- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4)
OF THE SECURITIES EXCHANGE ACT OF 1934
---------------------
NIMBUS CD INTERNATIONAL, INC.
(Name of Subject Company)
NIMBUS CD INTERNATIONAL, INC.
(Name of Person(s) Filing Statement)
------------------------
COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of Class of Securities)
65439010
(CUSIP Number of Class of Securities)
------------------------
LYNDON J. FAULKNER
PRESIDENT
NIMBUS CD INTERNATIONAL, INC.
623 WELSH RUN ROAD
GUILDFORD FARM
RUCKERSVILLE, VIRGINIA 22968
(804) 985-1100
(Name, address and telephone number of person authorized to receive
notice and communications on behalf of the person(s) filing statement)
WITH A COPY TO:
WILLIAM F. WYNNE, JR., ESQ.
WHITE & CASE LLP
1155 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
(212) 819-8200
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Nimbus CD International, Inc., a Delaware
corporation (the "Company"). The address of the principal executive offices of
the Company is 623 Welsh Run Road, Guildford Farm, Ruckersville, Virginia 22968.
The title of the class of equity securities to which this statement relates is
the Company's common stock, par value $.01 per share (the "Shares").
ITEM 2. TENDER OFFER OF THE BIDDER.
This statement relates to the tender offer (the "Offer") made by Neptune
Acquisition Corp. ("Purchaser"), a Delaware corporation and a wholly owned
subsidiary of Carlton Communications Plc ("Parent"), a public limited company
organized under the laws of England, disclosed in a Tender Offer Statement on
Schedule 14D-1 (the "Schedule 14D-1") dated June 23, 1998, to purchase all of
the outstanding Shares at a price of $11.50 per Share, net to the seller in cash
without interest thereon (the "Offer Price"), upon the terms and subject to the
conditions set forth in the Offer to Purchase dated June 23, 1998 (the "Offer to
Purchase"), and the related Letter of Transmittal (which together constitute the
"Offer Documents").
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of June 16, 1998, by and among the Company, Purchaser and Parent (the "Merger
Agreement"), which provides for the making of the Offer by Purchaser, subject to
the conditions and upon the terms of the Merger Agreement, and for the
subsequent merger of Purchaser with and into the Company (the "Merger").
Concurrently with the execution of the Merger Agreement, Purchaser and
Parent entered into an agreement (the "Stockholders Agreement") with certain
stockholders (the "Selling Stockholders") of the Company. As of the date hereof,
the Selling Stockholders own, in the aggregate, 9,373,322 Shares (the
"Stockholder Shares"), representing approximately 44% of the outstanding Shares.
Pursuant to the Stockholders Agreement, the Selling Stockholders have each
agreed to validly tender (and not to withdraw) all of the Shares currently owned
or hereafter acquired by each of them prior to the termination of the Merger
Agreement, at a price of $11.50 per Share pursuant to and in accordance with the
Offer. Pursuant to the Stockholders Agreement, the Selling Stockholders have
agreed to pay to Purchaser any consideration in excess of $11.50 per Share which
they receive in respect of the Stockholder Shares.
According to the Schedule 14D-1, the principal executive offices of Parent
are located at 25 Knightsbridge, London SW1X 7RZ, England, and the principal
offices of Purchaser are located at Brandywine Corporate Center, 650 Naamans
Road, Suite 117, Claymont, Delaware 19703.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and business address of the Company, which is the person filing
this statement, are set forth in Item 1 above.
(b) Except as set forth in this Item 3(b) or described in the Company's
Information Statement (the "Information Statement") pursuant to Section 14(f) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Rule
14f-1 thereunder, which is annexed hereto as Annex A and incorporated herein by
reference in its entirety, to the knowledge of the Company, as of the date
hereof, there are no material contracts, agreements, arrangements or
understandings and no actual or potential conflicts of interest between the
Company or its affiliates and (i) the Company, its executive officers, directors
or affiliates or (ii) Parent or Purchaser or their respective executive
officers, directors or affiliates.
Certain contracts, agreements and understandings and any actual or potential
conflict of interest between the Company and its directors, executive officers
and affiliates or between the Company, Purchaser and Parent are set forth below:
(i) MERGER AGREEMENT. The following is a summary of the material terms
of the Merger Agreement. This summary is not a complete description of the terms
and conditions thereof and is qualified in its entirety by reference to the full
text thereof, which is incorporated herein by reference and a copy of which has
been filed with the Securities and Exchange Commission (the "SEC") as Exhibit 1
hereto.
The Merger Agreement provides that as soon as practicable after the last of
the conditions set forth therein is fulfilled or waived (subject to applicable
law) but in no event later than the fifth business day thereafter, or on such
other date as Parent and the Company shall mutually agree, Purchaser shall be
merged with and into the Company. Upon consummation of the Merger (the
"Effective Time"), each issued and outstanding Share (other than (i) any Shares
which are held by any subsidiary of the Company or in the treasury of the
Company, or which are held, directly or indirectly, by Parent or any direct or
indirect subsidiary of Parent (including Purchaser), all of which shall be
canceled and none of which shall receive any payment with respect thereto and
(ii) Shares held by Dissenting Stockholders) shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into and
represent the right to receive an amount, in cash, without interest, equal to
the price paid for each Share pursuant to the Offer (the "Merger
Consideration").
VOTE REQUIRED TO APPROVE MERGER. The Delaware General Corporation Law (the
"DGCL") requires, among other things, that the adoption of any plan of merger or
consolidation of the Company must be approved by the Board of Directors of the
Company and, if the "short form" merger procedure described below is not
available, adopted by the holders of a majority of the Company's outstanding
Shares. The Board of Directors of the Company has approved and adopted the
Merger Agreement and has approved the Offer and the Merger; consequently, the
only additional action of the Company that may be necessary to effect the Merger
is the approval and adoption of the Merger Agreement by such stockholders if the
"short form" merger procedure described below is not available. Under the DGCL,
the affirmative vote of holders of a majority of the outstanding Shares
(including any Shares owned by Purchaser) is generally required to adopt the
Merger Agreement. If Purchaser acquires, through the Offer or otherwise, voting
power with respect to at least a majority of the outstanding Shares (which would
be the case if the Minimum Condition were satisfied and Purchaser were to accept
for payment Shares tendered pursuant to the Offer), it would have sufficient
voting power to effect the Merger without the vote of any other stockholder of
the Company. However, the DGCL also provides that if a parent company owns at
least 90% of each class of stock of a subsidiary, the parent company can effect
a short-form merger with that subsidiary without the action of the other
stockholders of the subsidiary. Accordingly, if, as a result of the Offer or
otherwise, Purchaser acquires or controls the voting power of at least 90% of
the outstanding Shares, Purchaser could effect the Merger using the "short-form"
merger procedures without prior notice to, or any action by, any other
stockholder of the Company. In such a case, the Company has agreed under the
Merger Agreement, subject to certain conditions thereof, at the request of
Parent and Purchaser to take all necessary and appropriate action to cause the
Merger to become effective, without a meeting of the Company's stockholders, in
accordance with Section 253 of the DGCL.
SECTION 203 OF THE DGCL. In general, Section 203 of the DGCL prevents an
"Interested Stockholder" (defined generally as a person with 15% or more of a
corporation's outstanding voting stock) of a Delaware corporation from engaging
in a "Business Combination" (defined as a variety of transactions, including
mergers, as set forth below) with such corporation for three years following the
date such person became an Interested Stockholder unless (i) before such person
became an Interested Stockholder, the Board of Directors of the corporation
approved the transaction in which the Interested Stockholder became an
Interested Stockholder or approved the Business Combination; (ii) upon
consummation of the transaction which resulted in the Interested Stockholder
becoming an Interested Stockholder, the Interested Stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding stock held by directors who are also officers
of the corporation and by employee stock ownership plans that do not provide
employees with the rights to determine confidentially whether shares held
subject to the plan will be tendered in a tender or exchange offer); or (iii)
following the transaction in which such person became an Interested Stockholder,
the Business Combination is approved by the Board of Directors of the
corporation and authorized at a meeting of stockholders by the affirmative vote
of the holders of two-thirds of the outstanding voting stock of the corporation
not owned by the Interested Stockholder. However, Section 203 of the DGCL is
inapplicable to the Merger
2
Agreement because the Company has elected in its certificate of incorporation
not to be governed by the provisions of Section 203.
CONDITIONS TO THE MERGER. The respective obligations of each party to
consummate the Merger are subject to the satisfaction or waiver (subject to
applicable law) at or prior to the Effective Time of the following conditions:
(a) to the extent required by applicable law, the Merger Agreement and the
Merger shall have been approved and adopted by holders of a majority of the
outstanding shares of the Common Stock of the Company entitled to vote in
accordance with applicable law (if required by applicable law) and the Company's
Certificate of Incorporation and By-Laws; (b) any waiting period (and any
extension thereof) under the HSR Act applicable to the Merger shall have expired
or been terminated; (c) no preliminary or permanent injunction or other order
shall have been issued by any court or by any governmental or regulatory agency,
body or authority which prohibits the consummation of the Offer or the Merger
and the transactions contemplated by the Merger Agreement and which is in effect
at the Effective Time; PROVIDED, HOWEVER, that, in the case of a decree,
injunction or other order, each of the parties shall have used reasonable best
efforts to prevent the entry of any such injunction or other order and to appeal
as promptly as possible any decree, injunction or other order that may be
entered; (d) no statute, rule, regulation, executive order, decree or order of
any kind shall have been enacted, entered, promulgated or enforced by any court
or governmental authority which prohibits the consummation of the Offer or the
Merger or has the effect of making the purchase of the Shares illegal; and (e)
there shall have been tendered (and not withdrawn) and Purchaser shall have
accepted for payment and paid for a number of Shares which represent a majority
of the total voting power of all shares of capital stock of the Company
outstanding on a fully diluted basis (the "Minimum Condition"); PROVIDED that
the foregoing clause (e) shall not be a condition to Parent's and Purchaser's
obligation to consummate the Merger if Purchaser's failure to purchase any
Shares violates the terms of the Offer.
TERMINATION OF THE MERGER AGREEMENT. According to its terms, the Merger
Agreement may be terminated and the transactions contemplated thereby may be
abandoned, at any time prior to the Effective Time, whether before or after
approval of the Merger by the Company's stockholders: (a) by mutual consent of
the Company, on the one hand, and of Parent and Purchaser, on the other hand;
(b) by either Parent and Purchaser, on the one hand, or the Company, on the
other hand, if any governmental or regulatory agency shall have issued an order,
decree or ruling or taken any other action permanently enjoining, restraining or
otherwise prohibiting the acceptance for payment of, or payment for, shares of
Common Stock pursuant to the Offer or the Merger and such order, decree or
ruling or other action shall have become final and nonappealable; (c) by Parent
and Purchaser, on the one hand, or the Company, on the other hand, if the
Effective Time shall not have occurred on or prior to September 30, 1998 (the
"Outside Date"), unless the Effective Time shall not have occurred on or prior
to the Outside Date because of a material breach of any representation,
warranty, obligation, covenant, agreement or condition set forth in the Merger
Agreement on the part of the party seeking to terminate the Merger Agreement;
(d) by Parent and Purchaser, if the Offer is terminated or expires in accordance
with its terms without Purchaser having purchased any Common Stock thereunder
due to an event or occurrence which would result in a failure to satisfy any of
the conditions set forth on Annex A to the Merger Agreement, unless any such
failure shall have been caused by or resulted from the failure of Parent or
Purchaser to perform in a material respect any covenant or agreement of either
of them contained in the Merger Agreement or the breach by Parent or Purchaser
in a material respect of any representation or warranty of either of them
contained in the Merger Agreement; (e) by Parent and Purchaser, in the event
that (A)(i) any one or more representations, warranties, covenants or agreements
of the Company contained in the Merger Agreement that is qualified as to
materiality shall be untrue, incorrect or breached in any respect except for
such failures as would not be reasonably likely to have a material adverse
effect on the Condition (as defined in the Merger Agreement) of the Company and
its subsidiaries taken as a whole or (ii) any one or more of such
representations, warranties, covenants or agreements that is not so qualified
shall be untrue incorrect or breached in any material respect which,
individually or in the aggregate, would be reasonably likely to have a material
adverse effect on the Condition of the Company and its subsidiaries taken as a
whole and,
3
(B) in each case, cannot or has not been cured prior to the earlier of (i) 15
days after the giving of written notice of such breach to the Company and (ii)
two business days prior to the date on which the Offer expires; (f) by the
Company, if the Board of Directors of the Company determines that an Acquisition
Proposal constitutes a Superior Proposal and the Board of Directors determines
after consulting with independent outside counsel that a failure to terminate
the Merger Agreement and enter into an agreement to effect the Superior Proposal
would constitute a breach of its fiduciary duties; PROVIDED, HOWEVER, that the
Company shall not be permitted to terminate the Merger Agreement pursuant to
clause (f) unless it has provided Parent and Purchaser with two business days
prior written notice of its intent to so terminate the Merger Agreement together
with a reasonably detailed summary of the terms and conditions of such Superior
Proposal; PROVIDED, FURTHER, that Parent shall receive the fees set forth below
under "Fees and Expenses" immediately prior to any termination pursuant to
clause (f) by wire transfer in same day funds; (g) by Parent and Purchaser, if
(i) the Company or any of its subsidiaries or their Agents encourages, solicits
or initiates the making of any Acquisition Proposal from any Person other than
Parent or Purchaser or the Company or any of its subsidiaries or their Agents
takes any other action to knowingly facilitate any inquiries or the making of
any proposal that constitutes, or may reasonably be expected to lead to, any
Acquisition Proposal (other than as permitted by and taken in compliance with
the provisions of the Merger Agreement described below under "No Solicitation of
Other Offers"), (ii) the Company enters into any agreement with respect to or
the making of an Acquisition Proposal or (iii) if the Company's Board of
Directors shall have (A) failed to recommend to the Company's stockholders that
such stockholders tender their Shares pursuant to the Offer and vote to approve
and adopt the Merger Agreement or (B) amended, withdrawn or modified such
recommendation in a manner adverse to Parent and Purchaser; (h) by the Company,
in the event that (A)(x) any one or more representations, warranties, covenants
or agreements of Parent or Purchaser contained in the Merger Agreement that is
qualified as to materiality shall be untrue, incorrect or breached in any
respect except where such failures are not reasonably likely to materially and
adversely affect Parent's or Purchaser's ability to complete the Offer or Merger
or (y) any one or more of such representations, warranties, covenants or
agreements that is not so qualified shall be untrue, incorrect or breached
which, individually or in the aggregate would be reasonably likely to materially
and adversely effect Parent's or Purchaser's ability to complete the Offer or
the Merger and (B) in each case cannot or has not been cured prior to the
earlier of (x) 15 days after the giving of written notice of such breach to the
Parent and Purchaser and (y) to the extent applicable, two business days prior
to the date on which the Offer expires; (i) by the Company, if Parent or
Purchaser shall have (x) failed to commence the Offer within 5 business days
following the date of the Merger Agreement, (y) terminated the Offer or (z)
failed to pay for Shares pursuant to the Offer on or prior to the earlier of (1)
the fifth day after any Shares tendered in the Offer have been accepted for
payment and (2) the Outside Date, unless in the case (x) or (y) such failure
shall have been caused by or resulted from the failure of the Company to satisfy
the Tender Offer Conditions set forth in Annex A or a material breach by the
Company of any of its representations, warranties, covenants or agreements set
forth in the Merger Agreement. As used in the Merger Agreements, "Acquisition
Proposal" means any inquiry, proposal or offer from any person or group relating
to any direct or indirect acquisition or purchase of a substantial amount of
assets of the Company or any of its subsidiaries or of all or any portion of any
class of equity securities of the Company or any of its subsidiaries, any tender
offer or exchange offer that if consummated would result in any person
beneficially owning all or any portion of any class of equity securities of the
Company or any of its subsidiaries, any merger, consolidation, business
combination, sale of substantially all the assets, recapitalization,
liquidation, dissolution or any transaction having similar economic effect
involving the Company or any of its subsidiaries, other than the transactions
contemplated by the Merger Agreement. "Superior Proposal" means a BONA FIDE
proposal made by a third party to acquire all or a portion of the outstanding
shares of the Company pursuant to a tender offer, a merger or a sale of all of
the assets of the Company on terms which the Board of Directors of the Company
determines in its good faith reasonable judgment (after consultation with its
independent outside financial and legal advisors) to be more favorable to the
Company and its stockholders than the transactions contemplated hereby.
4
FEES AND EXPENSES. The Merger Agreement provides that subject to the
following, all costs and expenses incurred in connection with the Merger
Agreement and the consummation of the transactions contemplated thereby shall be
paid by the party incurring such costs and expenses. If (w) (i) the Offer shall
have remained open for a minimum of at least 20 business days, (ii) after the
date of the Merger Agreement and prior to December 31, 1998 any Person (other
than Parent or Purchaser) shall have become the beneficial owner of 50% or more
of the outstanding Shares and (iii) the Minimum Condition shall not have been
satisfied and the Offer is terminated without the purchase of any Shares
thereunder, or (x) Parent and Purchaser shall have terminated the Merger
Agreement pursuant to Section 6.01(g) thereof, or (y) the Company shall have
terminated the Merger Agreement pursuant to Section 6.01(f) thereof, then the
Company, if requested by Purchaser, shall promptly, but in no event later than
two days after the date of such request, pay Parent up to $2,000,000 to
reimburse Purchaser for the documented fees and expenses of Parent and Purchaser
related to the Merger Agreement, the transactions contemplated thereby and any
related financing and an additional fee of $8,000,000, which amounts shall be
immediately payable by wire transfer in same day funds; PROVIDED, HOWEVER, that
if the Company shall have terminated the Merger Agreement pursuant to clause (f)
as described above under "Termination of the Merger Agreement," such amounts
shall be paid in accordance with the provisions of such section. If the Company
fails to promptly pay the amounts due pursuant to these provisions of the Merger
Agreement or clause (f) as described above under "Termination of the Merger
Agreement," and, in order to obtain such payments, Parent or Purchaser commences
a suit which results in a judgment against the Company for the fees set forth
above, the Company shall pay to Parent and Purchaser its reasonably documented
costs and expenses (including reasonably documented attorneys' fees and
expenses) in connection with such suit, together with interest on the amount of
the fee at a rate equal to two percentage points over the prime rate of the
Morgan Guaranty Trust Company of New York on the date such payment was required
to be made.
