranty policy is to accept returns of products with defects
in materials or workmanship. The Company will also accept returns of incorrectly
shipped goods where the Company has been notified on a timely basis and, in
certain cases, to maintain customer goodwill. In accordance with normal retail
industry practice, the Company ordinarily accepts returns only from its
customers and does not ordinarily accept returns directly from consumers.
Certain of the products returned to the Company by its customers, however, may
have been returned to those customers by consumers. The Company will routinely
accept returns for imported products that are received late by the customer. The
majority of the returned products are resold into the same distribution channel.
During the three year period ended December 31, 1996, returns and allowances
amounted to approximately 2.1% of sales.
ENVIRONMENTAL REGULATION
The Company's silverplating, chrome plating, tool making and painting
operations routinely involve the handling of waste materials that are classified
as hazardous. The Company also refabricates certain materials used in its
silverplating operations. The Company is subject to certain domestic federal,
state and local laws and regulations concerning the containment and disposal of
hazardous materials and, therefore, in the ordinary course of its business, the
Company incurs compliance costs and may be required to incur clean-up costs.
Based upon currently available information, the Company does not expect that the
costs of such compliance and clean-up costs will be material. In addition, the
Company's C.J. Vander facility is subject to many environmental regulations
related to its plating operations in the United Kingdom. Actions by federal,
state and local governments concerning environmental matters could result in
laws or regulations that could increase the cost of producing the products
manufactured by the Company or otherwise adversely affect the demand for its
products. In addition, the future costs of compliance with environmental laws
and regulations and liabilities resulting from currently unknown circumstances
or developments could be substantial and could have a material adverse effect on
the Company.
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PROPERTIES
The following table sets forth information with respect to the Company's
properties as of January 31, 1997:
APPROXIMATE
SQUARE
FOOTAGE OR
LOCATION TYPE OF FACILITY ACREAGE STATUS
- ----------------------- ----------------------------------------- ----------- -------
Mira Loma, CA.......... Land 42 Acres Owned
Chester, SC*........... Warehouse/Manufacturing/Showroom 828,000 Owned
Revere, MA............. Warehouse/Distribution 535,000 Owned
Gastonia, NC........... Office/Manufacturing/Distribution 447,441 Owned
East Boston, MA........ Office/Showroom 292,000 Owned
Ontario, CA............ Office/Warehouse/Distribution 285,000 Leased
Dallas, TX............. Warehouse 189,100 Leased
El Paso, TX............ Office/Manufacturing 135,000 Owned
North Dighton, MA...... Office/Manufacturing/Warehouse 134,042 Leased
Crisfield, MD.......... Office/Manufacturing/Warehouse 71,754 Leased
San German, PR......... Office/Manufacturing 70,296 Leased
New York, NY........... Showrooms 45,361 Leased
Hong Kong.............. Office/Warehouse/Showroom 42,009 Leased
Atlanta, GA............ Showrooms 15,050 Leased
Dallas, TX............. Showrooms 9,716 Leased
Los Angeles, CA........ Showroom 10,095 Leased
Wallingford, CT........ Office 2,800 Leased
Cramerton, NC.......... Land 34.1 Acres Owned
Dallas, TX............. Office 20,000 Leased
Sheffield, England..... Manufacturing/Warehouse/Foundry 39,000 Owned
London, England........ Office/Showroom 4,000 Leased
China.................. Warehouse 56,512 Leased
Taiwan................. Office 6,253 Leased
Philippines............ Office 4,380 Leased
Chicago, IL............ Showroom 7,452 Leased
New York, NY........... Warehouse 3,800 Leased
- ---------------
(*) Scheduled to be operational by March 31, 1997
EMPLOYEES
As of December 31, 1996, the Company had approximately 1,925 employees. The
Company believes that its relationship with its employees is good.
The Company's employees are not represented by labor unions; however,
Rauch, which merged with the Company on February 15, 1996, was a subject of
efforts by UNITE (the "Union") in the fall of 1995 to organize Rauch's
employees. A scheduled Union election was postponed because the Union filed
unfair labor practice charges against Rauch with the National Labor Relations
Board (the "NLRB"). These charges, which related to allegations of threats and
promises by Rauch officials and the termination of certain employees, were
settled pursuant to an agreement between Rauch and the Union. On May 2, 1996,
the NLRB approved the agreement and the Union's request that the petition for an
election be withdrawn with prejudice.
95
103
LEGAL PROCEEDINGS
The Company has been named as a defendant in several legal actions arising
from its normal business activities, including routine copyright and trademark
litigation, which actions are considered normal in the businesses in which the
Company is engaged.
On March 31, 1994 an Administrative Law Judge ("ALJ") designated by the
National Labor Relations Board ("NLRB") determined that the Company's
subsidiaries Wallace International de P.R., Inc. and International Silver de
P.R., Inc. (the "P.R. Subsidiaries") had engaged in unfair labor practices
incident to a union election (won by the P.R. Subsidiaries) held in February,
1993 and ordered the P.R. Subsidiaries to refrain from certain conduct and to
take certain affirmative action. The ALJ's decision was affirmed by the NLRB on
September 22, 1994. Incident to a second union election (also won by the P.R.
Subsidiaries) held on June 22, 1994 pursuant to stipulation, the P.R.
Subsidiaries were again charged with unfair labor practices. The ALJ again found
that the P.R. Subsidiaries had engaged in unfair labor practices. The Company
has appealed to the NLRB, and the appeal is pending.
REGULATORY APPROVALS
The Merger is subject to the expiration or termination of the applicable
waiting period under the HSR Act, which, as noted below, has occurred. Certain
aspects of the Merger will require notification to, and filings with, certain
securities and other authorities in certain states, including jurisdictions
where the Company currently operates.
Antitrust. Under the HSR Act and the rules promulgated thereunder by the
Federal Trade Commission (the "FTC"), the Merger may not be consummated until
notifications have been given and certain information has been furnished to the
FTC and the Antitrust Division of the Department of Justice (the "Antitrust
Division") and the applicable waiting period has expired or been terminated. On
November 12, 1996, the Company and the Fund, as ultimate parent entity of THL I,
filed Notification and Report Forms under the HSR Act with the FTC and the
Antitrust Division. On November 25, 1996, the FTC and the Antitrust Division
granted early termination of the waiting period under the HSR Act with respect
to the Merger effective immediately. At any time before or after consummation of
the Merger, notwithstanding termination of the waiting period under the HSR Act,
the Antitrust Division or the FTC could take such action under the antitrust
laws as it deems necessary or desirable in the public interest, including
seeking to enjoin the consummation of the Merger or seeking divestiture of
substantial assets of the Company. At any time before or after the Effective
Time, and notwithstanding termination of the waiting period under the HSR Act,
any state could take such action under the antitrust laws as it deems necessary
or desirable in the public interest. Such action could include seeking to enjoin
the consummation of the Merger or seeking divestiture of substantial assets of
the Company. Private parties may also seek to take legal action under the
antitrust laws under certain circumstances.
Based on information available to them, the Company and THL I believe that
the Merger can be effected in compliance with federal and state antitrust laws.
However, there can be no assurance that a challenge to the consummation of the
Merger on antitrust grounds will not be made or that, if such a challenge were
made, the Company and THL I would prevail or would not be required to accept
certain adverse conditions in order to consummate the Merger.
Other. The obligations of THL I under the Merger Agreement are also
subject to the receipt of all necessary licenses, permits, consents, approvals,
authorizations, qualifications and orders of governmental authorities and other
third parties as are necessary in connection with the transactions contemplated
by the Merger unless the failure to so obtain would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole.
96
104
THL I AND THOMAS H. LEE COMPANY
THL I, a Delaware corporation organized by Thomas H. Lee Company, was
organized in connection with the Merger and has not carried on any activities to
date other than those incident to its formation and the transactions
contemplated by the Merger Agreement. As at the date hereof the outstanding
shares of THL I are owned by Thomas H. Lee, the President of Thomas H. Lee
Company. The name, business, address, principal occupation or employment, and
five year employment history of each of the directors and executive officers of
THL I and of Thomas H. Lee Company and certain other information, are set forth
in SCHEDULE I to this Proxy Statement/Prospectus.
DISSENTING STOCKHOLDERS' RIGHTS
If the Merger is consummated, stockholders of the Company who make the
demand described below with respect to their shares, who continuously are the
record holders of such shares through the Effective Time, who otherwise comply
with the statutory requirements of Section 262 (a copy of which is attached
hereto as Annex III to this Proxy Statement/Prospectus) and who neither vote in
favor of the Merger Agreement nor consent thereto in writing will be entitled to
an appraisal by the Delaware Court of the fair value of their shares of Syratech
Common Stock. Except as set forth herein, stockholders of the Company will not
be entitled to appraisal rights in connection with the Merger.
A holder of shares of Syratech Common Stock wishing to exercise dissenters'
rights of appraisal must, before the taking of the vote on the Merger at the
Special Meeting, deliver to Syratech a written demand for appraisal of such
shares. A demand for appraisal will be sufficient if it reasonably informs
Syratech of the identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of his or her shares.
Within 10 days after the Effective Time, the Company is required to, and
will, notify each stockholder of the Company who has satisfied the foregoing
conditions on the date on which the Merger became effective. Within 120 days
after the Effective Time, either the Company or any stockholder who has complied
with the required conditions of Section 262 may file a petition in the Delaware
Court, with a copy served on the Company in the case of a petition filed by a
stockholder, demanding a determination of the fair value of the shares of all
dissenting stockholders. There is no present intent on the part of the Company
to file an appraisal petition and stockholders seeking to exercise appraisal
rights should not assume that the Company will file such a petition or that the
Company will initiate any negotiations with respect to the fair value of such
shares. Accordingly, stockholders who desire to have their shares appraised
should initiate any petitions necessary for the perfection of their appraisal
rights within the time periods and in the manner prescribed in Section 262.
Within 120 days after the Effective Time, any stockholder who has theretofore
complied with the applicable provisions of Section 262 will be entitled, upon
written request, to receive from the Company, a statement setting forth the
aggregate number of shares of Syratech Common Stock not voting in favor of the
Merger Agreement and with respect to which demands for appraisal were received
by the Company and the number of holders of such shares. Such statement must be
mailed within 10 days after the written request therefor has been received by
the Company.
If a petition for an appraisal is timely filed, at the hearing on such
petition, the Delaware Court will determine which stockholders are entitled to
appraisal rights. The Delaware Court may require the stockholders who have
demanded an appraisal for their shares and who hold stock represented by
certificates to submit their certificates of stock to the Register in Chancery
for notation thereon of the pendency of the appraisal proceedings; and if any
stockholder fails to comply with such direction, the Delaware Court may dismiss
the proceedings as to such stockholder. Where proceedings are not dismissed, the
Delaware Court will appraise the shares of Syratech Common Stock, owned by such
stockholders, determining the fair value of such shares exclusive of any element
of value arising from the accomplishment or expectation of the Merger, together
with a fair rate of interest, if any, to be paid upon the amount determined to
be the fair value. In determining fair value, the Delaware Court is to take into
account all relevant factors. In Weinberger v. UOP Inc., the Delaware Supreme
Court discussed the factors that could be considered in determining fair value
in an appraisal proceeding, stating that "proof of value by any techniques or
methods which are generally considered acceptable in the financial community and
otherwise admissible in court" should be considered,
97
105
and that "fair price obviously requires consideration of all relevant factors
involving the value of a company." The Delaware Supreme Court stated that in
making this determination of fair value the court must consider market value,
asset value, dividends, earnings prospects, the nature of the enterprise and any
other facts which could be ascertained as of the date of the merger which throw
light on future prospects of the merged corporation. In Weinberger, the Delaware
Supreme Court stated that "elements of future value, including the nature of the
enterprise, which are known or susceptible of proof as of the date of the merger
and not the product of speculation, may be considered." Section 262, however,
provides that fair value is to be "exclusive of any element of value arising
from the accomplishment or expectation of the merger."
Holders of shares of Syratech Common Stock considering seeking appraisal
should recognize that the fair value of their shares determined under Section
262 could be more than, the same as or less than the consideration they are
entitled to receive pursuant to the Merger Agreement if they do not seek
appraisal of their shares. The cost of the appraisal proceeding may be
determined by the Delaware Court and taxed against the parties as the Delaware
Court deems equitable in the circumstances. Upon application of a dissenting
stockholder of the Company, the Delaware Court may order that all or a portion
of the expenses incurred by any dissenting stockholder in connection with the
appraisal proceeding, including without limitation, reasonable attorney's fees
and the fees and expenses of experts, be charged pro rata against the value of
all shares of stock entitled to appraisal.
At any time within 60 days after the Effective Time, any stockholder will
have the right to withdraw such demand for appraisal and to accept the terms
offered in the Merger; after this period, the stockholder may withdraw such
demand for appraisal only with the consent of the Company. If no petition for
appraisal is filed with the Delaware Court within 120 days after the Effective
Time, stockholders' rights to appraisal shall cease, and all holders of shares
of Syratech Common Stock will be entitled to receive the consideration offered
pursuant to the Merger Agreement. Inasmuch as the Company has no obligation to
file such a petition, and the Company has no present intention to do so, any
holder of shares of Syratech Common Stock who desires such a petition to be
filed is advised to file it on a timely basis. Any stockholder may withdraw such
stockholder's demand for appraisal by delivering to the Company a written
withdrawal of his or her demand for appraisal and acceptance of the Merger,
except (i) that any such attempt to withdraw made more than 60 days after the
Effective Time will require written approval of the Company, and (ii) that no
appraisal proceeding in the Delaware Court shall be dismissed as to any
stockholder without the approval of the Delaware Court, and such approval may be
conditioned upon such terms as the Delaware Court deems just.
The foregoing is only a summary of Section 262, and is qualified in its
entirety by reference to the provisions thereof, the full text of which is set
forth as ANNEX III to this Proxy Statement/Prospectus. Each stockholder of the
Company is urged to read carefully the full text of Section 262.
EXPERTS
FINANCIAL STATEMENTS
The consolidated financial statements and schedule of Syratech and its
subsidiaries for each of the three years in the period ended December 31, 1996,
included in this Proxy Statement/Prospectus, have been audited by Deloitte &
Touche LLP, independent accountants, as stated in their reports appearing herein
and elsewhere in the Proxy Statement/Prospectus and have been so included in
reliance upon the reports of such firm given upon their authority as experts in
accounting and auditing. The financial statements of Rauch Industries, Inc. for
the fiscal year ended December 31, 1995 included in the Company's Form 8-K/A
dated February 27, 1997 (which supersedes a Current Report on Form 8-K/A dated
April 29, 1996), amending the Company's Current Report on Form 8-K dated
February 29, 1996, have been incorporated by reference in this Proxy and have
been audited by Coopers & Lybrand L.L.P., independent accountants, as indicated
in their report, also incorporated by reference in this Proxy from the Form
8-K/A, with respect thereto, and have been so incorporated in reliance upon the
authority of said firm as experts in accounting and auditing.
98
106
Representatives of Deloitte & Touche LLP are expected to be present at the
Special Meeting, where they will have the opportunity to make a statement if
they desire to do so and will be available to respond to appropriate questions.
LEGAL OPINIONS
The legality of Syratech Common Stock being retained in the Merger is being
passed on by Paul, Weiss, Rifkind, Wharton & Garrison, New York, New York. As of
January 31, 1997, lawyers of Paul, Weiss, Rifkind, Wharton & Garrison,
beneficially owned an aggregate of 36,681 shares individually or in various
fiduciary capacities.
OTHER INFORMATION AND STOCKHOLDER PROPOSALS
Management of the Company knows of no other matters that may properly be,
or which are likely to be, brought before the Special Meeting. However, if any
other matters are properly brought before such Special Meeting, the persons
named in the enclosed Proxy or their substitutes will vote the Proxies in
accordance with their judgment with respect to such matters.
STOCKHOLDERS PROPOSALS
Proposals which stockholders intend to present at the Company's 1997 Annual
Meeting of Stockholders and wish to have included in the Company's proxy
materials were required to be received by the Company no later than December 14,
1996. If following the Merger, the Company continues to be subject to the
requirement to file and send proxy statements to its stockholders and if the
1997 Annual Meeting of Stockholders is held on the second Thursday in May in
accordance with past practice, proposals which stockholders intend to present at
the Company's 1998 Annual Meeting of Stockholders and wish to have included in
the Company's proxy materials will have to be received by the Company no later
than December 13, 1997.
By Order of the Board of Directors
Faye A. Florence
Secretary
99
107
SYRATECH CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of Deloitte & Touche LLP....................................................... F-2
Consolidated Financial Statements:
Consolidated balance sheets as of December 31, 1995 and December 31, 1996............. F-3
Consolidated income statements for the years ended December 31, 1994, December 31,
1995 and December 31, 1996.......................................................... F-4
Consolidated statements of stockholders' equity for the years ended December 31, 1994,
December 31, 1995 and December 31, 1996............................................. F-5
Consolidated statements of cash flows for the years ended December 31, 1994, December
31, 1995 and December 31, 1996...................................................... F-6
Notes to consolidated financial statements............................................ F-7
F-1
108
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Syratech Corporation:
We have audited the accompanying consolidated balance sheets of Syratech
Corporation and subsidiaries as of December 31, 1995 and 1996, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Syratech Corporation and
subsidiaries as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 7, 1997 (February 14, 1997 as to Note 15)
F-2
109
SYRATECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31,
---------------------
NOTES 1995 1996
------------- -------- --------
ASSETS 1, 7
Current assets:
Cash and equivalents.................................... $ 78,493 $ 3,605
Marketable securities................................... 4 30,561 --
Accounts receivable, net................................ 12 31,893 60,020
Inventories............................................. 5 41,151 79,355
Deferred income taxes................................... 8 5,105 8,940
Prepaid expenses and other.............................. 10 1,602 3,803
Net assets of discontinued operations................... 3 1,834 --
-------- --------
Total current assets............................ 190,639 155,723
Property, plant and equipment, net...................... 6 29,560 63,955
Purchase price in excess of net assets acquired......... -- 7,032
Other assets............................................ 367 544
-------- --------
Total........................................... $220,566 $227,254
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving loan facilities and notes payable............. 7 $ 51,735 $ 6,636
Accounts payable........................................ 12 6,438 9,689
Accrued expenses........................................ 4,436 11,049
Accrued compensation.................................... 11 2,478 4,228
Accrued advertising..................................... 1 1,991 3,273
Income taxes payable.................................... 1, 8 1,511 930
-------- --------
Total current liabilities....................... 68,589 35,805
Deferred income taxes..................................... 1, 2, 8 3,657 17,706
Pension liability......................................... 10 1,724 3,288
Other long-term liabilities............................... 11 -- 207
Commitments and contingencies............................. 9, 10, 14
Stockholders' equity: 1, 11, 15
Preferred stock, $.10 par value, 500,000 shares
authorized; no shares issued or outstanding (135,000
shares are designated Series A Preferred Stock)...... -- --
Common stock, $.01 par value, 20,000,000 shares
authorized, 8,667,249 and 8,695,449 shares issued in
1995 and 1996, respectively.......................... 87 87
Additional paid-in capital.............................. 9,699 12,480
Retained earnings....................................... 7 136,728 157,117
Cumulative translation adjustment....................... 85 567
Less: Treasury stock; 218 shares, at cost............... (3) (3)
-------- --------
Total stockholders' equity...................... 146,596 170,248
-------- --------
Total........................................... $220,566 $227,254
======== ========
See notes to consolidated financial statements.
F-3
110
SYRATECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31,
----------------------------------
NOTES 1994 1995 1996
----- -------- -------- --------
Net sales.......................................... 1 $147,291 $169,520 $270,931
Cost of sales...................................... 104,600 119,836 194,113
-------- -------- --------
Gross profit............................. 42,691 49,684 76,818
Selling, general and administrative expenses....... 31,613 34,239 57,664
Other operating income............................. 2, 12 -- -- 3,948(1)
-------- -------- --------
Income from operations................... 11,078 15,445 23,102
Interest expense................................... 7 (559) (287) (3,150)
Interest income.................................... 4 98 4,881 771
Other income....................................... 2 -- -- 11,900(2)
-------- -------- --------
Income before provision for income
taxes.................................. 10,617 20,039 32,623
Provision for income taxes......................... 1, 8 2,758 6,863 12,234
-------- -------- --------
Income from continuing operations........ 7,859 13,176 20,389
Discontinued operations:
Income from discontinued operations net of income
taxes of $7,421 and $1,645, respectively...... 3 12,068 2,572 --
Gain on sale of Syroco, Inc., net of income taxes
of $16,599.................................... 3 -- 30,451 --
-------- -------- --------
Net income............................... $ 19,927 $ 46,199 $ 20,389
======== ======== ========
Earnings per share: 1
Continuing operations............................ $ .67 $ 1.12 $ 2.32
Discontinued operations.......................... 1.02 2.79 --
-------- -------- --------
Net income............................... $ 1.69 $ 3.91 $ 2.32
======== ======== ========
Weighted average common and common equivalent
shares outstanding............................... 1 11,809 11,803 8,799
======== ======== ========
- ---------------
(1) Consists of income from the sale of Farberware inventory and other operating
income, net of certain selling, general and administrative expenses.
(2) Consists of non-recurring pre-tax income related to licensing the Farberware
name on cookware and bakeware.
See notes to consolidated financial statements.
F-4
111
SYRATECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK ADDITIONAL CUMULATIVE
------------------- PAID-IN RETAINED TRANSLATION TREASURY
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT STOCK TOTAL
---------- ------ ---------- --------- ----------- -------- --------
Balance, January 1, 1994... 11,649,432 $116 $ 60,214 $ 70,602 $ 76 $ (3) $131,005
Exercise of stock
options.................. 38,200 297 297
Compensation related to
stock options............ 116 116
Tax effect of stock
options.................. 746 746
Net income................. 19,927 19,927
Translation adjustment..... 9 9
----------- ---- ------- -------- ---- --- --------
Balance, December 31,
1994..................... 11,687,632 116 61,373 90,529 85 (3) 152,100
Exercise of stock
options.................. 44,150 1 326 327
Compensation related to
stock options............ 102 102
Tax effect of stock
options.................. (78) (78)
Purchase of common stock
for retirement (Note
11)...................... (3,064,751) (30) (52,024) (52,054)
Net income................. 46,199 46,199
----------- ---- ------- -------- ---- --- --------
Balance, December 31,
1995..................... 8,667,031 87 9,699 136,728 85 (3) 146,596
Exercise of stock
options.................. 28,200 202 202
Compensation related to
stock options............ 78 78
Tax effect of stock
options.................. 250 250
Transfer of shares (Note
11)...................... 2,338 2,338
Rights redemption (Note
11)...................... (87) (87)
Net income................. 20,389 20,389
Translation adjustment..... 482 482
----------- ---- ------- -------- ---- --- --------
Balance, December 31,
1996..................... 8,695,231 $ 87 $ 12,480 $ 157,117 $ 567 $ (3) $170,248
=========== ==== ======= ======== ==== === ========
See notes to consolidated financial statements.
F-5
112
SYRATECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
---------------------------
1994 1995 1996
------- ------- -------
Cash flow from operating activities:
Net income........................................................ $19,927 $46,199 $20,389
Adjustments to reconcile net income to net cash provided by (used
in) operating activities:
Depreciation and amortization................................... 3,270 3,253 4,767
Deferred income taxes........................................... (452) (2,229) (2,756)
Acquisition of Farberware assets................................ -- -- (9,500)
Disposal of Farberware assets................................... -- -- 13,600
Farberware electrics license.................................... -- -- 500
Transfer of shares.............................................. -- -- 3,655
Pension liability............................................... 208 1,155 1,564
Compensation related to stock options........................... 116 102 78
Gain (loss) on disposal of assets and other..................... 8 3 (17)
Increase (decrease) in cash, net of effect of businesses
acquired:
Marketable securities...................................... -- (30,561) 30,561
Accounts receivable........................................ (7,984) (3,649) (18,356)
Inventories................................................ (6,590) (817) (17,106)
Prepaid expenses and other................................. 711 (1,446) (471)
Accounts payable and accrued expenses...................... 4,155 595 (2,870)
Income taxes payable....................................... 3,699 (2,306) (2,095)
Discontinued operations...................................... (27,660) (49,915) 1,834
-------- -------- --------
Net cash provided by (used in) operating activities............... (10,592) (39,616) 23,777
-------- -------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment........................ (2,603) (2,679) (15,125)
Net proceeds from sale of Syroco, Inc............................. -- 133,931 --
Proceeds from disposal of assets.................................. 336 -- 66
Insurance claim proceeds.......................................... -- -- 23,771
Acquisitions of businesses, net of cash acquired.................. -- -- (48,540)
Other............................................................. (529) 61 (186)
-------- -------- --------
Net cash provided by (used in) investing activities............... (2,796) 131,313 (40,014)
-------- -------- --------
Cash flows from financing activities:
Change in revolving loan facilities and notes payable............. 11,944 (14,504) (59,075)
Repayment of borrowings........................................... (1,624) (875) (300)
Tax effect on stock options....................................... 746 (78) 250
Exercise of stock options......................................... 297 327 202
Deferred financing costs and other................................ 62 60 (24)
-------- -------- --------
Net cash provided by (used in) financing activities............... 11,425 (15,070) (58,947)
-------- -------- --------
Effect of exchange rate changes on cash and equivalents........... -- -- 296
-------- -------- --------
Net increase (decrease) in cash and equivalents................... (1,963) 76,627 (74,888)
Cash and equivalents, beginning of year........................... 3,829 1,866 78,493
-------- -------- --------
Cash and equivalents, end of year................................. $ 1,866 $78,493 $ 3,605
======== ======== ========
See notes to consolidated financial statements.
F-6
113
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE DATA)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Syratech Corporation designs, manufactures, imports and markets a diverse
portfolio of tabletop, giftware and seasonal products, including: sterling
silver, silverplated and stainless steel flatware; sterling silver, silverplated
and brass holloware; picture frames and photo albums; glassware, woodenware and
ceramics; fine porcelain boxes; figurines, waterglobes and Christmas ornaments,
trim, lighting and tree skirts.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The consolidated financial statements include the accounts of Syratech
Corporation and its subsidiaries (the Company), Syratech Holding Corporation and
its subsidiaries, Syratech Security Corporation, Wallace International
Silversmiths, Inc. and its subsidiaries (Wallace), Leonard Florence Associates,
Inc. (LFA), Towle Manufacturing Company and its subsidiaries (Towle), Rauch
Industries, Inc. and its subsidiaries (Rauch), Silvestri Inc. and subsidiaries
(Silvestri), Syratech (H.K.) Ltd. and its subsidiaries (Syratech H.K.). All
significant intercompany balances and transactions have been eliminated.
Adoption of New Accounting Pronouncements
Effective January 1, 1996, the Company adopted, prospectively, Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 121
requires that long-lived assets be reviewed for impairment whenever
circumstances indicate that the carrying value of an asset may not be
recoverable. The adoption of SFAS No. 121 did not have a significant effect on
the Company's consolidated financial position or results of operations for the
year ended December 31, 1996.
Effective January 1, 1996, the Company adopted SFAS No. 123, "Accounting
For Stock-Based Compensation." As permitted by SFAS No. 123, the Company has
continued to account for its stock-based transactions to employees in accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." As required by SFAS No. 123, for stock option grants to
non-employees, the Company calculates compensation expense using a fair value
based method and amortizes compensation expense over the vesting period. During
the year ended December 31, 1996, the Company did not grant any options to
purchase shares of common stock to non-employees.
Marketable Securities
The Company's marketable securities have been classified as trading
securities and are carried at their fair value on the consolidated balance
sheet.
Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amount of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and revenues and expenses during the reporting period. Actual results
could differ from these estimates.
F-7
114
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenue Recognition
Revenue is recognized when products are shipped. The Company provides
allowances for estimated doubtful accounts and sales returns based on historical
experience and evaluation of specific accounts. Such allowances, excluding
amounts related to Farberware Inc. (see Note 2), were comprised of the
following:
DECEMBER 31,
-------------------
1995 1996
------ ------
Sales returns and allowances............................. $2,604 $3,501
Doubtful accounts........................................ 1,603 1,861
------ ------
$4,207 $5,362
====== ======
Customers
Substantially all customers are retailers. No base of customers in one
geographic area constitutes a significant portion of sales. No single customer
represented 10% or greater of consolidated net sales in 1994, 1995 or 1996.
Inventories
Inventories are stated at the lower of cost or market. Two subsidiaries
determine cost on the last-in, first-out (LIFO) method for silver and certain
non-silver inventories. For all other inventories, cost is determined on the
first-in, first-out (FIFO) method.
Property, Plant and Equipment
Purchased property, plant and equipment is recorded at cost. Leased
equipment is recorded at the present value of the minimum lease payments
required during the lease term. Depreciation is provided using the straight-line
method over the estimated useful lives of the related assets and over the terms,
if shorter, of the related leases, as follows:
YEARS
--------
Buildings and improvements.......................... 4 to 39
Tools and dies...................................... 3 to 10
Machinery and equipment............................. 3 to 10
Other............................................... 3 to 10
Purchase Price in Excess of Net Assets Acquired
Purchase price in excess of net assets acquired is amortized using the
straight-line method over 30 years (Note 2). The Company evaluates the carrying
value of goodwill based upon current and anticipated net income and undiscounted
cash flows, and recognizes an impairment when it is probable that such estimated
future net income and/or cash flows will be less than the carrying value of
goodwill. Measurement of the amount of impairment, if any, is based upon the
difference between carrying value and estimated fair value.
Other Assets
Other assets consist principally of deposits, deferred fees, deferred
financing costs and deferred long-term rent. Deferred financing costs are being
amortized using the straight-line method over the terms of the related loans.
Accumulated amortization aggregated approximately $100 and $125 at December 31,
1995 and 1996 respectively.
F-8
115
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Advertising Costs
Advertising costs are charged to operations when incurred. These costs
totaled $3,035, $3,064 and $3,690 in the years ended December 31, 1994, 1995 and
1996, respectively.
Financial Instruments
The carrying values of cash and equivalents, accounts receivable, accounts
payable and borrowings under revolving credit facilities approximate fair value
due to the short-term nature of these instruments.
Income Taxes
The Company and its domestic subsidiaries (except for Wallace's Puerto
Rican subsidiaries) file a consolidated federal income tax return. The Puerto
Rican subsidiaries file separate returns in accordance with Section 936 of the
Internal Revenue Code. Deferred income taxes are provided for certain income and
expense items which are accounted for differently for financial reporting and
income tax purposes.
Foreign Currency Translation
Assets and liabilities denominated in foreign currencies are translated
into U.S. dollars at year-end exchange rates and income and expense items are
translated at the average rates of exchange prevailing during each year. The
effects of foreign currency fluctuations on the foreign subsidiaries assets and
liabilities have been reflected as a separate component of stockholders' equity.
Transaction gains and losses have been insignificant.
Earnings Per Share
Earnings per share are computed based on the weighted average common and
common equivalent shares outstanding during each period presented. Common stock
equivalents include common stock options (treasury stock method). Primary and
fully diluted earnings per share are the same for each of the periods presented.
Reclassification
Certain prior year amounts have been reclassified to conform with the 1996
presentation.
