SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. __)
FILED BY REGISTRANT [X]
Filed by a Party other than Registrant [ ]
Check the appropriate box:
[x] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
Specialty Catalog Corp.
------------------------
(Name of Registrant as Specified In Its Charter)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[ ] No Fee required
[x] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies: Common Stock
2) Aggregate number of securities to which transaction applies: 2,820,577
3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined): The proposed maximum aggregate
value of the transaction for purposes of calculating the filing fee is
$2,445. The filing fee was determined by adding (a) the product of (i) the
2,820,577 shares of Common Stock that are proposed to be retired in the merger
and (ii) the merger consideration of $3.75 per share of Common Stock, plus (b)
$1,630,609 expected to be paid upon cancellation of all outstanding options (the
"Total Consideration"). The filing fee equals one-fiftieth of one percent of the
Total Consideration.
4) Proposed maximum aggregate value of transaction: $12,207,772 (includes
amounts being paid with respect to the termination of stock options).
5) Total fee paid: $2,445.00
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of the filing.
1) Amount Previously Paid:
1
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
2
SPECIALTY CATALOG CORP.
21 Bristol Drive, South Easton, Massachusetts 02375
(508) 238-0199
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON __________ ___, 2001
To Specialty Catalog Corp. stockholders:
We will hold a special meeting of the stockholders of Specialty Catalog
Corp., a Delaware corporation ("Specialty Catalog" or the "Company"), at
____________________, at _____ a.m. on ________________ ___, 2001. At this
special meeting, or any adjournment or postponement thereof, we will ask you to
consider and vote upon the following proposals as further described in the
accompanying proxy statement:
1. Approval and adoption of the Agreement and Plan of
Recapitalization and Merger, dated as of May 4, 2001, between
Specialty Catalog Corp., a Delaware corporation, and Specialty
Acquisition Corp. ("Acquisition Corp."), a Delaware
corporation which was organized to effect the merger and
related transactions, pursuant to which Specialty Acquisition
Corp. will be merged with and into Specialty Catalog Corp.,
with Specialty Catalog Corp. continuing as the surviving
corporation.
2. To consider and act upon such other matters as may properly
come before the special meeting or any adjournment or
postponement of the special meeting.
The board of directors has fixed ___________, 2001 as the record date
for the determination of stockholders entitled to notice of and to vote at the
special meeting, or any adjournment or postponement thereof. Accordingly, only
stockholders of record at the close of business on _______, 2001 will be
entitled to notice of and to vote at such meeting. A list of our stockholders
entitled to vote will be kept by the Company at 21 Bristol Drive, South Easton,
Massachusetts 02375, for ten days before the special meeting.
If the merger is completed, each share (other than shares owned by
Acquisition Corp. and its current and future stockholders and shares owned by
stockholders who have perfected their appraisal rights) of Specialty Catalog
common stock outstanding at the closing of the merger will be canceled and
converted into the right to receive $3.75 in cash, without interest. The
accompanying proxy statement contains detailed information about the merger and
the actions to be taken in connection with the merger. The terms of the merger
are more fully described in the merger agreement which is attached as Annex A to
the accompanying proxy statement.
Stockholders who properly demand appraisal rights prior to the
stockholder vote at the special meeting, who do not vote in favor of adoption of
the merger agreement and who
3
otherwise comply with the provisions of Section 262 of the General Corporation
Law of the State of Delaware (the "DGCL") will be entitled, if the merger is
completed, to statutory appraisal of the fair value of their shares of common
stock. See the section entitled "Dissenters' Rights" in the accompanying proxy
statement and the full text of Section 262 of the DGCL, which is attached as
Annex C to the accompanying proxy statement, for a description of the procedures
that you must follow in order to exercise your appraisal rights.
In order to evaluate the advisability of the merger, your board of
directors formed a special committee of the Specialty Catalog board of
directors, consisting of one independent director. The special committee has
recommended to your board of directors that the merger and the merger agreement
be approved and adopted. In its evaluation of the merger, the special committee
and the board of directors considered, among other things, the written opinion
of Burnham Securities Inc., the financial advisor of the special committee,
which states that, as of the date of the opinion, the cash merger consideration
of $3.75 per share to be received by the stockholders of Specialty Catalog
(other than Acquisition Corp. and its current and future stockholders) is fair
to such holders from a financial point of view. Burnham Securities Inc.'s
opinion is subject to the assumptions and qualifications set forth in its
written opinion, which is attached as Annex B to the enclosed proxy statement.
EACH OF THE BOARD OF DIRECTORS OF SPECIALTY CATALOG, UPON THE
RECOMMENDATION OF THE SPECIAL COMMITTEE, AND THE SPECIAL COMMITTEE DETERMINED
THAT THE MERGER AGREEMENT AND THE OTHER TRANSACTIONS CONTEMPLATED THEREBY ARE
FAIR TO, ADVISABLE AND IN THE BEST INTERESTS OF SPECIALTY CATALOG AND ITS
STOCKHOLDERS (OTHER THAN ACQUISITION CORP. AND ITS CURRENT AND FUTURE
STOCKHOLDERS) AND RECOMMENDS THAT YOU APPROVE AND ADOPT THE MERGER AGREEMENT.
The attached proxy statement provides you with detailed information
about the proposed merger and merger agreement. We urge you to read the entire
document carefully. The affirmative vote of holders of a majority of the
outstanding shares of Specialty Catalog common stock is required to adopt the
merger agreement and the merger.
REGARDLESS OF THE NUMBER OF SHARES YOU OWN, YOUR VOTE IS VERY
IMPORTANT. Therefore, whether or not you plan to attend the meeting, please
complete your proxy and return it in the enclosed envelope, which requires no
postage if mailed in the United States. If you attend the meeting and wish to
vote in person, your proxy will not be used.
Please do not send any certificates for your shares at this time.
Instructions for the purpose of exchanging your shares for the consideration to
be received upon consummation of the merger will be sent to you following the
consummation of the merger.
4
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THIS TRANSACTION, OR DETERMINED IF
THIS PROXY STATEMENT/PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL DEFENSE.
Dated: _________, 2001 By order of the Board of Directors,
-------------------------
Thomas McCain, Senior Vice
President, Chief Financial Officer
and Secretary
5
SPECIALTY CATALOG CORP.
21 Bristol Drive, South Easton, Massachusetts 02375
(508) 238-0199
---------------
PROXY STATEMENT
--------------
GENERAL INFORMATION
The enclosed proxy is solicited on behalf of the board of directors of
Specialty Catalog Corp. ("Specialty Catalog" or the "Company") for use at the
special meeting of our stockholders to be held on ________, ___________, 2001,
and at any adjournments or postponements thereof (the "Special Meeting"). This
proxy statement is first being mailed to our stockholders on or about _______,
2001.
Our principal executive office is located at 21 Bristol Drive, South
Easton, Massachusetts 02375.
You may revoke your proxy at any time prior to its use by giving
written notice to our Secretary, by executing a revised proxy at a later date or
by attending the special meeting and voting in person. Proxies in the form
enclosed, unless previously revoked, will be voted at the Special Meeting in
accordance with the specifications made by you thereon or, in the absence of
such specifications, in favor of the proposal to adopt the Agreement and Plan of
Recapitalization and Merger (the "merger agreement") between Specialty Catalog
and Specialty Acquisition Corp ("Acquisition Corp.") in order to effect the
merger and the related transactions contemplated therein and with respect to any
other business which may properly come before the Special Meeting, in the
discretion of the named proxies. If, in a proxy submitted on your behalf by a
person acting solely in a representative capacity, the proxy is marked clearly
to indicate that the shares represented thereby are not being voted with respect
to one or more proposals, then your proxy will not be counted as present at the
special meeting with respect to such proposals. Proxies submitted with
abstentions as to one or more proposals will be counted as present for purposes
of establishing a quorum for such proposals.
Only stockholders of record at the close of business on ______, 2001
are entitled to notice of, and to vote at, the special meeting, or any
adjournment or postponement thereof. We had 4,337,886 shares of common stock,
par value $0.01 per share ("common stock"), outstanding on May __, 2001, each of
which is entitled to one vote upon the matters to be presented at the Special
Meeting. The presence, in person or by proxy, of one third of the issued and
outstanding shares of common stock will constitute a quorum for the transaction
of business at the Special Meeting.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THIS TRANSACTION, OR DETERMINED IF
THIS PROXY STATEMENT/PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL DEFENSE.
6
SUMMARY TERM SHEET
THE FOLLOWING SUMMARY BRIEFLY DESCRIBES THE MATERIAL TERMS OF THE
PROPOSED MERGER. THIS SUMMARY DOES NOT CONTAIN ALL THE INFORMATION THAT MAY BE
IMPORTANT FOR YOU TO CONSIDER WHEN EVALUATING THE MERGER. WE ENCOURAGE YOU TO
READ THIS PROXY STATEMENT AND THE DOCUMENTS WE HAVE INCORPORATED BY REFERENCE
BEFORE VOTING. WE HAVE INCLUDED SECTION REFERENCES TO DIRECT YOU TO A MORE
COMPLETE DESCRIPTION OF THE TOPICS DESCRIBED IN THIS SUMMARY.
o THE COMPANIES. Specialty Catalog Corp. ("Specialty Catalog" or the
"Company") is a Delaware corporation that targets niche consumer product
categories, primarily via direct marketing. SC Direct, our principal operating
subsidiary in the United States ("SC Direct"), is the U.S.'s leading retailer of
women's wigs and hairpieces. Daxbourne International Limited, a subsidiary of SC
Direct, is a leading United Kingdom retailer and wholesaler of women's wigs and
hairpieces. SC Publishing, another subsidiary of SC Direct, provides continuing
education courses, seminars, and conferences to nurses and other health care
professionals.
Specialty Acquisition Corp. ("Acquisition Corp.") is a Delaware
corporation newly formed at the direction of Mr. Guy Naggar for the sole purpose
of effecting the merger. At the closing of the merger, Acquisition Corp. will be
merged with and into Specialty Catalog. Please read "SUMMARY--The Participants".
o REQUIRED VOTE. The merger agreement must be adopted by the
affirmative vote of the holders of at least a majority of the outstanding shares
of Specialty Catalog common stock. Please read "THE SPECIAL MEETING--Record Date
and Voting; Quorum; and Required Vote".
o MERGER CONSIDERATION. If the merger is completed, our stockholders
(other than Acquisition Corp.) will receive $3.75 per share in cash for each of
their shares of Specialty Catalog common stock unless you are a dissenting
stockholder and you perfect your dissenters' rights. Please read "QUESTIONS AND
ANSWERS ABOUT THE MERGER," and "SPECIAL FACTORS--Interests of Certain Persons in
the Merger" and "SPECIAL FACTORS--Appraisal Rights".
o EFFECTS OF THE MERGER. As a result of the merger:
o Specialty Catalog's stockholders, other than the
current and future stockholders of Acquisition Corp.
will no longer have any equity interest in Specialty
Catalog; and
o Specialty Catalog common stock will no longer be
quoted on The Nasdaq National Market and the
registration of Specialty Catalog common stock under
the Securities Exchange Act of 1934 will be
terminated. Please read "SPECIAL FACTORS--Structure
of the Transaction; Participants."
7
o TAX CONSEQUENCES. The receipt of cash in the merger
by you may be a taxable transaction to you. Please
read "SPECIAL FACTORS--Material Federal Income Tax
Consequences of the Merger".
o RECOMMENDATION. Because certain directors of
Specialty Catalog have actual or potential conflicts
of interest in evaluating the merger, the Specialty
Catalog board of directors appointed a special
committee, consisting of one independent director,
authorized to evaluate the proposed merger. The board
of directors, upon the recommendation of the special
committee, and the special committee determined that
the merger, the merger agreement and the other
transactions contemplated thereby are fair to,
advisable and in the best interests of Specialty
Catalog and its stockholders (other than Acquisition
Corp. and its current and future stockholders) and
recommends that you approve and adopt the merger and
merger agreement. Please read "SPECIAL FACTORS--
Recommendation of the Special Committee, and the
Board of Directors; Reasons for the Merger; Fairness
of the Merger" and "SPECIAL FACTORS--Position of the
Continuing Stockholders as to the Fairness of the
Merger".
o OPINION OF FINANCIAL ADVISOR. The special committee
and the board of directors received a written opinion
from Burnham Securities Inc. ("Burnham Securities")
to the effect that, subject to certain assumptions
and qualifications set forth in its opinion, as of
the date of the opinion, the cash merger
consideration of $3.75 per share to be received by
the stockholders of Specialty Catalog is fair to
such stockholders (other than Acquisition Corp. and
its current and future stockholders) from a financial
point of view. Please read "SPECIAL FACTORS--Opinion
of Burnham Securities Inc.".
o DISSENTERS' RIGHTS. If you do not wish to vote in
favor of the merger and you fulfill several
procedural requirements, including not voting in
favor of the merger agreement, Delaware law entitles
you to a judicial appraisal of the fair value of your
shares. Please read "SPECIAL FACTORS--Appraisal
Rights".
8
QUESTIONS AND ANSWERS ABOUT THE MERGER
The following questions and answers are intended to briefly address
some commonly asked questions regarding the merger. It should be read together
with the Summary that follows. These questions and answers may not address all
questions that may be important to you as a stockholder of Specialty Catalog.
Please refer to the more detailed information contained elsewhere in this proxy
statement, the appendices to this proxy statement, and the documents referred to
or incorporated by reference in this proxy statement.
Q: WHAT AM I BEING ASKED TO VOTE UPON?
A: You are being asked to vote to approve and adopt the Agreement and Plan
of Recapitalization and Merger (the "merger agreement") and the
transactions contemplated by such merger agreement, including the
merger of Acquisition Corp. with and into Specialty Catalog.
Q: WHY SHOULD OUR STOCKHOLDERS APPROVE THE MERGER?
A: For our stockholders, the merger provides liquidity for their shares of
Specialty Catalog common stock, at a premium of (i) approximately 42.6%
over the average closing price for the thirty day period immediately
preceding the date that the proposed merger was first publicly
announced and (ii) approximately 49.8% over the average closing price
for the thirty day period immediately preceding the day that Mr. Naggar
filed an amended Schedule 13D indicating that he was considering making
a preliminary proposal regarding, among other things, a transaction
involving the purchase of all or substantially all of the outstanding
shares of Specialty Catalog. Your board of directors, upon the
recommendation of the special committee, and the special committee
determined that the merger, the merger agreement and the other
transactions contemplated thereby are fair to, advisable and in the
best interests of Specialty Catalog and our stockholders (other than
Acquisition Corp. and its current and future stockholders) and
recommends that you approve and adopt the merger and merger agreement.
See "SPECIAL FACTORS--Recommendation of the Special Committee and the
Board of Directors; Reasons for the Merger; Fairness of the Merger".
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: Each share of Specialty Catalog common stock will be automatically
converted into the right to receive $3.75 per share, without interest,
other than the shares owned by Acquisition Corp. and shares owned by
stockholders who have demanded appraisal rights and satisfied the
procedures relating to appraisal rights. See "SUMMARY-- The Merger".
Q: WHO IS ACQUISITION CORP.?
A: Acquisition Corp. is a Delaware corporation formed at the direction
Mr. Naggar, a director of Specialty Catalog, for the purpose of
merging with and into Specialty Catalog.
9
Q: WHO ARE THE CONTINUING STOCKHOLDERS?
A: The continuing stockholders (the "Continuing Stockholders") are the
stockholders of Acquisition Corp., which currently includes Mr. Naggar,
who is a member of Specialty Catalog's board of directors, First Global
Holdings Limited, Oracle Investments and Holdings Limited, Ionic
Holdings LDC, and Three Greens Holdings Limited, and Alexander
Enterprise Holding Corp. Other stockholders of Specialty Catalog,
certain members of management, and certain members of the board of
directors of Specialty Catalog, including Messrs. Martin Franklin,
Samuel Katz and David Cicurel, who are members of our board of
directors, and Mr. Joseph Grabowski, our President and Chief Executive
Officer, and LEG Partners III SBIC, L.P., Wynnefield Partners Small Cap
Value, L.P., Wynnefield Partners Small Cap Value, L.P.I. and Wynnefield
Small Cap Value Offshore Fund, Ltd., have been invited to and are
likely to participate with the Continuing Stockholders in the merger,
thereby becoming Continuing Stockholders. In connection with the
merger, the Continuing Stockholders will exchange some or all of their
shares of Acquisition Corp. common stock for Specialty Catalog common
stock. For a more detailed description of these arrangements, please
read "SPECIAL FACTORS--Interests of Certain Persons in the Merger".
Q: CAN I CHOOSE TO BE A CONTINUING STOCKHOLDER?
A: No. The Continuing Stockholders will include only the stockholders of
Acquisition Corp. who are identified in this proxy statement and
described in the preceding answer.
Q: WHY WAS THE SPECIAL COMMITTEE FORMED?
A: Your board of directors formed a special committee consisting of Mr.
David Moore, to protect the interests of the stockholders of Specialty
Catalog, other than Acquisition Corp. and its current and future
stockholders, in evaluating and negotiating the merger agreement. Mr.
Moore, an independent director, is not an employee of Specialty Catalog
or an employee or director of Acquisition Corp. The special committee
independently selected and retained legal and financial advisors to
assist it. For further details about the special committee see
"SPECIAL FACTORS -- Special Committee."
Q: WHAT WAS THE OPINION OF THE FINANCIAL ADVISOR?
A: Each of the special committee and the board of directors considered the
opinion of the special committee's financial advisor, Burnham
Securities. Burnham Securities presented a written opinion to the
effect that, subject to certain assumptions and qualifications set
forth in its opinion, as of the date of the opinion, the cash merger
consideration of $3.75 per share to be received by the stockholders of
Specialty Catalog is fair to such stockholders (other than Acquisition
Corp. and the Continuing Stockholders) from a financial point of view.
Q: WHERE AND WHEN IS THE SPECIAL MEETING?
10
A: The special meeting will be held at _______, local time, on ________,
2001, at ______________.
Q: WHAT IS THE SPECIAL COMMITTEE'S AND THE BOARD'S RECOMMENDATION?
A: The board of directors, upon the recommendation of the special
committee, and the special committee recommend that you vote your
shares "FOR" the adoption of the merger agreement.
Q: HOW WILL I BE TAXED ON THE MERGER?
A: For income tax purposes, generally the receipt of cash by our
stockholders will be a taxable transaction. We urge all stockholders to
consult their tax advisors to determine the effect of the merger under
federal tax law (or foreign tax law where applicable), and under their
own state and local tax laws. See "SPECIAL FACTORS--Material Federal
Income Tax Consequences of the Merger".
Q: WHAT WILL HAPPEN TO SPECIALTY CATALOG AFTER THE MERGER?
A: After the merger, our common stock will no longer be publicly traded
and, therefore, the public will no longer participate in the future
earnings and growth of Specialty Catalog. Specialty Catalog will be
privately owned by the Continuing Stockholders. After the merger,
shares of our common stock will no longer be listed on The Nasdaq
National Market. See "SPECIAL FACTORS--Structure of the Transaction;
Participants".
Q: ARE OUR STOCKHOLDERS ENTITLED TO APPRAISAL RIGHTS?
A: Yes. Under the Delaware General Corporation Law, our stockholders are
entitled to appraisal rights. The rules governing satisfaction of the
requirements for exercising appraisal rights must be strictly complied
with or a stockholder's appraisal rights may be lost. For a description
of these rights and how to satisfy the applicable requirements, see
"SPECIAL FACTORS -- Appraisal Rights".
Q: WHO CAN VOTE AT THE SPECIAL MEETING?
A: Holders of our common stock at the close of business on ________, 2001
(the "record date") may vote at the special meeting. Each share of
common stock is entitled to one vote. See "SPECIAL MEETING - Record
Date and Voting; Quorum."
Q: WHAT VOTE IS REQUIRED?
A: The merger must be approved and the merger agreement adopted by the
holders of a majority of the shares of our common stock outstanding on
the record date.
11
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER
VOTE MY SHARES FOR ME?
A: No. The law does not allow your broker to vote your shares on the
merger at the special meeting without your direction. You should have
received instructions from your broker regarding how to vote your
shares. Please follow the directions your broker provided to you.
Shares that are not voted because you do not instruct your broker are
called "broker non-votes," and will have the effect of a vote "AGAINST"
the merger. See "SPECIAL MEETING -- Required Vote".
Q: IF I SEND IN MY PROXY CARD BUT FORGET TO INDICATE MY VOTE, HOW WILL MY
SHARES BE VOTED?
A: If you sign and return your proxy card but do not indicate how your
shares are to be voted at the special meeting, the shares represented
by your proxy will be voted "FOR" the merger.
Q: WHAT SHOULD I DO NOW TO VOTE AT THE SPECIAL MEETING?
A: Sign, mark and mail your proxy card indicating your vote on the merger
in the enclosed return envelope as soon as possible, so that your
shares of common stock can be voted at the special meeting.
Q: MAY I CHANGE MY VOTE AFTER I MAIL MY PROXY CARD?
A: Yes. You may change your vote at any time before your proxy is voted at
the special meeting. You can do this in three ways: First, you can send
a written statement that you would like to revoke your proxy (which to
be effective must be received by us prior to the vote at the special
meeting). Second, you can send a new proxy card prior to the vote at
the special meeting (which to be effective must be received by us prior
to the vote at the special meeting). You should send your revocation or
new proxy card to the Secretary of Specialty Catalog at the address on
the cover of this proxy statement. Third, you can attend the special
meeting and vote in person. However, your attendance alone will not
revoke your proxy; you must attend and cast your vote at the special
meeting. IF YOUR SHARES ARE HELD BY A BROKER, YOU MUST FOLLOW THE
DIRECTIONS PROVIDED BY YOUR BROKER TO HAVE YOUR SHARES VOTED OR TO
CHANGE YOUR INSTRUCTIONS.
Q: DO I SEND IN MY STOCK CERTIFICATES NOW?
A: No. Assuming the merger is completed, you will receive written
instructions for delivering your stock certificates in order to receive
the $3.75 merger consideration in the merger, without interest, from
Continental Stock Transfer and Trust Company, which will be appointed
as the exchange agent in connection with the merger. DO NOT SEND YOUR
CERTIFICATES NOW.
12
SUMMARY
This summary may not contain all of the information that is important
to you to evaluate the terms of the merger. For a more complete understanding of
the merger and the other information contained in this document, you should read
this entire document carefully, as well as the additional documents to which it
refers. For instructions on obtaining more information, see "Where You Can Find
More Information."
THE PARTICIPANTS
Specialty Catalog Corp.
21 Bristol Drive
South Easton, Massachusetts 02375
Telephone (508) 238-0199
Specialty Catalog was incorporated in Delaware on November 30, 1994, as
a holding company for SC Direct and SC Publishing, which emerged from bankruptcy
on November 23, 1994. We target niche consumer product categories, primarily via
direct marketing. SC Direct, our principal operating subsidiary in the United
States, is the US's leading retailer of women's wigs and hairpieces. Daxbourne
International Limited, a subsidiary of SC Direct, is a leading United Kingdom
retailer and wholesaler of women's wigs and hairpieces. SC Publishing, another
subsidiary of SC Direct, provides continuing education courses, seminars, and
conferences to nurses and other health care professionals. For further
information regarding Specialty Catalog, see "INFORMATION ABOUT THE TRANSACTION
PARTICIPANTS - The Company."
References in this proxy statement to "we," "our" or "us" refers to
Specialty Catalog, and not to Acquisition Corp. When we refer to Specialty
Catalog's management, we mean one or more of Specialty Catalog's principal
executive officers.
Specialty Acquisition Corp.
c/o Kane Kessler, P.C.
1350 Avenue of the Americas, 26th Floor
New York, NY 10019
Telephone (212) 541-6222
Acquisition Corp. is a Delaware corporation organized at the direction
of Mr. Guy Naggar, a member of Specialty Catalog's board of directors, for the
purpose of effecting the merger. If the merger is consummated, Acquisition Corp.
will be merged with and into Specialty Catalog. Acquisition Corp. has no
material assets and has not engaged in any activities except in connection with
entering into the merger agreement and carrying out the transactions
contemplated by the merger agreement. For further information, see "INFORMATION
ABOUT THE TRANSACTION PARTICIPANTS --The Continuing Stockholders."
13
All information contained in this proxy statement relating to
Acquisition Corp. and its stockholders has been supplied by them for inclusion
and has not been independently verified by us. No persons have been authorized
to give any information or to make any representations other than those
contained in this proxy statement.
INFORMATION CONCERNING THE MEETING
TIME, DATE AND PLACE. The special meeting will be held on _______,
________, 2001 at ____ a.m., local time, at ___________________________. See
"SPECIAL MEETING -- GENERAL."
PURPOSE OF THE MEETING. At the special meeting, holders of our common
stock at the close of business on the record date, which is 2001, will
consider and vote upon a proposal to adopt the merger agreement. If the merger
agreement is adopted at the special meeting and the merger is consummated,
Acquisition Corp. will be merged with and into the Company. All shares of our
common stock outstanding immediately prior to the time when the merger is
consummated, (other than shares owned by Acquisition Corp. and shares owned by
stockholders who have perfected their appraisal rights, will be converted into
the right to receive $3.75 in cash per share, payable to the holder thereof,
without interest. See "SPECIAL MEETING -- What will be Voted On".
RECORD DATE FOR THE MEETING; QUORUM REQUIREMENTS. The close of business
on ________, 2001 has been fixed as the record date for determining stockholders
entitled to notice of, and to vote at, the special meeting. Each share of common
stock outstanding on the record date is entitled to one vote at the special
meeting. As of the record date, [4,337,886] shares of Specialty Catalog's common
stock were outstanding. The presence, in person or by proxy, of one third of all
outstanding shares of Specialty Catalog's common stock is required to constitute
a quorum for the transaction of business at the special meeting. See "SPECIAL
MEETING -- Record Date and Voting; Quorum."
VOTING REQUIREMENTS. Under the Delaware General Corporation Law, the
affirmative vote of at least a majority of all of the outstanding shares of our
common stock is required to adopt the merger agreement. As of May 17,
2001, the Continuing Stockholders beneficially owned (excluding options), in the
aggregate, approximately 1.5 million shares of common stock, or approximately
35% of the outstanding shares of common stock. In addition, each of Messrs.
Samuel Katz, Martin Franklin, and David Cicurel, who are members of our board of
directors, Joseph Grabowski, our President and Chief Executive Officer, LEG
Partners III SBIC, L.P., Wynnefield Partners Small Cap Value, L.P., Wynnefield
Partners Small Cap Value, L.P.I. and Wynnefield Small Cap Value Offshore Fund,
Ltd., who beneficially own (excluding options), in the aggregate, approximately
1.6 million shares or approximately 37% of the outstanding shares of common
stock, have indicated their intent to vote any such shares in favor of the
merger agreement. Accordingly, the above named stockholders who beneficially own
(excluding options), in the aggregate, approximately 3.1 million shares of the
common stock as of May 17, 2001, or approximately 72% of the outstanding shares
of common stock on that date, are expected to vote their shares for the approval
of the merger agreement.
14
The merger agreement does not provide that approval of at least a
majority of our stockholders not affiliated with Acquisition Corp. or any of the
Continuing Stockholders is required to consummate the merger. Assuming that the
Continuing Stockholders, our directors and the other above named stockholders
vote for the approval of the merger and adoption of the merger agreement, the
affirmative vote of other stockholders will not be required to approve the
merger and adopt the merger agreement.
PROXIES. A proxy card is enclosed for your use in voting by mail. A
proxy may be revoked at any time prior to its exercise at the special meeting.
Common stock represented by properly executed proxies received at or prior to
the special meeting, and which have not been revoked, will be voted in
accordance with the instructions indicated on the proxy. See "SPECIAL MEETING --
Voting Your Shares by Proxy" and "SPECIAL MEETING -- Revoking Your Proxy."
YOU SHOULD NOT SEND ANY CERTIFICATES REPRESENTING SHARES OF COMMON
STOCK WITH YOUR PROXY CARD. IF THE MERGER IS CONSUMMATED, INFORMATION OUTLINING
THE PROCEDURE FOR THE EXCHANGE OF YOUR CERTIFICATES WILL BE SENT TO YOU.
GOING PRIVATE TRANSACTION
The merger constitutes a "going private" transaction for Specialty Catalog
under the Federal securities laws. Following the merger, (i) the separate
corporate existence of Acquisition Corp. will cease and Specialty Catalog will
be the surviving corporation, (ii) the common stock of Specialty Catalog will no
longer be publicly traded or quoted on The Nasdaq National Market, and (iii)
Specialty Catalog will no longer be required to file periodic and other reports
with the United States Securities and Exchange Commission and will formally
terminate its reporting obligations under the Securities Exchange Act of 1934.
As a result of the merger, the holders of our common stock will be entitled to
receive the cash merger consideration and will no longer have any interest in
Specialty Catalog, including its future earnings or growth, the risk associated
with its business and the fluctuation of the price of its common stock.
RECOMMENDATION TO STOCKHOLDERS
Because Mr. Naggar, a director of Specialty Catalog, is a Continuing
Stockholder (and certain members of management, and certain members of the board
of directors of Specialty Catalog, including Messrs. Franklin, Katz and Cicurel,
who are members of our board of directors, and Mr. Grabowski, our President and
Chief Executive Officer, and Golub Associates, Wynnefield Partners Small Cap
Value, L.P., Wynnefield Partners Small Cap Value, L.P.I. and Wynnefield Small
Cap Value Offshore Fund, Ltd. have been invited to and are likely to participate
as Continuing Stockholders in the merger) and therefore may have interests in
the merger that differ from those of stockholders generally, the board of
directors established a special committee consisting of an independent director
to review and evaluate the proposed transaction. The sole member of the special
committee is not a Continuing Stockholder. Our board of directors, upon the
recommendation of the special committee, and the special committee have
determined that the merger agreement, the merger, and the other transactions
contemplated thereby are fair to, advisable and in the best interests of
Specialty Catalog and its stockholders
15
(other than Acquisition Corp. and the Continuing Stockholders) and unanimously
recommends that you vote "FOR" approval of the merger and adoption of the merger
agreement. Mr. Naggar did not vote as a director on any matter of the board of
directors relating to the merger. See "SPECIAL FACTORS -- Recommendation of the
Special Committee and the Board of Directors; Reasons for the Merger; Fairness
of the Merger."
REASONS FOR THE MERGER
During the course of its deliberations and in recommending approval of
the merger agreement, the special committee considered, with the assistance of
its financial and legal advisors, a number of factors, including:
o the results of operations, financial condition, business and
prospects of Specialty Catalog;
o the economic and market conditions affecting Specialty Catalog
and the catalog/specialty distributor industry;
o internally generated financial projections for Specialty
Catalog compiled by our management;
o the presentation and opinion of Burnham Securities;
o the premium of the $3.75 per share merger consideration over
the prices at which the shares have traded over the previous
twelve months;
o the conclusion of the special committee that Specialty Catalog
has obtained the highest price per share that Acquisition
Corp. is willing to pay;
o the likelihood that a third party would not be willing to
offer a higher per share price than Acquisition Corp.;
o the possible delisting, and the resultant lack of liquidity in
the event of a delisting, of the Specialty Catalog shares from
The Nasdaq National Market;
o that under Delaware law, Specialty Catalog's stockholders have
the right to an appraisal of the value of their shares in
connection with the merger;
o that the merger consideration is payable in cash, thereby
eliminating any uncertainties in valuing the consideration;
o that the per share merger consideration and the other terms
and conditions of the merger agreement were the result of
arm's-length negotiations among the special committee and Mr.
Naggar and their respective advisors;
16
o that the merger agreement does not unduly deter a third party
from making an acquisition proposal; and
o that Specialty Catalog had repurchased a block of its shares
at an average price of $2.63 per share based on repurchases
during 2000 and at an average price of $3.56 per share based
on repurchases during 1999 and 2000.
FAIRNESS OPINION
Burnham Securities served as financial advisor to the special
committee. Burnham Securities has delivered a written opinion to the special
committee and our board of directors to the effect that, subject to certain
assumptions and qualifications set forth in its opinion, as of the date of the
opinion, the cash merger consideration of $3.75 per share to be received by the
stockholders of Specialty Catalog is based on repurchases during 1999 and 2000
is fair to such stockholders (other than Acquisition Corp and the Continuing
Stockholders) from a financial point of view. A copy of Burnham Securities'
opinion, which includes a discussion of the information reviewed, assumptions
made and matters considered by Burnham Securities, is attached to this proxy
statement as Appendix B. You should read this opinion in its entirety, as well
as the other information described under "Special Factors -- Opinion of Burnham
Securities Inc."
THE MERGER
The merger agreement is the legal document that governs the merger. We
have attached the merger agreement as Appendix A to this proxy statement, and we
encourage you to read it carefully. See "SUMMARY OF THE MERGER AGREEMENT AND
RELATED AGREEMENTS -- The Merger Agreement."
Structure of the Merger and Consequences to the Company Stockholders
Acquisition Corp., a Delaware corporation newly formed to effect the
merger, will be merged with and into Specialty Catalog, with Specialty Catalog
being the surviving corporation.
In the merger, each outstanding share of Specialty Catalog's common
stock (other than shares held by Acquisition Corp. and shares held by
stockholders who have perfected their appraisal rights) will be converted into
the right to receive $3.75 in cash, without interest. Generally, each
outstanding unexercised option, warrant, or other right to purchase Specialty
Catalog common stock issued pursuant to the 1996 Stock Incentive Plan, as
amended, and the 2000 Stock Incentive Plan will be canceled immediately prior to
the merger and converted into the right to receive cash for the difference, if
positive, between $3.75 per share and the exercise price of the option. See
"SPECIAL FACTORS--Structure of the Transaction; Participants, "Treatment of
Options", and "Certain Stock Option Arrangements."
Appraisal Rights
Our stockholders are entitled to have the fair value of their shares of
common stock appraised by a court and paid to them in cash. To do this, the
holders of our common stock who choose to exercise their appraisal rights must
follow these required procedures:
17
o deliver a written demand for appraisal to us on or before the
vote is taken at the special meeting;
o do not vote in favor of or abstain from voting on the merger;
and
o hold such shares of common stock from the date of the making
of the demand through the closing of the merger.
If a stockholder follows the required formalities, his/her shares will
not be converted in the merger into the right to receive the $3.75 per share in
cash, without interest. Instead, such holder's only right will be to receive the
appraised value of his/her shares in cash as determined by a court. See "SPECIAL
FACTORS - Appraisal Rights."
Interest of Officers and Directors in the Mergers
Our stockholders should be aware that a number of our officers and
directors may have interests in the merger that may be different from, or in
addition to, theirs. See "SPECIAL FACTORS -- Interests of Certain Persons in the
Merger."
Accounting Treatment
It is anticipated that the merger is expected to be accounted for under
the purchase method of accounting. The merger is structured as a leveraged
buyout transaction with certain stockholders of Specialty Catalog continuing to
be stockholders in the surviving corporation. The assets and liabilities of
Specialty Catalog will be recorded at fair value for the interests acquired by
the new investors and at the carryover, or predecessor basis for continuing
stockholders from Specialty Catalog.
Conditions to Completion of the Merger
The obligations of each of Specialty Catalog and Acquisition Corp. to
complete the merger and the other transactions contemplated by the merger
agreement are subject to the satisfaction, or waiver, of numerous conditions. To
review the conditions to completion of the merger, see "SUMMARY OF THE MERGER
AGREEMENT -- Conditions to Completion of the Merger."
Regulatory Approvals
The Company does not believe there are any material governmental or
regulatory approvals required for completion of the mergers, other than
compliance with applicable corporate law of Delaware, the Federal Securities
Laws and various blue sky laws.
MERGER FINANCING
Acquisition Corp. has made arrangements with Golub Associates
Incorporated and Fleet National Bank to finance the merger. In addition, certain
of the Continuing Stockholders intend to make
18
equity contributions to Acquisition Corp. prior to the merger. Acquisition
Corp.'s receipt of cash proceeds from debt and equity financing sufficient to
consummate the transactions contemplated by the merger is a condition precedent
to Acquisition Corp.'s obligation to consummate the merger. There can be no
assurance that Acquisition Corp. will satisfy its financing obligations under
the merger agreement. For additional information, please see "SPECIAL
FACTORS--Amount and Source of Funds and Financing of the Merger."
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Except for the historical information contained herein, this proxy
statement includes and incorporates by reference "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934, including, but not limited to, Specialty
Catalog's expected future revenues, operations and expenditures, estimates of
the potential markets for our products, assessments of competitors and potential
competitors and projected timetables for the market introduction of our
products. Investors are cautioned that forward-looking statements are inherently
uncertain. Actual performance and results of operations may differ materially
from those projected or suggested in the forward-looking statements due to
certain risks and uncertainties, including, but not limited to, the following
risks and uncertainties: (i) our indebtedness and future capital requirements,
(ii) increasing postal rates, paper prices and media costs, (iii) limited
sources of fiber used to make our products, (iv) the limited number of suppliers
of our products, (v) our dependence upon foreign suppliers, especially in China,
Korea and Indonesia, (vi) the customary risks of doing business abroad,
including fluctuations in the value of currencies, (vii) the potential
development of a cure for hair loss and cancer treatment improvements, (viii)
the effectiveness of our catalogs and advertising programs, (ix) our
competition, and (x) the impact of acquisitions on our prospects. The
forward-looking statements contained herein represent our judgment as of the
date of this statement, and we caution readers not to place undue reliance on
such statements.
HISTORICAL MARKET INFORMATION
Our common stock is traded on The Nasdaq National Market under the
symbol "CTLG." The following table sets forth the high and low sale prices on
The Nasdaq National Market for our shares of common stock for the periods
indicated:
HIGH LOW
2001
First Quarter.................. $2.656 $1.875
2000
First Quarter.................. $5.250 $2.625
Second Quarter................. $3.125 $2.000
Third Quarter.................. $3.000 $2.313
Fourth Quarter................. $2.969 $1.563
1999
First Quarter.................. $4.375 $3.000
Second Quarter................. $4.000 $3.188
Third Quarter.................. $4.500 $3.125
Fourth Quarter................. $6.000 $3.375
19
The number of registered holders of record of our common stock as of
March 23, 2001 was approximately 50.
We have been notified by The Nasdaq Stock Market, Inc. that our common
stock failed to maintain a minimum market value of public float and is below its
continued listing standards and that Specialty Catalog's current listing is
subject to review by Nasdaq in accordance with its continued listing procedures.
Accordingly, while an established public trading market exists with respect to
our common stock, there can be no assurance that, even in the absence of the
merger, the common stock will remain listed on The Nasdaq National Market or
otherwise be subject of an established trading market.
We have not paid a dividend with respect to our common stock and we
do not anticipate paying dividends in the foreseeable future. Under the terms of
our existing debt agreement, we are not permitted to pay dividends.
On April 24, 2001, the trading day prior to the day that Mr. Naggar
filed an amended Schedule 13D announcing that he was preparing to make a
preliminary proposal regarding, among other things, a transaction involving
the purchase of all or substantially all of the outstanding shares of Specialty
Catalog, the closing price of Specialty Catalog's common stock on the Nasdaq
Market was $2.63.
