MFW M&F Worldwide Corp. Common Stock

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

(Amendment No. 3)

Proxy Statement Pursuant to Section 14(a) of
the Securities and Exchange Act of 1934

Filed by the Registrant þ

Filed by a Party other than the Registrant o

Check the appropriate box:

o		Preliminary Proxy Statement
o		Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
þ		Definitive Proxy Statement
o		Definitive Additional Materials
o		Soliciting Material Pursuant to Section 240.14a-12

M & F Worldwide Corp.

(Name of Registrant as Specified in Its Charter)

(N/A)

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

Payment of Filing Fee (Check the appropriate box):

o		No fee required.
o		Fee computed as shown below per Exchange Act Rules 14a-6(i)(1) and 0-11.
		(1)		Title of each class of securities to which transaction applies: common stock of the Company, par value $0.01 per share.
		(2)		Aggregate number of securities to which transaction applies: 10,939,931 shares of common stock.
		(3)		Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11:
				In accordance with Exchange Act Rule 0-11(c), the filing fee of $31,753.15 was determined by multiplying .00011610 by the aggregate merger consideration of $273,498,275. The aggregate merger consideration was calculated by multiplying the 10,939,931 outstanding shares of common stock to be acquired pursuant to the merger and the merger consideration of $25.00 per share.
		(4)		Proposed maximum aggregate value of transaction:
				$273,498,275
		(5)		Total fee paid:
				$31,753.15
þ		Fee paid previously with preliminary materials.
o		Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing registration statement number, or the Form or Schedule and date of its filing.
		(1)		Amount Previously Paid:
		(2)		Form, Schedule or Registration Statement No.:
		(3)		Filing Party:
		(4)		Date Filed:

 

 

M & F WORLDWIDE CORP.
35 East 62nd Street
New York, NY 10065

 

November 18, 2011

 

To Our Stockholders:

 

We cordially invite you to attend a special meeting of the stockholders of M & F Worldwide Corp., a Delaware corporation (“M & F Worldwide”, the “Company”, “we”, “our” or “us”), which we will hold at Skadden, Arps, Slate, Meagher & Flom LLP, Four Times Square, New York, NY 10036, on December 21, 2011, at 10:00 a.m. local time.

 

At the special meeting, holders of our common stock, par value $0.01 per share (“common stock”), will be asked to consider and vote upon a proposal to approve an Agreement and Plan of Merger (as it may be amended from time to time, the “Merger Agreement”), dated as of September 12, 2011, by and among the Company, MX Holdings One, LLC, a Delaware limited liability company (“Parent”), MX Holdings Two, Inc., a Delaware corporation (“Merger Sub”), and, solely as specified therein, MacAndrews & Forbes Holdings Inc., a Delaware corporation (“Holdings”), pursuant to which Merger Sub will be merged with and into the Company and each share of common stock outstanding at the effective time of the merger (other than shares owned by the Company, Merger Sub, and holders who have perfected and not withdrawn a demand for appraisal rights) will be canceled and converted into the right to receive $25.00, in cash, without interest. The capital stock of each of Merger Sub and Parent is 100% beneficially owned by Holdings, which is 100% beneficially owned by Ronald O. Perelman. Mr. Perelman beneficially owns approximately 43.4% of the outstanding common stock.

 

To assist in evaluating the fairness to our stockholders of the merger, our board of directors formed a special committee of independent directors to consider and negotiate the terms and conditions of the merger and to make a recommendation to our board of directors.

 

Our board of directors, after receiving the recommendation of the special committee, has approved and adopted the Merger Agreement and determined that the merger is advisable, fair to and in the best interest of the Company and its stockholders (other than Holdings and its affiliates). Our board of directors unanimously (other than Mr. Perelman, Barry F. Schwartz, William C. Bevins, Stephen G. Taub and Charles T. Dawson) recommends that the stockholders of the Company vote “FOR” the proposal to approve the Merger Agreement. Mr. Perelman, Mr. Schwartz and Mr. Bevins abstained from the vote of the board of directors because of their affiliation with Holdings, and Mr. Taub and Mr. Dawson abstained from the vote of the board of directors because they are employees of our subsidiaries.

 

The enclosed proxy statement describes the Merger Agreement, the merger and related agreements and provides specific information concerning the special meeting. In addition, you may obtain information about us from documents filed with the Securities and Exchange Commission. We urge you to, and you should, read the entire proxy statement carefully, including the appendices, as it sets forth the details of the Merger Agreement and other important information related to the merger.

 

Your vote is very important. The merger cannot be completed unless holders of a majority of the (i) outstanding shares of common stock vote in favor of the approval of the Merger Agreement and (ii) outstanding shares of common stock (excluding shares owned by Holdings or its affiliates) vote in favor of the approval of the Merger Agreement. If you fail to

vote on the Merger Agreement, the effect will be the same as a vote against the approval of the Merger Agreement.

 

While stockholders may exercise their right to vote their shares in person, we recognize that many stockholders may not be able to attend the special meeting. Accordingly, we have enclosed a proxy that will enable you to vote your shares on the matters to be considered at the special meeting even if you are unable to attend. If you desire to vote in accordance with the board of directors’ recommendation, you need only sign, date and return the proxy in the enclosed postage-paid envelope to record your vote. Otherwise, please mark the proxy to indicate your vote; date and sign the proxy; and return it in the enclosed postage-paid envelope. You also may vote your shares by proxy using a toll-free telephone number or the Internet. We have provided instructions on the proxy card for using these convenient services.

 

Voting by proxy will not prevent you from voting your shares in person if you subsequently choose to attend the special meeting. You may also access the proxy materials on the Internet at http://mandfworldwide.com/Financial_reporting/proxy_materials.htm.

 

Very truly yours,

 

Barry F. Schwartz

Chief Executive Officer and President

 

Neither the Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved the merger, passed upon the merits or fairness of the merger or passed upon the adequacy or accuracy of the disclosure in this document. Any representation to the contrary is a criminal offense.

 

This proxy statement is dated November 18, 2011
and is first being mailed to stockholders on or about November 21, 2011.

M & F WORLDWIDE CORP.
35 East 62nd Street
New York, NY 10065

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 21, 2011

 

To Our Stockholders:

 

A special meeting of stockholders of M & F Worldwide Corp., a Delaware corporation (“M & F Worldwide”, the “Company”, “we”, “our” or “us”), will be held at Skadden, Arps, Slate, Meagher & Flom LLP, Four Times Square, New York, NY 10036, on December 21, 2011, at 10:00 a.m. local time, for the following purposes:

 

 

The holders of record of our common stock, par value $0.01 per share (“common stock”), at the close of business on November 14, 2011, are entitled to notice of and to vote at the special meeting or at any adjournment or postponement thereof. All stockholders of record are cordially invited to attend the special meeting in person. A list of our stockholders will be available at our headquarters located at 35 East 62nd Street, New York, NY, during ordinary business hours for ten days prior to the special meeting.

 

Your vote is important, regardless of the number of shares of common stock you own. The approval of the Merger Agreement by the affirmative vote of holders of a majority of the (i) outstanding shares of common stock and (ii) outstanding shares of common stock (excluding shares owned by Holdings or its affiliates) is a condition to the consummation of the merger. The proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies requires the affirmative vote of holders of a majority of the voting power present and entitled to vote. Even if you plan to attend the special meeting in person, we request that you complete, sign, date and return the enclosed proxy and thus ensure that your shares will be represented at the special meeting if you are unable to attend.

 

You also may vote your shares by proxy using a toll-free telephone number or the Internet. We have provided instructions on the proxy card for using these convenient services.

If you sign, date and return your proxy card without indicating how you wish to vote, your proxy will be voted in favor of the approval of the Merger Agreement and the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies. If you fail to vote, the effect will be that your shares will not be counted for purposes of determining whether a quorum is present at the special meeting and will have the same effect as a vote against the approval of the Merger Agreement, but will not affect the vote regarding the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies.

 

Your proxy may be revoked at any time before the vote at the special meeting by following the procedures outlined in the accompanying proxy statement. If you are a stockholder of record and do attend the special meeting and wish to vote in person, you may revoke your proxy and vote in person.

 

By order of the Board of Directors

 

M & F WORLDWIDE CORP.

 

November 18, 2011

 

Important Notice Regarding the Availability of Proxy Materials for the Special Meeting of Stockholders To be Held on December 21, 2011

 

We have elected to provide access to our proxy materials both by sending you this full set of proxy materials, including a proxy card, and by notifying you of the availability of our proxy materials on the Internet. The proxy materials are available at http://mandfworldwide.com/Financial_reporting/proxy_materials.htm.

TABLE OF CONTENTS

 

 

This Summary Term Sheet discusses the material information contained in this proxy statement, including with respect to the Merger Agreement, as defined below, and the merger. We encourage you to read carefully this entire proxy statement, its annexes and the documents referred to or incorporated by reference in this proxy statement, as this Summary Term Sheet may not contain all of the information that may be important to you. The items in this Summary Term Sheet include page references directing you to a more complete description of that topic in this proxy statement.

 

The Parties to the Merger Agreement

 

M & F Worldwide Corp.

35 East 62nd Street

New York, NY 10065

Tel: 212-572-8600

 

M & F Worldwide Corp., referred to herein as “M & F Worldwide”, the “Company”, “we”, “our” or “us”, is a Delaware corporation. M & F Worldwide is a holding company that operates through four business segments: Harland Clarke, Harland Financial Solutions, Scantron and Mafco Worldwide. Harland Clarke is a provider of checks and related products, direct marketing services and customized business and home office products. Harland Financial Solutions provides technology products and related services to financial institutions. Scantron is a provider of data management solutions and related services to educational, healthcare, commercial and governmental entities worldwide including testing and assessment solutions, patient information collection and tracking, and survey services. Mafco Worldwide produces licorice products for sale to the tobacco, food, pharmaceutical and confectionery industries. See “ Important Information Regarding M & F Worldwide and its Directors and Executive Officers—Information Regarding M & F Worldwide ” beginning on page 97.

 

Additional information about M & F Worldwide is contained in its public filings, which are incorporated by reference hereto. See “ Where You Can Find Additional Information ” beginning on page 113.

 

MacAndrews & Forbes Holdings Inc.

35 East 62nd Street

New York, NY 10065

Tel: 212-572-8600

 

MacAndrews & Forbes Holdings Inc., referred to herein as “Holdings”, is a Delaware corporation. Holdings is a diversified holding company with interests in biotechnology, check printing and check related products and services, consumer products, defense, education, entertainment, financial services, gaming and other industries. The capital stock of Holdings is 100% owned by Ronald O. Perelman. See “ Important Information Regarding the Holdings Filing Persons and their Directors and Executive Officers—Holdings ” beginning on page 105.

 

MX Holdings One, LLC

35 East 62nd Street

New York, NY 10065

Tel: 212-572-8600

 

MX Holdings One, LLC, referred to herein as “Parent”, is a Delaware limited liability company. Parent is a wholly owned subsidiary of Holdings and was formed solely for the purpose of holding the shares of common stock of Merger Sub and other related transactions. Parent has not engaged in any business other than in connection with the merger and other related transactions. See “ Important Information Regarding the Holdings Filing Persons and their Directors and Executive Officers—Information Regarding Parent ” beginning on page 105.

 

MX Holdings Two, Inc.

35 East 62nd Street

New York, NY 10065

Tel: 212-572-8600

 

MX Holdings Two, Inc., referred to herein as “Merger Sub”, is a Delaware corporation. Merger Sub is a wholly owned subsidiary of Parent and was formed solely for the purpose of engaging in the merger and other related transactions. Merger Sub has not engaged in any business other than in connection with the merger and other related transactions. See “ Important Information Regarding the Holdings Filing Persons and their Directors and Executive Officers—Information Regarding Merger Sub ” beginning on page 105.

 

The Merger Proposal

 

You will be asked to consider and vote upon the proposal to approve the Agreement and Plan of Merger, dated as of September 12, 2011, by and among the Company, Parent, Merger Sub and, solely as specified therein, Holdings, which, as it may be amended from time to time, is referred to herein as the “Merger Agreement”. The Merger Agreement provides that Merger Sub will be merged with and into the Company, and each outstanding share of common stock, par value $0.01 per share, of the Company, referred to herein as the “common stock”, other than shares owned by the Company, Merger Sub, and holders who have perfected and not withdrawn a demand for appraisal rights, which are collectively referred to herein as “excluded shares”, will be converted into the right to receive $25.00 in cash, without interest and less any required withholding taxes.

 

The Special Meeting (Page 77)

 

The special meeting will be held at Skadden, Arps, Slate, Meagher & Flom LLP, Four Times Square, New York, NY 10036, on December 21, 2011, at 10:00 a.m. local time.

 

Record Date and Quorum (Page 77)

 

The holders of record of the common stock as of the close of business on November 14, 2011, the record date for the special meeting, are entitled to receive notice of and to vote at the special meeting.

 

The presence at the special meeting, in person or by proxy, of the holders of a majority of shares of common stock outstanding on the record date will constitute a quorum, permitting the Company to conduct its business at the special meeting.

 

Required Vote (Page 77)

 

For the Company to complete the merger, under Delaware law, stockholders holding at least a majority in voting power of the common stock outstanding at the close of business on the record

date must vote “FOR” the approval of the Merger Agreement. In addition, it is a condition to the consummation of the merger that stockholders holding at least a majority in voting power of the common stock outstanding at the close of business on the record date and not owned by Holdings or its affiliates must vote “FOR” the approval of the Merger Agreement. A failure to vote your shares of common stock or an abstention from voting will have the same effect as a vote against the merger. Holdings and its affiliates are referred to herein as “excluded stockholders”, and the stockholders of the Company other than the Company’s officers and directors, Holdings and Holdings’ affiliates are referred to herein as “unaffiliated stockholders”.

 

As of the record date, there were 19,333,931 shares of common stock outstanding, of which Mr. Perelman may be deemed to beneficially own 8,394,000 shares (consisting of 7,248,000 shares of common stock held through MFW Holdings One LLC, a wholly owned subsidiary of Holdings and referred to herein as “MFW Holdings One”, 1,012,666 shares of common stock held through MFW Holdings Two LLC, a wholly owned subsidiary of Holdings and referred to herein as “MFW Holdings Two”, and 133,334 shares of common stock held directly by Mr. Perelman), representing in the aggregate approximately 43.4% of the outstanding shares of common stock as of the record date. Mr. Perelman, MFW Holdings One and MFW Holdings Two are collectively referred to herein as the “Holdings Investors”. The Holdings Investors, Holdings, Parent and Merger Sub are collectively referred to herein as the “Holdings Filing Persons”.