Cash Flow Information
Supplemental cash flow information is as follows:
YEAR ENDED DECEMBER 31,
---------------------------
1994 1995 1996
------- ------- -------
Cash paid during the year for:
Interest................................................ $ 827 $ 268 $ 2,383
======= ======= =======
Income taxes............................................ $10,741 $30,593 $16,791
======= ======= =======
Supplemental schedule of non-cash investing and financing
activities:
Purchase of common stock for retirement, financed by
issuance of promissory notes and assumption of bank
debt................................................. $51,735
=======
Rights redemption obligation............................ $ 87
=======
Share transfer by principal stockholder................. $ 2,338
=======
F-9
116
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. ACQUISITIONS
Acquisitions of Businesses
On February 15, 1996, the Company, through an indirect wholly owned
subsidiary, acquired the outstanding shares of Rauch for approximately $49,626
including costs of the transaction. The acquisition was accounted for under the
purchase method of accounting, and the results of operations of Rauch have been
included with the results of the Company from February 15, 1996.
The purchase price in excess of net assets acquired of $7,224 is being
amortized on the straight line basis over 30 years. Rauch is a leading domestic
manufacturer and marketer of Christmas and other seasonal products, in
particular glass and satin tree ornaments. During 1996, the Company received
$23,771 in connection with an insurance claim relating to a 1994 fire at Rauch.
The allocation of purchase price is as follows:
Cash paid to Rauch shareholders................................... $ 48,042
Acquisition costs incurred........................................ 1,584
-------
Total purchase price.............................................. $ 49,626
=======
Allocated to:
Cash............................................................ $ 2,084
Accounts receivable............................................. 8,461
Insurance receivable............................................ 23,771
Inventories..................................................... 19,206
Deferred income taxes........................................... 2,518
Prepaid expenses and other...................................... 983
Property, plant and equipment, net.............................. 23,081
Other assets.................................................... 89
Purchase price in excess of net assets required................. 7,224
Current liabilities............................................. (22,303)
Deferred income taxes........................................... (15,488)
-------
$ 49,626
=======
The following summarized pro forma (unaudited) information assumes the
acquisition had occurred on January 1, 1995.
YEAR ENDED DECEMBER 31,
-----------------------
1995 1996
-------- --------
Net sales.................................................... $228,439 $271,540
======== ========
Income from continuing operations............................ $ 15,316 $ 19,657
======== ========
Net income................................................... $ 48,339 $ 19,657
======== ========
Earnings per share:
Continuing operations...................................... $ 1.30 $ 2.23
======== ========
Net income................................................. $ 4.10 $ 2.23
======== ========
On May 8, 1996, the Company, through one of its subsidiaries, acquired all
of the outstanding common stock of C.J. Vander Ltd., a manufacturer of sterling
silver and silverplated flatware and hollowware in Sheffield and London,
England. The purchase price was immaterial to the Company's consolidated
financial statements. The acquisition was accounted for under the purchase
method of accounting.
F-10
117
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Acquisition of Assets
In February of 1996, the Company entered into an agreement to acquire
certain assets, including a major portion of the tangible assets, intellectual
property and the corporate name, of Farberware Inc. ("Farberware Inc.").
Effective April 2, 1996, the Company, through its indirect wholly-owned
subsidiary, Far-B Acquisition Corp. ("Far-B"), together with Lifetime Hoan
Corporation ("Lifetime") acquired certain assets from Farberware Inc., a
subsidiary of U.S. Industries, Inc. The Company and Lifetime are not affiliates.
Farberware Inc. was a manufacturer of aluminum clad, stainless steel
cookware and bakeware and small electric kitchen appliances. The aggregate
consideration paid by Far-B and Lifetime was $45,771, subject to adjustment, of
which Far-B paid approximately, $32,611. The amount of the adjustment was the
subject of a dispute which was settled on February 3, 1997. The assets acquired
by the Company included certain of the inventory, the tradename "Farberware" and
the intellectual property (including the intellectual property that relates to
cookware and bakeware and electric products other than major kitchen appliances)
and certain tools and dies and machinery and equipment. Effective April 2, 1996,
the Company, through Far-B, entered into a manufacturing services agreement with
Farberware Inc. for transitional manufacturing services for certain finished
goods previously produced by Farberware Inc. The Company entered into the
manufacturing services agreement in part to provide continuity of product during
a transition period in order to protect the strength of the Farberware name in
the marketplace. The manufacturing services agreement has terminated.
Upon disposal of the acquired inventory, the Company will not manufacture
or sell Farberware cookware and bakeware products or noncommercial electric
products. Accordingly, net sales for the year ended December 31, 1996 exclude
revenue from sales of Farberware inventory, and $3,948, net of certain selling,
general and administrative expenses, from these sales has been recorded as other
operating income. At December 31, 1996, accounts receivable, net and inventories
of the Company included $4,972 and $3,289, respectively related to Farberware.
In a separate transaction, the Company and Far-B entered into an agreement
with Lifetime, which provided for the allocation between them of the assets
acquired from Farberware Inc., the granting of a long-term license to Lifetime
for use of the Farberware name in connection with an extensive list of products,
the granting to Lifetime of long-term exclusive rights to operate Farberware
outlet stores, the reservation of certain exclusive rights to Far-B (including
exclusive rights to use of the Farberware name for corporate purposes and for
the marketing of cookware and bakeware products as well as electric products)
and for the future formation of a joint venture to administer certain licensing
rights.
On June 27, 1996, the Company's Farberware Inc. subsidiary (formerly Far-B)
("Farberware") entered into a license agreement with Meyer Marketing Co. Ltd.
("Meyer") pursuant to which Meyer was granted for a term of 200 years (i) an
exclusive worldwide license to use and exploit the Farberware name and certain
related intellectual property rights in connection with the sourcing,
manufacture and distribution of cookware and bakeware products for home use and
commercial, industrial and institutional size pots, pans and roasters, and (ii)
non-exclusive (shared) rights to use certain Farberware technology and other
intellectual property. For such grant, Meyer made a one-time payment to the
Company of $25,500 which resulted in recognition by the Company of $11,900 of
non-recurring income. Under the terms of the licensing agreement, the Company
has no further obligation with respect to the amount paid by Meyer. As such, the
entire proceeds received were recognized as revenue in the second quarter of
1996. On July 12, 1996, Farberware granted to a major retail chain the exclusive
license to use and exploit the Farberware name and related intellectual property
in connection with the sourcing, manufacture, marketing and sale of certain
electric products for annual royalty payments. On October 25, 1996 Farberware
granted to FCI Corp. a license to use and exploit the Farberware name in
connection with the sourcing, manufacturing, marketing and sale of certain
commercial products (defined as six specified commercial urns and one specified
commercial convection oven plus cookware,
F-11
118
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
bakeware and electric products developed by the Licensee solely and exclusively
for commercial, industrial or institutional use with the prior written approval
of Farberware) for the payment of annual royalties. See Note 12.
On February 3, 1997 the Company, Farberware, and Lifetime reached an
agreement (the "Settlement Agreement"), with Bruckner Manufacturing Corp.
("BMC") and U.S. Industries Inc. ("USI") to settle all previous outstanding
legal disputes arising out of the Farberware Asset Purchase Agreement ("APA")
and the Manufacturing Services Agreement ("MSA"). Under the terms of the
Settlement Agreement, Farberware will receive certain finished goods inventory
at no cost, and pay for certain finished goods inventories purchased under the
MSA. Farberware will also receive a waiver of certain restrictions in the APA on
disposing of tools, machinery, and equipment formerly used by BMC in the
manufacture of Farberware products. The Company intends to sell the majority of
the tools, machinery and equipment and will retain the remainder for use in its
existing businesses. The settlement did not result in any adjustment to the
original purchase price and no loss is expected to be incurred as a result of
the settlement.
On April 16, 1996, the Company purchased finished goods inventory and
intangible assets of the Silvestri division of FFSC, Inc. ("Silvestri") for
approximately $8,600. Prior to the Company's purchase of such assets, FFSC,
Inc., its subsidiaries and affiliated companies had filed for protection under
Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the
Northern District of Texas (the "Bankruptcy Court"). The Bankruptcy Court
approved this acquisition by the Company. Silvestri products include Christmas
ornaments, collectibles, lighting and trim as well as other seasonal and
nonseasonal giftware and decorative accessories.
The Corporation has given a Guaranty (limited to $4,000), dated as of May
21, 1996, of the obligations of FF Holding Company, FFSC, Inc. and certain
related entities to The CIT Group/Business Credit, Inc. under a certain debtor
in possession financing agreement dated May 21, 1996 and, at the request of the
Company, NationsBank N.A. (South) has issued its letter of credit, dated May 31,
1996 in the amount of $4,000 to CIT Group/Business Credit, Inc. to secure the
Company's aforesaid guaranty.
On November 26, 1996, a wholly-owned subsidiary of the Company acquired
inventory, tangible property, intellectual property rights, certain records
(including customer lists, customer files, supplier information, catalogs) and
certain contract rights of Potpourri Press, Inc., a North Carolina-based
manufacturer and marketer of Christmas products, for a purchase price of
approximately $2,300 plus a $240 promissory note (Note 7).
3. DISCONTINUED OPERATIONS
On April 11, 1995, pursuant to an agreement entered into on March 28, 1995,
the Company, through its subsidiary, Syratech Holding Corporation, sold Syroco,
Inc. ("Syroco"). The net proceeds received after costs of the sale and income
taxes were $133,931. On September 25, 1995, the Company reached a final
settlement regarding the sale of Syroco. Under the terms of the settlement, the
Company reacquired certain assets and reassumed certain liabilities of Syroco
which have been recorded at their estimated net fair value of $1,834 at December
31, 1995. The Company does not expect that the liquidation of the assets will
have a material effect on the previously recognized gain on disposal. An after
tax gain on disposal of Syroco of $30,451 was recognized in the second quarter
of 1995.
The sale resulted in the discontinuation of the Company's casual furniture
and accessories business. The assets and liabilities relating to the
discontinued business are included in net assets of discontinued operations in
the consolidated balance sheets at December 31, 1995. The results of operations
and cash flows for the discontinued segment are included in discontinued
operations in the consolidated income statements and the consolidated statements
of cash flows for years ended December 31, 1994, 1995 and 1996.
F-12
119
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net assets of discontinued operations at December 31, 1995 consisted of the
following:
Inventories, net................................................... $ 1,778
Property, plant and equipment, net................................. 227
Other assets....................................................... 875
Liabilities........................................................ (1,046)
-------
Total.................................................... $ 1,834
=======
Operating results of the discontinued segment consisted of the following:
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
1994 1995
------------ ---------------
(UNAUDITED)
Net sales............................................... $ 94,883 $33,626
======= =======
Income before provision for income taxes................ $ 19,489 $ 4,217
Provision for income taxes.............................. 7,421 1,645
------- -------
Income from discontinued operations..................... $ 12,068 $ 2,572
======= =======
The operating results of the discontinued segment exclude previously
allocated corporate expenses.
4. MARKETABLE SECURITIES
At December 31, 1995, marketable securities consisted of $30,000 of
short-term high grade notes having original maturities of six months. Marketable
securities are carried at fair value which approximates cost plus accrued
interest. Interest earned at December 31, 1995 but not paid, of $561, is
included in interest income for the year ended December 31, 1995. There were no
marketable securities at December 31, 1996.
5. INVENTORIES
DECEMBER 31,
-------------------
1995 1996
------- -------
Inventories were comprised of the following:
Raw Materials.................................................... $ 3,908 $ 9,020
Work-in-process.................................................. 1,744 5,980
Finished goods................................................... 35,499 64,355
------- -------
Total.................................................. $41,151 $79,355
======= =======
Inventories would have been approximately $2,752 and $3,430 higher at
December 31, 1995 and 1996, respectively, if the FIFO method had been used for
all inventories. Decreases in LIFO inventory quantities had the effect of
increasing consolidated net income by $4 in 1994, and decreasing consolidated
net income by $59 in 1996. There were no decreases in LIFO inventory quantities
in 1995.
F-13
120
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment was comprised of the following:
DECEMBER 31,
---------------------
1995 1996
-------- --------
Land and improvements.......................................... $ 7,813 $ 8,305
Buildings and improvements..................................... 18,780 41,838
Tools and dies................................................. 13,808 14,635
Machinery and equipment........................................ 6,046 25,388
Other.......................................................... 1,169 1,619
Construction in progress....................................... 1,239 4,923
-------- --------
Total..................................................... 48,855 96,708
Less: accumulated depreciation................................. (19,295) (32,753)
-------- --------
Net.......................................................... $ 29,560 $ 63,955
======== ========
Capitalized interest was not material to the Company's consolidated
financial statements.
On January 17, 1997, the Company purchased a parcel of land in Mira Loma,
California for $3,179. The Company plans to begin construction of a warehouse
and distribution facility on this land in 1997.
7. REVOLVING LOAN FACILITIES AND NOTES PAYABLE
Revolving Loan Facilities
Effective October 31, 1996, the Company's Amended and Restated Loan and
Security Agreement (the "Company Loan Agreement") provides for maximum permitted
borrowings of $100,000 through December 31, 1996 and to $60,000 until the
earlier of April 30, 1997 or the completion of refinancing contemplated with
respect to the Agreement and Plan of Merger with THL Transaction I Corp. (Note
15). Interest on borrowings is charged at the bank's prime rate less .75% (7.5%
at December 31, 1996) or at an option to borrow at 1.0% over the Eurodollar rate
(6.53% using the 30 day Eurodollar rate, at December 31, 1996). The weighted
average interest rate on borrowings outstanding under this facility for the year
ended December 31, 1996 was 7.29%. The Company Loan Agreement as amended expires
on April 30, 1997. At December 31, 1996, there was $5,878 outstanding under the
Company Loan Agreement and credit availability (net of letters of credit
outstanding) was $83,770. On January 1, 1997 availability was reduced by
$40,000. Borrowings are collateralized by substantially all of the assets of the
Company and its subsidiaries with the exception of C.J. Vander. The Company Loan
Agreement restricts the payment of cash dividends to 33 1/3% of net income for
the prior year. In addition, it limits repurchases of the Company's outstanding
capital stock and capital expenditures, and contains covenants which require,
among other things, minimum levels of consolidated tangible net worth and the
maintenance of certain financial ratios. In December 1995, the restriction to
repurchase outstanding capital stock was modified to allow the Company to
repurchase all of the 3,064,751 shares of the Company's stock owned by
affiliates of Katy Industries, Inc. (the "Katy Stock Repurchase"). The agreement
was modified in December 1995 to permit the acquisition of Rauch referred to in
Note 2. During 1996, further modifications were made to permit the Farberware,
Silvestri, C.J. Vander and Potpourri acquisitions. At December 31, 1996, the
Company had $6,783 unrestricted retained earnings available for payment of cash
dividends.
During 1996, one of Wallace's Puerto Rican subsidiaries and its lender
entered into an Amended and Restated Line of Credit Agreement (the "Facility")
which provides for borrowings up to a maximum of $10,000 and expires on May 31,
1997. Interest on borrowings is charged at the bank's prime rate minus .30%
(7.95% at December 31, 1996 or at an option to borrow at the Eurodollar rate
plus 1.70% (7.2313%, using the
F-14
121
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
30 day Eurodollar rate, at December 31, 1996). The weighted average interest
rate on borrowings outstanding under this Facility for the year ended December
31, 1996 was 8.08%. At December 31, 1996 $558 was outstanding under the Facility
and the credit availability was $9,442. Borrowings are uncollateralized;
however, the pledge of assets owned by one of the subsidiaries as collateral for
other loans is prohibited. Borrowings under the Facility are guaranteed by the
Company and cross-guaranteed by certain other subsidiaries.
Notes Payable
At December 31, 1996, the Company had a note payable of $200 related to the
purchase of Potpourri. (Note 2) At December 31, 1995, the Company had notes
payable of $51,735 related to the purchase of 3,064,751 shares of the Company's
common stock on December 29, 1995 (Note 11). These notes were paid on January 2,
1996.
8. INCOME TAXES
The provisions for income taxes were comprised of the following:
YEAR ENDED DECEMBER 31,
------------------------------
1994 1995 1996
------ ------- -------
Current:
Federal............................................ $1,356 $ 6,518 $11,379
State.............................................. 524 1,674 3,542
Foreign............................................ 625 937 1,307
------ ------- -------
2,505 9,129 16,228
------ ------- -------
Deferred:
Federal............................................ (561) (1,805) (3,344)
State.............................................. 87 (383) (900)
Foreign............................................ (19) -- --
------ ------- -------
(493) (2,188) (4,244)
------ ------- -------
Tax effect of stock options:
Federal............................................ 574 (60) 193
State.............................................. 172 (18) 57
------ ------- -------
746 (78) 250
------ ------- -------
Total...................................... $2,758 $ 6,863 $12,234
====== ======= =======
F-15
122
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The reconciliations between the Company's effective income tax rate and the
U.S. federal statutory rate are as follows:
YEAR ENDED DECEMBER
31,
----------------------
1994 1995 1996
---- ---- ----
Federal statutory rate....................................... 35.0% 35.0% 35.0%
State taxes, net of federal income tax benefit............... 3.1 2.5 4.9
Hong Kong.................................................... (6.6) (4.8) (4.3)
Puerto Rico.................................................. (6.0) (3.8) (2.4)
United Kingdom............................................... -- -- 0.6
Provision for undistributed foreign earnings................. 1.6 5.0 1.6
Valuation allowance.......................................... -- -- 1.6
Other........................................................ (1.1) 0.4 0.5
---- ---- ----
Effective income tax rate............................... 26.0% 34.3% 37.5%
==== ==== ====
The components of income before provision for income taxes were comprised
of the following:
YEAR ENDED DECEMBER 31,
---------------------------
1994 1995 1996
------- ------- -------
Domestic.................................................. $ 7,081 $14,480 $25,457
Foreign................................................... 3,536 5,559 7,166
------- ------- -------
Total................................................ $10,617 $20,039 $32,623
======= ======= =======
Provisions have been made for taxes on the undistributed earnings of
Syratech H.K. and Wallace's Puerto Rican subsidiaries which are ultimately
expected to be remitted to the parent company. The Company has permanently
invested a portion of the undistributed earnings of its Puerto Rican and
Syratech H.K. subsidiaries. It is not practical to estimate the amount of
unrecognized deferred tax liability attributable to these undistributed foreign
earnings.
Wallace's Puerto Rican subsidiaries operate under grants from the
Commonwealth of Puerto Rico exempting 90% of their income from taxation until
December 2003. Had the Company not been eligible for the tax exemption, net
income in 1994, 1995, and 1996 would have been reduced by approximately $1,330,
$1,198, and $1,211, and earnings per share would have been decreased by
approximately $.11, $.10, and $.14, respectively.
F-16
123
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of significant items comprising the Company's net deferred
tax asset (liability) are as follows:
DECEMBER 31,
----------------------
1995 1996
------- --------
Deferred tax liability:
Property, plant and equipment............................. $(2,349) $(17,263)
Foreign earnings.......................................... (1,994) (2,525)
------- --------
Deferred tax liability................................. (4,343) (19,788)
Deferred tax assets:
Accounts receivable....................................... 2,171 4,475
Inventory................................................. 1,447 2,336
Reserves and accruals..................................... 1,567 2,266
Pension................................................... 522 1,876
Other deductible amounts.................................. 84 69
Contribution carryforwards................................ -- 433
Foreign operating loss carryforwards...................... -- 175
------- --------
Deferred tax asset..................................... 5,791 11,630
Valuation allowance....................................... -- (608)
------- --------
Net deferred tax asset (liability).......................... $ 1,448 $ (8,766)
======= ========
The valuation allowance relates to the potential unusable portion of
foreign tax loss carryforwards of $530 and contribution carryforwards of $1,066.
9. COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries have various operating lease commitments
for buildings and equipment. The lease agreements generally require the Company
to pay insurance, real estate taxes, and maintenance and contain various renewal
options. Future minimum rental payments for all noncancellable operating leases
for each of the next five years and thereafter are as follows:
1997................................................ $3,552
1998................................................ 1,887
1999................................................ 1,632
2000................................................ 1,123
2001................................................ 628
Subsequent to 2001.................................. 480
Rent expense for all operating leases was approximately $1,789, $1,821, and
$5,209 in 1994, 1995 and 1996, respectively.
Certain subsidiaries were contingently obligated for outstanding letters of
credit, trade acceptances and similar instruments aggregating $10,348 at
December 31, 1996 (Note 7). The assets of Syratech H.K. are pledged as
collateral for certain of these contingent obligations.
10. EMPLOYEE BENEFIT PLANS
The Company has three 401(k) savings plans. The 401(k) savings plans cover
substantially all employees of its domestic and Puerto Rican subsidiaries. The
401(k) plans are subject to certain minimum age and length of employment
requirements. Under two of these plans, the Company matches 30% of participants'
F-17
124
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
contributions up to 6% of compensation. Under the other plan, the Company
matches 50% of the first five hundred twenty dollars contributed and 25%
thereafter, of the participants' contributions up to 15% of compensation. The
Company also has a savings plan, established in 1991, covering substantially all
employees of the Company's Hong Kong subsidiary. Under the Hong Kong plan, the
Company contributes up to 10% of the participants' compensation. The Company
contributed an aggregate of $197, $256 and $597 to all of these Plans in 1994,
1995 and 1996.
The Company's C. J. Vander subsidiary also has an employee benefit plan.
The Company's obligation under the plan is not material to the Company's
consolidated financial position or results of operations.
The Company has employment agreements with certain officers and employees
for terms ranging from three to five years, which provide for minimum annual
salaries aggregating $2,451 and certain other benefits.
Agreements with the Company's five officers provide for retirement benefit
payments. With respect to two of these officers, for the year ended December 31,
1994, the agreements provided for benefit payments in amounts equal to two
percent of the officers' final year base salaries multiplied by the number of
years of service with the Company. In 1995, these two agreements were amended to
provide that the benefit payments be based upon two percent of the average total
annual compensation (salary and bonus) for the three year period preceding the
executives' retirement dates multiplied by the number of years of service. In
addition, one of the agreements was amended (the "1995 Plan Amendment") to
provide for a 100% survivor benefit for the executive's spouse. In 1996 existing
employment agreements with two officers were amended to also provide for a
retirement benefit. Additionally, a third officer who does not have an
employment agreement with the Company was granted a retirement benefit. Two of
these agreements were amended to provide for benefit payments based upon the
greater of (i) $75,000 or (ii) one half of one percent of the average total
annual compensation (salary and bonus) for the three year period preceding the
executives' retirement dates multiplied by the number of years of service. One
of these agreements was amended to provide for benefit payments based upon the
greater of (i) $75,000 or (ii) one percent of the average total annual
compensation (salary and bonus) for the three year period preceding the
executives' retirement dates multiplied by the number of years of service.
Upon consummation of the Merger (Note 15), an employment agreement with an
officer will be amended so as to (i) change the officer's term of full-time
employment from a rolling five-year term to a fixed five-year term, (ii) provide
for a minimum base salary of $1,150 per annum, (iii) establish $1,150 as the
minimum amount upon which the officer's retirement benefit (and the survivor's
benefit of his surviving spouse) will be computed and (iv) create contractual
rights with respect to certain perquisites that he is accorded informally under
present arrangements with the Company. Additionally, an employment agreement
with another officer will be amended to change the officer's term of full-time
employment from a rolling five-year term to a fixed five-year term.
Pension expense is determined using assumptions at the beginning of the
year. Assumptions used in determining the actuarial present value of the
projected benefit obligation include: a discount rate of 8.5% in 1994 and 1995
and 7.5% in 1996 and a rate of future increases in benefit compensation of 5%.
The effect of the change in discount rate was not material to the consolidated
financial statements.
F-18
125
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net pension cost included the following components:
1994 1995 1996
---- ---- ------
Service cost for benefits earned............................ $137 $196 $ 317
Interest cost benefit obligation............................ 71 123 199
Amortization of prior service cost.......................... -- 476 620
Amortization of (gain)/loss................................. -- -- 191
---- ---- ------
Net periodic pension cost................................... $208 $795 $1,327
==== ==== ======
The following table summarizes the amounts recognized in the consolidated
balance sheets as of December 31, 1995 and 1996:
1995 1996
------ ------
Actuarial present value of obligations:
Vested benefit obligation........................................ $1,724 $3,287
Projected benefit obligation..................................... 2,012 3,612
Fair value of plan assets.......................................... -- --
Projected benefit obligation in excess of plan assets.............. 2,012 3,612
Unrecognized prior service cost.................................... (603) (610)
Unrecognized gain/(loss)........................................... (45) (311)
Additional minimum liability....................................... 360 597
------ ------
Net accrued pension liability...................................... $1,724 $3,288
====== ======
11. STOCKHOLDERS' EQUITY
Key Employee Stock Option Plans
Under the Company's 1986 Key Employee Stock Option Plan ("1986 Plan"),
qualified and non-qualified options to purchase up to a maximum of 1,300,000
shares of common stock were granted to certain employees at exercise prices not
less than 85% of the fair market value at the date of grant. Options become
exercisable ratably over a five-year period and expire ten years from the date
of grant. There were no shares available for grant under the 1986 Plan at
December 31, 1996. Compensation cost has been recognized for the Company's 1986
Plan for the amount equal to 15% of the fair market value at the date of grant
ratably over the five year period that they became exercisable over.
In 1993, the Company established the 1993 Key Employee Stock Option Plan
("1993 Plan"), with provisions similar to the 1986 Plan. Under the 1993 Plan,
qualified and non-qualified options to purchase up to a maximum of 400,000
shares of common stock may be granted to certain employees at an exercise price
not less than fair market value at the date of grant. At December 31, 1996,
67,000 options were outstanding under the 1993 plan.
In 1995, the Company established the 1995 Key Employee Stock Option Plan
("1995 Plan"). The 1995 Plan contains certain provisions similar to the 1993
Plan and would allow the grant of 800,000 options at an exercise price not less
than fair market value at the date of grant. At December 31, 1996, 20,000
options were outstanding under the 1995 plan.
No compensation cost has been recognized for the Company's 1993 and 1995
Plans.
F-19
126
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of stock option activity under the Plans is as follows:
WEIGHTED AVERAGE
EXERCISE PRICE EXERCISE PRICE
SHARES PER SHARE PER SHARE
-------- -------------- ----------------
Outstanding at January 1, 1994.................... 297,350 $.0038-$13.70 $ 9.66
Canceled.......................................... (8,400) $10.67 $10.67
Granted........................................... 50,000 $14.35 $14.35
Exercised......................................... (38,200) $.0038-$10.67 $ 7.88
--------
Outstanding at December 31, 1994.................. 300,750 $.0038-$14.35 $10.64
Canceled.......................................... (90,900) $10.67-$14.56 $12.91
Granted........................................... 54,500 $14.56-$18.75 $16.87
Exercised......................................... (44,150) $.0038-$10.67 $ 7.29
--------
Outstanding at December 31, 1995.................. 220,200 $.0038-$18.75 $11.92
Canceled.......................................... (102,000) $10.67-$24.75 $24.47
Granted........................................... 139,500 $23.00-$24.75 $24.68
Exercised......................................... (28,200) $.0038-$10.67 $ 7.17
--------
Outstanding at December 31, 1996.................. 229,500 $10.67-$24.75 $14.68
========
Exercisable at December 31, 1996.................. 107,080 $10.67-$18.75
========
The following table sets forth information regarding options outstanding at
December 31, 1996:
WEIGHTED
WEIGHTED AVERAGE
WEIGHTED AVERAGE EXERCISE
RANGE OF NUMBER AVERAGE REMAINING PRICE FOR
NUMBER OF EXERCISE CURRENTLY EXERCISE CONTRACTUAL CURRENTLY
OPTIONS PRICES EXERCISEABLE PRICE YEARS EXERCISEABLE
- ---------------------------------------------------------------------------------------------
142,500 $10.67 to $14.56 97,580 $11.11 5.97 $11.03
87,000 $17.13 to $24.75 9,500 $20.52 8.66 $17.22
------- -------
229,500 107,080 $14.68 6.99 $11.58
======= =======
The Company applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its stock option and other employee stock
based compensation plans. Had compensation cost for the Company's stock option
plans been determined based on fair value at the grant dates for awards under
those plans which were granted on or after January 1, 1995 consistent with the
method of SFAS No. 123, the Company's net income and earnings per share for the
two years ended December 31, 1996 would have been reduced to the pro forma
amounts indicated below:
YEAR ENDED DECEMBER
31,
-------------------
1995 1996
------- -------
Net income
As reported.................................................... $46,199 $20,389
======= =======
Pro forma...................................................... $45,762 $20,036
======= =======
Net income per share
As reported.................................................... $ 3.91 $ 2.32
======= =======
Pro forma...................................................... $ 3.88 $ 2.28
======= =======
F-20
127
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The pro forma results are not necessarily indicative of results that would
have been reported if all options had been measured under SFAS No. 123.
The weighted average remaining contractual life of options outstanding at
December 31, 1996 was 6.99 years. The weighted average fair value of options
granted during 1995 and 1996 was $8.03 and $8.94 per share, respectively.
The fair value of options granted under the Company's stock option plans
during 1995 and 1996 was estimated on the date of grant using the Black-Scholes
option pricing model with the following weighted-average assumptions used: no
dividend yield, expected volatility of 30.6%, risk free interest rate of 6.0%,
and expected lives of either 5.3 or 7.7 years.
Transfer of Shares
On December 31, 1996, the Company's Chief Executive Officer and principal
shareholder (the "Principal Shareholder") of the Company, the Company and THL
Transaction I Corp. entered into agreements with three executive officers
whereby the Principal Shareholder will transfer up to 73,068 shares (the Shares)
of his Syratech common stock to the Company to effect the transfer of an equal
number of newly issued shares to the executive officers. In connection with each
transfer of shares of stock, the agreements also provide for each executive to
receive, from the Company, as additional compensation, an annual lump sum cash
payment (the "Lump Sum Payments") for the reimbursement of income taxes owed by
the executive as a result of such transfer and payment. The transfer of Shares
by the Principal Shareholder and the Lump Sum Payments to the executives are
irrevocable and unconditional and are not based upon the executives future
employment with the Company. On December 31, 1996, 31,812 shares were
transferred and Lump Sum Payments totaling $703 were made to the executives.
Shares aggregating 31,884 were transferred as of January 14, 1997. Additional
shares of up to 9,372 will be transferred on January 14, 1998.
The estimated value of the shares has been recorded as an addition to
additional paid-in capital of $2,338. Total compensation expense equal to the
estimated fair value of the Shares plus an estimate of the aggregate Lump Sum
Payments, or $3,953 was recorded in the fourth quarter of 1996.
Short and long-term compensation payable was $705 and $207, respectively at
December 31, 1996.
The weighted average fair value of the shares was $31.50. The fair value of
the shares based on the provision of SFAS No. 123 was not materially different
from the amounts recorded.
Purchase of Common Stock
On December 29, 1995, the Company effected the Katy Stock Repurchase. The
aggregate purchase price of $52,054 represented approximately $17 per share. The
purchase was financed by the issuance of two promissory notes due January 2,
1996 to subsidiaries of Katy and the assumption of short-term bank debt, all
aggregating $51,735. The two promissory notes and the short-term bank debt were
paid on January 2, 1996. The Company's par and additional paid-in capital values
have been decreased to reflect the purchase.