On April 27, 2001, the last full trading day prior to the first public
announcement of the proposed transaction, the closing price of Specialty
Catalog's common stock on The Nasdaq National Market was $3.05. On May 3, 2001,
the last full trading day prior to the announcement of the execution of the
merger agreement, the closing price of Specialty Catalog's common stock on The
Nasdaq National Market was $3.40 per share. On May 15, 2001, the closing price
of Specialty Catalog's common stock was $3.51 per share. Our stockholders are
urged to obtain a current market quotation for the shares.
20
THE SPECIAL MEETING
GENERAL
This proxy statement is being furnished to our stockholders as part of
the solicitation of proxies by our board of directors for use at a special
meeting to be held on ____________, 2001, starting at _____ __.m. local time, at
_______________________ or any adjournment or postponement thereof.
WHAT WILL BE VOTED ON
The purpose of the special meeting is for our stockholders to consider
and vote upon the approval and adoption of the merger and merger agreement and
such other business as may properly come before the special meeting or any
adjournment or postponement of the special meeting. A copy of the merger
agreement is attached to this proxy statement as Appendix A.
RECORD DATE AND VOTING; QUORUM
The holders of record of Specialty Catalog shares as of the close of
business on __________, 2001, are entitled to receive notice of, and to vote at,
the special meeting. On the record date, there were 4,337,886 shares of our
common stock outstanding. The holders of one third of the outstanding shares
outstanding on the record date will constitute a quorum for purposes of the
special meeting. Any shares of our common stock held in treasury are not
considered to be outstanding for purposes of determining a quorum. Once a share
is represented at the special meeting, it will be counted for the purpose of the
special meeting, unless the holder is present solely to object at the special
meeting.
REQUIRED VOTE
Each share of our common stock outstanding on _________, 2001, entitles
the holder to one vote at the special meeting. Completion of the merger requires
the adoption of the merger agreement and approval of the merger by the
affirmative vote of the holders of a majority of the outstanding shares of our
common stock. You may vote your shares (1) by returning the enclosed proxy or
(2) by appearing at the special meeting and voting.
As of May 17, 2001, the Continuing Stockholders beneficially owned
(excluding options), in the aggregate, approximately 1.5 million shares of
common stock, or approximately 35% of the outstanding shares of common stock. In
addition, each of Messrs. Katz, Franklin and Cicurel, who are members of the
board of directors, Mr. Grabowski, our President and Chief Executive Officer,
and LEG Partners III SBIC, L.P., Wynnefield Partners Small Cap Value, L.P.,
Wynnefield Partners Small Cap Value, L.P.I. and Wynnefield Small Cap Value
Offshore Funds Ltd., who beneficially own (excluding options), in the aggregate,
approximately 1.6 million shares or approximately 37% of the outstanding shares
of common stock, have indicated their intent to vote their shares in favor of
the merger agreement. Accordingly, the above named
21
stockholders who beneficially own (excluding options), in the aggregate,
approximately 3.1 million shares of the common stock as of May 17, 2001, or
approximately 72% of the outstanding shares of common stock on that date are
expected to vote their shares for the approval of the merger agreement.
The merger agreement does not provide that approval of at least a
majority of our stockholders not affiliated with Acquisition Corp. or any of the
Continuing Stockholders is required to consummate the merger. Assuming that the
Continuing Stockholders, our directors and the other above named stockholders
vote for the approval of the merger agreement, the affirmative vote of other
stockholders will not be required to approve the merger agreement.
VOTING SHARES HELD IN "STREET NAME" BY PROXY
Under applicable rules, brokers who hold shares in street name for
customers have the authority to vote on "routine" proposals when they have not
received instructions from beneficial owners. Under these rules, brokers are
precluded from exercising their voting discretion with respect to the approval
of non-routine matters such as the merger proposal and thus, absent specific
instructions from the beneficial owner of such shares, brokers may not vote such
shares with respect to the approval of such proposals (i.e., "broker
non-votes"). Abstentions and properly executed broker non-votes will be treated
as shares that are present and entitled to vote at the special meeting for
purposes of determining whether a quorum exists and will have the same effect as
votes against approval of the merger agreement.
DISSENTING HOLDERS
Our stockholders have the right to dissent from approval of the merger
agreement, and, subject to strict compliance with certain requirements and
procedures set forth in Section 262 of the Delaware General Corporation Law, to
receive payment of the "fair value" of shares of common stock. Failure to follow
such procedures precisely will result in a loss of dissenters' rights. See
"SPECIAL FACTORS - Appraisal Rights."
VOTING YOUR SHARES BY PROXY
If you vote your shares of common stock by signing a proxy, your shares
will be voted at the special meeting as you indicate on your proxy card. If no
instructions are indicated on your signed proxy card, your shares of common
stock will be voted "FOR" the approval of the merger agreement. If any matter
not specifically listed in the notice of special meeting is presented at the
special meeting, Messrs. Thomas McCain and David Moore will vote your shares in
accordance with their best judgment. At the time we began printing this proxy
statement, we knew of no matters that needed to be acted on at the meeting other
than those discussed in this proxy statement.
REVOKING YOUR PROXY
22
A proxy that is properly submitted to Specialty Catalog may be revoked
at any time before it is exercised. For a stockholder "of record" (meaning one
whose shares are registered in his or her own name) to revoke a proxy, the
stockholder may either:
o send in another signed proxy card with a later date;
o submit a written revocation to the Secretary of Specialty
Catalog at the address on the cover of this proxy statement;
or
o attend the special meeting, notify us in writing that the you
are revoking your proxy and vote in person. However, simply
attending the special meeting will not revoke a proxy.
A "beneficial holder" whose shares are registered in another name (for example
in "street name") must follow the procedures required by the holder of record,
which is usually a brokerage firm or bank, to revoke a proxy. You should contact
the holder of record directly for more information on these procedures.
COSTS OF SOLICITING THESE PROXIES
All expenses incurred in connection with solicitation of the enclosed
proxy will be paid by Specialty Catalog. Officers and employees of Specialty
Catalog may solicit proxies by telephone or in person. However, they will not be
paid for soliciting proxies. We will also request that persons and entities
holding shares in their names or in the names of their nominees that are
beneficially owned by others send proxy materials to and obtain proxies from
those beneficial owners, and will reimburse those holders for their reasonable
expenses in performing those services.
ADJOURNMENTS OR POSTPONEMENTS
Although it is not expected, the special meeting may be adjourned or
postponed for the purpose of soliciting additional proxies or to satisfy certain
conditions to closing the merger as set forth in the merger agreement. Any
adjournment or postponement of the special meeting may be made without notice,
other than by an announcement made at the special meeting, by approval of the
holders of a majority of the shares of common stock present in person or
represented by proxy at the special meeting, whether or not a quorum exists. Any
signed proxies received by us will be voted in favor of an adjournment or
postponement of the special meeting in these circumstances, unless either a
written note on the proxy delivered by the stockholder directs otherwise or the
stockholder has voted against the merger agreement. Thus, proxies voting against
the merger will not be used to vote for adjournment of the special meeting for
the purpose of providing additional time. Any adjournment or postponement of the
special meeting will allow stockholders who have already sent in their proxies
to revoke them at any time prior to their use.
OTHER MATTERS TO BE CONSIDERED
23
The board is not currently aware of any other business to be brought
before the special meeting. If, however, other matters are properly brought
before the special meeting or any adjournment or postponement of the special
meeting, the persons appointed as proxies will have discretionary authority to
vote the shares represented by duly executed proxies in accordance with their
discretion and judgment.
24
SPECIAL FACTORS
STRUCTURE OF THE TRANSACTION; PARTICIPANTS
If the merger is approved and the merger agreement adopted by our
stockholders and the other conditions to the closing of the merger are either
satisfied or waived, Acquisition Corp. will be merged with and into Specialty
Catalog, with Specialty Catalog being the surviving corporation. After the
merger, the stockholders of Acquisition Corp. will own Specialty Catalog. For a
chart describing the equity ownership of Specialty Catalog following the merger,
see "SPECIAL FACTORS - Interests of Certain Persons in the Merger."
When the merger is completed, each share of Specialty Catalog common
stock issued and outstanding at the closing of the merger (other than those
shares held by Acquisition Corp. and those shares held by Specialty Catalog
stockholders who have perfected their appraisal) will be canceled and converted
into the right to receive $3.75 in cash, without interest. The Continuing
Stockholders are the stockholders of Acquisition Corp., which currently includes
Mr. Naggar, who is a member of Specialty Catalog's board of directors, First
Global Holdings Limited ("First Global"), Oracle Investments and Holdings
Limited ("Oracle"), Ionic Holdings LDC ("Ionic"), and Three Greens Holdings
Limited ("Three Greens"), and Alexander Enterprise Holding Corp. ("Alexander").
Other stockholders, certain members of management, and certain members of the
board of directors of Specialty Catalog, including Messrs. Martin Franklin,
Samuel Katz, and David Cicurel, who are members of our board of directors, Mr.
Grabowski, our President and Chief Executive Officer, and Golub Associates, LEG
Partners III SBIC, L.P. Wynnefield Partners Small Cap Value, L.P., Wynnefield
Partners Small Cap Value, L.P.I. and Wynnefield Small Cap Value Offshore Fund,
Ltd., have been invited to and are likely to participate as Continuing
Stockholders in the merger, thereby becoming Continuing Stockholders. The
Continuing Stockholders will be treated differently than the other stockholders.
Immediately prior to the merger, some or all of the shares of Specialty Catalog
common stock held by the Continuing Stockholders will be exchanged for shares of
common stock of Acquisition Corp., having the effect that after the merger the
Continuing Stockholders will own all of the shares of common stock of Specialty
Catalog. See "SPECIAL FACTORS -- Interest in Certain Persons in the Merger".
As a result of the merger, Specialty Catalog will become a privately
held company and there will be no public market for its common stock, which will
no longer be quoted on The Nasdaq National Market and price quotations for sales
of shares in the public market will no longer be available. In addition, the
registration of Specialty Catalog common stock under the Securities Exchange Act
of 1934 will be terminated.
For income tax purposes, generally, the receipt of the merger
consideration by holders of common stock pursuant to the merger will be a
taxable sale of the holders' common stock. See "Material Federal Income Tax
Consequences of the Merger."
The principal benefits of the merger to stockholders of Specialty
Catalog (other than Acquisiton Corp. and the Continuing Stockholders) after the
merger include the following:
25
o the receipt by such stockholders of $3.75 per share in cash,
representing a substantial premium over the market prices for
Specialty Catalog common stock over the previous twelve
months;
o the avoidance of the risk associated with any decrease in the
future earnings, growth or value of Specialty Catalog
following the merger; and
o the avoidance of owning a security that lacks liquidity and
may no longer be traded on a national exchange.
The principal detriments to stockholders of Specialty Catalog (other
than Acquisition Corp. and the Continuing Stockholders) after the merger include
the following:
o Specialty Catalog's stockholders (other than Acquisition Corp.
and the Continuing Stockholders) will cease to have an
interest in Specialty Catalog and therefore will no longer
benefit from increases in the future earnings, growth or value
of Specialty Catalog or payment of dividends on Specialty
Catalog common stock, if any; and
o generally, the receipt of cash in the merger will be a taxable
transaction for U.S. federal income tax purposes under the
Internal Revenue Code of 1986 and may also be a taxable
transaction under applicable state, local, foreign and other
tax laws.
The principal benefits of the merger to Acquisition Corp. and the
Continuing Stockholders are that, because its common stock will be privately
held, Specialty Catalog will enjoy certain efficiencies, such as:
o a reduction of the cost and time devoted by its management and
certain other employees to compliance with certain Securities
and Exchange Commission ("SEC") reporting requirements;
o its directors, officers and beneficial owners of more than
10% of the shares of common stock will be relieved of the
reporting requirements under Section 16 of the Securities
Exchange Act of 1934; and
o Specialty Catalog will be relieved of The Nasdaq National
Market listing and reporting requirements.
The principal detriments of the merger to Acquisition Corp. and the
Continuing Stockholders include the following:
o all of the risk of any decrease in the
earnings, growth or value of Specialty
Catalog following the merger will be borne
by Acquisition Corp. and the Continuing
Stockholders; and
o Specialty Catalog will have substantially
more debt outstanding after the merger
(approximately $7.5 million in new debt),
which may adversely affect the equity value
held by Acquisition Corp. and the Continuing
Stockholders. In general, higher levels of
debt can have the
26
effect of increasing the risk to equity
holders of losing the entire value of their
investment. In addition, such indebtedness
may:
o increase the vulnerability of Specialty
Catalog to general adverse economic and
industry conditions;
o that Specialty Catalog may be required to
dedicate a portion of its cash flow from
operations to payments on its indebtedness,
thereby reducing the availability of its cash
flow to fund working capital, capital
expenditures, acquisitions and investments
and other general corporate purposes;
o a reduction in the ability of Specialty
Catalog to borrow additional funds;
o much of the common stock of Specialty Catalog that will be
held by the Continuing Stockholders after the merger will be
subject to restrictions pursuant to the terms of a
Stockholders Agreement. See "- Related Agreements -
Stockholders Agreement;" and
o following the merger, there will be no public trading market
for Specialty Catalog's shares.
MATERIAL CONTACTS AND BOARD DELIBERATIONS
The decision of the special committee and the board of directors to
approve and recommend the merger agreement was the result of an extended
evaluation process. Since becoming a public company in 1996, the board of
directors of Specialty Catalog has from time to time evaluated and considered
various alternatives for enhancing stockholder value. During the last few
years, the board of directors believed that the trading prices of Specialty
Catalog common stock (to the extent unaffected by publicity concerning
Specialty Catalog's possible sale) have not reflected the inherent value of
Specialty Catalog. The board of directors and the management of Specialty
Catalog believe, based in part on the advice of their financial advisors, that
the market price of Specialty Catalog common stock has been adversely affected
by several factors, including:
o a lack of investor appreciation for the
value-added nature of the Specialty Catalog
business model;
o the small market capitalization and low
average daily trading volume of Specialty
Catalog common stock on The Nasdaq National
Market;
o an insufficient number of market makers and
securities trading firms preparing research
reports with respect to Specialty Catalog;
o the existence of few comparable public
companies against which investors could
evaluate Specialty Catalog's performance;
and
27
o that stock with small market capitalizations,
so called "microcap" has underperformed over
the last two years.
On July 9, 1998, the board of directors authorized management to explore various
strategic alternatives to maximize stockholder value, including a possible sale
or recapitalization of Specialty Catalog. On September 8, 1998, the board of
directors authorized Specialty Catalog to engage a prominent investment bank for
the purpose of exploring a sale of Specialty Catalog.
On December 18, 1998, in accordance with its belief that Specialty Catalog's
common stock was undervalued, the board of directors authorized the repurchase
of up to 700,000 shares, approximately 14% of the then outstanding common stock,
from Dickstein Partners at $3.125 per share.
On January 11, 1999, having received no viable indications of interest to
purchase Specialty Catalog, the board of directors ended the process of pursuing
a possible sale of Specialty Catalog. Additionally, the board authorized the
repurchase of up to $1,000,000 of Specialty Catalog's common stock.
Despite the formal termination of the efforts to sell Specialty Catalog,
management continued to evaluate its strategic alternatives and options on an
ongoing basis.
On June 24, 1999, LEG Partners III SBIC, L.P., an affiliate of Golub Associates
Incorporated ("Golub Associates"), purchased 602,689 shares of Specialty
Catalog's common stock in a privately negotiated transaction for approximately
$3.25 per share or $1,958,739, in the aggregate.
On October 4, 1999, Mr. Samuel Katz, a director of Specialty Catalog, received a
phone call from Mr. Lawrence Golub, the president of Golub Associates, who
expressed an interest in acquiring Specialty Catalog for $4.50 per share in a
merger transaction, subject to his due diligence review and ability to obtain
adequate financing commitments. Following numerous discussions with Messrs. Katz
and Franklin and the other members of the board of directors, on October 12,
1999, Mr. Golub confirmed that he was prepared to offer $5.00 per share in a
merger transaction subject to his due diligence and standard contingencies.
On October 13, 1999, the board of directors met and appointed Messrs. Franklin
and Katz as members of a special committee to negotiate a transaction with Mr.
Golub.
Following the October 13, 1999 meeting, the parties and their counsel held
numerous discussions which culminated on December 2, 1999, in the execution of a
non-binding letter of intent between the parties.
28
On December 3, 1999 Specialty Catalog issued a press release announcing the
execution of the letter of intent with Mr. Golub in which he agreed to purchase
all outstanding shares of our common stock for a price of $5.00 per share in
cash.
On December 22, 1999, the special committee retained Burnham Securities to
review and render an opinion on the fairness, from a financial point of view, of
the consideration to be received by Specialty Catalog's stockholders in the
proposed transaction.
On January 23, 2000, the special committee met and resolved to recommand to the
full board of directors that it approve the merger. Following the special
committee meeting on January 23, the noard of director and approved the
transaction.
On January 18, 2000, the parties executed the final form of merger agreement and
option agreement. On January 19, Specialty Catalog issued a press release
announcing the execution of the merger agreement and option agreement.
On March 8, 2000, the merger agreement with Golub Associates was terminated
because all conditions to the transaction could not be satisfied on a timely
basis.
On December 6, 2000, Specialty Catolog was notified by Nasdaq that its common
stock failed to maintain a minimum market value of public float was below its
continued listing standards and that the Company's current listing was subject
to review by The Nasdaq National Market in accordance with Nasdaq's continued
listing procedures.
On February 16, 2001, Specialty Catalog engaged Marlin Holdings, LLC ("Marlin")
to assist Specialty Catalog with the structure, financing and coordination of
any management buyout or other privatization transaction. Mr. Martin Franklin is
the Chairman and Chief Executive Officer of Marlin.
On March 15, 2001, Specialty Catalog was notified by Nasdaq that Special Catalog
did not regain compliance with Nasdaq's listing standards and will be delisted.
Thereupon, Specialty Catalog requested a hearing to appeal Nasdaq's
determination, which stayed such delisting.
On March 26, 2001, the entire board of directors consisting of Messrs. David
Cicurel, Martin E. Franklin, Samuel L. Katz and Guy Naggar, held a meeting to
discuss, among other things, the notification from Nasdaq. The members of the
board engaged in a lengthy discussion regarding, among other things, various
alternatives for enhancing stockholder value. At the meeting Mr. Naggar, also a
substantial stockholder of Specialty Catalog, indicated that he was considering
the possibility of pursuing discussions pertaining to entering into an
extraordinary transaction with Specialty Catalog which could result in a change
of ownership or structure of Specialty Catalog, including a transaction to take
Specialty Catalog private through the purchase of all or substantially all of
the outstanding shares of Specialty Catalog. Some other members of the board of
directors then expressed an interest in possibly participating in any
transaction led by
29
Mr. Naggar. The board of directors determined to increase the board size and
elect a new independent member to the board of directors.
On March 26, 2001, Mr. Naggar held discussions with Mr. Franklin regarding the
possibility of Mr. Franklin participating in such a transaction. Such
discussions were inconclusive.
On or about March 26, 2001, Mr. Naggar and Mr. Franklin held discussions with
Mr. Joseph Grabowski, the President and Chief Executive Officer of Specialty
Catalog, to solicit Mr. Grabowski's interest in participating in a possible
transaction.
Subsequent to March 26, 2001, Mr. Naggar and Mr. Franklin held discussions with
Golub Associates and its representatives to explore the interest of Golub
Associates in providing subordinated mezzanine financing for use in a
transaction.
On or about April 10, 2001, at Mr. Naggar's request, Messrs. Grabowski and
McCain initiated discussions with Fleet National Bank, the Company's primary
lender, with respect to obtaining the consent of Fleet National Bank to the
proposed transaction and to continuing and amending its credit facility, and
allowing borrowings under the credit facility after and in connection with a
transaction.
On April 17, 2001, by unanimous written consent of the board of directors of
Specialty Catalog, David L. Moore was elected as a director of the Company.
On April 18, 2001, the board of directors held a telephonic special meeting at
which Mr. Naggar indicated he was considering making an offer to acquire for
cash, through merger, all the outstanding shares of common stock of the Company
at a price of $3.25 per share. Each of Messrs. Cicurel, Franklin and Katz also
noted that they had an interest in participating in the transaction. In response
to Mr. Naggar's indication, the board of directors voted to establish a special
committee comprised of directors who did not have actual or potential conflicts
of interest with such transaction and who were not employees of Specialty
Catalog. Mr. Moore was appointed as the sole member of the special committee,
which was thereupon authorized to review and evaluate any acquisition proposal,
including a proposal made by Mr. Naggar. If it deemed advisable, the Special
Committee was thereupon authorized to enter into negotiations and discussions
with Mr. Naggar, his representatives and advisors, and with any other person
interested in acquiring Specialty Catalog, to investigate and evaluate any such
transactions, and to make recommendations to the board of directors of Specialty
Catalog to third parties. The board of directors did not authorize the special
committee to solicit indications of interest from third parties relating to a
possible acquisition of Specialty Catalog or to conduct an auction of Specialty
Catalog to third parties. The board of directors also authorized and directed
the special committee to retain such legal, financial and other advisors as the
special committee deemed necessary to fulfill its duties, the cost, fees and
expenses of such advisors to be paid by Specialty Catalog. Thereafter, Mr.
Naggar contacted the other Continuing Stockholders and each of Sam Katz and
David Cicurel, members of the board of directors, to discuss their interest in
possibly participating in a transaction.
On April 19, 2001, the special committee contacted the law firm of Sullivan
& Cromwell to inquire about retaining Sullivan & Cromwell as counsel for the
special committee.
30
On April 23, 2001, the special committee held a telphonic meeting with
representatives of Sullivan & Cromwell. The representatives of Sullivan &
Cromwell indicated that Sullivan & Cromwell was prepared to act as counsel to
the special committee. After due inquiry, the special committee determined that
Sullivan & Cromwell was independent of Mr. Naggar and his affiliates and the
other stockholders of Specialty Catalog who might later joint Mr. Naggar in the
acquisition of Specialty Catalog and their affiliates and the special committee
approved the engagement of Sullivan & Cromwell as its counsel. The
representatives of Sullivan & Cromwell then made a presentation to the special
committee regarding the special committee's fiduciary duties, responsibilities
and prerogatives as a special committee. The representatives of Sullivan &
Cromwell and the special committee also discussed the need for the special
committee to begin contacting investment banks as candidates to serve as
financial advisor to the special committee.
On April 23, 2001, the special committee held a teleconference with Mr.
Franklin, representatives of Kane Kessler, counsel to Mr. Naggar and which had
previously served as counsel to Specialty Catalog, together with representatives
of Sullivan & Cromwell. Mr. Franklin provided an overview of the history of
Specialty Catalog as well as Mr. Naggar's relationship with Specialty Catalog.
There was also discussion during the meeting of:
o the formation of the special committee by the board of
directors and the scope of authority of the special committee;
o the threat of Specialty Catalog being delisted from The Nasdaq
National Market and the consequences of such delisting;
o the intention of Mr. Naggar to establish a group of current
stockholders of Specialty Catalog to purchase Specialty
Catalog and the percent of outstanding shares of Specialty
Catalog expected to be represented in such group;
o Section 203 of the DGCL and the Company's rights plan and the
actions previously taken by the board of directors to prevent
the actions of Mr. Naggar and possibly other stockholders from
triggering the provisions of Section 203 of the DGCL or the
rights plan;
o the anticipated structure, process and timing of a proposal
or draft form of merger agreement from Mr. Naggar;
o financing of a proposal from Mr. Naggar; and
o preliminary review of the material terms expected to be
contained in the draft form of merger agreement to be
submitted by Mr. Naggar to the special committee and its
counsel.
The special committee also asked to be provided with the most recent
projections, financial information and budgets of Specialty Catalog prepared by
the management of Specialty Catalog. Management of Specialty Catalog arranged to
make a presentation to the special committee and arranged for the special
committee to conduct its own on site due diligence of Specialty Catalog's
facilities.
On April 24, 2001, Mr. Franklin and Mr. Grabowski entered into preliminary
discussions concerning Mr. Grabowski's participation in the transaction and
continuing as Chief Executive Officer of the Company following completion of a
transaction.
On April 25, 2001, the special committee received information regarding two
investment banks that the special committee was considering as possible
financial advisors to the special committee. The special committee also received
confidential non-public financial projections for the balance of 2001 and years
2002 through 2005 which had been prepared by the
31
management of Specialty Catalog for the use of the board of directors as well as
extensive background information on Specialty Catalog, all of which was reviewed
by the special committee.
On April 25, 2001, the special committee met telephonically with representatives
of Sullivan & Cromwell to discuss the status of the special committee's
discussions with potential financial advisors to the special committee as well
as to discuss various legal, financial and operational due diligence issues
relating to Specialty Catalog.
Late in the day on April 25, 2001, Mr. Naggar filed a Schedule 13D (Amendment
No. 2) with the SEC which disclosed the possibility of his making a preliminary
proposal regarding the transaction.
On April 26, 2001, Mr. Grabowski and Mr. Thomas McCain, the Company's Chief
Financial Officer, attended a hearing at Nasdaq regarding the Company's
continued failure to meet certain and continued listing standards.
On April 26, 2001, the special committee met telephonically with representatives
of Sullivan & Cromwell to review the due diligence and investigations regarding
Specialty Catalog conducted by the special committee as of such date and to
discuss its schedule of further due diligence for the upcoming week.
On April 26, 2001, Mr. Naggar contacted the special committee by telephone to
formally propose a transaction in which an entity formed by Mr. Naggar would
acquire all of the shares of Specialty Catalog not owned by Mr. Naggar or the
other Continuing Stockholders for $3.25 in cash per share. During the course of
the discussion, Mr. Naggar outlined his interest in and concerns about Specialty
Catalog and explained his valuation of the shares to be purchased. Mr. Naggar
did not indicate which other stockholders of Specialty Catalog he expected would
also become Continuing Stockholders.
On April 27, 2001, the special committee interviewed Mr. Mike Patile, of Fleet
Securities, Inc. and Mr. Richard Lewisohn of Burnham Securities in connection
with retaining a financial advisor for the special committee. After discussing
the credentials of Burnham Securities to serve as financial advisor to the
special committee, Burnham Securities provided Mr. Moore with a draft form of
engagement letter.
On April 28, 2001, Mr. Naggar had a telephone conference with the special
committee to negotiate the merger consideration per share offered by Mr. Naggar.
During such discussions and in reaction to Mr. Moore's statement that $3.25 per
share was an inadequate price, Mr. Naggar increased his offer to $3.50 cash per
share from the initial offer of $3.25 cash per share. The special committee
indicated that this offer was still inadequate.
On April 29, 2001, Mr. Naggar had further telephonic discussions with the
special committee during which he increased his offer to $3.75 cash per share.
Mr. Naggar indicated that this was his best and final offer and that his offer
would expire at the close of business on May 4, 2001 if not accepted by the
special committee.
32
On April 29, 2001, the special committee met telephonically with representatives
of Sullivan & Cromwell. The special committee relayed the substance of its
discussions with Mr. Naggar during the preceding three days regarding Mr.
Naggar's proposal, which discussions had culminated in the proposed purchase
price being increased by Mr. Naggar from $3.25 per share to $3.75 per share. The
special committee also reported on its discussions with investment banking firms
and indicated its desire to retain Burnham Securities Inc. as its financial
advisor subject to confirmation that Burnham Securities was independent of Mr.
Naggar and his affiliates as well as any other stockholders of Specialty Catalog
who might later join Mr. Naggar in the acquisition of Specialty Catalog and
their affiliates. The special committee chose Burnham because of its general
reputation and its prior experience in advising the independent committee of the
board of directors of Specialty Catalog in connection with the proposed
acquisition of Specialty Catalog by Golub Associates in 1999, which transaction
had not been consummated.
On April 30, 2001, at the direction of the special committee, representatives of
Sullivan & Cromwell contacted representatives of Burnham to inquire into the
independence of Burnham for purposes of its potentially serving as financial
advisor to the special committee. Following this telephone call, Burnham sent a
proposed form of engagement letter to Sullivan & Cromwell. Later that day,
representatives of Sullivan & Cromwell met telephonically with the special
committee to report on the results of the inquiry. Representatives of Sullivan &
Cromwell advised the special committee about the standards of independence under
applicable law. Representatives of Sullivan & Cromwell also advised the special
committee of certain issues regarding the language of the engagement letter for
Burnham and the special committee provided direction to Sullivan & Cromwell
regarding the special committee's desired resolution of such issues. The special
committee then determined that Burnham was independent and approved the
engagement of Burnham as financial advisor to the special committee, subject to
negotiating a satisfactory engagement letter with Burnham. Representatives of
Sullivan & Cromwell and representatives of Burnham subsequently satisfactorily
resolved all issues regarding the engagement letter and such engagement letter
was executed by Burnham Securities and Specialty Catalog as of April 30, 2001.
The special committee subsequently directed representatives of Burnham to
undertake a financial analysis of the proposal in order to permit Burnham
Securities to render an opinion as to the fairness of Mr. Naggar's offer to the
stockholders of Specialty Catalog, from a financial point of view, to such
Stockholders (other than Acquisition Corp. and the Continuing Stockholders).
On April 30, 2001, the board of directors held a telephonic meeting. Mr. Moore
reviewed the negotiations of the special committee with Mr. Naggar, including
the discussions of the merger consideration offered and other material terms of
a transaction. Mr. Moore noted that he had discussed the initial price with Mr.
Naggar at $3.25 per share and that after several conversations Mr. Naggar agreed
to increase the price to $3.75 per share, which was his final proposal. The
Board also discussed the advisability of disclosing Mr. Naggar's proposal and
determined that Specialty Catalog should issue a press release. After the
meeting, Specialty Catalog issued a press release announcing that Mr. Naggar had
made an offer to acquire for cash, through merger, all of the issued and
outstanding shares of
33
common stock of Specialty Catalog, other than shares hereby Acquisition Corp.,
for $3.75 per share.
The special committee met telephonically with representatives of Sullivan &
Cromwell on April 30, 2001 to discuss the press release issued that day by
Specialty Catalog regarding the proposal submitted by Mr. Naggar, particularly
the statement in the press release that the purchase price of $3.75 per share
offered by Mr. Naggar was his final proposal and that the proposal would expire
on May 4, 2001.
From the morning of April 30, 2001 to late in the day on May 1, 2001, the
special committee had a series of conversations with Mr. Franklin, Mr.
Grabowski, and Mr. McCain regarding the results of operations, financial
condition, business and prospects of Specialty Catalog, including the financial
projections supplied by Specialty Catalog to the special committee, economic and
market conditions and the catalog/specialty distributor industry. The special
committee also requested, received and reviewed further information on Specialty
Catalog and its industry.
On and continuing after April 30, 2001, discussions among Messrs. Naggar and
Franklin, independently and jointly, were held with Golub Associates and its
representatives relating to Golub Associates providing subordinated mezzanine
financing for use in a transaction and the possibility of LEG Partners III SBIC,
L.P. participating in a transaction as a Continuing Stockholder.
On or about April 30, 2001, Golub Associates negotiated the terms of the
subordinated mezzanine financing with Mr. Naggar and Mr. Franklin and circulated
several drafts of a proposed letter of intent.
On April 30, 2001, the Company received a summary term sheet from Fleet National
Bank relating to the extension of credit to Specialty Catalog by Fleet National
Bank after the merger under an amendment to Specialty Catalog's current bank
facility.
On May 1, 2001, Mr. Franklin, filed a 13D (Amendment No. 2) with the SEC in
which Mr. Franklin indicated that he was considering the possibility of
participating in a possible transaction involving the Company.
On May 1, 2001, Nicolas Berggruen, a beneficial owner of 279,700 shares of
common stock of Specialty Catalog, also filed a 13D (Amendment No. 1) indicating
that Alexander Enterprise Holding Corp. and its representatives had various
preliminary discussions with Mr. Naggar concerning the possibility of
participating with Mr. Naggar in a transaction.
On May 2, 2001, the special committee, representatives of Sullivan & Cromwell
and representatives of Burnham Securities, participated in a telephonic
presentation by Mr. Grabowski and Mr. McCain regarding Specialty Catalog at
which numerous legal and financial due diligence questions were posed to and
answered by the management of Specialty Catalog.
34
The special committee and its counsel received a draft form of merger agreement
from counsel to Mr. Naggar on May 2, 2001. Later in the day, the special
committee held a telephonic meeting with representatives of Sullivan & Cromwell,
during which representatives of Sullivan & Cromwell reviewed and discussed the
significant terms of the draft form of merger agreement with the special
committee including: (i) termination events and the reimbursement of the
purchaser's expenses in connection with certain termination events; (ii) the
scope of Specialty Catalog's representations and warranties; (iii) the scope of
the parties' closing conditions, including financing conditions; and (iv) limits
on the purchaser's expenses to be incurred or reimbursed by Specialty Catalog.
The special committee also discussed with Sullivan & Cromwell comments and
proposed changes to the draft form of merger agreement for submission to counsel
to Mr. Naggar. During the evening of May 2, 2001, representatives of Sullivan &
Cromwell negotiated with counsel for Mr. Naggar changes to the draft of the
merger agreement, as sought by the special committee. The special committee also
contacted Mr. Naggar to request that Mr. Naggar increase the merger
consideration proposed from $3.75 per share to $4.25 per share.
On May 2, 2001, Golub Associates filed a 13D (Amendment No. 4) indicating it had
held preliminary discussions with Mr. Naggar and other stockholders concerning
the possibility of participating with Mr. Naggar in a transaction in addition to
the mezzanine financing. Golub Associates further indicated that it had
discussions with Mr. Naggar regarding various proposals to provide a portion of
the financing needed by Mr. Naggar to fund a transaction.
On May 3, 2001, First Global, Ionic, Oracle and Three Greens, and others filed a
Schedule 13D (Amendment No. 2) with the SEC in which the filers indicated that
they had held preliminary discussions with Mr. Naggar concerning the possibility
of participating with Mr. Naggar in a transaction.
On May 3, 2001, negotiations continued between the special committee and its
representatives and Mr. Naggar's representatives. Counsel for Mr. Naggar
subsequently distributed a revised draft of the merger agreement. After
reviewing the revised draft of the merger agreement, the special committee met
with its legal and financial advisors to discuss unresolved issues in the
agreement. Representatives of Sullivan & Cromwell were provided with detailed
direction from the special committee and were directed to continue negotiations
with counsel for Mr. Naggar. Prior to commencing such further negotiations, the
special committee was informed by Mr. Naggar in writing that the proposed merger
consideration of $3.75 per share would not be increased and constituted the best
and final offer that Mr. Naggar would make. Mr. Naggar also emphasized that his
proposal would expire on May 4, 2001. Representatives of Sullivan & Cromwell,
with continued guidance from the special committee, continued negotiations with
counsel for Mr. Naggar regarding the draft of the merger agreement throughout
May 3, 2001 and into the morning of May 4, 2001.
On May 3, 2001, Mr. Franklin and Mr. Grabowski held formal discussions regarding
proposed arrangements for Mr. Grabowski's participation in the transaction and
continuation as Chief Executive Officer of Specialty Catalog after the merger.
35
On the morning of May 4, 2001, Mr. Moore and representatives of Burnham
Securities undertook a tour of the Company's facilities and posed numerous due
diligence inquires to the management of Specialty Catalog. Later that day, the
special committee met telephonically with its legal and financial advisors to
resolve certain issues raised by Mr. Naggar's offer and to substantially
finalize the merger agreement. Representatives of Burnham Securities presented
to the special committee an extensive written and oral financial analysis of the
proposed transaction. At the end of such presentation, representatives of
Burnham delivered their oral opinion to the special committee, which opinion was
subsequently confirmed in writing, to the effect that, as of May 4, 2001, the
merger consideration of $3.75 per share was fair, from a financial point of
view, to the stockholders of Specialty Catalog (other than Acquisition Corp. and
the Continuing Stockholders). The special committee then determined that it is
fair to, advisable and in the best interests of Specialty Catalog and its
stockholders (other than Acquisition Corp. and the Continuing Stockholders) to
consummate the merger upon the terms and subject to the conditions of the merger
agreement, in accordance with Delaware law. The special committee then resolved
to recommend that the board of directors of Specialty Catalog approve and
declare advisable the merger and the merger agreement; and resolved to recommend
that the stockholders of Specialty Catalog adopt the merger agreement and
approve the merger if submitted for their approval.
Following the special committee meeting on May 4, 2001, the board of directors
met telephonically (without Mr. Naggar in attendance). At that meeting, the
board of directors discussed the terms of the merger agreement and Mr. Moore
summarized Burnham Securities' analyses regarding the fairness of the
transaction, reviewed the process undertaken by the special committee, and
advised the board of directors that Burnham Securities had provided its opinion
orally and would provide a written opinion that the consideration to be received
by stockholders of Specialty Catalog was fair from a financial point of view, to
such stockholders (other than Acquisition Corp. and the Continuing
Stockholders). The special committee then recommended that the board of
directors approve and declare advisable the merger and the merger agreement.
After receiving the recommendation of the special committee, the board of
directors, without Mr. Naggar in attendance, among other things, unanimously:
(1) determined, that the merger and the merger agreement are fair to, advisable
and in the best interest of Specialty Catalog and its stockholders (other than
Acquisition Corp. and the Continuing Stockholders), (2) approved the merger and
the merger agreement and declared the merger and merger agreement advisable; and
(3) recommended that Specialty Catalog's stockholders approve the merger and
adopt the merger agreement if submitted for their approval.
On May 4, 2001, Specialty Catalog, Acquisition Corp., Golub Associates
Incorporated and LEG Partners III SBIC, L.P. entered into a letter of intent
regarding Golub Associates' consideration of a potential subordinated debt and
warrant investment in Acquisition Corp. to finance the merger.
On May 4, 2001, the merger agreement was executed by Specialty Catalog and
Acquisition Corp. and Specialty Catalog issued a news release announcing the
execution of the merger agreement.
36
RECOMMENDATION OF THE SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS; REASONS FOR
THE MERGER; FAIRNESS OF THE MERGER
Each of the special committee and the board of directors recommends
that the stockholders approve the merger and adopt the merger agreement. Both
the special committee and the board of directors, upon the recommendation of the
special committee, have determined that the merger and the merger agreement are
fair to, advisable and in the best interests of Specialty Catalog's stockholders
(other than Acquisition Corp. and the Continuing Stockholders).
Recommendation of the Special Committee and the Board of Directors
The special committee has determined that the merger is fair to,
advisable and in the best interests of Specialty Catalog's stockholders, other
than Acquisition Corp. and the Continuing Stockholders. The special committee
expressed no opinion as to the fairness of the merger to Acquisition Corp. or
the Continuing Stockholders. Accordingly, the special committee has recommended
to the board of directors that it approve and declare advisable the merger and
the merger agreement and has recommended that Specialty Catalog stockholders
vote to adopt the merger agreement and approve the merger.