AMENDMENT OF THE MERGER AGREEMENT. Subject to applicable law, the Merger
Agreement may be amended, modified and supplemented in writing by the parties
thereto in any and all respects before the Effective Time (notwithstanding any
stockholder approval), by action taken by the respective Boards of Directors of
Parent, Purchaser and the Company or by the respective officers authorized by
such Boards of Directors; PROVIDED, HOWEVER, that after any such stockholder
approval, no amendment shall be made which by law requires further approval by
such stockholders without such further approval.
TREATMENT OF OPTIONS. The Merger Agreement provides that prior to the
Effective Time, the Board of Directors of the Company (or, if appropriate, any
Committee thereof) shall adopt appropriate resolutions and use its reasonable
best efforts to take all other actions necessary to (i) provide for the
cancellation, effective at the Effective Time of all the outstanding stock
options and other rights to purchase Shares ("Options") and (ii) terminate, as
of the Effective Time, the Company's stock option plans and any other plan,
program or arrangement providing for the issuance or grant of any other interest
in respect of the capital stock of the Company or any of its subsidiaries
(collectively, the "Stock Incentive Plans") and (iii) amend, as of the Effective
Time, the provisions in any U.S. or Foreign Employee Benefit Plan providing for
the issuance, transfer or grant of any capital stock of the Company or any of
its subsidiaries or any interest in respect of any capital stock of the Company
or its subsidiaries to provide that there shall be no continuing rights to
acquire, hold, transfer or grant any capital stock of the Company or its
subsidiaries or any interest in the capital stock of the Company or its
subsidiaries. Immediately prior to the Effective Time, the Company shall use its
reasonable best efforts to ensure that (i) each Option, whether or not then
vested or exercisable, shall no longer be exercisable for the purchase of Shares
but shall entitle each holder thereof, in cancellation and settlement therefor,
to payments by the Company in cash (subject to any applicable withholding taxes,
the "Cash Payment"), at the Effective Time, equal to the product of (x) the
total number of Shares subject to such Option whether or not then vested or
exercisable and (y) the excess of the Merger Consideration (as defined in the
Merger Agreement) over the exercise price per Share subject to such Option, each
such Cash Payment to be paid to each holder of an outstanding Option at the
Effective Time and (ii) each Share previously issued in the form of grants of
restricted stock or
5
grants of contingent shares shall fully vest in accordance with their respective
terms. In addition, any outstanding stock appreciation rights or limited stock
appreciation rights shall be canceled immediately prior to the Effective Time
without any payment or other consideration therefor. The Merger Agreement
further provides that the Company shall use its reasonable best efforts to
ensure that the Stock Incentive Plans shall terminate as of the Effective Time.
The Company will take all necessary steps to ensure that neither the Company nor
any of its subsidiaries is or will be bound by any Options, other options,
warrants, rights or agreements which would entitle any Person, other than Parent
or its affiliates, to own any capital stock of the Surviving Corporation or any
of its subsidiaries or to receive any payment in respect thereof. The Company
will use its reasonable best efforts to obtain all necessary consents to ensure
that after the Effective Time, the only rights of the holders of Options to
purchase Shares in respect of such Options will be to receive the Cash Payment
in cancellation and settlement thereof. Notwithstanding any other provision of
Section 2.07 of the Merger Agreement to the contrary, payment of the Cash
Payment may be withheld with respect to any Option until the necessary consents
are obtained.
DIRECTORS' AND OFFICERS' INSURANCE; INDEMNIFICATION. The Merger Agreement
requires that from and after the Effective Time, the Surviving Corporation (as
defined in the Merger Agreement) shall (or, if necessary, Parent shall take all
necessary actions to) ensure that the Certificate of Incorporation and By-laws
of the Surviving Corporation contain the provisions with respect to
indemnification and exculpation from liability set forth in the Company's
Certificate of Incorporation and By-Laws on the date of the Merger Agreement,
which provisions shall not be amended, repealed or otherwise modified for a
period of six years from the Effective Time in any manner that would adversely
affect the rights thereunder of individuals who on or prior to the Effective
Time were directors, officers, employees or agents of the Company, unless such
modification is required by law. For six years from the Effective Time, the
Surviving Corporation shall either (x) maintain in effect the Company's current
directors' and officers' liability insurance covering those persons who are
covered on the date of the Merger Agreement by the Company's directors' and
officers' liability insurance policy (the "Indemnified Parties"); PROVIDED that
the Surviving Corporation may substitute for such Company policies, policies
with at least the same coverage containing terms and conditions which are no
less advantageous and provided that said substitution does not result in any
gaps or lapses in coverage with respect to matters occurring prior to the
Effective Time or (y) cause Parent's directors' and officers' liability
insurance then in effect to cover those persons who are covered on the date of
the Merger Agreement by the Company's directors' and officers' liability
insurance policy with respect to those matters covered by the Company's
directors' and officers' liability policy; PROVIDED that the coverage provided
by Parent's insurance shall be no less favorable to the Indemnified Parties and
shall provide no fewer rights than the Company's directors' and officers'
liability insurance policy in place on the date of the Merger Agreement.
Notwithstanding anything to the contrary in the Merger Agreement, in no event
shall the Surviving Corporation be required to expend in any one year an amount
in excess of 200% of the annual premiums paid by the Company as of the date of
the Merger Agreement for such insurance and if the annual premium for the
insurance coverage that would otherwise be required would exceed such amount,
the Surviving Corporation shall only be obligated to obtain a policy with the
greatest coverage available for a cost not exceeding 200% of the annual premiums
paid by the Company on the date of the Merger Agreement.
EMPLOYEE BENEFIT PLANS. Pursuant to the Merger Agreement, from and after
the Effective Time until the first anniversary of the Effective Time, the
Surviving Corporation shall (or, if necessary, Parent shall cause the Surviving
Corporation to) ensure that all employees and officers of the Company at the
Effective Time receive benefits in the aggregate substantially comparable to the
benefits received by such individuals under U.S. Employee Benefit Plans and
Foreign Employee Benefit Plans immediately prior to the date of the Merger
Agreement. Notwithstanding the foregoing, following the Effective Time, the
Surviving Corporation may terminate the employment of any employee (subject to
the payment of severance benefits payable to the employee in connection with
such termination). From and after the Effective time until the first anniversary
of the Effective Time, the Surviving Corporation shall (or, if necessary, Parent
shall cause the Surviving Corporation to) keep in effect all severance policies
that are applicable to employees and
6
officers of the Company immediately prior to the date of the Merger Agreement.
Following the Effective Time, (i) the Surviving Corporation shall (or, if
necessary, Parent shall cause the Surviving Corporation to) ensure that no
medical, dental, health or disability plan adopted by the Surviving Corporation
shall have any preexisting condition limitations and (ii) the Surviving
Corporation shall (or, if necessary, Parent shall cause the Surviving
Corporation to) honor all deductibles and out-of-pocket expenses paid by the
employees and officers of the Company and its U.S. subsidiaries under any
medical, dental, health or disability plan of the Company and its subsidiaries
during the portion of the calendar year prior to the time such employees become
eligible to participate in any medical, dental, health or disability plan
adopted by the Surviving Corporation. Following the Effective Time, for purposes
of eligibility and vesting, the Surviving Corporation (and, if applicable,
Parent) shall honor all service credit accrued by the employees and officers of
the Company under all U.S. Employee Benefit Plans and Foreign Employee Benefit
Plans up to (and including) the Effective Time.
COMPOSITION OF THE BOARD OF DIRECTORS. The Merger Agreement provides that,
promptly upon the acceptance for payment of, and payment by Purchaser in
accordance with the Offer for, any Shares pursuant to the Offer, Purchaser shall
be entitled to designate such number of directors on the Board of Directors of
the Company, rounded up to the next whole number, as will give Purchaser,
subject to compliance with Section 14(f) of the Exchange Act, representation on
such Board of Directors equal to at least that number of directors which equals
the product of the total number of directors on the Board of Directors (giving
effect to the directors elected pursuant to this sentence) multiplied by a
fraction, the numerator of which shall be the number of Shares so accepted for
payment and paid for or otherwise acquired or owned by Purchaser or Parent and
the denominator of which shall be the number of Shares then issued and
outstanding, and the Company and its Board of Directors shall, at such time,
take any and all such action needed to cause Purchaser's designees to be
appointed to the Company's Board of Directors (including to cause directors to
resign). Subject to applicable law, the Company shall take all action requested
by Parent which is reasonably necessary to effect any such election, including
mailing to its stockholders the Information Statement containing the information
required by Section 14(f) of the Exchange Act and Rule 14f-1 promulgated
thereunder, and the Company agrees to make such mailing with the mailing of the
Schedule 14D-9, so long as Purchaser shall have provided to the Company on a
timely basis all information required to be included in the Information
Statement with respect to Purchaser's designees. In furtherance thereof, the
Company will increase the size of the Company's Board of Directors, or use its
reasonable efforts to secure the resignation of directors, or both, as is
necessary to permit Purchaser's designees to be elected to the Company's Board
of Directors.
NO SOLICITATION OF OTHER OFFERS. The Merger Agreement provides that, upon
execution of the Merger Agreement, the Company and its affiliates and each of
their respective officers, directors, employees, representatives, consultants,
investment bankers, attorneys, accountants and other agents ("Agents") shall
immediately cease any existing discussions or negotiations with any other
parties that may be ongoing with respect to any Acquisition Proposal (as defined
below). Neither the Company nor any of its subsidiaries shall, directly or
indirectly, take (and the Company shall not authorize or permit its or its
subsidiaries' Agents to take) any action to (i) encourage, solicit or initiate
the making of any Acquisition Proposal, (ii) enter into any agreement with
respect to any Acquisition Proposal or (iii) participate in any way in
discussions or negotiations with or furnish or disclose any information to, any
Person (other than Parent or Purchaser) in connection with, or take any other
action to knowingly facilitate any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any Acquisition Proposal,
except that the Company may participate in discussions or negotiations with and,
provided such Person enters into a confidentiality agreement with the Company on
terms no more favorable to such Person than the confidentiality agreement
between Technicolor Videocasette, Inc., a wholly owned subsidiary of Parent
("Technicolor") and the Company, furnish or disclose information to, any Person
who has made, in the good faith judgment of the Board of Directors of the
Company after consultation with their financial advisors, a bona fide offer or
proposal (but not an inquiry) regarding a transaction that would constitute an
Acquisition Proposal and that, if agreed with the Company, would constitute a
Superior Proposal, provided
7
such Acquisition Proposal was not initially solicited, encouraged or knowingly
facilitated by the Company, its subsidiaries or their Agents in violation of the
Merger Agreement after the date of execution of the Merger Agreement, and,
PROVIDED FURTHER, that nothing in the foregoing shall prevent the Company or
Board of Directors from taking and disclosing to the Company's stockholders a
position contemplated by Rule 14d-9 and Rule 14e-2 promulgated under the
Exchange Act with respect to any tender offer or from making such disclosure to
the Company's stockholders, upon the advice of its independent outside legal
counsel, as is required under applicable Federal Securities law. Any actions
permitted under the exception to clause (iii), and taken in compliance with the
foregoing, shall not be deemed a breach of any other covenant or agreement of
such party contained in the Merger Agreement. Except to the extent that, after
consultation with independent outside counsel to the Company, the Board of
Directors determines in good faith that such actions are required in order for
the directors of the Company to satisfy their fiduciary duties to the Company
and its stockholders or to comply with Rule 14d-9 and Rule 14e-2 promulgated
under the Exchange Act, the Board of Directors shall not take any action to
withdraw or modify in a manner adverse to Parent or Purchaser, or take a public
position inconsistent with, its approvals or recommendation of the Offer, the
Merger or the Merger Agreement or to recommend another Acquisition Proposal and
shall not resolve to do any of the foregoing. In addition to the obligations of
the Company set forth above, on the date of receipt thereof, the Company shall
advise Parent of any request for information regarding, or that may be
reasonably likely to result in, or any other inquiry or proposal relating to, an
Acquisition Proposal, the material terms and conditions of such request, inquiry
or proposal and of any subsequent material amendments or changes thereto, and
the identity of the Person making any such request, inquiry or proposal.
COVENANTS; REPRESENTATIONS AND WARRANTIES. The Merger Agreement also
contains certain other restrictions as to the conduct of business by the Company
pending the Merger, as well as representations and warranties of each of the
parties customary in transactions of this kind.
CERTAIN CONDITIONS OF THE OFFER. Notwithstanding any other provision of the
Offer or the Merger Agreement, Purchaser shall not be required to accept for
payment or, subject to any applicable rules and regulations of the SEC,
including Rule 14e-1(c) under the Exchange Act, pay for any Shares tendered
pursuant to the Offer and may terminate or amend the Offer and may postpone the
acceptance of, and payment for, Shares, if (i) there shall not have been validly
tendered and not withdrawn prior to the expiration of the Offer a number of
Shares which satisfies the Minimum Condition, (ii) any applicable waiting period
under the HSR Act shall not have expired or been terminated, or (iii) if, at any
time on or after the date of the Merger Agreement and at or before the time of
payment for any such Shares (whether or not any Shares have theretofore been
accepted for payment or paid for pursuant to the Offer) any of the following
shall occur:
(a) there shall be instituted or pending any action or proceeding by any
government or governmental authority or agency, domestic or foreign, or by
any other person, domestic or foreign, before any court or governmental
authority or agency, domestic or foreign, (i) challenging or seeking to or
which would be reasonably likely to make illegal, impede, delay or otherwise
directly or indirectly restrain or prohibit the Offer or the Merger or
seeking to obtain material damages, (ii) seeking to compel Parent or
Purchaser to dispose of, or hold separate (through the establishment of a
trust or otherwise) material assets or properties or categories of assets or
properties or businesses of Parent, the Company or any of their subsidiaries
or to withdraw from one or more lines of business material to the Condition
of Parent, the Company or any of their subsidiaries or to take any actions
that, in the aggregate would be reasonably likely to materially impair
Parent's ability to control, direct or manage on a day-to-day basis the
business or affairs of the Company, (iii) seeking to impose limitations on
the ability of Parent or Purchaser effectively to exercise full rights of
ownership of the Shares, including, without limitation, the right to vote
any Shares acquired or owned by Purchaser or Parent on all matters properly
presented to the Company's stockholders, (iv) seeking to require divestiture
by
8
Parent or Purchaser of any Shares or (v) materially adversely affecting the
Condition of the Company and its subsidiaries taken as a whole;
(b) there shall be any action taken, or any statute, rule, regulation,
legislation, interpretation, judgment, order or injunction proposed,
enacted, enforced, promulgated, amended, issued or deemed applicable to (i)
Parent, Purchaser, the Company or any subsidiary of the Company or (ii) the
Offer or the Merger, by any legislative body, court, government or
governmental, administrative or regulatory authority or agency, domestic or
foreign, other than the routine application of the waiting period provisions
of the HSR Act to the Offer or to the Merger, which would directly or
indirectly, result in any of the consequences referred to in clauses (i)
through (v) of paragraph (a) above;
(c) any change shall have occurred (or any condition, event or
development shall have occurred), that would have a material adverse effect
on the Condition of the Company and its subsidiaries taken as a whole;
(d) except as to any such representation or warranty which speaks as of
a specific date or for a specific period which must be true and correct in
the following respects only as of such specific date or period, as of the
date of the Merger Agreement and as of the scheduled expiration date of the
Offer (i) any one or more representations, warranties, covenants or
agreements of the Company contained in the Merger Agreement that is
qualified as to materiality shall be untrue, incorrect or breached in any
respect except for such failures as would not be reasonably likely to have a
material adverse effect on the Condition of the Company and its subsidiaries
taken as a whole or (ii) any one or more of such representations,
warranties, covenants or agreements that is not so qualified shall be untrue
incorrect or breached in any material respect which, individually or in the
aggregate, would be reasonably likely to have a material adverse effect on
the Condition of the Company and its subsidiaries taken as a whole;
(e) (i) the Company or any of its subsidiaries or their Agents
encourages, solicits or initiates the making of any Acquisition Proposal
from any Person other than Parent or Purchaser or the Company or any of its
subsidiaries or their Agents takes any other action to knowingly facilitate
any inquiries or the making of any proposal that constitutes, or may
reasonably be expected to lead to, any Acquisition Proposal other than as
permitted by and in compliance with Section 4.07 of the Merger Agreement,
(ii) the Company enters into any agreement with respect to or the making of
an Acquisition Proposal or (iii) if the Company's Board of Directors shall
have (A) failed to recommend to the Company's stockholders that such
stockholders tender their Shares pursuant to the Offer and vote to approve
and adopt the Merger Agreement or (B) amends, withdraws or modifies such
recommendation in a manner adverse to Parent and Purchaser or resolves to do
so;
(f) the Company shall have failed to perform in any material respect any
material obligation or to comply in any material respect with any material
agreement or material covenant of the Company to be performed or complied
with by it and its subsidiaries under the Merger Agreement; or
(g) the Merger Agreement shall have been terminated in accordance with
its terms;
which, in the reasonable judgment of Purchaser, in any such case and regardless
of the circumstances giving rise to any such condition, makes it inadvisable to
proceed with such acceptance for payment or pay for any Shares tendered pursuant
to the Offer.