 

The Holdings Investors have agreed to contribute to Merger Sub immediately prior to the effective time of the merger the shares of common stock held by them in exchange for shares of common stock of Merger Sub. Holdings has agreed to vote all shares of common stock that it beneficially owns in favor of approving the Merger Agreement. See “ Agreements Involving Common Stock; Transactions Between Holdings Filing Persons and the Company—Agreements Involving Common Stock—Contribution Agreement ” beginning on page 109.

 

In addition, excluded stockholders other than the Holdings Investors own an additional 16,000 shares of common stock, and have each agreed to vote such shares in favor of approving the Merger Agreement. See “ Important Information Regarding M & F Worldwide and its Directors and Executive Officers ” beginning on page 97.

 

Because the excluded stockholders may be deemed to beneficially own 8,410,000 shares of outstanding common stock, an additional 5,461,966 shares of common stock (representing a majority of the outstanding shares of common stock held by stockholders other than the excluded stockholders), or approximately 28.25% of the outstanding shares of common stock, must vote in favor of the Merger Agreement to satisfy the required vote under the Merger Agreement. The directors and current executive officers of the Company (other than any such director or executive officer who is an excluded stockholder), all of whom have expressed their intent to vote in favor of the proposal to approve the Merger Agreement because they view the merger as an attractive opportunity to receive cash for their shares of common stock at a premium to recent market prices, may be deemed to beneficially own an additional 194,316 shares of common stock (not including shares held through the Outside Directors Deferred Compensation Plan). Except in their capacities as members of the board of directors of the Company, as applicable, no officer or director of the Company nor any Holdings Filing Person has made any recommendation either in support of or opposed to the merger or the Merger Agreement.

Conditions to the Merger (Page 93)

 

Each party’s obligation to complete the merger is subject to the satisfaction of the following conditions, none of which may be waived:

 

 

The obligation of the Company to complete the merger is subject to the satisfaction or waiver of the following conditions, any of which may be waived:

 

 

The respective obligations of Parent and Merger Sub to complete the merger are subject to the satisfaction or waiver of the following conditions, any of which may be waived:

 

 

When the Merger Will be Completed

 

We anticipate completing the merger during the fourth quarter of 2011 subject to approval of the Merger Agreement by the Company’s stockholders as specified herein and the satisfaction of the other closing conditions.

 

Purposes and Reasons for the Merger; Position of the Company as to Fairness of the Merger; Recommendation of the Special Committee and of our Board of Directors (Page 29)

 

Our board of directors formed a special committee, referred to herein as the “special committee”, comprised of four independent directors (Martha L. Byorum, Viet D. Dinh, Paul M. Meister and Carl B. Webb) for the purpose of investigating, evaluating and negotiating the proposal made by Holdings on June 13, 2011, to acquire the common stock and, as appropriate, reject or recommend to our full board of directors the proposal by Holdings. On September 10, 2011, the special committee unanimously (i) determined that the Merger Agreement is advisable, fair to and in the best interests of the stockholders (other than Holdings and its affiliates), and (ii) recommended that the board of directors approve the Merger Agreement. After considering such recommendation, the board of directors of the Company unanimously (other than the abstaining directors, as defined below), (i) approved and adopted the Merger Agreement, (ii) determined that the Merger Agreement is advisable, fair to and in the best interest of the Company’s unaffiliated stockholders and (iii) resolved to recommend that the stockholders of the Company approve the Merger Agreement. Accordingly, the board of directors (other than the abstaining directors) recommends that you vote “FOR” the proposal to approve the Merger Agreement. Mr. Perelman, Barry F. Schwartz and William C. Bevins abstained from the vote of the board of directors because of their affiliation with Holdings, and Stephen G. Taub and Charles T. Dawson abstained from the vote of the board of directors because they are employees of subsidiaries of the Company. Each of Mr. Perelman, Mr. Schwartz, Mr. Bevins, Mr. Taub and Mr. Dawson is referred to herein as an “abstaining director”.

 

In evaluating the fairness and advisability of the Merger Agreement, the special committee considered information with respect to the Company’s financial condition, results of operations, businesses, competitive position and business strategy, on both a historical and prospective basis, as well as current industry, economic and market conditions and trends. The special committee considered the following factors, each of which the special committee believes supports its determination as to fairness:

 

 

 

In evaluating the fairness and advisability of the Merger Agreement, the special committee also considered, among other factors, the following, each of which the special committee viewed as being generally negative or unfavorable:

 

 

The Company’s board of directors, in making its determination as to the fairness and advisability of the Merger Agreement and the merger, considered a number of factors, including the following:

 

 

For a more complete discussion of the factors considered by our board of directors in reaching its decision to approve and adopt the Merger Agreement and the merger, see “ Special Factors—Purposes and Reasons for the Merger; Position of the Company as to Fairness of the Merger; Recommendation of the Special Committee and of our Board of Directors ”.

 

Opinion of Evercore Group L.L.C. (Page 35 and Annex B)

 

On September 10, 2011, at a meeting of the special committee, Evercore delivered to the special committee its oral opinion, which was subsequently confirmed by delivery of a written opinion dated September 10, 2011, that, as of such date and based upon the procedures followed and subject to assumptions made, matters considered and limitations on the scope of review undertaken by Evercore as set forth in its opinion, the merger consideration was fair, from a financial point of view, to the holders of shares of common stock (other than Holdings and its affiliates) entitled to receive such merger consideration. The full text of Evercore’s written opinion is attached as Annex B to this proxy statement. The opinion was addressed to the special committee and addresses only the fairness, from a financial point of view, of the merger consideration to the holders of shares of common stock (other than Holdings and its affiliates) entitled to receive such merger consideration. The opinion does not address any other aspect of the merger and does not constitute a recommendation to the special committee, our board of directors or to any other person in respect of the merger, including as to how any holder of shares of common stock should vote or act in respect of the merger.

 

Holdings Filing Persons’ Purpose and Reasons for the Merger (Page 49)

 

The Holdings Filing Persons’ purpose for engaging in the merger is to increase Mr. Perelman’s beneficial ownership of common stock from his current position of approximately 43.4% of the outstanding common stock to 100%. Upon completion of the merger, the Company will become an indirect wholly owned subsidiary of Holdings, which is 100% owned by Mr. Perelman. See “ Special Factors—Holdings Filing Persons’ Purposes and Reasons for the Merger ” beginning on page 49 for an additional discussion as to why the Holdings Filing Persons are pursuing the merger at this time.

Holdings Filing Persons’ Position as to Fairness of the Merger (Page 50)

 

The Holdings Filing Persons believe that the merger is fair to the stockholders of the Company other than Holdings and its affiliates. In arriving at their position as to the fairness of the merger, the Holdings Filing Persons considered the factors discussed in the section entitled “ Special Factors—Holdings Filing Persons’ Position as to Fairness ” beginning on page 50.

 

Plans for M & F Worldwide after the Merger (Page 57)

 

It is expected that the Company’s operations will be conducted substantially as they currently are being conducted. See “ Special Factors—Plans for M & F Worldwide after the Merger ” beginning on page 57 for an additional discussion as to the Holdings Filing Persons’ plans for the Company after the merger.

 

Certain Effects of the Merger (Page 63)

 

If the conditions to the closing of the merger are either satisfied or, to the extent permitted, waived, Merger Sub will be merged with and into the Company, the separate corporate existence of Merger Sub will cease and the Company will continue its corporate existence under Delaware law as the surviving corporation in the merger, with all of its and Merger Sub’s rights, privileges, immunities, powers and franchises continuing unaffected by the merger. Upon completion of the merger, shares of common stock other than excluded shares will be converted into the right to receive $25.00 per share, without interest and less any required withholding taxes. Following the completion of the merger, the common stock will no longer be publicly traded, and you will cease to have any ownership interest in the Company.

 

Interests of the Company’s Directors and Executive Officers in the Merger (Page 64)

 

In considering the recommendation of the special committee and the board of directors with respect to the Merger Agreement, you should be aware that some of the Company’s directors and executive officers have interests in the merger that may be different from, or in addition to, the interests of the Company’s stockholders generally. Common stock beneficially owned by Mr. Perelman, a director of the Company, will not be cancelled in the merger, and he and his affiliates will acquire the remaining capital stock of the Company, as discussed in the section entitled “ Special Factors—Certain Effects of the Merger ” beginning on page 63. Other interests of officers and directors that may be different from or in addition to the interests of the Company’s stockholders include the treatment of deferred compensation plan stock accounts, possibility of employment with the Company following the effective time and indemnification and insurance arrangements with officers and directors following the effective time, as well as the other interests discussed in the section entitled “ Special Factors—Interests of the Company’s Directors and Executive Officers in the Merger ” beginning on page 64. The special committee and the board of directors were aware of the different or additional interests set forth herein and considered such interests along with other matters in approving the Merger Agreement and the transactions contemplated thereby, including the merger.

 

Financing of the Merger (Page 66)

 

Parent estimates that the total amount of funds necessary to complete the proposed merger and related transactions is approximately $273.5 million plus fees and expenses. See “ The Merger

Agreement—Estimated Fees and Expenses ”. These payments are expected to be funded by a combination of debt financing and funds available to the surviving corporation at the effective time of the merger. In connection with the signing of the Merger Agreement, Holdings received an amended and restated debt commitment letter, dated as of September 9, 2011, referred to herein as the “Commitment Letter”, from Deutsche Bank Trust Company Americas, referred to herein as “Deutsche Bank”, pursuant to which, subject to the conditions set forth therein, Deutsche Bank has committed to provide to Parent up to $250 million through a senior secured term loan facility. The proceeds of the loan will be used to (i) fund a portion of the aggregate merger consideration and pay fees and expenses incurred in connection therewith and (ii) refinance and/or repay existing indebtedness owed by certain subsidiaries of Holdings to Deutsche Bank. The consummation of the merger is not conditioned upon receipt of any financing.

 

Material United States Federal Income Tax Consequences (Page 67)

 

If you are a U.S. holder, the receipt of cash in the merger will generally be a taxable transaction for U.S. federal income tax purposes. For U.S. federal income tax purposes, your receipt of cash in exchange for your shares of common stock will generally cause you to recognize a gain or loss measured by the difference, if any, between the cash you receive in the merger and your adjusted basis in your shares. If you are a non-U.S. holder, you generally will not be subject to United States federal income tax unless you have certain connections to the United States. You should consult your tax advisor for a full understanding of how the merger will affect your taxes.

 

Regulatory Approvals (Page 69)

 

The merger is subject to review under the Hart-Scott-Rodino Act. The initial filings under the Hart-Scott-Rodino Act were made on September 21, 2011, for each of the Company and Mr. Perelman. On September 30, 2011, early termination of the waiting period under the Hart-Scott-Rodino Act regarding Mr. Perelman’s acquisition of shares of M & F Worldwide pursuant to the merger was granted.

 

Anticipated Accounting Treatment of the Merger (page 69)

 

M & F Worldwide, as the surviving corporation, will account for the merger as a business combination using the purchase method of accounting for financial accounting purposes, whereby the estimated purchase price would be allocated to the assets and liabilities of M & F Worldwide based on their relative fair values following FASB Accounting Standards Codification Topic 805, Business Combinations.

 

Litigation (Page 69)

 

Following the announcement on June 13, 2011 by Holdings of its proposal to acquire the outstanding shares of the Company’s common stock not owned by it for cash, three purported shareholders each filed complaints in the Delaware Court of Chancery, beginning on June 14, 2011, referred to herein as the “Delaware actions”, and two complaints were filed by purported shareholders in the Supreme Court of the State of New York, beginning on June 17, 2011, referred to herein as the “New York actions”.

On July 14, 2011, the Delaware Court of Chancery granted an order consolidating the Delaware actions, referred to herein as the “Consolidated Delaware Action”, and appointing co-lead counsel.

 

On September 14, 2011, the Delaware Court of Chancery granted a Stipulated Order of Class Certification and Case Management, which, among other things, certified the Consolidated Delaware Action as a class action pursuant to Delaware Court of Chancery Rules 23(a), 23(b)(1), and 23(b)(2) without opt-out rights. The class consists of all persons who held shares of common stock (excluding defendants named in the Consolidated Delaware Action and any person, firm, trust, corporation or other entity affiliated with any of the defendants) at any time during the period from and including June 13, 2011, through the date of consummation of the merger.

 

On September 15, 2011, the Supreme Court of the State of New York granted defendants’ cross-motion to dismiss or stay one of the New York actions without prejudice to that plaintiff’s right to seek to intervene in the Consolidated Delaware Action.

 

On the same day, the co-lead plaintiffs in the Consolidated Delaware Action filed a verified consolidated complaint , referred to herein as the “Consolidated Complaint”. The Consolidated Complaint alleges that each of the members of the Company’s board of directors breached their fiduciary duties, and further asserts claims for “unfair dealing” and breach of fiduciary duty against Mr. Perelman and Holdings. The Consolidated Complaint seeks, among other things, to preliminarily and permanently enjoin the defendants from effectuating the merger, along with a declaration that the members of the board breached their fiduciary duties, an accounting, rescissory damages, costs and fees.

 

On September 23, 2011, the parties to the remaining New York Action entered into a stipulation discontinuing that action without prejudice and without prejudice to that plaintiff’s right to seek to intervene in the Consolidated Delaware Action.

 

On November 14, 2011, the Delaware Court of Chancery entered a scheduling order, which set December 14, 2011 as the date for the preliminary injunction hearing.

 

Defendants believe that the claims in the Consolidated Complaint are entirely without merit and intend to defend these actions vigorously.

 

Dissenters’ Rights of Appraisal (Page 70 and Annex C)

 

M & F Worldwide stockholders who do not vote in favor of the Merger Agreement and who perfect their appraisal rights under Delaware law will have the right to a judicial appraisal of the fair value of their shares of common stock. In addition to not voting in favor of the merger, the stockholder must deliver to M & F Worldwide a written demand for appraisal of such stockholder’s shares prior to the vote on the Merger Agreement and continue to hold such shares until the consummation of the merger.