Reasons For Recommendations of the Special Committee
During the course of its deliberations and in recommending approval of
the merger and the merger agreement, the special committee considered, with the
assistance of its financial and legal advisors, a number of factors, including
the following material factors:
o Information with respect to the results of operations, financial condition,
business and prospects of Specialty Catalog and the economic and market
conditions affecting Specialty Catalog and the catalog/specialty distributor
industry. The special committee considered this to be a factor that weighed in
favor of the merger.
o Internally generated non-public financial projections for Specialty Catalog
compiled by the management of Specialty Catalog, the risks associated with
meeting these financial projections and the possible future values of the shares
of Specialty Catalog if the financial projections are, or are not, met. Although
different assumptions about the future of Specialty Catalog in relation to the
financial projections for Specialty Catalog may have dictated in favor of or
against the merger depending on the assumptions made, [on balance the special
committee considered the financial projections for Specialty Catalog to be a
factor that weighed in favor of the merger.] There are numerous assumptions
relating to, among other things, industry performance, market and financial
conditions, as well as factors not within the control of a company, that must be
made in attempting to determine the value of a company by projecting future cash
flows. Although the special committee was aware that the upper range of implied
value obtained from Burnham Securities' valuation analyses derived from the
financial projections of Specialty Catalog was in excess of the per share merger
consideration, the special committee believed that the merger was a superior
alternative to attempting to achieve value in excess of the per share merger
consideration as an independent publicly traded company. This is
37
because of the risks associated with the assumptions underlying an implied value
of the shares of Specialty Catalog in excess of the per share merger
consideration. These assumptions include achieving the financial results set
forth in the financial projections for Specialty Catalog as well as market
conditions occurring that would provide favorable valuation multiples. In
determining the independent going concern value of Specialty Catalog for
purposes of determining the fairness of the merger, the special committee relied
to a significant extent upon the financial analyses performed by Burnham
Securities summarized below.
o The presentation made by Burnham Securities to the special committee on May 4,
2001 and Burnham Securities' oral opinion as of that date, which was confirmed
in writing as of May 4, 2001, to the effect that, based upon the assumptions
made, matters considered and limitations on the review described in the written
opinion, the $3.75 per share merger consideration to be received by the
Specialty Catalog stockholders is fair from a financial point of view to such
stockholders (other than Acquisition Corp. and the Continuing Stockholders). In
its review of the analyses performed by Burnham Securities, the special
committee did not weigh each of the analyses prepared by Burnham Securities
separately, but rather considered them as a whole. The special committee
considered the presentation by Burnham Securities to be a factor that weighed in
favor of the merger.
o The $3.75 per share merger consideration represents a significant premium over
the prices at which the shares have traded over the previous twelve months. The
historical market prices of the shares were deemed relevant because they
indicate the arm's length trading prices of shares as determined in the open
market. The special committee considered the fact that the shares had traded at
prices as high as $3.00 per share and as low as $1.78 per share during the
twelve month period prior to the public disclosure of Mr. Naggar's intent to
make a merger proposal on April 24, 2001. The special committee also considered
the fact that the $3.75 per share merger consideration represented a premium of
approximately 42%, 58%, 50%, 25% and 110%, respectively, over the per share
closing market price one day, one week, four weeks, at the 52-week high and at
the 52-week low, respectively, prior to the public disclosure of the proposed
merger on April 24, 2001. The special committee considered this to be a factor
that weighed in favor of the merger.
o The conclusion of the special committee, based on the extensive negotiations
by and on behalf of the special committee with Mr. Naggar and his advisors, that
Specialty Catalog has obtained the highest price per share that Acquisition
Corp. is willing to pay. This determination was the result of the special
committee's arm's-length negotiations with Mr. Naggar and his advisors in an
attempt to obtain the highest possible price and the fact that the per share
merger consideration was increased by Mr. Naggar by approximately fifteen
percent to a price which is $0.50 per share more than the initial proposal of
$3.25 per share made by Mr. Naggar. The special committee considered this to be
a factor that weighed in favor of the merger.
o The likelihood that a third party would not be willing to offer a higher per
share price than Acquisition Corp. in light of:
(1) the fact that prior to the April 26, 2001 public disclosure of
Mr. Naggar's proposal to acquire Specialty Catalog and since
1998 Specialty Catalog and its advisors
38
have solicited indications of interest regarding a possible
sale of Specialty Catalog, including presenting fifty-three
prospective purchasers with detailed information concerning
Specialty Catalog, and did not receive any indication from any
other buyer, other than Golub Associates, of an interest in
acquiring all of Specialty Catalog at a price acceptable to
Specialty Catalog;
(2) the fact that, as discussed in detail under SPECIAL FACTORS --
Material Contacts And Board Deliberations, an offer was made
by Golub Associates, an unaffiliated person, in 1999 and that
the resulting merger agreement between Specialty Catalog and
Golub Associates was terminated;
(3) the fact that, in the period of time between April 26, 2001,
when Mr. Naggar filed an Amended Schedule 13D with the SEC
indicating his intent to submit a proposal to acquire
Specialty Catalog, and the special committee's decision to
recommend approval of the merger on May 4, 2001, Specialty
Catalog did not receive any unsolicited bona fide offers from
any third party regarding a potential acquisition transaction.
The special committee considered these to be factors that decreased the
likelihood that a third party would make a superior offer and, as such,
considered them to be factors that weighed in favor of the merger.
o In light of the relatively thin trading market and lack of liquidity of the
shares, the merger will afford stockholders an opportunity to dispose of their
shares without the possible diminution of value resulting from the lack of an
active trading market. The liquidity of the shares may be further decreased if
the shares are delisted from The Nasdaq National Market. Specialty Catalog
received a Nasdaq Staff Determination Letter indicating that the market value of
its public float was below $5,000,000 as required by the Nasdaq National Market
for over thirty consecutive trading days and therefore the shares are subject to
delisting from the Nasdaq National Market. Specialty Catalog requested and was
given a hearing before the Nasdaq Listing Qualifications Panel to review the
staff determination in an attempt to retain its listing on The Nasdaq National
Market. However, there is no assurance that the Panel will grant Specialty
Catalog's request for continued listing on The Nasdaq National Market. If the
Panel denies Specialty Catalog's request for continued listing on The Nasdaq
National Market, Specialty Catalog intends to apply to list its securities on
The Nasdaq SmallCap Market. These factors affect the likelihood that a share
price in excess of the per share merger consideration offered under the merger
agreement would be achieved in the foreseeable future and, as such, the special
committee considered them to be factors that weighed in favor of the merger.
o Approval of the merger agreement requires the affirmative vote of a majority
of the outstanding shares entitled to vote thereon and that, under Delaware law,
Specialty Catalog's stockholders have the right to an appraisal of the value of
their shares in connection with the merger. The special committee considered
this to be a factor that weighed in favor of the merger.
39
o The consideration to be received in the merger is payable in cash, thereby
eliminating any uncertainties in valuing the consideration to be received by
Specialty Catalog's stockholders. The special committee considered this to be a
factor that weighed in favor of the merger.
o The merger is subject to a financing condition. Although the special committee
and the board of directors anticipate that Acquisition Corp. will be able to
secure the financing required to consummate the merger, there is no assurance
that Acquisition Corp. will be successful in securing such financing and
therefore the financing contingency increases the risk that the merger will not
be consummated. The special committee considered this to be a factor that
weighed against the merger.
o The board of directors delegated broad powers to the special committee to
conduct its evaluation and review of the merger proposal and negotiate with Mr.
Naggar and his advisors and, to advise the board of directors in connection with
these matters, the special committee engaged Burnham Securities as its financial
advisor and Sullivan & Cromwell as its legal advisor. Accordingly, the per share
merger consideration and the other terms and conditions of the merger agreement
were the result of arm's-length negotiations among the special committee and Mr.
Naggar and their respective advisors. The special committee considered this to
be a factor that weighed in favor of the merger.
o The merger agreement does not unduly deter a third party from making an
acquisition proposal, inhibit the special committee from withdrawing or
modifying its approval or recommendation of the merger or the merger agreement,
or inhibit the board of directors from approving, recommending or accepting an
acquisition proposal that the special committee determines to be of a higher
price per share and more favorable to the stockholders of Specialty Catalog than
the merger. Specifically, the merger agreement includes provisions which permit
the special committee to withdraw its recommendation of the merger if there is a
more favorable acquisition proposal, permit the board of directors to terminate
the merger agreement in order to accept a more favorable acquisition proposal
with a third party, and limit the aggregate amount of expenses that Specialty
Catalog may incur on behalf of Acquisition Corp. and its affiliates and expenses
for which Acquisition Corp. and its affiliates may seek reimbursement from
Specialty Catalog upon termination of the merger agreement to $400,000 except if
Specialty Catalog consummates an acquisition proposal that was inquired or made
prior to the termination of the merger agreement. The special committee
considered this to be a factor that weighed in favor of the merger.
o The possible conflicts of interest of certain directors and members of
management of Specialty Catalog, discussed below. The special committee
considered this to be a factor that weighed against the merger.
o If the merger is completed, the member of the special committee will receive
(solely in his capacity as a holder of options of Specialty Catalog) $13,750 in
merger consideration. The special committee, however, believes that his
interests are consistent with the interests of all other stockholders of
Specialty Catalog other than Acquisition Corp. and the Continuing Stockholders.
The member of the special committee will also receive compensation for its
services as a member of the board of directors. See "SPECIAL FACTORS - Special
Committee." The special committee believes that this payment does not present a
conflict of interest because this compensation is payable for serving
40
on the board of directors whether or not the merger is completed. The special
committee considered this to be a neutral factor with respect to the merger.
o The experience and familiarity of the special committee with Specialty
Catalog. Mr. Moore, the sole member of the special committee, was elected to the
board of directors of Specialty Catalog on April 17, 2001. The merger agreement
was executed on May 4, 2001. During the period from April 17, 2001 to May 4,
2001, Mr. Moore undertook an intensive and extensive review of Specialty Catalog
and the catalog/specialty distributor industry. Mr. Moore also had numerous
discussions with the management and certain directors of Specialty Catalog as
well as with the financial advisors to the special committee regarding the
results of operations, financial condition, business and prospects of Specialty
Catalog. See "SPECIAL FACTORS - Material Contacts and Board Deliberations." The
special committee considered this to be a neutral factor with respect to the
merger.
o The likelihood that although some stockholders of Specialty Catalog may prefer
to receive cash for their shares, others may prefer to continue as stockholders
of Acquisition Corp. If the merger is consummated, Specialty Catalog
stockholders, other than some or all of the Continuing Stockholders, will
receive cash for their shares, and thus it will no longer be possible for
Specialty Catalog stockholders, other than the Continuing Stockholders, to
maintain an equity ownership interest in Specialty Catalog. The special
committee considered this to be a factor that weighed against the merger.
o Specialty Catalog repurchased a block of its shares of common stock at an
average price of $2.63 per share based on repurchases during 2000 and at an
average price of $3.56 per share based on repurchases during 1999 and 2000. The
special committee considered this to be a factor that weighed in favor of the
merger.
o The $3.75 per share merger consideration represents an amount in excess of the
net book value per share of $2.01 as of December 30, 2001. The special committee
considered this to be a factor that weighed in favor of the merger.
The foregoing discussion of the information and factors considered by
the special committee includes all of the material factors considered by the
special committee in reaching its conclusions and recommendation but is not
meant to be exhaustive. In view of the variety of factors considered in reaching
its determination, the special committee did not find it practicable to, and did
not, quantify or otherwise assign relative weights to the specific factors
considered in reaching its conclusions and recommendation.
Reasons for Recommendation of the Board of Directors
The board of directors consists of five directors, one of whom served
on the special committee. At the May 4, 2001 meeting of the board of directors,
during which all directors except Mr. Naggar attended, the special committee,
with its legal and financial advisors participating, reported to the other
members of the board on its review of the merger agreement and the related
financing commitments and the factors taken into account by the special
committee in reaching its determination that the merger and the merger agreement
is fair to, advisable and in the best interests of Specialty Catalog's
stockholders (other than Acquisition Corp. and the Continuing Stockholders).
Accordingly, the same factors considered by the special committee were taken
into account by the entire board of directors. In addition, Specialty Catalog's
board of directors considered
41
the conclusions and recommendations of the special committee and believes that
these factors supported the board of director's fairness determination.
Furthermore, the board of directors considered the fact that the $3.75 per share
merger consideration and the terms and conditions of the merger agreement were
the result of arm's-length negotiations among the special committee and Mr.
Naggar and their respective advisors. The board of directors believes that this
factor supports the board of directors' fairness determination.
The board of directors, including the member of the special committee,
also believes that the merger is procedurally fair because, among other things:
o The special committee consisted of one non-employee, independent director
appointed by the board of directors to represent solely the interests of
Specialty Catalog's stockholders, other than Acqusition Corp. and the Continuing
Stockholders.
o The member of the special committee is not a Continuing Stockholder.
o The special committee retained and received advice from independent financial
and legal advisors.
o The $3.75 per share merger consideration and the other terms and conditions of
the merger agreement resulted from active arm's-length bargaining between the
special committee and its representatives, on the one hand, and Mr. Naggar and
his representatives, on the other hand. The special committee conducted all
negotiations on behalf of Specialty Catalog, and the negotiations were
extensive. The special committee devoted substantial time and effort in
evaluating the terms and conditions of agreement of merger and the merger
consideration.
o Neither the special committee nor the special committee's advisors, who
negotiated the terms and conditions of the merger agreement with Acquisition
Corp., had a financial interest in the merger that could present them with
actual or potential conflicts of interest. The board of directors believes that
each of these factors supports its fairness determination.
The members of the board of directors, including the member of the
special committee, evaluated the merger in light of their knowledge of the
business, financial condition and prospects of Specialty Catalog, and based upon
the advice of financial and legal advisors to the special committee. In light of
the number and variety of factors that the board of directors considered in
connection with their evaluation of the merger, the board did not find it
practicable to assign relative weight to any of the foregoing factors.
OPINION OF BURNHAM SECURITIES INC.
As of April 30, 2001, the special committee of the Specialty Catalog
board of directors engaged Burnham Securities Inc. to act as its financial
advisor in connection with the proposed transaction and to render an opinion as
to the fairness, from a financial point of view, to the stockholders, other than
Acquisition Corp. and the Continuing Stockholders, of Specialty Catalog common
stock of the consideration to be received by such stockholders in the merger.
Burnham Securities was selected based on Burnham Securities' qualifications,
experience and reputation in mergers and
42
acquisitions. Burnham Securities rendered its oral opinion (as confirmed in
writing) on May 4, 2001 to the special committee that, as of such date, the
consideration to be received in the merger by holders of Specialty Catalog
common stock was fair, from a financial point of view, to such holders (other
than Acquisition Corp. and the Continuing Stockholders). The amount of the
consideration was determined through negotiations between the special committee
and the Specialty Acquisition Corporation. Burnham Securities did not recommend
that any specific consideration was appropriate for the transaction.
The full text of the opinion delivered by Burnham Securities to the
special committee, dated as of May 4, 2001, which sets forth, among other
things, the assumptions made, general procedures followed, matters considered
and limitations on the scope of review undertaken by Burnham Securities in
rendering its opinion, is attached as Appendix B to this proxy statement and is
incorporated herein by reference. Burnham Securities' opinion is directed to
both the special committee of the board of directors and to the board of
directors of Specialty Catalog, and addresses only the fairness, from a
financial point of view, to the stockholders of Specialty Catalog (other than
Acqusition Corp. and the Continuing Stockholders) of the consideration to be
received by such holders. Burnham Securities' opinion does not constitute a
recommendation as to how any Specialty Catalog stockholder should vote with
respect to the merger. Burnham Securities' opinion does not address the relative
merits of the merger or any other transactions or business strategies discussed
by the board of directors to proceed with the transaction. The summary of
Burnham Securities' opinion set forth below is qualified in its entirety by
reference to the full text of its opinion. You are urged to read the opinion
carefully in its entirety.
In undertaking its analysis as to the fairness of the merger, Burnham Securities
has relied on traditional valuation techniques, conducted other financial
studies and analyses and performed such other investigations and took into
account such other factors as it deemed necessary or appropriate for purposes of
the opinion expressed, including:
1. reviewing publicly available information concerning Specialty Catalog
since August 1996;
2. analyzing certain financial statements and other financial and
operating data concerning Specialty Catalog prepared by the management
of the Company;
3. analyzing certain financial projections prepared by the management of
Specialty Catalog with regard to its business prospects;
4. discussing the past and current operations and financial condition and
the prospects of Specialty Catalog with the management of Specialty
Catalog;
5. visiting the South Easton, MA facility of Specialty Catalog and
engaging in discussions with the management of Specialty Catalog;
6. comparing the financial performance of Specialty Catalog and the prices
and trading activity of Specialty Catalog common stock with that of
certain other comparable publicly-traded companies and their
securities;
7. comparing the merger with other transactions involving public and
private companies that were deemed to be comparable;
8. considering the average price per share paid by Specialty Catalog for
the 144,000 shares purchased in the open market in 1999 and 2000;
43
9. analyzing transactions concluded by Specialty Catalog (Daxbourne and
American Healthcare Institute);
10. considering the dearth of interest in acquiring Specialty Catalog by
fifty three candidates whose interest was solicited within the
preceding two years and the failed acquisition of Specialty Catalog by
Golub Associates in 2000;
11. considering the potential consequences to Specialty Catalog
shareholders if the shares of common stock of Specialty Catalog were
delisted from the NASDAQ National Market; and
12. reviewing the public announcements and filings relating to the merger
and the drafts of the merger agreement as they became available and
certain other related documents.
Burnham Securities did not assume responsibility for the independent
verification of, and did not independently verify, any of the financial and
other information concerning Specialty Catalog in connection with its review of
the merger and, in preparing its opinion, Burnham Securities assumed and relied
upon the accuracy, completeness and fairness of all such information. In
connection with its opinion, Burnham Securities did not prepare or obtain any
independent evaluation or appraisal of any of the assets or liabilities of
Specialty Catalog nor had Burnham Securities been furnished with any such
evaluation or appraisal. With respect to the financial projections and business
prospects used in its analysis, Burnham Securities assumed such information was
reasonably prepared on a consistent basis with prior practice, that they
reflected the best currently available estimates and judgments of Specialty
Catalog's management as to expected future financial performance of Specialty
Catalog and that they provided a reasonable basis upon which Burnham Securities
could form its opinion. Burnham Securities was not requested to opine upon, and
its opinion did not in any manner address Specialty Catalog's underlying
business decision to proceed with the transaction. Burnham was not requested to
and did not, solicit or entertain any other offers of the purchase of the stock
or assets of Specialty Catalog or any other transaction involving Specialty
Catalog. Burnham Securities assumed that, in all respects material to its
analysis, the representations and warranties of Acquisition Corp. and Specialty
Catalog contained in the merger agreement were true and correct, that
Acquisition Corp. and Specialty Catalog will each perform all of the covenants
and agreements to be performed by them under the merger agreement, all
conditions to the obligations of Acquisition Corp. and Specialty Catalog to
effect the merger will be satisfied in the merger agreement, in each case
without any waiver or modification of any material terms or conditions by any
party thereto.
Burnham Securities' opinion is necessarily based upon market, economic,
financial and other conditions as they existed and can be evaluated on, and
information made available to Burnham Securities as of, the date of the opinion
and any subsequent change in such conditions would require a reevaluation of
such opinion. Burnham Securities assumes no obligation to update, revise or
affirm its opinion. Burnham Securities expresses no opinion on the fairness of
other potential transactions between Specialty Catalog, Acquisition Corp., and
the stockholders, or any other parties.
The preparation of a fairness opinion is a complex process and involves
various subjective judgments and determinations as to the most appropriate and
relevant assumptions and
44
financial analyses and the application of these methods to the particular
circumstances involved. Such an opinion is therefore not necessarily susceptible
to partial analysis or summary description. Accordingly, Burnham Securities
believes that its analyses and the summaries set forth below must be considered
as a whole and that selecting portions of its analyses, without considering all
analyses, or of the following summary, without considering all factors and
analyses, could create an incomplete and misleading view of the processes
underlying the analyses performed by Burnham Securities in connection with its
opinion. In arriving at its opinion, Burnham Securities did attribute particular
weights to analyses or factors considered by it, and made qualitative judgments
as to the significance and relevance of each analysis and factor. Burnham
Securities did not form an opinion as to whether any individual analysis or
factor (positive or negative), considered in isolation, supported or failed to
support the Burnham Securities' opinion. In performing its analyses, Burnham
Securities made numerous assumptions with respect to industry performance,
general business and economic conditions and other matters, many of which may be
beyond Specialty Catalog's control. The analyses performed by Burnham Securities
do not necessarily confirm actual values and are not necessarily indicative of
actual future results, which may be significantly more or less favorable than
suggested by such analyses, and Burnham Securities assumes no responsibility if
actual values or future results are materially different from its assumptions or
the results of its analyses. Such analyses were prepared solely as part of the
Burnham Securities' evaluation of the fairness to the Specialty Catalog
stockholders (other than Acquisition Corp. and the Continuing Stockholders),
from a financial point of view, of the consideration to be received by such
stockholders in the merger. Additionally, analyses relating to the values of
businesses do not purport to be appraisals or to reflect the prices at which
businesses actually can or may be acquired.
The following is a brief summary of the material financial analyses
performed by Burnham Securities in connection with providing its opinion to the
special committee of the board of directors and the board of directors of
Specialty Catalog on May 4, 2001. Some of the summaries of the financial
analyses included information presented in tabular format. To fully understand
the financial analyses, you should read the tables together with the text of
each summary. Considering the data set forth in the tables without considering
the narrative description of the financial analyses, including the methodologies
and assumptions underlying the analyses, could create a misleading or incomplete
view of the financial analyses.
In rendering its opinion, Burnham Securities, among other things, performed four
primary valuation analyses of Specialty Catalog:
(i) Market Multiple Analysis: This method utilizes certain market
information from selected companies that are in comparable
businesses and/or have similar sales levels, growth prospects
and overall profit margins.
(ii) Comparable Transactions Multiple: This method is based on a
review of comparable transactions in the catalog specialty
distributor industry over a two-year period. These
transactions provide a better picture of how companies were
actually valued by market participants with regard to size,
structure, and value based on the implied and explicit market
multiples.
45
(iii) Discounted Cash Flow Analysis: This analysis involves a review
of Specialty Catalog's internal forecasts and projections
regarding its future operations and the cash flows derived
therefrom in order to value the shares of Specialty Catalog.
(iv) Stock Buy-Back Analysis: This analysis involves a review of
Specialty Catalog's buy-back of its shares from shareholders
over the last two years in the public market.
After Burnham Securities arrived at its valuation ranges, it then
weighted each estimate according to its relative importance. The following
weights were applied for each method: Market Multiple - 35%, Comparable
Transactions Multiple - 25%, Discounted Cash Flow - 20%, and Stock Buy-Back
Analysis - 20%. Burnham Securities granted the Market Multiple and Comparable
Transactions Multiple a higher weighting because Burnham Securities believes the
public markets' current assessments of comparable companies and transactions are
more efficient in valuing ongoing businesses. In addition, the discounted cash
flow analysis was underweighted due to the preference of small specialty catalog
companies to consider historical and current cash flows from operations more
importantly than projected results when evaluating prospective acquisitions or
strategic alliances. Stock buy-backs were underweighted due to the relatively
low percentages of shares re-acquired by Specialty Catalog as well as the timing
of its purchases.
1. Market Multiple Analysis of Publicly Traded Reference Companies:
Burnham Securities compared the historical financial, operating and stock market
performances of certain publicly traded companies that it considered relevant
with the historical financial and operating performance of Specialty Catalog
based upon publicly available financial information to that of the following,
publicly traded companies:
o BLAIR CORPORATION (AMEX:BL) Blair Corporation's business
consists of the sale of fashion apparel for men and women,
plus a wide range of home products that are primarily marketed
through direct mail merchandising. The Company's targeted
customers are from over "50, low-to-moderate income" market.
o CONCEPTS DIRECT, INC. (NASDAQ:CDIR) Concepts Direct, Inc. is a
direct marketing company that owns and operates five catalog
titles and related niche marketing vehicles. It sells
personalized paper products and a diverse line of merchandise
(gift items, home decorative items and apparel).
o GAIAM, INC. (NASDAQNM:GAIA) Gaiam, Inc. is a multi-channel
lifestyle company dedicated to providing a broad selection of
natural and healthy alternatives to traditional information,
goods and services. The Company uses a multi-channel marketing
approach, through catalogs, e-commerce, business-to-business
channels, media broadcasts and 21,000 retail points.
o INTEGRITY INCORPORATED (NASDAQ:ITGR) Integrity, Inc. is
engaged in the production, distribution and publishing of
Christian lifestyle products developed to facilitate worship,
46
entertainment and education. It sells directly through
consumer marketing and wholesale trade methods. It has niche
consumer product lines targeting customers who are
budget-conscious (Fairhope), African-American (Urban Praise),
and greeting cards.
o J. JILL GROUP, INC. (NASDAQ:JILL) The J. Jill Group, Inc. is a
specialty marketer of high quality women's apparel,
accessories and gifts. These apparel offerings are almost
entirely private label, with emphasis on natural fibers and
unique details. J. Jill's target customers are active,
affluent women age 35 to 55. The Company markets its products
through the J. Jill catalog, retail stores and the Internet.
o MOVIE STAR, INC. (AMEX:MSI) Movie Star, Inc. designs,
manufactures, markets and sells an extensive line of ladies'
sleepwear, robes, leisurewear, loungewear, panties and
daywear. The Company's products consist of ladies' pajamas,
nightgowns, baby dolls, nightshirts, and daywear.
o RIGHT START, INC. (NASDAQ:RTST) The Right Start, Inc. is a
specialty retailer of high quality, developmental, educational
and care products for infants and children. RightStart.com's
nationally distributed catalog, and RightStart.com's online
store are located at www.rightstart.com.
Burnham Securities selected these companies, which operate in the
catalog specialty distributor industry, as comparable because they are publicly
traded companies that provide products meeting the lifestyle needs of a
particular niche customer base or community. For the purpose of this analysis,
these companies may be considered comparable to Specialty Catalog in one or more
respects. Burnham Securities analyzed, among other things, the market values and
certain other financial data for these companies, including their revenues,
earnings before interest, taxes, depreciation and amortization (or EBITDA),
earnings per share, enterprise value (market value of equity plus net debt) and
all other relevant financial information, in each case for the most recent
12-month period for which information was available.
Burnham Securities used Specialty Catalog's actual fiscal results for the year
ended December 31, 2000 to derive the following multiples:
Multiple: Adjusted Average Price Per Share
- -----------------------------------------------------------------------------
Price/Sales 0.29x $3.67
Enterprise Value/EBITDA 5.58x $3.81
Price/Earnings 13.21x $3.08
Price/ Operating Cash Flow 5.83x $2.79
Price/Book 1.21x $2.21
These multiples were applied against management's operating statistics to derive
an estimated value for each parameter. A composite valuation was determined by
weighing each multiple parameter by its relative importance as a valuation
measure.
47
Burnham Securities derived a valuation range from $10.5 million (or $2.21 per
share) to $18.2 million ($3.81 per share) by compiling a list of average
trailing historical multiples that were based upon historical financial
information from the composite group of companies.
2. Comparable Transactions Analysis:
During its deliberations, Burnham Securities reviewed over 77 transactions under
$50 million of total invested capital (the total amount of capital including
debt and equity offered in each transaction) that involved companies in the
catalog/specialty distributor industry that exhibited similar financial and
operating characteristics and that sell to similar niche customer bases as does
Specialty Catalog. In selecting the representative transactions Burnham
Securities considered a number of criteria. They include: industry similarities,
size of transaction, closely held companies and date of transaction. None of the
comparable transactions are representative of a "going private" transaction. The
six transactions Burnham Securities considered involved entities comparable to
Specialty Catalog such as: GAIAM, INC., CONCEPTS DIRECT INC., and a former
competitor (previously noted in Specialty Catalog's filings) REAL GOODS TRADING
COMPANY.
GAIAM, INC. (NASDAQ:GAIA), based in Broomfield, Colorado, is a leading direct
marketer (e.g., catalog and online) of alternative energy products such as
battery storage systems, solar heaters and refrigerators. In January, 2001,
Gaiam, Inc. acquired the publicly traded Real Goods Trading Corp, which had
trailing twelve-month revenues of $18.0 million, for a total invested capital of
$11.73 million. Gaiam, Inc. paid a multiple of 0.65 to revenues to acquire RGTC.
ADVANTAGE MARKETING SYSTEM, (AMEX:AMM), based in Oklahoma City, Oklahoma, is a
direct marketer of weight management, dietary supplement and personal care
products. It reported nine-month revenues of $27.1 million as of September,
2000. It has been pursuing an expansion strategy for its network of independent
distributors and acquired Life Science Technologies, Inc., another marketing
company, to execute that strategy. Advantage Marketing System paid 0.22 times
revenues to acquire Life Science Technologies, Inc.
NATURAL WONDERS INC. (NASDAQ:NATWQ), based in Fremont, California, is a
specialty retailer of unique and affordable gifts inspired by the wonders of
science and nature. Natural Wonders Inc. reported 1999 revenues of over $147.1
million and in September, 2000 acquired World of Science stores for a total of
$10.55 million (a combination of $5.4 million in cash and assumption of
liabilities of $5.1 million). Natural Wonders Inc. paid World of Science
shareholders a multiple of 2.93 to EBITDA and a multiple of 0.18 to revenues.
POTPOURRI HOLDINGS, INC., based in Medfield, Massachusetts, is a leading
home/gift and knitting craft cataloger. Potpourri Holdings, Inc., which is
privately held, distributes more than 30 million catalogs per year and reported
2000 revenues of over $100 million. Potpourri Holdings, Inc. has acquired 11
companies since 1998 including its October, 1999 purchase of Catalog Ventures
from ValueVision for $10.5 million. Catalog Vision had trailing twelve-month
revenues, at the time of the acquisition, of over $31 million. Potpourri paid a
multiple of 0.3 times revenues. This acquisition was expected to help extend
Potpourri's catalog business.
48
In June, 1999, GUITAR CENTER (NASDAQ:GTRC), a retailer of musical instruments
based in Agoura Hills, California, acquired Musician's Friend Inc. for $29.9
million in stock plus $18.4 million in assumption of debt. Musician's Friends,
Inc. is a retailer of music products through mail order, catalog, and the
Internet. Guitar Center paid a multiple of 0.5 to revenues to expand its reach
into more diversified sales channels.
In March, 1999, INTERIORS, INC. (NASDAQOTC:INTXA), based in Mount Vernon, New
York, acquired Petals Inc. for a total of $8.4 million ($6 million in cash and
assumption of $2.4 million of liabilities). Interiors, which reported 2000
revenues of over $96 million, is in the decorative accessories business. Petals,
which had trailing twelve month revenues of $39.6 million at the time of the
acquisition also manufactures, markets, and distributes decorative silk flowers.
Interiors, Inc. paid 3.23 times EBITDA and 0.21 times revenues.
Burnham Securities compared multiples for the merger implied by the merger
consideration and certain financial data of Specialty Catalog to the
corresponding multiples in the selected merger and acquisition transactions.
Burnham Securities focused on (i) total invested capital to revenues for the
respective transaction as a multiple of revenues for the latest twelve months
preceding the transaction and (ii) total invested capital as a multiple of
EBITDA for the last twelve months preceding the respective transaction. The
transactions that Burnham Securities used generated the following adjusted
average multiples:
Multiple: Adjusted Average Price Per Share
- -----------------------------------------------------------------------------------------------
Total Invested Capital/Revenues 0.35x $4.41
Total Invested Capital/EBITDA 3.07x $1.42
These multiples were applied against management's operating statistics to derive
an estimated value for each parameter. In order to arrive at an average
valuation, Burnham took the average value based on the comparable transactions'
multiples.
Using the comparable transactions multiple, Burnham Securities derived a
valuation range for Specialty Catalog from $6.8 million (or $1.42 per share) to
$ 21.0 million ($4.41 per share).
3. Discounted Cash Flow Analysis:
This analysis involved a review of Specialty Catalog's internal forecasts and
projections regarding its future operations and the cash flows derived therefrom
in order to value the shares of Specialty Catalog. The free operating cash flows
of Specialty Catalog were discounted and then adjusted for special items as
deemed appropriate. In order to arrive at the free cash flow estimates by year,
after-tax free cash flows from operations were utilized and adjusted for capital
expenditures, changes in working capital and other appropriate adjustments. This
provided a measure of Specialty Catalog's ability to generate consistent free
cash flows for the benefit of its stockholders.
Once each year's free cash flows were determined, a discount rate was applied to
such cash flows to provide an aggregate present value of the future cash flows.
A range of discount rates were utilized ranging from 11.61% to 16.54%. Specialty
Catalog's historic weighted average cost of capital of 14.03% was also used as a
discount rate.
49
Burnham Securities derived a valuation range from $19.3 million (or $4.06 per
share) to $28.5 million (or $5.98 per share), with a value of $23.1 million (or
$4.84 per share) using the weighted average cost of capital discount rate, based
on an analysis of management's projections for fiscal years 2001 to 2005. Given
Burnham Securities' current assessment of the industry in which Specialty
Catalog competes and the overall state of the economy, Burnham Securities
assumed management's projections to be acceptable and consistent with previous
projections that Burnham Securities previously evaluated, as well as with
projections periodically presented to Specialty Catalog's board of directors.
Management projects Specialty Catalog's revenue growth will compound annually
from 2001 to 2005 at approximately 5%.
Due to the recent history of Specialty Catalog and its utilization of leverage
(in the form of a senior credit facility), Specialty Catalog currently has a Net
Operating Loss Carryforward of $9 million. Specialty Catalog is limited to use
$1.55 million annually to offset operating profit. Burnham Securities took into
consideration the management estimates of the company's (Net Operating Loss)
into its analysis.
Financial projections used by Burnham Securities in its analysis were based on
Specialty Catalog's estimates. Burnham Securities makes no representations as to
the accuracy or attainability of the projections for the future performance of
Specialty Catalog used in this analysis.
4. Stock Buyback Analysis:
Specialty Catalog's management provided Burnham Securities with the financial
details (the price and number of shares involved) of its fifteen separate
buybacks of Specialty Catalog common stock from investors during 1999 and 2000.
Specialty Catalog purchased a total of 144,000 shares of its common stock at an
average price of $3.56 per share. Based on this average price and the 4,768,000
outstanding shares involved in the merger, this resulted in a valuation of
Specialty Catalog of $16.9 million (or $3.56 per share).
When these shareholders sold their shares, an analyst might assume that the
sellers believed that they were receiving the best possible price at the time of
the transactions. The average stock buyback price reflects an aggregate price
that a number of sophisticated and knowledgeable sellers received for their
shares over a measurable period of time (as opposed to a single transaction,
that could be influenced by a specific event).
Valuation estimate
Based on its analysis of the range of valuations derived from the preceding four
methods, Burnham Securities arrived at a weighted average valuation range for
Specialty Catalog from $12.6 million (or $2.65 per share) to $20.7 million (or
$4.35 per share).
OTHER CONSIDERATIONS
50
In early 1999, the board of directors of Specialty Catalog authorized the
repurchase of Specialty Catalog's shares in the open market, implying (if not
announcing) that stockholder value would best be served by buying back its
shares. Throughout 1999 and 2000, Specialty Catalog re-acquired a total of
144,000 shares at an average price of $3.56. This decision by the board of
directors followed a lengthy process by a highly reputable investment bank that,
over a period lasting six months, had been engaged to identify a purchaser for
all the shares of Specialty Catalog Corp. Over the course of the engagement,
fifty-three prospective purchasers (many of them being highly regarded and
active acquirers of companies) were contacted and presented with detailed
information concerning Specialty Catalog's history, current operations and
future prospects. According to the management, not one bona fide proposal was
forthcoming. During the course of the engagement, which had been publicly
announced, Specialty Catalog's shares traded in a range between $3 and $4 per
share.
Specialty Catalog's former Chairman announced his resignation in the summer of
1999, but his successor did not emerge until July, 2000 after the aborted
takeover attempt of Specialty Catalog in the first quarter of 2000. Since then,
the stock has traded primarily between a low of $1.56 per share and a high of
$3.50 per share.
From an external perspective, Specialty Catalog has suffered from inattention by
the financial marketplace community. Institutional investors who require
liquidity as a primary factor for their stock selections dominate the major
markets.
On March 21, 2001, Specialty Catalog announced in a press release that it had
received a Nasdaq Staff Determination Letter indicating that it failed to
maintain a minimum market value of its "public" float of $5,000,000 over 30
consecutive trading days and that failure to cure this deficiency would cause
the NASDAQ to de-list Specialty Catalog and relegate its shares to trade on the
NASDAQ SmallCap Market, a significantly less reliable exchange for existing and
prospective shareholders. The company received a hearing before the Nasdaq
Listing Qualifications Panel to review the Staff Determination, however, there
can be no assurance the Panel will grant the Company's request for continued
listing on The Nasdaq National Market as a result of the hearing. If the Panel
denies the company's request for continued listing on The Nasdaq National
Market, the company intends to apply to list its securities on The Nasdaq
SmallCap Market.
Immediately prior to Mr. Guy Naggar's 13D filing on April 25, 2001, which
indicating his intention specialty catalog to purchase all or substantially all
of the outstanding shares of the Company that he and his affiliates do not own,
Specialty Catalog's stock closed at $2.63, a 30% discount from the $3.75
proposed acquisition price. The merger price represents a 43% premium to the
last sale prior to the public filing. A press release of Specialty Catalog was
made on Monday, April 30 stating that that Mr. Guy Naggar, a British investor
and substantial shareholder of the company, had submitted a final proposal to
acquire for cash, through merger, all of the issued and outstanding shares of
common stock of the company, other than his shares and the shares of others who
may join him, for $3.75 a share. The last reported sale of Specialty Catalog
stock prior to the release was $3.05 per share. The merger price represents a
23% premium to the last sale prior to the corporate announcement.
51
Fee Arrangements
Burnham Securities, as part of its investment banking services, is regularly
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, strategic transactions, corporate restructurings,
negotiated underwritings, secondary distributions of listed and unlisted
securities, private placements and valuations for corporate and other purposes.
In December, 1999, Burnham Securities was engaged by the then existing
independent committee of the board of directors of Specialty Catalog to provide
financial advice and advise on the fairness of the consideration to be received
by Specialty Catalog stockholders in a proposed merger that was not consummated.
Burnham Securities has acted as a financial advisor to the special committee in
connection with the merger. Burnham Securities may in the future provide
investment banking or other financial advisory services to Specialty Catalog.
Pursuant to an engagement letter dated April 30, 2001, the special committee
agreed to pay Burnham Securities a fee of $62,500 in connection with the
delivery of the fairness opinion rendered on May 4, 2001, which was comprised of
$25,000 payable to Burnham Securities upon execution of the letter agreement and
$37,500 payable to Burnham Securities at the time the opinion was rendered. Such
amount has been paid in its entirety. Specialty Catalog also has agreed to
reimburse Burnham Securities for its reasonable out-of-pocket expenses,
including reasonable fees and expenses of its counsel. Specialty Catalog has
also agreed to indemnify Burnham Securities against certain liabilities,
including liabilities under the federal securities laws or relating to or
arising out of Burnham Securities' engagement as financial advisor.