The foregoing conditions (including those set forth in clauses (i)-(iii)
above) are for the sole benefit of Parent and Purchaser and may be asserted by
Parent or Purchaser, or may be waived by Parent or Purchaser, in whole or in
part at any time and from time to time in its sole discretion. The failure by
Parent or Purchaser at any time to exercise any of the foregoing rights shall
not be deemed a waiver of any such right and each such right shall be deemed an
ongoing right which may be asserted at any time and from time to time.
9
For purposes of the foregoing, "Condition" means the business, operations or
results of operations, and financial condition.
(ii) STOCKHOLDERS AGREEMENT. The following is a summary of the material
terms of the Stockholders Agreement. This summary is not a complete description
of the terms and conditions thereof and is qualified in its entirety by
reference to the full text thereof which is incorporated herein by reference and
a copy of which has been filed with the SEC as Exhibit 2 hereto.
As a condition and inducement to Parent's and Purchaser's willingness to
enter into the Merger Agreement and incur the liabilities therein, concurrently
with the execution and delivery of the Merger Agreement, the Selling
Stockholders entered into a Stockholders Agreement. In the Stockholders
Agreement, the Selling Stockholders have represented that they own, in the
aggregate, 9,373,322 Shares (or approximately 44% of the outstanding Shares).
Each Selling Stockholder has agreed to, as promptly as practicable (and in
no event later than the tenth day (or if such day is not a business day, the
next succeeding business day immediately thereafter) after commencement of the
Offer), validly tender (and not to withdraw) pursuant to and in accordance with
the terms of the Offer (provided that the Offer is not amended in a manner
prohibited by the Merger Agreement), in a timely manner for acceptance by
Purchaser, the number of Shares set forth opposite such Stockholder's name on
the signature pages of the Stockholders Agreement (the "Existing Shares").
Each Selling Stockholder has also agreed that if (i) at any time prior to
the expiration or termination of the Offer, (A) any Person shall have become the
beneficial owner of 50% or more of the outstanding Shares or (B) any Person
makes or publicly announces an intention to make an Acquisition Proposal or (C)
the Company enters into an agreement with any Person with respect to an
Acquisition Proposal and (ii) at any time (x) in the case of (A) within one year
thereafter, (y) in the case of (B), within the period ending on the thirtieth
day after the withdrawal of such Acquisition Proposal, unless such Person or any
of its affiliates shall have entered into an Agreement with the Company or any
one or more Selling Stockholders or their respective affiliates regarding an
Acquisition Proposal or have publicly announced a new or amended Acquisition
Proposal (in which event the termination of such period shall be tolled) and (z)
in the case of (C), within the period ending on the thirtieth day after the
termination of such agreement, unless such Person or any of its affiliates shall
have entered into a new or amended agreement with the Company or any one or more
Selling Stockholders or their respective affiliates regarding an Acquisition
Proposal or have made or publicly announced an intention to make an Acquisition
Proposal (in which event the termination of such period shall be tolled), such
Selling Stockholder sells or otherwise transfers or disposes of any of such
Selling Stockholder's Existing Shares or any other Shares of which such Selling
Stockholder becomes the owner prior to the date of such sale or other transfer
or disposition or any Shares that such Selling Stockholder currently has the
right to acquire then, such Selling Stockholder shall, as promptly as
practicable (but in any event within two business days after the later of the
date of such sale or other transfer or disposition, provided, that, if the fair
market value of any portion of the consideration is subject to the alternative
process for determination of its fair market value set forth in the Stockholders
Agreement, the payment relating to such portion of the consideration shall be
made no later than two business days after the date of agreement or such
determination) pay to Purchaser (or its designee) by wire transfer of
immediately available funds an amount in cash equal to the product of (i) the
number of such Shares so sold or otherwise transferred and (ii) the positive
difference between the value of the consideration per Share paid pursuant to
such sale or other transfer or disposition (as determined pursuant to the terms
of the Stockholders Agreement) and $11.50.
Each Selling Stockholder has agreed that prior to the termination of the
Stockholders Agreement such Selling Stockholder shall not (i) except as
contemplated by the Offer or the Stockholders Agreement, directly or indirectly,
offer for sale, sell, transfer, tender, pledge, encumber, assign or otherwise
dispose of, or enter into any contract, option or other arrangement or
understanding with respect to or consent to the offer for sale, transfer,
tender, pledge, encumbrance, assignment or other disposition of, any or all of
such
10
Stockholder's Shares or any interest therein; (ii) grant any proxies or powers
of attorney, deposit any Shares into a voting trust or enter into a voting
agreement with respect to any Shares; or (iii) take any action that would make
any representation or warranty of such Stockholder contained in the Stockholders
Agreement untrue or incorrect or have the effect of preventing or disabling such
Stockholder from performing such Stockholder's obligations under the
Stockholders Agreement. Such Stockholder has further agreed that such
Stockholder shall not request that the Company register the transfer (book-entry
or otherwise) of any certificate or uncertificated interest representing any of
such Stockholder's Shares, unless such transfer is made to Purchaser in
compliance with the Offer or the Stockholders Agreement.
Each Selling Stockholder has agreed that until the first to occur of (i) the
Effective Time (as hereinafter defined) and (ii) the termination of the
Stockholders Agreement pursuant to Section 8 thereof, at any meeting of the
holders of Shares, however called, or in connection with any written consent of
the holders of Shares, such Stockholder shall vote (or cause to be voted) the
Shares owned by such Stockholder (i) in favor of the Merger and each of the
other actions contemplated by the Merger Agreement and the Stockholders
Agreement and any actions required in furtherance thereof; (ii) against any
action or agreement that would result in a breach in any respect of any
covenant, representation or warranty or any other obligation or agreement of the
Company under the Merger Agreement or of such Stockholder under the Stockholders
Agreement; and (iii) except as otherwise agreed to in writing in advance by
Parent, against the following actions (other than the Merger and the
transactions contemplated by the Merger Agreement): (A) any extraordinary
corporate transaction, such as a merger, consolidation or other business
combination involving the Company or its subsidiaries; (B) a sale, lease or
transfer of a material amount of assets of the Company or its subsidiaries, or a
reorganization, recapitalization, dissolution or liquidation of the Company or
its subsidiaries; or (C) (1) any change in a majority of the persons who
constitute the board of directors of the Company; (2) any change in the present
capitalization of the Company or any amendment of the Company's Certificate of
Incorporation or By-laws; (3) any other material change in the Company's
corporate structure or business; or (4) any other action involving the Company
or its subsidiaries which is intended, or could reasonably be expected, to
prevent, impede, interfere with, delay, postpone, or materially adversely affect
the Offer, the Merger or the consummation of the transactions contemplated by
the Stockholders Agreement and the Merger Agreement. No Stockholder shall enter
into any agreement or understanding with any Person or entity the effect of
which would be to violate the provisions and agreements contained in Section 3
of the Stockholders Agreement.
(iii) FAULKNER EMPLOYMENT AGREEMENT. The following is a summary of the
material terms of the Employment Agreement, dated as of June 16, 1998 by and
between Purchaser and Lyndon J. Faulkner (the "Faulkner Employment Agreement").
This summary is not a complete description of the terms and conditions thereof
and is qualified in its entirety by reference to the full text thereof, which is
incorporated herein by reference and a copy of which has been filed with the SEC
as Exhibit 6 hereto.
Concurrent with the signing of the Merger Agreement, Mr. Faulkner entered
into the Faulkner Employment Agreement. The period of employment, during which
salary and benefits shall be provided (the "Period of Employment"), will begin
at the Effective Time (as such term is defined in the Merger Agreement) and will
end on the third anniversary of the Effective Time. The Period of Employment
will be extended automatically each day by one day beginning on the second
anniversary of the Effective Time until a date which is one year following the
date on which the notice of termination is delivered. Pursuant to his agreement,
Mr. Faulkner will serve as President and Chief Executive Officer of the
Surviving Corporation at an initial annual salary of $300,000 and will be
eligible for a maximum annual bonus of up to 40% of base salary.
11
Mr. Faulkner shall be eligible to participate in a Long Term Incentive Plan
(the "LTIP") which provides awards of one year's base salary conditioned upon
certain financial results which would be payable in three tranches in November
of 2001, 2002, and 2003, respectively. The LTIP also provides a super bonus of
three years' base salary payable in November 2004 if certain financial goals to
be determined by the Compensation Committee of the Board of Directors of
Technicolor are met. In the event that Mr. Faulkner agrees to relocate to
Technicolor Packaged Media Group's offices, the Surviving Corporation shall
reimburse Mr. Faulkner's reasonable moving expenses, including reasonable travel
expenses, all household moving expenses, all real estate expenses associated
with selling Mr. Faulkner's home and purchasing a new home, up to six months of
reasonable temporary living costs, and a cost of living salary adjustment if a
recognized national survey shows the cost of living on the new location is on
average more than 5% above the cost of living in the former location. Mr.
Faulkner shall be eligible to participate in the Surviving Corporation's
employee benefit and executive compensation plans, and shall be entitled to four
weeks vacation and reasonable sick leave. The Surviving Corporation will
continue to make contributions for the benefit of Mr. Faulkner to the United
Kingdom retirement scheme that he participated in prior to the Merger, on the
condition that Mr. Faulkner shall not simultaneously be permitted to participate
in any qualified retirement plan sponsored by the Surviving Corporation. The
Surviving Corporation shall also reimburse Mr. Faulkner for all reasonable
expenses related to applications for U.S. citizenship for himself and his
family.
Upon the signing of the Faulkner Employment Agreement, Purchaser requested
that Parent grant, conditioned on the consummation of the Merger, Mr. Faulkner a
stock option (the "Faulkner Stock Option") to purchase ordinary shares of Parent
("Ordinary Shares") pursuant to Parent's 1987 Incentive and Nonqualified Stock
Option Plan for U.S. Employees, as amended. The Faulkner Stock Option shall
permit Mr. Faulkner to acquire that number of Ordinary Shares equal in amount to
the result of dividing four times Mr. Faulkner's base salary by the fair market
value of an Ordinary Share on the date of the execution of the Faulkner
Employment Agreement. The Faulkner Stock Option will become nonforfeitable and
exercisable in three installments: (i) 60% on the day immediately preceding the
third anniversary of the Effective Time; (ii) 20% on the day immediately
preceding the fourth anniversary of the Effective Time; and (iii) 20% on the day
immediately preceding the fifth anniversary of the Effective Time. At the same
time, Mr. Faulkner also received options (the "Faulkner Options") to purchase,
at an exercise price equal to the fair market value on the date of the execution
of the Faulkner Employment Agreement, that number of Ordinary Shares equal to
40% of the profit (the "Spread") he would have received of each tranche of his
outstanding Company stock options with an exercise price equal to or lower than
$11.50 per share, divided by the fair market value of an Ordinary Share on the
date of the execution of the Faulkner Employment Agreement. Mr. Faulkner has
agreed to cancel the same percentage of his Company options for no
consideration. The Faulkner Options shall be fully vested and nonforfeitable and
will become exercisable according to the following schedule: (i) 40% on the
first anniversary of the Effective Time; (ii) 30% on the second anniversary of
the Effective Time; and (iii) 30% on the third anniversary of the Effective
Time. The Faulkner Options will become immediately exercisable upon Mr.
Faulkner's death, disability or termination of employment. Purchaser also
granted Mr. Faulkner a bonus (the "Bonus") equal to his Spread, to be paid in
installments in the same percentages and on the same schedule as the Faulkner
Options become exercisable, each installment of which shall be proportionately
reduced if the price of Ordinary Shares drops below its fair market value as of
the grant date of the Faulkner Options. Each scheduled Bonus installment will
continue to be paid to Mr. Faulkner following his termination of employment with
the Surviving Corporation, regardless of the reason for such termination.
If Mr. Faulkner's employment is terminated by the Surviving Corporation
without Cause or if Mr. Faulkner terminates for Good Reason (as those terms are
defined in the Faulkner Employment Agreement) during the Period of Employment,
the Surviving Corporation shall pay to Mr. Faulkner a lump sum equal to the
salary for the remainder of the Period of Employment, or if the remaining Period
of Employment is less than one year, one year's salary.
12
(iv) MINKEL EMPLOYMENT AGREEMENT. The following is a summary of the
material terms of the Employment Agreement, dated as of June 16, 1998 by and
between Purchaser and L. Steven Minkel (the "Minkel Employment Agreement"). This
summary is not a complete description of the terms and conditions thereof and is
qualified in its entirety by reference to the full text thereof which is
incorporated herein by reference and a copy of which has been filed with the SEC
as Exhibit 7 hereto.
Concurrent with the signing of the Merger Agreement, Mr. Minkel entered into
the Minkel Employment Agreement. The Period of Employment, during which salary
and benefits shall be provided, will begin at the Effective Time and will end on
the third anniversary of the Effective Time. The Period of Employment will be
extended automatically each day by one day beginning on the second anniversary
of the Effective Time until a date which is one year following the date on which
the notice of termination is delivered. Pursuant to his agreement, Mr. Minkel
will serve as Executive Vice President, Chief Financial Officer and Secretary of
the Surviving Corporation at an annual salary of $250,000 and will be eligible
for a maximum annual bonus of up to 30% of base salary.
Mr. Minkel shall be eligible to participate in the LTIP which provides
awards of one year's base salary conditioned upon certain financial results
which would be payable in three tranches in November of 2001, 2002, and 2003,
respectively. The LTIP also provides a super bonus of three years' base salary
payable in November 2004 if certain financial goals to be determined by the
Compensation Committee of the Board of Directors of Technicolor are met. In the
event that Mr. Minkel agrees to relocate to Technicolor Packaged Media Group's
offices, the Surviving Corporation shall reimburse Mr. Minkel's reasonable
moving expenses, including reasonable travel expenses, all household moving
expenses, all real estate expenses associated with selling Mr. Minkel's home and
purchasing a new home, up to six months of reasonable temporary living costs,
and a cost of living salary adjustment if a recognized national survey shows the
cost of living on the new location is on average more than 5% above the cost of
living in the former location. Mr. Minkel shall be eligible to participate in
the Surviving Corporation's employee benefit and executive compensation plans,
and shall be entitled to four weeks vacation and reasonable sick leave.
Upon the signing of the Minkel Employment Agreement, Purchaser requested
that Parent grant, conditioned on the consummation of the Merger a stock option
(the "Minkel Stock Option") to purchase Ordinary Shares pursuant to Parent's
1987 Incentive and Nonqualified Stock Option Plan for U.S. Employees, as
amended. The Minkel Stock Option shall permit Mr. Minkel to acquire that number
of Ordinary Shares equal in amount to the result of dividing four times Mr.
Minkel's base salary by the fair market value of an Ordinary Share on the date
of the execution of the Minkel Employment Agreement. The Minkel Stock Option
will become nonforfeitable and exercisable in three installments: (i) 60% on the
day immediately preceding the third anniversary of the Effective Time; (ii) 20%
on the day immediately preceding the fourth anniversary of the Effective Time;
and (iii) 20% on the day immediately preceding the fifth anniversary of the
Effective Time. At the same time, Mr. Minkel also received options (the "Minkel
Options") to purchase, at an exercise price equal to the fair market value on
the date of the execution of the Minkel Employment Agreement, that number of
Ordinary Shares equal to 30% of the Spread he would have received of each
tranche of his outstanding Company stock options with an exercise price equal to
or lower than $11.50 per share, divided by the fair market value of an Ordinary
Share on the date of the execution of the Minkel Employment Agreement. Mr.
Minkel has agreed to cancel the same percentage of his Company options for no
consideration. The Minkel Options shall be fully vested and nonforfeitable and
will become exercisable according to the following schedule: (i) 40% on the
first anniversary of the Effective Time; (ii) 30% on the second anniversary of
the Effective Time; and (iii) 30% on the third anniversary of the Effective
Time. The Minkel Options will become immediately exercisable upon Mr. Minkel's
death, disability or termination of employment. Purchaser also granted Mr.
Minkel a Bonus equal to his Spread, to be paid in installments in the same
percentages and on the same schedule as the Minkel Options become exercisable,
each installment of which shall be proportionately reduced if the price of
Ordinary Shares drops below its fair market value as of the grant date of the
Minkel Options. Each
13
scheduled Bonus installment will continue to be paid to Mr. Minkel following his
termination of employment with the Surviving Corporation, regardless of the
reason for such termination.
If Mr. Minkel's employment is terminated by the Surviving Corporation
without Cause or if Mr. Minkel terminates for Good Reason during the Period of
Employment, the Surviving Corporation shall pay to Mr. Minkel a lump sum equal
to the salary for the remainder of the Period of Employment, or if the remaining
Period of Employment is less than one year, one year's salary.
(v) CERTAIN BONUSES. In addition to the consideration described above,
certain affiliates of McCown De Leeuw & Co., Inc. ("MDC") and Behrman Capital
("Behrman") have agreed to pay certain bonuses to Mr. Faulkner and Mr. Minkel in
order to compensate them for certain economic losses which they suffered as a
result of the transactions contemplated by the Merger Agreement. The aggregate
amount of these bonuses, which are payable upon consummation of the Merger, is
$450,000, in the case of Mr. Faulkner, and $350,000, in the case of Mr. Minkel.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) RECOMMENDATION OF THE COMPANY'S BOARD OF DIRECTORS.