No Solicitation of Transactions (Page 89)

 

Pursuant to the Merger Agreement, neither the Company nor its officers, directors and representatives will:

 

 

We may, prior to the approval of the Merger Agreement by our stockholders at the special meeting, in response to a bona fide written acquisition proposal, participate in discussions regarding such acquisition proposal solely to clarify the terms of such acquisition proposal and if our board of directors has determined in good faith that the acquisition proposal is or could reasonably be expected to result in a “superior proposal”, as defined in the section entitled “ The Merger Agreement—No Solicitation of Transactions ” beginning on page 89, and, after consultation with outside legal counsel, that failure to take such action would be inconsistent with the fiduciary obligations of our board of directors under applicable laws, we may:

 

 

The Company may not (i) withdraw, modify or amend the board of directors’ recommendation in any manner adverse to Parent, (ii) approve, endorse or recommend an acquisition proposal or, (iii) at any time following receipt of an acquisition proposal, fail to reaffirm its approval or recommendation of the Merger Agreement and merger as promptly as practicable (but in any event within five business days after receipt of any reasonable written request to do so from Parent), each of the foregoing referred to herein as an “Adverse Company Recommendation”.

 

Notwithstanding these restrictions, prior to the approval of the Merger Agreement by our stockholders, our board of directors may, to the extent it determines in good faith, after consultation with outside legal counsel, that failure to take such action would be inconsistent with its fiduciary

duties, in response to (i) a superior proposal received by our board of directors after the date of the Merger Agreement or (ii) an “intervening event”, as defined in the section entitled “ The Merger Agreement—No Solicitation of Transactions ” beginning on page 89, make an Adverse Company Recommendation, but only if

 

 

Termination (Page 94)

 

The Company and Parent may terminate the Merger Agreement by mutual written consent at any time before the completion of the merger. In addition, either the Company or Parent may terminate the Merger Agreement if:

 

 

Parent may terminate the Merger Agreement if:

 

 

The Company may terminate the Merger Agreement if:

 

 

Termination Fees; Reimbursement of Expenses (Page 95)

 

The Company is required to pay a termination fee of $8,250,000 to Parent:

 

 

The Company is required to pay all of Parent’s, Merger Sub’s and their respective Affiliates’ reasonable out-of-pocket fees and expenses (including reasonable legal fees and expenses) actually incurred on or prior to the termination, not to exceed $4,000,000:

 

 

The following questions and answers address briefly some questions you may have regarding the special meeting, the Merger Agreement and the merger. These questions and answers may not address all questions that may be important to you as a stockholder of the Company. Please refer to the more detailed information contained elsewhere in this proxy statement, the annexes to this proxy statement and the documents referred to or incorporated by reference in this proxy statement.

 

 

 

 

 

 

 

 

 

 

 

 

As of the record date, there are 19,333,931 shares of common stock outstanding. Excluded stockholders may be deemed to beneficially own 8,410,000 shares of common stock. Accordingly, an additional 5,461,966 shares of common stock (representing a majority of the outstanding shares of common stock held by stockholders other than the excluded stockholders), or approximately 28.25% of the outstanding shares of common stock, must vote in favor of the Merger Agreement to satisfy the required vote under the Merger Agreement. The directors and current executive officers of the Company (other than any such director or executive officer who is an excluded stockholder), all of whom have expressed their intent to vote in favor of the proposal to approve the Merger Agreement because they view the merger as an attractive opportunity to receive cash for their shares of common stock at a premium to recent market prices, may be deemed to beneficially own an additional 194,316 shares of common stock (not including shares held through the Outside Directors Deferred Compensation Plan). Except in their capacities as members of the board of directors, as applicable, of the Company, no officer or director of the Company nor any Holdings Filing Person has made any recommendation either in support of or opposed to the merger or the Merger Agreement.

 

 

 

 

 

 

 

 

 

 

 

 

If you hold your shares in “street name” through a broker, bank or other nominee you should follow the directions provided by your broker, bank or other nominee regarding how to instruct your broker, bank or other nominee to vote your shares. Without those instructions, your shares will not be voted, which will have the same effect as voting against the merger.

 

 

 

 

 

 

 

 

 

 

 

 

Mr. Perelman, who currently beneficially owns approximately 43.4% of the common stock, has been the largest stockholder of the Company and a member of its board of directors since 1995. Holdings, of which Mr. Perelman owns 100% of the capital stock, provides the services of Mr. Schwartz, the Company’s President and Chief Executive Officer, and Mr. Paul G. Savas, the Company’s Chief Financial Officer, as well as other management, advisory, transactional, corporate finance, legal, risk management, tax and accounting services pursuant to the terms of a management services agreement. See “ Agreements Involving Common Stock; Transactions between Holdings Filing Persons and the Company—Management Services Agreement ”.

 

Since his initial acquisition of securities of the Company, Mr. Perelman has periodically reviewed his investment in the Company, and from time to time has considered making additional investments in the Company. In early May 2011, Mr. Perelman began to consider the possibility of engaging in a “going private” transaction with the Company. Mr. Perelman considered such a transaction at this time because he believed that the market was discounting the common stock as a result of recent declines in the Company’s financial performance and poor market conditions, and that the Company’s stockholders would welcome the opportunity to consider a transaction whereby they could immediately realize the value of their investment in the Company through the receipt of cash, at a premium to recent trading prices.

 

At this time, Mr. Perelman informed certain officers and employees of Holdings, including Mr. Schwartz and Mr. Savas, of his consideration of a transaction. Representatives of Holdings thereafter consulted with Skadden, Arps, Slate, Meagher & Flom LLP (“Skadden”), Holdings’ legal counsel, regarding the legal ramifications of engaging in a “going private” transaction, including the desirability of including safeguards to ensure the procedural fairness of the transaction, such as requiring that the transaction be approved by a special committee of the board of directors of the Company and by holders of a majority of the outstanding shares of common stock other than Holdings and its affiliates.

 

On or about May 23, 2011, Holdings initiated discussions with representatives from Moelis & Company LLC, referred to herein as “Moelis”, about representing Holdings as its financial advisor in connection with a potential transaction, and on May 24, 2011, Holdings orally engaged Moelis to serve as its financial advisor. Following its engagement, Moelis commenced due diligence with respect to the Company and its subsidiaries.

 

During the week of May 30, 2011, representatives of Holdings and Moelis participated in phone calls with lawyers from Skadden to discuss potential transaction structures and related matters. The other potential transaction structure that Holdings considered during such phone calls was a tender offer. Holdings determined during such discussions that the consummation of any going private transaction proposed by it would be conditioned upon the approval of both a special committee of the Company’s board of directors as well as the stockholders other than the excluded stockholders. In light of that determination, Holdings saw no advantage to proceeding by means of a tender offer and preferred the simplicity of a single-step merger.

 

On or about May 30, 2011, representatives of Holdings began discussions with Deutsche Bank regarding the possibility of obtaining financing in connection with a transaction.

 

On May 31, 2011, Moelis was provided with five year financial projections for the Company’s subsidiaries, Harland Clarke Holdings Corp., referred to herein as “HCHC”, and Mafco Worldwide Corporation, referred to herein as “Mafco Flavors”, which were initially prepared in April 2011 in connection with a contemplated amendment and extension of HCHC’s senior secured term loan facility and a contemplated refinancing transaction of certain indebtedness of Mafco Flavors, which ultimately were not consummated.

 

On June 2 and June 3, 2011, Moelis and representatives of Holdings discussed the financial projections that were provided on May 31, 2011 and reviewed business segment performance and key business risks associated with the Company. On June 8, 2011, representatives of Moelis, Holdings and Skadden met at Holdings’ offices for an additional diligence session.

 

On June 9, 2011, Moelis and Holdings entered into an engagement agreement. On the same day, Moelis made a presentation to the management of Holdings regarding its preliminary valuation analysis of the Company. See “ Special Factors—Summary of Presentations by the Financial Advisor to Holdings ”.

 

On June 10, 2011, representatives of Holdings, Skadden and Moelis discussed an appropriate price with respect to a Holdings proposal to acquire the remaining common stock not held by it. On the same day, Deutsche Bank delivered a commitment letter for financing the transaction.

 

During the period from June 10, 2011 through June 12, 2011, Mr. Schwartz made courtesy phone calls to the members of the Company’s board of directors, alerting them to a forthcoming proposal. No terms of a proposed transaction were discussed during those calls. Also on June 10, 2011, a partner at Ernst & Young, LLP, the Company’s auditor, was contacted by Holdings to inform him of a forthcoming proposal.

 

On June 13, 2011, Mr. Schwartz sent a letter to the Company’s board of directors, proposing a transaction pursuant to which a subsidiary of Holdings would be merged with and into the Company and all outstanding shares of common stock not owned by Holdings would be converted into the right to receive $24.00 per share in cash. The full text of the letter was filed with the SEC on June 13, 2011, and is set forth below.

 

June 13, 2011

 

Board of Directors

M & F Worldwide Corp.

35 East 62nd Street

New York, New York 10065

 

Dear Board Members:

 

MacAndrews & Forbes Holdings Inc. (“M&F” or “we”) is pleased to propose a transaction pursuant to which M & F Worldwide Corp. (the “Company”) would be merged with a subsidiary of M&F, as a result of which all outstanding shares of common stock of the Company not owned by M&F or its subsidiaries would be converted into the right to receive $24.00 in cash per share. The proposed cash consideration represents a greater than 41% premium to the Company’s closing share price on June 10, 2011.

 

The proposed transaction would allow the Company’s stockholders to immediately realize an attractive value, in cash, for their investment and provides such stockholders certainty of value for their shares, especially when viewed against the operational risks inherent in the Company’s businesses and the market risks inherent in remaining a public company. Moreover, the small public float and limited trading volume of the Company’s shares results in undesirable price volatility and restricts opportunities for the Company’s stockholders to achieve liquidity with respect to their shares.

 

We believe that private ownership is in the best interests of the Company, as it would result in operational efficiencies and cost savings, while providing management with the flexibility to focus on a long-term perspective without being constrained by the public company emphasis on achieving short-term results. Accordingly, we are confident that this proposal not only offers compelling value to the Company’s stockholders but is also in the best interests of the Company and its other constituencies.

 

The proposed transaction would be subject to the approval of the Board of Directors of the Company and the negotiation and execution of mutually acceptable definitive transaction documents. It is our expectation that the Board of Directors will appoint a special committee of independent directors to consider our proposal and make a recommendation to the Board of Directors. We will not move forward with the transaction unless it is approved by such a special committee. In addition, the transaction will be subject to a non-waivable condition requiring the approval of a majority of the shares of the Company not owned by M&F or its affiliates. Finally, given our existing position and history with the Company, we will not need to do any due diligence to enable us to be in a position to negotiate and execute mutually acceptable definitive documentation.

 

As you are aware, M&F owns approximately 43% of the outstanding shares of common stock of the Company. In considering this proposal, you should know that in our capacity as a stockholder of the Company we are interested only in acquiring the shares of the Company not already owned by us and that in such capacity we have no interest in selling any of the shares owned by us in the Company nor would we expect, in our capacity as a stockholder, to vote in favor of any alternative sale, merger or similar transaction involving the Company. If the special committee does not recommend or the public stockholders of the Company do not approve the proposed transaction, such determination would not adversely affect our future relationship with the Company and we would intend to remain as a long-term stockholder.

 

Please be aware that this proposal is an expression of interest only, and we reserve the right to withdraw or modify our proposal in any manner. No legal obligation with respect to a transaction shall arise unless and until execution of mutually acceptable definitive documentation.

 

In accordance with its legal obligations, M&F promptly will file an amendment to its Schedule 13D, including a copy of this letter. We believe it is appropriate, as well, for us to issue a press release regarding our proposal prior to the opening of trading today. A copy of our press release is attached for your information.

 

In connection with this proposal, we have engaged Moelis & Company as our financial advisor and Skadden, Arps, Slate, Meagher & Flom LLP as our legal advisor, and

we encourage the special committee to retain its own legal and financial advisors to assist it in its review. We and our advisors look forward to working with the special committee and its advisors to complete a mutually acceptable transaction, and are available at your convenience to discuss any aspects of our proposal.

 

Should you have any questions, please do not hesitate to contact me.

 

Sincerely,

 

/s/ Barry F. Schwartz

 

Barry F. Schwartz

 

On the same day, Holdings issued a press a release announcing its proposal and filed an amendment to its Schedule 13D to reflect the making of the proposal.

 

At a special meeting held telephonically on June 14, 2011, the Company’s board of directors met to discuss the Holdings proposal. Mr. Schwartz summarized Holdings’ proposal for the Company’s board and stated that given the relationship between the Company and Holdings, the representatives of Holdings on the Company’s board would not participate in any discussions concerning the Holdings proposal. He stated, as indicated in the proposal letter delivered by Holdings, that Holdings expected that the Company’s board would form a special committee of independent directors in order to evaluate the Holdings proposal. Mr. Schwartz noted that draft resolutions creating a special committee of the Company’s board of directors had been circulated the prior evening and could be adopted by the board if they met with the independent directors’ approval. Messrs. Perelman, Schwartz, Bevins, Dawson and Taub then left the meeting.

 

Paul M. Meister, an independent director of the Company who had recently served as chairman of a special committee of independent directors of the Company, then invited a representative of Willkie Farr & Gallagher LLP (“Willkie Farr”), which had served as counsel to that special committee, to advise the independent directors of the Company in connection with the process for considering the Holdings proposal. Willkie Farr discussed with the independent directors the role of a special committee in considering a proposal such as the Holdings proposal and various related matters, including matters of fiduciary duty, independence, process, the role of legal and financial advisors, and the terms of the Holdings proposal.