POSITION OF THE CONTINUING STOCKHOLDERS AS TO THE FAIRNESS OF THE MERGER
By virtue of their potential status as a "group" for purposes of Rule
13d-5 of the Exchange Act, each of the Continuing Stockholders may be deemed to
beneficially own approximately 35% of Specialty Catalog common stock and, as a
result, are deemed to be "affiliates" of Specialty Catalog under applicable SEC
regulations. Rule 13e-3 of the Exchange Act governs "going-private" transactions
by certain issuers and their affiliates. Accordingly, in compliance with Rule
13e-3, the Continuing Stockholders are required to consider the fairness of the
merger to Specialty Catalog's unaffiliated stockholders.
Each of the Continuing Stockholders has considered the factors examined
by the special committee and the board of directors described in detail above.
In particular, the Continuing Stockholders considered the following factors:
o The historical results of operations, financial condition, assets,
liabilities, business strategy and prospects of Specialty Catalog
and the nature of the industry in which Specialty Catalog competes.
The Continuing Shareholders considered this to be a positive factor
in their determination that the merger is fair to the unaffiliated
stockholders.
o The relationship of the $3.75 per share merger consideration
offered in the merger to the current market price and the market
prices for Specialty Catalog common stock over the previous twelve
months during which the weighted average trading price had been
52
$2.43 per share and 25% of the trading volume had been at prices
below $2.35 per share, 60% of the trading volume had been at
prices below $2.50, and 83% of the trading volume had been at
prices below $2.75. The Continuing Shareholders considered this to
be a positive factor in their determination that the merger is
fair to the unaffiliated stockholders.
o The recent market prices for Specialty Catalog's shares including
the fact that the $3.75 per share merger consideration represented
(i) a 42.6% premium over the closing price on May 3, 2001, the
last trading day prior to the public announcement of the merger
agreement, and (ii) approximately 49.8% over the average closing
price for the thirty day period immediately preceding the day that
Mr. Naggar filed an amendment to his Schedule 13D announcing that
he was preparing to make a preliminary proposal regarding, among
other things, a transaction involving the purchase of all or
substantially all of the outstanding shares of Specialty Catalog.
The Continuing Stockholders considered this to be a positive
factor in their determination that the merger is fair to the
unaffiliated stockholders.
o Specialty Catalog had repurchased a block of its shares during 2000
at $2.63 per share. The Continuing Shareholders considered this to
be a positive factor in their determination that the merger is
fair to the unaffiliated stockholders.
o The $3.75 represents an amount in excess of the net book value per
share of $2.01 as of December 30, 2001. The Continuing
Shareholders considered this to be a positive factor in their
determination that the merger is fair to the unaffiliated
stockholders.
o During the last two years, other than the terminated merger with
Golub Associates, Specialty Catalog has not received any offers
relating to a merger or consolidation, sale or other transfer of
all or a substantial part of its assets or a purchase of its
securities that would enable the holder to exercise control of
Specialty Catalog. The Continuing Shareholders considered this to
be a positive factor in their determination that the merger is
fair to the unaffiliated stockholders.
o Notwithstanding that the Burnham Securities opinion, dated May 4,
2001, was provided solely for the information and assistance of the
special committee and the board of directors and that the
Continuing Stockholders are not entitled to rely on such opinion,
the fact that Specialty Catalog's board of directors received an
opinion from Burnham Securities that the consideration to be
received by Specialty Catalog's stockholders in the merger is fair
to such stockholders (other than Acquisition Corp. and the
Continuing Stockholders) from a financial point of view
demonstrates the fairness of the merger consideration. The
Continuing Shareholders considered this to be a positive factor in
their determination that the merger is fair to the unaffiliated
stockholders.
o In light of the relatively thin trading market and lack of
liquidity of the shares of Specialty Catalog common stock, the
merger will afford stockholders an opportunity to dispose of their
shares without the possible diminution of value resulting from the
lack of an active trading market. The liquidity of the shares may
be further decreased
53
if the shares are delisted from The Nasdaq National Market. The
Continuing Shareholders considered this to be a positive factor in
their determination that the merger is fair to the unaffiliated
stockholders.
o The consideration to be received in the merger is payable in cash,
thereby eliminating any uncertainties in valuing the consideration
to be received by Specialty Catalog's stockholders. The Continuing
Shareholders considered this to be a positive factor in their
determination that the merger is fair to the unaffiliated
stockholders.
o The merger agreement does not unduly deter a third party from
making an acquisition proposal, inhibit the special committee from
withdrawing or modifying its approval or recommendation of the
merger or the merger agreement, or inhibit the board of directors
from approving, recommending or accepting an acquisition proposal
that the special committee determines to be of a higher price per
share and more favorable to the stockholders of Specialty Catalog
than the merger. The Continuing Shareholders considered this to be
a positive factor in their determination that the merger is fair
to the unaffiliated stockholders.
In consideration of the fairness of the merger to Specialty Catalog's
stockholders, the Continuing Stockholders did not find it practicable to, and
did not, appraise the assets of Specialty Catalog to determine a liquidation
value for Specialty Catalog. The Continuing Stockholders consider Specialty
Catalog as a viable going concern business and did not consider the liquidation
value as a relevant valuation methodology.
In addition, based upon the following factors, each of the Continuing
Stockholders believes that the procedures used by the special committee in
negotiating the merger agreement and the transactions contemplated therein were
fair to the unaffiliated stockholders of Specialty Catalog:
o A special committee consisting of an independent director was
established. The special committee retained its own financial and
legal advisors and conducted a vigorous process of evaluation and
negotiation of the merger. Negotiations were considered to be an
important element of a fair bargaining process and the fact that
there were effective negotiations in this case indicated that the
process leading to the merger was fair.
o The special committee and board of directors have determined that
the merger and the merger agreement are fair to, advisable and in
the best interest of Specialty Catalog and its stockholders (other
than Acquisition Corp. and the Continuing Stockholders) and
recommend that the stockholders approve the merger and adopt the
merger agreement. In light of their fiduciary duties to the
stockholders of Specialty Catalog and their careful consideration
of the merger, the Continuing Stockholders believe the fact that
the special committee and Specialty Catalog's board of directors
reached these determinations indicates that the merger and the
consideration offered in the merger are fair to the unaffiliated
stockholders of Specialty Catalog.
54
o The special committee consisted of one non-employee, independent
director appointed by the board of directors to represent the
interests of Specialty Catalog's public stockholders; the sole
member of the special committee was not a Continuing Stockholder;
and the special committee retained and received advice from
independent financial and legal advisors.
o Specialty Catalog's stockholders (other than Acquisition Corp. and
the Continuing Stockholders), who object to the merger will obtain
"fair value" for their shares if they exercise and perfect their
dissenters' rights under Delaware law.
o The $3.75 per share merger consideration and the terms and
conditions of the merger agreement were the result of arm's length
negotiations among the special committee and Mr. Naggar and their
respective advisors described under "SPECIAL FACTORS - Material
Contacts and Board Deliberations".
o If the merger is completed, the member of the special committee
will receive (solely in his capacity as a holder of options of
Specialty Catalog) $13,750 in merger consideration, and this
interest is consistent with the interests of the unaffiliated
stockholders of Specialty Catalog other than the Continuing
Stockholders.
o During the period from April 17, 2001 to May 4, 2001, the special
committee undertook an intensive and extensive review of Specialty
Catalog and the catalog/specialty distributor industry and had
numerous discussions with the management and certain directors of
Specialty Catalog as well as with the financial advisors for the
special committee regarding the results of operations, financial
condition, business and prospects of Specialty Catalog.
The Continuing Stockholders have interests in the merger transaction
not shared by other stockholders of Specialty Catalog. These interests are
described below under the heading "Interests of Certain Persons in the Merger."
Each of the Continuing Stockholders intends to vote in favor of the approval and
adoption of the merger agreement at the special meeting of the stockholders.
None of the Continuing Stockholders participated in the deliberations
of the special committee regarding, or received advice from the special
committee's financial advisor as to, the merger. Each of the Continuing
Stockholders has, however, considered the analyses and findings of the special
committee and the board (described in detail under "SPECIAL FACTORS--
Recommendation of the Special Committee and the Board of Directors; Reasons for
the Merger; Fairness of the Merger"), as well as the opinion of Burnham
Securities (described in detail under "SPECIAL FACTORS -- Opinion of Burnham
Securities Inc."), with respect to the fairness of the merger to the
unaffiliated stockholders).
As of the date of this proxy statement, each of the Continuing
Stockholders believes that the factors considered provide a reasonable basis for
their belief that the merger, the merger
55
agreement and the merger transactions are fair to and in the best interests of
Specialty Catalog's unaffiliated stockholders. This belief should not be
construed as a recommendation by the Continuing Stockholders to vote to approve
the merger agreement. The Continuing Stockholders make no recommendation as to
how the public stockholders should vote their shares. The Continuing
Stockholders have not undertaken any formal evaluation of the fairness of the
merger to the unaffiliated stockholders, and do not believe it is possible to
assign specific relative weights to the factors considered by them.
PURPOSE, REASONS AND PLANS
PURPOSE. The purpose of the merger is for Acquisition Corp.
to acquire, in accordance with Delaware law, all of the shares of common stock
of Specialty Catalog issued and outstanding at the consummation of the merger.
REASONS OF SPECIALTY CATALOG FOR THE MERGER. Specialty Catalog's
primary reason for entering into the merger agreement at this time is the view
of its board of directors that it is unlikely that the trading price of
Specialty Catalog shares will exceed and sustain a trading price of $3.75 per
share if Specialty Catalog remains a publicly traded company. The board of
directors believes, based upon the reasons discussed above under the caption
"SPECIAL FACTORS -- Recommendation of the Special Committee, and the Board of
Directors; Reasons for the Merger; Fairness of the Merger" that the merger is
the best available opportunity to enhance stockholder value at this time.
REASONS OF THE CONTINUING STOCKHOLDERS FOR THE MERGER.
Each of the Continuing Stockholders believes that it is in Specialty
Catalog's best interest to operate as a privately held entity. Despite Specialty
Catalog being a market leader with what the Continuing Stockholders believe to
be a solid management team, Specialty Catalog's historical stock prices have
been at levels below what the Continuing Stockholders believe to be full value
of shares of Specialty Catalog common stock. Each of the Continuing Stockholders
believes that this trend has prevented stockholders from realizing appropriate
value for their interests in Specialty Catalog. As a privately held entity,
Specialty Catalog will have the flexibility to focus on continuing improvements
to its business without the constraints and distractions of being a public
company. In addition, as an entity whose common stock is not publicly traded,
Specialty Catalog will be able to make decisions that may negatively affect
quarterly earnings but that may, in the long-run, increase the value of
Specialty Catalog's assets or earnings.
In addition, after the merger, Specialty Catalog will no longer be
subject to the reporting requirements of the Exchange Act with respect to its
equity securities, which will allow Specialty Catalog to eliminate the cost and
time devoted by its management and certain other employees to matters relating
exclusively to having equity securities publicly traded.
These assessments are based upon publicly available information
regarding Specialty Catalog and the Continuing Stockholders' due diligence,
investigation or knowledge of the Specialty Catalog and its industry and the
experience of the Continuing Stockholders in investing
56
in or managing public companies generally. While the Continuing Stockholders
believe that there will be significant opportunities associated with their
investment in Specialty Catalog and that the value of such an equity investment
could be considerably greater than the original cost thereof, they realize that
there also are substantial and significant risks that such opportunities may
never be fully realized.
PLANS FOR SPECIALTY CATALOG
It is expected that, following the merger, the operations and business of
Specialty Catalog will be conducted substantially as they are currently
conducted. None of Specialty Catalog or any of the Continuing Stockholders has
any present plans or proposals that relate to or would result in an
extraordinary corporate transaction involving Specialty Catalog corporate
structure, business or management, such as a merger, reorganization,
liquidation, relocation of any operations or sale or transfer of a material
amount of assets. However, after the merger, Specialty Catalog and the
Continuing Stockholders will continue to evaluate Specialty Catalog's business
and operations from time to time, and may propose or develop new plans and
proposals which they consider to be in the best interests of Specialty Catalog
and its stockholders, including the disposition or acquisition of material
assets, alliances, joint ventures and other forms of cooperation with third
parties or other extraordinary transactions.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of the special committee and of the
board of directors with respect to the merger, the directors and officers who
are, or become Continuing Stockholders have interests in the merger that are
different from the interests of stockholders of Specialty Catalog in general.
The members of Specialty Catalog's board of directors were aware of such
directors' and officers' interests in the merger when deciding to approve the
merger, as was the special committee when deciding to recommend such approval.
See "SPECIAL FACTORS - Material Contacts and Board Deliberations and "SPECIAL
FACTORS--Recommendation of the Special Committee and the Board of Directors;
Reasons for the Merger; Fairness of the Merger." These interests include those
described below.
The Continuing Stockholders and certain members of management have
interests in the merger as employees and/or directors of Specialty Catalog, or
as stockholders with a continuing equity interest in Specialty Catalog, that are
different from, or in addition to, yours as a stockholder. In particular, (i)
all or part of the Specialty Catalog stock held by the Continuing Stockholders
will be converted into stock of Specialty Catalog after the merger, (ii) all or
part of the options to acquire Specialty Catalog stock held by Continuing
Stockholders will be converted into options to purchase stock of the surviving
corporation, and (iii) Mr. Grabowski will enter into an amendment to his
employment agreement with Specialty Catalog. See "SPECIAL FACTORS--Stock Option
Arrangement," "SPECIAL FACTORS--Employment Agreements" and "Special
Factors--Certain Stock Option Arrangements." When making the determination to
approve and recommend approval of the merger transactions to Specialty Catalog's
stockholders, both the board and the special committee of independent directors
appointed to review the merger were aware of the interests of the Continuing
Stockholders and certain members of management and considered these interests,
57
together with the other factors described under "SPECIAL FACTORS --
Recommendation of the Special Committee and the Board of Directors; Reasons
for the Merger; Fairness of the Merger."
On May 17, 2001, there were 4,337,886 shares of our common stock
outstanding. In the following table, shares that the Continuing Stockholders
have the right to acquire by July 17, 2001 by exercising options, warrants or
conversion privileges are deemed to be beneficially owned and outstanding for
the purpose of computing the percentage ownership of common stock and voting
power of Specialty Catalog. The table also indicates the number of shares and
the percentage ownership of Specialty Catalog which will be held by each of the
Continuing Stockholders after the consummation of the merger. Except as
indicated in the footnotes to the table, we believe that the Continuing
Stockholders have sole voting and investment power with respect to the shares
shown to be beneficially owned by them, based on information provided by these
stockholders.
- ------------------------------------------------------------------------------------------------------------
PERCENTAGE PERCENTAGE
OWNERSHIP OWNERSHIP
NUMBER OF SHARES BEFORE MERGER AFTER MERGER
- ------------------------------------------------------------------------------------------------------------
Alexander Enterprise Holdings Corp.(1) 279,700 6.4% 33%
- ------------------------------------------------------------------------------------------------------------
Guy Naggar(2) 405,267 9.3% 22%
- ------------------------------------------------------------------------------------------------------------
First Global Holdings Limited (3) 244,655 5.6% 13%
- ------------------------------------------------------------------------------------------------------------
Oracle Investments and Holdings Limited (3) 244,656 5.6% 13%
- ------------------------------------------------------------------------------------------------------------
Ionic Holdings LDC (3) 244,655 5.6% 13%
- ------------------------------------------------------------------------------------------------------------
Three Greens Holdings Limited (4) 98,376 2.3% 6%
- ------------------------------------------------------------------------------------------------------------
(1) Nicolas Berggruen acts as an investment advisor to Alexander and shares
voting and dispositive power over the shares owned by Alexander.
(2) Includes options to purchase 3,600 shares of our common stock.
(3) Marion Naggar's Children's Settlement is the sole shareholder of each of
Oracle, First Global and Ionic. Abacus (CI) Limited and Abacus Trustees (Jersey)
limited are the trustees of the Marion Naggar's Children's Settlement and have
the authority to appoint the directors of First Global, Oracle and Ionic.
(4) GA Naggar 1982 Settlement is the sole shareholder of Three Greens. Abacus
(CI) Limited and Abacus Trustees (Jersey) limited are the trustees of the GA
Naggar 1982 Settlement and have the authority to appoint the directors of Three
Greens.
SPECIAL COMMITTEE
Because Mr. Naggar is a director of Specialty Catalog and a Continuing
Stockholder, the board appointed a special committee consisting of one
independent director to evaluate the proposed transactions. The sole member of
the special committee, Mr. Moore, is neither a current stockholder, a Continuing
Stockholder, nor an employee of Specialty Catalog, nor does he have interests in
the merger different from the interests of Specialty Catalog's stockholders
other than Acquisition Corp. and the Continuing Stockholders. See "SPECIAL
FACTORS - Material Contacts and Board Deliberations."
Mr. Moore was granted no additional compensation for his service on the
committee. Mr. Moore holds options to purchase 10,000 shares of common stock,
which equals
58
the number of options granted to each member of the board of directors on August
25, 2000, at $2.375 per share upon his appointment as a member of the board of
directors. Mr. Moore is also entitled to certain indemnification rights like all
other directors, and to directors' and officers' liability insurance that will
be continued by Specialty Catalog following the merger as described above for
the current and former officers and directors of Specialty Catalog. The board of
directors and the special committee believe that the foregoing arrangements do
not affect the special committee's independence or impartiality.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion summarizes the material U.S. federal income
tax considerations relevant to the merger that are generally applicable to
holders of our common stock. This discussion is based on currently existing
provisions of the Internal Revenue Code of 1986, existing and proposed U.S.
Treasury Regulations, and current administrative rulings and court decisions,
all of which are subject to change. Any such change, which may or may not be
retroactive, could alter the tax consequences. Special tax consequences not
described below may be applicable to particular classes of taxpayers, including
financial institutions, broker-dealers, persons who are not citizens or
residents of the United States or who are foreign corporations, foreign
partnerships, or foreign estates or trusts as to the United States, persons who
will own, actually or constructively, stock of the Company after the merger, and
holders who acquired their stock through the exercise of an employee stock
option or otherwise as compensation.
Your receipt of the merger consideration in the merger will generally
be a taxable transaction for U.S. federal income tax purposes. Your gain or loss
per share will be equal to the difference between $3.75 and your adjusted basis
in that particular share of common stock. Such gain or loss generally will be a
capital gain or loss. In the case of individuals, trusts, and estates, such
capital gain will be subject to a maximum U.S. federal income tax rate of 20%
for shares of common stock held for more than 12 months prior to the date of the
merger.
You may be subject to backup withholding at the rate of 31% with
respect to the merger consideration received by you, unless you (1) are a
corporation or come within certain other exempt categories and, when required,
demonstrate this fact, or (2) provide a correct taxpayer identification number
("TIN"), certify as to no loss of exemption from backup withholding, and
otherwise comply with applicable requirements of the backup withholding rules.
To prevent the possibility of backup U.S. federal income tax withholding on
payments made pursuant to the merger, you must provide the paying agent with
your correct TIN by completing a Form W-9 or substitute Form W-9. If you do not
provide the Paying Agent with your correct TIN, you may be subject to penalties
imposed by the Internal Revenue Service as well as backup withholding. Any
amount withheld under these rules will be creditable against your U.S. federal
income tax liability. The Company (or its agent) will report to you and the IRS
the amount of any "reportable payments," as defined in Section 3406 of the
Internal Revenue Code, and the amount of tax, if any, withheld with respect
thereto.
The foregoing tax discussion is included for general information only
and is based upon present law. The foregoing discussion does not discuss tax
consequences under the laws of states or local governments or of any other
jurisdiction or tax consequences to categories of
59
shareholders that may be subject to special rules, such as foreign persons,
tax-exempt entities, insurance companies, financial institutions, and dealers in
stocks and securities. The foregoing discussion may not be applicable to a
shareholder who continues to own, actually or constructively, stock of the
Company after the merger or who acquired his or her shares of common stock
pursuant to the exercise of stock options or otherwise as compensation. You
should consult your own tax advisor as to the specific tax consequences of the
merger to you, including the application and effect of U.S. federal, state,
local, and other tax laws and the possible effect of changes in such tax laws.
ACCOUNTING TREATMENT OF THE MERGER
The merger is expected to be accounted for under the purchase method of
accounting. The merger is structured as a leveraged buyout transaction with
certain stockholders of Specialty Catalog continuing to be stockholders in the
surviving corporation. The assets and liabilities of Specialty Catalog will be
recorded at fair value for the interests acquired by the new investors and at
the carryover, or predecessor basis for continuing stockholders from Specialty
Catalog.
REGULATORY FILINGS AND APPROVALS REQUIRED TO COMPLETE THE MERGERS
The Company does not believe there are any material governmental or
regulatory approvals required for completion of the mergers, other than and
compliance with applicable corporate law of Delaware, the federal securities
laws and various blue sky laws.
APPRAISAL RIGHTS
If the merger is consummated, holders of shares of common stock are
entitled to appraisal rights under Section 262 of the Delaware General
Corporation Law ("Section 262"), provided that they comply with the conditions
established by Section 262.
Section 262 is reprinted in its entirety as Appendix C to this proxy
statement. The following discussion is not a complete statement of the law
relating to appraisal rights and is qualified in its entirety by reference to
Appendix C. This discussion and Appendix C should be reviewed carefully by any
holder who wishes to exercise statutory appraisal rights or who wishes to
preserve the right to do so, as failure to comply with the required procedures
will result in the loss of appraisal rights.
A record holder of the common stock who makes the demand described
below with respect to such shares, who is continuously the record holder of such
shares through the effective time of the merger, who otherwise complies with the
statutory requirements of Section 262 and who neither votes in favor of the
merger nor consents to the merger in writing will be entitled to an appraisal by
the Delaware Court of Chancery of the fair value of his or her shares of common
stock. Except as set forth herein, stockholders will not be entitled to
appraisal rights in connection with the merger.
Under Section 262, we are required to notify you not less than 20 days
prior to the special meeting that the appraisal rights are available and include
in each such notice a copy of Section
60
262. This proxy statement constitutes our notice to you. Holders of shares who
desire to exercise their appraisal rights must not vote in favor of the merger
and must deliver a separate written demand for appraisal to us prior to the vote
by the stockholders merger at the special meeting. A demand for appraisal must
be executed by or on behalf of the stockholder of record and must reasonably
inform us of the identity of the stockholder of record and that such stockholder
intends thereby to demand an appraisal of his Specialty Catalog common stock. A
proxy or vote against the merger will not by itself constitute such a demand.
Within ten days after the effective time of the merger, we must provide notice
of the effective time to all stockholders who have complied with Section 262.
A stockholder who elects to exercise appraisal rights should mail or
deliver his or her written demand to: Corporate Secretary c/o Specialty Catalog
Corp., 21 Bristol Drive, South Easton, Massachusetts 02375.
A person having a beneficial interest in shares of Specialty Catalog
common stock that are held of record in the name of another person, such as a
broker, fiduciary, depositary or other nominee, must act promptly to cause the
record holder to follow the steps summarized herein properly, and in a timely
manner, to perfect appraisal rights. If the shares common stock are owned of
record by a person other than the beneficial owner, including a broker,
fiduciary (such as a trustee, guardian or custodian), depositary or other
nominee, such demand must be executed by or for the record owner. If the shares
of common stock are owned of record by more than one person, as in a joint
tenancy or tenancy in common, such demand must be executed by or for all joint
owners. An authorized agent, including an agent for two or more joint owners,
may execute the demand for appraisal for a stockholder of record; however, the
agent must identify the record owner and expressly disclose the fact that, in
exercising the demand, such person is acting as agent for the record owner. If a
stockholder holds shares of common stock through a broker who in turn holds the
shares through a central securities depository nominee, such as Cede & Co., a
demand for appraisal of such shares must be made by or on behalf of the
depository nominee and must identify the depository nominee as record holder.
A record holder, such as a broker, fiduciary, depositary or other
nominee, who holds shares of common stock as a nominee for others, may exercise
appraisal rights with respect to the shares held for all or less than all
beneficial owners of shares as to which such person is the record owner. In such
case, the written demand must set forth the number of shares covered by such
demand. Where the number of shares is not expressly stated, the demand will be
presumed to cover all shares of common stock outstanding in the name of such
record owner.
Within 120 days after the effective time of the merger, either
Specialty Catalog or any stockholder who has complied with the required
conditions of Section 262 may file a petition in the Delaware Court of Chancery,
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. Stockholders seeking to exercise appraisal rights
should not assume that we will file such a petition or that we will initiate any
negotiations with respect to the fair value of such shares. Accordingly, holders
of common stock who desire to have their shares appraised should initiate
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 of the merger,
61
any stockholder who has theretofore complied with the applicable provisions of
Section 262 will be entitled, upon written request, to receive from us a
statement setting forth the aggregate number of shares of common stock not
voting in favor of the merger and with respect to which demands for appraisal
were received by us and the number of holders of such shares. We are obligated
to mail that statement within 10 days after we receive a written request
therefor.
If a petition for an appraisal is timely filed, at the hearing on such
petition, the Delaware Court of Chancery will determine which stockholders are
entitled to appraisal rights. The Delaware Court of Chancery 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 of Chancery may dismiss the proceedings as to such stockholder.
Where proceedings are not dismissed, the Delaware Court of Chancery will
appraise the shares of Specialty Catalog 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.
Although we believe that the merger consideration is fair, no
representation is made as to the outcome of the appraisal of fair value as
determined by the Delaware Court of Chancery and stockholders should recognize
that such an appraisal could result in a determination of a value higher or
lower than, or the same as, the merger consideration. Moreover, we do not
anticipate offering more than the merger consideration to any stockholder
exercising appraisal rights and reserve the right to assert, in any appraisal
proceeding, that, for purposes of Section 262, the fair value of shares of the
Company's common stock is less than the merger consideration. In determining
fair value, the Delaware Court of Chancery is required to take into account all
relevant factors. These factors will include 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 Company.
Holders of shares of 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 of Chancery and taxed against the parties as the court deems equitable in
the circumstances. Upon application of a dissenting stockholder 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 attorneys' fees and the fees and expenses of experts, be charged pro
rata against the value of all shares of stock entitled to appraisal.
Any holder of shares of common stock who has duly demanded appraisal in
compliance with Section 262 will not, after the effective time of the merger, be
entitled to vote for any purpose any shares subject to such demand or to receive
payment of dividends or other distributions on such shares, except for dividends
or distributions payable to stockholders of record at a date prior to the
effective time.
62
At any time within 60 days after the effective time of the merger, 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 Specialty Catalog.
If no petition for appraisal is filed with the Delaware Court within 120 days
after the effective time of the merger, stockholders' rights to appraisal will
cease, and all holders of shares of Specialty Catalog's common stock will be
entitled to receive the consideration offered pursuant to the merger agreement.
Inasmuch as we have no obligation to file such a petition, and have no present
intention to do so, any shareholder 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 Specialty Catalog a written
withdrawal of his or her demand for appraisal and acceptance of the merger
consideration, except (i) that any such attempt to withdraw made more than 60
days after the effective time of the merger will require our written approval
and (ii) that no appraisal proceeding in the Delaware Court of Chancery will 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.
AMOUNT AND SOURCE OF FUNDS AND FINANCING OF THE MERGER
Immediately following the merger, Specialty Catalog will pay to the
stockholders of Specialty Catalog, other than Acquisition Corp., an aggregate
amount of approximately $12.2 million to cancel the outstanding shares of
Specialty Catalog common stock and stock options, assuming (i) no Specialty
Catalog stockholders exercise and perfect their dissenters' rights in connection
with the merger, (ii) certain stock options of members of management are
converted into options of Specialty Catalog after the merger and (iii) no other
stockholders participate with the Continuing Stockholders. Moreover, Specialty
Catalog will incur approximately $0.9 million in fees and expenses in connection
with the merger and related transactions. In addition to these cash
expenditures, the transaction contemplates that certain executives will roll
over an aggregate of $312,500 of option value of Specialty Catalog for option
value in the surviving corporation, while the Continuing Stockholders will
exchange $5.6 million of common stock value or Specialty Catalog into common
stock of Acquisition Corp. Acquisition Corp.'s receipt of cash proceeds from
debt and equity financing sufficient to consummate the transactions contemplated
by the merger agreement is a condition precedent to Acquisition Corp.'s
obligation to consummate the merger agreement, the merger and the transactions
contemplated thereby. There can be no assurance that Acquisition Corp. will
satisfy this financing condition. However, the following arrangements are
intended to provide the necessary financing for the merger.
Fleet Bank Proposal
On December 27, 2000, the Company entered into a $12.25 million credit
agreement (the "credit agreement") with Fleet National Bank ("Fleet") for the
purpose of refinancing its existing senior debt and to provide for the working
capital needs of the Company. The new credit facility, which may be increased to
$13.0 million in 2002, replaced the Company's former credit facilities with the
Fleet. The credit agreement includes a $9.0 million five-year term note (the
"term loan") and a $3.25 million two-year revolving credit agreement (the "line
of credit"). The amount available on the line of credit increases as principal
amortization payments on the term loan are paid, such that the total credit
agreement remains at $12.25 million over the two years of
63
the line of credit agreement. The line of credit provides for revolving credit
loans and letters of credit with floating rates based on margins over LIBOR or
prime at the Company's option. The term loan is for five years and is being
amortized at the rate of $450,000 a quarter beginning January 1, 2001.
As of December 30, 2000, $6.4 million of the term loan was under LIBOR
contract rates ranging from 8.6625 percent to 9.02813 percent and the remainder
of the term loan was at the base rate of 9.75 percent. As of December 30, 2000,
approximately $788,000 of the line of credit was at the base rate of 9.75
percent. We are required to pay a commitment fee of 0.375 percent per annum on
the unused portion of the commitment. At December 30, 2000, $2.5 million was
available under this line of credit.
The credit agreement is collateralized by a first perfected security
interest in all tangible and intangible assets of the Company, subject to
certain permitted liens. The Agreement is subject to certain consolidated
covenants, including but not limited to leverage and debt service coverage
ratios, minimum earnings requirements, and a restriction on the payment of cash
dividends on the Company's common stock.
On April 30, 2001, Specialty Catalog received a term sheet from Fleet
relating to terms and conditions upon which Fleet might extend credit to
Specialty Catalog under an amended credit facility to be entered into in
connection with the merger.
The proceeds of the financing will be used to provide [a portion of the
proceeds required to consummate the merger and, to provide] working capital and
other general corporate needs of Specialty Catalog as the surviving corporation
and its subsidiaries. A copy of the Fleet term sheet is filed as an exhibit to
Schedule 13E-3 filed by Specialty Catalog and its affiliates and is incorporated
herein by reference.
Senior Subordinated Notes
Specialty Catalog anticipates that it will obtain approximately $7.5
million of financing from Golub Associates or an affiliate thereof for use in
connection with the merger agreement, the merger and the transaction
contemplated thereby.
On May 4, 2001, Specialty Catalog, Acquisition Corp., Golub Associates
and LEG Partners III SBIC, L.P., entered into a letter of intent (the "Golub
letter of intent") regarding Golub Associates consideration of a potential
subordinated debt and warrant investment in Acquisition Corp. to finance the
merger. Pursuant to the terms of the letter of intent, Golub Associates and its
affiliates are to receive (i) $7.5 million of senior subordinated debt, at the
annual rate of interest of 14.0% (12.5% in cash and 1.5% deferred), and (ii)
warrants to purchase approximately 13.4% of the fully diluted equity of
Specialty Catalog. It is anticipated that the senior subordinated notes (the
"Notes") will have the following features:
o a maturity of the shorter of (i) six months longer than the
senior term loan or (ii) sixty-six months;
o subordinated to the senior bank financing;
64
o quarterly principal payments equal to 4.5% of the original
principal amount commencing June 30, 2003, with the balance
due upon maturity; and
o cash interest payable quarterly.
Specialty Catalog expects that the senior subordinated note will
contain covenants customary for this type of financing, including, without
limitation, pro rata rights of first refusal on subsequent financing, minority
investor protections including certain put rights, and board participation.
In addition, LEG Partners III SBIC, L.P. has the right, at its option,
to roll over, on the same basis as other equity investors of Acquisition Corp.,
a portion of its common stock ownership of Specialty Catalog.
The Golub letter of intent provides that in the event Specialty Catalog
and Acquisition Corp. proceed with such a transaction, the parties may not use
subordinated debt financing from any other source other than Golub Associates to
finance the transaction. The letter of intent also provides that Golub
Associates is to be reimbursed for certain expenses incurred in connection with
the financing of the transaction.
The Golub letter of intent is not a financing commitment from Golub
Associates. A commitment letter for the financing is presently being discussed
and may contain terms and provisions that are different than those discussed
above. Neither Golub Associates nor its investment affiliates are under any
obligation to provide this financing until each of the terms in the Golub letter
of intent has been met to their sole satisfaction and all of the financing
documents in form and substance satisfactory to Golub Associates and its
investment affiliates have been executed by the parties.
The foregoing is a brief summary of the material provisions of the
Golub letter of intent. This summary is qualified in its entirety with
reference to the Golub letter of intent, a copy of which is filed as an
exhibit to Schedule 13D-3 filed by Specialty Catalog incorporated herein by
reference.
Equity Contributions
Each of Mr. Berggruen and Mr. Naggar intend to make capital
contributions to Acquisition Corp. in such amount that is required (after taking
into account the proceeds from Fleet and Golub Associates) in exchange for
common stock of Acquisition Corp. in order to enable Acquisition Corp. to
consummate, the merger and the transactions contemplated by the merger
agreement. The final terms of these contributions have not been agreed and are
currently being discussed among the stockholders of Acquisition Corp.
EMPLOYMENT AGREEMENTS
On May 8, 2000, Specialty Catalog entered into an employment agreement
with Mr. Grabowski. The term of the employment agreement commenced on May 8,
2000 and, unless extended, terminates on May 7, 2002. Under this employment
agreement, Mr. Grabowski
65
will receive an annual salary of $300,000, along with other benefits and will be
eligible for a performance bonus of up to 100 percent of his annual salary,
based upon performance as compared against the annual performance plan. Upon
executing the employment agreement, Mr. Grabowski was granted options under our
2000 Stock Incentive Plan to purchase 250,000 shares of our common stock at
$2.50 per share, the then trading price of the stock. Mr. Grabowski is also
eligible to receive an additional grant of 250,000 stock options, at a price
which shall equal the trading price on the date of the grant, as defined in the
2000 Stock Incentive Plan, after the end of the first fiscal year in which our
gross revenues exceed $120,000,000.
The Company may terminate Mr. Grabowski's employment upon his death or
permanent disability, or if he engages in conduct that constitutes "cause" under
the employment agreement. Mr. Grabowski may terminate his employment for "Good
Reason" as defined in the employment agreement. In the event Mr. Grabowski's
employment is terminated by the Company other than for "cause", Mr. Grabowski
will receive a "Termination Payment" as defined in the employment agreement. The
employment agreement contains non-competition and other restrictions effective
during the term of employment and for a one-year period thereafter.
Acquisition Corp. and its representatives and Mr. Grabowski have
engaged in discussions relating to Mr. Grabowski's continuation as Specialty
Catalog's Chief Executive Officer, various changes to his current employment
agreement and the conversion of Mr. Grabowski's options of Specialty Catalog
into options or other equity interests of the surviving corporation after the
merger. Although no written agreement or final terms of an arrangement have been
reached, it is believed that Mr. Grabowski will serve as Specialty Catalog's
Chief Executive Officer after the merger.
TREATMENT OF OPTIONS
Immediately prior to the effective time of the merger, and except as
otherwise consented to by Acquisition Corp., each outstanding, unexercised
option to purchase the common stock (an "Option") granted under each of the
Company's 1996 Stock Incentive Plan, as amended, and the Company's 2000 Stock
Incentive Plan (collectively, the "Company Stock Option Plans"), whether or not
exercisable, shall be cancelled by the Company in consideration of a cash
payment, if applicable, from the surviving corporation in an amount equal to the
product of multiplying (a) the excess, if any, of (x) $3.75, over (y) the per
share exercise price of such Option, by (b) the number of shares (of common
stock) subject to such Option. Any cash payment shall be net of any required
withholding taxes. In other words, all holders of options exercisable at a price
greater than $3.75 per share will receive no consideration in return for the
cancellation of their options. However, for each option exercisable at a price
less than $3.75 per share, the option holder will receive for each option to
purchase a share an amount equal to the excess of $3.75 over the per share
exercise price of such option, less any required withholding taxes. The
obligation to make any cash payment for Options issued outside of the Company
Stock Option Plans shall be subject to obtaining any necessary consents of
optionees to the cancellation of such options.
CERTAIN STOCK OPTION ARRANGEMENTS
66
Certain officers and key employees ("Key Employees") of Specialty
Catalog or any of its subsidiaries will be eligible to participate in a new
stock option program pursuant to which the compensation committee of the board
of directors of Specialty Catalog will be authorized to issue options (the
"Roll-Over Options") to acquire 5% of the fully-diluted outstanding capital
stock of Specialty Catalog as of the closing of the merger. Acquisition Corp.
intends to maintain discussions with the Key Employees relating to the terms and
conditions of the Roll-Over Options.
RELATED AGREEMENTS
Stockholders Agreement
The following is a brief summary of the material provisions of the
stockholders agreement. A copy of the Stockholders Agreement is filed as an
exhibit to Schedule 13E-3 filed by Specialty Catalog and is incorporated herein
by reference.
Immediately prior to the signing of the merger agreement, on May 4,
2001, each of the stockholders of Acquisition Corp. entered into the
stockholders agreement. The stockholders agreement provides that the board of
directors of Acquisition Corp. shall consist of six directors and that all
parties to the stockholders agreement will vote all of their shares of
Acquisition Corp. to elect to the board of directors:
o two directors designated by Alexander Enterprise Holding Corp.
which shall initially include Martin Franklin and Eric Hansen,
o two directors, designated by Mr. Naggar together with First
Global, Oracle, Ionic and Three Greens which shall initially
include Guy Naggar and David Cicurel; and
o two directors, mutually designated by each of the designators
above which initially include Mr. Grabowski and Mr. McCain.
Pursuant to the terms of the stockholders agreement, simultaneously
with the closing of the transactions contemplated by the merger agreement and
immediately prior to the merger, each of Mr. Naggar, First Global, Oracle,
Ionic, Three Greens, and Alexander, together with additional stockholders who
execute a transfer agreement, shall purchase additional shares of common stock
of Acquisition Corp. by (i) contributing to Acquisition Corp., any or all of
their shares of our common stock, owned by each stockholder, (ii) making an
additional cash contribution to Acquisition Corp.; or (iii) a combination of (i)
and (ii) above, in accordance with the terms and conditions of a subscription
agreement, to be entered into by Specialty Catalog and each of the respective
stockholders of Acquisition Corp.
The stockholders agreement also provides for restrictions on the
transfer of shares, "take-along" obligations, "come-along" rights, pre-emptive
rights and rights of first offer with respect to the securities of Acquisition
Corp.