The Board of Directors of the Company (the "Board"), at a meeting duly
called and held from June 12, 1998, through June 16, 1998, acting by a unanimous
vote of directors (with one director absent), determined that the Merger
Agreement and the transactions contemplated thereby, including the Offer and the
Merger, are fair to and in the best interests of the Company and its
Stockholders and approved and adopted the Merger Agreement and approved the
transactions contemplated thereby, including the Offer and the Merger, in all
respects.
THE BOARD OF DIRECTORS ACTING BY A UNANIMOUS VOTE OF DIRECTORS (WITH ONE
DIRECTOR ABSENT), RECOMMENDS THAT THE STOCKHOLDERS OF THE COMPANY ACCEPT THE
OFFER AND TENDER THEIR SHARES TO PURCHASER UNDER THE OFFER. See "Background;
Opinion of Financial Advisor; Reasons for the Recommendation--Reasons for
Recommendation" for a discussion of the factors considered by the Board in
making its recommendation.
As set forth in the Offer, upon the terms and subject to the conditions of
the Offer (including satisfaction of the Minimum Condition), Purchaser will
accept for payment and pay for all Shares validly tendered on or prior to the
Expiration Date (as defined in the Schedule 14D-1) and not properly withdrawn.
Stockholders considering not tendering their Shares in order to wait for the
Merger should note that Purchaser is not obligated to purchase any Shares, and
can terminate the Offer and the Merger Agreement and not proceed with the
Merger, if the Minimum Condition is not satisfied or any of the other conditions
to the Offer are not satisfied.
A copy of the press release issued by Parent announcing the signing of the
Merger Agreement is filed as Exhibit 5 to this Statement and is incorporated
herein by reference.
(b) BACKGROUND; OPINION OF FINANCIAL ADVISOR; REASONS FOR RECOMMENDATION.
BACKGROUND
In the fourth quarter of 1996, the Company engaged Berenson Minella &
Company ("Berenson Minella") and Bear, Stearns & Co. Inc. ("Bear Stearns") to
assist it in considering its strategic alternatives, including, but not limited
to a potential sale of the Company. Berenson Minella and Bear Stearns contacted
approximately thirteen potential purchasers of Company, including Parent. All of
the potential purchasers of the Company indicated that, at that time, they had
no interest in pursuing a transaction with the Company.
Beginning in the first quarter of 1997, the Company engaged in a number of
periodic and generally inconclusive discussions with Parent, which had been the
only party to visit the Company's facilities during
14
the original search conducted by Berenson Minella. These discussions covered a
broad range of potential relationships.
On October 15, 1997, Mr. Lyndon Faulkner, Chairman of the Board of
Directors, Chief Executive Officer and President of the Company and Mr. Orlando
F. Raimondo, President of Technicolor, met in Los Angeles. At that meeting,
there was a discussion about digital versatile disc ("DVD") technology generally
and the possibility of Technicolor and the Company entering into a relationship
aimed at better serving the motion picture industry. Mr. Faulkner and Mr.
Raimondo agreed to meet again to pursue a possible transaction.
On November 11, 1997, Mr. Faulkner and representatives of the Company met
with Mr. Raimondo and representatives of Parent, to discuss possible
relationships between the Company and Parent. The discussion focused on several
possible strategic business combinations between the Company and Technicolor. At
this meeting representatives of the Company delivered certain publicly-available
information regarding the Company to representatives of Parent. At this meeting,
Parent's representatives expressed an interest in proceeding with the
acquisition of the Company and Mr. Faulkner agreed to discuss the matter with
the Board. Technicolor inquired as to whether the Company's significant
investors would consider a partial sale of their interests.
On December 9, 1997, the Board held a regularly scheduled meeting in New
York. The status of the discussions with Parent was fully described. At this
meeting the Board agreed to engage Berenson Minella as its financial advisor in
connection with the potential transaction with Parent and White & Case LLP was
engaged to provide legal advice. The Board agreed at this meeting that it would
not consider a sale of a partial interest in the Company. The Board instructed
Berenson Minella to make clear to Technicolor that the Board would expect that
any offer made be at a premium to the then market price of approximately $10 1/8
per Share.
On December 10, 1997, representatives of the Company and Parent met with
representatives of Berenson Minella at their offices. At such time, Technicolor
entered into a confidentiality agreement with the Company. Parent was informed
that the Company would only consider a sale of the entire Company.
On December 11, 1997, representatives of the Company and Technicolor met
again at the Company's offices in Charlottesville, Virginia to discuss possible
strategies for combining the two companies and potential business synergies.
After that meeting, Mr. Faulkner and Howard Nash, European Managing Director of
a subsidiary of the Company, visited Parent's offices in London and met with
senior officers of Parent. In early January 1998, Mr. Faulkner and Mr. Minkel
visited Parent's offices in London and met several directors and officers of
Parent and Technicolor and made presentations regarding the Company and its
business.
On December 19, 1997, the Company entered into a formal engagement letter
with Berenson Minella.
During the first three weeks of January, discussions continued among the
parties regarding possible transactions. On January 23, 1998, representatives of
the Company met with senior executive officers of Parent, who proposed a
transaction in which Parent would acquire all of the outstanding common stock of
the Company for $10.00 per Share. Later that day, Berenson Minella responded to
Lazard Freres & Co. LLC, Parent's financial advisor ("Lazard Freres") that
Parent's proposal did not form the basis for a transaction.
On January 29, 1998, senior directors and executive officers of Parent met
with representatives of certain stockholders of the Company affiliated with MDC
and Behrman and representatives of Berenson Minella and Lazard Freres, in New
York, New York to discuss whether and at what price such stockholders might be
willing to agree to sell their Shares. At such meeting the representatives of
such stockholders advised the representatives of Parent that they would only
consider a sale of their Shares as part of a sale of the entire Company.
15
Discussions continued thereafter between the parties and their advisors. On
February 9, 1998, Parent made a preliminary proposal to acquire the Company for
a consideration equal to $14.00 per Share, such consideration to be comprised of
an aggregate of $200.0 million in cash with the remainder being comprised of
equity in a new company which would combine the Company with certain assets of
Technicolor. The parties thereafter engaged in discussions regarding the
feasibility of implementing this proposal. This proposal was subsequently
withdrawn by Parent in late March of 1998. Prior to the withdrawal of this
proposal, the Company had not conducted any detailed due diligence in respect of
Parent or Technicolor.
On March 24, 1998, in a conversation with directors affiliated with MDC and
Behrman, representatives of Parent indicated that Parent still wished to
purchase the Company at a price between $10.00 and $11.00 per Share. On March
25, 1998, this offer was reported to management and representatives of Berenson
Minella.
At a meeting of the Board held on March 31, 1998, the Board received a full
report in respect of the status of the proposed transaction with Parent and
received advice from Berenson Minella and its legal advisors as to how it should
proceed. The Board determined to authorize Berenson Minella to conduct a market
check and solicit indications of interest from other persons who might be
interested in acquiring the Company. After discussion at the Board meeting and
with the Board's knowledge, certain directors affiliated with MDC and Behrman
communicated to Parent that MDC and Behrman would be prepared to sell their
shares in the Company for a price of $11.50 per Share and that, at that price,
MDC and Behrman, in their capacity as stockholders, would be prepared to
recommend the transaction to the Board.
During the month of April, Berenson Minella, after consultation with
management of the Company, approached eleven additional potential strategic
purchasers who it was believed might be interested in pursuing a transaction
with the Company. Most of these parties indicated that they had no interest in
pursuing a transaction. On April 8, 1998, representatives of Berenson Minella
met with representatives of a second interested party (the "Second Interested
Party") and the Company and the Second Interested Party entered into a
confidentiality agreement. A further meeting between representatives of the
Second Interested Party and the Company was held on April 13, 1998, for purposes
of exploring the possibility of entering into a transaction between the Company
and the Second Interested Party.
In addition, in early April, an approach was made to a third interested
party (the "Third Interested Party") and to a fourth interested party (the
"Fourth Interested Party"), each of which expressed interest in pursuing a
possible transaction with the Company and entered into a Confidentiality
Agreement with the Company. During this period the Company continued to have
discussions with Parent concerning the possibility of entering into transaction.
On May 5, 1998, representatives of the Company and the Third Interested
Party met and the Third Interested Party was given the opportunity to conduct
due diligence on the Company.
On May 8, 1998, representatives of the Company and the Fourth Interested
Party met and the Fourth Interested Party was given the opportunity to conduct
due diligence on the Company.
On May 11, 1998, further discussions occurred between the Company and the
Third Interested Party in respect of a possible transaction. During this period,
the Second Interested Party indicated to Berenson Minella that it was no longer
interested in an acquisition of the Company.
During the month of May 1998, the Company continued to pursue discussions
with all interested parties. On May 26, 1998, the Third Interested Party made a
written preliminary proposal, subject to due diligence and numerous other
conditions, to acquire the Company for a consideration of approximately $12.00
per Share in "total value" including $6.00 per Share in cash, with the residual
consideration to be comprised of equity in a new entity to be formed by the
merger of the Third Interested Party into the Company. On June 2, 1998,
financial advisors to the Third Interested Party revised this proposal orally in
a conversation with Berenson Minella, indicating that the consideration to be
paid for the Company was to be comprised of approximately $15.00 per Share in
"total value" including $4.00 per Share in cash, with the
16
residual consideration to be comprised of equity in a new entity to be formed by
a merger of the Third Interested Party with and into the Company. Both of these
proposals were highly conditional and were dependent, among other things, on due
diligence, financing and the resolution of certain key operating issues between
the existing owners of the Third Interested Party. Additionally, the Third
Interested Party, did not provide the Company or its advisors with any detailed
financial, operating or structural information which would enable the Company or
its financial advisors to value accurately the "total value" of either of the
proposals made by the Third Interested Party. Representatives of the Company
subsequently requested more information regarding these proposals and made clear
to the Third Interested Party the Company's preference for a competitive cash
transaction.
On June 1, 1998, representatives of the Fourth Interested Party indicated to
Mr. Faulkner that, on a preliminary basis the Fourth Interested Party would
consider an offer for the Company. Further conversations with the financial
advisors to the Fourth Interested Party indicated that, if made, such offer
would be at market value and that the Fourth Interested Party was not prepared
to proceed before its Board meeting scheduled for June 12, 1998.
On June 3, 1998, representatives of Parent and representatives of Behrman
met and representatives of Parent proposed a transaction at $11.50 per Share.
Parent indicated that it expected MDC and Behrman to commit to support the
transaction and requested that MDC and Behrman grant to Parent an option on
their Shares at the price of $11.50 per Share. Parent also requested that the
Company agree not to solicit competing offers and to a termination fee of four
percent of the transaction value and grant Parent an option to purchase 19.9% of
its outstanding shares.
Upon receiving this proposal, the Company forwarded proposed drafts of a
Merger Agreement and Stockholders' Agreement containing an agreement to tender
Shares into an offer. The Company rejected Parent's request for an option to
purchase 19.9% of its outstanding Shares. Parent and its representatives
conducted due diligence of the Company on June 5, 1998, and June 6, 1998.
On June 9, 1998, Parent's and the Company's legal advisors discussed the
provisions of the proposed agreements. Also on that date the Board met with its
legal and financial advisors and the Company's management and received an update
regarding the status of the transaction. Among the matters which the Board
discussed were: (i) the status of Parent's due diligence efforts; (ii) the
status of the Company's discussions with the Third Interested Party and the
Fourth Interested Party; (iii) the adequacy of a price of $11.50 per Share; and
(iv) the nature of the Stockholders Agreement and whether such agreement with
the Selling Stockholders would contain an option on the Stockholders Shares or
merely an obligation to tender (and not to withdraw) such shares into the offer
to be made by Parent for so long as the Merger Agreement is in effect. The Board
determined that it would only proceed with the proposed transaction if there was
unanimity among all directors. Certain directors expressed concern about the
ability of a subsequent bidder to put forth a higher offer if the Selling
Stockholders granted Parent an option on the Stockholder Shares.
On Wednesday June 10, 1998, the Company, in response to a substantial
increase in the trading volume of the Shares on the NASDAQ National Market,
issued a press release which is reprinted below in relevant part:
"Nimbus CD International, Inc. . . . today announced in response to
increased trading of its shares, that it is in discussions for the sale
of the Company in a transaction which would offer $11.50 per common
share in cash. There are no assurances that any transaction will result
from these discussions."
Later on June 10, 1998, the Board met by telephone conference to discuss the
events transpiring from their last meeting and was informed that the Company had
issued the press release. The Board received an update of discussions with
Parent and the Third Interested Party and the Fourth Interested Party.
On June 10, 1998, and June 11, 1998, the Company's legal advisors negotiated
with Parent's legal advisors in respect of the terms of the Merger Agreement and
the Stockholders Agreement.
17
On June 11, 1998, the Third Interested Party delivered a letter to the
Company's financial advisors, proposing to acquire the Company for consideration
purportedly equal to $14.00 per Share, comprised of $7.00 per Share in cash and
with the residual consideration to be comprised of stock in a newly formed
company resulting from the merger of the Third Interested Party with and into
the Company. This new proposal was also highly conditional and was dependent,
among other things, on due diligence, financing and the resolution of certain
key operating issues between the existing owners of the Third Interested Party.
As with its previous proposals, the Third Interested Party did not provide the
Company or its advisors with any detailed financial, operating or structural
information which would enable the Company or its financial advisors to value
accurately the stock portion of the total consideration proposed to be paid by
the Third Interested Party. The Company, through its financial advisors,
subsequently requested more information regarding these proposals and reiterated
to the Third Interested Party the Company's preference for a competitive cash
transaction.
On June 12, 1998, the Board held an all-day meeting to address Parent's
offer. After a description of its legal duties in considering the acquisition,
the Board then examined the strategic position of the Company. Mr. Faulkner
described the historical product life cycle of CD products, as experienced by
the Company, with reduced profit margins as additional capacity entered the
market. Mr. Faulkner noted several challenges facing the ability of the Company
to compete as a stand-alone entity, including the known or anticipated capacity
that could be entering the DVD market in the next 12 to 18 months. Mr. Faulkner
also noted that previously the Company had been able to defend its market share
and profit margins through technical excellence. He noted, however, that, as DVD
has substantial appeal to the motion picture industry as a replacement to VHS
tape as a medium for the home viewing of motion pictures and that as DVD
replaced VHS tape, the market was opening to new competitors and the competitive
dynamics of the market were changing. Mr. Faulkner noted that the primary driver
of market share in the VHS tape market was not only production capacity or
technical excellence, but the availability of a large and efficient distribution
network. In management's view, in order to compete in the DVD market, it would
be necessary to establish a substantial distribution arm for the Company within
the next 18 months. Management estimated that establishing this capacity would
require an additional capital investment of up to approximately $50.0 million
and that there could be no assurances that the Company could successfully
compete against competitors with established distribution networks, such as
Parent. The Company's management concluded that it believed that this was an
appropriate time to sell the Company. After the management discussion, the
directors questioned management at length about this assessment.
The Board reviewed the history of the negotiations with Parent. There was a
detailed review of the efforts to sell the Company 18 months earlier and of the
recent efforts undertaken by Berenson Minella to identify other potential
bidders. Berenson Minella detailed its recent contacts with potential bidders,
including the Third Interested Party. Berenson Minella then presented detailed
financial analyses of Parent's proposal, concluding that the consideration to be
paid to the stockholders of the Company in the Offer and the Merger was fair to
the stockholders of the Company, from a financial point of view. The directors
then heard a detailed presentation on the terms of the Merger Agreement and the
Stockholders Agreement from counsel. Next, a lengthy discussion ensued among the
directors, at the conclusion of which the directors determined that it was an
appropriate time to sell the Company and that $11.50 per Share was fair to the
stockholders. Certain directors expressed concern that, if the Selling
Stockholders granted Parent an option on the Stockholder Shares, there was only
a remote possibility that an unidentified subsequent bidder could successfully
tender for the Company's shares. The directors, therefore, determined not to
approve the Merger Agreement unless Parent agreed to strike the option from the
Stockholders Agreement and proceed only with an agreement by the Selling
Stockholders to tender the Stockholder Shares. The Board also concluded that the
Third Interested Party's proposal was too conditional and uncertain in value in
comparison to Parent's fully financed and all-cash offer.
The meeting was recessed until the next day. The Company asked Parent to
consider a proposal under which the Selling Stockholders would agree to tender
the Stockholder Shares into the offer and to forego any incremental value over
$11.50 per Share if, in fact, a subsequent bidder emerged to purchase the
18
Company. The Company indicated that it would enter into a merger agreement with
a reasonable non-solicitation provision, which would be subject to the fiduciary
duties of the Board, a $3.0 million termination fee and reimbursement of up to
$2.0 million of documented expenses upon the termination of the Merger Agreement
under certain circumstances, as requested by Parent.
On June 13, 1998, counsel for Parent proposed an alternate transaction for
consideration by the Board, whereby the Board would agree not to take any action
to impede a tender offer by Parent at $11.50 per Share for all outstanding
Shares of the Company, but not enter into a merger agreement to force the sale
of minority Shares at $11.50 per Share. Parent would enter into the Stockholders
Agreement, including the "lock-up" option, with the Selling Stockholders.
On June 13, 1998, the Board continued its meeting by conference telephone to
discuss the alternate proposal and to be updated on other developments. The
Board took no action at that time.