Shareholder Rights Plan
On October 26, 1992 the Company's Board of Directors adopted a Shareholder
Rights Plan (the "Plan"). Under the Plan, the Company distributed a dividend of
one right (a "Right") to purchase shares of preferred stock to stockholders of
record on October 31, 1992 and further authorized the issuance of one Right to
each share of common stock which becomes outstanding after the record date. Each
Right entitles the registered holder to purchase from the Company one
one-hundredth of a share of a new series of preferred stock ("Series A Preferred
stock") at a price of $50, subject to adjustment. As amended on July 5, 1994,
the Rights become exercisable only if an individual or group (an "Acquiring
Person") acquires 15% or more of
F-21
128
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the outstanding common stock or commences a tender offer which would result in
its ownership of 30% or more of the outstanding common stock, or in the case of
a person who beneficially owned 20% or more of the outstanding common stock on
October 26, 1992, such person acquires an additional 1% or more of the
outstanding common stock.
As required by the Agreement and Plan of Merger (Note 15), effective on
November 8, 1996, the Company redeemed all outstanding Rights and terminated the
Shareholder Rights Plan pursuant to which the Rights were issued. The redemption
price for each Right is one cent and if holders of Rights have not received
payment of the redemption price prior to the Effective Time they will have the
redemption price of their Rights added to the payment of the cash price for
their shares of Company Common Stock in the Merger.
12. RELATED PARTY TRANSACTIONS
A beneficial owner of less than 1% of the Company holds a significant
management role in Service Merchandise Co., Inc. ("Service"). A different person
is a director of the Company and is also a director of Service. The Company had
net sales to Service of approximately $9,909, $10,706 and $12,432 in 1994, 1995
and 1996, respectively. The Company had accounts receivable from Service of
approximately $756 and $1,260 at December 31, 1995 and 1996, respectively.
Effective July 12, 1996, the Company, through an indirect wholly-owned
subsidiary, granted a license to Service to use certain trademarks, patents and
copyrights relating to certain electric and other products. The agreement is
subject to cancellation with six months notice by the licensee.
Wacker Industrial Company ("Wacker"), a major supplier, is owned by a
holder of less than 1% of the Company's common stock. In 1994, 1995 and 1996,
the Company had purchases from this supplier of approximately $6,176, $5,371 and
$4,478 respectively. Accounts payable to this supplier approximated $75 and $93
at December 31, 1995 and 1996 respectively.
Other transactions with companies affiliated with certain
directors/stockholders include net sales of approximately $297, $735 and $790
and purchases of products and services of $1,228 and $746 in 1994 and 1995,
respectively. There were no purchases of products and services in 1996. As of
December 31, 1996, amounts receivable from these companies approximated $7,
there were no accounts payable.
In addition, included in other operating income in 1996 was revenue from
the disposal of Farberware inventory of $10,166 to Service, $5,033 to Lifetime
and $1,660 to a company affiliated with a certain director/stockholder. At
December 31, 1996 amounts receivable from Service and Lifetime were $316 and
$455, respectively.
F-22
129
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. FOREIGN OPERATIONS
The Company's foreign operations relate to its Hong Kong subsidiary, and as
of May 8, 1996, its C.J. Vander subsidiary, the sales of the Hong Kong
subsidiary are substantially to customers in the United States and the sales of
its C.J. Vander subsidiary are primarily to foreign customers. Summarized
financial information about the Company's operations in different geographic
areas is as follows:
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1995 1996
-------- -------- --------
Net sales:
United States............................................ $114,457 $122,950 $212,516
Hong Kong................................................ 32,834 46,570 54,749
Other foreign............................................ -- -- 3,666
-------- -------- --------
Total............................................ $147,291 $169,520 $270,931
======== ======== ========
Income (loss) from operations:
United States............................................ $ 7,497 $ 9,846 $ 15,372
Hong Kong................................................ 3,581 5,599 8,235
Other foreign............................................ -- -- (505)
-------- -------- --------
Total............................................ $ 11,078 $ 15,445 $ 23,102
======== ======== ========
Identifiable assets:
United States............................................ $185,632 $213,162 $212,377
Hong Kong................................................ 5,052 7,404 7,754
Other foreign............................................ -- -- 7,123
-------- -------- --------
Total............................................ $190,684 $220,566 $227,254
======== ======== ========
14. LITIGATION
The Company has been named as a defendant in several legal actions arising
from its normal business activities. The Company carries insurance against
liability for certain types of risks. Although the amount of liability that
could result from any litigation cannot be predicted, in the opinion of
management, the Company's potential liability on all known claims would not have
a material adverse effect on the consolidated financial position or results of
operations of the Company.
15. AGREEMENT AND PLAN OF MERGER
On October 23, 1996, the Company and THL Transaction I Corp., a company
organized and controlled by affiliates of Thomas H. Lee Company, entered into an
Agreement and Plan of Merger, dated November 27, 1996, effective, as of October
23, 1996, as amended effective as of February 14, 1997, pursuant to which THL
Transaction I Corp. will be merged into the Company (the "Merger"). Pursuant to
the transaction, stockholders of the Company will receive $32.00 in cash per
share (except that the Principal Shareholder will receive only $28.00 in cash
per share) or may elect to receive a portion of their consideration by retaining
stock of the surviving entity.
Upon consummation of the Merger, the Company would have on a pro forma
basis, as of December 31, 1996, outstanding debt of approximately $162,319
(unaudited). The transaction is expected to close in the first half of 1997. It
is intended that the transaction will be accounted for as a recapitalization.
The common equity contribution to be made by THL I Transaction Corp. will
constitute approximately $100,217 (unaudited)
F-23
130
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
plus up to $18,000 (unaudited) of Cumulative Redeemable Preferred Stock (less
the value of the shares retained by stockholders other than the Company's
Principal Shareholder and 63,696 shares that were issued to, and will be
retained by, certain management stockholders). The Company's stockholders'
equity on a pro forma basis is $22,048 (unaudited) at December 31, 1996
considering the effects of the Merger, because the distribution to stockholders,
as well as approximately one-third of the Merger expenses, will reduce
stockholders' equity.
The consummation of the Merger is conditioned upon the availability of
adequate financing (both debt and equity). It is expected that the financing
will include the issuance of $155,000 of Senior Notes (the "Senior Notes"). The
Senior Notes are expected to be general unsecured obligations of the Company
ranking senior to all existing and future subordinated indebtedness of the
Company, including indebtedness of up to $130,000, including a $30,000 letter of
credit sublimit, under a 5 year Credit Facility (the "Revolving Credit
Facility"). However, the obligations of the Company under the Revolving Credit
Facility are expected to be secured by the accounts receivable and inventory of
the Company and its domestic subsidiaries and, accordingly, such indebtedness
would effectively rank senior to the Senior Notes to the extent of such assets.
The Revolving Credit Facility is expected to include a requirement to maintain
excess availability of at least $45.0 million at certain periods during the
year. The Senior Notes will be fully and unconditionally guaranteed on a joint
and several basis by each of the Company's wholly-owned domestic subsidiaries.
(The "Guarantor Subsidiaries").
The following condensed consolidating financial statements as of December
31, 1995 and 1996 and for each of the three years in the period ended December
31, 1996, present separate financial information for the Company
("Issuer/Guarantor Parent"), the Guarantor Subsidiaries, the Non Guarantor
Subsidiaries, and Discontinued Operations. Separate financial statements of each
guarantor are not presented because management believes that such statements
would not be materially different from the information presented herein.
F-24
131
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 1995
ISSUER/
GUARANTOR GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------
ASSETS
Current assets:
Cash and equivalents................ $ 63,354 $ 11,786 $ 3,353 $ 78,493
Marketable securities............... 30,561 30,561
Accounts receivable, net............ 30,129 1,764 31,893
Inventories......................... 39,415 1,695 $ 41 41,151
Deferred income taxes............... 1,582 3,523 5,105
Prepaid expenses and other.......... 516 854 232 1,602
Net assets of discontinued
operations....................... 1,834 1,834
-------- -------- ------ -------- --------
Total current assets........ 97,847 85,707 7,044 41 190,639
Property, plant and equipment, net.... 29,256 351 (47) 29,560
Other assets.......................... 130,914 358 9 (130,914) 367
-------- -------- ------ -------- --------
Total....................... $ 228,761 $115,321 $ 7,404 $ (130,920) $220,566
======== ======== ====== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving loan facilities and notes
payable.......................... $ 51,735 $ 51,735
Accounts payable.................... $ 4,964 $ 1,474 6,438
Accrued expenses.................... 922 3,314 199 $ 1 4,436
Accrued compensation................ 2,212 266 2,478
Accrued advertising................. 1,991 1,991
Income taxes payable................ 20,152 (19,104) 469 (6) 1,511
-------- -------- ------ -------- --------
Total current liabilities... 72,809 (6,623) 2,408 (5) 68,589
Deferred income taxes................. 1,819 1,838 3,657
Pension liability..................... 1,724 1,724
Intercompany (receivable) payable..... (63,540) 68,727 (5,590) 403
Stockholders' equity.................. 217,673 49,655 10,586 (131,318) 146,596
-------- -------- ------ -------- --------
Total....................... $ 228,761 $115,321 $ 7,404 $ (130,920) $220,566
======== ======== ====== ======== ========
F-25
132
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 1996
ISSUER/
GUARANTOR GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------
ASSETS
Current assets:
Cash and equivalents................ $ 18 $ 146 $ 3,441 $ 3,605
Accounts receivable, net............ 56,719 3,301 60,020
Inventories......................... 74,134 5,180 $ 41 79,355
Deferred income taxes............... 729 8,211 8,940
Prepaid expenses and other.......... 2,653 1,150 3,803
Net assets of discontinued
operations.......................
-------- -------- --------- --------- --------
Total current assets........ 747 141,863 13,072 41 155,723
Property, plant and equipment, net.... 62,219 1,805 (69) 63,955
Purchase price in excess of net assets
acquired............................ 7,032 7,032
Other assets.......................... 179,442 544 (179,442) 544
-------- -------- --------- --------- --------
Total....................... $ 180,189 $211,658 $ 14,877 $ (179,470) $227,254
======== ======== ========= ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving loan facilities and notes
payable.......................... $ 6,604 $ 32 $ 6,636
Accounts payable.................... 7,637 2,052 9,689
Accrued expenses.................... $ 1,058 9,420 571 11,049
Accrued compensation................ 3,812 416 4,228
Accrued advertising................. 3,273 3,273
Income taxes payable................ 19,907 (19,581) 598 $ 6 930
-------- -------- --------- --------- --------
Total current liabilities... 20,965 11,165 3,669 6 35,805
Deferred income taxes................. 2,295 15,411 17,706
Pension liability..................... 3,288 3,288
Other long-term liabilities........... 207 207
Intercompany (receivable) payable..... (62,863) 62,863 (5,718) 5,718
Stockholders' equity.................. 219,792 118,724 16,926 (185,194) 170,248
-------- -------- --------- --------- --------
Total....................... $ 180,189 $211,658 $ 14,877 $ (179,470) $227,254
======== ======== ========= ========= ========
F-26
133
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING INCOME STATEMENTS
YEAR ENDED DECEMBER 31, 1994
ISSUER/
GUARANTOR GUARANTOR NON-GUARANTOR DISCONTINUED
PARENT SUBSIDIARIES SUBSIDIARIES OPERATIONS ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------ ------------
Net sales.................. $114,457 $53,495 $(20,661) $147,291
Cost of sales.............. 81,946 43,315 (20,661) 104,600
-------- ------- -------- --------
Gross profit............. 32,511 10,180 42,691
Selling, general and
administrative
expenses................. 25,269 6,599 (255) 31,613
-------- ------- -------- --------
Income from operations... 7,242 3,581 255 11,078
Interest expense........... (496) (63) (559)
Interest income............ 80 18 98
Other income............... $ 2,000 2,000 (4,000)
------ -------- ------- -------- --------
Income before provision
for income taxes...... 2,000 8,826 3,536 (3,745) 10,617
Provision for income
taxes.................... 157 1,995 606 2,758
------ -------- ------- -------- --------
Income from continuing
operations............ 1,843 6,831 2,930 (3,745) 7,859
Discontinued operations,
net...................... $ 12,068 -- 12,068
------ -------- ------- ------- -------- --------
Net income............ $ 1,843 $ 6,831 $ 2,930 $ 12,068 $ (3,745) $ 19,927
====== ======== ======= ======= ======== ========
F-27
134
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING INCOME STATEMENTS
YEAR ENDED DECEMBER 31, 1995
ISSUER/
GUARANTOR GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------
Net sales............................. $122,950 $67,354 $(20,784) $169,520
Cost of sales......................... 87,593 53,027 (20,784) 119,836
-------- ------- -------- --------
Gross profit........................ 35,357 14,327 49,684
Selling, general and administrative
expenses............................ 25,522 8,728 (11) 34,239
-------- ------- -------- --------
Income from operations.............. 9,835 5,599 11 15,445
Interest expense...................... (198) (89) (287)
Interest income....................... $ 4,496 336 49 4,881
Other income.......................... 1,300 1,300 (2,600)
------- -------- ------- -------- --------
Income before provision for income
taxes............................ 5,796 11,273 5,559 (2,589) 20,039
Provision for income taxes............ 2,623 3,303 937 6,863
------- -------- ------- -------- --------
Income from continuing operations... 3,173 7,970 4,622 (2,589) 13,176
Discontinued operations, net.......... 33,023 33,023
------- -------- ------- -------- --------
Net income....................... $36,196 $ 7,970 $ 4,622 $ (2,589) $ 46,199
======= ======== ======= ======== ========
F-28
135
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING INCOME STATEMENTS
YEAR ENDED DECEMBER 31, 1996
ISSUER/
GUARANTOR GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------
Net sales............................. $212,530 $85,498 $(27,097) $270,931
Cost of sales......................... 154,622 66,582 (27,091) 194,113
-------- ------- -------- --------
Gross profit........................ 57,908 18,916 (6) 76,818
Selling, general and administrative
expenses............................ $ (360) 46,844 11,880 (700) 57,664
Other operating income................ 3,948 3,948
------ -------- ------- -------- --------
Income from operations.............. 360 15,012 7,036 694 23,102
Interest expense...................... (3,114) (36) (3,150)
Interest income....................... 70 535 166 771
Other income.......................... 11,900 11,900
------ -------- ------- -------- --------
Income before provision for income
taxes............................ 430 24,333 7,166 694 32,623
Provision for income taxes............ 1,092 9,835 1,307 12,234
------ -------- ------- -------- --------
Net (loss) income................... $ (662) $ 14,498 $ 5,859 $ 694 $ 20,389
====== ======== ======= ======== ========
F-29
136
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1994
ISSUER/
GUARANTOR GUARANTOR NON-GUARANTOR DISCONTINUED
PARENT SUBSIDIARIES SUBSIDIARIES OPERATIONS ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------ ------------
Cash flows from operating activities:
Net income............................. $ 1,843 $ 6,831 $ 2,930 $ 12,068 $ (3,745) $ 19,927
Adjustments to reconcile net income to
net cash provided by (used in)
operations:
Depreciation and amortization........ 3,074 451 (255) 3,270
Deferred income taxes................ 1,439 (1,870) (21) (452)
Other................................ 116 217 (1) 332
Increase (decrease) in cash:
Accounts receivable............... (7,738) (246) (7,984)
Inventories....................... (6,350) (240) (6,590)
Prepaid expenses and other........ 566 145 711
Accounts payable and accrued
expenses........................ 3,661 494 4,155
Income taxes payable.............. (1,283) 5,046 (64) 3,699
Intercompany account.............. (3,158) (13,235) (3,199) 15,592 4,000
Discontinued operations.............. (27,660) (27,660)
------ -------- ------- -------- ------- --------
Net cash provided by (used in)
operating activities................. (1,043) (9,798) 249 (10,592)
------ -------- ------- -------- ------- --------
Cash flows from investing activities:
Purchases of property, plant and
equipment............................ (2,391) (212) (2,603)
Other.................................. (194) 1 (193)
------ -------- ------- -------- ------- --------
Net cash used in investing
activities........................... (2,585) (211) (2,796)
------ -------- ------- -------- ------- --------
Cash flows from financing activities:
Change in revolving loan facilities.... 11,944 11,944
Repayment of borrowings................ (1,624) (1,624)
Other.................................. 1,043 62 1,105
------ -------- ------- -------- ------- --------
Net cash provided by financing
activities........................... 1,043 10,382 11,425
------ -------- ------- -------- ------- --------
Net (decrease) increase in cash and
equivalents.......................... (2,001) 38 (1,963)
Cash and equivalents, beginning of
year................................. 2,475 1,354 3,829
------ -------- ------- -------- ------- --------
Cash and equivalents, end of year...... $ -- $ 474 $ 1,392 $ -- $ -- $ 1,866
====== ======== ======= ======== ======= ========
F-30
137
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995
ISSUER/
GUARANTOR GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ---------------- ------------ ------------
Cash flows from operating activities:
Net income...................................... $ 36,196 $ 7,970 $ 4,622 $ (2,589) $ 46,199
Adjustments to reconcile net income to net cash
provided by (used in) operations:
Depreciation and amortization................. 3,089 175 (11) 3,253
Deferred income taxes......................... (1,202) (1,027) (2,229)
Other......................................... 102 1,158 1,260
Increase (decrease) in cash:
Marketable securities...................... (30,561) (30,561)
Accounts receivable........................ (3,273) (376) (3,649)
Inventories................................ (772) (45) (817)
Prepaid expenses and other................. (516) (914) (16) (1,446)
Accounts payable and accrued expenses...... 922 (686) 359 595
Income taxes payable....................... 21,241 (23,837) 290 (2,306)
Intercompany account....................... (47,093) 47,421 (2,928) 2,600
Discontinued operations....................... (49,915) (49,915)
-------- -------- ------- ------- --------
Net cash (used in) provided by operating
activities.................................... (70,826) 29,129 2,081 (39,616)
-------- -------- ------- ------- --------
Cash flows from investing activities:
Net proceeds on sale of Syroco, Inc............. 133,931 133,931
Purchases of property, plant and equipment...... (2,559) (120) (2,679)
Other........................................... 61 61
-------- -------- ------- ------- --------
Net cash provided by (used in) investing
activities.................................... 133,931 (2,498) (120) 131,313
-------- -------- ------- ------- --------
Cash flows from financing activities:
Change in revolving loan facilities............. (14,504) (14,504)
Repayment of borrowings......................... (875) (875)
Other........................................... 249 60 309
-------- -------- ------- ------- --------
Net cash provided by (used in) financing
activities.................................... 249 (15,319) (15,070)
-------- -------- ------- ------- --------
Net increase in cash and equivalents............ 63,354 11,312 1,961 76,627
Cash and equivalents, beginning of year......... 474 1,392 1,866
-------- -------- ------- ------- --------
Cash and equivalents, end of year............... $ 63,354 $ 11,786 $ 3,353 $ -- $ 78,493
======== ======== ======= ======= ========
F-31
138
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996
ISSUER/
GUARANTOR GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------
Cash flows from operating activities:
Net (loss) income........................................ $ (662) $ 14,498 $ 5,859 $ 694 $ 20,389
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operations:
Depreciation and amortization.......................... 4,466 279 22 4,767
Deferred income taxes.................................. 1,329 (4,085) (2,756)
Acquisition of Farberware assets....................... (9,500) (9,500)
Disposal of Farberware assets.......................... 13,600 13,600
Farberware electrics license........................... 500 500
Transfer of shares..................................... 2,338 1,317 3,655
Other.................................................. 78 1,542 5 1,625
Increase (decrease) in cash net of effect of businesses
acquired:
Marketable securities................................ 30,561 30,561
Accounts receivable.................................. (18,129) (227) (18,356)
Inventories.......................................... (16,352) (754) (17,106)
Prepaid expenses and other........................... 516 (816) (171) (471)
Accounts payable and accrued expenses................ 49 (2,235) (684) (2,870)
Income taxes payable................................. (245) (1,979) 129 (2,095)
Intercompany account................................. 689 1,147 (122) (1,714)
Discontinued operations................................ 1,834 1,834
------- ------- ------- ------- ----
Net cash provided by (used in) operating activities...... 36,487 (16,026) 4,314 (998) 23,777
Cash flows from investing activities:
Insurance claim proceeds................................. 23,771 23,771
Acquisitions of businesses net of cash acquired.......... (48,540) (998) 998 (48,540)
Purchases of property, plant and equipment............... (13,643) (1,482) (15,125)
Other.................................................... (130) 10 (120)
------- ------- ------- ------- ----
Net cash used in investing activities.................... (48,540) 9,998 (2,470) 998 (40,014)
------- ------- ------- ------- ----
Cash flows from financing activities:
Change in revolving loan facilities...................... (51,735) (5,296) (2,044) (59,075)
Repayment of borrowings.................................. (300) (300)
Other.................................................... 452 (16) (8) 428
------- ------- ------- ------- ----
Net cash used in financing activities.................... (51,283) (5,612) (2,052) (58,947)
------- ------- ------- ------- ----
Effect of exchange rate changes on cash and
equivalents............................................ 296 296
Net increase (decrease) in cash and equivalents.......... (63,336) (11,640) 88 (74,888)
Cash and equivalents, beginning of year.................. 63,354 11,786 3,353 (78,493)
------- ------- ------- ------- ----
Cash and equivalents, end of year........................ $ 18 $ 146 $ 3,441 $ -- $ 3,605
======= ======= ======= ======= ====
F-32
139
SCHEDULE I
CERTAIN INFORMATION REGARDING
THL TRANSACTION I CORP.
The following table sets forth the name, business address, age, principal
occupation or employment at the present time and during the last five years, the
name, principal business and address of any corporation or other organization in
which such occupation or employment is or was conducted and current
directorships of the executive officers, directors and stockholders of THL I,
all of whom are citizens of the United States. Except as otherwise noted, the
address of each such corporation or organization listed and the business
addresses of such persons is the address of Thomas H. Lee Company, 75 State
Street, Boston, Massachusetts 02109. Each person has had the principal
occupation or employment listed for more than the past five years except as
otherwise noted.
NAME AND PRESENT PRINCIPAL OCCUPATION OR
BUSINESS ADDRESS AGE EMPLOYMENT AND FIVE YEAR EMPLOYMENT HISTORY
- ------------------------------ --- --------------------------------------------------------
Thomas H. Lee................. 52 Founder of Thomas H. Lee Company and its President since
1974. Director of Autotote Corporation, Finlay
Enterprises Inc., Gillett Holdings, Inc. (Vail
Associates), Health o meter Products, Inc., Livent,
Inc., Playtex Products, Inc., Sondik Supply Corporation,
First Security Services Corporation and Miller Import
Corporation. Mr. Lee owns all of the outstanding shares
of THL I.
David V. Harkins.............. 55 Senior Managing Director of Thomas H. Lee Company since
1991; Joined Thomas H. Lee Company in 1986. President
and Trustee of THL Equity Trust III, the General Partner
of THL Equity Advisers III Limited Partnership, which is
the General Partner of Thomas H. Lee Equity Fund III,
L.P. Chairman of National Dentex Corporation since 1983.
Mr. Harkins is a director of Stanley Furniture Company,
Inc., National Dentex Corporation, HomeSide, Inc.,
Freedom Securities, Inc. and First Alert, Inc.
Scott A. Schoen............... 38 President and director of THL I. Managing Director of
the Thomas H. Lee Company since 1991. Joined Thomas H.
Lee Company in 1986. Vice President and Trustee of THL
Equity Trust III, the General Partner of THL Equity
Advisers III Limited Partnership, which is the General
Partner of Thomas H. Lee Equity Fund III, L.P. Mr.
Schoen is a director of First Alert, Inc., Rayovac
Corporation, Anchor Advanced Products, Inc., Alliance
International Group, Inc., Health o meter Products, Inc.
and LaSalle ReHoldings Limited.
Thomas M. Hagerty............. 33 Treasurer and director of THL I. Managing Director of
the Thomas H. Lee Company since 1993; Joined Thomas H.
Lee Company in 1988. Vice President and Trustee of THL
Equity Trust III, the General Partner of THL Equity
Advisers III Limited Partnership, which is the General
Partner of Thomas H. Lee Equity Fund III, L.P. Mr.
Hagerty is a director of Select Beverages, Inc., Freedom
Securities, Inc. and HomeSide, Inc.
S-1
140
NAME AND PRESENT PRINCIPAL OCCUPATION OR
BUSINESS ADDRESS AGE EMPLOYMENT AND FIVE YEAR EMPLOYMENT HISTORY
- ------------------------------ --- --------------------------------------------------------
Seth W. Lawry................. 32 Worked at Thomas H. Lee Company from 1989 to 1990 and
rejoined in 1994. Vice President of THL Equity Trust
III, the General Partner of THL Equity Advisers III
Limited Partnership, which is the General Partner of
Thomas H. Lee Equity III, L.P. From 1990 to 1992, Mr.
Lawry attended Stanford Graduate School of Business.
From 1992 to 1994, Mr. Lawry worked in the Mergers &
Acquisitions Department of Morgan Stanley & Co.
Incorporated, 1585 Broadway, New York, New York. Mr.
Lawry is a director of Freedom Securities, Inc.
Kent R. Weldon................ 29 Secretary and director of THL I. Vice President of THL
Equity Trust III, the General Partner of THL Equity
Advisers III Limited Partnership, which is the General
Partner of Thomas H. Lee Equity III, L.P. Worked at
Thomas H. Lee Company from 1991 to 1993 and rejoined in
1995. From 1989 to 1991, Mr. Weldon worked in the
Mergers & Acquisitions Department of Morgan Stanley &
Co. Incorporated, 1585 Broadway, New York, New York.
From 1993 to 1995, Mr. Weldon attended the Harvard
Graduate School of Business Administration.
S-2
141
ANNEX I
RESTATED AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
THL TRANSACTION I CORP.,
A DELAWARE CORPORATION,
AND
SYRATECH CORPORATION,
A DELAWARE CORPORATION,
DATED NOVEMBER 27, 1996
EFFECTIVE AS OF OCTOBER 23, 1996
142
TABLE OF CONTENTS
PAGE
------
ARTICLE I
THE MERGER
SECTION 1.1 The Merger........................................................... 1
SECTION 1.2 Closing.............................................................. 1
SECTION 1.3 Effective Time....................................................... 1
SECTION 1.4 Effects of the Merger................................................ 1
SECTION 1.5 Certificate of Incorporation; By-Laws................................ 1
SECTION 1.6 Directors............................................................ 2
SECTION 1.7 Officers............................................................. 2
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS
SECTION 2.1 Effect on Capital Stock.............................................. 2
SECTION 2.2 Company Common Stock Elections....................................... 3
SECTION 2.3 Proration............................................................ 4
SECTION 2.4 Stock Plans.......................................................... 4
SECTION 2.5 Exchange of Certificates............................................. 5
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 3.1 Organization, Standing and Corporate Power........................... 6
SECTION 3.2 Subsidiaries......................................................... 7
SECTION 3.3 Capital Structure.................................................... 7
SECTION 3.4 Authority; Noncontravention.......................................... 7
SECTION 3.5 SEC Documents; Undisclosed Liabilities............................... 8
SECTION 3.6 Information Supplied................................................. 9
SECTION 3.7 Absence of Certain Changes of Events................................. 9
SECTION 3.8 Litigation; Labor Matters: Compliance with Laws...................... 9
SECTION 3.9 Employee Benefit Plans............................................... 10
SECTION 3.10 Tax Returns and Tax Payments......................................... 11
SECTION 3.11 Intentionally Omitted................................................ 11
SECTION 3.12 Material Contracts................................................... 11
SECTION 3.13 Brokers.............................................................. 11
SECTION 3.14 Opinion of Financial Advisor......................................... 11
SECTION 3.15 Board Recommendation................................................. 12
SECTION 3.16 Required Company Vote................................................ 12
SECTION 3.17 State Takeover Statutes.............................................. 12
SECTION 3.18 Intellectual Property................................................ 12
SECTION 3.19 Related Party Transactions........................................... 12
i
143
PAGE
------
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THL I
SECTION 4.1 Organization, Standing and Corporate Power........................... 12
SECTION 4.2 Subsidiaries......................................................... 12
SECTION 4.3 Capital Structure.................................................... 13
SECTION 4.4 Authority; Noncontravention.......................................... 13
SECTION 4.5 Brokers.............................................................. 13
SECTION 4.6 Financing............................................................ 13
SECTION 4.7 Information Supplied................................................. 13
SECTION 4.8 Management Participation............................................. 14
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR TO MERGER
SECTION 5.1 Conduct of Business of the Company................................... 14
SECTION 5.2 Changes in Employment Arrangements................................... 15
SECTION 5.3 Severance............................................................ 16
SECTION 5.4 WARN................................................................. 16
SECTION 5.5 Tax Elections........................................................ 16
SECTION 5.6 Redemption of Rights................................................. 16
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.1 Preparation of Form S-4 and Proxy Statement; Stockholder Meeting..... 16
SECTION 6.2 Access to Information; Confidentiality............................... 17
SECTION 6.3 Best Efforts......................................................... 17
SECTION 6.4 Indemnification...................................................... 18
SECTION 6.5 Public Announcements................................................. 19
SECTION 6.6 No Solicitation...................................................... 19
SECTION 6.7 Affiliates........................................................... 20
ARTICLE VII
CONDITIONS PRECEDENT
SECTION 7.1 Conditions to Each Party's Obligation................................ 20
SECTION 7.2 Conditions to Obligations of THL I................................... 20
SECTION 7.3 Conditions to Obligation of the Company.............................. 21
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.1 Termination.......................................................... 22
SECTION 8.2 Effect of Termination................................................ 22
SECTION 8.3 Amendment............................................................ 22
SECTION 8.4 Extension; Waiver.................................................... 22
SECTION 8.5 Procedure for Termination, Amendment Extension or Waiver............. 22
ii
144
PAGE
------
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.1 Nonsurvival of Representations and Warranties........................ 23
SECTION 9.2 Fees and Expenses.................................................... 23
SECTION 9.3 Notices.............................................................. 23
SECTION 9.4 Definitions.......................................................... 24
SECTION 9.5 Interpretation....................................................... 25
SECTION 9.6 Counterparts......................................................... 25
SECTION 9.7 Entire Agreement; No Third-Party Benefits............................ 25
SECTION 9.8 GOVERNING LAW........................................................ 25
SECTION 9.9 Assignment........................................................... 25
SECTION 9.10 Enforcement.......................................................... 25
SECTION 9.11 Schedules............................................................ 25
EXHIBIT A Amended Certificate of Incorporation of the Company.................. A-1
EXHIBIT B Form of Company Affiliate Letter..................................... B-1
iii
145
DEFINED TERMS
SECTION PAGE
--------- ------
Affiliate sec.
9.4(a) 33
Cash Price sec.
2.1(c) 3
Certificate of Merger sec. 1.3 2
Certificates sec.
2.2(a) 4
Closing sec. 1.1 1
Closing Date sec. 1.2 1
Company Preamble 1
Company Common Stock Recitals 1
Company Plans sec.
3.9(a) 10
Company Stock Options sec.
2.2(a) 4
Company Stockholder Approved Recitals 1
Confidentiality Agreement sec.
6.2(a) 23
Consolidated Group sec. 3.10 13
Costs sec. 6.4 25
DGCL sec. 1.1 1
Disclosure Schedule sec. 3.1 6
Dissenting Shares sec.
2.1(c) 3
D&O Insurance sec. 6.4 25
Effective Time sec. 1.3 2
Environmental Claim sec.
3.11(i) 15
Environmental Laws sec.
3.11(i) 16
Environmental Permits sec.
3.11(i) 15
ERISA sec.