 

The board of directors then discussed with Willkie Farr, and adopted, the resolutions that had previously been circulated. The resolutions were adopted unanimously by those directors in attendance at the meeting, who constituted a majority of the board of directors. Messrs. Perelman, Schwartz, Bevins, Dawson and Taub, who had excused themselves from the meeting, did not participate in the vote. The resolutions created the special committee, to be comprised solely of independent directors, for the purpose of considering the Holdings proposal on behalf of the Company’s shareholders not affiliated with Holdings. Among other things, the resolutions authorized the special committee to investigate the Holdings proposal as the special committee deemed appropriate; evaluate the terms of the proposal; negotiate any element of the proposal; negotiate the terms of any definitive agreement with respect to the proposal; report to the board of directors its recommendations and conclusions with respect to the proposal, including whether to recommend that the proposal was fair to and in the best interests of the unaffiliated stockholders and should be approved by the board of directors, or to elect not to pursue the Holdings proposal. The resolutions

further provided that the Company’s board of directors would not approve the Holdings proposal without a prior favorable recommendation of the special committee and authorized the special committee to retain legal counsel, financial advisor and such other agents as the special committee deemed necessary or desirable in connection with its consideration of the Holdings proposal.

 

Following adoption of the resolutions, the independent directors discussed their ability and willingness to serve on the special committee and preliminarily determined that Martha L. Byorum, Viet D. Dinh, Paul M. Meister, Bruce Slovin (who recused himself the following day) and Carl B. Webb would serve on the special committee, subject to further discussion between each of them and counsel to the special committee as to their independence from Holdings and its affiliates (other than the Company and its subsidiaries). Once the members of the special committee had been approved by the independent directors of the Company, subject to individual discussions with counsel, the other independent directors excused themselves from the meeting and the members of the special committee discussed retaining independent legal and financial advisors to assist with its evaluation of the Holdings proposal. The special committee unanimously decided to retain Willkie Farr and to interview various financial advisors at a later date. After a discussion and identification of potential candidates, the special committee authorized Willkie Farr to coordinate interviews with the prospective financial advisors.

 

The special committee and Willkie Farr then met in person on June 21, 2011 (with Mr. Dinh in attendance by telephone) to interview potential financial advisors. The special committee members had numerous questions for each firm, including with respect to each firm’s and each proposed team member’s experience with special committee representations, experience with the industries in which the Company operates, current and previous relationships with Holdings and its affiliates, and perspectives on the special committee’s evaluation of the Holdings proposal. After extensive discussion regarding the qualifications of each firm, the special committee unanimously selected Evercore as its financial advisor and, following a discussion of the economic terms of such engagement, authorized Ms. Byorum to propose a revision to Evercore’s fee proposal and Willkie Farr to negotiate the other terms of Evercore’s engagement agreement on behalf of the special committee. Among the reasons for the selection of Evercore were Evercore’s recent experience in evaluating companies in businesses similar to those of the Company’s subsidiaries, its experience in advising special committees and the special committee’s confidence in the capabilities of the senior members of the Evercore team.

 

Following its engagement, Evercore commenced due diligence with respect to the Company and its subsidiaries.

 

On June 28, 2011, the special committee met telephonically with its legal and financial advisors. Evercore provided an update on the diligence process and noted that it would be conducting several in-person meetings with the Company’s management as well as with the management of its subsidiaries, HCHC and Mafco Flavors.

 

On June 29-30, 2011, the Company provided Evercore with financial projections for HCHC and Mafco Flavors.

 

On July 6, 2011, representatives of Evercore and Willkie Farr attended diligence meetings with the Company’s management team, which included, among other things, discussions and review of the Company’s capital structure and refinancing plans, current strategies for each of the Company’s operating subsidiaries, the competitive environment and industry dynamics for each of

the Company’s businesses, any pending acquisitions or sales of material assets and previously attempted sales or acquisitions, historical operating and financial results and financial projections.

 

On July 8, 2011, representatives of Evercore and Willkie Farr attended diligence meetings with the management teams of HCHC and Mafco Flavors. Management from each of HCHC and Mafco Flavors gave presentations, after which there was further discussion regarding, among other things, the industry and competitive environment, organic growth strategy, acquisition strategy, budgeting process, customer and supplier trends, historical operating and financial results and financial projections, of HCHC and Mafco Flavors, respectively, including certain material changes to the business of HCHC that had occurred in the preceding months and that are described in the section entitled “ Projected Financial Information—Projections Provided to Evercore and the Special Committee ”. In light of the presentations, Evercore questioned HCHC management regarding whether the HCHC projections continued to reflect management’s views as to the business. HCHC management indicated that due to the changes that had occurred in the business and in its industry since April, the projections would need to be revised with a net downward adjustment to reflect their current views of the prospects of the HCHC business.

 

On July 13, 2011, the special committee met telephonically (other than Mr. Dinh, who was unable to attend) with its legal and financial advisors. Evercore discussed with the special committee the diligence Evercore had conducted to date. Evercore noted that the financial projections it had received from HCHC and Mafco Flavors had been prepared in connection with a contemplated amendment and extension of HCHC’s senior secured term loan facility and a contemplated refinancing transaction with respect to certain indebtedness of Mafco Flavors, which ultimately were not consummated, and that the management of HCHC had indicated that the projections would need to be revised with a net downward adjustment to reflect their current views of the business. See “ Special Factors—Projected Financial Information ”. After extensive discussion with Evercore and Willkie Farr, the special committee directed Evercore to request updated financial projections from both HCHC and Mafco Flavors.

 

On July 22, 2011, Evercore received updated financial projections from HCHC, which HCHC management said reflected the then current views of HCHC’s management as to HCHC’s business. Around this time, Mafco Flavors informed Evercore that the financial projections for Mafco Flavors previously provided to Evercore continued to reflect its management’s views of the business and that no update to such projections was necessary.

 

On July 27, 2011, the special committee held a telephonic meeting with its legal and financial advisors during which Evercore led the special committee through an initial presentation summarizing the updated financial projections it had received from HCHC on July 22, 2011 and the differences between the updated financial projections and the original financial projections Evercore had previously received from the Company.

 

On August 10, 2011, the special committee met in person (with Mr. Dinh in attendance by telephone) with its legal and financial advisors to discuss the Company’s projections in detail, including the updated financial projections Evercore had received from HCHC, and to hear and discuss Evercore’s preliminary views on valuation. Evercore discussed with the special committee the differences between the original financial projections Evercore had received and the updated financial projections and described for the special committee the factors that HCHC’s management had said contributed to the changes in the financial projections. See “ Special Factors—Projected Financial Information ”. Representatives of Evercore reviewed and discussed with the special

committee information regarding the Company’s historical stock price performance and certain historical trading multiples, and the special committee discussed with its financial advisors the impact of current market volatility on the Company and its stock price. Evercore also reviewed and discussed with the special committee its preliminary financial analyses, based on the updated financial projections, including an analysis of selected publicly traded companies, a discounted cash flow analysis, an illustrative analysis of the present value of the future price of common stock, an analysis of selected precedent transactions and an analysis of historical premiums paid in precedent transactions. Evercore’s presentation noted that the updated financial projections resulted in a lower implied per share equity reference range for common stock than did the original financing projections in the case of its analysis of selected publicly traded companies, discounted cash flow analysis and illustrative analysis of the present value of the future price of common stock. These analyses were later updated in Evercore’s final presentation to the special committee on September 10, 2011, based on updated refinancing assumptions received by Evercore on August 31, 2011. There were no material differences between the results of the analyses Evercore presented on August 10, 2011 and those it presented on September 10, 2011, except that the illustrative analysis of the present value of the future stock price of common stock presented on August 10, 2011 indicated an implied per share equity reference range for the Company of $21.87 to $31.24, which was higher than the range presented on September 10, 2011 due to the updated refinancing assumptions. See “Special Factors—Opinion of Evercore Group L.L.C.” . Evercore then provided the special committee with its views as to potential strategic alternatives available to the Company, including a sale to Holdings, potential divestitures, a possible sale to a third party buyer and maintaining the status quo and regarding the Company’s ability to realize value from any such potential strategic alternative. With respect to the potential strategic alternative of maintaining the status quo, the special committee was aware that Evercore’s preliminary analysis of selected publicly traded companies, discounted cash flow analysis and illustrative analysis of the present value of the future price of common stock contemplated the Company’s remaining a publicly traded company, but the special committee did not consider this subset of Evercore’s valuation analyses apart from all of the analyses presented by Evercore. After further discussions with its legal and financial advisors, the special committee requested that Evercore conduct further analysis regarding a hypothetical alternative strategic transaction with a company involved in a business similar to that of HCHC.

 

On August 17, 2011, the special committee met telephonically with its legal and financial advisors to continue its previous discussion regarding potential strategic alternatives available to the Company. Evercore discussed with the special committee considerations and financial analysis relating to a hypothetical sale for cash of selected assets of HCHC to a company in HCHC’s industry. See “Special Factors—Evercore Presentation to the Special Committee on August 17, 2011” .

 

In light of Evercore’s view that potential strategic alternatives (other than a hypothetical sale for cash of selected assets of HCHC to a company in HCHC’s industry, as described in “Special Factors—Evercore Presentation to the Special Committee on August 17, 2011”, if such a hypothetical sale could be completed) would not likely generate significant incremental value for the Company’s stockholders, and in light of the risks and uncertainties involved in other potential alternatives, including, significantly, the statement made by Holdings in its proposal letter that it would not consider selling its stake in the Company or vote in favor of any such alternative transaction and the lack of historical interest on the part of the other company in such hypothetical sale, the special committee did not believe that strategic alternative transactions to the merger were realistic. Following consideration of Evercore’s analysis, the special committee discussed how to respond to the Holdings proposal. After extensive discussion and in consultation with its legal and financial advisors, the special committee decided, as part of its negotiating strategy, to respond with

a counteroffer of $30.00 per share of common stock and directed Evercore to contact Holdings and its advisors to communicate its counteroffer. In formulating its negotiating strategy, the special committee recognized, without identifying any minimum acceptable merger consideration, that an acquisition by Holdings of the shares not held by it and its affiliates would likely be in the best interests of the Company’s public shareholders at valuations below $30.00 per share.

 

On August 18, 2011, representatives of Evercore called representatives of Holdings and Moelis to relay the special committee’s counteroffer of $30.00 per share of common stock. Later on August 18, 2011, a representative of Evercore received a call from Mr. Schwartz indicating that Holdings would not accept the special committee’s $30.00 counteroffer but remained interested in further negotiating the terms of a deal. Mr. Schwartz indicated that a representative of Moelis would be contacting Evercore to further discuss the proposal from Holdings.

 

On August 19, 2011, representatives of Evercore and Moelis met telephonically to discuss their respective clients’ perspectives on the valuation of the Company, with Moelis, as financial advisor to Holdings, suggesting that, based on the valuation implied by the Company’s projections, a price in excess of $24 per share could not be justified and Evercore, as financial advisor to the special committee, suggesting that a price of $30 per share was warranted.

 

On August 22, 2011, the Company provided Moelis with the updated financial projections that had previously been provided to Evercore on July 22, 2011, but which had not previously been provided to Moelis or representatives of Holdings.

 

On August 25, 2011, Mr. Schwartz called Mr. Meister to propose a meeting for the following week for the purpose of determining whether an agreement could be reached as to the consideration that would be paid to the Company’s stockholders other than Holdings and its affiliates in an acquisition of the Company by Holdings. Mr. Schwartz told Mr. Meister that if a deal could not be reached in the near term, Holdings might abandon its efforts to acquire the entire equity interest in the Company. Mr. Schwartz requested that, in advance of the meeting, Willkie Farr and Holdings’ legal counsel, Skadden, be instructed to work on the non-financial terms of a merger agreement that could be executed should Holdings and the special committee agree on the consideration to be paid to the Company’s public shareholders in a merger. The meeting between Messrs. Schwartz and Meister was subsequently scheduled for September 9.

 

Later on August 25, 2011, Willkie Farr received from Skadden a draft of the Merger Agreement for the acquisition of the Company by Holdings. Consistent with the June 13 proposal letter from Holdings, the draft Merger Agreement contained a requirement that the merger be conditioned upon approval by holders of a majority of the outstanding shares of common stock other than Holdings and its affiliates in addition to the Delaware law requirement that the merger agreement be approved by a majority of the Company’s outstanding shares.

 

On August 26, 2011, representatives of Evercore and Moelis met telephonically to discuss their respective clients’ perspectives on the valuation of the Company. During that call, it became evident that Evercore and Moelis were using different refinancing assumptions for HCHC, and Evercore and Moelis agreed on the need for both advisors to use the Company’s most up to date refinancing expectations, which reflected the challenging credit markets.

 

On August 31, 2011, Moelis communicated the Company’s updated refinancing assumptions for HCHC to Evercore, which Moelis had used in its valuation analyses. These updated refinancing

assumptions reflected Company management’s assumption that the refinancing would have an earlier closing date, with a different mix of debt and at higher interest rates than contemplated in May 2011.

 

On August 31, 2011, Willkie Farr distributed a mark-up of the draft Merger Agreement to Skadden. In light of the shared resources between Holdings and the Company, Willkie Farr introduced the concept of a “dual employee” (someone who works for both the Company and Holdings) whose knowledge of matters would be excepted from the Company’s representations and warranties and whose action in breach of the Merger Agreement would not be attributable to the Company. Willkie Farr also added various exceptions to the definition of “material adverse effect” and deleted certain representations and warranties by the Company. In addition, Willkie Farr suggested various changes to the “fiduciary out” provisions (including regarding the definition of “superior proposal”) and limited the scope of contractual provisions in which a termination fee or expense reimbursement would be payable to Holdings.

 

On September 2, 2011, representatives of Willkie Farr and Skadden met telephonically to discuss certain terms of the Merger Agreement and the various revisions Willkie Farr had included in its markup. Later that day, Skadden distributed a revised draft of the Merger Agreement to Willkie Farr accepting most of the revisions proposed by Willkie Farr.

 

On September 5, 2011, Willkie Farr distributed to the special committee a memorandum detailing the resolution of various issues in the draft Merger Agreement and noting the material issues remaining open, including the definition of “knowledge” of the dual employees, the definition of “superior proposal” for purposes of the fiduciary out provisions and the circumstances under which a termination fee or expense reimbursement would be payable.

 

On September 6, 2011, Skadden accepted the Willkie Farr proposals on the definition of “knowledge” and the circumstances under which a termination fee or expense reimbursement would be payable provided that Willkie Farr accept the Skadden counterproposal with respect to the definition of “superior proposal”.