67
Engagement of Marlin Holdings, LLC
On February 16, 2001, Specialty Catalog engaged Marlin Holdings, LLC
("Marlin") to assist Specialty Catalog with the structure, financing and
coordination of any management buyout or other privatization transaction. The
agreement with Marlin provides for reimbursement of expenses incurred by Marlin
on any such endeavors, and payment of $250,000 upon closing of a transaction,
subject to downward adjustment as provided in the agreement. Martin Franklin, a
director of the Company, is Chairman and Chief Executive Officer of Marlin.
The foregoing is a brief summary of the material provisions of the
Marlin engagement letter. This summary is qualified in its entirety with
reference to the Marlin engagement letter, a copy of which is filed as an
exhibit to Schedule 13E-3 filed by Specialty Catalog and incorporated herein by
reference.
ESTIMATED FEES AND EXPENSES
Estimated fees and expenses to be incurred by Specialty Catalog in
connection with the merger are approximately as follows:
Financing Fees and Expenses................................................ $241,875
Advisory Fees and Expenses................................................. 215,000
Legal, Accounting and Consulting Fees and Expenses......................... 410,680
Depositary and Paying Agent Fees and Expenses.............................. 10,000
SEC Filing Fee............................................................. 2,445
Printing, Mailing and Miscellaneous Costs.................................. 20,000
---------------
Total............................................................. $900,000
========
Specialty Catalog, as the surviving company, will be responsible for
all of the foregoing fees and expenses if the merger occurs. If the merger is
not consummated, each of Specialty Catalog, on the one hand, and Acquisition
Corp., on the other, will pay its own fees and expenses, provided that Specialty
Catalog will be obligated under certain circumstances to reimburse Acquisition
Corp. for its expenses. See "THE MERGER AGREEMENT -- Termination Fee and
Expenses."
PROVISIONS FOR UNAFFILIATED SECURITY HOLDERS
No provision has been made to grant unaffiliated stockholders of
Specialty Catalog access to the corporate files of Specialty Catalog or any
other party to the merger or to obtain counsel or appraisal services at the
expense of Specialty Catalog or any other such party.
68
SUMMARY OF THE MERGER AGREEMENT
The following describes the material terms of the merger agreement. The
full text of the merger agreement is attached to this proxy statement as
Appendix A and is incorporated herein by reference. We encourage you to read the
entire merger agreement. It is the legal document that governs the merger.
Effective Time of the Merger. The merger agreement provides that the
closing of the merger will take place as soon as practicable after the
satisfaction or waiver of the conditions to the merger. At the closing, the
parties will file the necessary documents with the Secretary of State of the
State of Delaware to complete the merger. We expect that, if all conditions to
the merger have been satisfied or waived, the effective time will occur in the
summer of the year 2001.
General. The merger agreement provides that, subject to satisfaction of
several conditions, Acquisition Corp. will be merged with and into Specialty
Catalog, and that following the merger, the separate existence of Acquisition
Corp. will cease and Specialty Catalog will continue as the surviving
corporation. At the effective time, and subject to the terms and conditions set
forth in the merger agreement, each of the following will occur:
o the stockholders of Specialty Catalog will receive $3.75 in
cash, without interest, for each share of Specialty Catalog
common stock that they own, other than (i) shares owned by
Acquisition Corp. and its current and future stockholders and
(ii) shares owned by stockholders who have perfected their
dissenters' appraisal rights. Shares held in the treasury of
Specialty Catalog will be canceled in the merger;
o each outstanding, unexercised option, warrant or other right
to purchase Specialty Catalog's common stock issued pursuant
to the 1996 Stock Incentive Plan, as amended, and the 2000
Stock Incentive Plan will be canceled and converted into
consideration of a cash payment equal to for the difference
between $3.75 per share and the exercise price of the option
if the exercise price is less than $3.75 per share, less any
required withholding taxes; and
o the Company's common stock will no longer be publicly traded.
Surrender and Exchange of Stock Certificates. Prior to the effective
time of the merger, Acquisition Corp. will deposit with an exchange agent, cash
equal to the amount to be paid to holders of Specialty Catalog common stock as a
result of the merger. Promptly after the effective time of the merger, the
exchange agent will send to each record holder of Specialty Catalog common stock
instructions how to exchange such holder's Specialty Catalog common stock
certificate for $3.75 in cash. Upon surrender to the exchange agent of an
outstanding certificate or certificates which represent Specialty Catalog common
stock and acceptance of such certificate or certificates by the exchange agent,
the exchange agent will deliver to the holder of such certificate or
certificates the amount of merger consideration owed to the holder. No interest
will be paid or accrue on any cash payable to any holder of Specialty Catalog
common stock.
69
Any portion of the merger consideration payable to holders of Specialty
Catalog common stock which remains undistributed for 180 days after the
effective time shall be delivered to the surviving corporation. After that
period of time, any holder of Specialty Catalog common stock who has not
previously exchanged his certificates may only look to the surviving corporation
and only as a general creditor for payment of that portion of the merger
consideration owed to him under the merger agreement.
If you do not have your Specialty Catalog common stock certificate, you
may make an affidavit of that fact. In addition, the surviving corporation may
require that you indemnify it against any claim that may be made against it or
Acquisition Corp. with respect to the missing stock certificate. Upon receipt of
the affidavit and any required indemnity, the exchange agent will issue the
merger consideration payable to you.
Stock Option Plan and Related Matters. Specialty Catalog has agreed to
effect the cancellation at the effective time of all outstanding, unexercised
options, warrants or other rights to purchase Specialty Catalog's common stock
issued pursuant to the 1996 Stock Incentive Plan, as amended, and the 2000 Stock
Incentive Plan in exchange for a cash payment. For each canceled option,
warrant, or other right to purchase common stock, the holder will receive a cash
payment equal to the difference between $3.75 per share and the exercise price
of the option if the exercise price is less than $3.75 per share, less any
required withholding taxes. Upon Acquisition Corp.'s request, we must take all
necessary action to terminate our current employee stock option plans, the 1996
Stock Incentive Plan and the 2000 Stock Incentive Plan, as of the effective time
of the merger.
Representations and Warranties. The merger agreement contains customary
representations and warranties of Specialty Catalog and its subsidiaries
relating to various aspects of its business and financial statements and other
matters, including among other things:
o its organization, qualification, standing and power,
o its certificate of incorporation, bylaws and stock transfer
records,
o its capital structure,
o its subsidiaries,
o its authority to enter into and the validity and effectiveness
of the Merger Agreement,
o the absence of conflicts, violations or defaults under its
certificate of incorporation, bylaws and certain other
agreements in connection with the merger,
o the consents and approvals required of certain governmental
entities relating to the merger,
o the documents and reports filed with the Securities and
Exchange Commission and the accuracy and completeness of the
information contained therein,
o the absence of defaults under its certificate of
incorporation, bylaws and material contracts,
o its compliance with applicable laws,
o the absence of certain changes since December 30, 2000,
o the absence of undisclosed liabilities,
70
o any litigation or other third-party claims relating to the
merger or the transactions contemplated thereby,
o this proxy statement and the Schedule 13E-3 filed with the
S.E.C. and the accuracy and completeness of the information
contained herein and therein,
o environmental matters,
o the inapplicability or waiver of any anti-takeover laws,
o the determination of the special committee and the board and
the fairness of the merger, and
o the identity of its financial advisor.
The merger agreement also contains customary representations and
warranties of Acquisition Corp. relating to various aspects of their businesses,
including among other things:
o its organization, qualification, standing and power,
o its authority to enter into and the validity and effectiveness
of the merger agreement,
o the absence of conflicts, violations or defaults under their
organizational documents and certain other agreements in
connection with the merger,
o the absence of required consents and approvals of certain
governmental entities relating to the merger,
o the vote of the Board of Directors and stockholders of
Acquisition Corp. in favor of the merger,
o its payment of any brokers, finders or investment banker fees,
and
o the accuracy and completeness of the information contained in
the Schedule 13E-3 filed herewith.
The representations and warranties expire at the effective time of the
merger, or upon the termination of the merger agreement in accordance with its
terms, unless waived earlier by either party.
Conduct of Business Prior to the Merger. Specialty Catalog has agreed
that prior to the merger it will operate its business in the ordinary course
consistent with past practices and will use its reasonable efforts to preserve
intact its business organization, retain the services of its current officers
and employees, maintain satisfactory relationships with third parties and
maintain its insurance coverage.
In addition, the merger agreement places specific restrictions on the
ability of Specialty Catalog and its subsidiaries to:
o amend its certificate of incorporation or bylaws (or other
charter documents);
o authorize for issuance, issue, sell, deliver, or pledge any
capital stock, debt or other securities convertible into
capital stock or equivalents, or amend any of the terms of the
foregoing, other than the issuance of Specialty Catalog common
stock upon the exercise of outstanding rights under its stock
option plans;
o except for the issuance of Specialty Catalog common stock upon
the exercise of options or the repurchase of common stock to
the extent required under existing
71
employee stock repurchase agreements or the cancellation of
non-vested options of terminated employees:
o split, combine or reclassify any shares of Specialty
Catalog capital stock, or authorize or propose the
issuance or authorization of any other securities in
respect of, in lieu of, or in substitution for shares
of Specialty Catalog capital stock, or declare, set
aside or pay any dividend or other distribution
(whether in cash, stock or property or any
combination thereof) in respect of Specialty Catalog
capital stock, adopt or approve any rights plan, or
repurchase, redeem or otherwise acquire any of
Specialty Catalog's securities or its subsidiaries'
securities, or
o declare or pay any dividend of any kind, make any
payment of cash or other property to stockholders or
to terminate, cancel or otherwise settle any
outstanding options under the Specialty Catalog stock
option plan;
o issue any new options or equivalent instruments of any kind;
o without prior consultation with Acquisition Corp., commence
any litigation or arbitration other than in accordance with
past practice or settle any litigation or arbitration
involving payments by Specialty Catalog of more than $50,000,
or if as part of such settlement, agree to any restrictions on
the operations of Specialty Catalog or its subsidiaries;
o waive, release or amend its rights under any confidentiality,
"standstill" or similar agreement that Specialty Catalog
entered into in connection with its consideration of a
potential strategic transaction; provided, however, that
Specialty Catalog may waive, release or amend its rights under
any such confidentiality, "standstill" or similar agreement if
the board of Specialty Catalog determines, based on the advice
of independent legal counsel, that failure to do so would be
reasonably likely to constitute a breach of Specialty
Catalog's duties to its stockholders; and
o agree to take any actions prohibited by the merger agreement.
No Solicitation. In the merger agreement, Specialty Catalog has agreed
that:
o it will not, and will not authorize or permit any of
its subsidiaries or any of its directors, officers,
employees or other representatives (including all of
its advisors) to, directly or indirectly, solicit,
initiate, request or take any other action to
facilitate (including by way of providing non-public
information) any inquiries or the making of any
Acquisition Proposal (as defined below) or
participate in any discussions or negotiations
regarding any Acquisition Proposal;
o it will immediately communicate to Acquisition Corp.
orally and in writing any request for non-public
information, any Acquisition Proposal, and any
decision by Specialty Catalog to furnish information
regarding Specialty Catalog and its subsidiaries to a
third party who has made an Acquisition Proposal and
plans to participate in discussions regarding the
Acquisition Proposal, including the material proposed
terms of the
72
Acquisition Proposal and the identity of the third
party, and subject to certain specified
confidentiality obligations, will keep Acquisition
Corp. reasonably informed of the status of such
request or Acquisition Proposal and will provide
updated information with respect to the material
terms and the third party upon request by Acquisition
Corp.; and
o it will communicate to Acquisition Corp., orally and
in writing, at least 24 hours (but notice given on a
non-business day, or after 6:00 p.m. on a business
day, takes effect on the first business day
thereafter) prior to entering into an acquisition
agreement related to a Superior Proposal (as defined
below), the identity of the third party and the
material proposed terms of the Superior Proposal,
and, subject to certain specified confidentiality
obligations, will provide updated information with
respect to such third party and the material proposed
terms of such Superior Proposal upon request by
Acquisition Corp.
However, the merger agreement does not prohibit:
o the Specialty Catalog board from determining, in good faith,
after consulting with outside counsel or its financial
advisor, that in order to act in a manner consistent with its
fiduciary duties to the Specialty Catalog stockholders under
applicable law, that Specialty Catalog may, following receipt
from a third party of an Acquisition Proposal that may lead to
a Superior Proposal:
o furnish information about Specialty Catalog and its
subsidiaries pursuant to a confidentiality agreement
with such third party which contains certain terms
specified in the merger agreement, and
o participate in discussions or negotiations regarding
the Acquisition Proposal with the party making the
Acquisition Proposal; or
o the Specialty Catalog board from determining, in good faith,
after consulting with outside counsel or its financial
advisor, that in order to act in a manner consistent with its
fiduciary duties to the Specialty Catalog stockholders under
applicable law, the board must:
o withdraw, modify, or propose publicly to withdraw or
modify, its approval or recommendation of the merger
agreement and the merger,
o approve or recommend, or propose publicly to approve
or recommend, a Superior Proposal, or
o cause Specialty Catalog to enter into an agreement
related to a Superior Proposal and terminate the
merger agreement and accept the Superior Proposal.
The term "Acquisition Proposal" means any inquiries or the making of
any proposal or offer from any third party other than Acquisition Corp. or its
affiliates regarding any merger, consolidation, share exchange,
recapitalization, sale of substantial assets (other than in the ordinary course
of business), sale or purchase of (or right to sell or purchase) shares of
capital stock (other than pursuant to the exercise of stock options outstanding
on the date of the Merger
73
Agreement) tender offer or similar transactions involving Specialty Catalog or
any of its subsidiaries.
The term "Superior Proposal" means any Acquisition Proposal that the
Specialty Catalog board of directors determines in good faith (after
consultation with and based upon the advise of outside counsel or its financial
advisor) to be of a higher price per share and more favorable than the merger.
Conditions to the Merger . The respective obligations of each party to
complete the merger are subject to the satisfaction prior to the effective time
of the following conditions:
o adoption of the merger agreement and the merger by the
affirmative vote of the holders of a majority of shares of
Specialty Catalog common stock;
o no temporary restraining order, preliminary or permanent
injunction, judgment or other order, decree or ruling, nor any
statute, rule, regulation, SEC stop order or other order
preventing the consummation of the merger will be in effect;
and
o upon the written request of either Acquisition Corp. or
Specialty Catalog, Specialty Catalog shall deliver to the
Acquisition Corp. or the special committee, (i) a pro forma
balance sheet of Specialty Catalog, on a consolidated basis,
as of the effective time of the merger (and reflecting any
debt incurred by the Specialty Catalog to finance the merger),
(ii) a Solvency Certificate regarding solvency matters of
Specialty Catalog, and (iii) projections for Specialty
Catalog's operations, on a consolidated basis, for the period
covered by the solvency certificate.
The obligation of Acquisition Corp. to effect the merger is further
subject to the following conditions:
o the receipt of cash proceeds from debt and equity financings
sufficient to consummate the transactions contemplated by this
Agreement;
o the representations and warranties of Specialty Catalog and
its subsidiaries set forth in the merger agreement will be
true and correct in all material respects both as of the date
of the merger agreement and as of the closing date of the
merger, except for any representations and warranties that
address matters only as of a particular date (which shall
remain true and correct as of such date);
o Specialty Catalog will have performed and complied,
individually or in the aggregate, with the covenants required
to be performed by it under the merger agreement at or prior
to the closing date;
o there shall not have occurred any event or condition, or
series of events or conditions, that has had or would
reasonably be expected to have a material adverse effect on
the business, properties, assets, results of operations or
financial condition of Specialty Catalog and its subsidiaries
taken as a whole;
o Specialty Catalog will have obtained consent to the merger
from certain third parties necessary to consummate the merger;
o the Rights Plan of Specialty Catalog will have been terminated
at Acquisition Corp.'s reasonable satisfaction; and
74
o Specialty Catalog stockholders holding voting stock
representing more than 5% of its outstanding stock will not
have exercised their dissenters' rights.
The obligation of Specialty Catalog to effect the merger is further
subject to the following conditions:
o the representations and warranties of Acquisition Corp. set
forth in the merger agreement will be true and correct in all
material respects both as of the date of the merger agreement
and as of the closing date of the merger, except for any
representations and warranties that address matters only as of
a particular date (which shall remain true and correct as of
such particular date);
o Acquisition Corp. will have performed and complied in all
material respects with the covenants required to be performed
by it under the merger agreement at or prior to the closing
date; and
o Acquisition Corp. will have deposited the deposit amount with
the exchange agent to be held in trust for the benefit of the
holders of certificates of Specialty Catalog common stock.
Termination. The merger agreement may be terminated at any time prior
to the merger as follows:
o by mutual written consent of the boards of Specialty Catalog
and Acquisition Corp.;
o by either Specialty Catalog or Acquisition Corp. if any court
of competent jurisdiction in the United States or other
governmental entity issues a final and non-appealable order,
decree or ruling, or takes any other action restraining,
enjoining or otherwise prohibiting the merger;
o by either Specialty Catalog or Acquisition Corp. if there has
been a material breach by the other party of any
representation, warranty, covenant or agreement contained in
the merger agreement, unless the breach is cured within 20
days after the giving of written notice of the breach;
o by either Specialty Catalog or Acquisition Corp., if Specialty
Catalog's board of directors has withdrawn or modified, in any
manner which is adverse to Acquisition Corp., its
recommendation or approval of the merger agreement and the
merger, or has approved an alternative acquisition proposal,
or has failed to endorse the merger with Acquisition Corp. in
the proxy statement or publicly resolved to do any of the
foregoing;
o by Acquisition Corp. if the Company enters into an acquisition
agreement relating to an Acquisition Proposal, or if there has
been a material breach by Specialty Catalog of any covenant or
agreement set forth in merger, which breach arises primarily
from the actions taken, or the failure to act, by the Special
Committee, unless cured within 20 days after the giving of
written notice of the material breach;
o by Specialty Catalog, if it enters into an acquisition
agreement relating to an Acquisition Proposal provided
Specialty Catalog has made all regulatory filings pursuant to
the merger; or
75
o by either Specialty Catalog or Acquisition Corp. if the
effective time has not occurred by August 31, 2001.
Termination Fees and Expenses. Whether or not the merger is
consummated, most expenses incurred in connection with the merger agreement and
the merger will be paid by the party incurring those expenses. In the event of
the termination of the merger agreement, additional expenses outlined below will
be paid by the corresponding party.
Specialty Catalog will reimburse Acquisition Corp. for all its
reasonable out-of-pocket expenses incurred in connection with the merger and the
consummation of the transactions contemplated by the merger (including,
reasonable attorneys' fees and disbursements, depository fees and expenses, fees
payable to lenders, the fees of accountants and financial advisors, and filing
fees and printing costs) as liquidated damages if the merger agreement is
terminated:
o by Acquisition Corp. if the Company enters into an acquisition
agreement relating to an Acquisition Proposal, or if there has
been a material breach by Specialty Catalog of any covenant or
agreement set forth in merger, which breach arises primarily
from the actions taken, or the failure to act, by the special
committee, cured within 20 days after the giving of written
notice of the material breach, or
o by Specialty Catalog, if it enters into an acquisition
agreement relating to an Acquisition Proposal provided
Specialty Catalog has made all regulatory filings pursuant to
the merger.
Acquisition Corp. is entitled to reimbursement in an amount up to
$400,000.00; provided, however, that the limitation of $400,000 shall not be
applicable in the event that Specialty Catalog consummates an Acquisition
Proposal that was inquired or made prior to the termination of the merger.
However, in the event that at the special meeting relating to the merger, the
merger is not approved and adopted by the affirmative vote of a majority of the
shares held by the stockholders of Specialty Catalog, Specialty Catalog shall
not be obligated to reimburse Acquisition Corp. for any expenses.
Indemnification . The merger agreement provides that, for a period of
six years after the effective time, the surviving corporation will indemnify the
present and former officers, directors, employees and agents of Specialty
Catalog from liabilities arising out of actions or omissions in their capacity
as such prior to or at the effective time of the merger, to the full extent
provided for in Specialty Catalog's certificate of incorporation and by-laws.
Furthermore, none of these documents will be amended to limit the indemnity
rights of the above persons. In addition, the surviving entity will maintain
directors' and officers' insurance coverage for six years after the effective
time on terms no less favorable to such indemnified parties than existing
insurance coverage, but the surviving corporation will not be required to pay an
annual premium in excess of 150% of the last premium paid prior to the date of
the merger agreement.
Amendment. The merger agreement may be amended, modified or
supplemented, only by written agreement of Acquisition Corp. and Specialty
Catalog at any time prior to the effective time. However, after the required
Specialty Catalog stockholder approval, no amendment may be made without further
approval by the stockholders of Specialty Catalog to
76
the extent such approval is required by law. Any amendment or modification of
the merger agreement must be approved by the special committee.
INFORMATION ABOUT THE TRANSACTION PARTICIPANTS
THE CONTINUING STOCKHOLDERS
Acquisition Corp. is a Delaware corporation formed at the direction Mr.
Guy Naggar, a director of the Specialty Catalog, for the purpose of merging with
and into the Specialty Catalog.
Guy Naggar, an Italian citizen, has been Chairman of Dawnay, Day & Co.
Limited, a U.K. investment bank founded in 1928, which is a member of the London
Investment Banking Association, since 1981. Mr. Naggar has also been the
Chairman of Delyn Group Plc, a U.K. listed company, since March 1998.
Immediately prior to becoming Chairman of Dawnay, Day & Co. Limited, Mr. Naggar
was a Director of the Charterhouse Group Limited and of its subsidiary,
Charterhouse Japhet Limited. Mr. Naggar sits on various other private company
boards.
First Global, Three Greens, Alexander and Oracle are entities formed
under the laws of the British Virgin Islands, whose principal business is
investments. Ionic is an entity organized under the laws of the Cayman Islands.
The Marion Naggar's Children's Settlement (the "Marion Trust") and the GA Naggar
1982 Settlement (the "Naggar Trust") are trusts organized under the laws of
England and Wales. The Marion Trust is the sole stockholder of each of First
Global, Oracle and Ionic. The Naggar Trust is the sole stockholder of Three
Greens. Abacus (C.I.) Limited and Abacus Trustees (Jersey) Limited, both
entities organized under the laws of Jersey, are the trustees of each of the
trusts and have the authority to appoint the directors of First Global, Oracle,
Three Greens, and Ionic.
Nicolas Berggruen. Nicolas Berggruen is the president of Alpha
Investment Management LLC, a registered investment adviser based in New York,
New York. He previously worked for the real estate arm of Bass Brothers
Enterprise, a family held investment company. He later joined Jacobson & Co., a
firm that specialized in leveraged buyouts, and was a principal at that firm
until 1987. Mr. Berggruen received a Bachelor of Science in Finance and
International Business from New York University in 1981.
During the last five years, none of the Continuing Stockholders (i) has
been convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors). During the last five years, none of the Continuing Stockholders
was a party to a civil proceeding of a judicial or administrative body of
competent jurisdiction as a result of which any person was or is subject to a
judgment, decree or final order enjoining future violations of, or prohibiting
or mandating activities subject to, federal or state securities laws or finding
any violation with respect to such laws.
In addition, other stockholders, certain members of management, and
certain members of the board of directors of Specialty Catalog, including
Messrs. Franklin, Katz and Cicurel, who are members of our board of directors,
and Mr. Grabowski, our President and Chief Executive
77
Officer, and LEG Partners III SBIC, L.P., Wynnefield Partners Small Cap Value,
L.P., Wynnefield Partners Small Cap Value, L.P.I. and Wynnefield Small Cap Value
Offshore Fund, Ltd., have been invited to and are likely to participate with the
Continuing Stockholders in the merger, thereby becoming Continuing Stockholders.
Joseph Grabowski. Joseph Grabowski has been Chief Executive Officer of
the Company since July 1, 2000 and has been President of the Company since May
8, 2000. Prior to joining the Company, Mr. Grabowski was president and chief
executive officer of Carol Wright Gifts, a general merchandise and specialty
product catalog company. From January 1996 to September 1997, Mr. Grabowski was
president and chief executive officer of Brownstone Studios, a women's apparel
catalog company. Mr. Grabowski's previous experience in direct marketing and
catalog retailing includes senior-level positions at Haband, J. Crew, Inc. and
Doubleday and Co. Mr. Grabowski received his BA degree in Economics and his MBA
degree from Rutgers University.
David E. Cicurel. David E. Cicurel has served as one of our directors
since June 1999. Mr. Cicurel is a consultant with substantial experience in
restructuring both publicly-held and privately-held companies. He restructured
and took private Continental Foods plc., a snack foods company that was listed
on the International Stock Exchange. He also restructured International
Communication & Data plc., a U.K. listed consumer database company. He is also
an outside director of Dawnay Day & Co. Limited, a U.K. investment bank.
Martin E. Franklin. Martin E. Franklin has served as one of our
directors since November 1994. Mr. Franklin has been Chairman and Chief
Executive Officer of Marlin Holdings, LLC and the general partner of Marlin
Capital, L.P., a private investment firm since October 1996. From February 1997
through February 2000, Mr. Franklin served as Chairman of the Board of Directors
of Bolle Inc., an AMEX company, which is a manufacturer, marketer and
distributor of premium eyewear. From May 1996 until March 1998, Mr. Franklin
served as Chairman and Chief Executive Officer of Lumen Technologies, Inc., a
NYSE company, which is a manufacturer and distributor of specialty lighting
equipment, and served as Executive Chairman of Lumen Technologies, Inc. from
March 1998 until December 1998. Mr. Franklin was Chairman of the Board and Chief
Executive Officer of Lumen's predecessor, Benson Eyecare Corporation, from
October 1992 to May 1996 and President of Benson Eyecare Corporation from
November 1993 until May 1996. Mr. Franklin was non-executive Chairman and a
director of Eyecare Products plc, a London Stock Exchange Company, from December
1993 until February 1999. Mr. Franklin has served as a director of Corporate
Express, Inc., a Nasdaq listed company from March 1999 through November 1999.
Mr. Franklin also serves on the boards of a number of privately held companies
and charitable organizations. Mr. Franklin received a B.A. in Political Science
from the University of Pennsylvania in 1986.
Samuel L. Katz. Samuel L. Katz has served as one of our directors since
November 1994. Mr. Katz has been Senior Executive Vice President of Strategic
and Business Development of Cendant Corporation since January, 2001. Cendant
Corporation is a public company engaged in the real estate, travel and direct
marketing industries. Mr. Katz has been Chief Executive Officer of the Cendant
Internet Group, a division of Cendant Corporation, since January 2000. Mr. Katz
was Senior Executive Vice President, Strategic Development of Cendant
Corporation from July
78
1999 to January 2000, Executive Vice President, Strategic Development of Cendant
Corporation from April 1998 until January 2000, and Senior Vice President,
Acquisitions of Cendant Corporation from December 1998 to March 1998. Mr. Katz
was Senior Vice President, Acquisitions of HFS Incorporated, a predecessor of
Cendant Corporation, from January 1996 to April 1998. From June 1993 to December
1995, Mr. Katz was Vice President of Dickstein Partners Inc., a private
investment firm. Mr. Katz is a director NRT Incorporated. Mr. Katz received his
B.A. in Economics from Columbia University in 1986.
Golub Associates Incorporated. Golub Associates Incorporated is a
Delaware corporation, the principal business of which is to provide
administrative and operational services to certain investment limited
partnerships, including LEG Partners III SBIC, L.P. Golub Associates.
THE COMPANY
Specialty Catalog Corp. ("Specialty Catalog" or the "Company") is a
Delaware corporation that targets niche consumer product categories, primarily
via direct marketing. SC Direct, our principal operating subsidiary in the
United States ("SC Direct"), is the US's leading retailer of women's wigs and
hairpieces. Daxbourne International Limited, a subsidiary of SC Direct, is a
leading United Kingdom retailer and wholesaler of women's wigs and hairpieces.
SC Publishing, another subsidiary of SC Direct, provides continuing education
courses, seminars, and conferences to nurses and other health care
professionals.
This Proxy Statement is accompanied by a copy of our Annual Report to
stockholders for the year ended December 30, 2000 and our Quarterly Report on
Form 10-Q for the period ended March 31, 2001.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table and footnotes sets forth certain information regarding
the beneficial ownership of the Company's Common Stock as of April 23, 2001, by:
(i) each person known by the Company to own beneficially five per cent or more
of the Common Stock, (ii) each of the Company's directors, (iii) each of the
executive officers named in the Summary Compensation Table and (iv) all
directors and executive officers as a group. The Company believes that each of
the beneficial owners of the Common Stock listed in the table, based on
information furnished by such owner, has sole investment and voting power with
respect to such shares, except as may be otherwise noted in the footnotes
hereto. Unless otherwise indicated, the address of each person named in the
table below is c/o Specialty Catalog Corp., 21 Bristol Drive, South Easton, MA
02375.
NUMBER OF SHARES
BENEFICIALLY
NAME OWNED PERCENTAGE (1)
Joseph Grabowski.......................................... 2.13%
94,333 (2)
79
NUMBER OF SHARES
BENEFICIALLY
NAME OWNED PERCENTAGE (1)
Thomas K. McCain.......................................... 38,267 (3) *
David E. Cicurel.......................................... 42,611 (4) *
David Cicurel Investments Limited
14 New Burlington Street
London, England W1X 1FF
Martin E. Franklin........................................ 368,955 (5) 8.46%
Marlin Holdings, Inc.
555 Theodore Fremd Avenue
Rye, New York 10580
Samuel L. Katz............................................ 98,009 (6) 2.26%
Cendant Corporation
9 West 57th Street
New York, New York 10019
David L. Moore............................................ 0 *
Sonostar Ventures, LLC
2 Executive Drive, Suite 900
Fort Lee, NJ 07024
Guy Naggar................................................ 405,267 (7) 9.35%
Dawnay, Day & Co., Ltd.
15 Grosvenor Gardens
London, England SW1W 0BD
Steven L. Bock............................................ 425,160 (8) 9.00%
10 Graystone Lane
Weston, MA 02193
Golub Associates Inc....................................... 602,689 (9) 13.89%
555 Madison Ave. 30th Floor
New York, New York 10022
Alexander Enterprise Holding Corp.......................... 279,700 (10) 5.75%
499 Park Avenue
New York, New York 10022
Marion Naggar's Children Settlement Trust................. 733,966 (11) 16.92%
Abacus (CI) Limited. .................................. 733,966 (11) 16.92%
80
NUMBER OF SHARES
BENEFICIALLY
NAME OWNED PERCENTAGE (1)
Abacus Trustees (Jersey) Limited....................... 733,966 (11) 16.92%
First Global Holdings Limited.......................... 244,655 (11) 5.64%
Geneva Place, 2nd Floor
Wickham's Cay
Road Town
Tortola
British Virgin Islands
Oracle Investments & Holdings Limited.................. 244,656 (11) 5.64%
Geneva Place, 2nd Floor
Wickham's Cay
Road Town
Tortola
British Virgin Islands
Ionic Holdings LDC..................................... 244,655 (11) 5.64%
Butterfield House
Fort Street
Box 219
George Town, Grand Cayman
Cayman Islands
GA Naggar 1982 Settlement 98,376(11) 2.27%
Three Greens Holdings Limited............................ 98,376(11) 2.27%
Geneva Place, 2nd Floor
Wickham's Cay
Road Town
Tortola
British Virgin Islands
Wynnefield Partners Small Cap Value, L.P. ................ 550,699 (12) 12.70%
450 Seventh Avenue, Suite 509
New York, New York 10123
Wynnefield Partners Small Cap Value, L.P.I.............. 244,550 (12) 5.64%
450 Seventh Avenue, Suite 509
New York, New York 10123
Wynnefield Small Cap Value Offshore 102,600 (12) 2.37%
Fund, Ltd. .........................................
450 Seventh Avenue, Suite 509
New York, New York 10123
All executive officers and directors as a group (7 1,047,942 (13) 23.38%
persons)..................................................
* Indicates less than 1%
81
(1) Applicable percentage of ownership is based upon 4,337,886 shares
outstanding. Beneficial ownership is determined in accordance with the rules of
the Securities and Exchange Commission (the "SEC" or "Commission") and generally
includes voting and investment power with respect to securities. Shares of
common stock issued upon the exercise of options and warrants currently
exercisable or exercisable within 60 days are deemed outstanding for computing
the percentage ownership of the person holding such options or warrants, but are
not deemed outstanding for computing the percentage ownership of any other
person.
(2) Includes 83,333 shares of common stock underlying stock options under the
2000 Stock Incentive Plan (the "2000 Plan") that are exercisable June 22, 2001
at a price of $2.50 per share.
(3) Includes 6,667 shares of common stock underlying stock options under the
2000 Plan that are exercisable June 22, 2001 at a price of $2.50 per share.
Includes 20,000 shares of common stock underlying stock options under the 1996
Stock Incentive Plan (the "1996 Plan") that are exercisable June 21, 2001 at a
price of $6.50 per share. Includes 1,600 shares held in trust for Mr. McCain's
son, with respect to which he disclaims beneficial ownership.
(4) Includes 40,111 shares of common stock held by The David Cicurel Settlement.
Includes 2,500 shares of common stock underlying stock options under the 1996
Plan that are exercisable at a price of $6.50 per share.
(5) Includes 16,667 shares of common stock underlying stock options under the
2000 Plan that are exercisable June 22, 2001 at a price of $2.50 per share.
Includes 4,100 shares of common stock underlying stock options issued under the
1996 Plan that are exercisable at a price of $6.50 per share. Includes 15,000
shares held in trust for Mr. Franklin's minor children with respect to which he
disclaims beneficial ownership.
(6) Includes 3,333 shares of common stock underlying stock options under the
2000 Plan that are exercisable June 22, 2001 at a price of $2.50 per share.
Includes 4,100 shares of common stock underlying stock options issued under the
1996 Plan that are exercisable at a price of $6.50 per share.
(7) Includes 4,100 shares of common stock underlying stock options issued under
the 1996 Plan that are exercisable at a price of $6.50 per share.
(8) Includes 310,226 shares of common stock underlying stock options which
became exercisable upon the consummation of the Company's initial public
offering at a price of $0.3072 per share; and 75,000 shares of common stock
underlying stock options which became exercisable upon his termination from the
Company at a price of $5.33 per share.
(9) LEG Partners III SBIC, L.P. ("LEG Partners") beneficially owns the 602,689
shares. Golub Associates provides administrative and operational services to LEG
Partners. Golub PS-GP, LLC is the general partner of LEG Partners. Lawrence E.
Golub is the managing member of Golub PS-GP, LLC and the president of Golub
Associates. Each of LEG Partners, Golub PS-GP, LLC and Lawrence E. Golub may be
deemed the beneficial owner of the 602,689 shares.
(10) Nicolas Berggruen, in his capacity as investment advisor, may be deemed to
beneficially own 279,700 shares which are held of record by Alexander Enterprise
Holding Corp., a British Virgin Islands corporation. Alexander Enterprise
Holding Corp. has the right to receive, or the power to direct the receipt of,
dividends from, or the proceeds from the sale of, such securities.
(11) Of the 733,966 total shares reported as beneficially owned by the Marion
Naggar's Children Settlement Trust (the "Marion Trust"), First Global owns
beneficially 244,655 of such shares, Oracle owns beneficially 244,656 of such
shares and Ionic owns beneficially 244,655 of such shares. Marion Naggar is the
spouse of Guy Naggar, a director and beneficial shareholder of the Company. The
Marion Trust is the sole shareholder of each of Oracle, First Global and Ionic.
Abacus (CI) Limited and Abacus Trustees (Jersey) Limited are the trustees of the
Marion Trust, and share power over the activities of the Marion Trust. Abacus
(CI) Limited and Abacus Trustees (Jersey) Limited have no direct voting or
dispositive power over shares held by the Marion Trust, but have the power to
direct the Marion Trust to appoint directors of Oracle, First Global and Ionic
and accordingly may be deemed to be the beneficial owners of shares owned by
each of Oracle, First Global and Ionic. Abacus (CI) Limited and Abacus Trustees
(Jersey) Limited serve as trustees in a fiduciary capacity and disclaim any
beneficial ownership over any
82
shares held by the Marion Trust. First Global Holdings Limited disclaims
beneficial ownership of the 244,656 shares owned by Oracle Investments &
Holdings Limited and the 244,655 shares owned by Ionic Holdings LDC. Oracle
Investments & Holdings Limited disclaims beneficial ownership of the 244,655
shares owned by First Global Holdings Limited and the 244,655 shares owned by
Ionic Holdings LDC. Ionic Holdings LDC disclaims beneficial ownership of the
244,655 shares owned by First Global Holdings Limited and the 244,656 shares
owned by Oracle Investments & Holdings Limited. Of the 733,966 total shares
reported as beneficially owned by the GA Naggar 1982 Settlement (the "Naggar
Trust"), Three Greens owns beneficially 98,376 of such shares. The Naggar Trust
was formed for the benefit of Guy Naggar, Marion Naggar, and Mr. and Mrs.
Naggar's children and is the sole shareholder of Three Greens. Abacus (CI)
Limited and Abacus Trustees (Jersey) Limited are the trustees of the Naggar
Trust, and share power over the activities of the Naggar Trust. Abacus (CI)
Limited and Abacus Trustees (Jersey) Limited have no direct voting or
dispositive power over shares held by the Naggar Trust, but have the power to
direct the Naggar Trust to appoint directors of Three Greens and accordingly may
be deemed to be the beneficial owners of shares owned by Three Greens. Abacus
(CI) Limited and Abacus Trustees (Jersey) Limited serve as trustees in a
fiduciary capacity and disclaim any beneficial ownership over any shares held by
the Naggar Trust.
(12) Wynnefield Partners Small Cap Value L.P. ("WPLP"), in its capacity as
investment advisor, may be deemed to beneficially own 203,549 shares that are
held of record by clients of WPLP. Those clients have the right to receive, or
the power to direct the receipt of, dividends from, or the proceeds from the
sale of, such securities. Wynnefield Partners Small Cap Value L.P.I. ("WPLPI"),
in its capacity as investment advisor, may be deemed to beneficially own 244,560
shares that are held of record by clients of WPLPI. Those clients have the right
to receive, or the power to direct the receipt of, dividends from, or the
proceeds from the sale of, such securities. Wynnefield Small Cap Offshore Fund
Ltd. ("WOFL"), in its capacity as investment advisor, may be deemed to
beneficially own 102,600 shares that are held of record by clients of WOFL.
Those clients have the right to receive, or the power to direct the receipt of,
dividends from, or the proceeds from the sale of, such securities. WPLP
disclaims beneficial ownership of the 244,560 shares and 102,600 shares that may
be deemed to be beneficially owned by WPLPI and WOFL, respectively. WPLPI
disclaims beneficial ownership of the 203,549 shares and 102,600 shares which
may be deemed to be beneficially owned by WPLP and WOFL, respectively. WOFL
disclaims beneficial ownership of the 203,549 shares and 244,560 shares which
may be deemed to be beneficially owned by WPLP and WPLPI, respectively.