3.9(a) 10
Exchange Act sec.
2.2(a) 4
Exchange Fund sec.
2.3(e) 5
Exercise Period sec.
2.2(a) 3
Governmental Entity sec. 3.4 8
Hazardous Materials sec.
3.11(i) 16
HSR Act sec. 3.4 8
Indemnified Parties sec. 6.4 25
Knowledge sec.
9.4(b) 33
Liens sec. 3.2 7
Management sec.
2.1(c) 3
Management Rollover Share sec.
2.1(c) 3
Material Adverse Change sec.
9.4(c) 34
Material Averse Effect Person sec.
9.4(c) 34
Material Contracts sec.
3.11(i) 16
Merger Recitals 1
Merger Consideration sec.
2.1(c) 3
Permitted Changes sec.
5.1(d) 20
Person sec.
9.4(d) 34
Proxy Statement sec. 3.4 8
Recent SEC Documents sec. 3.5 9
Rights Agreement sec. 5.6 22
SEC sec. 3.2 6
iv
146
SECTION PAGE
--------- ------
SEC Documents sec. 3.5 9
SEC Financial Statements sec. 3.5 9
Securities Act sec. 3.3 7
Silver sec. 1.1 1
Stock Plans sec.
2.2(a) 4
Stockholders Meeting sec.
6.1(c) 22
Subsidiaries sec. 3.2 6
Subsidiary sec.
9.4(e) 34
Tax Return sec. 3.10 14
Taxes sec. 3.10 14
THL sec.
6.2(a) 23
THL I Preamble 1
Transactions Proposal sec. 6.6 26
WARN sec. 5.4 22
v
147
RESTATED AGREEMENT AND PLAN OF MERGER
THIS RESTATED AGREEMENT AND PLAN OF MERGER dated November , 1996,
effective as of the 23rd day of October, 1996 by and between THL Transaction I
Corp., a Delaware corporation ("THL I"), and Syratech Corporation, a Delaware
corporation (the "Company").
WHEREAS, the respective Boards of Directors of the Company and THL I have
determined that the merger of THL I with and into the Company (the "Merger"),
upon the terms and subject to the conditions set forth in this Agreement, would
be advisable and in the best interests of their respective companies and
stockholders, and such Boards of Directors have approved such Merger, pursuant
to which holders of shares of common stock, par value $.01 per share, of the
Company ("Company Common Stock") issued and outstanding immediately prior to the
Effective Time will be entitled to either the right (A) to retain, at their
election and subject to the terms hereof, a portion of their Company Common
Stock or (B) to receive cash, other than as set forth herein;
WHEREAS, the Merger and this Agreement require the vote of a majority of
the issued and outstanding shares of the Company Common Stock for the approval
thereof (the "Company Stockholder Approval");
WHEREAS, THL I and the Company desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe various conditions to the Merger; and
WHEREAS, it is intended that the Merger be recorded as a recapitalization
for financial reporting purposes;
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties agree as
follows:
ARTICLE I
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions set forth in
this Agreement, and in accordance with the Delaware General Corporation Law (the
"DGCL"), THL I shall be merged with and into the Company at the Effective Time.
Upon the Effective Time, the separate existence of THL I shall cease, and the
Company shall continue as the surviving corporation and shall continue under the
name "Syratech Corporation."
1.2 Closing. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Section
8.1 and subject to the satisfaction or waiver of the conditions set forth in
Article VII, the closing of the Merger (the "Closing") will take place at 10:00
a.m. not later than the sixth business day after satisfaction or waiver of the
conditions set forth in Article VII (the "Closing Date"), at the offices of
Hutchins, Wheeler & Dittmar, 101 Federal Street, Boston, Massachusetts, unless
another date, time or place is agreed to in writing by the parties hereto.
1.3 Effective Time. On the Closing Date, the parties shall file a
certificate of merger and other appropriate documents (the "Certificate of
Merger") executed in accordance with the relevant provisions of the DGCL and
shall make all other filings or recordings required under the DGCL in connection
with the Merger. The Merger shall become effective at such time as the
Certificate of Merger is duly filed with the Secretary of State of the State of
Delaware, or at such other time as is specified in the Certificate of Merger in
accordance with the DGCL and as THL I and the Company shall agree should be
specified in the Certificate of Merger (the time the Merger becomes effective
being the "Effective Time").
1.4 Effects of the Merger. The Merger shall have the effects set forth in
the DGCL.
1.5 Certificate of Incorporation; By-Laws. (a) The Certificate of
Incorporation of the Company, as in effect immediately prior to the Effective
Time, shall be amended so as to read in its entirety in the form set forth as
Exhibit A hereto, and, as so amended, until thereafter further amended as
provided therein and under the DGCL, it shall be the Certificate of
Incorporation of the Company following the Merger.
1
148
(b) The By-laws of the Company as in effect at the Effective Time shall be
the By-laws of the Company following the Merger until thereafter changed or
amended as provided therein or by applicable law.
1.6 Directors. Those persons listed on Schedule 1.6 hereto shall be the
directors of the Company following the Merger, until the earlier of their
resignation or removal or until their respective successors are duly elected and
qualified, as the case may be.
1.7 Officers. The officers of the Company at the Effective Time shall be
the officers of the Company following the Merger, until the earlier of their
resignation or removal or until their respective successors are duly elected and
qualified, as the case may be.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS
2.1 Effect on Capital Stock. As of the Effective Time, by virtue of the
Merger and without any action on the part of the holder of any shares of Company
Common Stock or any shares of capital stock of THL I:
(a) Common Stock of THL I. The shares of common stock of THL I issued
and outstanding immediately prior to the Effective Time, shall be converted
into such aggregate number of shares of Company Common Stock as equals
3,191,850 less the number of shares of Company Common Stock retained,
consistent with Section 2.1(c), by members of Management of the Company
other than Leonard Florence ("Management Rollover Shares"). A person shall
be deemed a member of "Management" if listed as an executive officer in the
Company's 1996 Proxy Statement.
(b) Cancellation of Treasury Stock. Each share of Company Common
Stock that is owned by the Company or by any wholly owned subsidiary of the
Company shall automatically be canceled and retired and shall cease to
exist, and no cash or other consideration shall be delivered or deliverable
in exchange therefor.
(c) Conversion (or Retention) of Company Common Stock. Except as
otherwise provided herein and subject to Section 2.5, each issued and
outstanding share of Company Common Stock shall:
(i) subject to Sections 2.2(a) and 2.3, for each share of Company
Common Stock with respect to which an election to retain Company Common
Stock has been effectively made and not revoked or lost (all such shares
other than the Management Rollover Shares are sometimes referred to
herein as the "Electing Shares"), be entitled to retain one fully paid
and nonassessable share of Company Common Stock (a "Non-Cash Election
Share");
(ii) for 714,400 shares of Company Common Stock held by Mr. Leonard
Florence, be entitled to retain the same number of fully paid and
nonassessable shares of Company Common Stock ("Florence Rollover
Shares"), and for each other share of Company Common Stock held by Mr.
Leonard Florence, the right to receive in cash from the Company
following the Merger the Cash Price; and
(iii) for each share of Company Common Stock (other than Dissenting
Shares, Florence Rollover Shares, Management Rollover Shares and
Electing Shares which become the right to Non-Cash Election Shares), the
right to receive in cash from the Company following the Merger an amount
equal to $32.00 (the "Cash Price").
The consideration set forth in paragraphs (i), (ii) and (iii) above
is collectively referred to as the "Merger Consideration."
(d) Dissenting Shares. Notwithstanding anything in this Agreement to
the contrary, shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time held by a holder who has the right
to demand payment for and an appraisal of such shares in accordance with
Section 262 of the DGCL (or any successor provision) ("Dissenting Shares")
shall not be converted into the right to receive Merger Consideration
unless such holder fails to perfect or otherwise withdraws, forfeits or
loses such holder's right to such payment or appraisal, if any. If, after
the Effective Time, such holder fails to perfect or withdraws, forfeits or
loses any such right to appraisal, each share of such holder
2
149
shall be treated as a share that had been converted as of the Effective
Time into the right to receive Merger Consideration in accordance with this
Section 2.1. The Company shall give prompt notice to THL I of any demands
received by the Company for appraisal of shares of Company Common Stock,
and THL I shall have the right to participate in all negotiations and
proceedings with respect to such demands. The Company shall not, except
with the prior written consent of THL I, which consent shall not be
unreasonably withheld, make any payment with respect to, or settle or offer
to settle, any such demands.
(e) Cancellation and Retirement of Company Common Stock. As of the
Effective Time, all shares of Company Common Stock (other than Florence
Rollover Shares and shares referred to in Sections 2.1(c)(i) and 2.1(d))
issued and outstanding immediately prior to the Effective Time, shall no
longer be outstanding and shall automatically be canceled and retired and
shall cease to exist, and each holder of a Certificate representing any
such shares of Company Common Stock shall, to the extent such Certificate
represents such shares, cease to have any rights with respect thereto,
except the right to receive the Merger Consideration applicable thereto,
upon surrender of such Certificate in accordance with Section 2.5.
2.2 Company Common Stock Elections. (a) Each person who, on or prior to
the Election Date referred to in Section 2.2(c) below, is a record holder of
shares of Company Common Stock (other than members of Management) will be
entitled, with respect to up to 35% and in the case of each Management
Stockholder (other than Leonard Florence) to 25% of such holder's shares, to
make an unconditional election (a "Non-Cash Election") on or prior to such
Election Date to retain Non-Cash Election Shares, on the basis hereinafter set
forth.
(b) Prior to the mailing of the Proxy Statement, the Company shall appoint
a banker or trust company reasonably acceptable to THL I to act as exchange
agent (the "Exchange Agent") for the payment of the Merger Consideration and
payments in respect of Company Stock Options as contemplated by Section 2.4.
(c) Subject to any required clearance by the SEC, the Company shall prepare
and mail a form of election (the "Form of Election"), which form shall be
subject to the reasonable approval of THL I, with the Proxy Statement to the
record holders of Company Common Stock as of the record date for the
Stockholders Meeting, which Form of Election shall be used by each record holder
of shares of Company Common Stock who wishes to elect to retain Non-Cash
Election Shares for shares of Company Common Stock held, subject to the
provisions of Section 2.3 hereof, by such holder. The Company will use its best
efforts to make the Form of Election and the Proxy Statement available to all
persons who become holders of Company Common Stock during the period between
such record date and the Election Date referred to below. Any such holder's
election to retain Non-Cash Election Shares shall have been properly made only
if the Exchange Agent shall have received at its designated office, by 5:00
p.m., New York City time on the business day (the "Election Date") next
preceding the date of the Stockholders Meeting, a Form of Election properly
completed and signed and accompanied by Certificates for the shares of Company
Common Stock to which such Form of Election relates, duly endorsed in blank or
otherwise in form acceptable for transfer on the books of the Company (or by an
appropriate guarantee of delivery of such certificates as set forth in such Form
of Election from a firm which is a member of a registered national securities
exchange or of the National Association of Securities Dealer, Inc. or a
commercial bank or trust company having an office or correspondent in the United
States, provided such certificates are in fact delivered to the Exchange Agent
within five NYSE trading days after the date of execution of such guarantee of
delivery).
(d) Any Form of Election may be revoked by the stockholder submitting it to
the Exchange Agent only by written notice received by the Exchange Agent (i)
prior to 5:00 p.m., New York City time on the Election Date or (ii) after the
date of the Proxy Statement, if (and to the extent that) the Exchange Agent is
legally required to permit revocations and the Effective Time shall not have
occurred prior to such date. In addition, all Forms of Election shall
automatically be revoked if the Exchange Agent is notified in writing by THL I
and the Company that the Merger has been abandoned. If a Form of Election is
revoked, the Certificate or Certificates (or guarantees of delivery, as
appropriate) for the shares of Company Common Stock to which such Form of
Election relates shall be promptly returned to the stockholder submitting the
same to the Exchange Agent.
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(e) The determination of the Exchange Agent shall be binding whether or not
elections to retain Non-Cash Election Shares have been properly made or revoked
pursuant to this Section 2.2 with respect to shares of Company Common Stock and
when elections and revocations were received by it. If the Exchange Agent
determines that any election to retain Non-Cash Election Shares was not properly
made with respect to shares of Company Common Stock, such shares shall be
treated by the Exchange Agent as shares which were not Non-Cash Election Shares
at the Effective Time, and such shares shall be exchanged in the Merger for cash
pursuant to Section 2.1(c)(iii). The Exchange Agent shall also make all
computations as to the allocation and the proration contemplated by Section 2.3,
and any such computation shall be conclusive and binding on the holders of
shares of Company Common Stock. The Exchange Agent may, with the mutual
agreement of THL I and the Company, make such rules as are consistent with this
Section 2.2 for the implementation of the elections provided for herein as shall
be necessary or desirable fully to effect such elections.
2.3 Proration.
(a) Notwithstanding anything in this Agreement to the contrary, the
aggregate number of shares of Company Common Stock (other than Florence Rollover
Shares and Management Rollover Shares) to be converted into the right to retain
Company Common Stock at the Effective Time shall not exceed 781,250.
(b) If the number of Electing Shares exceeds 781,250, then each Electing
Share shall be converted into the right to retain Non-Cash Election Shares or
receive cash in accordance with the terms of Section 2.1(e) in the following
manner:
(i) A proration factor (the "Non-Cash Proration Factor") shall be
determined by dividing 781,250 by the total number of Electing Shares.
(ii) The number of Electing Shares covered by each Non-Cash Election
to be converted into the right to retain Non-Cash Election Shares shall be
determined by multiplying the Non-Cash Proration Factor by the total number
of Electing Shares covered by such Non-Cash Election, rounded down to the
nearest whole number.
(iii) All Electing Shares, other than those shares converted into the
right to receive Non-Cash Election Shares in accordance with Section
2.3(b)(ii), shall be converted into cash (on a consistent basis among
shareholders who made the election referred to in Section 2.1(c)(i), pro
rata to the number of shares as to which they made such election) as if
such shares were not Electing Shares in accordance with the terms of
Section 2.1(c)(iii).
(c) If the number of Electing Shares is less than 781,250, then all
Electing Shares shall be converted into the right to retain Company Common Stock
in accordance with the terms of Section 2.1(c)(i).
2.4 Stock Plans. (a) As soon as practicable following the date of this
Agreement, the Board of Directors of the Company (or, if appropriate, the
Compensation and Stock Option Committee of the Board of Directors, which
administers the 86/93 Stock Plans and the 95 Stock Plan (each as defined below))
shall adopt such resolutions or take such other actions as may be required to
effect the following:
(i) deliver written notice at least 30 days prior to the Effective
Time to each holder of an employee stock option to purchase shares of
Company Common Stock granted under the 1986 Key Employees' Stock Option
Plan and the 1993 Key Employee's Stock Option Plan (collectively, the
"86/93 Stock Plans" and the options issued thereunder the "86/93 Options"),
to the effect that at the Effective Time each 86/93 Option that shall
remain unexercised and outstanding immediately prior to the Effective Time
shall (x) become fully vested as a consequence of the Merger and (y) be
terminated and canceled in exchange for a payment from the Company (subject
to applicable withholding taxes) immediately following the Effective Time
equal to the product of (1) the total number of shares of Company Common
Stock subject to the 86/93 Option times (2) the excess, if any, of the Cash
Price over the exercise price per share of Company Common Stock subject to
such 86/93 Option;
(ii) deliver written notice at least 30 days prior to the Effective
Time to each holder of an employee stock option to purchase shares of
Company Common Stock granted under the 1995 Key Employees' Stock Option
Plan (the "95 Stock Plan" and the options issued thereunder the "95
Options"), to the
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effect that, at the Effective Time each 95 Option, whether or not then
vested and exercisable, that shall remain unexercised and outstanding
immediately prior to the Effective Time shall be terminated and cancelled
without consideration, unless the holder of such 95 Stock Option consents
in writing to the amendment of such 95 Option to provide the holder thereof
with the right, and only the right, to receive in lieu of the existing
right to receive shares of Company Common Stock upon exercise and tending
of the exercise price under such 95 Option, a conditional deferred payment
from the Company (subject to applicable withholding taxes) (the
"Conditional Deferred Payment") equal to the product of (1) the total
number of shares of Company Common Stock subject to such 95 Option times
(2) the excess, if any, of the Cash Price over the exercise price per share
of the Company Common Stock subject to such 95 Option, which Conditional
Deferred payment shall be paid to such holder in equal installments on each
remaining vesting date of such 95 Option, subject to and conditioned upon,
such 95 Option holder's continued employment with the Company on such
vesting dates.
(iii) prior to the Effective Time, make any adjustments to the terms
of the 86/93 Options and 95 Options that may be necessary to effect the
transactions contemplated in Sections 2.4(i) and 2.4(ii) above; and
(iv) except as provided herein or otherwise agreed to by the parties,
cause the 86/93 Stock Plans and 95 Stock Plan and any other plan, program
or arrangement providing for the issuance or grant of any other interest in
respect of the capital stock of the Company or any subsidiary to terminate
as of the Effective Time.
(b) The Company hereby represents and warrants that upon taking of the
actions specified above, immediately following the Effective Time, no holder of
a Company Stock Option nor any participant in any Stock Plan shall have the
right thereunder to acquire equity securities of the Company after the Merger.
2.5 Exchange of Certificates.
(a) Exchange Agent. As soon as reasonably practicable as of or after the
Effective Time, the Company shall deposit with the Exchange Agent, for the
benefit of the holders of shares of Company Common Stock and holders of Company
Stock Options, for exchange in accordance with this Article II, the cash portion
of the Merger Consideration, an amount of cash sufficient to satisfy obligations
to holders of Company Stock Options as contemplated by Section 2.4 and
certificates for shares of Company Common Stock sufficient to satisfy
obligations as contemplated by Section 2.1.
(b) Exchange Procedures. (i) Promptly after the Effective Time, the
Exchange Agent shall mail to each record holder, as of the Effective Time, of an
outstanding certificate or certificates which immediately prior to the Effective
Time represented shares of Company Common Stock (the "Certificates") or of an
outstanding Company Stock Option, a letter of transmittal and instructions for
use in effecting the surrender of the Certificates or of outstanding Company
Stock Options for payment therefor (or such other documents as may reasonably be
required in connection with such surrender) in substantially the form to be
agreed by THL I and the Company prior thereto. Thereafter, each holder of an
outstanding Certificate or Certificates or Company Stock Option shall, upon
surrender to the Exchange Agent of such Certificate or Certificates or Company
Stock Option and acceptance thereof by the Exchange Agent, be entitled to
receive the amount of cash and/or other Merger consideration into which such
Certificate or Certificates or outstanding Company Stock Option surrendered
shall have been converted pursuant to this Agreement.
(ii) Intentionally Omitted.
(iii) After the Effective Time, there shall be no further transfer on the
records of the Company or its transfer agent of Certificates, and if
Certificates are presented to the Company for transfer, they shall be canceled
against delivery of cash or a certificate or certificates representing Florence
Rollover Shares, Management Rollover Shares or Non-Cash Electing Shares, as
applicable. If cash or a certificate or certificates, as applicable, is to be
remitted to a name other than that in which the Certificate surrendered for
exchange is registered, it shall be a condition of such exchange that the
Certificate so surrendered shall be properly endorsed, with signature
guaranteed, or otherwise in proper form for transfer and that the person
requesting such exchange shall pay to the Company or its transfer agent any
transfer or other taxes required or
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establish to the satisfaction of the Company or its transfer agent that such tax
has been paid or is not applicable. Until surrendered as contemplated by this
Section 2.5(b), each Certificate shall be deemed at any time after the Effective
Time to represent only the right to receive upon such surrender the Merger
Consideration applicable thereto as contemplated by Section 2.1. No interest
will be paid or will accrue on any cash payable as Merger Consideration.
(c) Distributions with Respect to Unexchanged Shares. No dividends or
other distributions with respect to Company Common Stock with a record date
after the Effective Time shall be paid to the holder of any unsurrendered
Certificate until the surrender of such Certificate in accordance with this
Article II. Following surrender of any such Certificate, there shall be paid to
the holder of the Certificate the amount of dividends or other distributions, if
any, with a record date after the Effective Time theretofore paid with respect
to shares of Company Common Stock.
(d) No Further Ownership Rights. All cash paid upon the surrender for
exchange of Certificates or Company Stock Options in accordance with the terms
of this Article II shall be deemed to have been issued and paid in full
satisfaction of all rights pertaining to such shares.
(e) Termination of Exchange Fund. Any portion of the Merger Consideration
deposited with the Exchange Agent pursuant to this Section 2.5 (the "Exchange
Fund") which remains undistributed to the holders of the Certificates or Company
Stock Options for twelve months after the Effective Time shall be delivered to
the Company, upon demand, and any holders of shares of Company Common Stock or
of Company Stock Options prior to the Merger who have not theretofore complied
with this Article II shall thereafter look only to the Company and only as
general creditors thereof for payment of their claim for the Merger
Consideration and/or cash, if any, to which such holders may be entitled.
(f) No Liability. None of THL I, the Company or the Exchange Agent shall
be liable to any person in respect of any consideration from the Exchange Fund
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law. If any Certificates or Company Stock Options shall not
have been surrendered prior to the later of (i) one year after the Effective
Time and (ii) immediately prior to such date on which any cash, if any, in
respect of such Certificate or Company Stock Options would otherwise escheat to
or become the property of any Governmental Entity, any such cash, dividends or
distributions in respect of such Certificate or Company Stock Options shall, to
the extent permitted by applicable law, become the property of the Company, free
and clear of all claims or interest of any person previously entitled thereto.
(g) Investment of Exchange Fund. The Exchange Agent shall invest any cash
included in the Exchange Fund, as directed by the Company, on a daily basis. Any
interest and other income resulting from such investments shall be paid to the
Company.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to THL I as follows (subject to
such exceptions as may be disclosed in the SEC Documents or the Disclosure
Schedule delivered to THL I by the Company within five (5) business days of the
date hereof in form and substance reasonably acceptable to THL I (the
"Disclosure Schedule")):
3.1 Organization, Standing and Corporate Power. Each of the Company and
each of its Subsidiaries is duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is incorporated and has
the requisite corporate power and authority to carry on its business as now
being conducted. Each of the Company and each of its Subsidiaries is duly
qualified or licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification or licensing necessary, other than in
such jurisdictions where the failure to be so qualified or licensed
(individually or in the aggregate) would not have a Material Adverse Effect with
respect to the Company. The Company has delivered to THL I complete and correct
copies of the certificate of incorporation and by-laws of the Company, as
amended to the date of this Agreement.
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3.2 Subsidiaries. The only direct or indirect subsidiaries of the Company
(other than subsidiaries of the Company that would not constitute in the
aggregate a "Significant Subsidiary" within the meaning of Rule 1.02 of
Regulation S-X of the Securities and Exchange Commission (the "SEC")) are those
listed in Section 3.2 of the Disclosure Schedule (the "Subsidiaries"). All the
outstanding shares of capital stock of each such wholly owned Subsidiary have
been validly issued and are fully paid and nonassessable and are owned (of
record and beneficially) by the Company, by another wholly owned Subsidiary of
the Company or by the Company and another such wholly owned Subsidiary, free and
clear of all pledges, claims, liens, charges, encumbrances and security
interests of any kind or nature whatsoever (collectively, "Liens"). Except for
the ownership interests set forth in Section 3.2 of the Disclosure Schedule, the
Company does not own, directly or indirectly, any capital stock or other
ownership interest in any corporation, partnership, business association, joint
venture or other entity material with respect to the Company.
3.3 Capital Structure. The authorized capital stock of the Company
consists of (i) 20,000,000 shares of Company Common Stock, par value $.01 per
share, and (ii) 500,000 shares of preferred stock. Subject to any Permitted
Changes there are, as of September 30, 1996: (i) 8,676,631 shares of Company
Common Stock issued and outstanding; (ii) 218 shares of Company Common Stock
held in the treasury of the Company; (iii) 606,000 shares of Company Common
Stock reserved for issuance upon exercise of authorized but unissued Company
Stock Options pursuant to the Stock Plans; (iv) 348,100 shares of Company Common
Stock issuable upon exercise of outstanding Company Stock Options and (v) shares
of preferred stock reserved for issuance in connection with the Rights
Agreement. Section 3.3 of the Disclosure Schedule sets forth the exercise price
for the outstanding Company Stock Options. Except as set forth above, as of
September 30, 1996, no shares of capital stock or other equity securities of the
Company are issued, reserved for issuance or outstanding. All outstanding shares
of capital stock of the Company are, and all shares which may be issued pursuant
to the Stock Plans will be, when issued, duly authorized, validly issued, fully
paid and nonassessable and not subject to preemptive rights. There are no
outstanding bonds, debentures, notes or other indebtedness or other securities
of the Company having the right to vote (or convertible into, or exchangeable
for, securities having the right to vote) on any matters on which stockholders
of the Company may vote. Except as set forth above, there are no outstanding
securities, options, warrants, calls, rights, commitments, agreements,
arrangements or undertakings of any kind to which the Company or any of its
Subsidiaries is a party or by which any of them is bound obligating the Company
or any of its Subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock or other equity or voting
securities of the Company or any of its subsidiaries or obligating the Company
or any of its subsidiaries to issue, grant, extend or enter into any such
security, option, warrant, call, right, commitment, agreement, arrangement or
undertaking. Other than with respect to indebtedness disclosed in the most
recent balance sheet of the Company included in the SEC Documents, no
indebtedness for borrowed money of the Company or its subsidiaries contains any
restriction upon the incurrence of indebtedness for borrowed money by the
Company or any of its subsidiaries or restricts the ability of the Company or
any of its subsidiaries to grant any Liens on its properties or assets. Other
than the Company Stock Options and other than as disclosed in Section 3.3 of the
Disclosure Schedule, (i) there are no outstanding contractual obligations,
commitments, understandings or arrangements of the Company or any of its
subsidiaries to repurchase, redeem or otherwise acquire or make any payment in
respect of any shares of capital stock of the Company or any of its subsidiaries
and (ii) to the knowledge of the Company, there are no irrevocable proxies with
respect to shares of capital stock of the Company or any subsidiary of the
Company. Section 3.3 of the Disclosure Schedule sets forth the record and, to
the knowledge of the Company, beneficial ownership of, and voting power in
respect of, the capital stock of the Company held by the Company's directors,
officers and stockholders owning five percent or more of the Company's
outstanding common stock. Except as set forth above, there are no agreements or
arrangements pursuant to which the Company is or could be required to register
shares of Company Common Stock or other securities under the Securities Act of
1933, as amended (the "Securities Act"), or other agreements or arrangements
with or among any security holders of the Company with respect to securities of
the Company.
3.4 Authority; Noncontravention. The Company has the requisite corporate
and other power and authority to enter into this Agreement and, subject to the
Company Stockholder Approval, to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement by the Company and the
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consummation by the Company of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of the Company,
subject to the Company Stockholder Approval. This Agreement has been duly
executed and delivered by the Company and constitutes a valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, except as may be limited by (1) any bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights, (2) general equity principles, (3) the law of
fraudulent conveyance, (4) public policy, (5) applicable law relating to
fiduciary duties and (6) judicial imposition of any implied covenant of good
faith and fair dealing. Except as disclosed in Section 3.4 of the Disclosure
Schedule, the execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated by this Agreement and compliance
with the provisions hereof will not, conflict with, or result in any breach or
violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
or "put" right with respect to any obligation or to loss of a material benefit
under, or result in the creation of any Lien upon any of the properties or
assets of the Company or any of its subsidiaries under, (i) the Certificate of
Incorporation, as amended, or By-laws, as amended, of the Company or the
comparable organizational documents of any of its subsidiaries, (ii) any loan or
credit agreement, note, note purchase agreement, bond, mortgage, indenture,
lease or other agreement, instrument, permit, concession, franchise or license
applicable to the Company or any of its subsidiaries or their respective
properties or assets or (iii) subject to the governmental filings and other
matters referred to in the following sentence, any judgment, order, decree,
statute, law, ordinance, rule, regulation or arbitration award applicable to the
Company or any of its subsidiaries or their respective properties or assets,
other than, in the case of clauses (i), (ii) and (iii), any such conflicts,
breaches, violations, defaults, rights, losses or Liens that individually or in
the aggregate would not have a Material Adverse Effect with respect to the
Company or would not prevent, hinder or materially delay the ability of the
Company to consummate the transactions contemplated by this Agreement if not
cured or waived by the Closing Date. No consent, approval, order or
authorization of, or registration, declaration or filing with, or notice to, any
Federal, state or local government or any court, administrative agency or
commission or other governmental authority or agency, domestic or foreign (a
"Governmental Entity"), is required by or with respect to the Company or any of
its subsidiaries in connection with the execution and delivery of this Agreement
by the Company or the consummation by the Company of the transactions
contemplated hereby, except for (i) the filing of a pre-merger notification and
report form by the Company under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"), (ii) the filing with the SEC of (x) a
proxy statement relating to the Company Stockholder Approval (such proxy
statement as amended or supplemented from time to time, the "Proxy Statement"),
(y) the registration statement on Form S-4 to be filed with the SEC by the
Company in connection with the retention of Company Common Stock of the Company
in the Merger pursuant to Article II (the "Form S-4") and (z) such reports under
the Exchange Act as may be required in connection with this Agreement and the
transactions contemplated by this Agreement, (iii) the filing of the Certificate
of Merger with the Secretary of State of the State of Delaware and appropriate
documents with the relevant authorities of other states in which the Company is
qualified to do business and (iv) such other consents, approvals, orders,
authorizations, registrations, declarations, filings or notices as are set forth
in Schedule 3.4 of the Disclosure Schedule.
3.5 SEC Documents; Undisclosed Liabilities. The Company has filed all
required reports, schedules, forms, statements and other documents with the SEC
since December 16, 1992 (collectively, and in each case including all exhibits
and schedules thereto and documents incorporated by references therein, and as
amended, the "SEC Documents"). As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the Securities Act,
or the Exchange Act, as the case may be, and the rules and regulations of the
SEC promulgated thereunder applicable to such SEC Documents, and none of the SEC
Documents (including any and all financial statements included therein) as of
such dates contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The consolidated financial statements of the Company
included in all SEC Documents filed since January 1, 1996 (the "SEC Financial
Statements") comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with generally accepted
accounting principles (except, in the case of unaudited
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consolidated quarterly statements, as permitted by Form 10-Q of the SEC) applied
on a consistent basis during the periods involved, except as may be indicated in
the notes thereto) and fairly present the consolidated financial position of the
Company and its consolidated subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended (subject, in the case of unaudited quarterly statements, to normal
year-end audit adjustments). Except as set forth in the SEC Documents and except
as disclosed in Section 3.5 of the Disclosure Schedule, at the date of the most
recent audited financial statements of the Company included in the SEC
Documents, neither the Company nor any of its subsidiaries had, and since such
date neither the Company nor any of such subsidiaries has incurred, any
liabilities or obligations of any nature (whether accrued, absolute, contingent
or otherwise) which, individually or in the aggregate, would be required to be
disclosed in a balance sheet prepared in accordance with generally accepted
accounted principles and would reasonably be expected to have a Material Adverse
Effect with respect to the Company except liabilities incurred in the ordinary
and usual course of business and consistent with past practice and liabilities
incurred in connection with the transactions contemplated by this Agreement.