 

Also on September 6, 2011, representatives of Evercore, Moelis and the Company’s management met (with Moelis participating telephonically) to discuss the Company’s updated refinancing assumptions for HCHC that the Company had made in light of the challenging credit markets, which had been provided to Evercore on August 31 and which are described in the section entitled “Projected Financial Information—Projections Provided to Evercore and the Special Committee”.

 

Later that day, the special committee met telephonically with its legal and financial advisors and discussed the conversation Mr. Meister had had with Mr. Schwartz on August 25. Willkie Farr led the special committee through the memorandum it had distributed to the special committee on September 5, 2011 regarding the Merger Agreement, highlighting the material open issues. Evercore also discussed with the special committee the impact on its financial analyses of the Company’s updated refinancing assumptions that Evercore had received from the Company. Evercore noted that it had discussed these updated assumptions with Moelis and members of the Company’s management and shared with the special committee its perspectives on the updated assumptions. Evercore advised the special committee that it had incorporated these updated assumptions into its own analyses and described in detail the effect of the updated assumptions on certain of the analyses it had undertaken. The special committee discussed extensively with its advisors the reasoning behind the updated

refinancing assumptions and the negotiating strategy and approach for the meeting to be held on September 9, 2011 between Mr. Meister and Mr. Schwartz, along with their respective advisors.

 

During the week of September 6, 2011, representatives of Willkie Farr discussed with various officers of the Company’s operating subsidiaries certain provisions of the Merger Agreement and the preparation of the Company disclosure schedules.

 

On September 7, 2011, representatives of Willkie Farr and Skadden met telephonically to further discuss the open issues in the Merger Agreement.

 

On September 8, 2011, Skadden distributed a revised draft of the Merger Agreement to Willkie Farr reflecting the proposal discussed between representatives of Willkie Farr and Skadden on September 6, 2011, as well as acceptance of Willkie Farr’s initial proposal with respect to the definition of “superior proposal”. Later that day, Willkie Farr sent Skadden a mark-up of the draft Merger Agreement reflecting comments received from the Company’s management unaffiliated with Holdings and a draft of the related Company disclosure schedules. From September 8, 2011 through execution of the Merger Agreement, representatives of Willkie Farr and Skadden negotiated certain other non-financial terms of the Merger Agreement and Company disclosure schedules.

 

On September 9, 2011, Mr. Meister and representatives of Evercore and Willkie Farr met with Mr. Schwartz, other members of management of Holdings and representatives of Moelis and Skadden to determine whether an agreement could be reached on the consideration to be paid to the Company’s public shareholders in an acquisition of the Company by Holdings. Mr. Schwartz began the meeting by explaining that Holdings’ offer of $24.00 per share of common stock was made in June 2011, but that if Holdings were making an offer now, it would be offering substantially less than the $24.00 per share of common stock it had proposed in June 2011. Representatives of Moelis next led the meeting participants through a presentation summarizing an overview of U.S. equity capital market conditions, peer group trading performance, leveraged loan and high yield debt pricing conditions, as well as a comparison of the Company’s prior financial model for fiscal years 2012 and 2015 with the updated model provided by the Company’s management on August 22, 2011, which contained lower revenue and EBITDA projections than the prior projections. Moelis also provided an analysis of illustrative investor returns comparing Holdings’ offer of $24 per share with the special committee’s proposal of $30 per share, assuming that all of the Company’s outstanding debt is refinanced in connection with a transaction. Assuming 2015 exit multiples ranging from 4.00x to 5.00x, Moelis estimated that the illustrative internal rate of return sensitivities to a potential acquirer ranged from 2.4% to 21.5% at the $24 per share offer price and (3.2%) to 14.9% at the $30 per share offer price. (Moelis presented a preliminary version of these sensitivities to Holdings on September 6, 2011.)

 

Mr. Savas next described the recent and projected underperformance of GlobalScholar, LLC, which was acquired by the Company in the beginning of 2011, even relative to the updated financial projections provided to Evercore on July 22, 2011. During the meeting, representatives of Evercore also asked Mr. Schwartz and other members of management of Holdings whether they were contemplating any post-closing transaction that would have a material impact on the prospects of the Company’s businesses or the refinancing of the Company’s debt, and Mr. Schwartz responded that no such transactions were contemplated. Messrs. Schwartz and Meister then met separately to discuss price. Mr. Schwartz refused to increase Holdings’ $24.00 per share offer and Mr. Meister indicated to Mr. Schwartz that he would not recommend to the special committee acceptance of $24.00 per share. Mr. Meister then met separately with representatives of Evercore and Willkie Farr,

and once again separately with Mr. Schwartz. After consultation with Mr. Perelman, Mr. Schwartz advised Mr. Meister that Holdings would increase its offer price to $25.00 per share but that the $25.00 offer was Holdings’ best and final offer and would remain available only for a limited period of time. After stating that he believed that no further increase in the offer price would be made by Holdings, Mr. Meister instructed Willkie Farr to update the other members of the special committee of the result of the meeting.

 

In a phone conversation following the meeting, Skadden proposed to Willkie Farr a termination fee of $9.5 million and an expense reimbursement cap of $4 million. Later on September 9, through further negotiations between Skadden and Willkie Farr, Holdings agreed to reduce the proposed termination fee to $8.25 million.

 

On September 10, 2011, the special committee met telephonically with its legal and financial advisors. At Mr. Meister’s request, Willkie Farr began with an update on the negotiations that took place on September 9, 2011 and continued with a summary of the process the special committee had undertaken since it was formed. Representatives of Evercore reviewed with the special committee its financial analyses of the proposed merger consideration. Evercore then delivered to the special committee its oral opinion, which was subsequently confirmed by delivery of a written opinion dated September 10, 2011, that, as of such date, and based upon and subject to assumptions made, matters considered and limitations on the scope of review undertaken by Evercore as set forth in its opinion, the merger consideration of $25.00 per share was fair, from a financial point of view, to the holders of shares of common stock other than Holdings and its affiliates. See “ Special Factors—Opinion of Evercore Group L.L.C. ” Evercore noted to the special committee that it had reached its conclusion as to fairness without taking into account the most recent deterioration in certain business units of the Company that had been communicated by Mr. Savas at the meeting on September 9, 2011. Representatives of Willkie Farr then provided an overview of the transaction, including (i) a summary of key terms in the Merger Agreement, (ii) an overview of the closing conditions such as stockholder approvals that would be required for the merger, including that it would need to be approved by holders of a majority of the outstanding shares of common stock other than Holdings and its affiliates, (iii) the “no-shop” provisions and (iv) the “fiduciary out” provisions that would apply in the event the Company received a superior proposal or certain intervening events occurred. After further discussion, the special committee unanimously determined that the Merger Agreement, the merger and the other transactions contemplated by the Merger Agreement were advisable, fair to and in the best interests of the stockholders of the Company other than Holdings and its affiliates and recommended that the Company’s board of directors approve the Merger Agreement, the merger and the other transactions contemplated by the Merger Agreement.

 

Also, later on September 10, 2011, Skadden distributed to Willkie Farr a final copy of the Merger Agreement reflecting the agreed terms and Willkie Farr distributed to Skadden a final copy of the related Company Disclosure Schedule.

 

On September 11, 2011, the Company’s board of directors met telephonically. Also present at the meeting were representatives of the Company, Willkie Farr and Evercore. Following a brief update by Mr. Schwartz on the recent developments regarding the recent and projected underperformance of certain of the Company’s business units, Messrs. Perelman, Schwartz, Bevins, Dawson and Taub excused themselves from the meeting. Mr. Meister continued the meeting and stated that the special committee found the Merger Agreement, the merger and the other transactions contemplated by the Merger Agreement to be advisable, fair to and in the best interests of the stockholders of the Company other than Holdings and its affiliates and recommended that the Company’s board of directors approve

the Merger Agreement, the merger and the other transactions contemplated by the Merger Agreement. Representatives of Evercore then reviewed with the directors present its financial analyses of the proposed merger consideration. Representatives of Willkie Farr then provided an overview of the transaction, including (i) a summary of key terms in the Merger Agreement, (ii) an overview of the closing conditions such as stockholder approvals that would be required for the merger and (iii) the “no-shop” and “fiduciary out” provisions that would apply in the event the Company received a superior proposal or certain intervening events occurred. After further discussion among the Company’s board of directors regarding the fairness of the proposal and proposed terms, the Company’s board of directors (other than Messrs. Perelman, Schwartz, Bevins, Dawson and Taub, each of whom abstained from the vote) (i) determined that the Merger Agreement, the merger and the other transactions contemplated by the Merger Agreement were advisable, fair to and in the best interests of the stockholders of the Company (other than Holdings and its affiliates), (ii) approved and adopted the Merger Agreement, the merger and the other transactions contemplated by the Merger Agreement and (iii) recommended that the stockholders approve the Merger Agreement, the merger and the other transactions contemplated by the Merger Agreement.

 

Later on September 11, 2011, the parties exchanged executed copies of the Merger Agreement.

 

Both the special committee and the Company’s board of directors believe, based on their consideration of the factors relating to the substantive and procedural fairness described below, the Merger Agreement and the merger are fair to, and in the best interests of, the unaffiliated stockholders. The Company’s purpose and reasons for undertaking the merger at this time are to enable stockholders (other than the Holdings Investors) to realize the value of their investment in the Company in cash at a favorable price.

 

In the course of reaching its determination and making its recommendations, the special committee considered information with respect to the Company’s financial condition, results of operations, businesses, competitive position and business strategy, on both a historical and prospective basis, as well as current industry, economic and market conditions and trends. The special committee also considered the following factors as being generally positive or favorable, each of which the special committee believed supported its determination and recommendations:

 

 

 

 

 

 

In addition to the foregoing factors which the special committee considered as being generally positive or favorable in making its determination and recommendations in favor of the merger, the special committee also considered that its determination and recommendations were supported by its belief that there were limited strategic alternatives for enhancing value for the Company’s stockholders (other than Holdings and its affiliates), especially in light of Holdings’ statement that it would not consider selling its stake in the Company or vote in favor of any such alternative transaction, as well as the risks and uncertainties to the Company’s stockholders associated with such alternatives.

 

The special committee also considered a number of factors that are discussed below relating to the procedural safeguards that it believes were and are present to ensure the fairness of the merger. The special committee believes these factors support its determinations and recommendations and provide assurance of the procedural fairness of the merger to the Company’s stockholders who are unaffiliated with Holdings:

 

 

 

In the course of reaching its determinations and making its recommendations, the special committee also considered the following risks and other factors concerning the Merger Agreement and the merger as being generally negative or unfavorable:

 

 

 

The special committee also considered the financial analyses and the opinion of Evercore, among other factors considered, in reaching its determination as to the fairness of the transactions contemplated by the Merger Agreement. These analyses, including a discussion of the Company financial projections that served as a basis for certain of the valuation analyses, are summarized below in the sections entitled “Special Factors—Opinion of Evercore Group L.L.C.” and “Special Factors—Projected Financial Information” . As part of making its determination regarding the fairness of the merger, the special committee relied on the view of management of the Company’s operating subsidiaries that the financial projections were reasonable in light of recent events impacting the Company’s businesses, the refinancing risks relating to its existing indebtedness and general negative economic conditions. In this regard, while the special committee was aware that the Company’s net income had increased in the quarter ended June 30, 2011 over the prior year’s quarter, the special committee did not consider this fact to be significant in light of the decline in net income in the six months ended June 30, 2011 from the comparable six months of 2010 and the lowered financial projections that had been presented to the special committee and Evercore by management of the Company’s operating subsidiaries.

 

While the special committee considered potentially positive and negative factors, it concluded that, overall, the potentially positive factors outweighed the potentially negative factors, and at a meeting held on September 10, 2011, the special committee unanimously:

 

 

In addition, the Company’s board of directors believes that the Merger Agreement and the merger are both substantively and procedurally fair to the Company’s stockholders, including the stockholders (other than Holdings and its affiliates).

 

In reaching these determinations, our board of directors considered and adopted:

 

 

In making this determination, the Company’s board of directors also considered a number of other factors, including the following material factors:

 

 

The foregoing discussion of the information and factors considered by the special committee and by the Company’s board of directors is not intended to be exhaustive, but includes the material factors considered by the special committee and the Company’s board of directors, respectively, including the substantive and procedural factors considered by the special committee and the Company’s board of directors discussed above. In view of the wide variety of factors considered by the special committee and by the Company’s board of directors in evaluating the Merger Agreement and the merger, neither the special committee nor the Company’s board of directors found it practicable, or attempted, to quantify, rank or otherwise assign relative weights to the foregoing factors in reaching their respective conclusion. In addition, individual members of the special committee and of the Company’s board of directors may have given different weights to different factors and may have viewed some factors more positively or negatively than others.

 

Other than as described in this proxy statement, the Company’s board of directors is not aware of any firm offer by any other person during the prior two years for a merger or consolidation of the Company with another company, the sale or transfer of all or substantially all of the Company’s assets or a purchase of the Company’s securities that would enable such person to exercise control of the Company.

 

 

On August 17, 2011, Evercore discussed with the special committee the considerations and financial analyses relating to a hypothetical sale for cash of selected assets of HCHC to a company in HCHC’s industry. Evercore’s analyses assumed that the HCHC assets would be sold on a cash-free and debt-free basis for 100% cash consideration, for gross proceeds ranging from $1,500 million to $1,800 million. Based on these and other assumptions, Evercore presented, among other things, (i) an illustrative range of potential run-rate cost synergies resulting from the hypothetical transaction of $50 million to $150 million, (ii) an illustrative accretion/dilution analysis for the hypothetical purchaser and (iii) the potential net cash proceeds to the Company, the Company’s potential pro forma capital structure and the potential pro forma value per share of common stock as a result of the transaction. This latter analysis indicated (i) potential net cash proceeds to the Company of $1,483 billion to $1,672 billion and (ii) a potential pro forma value per share of common stock in the range of $19.46 to $37.83. Evercore noted that there was significant execution risk involved in such a transaction and that there was a lack of historical interest on the part of the other company in such an acquisition. The special committee discussed with its advisors whether such a transaction would require a shareholder vote, whether it would trigger the Company’s debt covenants and whether such a transaction could be accomplished in a tax-efficient manner.