On June 14, 1998, the Company's legal advisor asked Parent's legal advisor
whether Parent would agree to enter into a merger agreement with Company which
contained no restriction on solicitation of higher offers and no provisions
regarding termination fees or expense reimbursement. In the course of the day,
this proposal was confirmed, subject to the granting of an option by the Selling
Stockholders. On the evening of June 14, 1998, the Board again reconvened by
conference telephone to discuss alternate forms of a transaction. After an
extensive discussion, the Board determined that it was preferable to proceed
pursuant to a merger transaction and instructed counsel to communicate to
counsel for Parent that the Board would act promptly to approve a merger
agreement providing for $11.50 per Share, a reasonable non-solicitation
provision and a break-up fee as outlined in the earlier proposal, but would not
approve a merger agreement if the Selling Stockholders were required to enter
into a stockholders agreement containing an option on their Shares. The Board
further instructed its counsel to inquire definitively of Parent whether it
would proceed with a transaction at all, in the absence of an option on the
Stockholders Shares.
On June 15, 1998, Parent communicated to the Company a final proposal for a
merger agreement containing a restriction on solicitation of higher offers, a
break-up fee of $10.0 million, but agreed to enter into a stockholders agreement
with the Selling Stockholders that did not provide for an option over their
shares. In subsequent negotiations between respective counsel, the amount of the
break-up fee was reduced to $8.0 million with an expense reimbursement of $2.0
million and the terms of the non-solicitation covenant of the Merger Agreement
were further refined. This proposal was discussed when the Board reconvened that
same day by conference telephone at which time the Board discussed the revised
proposal and determined to reconvene on Tuesday, June 16, 1998 in New York to
act on Parent's proposal in the absence of an intervening proposal or bid.
On June 16, 1998, the Board reconvened at the offices of White & Case LLP in
New York to discuss Parent's final proposal. The Board reviewed the status of
discussions with the Third Interested Party and confirmed that the Fourth
Interested Party had not responded to Berenson Minella's inquiries after such
party's board of directors meeting on June 12, 1998. The Board again concluded
that the Third Interested Party's proposal was too conditional and uncertain in
value in comparison to Parent's fully financed and all-cash offer. The Board
further concluded, based on discussion with management and its financial
advisors, that the surviving entity in any business combination with the Third
Interested Party would be highly leveraged and provide no strategic advantage
over the Company's present situation. The Board then reviewed the terms of the
Merger Agreement and the Stockholders Agreement. At the request of the Board,
Berenson Minella rendered its opinion that the consideration to be received by
the stockholders of the Company in the Offer and the Merger was fair to the
stockholders of the Company from a financial point of view. After further
discussion, the Board, by a unanimous vote of all directors participating in the
meeting, approved and adopted the Merger Agreement and approved the Offer, the
Merger and the other transactions contemplated by the Merger Agreement and the
Stockholders Agreement and recommended that the stockholders of the Company
tender their Shares in the Offer. Later that evening, the Merger Agreement was
executed and delivered by representatives of Parent, Purchaser and the Company.
19
OPINION OF FINANCIAL ADVISOR
The Company retained Berenson Minella to render an opinion to the Board of
Directors of the Company with respect to whether or not the Consideration to be
paid to the stockholders of the Company pursuant to the Offer and the Merger is
fair to the stockholders of the Company from a financial point of view. Berenson
Minella is a nationally recognized investment banking firm and was selected by
the Company based on its substantial experience and expertise in transactions
similar to the Offer and the Merger. On June 12, 1998, at a meeting of the Board
of Directors held to evaluate the Offer and the Merger, Berenson Minella
reviewed with the Board of Directors the financial analyses performed by
Berenson Minella in connection with the preparation of its opinion and, on June
16, 1998, Berenson Minella confirmed its analyses to the Board of Directors and
delivered to the Board of Directors a written opinion to the effect that, as of
the date of such opinion, and subject to certain factors and limitations stated
therein, the Consideration to be paid to the shareholders of the Company
pursuant to the Offer and the Merger is fair to the stockholders of the Company
from a financial point of view.
The full text of the opinion of Berenson Minella, dated June 16, 1998, which
sets forth the assumptions made, matters considered, and limitations on the
review undertaken, is attached hereto as Annex B and is incorporated herein by
reference. The opinion of Berenson Minella is directed solely to the Board of
Directors of the Company, and not to the stockholders of the Company. The
opinion does not address any other aspects of the Offer, the Merger or the
Merger Agreement and does not constitute a recommendation to any stockholder to
tender their shares in the Offer or to vote in favor of the Merger. This summary
of the opinion is qualified in its entirety by reference to the full text of
such opinion.
REASONS FOR RECOMMENDATION
In reaching its determination and recommendations with respect to the Merger
Agreement, the Offer and the Merger, as indicated above, the Board reviewed in
detail the Merger Agreement, the Offer and the Merger, together with the various
alternative transactions reviewed by management and its financial advisors, and
deliberated extensively with its legal and financial advisors regarding the
foregoing. At the end of its meeting, the Board determined by unanimous vote of
the directors participating in the meeting that the Merger Agreement, the Offer
and the Merger, are fair to, and in the best interest of, the Company and its
stockholders and authorized the execution and delivery of the Merger Agreement.
Numerous factors were taken into account including, among other things, the
following:
(i) Management's view of the strategic position of the Company and the
actions the Board believed necessary for the Company to remain competitive
in light of the changes taking place in its industry;
(ii) The familiarity of the Board of Directors with the financial
condition, results of operations, strategic position, business and prospects
of the Company, including the prospects of the Company were it to remain
independent or other alternative strategic transactions;
(iii) The canvas of other potential strategic bidders conducted by
Berenson Minella;
(iv) The Board's belief, based on the advice and analysis of Berenson
Minella presented to the Board at the meetings beginning on June 12, 1998,
that alternative financial transactions were not likely to provide values to
the stockholders of the Company superior to the Offer;
(v) The recommendation of (x) management and (y) the Selling
Stockholders that the Merger Agreement, the Offer and the Merger be approved
and the fact that the Selling Stockholders had agreed to tender (and not to
withdraw) their shares into the Offer and to pay to Purchaser any amount in
excess of $11.50 that the Selling Stockholders received as consideration for
their Shares;
20
(vi) The presentation of Berenson Minella, financial advisor to the
Company, at the Board meeting beginning on June 12, 1998 and the Berenson
Minella Opinion that, based upon and subject to the information contained
therein, as of the date of the opinion, the consideration to be received by
the stockholders of the Company in connection with the Offer and the Merger
is fair to the stockholders of the Company from a financial point of view.
The full text of the Berenson Minella Opinion, which sets forth the
assumptions made, the matters considered and the limitations on the review
undertaken by Berenson Minella is attached hereto as Annex B and is
incorporated herein by reference. The Company's stockholders are urged to
read the attached Berenson Minella Opinion in its entirety;
(vii) The financial and other terms and conditions of the Offer and
Merger Agreement, including, without limitation, the fact that the terms of
the Merger Agreement should not unduly discourage other interested third
parties, if any, from making BONA FIDE proposals to acquire the Company
subsequent to the execution of the Merger Agreement and, if any such
proposals were made, the Board could determine to provide information to and
engage in negotiations with any such third party, subject to the terms and
conditions of the Merger Agreement; and
(viii) The fact that the obligations of Parent and Purchaser to
consummate the Offer and the Merger pursuant to the terms of the Merger
Agreement are not conditioned upon financing.
The foregoing discussion of the information and factors considered and given
weight by the Board is not intended to be exhaustive. In view of the variety of
factors considered in connection with its evaluation, the Board did not find it
practicable to and did not quantify or otherwise assign relative weights to the
specific factors considered in reaching its determinations and recommendation.
In addition, individual members of the Board may have given different weight to
different factors.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Pursuant to the terms of a letter agreement dated December 19, 1997 (the
"Engagement Letter"), the Company has retained Berenson Minella as its exclusive
financial advisor in connection with evaluating strategic alternatives available
to the Company. Pursuant to the terms of the Engagement Letter, the Company has
agreed to pay Berenson Minella a fee equal to 1.1875% of the amount of cash
payable to the stockholders and option holders of the Company in the Offer and
the Merger pursuant to the Merger Agreement (the "Transaction Value") upon
consummation of the Merger. Without duplicating the foregoing fees set forth in
the immediately preceding sentence, upon Purchaser's acceptance for payment of
any shares tendered in the Offer, Berenson Minella will be entitled to a fee
equal to 1.1875% of the product of (x) the number of shares tendered and
accepted for payment in the Offer and (y) the price per share of Common Stock
paid in the Offer. The Company has also agreed to reimburse Berenson Minella for
its reasonable expenses, including the reasonable fees and disbursements of
outside counsel, and to indemnify Berenson Minella and certain related persons
against certain liabilities in connection with their engagement, including
certain liabilities under the federal securities laws.
Pursuant to the terms of a letter agreement dated June 16, 1998 (the
"Opinion Engagement Letter"), the Company has retained Berenson Minella to
render a written opinion addressed to the Board of Directors whether or not the
proposed merger consideration is fair to the stockholders of the Company from a
financial point of view. Pursuant to the Opinion Engagement Letter, the Company
has also agreed to reimburse Berenson Minella for its reasonable expenses
(subject to certain limitations), including the reasonable fees and
disbursements of outside counsel, and to indemnify Berenson Minella and certain
related persons against certain liabilities in connection with their engagement,
including certain liabilities under the federal securities laws.
Neither the Company nor any person acting on its behalf has or currently
intends to employ, retain or compensate any person to make solicitations or
recommendations to the stockholders of the Company on its behalf with respect to
the Offer.
21
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) To the best of the Company's knowledge, no transactions in Shares have
been effected within the past 60 days by the Company or by any executive
officer, director, affiliate or subsidiary of the Company, except for the
Selling Stockholders entering into the Stockholders Agreement. The full text of
the Stockholders Agreement is attached hereto as Exhibit 2.
(b) To the best of the Company's knowledge, (i) each of its executive
officers, directors, affiliates or subsidiaries presently intends to tender all
of their Shares to Purchaser pursuant to the Offer and (ii) none of its
executive officers, directors, affiliates or subsidiaries presently intends to
otherwise sell any Shares which are owned beneficially or held of record by such
persons. Each of the Selling Stockholders has entered into the Stockholders
Agreement, pursuant to which the Selling Stockholders have committed to tender
the Stockholder Shares into the Offer. The foregoing does not include any Shares
over which, or with respect to which, any such executive officer, director or
affiliate or subsidiary acts in a fiduciary or representative capacity or is
subject to instructions from a third party with respect to such tender.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Except as set forth in this Statement, no negotiation is being
undertaken or is underway by the Company in response to the Offer which relates
to or would result in (i) an extraordinary transaction such as a merger or
reorganization, involving the Company or any subsidiary of the Company; (ii) a
purchase, sale or transfer of a material amount of assets by the Company or any
subsidiary of the Company; (iii) a tender offer for or other acquisition of
securities by or of the Company; or (iv) any material change in the present
capitalization or dividend policy of the Company.
(b) Except as set forth in this Statement, there are no transactions, Board
resolutions, agreements in principle or signed contracts in response to the
Offer that relate to, or would result in, one or more of the events referred to
in Item 7(a) above. Subject to the terms of the Merger Agreement described
herein, the Company may, directly or indirectly, furnish information only in
response to an unsolicited request for such information by any person, pursuant
to appropriate confidentiality agreements, and participate in discussions,
investigations and/or negotiations with such entity or group concerning a BONA
FIDE offer or proposal regarding a transaction that would result in a superior
acquisition proposal.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
The information statement attached as Annex A hereto is being furnished in
connection with the possible designation by Parent, pursuant to the Merger
Agreement, of certain persons to be appointed to the Board of Directors of the
Company other than at a meeting of the Company's stockholders.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
1. Agreement and Plan of Merger, dated as of June 16, 1998, among the
Company, Parent and Purchaser.
2. Agreement, dated as of June 16, 1998 among Parent, Purchaser and the
stockholders named therein.
3. Opinion of Berenson Minella & Company dated June 16, 1998 (attached
hereto as Annex B to this Schedule 14D-9).*
4. Letter to stockholders of the Company dated June 23, 1998.*
5. Press release issued by Parent on June 17, 1998.
6. Agreement, dated as of June 16, 1998 by and between Purchaser and
Lyndon J. Faulkner.
7. Agreement, dated as of June 16, 1998 by and between Purchaser and L.
Steven Minkel.
- ------------------------
* Included in copies mailed to stockholders.
22
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
NIMBUS CD INTERNATIONAL, INC.
By: /s/ L. STEVEN MINKEL
------------------------------------------
L. Steven Minkel
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
Dated: June 23, 1998
S-1
ANNEX A
NIMBUS CD INTERNATIONAL, INC.
623 Welsh Run Road
Guildford Farm
Ruckersville, Virginia 22968
------------------------
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES EXCHANGE ACT
OF 1934, AS AMENDED, AND RULE 14(F)-1 THEREUNDER
------------------------
This Information Statement is being mailed on or about June 23, 1998 as part
of Nimbus CD International, Inc.'s (the "Company's") Solicitation/Recommendation
Statement on Schedule 14D-9 (the "Schedule 14D-9") to the holders of record of
the Company's common stock, par value $.01 per share (the "Shares"). Capitalized
terms used herein and not otherwise defined shall have the meanings ascribed to
such terms in the Schedule 14D-9. You are receiving this Information Statement
in connection with the possible election of persons designated by Neptune
Acquisition Corp. ("Purchaser"), a wholly owned subsidiary of Carlton
Communications Plc ("Parent"), to seats on the Company's Board of Directors (the
"Board"). You are urged to read this Information Statement carefully. You are
not, however, required to take any action.
The Agreement and Plan of Merger dated as of June 16, 1998 by and among the
Company, Parent and Purchaser (the "Merger Agreement") provides that, promptly
upon the acceptance for payment of, and payment by Purchaser in accordance with
the Offer (as defined in the Merger Agreement) for, any shares of Common Stock
(as defined in the Merger Agreement) pursuant to the Offer (as defined in the
Merger Agreement), Purchaser shall be entitled to designate such number of
directors, rounded up to the next whole number, on the Board as shall give
Purchaser, subject to compliance with Section 14(f) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), representation on the Board equal
to at least the number of directors which equals the product of the total number
of directors on the Board (giving effect to the directors elected pursuant to
this sentence) multiplied by a fraction, the numerator of which shall be the
number of Shares so accepted for payment and paid for pursuant to the Offer or
otherwise acquired or issued and owned by Purchaser or Parent and the
denominator of which shall be the number of Shares then outstanding. Subject to
applicable law, the Company and the Board shall promptly increase the size of
the Board or exercise all reasonable efforts to secure the resignations of such
number of directors as is necessary to provide Purchaser with such level of
representation and shall cause Purchaser's designees to the Board (the
"Purchaser Designees") to be elected. This Information Statement is required by
Section 14(f) of the Exchange Act, as amended, and Rule 14f-1 promulgated
thereunder.
Pursuant to the Merger Agreement, on June 23, 1998, Parent and Purchaser
commenced the Offer. The Offer is scheduled to expire at 12:00 midnight, New
York City time, on July 21, 1998, unless extended pursuant to the terms of the
Offer. The terms of the Merger Agreement, a summary of the events leading up to
the Offer and the execution of the Merger Agreement and other information
concerning the Offer and the Merger are contained in the Schedule 14D-9.
The information contained in this Information Statement concerning Purchaser
and the Purchaser Designees has been furnished to the Company by Parent, and the
Company assumes no responsibility for the accuracy or completeness of such
information.
The outstanding voting securities of the Company as of June 15, 1998,
consisted of 21,469,754 shares of common stock, par value $.01 per share (the
"Common Stock") and the record holder of each such share is entitled to one
vote.
A-1
PURCHASER DESIGNEES
Purchaser has informed the Company that it currently intends to choose the
Purchaser Designees that it has the right to designate to the Board pursuant to
the Merger Agreement from among the persons listed on Schedule I attached hereto
which sets forth the name, age, business address, present principal occupation
and material positions and occupations within the past five years of the persons
who may be Purchaser Designees. Unless otherwise specified, each person listed
on such Schedule I is a citizen of the United States.
It is expected that the Purchaser Designees may assume office at any time
following the purchase by Purchaser of Shares pursuant to the Offer, which
purchase cannot be earlier than July 21, 1998, and that, upon assuming office,
the Purchaser Designees will thereafter constitute at least a majority of the
Board.
None of the Purchaser Designees or their associates (except, if chosen as
Purchaser Designees, Lyndon J. Faulkner and L. Steven Minkel) is a director of,
or holds any position with, the Company. To the best knowledge of the Company,
none of the Purchaser Designees or their associates (except, if chosen as
Purchaser Designees, Lyndon J. Faulkner and L. Steven Minkel) beneficially owns
any equity securities, or rights to acquire any equity securities, of the
Company or has been involved in any transactions with the Company or any of its
directors or executive officers that are required to be disclosed pursuant to
the rules and regulations of the Securities and Exchange Commission (the "SEC").
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of June 15, 1998, as to shares
of Common Stock owned by (i) each person who is known by the Company to own
beneficially more than five percent of the Company's Common Stock, (ii) each
director of the Company, (iii) each executive officer named in the Summary
Compensation Table and currently employed by the Company, and (iv) all directors
and executive officers as a group, together with their respective percentages.