3.6 Information Supplied. None of the information supplied or to be
supplied by the Company for inclusion or incorporation by reference in (i) the
Form S-4 will, at the time the Form S-4 is filed with the SEC, and at any time
it is amended or supplemented or at the time it becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading, and (ii) the Proxy Statement will, at the
date it is first mailed to the Company's stockholders or at the time of the
Stockholders Meeting, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
are made, not misleading, except that no representations or warranty is made by
the Company with respect to information supplied by THL I or any affiliate of
THL I for inclusion in the Proxy Statement. The Form S-4 will, as of its
effective date, and the prospectus contained therein will, as of its date,
comply as to form in all material respects with the requirements of the
Securities Act and the rules and regulations promulgated thereunder. The Proxy
Statement will comply as to form in all material respects with the requirements
of the Exchange Act and the rules and regulations promulgated thereunder.
3.7 Absence of Certain Changes or Events. Except as disclosed in the SEC
Documents, since the date of the most recent financial statements included in
such SEC Documents, the Company has conducted its business only in the ordinary
course consistent with past practice, and there is not and has not been: (i) any
Material Adverse Change with respect to the Company; (ii) any condition, event
or occurrence which, individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect or give rise to a Material Adverse
Change with respect to the Company; (iii) any event which, if it had taken place
following the execution of this Agreement, would not have been permitted by
Section 5.1 without the prior consent of THL I; or (iv) any condition, event or
occurrence which would reasonably be expected to prevent, hinder or materially
delay the ability of the Company to consummate the transactions contemplated by
this Agreement.
3.8 Litigation; Labor Matters: Compliance with Laws. (a) Except as
disclosed in Section 3.8 of the Disclosure Schedule or in the SEC Documents,
there is (i) no suit, action or proceeding or investigation pending and, (ii) to
the knowledge of the Company, no suit, action or proceeding or investigation
threatened against or affecting the Company or any of its subsidiaries that,
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect with respect to the Company or prevent, hinder or
materially delay the ability of the Company to consummate the transactions
contemplated by this Agreement nor is there any judgment, decree, injunction,
rule or order or any Governmental Entity or arbitrator outstanding against the
Company or any of its Subsidiaries having, or which in the future could have,
any such effect.
(b) Except as disclosed in Section 3.8 of the Disclosure Schedule, (i)
neither the Company nor any of its Subsidiaries is a party to, or bound by, any
collective bargaining agreement, contract or other agreement or understanding
with a labor union or labor organization; (ii) there is no strike, work stoppage
or other labor dispute involving it or any of its subsidiaries pending or, to
its knowledge, threatened; and (iii) the Company is not liable for any severance
pay or other payments to any employee or former employee arising from the
termination of employment under any benefit or severance policy, practice,
agreement, plan, or program of the
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Company, nor will the Company have any liability which exists or arises, or may
be deemed to exist or arise, under any applicable law or otherwise, as a result
of or in connection with the transactions contemplated hereunder or as a result
of the termination by the Company of any persons employed by the Company or any
of its subsidiaries on or prior to the Effective Time.
(c) The conduct of the business of each of the Company and each of its
subsidiaries complies with all statutes, laws, regulations, ordinances, rules,
judgments, orders, decrees or arbitration awards applicable thereto, except for
violations or failures so to comply, if any, that, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect
with respect to the Company.
3.9 Employee Benefit Plans.
(a) General. Except as listed on Section 3.9 of the Disclosure Schedule,
neither the Company nor any of its "ERISA Affiliates" (as defined in the
Internal Revenue Code of 1986, as amended) is a party to, participates in,
contributes to or has any liability or contingent liability with respect to:
(i) any "employee welfare benefit plan" or "employee pension benefit
plan" as those terms are respectively defined in sections 3(1) and 3(2) of
ERISA, or
(ii) any retirement or deferred compensation plan, incentive
compensation plan, stock plan, unemployment compensation plan, vacation
pay, severance pay, bonus or benefit arrangement, medical insurance or
hospitalization program or any other fringe benefit arrangements for any
current or former employee, director, consultant or agent, whether pursuant
to contract, arrangement, custom or informal understanding, which does not
constitute an "employee benefit plan" (as defined in section 3(3) of
ERISA).
(b) Plan Documents and Reports. A true and correct copy of each of the
plans, arrangements, and agreements listed on Section 3.9 of the Disclosure
Schedule, (referred to collectively hereinafter in this Agreement as the
"Employee Benefit Plans"), each as in effect on the date hereof, has been
supplied or made available to THL I. A true and correct copy of the most recent
annual report, summary plan description, and Internal Revenue Service
determination letter with respect to each Employee Benefit Plan, to the extent
applicable, has been supplied or made available to THL I, and there has been no
material changes in the financial condition in the respective plan from that
stated in the annual reports supplied.
(c) Compliance With Laws; Liabilities. As to all Employee Benefit Plans:
(i) All Employee Benefit Plans that are employee pension benefit plan
(as defined in section 3(2) of ERISA) comply in form and in operation with
all applicable requirements of section 401(a) and 501(a) of the Code; there
have been no amendments to such plans which are not the subject of a
determination letter issued with respect thereto by the Internal Revenue
Service or for which application for such letter has not been, or will not
be, timely filed with the Internal Revenue Service; and no event has
occurred which would likely give rise to disqualification of any such plan
under such sections or to a tax under section 511 of the Code.
(ii) There have been no non-exempt "prohibited transactions" (as
described in section 406 of ERISA or section 4975 of the Code) with respect
to any Employee Benefit Plan for which the Company or any of its
Subsidiaries may be liable.
(iii) None of the payments contemplated by the Employee Benefit Plans
would, in the aggregate, constitute non-deductible excess parachute
payments as defined in section 280G of the Code.
(iv) No Employee Benefit plan is subject to Title IV of ERISA and no
plan is a multiemployer plan (as defined in Section 3(37) of ERISA).
(v) Each Employee Benefit Plan which constitutes a "group health plan"
(as defined in section 607(1) of ERISA of section 4980(g)(2) of the Code),
including any plans of current and former Affiliates which must be taken
into account under sections 4980B and 414(t) of the Code or section 601 of
ERISA, has been operated in material compliance with applicable la,
including coverage requirements of section 4980B of the Code and section
601 of ERISA to the extent such requirements are applicable.
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(vi) Except as reflected in the SEC Financial Statements, neither the
Company nor any ERISA Affiliate has any liability or contingent liability
for providing, under any Employee Benefit Plan or otherwise, any
post-retirement medical or life insurance benefits, other than Statutory
liability for providing group health plan continuation coverage under Part
6 of Title I of ERISA and section 4980B of the Code.
(vii) Accruals in an amount determined by the Seller's actuaries for
all obligations under the Employee Benefit Plans, arrangements and
agreements are reflected in the SEC Financial Statements.
(viii) Except as set forth on Section 3.9 of the Disclosure Schedule,
there has been no act or omission that would impair the ability of the
Company (or any successor thereto) unilaterally to amend or terminate any
Employee Benefit Plan.
3.10 Tax Returns and Tax Payments. Except as disclosed in Section 3.10 of
the Disclosure Schedule, the Company and each of its subsidiaries, and any
consolidated, combined, unitary or aggregate group for Tax purposes of which the
Company or any of its subsidiaries is or has been a member (a "Consolidated
Group") (i) has timely filed all Tax Returns required to be filed by it on or
before the date hereof, other than any filings which the failure to make in a
timely manner would not have a Material Adverse Effect on the Company and (ii)
has paid all Taxes shown thereon to be due and has provided adequate reserves in
its financial statements for any Taxes that have not been paid, whether or not
shown as being due on any returns. To the knowledge of Company, all such Tax
Returns are correct and complete in all materials respects. As used herein,
"Taxes" shall mean all taxes of any kind, including, without limitation, those
on or measured by or referred to as income, gross receipts, sales, use, ad
valorem, franchise, profits, license, withholding, back-up withholding, payroll,
employment, excise, severance, stamp, occupation, premium, value added, property
or windfall profits taxes, customs, duties or similar fees, assessments or
charges of any kind whatsoever, together with any interest and any penalties,
additions to tax or additional amounts imposed by any governmental authority,
domestic or foreign. As used herein, "Tax Return" shall mean any return, report
or statement required to be filed with any governmental authority with respect
to Taxes.
3.11 Intentionally Omitted.
3.12 Material Contracts. The Company has provided or made available to THL
I (i) true and complete copies of all written contracts, agreements (including,
but not limited to, distribution agreements and licensing agreements),
commitments, arrangements, leases (including with respect to personal property),
policies and other instruments to which it or any of its Subsidiaries is a party
or by which it or any such Subsidiary is bound which (A) require payments to be
made in excess of $250,000 per year for goods and/or services, or (B) do not by
their terms expire and are not subject to termination within six months from the
date of the execution and delivery thereof and require payments to be made in
excess of $250,000 ("Material Contracts"), or (ii) with respect to such Material
Contracts that have not been reduced to writing, a written description thereof,
each of which is listed on Section 3.12 of the Disclosure Schedule. Neither the
Company nor any of its Subsidiaries is, or has received any notice or has any
knowledge that any other party is, in default in any respect under any such
Material Contract, except for those defaults which would not reasonably be
likely either individually or in the aggregate, to have a Material Adverse
Effect with respect to the Company; and there has not occurred any event that
with the lapse of time or the giving of notice or both would constitute such a
material default.
3.13 Brokers. No broker, investment banker, financial advisor or other
person, other than Merrill Lynch & Co., the fees and expenses of which will be
paid by the Company (pursuant to a fee agreement, a copy of which has been
provided to THL I), is entitled to any broker's, finder's, financial advisor's
or other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
the Company.
3.14 Opinion of Financial Advisor. The Company has received the opinion of
Merrill Lynch & Co., as of October 22, 1996, to the effect that the
consideration to be received in the Merger by the Company's stockholders (other
than as contemplated by Sections 2.1(b), 2.1(c)(ii) and 2.1(d)) is fair to the
holders of the Company Common Stock from a financial point of view.
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3.15 Board Recommendation. The Board of Directors of the Company, at a
meeting duly called and held, has (a) determined that this Agreement and the
transactions contemplated hereby, taken together, are advisable and in the best
interests of the Company and its stockholders, and (b) subject to the other
provisions hereof, resolved to recommend that the holders of the shares of
Company Common Stock approve this Agreement and the transactions contemplated
hereby, including the Merger.
3.16 Required Company Vote. The Company Stockholder Approval, being the
affirmative vote of a majority of the shares of the Company Common Stock, is the
only vote of the holders of any class or series of the Company's securities
necessary to approve this Agreement, the Merger and the other transactions
contemplated hereby.
3.17 State Takeover Statutes. The Board of Directors has taken such action
so that no state takeover statute or similar statute or regulation of the State
of Delaware (and, to the knowledge of the Company after due inquiry, of any
other state or jurisdiction) applies to this Agreement, the Merger, or any of
the other transactions contemplated hereby. Except as set forth in Section 3.17
of the Disclosure Schedule, neither the Company nor any of its subsidiaries has
any rights plan, preferred stock or similar arrangement which have any of the
aforementioned consequences in respect of the transactions contemplated hereby.
3.18 Intellectual Property. The Company and its subsidiaries own or
possess adequate licenses or other rights to use, all patents, trademarks, trade
names, service marks, copyrights, licenses and product licenses or registrations
(including applications for any of the foregoing), as are used or useful in
connection with its business the lack of which would reasonably be expected to
have a Material Adverse Effect with respect to the Company; and none of the
Company or any of its subsidiaries has (i) received any written notice asserting
that its patents, trademarks, trade names, service marks, copyrights, or
licenses violate the rights of others, (ii) any knowledge of any conflict with
the proprietary intellectual property rights of any of the Company or its
subsidiary therein or (iii) any knowledge of any conflict by the Company or its
subsidiary with the rights of others therein which, in the case of any of the
items described in clause (i), (ii) or (iii) would have a Material Adverse
Effect with respect to the Company.
3.19 Related Party Transactions. Except as set forth in Section 3.19 of
the Disclosure Schedule hereto, no director, officer, partner, employee,
"affiliate" or "associate" (as such terms are defined in Rule 12b-2 under the
Exchange Act) or the Company or any of its Subsidiaries (i) has borrowed any
monies from or has outstanding any indebtedness or other similar obligations to
the Company or any of its Subsidiaries; (ii) owns any direct or indirect
interest of any kind in, or is a director, officer, employee, partner, affiliate
or associate of, or consultant or lender to, or borrower from, or has the right
to participate in the management, operations or profits of, any person or entity
which is (1) a competitor, supplier, customer, distributor, lessor, tenant,
creditor or debtor of the Company or any of its Subsidiaries, (2) engaged in a
business related to the business of the Company or any of its Subsidiaries, (3)
participating in any transaction to which the Company or any of its Subsidiaries
is a party or (iii) is otherwise a party to any contract, arrangement or
understanding with the Company or any of its Subsidiaries.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THL I
THL I hereby represents and warrants to the Company as follows:
4.1 Organization, Standing and Corporate Power. THL I is a corporation
duly organized, validly incorporated and in good standing in the State of
Delaware and has the requisite corporate power and authority to carry on its
business as now being conducted. THL I is duly qualified or licensed to do
business and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
or licensing necessary. THL I has delivered to the Company complete and correct
copies of its certificate of incorporation (or other organizational documents)
and by-laws.
4.2 Subsidiaries. THL I has no direct or indirect subsidiaries.
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4.3 Capital Structure. The authorized capital stock of THL I consists
solely of shares of common stock, par value $.01 per share, all of which have
been validly issued, are fully paid and nonassessable. The commitment letters
attached hereto as Schedule 7.2(e) contemplate that the Company will issue
warrants to acquire, for nominal consideration, 6% of the fully diluted equity
of the Company following the Merger upon the terms and to the parties set forth
therein. Other than the common stock and the warrant contemplated by the
previous sentence, there are no outstanding securities, rights or other
agreements with respect to the capital stock of THL I.
4.4 Authority; Noncontravention. THL I has all requisite corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated by this Agreement. The execution and delivery of this Agreement by
THL I and the consummation by THL I of the transactions contemplated by this
Agreement have been duly authorized by all necessary corporate action on the
part of THL I. This Agreement has been duly executed and delivered by and
constitutes a valid and binding obligation of THL I, enforceable against THL I
in accordance with its terms. The execution and delivery of this Agreement do
not, and the consummation of the transactions contemplated by this Agreement and
compliance with the provisions of this Agreement will not, conflict with, or
result in any breach or violation of, or default (with or without notice or
lapse of time, or both) under or give rise to a right of termination,
cancellation or acceleration of or "put" right with respect to any obligations
or to loss of a material benefit under, or result in the creation of any Lien
upon any of the properties or assets of THL I under, (i) the certificate of
incorporation or by-laws of THL I, (ii) any loan or credit agreement, note,
bond, mortgage, indenture, lease or other agreement, instrument, permit,
concession, franchise or license applicable to THL I or its properties or assets
or (iii) subject to the governmental filings and other matters referred to in
the following sentence, any judgment, order, decree, statute, law, ordinance,
rule, regulation or arbitration award applicable to THL I or its properties or
assets, other than, in the case of clauses (ii) and (iii), any such conflicts,
breaches, violations, defaults, rights, losses or Liens that individually or in
the aggregate could not have a material adverse effect with respect to THL I or
could not prevent, hinder or materially delay the ability of THL I to consummate
the transactions contemplated by this Agreement. No consent, approval, order or
authorization of, or registration, declaration or filing with, or notice to, any
Governmental Entity is required by or with respect to THL I in connection with
the execution and delivery of this Agreement by THL I or the consummation by THL
I of any of the transactions contemplated by this Agreement, except for (i) the
filing of a premerger notification and report form under the HSR Act, (ii) the
filing with the SEC of (y) the Proxy Statement and the Form S-4 and (z) such
reports under the Exchange Act as may be required in connection with this
Agreement and the transactions contemplated hereby, (iii) the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware and
appropriate documents with the relevant authorities of other states in which the
Company is qualified to do business and (iv) such other consents, approvals,
orders, authorizations, registrations, declarations, filings or notices as may
be required under the "takeover" or "blue sky" laws of various states.
4.5 Brokers. No broker, investment banker, financial advisor or other
person, other than Morgan Stanley & Co. the fees and expenses of which will be
paid by THL I, is entitled to any broker's, finder's, financial advisor's or
other similar fee or commission in connection with the transactions contemplated
by this Agreement based upon arrangements made by or on behalf of THL I to its
affiliates.
4.6 Financing. Schedule 7.2(e) attached hereto sets forth true and
complete copies of written documentation from third parties which provides for
financing in amounts sufficient to consummate the transactions contemplated
hereby as contemplated by Section 7.2(e). The terms and conditions of such
documentation are satisfactory to THL I.
4.7 Information Supplied. None of the information supplied or to be
supplied by THL I or its affiliates for inclusion or incorporation by reference
in (i) the Form S-4 will, at the time the Form S-4 is filed with the SEC, and at
any time it is amended or supplemented or at the time it becomes effective under
the Securities Act, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading, and (ii) the Proxy Statement will, at the
time the Proxy Statement is first mailed to the Company's stockholders or at the
time of the Stockholders
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Meeting, contain any untrue statement or a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading.
4.8 Management Participation. Schedule 4.8 hereto sets forth a true and
complete summary of all written arrangements, agreements and understandings
regarding the interests of and the terms of the participation of Management in
the transactions contemplated hereby including, without limitation, with respect
to the voting of shares of Company Common Stock beneficially owned by Management
and the economic benefits which may inure to Management as a result of the
transactions contemplated hereby. Except as set forth in Schedule 4.8, there is
no material arrangement, agreement or understanding regarding such interests or
participation.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR TO MERGER
5.1 Conduct of Business of the Company. Except as set forth in the
Disclosure Schedule, during the period from the date of this Agreement to the
Effective Time (except as otherwise specifically required by the terms of this
Agreement), the Company shall, and shall cause its subsidiaries to, act and
carry on their respective businesses in the usual, regular and ordinary course
of business consistent with past practice and use its and their respective
reasonable best efforts to preserve intact their current business organizations,
keep available the services of their current officers and employees and preserve
their relationships with customers, suppliers, licensors, licensees,
advertisers, distributors and others having business dealings with them and to
preserve goodwill. Without limiting the generality of the foregoing, except as
set forth in the Disclosure Schedule or otherwise contemplated by this
Agreement, during the period from the date of this Agreement to the Effective
Time, the Company shall not, and shall not permit any of its subsidiaries to,
without the prior consent of THL I, which shall not be unreasonably withheld:
(a) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, other than dividends
and distributions by a direct or indirect wholly owned subsidiary of the
Company to its parent;
(b) split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock (except pursuant to the
Company's Rights Agreement);
(c) purchase, redeem or otherwise acquire any shares of capital stock
of the Company or any of its subsidiaries or any other securities thereof
or any rights, warrants or options to acquire any such shares or other
securities, except for the acquisition of shares of Company Common Stock
from holders of Company Stock Options in full or partial payment of the
exercise price payable by such holder upon exercise of Company Stock
Options outstanding on the date of this Agreement (except pursuant to the
Company's Rights Agreement);
(d) authorize for issuance, issue, deliver, sell, pledge or otherwise
encumber any shares of its capital stock (except pursuant to the Company's
Rights Agreement) or the capital stock of any of its subsidiaries, any
other voting securities or any securities convertible into, or any rights,
warrants or options to acquire, any such shares, voting securities or
convertible securities or any other securities or equity equivalents
(including without limitation stock appreciation rights) (other than the
issuance of Company Common Stock upon the exercise of Company Stock Options
outstanding on the date of this Agreement and in accordance with their
represent terms (such issuances, together with the acquisitions of shares
of Company Common Stock permitted under clause (c) above, being referred to
herein as "Permitted Changes");
(e) in the case of the Company, amend its articles of organization,
by-laws or other comparable charter or organizational documents;
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(f) acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial portion of the stock or assets of, or by any
other manner, any business or any corporation, partnership, joint venture,
association or other business organization or division thereof material to
the Company.
(g) other than as specifically permitted by Section 5.1 of the
Disclosure Schedule, sell, lease, license, mortgage or otherwise encumber
or subject to any Lien or otherwise dispose of any of its properties or
assets other than any such properties or assets the value of which do not
exceed $500,000 individually and $4,000,000 in the aggregate, except for
(i) transactions in the ordinary course of business consistent with past
practice, (ii) sales of inventory and entering into leases for showrooms
and (iii) sales or dispositions of buildings no longer usable by the
Company in its operations;
(h) incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of the Company of
any of its subsidiaries, guarantee any debt securities of another person,
enter into any "keep well" or other agreement to maintain any financial
statement condition of another person or enter into any arrangement having
the economic effect of any of the foregoing, except for short-term
borrowings and for lease obligations, in each case incurred in the ordinary
course of business consistent with past practice;
(i) make any material loans, advances or capital contributions to, or
investments in, any other person, other than to the Company or any direct
or indirect wholly owned subsidiary of the Company;
(j) acquire or agree to acquire any assets that are material,
individually or in the aggregate, to the Company and its subsidiaries taken
as a whole, or make or agree to make any capital expenditures except
capital expenditures which, individually or in the aggregate, do not exceed
the amount budgeted therefor in the Company's annual capital expenditures
budget for 1996 and 1997 previously provided to THL I;
(k) pay, discharge or satisfy any claims (including claims of
stockholders), liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), except for the payment, discharge or
satisfaction, (a) of liabilities or obligations in the ordinary course of
business consistent with past practice or in accordance with their terms as
in effect on the date hereof or (b) claims settled or compromised to the
extent permitted by Section 5.1(o), or waive, release, grant, or transfer
any rights of material value or modify or change in any material respect
any existing license, lease, contract or other document, other than in the
ordinary course of business consistent with past practice;
(l) 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;
(m) enter into any new collective bargaining agreement or any
successor collective bargaining agreement to any collective bargaining
agreement disclosed in Section 3.8(b) of the Disclosure Schedule except in
the ordinary course of business;
(n) change any material accounting principle used by it;
(o) settle or compromise any litigation (whether or not commenced
prior to the date of this Agreement) other than settlements or compromises
of litigation where the amount paid (after giving effect to insurance
proceeds actually received) in settlement or compromise is not material to
the Company; or
(p) authorize any of, or commit or agree to take any of, the foregoing
actions.
5.2 Changes in Employment Arrangements. Neither the Company nor any of its
subsidiaries shall adopt or amend (except as may be required by law) any bonus,
profit sharing, compensation, stock option, pension, retirement, deferred
compensation, employment or other employee benefit plan, agreement, trust, fund
or other arrangement (including any Company Plan) for the benefit or welfare of
any employee, director or former director or employee, other than increases for
individuals other than officers and directors) in the ordinary course of
business consistent with past practice or increase the compensation or fringe
benefits of any director, employee or former director or employee or pay any
benefit not required by any existing plan, arrangement or agreement.
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5.3 Severance. Neither the Company nor any of its subsidiaries shall grant
any new or modified severance or termination arrangement or increase or
accelerate any benefits payable under its severance or termination pay policies
in effect on the date hereof.
5.4 WARN. Neither the Company nor any of its subsidiaries shall effectuate
a "plant closing" or "mass layoff", as those terms are defined in the Worker
Adjustment and Retraining Notification Act of 1988 ("WARN"), affecting in whole
or in part any site of employment, facility, operating unit or employee of the
Company or any subsidiary, without notifying THL I or its affiliates in advance
and without complying with the notice requirements and other provisions of WARN.
5.5 Tax Elections. Except in the ordinary course of business and
consistent with past practice, neither the Company nor any of its subsidiaries
shall make any tax election or settle or compromise any material federal, state,
local or foreign Tax liability.
5.6 Redemption of Rights. Within ten (10) calendar days of the date of
this Agreement, the Company shall have redeemed all rights under, or otherwise
terminated without adverse consequences to the Company, THL I or the
consummation or the transactions contemplated hereby, the Rights Agreement
between the Company and State Street Bank and Trust Company, dated as of October
26, 1992, as amended to date (the "Rights Agreement").
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Preparation of Form S-4 and Proxy Statement; Stockholder Meeting.
(a) Promptly following the date of this Agreement, with the cooperation of
THL I, the Company shall prepare the Proxy Statement, and the Company shall
prepare and file with the SEC the Form S-4, in which the Proxy Statement will be
included. The Company shall use its best efforts as promptly as practicable to
have the Form S-4 declared effective under the Securities Act as promptly as
practicable after such filing. The Company will use its best efforts to cause
the Proxy Statement to be mailed to the Company's stockholders as promptly as
practicable after the Form S-4 is declared effective under the Securities Act.
The Company shall also take all reasonable action required to be taken under any
applicable state securities laws in connection with the registration and
qualification in connection with the Merger of Company Common Stock following
the Merger. The information provided and to be provided by THL I, and the
Company, respectively, for use in the Form S-4 shall, at the time the Form S-4
becomes effective and on the date of the Stockholders Meeting referred to below,
be true and correct in all material respects and shall not omit to state any
material fact required to be stated therein or necessary in order to make such
information not misleading, and the Company and THL I each agree to correct any
information provided by it for use in the Form S-4 which shall have become false
or misleading.
(b) The Company will immediately notify THL I and its affiliates of (i) the
effectiveness of the Form S-4, (ii) the receipt of any comments from the SEC
regarding the S-4 and (iii) any request by the SEC for any amendment to the Form
S-4 or for additional information. THL I shall be given a reasonable opportunity
to review and comment on all filings with the SEC, including the Form S-4 and
any amendments thereto, and all mailings to the Company's stockholders in
connection with the Merger, including the Proxy Statement, prior to the filing
or mailing thereof, and the Company shall use its best efforts to reflect all
such reasonable comments.
(c) The Company will, as promptly as practicable following the date of this
Agreement and in consultation with THL I, duly call, give notice of, convene and
hold a meeting of its stockholders (the "Stockholders Meeting") for the purpose
of approving this Agreement and the transactions contemplated by this Agreement.
The Company will, through its Board of Directors, recommend to its stockholders
approval of the foregoing matters, as set forth in Section 3.15; provided,
however, that the obligations contained herein shall be subject to the
provisions of Section 6.6 of this Agreement. Subject to the foregoing, such
recommendation, together with a copy of the opinion referred to in Section 3.14,
shall be included in the Proxy
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Statement. The Company will use its best efforts to hold such meeting as soon as
practicable after the date hereof.
(d) The Company will cause its transfer agent to make stock transfer
records relating to the Company available to the extent reasonably necessary to
effectuate the intent of this Agreement.
6.2 Access to Information; Confidentiality.
(a) The Company shall, and shall cause its subsidiaries, officers,
employees, counsel, financial advisors and other representatives to, afford to
THL I and its representatives and to potential financing sources reasonable
access during normal business hours, in a manner initially coordinated with the
chief executive officer of the Company, and thereafter coordinated with those
persons designated by the chief executive officer, during the period prior to
the Effective Time to its properties, books, contracts, commitments, personnel
and records and, during such period, the Company shall, and shall cause its
subsidiaries, officers, employees and representatives to, furnish promptly to
THL I (i) a copy of each report, schedule, registration statement and other
document filed by it during such period pursuant to the requirements of Federal
or state securities laws and (ii) all other information concerning its business,
properties, financial condition, operations and personnel as THL I may from time
to time reasonably request. Except as required by law, each of the Company and
THL I will hold, and will cause its respective directors, officers, employees,
accountants, counsel, financial advisors and other representatives and
affiliates to hold, any nonpublic information in confidence to the extent
required by, and in accordance with, the provisions of the letter dated July 11,
1996, between Thomas H. Lee Company ("THL") and the Company (the
"Confidentiality Agreement").
(b) No investigation pursuant to this Section 6.2 shall affect any
representations or warranties of the parties herein or the conditions to the
obligations of the parties hereto.
6.3 Best Efforts.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the parties agrees to use its best efforts to take, or cause
to be taken, all actions, and to do, or cause to be done, and to assist and
cooperate with the other parties in doing, all things necessary, proper or
advisable to consummate and make effective, in the most expeditious manner
practicable, the Merger and the other transactions contemplated by this
Agreement. THL I and the Company will use their best efforts and cooperate with
one another (i) in promptly determining whether any filings are required to be
made or consents, approvals, waivers, licenses, permits or authorizations are
required to be obtained (or, which if not obtained, would result in an event of
default, termination or acceleration of any agreement or any put right under any
agreement) under any applicable law or regulation or from any governmental
authorities or third parties, including parties to loan agreements or other debt
instruments, in connection with the transactions contemplated by this Agreement,
including the Merger and (ii) in promptly making any such filings, in furnishing
information required in connection therewith and in timely seeking to obtain any
such consents, approvals, permits or authorizations.
(b) The Company shall make, subject to the condition that the transactions
contemplated herein actually occur, any undertakings (including undertakings to
make divestitures, provided, in any case, that such undertakings divestitures
need not themselves be effective or made until after the transactions
contemplated hereby actually occur) required in order to comply with the
antitrust requirements or laws of any governmental entity, including the HSR
Act, in connection with the transactions contemplated by this Agreement;
provided that no such divestiture or undertaking shall be made unless reasonably
acceptable to THL I.
(c) The Company shall cooperate with any reasonable requests of THL I or
the SEC related to the recording of the Merger as a recapitalization for
financial reporting purposes, including, without limitation, to assist THL I and
its affiliates with any presentation to the SEC with regard go such recording
and to include appropriate disclosure with regard to such recording in all
filings with the SEC and all mailings to stockholders made in connection with
the Merger. In furtherance of the foregoing, the Company shall provide to THL I
for the prior review of THL I's advisors any description of the transactions
contemplated by this Agreement which is meant to be disseminated.
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(d) Each of the parties agrees to cooperate with each other in taking, or
causing to be taken, all actions necessary to delist the Company Common Stock
from NYSE, provided that such delisting shall not be effective until after the
Effective Time. The parties also acknowledge that it is THL I's intent that the
Company Common Stock following the Merger will not be quoted on NYSE, NASDAQ or
listed on any national securities exchange.
(e) The Company agrees to provide, and will cause its subsidiaries and its
and their respective officers and employees to provide, all reasonable
cooperation in connection with the arrangement of any financing contemplated by
Section 7.2(e), including without limitation, the execution and delivery of any
commitment letters, underwriting or placement agreements, loan, pledge and
security documents, other definitive financing documents, or other requested
certificates or documents, including a certificate of the chief financial
officer of the Company with respect to solvency matters, as may be reasonably
requested by THL I. The parties acknowledge that any obligations (including the
payment of any fees and expenses) on behalf of the Company in connection with
any commitment letters or other financings or refinancings contemplated hereby
shall be subject to the occurrence of the Closing. In addition, in conjunction
with the obtaining of any such financing, the Company agrees, at the request of
THL I, to call for prepayment or redemption, or to prepay, redeem and/or
renegotiate, as the case may be, any then existing indebtedness of the Company;
provided that no such prepayment or redemption shall themselves actually be made
or be required until at or after the Effective Time.
(f) (i) THL I hereby agrees to use its best commercial efforts, subject to
normal conditions, to arrange and consummate the financing described in Section
7.2(e) hereof in respect of the transactions contemplated by this Agreement,
including, subject to normal conditions, using its best commercial efforts (A)
to assist the Company in the negotiation of definitive agreements with respect
thereto, (B) to satisfy all conditions applicable to THL I in such definitive
agreements and (C) to negotiate such modifications to the financing described in
Section 7.2(e) as may be necessary to reflect any change in market conditions
which occurs after the date of execution of this Agreement.