(13) Includes 144,801 shares of common stock underlying stock options that are
currently exercisable.
TRANSACTIONS IN SHARES OF COMMON STOCK BY CERTAIN PERSONS
There were no transactions in shares of Specialty Catalog common stock
that were effected during the past 60 days by Specialty Catalog, Acquisition
Corp., the Continuing Stockholders, or any of their respective subsidiaries,
directors, executive officers or controlling persons, other than the purchase of
7,000 shares of common stock made in a market transaction by Alexander
Enterprise Holding Corp. on March 21, 2001, for the aggregate purchase price of
approximately $14,875.
CERTAIN PURCHASES OF SPECIALTY CATALOG COMMON STOCK
The following purchases of Specialty Catalog common stock were made by
Specialty Catalog, Acquisition Corp., the Continuing Stockholders, or any of
their respective subsidiaries, directors, executive officers or controlling
persons, since May 17, 1999.
(1) Guy Naggar. On August 25, 2000, your board of directors
granted to Mr. Naggar options to purchase 10,000 shares of our
common stock.
83
(2) Three Greens. On March 20, 2000, New Henley Overseas
Investments Inc. ("New Henley"), a Panamanian company,
transferred 98,376 shares of our common stock to Three Greens
for a total purchase price of $288,979.50. The sole
shareholder of each of New Henley and Three Greens is the GA
Naggar 1982 Settlement. The GA Naggar 1982 Settlement was
formed for the benefit of Guy Naggar, Marion Naggar, and Mr.
and Mrs. Naggar's children.
(3) No purchases of our common stock were made by Alexander in
1999. Alexander made the following purchases of our common
stock in 2000: March 16: 40,000 shares; March 17: 20,000
shares; March 20: 30,000 shares; March 30: 1,600 shares; April
4: 8,400 shares; April 12: 500 shares; April 13: 600 shares;
April 14: 11,000 shares; May 22: 500 shares; May 25: 7,400
shares; September 5: 50,000 shares; September 29: 16,700
shares; October 3: 2,700 shares; October 4: 25,200 shares;
October 11: 2,800 shares; October 13: 12,900 shares; November
28: 500 shares; November 29: 9,500 shares; November 30: 4,000
shares; December 14: 500 shares; December 15, 1,500 shares;
December 18: 1,500 shares; and December 19: 1,600 shares.
Alexander has made the following purchases of our common stock
in 2001: January 9: 5,500 shares; January 10: 6,600 shares;
January 11: 7,900 shares; January 29: 600 shares; January 31:
2,000 shares; February 7: 700 shares; and March 21: 7,000
shares. All shares of our common stock purchased by Alexander
were purchased with the working capital of Alexander.
RECENT DEVELOPMENTS
On May 8, 2001, one of our subsidiaries, SC Publishing, Inc., sold our
home study Continuing Professional Education program for certified public
accountants under the "Western Schools" registered trade name to the California
Certified Public Accountants Education Foundation for the aggregate
consideration of approximately $150,000.
LEGAL PROCEEDINGS
We are, from time to time, a party to routine litigation arising in the
normal course of business. At the present time, we are not involved in any
litigation, nor are we aware of any potential litigation.
We currently have several registered trademarks and may seek additional
legal protection for our products and trade names. We have invested substantial
resources in developing several distinctive catalog trademarks as well as
branded products and product lines. There can be no assurance that the steps
taken by us to protect our rights will be sufficient to deter misappropriation.
Failure to protect these intellectual property assets could have a material
adverse effect on the our business operations. Moreover, although we do not
currently know of any lawsuit alleging the infringement of intellectual property
rights that could have a material adverse effect on our business, there can be
no assurance that any such lawsuit will not be filed against us in the future
or, if such a lawsuit is filed, that we would ultimately prevail.
84
INDEPENDENT AUDITORS
Specialty Catalog's consolidated financial statements as of December
30, 2000, January 1, 2000, and January 2, 1999 and for the three fiscal years
ended December 30, 2000, January 1, 2000, and January 2, 1999, incorporated by
reference into this proxy statement, have been audited by Deloitte & Touche LLP,
independent public accountants, as stated in their report with respect thereto.
It is expected that representatives of Deloitte & Touche LLP will be present at
the special meeting, both to respond to appropriate questions of stockholders of
Specialty Catalog and to make a statement if they desire.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Securities and Exchange Commission ("SEC") allows Specialty Catalog
to "incorporate by reference" information into this proxy statement. This means
that we can disclose important information to you by referring you to another
document filed separately with the SEC. The information incorporated by
reference is considered to be a part of this proxy statement, except for any
information that is superseded by information that is included directly in this
document.
This proxy statement incorporates by reference the documents listed
below that Specialty Catalog has previously filed with the SEC (SEC file number
0-21499). The documents contain important information about Specialty Catalog
and its financial condition. Because there is no safe harbor for forward-looking
statements under the Private Securities Litigation Reform Act of 1995 in
connection with a going-private transaction such as the proposed merger, the
documents incorporated by reference herein are incorporated exclusive of the
language claiming the safe harbor.
(1) The Company's Annual Report on Form 10-K for the
fiscal year ended December 30, 2000;
(2) The Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 2001.
(3) The Company's Current Report on Form 8-K dated March
7, 2001.
This proxy statement incorporates by reference the portions of the
Company's Annual Report on Form 10-K for the fiscal year ended December 30, 2000
relating to Item 301 of Regulation S-K (selected financial data), Item 303 of
Regulation S-K (management's discussion and analysis of financial condition and
results of operations), Item 304 of Regulation S-K (changes in and disagreements
with accountants on accounting and financial disclosure), and Item 305 of
Regulation S-K (quantitative and qualitative disclosures about market risk).
This proxy statement also incorporates by reference the portions of the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31,
2001 relating to Item 303 of Regulation S-K (management's discussion and
analysis of financial condition and results of operations) and the financial
information presented in Part I of the Quarterly Report.
85
We hereby incorporate by reference in this proxy statement additional
documents that we may file with the SEC between the date of this proxy statement
and the date of the special meeting. These documents include periodic reports,
such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current
Reports on Form 8-K, as well as proxy statements. Any statements contained in a
document incorporated by reference in this proxy statement will be deemed to be
modified or superseded for purposes of this proxy statement to the extent that a
statement contained in this proxy statement (or in any other subsequently filed
document which is also incorporated by reference in this proxy statement)
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed to be a part of this proxy statement except as so modified
or superseded.
STOCKHOLDER PROPOSALS FOR PRESENTATION
AT THE 2001 ANNUAL MEETING
Specialty Catalog will hold its 2001 annual meeting of Specialty
Catalog stockholders only if the merger is not consummated. In the event that
the 2001 annual meeting is held, stockholders wishing to submit a proposal to be
considered for inclusion in the proxy material for Specialty Catalog 2001 annual
meeting must send it to the Corporate Secretary, Specialty Catalog 21 Bristol
Drive, South Easton, MA 02375. Under the rules of the SEC, proposals must be
received by Specialty Catalog not less than 60 nor more than 90 days prior to
the scheduled date of the 2001 annual meeting to be eligible for inclusion in
Specialty Catalog's annual meeting proxy statement, and must comply with all
applicable regulations.
OTHER MATTERS
The board of directors of Specialty Catalog knows of no other matters
to be presented at the special meeting. However, if any other matters properly
come before the special meeting, the persons named in the enclosed proxy will
vote on such matters in accordance with their best judgment.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly, and current reports, proxy statements, and
other information with the SEC. You may read and copy any reports, statements,
or other information that we filed at the SEC's public reference rooms in
Washington, D.C., New York, New York, and Chicago, Illinois. Please call the SEC
at 1-800-SEC-0330 for further information on the public reference rooms. Our
public filings are also available to the public from commercial document
retrieval services and at the Internet World Wide Website maintained by the SEC
at http://www.sec.gov. The SEC allows us to "incorporate by reference"
information into this document, which means that we can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is deemed to be a part of
this document, except for any information superseded by information contained
directly in this document. This document incorporates by reference certain
documents that we have previously filed with the SEC. These documents contain
important business information about the Company and its financial condition.
86
We may have sent to you some of the documents incorporated by
reference, but you can obtain any of them through us or the SEC or the SEC's
Internet World Wide Web site described above. Documents incorporated by
reference are available from us without charge, excluding all exhibits unless
specifically incorporated by reference as an exhibit to this document.
Stockholders may obtain documents incorporated by reference in this document
upon written or oral request to the following address or telephone number:
Specialty Catalog Corp., 21 Bristol Drive, South Easton, MA 02375, Attention:
Thomas McCain, Corporate Secretary.
We will send any document so requested to the requesting stockholder by
first class mail or other equally prompt means within one day of receiving such
request.
We have filed a Schedule 13E-3 with the SEC with respect to the merger.
As permitted by the SEC, this proxy statement omits certain information
contained in the Schedule 13E-3. The Schedule 13E-3, including any amendments
and exhibits filed or incorporated by reference as a part thereof, is available
for inspection or copying as set forth above. Statements contained in this proxy
statement or in any document incorporated herein by reference as to the contents
of any contract or other document referred to herein or therein are not
necessarily complete and in each instance reference is made to such contract or
other document filed as an exhibit to the Schedule 13E-3 or such other document,
and each such statement shall be deemed qualified in its entirety by such
reference.
IF YOU WOULD LIKE TO REQUEST DOCUMENTS FROM THE COMPANY, PLEASE DO SO
AT LEAST FIVE BUSINESS DAYS BEFORE THE DATE OF THE SPECIAL MEETING IN ORDER TO
RECEIVE TIMELY DELIVERY OF SUCH DOCUMENTS PRIOR TO THE SPECIAL MEETING.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS DOCUMENT TO VOTE YOUR SHARES AT THE SPECIAL MEETING. THE
COMPANY HAS NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS
DIFFERENT FROM WHAT IS CONTAINED IN THIS DOCUMENT. THIS DOCUMENT IS DATED
_________________, 2001. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN
THIS DOCUMENT IS ACCURATE AS OF ANY DATE OTHER THAN THAT DATE, AND THE MAILING
OF THIS DOCUMENT TO STOCKHOLDERS DOES NOT CREATE ANY IMPLICATION TO THE
CONTRARY.
By Order of the Board of Directors
---------------------------------------
Thomas McCain, Senior Vice President,
Chief Financial Officer and Secretary
South Easton, Massachusetts
Dated: __________, 2001
87
Appendices
Appendix A -- Agreement and Plan of Recapitalization and Merger
Appendix B -- Opinion of Burnham Securities Inc.
Appendix C -- Section 262 of the Delaware General Corporation Law
88
PLEASE VOTE, SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
FOLD AND DETACH HERE
SPECIALTY CATALOG CORP.
PROXY FOR 2001 SPECIAL MEETING OF STOCKHOLDERS
__________, 2001
SOLICITED BY THE BOARD OF DIRECTORS
The undersigned, having received notice of the 2001 special meeting of
stockholders to be held on __________, 2001 at ______ a.m., local time, at
_________ and the Proxy Statement relating to the meeting, hereby revokes all
prior proxies and appoints Thomas McCain and David Moore, and each of them
acting singly, with full power of substitution, as proxies to represent and vote
on behalf of the undersigned, as designated below, all shares of common stock,
par value $0.01 per share, of Specialty Catalog Corp., a Delaware corporation,
that the undersigned would be entitled to vote if present in person at the 2001
special meeting of stockholders and any adjournment or adjournments thereof.
These proxies are authorized to vote in their discretion upon such other matters
as may properly come before the special meeting.
When properly executed, this proxy will be voted in the manner directed herein
by the undersigned. If a choice is not specified with respect to any proposal,
this proxy will be voted FOR such proposal.
Attendance of the undersigned at the special meeting will not be deemed to
revoke this proxy unless the undersigned shall revoke this proxy in writing and
shall vote in person at the special meeting.
EACH STOCKHOLDER SHOULD SIGN THIS PROXY PROMPTLY AND RETURN IT IN THE ENCLOSED
ENVELOPE. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
SPECIALTY CATALOG CORP.
HAS YOUR ADDRESS CHANGED? DO YOU HAVE COMMENTS?
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
PROXY
INSTRUCTIONS FOR VOTING YOUR PROXY
Mark, sign and date the attached proxy card and return it in the postage-paid
envelope enclosed.
[ ] Votes must be indicated, as in example to the left, in black or blue ink.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE PROPOSALS.
1. To approve and adopt the Agreement and Plan of Recapitalization and Merger by and between Specialty
Catalog Corp. and Specialty Acquisition Corp., dated as of May 4, 2001, and any amendments thereto:
[ ]FOR [ ] AGAINST [ ] ABSTAIN
2. In their discretion, the proxies are authorized to vote upon such other business as may properly come
before the meeting.
[ ]FOR [ ] AGAINST [ ] ABSTAIN
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED, OR, IF NO DIRECTION
IS GIVEN, WILL BE VOTED FOR PROPOSALS 1 AND 2.
DATED: _________________, 2001
SIGNATURE(S)
Please sign name(s) exactly as appearing on
your stock certificate. If shares are held
jointly, each joint owner should sign. When
signing as attorney, executor, administrator,
trustee or guardian, please give full title as
such. If a corporation, please sign full
corporate name by president or other
authorized officer. If a partnership, please
sign in partnership name by authorized person.
Signature:________________________
ANNEX A
AGREEMENT AND PLAN OF RECAPITALIZATION AND MERGER
BY AND BETWEEN
SPECIALTY ACQUISITION CORP.
AND
SPECIALTY CATALOG CORP.
DATED MAY 4, 2001
TABLE OF CONTENTS
TABLE OF DEFINED TERMS............................................................................................1
AGREEMENT AND PLAN OF RECAPITALIZATION AND MERGER..............................................................1
RECITALS..........................................................................................................1
ARTICLE I.........................................................................................................2
THE MERGER........................................................................................................2
1.1 The Merger...............................................................................................2
1.2 Company Action...........................................................................................2
1.3 Effects of the Recapitalization and Merger...............................................................2
1.4 Consummation of the Recapitalization and Merger..........................................................2
1.5 Certificate of Incorporation; Bylaws; Directors and Officers.............................................3
1.6 Conversion of Securities.................................................................................3
1.7 Company Stock Options....................................................................................3
1.8 Dissenting Shares........................................................................................4
1.9 Exchange of Certificates.................................................................................4
1.10 Supplementary Action...................................................................................5
1.11 Lost, Stolen or Destroyed Company Certificates.........................................................6
ARTICLE II........................................................................................................6
REPRESENTATIONS AND WARRANTIES OF THE COMPANY.....................................................................6
2.1 Organization and Qualification...........................................................................6
2.2 Certificate of Incorporation; Bylaws; and Stock Transfer Records.........................................6
2.3 Capitalization of the Company............................................................................6
2.4 Corporate Power, Authorization and Enforceability........................................................7
2.5 No Conflict; Required Filings and Consents...............................................................7
2.6 SEC Reports; Financial Statements........................................................................8
2.7 No Default; Violation; Dispute...........................................................................8
2.8 Compliance with Law......................................................................................9
2.9 Absence of Certain Changes...............................................................................9
2.10 No Undisclosed Liabilities.............................................................................9
2.11 Litigation; Claims.....................................................................................9
2.12 INTENTIONALLY OMITTED.................................................................................10
2.13 Disclosure Documents..................................................................................10
2.14 INTENTIONALLY OMITTED.................................................................................10
2.15 Environmental Matters.................................................................................10
2.16 Takeover Laws.........................................................................................11
2.17 Board Recommendation; Fairness Opinion................................................................11
2.18 INTENTIONALLY OMITTED.................................................................................11
2.19 Brokers and Finders...................................................................................11
ARTICLE III......................................................................................................11
REPRESENTATIONS AND WARRANTIES OF PURCHASER......................................................................11
3.1 Organization and Qualification..........................................................................12
3.2 Corporate Power, Authorization and Enforceability.......................................................12
3.3 No Conflict; Required Filings and Consents..............................................................12
3.4 Board and Stockholder Approval..........................................................................12
3.5 Brokers and Finders.....................................................................................12
3.6 Disclosure Documents....................................................................................13
ARTICLE IV COVENANTS.............................................................................................13
4.1 Conduct of Business by the Company......................................................................14
4.2 Access to Information; Confidentiality..................................................................15
4.3 Preparation of Proxy Statement; Stockholders Meeting; Schedule 13E-3....................................16
4.4 Regulatory Filings......................................................................................17
4.5 Acquisition Proposals...................................................................................17
4.6 Public Announcements....................................................................................18
4.7 Notification of Certain Matters.........................................................................18
4.8 Officers' and Directors' Indemnification; Insurance.....................................................19
4.9 Additional Agreements...................................................................................20
4.10 Company Indebtedness..................................................................................20
4.11 Other Actions by the Company..........................................................................20
4.12 Litigation Cooperation................................................................................21
4.13 Future Filings........................................................................................21
4.14 Board Action Relating to Stock Option Plans...........................................................21
4.15 Knowledge of Inaccuracies.............................................................................21
4.16 Financing Matters.....................................................................................21
4.17 Voting................................................................................................22
4.18 Exemption from Liability Under Section 16(B)..........................................................22
4.19 Delisting.............................................................................................22
ARTICLE V........................................................................................................22
CONDITIONS OF MERGER.............................................................................................22
5.1 Conditions to the Obligations of Each Party to Effect the Merger........................................22
5.2 Conditions Precedent to Purchaser's Obligations.........................................................23
5.3 Conditions to Obligations of the Company................................................................24
ARTICLE VI.......................................................................................................24
TERMINATION, AMENDMENT AND WAIVER................................................................................24
6.1 Termination.............................................................................................24
6.2 Procedure and Effect of Termination.....................................................................25
6.3 Expenses................................................................................................25
6.4 Amendment...............................................................................................26
6.5 Waiver..................................................................................................26
6.6 Termination decisions by the Company....................................................................26
ARTICLE VII DEFINITIONS..........................................................................................26
ARTICLE VIII MISCELLANEOUS.......................................................................................28
8.1 Severability............................................................................................28
8.2 Notices.................................................................................................28
8.3 Headings................................................................................................29
8.4 Representations and Warranties, etc.....................................................................29
8.5 Miscellaneous...........................................................................................29
8.6 Attorneys Fees..........................................................................................29
8.7 Governing Law...........................................................................................29
8.8 Jurisdictionand Venue...................................................................................29
8.9 BindingEffect...........................................................................................29
8.10 Assignment............................................................................................30
8.11 FurtherAssurances.....................................................................................30
8.12 Publicity.............................................................................................30
TABLE OF DEFINED TERMS
Section
-------
2000 10-K....................................................................................................2.3(b)
Acquisition Proposal.........................................................................................4.5(a)
Affiliate...............................................................................................Article VII
Agreement..............................................................................................Introduction
Board......................................................................................................Recitals
Board of Directors.........................................................................................Recitals
CERCLA......................................................................................................2.15(a)
Certificate..................................................................................................1.6(a)
Closing.........................................................................................................1.4
Closing Date....................................................................................................1.4
Commitments....................................................................................................4.16
Common Stock...............................................................................................Recitals
Company................................................................................................Introduction
Company Acquisition Agreement................................................................................4.5(a)
Company Disclosure Documents................................................................................2.13(a)
Company Disclosure Letter.......................................................................................1.7
Company Notice...............................................................................................4.5(b)
Company Proxy Statement......................................................................................4.3(b)
Company Requisite Vote..........................................................................................2.4
Company Rights Plan.....................................................................................Article VII
Company Stock Option Plan.......................................................................................1.7
Confidential Information.............................................................................4.2(d). 4.2(b)
Constituent Corporations........................................................................................1.3
D&O Insurance................................................................................................4.8(f)
Deposit Amount...............................................................................................1.9(a)
DGCL............................................................................................................1.1
Dissenting Shares...............................................................................................1.8
Dissenting Stockholder..........................................................................................1.8
Effective Time..................................................................................................1.4
Eligible Shares.................................................................................................1.7
Engagement Letter..............................................................................................2.19
Environmental Laws..........................................................................................2.15(a)
Exchange Act.................................................................................................2.5(b)
Exchange Agent...............................................................................................1.9(a)
Expenses.....................................................................................................6.3(b)
Fairness Opinion............................................................................................2.17(b)
Financial Advisor..........................................................................................Recitals
Financial Statements............................................................................................2.6
Financing Condition..........................................................................................5.2(a)
GAAP............................................................................................................2.6
Golub Engagement Letter.....................................................................................4.16(c)
Governmental Entities........................................................................................2.5(b)
Hazardous Substances........................................................................................2.15(b)
HSR Act......................................................................................................2.5(b)
Indebtedness............................................................................................Article VII
Lending Sources.............................................................................................4.16(a)
Material Adverse Effect...................................................................................Article V
Maximum Premium..............................................................................................4.8(f)
Merger..........................................................................................................1.1
Option..........................................................................................................1.7
Per Share Merger Consideration...............................................................................1.6(a)
Permitted Investments........................................................................................1.9(a)
Person..................................................................................................Article VII
Preliminary Proxy Statement..................................................................................4.3(b)
Purchaser..............................................................................................Introduction
Purchaser Disclosure Documents...............................................................................3.6(a)
RCRA........................................................................................................2.15(a)
Regulatory Consents..........................................................................................2.5(b)
Representatives..............................................................................................4.2(a)
Rights Plan..................................................................................................2.3(a)
SARA........................................................................................................2.15(a)
Schedule 13E-3...............................................................................................4.3(b)
SEC.............................................................................................................2.6
SEC Reports.....................................................................................................2.6
Securities Act..................................................................................................2.6
Shares.......................................................................................................1.6(a)
Special Committee..........................................................................................Recitals
Subsidiary..............................................................................................Article VII
Superior Proposal............................................................................................4.5(a)
Surviving Corporation...........................................................................................1.1
Tax or Taxes............................................................................................Article VII
AGREEMENT AND PLAN OF RECAPITALIZATION AND MERGER
THIS AGREEMENT AND PLAN OF RECAPITALIZATION AND MERGER (the
"Agreement") is made and entered into as of this 4th day of May, 2001, by and
between SPECIALTY ACQUISITION CORP., a Delaware corporation ("Purchaser"), and
SPECIALTY CATOLOG CORP., a Delaware corporation (the "Company").
RECITALS
WHEREAS, Purchaser desires to acquire the entire equity interest in the
Company and to provide for the payment of $3.75 per share in cash for all shares
of the common stock, par value $.01 per share, of the Company (the "Common
Stock") not held by Purchaser; and
WHEREAS, the stockholders of Purchaser intend to contribute shares of
Common Stock held by them to the Purchaser and to acquire in exchange therefor
common stock of the Purchaser; and
WHEREAS, the Special Committee (the "Special Committee") of the Board
of Directors of the Company (the "Board of Directors" or the "Board") has
approved this Agreement, determined that this Agreement, the Merger and the
other transactions contemplated hereby are fair to, advisable, and in the best
interests of, the Company's stockholders (other than the Purchaser and its
current and future stockholders) and adopted the Merger as set forth herein and
has recommended approval of the Merger and adoption of the Agreement by the
Board of Directors and the stockholders of the Company;
WHEREAS, the Special Committee has received the opinion of Burnham
Securities Inc. (the "Financial Advisor"), dated as of the date of this
Agreement, to the effect that, based on, and subject to, the various assumptions
and qualifications set forth therein, as of the date of such opinion, the Per
Share Merger Consideration (as hereinafter defined) to be received by the
holders of the Common Stock (other than the Purchaser and its current and future
stockholders) pursuant to the Merger (as hereinafter defined) is fair from a
financial point of view to such holders;
WHEREAS, the Board of Directors, after receiving the recommendation of
the Special Committee, has approved this Agreement, determined that this
Agreement, the Merger and the other transactions contemplated hereby are fair
to, advisable and in the best interests of the Company's stockholders (other
than the Purchaser and its current and future stockholders) and has adopted the
Merger as set forth herein and has recommended approval of the Merger and
adoption of this Agreement by the stockholders of the Company;
WHEREAS, the Board of Directors of the Purchaser has approved this
Agreement, determined that this Agreement, the Merger and the other transactions
contemplated hereby are fair to, advisable and in the best interests of the
Purchaser's stockholders and adopted the Merger as set forth herein and has
recommended approval of the Merger and adoption of this Agreement by the
stockholders of the Company; and
WHEREAS, the stockholders of Purchaser have, by unanimous written
consent, approved the Merger and adoption of this Agreement by the Purchaser;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Purchaser and Company
hereby agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger.
----------
At the Effective Time (as defined in Section 1.4 hereof), in
accordance with this Agreement and Section 251 of the Delaware General
Corporation Law (the "DGCL"), Purchaser shall be merged with and into the
Company, the separate existence of the Purchaser (except as may be continued by
operation of law) shall cease, and the Company shall continue as the surviving
corporation under the corporate name it possesses immediately prior to the
Effective Time (the "Merger"). The Company after the Merger sometimes is
referred to hereinafter as the Surviving Corporation (the "Surviving
Corporation").
1.2 Company Action.
--------------
The Company hereby consents to the Merger and represents that
each of the Special Committee and the Board of Directors, upon the
recommendation of the Special Committee, each at meetings duly called and held,
have (i) determined, that this Agreement, the Merger and the other transactions
contemplated hereby are fair to, advisable and in the best interests of the
Company's stockholders (other than Purchaser and its current and future
stockholders), (ii) approved this Agreement, and the transactions contemplated
hereby, including the Merger, which approvals, and prior actions taken by such
Board immediately prior to the execution of this Agreement, are sufficient to
render entirely inapplicable to the Merger and Purchaser and its Affiliates, as
of the date hereof, the provisions of Section 203 of the DGCL, (iii) resolved to
recommend approval of this Agreement and adoption of the Merger by its
stockholders and (iv) resolved to amend the Company Rights Plan (as hereinafter
defined) so as to render it inapplicable to the Merger and Purchaser, or to
redeem all of the outstanding rights under the Company Rights Plan.
1.3 Effects of the Recapitalization and Merger.
------------------------------------------
At the Effective Time, the effect of the Merger shall be as provided in
the applicable provisions of this Agreement and as set forth in Section 251 of
the DGCL. Without limiting the generality of the foregoing, and subject thereto,
at the Effective Time all the rights and property of the Company and the
Purchaser (the "Constituent Corporations") shall vest in the Surviving
Corporation, and all debts and liabilities of the Company and the Purchaser
shall become the debts and liabilities of the Surviving Corporation.
1.4 Consummation of the Recapitalization and Merger.
-----------------------------------------------
Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Section
6.1 hereof, in the event of, and as soon as is practicable after, the
satisfaction or waiver of the conditions set forth in Article V hereof, the
parties hereto will cause the Merger to be consummated by filing with the
Secretary of State of the State of Delaware, a certificate of merger or other
appropriate documents, executed in accordance with the relevant provisions of
the DGCL (the time of confirmation of such filing or such later time as is
specified in such certificate of merger being the "Effective Time").
Contemporaneous with the filing referred to in this Section 1.4, a closing (the
"Closing") will be held at the offices of Kane Kessler, P.C., 1350 Avenue of the
Americas, New York, NY 10019 or at such other location as the parties
2
may establish for the purpose of confirming all the foregoing. The date and time
of such Closing is referred to as the "Closing Date."
1.5 Certificate of Incorporation; Bylaws; Directors
and Officers.
------------
The Certificate of Incorporation and Bylaws of the Surviving
Corporation shall be the Certificate of Incorporation and Bylaws of the Company,
as in effect immediately prior to the Effective Time, until thereafter amended
as provided therein and under the DGCL. The directors of Purchaser immediately
prior to the Effective Time will be the initial directors of the Surviving
Corporation, and the officers of the Company immediately prior to the Effective
Time will be the initial officers of the Surviving Corporation, in each case
until the earlier of their resignation or removal or until their respective
successors are duly elected and qualified, as the case may be.
1.6 Conversion of Securities.
------------------------
At the Effective Time, by virtue of the Merger and without any
action on the part of the Purchaser, the Company, the Surviving Corporation or
the holder of any of the following securities:
(a) Each share of Common Stock, $.01 par value per share of
the Company (the "Shares"), issued and outstanding immediately prior to
the Effective Time (other than Shares to be cancelled pursuant to
Section 1.6(b) hereof, and, subject to Section 1.6(d) and Section 1.8
hereof, any Dissenting Shares (as hereinafter defined)), shall be
cancelled and extinguished and be automatically converted into and
become a right to receive $3.75 per share in cash (the "Per Share
Merger Consideration") upon surrender in the manner provided in Section
1.9 of the certificate that evidenced the Shares (the "Certificate").
(b) Each Share which is issued and held in the treasury of the
Company immediately prior to the Effective Time or issued and
outstanding and owned by the Company or by the Purchaser, shall be
cancelled and retired, and no payment shall be made with respect
thereto.
(c) Each share of capital stock of the Purchaser issued and
outstanding immediately prior to the Effective Time shall be converted
into capital stock of the Surviving Corporation with the same rights
and terms as immediately prior to the Merger.
(d) The holders of Dissenting Shares (as hereinafter defined),
if any, shall be entitled to payment for such Shares only to the extent
permitted by and in accordance with the provisions of the DGCL;
provided, however, that if, in accordance with the applicable
provisions of the DGCL, any holder of Dissenting Shares shall forfeit
such right to payment of the fair cash value of such Shares, such
Shares shall thereupon be deemed to have been converted into and to
have become exchangeable for, as of the Effective Time, the right to
receive the Per Share Merger Consideration provided in Section 1.6(a),
without interest.
1.7 Company Stock Options.
---------------------
Immediately prior to the Effective Time, and except as may be
set forth on Schedule 1.7 of the Company's Disclosure Letter annexed hereto (the
"Company Disclosure Letter") or otherwise consented to by the Purchaser, each
outstanding, unexercised option, warrant or other right to purchase the
Company's Common Stock (an "Option"), including but not limited to Options to
purchase Shares heretofore granted under each of the
3
Company's 1996 Stock Incentive Plan, as amended, and the Company's 2000 Stock
Incentive Plan (collectively, the "Company Stock Option Plan"), whether or not
exercisable, shall be cancelled by the Company in consideration of a cash
payment, if applicable, from the Surviving Corporation in an amount equal to the
product of multiplying (a) the excess, if any, of (x) the Per Share Merger
Consideration over (y) the per Share exercise price of such Option, by (b) the
number of Eligible Shares (as defined below) subject to such Option. Such cash
payment shall be net of any required withholding taxes. The term "Eligible
Shares" shall mean the aggregate number of Shares that shall then be subject to
purchase under any option which shall be vested and exercisable as of the
Effective Time. The obligation to make any such cash payment (1) shall be
subject to the obtaining of any necessary consents of optionees to the
cancellation of such Options, in form and substance reasonably satisfactory to
Purchaser, and (2) shall not require any action which violates the Company Stock
Option Plan. Options with an exercise price equal to or greater than the Per
Share Merger Consideration will be cancelled without any consideration. The
Company shall, at Purchaser's request, use its commercially reasonable efforts
to effectuate the provisions of this Section 1.7. From and after the Effective
Time, other than as expressly set forth in this Section 1.7, no holder of an
Option shall have any other rights in respect thereof other than to receive
payment for his or Options as set forth in this Section 1.7. The Company shall,
at Purchaser's request, take all necessary actions to terminate effective as of
the Effective Time the Company Stock Option Plans, stock option agreements and
similar arrangements.
1.8 Dissenting Shares.
-----------------
Notwithstanding anything in this Agreement to the contrary,
Shares issued and outstanding immediately prior to the Effective Time and held
by a holder (a "Dissenting Stockholder"), if any, who has the right to demand,
and who properly demand, an appraisal of such shares in accordance with Section
262 of the DGCL or any successor provision ("Dissenting Shares") shall not be
converted into a right to receive the Per Share Merger Consideration unless such
Dissenting Stockholder fails to perfect or otherwise loses or withdraws such
Dissenting Stockholder's right to such appraisal, if any. Provided the holder of
any Dissenting Shares complies with the provisions of the DGCL, such holder
shall have with respect thereto solely the appraisal rights provided under
Section 262 of the DGCL. If, after the Effective Time, such Dissenting
Stockholder fails to perfect or otherwise loses or withdraws any such right to
appraisal, each such share of such Dissenting Stockholder shall be treated as a
share that had been converted as of the Effective Time into the right to receive
the Per Share Merger Consideration in accordance with this Section 1.8. The
Company shall give prompt notice to Purchaser of any demands received by the
Company for appraisal of any Dissenting Shares, and Purchaser shall have the
right to participate in and direct all negotiations and proceedings with respect
to such demands. The Company shall not, except with the prior written consent of
Purchaser, which consent shall not be unreasonably withheld, make any payment
with respect to, or settle or offer to settle, any such demands.
1.9 Exchange of Certificates.
------------------------
(a) Prior to the Effective Time, a bank or trust company to be
designated by the Purchaser (the "Exchange Agent") shall act as exchange agent
in effecting the exchange of the Per Share Merger Consideration for Certificates
which, prior to the Effective Time, represented Shares entitled to payment
pursuant to Section 1.6 hereof. Prior to the Effective Time, the Purchaser shall
deposit with the Exchange Agent the aggregate Per Share Merger Consideration
necessary to make the payments contemplated hereby on a timely basis (the
"Deposit Amount") in trust for the benefit of the holders of Certificates.
Pending distribution pursuant to this Section 1.9(a) of the Deposit Amount
deposited with the Exchange Agent, the Surviving Corporation may direct the
Exchange Agent to invest such Deposit Amount, provided that such investments (i)
shall be obligations of or guaranteed by the United States of America, in
commercial paper obligations receiving the highest rating from either Moody's
Investors Services, Inc. or Standard & Poor's Ratings Services, a division of
The McGraw Hill Companies, Inc., or in certificates of deposit, bank repurchase
agreements or bankers acceptances of commercial banks with capital exceeding
$500,000,000 (collectively "Permitted Investments") or in money market funds
which are invested solely in Permitted Investments and (ii) shall have
maturities that will not prevent or delay payments to be made pursuant to this
Section 1.9(a). Upon the surrender of each such
4
Certificate and the issuance and delivery by the Exchange Agent of the Per Share
Merger Consideration in exchange therefor, such Certificate shall forthwith be
cancelled. Until so surrendered and exchanged, each such Certificate (other than
Certificates representing Shares held by the Company or the Purchaser and by
Dissenting Shares) shall represent solely the right to receive the Per Share
Merger Consideration, without interest, multiplied by the number of Shares
represented by such Certificate. Promptly after the Effective Time, the Exchange
Agent shall mail to each record holder of Certificates which immediately prior
to the Effective Time represented Shares a form of letter of transmittal and
instructions for use in surrendering such Certificates and receiving the Per
Share Merger Consideration therefor. Upon the surrender to the Exchange Agent of
such an outstanding Certificate together with such letter of transmittal, duly
completed and validly executed in accordance with the instructions thereto, and
such other documents as may be required pursuant to such instructions, the
holder shall receive the Per Share Merger Consideration, without any interest
thereon. If any Per Share Merger Consideration is to be paid to a name other
than the name in which the Certificate representing Shares surrendered in
exchange therefor is registered, it shall be a condition to such payment or
exchange that the Person requesting such payment or exchange shall pay to the
Exchange Agent any transfer or other taxes required by reason of the payment of
such Per Share Merger Consideration to a name other than that of the registered
holder of the Certificate surrendered, or such Person shall establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
applicable. Notwithstanding the foregoing, neither the Exchange Agent nor any
party hereto shall be liable to a holder of Shares for any Per Share Merger
Consideration delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.
(b) The Surviving Corporation shall not be entitled to the return of
any amount in the possession of the Exchange Agent relating to the transactions
described in this Agreement until the date which is 180 days after the Effective
Time. Thereafter, each holder of a Certificate representing a Share may
surrender such Certificate to the Surviving Corporation and (subject to
applicable abandoned property, escheat and similar laws) receive in exchange
therefor the Per Share Merger Consideration, without any interest thereon, but
shall have no greater rights against the Surviving Corporation than may be
accorded to general creditors of the Surviving Corporation.
(c) At and after the Effective Time, the holders of Certificates to be
exchanged for the Per Share Merger Consideration pursuant to this Agreement
shall cease to have any rights as stockholders of the Company except for the
right to surrender such holder's Certificates in exchange for payment of the Per
Share Merger Consideration, and after the Effective Time there shall be no
transfers on the stock transfer books of the Surviving Corporation of the Shares
which were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation or the
Exchange Agent, they shall be cancelled and exchanged for the Per Share Merger
Consideration, as provided in this Article I, subject to applicable law in the
case of Dissenting Shares.
(d) The provisions of this Section 1.9 shall also apply to Dissenting
Shares that lose their status as such, except that the obligations of the
Exchange Agent under this Section 1.9 shall commence on the date of loss of such
status.
1.10 Supplementary Action.
--------------------
5
If at any time after the Effective Time, any further
assignments or assurances in law or any other things are necessary or desirable
to vest or to perfect or confirm of record in the Surviving Corporation the
title to any property or rights of either the Company or Purchaser, or otherwise
to carry out the provisions of this Agreement, the officers and directors of the
Surviving Corporation are hereby authorized and empowered, in the name of and on
behalf of the Company and Purchaser, to execute and deliver any and all things
necessary or proper to vest or to perfect or confirm title to such property or
rights in the Surviving Corporation, and otherwise to carry out the purposes and
provisions of this Agreement.
1.11 Lost, Stolen or Destroyed Company Certificates.
----------------------------------------------
In the event any Certificates shall have been lost, stolen or
destroyed, the Exchange Agent shall issue in exchange for such lost, stolen or
destroyed Certificates, upon making of an affidavit of the fact by the holder
thereof, certificates representing such shares of Company Common Stock to be
exchanged in the manner described in this Article I; provided, however, that
Purchaser may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed Certificates to
indemnify Purchaser against any claim that may be made against Purchaser the
Surviving Corporation or the Exchange Agent with respect to the Certificates
alleged to have been lost, stolen or destroyed.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Purchaser that:
2.1 Organization and Qualification.
------------------------------
The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware. Each Subsidiary of
the Company is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation. The Company
and its Subsidiaries have all requisite corporate power and authority to own,
operate and lease their properties and to carry on their business in all
material respects as it is now being conducted. Each of the Company and its
Subsidiaries is duly qualified as a foreign corporation, and is in good
standing, in each jurisdiction where the character of its properties owned or
held under lease or the nature of its activities makes such qualification
necessary, other than in jurisdictions where the failure to be so qualified,
individually and in the aggregate, has not had and would not reasonably be
expected to have a Material Adverse Effect. Other than the Company's ownership
interest in its Subsidiaries, and except as set forth on Schedule 2.1 to the
Company Disclosure Letter, the Company has no direct or indirect equity interest
in any partnership, corporation, limited liability company, joint venture,
business association or other entity.
2.2 Certificate of Incorporation; Bylaws; and Stock
Transfer Records.