 

On September 10, 2011, at a meeting of the special committee, Evercore delivered to the special committee its oral opinion, which was subsequently confirmed by delivery of a written opinion dated September 10, 2011, that, as of such date and based upon and subject to assumptions made, matters considered and limitations on the scope of review undertaken by Evercore as set forth in its opinion, the merger consideration was fair, from a financial point of view, to the holders of shares of common stock (other than Holdings and its affiliates) entitled to receive such merger consideration.

 

The full text of Evercore’s written opinion, dated September 10, 2011, which sets forth, among other things, the procedures followed, assumptions made, matters considered and limitations on the scope of review undertaken in rendering its opinion, is attached as Annex B to this Proxy Statement and is incorporated by reference in its entirety into this Proxy Statement. You are urged to read Evercore’s opinion carefully and in its entirety. Evercore’s opinion was directed to the special committee and addresses only the fairness, from a financial point of view, of the merger consideration to be received by holders of shares of common stock (other than Holdings and its affiliates) entitled to receive such merger consideration. The opinion does not address any other aspect of the merger and does not constitute a recommendation to the special committee or to any other person in respect of the merger, including as to how any holder of shares of common stock should vote or act in respect of the merger. Evercore’s opinion does not address the relative merits of the merger as compared to other business or financial strategies that might be available to the Company, nor does it address the underlying business decision of the Company or the special committee to engage in the merger.

 

In connection with rendering its opinion, Evercore, among other things:

 

 

For purposes of its analysis and opinion, Evercore assumed and relied upon, without undertaking any independent verification of, the accuracy and completeness of all of the information publicly available, and all of the information supplied or otherwise made available to, discussed with, or reviewed by Evercore, and Evercore assumed no liability therefor. With respect to the projected financial data relating to the Company and its operating divisions referred to above, Evercore has assumed that they were reasonably prepared on bases reflecting the best then-available estimates and good faith judgments of the respective managements of the Company and its operating divisions as to the future financial performance of the Company and its operating divisions under the alternative business assumptions reflected therein. Management of the Company advised Evercore that the assumptions regarding the Company’s expected refinancing plans for HCHC as provided to Evercore by the Company’s management in September 2011, referred to herein as the “Refinancing Assumptions”, reflect the best estimates available through the date of the opinion and good faith judgments of management of the Company as to the matters covered thereby. Management of HCHC have advised

Evercore that the projected financial data for HCHC provided to Evercore by HCHC’s management in July 2011, referred to herein as the “HCHC Projections”, reflect the best estimates available through the date of the opinion and good faith judgments of management of HCHC as to the future financial performance of HCHC. Management of Mafco Flavors has advised Evercore that the projected financial data for Mafco Flavors provided to Evercore by Mafco Flavors’ management in June 2011 and reaffirmed in July 2011, referred to herein as the “Mafco Flavors Projections”, reflect the best estimates available through the date of the opinion and good faith judgments of management of Mafco Flavors as to the future financial performance of Mafco Flavors. With the consent of the special committee, Evercore relied on the Refinancing Assumptions, the HCHC Projections and the Mafco Flavors Projections for purposes of its analysis and opinion. Evercore expressed no view as to any projected financial data relating to the Company, HCHC or Mafco Flavors or the assumptions on which they are based. See “ Special Factors—Projected Financial Information ”.

 

For purposes of rendering its opinion, Evercore assumed, in all respects material to its analysis, that the representations and warranties of each party contained in the Merger Agreement were true and correct, that each party would perform all of the covenants and agreements required to be performed by it under the Merger Agreement and that all conditions to the consummation of the merger would be satisfied without material waiver or modification thereof. Evercore further assumed that all governmental, regulatory or other consents, approvals or releases necessary for the consummation of the merger would be obtained without any material delay, limitation, restriction or condition that would have an adverse effect on the Company or the consummation of the merger or materially reduce the benefits to the holders of common stock of the merger. Evercore also assumed, at the direction of the special committee, that the executed Merger Agreement would not differ in any material respect from the Draft Agreement reviewed by Evercore.

 

Evercore did not make nor assume any responsibility for making any independent valuation or appraisal of the assets or liabilities of the Company, nor was Evercore furnished with any such appraisals, nor did Evercore evaluate the solvency or fair value of the Company under any state or federal laws relating to bankruptcy, insolvency or similar matters. Evercore’s opinion was necessarily based upon information made available to it as of the date of its opinion and financial, economic, market and other conditions as they existed and as could be evaluated on the date of its opinion. It should be understood that subsequent developments may affect Evercore’s opinion and that Evercore does not have any obligation to update, revise or reaffirm its opinion.

 

Evercore was not asked to pass upon, and expressed no opinion with respect to, any matter other than the fairness to the holders of common stock (other than Holdings and its affiliates), from a financial point of view, of the merger consideration. Evercore did not express any view on, and its opinion did not address, the fairness of the proposed transaction to, or any consideration received in connection therewith by, the holders of any other securities, creditors or other constituencies of the Company, nor as to the fairness of the amount or nature of any compensation to be paid or payable to any of the officers, directors or employees of the Company, or any class of such persons, whether relative to the merger consideration or otherwise. Evercore assumed that any amendment to the Merger Agreement will not amend or modify the structure of the transaction in a manner material to its analysis. Evercore’s opinion did not address the relative merits of the merger as compared to other business or financial strategies that might be available to the Company, not did it address the underlying business decision of the Company to engage in the merger. In arriving at its opinion, Evercore was not authorized to solicit, and did not solicit, interest from any third party with respect to the acquisition of any or all of the common stock or any business combination or other extraordinary transaction involving the Company. Evercore’s letter, and its opinion, did not constitute

a recommendation to the board of directors or to any other persons in respect of the merger, including as to how any holder of shares of common stock should vote or act in respect of the merger. Evercore expressed no opinion as to the price at which shares of the Company would trade at any time. Evercore’s opinion noted that Evercore is not a legal, regulatory, accounting or tax expert and that Evercore assumed the accuracy and completeness of assessments by the Company and its advisors with respect to legal, regulatory, accounting and tax matters.

 

Except as described above, the special committee imposed no other instruction or limitation on Evercore with respect to the investigations made or the procedures followed by Evercore in rendering its opinion. Evercore’s opinion was only one of many factors considered by the special committee in its evaluation of the merger and should not be viewed as determinative of the views of the special committee with respect to the merger or the merger consideration payable in the merger.

 

Set forth below is a summary of the material financial analyses reviewed by Evercore with the special committee on September 10, 2011 in connection with rendering its opinion. The following summary, however, does not purport to be a complete description of the analyses performed by Evercore. The order of the analyses described and the results of these analyses do not represent relative importance or weight given to these analyses by Evercore. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data that existed on or before September 9, 2011 (the last trading day prior to September 10, 2011, the date on which the special committee recommended approval of the merger), and is not necessarily indicative of current market conditions.

 

The following summary of financial analyses includes information presented in tabular format. These tables must be read together with the text of each summary in order to understand fully the financial analyses. The tables alone do not constitute a complete description of the financial analyses. Considering the tables below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of Evercore’s financial analyses.

 

Implied Offer Price Premium Analysis

 

Evercore considered historical data with regard to (i) the closing stock prices of common stock as of September 9, 2011 and June 10, 2011 (the last trading date prior to the submission by Holdings of its initial proposal on June 13, 2011), (ii) the average closing stock prices during the periods one week, two weeks, one month, two months, three months, six months, one year and two years prior to and including June 10, 2011, (iii) the closing stock prices of common stock on the dates one week, two weeks, one month, two months, three months, six months, one year and two years prior to and including June 10, 2011, and (iv) the intraday high and low trading prices during the 52-week period ending on and including June 10, 2011.

 

The following historical common stock price analysis was presented to the special committee to provide it with background information and perspective with respect to the historical share price of common stock relative to the per share merger consideration of $25.00:

 

 

Analysis of Implied Transaction Multiples at Offer Price

 

Based on the HCHC Projections and the Mafco Flavors Projections, Evercore calculated and compared the ratios of Total Enterprise Value, referred to herein as TEV (which represents market

capitalization plus total outstanding debt, less cash and cash equivalents), based on the per share merger consideration of $25.00, to Adjusted EBITDA (which represents earnings before interest, taxes, depreciation and amortization, or EBITDA, adjusted to exclude asset impairment charges, gains on the extinguishment of debt, extraordinary gains and the settlement of contingent claims) for each of (i) the last four quarters, referred to herein as LFQ, as of June 30, 2011, (ii) estimated calendar year 2011 and (iii) estimated calendar year 2012.

 

 

Analysis of Selected Publicly Traded Companies

 

Evercore reviewed and compared certain financial and operating information and measurements relating to the Company and its operating divisions to corresponding information and measurements of certain selected publicly traded companies that may be deemed to be similar to the Company and its operating divisions because they produce similar products or services, use similar suppliers, compete for similar customers, operate in similar geographic regions, or face similar competitive pressures or industry dynamics. Evercore noted, however, that none of the selected publicly traded companies is identical or directly comparable to the Company or any of its operating divisions.

 

As part of its analysis, Evercore calculated and analyzed the multiple of TEV as of September 9, 2011 to 2012E EBITDA for the selected companies and the multiple of TEV to 2012E Adjusted EBITDA for the Company and its operating divisions, respectively. The multiples for each of the selected companies were calculated using the closing price of the selected companies’ common stock on September 9, 2011 and were based on, and derived from, publicly available filings, publicly available research estimates published by independent equity research analysts associated with various Wall Street firms and financial data provided by FactSet Research Systems Inc. The multiples for the Company and its operating divisions were calculated using the per share merger consideration of $25.00 and were based on, and derived from, publicly available information, the HCHC Projections and the Mafco Flavors Projections.

 

The companies that Evercore deemed to have certain characteristics similar to those of the Company’s operating divisions, and the range of implied multiples that Evercore calculated, are set forth below:

 

TEV/2012E EBITDA

 

 

Evercore then applied a range of selected multiples of 5.0x to 5.5x 2012E Adjusted EBITDA, which was derived from the analysis of selected publicly traded companies described above as well as the relative contributions to the Company’s 2012E Adjusted EBITDA by each of its operating divisions, to the corresponding financial data for the Company, which financial data was based on the HCHC Projections and the Mafco Flavors Projections. By way of reference, HCHC contributed approximately 64%, Harland Financial Solutions contributed approximately 19%, Scantron contributed approximately 10% and Mafco Flavors contributed approximately 7% to the Company’s 2012E

Adjusted EBITDA. Thus, in deriving the range of multiples of 5.0x to 5.5x, Evercore gave more weight to the multiples derived for the HCHC Selected Companies than to the multiples derived for the Harland Financial Solutions Selected Companies, the Scantron Selected Companies or the Mafco Selected Companies. Evercore did not average or calculate the mean or median multiples for each category of selected companies, nor did Evercore simply average or calculate the mean or median multiples for the selected companies as a group. This analysis indicated the following implied per share equity reference range for the Company, as compared to the merger consideration:

 

 

Present Value of Future Stock Price Analysis

 

Evercore performed an illustrative analysis of the present value of the future stock price of the Company, which is designed to provide an indication of the present value of a theoretical future value of a company’s equity as a function of such company’s estimated future EBITDA and its assumed trailing TEV/EBITDA multiple. For this analysis, Evercore used the HCHC Projections, the Mafco Flavors Projections and the Refinancing Assumptions for the fiscal year ending December 31, 2014. For this analysis, Evercore first multiplied the Adjusted EBITDA estimate by a range of trailing TEV/Adjusted EBITDA multiples of 5.0x to 5.5x and next subtracted the debt and added cash and cash equivalents using estimates prepared by management of HCHC and Mafco Flavors. Evercore then calculated the implied per share future equity values for the shares of common stock at the end of fiscal year 2014 and discounted those values to June 30, 2011 using an equity discount rate range of 22.5% to 27.5%. The discount rate range was chosen by Evercore based on its professional judgment and experience and upon an analysis of the equity cost of capital calculated using the capital asset pricing model of the Company and the companies identified above under the caption “Analysis of Selected Publicly Traded Companies”, the debt level of the Company and the relative contributions to the Company’s estimated Adjusted EBITDA by each of its operating divisions. In particular, the discount rate range chosen by Evercore reflected the highly leveraged nature of the Company as well as the small capitalization of the Company. This analysis indicated the following implied per share equity reference range as of June 30, 2011 for the Company, as compared to the merger consideration.

 

 

Selected Precedent Transactions Analysis

 

Evercore performed an analysis of selected transactions to compare multiples paid in other transactions to the multiples implied in the merger. Evercore analyzed a total of 81 merger and acquisition transactions involving the acquisition of companies in the printing services, financial solutions, education technology and flavor and fragrances industries. Evercore selected transactions in which the operations of the target were comparable to those of the Company and its operating divisions. In selecting such transactions, Evercore varied the transaction size minimum and the date range by sector to encompass a reasonable sample set of transactions, being mindful that transactions which occurred in the past are less relevant to the current industry dynamics. Evercore noted that

none of the selected transactions or the companies that participated in the selected transactions are directly comparable to the Company or the merger.