(ii) Subject to the Company having received the proceeds of the financing
described in Section 7.2(e) on terms satisfactory to THL I, THL I at closing
will be capitalized with an equity contribution of $102,139,200 less the product
of (x) $32.00 and (y) the aggregate number of shares retained by stockholders
other than Leonard Florence. THL I will be under no obligation pursuant to the
preceding sentence unless and until the Company receives the proceeds of the
financing described in Section 7.2(e), or such other financings as may be
contemplated by Section 7.2(e), on terms consistent with the commitment letters
referenced in Section 7.2(e). In addition, THL I will be under no obligation
under any circumstances to be capitalized with equity of more than $102,139,200.
In no event shall it be required that THL I be capitalized with such amounts of
equity prior to the Closing.
6.4 Indemnification. For six years after the Effective Time, the Company
shall indemnify all present and former directors or officers of the Company and
its subsidiaries ("Indemnified Parties") against any liability, costs or
expenses (including reasonable attorneys' fees), judgments, fines, losses,
claims, damages or liabilities (collectively, "Costs") incurred in connection
with any claim, action, suit, proceeding or investigation, whether civil,
criminal, administrative or investigative, arising out of or pertaining to
matters existing or occurring at or prior to the Effective Time, whether
asserted or claimed prior to, at or after the Effective Time, to the fullest
extent as would have been permitted in their respective articles of organization
or by-laws as in effect on the date hereof consistent with applicable law, to
the extent such Costs have not been paid for by insurance and shall, in
connection with defending against any action for which indemnification is
available hereunder, advance such officers and directors, from time to time upon
receipt of reasonable and sufficient supporting documentation, the full amount
of any costs and expenses reasonably incurred by such officers or directors;
provided that the advance of such advances shall be conditioned upon such
officer's or director's agreement promptly to return such amounts to the Company
if a court of competent jurisdiction shall ultimately determine by a final
judgment not subject to appeal that indemnification of such officer or director
is prohibited by applicable law. The Company will maintain for a period of not
less than six years from the Effective Time, the Company's current directors'
and officers' insurance and indemnification policy to the extent that it
provides coverage for events occurring prior to the Effective Time (the "D&O
Insurance") for all
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persons who are directors and officers of the Company on the date of this
Agreement; provided that the Company shall not be required to spend as an annual
premium for such D&O Insurance an amount in excess of 200% of the annual premium
paid for directors' and officers' insurance in effect prior to the date of this
Agreement; and provided further that the Company shall nevertheless be obligated
to provide such coverage as may be obtained for such amount. The provisions of
this Section are intended for the benefit of, and shall be enforceable by, each
Indemnified Party and his or her heirs and representatives.
6.5 Public Announcements. Neither THL I, on the one hand, nor the Company,
on the other hand, will issue any press release or public statement with respect
to the transactions contemplated by this Agreement, including the Merger,
without the other party's prior consent (which shall not be unreasonably
withheld), except as may be required by applicable law, court process or by
obligations pursuant to any listing agreement with NYSE. In addition to the
foregoing, THL I and the Company will consult with each other before issuing,
and provide each other the opportunity to review and comment upon, any such
press release or other public statements with respect to such transactions. The
parties agree that the initial press release or releases to be issued with
respect to the transactions contemplated by this Agreement shall be mutually
agreed upon prior to the issuance thereof.
6.6 No Solicitation. From and after the date hereof until the termination
of this Agreement neither the Company or any of its Subsidiaries, nor any of
their respective officers, directors, employees, representatives, agents or
affiliates (including, without limitation, any investment banker, attorney or
accountant retained by the Company or any of its Subsidiaries) will directly or
indirectly initiate, solicit or knowingly encourage (including by way of
furnishing non-public information or assistance), or take any other action to
facilitate knowingly, any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to any Transaction Proposal,
or enter into or maintain or continue discussions or negotiate with any person
or entity in furtherance of such inquiries or to obtain a Transaction Proposal
or agree to or endorse any Transaction Proposal or authorize or permit any of
its officers, directors or employees or any of its Subsidiaries or any
investment banker, financial advisor, attorney, accountant or other
representative retained by any of its Subsidiaries to take any such action;
provided, however, that nothing contained in this Agreement shall prohibit the
Board of Directors of the Company (or, if applicable, the Special Committee)
from (i)furnishing information to or entering into discussions or negotiations
with, any person or entity that makes an unsolicited written, bona fide
proposal, to acquire the Company and/or its Subsidiaries pursuant to a merger,
consolidation, share exchange, business combination, tender or exchange offer or
other similar transaction if, and only to the extent that (A) the Board of
Directors of the Company (or the Special Committee), after consultation with and
based upon the advice of independent legal counsel (who may be the Company's
regularly engaged independent legal counsel) determines in good faith that such
action is necessary for the Board of Directors of the Company to comply with its
fiduciary duties to stockholders under applicable law and (B) prior to taking
such action the Company (x) provides reasonable notice to THL I to the effect
that it is taking such action and (y) receives from such person or entity an
executed confidentiality agreement in reasonably customary form, (ii) failing to
make or withdrawing or modifying its recommendation referred to in Section 3.15
if the Board of Directors of the Company, after consultation with and based upon
the advice of independent legal counsel (who may be the Company's regularly
engaged independent counsel), determines in good faith that such action is
necessary for the Board of Directors of the Company to comply with its fiduciary
duties to stockholders under applicable law or (iii) making to the Company's
stockholders any recommendation and related filing with the SEC as required by
Rule 14e-2 and 14d-9 under the Exchange Act, with respect to any tender offer,
or taking any other legally required action (including, without limitation, the
making of public disclosures as may be necessary or advisable under applicable
securities laws); and provided further, however, that, in the event of an
exercise of the Company's or it's Board of Director's (or the Special
Committee's) rights under clause (i), (ii) or (iii) above, notwithstanding
anything contained in this Agreement to the contrary, such failure shall not
constitute a breach of this Agreement by the Company. For purposes of this
Agreement, "Transaction Proposal" shall mean any of the following (other than
the transactions between the Company and THL I) involving the Company and its
subsidiaries: (i) any merger, consolidation, share exchange, recapitalization,
business combination, or other similar transaction involving 40% or more of the
assets of the Company; (ii) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition of 40% or more of the assets of the Company and
its subsidiaries, taken as a whole, in a single
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transaction or series of transactions; (iii) any tender offer or exchange offer
for 40% or more of the outstanding shares of capital stock of the Company or the
filing of a registration statement under the Securities Act in connection
therewith; or (iv) any public announcement of a proposal, plan or intention to
do any of the foregoing or any agreement to engage in any of the foregoing.
6.7 Affiliates. Prior to the Closing Date, the Company shall deliver to
THL I a letter identifying all persons who are, at the time this Agreement is
submitted for approval to the stockholders of the Company, "affiliates" of the
Company for purposes of Rule 145 under the Securities Act. The Company shall use
its reasonable best efforts to cause each such person to deliver to THL I on or
prior to the Closing Date a written agreement substantially in the form attached
as Exhibit B hereto.
ARTICLE VII
CONDITIONS PRECEDENT
7.1 Conditions to Each Party's Obligation. The respective obligation of
each party to effect the Merger is subject to the Satisfaction or waiver on or
prior to the Closing Date of the following conditions:
(a) Company Stockholder Approval. The Company Stockholder Approval
shall have been obtained, and not more than 10% of the outstanding shares
of Company Common Stock shall be Dissenting Shares.
(b) HSR Act. The waiting period (and any extension thereof)
applicable to the Merger under the HSR Act shall have been terminated or
shall have expired.
(c) Form S-4. The Form S-4 shall have become effective under the
Securities Act and shall not be the subject of any stop order or
proceedings seeking a stop order, and any material "blue sky" and other
state securities laws applicable to the registration and qualification of
Company Common Stock to be retained in the Merger shall have been complied
with.
(d) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing
the consummation of the merger shall be in effect; provided, however, that
the parties hereto shall use their best efforts to have any such
injunction, order, restraint or prohibition vacated.
7.2 Conditions to Obligations of THL I. The obligations of THL I to effect
the Merger are further subject to the following conditions:
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement and those statements
made on Schedule 7.2(a) hereto shall be true and correct in all material
respects in each case as of the date of this Agreement and as of the
Closing Date as though made on and as of the Closing Date; provided,
however, that, for purposes of this Section 7.2(a), such representations
and warranties and statements shall be deemed to be true and correct in all
material respects unless the failure or failures of such representations
and warranties and statements to be so true and correct, individually or in
the aggregate, would result in a Material Adverse Effect with respect to
the Company. THL I shall have received a certificate signed on behalf of
the Company by the chief executive officer and the chief financial officer
of the Company to the effect set forth in this paragraph.
(b) Performance of Obligations of the Company. The Company shall have
performed the obligations required to be performed by it under this
Agreement at or prior to the Closing Date, including but not limited to its
obligations pursuant to Section 5.6 hereof, except for such failures to
perform as have not had or would not individually or in the aggregate, have
a Material Adverse Effect with respect to the Company or materially
adversely affect the ability of the Company to consummate the transactions
contemplated hereby.
(c) Consents, etc. THL I shall have received evidence, in form and
substance reasonably satisfactory to it, that all licenses, permits,
consents, approvals, authorizations, qualifications and orders of
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governmental authorities and other third parties necessary to consummate
the transactions contemplated hereby shall have been obtained, unless the
failure to so obtain would not have a Material Adverse Effect on the
Company.
(d) No Litigation. There shall not be pending or threatened by any
Governmental Entity any suit, action or proceeding (or by any other person
any suit, action or preceding which has a reasonable likelihood of
success), (i) challenging or seeking to restrain or prohibit the
consummation of the Merger or any of the other transactions contemplated by
this Agreement or seeking to obtain from THL I or any of their affiliates
any damages that are material to any such party, (ii) seeking to prohibit
or limit the ownership or operation by the Company or any of its
subsidiaries of any material portion of the business or assets of the
Company or any of its subsidiaries, to dispose of or hold separate any
material portion of the business or assets of the Company or any of its
subsidiaries, as a result of the Merger or any of the other transaction
contemplated by this Agreement or (iii) seeking to impose limitations on
the ability of THL I (or any designee of THL I), to acquire or hold, or
exercise full rights of ownership of, any shares of Company Common Stock,
including, without limitation, the right to vote the Company Common Stock
on all matters properly presented to the stockholders of the Company.
(e) Financing. The Company shall have received the proceeds of
financing pursuant to the commitment letters set forth on Schedule 7.2(e)
hereto on terms and conditions set forth therein (or on such other terms
and conditions, or involving such other financing sources, as THL I and the
Company shall reasonably agree and are not materially more onerous) in
amounts sufficient to consummate the transactions contemplated by this
Agreement, including, without limitation (i) to pay, with respect to all
shares of Company Common Stock in the Merger, the cash portion of the
Merger Consideration pursuant to Section 2.1(c)(ii), (ii) to refinance the
outstanding indebtedness of the Company, (iii) to pay any fees and expenses
in connection with the transactions contemplated by this Agreement or the
financing thereof and (iv) to provide for the working capital needs of the
Company following the Merger, including, without limitation, if applicable,
letters of credit. The amount of proceeds to be received by the Company
from senior credit financing and bond financing as contemplated by the
commitment letters attached hereto on Schedule 7.2(e) shall be allocated in
the sole discretion of THL I.
(f) Affiliate Letters. THL I shall have received the agreements referred
to in Section 6.7.
7.3 Conditions to Obligation of the Company. The obligation of the Company
to effect the Merger is further subject to the following conditions:
(a) Representations and Warranties. The representations and
warranties of THL I set forth in this Agreement shall be true and correct
in all material respects, in each case as of the date of this Agreement and
as of the Closing Date as though made on and as of the Closing Date. The
Company shall have received a certificate signed on behalf of THL I, by an
authorized officer of THL I to the effect set forth in this paragraph.
(b) Performance of Obligations of THL I. THL I shall have performed
the obligations required to be performed by them under this Agreement at or
prior to the Closing Date (except for such failures to perform as have not
had or could not reasonably be expected, either individually or in the
aggregate, to have a Material adverse Effect with respect to THL I or
adversely affect the ability of THL I to consummate the transactions herein
contemplated or perform its obligations hereunder).
(c) No Litigation. There shall not be pending or threatened by any
party any suit, action or proceeding challenging or seeking to restrain or
prohibit the consummation of the Merger or any of the other transactions
contemplated by this Agreement or seeking to obtain from the Company (or
any of its Directors) any significant damages.
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ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. This Agreement may be terminated and abandoned at any
time prior to the Effective Time, whether before or after approval of matters
presented in connection with the Merger by the stockholders of the Company;
(a) by mutual written consent of THL I and the Company; or
(b) by either THL I or the Company if any Governmental Entity shall
have issued an order, decree or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibiting the Merger and
such order, decree, ruling or other action shall have become final and
nonappealable; or
(c) by either THL I or the Company if the Merger shall not have been
consummated on or before April 30, 1997 (other than due to the failure of
the party seeking to terminate this Agreement to perform its obligations
under this Agreement required to be performed at or prior to the Effective
Time); or
(d) by either THL I or the Company, if any required approval of the
stockholders of the Company shall not have been obtained by reason of the
failure to obtain the required vote upon a vote held at a duly held meeting
of stockholders or at any adjournment thereof; or
(e) by THL I, if the Company shall have (1) withdrawn, modified or
amended in any respect adverse to THL I its approval or recommendation of
this Agreement or any of the transactions contemplated herein, (2) failed
to include such recommendation in the Proxy Statement mailed to the
Company's stockholders, (3) recommended any Transaction Proposal from a
person other than THL I or any of its affiliates or (4) resolved to do any
of the foregoing; or
(f) by either THL I or the Company, if the Company shall enter into
any agreement with a third party with respect to a Transaction Proposal.
8.2 Effect of Termination. In the event of termination of this Agreement
by either the Company of THL I as provided in Section 8.1, this Agreement shall
forthwith become void and have no effect, without any liability or obligation on
the part of THL I or the Company, other than the provisions of Section 3.13,
Section 4.5, the last sentence of Section 6.2(a), this Section 8.2, Section 9.2
and Section 9.7. Nothing contained in this Section shall relieve any party for
any breach of the representations, warranties, covenants or agreements set forth
in this Agreement.
8.3 Amendment. This Agreement way be amended by the parties at any time
before or after any required approval of matters presented in connection with
the merger by the stockholders of the Company; provided, however, that after any
such approval, there shall be made no amendment that by law requires further
approval by such stockholders without the further approval of such stockholders.
This Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties.
8.4 Extension; Waiver. At any time prior to the Effective Time, the
parties may (a) extend the time for the performance of any of the obligations or
other acts of the other parties, (b) waive any inaccuracies in the
representations and warranties contained in this Agreement or in any document
delivered pursuant to this Agreement or (c) subject to the proviso of Section
8.3, waive compliance with any of the agreements or conditions contained in this
Agreement. Any agreement on the part of a party to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf of
such party. The failure of any party to this Agreement to assert any of its
rights under this Agreement or otherwise shall not constitute a waiver of such
rights.
8.5 Procedure for Termination, Amendment, Extension or Waiver. A
termination of this Agreement pursuant to Section 8.1, an amendment of this
Agreement pursuant to Section 8.3 or an extension or waiver pursuant to Section
8.4 shall, in order to be effective, be in writing and require in the case of
THL I or the Company, action by its Board of Directors or the duly authorized
designee of its Board of Directors.
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ARTICLE IX
GENERAL PROVISIONS
9.1 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time and all such
representations and warranties will be extinguished on consummation of the
Merger and neither the Company nor any officer, director or employee or
shareholder shall be under any liability whatsoever with respect to any such
representation or warranty after such time. This Section 9.1 shall not limit any
covenant or agreement of the parties which by its terms contemplates performance
after the Effective Time.
9.2 Fees and Expenses.
(a) In addition to any other amounts which may be payable or become payable
pursuant to any other paragraph of this Section 9.2, the Company shall (provided
that THL I is not then in material breach of its obligations under this
Agreement) promptly, but in no event later than one business day after the
termination of this Agreement pursuant to Section 8.1(e) or 8.1(f) or from time
to time after Closing, reimburse THL for all out-of-pocket expenses and fees, up
to an aggregate amount not to exceed $2.25 million, (including, without
limitation, fees payable to all banks, investment banking firms and other
financial institutions, and their respective agents and counsel, and all fees of
counsel, accountants, financial printers, experts and consultants to THL I and
its affiliates), whether incurred prior to, on or after the date hereof, in
connection with the Merger and the consummation of all transactions contemplated
by this Agreement, and the financing thereof.
(b) If any Person (other than THL I or any of its affiliates) shall have
made, or proposed, communicated or disclosed in a manner which is or otherwise
becomes public a Transaction Proposal and this Agreement is terminated pursuant
to Section 8.1(e) or Section 8.1(f), then the Company shall, promptly, but in no
event later than one business day after the termination of this Agreement, pay
THL I a fee of $6.75 million in cash, which amount shall be payable in same day
funds. No termination of this Agreement at a time when a fee is reasonably
expected to be payable pursuant to this Section 9.2(b) following termination of
this Agreement shall be effective until such fee is paid. Only one fee in the
aggregate of $6.75 million shall be payable pursuant to this Section 9.2(b). No
amount payable pursuant to any of the other provisions of this Section 9.2 shall
reduce the amount of the fee payable pursuant to this paragraph (b).
(c) Except as provided otherwise in paragraph (a) above, all costs and
expenses incurred in connection with this Agreement, and the transactions
contemplated hereby shall be paid to the party incurring such expenses, except
that the Company shall pay all costs and expenses (i) in connection with
printing and mailing the Proxy Statement, as well as all SEC filing fees
relating to the transactions contemplated herein and (ii) of obtaining any
consents of any third party.
9.3 Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered by facsimile transmission (with electronic confirmation),
personally or sent by overnight courier providing proof of delivery) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) if to THL I, to
c/o Thomas H. Lee Company
75 State Street
Boston, MA 02109
Attn: David V. Harkins
Facsimile: (617) 227-3514
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with a copy to:
Hutchins, Wheeler & Dittmar
101 Federal Street
Boston, MA 02110
Attn: James Westra, Esq.
Facsimile: (617) 951-1295
(b) if to the Company, to
Syratech Corporation
175 McClellan Highway
East Boston, Massachusetts 02128
Attn: Leonard Florence
Facsimile: (617) 561-0275
with copies to:
Faye A. Florence, Esq.
General Counsel
Syratech Corporation
175 McClellan Highway
East Boston, Massachusetts 02128
Facsimile: (617) 568-1361
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, NY 10019
Attn: James L. Purcell, Esq.
Facsimile: (212) 373-2145
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019
Attn: Barry A. Bryer, Esq.
Facsimile: (212) 403-2000
and
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Attn: Kenneth J. Bialkin, Esq.
Facsimile: (212) 735-2001
9.4 Definitions. For purposes of this Agreement:
(a) an "affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by,
or is under control with, such first person;
(b) "knowledge", with respect to the Company means the actual
knowledge of the following officers and employees (as well as any of their
successors) of the Company and its subsidiaries: Leonard Florence, E. Merle
Randolph, Alan R. Kanter, Melvin L. Levine and, without duplication, the
employees in charge of environmental, tax, labor, employee benefits and
real estate matters of any of the foregoing, in each case after reasonable
investigation and inquiry.
(c) "Material Adverse Change" or "Material Adverse Effect" means, when
used in connection with the Company, any change or effect that either
individually or in the aggregate with all other such changes or effects is
materially adverse to the business, financial condition or results of
operations of the Company
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and its subsidiaries taken as a whole and the terms "material" and
"materially" shall have correlative meanings;
(d) "person" means an individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or other entity;
and
(e) a "subsidiary" of any person means another person, an amount of
the voting securities, other voting ownership or voting partnership
interests of which is sufficient to elect at least a majority of its Board
of Directors (or other governing body) or, if there are no such voting
interests, 50% or more of the equity interests of which is owned directly
or indirectly by such first person.
9.5 Interpretation. When a reference is made in this Agreement to a
Section, Exhibit or Schedule, such reference shall be to a section of, or an
Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation."
9.6 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
9.7 Entire Agreement; No Third-Party Benefits. This Agreement and the
other agreements referred to herein constitute the entire agreement, and
supersede all Prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter of this Agreement. This
Agreement, other than Sections 6.4 and 9.2, is not intended to confer upon any
Person other than the parties any rights or remedies.
9.8 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE, REGARDLESS OF THE LAWS THAT
MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICTS OF LAWS.
9.9 Assignment. Neither this Agreement nor any of the rights, interests or
obligations under this Agreement shall be assigned, in whole or in part, by
operation of law or otherwise by any of the parties without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of, and be enforceable by, the
parties and their respective successors and assigns.
9.10 Enforcement. The parties agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached, and it is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement.
9.11 Schedules. The parties agree that any schedules referenced herein
shall be delivered in form and substance reasonably acceptable to both parties
within five (5) business days of the date hereof.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties below have caused this Agreement to be duly
executed by persons duly authorized, all as of the date first written above.
THL TRANSACTION I CORP.
By: /s/ SCOTT A. SCHOEN
------------------------------------
Name: Scott A. Schoen
Title: President
SYRATECH CORPORATION
By: /s/ FAYE A. FLORENCE
------------------------------------
Name: Faye A. Florence
Title: Vice President and General
Counsel
EXECUTED BY THE UNDERSIGNED
SOLELY FOR THE PURPOSES OF AFFIRMING HIS OBLIGATION UNDER
SECTION 2.1(c)(ii)
/s/ LEONARD FLORENCE
- --------------------------------------
Leonard Florence
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EXHIBIT A
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
SYRATECH CORPORATION
The text of the Certificate of Incorporation of the Corporation, as
restated and amended shall read in its entirety as follows:
FIRST: The name of the Corporation is Syratech Corporation.
SECOND: The registered office of the Corporation in the State of Delaware
is located at 1013 Centre Road, in the City of Wilmington, State of Delaware,
and its registered agent at such address is Corporate Services Company ("CSC").
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the Delaware General
Corporation Law.
FOURTH: The total number of shares of stock that the Corporation is
authorized to issue is 20,000,000 shares of Common Stock, $0.01 par value per
share and 25,000 shares of Series A Preferred Stock, $0.01 par value per share
(hereinafter referred to as "Preferred Stock").
The following is a statement of the voting powers and the designations,
preferences and other special rights, and the qualifications, limitations or
restrictions in respect of each class of capital stock of the Corporation.
A. COMMON STOCK
1. General. The voting, dividend and liquidation rights of the holders of
the Common Stock are subject to, and qualified by, the rights of the holders of
the Preferred Stock.
2. Voting. The holders of the Common Stock are entitled to one vote for
each share held at all meetings of stockholders (and written action in lieu of
meetings). There shall be no cumulative voting.
3. Dividends. Dividends may be declared and paid on the Common Stock from
funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. Liquidation. Upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
B. PREFERRED STOCK
1. Designation. The Series of 25,000 shares of Series A Preferred Stock,
$.01 par value per share, shall be designated the "Series A Preferred Stock" and
shall have the following rights, terms and privileges.
2. Dividends. The holders of the then outstanding Series A Preferred
Stock shall be entitled to receive, out of funds legally available therefor,
cumulative annual dividends when and as may be declared from time to time by the
Board of Directors of the Corporation, which dividends shall accrue on a daily
basis (whether or not declared) from the original date of issue at an annual
rate per share equal to twelve percent (12%) of the original purchase price paid
per share to the Corporation of the Series A Preferred Stock, such amount to be
compounded annually on each December 31 such that if the dividend is not paid
for such year, the unpaid amount shall be added to the original purchase price
per share of the Series A Preferred Stock solely for purposes of calculating
succeeding years' dividends. If such cumulative dividends in respect of any
prior or current annual dividend period shall not have been declared and paid or
if there shall not have been a sum sufficient for the payment thereof set apart,
the deficiency shall first be fully paid before any dividend or
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other distribution (other than a liquidating distribution governed by Section 3
below) shall be paid or declared and set apart with respect to any class of the
Corporation's capital stock, now or hereafter outstanding.
3. Liquidation, Dissolution or Winding Up.
(a) Treatment at Liquidation, Dissolution or Winding Up. In the event
of any liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, before any distribution may be made with respect
to the Common Stock or any other class or series of capital stock, holders
of each share of Series A Preferred Stock shall be entitled to be paid out
of the assets of the Corporation available for distribution to holders of
the Corporation's capital stock of all classes, whether such assets are
capital, surplus or capital earnings, an amount equal to the original
purchase price of $1,000 per share of Series A Preferred Stock (which
amount shall be subject to equitable adjustment whenever there shall occur
a stock split, combination, reclassification or other similar event
involving the Series A Preferred Stock) plus all accrued and unpaid
dividends thereon, whether or not declared, since the date of issue up to
and including the date full payment shall be tendered to the holders of the
Series A Preferred Stock with respect to such liquidation, dissolution or
winding up (collectively, the "Liquidation Amount").
After such payment shall have been made in full to the holders of the
Series A Preferred Stock, the holders of the Series A Preferred Stock shall be
entitled to no further participation in the distribution of the assets of the
Corporation, and the remaining assets available for distribution shall be
available to be distributed among the holders of other classes of securities of
the Corporation in accordance with their respective terms.
The merger or consolidation of the Corporation with or into another
corporation (other than the merger of a wholly-owned subsidiary of the
Corporation into the Corporation) or the sale of all or substantially all of the
assets of the Corporation shall be deemed a liquidation, dissolution or winding
up of the Corporation for purposes of this Section 3 unless the holders of at
least a majority of the then outstanding shares of Series A Preferred Stock
elect to have such events not deemed to be a liquidation, dissolution or winding
up of the Corporation by giving written notice thereof to the Corporation at
least ten days before the effective date of such event.
(b) Distributions Other Than Cash. Whenever the distribution provided
for in this Section 3 shall be payable in property other than cash, the
value of such distribution shall be the fair market value of such property
as determined in good faith by the Board of Directors of the Corporation.
4. Voting Power. Except as otherwise expressly provided herein or as
required by law, the holders of the shares of Series A Preferred Stock shall not
vote on any corporate matters.
5. No Reissuance of Series A Preferred Stock. No share or shares of
Series A Preferred Stock acquired by the Corporation by reason of redemption,
purchase or otherwise shall be reissued, and all such shares shall be canceled,
retired and eliminated from the shares which the Corporation shall be authorized
to issue. The Corporation may from time to time take such appropriate corporate
action as may be necessary to reduce the authorized number of shares of Series A
Preferred Stock accordingly.
6. Redemption. Subject to the restrictions contained in the Company's
existing debt agreements:
(a) Optional Redemption. The Corporation may at any time redeem all
but not less than all of the then outstanding Series A Preferred Stock at a
redemption price in cash (the "Redemption Price") for each share of Series
A Preferred Stock redeemed pursuant to this Section 6(a) equal to the
original purchase price of $1,000 per share of Series A Preferred Stock
(which amount shall be subject to adjustment whenever there shall occur a
stock split combination, reclassification or other similar event involving
the Series A Preferred Stock), plus all accrued but unpaid dividends,
whether or not declared, with the amount of accrued dividends due thereon
to be calculated and paid in cash through the date payment is actually made
to the holders of the Series A Preferred Stock with respect to such
redemption. The Corporation shall give the holders of the Series A
Preferred Stock notice (the "Redemption Notice") at least five days prior
to the date fixed for redemption pursuant to this Section 6(a) of its
election to redeem the Series A Preferred Stock. Such election shall be
irrevocable on the part of the
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Corporation. The Redemption Price shall be paid on the date fixed for
redemption and specified in the Redemption Notice upon the surrender of
certificates as provided in paragraph 6(d) below.
(b) Redemption In a Public Offering. In the event that the
Corporation does not elect to redeem all of the Series A Preferred Stock as
provided in Section 6(a), holders of a majority of the shares of Series A
Preferred Stock then outstanding shall have the right to require that the
Corporation redeem the shares of Series A Preferred Stock, in whole or in
part, in connection with a Public Offering (as hereinafter defined). The
redemption price of each share of Series A Preferred Stock redeemed
pursuant to this Section 6(b) shall be equal to the Redemption Price in
cash provided for in Section 6(a). The Corporation shall redeem such shares
of Series A Preferred Stock concurrently with the closing of the Public
Offering. The Corporation shall pay for the shares of Series A Preferred
Stock so redeemed in an amount equal to the Redemption Price, payable in
cash upon the surrender of certificates as provided in paragraph 6(d)
below, plus all accrued but unpaid dividends on such shares so redeemed,
whether or not declared, with the amount of accrued dividends due thereon
to be calculated and paid in cash through the date payment of such
Redemption Price is actually made. For purposes hereof, the term "Public
Offering" shall mean an underwritten public offering pursuant to an
effective Registration Statement under the Securities Act of 1933, as
amended (the "Act"), covering the offer and sale of Common Stock of the
Corporation. The Corporation shall give the holders of the Series A
Preferred Stock notice of the pendency of a public offering at least 30
days prior to the sale of shares registered in connection with such
offering. In the event that the holders of the Series A Preferred Stock
elect to require the Corporation to redeem less than all of such Series A
Preferred Stock, such redemption shall be pro rata among all holders based
on the number of shares held.
(c) Redemption Upon Change of Control. Upon the occurrence of a
Change of Control, holders of a majority of the shares of Series A
Preferred Stock then outstanding shall have the right to require that the
Corporation redeem the shares of Series A Preferred Stock, in whole or in
part, at a redemption price in cash equal to the Redemption Price provided
for in Section 6(a), plus all accrued but unpaid dividends on such shares
as redeemed, whether or not declared, with the amount of accrued dividends
due thereon to be calculated and paid in cash through the date payment of
such Redemption Price is actually made. The term "Change of Control" shall
for purposes hereof have the same meaning as is ascribed to that term in
the Indenture between the Corporation and State Street Bank and Trust
Company, as trustee dated as of , relating to the percent
Senior Notes due 2007 of the Corporation. Not later than ten days following
any Change of Control, the Corporation shall notify each holder of Series A
Preferred Stock of the transaction or transactions that constitute the
Change of Control. In the event that the holders of the Series A Preferred
Stock elect to require the Corporation to redeem less than all of such
Series A Preferred Stock, such redemption shall be pro rata among all
holders based on the number of shares held.
(d) Redemption Upon Sale of Certain Assets. Upon the occurrence of a
Sale Event, holders of a majority of the shares of Series A Preferred Stock
then outstanding shall have the right to require that the Corporation
redeem the shares of Series A Preferred Stock, in whole or in part, with
the net proceeds of such Sale Event at a redemption price in cash equal to
the Redemption Price provided for in Section 6(a), plus all accrued but
unpaid dividends on such shares as redeemed, whether or not declared, with
the amount of accrued dividends due thereon to be calculated and paid in
cash through the date payment of such Redemption Price is actually made.
The term "Sale Event" shall for purposes hereof means any sale of assets of
the Corporation (or any of its subsidiaries) other than in the ordinary
course of business from which the Corporation (or such subsidiary) receives
net proceeds in excess of $1,000,000. Not later than ten days following any
Sale Event, the Corporation shall notify each holder of Series A Preferred
Stock of the transaction or transactions that constitute the Sale Event. In
the event that the holders of the Series A Preferred Stock elect to require
the Corporation to redeem less than all of such Series A Preferred Stock,
such redemption shall be pro rata among all holders based on the number of
shares held.