------------------------------------------------
The Company has made available to the Purchaser prior to the
date of this Agreement complete and correct copies of (i) the Certificate of
Incorporation (or other charter document) and By-laws of the Company and each of
its Subsidiaries, and (ii) a shareholder list of each of the Company and each of
its Subsidiaries.
2.3 Capitalization of the Company.
-----------------------------
(a) As of the date of this Agreement, the authorized capital
stock of the Company consists of (i) 1,000,000 shares of Preferred Stock, par
value $.01 per share, of which none are issued and outstanding, and (ii)
10,000,000 shares of Common Stock, par value $.01 per share, of which 5,239,774
Shares are issued and 4,337,886 Shares are outstanding. Except for (i) the
rights created pursuant to this Agreement, the Company Stock Option Plan and the
Company Rights Plan and (ii) as set forth in Schedule 1.7 and Schedule 2.3(a) of
the Company Disclosure Letter, there are no other options, warrants, calls,
rights, commitments or agreements of any character to which the Company is a
party or by which it is bound obligating the Company to issue, sell, deliver,
repurchase or redeem or cause to be issued, sold, delivered, repurchased or
redeemed any shares of capital stock of, or equity interests in, the Company.
All outstanding Shares are, and all Shares subject to issuance as aforesaid,
upon issuance on the terms
6
and conditions specified in the instruments pursuant to which they are issuable,
will be, duly authorized, validly issued, fully paid and nonassessable and free
of preemptive rights or rights of first refusal. None of the Company or any of
its Subsidiaries is required to redeem, repurchase or otherwise acquire shares
of capital stock of the Company or any of its Subsidiaries, respectively, as a
result of the transactions contemplated by this Agreement. Except as set forth
in Schedule 2.3(a) of the Company Disclosure Letter or other than the Company
Rights Plan, the Company has no stockholder rights plan or agreement in force
providing for the issuance to holders of Shares of rights to purchase or receive
stock, cash or other assets upon the acquisition or proposed acquisition of
Shares by a Person (a "Rights Plan"), nor has the Company's Board of Directors
or stockholders ever adopted a Rights Plan.
(b) All of the Company's Subsidiaries are listed in Schedule
2.3(b) of the Company Disclosure Letter. Except as set forth in the Company's
Annual Report on Form 10-K for the fiscal year ended December 30, 2000 (the
"2000 10-K") or Schedule 2.3(b) of the Company Disclosure Letter, the Company
owns all of the outstanding capital stock of its Subsidiaries.
2.4 Corporate Power, Authorization and Enforceability.
-------------------------------------------------
The Company has all requisite corporate power and authority to
enter into this Agreement and to perform its obligations hereunder and to
consummate all the transactions contemplated hereby. The execution and delivery
of this Agreement by the Company, the performance by the Company of its
obligations hereunder and the consummation by the Company of the transactions
contemplated hereby have been duly and validly authorized by the Board of
Directors and no other corporate action on the part of the Company is necessary
to authorize this Agreement or to consummate the transactions contemplated
hereby (other than, with respect to the Merger, the approval and adoption of
this Agreement by stockholders holding a majority of the outstanding Shares
entitled to vote thereon (the "Company Requisite Vote")). This Agreement has
been duly executed and delivered by the Company and is a legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms, subject to the effect of any applicable bankruptcy, moratorium,
insolvency, reorganization or other similar law affecting the enforceability of
creditors' rights generally and to the effect of general principles of equity
which may limit the availability of remedies (whether in a proceeding at law or
in equity). The Company Requisite Vote is the only vote of the holders of any
class or series of capital stock of the Company necessary to adopt this
Agreement and approve the transactions contemplated hereby, including the
Merger. No other vote or consent of the stockholders of the Company is required
by law, the Certificate of Incorporation or Bylaws of the Company or otherwise
in order for the Company to adopt this Agreement or to approve the transactions
contemplated hereby, including the Merger.
2.5 No Conflict; Required Filings and Consents.
------------------------------------------
(a) Except as set forth on Schedule 2.5 of the Company
Disclosure Letter, and assuming satisfaction of any applicable requirements
referred to in Section 2.5(b) below, the execution and delivery by the Company
of this Agreement, the compliance by the Company with the provisions hereof and
the consummation by the Company of the transactions contemplated hereby:
(A) will not conflict with or violate any statute, law,
ordinance, rule, regulation, order, writ, judgment, award,
injunction, decree or ruling applicable to the Company or any
of its Subsidiaries or any of their properties, or conflict
with, violate or result in any breach of or constitute a
default (or an event which with notice or lapse of time or
both would become a default) under, or give to others any
rights of termination, amendment, cancellation or acceleration
of, or the loss of a benefit under, or result in the creation
of a lien, security interest, charge or encumbrance on any of
the properties or assets of the Company or any of its
Subsidiaries, including pursuant to (i) the Certificate of
Incorporation (or other charter document) or Bylaws of the
Company or any of its Subsidiaries, or (ii) any contract,
lease, agreement, note, bond, mortgage, indenture, deed of
trust, or other instrument or obligation, or any license,
authorization, permit, certificate or other franchise, other
than such conflicts, violations, breaches, defaults, losses,
7
rights of termination, amendment, cancellation or
acceleration, liens, security interests, charges or
encumbrances as to which requisite waivers have been obtained
or which in either case individually or in the aggregate have
not had and would not reasonably be expected to have a
Material Adverse Effect; and
(B) subject to shareholder dissenters' rights, do not
and will not result in any grant of rights to any other party
under the Certificate of Incorporation (or other charter
document) or Bylaws of the Company or any of its Subsidiaries
or restrict or impair the ability of the Purchaser or any of
its Subsidiaries to vote, or otherwise exercise the rights of
a stockholder with respect to shares of the Company or any of
its Subsidiaries that may be directly or indirectly acquired
or controlled by them.
(b) Other than in connection with or in compliance with the
provisions of the DGCL, the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the "blue sky" laws of various states, approvals,
registrations, permits, licenses, authorizations, waivers or consents required
to be obtained under applicable state or local laws, including but not limited
to NASDAQ rules, applicable state takeover laws, the premerger notification
requirement of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), if applicable to the transactions contemplated hereby,
and the filing and recordation of the Certificate of merger as required under
the DGCL (collectively, "Regulatory Consents"), (i) the Company is not required
to submit any notice, report, registration, declaration or other filing with any
federal, state or local government, court, administrative agency or commission
or other governmental authority or instrumentality, domestic or foreign
(collectively, "Governmental Entities"), in connection with the execution or
delivery of this Agreement by the Company or the performance by the Company of
its obligations hereunder or the consummation by the Company of the transactions
contemplated by this Agreement and (ii) no waiver, consent, approval, order or
authorization of any Governmental Entity is required to be obtained in
connection with the execution or delivery of this Agreement by the Company or
the performance by the Company of its obligations hereunder or the consummation
by the Company of the transactions contemplated by this Agreement, other than
such notices, reports, registrations, declarations, filings, waivers, consents,
approvals, orders, or authorizations, the absence of which would not,
individually and in the aggregate, subject the Company or its Subsidiaries to
any criminal penalties or otherwise reasonably be expected to have a Material
Adverse Effect.
2.6 SEC Reports; Financial Statements.
---------------------------------
The Company has filed all required reports, schedules, forms,
statements and other documents with the Securities and Exchange Commission (the
"SEC") from January 1, 1998 through the date hereof (collectively, the "SEC
Reports"). The financial statements contained in the SEC Reports (or
incorporated therein by reference) and the consolidated financial statements of
the Company and its Subsidiaries for the fiscal year ended December 30, 2000
included in the 2000 10-K (collectively, the "Financial Statements"), were
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods involved ("GAAP") (except as may be
indicated in the notes or schedules thereto and except, in the case of the
unaudited interim statements, as may be permitted under Form 10-Q of the
Exchange Act) and present fairly in all material respects 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 as
of the dates and for the fiscal periods indicated therein (subject, in the case
of unaudited interim financial statements, to normal year-end adjustments). On
the date of filing thereof, and as of the date hereof, each SEC Report filed
with the SEC complied in all material respects with the then applicable
requirements of the Exchange Act and the Securities Act of 1933, as amended (the
"Securities Act"), and the rules and regulations of the SEC promulgated
thereunder and do not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. None of the Company's Subsidiaries is required to file any
statements or reports with the SEC.
2.7 No Default; Violation; Dispute.
------------------------------
8
Neither the Company nor any of its Subsidiaries is in default
or violation, and, to the Company's knowledge, no claims exist with respect to
(and no event has occurred which with or without notice, the lapse of time or
the happening or occurrence of any other event would constitute a default or
violation or claim) any term, condition or provision of (i) its Certificate of
Incorporation (or other charter document) or Bylaws, or (ii) except as set forth
in Schedule 2.7 of the Company Disclosure Letter, any contract, lease,
agreement, license, note, bond, employee benefit agreement or plan, arrangement
under which it owns or leases real or personal property, mortgage, indenture,
deed of trust or other instrument or obligation to which the Company or any of
its Subsidiaries is a party or by which the Company or its Subsidiaries or any
of their properties or assets may be bound (nor to the knowledge of the Company
is any other party thereto in breach thereof or default thereunder), except in
the case of this clause (ii) for any defaults, violations or claims that
individually and in the aggregate would not have a Material Adverse Effect.
2.8 Compliance with Law.
-------------------
Except as set forth in Schedule 2.8 of the Company Disclosure
Letter, each of the Company and its Subsidiaries is in compliance, and has
conducted its respective businesses so as to comply with, all statutes, laws,
ordinances, rules, regulations, permits and approvals applicable to its
operations, except for violations which, individually and in the aggregate, do
not and insofar as reasonably can be foreseen in the future would not have a
Material Adverse Effect. Except as disclosed in the SEC Reports, as of the date
hereof no investigation or review by any Governmental Entity with respect to the
Company, any of its Subsidiaries or any property owned or leased by the Company
or any of its Subsidiaries is pending or, to the knowledge of the Company,
threatened, except for any investigation or review that would not individually
and in the aggregate have a Material Adverse Effect.
2.9 Absence of Certain Changes.
--------------------------
As of the date of this Agreement, except as disclosed in
Schedule 2.9 of the Company Disclosure Letter, or in the 2000 10-K, since
December 30, 2000, the Company and its Subsidiaries have conducted their
business in the ordinary course consistent with past practice and have not taken
any of the actions set forth in paragraphs (i) through (vi) of Section 4.1, and
there has not been any occurrence, including the commencement or to the
knowledge of the Company, threat of any action, suit, investigation or
proceeding against the Company or its Subsidiaries, that has had or would
reasonably be expected to have a Material Adverse Effect, other than occurrences
relating to or arising out of the economy in general or the industries of the
Company and its Subsidiaries in general and not specifically relating to the
Company or any of its Subsidiaries, occurrences related to the execution of this
Agreement and the announcement of the transactions contemplated hereby, or
occurrences otherwise agreed to in writing by Purchaser.
2.10 No Undisclosed Liabilities.
--------------------------
Except for liabilities and obligations incurred since December
30, 2000 in the ordinary course of business, liabilities and obligations
incurred in connection with this Agreement or any of the agreements to be
entered into pursuant to this Agreement, and liabilities and obligations
identified in Schedule 2.10 of the Company Disclosure Letter, neither the
Company nor any of its Subsidiaries has any liabilities or obligations of any
nature whatsoever, including guarantees or other similar obligations, (whether
absolute, accrued, fixed, contingent, liquidated, unliquidated or otherwise),
other than liabilities or obligations recognized or disclosed in the Financial
Statements or disclosed in the 2000 10-K, or which individually or in the
aggregate would not have a Material Adverse Effect.
2.11 Litigation; Claims.
------------------
There are no actions, suits or proceedings pending or, to the
knowledge of the Company, threatened against the Company arising out of or in
any way related to this Agreement, the Merger or any of the transactions
contemplated hereby or thereby.
9
2.12 INTENTIONALLY OMITTED.
2.13 Disclosure Documents.
--------------------
(a) Each document required to be filed by the Company with the
SEC in connection with the transactions contemplated by this Agreement,
including on Schedule 13E-3, (the "Company Disclosure Documents") and any
amendments or supplements thereto, will, when filed, comply as to form with the
applicable requirements of the Exchange Act and the rules and regulations
thereunder.
(b) At the time any Company Disclosure Document or any
amendment or supplement thereto is first mailed to stockholders of the Company,
it will not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in the
light of the filing of any Company Disclosure Documents or any amendment or
supplement thereto, not misleading, and from the time of any distribution
thereof through the Effective Time each such Company Disclosure Document will
not contain any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. The representations
and warranties contained in paragraphs (a) and (b) of this Section 2.13 will not
apply to statements or omissions included in the Company Disclosure Documents,
if any, based upon information furnished to the Company in writing by Purchaser
specifically for use therein.
(c) The information with respect to the Company or any
Subsidiary that the Company furnishes to Purchaser in writing specifically for
use in the Schedule 13E-3 (as defined herein), the Preliminary Proxy Statement
and the Company Proxy Statement will not, at the time of the filing thereof, and
from the time of any distribution thereof through the Effective Time, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading. The representations and warranties contained in this Section 2.13(c)
will not apply to statements or omissions included in the Schedule 13E-3, the
Preliminary Proxy Statement (as hereinafter defined) and Company Proxy Statement
(as hereinafter defined), if any, based upon information furnished by Purchaser,
or its Affiliates specifically for use therein.
2.14 INTENTIONALLY OMITTED.
2.15 Environmental Matters. Except as would not
individually or in the aggregate have a Material Adverse Effect:
(a) Neither the Company nor any of its Subsidiaries nor to the
knowledge of the Company as of the date of this Agreement any operator or owner
of their respective past or present properties is in violation, or alleged
violation, of any judgment, decree, order, law, license, rule or regulation
pertaining to environmental matters, including without limitation, those arising
under the Resource Conservation and Recovery Act ("RCRA"), the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA"), the Super fund Amendments and Reauthorization Act of 1986 ("SARA"),
the Federal Water Pollution Control Act, the Solid Waste Disposal Act, as
amended, the Federal Clean Water Act, the Federal Clean Air Act, the Toxic
Substances Control Act, the Occupational Safety and Health Act of 1970, as
amended, or any state or local statute, regulation, ordinance, order or decree
relating to health, safety or the environment (hereinafter "Environmental
Laws").
(b) There have been no releases (i.e., any past or present
releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging,
injecting, escaping, disposing or dumping) or threatened releases of any
hazardous waste as defined by 42 U.S.C. (S)6903(5), any hazardous substances as
defined by 42 U.S.C.(S)9601(33) or any toxic substance, oil or
10
hazardous materials or other chemicals or substances regulated by any
Environmental Laws ("Hazardous Substances ") on, upon, into or from any
properties of the Company or its Subsidiaries.
(c) As of the date of this Agreement, no amounts of Hazardous
Substance has been discharged, generated, treated, manufactured, handled,
stored, transported, emitted, released or is present at any property now or
previously owned, leased or operated by the Company except in compliance with
all applicable Environmental Laws.
2.16 Takeover Laws.
-------------
The provisions of Sections 203 of the DGCL either does not
apply to the execution, delivery and performance of this Agreement and the
consummation of the Merger or has been rendered inapplicable because of a vote
of the Board of Directors approving the consummation of the Merger and the
transactions contemplated by this Agreement. No "fair price," "control share
acquisition" or other similar anti-take over statute or regulation enacted in
any jurisdiction other than Delaware is applicable to the execution, delivery
and performance of this Agreement, or the consummation of the Merger.
2.17 Board Recommendation; Fairness Opinion.
--------------------------------------
(a) The Company represents that each of the Special Committee
and the Board of Directors, upon the recommendation of the Special Committee,
each at meetings duly called and held, have (i) determined, that this Agreement,
the Merger and the other transactions contemplated hereby are fair to, advisable
and in the best interests of the Company's stockholders (other than Purchaser
and its current and future stockholders), (ii) approved this Agreement, and the
transactions contemplated hereby, including the Merger, which approvals, and
prior actions taken by such Board immediately prior to the execution of this
Agreement, are sufficient to render entirely inapplicable to the Merger and
Purchaser and its Affiliates, as of the date hereof, the provisions of Section
203 of the DGCL, (iii) resolved to recommend approval of this Agreement and
adoption of the Merger by its stockholders and (iv) resolved to amend the
Company Rights Plan so as to render it inapplicable to the Merger and Purchaser,
or to redeem all of the outstanding rights under the Company Rights Plan.
(b) The Special Committee has received the written opinion of
its Financial Advisor, dated as of the date of this Agreement, to the effect
that, based on, and subject to, the various assumptions and qualifications set
forth therein, as of the date of such opinion, the Per Share Merger
Consideration to be received by holders of Shares (other than Purchaser and its
current and future stockholders) pursuant to the Merger is fair from a financial
point of view to such holders (the "Fairness Opinion"). The Company has
delivered to the Purchaser a copy of the Fairness Opinion, together with the
Financial Advisor's written consent to the inclusion of or reference to the
Fairness Opinion in the Schedule 13E-3, the Preliminary Proxy Statement and the
Company Proxy Statement.
2.18 INTENTIONALLY OMITTED.
2.19 Brokers and Finders.
-------------------
The Special Committee has furnished to Purchaser or its
counsel a true and complete copy of the letter agreement (the "Engagement
Letter") between the Company and the Financial Advisor, such Engagement Letter
being the only agreement pursuant to which such firm would be entitled to any
payment relating to the transactions contemplated hereunder. Other than as set
forth herein or in Schedule 2.19 of the Company Disclosure Letter, no broker,
financial advisor or investment banker or other person is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company or any of its Subsidiaries.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to the Company that:
11
3.1 Organization and Qualification. The Purchaser is a
corporation or other entity duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, and has all
requisite power and authority to own, operate and lease its properties and to
carry on its business in all material respects as it is now being conducted.
Purchaser is a new corporation that was formed for the purpose of consummating
the transactions contemplated by this Agreement. Purchaser has not conducted any
business or engaged in any activities unrelated to the transactions contemplated
by this Agreement. Purchaser has no material liabilities other than in
connection with the transactions contemplated by this Agreement and the
financing arrangements with the Lending Sources.
3.2 Corporate Power, Authorization and Enforceability. The
Purchaser has all requisite power and authority to enter into this Agreement and
to perform its obligations hereunder and to consummate all the transactions
contemplated hereby. The execution and delivery of this Agreement by Purchaser,
the performance by the Purchaser of its obligations hereunder and the
consummation by Purchaser of the transactions contemplated hereby have been duly
and validly authorized by the Board of Directors of Purchaser and the
stockholders of the Purchaser, and no other corporate action on the part of
Purchaser is necessary to authorize this Agreement or to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Purchaser and is a legal, valid and binding obligation of the
Purchaser, enforceable against the Purchaser in accordance with its terms.
3.3 No Conflict; Required Filings and Consents.
(a) Assuming satisfaction of all applicable requirements
referred to in Section 3.3(b) below, the execution and delivery of this
Agreement by the Purchaser, the compliance by the Purchaser with the provisions
hereof and the consummation by the Purchaser of the transactions contemplated
hereby will not conflict with or violate any statute, law, ordinance, rule,
regulation, order, writ, judgment, award, injunction, decree or ruling
applicable to the Purchaser or any of its properties, or conflict with, violate
or result in any breach of or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, cancellation or acceleration of, or the
loss of a benefit under, or result in the creation of a lien, security interest,
charge or encumbrance on any of the properties or assets of Purchaser pursuant
to (i) the organizational documents of the Purchaser or (ii) any contract,
lease, agreement, note, bond, mortgage, indenture, deed of trust, or other
instrument or obligation, or any license, authorization, permit, certificate or
other franchise, other than such conflicts, violations, breaches, defaults,
losses, rights of termination, amendment, cancellation or acceleration, liens,
security interests, charges or encumbrances as to which requisite waivers have
been obtained or which individually and in the aggregate would not have a
material adverse effect on the ability of the Purchaser to perform its
obligations under this Agreement.
(b) Other than in connection with or in compliance with the
provisions of the DGCL, the Exchange Act, the "blue sky" laws of various states
and the HSR Act, if applicable (i) the Purchaser is not required to submit any
notice, report, registration, declaration or other filing with any Governmental
Entity in connection with the execution or delivery of this Agreement by
Purchaser or the performance by Purchaser of its obligations hereunder or the
consummation by Purchaser of the transactions contemplated by this Agreement and
(ii) no waiver, consent, approval, order or authorization of any Governmental
Entity is required to be obtained by the Purchaser in connection with the
execution or delivery of this Agreement by Purchaser or the performance by the
Purchaser of its obligations hereunder or the consummation by the Purchaser of
the transactions contemplated by this Agreement.
3.4 Board and Stockholder Approval. The Board of Directors and
stockholders of the Purchaser has approved this Agreement and the Merger and has
authorized the proper officers to execute and deliver this Agreement and all
necessary action has been taken in connection therewith.
3.5 Brokers and Finders. No broker, finder or investment
banker, other than any whose fees and expenses will be paid by the Purchaser, is
entitled to any brokerage, finder's or other fee or commission in
12
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Purchaser.
3.6 Disclosure Documents.
--------------------
(a) Each document required to be filed by the Purchaser with
the SEC in connection with the transactions contemplated by this Agreement,
including on Schedule 13E-3 (the "Purchaser Disclosure Documents") and any
amendments or supplements thereto, will, when filed, comply as to form with the
applicable requirements of the Exchange Act and the rules and regulations
thereunder.
(b) The information with respect to the Purchaser that
Purchaser furnishes to the Company in writing specifically for use in any
Company Disclosure Documents will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements made therein, in the light of the
circumstances under which they made, not misleading; provided that no
representation is made by Purchaser with respect to statements or omissions in
the Company Disclosure Documents based upon information furnished to Purchaser
by the Company specifically for use therein.
(c) The Schedule 13E-3, the Preliminary Proxy Statement and
Company Proxy Statement will comply with the applicable requirements of the
Exchange Act and will not, at the time of the filing thereof, or from the time
of any distribution thereof through the Effective Time contain any untrue
statement of material fact or omit to state any material fact required to be
stated therein or necessary to make the statements made therein, in the light of
the circumstances under which they were made, not misleading; provided, that no
representation is made by the Purchaser with respect to the statements or
omissions in the Schedule 13E-3, the Preliminary Proxy Statement or the Company
Proxy Statement based upon information furnished to Purchaser in writing by the
Company specifically for use therein.
(d) The information contained in the Schedule 13D and the
amendments thereto filed by the current stockholders of Purchaser is true and
accurate in all material respects. In addition, neither Purchaser nor any of its
Affiliates were, prior to the execution of this Agreement, subject to the
prohibitions on transactions generally applicable to "interested stockholders"
within the meaning of Section 203 of the DGCL.
ARTICLE IV
COVENANTS
13
4.1 Conduct of Business by the Company. Except as required or
permitted by this Agreement, during the period from the date of this Agreement
until the Effective Time, the Company agrees as to itself and its Subsidiaries
that (except to the extent that Purchaser shall otherwise consent in writing)
the Company and its Subsidiaries shall conduct their respective operations in
the ordinary course of business consistent with past practice, and each of the
Company and its Subsidiaries will use its commercially reasonable efforts to
preserve intact its present business organization, to keep available the
services of its present officers and employees and to maintain satisfactory
relationships with licensors, licensees, suppliers, contractors, distributors,
customers and others having business relationships with it and to maintain
insurance on the same terms as are in effect on the date of this Agreement.
Without limiting the generality of the foregoing, during the period from the
date of this Agreement to the Effective Time, neither the Company nor any of its
Subsidiaries shall, without the prior written consent of Purchaser:
(i) amend its Certificate of Incorporation or other charter
document or Bylaws;
(ii) authorize for issuance, issue, sell, deliver, pledge
or agree or commit to issue, sell, deliver or pledge (whether through the
issuance or granting of options, warrants, commitments, subscriptions, rights to
purchase or otherwise) any capital stock of any class or any debt or other
securities convertible into capital stock or equivalents (including, without
limitation, stock appreciation rights), or amend any of the terms of any of the
foregoing, other than the issuance of shares of capital stock upon the exercise
of outstanding options under the Company Stock Option Plan;
(iii) (A) split, combine or reclassify any shares of its
capital stock, or authorize or propose the issuance or authorization of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock, or declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
its capital stock, adopt or approve any Rights Plan, or repurchase, redeem or
otherwise acquire any of its securities or any securities of its Subsidiaries,
or (B) declare or pay any dividend of any kind, make any payment of cash or
other property to shareholders or to terminate, cancel or otherwise settle any
outstanding Options under the Company Stock Option Plan, other than in the case
of clauses (A) or (B) above for the issuance of Shares in connection with the
exercise of options or the repurchase of Shares to the extent contractually
required pursuant to the terms of existing employee stock repurchase agreements
or this Agreement, or the cancellation of non-vested options of terminated
employees; or issue any new Options or equivalent instruments of any kind;
(iv) without prior consultation with the Purchaser (in
addition to the consent requirement described above) commence any litigation or
arbitration other than in accordance with past practice or settle any litigation
or arbitration for money damages or other relief in excess of $50,000 or if as
part of such settlement the Company or any Subsidiary would agree to any
restrictions on its operations;
(v) waive, release or amend its rights under any
confidentiality, "standstill" or similar agreement that the Company entered into
in connection with its consideration of a potential strategic transaction;
provided, however, that the Company may waive, release or amend its rights under
any such confidentiality, "standstill" or similar agreement if the Company's
Board determines, after consultation with its independent legal counsel, that
failure to do so would be reasonably likely to constitute a breach of its
fiduciary duties to the Company's stockholders under applicable law; or
14
(vi) take, or agree in writing or otherwise to take, any of
the actions described in Sections 4.1(i) through 4.1(v).
4.2 Access to Information; Confidentiality.
--------------------------------------
(a) From the date of this Agreement to the Effective
Time, the Company shall, and shall cause its Subsidiaries, officers, directors,
employees and agents to, afford the officers, employees and agents of Purchaser
and its Affiliates and the attorneys, accountants, banks, other financial
institutions and investment banks working with Purchaser, and its respective
officers, employees and agents ("Representatives") reasonable access, at all
reasonable times upon reasonable notice and in such manner as will not
unreasonably interfere with the conduct of the Company's business, to its
officers, employees, agents, properties, books, records and contracts, and shall
furnish, Purchaser and its Affiliates and the attorneys, banks, other financial
institutions and investment banks working with Purchaser, all financial,
operating and other data and information as they reasonably request.
(b) Any information heretofore or hereafter furnished by
the Company which is non-public, confidential or proprietary in nature is
referred to in this Agreement as "Confidential Information". The Purchaser
agrees that the Confidential Information will be used solely for the purpose of
consummating the transactions contemplated by this Agreement, and until the
Effective Time, such information will be kept confidential by the Purchaser and
its Representatives (as defined below), except that the Confidential Information
or portions thereof may be disclosed to those Representatives of the Purchaser
who need to know such information solely for the purpose of evaluating the
transactions contemplated by this Agreement.
(c) In the event that the Purchaser or any of its
Representatives become legally compelled (by deposition, interrogatory, request
for documents, subpoena, civil investigative demand or similar process) to
disclose any of the Confidential Information, the Purchaser shall provide the
Company with prompt prior written notice of such requirement so that the Company
may seek a protective order or other appropriate remedy and/or waive compliance
with the terms of this Section 4.2. In the event that such protective order or
other remedy is not obtained, or that the Company waives compliance with the
provisions hereof, the Purchaser agree, to furnish only that portion of the
Confidential Information which the Purchaser is advised by counsel is legally
required and to exercise commercially reasonable efforts to obtain assurance
that confidential treatment will be accorded such Confidential Information.
(d) The term "Confidential Information" does not include
any information that the Purchaser can demonstrate that at the time of
disclosure or thereafter is generally available to the public (other than as a
result of its disclosure directly or indirectly by the Purchaser or its
Representatives).
(e) If this Agreement is terminated pursuant to Article
VI, upon the Company's request, the Purchaser will promptly return to the
Company any and all copies of the Confidential Information in its possession or
in the possession of its Representatives, and the Purchaser and its
Representatives will promptly destroy all copies of any analyses, compilations,
studies or other documents prepared by or for the Purchaser which reflect or
contain any Confidential Information, except for any of the foregoing which
Purchaser or its counsel deems advisable to retain in connection with pending or
future litigation, provided that such Confidential Information is retained by
the Purchaser's counsel and only for so long as considered advisable in light of
any pending or future litigation.
15
(f) No investigation pursuant to this Section 4.2 shall
affect any representations or warranties of the parties herein or the conditions
to the obligations of the parties hereto.
4.3 Preparation of Proxy Statement; Stockholders Meeting;
Schedule 13E-3.
-----------------------------------------------------
(a) The Company will, as promptly as practicable following the
date of this Agreement and in consultation with Purchaser, duly call, give
notice of, convene and hold a meeting of its stockholders (the "Stockholders'
Meeting") for the purpose of approving this Agreement, the Merger and the
transaction contemplated by this Agreement, except as otherwise provided in
Section 4.3(f) below. Nothing herein shall prevent the company from adjourning
or postponing the Company's stockholders meeting if there are insufficient
shares of Company Common Stock necessary to conduct business at its meeting of
the Stockholders. Subject to Section 4.5, the Company will, through the Board of
Directors and the Special Committee, recommend to its stockholders approval of
the foregoing matters and seek to obtain all necessary votes and approvals
thereof by the stockholders required to approve the Merger.
(b) In connection with the Stockholders' Meeting contemplated
hereby, the Company will promptly prepare and file, and Purchaser will cooperate
with the Company in the preparation and filing of, a preliminary proxy statement
(the "Preliminary Proxy Statement") with the SEC and will use its commercially
reasonable efforts to respond to the comments of the SEC concerning the
Preliminary Proxy Statement and to cause a final proxy statement (the "Company
Proxy Statement") to be mailed to the Company's stockholders, in each case as
soon as reasonably practicable. The Purchaser will promptly prepare, and the
Company will cooperate with the Purchaser in the preparation and filing of the
Rule 13E-3 Transaction Statement on Schedule 13E-3 (the "Schedule 13E-3") with
the SEC and will use its commercially reasonable efforts to respond to comments
by the SEC concerning the Schedule 13E-3. Purchaser shall be given a reasonable
opportunity to review and comment on all filings with the SEC and all mailings
to the Company's stockholders in connection with the Merger prior to the filing
or mailing thereof, and the Company shall use its commercially reasonable
efforts to reflect all such comments. The Company shall pay the filing fees for
any Company Schedule 13E-3 and the Preliminary Proxy Statement. Each party to
this Agreement will notify the other parties promptly of the receipt of the
comments of the SEC, if any, notification of SEC approval of the Company Proxy
Statement and of any request by the SEC for amendments or supplements to the
Schedule 13E-3, the Preliminary Proxy Statement or the Company Proxy Statement
or for additional information, and will promptly supply the other parties with
copies of all correspondence between such party or its representatives, on the
one hand, and the SEC or members of its staff, on the other hand, with respect
to the Schedule 13E-3, the Preliminary Proxy Statement, the Company Proxy
Statement or the Merger.
(c) If at any time prior to the Stockholders' Meeting, any
event should occur relating to the Company or any of the Subsidiaries which
should be set forth in an amendment of, or a supplement to, the Schedule 13E-3
or the Company Proxy Statement, the Company will promptly inform Purchaser. If
at any time prior to the Stockholders' Meeting, any event should occur relating
to Purchaser or any of its Associates or Affiliates, or relating to the plans of
any such persons for the Surviving Corporation after the Effective Time of the
Merger, or relating to the Financing, that should be set forth in an amendment
of, or a supplement to, the Schedule 13E-3 or the Company Proxy Statement, the
Purchaser, with the cooperation of Company, will, upon learning of such event,
promptly prepare, file and, if required, mail such amendment or supplement to
the Company's stockholders; provided that, prior to such filing or mailing, the
Company shall consult with Purchaser with respect to such amendment or
supplement and shall afford Purchaser reasonable opportunity to comment thereon.
16
(d) Purchaser shall furnish to the Company the information
relating to Purchaser and its Affiliates and the plans of such persons for the
Surviving Corporation after the Effective Time of the Merger, and relating to
any financing matters, which is required to be set forth in the Preliminary
Proxy Statement or the Company Proxy Statement under the Exchange Act and the
rules and regulations of the SEC thereunder. The Company shall cause, to the
extent available, to be included as an exhibit to the Preliminary Proxy
Statement and the Company Proxy Statement, the written Fairness Opinion as an
exhibit to the Schedule 13E-3, and any reports or opinion delivered to the Board
of Directors or the Special Committee by the Financial Advisor in connection
with the delivery of the Fairness Opinion which are required under Schedule
13E-3 to be filed as exhibits.
(e) 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.
(f) The parties hereto understand and agree that if the
Special Committee withdraws its approval or recommendation of the Merger
pursuant to and in compliance with the provisions of Section 4.5 below, the
Company will not convene or hold a Stockholder Meeting without obtaining the
prior consent of the Special Committee.
4.4 Regulatory Filings. Promptly after the delivery of the
Commitments, the parties will cooperate in making any filings necessary under
any government regulatory requirements that may be applicable to the Merger,
including filings, if any, necessary under the HSR Act.
4.5 Acquisition Proposals.
---------------------
(a) Except as expressly permitted by this Section 4.5, neither
the Board of Directors nor the Special Committee shall (i) withdraw or modify,
or propose publicly to withdraw or modify, in a manner adverse to the Purchaser,
its approval or recommendation of the Merger or this Agreement, (ii) approve or
recommend, or propose publicly to approve or recommend, any Acquisition
Proposal, or (iii) cause the Company to enter into any outline, letter of
intent, agreement in principle, acquisition agreement or other similar
agreement, whether or not binding on the parties, (each, a "Company Acquisition
Agreement") related to any Acquisition Proposal (as hereinafter defined).
Notwithstanding the foregoing, if at anytime the Board of Directors or the
Special Committee determines in good faith, after consultation with and receipt
of advice from outside counsel or its financial advisor, that it is necessary to
do so in order to act in a manner consistent with its fiduciary duties to the
Company's stockholders under applicable law, subject to compliance with
paragraph (b) below, (x) either the Board of Directors or the Special Committee
may withdraw or modify, or propose publicly to withdraw or modify, its approval
or recommendation of the Merger or this Agreement, (y) the Board of Directors
may approve or recommend, or propose publicly to approve or recommend, a
Superior Proposal, and (z) the Board of Directors may cause the Company to enter
into a Company Acquisition Agreement upon termination of this Agreement pursuant
to Section 6.1(d) and accept such Superior Proposal. For purposes of this
Agreement, a "Superior Proposal" means an Acquisition Proposal that the Special
Committee of the Board of Directors of the Company, in good faith, after
consultation with its outside counsel and its financial advisor, and taking into
account the proposed financing thereof, determines to be of a higher price per
Share and more favorable to the stockholders of the Company than the transaction
contemplated hereunder. For purposes of this Agreement, an "Acquisition
Proposal" means any inquiry or the making of any proposal or offer from any
third party, other than the Purchaser or its Affiliates regarding any merger,
consolidation, share exchange, recapitalization, business combination, the sale
of substantial assets (other than in the ordinary course of business), the sale
or purchase of (or right to sell or
17
purchase) shares of capital stock (other than pursuant to the exercise of stock
options outstanding on the date of this Agreement), tender offer or similar
transactions, whether in a single transaction or a series of transactions,
involving the Company or any of its Subsidiaries.
(b) In addition to the obligations of the Company as set forth
in Section 4.5(a), the Company promptly shall advise the Purchaser orally and in
writing of any request for non-public information, any Acquisition Proposal,
including all of the material proposed terms of such Acquisition Proposal, the
identity of the third party, or any decision by the Company to take any actions
with respect to any of the foregoing (with any such notice referred to as a
"Company Notice"). Any such Company Notice will be delivered promptly after (and
in no event later than 24 hours after) receipt of any request for non-public
information or of any Acquisition Proposal and prior to the Company taking any
of such actions. In addition, in the event the Company intends to enter into a
Company Acquisition Agreement, the Company will deliver a Company Notice at
least twenty-four (24) hours (but Company Notices given on a non-business day,
or after 6:00 p.m. on a business day, shall take effect on the first business
day thereafter) prior to entering into such Company Acquisition Agreement, which
Company Notice will identify the third party and the material proposed terms of
such Company Acquisition Agreement. Subject to confidentiality agreement
requirements imposed by any such third party which shall be substantially
similar to those set forth in Section 4.2 hereof and which the Board of
Directors determines in good faith, after consultation with its outside counsel,
are necessary to enter into in order to act in a manner consistent with its
fiduciary duties to the Company's stockholders under applicable law, the Company
will update the information required to be provided in the Company Notice upon
the request of the Purchaser.
4.6 Public Announcements. Purchaser on the one hand, and the
Company on the other hand, will consult with each other before, and obtain the
other party's consent with respect to, issuing any press release, any filing
with the SEC on Form 8-K or otherwise making any public statements with respect
to this Agreement or the Merger or the other transactions contemplated hereby,
and shall not issue any such press release, SEC Form 8-K filing or make any such
public statement prior to such consultation and consent, except to the extent
that compliance with legal requirements and NASDAQ rules require a party to
issue a press release or public announcement or make an 8-K filing. Any consent
required pursuant to the preceding sentence shall not be unreasonably withheld
or delayed.
4.7 Notification of Certain Matters.
-------------------------------
(a) The Company shall give prompt notice (which notice shall
state that it is delivered pursuant to Section 4.7 of this Agreement) in writing
to Purchaser, and Purchaser shall give prompt notice in writing to the Company,
of (i) the occurrence, or failure to occur, of any event which occurrence or
failure would be likely to cause any representation or warranty of such party
contained in this Agreement to be untrue or inaccurate in any material respect
as of the time such representation or warranty is made and (ii) any material
failure of the Company, Purchaser, as the case may be, or of any officer,
director, employee or agent thereof, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement; provided, however, no such notification shall affect the
representations or warranties of the parties or the conditions to the
obligations of the parties hereunder.
(b) The Company shall give reasonably prompt notice (which
notice shall state that it is delivered pursuant to Section 4.7 of this
Agreement) in writing to Purchaser, of any occurrence that has had or may
reasonably be expected to have a Material Adverse Effect, other than occurrences
relating to or arising out of the economy in general or the industries of the
Company and its Subsidiaries in general and not specifically relating to the
Company or any of
18
its Subsidiaries and occurrences related to the execution of this Agreement
and the announcement of the transactions contemplated hereby.
4.8 Officers' and Directors' Indemnification; Insurance.
---------------------------------------------------
(a) The Purchaser and Surviving Corporation agree that for a
period ending on the sixth anniversary of the Effective Time, the Surviving
Corporation will maintain all rights to indemnification (including with respect
to the advancement of expenses incurred in the defense of any action or suit)
existing on the date of this Agreement in favor of the present and former
directors, officers, employees and agents of the Company as provided in the
Company's Certificate of Incorporation and Bylaws, in each case as in effect on
the date of this Agreement, and that during such period, neither the Certificate
of Incorporation nor the Bylaws of the Surviving Corporation shall be amended to
reduce or limit the rights of indemnity afforded to the present and former
directors, officers, employees and agents of the Company, or the ability of the
Surviving Corporation to indemnify them, nor to hinder, delay or make more
difficult the exercise of such rights or indemnity or the ability to indemnify;
provided; however, that in the event any claim or claims are asserted or made
within such six-year period, all rights to indemnification in respect to any
such claim or claims shall continue until the disposition of any and all such
claims.