AMOUNT AND NATURE OF % OF CLASS
BENEFICIALOWNERSHIP (IF MORE
NAME OF PERSON OR NUMBER OF PERSONS IN GROUP (1) THAN 1%) (2)
- --------------------------------------------------------------------------- ---------------------- -------------
McCown De Leeuw & Co. III, L.P.(3)......................................... 5,528,901 25.8
McCown De Leeuw & Co. (Europe) III, L.P. (3)............................... 5,528,901 25.8
McCown De Leeuw & Co. (Asia) III, L.P. (3)................................. 5,528,901 25.8
Gamma Fund LLC (3)......................................................... 5,528,901 25.8
Behrman Capital L.P. (4)................................................... 3,670,066 17.1
Behrman Capital "B" L.P. (4)............................................... 3,670,066 17.1
Strategic Entrepreneur Fund, L.P. (4)...................................... 3,670,066 17.1
Charles Ayres (3).......................................................... 5,575,744 26.0
Darryl G. Behrman (4)...................................................... 3,670,066 17.1
Grant G. Behrman (4)....................................................... 3,670,066 17.1
Robert M. Davidson (5)..................................................... 9,165 *
David E. De Leeuw (3)(6)................................................... 5,615,076 26.1
Anthony V. Dub (7)......................................................... 19,165 *
Lyndon J. Faulkner (8)..................................................... 484,789 2.2
George E. McCown (3)(9).................................................... 5,579,954 26.0
Glenn S. McKenzie (10)..................................................... 1,000 *
L. Steven Minkel (11)...................................................... 335,651 1.6
Robert J. Headrick (12).................................................... 55,658 *
Howard G. Nash (13)........................................................ 113,259 *
All directors and executive officers as a group (14 persons)(14)........... 10,498,325 46.9
- ------------------------
* Less than one percent of the issued and outstanding shares of Common Stock.
(1) The amount and percentage of securities beneficially owned by an individual
are determined in accordance with the definition of beneficial ownership set
forth in the regulations of the SEC and,
A-2
accordingly, may include securities owned by or for, among others, the
spouse and/or minor children of the individual and any other relative who
has the same home as such individual, as well as other securities as to
which the individual has or shares voting or investment power or has the
right to acquire within 60 days after June 15, 1998. Beneficial ownership
may be disclaimed as to certain of the securities. Unless otherwise
indicated, the persons and entities named have sole voting and dispositive
power over their shares.
(2) Individual percentages have been rounded. Shares subject to outstanding
stock options or warrants which the individual has the right to acquire
within 60 days after June 15, 1998, are deemed to be outstanding for the
purpose of computing the percentage of outstanding securities of the class
owned by such individual, or any group including such individual, but are
not deemed outstanding for the purpose of computing the percentage of the
class owned by any other individual.
(3) Includes 4,478,412 shares owned by McCown De Leeuw & Co. III, L.P., an
investment partnership whose general partner is MDC Management Company III,
L.P. ("MDC III"), 774,046 shares held by McCown De Leeuw & Co. (Europe) III,
L.P., an investment partnership whose general partner is MDC Management
Company IIIE, L.P. ("MDC IIIE"), 82,931 shares held by McCown De Leeuw & Co.
(Asia) III, L.P., an investment partnership whose general partner is MDC
Management Company IIIA, L.P. ("MDC IIIA"), and 193,512 shares owned by
Gamma Fund LLC, a California limited liability company ("Gamma"). The voting
members of Gamma are George E. McCown, David E. De Leeuw, David E. King,
Robert B. Hellman, Jr., Charles Ayres and Steven Zuckerman, who are also the
only general partners of MDC III, MDC IIIE and MDC IIIA. Voting and
dispositive decisions regarding the Common Stock owned by MDC III, MDC IIIE
and MDC IIIA are made by Messrs. McCown and De Leeuw, as Managing General
Partners of each of such partnerships, who together have more than the
required two-thirds-in-interest vote of the Managing General Partners
necessary to effect such decision on behalf of any such entity. Voting and
dispositive decisions regarding the Common Stock owned by Gamma are made by
a vote or consent of a majority in number of the members of Gamma. No
general partner is able to individually direct the voting or disposition of
Common Stock beneficially owned by MDC III, MDC IIIE and MDC IIIA. Messrs.
McCown, De Leeuw, King, Hellman, Ayres and Zuckerman, disclaims beneficial
ownership of any shares of Common Stock owned by MDC III, MDC IIIE, MDC IIIA
and Gamma except to the extent of their proportionate partnership interests
or membership interests (in the case of Gamma). The address of each of MDC
III, MDC IIIE, MDC IIIA and Gamma is c/o McCown De Leeuw & Co., Inc., 3000
Sand Hill Road, Building 3, Suite 290, Menlo Park, California 94025.
(4) Includes 3,306,037 shares owned by Behrman Capital L.P., an investment
partnership whose general partner is Behrman Brothers, L.P., and 298,278
shares owned by Behrman Capital "B" L.P., an investment partnership whose
general partner is Behrman Brothers, L.P., and 65,751 shares owned by
Strategic Entrepreneur Fund, L.P., an investment partnership whose general
partners are Darryl G. Behrman and Grant G. Behrman. Darryl Behrman and
Grant Behrman are the only general partners of each of Behrman Brothers,
L.P. and Strategic Entrepreneur Fund, L.P., and, as such, each may make
voting and dispositive decisions regarding the Common Stock. Messrs. Darryl
Behrman and Grant Behrman have no direct ownership of any shares of Common
Stock and disclaim beneficial ownership of any shares of Common Stock except
to the extent of their proportionate partnership interests. The address of
Behrman Capital is c/o Behrman Capital L.P., 126 East 56th Street, New York,
New York 10022.
(5) Includes 9,165 shares subject to stock options.
(6) Includes 4,000 shares held for the benefit of Mr. De Leeuw in the MDC
Management Company, Inc. Retirement Savings and Investment Plan of which Mr.
De Leeuw is a trustee. Also includes 1,000 shares held in trust for the
benefit of Brian De Leeuw, Mr. De Leeuw's son, of which Treva De Leeuw, Mr.
De Leeuw's wife, serves as trustee. Mr. De Leeuw disclaims beneficial
ownership of the shares held in trust for the benefit of Brian De Leeuw.
(7) Includes 4,165 shares subject to stock options.
(8) All shares are subject to stock options.
(9) Includes 4,000 shares held for the benefit of Mr. McCown in the MDC
Management Company, Inc. Retirement Savings and Investment Plan of which Mr.
McCown is a trustee.
A-3
(10) Mr. McKenzie is a consultant to McCown De Leeuw & Co., Inc.
(11) Includes 160,296 shares subject to stock options. Also includes 500 shares
owned by each of Lewis C. Minkel and Carter P. Minkel, Mr. Minkel's adult
sons, of which Mr. Minkel expressly disclaims beneficial ownership.
(12) All shares are subject to stock options.
(13) All shares are subject to stock options.
(14) Includes 922,632 shares issuable upon the exercise of stock options and
9,198,967 shares beneficially owned by the MDC Entities and Behrman Capital.
DIRECTORS AND EXECUTIVE OFFICERS
CURRENT DIRECTORS
The names, ages and positions of all the directors of the Company, as of
June 15, 1998, are listed below together with their business experience during
the past five years. At each annual meeting of the stockholders of the Company,
all directors are elected for a one year term. At a meeting of the Board of the
Company held on May 21, 1997, the Bylaws of the Company were amended to provide
for a Board consisting of a minimum of eight (8) and a maximum of thirteen (13)
persons. In addition, the Board determined that the number of directors would be
ten (10). There are no arrangements or understandings between any director or
any other person pursuant to which the director was elected.
The Board is composed of the following persons:
LYNDON J. FAULKNER. President, Chief Executive Officer and Director since
October 1992 and Chairman of the Board of Directors since March 1995 and
Treasurer since August 1996. Mr. Faulkner, age 37, was employed in various
capacities by Nimbus Records Limited (the "Predecessor") from 1985 until October
1992, most recently as Manufacturing Director. Mr. Faulkner was initially
responsible for the design and development of the manufacturing process utilized
by the Predecessor. Mr. Faulkner was educated in electrical and electronic
engineering in the United Kingdom. Mr. Faulkner is a director of Tad Coffen
Performance Saddles Inc., a privately owned company.
CHARLES AYRES. Director of the Company since March 1995. Mr. Ayres, age 38,
is a general partner of MDC Management Company III, L.P., which is the general
partner of McCown De Leeuw & Co. III, L.P. and McCown De Leeuw & Co. Offshore
(Europe) III, L.P., a general partner of MDC Management Company IIIA, L.P.,
which is the general partner of McCown De Leeuw & Co. III (Asia), L.P. and a
member of Gamma Fund, LLC. Mr. Ayres has been affiliated with McCown De Leeuw &
Co., Inc., an affiliate of McCown De Leeuw & Co. III, L.P., since 1991. Prior to
that he was a founding general partner of HMA Investments, Inc., a private
investment firm focused on middle-market management buyouts. He currently is a
director of certain privately held companies, including Aurora Foods Inc. and
The Brown Schools.
DARRYL G. BEHRMAN. Director of the Company since March 1995. Mr. Behrman,
age 47, is a general partner of Behrman Brothers, L.P., the general partner of
Behrman Capital L.P. and Behrman Capital "B" L.P. The Behrman Capital entities
are private investment firms focused on management buyouts of emerging growth
companies. Prior to founding Behrman Capital in 1992, Mr. Behrman was a partner
at Wertheim Schroder & Co. Incorporated where he specialized in middle market
mergers and acquisitions, recapitalizations and management buyouts. Prior to
that he worked for Citicorp's Merchant Banking
Group where he served as Vice President and head of the Corporate Advisory Group
in London. Mr. Behrman is a Director of several privately held companies
including Condor Systems, Inc., Professional Dental Associates, Inc. and Total
Physician Services, Inc. He is Chairman of the Board of Esoterix, Inc., a
privately held company. Darryl Behrman and Grant Behrman are brothers.
A-4
GRANT G. BEHRMAN. Director of the Company since March 1995. Mr. Behrman,
age 44, is a general partner of Behrman Brothers, L.P., the general partner of
Behrman Capital L.P. and Behrman Capital "B" L.P. The Behrman Capital entities
are private investment firms focused on management buyouts of emerging growth
companies. Prior to founding Behrman Capital in 1992, Mr. Behrman was employed
for ten years by Morgan Stanley & Co. Incorporated, most recently as a general
partner in its Venture Capital Group. Mr. Behrman is a Director of Visual
Networks, Inc., which is a publicly traded company, as well as serving as
Director of several privately held companies including Esoterix, Inc. and Condor
Systems, Inc. Darryl Behrman and Grant Behrman are brothers.
ROBERT M. DAVIDSON. Director of the Company since July 1994. Since February
1997, Mr. Davidson, age 55, has been Chairman and Chief Executive Officer of The
Davidson Group, a privately held investment company. From 1989 to February 1997,
Mr. Davidson was Chairman of the Board of Directors and Chief Executive Officer
of Davidson & Associates, Inc., a publicly-held educational software company
that develops, publishes and manufactures high quality educational software
products for home and school use. In 1996, Mr. Davidson also served as Vice
Chairman of CUC International, Inc., a publicly held membership-based, consumer
services company. Mr. Davidson held senior management positions at The Parsons
Corporation, a large engineering and construction company, from 1978 to 1989.
During his last five years at Parsons, he served as Executive Vice President,
and was responsible for managing a major portion of the firm's operations and
overseeing acquisitions of businesses and new technologies.
DAVID E. DE LEEUW. Director of the Company since March 1995. Mr. De Leeuw,
age 54, is a managing general partner of MDC Management Company III, L.P., which
is the general partner of McCown De Leeuw & Co. III, L.P. and McCown De Leeuw &
Co. Offshore (Europe) III, L.P., a managing general partner of MDC Management
Company IIIA, L.P., which is the general partner of McCown De Leeuw & Co. III
(Asia), L.P. and a member of Gamma Fund, LLC. Mr. De Leeuw was the co-founder in
1984 of McCown De Leeuw & Co., Inc., an affiliate of McCown De Leeuw & Co. III,
L.P. He currently serves as Vice Chairman of Vans, Inc. and a director of
American Residential Investment Trust, Inc., both publicly held companies. He
also currently serves as a director of Aurora Foods Inc., AmeriComm Holdings,
Inc., Outsourcing Solutions Inc. and Home Asset Management Corp., all privately
held companies.
ANTHONY V. DUB. Director of the Company since May 1996. Mr. Dub, age 48, is
an Advisor of Credit Suisse First Boston, an international investment banking
firm with headquarters in New York City. Mr. Dub joined Credit Suisse First
Boston in 1971 and served as a Managing Director from 1981 until 1997. He
currently serves as a director of Lomak Petroleum, Inc., a publicly held
company.
GEORGE E. MCCOWN. Director of the Company since March 1995. Mr. McCown, age
63, is a managing general partner of MDC Management Company III, L.P., which is
the general partner of McCown De Leeuw & Co. III, L.P., and McCown De Leeuw &
Co. Offshore (Europe) III, L.P., a managing general partner of MDC Management
Company IIIA, L.P., which is the general partner of McCown De Leeuw & Co. III
(Asia), L.P. and a member of Gamma Fund, LLC. Mr. McCown was the co-founder in
1984 of McCown De Leeuw & Co., Inc., an affiliate of McCown De Leeuw & Co. III,
L.P. He serves as Chairman of the Board of Building Materials Holding Corp., and
as Vice Chairman of Vans, Inc., both publicly held companies as well as Chairman
of Pelican Companies, Inc., a privately held company. Mr. McCown also serves as
a director of Fibermark, Inc., a publicly held company, as well as serving as a
director of International Data Response Corp., Fitness Holdings, Inc., The Brown
Schools, RSP Manufacturing Corp., Home Asset Management Corp. and Fitness
Europe, all privately held companies.
GLENN S. MCKENZIE. Director of the Company since March 1995. Mr. McKenzie,
age 45, has been President of Alpha Investments, Inc., a management consulting
firm, since October 1991. He currently serves as a director of Fibermark, Inc.,
a publicly held company, and DEC International, Inc., a privately held company.
L. STEVEN MINKEL. Director of the Company since August 1997. Mr. Minkel,
age 56, has been Executive Vice President, Chief Financial Officer and Secretary
since November 1992. Before joining the
A-5
company, from February 1986 to October 1992, he was Vice President and Chief
Financial Officer of Duchossois Industries, Inc., a privately owned
manufacturing conglomerate. Mr. Minkel served as a director of the Company from
November 1992 through March 1995.
BOARD MEETINGS OF THE BOARD OF DIRECTORS
The Board met five times during fiscal 1998. All such meetings were special
meetings. Except for David E. De Leeuw and George E. McCown, all directors
attended at least 75% of the aggregate number of meetings of the Board and
standing committees on which they served. Each of David E. De Leeuw and George
E. McCown attended, respectively, three out of five meetings of the Board and
the standing committees on which they served.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board has an Executive Committee comprised of the Chief Executive
Officer, the Chief Financial Officer and two non-employee directors, an Audit
Committee comprised of three non-employee directors and a Compensation Committee
comprised of four directors, two of whom the Company has deemed to be
independent.
The Executive Committee held monthly meetings during fiscal 1998. The
Executive Committee is authorized, within parameters and limitations set out by
the Company's Board of Directors, to meet and act on behalf of the Board during
interim periods between regular meetings of the Board. During fiscal 1998, the
members of the Executive Committee included Messrs. Faulkner, Minkel, Ayres, and
G. Behrman.
The Audit Committee held one meeting during fiscal 1998. Its principal
functions are to recommend the firm of independent accountants to serve the
Company each fiscal year to the Board of Directors and to review the plan and
results of the prior year's audit by the independent accountants as well as the
scope, results, and adequacy of the Company's internal accounting controls and
procedures. In addition, the Audit Committee reviews the independence of the
accountants and reviews their fees for audit and non-audit services rendered to
the Company. During fiscal 1998, the members of the Audit Committee included
Messrs. Davidson, Dub and McKenzie.
The Compensation Committee held two meetings during fiscal 1998. Its
principal functions are to approve remuneration of the officers of the Company,
review certain benefit programs, and approve and administer remuneration plans,
including the stock incentive plans of the Company. During fiscal 1998, the
members of the Compensation Committee included Messrs. Ayres, D. Behrman,
Davidson and Dub.
CURRENT EXECUTIVE OFFICERS
The names, ages and positions of all of the executive officers of the
Company, as of June 15, 1998, are listed below together with their business
experience during the past five years. All executive officers are appointed by,
and serve at the discretion of, the Board of Directors. There are no
arrangements or understandings between any executive officer or any other person
pursuant to which any of the executive officer was elected.
A-6
The following table lists the executive officers of the Company and its
affiliates.
POSITION BUSINESS EXPERIENCE DURING
NAME AND AGE WITH THE COMPANY PAST FIVE YEARS
- ------------------------------ --------------------------------------- ---------------------------------------
Lyndon J. Faulkner (37)....... President, Chief Executive Officer, *
Treasurer and Chairman of the Board of
Directors
L. Steven Minkel (56)......... Executive Vice President, Chief *
Financial Officer and Secretary
Howard G. Nash (49)........... European Managing Director, Nimbus Mr. Nash has served as European
Manufacturing (UK) Limited Managing Director of Nimbus
Manufacturing (UK) Limited since
January 1994. Prior to that time, he
was employed in various management
capacities, including Finance Director,
by Nimbus Manufacturing (UK) Limited
and the Predecessor.
Robert J. Headrick (41)....... President, Nimbus Information Systems, Mr. Headrick has served as President of
Inc., Executive Vice President, Nimbus Nimbus Information Systems, Inc. since
Manufacturing Inc. March 1993 and as Executive Vice
President of Nimbus Manufacturing Inc.
since March 1994.