 

The 81 transactions included the following acquisitions since 1999 for more than a 50% ownership stake in targets valued at more than $100 million that provide printing services and printing-related services; this set of transactions was used in relation to HCHC and Scantron:

 

Selected Precedent Transactions—Printing Services

 

 

The 81 transactions included the following acquisitions since 2000 for more than a 50% ownership stake in targets valued at more than $25 million that develop enterprise software and

provide related services to financial institutions; this set of transactions was used in relation to Harland Financial Solutions:

 

Selected Precedent Transactions—Financial Solutions

 

 

The 81 transactions included the following acquisitions since 2005 for more than a 50% ownership stake in targets valued at more than $25 million that develop software or digital content or other technology enabled services for the education industry; this set of transactions was used in relation to Scantron:

 

Selected Precedent Transactions—Education Technology

 

 

Finally, the 81 transactions included the following acquisitions since 2001 for more than a 50% ownership stake in targets valued at more than $25 million that provide flavoring ingredients; this set of transactions was used in relation to Mafco Flavors:

 

Selected Precedent Transactions—Flavor and Fragrances

 

 

For each of the selected transactions, Evercore calculated and compared TEV based on the implied transaction price as a multiple of the target’s LFQ EBITDA, as adjusted to exclude one time and extraordinary charges. This analysis was based on publicly available information at the time of announcement of the relevant transaction. Evercore noted that the multiple of TEV/LFQ Adjusted EBITDA for the Company based on the per share merger consideration of $25.00 was 5.6x. The

range of multiples that Evercore calculated with respect to the selected transactions is summarized below:

 

 

Evercore then applied a range of selected multiples of 5.5x to 6.5x LFQ Adjusted EBITDA, which was derived from the analysis of selected transactions described above as well as the relative contributions to the Company’s LFQ Adjusted EBITDA by each of its operating divisions, to the corresponding financial data of the Company. For example, based on HCHC’s contribution of approximately 68% to the Company’s LFQ Adjusted EBITDA, Evercore gave significantly more weight to the multiples derived for the Printing Services transactions than to the multiples derived for the Financial Solutions, Education Technology or Flavor and Fragrances transactions. Evercore did not average or calculate the mean or median multiples for each category of selected transactions, nor did Evercore simply average or calculate the mean or median multiples for the selected transactions as a group. Moreover, Evercore derived this range of selected multiples, which was lower than the mean or median multiples in each of the four categories of selected transactions, based on its professional judgment and experience, including its understanding of the size, product diversity, commodity exposure, relative profitability and expected growth of the Company’s operating divisions, rather than a purely quantitative application of the multiples from the selected transactions discussed above. This analysis indicated the following implied per share equity reference range for the Company, as compared to the merger consideration:

 

 

Analysis of Historical Premiums Paid

 

Evercore reviewed the premiums paid for (i) all-cash change of control transactions for U.S.-based companies with enterprise values between $100 million and $4.0 billion from January 2000 to July 2011, referred to herein as the “All-Cash Transactions”, and (ii) change of control cash transactions with U.S. targets with a minimum transaction value of $100 million from January 2000 to July 2011 where the acquirer held a pre-transaction ownership stake of more than 0% but less than 50%, referred to herein as the “Minority-Led Transactions”. Evercore identified 735 All-Cash Transactions and 57 Minority-Led Transactions with the foregoing criteria.

 

Using information from Securities Data Corp., a data source that monitors and publishes information on merger and acquisition transactions, premiums paid were calculated as the percentage by which the per share consideration paid in each such transaction exceeded the closing market share prices of the target companies one day, one week and four weeks prior to transaction announcements. This analysis indicated the following implied mean, median, 25% quartile, 75% quartile, high and low premiums for the selected transactions:

 

 

Based on the above analysis, Evercore then applied a range of selected premiums derived from the selected transactions of (i) 15% to 45% to the closing price of common stock on June 10, 2011 (the date one day prior to the receipt of Holdings’ initial proposal on June 13, 2011), and (ii) 20% to 50% to the closing price of common stock on the date 4 weeks prior to the receipt of Holdings’ initial proposal on June 13, 2011. This analysis indicated the following implied per share equity reference ranges for the shares of common stock, as compared to the merger consideration:

 

Implied Per Share Equity Reference Range for the Company  

 

 

Discounted Cash Flow Analysis

 

Evercore performed a discounted cash flow analysis of the Company in order to derive implied per share equity reference ranges for the common stock as of June 30, 2011, based on the implied present value of the Company’s future unlevered cash flow. In this analysis, Evercore used the HCHC Projections, the Mafco Flavors Projections and the Refinancing Assumptions. Evercore calculated a range of terminal asset values of the Company at the end of fiscal year 2015 by applying a range of trailing terminal Adjusted EBITDA multiples of 5.0x to 5.5x to the Company’s 2015E Adjusted EBITDA. The unlevered free cash flows and range of terminal asset values were then discounted to present values using a range of discount rates of 9.5% to 11.5%, which was chosen by Evercore based upon an analysis of the weighted average cost of capital of the Company and the companies identified above under the caption “Analysis of Selected Publicly Traded Companies”, as well as the relative contributions to the Company’s estimated Adjusted EBITDA by

each of its operating divisions. The analysis indicated the following implied per share equity reference range for the Company, as compared to the merger consideration:

 

 

General

 

In connection with the review of the merger by the special committee, Evercore performed a variety of financial and comparative analyses for purposes of rendering its opinion. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary described above, without considering the analyses as a whole, could create an incomplete view of the processes underlying Evercore’s opinion. In arriving at its fairness determination, Evercore considered the results of all the analyses and did not draw, in isolation, conclusions from or with regard to any one analysis or factor considered by it for purposes of its opinion. Rather, Evercore made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all the analyses. In addition, Evercore may have considered various assumptions more or less probable than other assumptions, so that the range of valuations resulting from any particular analysis described above should therefore not be taken to be Evercore’s view of the value of the Company. No company used in the above analyses as a comparison is directly comparable to the Company, and no transaction used is directly comparable to the merger. Further, Evercore’s analyses involve complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the acquisition, public trading or other values of the companies or transactions used, including judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of the Company or its advisors.

 

Evercore prepared these analyses for the purpose of providing an opinion to the special committee as to the fairness, from a financial point of view, of the merger consideration to be received by holders of shares of common stock (other than Holdings and its affiliates) pursuant to the merger. These analyses do not purport to be appraisals or to necessarily reflect the prices at which the business or securities actually may be sold. Any estimates contained in these analyses are not necessarily indicative of actual future results, which may be significantly more or less favorable than those suggested by such estimates. Accordingly, estimates used in, and the results derived from, Evercore’s analyses are inherently subject to substantial uncertainty, and Evercore assumes no responsibility if future results are materially different from those forecasted in such estimates. The merger consideration to be received by the holders of shares of common stock pursuant to the Merger Agreement was determined through negotiations between the special committee and Holdings and was approved by the special committee. Evercore did not recommend any specific consideration to the special committee or that any given merger consideration constituted the only appropriate merger consideration.

 

Under the terms of Evercore’s engagement, the special committee agreed, on behalf of the Company, to pay Evercore (i) an initial fee of $125,000, which was payable upon execution of Evercore’s engagement letter, (ii) a retainer fee of $125,000 per month which was payable in July, August and September 2011, (iii) a fee of $2,000,000 which was payable upon the delivery of Evercore’s opinion and (iv) an additional discretionary fee in an amount not to exceed $1,000,000 for extraordinary performance, as determined by the special committee in its sole and absolute

discretion. The special committee has informed Evercore that, while it is favorably disposed to paying some additional discretionary fee, to date, it has not decided what amount, if any, of this fee to pay to Evercore. In addition, the Company has agreed to reimburse Evercore for its reasonable expenses (including legal fees, expenses and disbursements), and to indemnify Evercore for certain liabilities arising out of its engagement. During the two year period prior to the date of its opinion, no material relationship existed between Evercore and its affiliates and the Company, Parent or Holdings. Evercore may provide financial or other services to the Company or Holdings in the future and in connection with any such services Evercore may receive compensation.

 

In the ordinary course of business, Evercore or its affiliates may actively trade the securities, or related derivative securities, or financial instruments of the Company and its affiliates, for its own account and for the accounts of its customers and, accordingly, may at any time hold a long or short position in such securities or instruments.

 

The Company engaged Evercore to act as a financial advisor based on its qualifications, experience and reputation. Evercore is an internationally recognized investment banking firm and is regularly engaged in the valuation of businesses in connection with mergers and acquisitions, leveraged buyouts, competitive biddings, private placements and valuations for corporate and other purposes.

 

Under the SEC rules governing “going private” transactions, the Holdings Filing Persons may be deemed to be engaged in a “going private” transaction and therefore are required to express their purposes and reasons for the merger to the Company’s unaffiliated stockholders. The Holdings Filing Persons are making the statements included in this section solely for the purpose of complying with the requirements of Rule 13e-3 and related rules under the Exchange Act.

 

For the Holdings Filing Persons, a primary purpose for the merger is to permit the Holdings Investors and Parent to acquire all shares of common stock not owned by them so that the Company can be operated as a privately held company. The Holdings Filing Persons believe that as a private company the Company will have greater operating flexibility, and management will be able to more effectively concentrate on long-term growth and reduce its focus on the quarter-to-quarter performance often emphasized by the public markets. Moreover, the Company will not be subject to certain obligations and constraints, and related costs, associated with having publicly traded equity securities.

 

An additional purpose of the merger is to enable stockholders other than the Holdings Investors to immediately realize the value of their investment in M & F Worldwide through their receipt of the per share merger consideration of $25.00 in cash, representing a premium of approximately 47% to the $16.96 closing price of the common stock on NYSE on June 10, 2011, the last trading day before public disclosure of Holdings’ initial proposal to acquire the Company for $24.00 per share, and a premium of approximately 22.7% to the $20.37 closing price of the common stock on NYSE on September 9, 2011, the last trading day prior to the announcement of the Merger Agreement.

 

The Holdings Filing Persons believe that structuring the transaction as a merger is preferable to other transaction structures because it will enable the Holdings Investors and Parent to acquire all of the outstanding shares of the Company held by stockholders other than the Holdings Investors for cash.

 

Under the SEC rules governing “going private” transactions, the Holdings Filing Persons may be deemed to be engaged in a “going private” transaction and therefore are required to express their beliefs as to the fairness of the merger to the Company’s unaffiliated stockholders. The Holdings Filing Persons are making the statements included in this section solely for the purposes of complying with the requirements of Rule 13e-3 and related rules under the Exchange Act. The Holdings Filing Persons’ views as to fairness of the merger should not be construed as a recommendation to any stockholder as to how such stockholder should vote on the proposal to approve the Merger Agreement.

 

The Holdings Filing Persons did not participate in the deliberations of the special committee regarding, or receive advice from the Company’s or the special committee’s legal or financial advisors as to, the substantive and procedural fairness of the merger, nor did the Holdings Filing Persons undertake any independent evaluation of the fairness of the merger or engage a financial advisor for such purposes. Holdings engaged Moelis as financial advisors to provide certain financial advisory services with respect to the proposal made by Holdings on June 13, 2011. Moelis did not provide an opinion with respect to the fairness of the merger or the merger consideration. The Holdings Filing Persons believe, however, that the merger is fair to the Company’s unaffiliated stockholders based on the following factors:

 

 

 

The Holdings Filing Persons did not consider the liquidation value of the Company because they considered the Company to be a viable, going concern and therefore did not consider liquidation value to be a relevant valuation method. Further, the Holdings Filing Persons did not consider net book value because it does not reflect the following: (a) risks associated with the Company’s highly leveraged capital structure, including the significant risks relating to the Company’s ability to refinance its existing debt before maturity with satisfactory terms, (b) a conglomerate discount on the value per share that typically exists in public markets, (c) market risks inherent in remaining a public company and (d) the small public float and limited trading volume of the Company’s shares that results in undesirable price volatility and restricts opportunities for stockholders to achieve liquidity. The Company’s net book value per share as of September 30, 2011 was $37.89 (calculated based on 19,333,931 shares outstanding as of such date).

The foregoing discussion of the information and factors considered and given weight by the Holdings Filing Persons in connection with the fairness of the merger is not intended to be exhaustive but includes all material factors considered by the Holdings Filing Persons. The Holdings Filing Persons did not find it practicable to, and did not, quantify or otherwise assign relative weights to the individual factors considered in reaching their conclusions as to the fairness of the merger. Rather, the fairness determinations were made after consideration of all of the foregoing factors as a whole.

 

On June 9, 2011, Moelis made a presentation to the management of Holdings regarding a possible transaction with the Company, which we refer to as the “June 9, 2011 presentation”. In the presentation, Moelis provided a business segment overview, reviewed recent share price performance and trading multiples and provided a preliminary valuation summary summarized below. At the time of the presentation, the Company’s stock price was $17.90 per share.

 

Holdings did not request, and Moelis did not provide, (i) any opinion to Holdings or any other person in connection with the merger as to the fairness of the merger consideration to Holdings, the Company, the stockholders of the Company or any other person or (ii) any other valuation of the Company for the purpose of assessing the fairness of the merger consideration to Holdings, the Company, the stockholders of the Company or any other person. Because Moelis was not requested to render a fairness opinion, it was not necessary to, and it did not, submit the information and analyses described below to a fairness committee for review, nor did they follow all of the procedures that they ordinarily follow in connection with rendering a fairness opinion. Moelis has established procedures for rendering a fairness opinion, including review of the fairness opinion and the underlying information and analyses by a fairness committee composed of senior investment bankers with relevant expertise. Had Moelis been requested to provide a fairness opinion or valuation of the Company and submitted the information and analyses described below to their full fairness opinion process, including review by a fairness committee, the information and analyses presented by Moelis following that process may have been different from those described below.

 

The following summary of the June 9, 2011 presentation is included here to comply with disclosure requirements of the SEC. The analyses described herein and the order in which they are presented and the results of the analyses do not represent relative importance or weight given to these analyses by Moelis or Holdings. The summary of the June 9, 2011 presentation set forth below is qualified in its entirety by reference to the full text of the June 9, 2011 presentation, which is filed as Exhibit (c)(7) to the Company’s Schedule 13E-3 dated as of the date hereof and incorporated herein by reference to this document. Neither the presentation materials nor this summary constitutes a recommendation as to whether any stockholder of the Company should vote in favor of the merger or any other action that any stockholder of the Company should take or refrain from taking in connection with the merger.

 

In connection with preparing the financial analysis, Moelis:

 

 

 

In connection with its review, Moelis did not assume any responsibility for independent verification of any of the information supplied to, discussed with, or reviewed by Moelis for the purpose of its June 9, 2011 presentation and has, with the consent of Holdings, relied on such information being complete and accurate in all material respects. In addition, at the direction of Holdings, Moelis did not make any independent evaluation or appraisal of any of the assets or liabilities (contingent, derivative, off-balance-sheet, or otherwise) of the Company, nor was Moelis furnished with any such evaluation or appraisal. With respect to the forecasted financial information referred to above, Moelis assumed, at the direction of Holdings, that such financial information was reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of the Company as to the future performance of the Company.