(b) The Purchaser and Surviving Corporation agree to cause the
Surviving Corporation to indemnify to the fullest extent permitted under its
Certificate of Incorporation, its Bylaws and applicable law the present and
former directors, officers, employees and agents of the Company against all
losses, damages, liabilities or claims made against them arising from their
service in such capacities prior to and including the Effective Time, to at
least the same extent as such persons are currently permitted to be indemnified
pursuant to the Company's Certificate of Incorporation and Bylaws, for a period
ending on the sixth anniversary of the Effective Time.
(c) Should any claim or claims be made against any present or
former director, officer, employee or agent of the Company, on or prior to the
sixth anniversary of the Effective Time, arising from such person's service as
such at any time prior to the Effective Time, the provisions of this Section 4.8
respecting the Certificate of Incorporation and Bylaws and the obligation of
indemnity of the Surviving Corporation shall continue in effect until the final
disposition of all such claims.
(d) The Company and the Purchaser agree that in the event that
the Surviving Corporation or any of its successors or assigns consolidates with
or merges into any other Person and shall not be the continuing or surviving
corporation or entity of such consolidation or merger, then and in each such
case, proper provisions shall be made so that the successors and assigns of the
Surviving Corporation shall assume the obligations of the surviving Corporation,
set forth in this Section 4.8. The provisions of this Section 4.8(d) are in
addition to, and not substitution for, any other rights or indemnification that
any such person may have by contract or otherwise.
(e) The provisions of this Section 4.8 are intended to be for
the benefit of, and shall be enforceable by, each indemnified party and such
party's heirs and representatives.
19
(f) The Surviving Corporation shall maintain for a period of
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
persons who are directors and officers of the Company on the date of this
Agreement, so long as such insurance is available on commercially reasonable
terms and the annual premium therefor would not be in excess of 200% of the last
annual premium paid prior to the date of this Agreement (the "Maximum Premium").
If the existing D&O Insurance expires, is terminated or
cancelled during such six-year period, the Purchaser will use all reasonable
efforts to cause to be obtained as much D&O Insurance as can be obtained for the
remainder of such period for an annualized premium not in excess of the Maximum
Premium, on terms and conditions no less advantageous than the existing D&O
Insurance.
4.9 Additional Agreements.
---------------------
(a) Subject to the terms and conditions hereof, each of the
parties to this Agreement agrees to use commercially reasonable efforts to take,
or cause to be taken, all actions, and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement (including consummation of the Merger) and to
cooperate with each other in connection with the foregoing.
(b) Subject to the terms and conditions hereof, each of the
parties to this Agreement agrees to use commercially reasonable efforts to: (i)
obtain all necessary waivers, consents and approvals from other parties to loan
agreements, leases, licenses and other contracts, (ii) obtain all necessary
consents, approvals and authorizations as required to be obtained under any
federal, state or foreign law or regulations, including, but not limited to,
those required under the HSR Act, if required, (iii) defend all lawsuits or
other legal proceedings challenging this Agreement or the consummation of the
transactions contemplated hereby, (iv) lift or rescind any injunction or
restraining order or other order adversely affecting the ability of the parties
to consummate the transactions contemplated hereby, (v) effect all necessary
registrations and filings, including, but not limited to, filings under the HSR
Act and submissions of information requested by Governmental Entities, and (vi)
fulfill all conditions to this Agreement.
4.10 Company Indebtedness. Prior to the Effective Time, the
Company and Purchaser shall cooperate with each other in taking such actions
requested by the Purchaser as are reasonably appropriate or necessary in
connection with obtaining the prior written consent of Fleet National Bank, N.A.
prior to the Effective Time.
4.11 Other Actions by the Company. If any "fair price,"
"control share acquisition," "shareholder protection" or other form of
anti-takeover statute, regulation or charter provision or contract is or shall
become applicable to the Merger or the transactions contemplated hereby, the
Company, the Special Committee and the Board of Directors shall, promptly upon
the request of the Purchaser, grant such approvals and take such actions as are
necessary under such laws and provisions so that the transactions contemplated
hereby may be consummated as promptly as practicable on the terms contemplated
hereby and otherwise act to the extent allowable to eliminate or minimize the
effects of such statute, regulation, provision or contract on the transactions
contemplated hereby. The Board of Directors and the Company have taken and shall
continue to take such actions as are necessary to either amend the Company
Rights Plan or redeem any outstanding rights under the Company Rights Plan, so
that the
20
transactions contemplated by this Agreement may be consummated as promptly as
practicable on the terms contemplated by this Agreement, and otherwise act to
eliminate or minimize the effects of such Company Rights Plan on such
transaction.
4.12 Litigation Cooperation. Promptly upon execution of this
Agreement and until the Effective Time, each of the Company and Purchaser shall
cooperate with each other in connection with any litigation by a third party
arising out of or in connection with this Agreement or any of the transactions
contemplated by this Agreement.
4.13 Future Filings. The Company will deliver to the Purchaser
as soon as they become available true and complete copies of any report or
statement mailed by it to its stockholders generally or filed by it with the SEC
subsequent to the date of this Agreement and prior to the Effective Time. The
Purchaser shall deliver to the Company as soon as they become available, true
and complete copies of any report or statement mailed by it to the Company's
stockholders generally or filed by it with the SEC subsequent to the date of
this Agreement and prior to the Effective Time.
4.14 Board Action Relating to Stock Option Plans. As soon as
practicable following the date of this Agreement, the Board of Directors of the
Company (or, if appropriate, any committee administering a Company Stock Option
Plan) shall adopt such resolutions or take such actions as may be required to
adjust the terms of all outstanding Company Stock Options in accordance with
Section 1.7 and shall make such other changes to the Company Stock Option Plan
in accordance with the terms of the Company Stock Option Plan as the Purchaser,
the Special Committee and the Company deem appropriate to give effect to the
Merger, and, at Purchaser's request, to terminate such plans as of the Effective
Time.
4.15 Knowledge of Inaccuracies. In the event that Purchaser,
its stockholders or any senior executive officer of the Company shall have
knowledge on or prior to the date of this Agreement of the existence or
occurrence of any fact, circumstance, or event the failure of the Company to
disclose which in this Agreement or the Company Disclosure Schedule otherwise
would cause, or be reasonably likely to cause, any inaccuracy or breach by the
Company of any representation, warranty, covenant or other obligation hereunder,
then such fact, circumstance or event shall be deemed to have been disclosed by
the Company to the Purchaser in this Agreement or Company Disclosure Letter.
4.16 Financing Matters.
-----------------
(a) Purchaser has had discussions with one or more banks, financial
institutions or other public or private financing sources (the "Lending
Sources") to determine the available terms of financing and reasonably expects
that such commitments regarding junior or subordinated debt financing, together
with equity contributions to the Purchaser made or to be made by certain
stockholders of the Purchaser (collectively, the "Commitments"), sufficient to
consummate the transactions contemplated by the Merger Agreement, will be
obtainable from such Lending Sources and stockholders of the Purchaser, as the
case may be. The Company acknowledges that the Lending Sources have not had the
opportunity to complete due diligence on all aspects of the Company's
operations, agreements and finances, including with respect to the Company's
operations for the period ended December 30, 2000, and that the results of such
investigation may result in the Commitments being unavailable or available only
in amounts and on terms not acceptable to the Purchaser.
(b) The Company agrees to provide, and will cause its Subsidiaries and
its and their respective officers, employees and advisors to provide, all
cooperation reasonably necessary in connection with the arrangement of any
financing to be consummated contemporaneously with or at or after the expiration
of the Effective Time in respect of the transactions contemplated by this
Agreement, including participation in meetings and, due diligence sessions, the
execution and delivery of any commitment letters, underwriting or placement
agreements, 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, comfort letters of accountants and legal
opinions as may be reasonably requested by Purchaser and taking such
21
other actions as are reasonably required to be taken by the Company in the
Commitments, provided that Purchaser shall use reasonable efforts not to
materially interfere with the duties of such officers, employees and
advisors such that the Company's business and results of operations would be
materially adversely affected thereby.
(c) The Company has entered into or agrees to enter into the engagement
letter agreement (the "Golub Engagement Letter") among Golub Associates
Incorporated, LEG Partners III SBIC, L.P., LEG Partners Debentures SBIC, L.P.
the Purchaser and the Company.
(d) Notwithstanding anything to the contrary contained in this
Agreement, the Company shall not enter into any Commitments or any other
letters, agreements or other documents contemplated by Sections 4.16(b), 4.16(c)
or 5.2(f) if, in the aggregate, such Commitments, letters, agreements or other
documents obligate the Company to pay more than $400,000.00 of fees, costs and
expenses (excluding contingent liabilities such as indemnification obligations),
without the prior consent of the Special Committee.
4.17 Voting. Each of the Purchaser and its stockholders will
vote any and all shares of the Company's Common Stock held by them, or which
they have the right to vote, in favor of approval of the Merger, in person, or
by proxy.
4.18 Exemption from Liability Under Section 16(B). Purchaser
and the Company shall take all such steps as may be required or reasonably
requested to cause the transactions contemplated by this Agreement and any other
dispositions of Company equity securities (including derivative securities) in
connection with this Agreement by each individual who is a director, officer or
ten (10%) percent stockholder of the Company to be exempt under Rule 16b-2
promulgated under the Exchange Act and the rules and regulations promulgated
thereunder, such steps to be taken in accordance with the No-Action Letter dated
January 12, 1999, issued by the SEC to Skadden, Arps, Slate, Meagher & Flom LLP,
or as may otherwise be reasonably requested by the Company.
4.19 Delisting. 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 NASDAQ and to terminate registration under the
Exchange Act, provided that such delisting and termination shall not be
effective until after the Effective Time of the Merger.
ARTICLE V
CONDITIONS OF MERGER
5.1 Conditions to the Obligations of Each Party to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Time of each of the
following conditions:
(a) This Agreement and the Merger shall have been approved and adopted
by the affirmative vote of a majority of Shares held by the stockholders of the
Company, as required under the laws of the State of Delaware;
(b) No temporary restraining order, preliminary or permanent
injunction, judgment or other order, decree or ruling nor any statute, rule,
regulation, SEC stop order or other order shall be in effect which would make
the acquisition or holding by Purchaser or its Affiliates of Shares or shares of
Common Stock of the Surviving Corporation illegal or otherwise prevent the
consummation of the Merger; and
22
(c) Upon the written request of either the Purchaser or the Special
Committee prior to the Closing, the Company shall have delivered to the
Purchaser or the Special Committee, as applicable, (i) a pro forma balance sheet
of the Surviving Corporation, on a consolidated basis, as of the Effective Time
(and reflecting any debt incurred by the Surviving Corporation to finance the
Merger), (ii) projections for the Surviving Corporation's operations, on a
consolidated basis, for such period reasonably necessary to deliver the
certificate described in clause (iii) below, and (iii) a Solvency Certificate
(as hereinafter defined), duly executed by the Company's Chief Financial Officer
or such other mutually acceptable person, in form and substance reasonably
satisfactory to the Purchaser or the Special Committee, as applicable.
5.2 Conditions Precedent to Purchaser's Obligations. In
addition to the conditions set forth in Section 5.1, the Purchaser shall be
obligated to perform the acts contemplated for performance by them under Article
I only if each of the following conditions is satisfied at or prior to the
Closing Date, unless any such condition is waived in writing by Purchaser:
(a) The receipt of cash proceeds from debt and equity financings
sufficient to consummate the transactions contemplated by this Agreement
("Financing Condition").
(b) The representations and warranties of the Company set forth in
Article 2 shall be true and correct in all material respects as of the Closing
Date with the same force and effect as though made again at and as of the
Closing Date, except for any representations and warranties that address matters
only as of a particular date specifically set forth in such representation,
other than the date hereof, (which shall remain true and correct as of such
date).
(c) The Company shall have performed and complied in all material
respects, individually or in the aggregate, (without giving duplicative effect
to any materiality qualification contained in the applicable obligation) with
all other covenants and agreements contained in this Agreement required to be
performed or complied with by it on or before the Closing Date.
(d) Since the date of this Agreement, there shall not have been the
occurrence of any event or condition, or series of events or conditions, that
has had or would reasonably be expected to have a Material Adverse Effect.
(e) The Company shall have executed and delivered to Purchaser at and
as of the Closing a certificate, duly executed by the Company's Chief Financial
Officer, in form and substance reasonably satisfactory to Purchaser and
Purchaser's counsel, certifying that to such officers' knowledge, the conditions
specified in (b), (c) and (d) have been satisfied.
(f) The Company shall have obtained the material third party consents
necessary to consummate the Merger including the consent of Fleet National Bank,
N.A..
(g) As of the Effective Time, the effects of the Company Rights Plan
shall have been eliminated to the Purchaser's reasonable satisfaction.
(h) Shareholders holding Common Stock representing more than five
percent (5%) of the Company's outstanding stock shall not have dissented from
the Merger and exercised their rights under Section 262 of the DGCL.
23
5.3 Conditions to Obligations of the Company. In addition to
the conditions set forth in Section 5.1, the Company shall be obligated to
perform the acts contemplated for performance by it under Article I only if each
of the following conditions is satisfied at or prior to the Closing Date, unless
any such condition is waived in writing by the Company:
(a) The representations and warranties of the Purchaser set forth in
Article III shall be true and correct in all material respects as of the Closing
Date with the same force and effect as though made again at and as of the
Closing Date, except for any representations and warranties that address matters
only as of a particular date specifically set forth in the particular
representation or warranty which shall remain true and correct as of such
particular date.
(b) The Purchaser shall have performed and complied in all material
respects, individually or in the aggregate, (without giving duplicative effect
to any materiality qualification contained in the applicable obligation) with
all covenants and agreements contained in this Agreement required to be
performed or complied with by them on or before the Closing Date.
(c) The Purchaser shall have deposited with the Exchange Agent the
Deposit Amount in trust for the benefit of the holders of certificates.
(d) The Purchaser shall have executed and delivered to the Company at
and as of the Closing a certificate, duly executed by the Purchaser's President
and/or Chief Financial Officer, in form and substance reasonably satisfactory to
the Company and the Company's counsel, certifying that to such officers'
knowledge, the conditions specified in (a), (b) and (c) have been satisfied.
ARTICLE VI
TERMINATION, AMENDMENT AND WAIVER
6.1 Termination. This Agreement may be terminated, at any time
prior to the Effective Time, whether before or after approval by the
stockholders of the Company:
(a) by mutual written agreement of the boards of directors of
Purchaser and the Company; or
(b) by either Purchaser or Company:
(i) if any court of competent jurisdiction or other
governmental body shall have issued an order, decree or ruling or taken
any other action restraining, enjoining or otherwise prohibiting the
Merger and such order, decree, ruling or other action shall have become
final and non appealable; or
(ii) if there has been a material breach by the other party of
any representation or warranty set forth in this Agreement unless such
breach is capable of being cured and is cured within 20 days after the
giving of written notice of the material breach.
24
(iii) if there has been a material breach by the other party
of any covenant or agreement set forth in this Agreement unless such
breach is capable of being cured and is cured within 20 days after the
giving of written notice of the material breach.
(c) by Company, in the case of (i), (ii) or (iii) below, or by
Purchaser, (i) if the Board of Directors shall have approved or recommended or
proposed publicly to approve or recommend an Acquisition Proposal by a third
party, or (ii) the Board of Directors or the Special Committee shall have
withdrawn or modified in a manner adverse to Purchaser its approval or
recommendation of this Agreement or the transactions contemplated hereby, or
(iii) the Board of Directors or the Special Committee shall have failed to
include in the Company Proxy Statement such recommendation (including the
recommendation that the stockholders of the Company vote in favor of the Merger)
or publicly announced an intention to do any of the foregoing, (iv) if the
Company enters into a Company Acquisition Agreement, or (v) if there has been a
material breach by the Company of any covenant or agreement set forth in this
Agreement including, a material breach of Section 4.5 hereof, which breach
arises primarily from the actions taken, or the failure to act, by the Special
Committee, unless such breach is capable of being cured and is cured within 20
days after the giving of written notice of the material breach;
(d) by the Company, pursuant to Section 4.5, in the event the Company
has complied with all the provisions of Section 4.5 and has determined to enter
into a Company Acquisition Agreement.
(e) by either Purchaser or Company, if the Effective Time shall not
have occurred on or before August 31, 2001, or it becomes manifestly evident
that the conditions to the transaction shall not be satisfied by such date;
provided, however, that the right to terminate this agreement under this Section
6.1(e) shall not be available to any party whose failure to fulfill any
obligation under this Agreement shall have principally caused, or resulted in,
the failure of the Effective Time to occur on or before such date.
6.2 Procedure and Effect of Termination. In the event of the
termination of this Agreement by the Company or Purchaser or both of them
pursuant to Section 6.1, the terminating party shall provide written notice of
such termination to the other party and this Agreement shall forthwith become
void and there shall be no liability on the part of Purchaser or the Company,
except as set forth in this Section 6.2 and in Sections 4.2(b)-(f) and 6.3 of
this Agreement. The foregoing shall be an exclusive remedy and shall relieve any
party for liability for any and all damages actually incurred as a result of any
breach of this Agreement or otherwise, except for any deliberate and wilful
breach of this Agreement. Sections 4.2(b)-(f), 6.2, 6.3 and Article VIII of this
Agreement shall survive the termination of this Agreement.
6.3 Expenses.
(a) Except as otherwise provided in this Agreement and whether or not
the transactions contemplated by this Agreement are consummated, all costs and
expenses incurred in connection with the transactions contemplated by this
Agreement shall be paid by the party incurring such expenses.
(b) In the event that the Company or Purchaser terminates this
Agreement pursuant to Section 6.1(c) or the Company terminates this Agreement
pursuant to Section 6.1(d), then the Company shall reimburse Purchaser for all
of the Purchaser's reasonable Expenses (as defined below) as liquidated damages;
provided, that such Expenses for which Purchaser is entitled to
25
reimbursement shall not exceed an amount equal to $400,000.00 less the aggregate
amount of Company obligations paid by the Company contemplated by Section
4.16(d) hereof; and provided, however, that such limitation of $400,000 shall
not be applicable in the event that the Company consummates an Acquisition
Proposal that was inquired or made prior to the termination of this Agreement.
Any such payment shall be made within five (5) business days after a termination
by the Purchaser pursuant to Section 6.1(c) or at the time of any termination by
the Company pursuant to Sections 6.1(c) or 6.1(d). For purposes of this
Agreement, "Expenses" shall mean out-of-pocket expenses incurred by the
Purchaser or on its behalf (other than by the Company) in connection with the
Merger and the consummation of the transactions contemplated by this Agreement,
(including, reasonable attorneys' fees and disbursements, depository fees and
expenses, fees payable to the Lending Sources, the fees of accountants and
financial advisors, and filing fees and printing costs). Notwithstanding
anything to the contrary contained above, in the event that this Agreement and
the Merger shall not have been approved and adopted by the affirmative vote of a
majority of the Shares held by the stockholders of the Company at a duly called
Stockholders' Meeting, then in such event the Purchaser shall not be entitled to
reimbursement by the Company of any Expenses.
6.4 Amendment. This Agreement may be amended by each of the
parties by action taken by or on behalf of their respective boards of directors
at any time prior to the Effective Time; provided, however, that (i) such
amendment shall be in writing signed by all of the parties, and (ii) after
adoption of this Agreement and the Merger by the stockholders of the Company, no
amendment may be made without the further approval of the stockholders of the
Company to the extent such approval is required by applicable law; provided,
however, that any modification or amendment hereto shall have been approved by
the Special Committee.
6.5 Waiver. Subject to the requirements of applicable law, at
any time prior to the Effective Time, whether before or after the Special
Meeting, any party hereto, by action taken by its Board of Directors, may (i)
extend the time for the performance of any of the obligations or other acts of
any other party hereto or (ii) waive compliance with any of the agreements of
any other party or with any conditions to its own obligations; provided,
however, that any waiver by the Company shall have been approved by the Special
Committee. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party by a duly authorized officer of such party. Notwithstanding
the above, any waiver given shall not apply to any subsequent failure of
compliance with agreements of the other party or conditions to its own
obligations.
6.6 Termination decisions by the Company. The Board of
Directors shall terminate this Agreement in connection with any action by the
Special Committee contemplated by Section 6.1(c)(ii) or (iii) hereof upon, and
only upon, the recommendation of the Special Committee.
ARTICLE VII
DEFINITIONS
As used herein the following terms not otherwise defined have the
following respective meanings:
"Affiliate" means, with respect to any specified Person, any other
Person that directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, such specified
Person. As used in this definition the term "control" (including the terms
"controlled by" and "under common control with") means, with respect to the
relationship between or among two or more Persons, the possession, directly or
indirectly or as trustee or executor, of the power to direct or cause the
direction of the affairs or management of a Person,
26
whether through the ownership of voting securities, as trustee or executor, by
contract or otherwise, including, without limitation, the ownership, directly or
indirectly, of securities having the power to elect a majority of the board of
directors or similar body governing the affairs of such Person.
"Company Rights Plan" means the Company's stockholder rights plan
pursuant to a Rights Agreement dated as of April 11, 2000, between the Company
and Continental Stock Transfer and Trust Company as Rights Agreement.
"Indebtedness" means (i) all indebtedness of the Company or any of its
Subsidiaries for borrowed money, whether current or funded, or secured or
unsecured, (ii) all indebtedness of the Company or any of its Subsidiaries for
the deferred purchase price of property or services represented by a note or
other security, (iii) all indebtedness of the Company created or arising under
any conditional sale or other title retention agreement with respect to property
acquired by the Company or any of its Subsidiaries (even though the rights and
remedies of the seller or lender under such agreement in the event of default
are limited to repossession or sale of such property), (iv) all indebtedness of
the Company or any of its Subsidiaries secured by a purchase money mortgage or
other lien to secure all or part of the purchase price of property subject to
such mortgage or lien, (v) all obligations under leases which shall have been or
must be, in accordance with generally accepted accounting principles, recorded
as capital leases in respect of which the Company or any of its Subsidiaries is
liable as lessee,(vi) any liability of the Company or any of its Subsidiaries in
respect of banker's acceptances or letters of credit, and (vii) all indebtedness
referred to in clause (i), (ii), (iii), (iv), (v) or (vi) above which is
directly or indirectly guaranteed by the Company or any of its Subsidiaries or
which the Company or any of its Subsidiaries has agreed (contingently or
otherwise) to purchase or otherwise acquire or in respect of which it has
otherwise assured a creditor against loss.
"Material Adverse Effect" means any material adverse effect on the
business, properties, assets, results of operations or financial condition of
the Company and its Subsidiaries taken as a whole.
"Person" means any corporation, association, partnership, limited
liability company, organization, business, individual, government or political
subdivision thereof or governmental agency.
"Solvency Certificate" shall mean a certificate of the Chief Financial
Officer of the Company regarding solvency matters of the Company in
substantially the form previously delivered by the Company to the Purchaser.
"Subsidiary" means, with respect to any Person, any corporation a
majority (by number of votes) of the outstanding shares of any class or classes
of which shall at the time be owned by such Person or by a Subsidiary of such
Person, if the holders of the shares of such class or classes (a) are
ordinarily, in the absence of contingencies, entitled to vote for the election
of a majority of the directors (or persons performing similar functions) of the
issuer thereof, even though the right so to vote has been suspended by the
happening of such a contingency, or (b) are at the time entitled, as such
holders, to vote for the election of a majority of the directors (or persons
performing similar functions) of the issuer thereof, whether or not the right so
to vote exists by reason of the happening of a contingency.
27
"Tax" or "Taxes" means any federal, state, local, or foreign income,
gross receipts, franchise, estimated, alternative minimum, add-on minimum,
sales, use, transfer, registration, value added, excise, natural resources,
severance, stamp, occupation, premium, windfall profit, environmental, customs,
duties, real property, personal property, capital stock, intangibles, social
security, unemployment, disability, payroll, license, employee, or other tax or
levy, of any kind whatsoever, including any interest, penalties, or additions to
tax in respect of the foregoing.
ARTICLE VIII
MISCELLANEOUS
8.1 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by rule of law or
public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that transactions contemplated hereby are fulfilled to the extent possible.
8.2 Notices. All notices and other communications given or
made pursuant hereto shall be in writing and shall be deemed to have been duly
given or made as of the date delivered if sent via telecopier or delivered
personally(including, without limitation, delivery by commercial carrier
warranting next-day delivery) to the parties at the following addresses (or at
such other address for a party as shall be specified by similar notice, except
that notices of changes of address shall be effective upon receipt):
(a) If to Company:
Specialty Catalog Corp.
21 Bristol Drive
South Easton, MA 02375
Attention: Special Committee
Fax: (508) 238-3305
With copies to:
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Attention: Stephen Kotran, Esq.
Fax: (212) 558-3588
If to Purchaser:
Specialty Acquisition Corp.
c/o Kane Kessler, P.C.
1350 Avenue of the Americas
26th Floor
New York, New York 10019
Attn: Guy Naggar and
Jeffrey S. Tullman, Esq.
Fax: (212) 245-3009
With copies to:
28
Kane Kessler, P.C.
1350 Avenue of the Americas
New York, New York 10019
Attention: Robert L. Lawrence, Esq.
Fax: (212) 245-3009
8.3 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Any reference in this Agreement to a section,
exhibit or schedule shall, unless otherwise expressly indicated, refer to a
section of or an exhibit or schedule to this Agreement.
8.4 Representations and Warranties, etc. The respective
representations and warranties of the Company and Purchaser contained herein
shall survive until, and shall expire with, and be terminated and extinguished
upon the earlier to occur of (a) the termination of this Agreement pursuant to
Section 6.1 and (b) the Effective Time. This Section 8.4 shall have no effect
upon any other obligation of the parties hereto, whether to be performed before
or after the consummation of the Merger.
8.5 Miscellaneous. This Agreement and the documents delivered
pursuant hereto or in connection herewith (i) constitute the entire agreement
and supersede all other prior agreements and undertakings, both written and oral
(including, without limitation, any agreement or proposed agreement relating to
the timing of execution of this Agreement and the payment of any amount in
connection therewith), among the parties, or any of them, with respect to the
subject matter hereof, (ii) are not intended to confer upon any Person other
than the parties hereto any rights or remedies hereunder, other than Sections
4.8 (which is intended for the benefit of the present and former directors,
officers, employees and agents of the Company and may be enforced by any such
indemnified persons), and (iii) the Purchaser may assign this Agreement to its
lenders as collateral security; provided, however, that no such assignment shall
relieve the assignor of its obligations hereunder. This Agreement may be
executed in one or more counterparts which together shall constitute a single
agreement.
8.6 Attorneys Fees. If any legal proceeding is initiated by
any party to enforce this Agreement or otherwise with respect to the subject
matter of this Agreement, the prevailing party or parties shall be entitled to
recover reasonable attorney's fees incurred in connection with such proceedings.
8.7 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of Delaware, regardless of the laws that
might otherwise governs under applicable principals of conflicts of laws
thereof.
8.8 Jurisdiction and Venue. This Agreement shall be subject to
the exclusive jurisdiction of the state or federal courts sitting in New York
County, New York. The parties to this Agreement agree that any breach of any
term or condition of this Agreement shall be deemed to be a breach occurring in
the State of New York by virtue of a failure to perform an act required to be
performed in the State of New York and irrevocably and expressly agree to submit
to the jurisdiction of the United States District Court for the Southern
District of New York or courts of the State of New York for the purpose of
resolving any disputes among the parties relating to this Agreement or the
transactions contemplated hereby. The parties irrevocably waive, to the fullest
extent permitted by law, any objection which they may now or hereafter have to
the laying of venue of any suit, action or proceeding arising out of or relating
to this Agreement, or any judgment entered by any court in respect hereof
brought in New York County, New York, and further irrevocably waive any claim
that any suit, action or proceeding brought in New York County, New York has
been brought in an inconvenient forum. The parties hereto agree to service of
process by certified or registered United States mail, postage prepaid,
addressed to the party in question.
8.9 Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.
29
8.10 Assignment. This Agreement may not be assigned by any
party without the written consent of the other party; provided, that the
Purchaser may assign this Agreement to a corporation, partnership, or limited
liability company of which the stockholders of the Purchaser maintain majority
control.
8.11 Further Assurances. The parties hereto shall deliver any
and all other instruments or documents reasonably requested by the other party
in order to give effect to all of the terms and provisions of this Agreement.
8.12 Publicity. No public announcement or other publicity
regarding this Agreement or the transactions contemplated hereby shall be made
without the prior written consent of the Purchaser and the Company as to form,
content, timing and manner of distribution. Notwithstanding the foregoing,
nothing in this Agreement shall preclude the Company from making any public
announcement or filing required pursuant to any federal or state securities laws
or stock exchange rules; provided that prior to such filing Purchaser shall be
given a reasonable opportunity to review and comment on such public announcement
or filing.
[SIGNATURE PAGE FOLLOWS]
30
IN WITNESS WHEREOF, Purchaser and the Company have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
SPECIALTY ACQUISITION CORP.
By: /s/ Guy Naggar
-------------------
Name: Guy Naggar
Title: President
SPECIALTY CATALOG CORP.
By: /s/ Thomas McCain
-------------------
Name: Thomas McCain
Title: Senior Vice President, Chief Financial
Officer, Secretary, and Treasurer
31
ANNEX B
May 4, 2001
Special Committee of the Board of Directors
Board of Directors
Specialty Catalog Corp.
21 Bristol Drive
South Easton, MA 02375
Member of the Special Committee and Members of the Board of Directors:
We understand that Specialty Catalog Corp. ("SC" or the "Company") intends to
enter into a Merger Agreement with Specialty Acquisition Corp. (the
"Purchaser"), dated May 4, 2001, which provides for, among other things, each
share of Common Stock, $.01 par value per share, of the Company (other than
shares held by Purchaser) to be cancelled and extinguished and be automatically
converted into and become a right to receive $3.75 per share in cash upon
surrender of the certificate that evidenced the Shares (the "Proposed
Transaction").
The Special Committee has asked our opinion as investment bankers as to the
fairness, from a financial point of view, to the shareholders of SC (other than
Purchaser and its shareholders) of the consideration to be received by such
shareholders in the Proposed Transaction.
In the course of our engagement, we have, among other things:
1) reviewed publicly available information concerning SC issued from
12/31/95 through the date of this opinion;
2) analyzed certain financial statements and other financial and operating
data concerning SC prepared by the management of the Company;
3) analyzed certain financial projections prepared by the management of SC
with regard to its business prospects;
4) discussed the past and current operations and financial condition and
the prospects of SC with senior executives of SC;
5) visited the South Easton, MA facility of SC and engaged in discussions
with management;
6) compared the financial performance of SC and the prices and trading
activity of SC Common Stock with that of certain other comparable
publicly-traded companies and their securities;
7) compared the Proposed Transaction with other transactions involving
public and private companies that we deemed to be comparable;
8) considered the average price per share paid by SC for the 144,000
shares purchased in the open market in 1999 and 2000;
9) analyzed transactions concluded by SC (Daxbourne and AHI);
10) considered the dearth of interest in acquiring SC by 53 candidates less
than two years ago and the failed acquisition of the Company last year;
11) considered the potential consequences to SC shareholders if the notice
to delist SC shares from NASDAQ were to become effective;
12) reviewed the public announcements and filings relating to the Proposed
Transaction and the drafts of the Merger Agreement as they became
available and certain related documents; and
13) conducted other financial studies and analyses and performed such other
investigations and took into account such other factors as we deemed
necessary or appropriate for purposes of the opinion expressed herein.
Special Committee of the Board of Directors
Board of Directors
Specialty Catalog Corp.
May 4, 2001
Page Two
In preparing our opinion, we have assumed and relied upon, without independent
verification, the accuracy and completeness of all of the financial and other
information, which we reviewed, and analyzed in connection with this opinion.
With respect to the projected financial information and business prospects, we
have assumed that such information has been reasonably prepared on a consistent
basis with prior practice and that such information reflects the best currently
available estimates and judgments of the Company's management as to expected
future financial performance. In addition, we have not made an independent
evaluation or appraisal of the assets or liabilities of SC, nor have we been
furnished with any such evaluation or appraisal. Our opinion is necessarily
based on economic, market and other conditions as they exist and as they can be
evaluated as of the date of this opinion. We have not been requested to opine
upon, and our opinion does not in any manner address SC's underlying business
decision to proceed with the transaction. Furthermore, we have not been
requested to, and did not, solicit or entertain any other offers of the purchase
of the stock or the assets of the Company or any other transaction involving the
Company.
We have acted as financial advisor to the Special Committee of the Board of
Directors of the Company in connection with this transaction and will receive a
fee for our services. The Company has agreed to indemnify us from certain
liabilities arising out of our engagement. Prior to this engagement, Burnham
Securities Inc. has provided no financial services to the Company except that in
December 1999 Burnham was engaged by the then existing Independent Committee of
the Board of Directors of the Company to provide financial advice and advise on
the fairness of the consideration to be received by SC shareholders in a
proposed merger that was not consummated.
It is understood that this letter is for the information of the Special
Committee of the Board of Directors and the Board of Directors of the Company in
its consideration of the fairness of the Proposed Transaction to the
shareholders of the Company (other than the Purchaser and its shareholders) from
a financial point of view. Our opinion does not constitute a recommendation as
to how any member of the Special Committee of the Board of Directors, the Board
of Directors or any shareholder of the Company should vote on the Proposed
Transaction and is not to be quoted or referred to, in whole or in part, in any
document, nor shall it be used for any other purpose without our prior written
consent, except that we hereby consent to the inclusion of this opinion in its
entirety in any filing made by the Company with the Securities and Exchange
Commission with respect to the Proposed Transaction.
Subject to the foregoing, on the basis of our review and analyses and such other
factors as we deemed relevant, and subject to our review of the definitive
Merger Agreement, it is our opinion that as of the date hereof the consideration
to be received by the shareholders of SC (other than the Purchaser and its
shareholders) in the Proposed Transaction is fair, from a financial point of
view, to such shareholders.
Very truly yours,
BURNHAM SECURITIES INC.
By: /s/ Richard Lewisohn, III
Richard Lewisohn, III
Senior Managing Director
ANNEX C
DELAWARE GENERAL CORPORATION LAW,SS.262. APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to ss. 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to ss. 251 (other than a merger effected pursuant to ss.
251(g) of this title), ss. 252, ss. 254, ss. 257, ss. 258, ss. 263 or ss. 264 of
this title:
(1) Provided, however, that no appraisal rights under this
section shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or consolidation,
were either (i) listed on a national securities exchange or designated as a
national market system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. or (ii) held of record by more
than 2,000 holders; and further provided that no appraisal rights shall be
available for any shares of stock of the constituent corporation surviving a
merger if the merger did not require for its approval the vote of the
stockholders of the surviving corporation as provided in subsection (f) of ss.
251 of this title.
(2) Notwithstanding paragraph (1) of this subsection,
appraisal rights under this section shall be available for the shares of any
class or series of stock of a constituent corporation if the holders thereof are
required by the terms of an agreement of merger or consolidation pursuant to
ss.ss. 251, 252, 254, 257, 258, 263 and 264 of this title to accept for such
stock anything except:
a. Shares of stock of the corporation surviving or
resulting from such merger or consolidation, or
depository receipts in respect thereof;
b. Shares of stock of any other corporation, or
depository receipts in respect thereof, which shares
of stock (or depository receipts in respect thereof)
or depository receipts at the effective date of the
merger or consolidation will be either listed on a
national securities
exchange or designated as a national market system
security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. or
held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional
depository receipts described in the foregoing
subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository
receipts and cash in lieu of fractional shares or
fractional depository receipts described in the
foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under ss. 253 of this title is not owned
by the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation
that appraisal rights under this section shall be available for the shares of
any class or series of its stock as a result of an amendment to its certificate
of incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal
rights are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to the
meeting, shall notify each of its stockholders who was such on the record date
for such meeting with respect to shares for which appraisal rights are available
pursuant to subsection (b) or (c) hereof that appraisal rights are available for
any or all of the shares of the constituent corporations, and shall include in
such notice a copy of this section. Each stockholder electing to demand the
appraisal of such stockholder's shares shall deliver to the corporation, before
the taking of the vote on the merger or consolidation, a written demand for
appraisal of such stockholder's shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and that
the stockholder intends thereby to demand the appraisal of such stockholder's
shares. A proxy or vote against the merger or consolidation shall not constitute
such a demand. A stockholder electing to take such action must do so by a
separate written demand as herein provided. Within 10 days after the effective
date of such merger or consolidation, the surviving or resulting corporation
shall notify each stockholder of each constituent corporation who has complied
with this subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become effective;
or
(2) If the merger or consolidation was approved pursuant to ss. 228 or
ss. 253 of this title, each consitutent corporation, either before the effective
date of the merger or consolidation or within ten days thereafter, shall notify
each of the holders of any class or series of stock of such constitutent
corporation who are entitled to appraisal rights of the approval of the merger
or consolidation and that appraisal rights are available for any or all shares
of such class or series of stock of such constituent corporation, and shall
include in such notice a copy of this section; provided that, if the notice is
given on or after the effective date of the merger or consolidation, such notice
shall be given by the surviving or resulting corporation to all such holders of
any class or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective date
of the merger or consolidation, shall, also notify such stockholders of the
effective date of the merger or consolidation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of such notice,
demand in writing from the surviving or resulting corporation the appraisal of
such holder's shares. Such demand will be sufficient if it reasonably informs
the corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such holder's shares. If such notice
did not notify stockholders of the effective date of the merger or
consolidation, either (i) each such constitutent 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 constitutent 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 constitutent corporation may fix, in advance, a record date
that shall be not more than 10 days prior to the date the notice is given,
provided, that if the notice is given on or after the effective date of the
merger or consolidation, the record date shall be such effective date. If no
record date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the day on
which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections
(a) and (d) hereof, upon written request, shall be entitled to receive from the
corporation surviving the merger or resulting from the consolidation a statement
setting forth the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written statement shall
be mailed to the stockholder within 10 days after such stockholder's written
request for such a statement is received by the surviving or resulting
corporation or within 10 days after expiration of the period for delivery of
demands for appraisal under subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial
proceedings and may proceed to trial upon the appraisal prior to the final
determination of the stockholder entitled to an appraisal. Any stockholder whose
name appears on the list filed by the surviving or resulting corporation
pursuant to subsection (f) of this section and who has submitted such
stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation,
no stockholder who has demanded appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of such
stockholder's demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this section or thereafter with
the written approval of the corporation, then the right of such stockholder to
an appraisal shall cease. Notwithstanding the foregoing, no appraisal proceeding
in the Court of Chancery shall be dismissed as to any stockholder without the
approval of the Court, and such approval may be conditioned upon such terms as
the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
* * *