Robert J. Lynch (37).......... Vice President, Nimbus Manufacturing Mr. Lynch has served as Vice President
Inc. of Nimbus Manufacturing Inc. since
March 1994. Prior to that time, he was
employed in various management
capacities, including Operations
Manager, by Nimbus Manufacturing Inc.
and the Predecessor.
Gary E. Krutul (42)........... Controller and Chief Accounting Mr. Krutul has served as Controller and
Officer, Assistant Secretary and Chief Accounting Officer since June
Assistant Treasurer 1995 and Assistant Secretary and
Assistant Treasurer since August 1996.
From September 1991 to February 1995,
Mr. Krutul served as Financial Manager
for Bally's Total Fitness, Inc.
- ------------------------
* See "DIRECTORS AND EXECUTIVE OFFICERS--Current Directors"
FAMILY RELATIONSHIPS
Directors Grant and Darryl Behrman are brothers. Otherwise, there is no
family relationship between any director, executive officer, or person nominated
or chosen by the Company to become a director or executive officer.
A-7
COMPENSATION
EXECUTIVE OFFICERS COMPENSATION
The following sections disclose detailed information about cash and
equity-based executive compensation paid by the Company to certain of its
executive employees. The information is comprised of a Summary Compensation
Table and additional tables which provide further details on stock options
issued by the Company.
SUMMARY COMPENSATION TABLE
The following summary compensation table presents information about the
compensation paid by the Company during its three most recent fiscal years to
those individuals who were (i) the Company's Chief Executive Officer (the "CEO")
at the end of the last completed fiscal year, regardless of compensation level
and (ii) the four other most highly compensated executive officers of the
Company (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION (1) COMPENSATION
----------------------------------- ------------------------
OTHER ALL
FISCAL YEAR ANNUAL OPTIONS OTHER
ENDED MARCH SALARY BONUS COMPENSATION GRANTED COMPENSATION
NAME AND PRINCIPAL POSITION 31 ($) ($) ($)(2) (#) ($) (3)
- ------------------------------------------------ ------------- --------- --------- ------------- --------- -------------
Lyndon J. Faulkner.............................. 1998 242,550 25,000 0 15,000 12,230
President, Chief Executive Officer, Treasurer 1997 242,550 0 0 35,000 11,422
and Chairman of the Board of Directors 1996 231,000 73,600 0 475,326 12,486
L. Steven Minkel................................ 1998 200,000 25,000 0 15,000 9,549
Executive Vice President, Chief Financial 1997 191,260 0 0 32,000 9,992
Officer and Secretary 1996 177,876 73,600 0 316,821 9,070
David J. Trudel (4)............................. 1998 181,000 0 0 15,000 3,680
Executive Vice President, Nimbus Manufacturing 1997 145,792 0 28,443 20,000 1,370
Inc.
Robert J. Headrick.............................. 1998 180,180 0 0 10,000 7,143
President, Nimbus Information Systems, Inc., 1997 180,180 0 0 5,000 7,265
Executive Vice President, Nimbus Manufacturing 1996 173,828 23,400 0 105,670 7,211
Inc.
Howard G. Nash.................................. 1998 128,427 11,541 0 15,000 28,070
European Managing Director, Nimbus 1997 105,650 32,000 0 20,000 22,489
Manufacturing (UK) Limited 1996 92,918 31,746 0 131,993 19,528
- ------------------------
(1) While each of the five Named Executive Officers received perquisites or
other personal benefits in the years shown, in accordance with SEC
regulations, the value of these benefits are not indicated since they did
not exceed the lesser of $50,000 or 10% of the individual's salary and bonus
in any year.
(2) The amount set forth in the Summary Compensation Table under the heading
"Other Annual Compensation" includes (i) $21,243 for reimbursements made by
the Company to Mr. Trudel or on behalf of Mr. Trudel for relocation costs
and (ii) $7,200 as an automobile allowance on behalf of Mr. Trudel.
A-8
(3) Amounts set forth in the Summary Compensation Table under the heading "All
Other Compensation" include (i) contributions made by the Company to the
Company's 401(k) plan or, in the case of Messrs. Faulkner and Nash, to the
Company's U.K. Pension Scheme for the benefit of the Named Executive Officer
and (ii) the Company's payment of life insurance premiums on behalf of the
Named Executive Officer. In fiscal 1998, the Company paid $885, $2,254,
$1,141 and $743 in life insurance premiums on behalf of Messrs. Faulkner,
Minkel, Trudel and Headrick, respectively. In fiscal 1997, the Company paid
$330, $2,250, $487 and $330 in life insurance premiums on behalf of Messrs.
Faulkner, Minkel, Trudel and Headrick, respectively. In fiscal 1996, the
Company paid $330, $1,440 and $330 in life insurance premiums on behalf of
Messrs. Faulkner, Minkel and Headrick, respectively.
(4) Mr. Trudel ceased to be employed by the Company in February 1998.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Messrs. Faulkner,
Minkel, Headrick and Nash. The employment agreement with Mr. Faulkner provides
for a base salary of not less than $200,000 and provides for an initial term
ended March 31, 1994 and for continuation thereafter for additional one year
periods until terminated in accordance with the agreement. The agreement also
provides for an annual bonus subject to the achievement of annual performance
criteria (such bonus for fiscal 1998 was $25,000). The agreement may be
terminated by the Company with or without cause, provided that if it is
terminated without cause the Company will be obligated to pay the greater of one
year's salary plus the previous year's bonus or all salary and benefits
specified in the agreement from the date of termination to the end of the then
current contract term.
Purchaser has entered into the Faulkner Employment Agreement (as defined in
the Schedule 14D-9). A summary of such agreement is contained in the Schedule
14D-9. The summary is not a complete description of the terms and conditions
thereof and is qualified in its entirety by reference to the full text thereof,
which is incorporated herein by reference and a copy of which has been filed
with the SEC as Exhibit 6 to the Schedule 14D-9.
The employment agreement with Mr. Minkel provides for a base salary of not
less than $150,000 and provides for an initial term ended November 8, 1994 and
for continuation thereafter for additional one year periods until terminated in
accordance with the agreement. The agreement also provides for an annual bonus
subject to the achievement of annual performance criteria (such bonus for fiscal
1998 was $25,000). The agreement may be terminated by the Company with or
without cause, provided that if it is terminated without cause the Company will
be obligated to pay the greater of one year's salary plus the previous year's
bonus or all salary and benefits specified in the agreement from the date of
termination to the end of the then current contract term.
Purchaser has entered into the Minkel Employment Agreement (as defined in
the Schedule 14D-9). A summary of such agreement is contained in the Schedule
14D-9. The summary is not a complete description of the terms and conditions
thereof and is qualified in its entirety by reference to the full text thereof,
which is incorporated herein by reference and a copy of which has been filed
with the SEC as Exhibit 7 to the Schedule 14D-9.
The employment agreement with Mr. Headrick provides for a base salary of not
less than $140,000 and provides for an initial term ended March 7, 1994.
Thereafter, the agreement continues for additional six month periods until
terminated in accordance with the agreement. The agreement also provides for an
annual bonus, subject to achievement of annual performance criteria (such bonus
for fiscal 1998 was $0). The agreement may be terminated by the Company with or
without cause, provided that if it is terminated without cause the Company is
obligated to pay Mr. Headrick the greater of six months' salary or all salary
and benefits specified in the agreement from the date of termination to the end
of the then current term.
A-9
Mr. Nash is employed under a standard contract for employment of directors
in the United Kingdom which provides, among other things, certain statutory
entitlements and a base salary of L38,250 which is reviewed annually. The
agreement does not have a fixed term and, except in the case of serious employee
misconduct or gross negligence, requires the parties to the agreement to provide
12 months prior written notice of a desire to terminate. The Company may make a
payment in lieu of notice.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
From October 1992 until June 1993, the executive compensation program of the
Company was administered by the Board of Directors. During such period Mr.
Faulkner, President, and Mr. Minkel, Executive Vice President, participated in
the deliberations of the Board of Directors concerning executive officer
compensation. On June 3, 1993, the Board of Directors established a Compensation
Committee to administer the Company's executive compensation program. The
Compensation Committee is currently comprised of four non-employee directors.
STOCK OPTIONS
The Company has adopted the Amended and Restated Nimbus CD International,
Inc. 1995 Stock Option and Stock Award Plan (the "Nimbus Plan"). The Nimbus Plan
is intended to further the long-term stability and financial success of the
Company by attracting and retaining key employees through the use of stock
incentives, including stock options. The Company does not award stock
appreciation rights under the Nimbus Plan. The Company has reserved a total of
2,715,449 shares (adjusted to give effect to the Company's 3.76049 stock split
effective October 16, 1995) of common stock for issuance under the Nimbus Plan.
The following table sets forth additional information concerning individual
grants of stock options made under the Nimbus Plan during the last completed
fiscal year to each of the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZED
VALUE AT
INDIVIDUAL GRANTS ASSUMED ANNUAL RATES
- -------------------------------------------------------------------------------------------------------- OF STOCK PRICE
% OF TOTAL APPRECIATION FOR
OPTIONS OPTIONS GRANTED OPTION TERM (1)
GRANTED TO ---------------------
(2) EMPLOYEES IN EXERCISE OR EXPIRATION 5% 10%
NAME (#) FISCAL YEAR BASE PRICE ($/SH) DATE ($) ($)
- ---------------------------------------- ----------- ----------------- ----------------- ----------- --------- ----------
Lyndon J. Faulkner...................... 15,000 7.1% $ 9.13 3/31/07 $ 86,142 $ 218,298
L. Steven Minkel........................ 15,000 7.1% $ 9.13 3/31/07 $ 86,142 $ 218,298
David J. Trudel......................... 15,000 7.1% $ 9.13 3/31/07 $ 86,142 $ 218,298
Robert J. Headrick...................... 10,000 4.7% $ 9.13 3/31/07 $ 57,428 $ 145,532
Howard G. Nash.......................... 15,000 7.1% $ 9.13 3/31/07 $ 86,142 $ 218,298
- ------------------------
(1) The potential realized values in the table assume that the market price of
the Company's Common Stock appreciates in value from the date of grant to
the end of the option term at the annualized rates of five percent and ten
percent, respectively. The actual value, if any, an executive may realize
will depend on the excess, if any, of the stock price over the exercise
price on the date the option is exercised. There is no assurance that the
value realized by an executive will be at or near the value estimated in the
table.
(2) Options were granted April 1, 1997. The options will vest ratably over a
five year period with one fifth of the options becoming exercisable on March
31, 1998 and one fifth vesting each March 31 thereafter until the options
are fully vested on March 31, 2002.
A-10
The following table sets forth information concerning each exercise of stock
options during fiscal 1998 by each of the Named Executive Officers and the
fiscal year-end value of unexercised options, provided on an aggregated basis:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END UNEXERCISED OPTION VALUES
(A) (B) (C) (D) (E)
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY(2)
SHARES ACQUIRED VALUE(1) OPTIONS AT FY-END (#) OPTIONS AT FY-END ($)
NAME ON EXERCISE (#) REALIZED ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- -------------------------------- --------------------- ------------- ----------------------- ------------------------
Lyndon J. Faulkner.............. 0 $ 0.00 484,789/264,196 $4,089,504/$1,785,385
L. Steven Minkel................ 0 $ 0.00 160,296/185,287 $1,111,096/$1,194,152
David J. Trudel................. 0 $ 0.00 11,000/ 24,000 $ 3,173/$ 12,690
Robert J. Headrick.............. 0 $ 0.00 55,658/ 62,406 $ 405,140/$ 402,616
Howard G. Nash.................. 0 $ 0.00 113,259/ 88,192 $ 870,931/$ 504,882
- ------------------------
(1) The dollar values referred to in columns (C) and (E) are calculated by
determining the difference between the fair market value of the securities
underlying the options and the exercise price of the options at exercise or
fiscal year-end, respectively.
(2) Options are in-the-money if the fair market value of the underlying
securities exceeds the exercise price of the option.
DIRECTORS COMPENSATION
Beginning November 1995, the Company began paying an annual fee of $10,000
to directors of the Company who are not compensated as officers of the Company
or employed by an affiliate of the Company, including the MDC Entities and
Behrman Capital. The Company also reimburses each director for out-of-pocket
expenses incurred in attending meetings of the Board of Directors and its
committees.
In addition, in October 1995, the Board of Directors, with the approval of
the stockholders, adopted the Nimbus CD International, Inc. 1995 Stock Option
Plan for Non-Employee Directors (the "Directors' Plan"). The Directors' Plan is
designed to attract and retain the services of experienced and highly qualified
outside directors and to create a proprietary interest for such directors in the
Company's continued success. Under the Directors' Plan, grants of stock options
will be made to each member of the Board, who is (a) not an employee of the
Company, (b) not an employee of an affiliate of the Company, and (c) otherwise
not eligible for selection to participate in any plan of the Company or its
affiliates that entitles such member to acquire securities or derivative
securities of the Company. An aggregate of 50,000 shares of Common Stock have
been reserved for issuance under the Directors' Plan. Notwithstanding the
foregoing, adjustments may be made by the Company's Board of Directors in the
number and class of shares available under the Directors' Plan and the number,
class and price of shares subject to outstanding option grants, in each such
case, to reflect changes in the Company's corporate structure or capitalization,
such as through a merger or stock split.
Options awarded under the Directors' Plan expire ten years from the date of
grant (unless the period is shortened by the non-employee independent director's
retirement, death, disability or a change of control as defined in the
Directors' Plan). Options awarded subsequent to October 31, 1995 will permit the
non-employee independent director, for a period of up to ten years from the date
of grant (unless the period is shortened by the non-employee independent
director's retirement, death, disability or a change in control as defined in
the Directors' Plan), to purchase 2,500 shares of Common Stock from the Company
at the fair market value of such shares on the date such option is granted.
A-11
Each non-employee independent director will receive such an option whenever
he or she is elected, re-elected or appointed to the Company's Board of
Directors and otherwise satisfies the requirements for participation in the
Directors' Plan. Generally, an option shall only be exercisable with respect to
one-third of the shares subject to the option on the first anniversary of the
date of grant (and not prior thereto) and then with respect to an additional
one-third of such shares beginning on each of the second and third anniversaries
of the date of grant; provided, however, the option shall be fully exercisable
upon (i) the attainment of age 70 by the optionee or (ii) the death or
disability (as defined in the Directors' Plan) of the optionee. Notwithstanding
the foregoing, in no event may an option under the Directors' Plan be exercised
prior to the expiration of six months from the date of grant. Except in certain
limited circumstances, an option may be exercised only if the optionee at the
time of exercise is, and at all times following the grant of the option remains,
a non-employee director of the Company.
On October 30, 1995, Robert M. Davidson was awarded options to purchase
10,000 shares of the Company's Common Stock at an exercise price equal to $7.00.
Such options vest ratably over a three year period with the first options
vesting on October 30, 1996. On May 20, 1996, upon his appointment to the
Company's Board of Directors, Anthony V. Dub was awarded options to purchase
2,500 shares of the Company's Common Stock at an exercise price of $11.25 per
share. Such options shall vest ratably over three years beginning May 20, 1997.
On August 6, 1996, upon their re-election to the Board, each of Messrs. Davidson
and Dub were granted options to purchase 2,500 additional shares of the
Company's Common Stock under the Directors' Plan at an exercise price of $12.63.
Such options shall vest ratably over three years beginning August 6, 1997. On
August 5, 1997, upon their re-election to the Board, each of Messrs. Davidson
and Dub were granted options to purchase 2,500 additional shares of the
Company's Common Stock under the Directors' Plan at an exercise price of $12.37.
Such options will vest ratably over three years beginning August 5, 1998.
The Directors' Plan will terminate upon the earlier to occur of (i) the
adoption of a resolution of the Company's Board of Directors terminating the
Directors' Plan, (ii) the date all shares of Common Stock subject to the
Directors' Plan are purchased according to the provisions of the Directors' Plan
or (iii) ten years from the date of adoption of the Directors' Plan by the
Company's Board of Directors.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
1995 RECAPITALIZATION. On March 31, 1995, certain affiliates of McCown De
Leeuw & Co., Inc. (the "MDC Entities") and Behrman Capital L.P. ("Behrman
Capital") replaced affiliates of DLJ Merchant Banking, Inc. (the "DLJMB
Investors") as the Company's majority stockholders through a series of
transactions (the "Recapitalization"). The MDC Entities and Behrman Capital
acquired 10,698,970 shares of the Company's Common Stock for an aggregate
purchase price of $27 million and another investor acquired 118,876 shares of
Common Stock for $300,000. The Company refinanced its then-outstanding debt and
borrowed an additional $41.1 million. The Company also received $1.7 million
from Chase Manhattan Investment Holdings, Inc. ("Chase Manhattan") for the
issuance of warrants to purchase 693,453 shares of its Common Stock for $0.01
per share. The warrants became exercisable upon the occurrence of the Company's
initial public offering and Chase Manhattan exercised its right to purchase
175,000 shares of Common Stock. Chase Manhattan exercised their remaining
518,453 warrants, which converted into 518,002 shares of Common Stock in a
cashless transaction, on September 2, 1997.
The proceeds from the issuance of Common Stock, warrants and additional debt
were used by the Company to acquire 22,333,768 shares of its Common Stock held
by the DLJMB Investors and 2,834,436 shares of Common Stock from certain members
of management and other stockholders (including 2,174,015 shares received by
management upon exercise of stock options which became fully vested in the
Recapitalization) for an aggregate cost of $65.3 million, including related fees
and expenses.