 

Moelis’ June 9, 2011 presentation was necessarily based on economic, monetary, market and other conditions as in effect on, and information made available to Moelis as of, the date of such presentation. Accordingly, although subsequent developments may affect the information contained in the June 9, 2011 presentation, Moelis did not assume any obligation to update, revise or reaffirm the contents of the June 9, 2011 presentation.

 

The following is a summary of the material financial analyses contained in the June 9, 2011 presentation prepared by Moelis. The financial analyses summarized below include information presented in tabular format. In order to fully understand the financial analyses performed by Moelis, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses performed by Moelis. Considering the data set forth in the tables below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of the financial analyses performed by Moelis.

 

Premiums Paid Analysis.  For purposes of the June 9, 2011 presentation, Moelis reviewed publicly available information for the premiums paid since June 2006 in public transactions between $500 million and $1 billion in equity value for the 1-day, 1-week and 1-month period prior to the announcement of the transaction and then compared the Company’s trading price to such premiums as if a transaction had been announced on the date of the presentation. This analysis showed the following:

 

 

Illustrative Leveraged Buyout Analysis.  Moelis performed an analysis of the equity return that an acquiror would theoretically receive if the Company were acquired in a leveraged buyout transaction. For purposes of this analysis, Moelis used projections provided by the Company’s

management through fiscal 2015 and assumed, among other things, a range of exit multiples of 4.25x to 4.75x the Company’s 2015 estimated EBITDA, target equity returns ranging from 22.5% to 27.5%, an equity contribution of 30% and a transaction date of December 31, 2011. See “ Special Factors—Projected Financial Information ”. Based on these assumptions, Moelis derived an illustrative estimate of the maximum consideration that could be paid in an acquisition of the Company by a financial buyer ranging from $9.72 per share to $28.25 per share.

 

Discounted Cash Flow Analysis (Consolidated Company).  Moelis conducted a discounted cash flow, or DCF, analysis of the Company on a consolidated basis to calculate the estimated present value of the future cash flows of the Company. A DCF analysis is a method of evaluating a business using estimates of the future unlevered free cash flows generated by the business and taking into consideration the time value of money with respect to those future cash flows by calculating their “present value”. “Present value” refers to the current value of one or more future cash payments for the business, which Moelis refers to as that business’ free cash flows, and is obtained by discounting those free cash flows back to the present using a discount rate that takes into account macro-economic assumptions and estimates of risk, the opportunity costs of capital, capitalized returns and other appropriate factors. “Terminal value” refers to the value of all free cash flows from an asset for periods beyond the final forecast period.

 

Using projections provided by the Company’s management, Moelis performed a DCF analysis of the Company on a consolidated basis (excluding contributions from GlobalScholar and Spectrum K12) utilizing the after-tax unlevered free cash flows for the second half of 2011 through 2015. See “ Special Factors—Projected Financial Information ”. Moelis used discount rates ranging from 12.0% to 13.0%, which was based upon a number of factors, including the weighted average cost of capital of the Company. The terminal value was then calculated using the perpetuity growth method assuming growth rates of (2.0%) to 0%. Moelis also valued the GlobalScholar and Spectrum K12 businesses at their acquisition cost due to their recent acquisition by the Company. Based on the foregoing, Moelis calculated an implied reference range for the Company’s common stock of $10.35 to $28.82 per share.

 

Discounted Cash Flow Analysis (Sum-of-the-Parts).  Using projections provided by the Company’s management, Moelis performed a DCF analysis of the Company on a sum-of-the-parts basis utilizing the after-tax unlevered free cash flows for the second half of 2011 through 2015 for each of the Company’s business segments. Moelis used the discount rates in the table below depending on the segment, which were based upon a number of factors, including the weighted average cost of capital of comparable companies in each business segment. The terminal value was then calculated using the perpetuity growth method assuming growth rates in the table below depending on the segment.

 

 

Based on the foregoing, and adjusting the ranges of implied enterprise values for net debt, valuing GlobalScholar and Spectrum K12 at acquisition cost and applying a “conglomerate” discount

of 15%, Moelis calculated an implied reference range for the Company’s common stock on a sum-of-the-parts analysis of $13.77 to $31.87 per share.

 

Sum-of-the-Parts Analysis: Selected Publicly Traded Companies.  In light of the segmented nature of the Company’s business, Moelis also conducted a sum-of-the-parts analysis. Based on its professional judgment, Moelis selected publicly traded companies that shared similar characteristics, including operations and size, with each of the business segments of the Company and for which relevant financial information was publicly available. The list of selected companies and their segments is set forth below:

 

 

Moelis applied the estimated 2011 EBITDA for each segment of the Company’s business (other than Scantron-Performance and Achievement) to the following low and high implied multiples selected from a review of the corresponding multiples for certain selected publicly traded companies.

 

 

For Scantron-Performance and Achievement, Moelis used low and high revenue multiples of 2.0x and 3.0x estimated 2011 revenues, respectively.

 

Moelis then adjusted the resulting range of implied enterprise values for net debt, the value of GlobalScholar and Spectrum K12 at their acquisition costs and the application of a “conglomerate” discount of 15%. This analysis led Moelis to an implied reference range for shares of the Company’s common stock of $16.28 per share to $30.65 per share.

General

 

The preparation of financial analyses is a complex analytical process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances and, therefore, is not readily susceptible to partial analysis or summary description. Moelis believes that the analyses summarized above must be considered as a whole. Moelis further believes that selecting portions of the analyses and the factors considered or focusing on information presented in tabular format, without considering all analyses and factors or the narrative description of the analyses, could create a misleading or incomplete view of the processes underlying Moelis’ analyses. The fact that any specific analysis has been referred to in the summary above is not meant to indicate that such analysis was viewed as any more significant or was or should be given any greater weight than any other analysis.

 

No company used in the analyses described above for purposes of comparison is directly comparable to the Company. In addition, such analyses do not purport to be appraisals, nor do they necessarily reflect the prices at which businesses or securities actually may be sold. The estimates of the future performance of the Company provided by the Company’s management in or underlying Moelis’ analyses are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than those suggested by Moelis’ analyses. Because the estimates of the future performance of the Company provided by the Company’s management described above are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, neither Holdings, nor Moelis or any other person assumes responsibility if future results are materially different from those forecast.

 

The type and amount of consideration payable in the merger were determined through negotiations between the Company and Holdings and were approved by the board of directors of the Company and Holdings’ board of directors and not by any financial advisor. The decision to enter into the Merger Agreement was solely that of the special committee and board of directors of the Company and Holdings. As described above, Moelis’ analyses were only one of many factors considered by Holdings in its evaluation of the proposed merger and should not be viewed as determinative of the view of Holdings.

 

Moelis’ June 9, 2011 presentation was prepared for the use and benefit of Holdings in its evaluation of the Company. Holdings has agreed to pay Moelis a fee of $3.0 million promptly upon the consummation of the merger. In addition, Holdings has agreed to indemnify Moelis for certain liabilities arising out of its engagement. Moelis or its respective affiliates in the past have provided, currently are providing and in the future may provide financial advisory and financing services to the Company, Holdings and certain of their respective affiliates, and have received and in the future may receive fees for the rendering of these services. Since January 2008 ,Moelis has received aggregate fees from Holdings and its affiliates, including the Company, for corporate and investment banking services unrelated to the merger of approximately $3.96 million. In the ordinary course of business, Moelis, its successors and affiliates may trade securities of the Company and the Company’s affiliates for their own accounts or for the accounts of their customers and, accordingly, may at any time hold long or short positions in such securities.

 

Holdings engaged Moelis to act as its financial advisor based on Moelis’ qualifications, reputation and substantial experience in similar transactions. Moelis is regularly engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, strategic transactions, corporate restructurings, and valuations for corporate and other purposes.

 

It is expected that the Company’s operations will be conducted after the merger substantially as they currently are being conducted. The Holdings Filing Persons have advised the Company that they do not have any current intentions, plans or proposals to cause the Company to engage in any of the following:

 

 

Nevertheless, following consummation of the merger, the management and/or board of directors of the surviving corporation may initiate a review of the surviving corporation and its assets, corporate and capital structure, capitalization, operations, business, properties and personnel to determine what changes, if any, would be desirable following the merger to enhance the business and operations of the surviving corporation and may cause the surviving corporation to engage in the types of transactions set forth above if the management and/or board of directors of the surviving corporation decides that such transactions are in the best interest of the surviving corporation upon such review. While no plans or proposals have been developed, the surviving corporation may make efforts to attract and retain experienced management, improve customer relations, review the Company’s facilities, realign its compensation structure, pursue divestitures of non-core assets, and refinance its and its subsidiaries’ indebtedness. The surviving corporation expressly reserves the right to make any changes it deems appropriate in light of its evaluation and review of the surviving corporation or in light of future developments.

Projected Financial Information

 

M & F Worldwide does not as a matter of course make public projections as to future performance or earnings. However, financial forecasts prepared by senior management were made available to the Holdings Filing Persons as well as to the special committee and their respective financial advisors in connection with their consideration of the merger. We have included a subset of these projections to give our stockholders access to certain nonpublic information considered by the Holdings Filing Persons, the special committee and their respective financial advisors for purposes of considering and evaluating the merger. The inclusion of this information should not be regarded as an indication that the Holdings Filing Persons, the special committee, their respective financial advisors, or any other recipient of this information considered, or now considers, this information to be a reliable prediction of future results.

 

M & F Worldwide advised the recipients of the projections that its internal financial forecasts, upon which the projections were based, are subjective in many respects. The projections reflect numerous assumptions and estimates with respect to industry performance, general business, economic, political, market and financial conditions, competitive uncertainties, and other matters, all of which are difficult to predict and beyond M & F Worldwide’s control. As a result, there can be no assurance that the projected results will be realized or that actual results will not be significantly higher or lower than projected. The projections are forward-looking statements and should be read with caution. See “ Cautionary Statement Concerning Forward-Looking Information ”.

 

The financial projections were prepared for either internal use or to assist the Holdings Filing Persons, the special committee and their respective financial advisors with their due diligence

investigations of M & F Worldwide and not with a view toward public disclosure or toward complying with GAAP, the published guidelines of the SEC regarding projections or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. M & F Worldwide’s independent registered public accounting firm has not examined or compiled any of the financial projections, expressed any conclusion or provided any form of assurance with respect to the financial projections and, accordingly, assumes no responsibility for them. The financial projections do not take into account any circumstances or events occurring after the date they were prepared.

 

Readers of this proxy statement are cautioned not to place undue reliance on the specific portions of the financial projections set forth below. No one has made or makes any representation to any stockholder regarding the information included in these projections.

 

For the foregoing reasons, as well as the bases and assumptions on which the financial projections were compiled, the inclusion of specific portions of the financial projections in this proxy statement should not be regarded as an indication that such projections are an accurate prediction of future events, and they should not be relied on as such. Except as may be required by applicable securities laws, M & F Worldwide does not intend to update, or otherwise revise the financial projections or the specific portions presented to reflect circumstances existing after the date when made or to reflect the occurrence of future events, even in the event that any or all of the assumptions are shown to be in error.

 

Projections Provided to Evercore and the Special Committee

 

In June 2011, the Company provided Evercore with consolidated projected financial data for the Company, together with separate projected financial data for its subsidiaries HCHC and Mafco Flavors. The Company initially prepared these projections in April 2011 in connection with a contemplated amendment and extension of HCHC’s senior secured term loan facility and a contemplated refinancing transaction with respect to certain indebtedness of Mafco Flavors, which ultimately were not consummated. The projections for HCHC reflected (i) declines in HCHC’s check volumes with slight improvement in future years versus historical performance and slightly increasing revenues per unit over the forecast period, (ii) improved organic growth in HCHC’s financial solutions segment versus prior periods, (iii) significant revenue growth in HCHC’s web-based educational services and (iv) revenue declines in HCHC’s other non-web based education businesses. The projections for Mafco Flavors reflected (i) continued sales unit declines to the worldwide tobacco industry as the result of the continued worldwide decline in the use of consumer tobacco products containing licorice extract, (ii) continued organic growth in Magnasweet ^® and pure licorice derivatives, (iii) sales growth in pure licorice derivatives resulting from a business to be acquired, (iv) the anticipated benefits to be realized from manufacturing technology improvements and (v) investments to be made in raw materials and facilities to support the planned business

developments. These initial projections, referred to herein as the “Initial Financing Case Projections”, are summarized below:

 

Summary of Initial Financing Case Projections ⁽¹⁾
(in millions, except per share amounts)

 

 

(1) Consolidated figures from the Initial Financing Case Projections are set forth in Evercore’s presentations to the special committee dated August 10, 2011 and July 27, 2011. Evercore’s presentation the special committee dated July 27, 2011 also included the additional HCHC and Mafco Flavors revenue and adjusted EBITDA data and total cash data set forth above. The adjusted EPS, unlevered FCF, Capex and total debt data set forth above and in Evercore’s presentation to the special committee dated August 10, 2011 differ from that initially provided by the Company and reflected in Evercore’s presentation to the special committee dated July 27, 2011 due to certain minor adjustments subsequently made by the Company.

(2) Adjusted to exclude the settlement of contingent claims.

(3) Unlevered FCF is defined as net income plus the sum of after-tax net interest expense, after-tax settlement of contingent claims, and depreciation and amortization less the sum of Capex, cash acquisitions, changes in net working capital and other cash outlays.

 

In July 2011, following further discussions with Evercore, HCHC management determined that certain assumptions reflected in the HCHC projections that were included in the Initial Financing Case Projections did not reflect management’s then-current views and accordingly provided Evercore with updated financial projections. The updated financial projections reflected changes due to (i) greater expected declines in HCHC’s check volumes, partially offset by improved cost trends, (ii) higher revenue growth from new initiatives, partially offset by reduced revenues per unit expectations, (iii) lower projected revenues and profitability in HCHC’s financial solutions segment due to expectations of continued bank closures and further industry consolidation in addition to reduced organic growth rates, (iv) a delay in the revenue growth of its web-based educational services business units and (v) modest reductions in the assumed growth rate of HCHC’s other education businesses. No changes were made to the Mafco Flavors projections included in the Initial Financing Case Projections, which were confirmed by Mafco Flavors management. These updated projections, referred to herein as the “Updated Case Projections”, are summarized below:

Summary of Updated Case Projections ⁽¹⁾
(in millions, except per share amounts)