(e) Surrender of Certificates. Each holder of shares of Series A
Preferred Stock to be redeemed shall surrender the certificate or
certificates representing such shares to the Corporation at the place
designated by the Corporation, and thereupon the applicable Redemption
Price for such shares as set
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forth in this section 6 shall be paid to the order of the person whose name
appears on such certificate or certificates and each surrendered
certificate shall be canceled and retired.
7. Restrictions and Limitations.
(a) Corporate Action. Except as expressly provided herein or as
required by law, so long as any shares of Series A Preferred Stock remain
outstanding, the Corporation shall not, and shall not permit any subsidiary
(which shall mean any corporation or trust of which the Corporation and/or
any of its other subsidiaries directly or indirectly owns at the time more
than fifty percent (50%) of the total voting power of such corporation or
trust, other than directors' qualifying shares) to, without the approval by
vote or written consent by the holders of at least a majority of the then
outstanding shares of Series A Preferred Stock, voting as a separate class,
each share of Series A Preferred Stock to be entitled to one vote in each
instance:
(i) redeem, purchase or otherwise acquire for value (or pay into or
set aside for a sinking fund for such purpose), any share or shares of
capital stock;
(ii) authorize or issue or obligate itself to authorize or issue,
additional shares of Series A Preferred Stock;
(iii) authorize or issue or obligate itself to authorize or issue,
any other equity security senior to or on a parity with the Series A
Preferred Stock as to liquidation preferences or dividend rights; or
(iv) merge or consolidate with any other corporation, or sell,
assign, lease or otherwise dispose of or voluntarily part with the
control of (whether in one transaction or in a series of transactions)
all, or substantially all, of its assets (whether now owned or
hereinafter acquired).
(b) Amendments To Charter. The Corporation shall not amend its
Certificate of Incorporation without the approval, by vote or written
consent, by the holders of at least a majority of the then outstanding
shares of Series A Preferred Stock, voting as a separate class, each share
of Series A Preferred Stock to be entitled to one vote in each instance, if
such amendment would change any of the rights, preferences, privileges of
or limitations provided for herein for the benefit of any shares of Series
A Preferred Stock. Without limiting the generality of the preceding
sentence, the Corporation will not amend its Certificate of Incorporation
without the approval by the holders of at least a majority of the then
outstanding shares of Series A Preferred Stock, voting as a separate class,
each share of Series A Preferred Stock to be entitled to one vote in each
instance if such amendment would reduce the amount payable to the holders
of Series A Preferred Stock upon voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, or change the relative
seniority of the liquidation preferences of the holders of Series A
Preferred Stock to the rights upon liquidation of the holders of any other
capital stock of the Corporation.
8. No Dilution or Impairment. The Corporation will not transfer all or
substantially all of its properties and assets to any other person (corporate or
otherwise), or consolidate with or merge into any other person or permit any
such person to consolidate with or merge into the Corporation (if the
Corporation is the not the surviving person), unless such other person shall
expressly assume in writing and will be bound by all the terms of the Series A
Preferred Stock set forth herein.
9. Notices of Record Date. In the event of
(a) any taking by the Corporation of a record of the holders of any
class of securities for the purpose of determining the holders thereof who
are entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right,
or
(b) any capital reorganization of the Corporation, and
reclassification or recapitalization of the capital stock of the
Corporation, and merger or consolidation of the Corporation, or any
transfer of all or substantially all of the assets of the Corporation to
any other corporation, or any other entity or person, or
(c) any voluntary or involuntary dissolution, liquidation or winding
up of the Corporation,
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then and in each such event the Corporation shall mail or cause to be mailed to
each holder of Series A Preferred Stock a notice specifying (i) the date on
which any such record is to be taken for the purpose of such dividend,
distribution or right and a description of such dividend, distribution or right,
(ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding up is expected to become effective and (iii) the time, if any, that is
to be fixed, as to when the holders of record of Common Stock (or other
securities) shall be entitled to exchange their shares of Common Stock (or other
securities) for securities or other property deliverable upon such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding up. Such notice shall be mailed at
least ten (10) days prior to the date specified in such notice on which such
action is to be taken.
FIFTH: The Board of Directors of the Corporation, acting by majority vote,
may alter, amend or repeal the ByLaws of the Corporation.
SIXTH: Except as otherwise provided by the Delaware General Corporation Law
as the same exists or may hereafter be amended, no director of the Corporation
shall be personally liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director. Any repeal or modification
of this Article SIXTH by the stockholders of the Corporation shall not adversely
affect any right or protection of a director of the Corporation existing at the
time of such repeal or modification.
SEVENTH: A director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty by such director as a director, except for liability as a director (A) for
any breach for the director's duty of loyalty to the Corporation or its
stockholders; (B) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (C) under Section 174 of
the Delaware General Corporation Law; or (D) for any transaction from which the
director derived an improper personal benefit. If the Delaware General
Corporation Law is amended after this Certificate of Incorporation becomes
effective to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the Delaware General Corporation law, as so amended.
EIGHTH: INDEMNIFICATION.
8.1 Certain Definitions. As used in this Article, the term:
(a) "Corporation" includes any domestic or foreign predecessor entity
of this this Corporation in a merger or other transaction consummation of
the transaction.
(b) "Change in Control" shall have occurred if, during any period of
two consecutive years, individuals who at the beginning of such period
constitute the Board of Directors of the Corporation cease for any reason
to constitute at least a majority thereof, unless the election of each new
director was approved in advance by a vote of at least a majority of the
directors then still in office who were directors at the beginning of the
period.
(c) "Director" means an individual who is or was a director of the
Corporation or an individual who, while a director of the Corporation, is
or was serving at the Corporation's request as a director, officer,
partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, employee benefit plan, or
other enterprise. A director is considered to be serving an employee
benefit plan at the Corporation's request if his duties to the Corporation
also impose duties on, or otherwise involve services by, him to the plan or
to participants in or beneficiaries of the plan. "Director" includes,
unless the context requires otherwise, the estate or personal
representative of a director.
(d) "Expenses" includes attorneys' fees, disbursements and other
charges.
(e) "Liability" means the obligation to pay a judgment, settlement,
penalty, fine (including an excise tax assessed with respect to an employee
benefit plan), or reasonable expenses incurred with respect to a
proceeding.
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(f) "Officer" means an individual who is or was an officer of the
Corporation or an individual who, while an officer of the Corporation, is
or was serving at the Corporation's request as a director, officer,
partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, employee benefit plan, or
other enterprise. An officer is considered to be serving an employee
benefit plan at the corporation's request if his duties to the Corporation
also impose duties on, or otherwise involve services by, him to the plan or
to participants in or beneficiaries of the plan. "Officer" includes, unless
the context requires otherwise, the estate or personal representative of an
officer.
(g) "Party" includes an individual who was, is, or is threatened to be
made a named defendant or respondent in a proceeding.
(h) "Proceeding" means any threatened, pending, or completed action,
suit, or proceeding, whether civil, criminal, administrative, or
investigative and whether formal or informal.
(i) "Reviewing Party" shall mean the person or persons making the
entitlement determination pursuant to Section 8.4 of this Article, and
shall not include a court making any determination under this Article or
otherwise.
8.2 Basic Indemnification Arrangement.
(a) Except as provided in subsections 8.2(d), 8.2(e) and 8.2(f) below,
the Corporation shall indemnify an individual who is made a party to a
proceeding because he is or was a director or officer against liability
incurred by him in the proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Corporation and, in the case of any criminal proceeding, he had no
reasonable cause to believe his conduct was unlawful.
(b) A person's conduct with respect to an employee benefit plan for a
purpose he believed in good faith to be in the interests of the
participants in and beneficiaries of the plan is conduct that satisfies the
requirement of subsection 8.2(a).
(c) The termination of a proceeding by judgment, order, settlement, or
conviction, or upon a plea of nolo contendere or its equivalent shall not,
of itself, be determinative that the proposed indemnitee did not meet the
standard of conduct set forth in subsection 8.2(a).
(d) The Corporation shall not indemnify a person under this Article in
connection with a proceeding by or in the right of the Corporation in which
such person was adjudged liable to the Corporation, unless, and then only
to the extent that, the Reviewing Party, or a court of competent
jurisdiction acting pursuant to Section 8.5 of this Article, determines
that, in view of the circumstances of the case, the indemnitee is fairly
and reasonably entitled to indemnification.
(e) Indemnification permitted under this Article in connection with a
proceeding by or in the right of the Corporation shall include reasonable
expenses, penalties, fines (including an excise tax assessed with respect
to an employee benefit plan) and amounts paid in settlement (provided that
such settlement and the amounts paid in connection therewith are not
unreasonable, as determined by the Reviewing Party responsible for making
the determination that indemnification is permissible as described in
Section 8.4(b) below) in connection with the proceeding, but, unless
ordered by a court, shall not include judgments.
(f) Notwithstanding any other provision of this Article, no person
shall be entitled to indemnification or advancement of expense hereunder
with respect to any proceeding or claim brought or made by him against the
Corporation, other than a proceeding or claim seeking or defending such
person's right to indemnification or advancement of expense pursuant to
Section 8.5 hereof or otherwise.
(g) If any person is entitle under any provision of this Article to
indemnification by the Corporation for some portion of liability incurred
by him, but not the total amount thereof, the Corporation shall indemnify
such person for the portion of such liability to which he is entitled.
(h) The Corporation shall indemnify a director or officer to the
extent that he has been successful, on the merits or otherwise, in the
defense of any proceeding to which he was a party, or in defense of any
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claim, issue or matter therein, because he is or was a director or officer,
against reasonable expenses incurred by him in connection with the
proceeding.
8.3 Advances for Expenses.
(a) The Corporation shall pay for or reimburse the reasonable expenses
incurred by a director or officer as a party to a proceeding in advance of
final disposition of the proceeding if:
(i) Such person furnishes the Corporation a written affirmation of
good faith belief that he has met the standard of conduct set forth in
subsection 8.2(a) above, and
(ii) Such person furnishes the Corporation a written undertaking
(meeting the qualifications set forth below in subsection
8.3(b)); executed personally or on his behalf, to repay any
advances if it is ultimately determined that he is not
entitled to indemnification under this Article or otherwise.
(b) The undertaking required by subsection 8.3(a)(ii) above must be an
unlimited general obligation of the proposed indemnitee but need
not be secured and shall be accepted without reference to
financial ability to make repayment. If a director or officer
seeks to enforce his rights to indemnification in a court pursuant
to Section 8.5, such undertaking to repay shall not be applicable
or enforceable unless and until there is a final court
determination that he is not entitled to indemnification, as to
which all rights of appeal have been exhausted or have expired.
8.4 Authorization of And Determination of Entitlement to Indemnification.
(a) The Corporation acknowledges that indemnification of a director or
officer under Section 8.2 has been pro-authorized by the
Corporation in the manner described in subsection 8.4(b) below.
Nevertheless, the Corporation shall not indemnify a director or
officer under Section 8.2 unless a separate determination has been
made in the specific case that indemnification of such person is
permissible in the circumstances because he has met the standard
of conduct set forth in subsection 8.2(a); provided, however, that
no such entitlement decision need be made prior to the advancement
of expenses and that, regardless of the result or absence of any
such determination, the Corporation shall make any indemnification
mandated by Section 8.2(b) above.
(b) The determination referred to in subsection 8.4(a) above shall be
made, at the election of the Board of Directors (unless a Change
in Control shall have occurred, in which case the proposed
indemnitee director or officer shall be entitled to designate that
the determination shall be made by special legal counsel selected
by him);
(i) by the Board of Directors of the Corporation by majority vote
of a quorum consisting of directors not at the time parties to
the proceeding;
(ii) if a quorum cannot be obtained under subdivision (i), by a
majority vote of a committee duly designated by the Board of
Directors (in which designation directors who are parties may
participate), consisting solely of two or more directors not
at the time parties to the proceeding;
(iii) by special legal counsel:
(1) selected by the Board of Directors or its committee in the
manner prescribed in subdivision (i) or (ii); or
(2) if a quorum of the Board of Directors cannot be obtained
under subdivision (i) and a committee cannot be designated under
subdivision (ii), selected by a majority vote of the full Board of
Directors (in which selection directors who are parties may
participate); or
(iv) by the stockholders; provided that shares owned by or voted
under the control of directors or officers who are at the time parties
to the proceeding may not be voted on the determination.
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(c) As acknowledged above, the Corporation has pre-authorized the
indemnification of directors and officers hereunder, subject to a
case-by-case determination that the proposed indemnitee met the applicable
standard of conduct under subsection 8.2(a). Consequently, no further
decision need or shall be made on a case-by-case basis as to the
authorization of the Corporation's indemnification of, or advancement of
expenses to, directors and officers hereunder. Nevertheless, except as set
forth in subsection 8.4(d) below, evaluation as to reasonableness of
expenses of a director or officer in the specific case shall be made in the
same manner as the determination that indemnification is permissible, as
described in subsection 8.4(d) above, except that if the determination is
made by special legal counsel, evaluation as to reasonableness of expenses
shall be made by those entitled under subsection 8.4(b)(iii) to select
counsel.
(d) Notwithstanding the requirement under subsection 8.4(c) that the
Reviewing Party evaluate the reasonableness of expenses claimed by the
proposed indemnitee, any expenses claimed by the proposed indemnitee shall
be deemed reasonable if the Reviewing Party fails to make the evaluation
required by subsection 8.4(c) within thirty (30) days following the
proposed indemnitee's written request for indemnification for, or
advancement of, expenses.
(e) The Reviewing Party, however chosen, shall make the requested
determination as promptly as reasonably practical after a request for
indemnification is presented.
8.5 Court-ordered Indemnification And Advances For Expenses. A director
or officer who is a party to a proceeding may apply for indemnification or
advances for expenses to the court conducting the proceeding or to another court
of competent jurisdiction. For purposes of this Article, the Corporation hereby
consents to personal jurisdiction and venue in any court in which is pending a
proceeding to which a director or officer is a party. Regardless of any
determination by the Reviewing Party that the proposed indemnitee is not
entitled to indemnification or advancement of expenses or as to the
reasonableness of expenses, and regardless of any failure by the Reviewing Party
to make a determination as to such entitlement or the reasonableness of
expenses, such court's review shall be a de novo review. In application, the
court, after giving any notice it considers necessary, may order indemnification
or advancement of expenses if it determines that:
(i) The applicant is entitled to mandatory indemnification under
Section 8.2(b) above (in which case the Corporation shall pay the
indemnitee's reasonable expenses incurred to obtain court-ordered
indemnification);
(ii) The applicant is fairly and reasonably entitled to
indemnification in view of all the relevant circumstances, whether or not
he met the standard of conduct set forth in subsection 8.2(a) above or was
adjudged liable as described in subsection 8.2(d) above (in which case any
court-ordered indemnification need not be limited to reasonable expenses
incurred by the indemnitee but may include expenses, penalties, fines,
judgments, amounts paid in settlement and any other amounts ordered by the
court to be indemnified, and, whether or not so ordered, the Corporation
shall pay the applicant's reasonable expenses incurred to obtain
court-ordered indemnification) ; or
(iii) In the case of advances for expenses, the applicant is entitled
pursuant to this Restated Certificate of Incorporation, Amended and
Restated Bylaws or applicable resolution or agreement to payment for or
reimbursement of this reasonable expenses incurred as a party to a
proceeding in advance of final disposition of the proceeding (in which case
the Corporation shall pay the applicant's reasonable expenses incurred to
obtain court-ordered advancement of expenses): or
(iv) The applicant is otherwise entitled to enforcement of his rights
hereunder (in which case the Corporation shall pay the indemnitee's
reasonable expenses incurred to obtain such enforcement).
8.6 Indemnification of Employees and Agents. The Corporation may, subject
to authorization in the specific case, indemnify and advance expenses under this
Article to an employee or agent of the Corporation who is not a director or
officer, to the same extent as to a director or officer or to any lesser extent
(or greater extent if permitted by law) determined by the Board of Directors.
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8.7 Liability Insurance. The Corporation may purchase and maintain
insurance on behalf of a director or officer or an individual who is or was an
employee or agent of the Corporation or who, while a director, officer, employee
or agent of the Corporation, is or was serving at the request of the Corporation
as a director, officer, partner, trustee, employee or agent of another foreign
or domestic corporation, partnership, joint venture, trust, employee benefit
plan, or other enterprise against liability asserted against or incurred by him
in that capacity or arising from his status as a director, officer, employee, or
agent, whether or not the Corporation would have power to indemnify him against
the same liability under Section 8.2, Section 8.3 or Section 8.4 above.
8.8 Witness Fees. Nothing in this Article shall limit the Corporation's
power to pay or reimburse expenses incurred by a person in connection with his
appearance as a witness in a proceeding at a time when he has not been made a
named defendant or respondent in this proceeding.
8.9 Report to Stockholders. If the Corporation indemnifies or advances
expenses to a director or officer in connection with a proceeding by or in the
right of the Corporation, to the extent required by law the Corporation shall
report the indemnification or advance, in writing, to the stockholders with or
before the notice of the next stockholders' meeting.
8.10 Security for Indemnification Obligations. The Corporation may at any
time and in any manner, at the discretion of the Board of Directors, secure the
Corporation's obligations to indemnify or advance expenses to a person pursuant
to this Article.
8.11 No Duplication of Payments. The Corporation shall not be liable
under this Article to make any payment to a person hereunder to the extent such
person has otherwise actually received payment (under any insurance policy,
agreement or otherwise) of the amounts otherwise payable hereunder.
8.12 Subrogation. In the event of payment under this Article, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of the indemnitee, who shall execute all papers required and
shall de everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable the Corporation effectively to
bring suit to enforce such rights.
8.13 Contract Rights. The rights to indemnification and advancement of
expenses conferred hereunder to directors and officers shall be a contract right
and shall not be affected adversely to any director or officer by any amendment
of this Restated Certificate of Incorporation with respect to any action or
inaction occurring prior to such amendment; provided, however, that this
provision shall not confer upon any indemnitee or potential indemnitee (in his
capacity as such) the right to consent or object to any subsequent amendment of
this Restated Certificate of Incorporation.
8.14 Specific Performance. In any proceeding brought by or on behalf of
an officer or director to specifically enforce the provisions of this Article,
the Corporation hereby waives the claim or defense therein that the plaintiff or
claimant has an adequate remedy at law, and the Corporation shall not urge in
any such proceeding the claim or defense that such remedy at law exists. The
provisions of this Section 8.14, however, shall not prevent the officer or
director from seeking a remedy at law in connection with any breach of the
provisions of this Article.
8.15 Non-exclusivity, Etc. The rights of a director or officer hereunder
shall be in addition to any other rights with respect to indemnification,
advancement of expenses or otherwise that he may have under contract or the
General Corporation Law of the State of Delaware or otherwise.
8.16 Amendments. It is the intent of the Corporation to indemnify and
advance expenses to its directors and officers to the full extent permitted by
the Delaware General Corporation Law, as amended from time to time. To the
extent that the Delaware General Corporation Law is hereafter amended to permit
a Delaware business corporation to provide its directors greater rights to
indemnification or advancement of expenses that those specifically set forth
hereinabove, this Article shall be construed to require such greater
indemnification or more liberal advancement of expenses to the Corporation's
directors and officers, in each case consistent with the Delaware General
Corporation Law as so amended from time to time. No amendment modification or
rescission of this Article, or any provision hereof, the effect of which would
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diminish the rights to indemnification or advancement of expenses as set forth
herein shall be effective as to any person with respect to any action taken or
omitted by such person prior to such amendment, modification or rescission.
8.17 Severability. To the extent that the provisions of this Article are
held to be inconsistent with the provisions of Section 145 of the Delaware
General Corporation Law (including subsection (f) thereof), such provisions of
such statute shall govern. In the event that any of the provisions of this
Article (including any provision within a single section, subsection, division
or sentence) is held by a court of competent jurisdiction to be invalid, void or
otherwise unenforceable, the remaining provisions of this Article shall remain
enforceable to the fullest extent permitted by law.
A-10
183
EXHIBIT B
FORM OF COMPANY AFFILIATE LETTER
Gentlemen:
The undersigned, a holder of shares of common stock, par value $.01 per
share ("Company Stock"), of Syratech Corporation, a Delaware corporation (the
"Company"), is entitled to retain, in connection with the merger (the "Merger")
of the Company with THL Transaction I Corp., a Delaware corporation, securities
(the "Securities") of the Company. The undersigned acknowledges that the
undersigned may be deemed an "affiliate" of the Company within the meaning of
Rule 145 ("Rule 145") promulgated under the Securities Act of 1933, as amended
(the "Act"), although nothing contained herein should be construed as an
admission of such fact.
If in fact the undersigned were an affiliate under the Act, the
undersigned's ability to sell, assign or transfer the Securities retained by the
undersigned pursuant to the Merger may be restricted unless such transaction is
registered under the Act or an exemption from such registration is available.
The undersigned understands that such exemptions are limited and the undersigned
has obtained advice of counsel as to the nature and conditions of such
exemptions, including information with respect to the applicability to the sale
of such securities of Rules 144 and 145(d) promulgated under the Act.
The undersigned hereby represents to and covenants with the Company that
the undersigned will not sell, assign or transfer any of the Securities retained
by the undersigned pursuant to the Merger except (i) pursuant to an effective
registration statement under the Act, (ii) in conformity with the volume and
other limitations of Rule 145 or (iii) in a transaction which, in the opinion of
independent counsel reasonably satisfactory to the Company or as described in a
"no-action" or interpretive letter from the Staff of the Securities and Exchange
Commission (the "SEC"), is not required to be registered under the Act.
In the event of a sale or other disposition by the undersigned of
securities pursuant to Rule 145, the undersigned will supply the Company with
evidence of compliance with such Rule in the form of a letter in the form of
Annex I hereto. The undersigned understands that the Company may instruct its
transfer agent to withhold the transfer of any Securities disposed of by the
undersigned, but that upon receipt of such evidence of compliance the transfer
agent shall effectuate the transfer of the Securities sold as indicated in the
letter.
The undersigned acknowledges and agrees that appropriate legends will be
placed on certificates representing Securities retained by the undersigned in
the Merger or held by a transferee thereof, which legends will be removed by
delivery of substitute certificates upon receipt of an opinion in form and
substance reasonably satisfactory to the Company from independent counsel
reasonably satisfactory to the Company to the effect that such legends are no
longer required for purposes of the Act.
The undersigned acknowledges that (i) the undersigned has carefully read
this letter and understands the requirements hereof and the limitations imposed
upon the distribution, sale, transfer or other disposition of Securities and
(ii) the receipt by THL I of this letter is an inducement and a condition to THL
I's obligations to consummate the Merger.
Very truly yours,
Dated:
B-1
184
ANNEX I TO EXHIBIT B
(DATE)
(NAME)
On the undersigned sold the securities of the Company (the
"Company") described below in the space provided for that purpose (the
"Securities"). The Securities were retained by the undersigned in connection
with the merger of THL Transaction I Corp. with and into Syratech Corporation.
Based upon the most recent report or statement filed by the Company with
the Securities and Exchange Commission, the Securities sold by the undersigned
were within the prescribed limitations set forth in paragraph (e) of Rule 144
promulgated under the Securities Act of 1933, as amended (the "Act").
The undersigned hereby represents that the Securities were sold in
"brokers' transactions" within the meaning of Section 4(4) of the Act or in
transactions directly with a "market maker" as that term is defined in Section
3(a)(38) of the Securities Exchange Act of 1934, as amended. The undersigned
further represents that the undersigned has not solicited or arranged for the
solicitation of orders to buy the Securities, and that the undersigned has not
made any payment in connection with the offer or sale of the Securities to any
person other than to the broker who executed the order in respect of such sale.
Very truly yours,
(space to be provided for description of securities)
185
SCHEDULE 7.2(A)
Environmental Matters. Except as disclosed in Section 3.11 of the
Disclosure Schedule, which disclosed items of non-compliance could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect with respect to the Company;
(a) The Company and its subsidiaries hold and formerly held, and, to
the knowledge of the Company, are, and have been, in compliance with, all
Environmental Permits, and the Company and its subsidiaries are, and have
been, otherwise in compliance with all applicable Environmental Laws,
except where the failure to have such Environmental Permits or be in such
compliance would not have a Material Adverse Effect with respect to the
Company;
(b) None of the Company or its subsidiaries has received any
Environmental Claim, and none of the Company or its subsidiaries is aware
after inquiry, of any threatened material Environmental Claim or of any
circumstances, conditions or events that could reasonably be expected to
give rise to a material Environmental Claim, against the Company or any of
its subsidiaries, except where such claim could not reasonably be expected
to have a Material Adverse Effect with respect to the Company;
(c) There are no (i) underground storage tanks, (ii) polychlorinated
biphenyls, (iii) asbestos or asbestos-containing materials, (iv)
urea-formaldehyde insulation, (v) sumps, (vi) surface impoundments, (vii)
landfills, (viii) sewers or septic systems or (ix) Hazardous Materials
present at any facility currently or formerly owned, leased, operated or
otherwise used by the Company or any of its subsidiaries that could
reasonably be expected to give rise to liability of the Company or any of
its subsidiaries under any Environmental Laws, which liability could have a
Material Adverse Effect on the Company;
(d) There are no past (including, without limitation, with respect to
assets or businesses formerly owned, leased or operated by the Company or
any of its subsidiaries) or present actions, activities, events, conditions
or circumstances, including without limitation the release, threatened
release, emission, discharge, generation, treatment, storage or disposal of
Hazardous Materials, that could reasonably be expected to give rise to
liability of the Company or any of its subsidiaries under any Environmental
Laws or any contract or agreement, which liability could reasonably be
expected to have a Material Adverse Effect on the Company;
(e) No modification, revocation, reissuance, alteration, transfer, or
amendment of the Environmental Permits, or any review by, or approval of,
any third party of the Environmental Permits is required in connection with
the execution or delivery of this Agreement or the consummation of the
transactions contemplated hereby or the continuation of the business of the
Company or its subsidiaries following such consummation;
(f) Hazardous Materials have not been generated, transported, treated,
stored, disposed of, released or threatened to be released at, on, from or
under any of the properties or facilities currently or formerly owned,
leased or otherwise used, including without limitation for receipt of the
Company's wastes, by the Company or any of its subsidiaries, in violation
of or in a manner or to a location that could give rise to liability under
any Environmental Laws, which liability could reasonably be expected to
have a Material Adverse Effect on the Company;
(g) The Company and its subsidiaries have not assumed, contractually
or by operation of law, any liabilities or obligations under any
Environmental Laws;
(h) The Company and its subsidiaries have accrued or otherwise
provided, in accordance with generally accepted accounting principles, for
all damages, liabilities, penalties or costs that they may incur in
connection with any claim pending or threatened against them, or any
requirement that is or may be applicable to them, under any Environmental
Laws, and such accrual or other provision is reflected in the Company's
most recent consolidated financial statements.
186
(i) For purposes of this Agreement, the following terms shall have the
following meanings:
"Environmental Claim" means any written or oral notice, claim,
demand, action, quit, complaint, proceeding, request for information or
other communication by any person alleging liability or potential
liability (including without limitation liability or potential liability
for investigatory costs, cleanup costs, governmental response costs,
natural resource damages, property damage, personal injury, fines or
penalties) arising out of, relating to, based on or resulting from (i)
the presence, discharge, emission, release or threatened release of any
Hazardous Materials at any location, whether or not owned, leased or
operated by the Company or any of its subsidiaries or (ii) circumstances
forming the basis of any violation or alleged violation of any
Environmental Law or Environmental Permit or (iii) otherwise relating to
obligations or liabilities under any Environmental Laws.
"Environmental Permits" means all permits, licenses, registrations
and other governmental authorizations required for the Company and the
operations of the Company's and its subsidiaries, facilities and
otherwise to conduct its business under Environmental Laws.
"Environmental Laws" means all applicable federal, state and local
statutes, rules, regulations, ordinances, orders, decrees and common law
relating in any matter to contamination, pollution or protection of
human health or the environment, including without limitation the
Comprehensive Environmental Response, Compensation and Liability Act,
the Solid Waste Disposal Act, the Clean Air Act, the Clean Water Act,
the Toxic Substances Control Act, the Occupational Safety and Health
Act, the Emergency Planning and Community-Right-to-Know Act, the Safe
Drinking Water Act, all as amended, and similar state laws.
"Hazardous Materials" means all hazardous or toxic substances,
wastes, materials or chemicals, petroleum (including crude oil or any
fraction thereof) and petroleum products, asbestos and
asbestos-containing materials, pollutants, contaminants and all other
materials, substances and forces, including but not limited to
electromagnetic fields, regulated pursuant to, or that could form the
basis of liability under, any Environmental Law.
187
AMENDMENT TO
RESTATED AGREEMENT AND PLAN OF MERGER
AGREEMENT made effective as of February 14, 1997, by and between THL
Transaction I Corp. ("THL I") and Syratech Corporation (the "Company").
WHEREAS, the undersigned entered into the Restated Agreement and Plan of
Merger dated November 27, 1996, effective as of October 23, 1996 (the
"Agreement");
WHEREAS, on December 31, 1996 the Company, THL I and Leonard Florence
entered into separate agreements with each of Alan Kanter, Melvin L. Levine and
E. Merle Randolph (each an "Executive Party") pursuant to which (i) Mr. Florence
agreed to contribute to the Company (a) on December 31, 1996, 31,812 shares of
Syratech Common Stock, (b) on January 14, 1997, 31,884 shares of Syratech Common
Stock and (c) on January 14, 1998, the largest number of whole shares of
Syratech Common Stock as shall have an aggregate value of approximately $99,991
and (ii) on each of the dates of contribution of such shares of Syratech Common
Stock by Mr. Florence to the Company, such shares were to be canceled and the
Company was to issue to each Executive Party, as compensation, that number of
shares of Syratech Common Stock that would be equal to the Executive Party's pro
rata share of the number of shares of Syratech Common Stock contributed to the
Company on such date by Mr. Florence;
WHEREAS, Section 2.1(c)(ii) of the Agreement provides that Mr. Florence
shall be entitled to retain 714,400 shares of fully paid and nonassessable
shares of Syratech Common Stock following the Merger;
WHEREAS, Section 7.2(e) of the Agreement provides that the Company shall
enter into financing arrangements at the Closing pursuant to commitment letters
attached thereto as Schedule 7.2(e), or such other financing arrangements as the
Company and THL I agree, which arrangements are not materially more onerous; and
WHEREAS, Section 8.3 of the Agreement provides that the Agreement may be
amended by the parties at any time before any required approval of matters
presented in connection with the merger by the stockholders of the Company by an
instrument in writing signed on behalf of each of the parties.
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
promises contained herein, and for good and valuable consideration, the receipt
and adequacy of which are hereby acknowledged, the undersigned hereby agree as
follows:
1. Section 2.1(a) shall be deleted in its entirety and shall be replaced
by the following:
"(a) Capital Stock of THL I. The shares of Common Stock of THL I
issued and outstanding immediately prior to the Effective Time shall be
converted into such aggregate number of shares of Company Common Stock as
equals 3,131,780 less the aggregate number of shares of Company Common
Stock (not to exceed 781,250) retained by existing stockholders of the
Company (other than Management Stockholders) pursuant to Section 2.1(c)(ii)
and Section 2.2 and 2.3. The shares of Preferred Stock of THL I issued and
outstanding immediately prior to the Effective Time shall be converted into
the same number of shares of Cumulative Redeemable Preferred Stock of the
Company.