INITIAL PUBLIC OFFERING. On October 16, 1995, the Company declared a
3.76049 for one stock split which was distributed to stockholders on October 18,
1995. Thereafter, on October 30, 1995, the Company
A-12
completed an initial public offering of securities with the sale of 6,350,000
shares of Common Stock at a price per share (net of underwriting discounts and
commissions) of $6.55. Of the 6,350,000 shares of Common Stock offered for sale,
5,080,000 shares were purchased and offered for sale to the public by
underwriters in the United States (the "U.S. Offering"), with the remaining
1,270,000 shares being purchased and offered for sale to the public by foreign
underwriters (the "International Offering", together with the U.S. Offering, the
"Offerings"). Contemporaneously with the Offerings, Behrman Capital, a principal
stockholder of the Company, purchased 500,000 shares of Common Stock of the
Company at $6.55 per share in a private placement transaction.
STOCKHOLDERS AGREEMENT. On March 31, 1995, the Company and holders of
Common Stock (collectively, the "Holders") entered into a Stockholders Agreement
(the "1995 Stockholders Agreement"). The 1995 Stockholders Agreement contains,
among other things, restrictions on the transfer of shares of Common Stock and
certain registration rights with respect thereto and matters related to the
Board of Directors of the Company. Upon completion of the Offerings, all of the
provisions of the 1995 Stockholders Agreement terminated except for provisions
relating to certain registration rights. These provisions state that after March
31, 2000, Behrman Capital and the DLJMB Investors, and after March 31, 2002,
Chase Manhattan, shall each have a one time right to demand that the Company
register for sale under the Securities Act of 1933 (the "Securities Act") all or
a portion of the shares of Common Stock of such Holder as then owned by it. Any
such registration is subject to certain time and size limitations. In addition,
the Holders are also entitled to require the Company to use its best efforts to
include shares owned by them in a registered offering of equity securities of
the Company, subject to marketing restrictions determined by the managing
underwriter.
REGISTRATION RIGHTS AGREEMENT. Upon consummation of the Offerings, the
Company and the MDC Entities entered into a registration rights agreement
pursuant to which the Company will grant certain registration rights to the MDC
Entities and certain of their transferees and assignees with respect to shares
of Common Stock owned or acquired by the MDC Entities following the Offerings
(the "Registration Rights Agreement"). Pursuant to the Registration Rights
Agreement, the MDC Entities will have the right to require the Company to file
up to five registration statements under the Securities Act, which may be
increased by an additional three registrations if effected on Form S-3, covering
the MDC Entities' shares and the shares of Common Stock of certain transferees
and assignees of the MDC Entities. The Company has agreed to pay all costs and
expenses relating to the exercise of the MDC Entities' registration rights,
except for underwriting commissions relating to shares sold by the MDC Entities.
The Company will indemnify the MDC Entities for certain liabilities, including
liabilities under the Securities Act, in connection with any such registration.
Under the Registration Rights Agreement, the MDC Entities will have the right to
transfer their respective rights to a transferee or assignee of their shares of
the Common Stock in a transfer other than pursuant to a public offering.
By letter agreement dated October 31, 1995, the MDC Entities and Behrman
Capital agreed that upon request of Behrman Brothers, L.P., the general partner
of Behrman Capital L.P., the MDC Entities will agree to exercise one of the
demand registration rights conferred on the MDC Entities pursuant to the
Registration Rights Agreement. This agreement will enable Behrman Capital to
exercise incidental registration rights with respect to their shares of Common
Stock which were granted pursuant to the Stockholders Agreement.
Pursuant to Rule 144 promulgated under the Securities Act, the MDC Entities
and Behrman Capital may, without registration under the Securities Act, sell,
within any three-month period, a number of shares less than or equal to the
greater of 1% of the then outstanding shares of Common Stock or the average
weekly reported trading volume of the Common Stock during the four calendar
weeks preceding such sale, subject, in some cases, to the two year holding
period described in Rule 144. Shares owned by the MDC Entities and Behrman
Capital will be eligible for sale to "qualified institutional buyers" pursuant
to Rule 144A under the Securities Act without regard to the volume limitations
contained in Rule 144.
A-13
TRANSACTIONS WITH THE INVESTORS. In connection with the Recapitalization,
the Company paid MDC Management Company III, L.P., an affiliate of the MDC
Entities, and Behrman Brothers Management Corporation, an affiliate of Behrman
Capital, transaction fees of $2,425,000 and $1,575,000, respectively, plus
reimbursement for out-of-pocket expenses incurred in connection with services
rendered in connection with the Recapitalization.
TRANSACTIONS WITH MANAGEMENT STOCKHOLDERS. In connection with the
Recapitalization, the Company (i) purchased 296,549 shares of Common Stock
received pursuant to the exercise of stock options from Messrs. Faulkner,
Minkel, Headrick, Nash and Lynch on March 31, 1995 for $2,814,250 and (ii)
purchased 117,628 additional shares of Common Stock from Mr. Minkel for
$296,847. The shares were reacquired at their then fair value of $2.52 per
share, the price paid by the MDC Entities, Behrman Capital and other
stockholders in the Recapitalization.
TRANSACTIONS WITH OTHER PARTIES. The Company's United Kingdom subsidiary
employs the services of Whitehead Electrical Company, Ltd., an electrical
contracting company of which Lyndon Faulkner's brother is the Managing Director.
The services are supplied on competitive terms. The Company paid Whitehead
Electrical Company, Ltd. $141,904 during the fiscal year ended March 31, 1998.
In April 1994, the Company entered into the Donnelley CD-ROM Agreement with
R.R. Donnelley & Sons Company ("Donnelley"), whereby the Company established a
multiline compact disc manufacturing facility in Provo, Utah, requiring capital
expenditures of approximately $13 million by the Company. In April 1995, as
permitted by the Donnelley CD-ROM Agreement, Donnelley assigned substantially
all of its rights in, and obligations under, the Donnelley CD-ROM Agreement to
Stream (as assigned, the "Stream CD-ROM Agreement"). Effective April 1, 1997,
the Company entered into a new agreement with Stream which terminated the Stream
CD-ROM Agreement and set forth Stream's commitment to purchase 27.5 million
discs during fiscal 1998 and 20.6 million discs for the first nine months of
fiscal 1999. The agreement was scheduled to terminate on December 31, 1998. In
December 1997, Stream assigned substantially all of its rights and obligations
under the Stream Agreement to Modus Media International, Inc. ("MMI"). Effective
March 31, 1998, the Company and MMI determined that, in furtherance of their
mutual best interests, they would terminate the Agreement.
The Company provides CD manufacturing services to Cedant Software, formerly
known as CUC International, Inc., a software company. Robert M. Davidson, a
director of the Company, served as Vice Chairman of the Board of CUC
International, Inc. until his resignation of May 27, 1997. These services
supplied to CUC International, Inc. are on competitive terms. Sales to Cedant
Software were $4.5 million for fiscal 1998.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, executive officers, and persons who own more than ten percent of the
Company's Common Stock, to file with the Securities and Exchange Commission
initial reports of ownership and reports of changes in ownership of the
Company's Common stock and to provide copies of the reports to the Company. To
the Company's knowledge, based solely on a review of the copies of reports
furnished to the Company, and written representations that no other reports were
required to be filed, during the fiscal year ended March 31, 1998, the Company's
directors, executive officers, and stockholders beneficially owning more than
ten percent of the Company's Common Stock complied with their respective Section
16(a) reporting requirements.
A-14
SCHEDULE I
POTENTIAL PURCHASER DESIGNEES
PRESENT PRINCIPAL OCCUPATION OR
EMPLOYMENT AND
NAME, AGE AND BUSINESS ADDRESS OFFICE(S) FIVE-YEAR EMPLOYMENT HISTORY CITIZENSHIP
- --------------------------------- ---------------------- --------------------------------- -------------------
ORLANDO F. President; Chief President of various wholly owned United States
RAIMONDO (54).................. Executive Officer; subsidiaries of Parent comprising
3233 East Mission Oaks Director of Neptune the Technicolor Packaged Media
Boulevard Acquisition Corp. Group.
Camarillo, CA 93012
GARY JOYCE (36).................. Vice President; Senior Vice President and Chief United Kingdom
3233 East Mission Oaks Treasurer; Assistant Financial Officer of Technicolor
Boulevard Secretary; Director of Packaged Media Group since July
Camarillo, CA 93012 Neptune Acquisition 1996. Prior to that time,
Corp. Divisional Controller of Carlton
Communications Plc.
THOMAS M. COLLINS, JR. (44)...... Vice President; Senior Vice President and General United States
3233 East Mission Oaks Secretary; Assistant Counsel of Technicolor Packaged
Boulevard Treasurer; Director of Media Group; executive officer of
Camarillo, CA 93012 Neptune Acquisition a wholly owned subsidiary of
Corp. Parent since 1993. Partner,
Thelen, Marrin, Johnson & Bridges
prior to July 1993.
JUNE F. DE MOLLER (50)........... Managing Director of Managing Director of Carlton United Kingdom
25 Knightsbridge Carlton Communications since July 1993. Director since
London SW1X 7RZ Plc February 1983. Non-executive
England Director of Anglian Water Plc.
WILLIAM ROLLASON (37)............ Not applicable Joined Carlton in 1996 as an United Kingdom
25 Knightsbridge employee. From June 1992 to 1996,
London SW1X 7RZ Chief Financial Officer and
England Finance Director of Marling
Industries Plc, a publicly quoted
manufacturer of industrial
textiles.
I-1
PRESENT PRINCIPAL OCCUPATION OR
EMPLOYMENT AND
NAME, AGE AND BUSINESS ADDRESS OFFICE(S) FIVE-YEAR EMPLOYMENT HISTORY CITIZENSHIP
- --------------------------------- ---------------------- --------------------------------- -------------------
B. QUENTIN LILLY (36)............ Chief Operating Chief Operating Officer of United States
3233 East Mission Oaks Officer of Technicolor Technicolor Packaged Media Group
Boulevard Packaged Media Group since 1997. Joined as Vice
Camarillo, CA 93012 President, Planning and
Development in March 1994. Prior
to that time, Vice President,
Corporate Finance at Crowell,
Weeden & Co. in Los Angeles.
LYNDON J. FAULKNER (37).......... President, Treasurer, Joined Nimbus Records Limited in United Kingdom
623 Welsh Run Road Chief Executive 1985. Appointed President, Chief
Guildford Farm Officer and Chairman Executive Officer and Director of
Ruckersville, Virginia 22968 of the Board of Nimbus since October 1992 and
Directors of Nimbus Chairman of the Board of
Directors since March 1995 and
Treasurer since August 1996.
Director of Tad Coffen
Performance Saddles Inc., a
privately owned company.
L. STEVEN MINKEL (56)............ Executive Vice Joined Nimbus in November 1992. United States
623 Welsh Run Road President, Chief Appointed Executive Vice
Guildford Farm Financial Officer, President, Chief Financial
Ruckersville, Virginia 22968 Secretary and Director Officer and Secretary since
of Nimbus November 1992. Elected Director
in August 1997. Was a Director
from November 1992 through March
1995.
I-2
ANNEX B
[LOGO]
June 16, 1998
The Board of Directors
Nimbus CD International, Inc.
623 Welsh Run Road
Ruckersville, Virginia 22968
Gentlemen:
Nimbus CD International, Inc., a Delaware corporation (the "Company"), has
entered into an Agreement and Plan of Merger (the "Merger Agreement") with
Carlton Communications Plc, a Public Limited Company organized under the laws of
England and Wales ("Parent"), and Neptune Acquisition Corp., a Delaware
corporation and a wholly-owned subsidiary of Parent ("Sub"), whereby Sub will
commence a tender offer (the "Offer") to purchase all of the issued and
outstanding shares of common stock, par value $.01 per share (the "Common
Stock"), of the Company at a price of $11.50 per share net to the seller in cash
(the "Consideration"). The Merger Agreement also provides that, following the
consummation of the Offer, the Company will be merged with and into Sub in a
transaction (the "Merger") pursuant to which each outstanding share of Common
Stock not owned by Parent, Sub or their respective affiliates will be converted
into the right to receive an amount in cash equal to the per share consideration
paid in the Offer and the Company will become a wholly owned subsidiary of
Parent. In addition, we understand that, in connection with the Offer and the
Merger, Parent, Sub and certain stockholders of the Company (the "Stockholders")
who own, in aggregate, approximately 44 percent of the outstanding Common Stock
on a fully-diluted basis, propose to enter into an agreement (the "Stockholders
Agreement") whereby the Stockholders will agree to tender (and not withdraw)
their shares of Common Stock into the Offer and to grant to Parent and/or Sub
the right, subject to certain conditions, to receive the proceeds received by
such Stockholders from the sale of such shares for a consideration in excess of
$11.50 per share. You have asked us to render an opinion to you as to whether or
not the Consideration to be paid to the stockholders of the Company is fair to
the stockholders of the Company from a financial point of view.
In arriving at our opinion, we have, among other things:
(i) reviewed a draft of the Merger Agreement, and a draft of the
Stockholders' Agreement, each dated June 16, 1998;
(ii) reviewed (x) the Company's 1999 budget, and (y) the Company's 2000
and 2001 projected financial results, dated April 15, 1998, which
were received by us on June 4, 1998 (collectively, with the 1999
budget, the "Forecasts"), and discussed such Forecasts with the
Company's management;
(iii) discussed with management of the Company, the business, operations,
historical financial results and Forecasts of the Company;
(iv) reviewed the audited financial statements and Annual Reports on
Form 10-K of the Company for the fiscal years ended March 31, 1995,
1996 and 1997;
B-1
(v) reviewed the preliminary unaudited financial statements of the
Company for the fiscal year ended March 31, 1998 and a Company press
release, dated May 21, 1998, relating to the Company's fiscal year
end 1998 financial results;
(vi) reviewed the historical stock prices and trading volumes of the
Company's common stock;
(vii) reviewed certain publicly available information regarding publicly
traded companies we deemed reasonably comparable to the Company;
(viii) reviewed certain publicly available information regarding a merger
and acquisition transaction involving a company we deemed
reasonably comparable to the Company;
(ix) discussed with other potential acquirers of the Company, potential
merger and acquisition transactions involving the Company;
(x) reviewed certain information regarding premiums paid in all cash
acquisitions of a size comparable to the Merger for publicly traded
companies;
(xi) performed discounted cash flow analyses based on the Forecasts;
(xii) performed leveraged buyout analyses based on the Forecasts; and
(xiii) reviewed such other information, performed such other analyses and
taken into account such other factors as we deemed relevant.
For purposes of rendering our opinion, we have assumed and relied upon the
accuracy and completeness of all information provided to us by and on behalf of
the Company and have not assumed any responsibility for independent verification
of such information or for any independent valuation or appraisal of any assets
of the Company, nor were we furnished with any such valuations or appraisals. We
have assumed, without independent investigation, the accuracy of all
representations and statements made by officers and management of the Company.
With respect to the Forecasts, we have assumed that they were reasonably
prepared on bases reflecting the best estimates and good faith judgment of the
Company's management as of the date of their preparation and that management has
informed us of all circumstances occurring since such date that could make the
Forecasts incomplete or misleading. Our opinion is necessarily based on
economic, market and other conditions, and information made available to us as
of the date hereof.
This opinion was provided at the request and solely for the benefit of the
Board of Directors of the Company in connection with its consideration of the
Offer and the Merger and shall not be reproduced, summarized, described, relied
upon, or referred to, or furnished to any other person without Berenson
Minella's prior written consent; PROVIDED that, subject to our prior review, the
Company may refer to this opinion on any Solicitation/Recommendation Statement
on Schedule 14D-9 filed by the Company with respect to the Offer or any Proxy
Statement filed by the Company with respect to the Merger, without such written
consent. The opinion does not and will not constitute a recommendation to
stockholders of the Company to tender their shares in the Offer or to vote in
favor of the Merger. This opinion is delivered subject to the conditions, scope
of engagement, standard of care, limitations, and understandings set forth in
the engagement agreement between Berenson Minella and the Company, dated June
16, 1998.
This opinion is delivered with the explicit understanding that this opinion
is based on standards of assessment in existence as of the date hereof, and that
standards of assessment may change in the future. Berenson Minella disclaims any
responsibility for any impact any such changes may have on the assessment of the
Offer and the Merger. Unforeseen future events that could affect the fairness of
the Consideration to be paid to the stockholders in the Offer and the Merger,
from a financial point of view, have not been factored into this opinion.
Berenson Minella disclaims any obligation to update or revise this opinion for
events occurring subsequent to the date hereof, whether foreseen or unforeseen.
B-2
This opinion is a fairness opinion only from a financial point of view.
Berenson Minella makes no representations with respect to questions of legal
interpretation or enforceability and expressly disclaims that this opinion may
be construed in any way as a legal opinion. In addition, without limiting the
foregoing, we express no opinion regarding the fairness of the Consideration to
(i) holders of options issued pursuant to any stock option plan of the Company
in which the exercise price of such options exceeds the Offer Price (as defined
in the Merger Agreement) and (ii) holders of options of the Company who exchange
such options for securities of Parent. Our opinion is limited to the matters
expressly set forth in this letter, and no opinions may be implied or may be
inferred beyond the matters expressly so stated.
We note that we have acted as financial advisor to the Company in connection
with the Offer and the Merger and will receive a fee for our services, which is
contingent upon the consummation of the Offer.
Based upon and subject to the foregoing, and subject to the various
assumptions, qualifications, and limitations set forth herein, it is our opinion
that, as of the date hereof, the Consideration to be paid to the stockholders of
the Company pursuant to the Offer and the Merger is fair to the stockholders of
the Company from a financial point of view.
Very truly yours,
BERENSON MINELLA & COMPANY
B-3