2. Section 2.1(c)(ii) shall be deleted in its entirety and shall be
replaced by the following:
"(ii) (x) for 528,472 shares of Company Common Stock held by Mr.
Leonard Florence, be entitled to retain the same number of fully paid and
nonassessable shares of Company Common Stock ("Florence Rollover Shares"),
for 35,232 shares of Company Common Stock held by Mr. Florence, such 35,232
shares be contributed to the capital of the Company simultaneously with the
Merger, and for each other share of Company Common Stock held by Mr.
Florence, the right to receive in cash from the Company following the
Merger, $28.00 per share and (y) for an aggregate of 123,766 shares of
Company Common Stock held by other members of Management (a "member of
Management" shall be any person who is listed as an executive officer of
the Company in the Company's 1996 Proxy Statement) of the Company as set
forth in Schedule 2.1 hereto, be entitled to retain the same number of
fully paid and nonassessable
188
shares of Company Common Stock (such 123,766 shares of Company Common Stock
to be retained by members of Management are referred to herein as the
"Management Rollover Shares"); and"
3. Section 2.2(a) shall be deleted in its entirety and shall be replaced
by the following:
"2.2 Company Common Stock Elections. (a) Each person who, on or
prior to the Election Date referred to in Section 2.2(c) below, is a record
holder of shares of Company Common Stock will be entitled, with respect to
up to 34.75% of such holder's shares, to make an unconditional election (a
"Non-Cash Election") on or prior to such Election Date to retain Non-Cash
Election Shares, on the basis hereinafter set forth."
4. Section 2.3 shall be deleted in its entirety and shall be replaced by
the following:
"2.3 Proration.
(a) Notwithstanding anything in this Agreement to the contrary, the
aggregate number of shares of Company Common Stock (other than Florence Rollover
Shares and Management Rollover Shares) which shall be entitled to retain Company
Common Stock at the Effective Time of the Merger shall not exceed 868,250.
(b) If the number of Electing Shares exceeds 868,250, then each Electing
Share shall be entitled to retain Non-Cash Election Shares or shall be converted
into the right to receive cash in accordance with the terms of Section 2.1(e) in
the following manner:
(i) A proration factor (the "Non-Cash Proration Factor") shall be
determined by dividing 868,250 by the total number of Electing Shares.
(ii) The number of Electing Shares covered by each Non-Cash Election
which are entitled to retain Non-Cash Election Shares shall be determined
by multiplying the Non-Cash Proration Factor by the total number of
Electing Shares covered by such Non-Cash Election, rounded down to the
nearest whole number.
(iii) All Electing Shares, other than those shares which are entitled
to retain Non-Cash Election Shares in accordance with Section 2.3(b)(ii),
shall be converted into cash (on a consistent basis among shareholders who
made the election referred to in Section 2.1(c)(i), pro rata to the number
of shares as to which they made such election) as if such shares were not
Electing Shares in accordance with the terms of Section 2.1(c)(iii).
(c) If the number of Electing Shares is less than 868,250 then all Electing
Shares shall be entitled to retain Company Common Stock in accordance with the
terms of Section 2.1(c)(i)."
5. Section 6.3(f)(ii) shall be deleted in its entirety and shall be
replaced with the following:
"(ii) Subject to the Company having received the proceeds of the
financing described in Section 7.2(e) on terms satisfactory to THL I, THL I
at closing will be capitalized with an equity contribution of (a) up to
$18,000,000 of preferred stock and (b) $100,216,960 of common stock, less
the product of (x) $32.00 and (y) the aggregate number of shares (not to
exceed 781,250) retained by stockholders other than Management
Stockholders. THL I will be under no obligation pursuant to the preceding
sentence unless and until the Company receives the proceeds of the
financing described in Section 7.2(e), or such other financings as may be
contemplated by Section 7.2(e), on terms consistent with the commitment
letters referenced in Section 7.2(e). In addition, THL I will be under no
obligation under any circumstances to be capitalized with equity of more
than $18,000,000 preferred stock and $100,216,960 common stock. In no event
shall it be required that THL I be capitalized with such amounts of equity
prior to the Closing."
6. Attached hereto as Schedule 7.2(e) are commitment letters to provide
financing for the Merger (the "Commitment Letters"), which the parties agree are
not materially more onerous than those attached as Schedule 7.2(e) to the
Agreement. The Commitment Letters replace any and all commitment letters to
2
189
provide financing for the Merger attached as Schedule 7.2(e) to the Agreement.
The Company hereby agrees that, upon consummation of the Merger, it shall assume
any and all obligations of THL I pursuant to the terms of the Commitment
Letters.
7. Exhibit A to the Agreement shall be deleted in its entirety and shall
be replaced by Exhibit A attached hereto.
8. Except as expressly set forth above, the parties ratify and confirm all
other terms of the Agreement, which remain in full force and effect as of the
date hereof.
[Remainder of Page Left Intentionally Blank]
3
190
IN WITNESS WHEREOF, the parties below have caused this Agreement to be duly
executed by persons duly authorized, all as of the date first written above.
THL TRANSACTION I CORP.
By: /s/ SCOTT A. SCHOEN
------------------------------------
Name: Scott A. Schoen
Title: President
SYRATECH CORPORATION
By: /s/ FAYE A. FLORENCE
------------------------------------
Name: Faye A. Florence
Title: Vice President and General
Counsel
EXECUTED BY THE UNDERSIGNED
SOLELY FOR THE PURPOSES OF REAFFIRMING HIS OBLIGATION UNDER
SECTION 2.1(c)(ii) OF THE AGREEMENT
/s/ LEONARD FLORENCE
- ---------------------------------------------------------
Leonard Florence
4
191
SCHEDULE 2.1
MANAGEMENT ROLLOVER SHARES
Mr. Alan Kanter.............................. 48,232 shares
Mr. Melvin Levine............................ 41,132 shares
Mr. E. Merle Randolph........................ 30,875 shares
Ms. Faye A. Florence......................... 3,527 shares
--------------
TOTAL:............................. 123,766 shares
192
ANNEX II
[MERRILL LYNCH LETTERHEAD]
October 23, 1996
Board of Directors
Syratech Corporation
175 McClellan Highway
East Boston, MA 02128
Gentlemen:
Syratech Corporation (the "Company"), and THL Transaction I Corporation
(the "Acquiror"), a Delaware corporation formed by The Thomas H. Lee Company,
propose to enter into an agreement (the "Agreement") pursuant to which the
Company will be merged with the Acquiror in a transaction (the "Merger") in
which each outstanding share of the Company's common stock, par value $0.01 per
share (the "Shares"), will be converted into the right to receive $32.00 in cash
(the "Consideration"). In addition, the public shareholders of the Company will
be entitled to elect to receive, subject to certain limitations, up to 25% of
their Consideration in the form of common stock of the surviving entity. Because
this structure is optional, we have not been asked to value the stock of the
surviving entity, and have not done so. The Merger is expected to be considered
by the shareholders of the Company at a special shareholders' meeting and
consummated on or shortly after the date of such meeting (assuming the
shareholders of the Company approve the transaction).
You have asked us whether, in our opinion, the proposed Consideration to be
received by the holders of the Shares (other than Shares held by Mr. Leonard
Florence, Shares to be canceled pursuant to the Agreement and dissenting Shares)
pursuant to the Merger is fair to such shareholders from a financial point of
view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed the Company's Annual Reports, Forms 10-K and related
financial information for the five fiscal years ended December 31, 1995 and
the Company's Forms 10-Q and the related unaudited financial information
for the quarterly periods ending March 31, 1996, and June 30, 1996;
(2) Reviewed a draft of the Company's Form S-3 dated September 12,
1996;
(3) Reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets and prospects of the
Company, furnished to us by the Company;
(4) Conducted discussions with members of senior management of the
Company concerning its businesses and prospects;
(5) Reviewed the historical market prices and trading activity for the
Shares and compared them with that of certain publicly traded companies
which we deemed to be reasonably similar to the Company;
(6) Compared the results of operations of the Company with that of
certain publicly traded companies which we deemed to be reasonably similar
to the Company;
(7) Compared the proposed financial terms of the transactions
contemplated by the Agreement with the financial terms of certain other
mergers and acquisitions which we deemed to be relevant;
(8) Reviewed the Agreement dated October 23, 1996, including the
financing commitment letters attached thereto;
193
(9) Reviewed such other financial studies and analyses and performed
such other investigations and took into account such other matters as we
deemed necessary, including our assessment of general economic, market and
monetary conditions.
In preparing our opinion, we have relied on the accuracy and completeness
of all information supplied or otherwise made available to us by the Company,
and we have not independently verified such information or undertaken an
independent appraisal of the assets of the Company. With respect to the
financial forecasts furnished by the Company, we have assumed that they have
been prepared on a reasonable basis and reflect the best currently available
estimates and judgment of the Company's management as to the expected future
financial performance of the Company.
In connection with our engagement, we were authorized by the Company to,
and did, solicit indications of interest for the acquisition of the Company from
a limited number of third parties who were specified by the Company.
Our opinion is necessarily based upon market, economic and other conditions
as they exist on, and can be evaluated as of, the date of this letter. Our
opinion does not address the merits of the underlying decision by the Company to
engage in the Merger and does not constitute a recommendation to any shareholder
as to how such shareholder should vote with respect to the Merger or any
transaction related thereto.
Merrill Lynch has acted as exclusive financial advisor to the Special
Committee of the Board of Directors in connection with the Merger, for which we
will receive a fee. An affiliate of Merrill Lynch acts as the general partner
for the publicly registered investment funds in which Thomas H. Lee is an
individual general partner and an affiliate of Thomas H. Lee acts as the
investment advisor to the funds. Merrill Lynch has also provided in the past
financial advisory and financing services to Thomas H. Lee and to certain
companies affiliated with Thomas H. Lee and such funds. In the ordinary course
of business, we have traded the equity securities of the Company for our own
account and the accounts of our customers and, accordingly, may at any time hold
a long or short position in such securities.
On the basis of, and subject to the foregoing, we are of the opinion that
the proposed cash Consideration to be received by the holders of the Shares
(other than Shares held by Mr. Leonard Florence, Shares to be canceled pursuant
to the Agreement and dissenting Shares) pursuant to the Merger is fair to such
shareholders from a financial point of view.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By /s/ William D. Cohan
Director
Investment Banking Group
2
194
ANNEX III
EXCERPTS FROM DELAWARE GENERAL CORPORATION
LAW RELATING TO DISSENTERS' RIGHTS
262 APPRAISAL RIGHTS. -- (a) Any stockholder of a corporation of this
State who holds shares of stock on the date of the making of a demand pursuant
to subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to sec. 228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of his shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be a available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec. 251 (other than a merger effected pursuant to
subsection (g) of Section 251), 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the holders of the surviving corporation as
provided in subsection (f) of sec. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
sec.sec. 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or held of record by more than 2,000
holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
1
195
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to sec. 228
or 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within 10 days thereafter,
shall notify each of the holders of any class or series of stock of such
constituent corporation who are entitled to appraisal rights of the
approval of the merger or consolidation and that appraisal rights are
available for any or all shares of such class or series of stock of such
constituent corporation, and shall include in such notice a copy of this
section provided that, if the notice is given on or after the effective
date of the merger or consolidation, such notice shall be given by the
surviving or resulting corporation to all such holders of any class or
series of stock of a constituent corporation that are entitled to appraisal
rights. Such notice may, and, if given on or after the effective date of
the merger or consolidation shall, also notify such stockholders of the
effective date of the merger or consolidation. The notice shall be sent by
certified or registered mail, return receipt requested, addressed to the
stockholder at his address as it appears on the records of the corporation.
Any stockholder entitled to appraisal rights may, within 20 days after the
date of mailing of such notice, demand in writing from the surviving or
resulting corporation the appraisal of such shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given; provided that,
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective
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date. If no record date is fixed and the notice is given prior to the
effective date, the record date shall be the close of business on the day
next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or
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compound, as the Court may direct. Payment shall be so made to each such
stockholder, in the case of holders of uncertificated stock forthwith, and the
case of holders of shares represented by certificates upon the surrender to the
corporation of the certificates representing such stock. The Court's decree may
be enforced as other decrees in the Court of Chancery may be enforced, whether
such surviving or resulting corporation be a corporation of this State or of any
state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation. (Last amended by Ch.
349, L. '96, eff. 7-1-96.)
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THE PROXY SOLICITOR FOR THE MERGER IS:
MORROW & CO., INC.
808 THIRD AVENUE
NEW YORK, NEW YORK 10022-4788
Any requests for assistance in filling out or delivering Proxy Cards or
requests for additional copies of this Proxy Statement/Prospectus or the Proxy
Card may be directed to the Proxy Solicitor.
THE EXCHANGE AGENT FOR THE MERGER IS:
STATE STREET BANK AND TRUST COMPANY
2 HERITAGE DRIVE
NORTH QUINCY, MASSACHUSETTS 02171
Any questions or requests for assistance in filling out or delivery of
Non-Cash Election Forms or share certificates or requests for additional copies
of the Non-Cash Election Form may be directed to the Exchange Agent by calling
(800) 426-5523.
199
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145(a) of the General Corporation Law of the State of Delaware (the
"GCL") provides that a Delaware corporation may indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or enterprise,
against expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful.
Section 145(b) of the GCL provides that a Delaware corporation may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses actually
and reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted under similar standards, except that no
indemnification may be made in respect of any claim, issue or matter as to which
such person shall have been adjudged to be liable to the corporation unless and
only to the extent that the Court of Chancery or court in which such action or
suit was brought shall determine that despite the adjudication of liability,
such person is fairly and reasonably entitled to be indemnified for such
expenses which the court shall deem proper.
Section 145 of the GCL further provides that to the extent a director or
officer of a corporation has been successful in the defense of any action, suit
or proceeding referred to in subsections (a) and (b) or in the defense of any
claim, issue or matter therein, he shall be indemnified against expenses
actually and reasonably incurred by him in connection therewith; that
indemnification provided for by Section 145 shall not be deemed exclusive of any
other rights to which the indemnified party may be entitled; and that the
corporation may purchase and maintain insurance on behalf of a director or
officer of the corporation against any liability asserted against him or
incurred by him in any such capacity or arising out of his status as such
whether or not the corporation would have the power to indemnify him against
such liabilities under such Section 145.
Section 102(b)(7) of the General Corporation Law provides that a
corporation in its original certificate of incorporation or an amendment thereto
validly approved by stockholders may eliminate or limit personal liability of
members of its board of directors or governing body for breach of a director's
fiduciary duty. However, no such provision may eliminate or limit the liability
of a director for breaching his duty of loyalty, failing to act in good faith,
engaging in intentional misconduct or knowingly violating a law, paying a
dividend or approving a stock repurchase which was illegal, or obtaining an
improper personal benefit. A provision of this type has no effect on the
availability of equitable remedies, such as injunction or rescission, for breach
of fiduciary duty. Syratech's Restated Certificate of Incorporation contains
such a provision.
Syratech's Restated Certificate of Incorporation and Bylaws provide that
the Company shall indemnify officers and directors, and to the extent authorized
by the Board of Directors, employees and agents of the Company, to the full
extent permitted by and in the manner permissible under the laws of the State of
Delaware. The Restated Certificate of Incorporation and Bylaws also permit the
Board of Directors to authorize the Company to purchase and maintain insurance
against any liability asserted against any director, officer, employee or agent
of the Company arising out of his capacity as such; and the Company does so.
The Merger Agreement contains provisions by which Syratech agrees to
indemnify present and former directors against certain liabilities arising in
relation to the period prior to the consummation of the Merger for a period of
six years following execution of that Agreement. The Company also agrees to
maintain its current
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directors' and officers' insurance cover, as that cover applies to the period
prior to consummation of the Merger, for a period of six years.
ITEM 21. EXHIBITS
(a) Exhibits
2.1 Restated Agreement and Plan of Merger dated November 27, 1996, effective as of
October 23, 1996 between Syratech and THL Transaction I Corp. and the
Amendment, dated February 14, 1997 to the Restated Agreement and Plan of
Merger (included as Annex I to the Proxy Statement/Prospectus included in this
Form S-4 Registration Statement)
3.1 Restated Certificate of Incorporation of Syratech. Incorporated by reference
from Exhibit 3.1 to Form S-1 Registration Statement No. 33-41619.
**3.2 Syratech Corporation Certificate of Designations in respect of Series A
Preferred Stock dated October 26, 1992.
3.3 Bylaws of Syratech. Incorporated by reference from Exhibit 3.2 to Form S-1
Registration Statement No. 33-41619.
3.4 Amendment to Section 2.9 of the Bylaws of Syratech, effective August 15, 1991.
Incorporated by reference from Exhibit 3.3 to Form S-1 Registration Statement
No. 33-41619.
**3.5 Certificate of Ownership and Merger of WSC Liquidating, Inc. by and into
Syratech Corporation dated May 9, 1996.
3.6 Specimen Common Stock Certificate. Incorporated by reference to Exhibit 4.1 to
Form 10-K of Syratech for the year ended December 31, 1993.
*5.1 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison as to the legality of the
Common Stock.
*8.1 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison as to certain tax matters
relating to the Common Stock.
**10.1 Form of Amended and Restated Employment Agreement dated as of April , 1997
between Leonard Florence and the Company.
10.2 Employment Agreement dated August 16, 1991 between E. Merle Randolph and the
Company. Incorporated by reference from Exhibit 10.17 to Form S-1 Registration
Statement No. 33-41619.
10.3 Employment Agreement dated August 16, 1991, between Melvin L. Levine and the
Company. Incorporated by reference from Exhibit 10.18 to Form S-1 Registration
Statement No. 33-41619.
10.4 Employment Agreement dated August 16, 1991 between Alan R. Kanter and the
Company. Incorporated by reference from Exhibit 10.19 to Form S-1 Registration
Statement No. 33-41619.
**10.5 Amendment No. 1 dated as of July 27, 1996 to Employment Agreement dated as of
August 16, 1991 between E. Merle Randolph and Company.
10.6 Amendment No. 1 dated as of May 11, 1995 to Employment Agreement dated as of
August 16, 1991 between Melvin L. Levine and the Company. Incorporated by
reference from Exhibit 10.8 to Form 10-K for Syratech for the year ended
December 31, 1995.
**10.7 Amendment No. 1 dated as of July 27, 1996 to Employment Agreement dated as of
August 16, 1991 between Alan R. Kanter and the Company.
**10.8 Retirement Benefit Agreement dated as of July 27, 1996 between Faye A.
Florence and the Company.
**10.9 Amendment No. 2, dated as of January 31, 1997, effective as of December 31,
1996, to Employment Agreement dated as of August 16, 1991 between E. Merle
Randolph and the Company.
**10.10 Amendment No. 2, dated as of January 31, 1997, effective as of December 31,
1996, to Employment Agreement dated as of August 16, 1991 between Melvin L.
Levine and the Company.
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201
**10.11 Amendment No. 2 dated January 31, 1997 effective as of December 31, 1996, to
Employment Agreement dated as of August 16, 1991 between Alan R. Kanter and
the Company.
**10.12 Agreement dated December 31, 1996 by and between the Company, THL I
Transaction Corp., Leonard Florence and Melvin L. Levine.
**10.13 Agreement dated December 31, 1996 by and between the Company, THL I
Transaction Corp., Leonard Florence and E. Merle Randolph.
**10.14 Agreement dated December 31, 1996 by and between the Company, THL I
Transaction Corp., Leonard Florence and Alan R. Kanter.
10.15 Asset Purchase Agreement dated February 2, 1996 by and between Farberware
Inc., the Company, Lifetime Hoan Corporation and Far-B Acquisition Corp., Inc.
Incorporated by reference from Exhibit 1 to Form 8-K dated April 16, 1996.
*10.16 Settlement Agreement dated February 3, 1997 by and among Bruckner
Manufacturing Corp. (formerly Farberware Inc.), U.S. Industries, Inc.,
Farberware Inc. (formerly Far-B Acquisition Corp.) and Lifetime Hoan
Corporation.
10.17 Agreement dated as of December 7, 1995 among the Company, SYR Acquisition Inc.
and Rauch Industries, Inc. Incorporated by reference from Exhibit 1 to Form
8-K of the Company dated December 7, 1995.
*10.18 Amended and Restated Line of Credit Agreement among Wallace International de
Puerto Rico, Inc., International Silver de Puerto Rico, Inc. and Banco Popular
de Puerto Rico dated October 15, 1996.
*10.19 Agreement, dated as of February 2, 1996, by and among the Company, Lifetime
Hoan Corporation and Far-B Acquisition Corp.
*10.20 Agreement, dated as of May 3, 1996, by and among the Company, Farberware Inc.
and Meyer Manufacturing Co. Ltd.
*10.21 License Agreement, dated as of July 12, 1996, by and between Farberware Inc.
and Service Merchandise Company, Inc. (redacted to omit certain royalty
information).
*10.22 Agreement, dated as of October 16, 1996, among Farberware Inc., Service
Merchandise Company, Inc. and Windmere-Durable Holdings, Inc. (amending Item
10.21).
**22 List of Subsidiaries
*23.1 Consent of Paul, Weiss, Rifkind, Wharton & Garrison (included in the opinions
filed as Exhibits 5.1 and 8.1)
*23.2 Consent of Deloitte & Touche LLP
*23.3 Consent of Coopers & Lybrand L.L.P.
*23.4 Consent of Merrill Lynch & Co.
**24.1 Power of Attorney
**99.1 Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated dated October
23, 1996. (Included as Annex II to this Form S-4 Registration Statement)
**99.2 Report of Merrill Lynch & Co. dated October 21, 1996.
*99.3 Form of Proxy.
*99.4 Form of Non-Cash Election.
(b) Financial Statement Schedules
Schedule VIII--Valuation and Qualifying Account
All other schedules have been omitted because the material is not
applicable or is not required or because the required information is shown in
the condensed consolidated financial statements or the notes thereto.
- ---------------
* Filed herewith.
** Previously filed with the Commission.
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ITEM 22. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed to be underwriters, in addition to the information
called for by the other Items of the applicable form.
The Registrant undertakes that every prospectus (i) that is filed pursuant
to the immediately preceding undertaking or (ii) that purports to meet the
requirements of section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(b) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this Amendment No. 3 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Boston, State of Massachusetts, on the
11th day of March, 1997.
SYRATECH CORPORATION
By: /s/ LEONARD FLORENCE
------------------------------------
Leonard Florence
Chairman of the Board,
Chief Executive Officer and
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated below.
SIGNATURE TITLE DATE
- --------------------------------------------- ----------------------------- ------------------
/s/ LEONARD FLORENCE Chairman of the Board of March 11, 1997
- --------------------------------------------- Directors, Chief Executive
Leonard Florence Officer and President
(Principal Executive Officer)
/s/ E. MERLE RANDOLPH Vice President, Chief March 11, 1997
- --------------------------------------------- Financial Officer, Treasurer
E. Merle Randolph and Director (Principal
Financial and Accounting
Officer)
* Director March 11, 1997
- ---------------------------------------------
Irwin Chafetz
* Director March 11, 1997
- ---------------------------------------------
Frederick H. Chicos
* Director March 11, 1997
- ---------------------------------------------
Harold Cohen
* Director March 11, 1997
- ---------------------------------------------
Jerry R. Jacob
* Director March 11, 1997
- ---------------------------------------------
Melvin L. Levine
* Director March 11, 1997
- ---------------------------------------------
Alan Perlman
* Director March 11, 1997
- ---------------------------------------------
Harold Roitenberg
* Director March 11, 1997
- ---------------------------------------------
Jacob Saliba
*By: /s/ E. MERLE RANDOLPH
-------------------------------
E. Merle Randolph
Attorney-in-fact
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SCHEDULE VIII
SYRATECH CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
COLUMN C
-------------------------
COLUMN B COLUMN E
------------ (1) ----------
COLUMN A BALANCE AT CHARGED TO (2) COLUMN D BALANCE AT
- ------------------------------------ BEGINNING OF COSTS AND CHARGED TO ---------- END OF
DESCRIPTION PERIOD EXPENSES OTHER ACCTS DEDUCTIONS PERIOD
- ------------------------------------ ------------ ---------- ----------- ---------- ----------
YEAR ENDED DECEMBER 31, 1996
Allowance for doubtful accounts..... $1,603 $ 93 $-- $ 165(a) $1,861
Sales returns and allowances........ 2,604 5,813 -- (4,916)(b) 3,501
------ ------ ------ ------- ------
$4,207 $5,906 $-- $ (4,751) $5,362
====== ====== ====== ======= ======
YEAR ENDED DECEMBER 31, 1995
Allowance for doubtful accounts..... $1,372 $ 602 $-- $ (371)(a) $1,603
Sales returns and allowances........ 2,133 5,206 -- (4,735)(b) 2,604
------ ------ ------ ------- ------
$3,505 $5,808 $-- $ (5,106) $4,207
====== ====== ====== ======= ======
YEAR ENDED DECEMBER 31, 1994
Allowance for doubtful accounts..... $1,385 $ 84 -- $ (97)(a) $1,372
Sales returns and allowances........ 2,397 3,868 -- (4,132)(b) 2,133
------ ------ ------ ------- ------
$3,782 $3,952 $-- $ (4,229) $3,505
====== ====== ====== ======= ======
- ---------------
(a) Doubtful accounts written off
(b) Sales returns and other
205
INDEX TO EXHIBITS
2.1 Restated Agreement and Plan of Merger dated November 27, 1996, effective as of
October 23, 1996 between Syratech and THL Transaction I Corp. and the Amendment,
dated February 14, 1997 to the Restated Agreement and Plan of Merger (included as
Annex I to the Proxy Statement/Prospectus included in this Form S-4 Registration
Statement)
3.1 Restated Certificate of Incorporation of Syratech. Incorporated by reference from
Exhibit 3.1 to Form S-1 Registration Statement No. 33-41619.
**3.2 Syratech Corporation Certificate of Designations in respect of Series A Preferred
Stock dated October 26, 1992.
3.3 Bylaws of Syratech. Incorporated by reference from Exhibit 3.2 to Form S-1
Registration Statement No. 33-41619.
3.4 Amendment to Section 2.9 of the Bylaws of Syratech, effective August 15, 1991.
Incorporated by reference from Exhibit 3.3 to Form S-1 Registration Statement No.
33-41619.
**3.5 Certificate of Ownership and Merger of WSC Liquidating, Inc. by and into Syratech
Corporation dated May 9, 1996.
3.6 Specimen Common Stock Certificate. Incorporated by reference to Exhibit 4.1 to
Form 10-K of Syratech for the year ended December 31, 1993.
*5.1 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison as to the legality of the
Common Stock.
*8.1 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison as to certain tax matters
relating to the Common Stock.
**10.1 Form of Amended and Restated Employment Agreement dated as of April , 1997
between Leonard Florence and the Company.
10.2 Employment Agreement dated August 16, 1991 between E. Merle Randolph and the
Company. Incorporated by reference from Exhibit 10.17 to Form S-1 Registration
Statement No. 33-41619.
10.3 Employment Agreement dated August 16, 1991, between Melvin L. Levine and the
Company. Incorporated by reference from Exhibit 10.18 to Form S-1 Registration
Statement No. 33-41619.
10.4 Employment Agreement dated August 16, 1991 between Alan R. Kanter and the Company.
Incorporated by reference from Exhibit 10.19 to Form S-1 Registration Statement
No. 33-41619.
**10.5 Amendment No. 1 dated as of July 27, 1996 to Employment Agreement dated as of
August 16, 1991 between E. Merle Randolph and Company.
10.6 Amendment No. 1 dated as of May 11, 1995 to Employment Agreement dated as of
August 16, 1991 between Melvin L. Levine and the Company. Incorporated by
reference from Exhibit 10.8 to Form 10-K for Syratech for the year ended December
31, 1995.
**10.7 Amendment No. 1 dated as of July 27, 1996 to Employment Agreement dated as of
August 16, 1991 between Alan R. Kanter and the Company.
**10.8 Retirement Benefit Agreement dated as of July 27, 1996 between Faye A. Florence
and the Company.
**10.9 Amendment No. 2, dated as of January 31, 1997, effective as of December 31, 1996,
to Employment Agreement dated as of August 16, 1991 between E. Merle Randolph and
the Company.
**10.10 Amendment No. 2, dated as of January 31, 1997, effective as of December 31, 1996,
to Employment Agreement dated as of August 16, 1991 between Melvin L. Levine and
the Company.
**10.11 Amendment No. 2 dated January 31, 1997 effective as of December 31, 1996, to
Employment Agreement dated as of August 16, 1991 between Alan R. Kanter and the
Company.
**10.12 Agreement dated December 31, 1996 by and between the Company, THL I Transaction
Corp., Leonard Florence and Melvin L. Levine.
206
**10.13 Agreement dated December 31, 1996 by and between the Company, THL I Transaction
Corp., Leonard Florence and E. Merle Randolph.
**10.14 Agreement dated December 31, 1996 by and between the Company, THL I Transaction
Corp., Leonard Florence and Alan R. Kanter.
10.15 Asset Purchase Agreement dated February 2, 1996 by and between Farberware Inc.,
the Company, Lifetime Hoan Corporation and Far-B Acquisition Corp., Inc.
Incorporated by reference from Exhibit 1 to Form 8-K dated April 16, 1996.
*10.16 Settlement Agreement dated February 3, 1997 by and among Bruckner Manufacturing
Corp. (formerly Farberware Inc.), U.S. Industries, Inc., Farberware Inc. (formerly
Far-B Acquisition Corp.) and Lifetime Hoan Corporation.
10.17 Agreement dated as of December 7, 1995 among the Company, SYR Acquisition Inc. and
Rauch Industries, Inc. Incorporated by reference from Exhibit 1 to Form 8-K of the
Company dated December 7, 1995.
*10.18 Amended and Restated Line of Credit Agreement among Wallace International de
Puerto Rico, Inc., International Silver de Puerto Rico, Inc. and Banco Popular de
Puerto Rico dated October 15, 1996.
*10.19 Agreement, dated as of February 2, 1996, by and among the Company, Lifetime Hoan
Corporation and Far-B Acquisition Corp.
*10.20 Agreement, dated as of May 3, 1996, by and among the Company, Farberware Inc. and
Meyer Manufacturing Co. Ltd.
*10.21 License Agreement, dated as of July 12, 1996, by and between Farberware Inc. and
Service Merchandise Company, Inc. (redacted to omit certain royalty information).
*10.22 Agreement, dated as of October 16, 1996, among Farberware Inc., Service
Merchandise Company, Inc. and Windmere-Durable Holdings, Inc. (amending Item
10.21).
**22 List of Subsidiaries
*23.1 Consent of Paul, Weiss, Rifkind, Wharton & Garrison (included in the opinions
filed as Exhibits 5.1 and 8.1)
*23.2 Consent of Deloitte & Touche LLP
*23.3 Consent of Coopers & Lybrand L.L.P.
*23.4 Consent of Merrill Lynch & Co.
**24.1 Power of Attorney
**99.1 Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated dated October 23,
1996. (Included as Annex II to this Form S-4 Registration Statement)
**99.2 Report of Merrill Lynch & Co. dated October 21, 1996.
*99.3 Form of Proxy.
*99.4 Form of Non-Cash Election.
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* Filed herewith.
** Previously filed with the Commission.