Tender-Offer Statement — Third-Party Tender Offer — Schedule 14D-1
Filing Table of Contents
Document/Exhibit Description Pages Size
1: SC 14D1 Amay Asia Pacific Ltd./New Aap Limited SC 14D1 7 36K
2: EX-99.A.1 Exhibit (A)(1) 67 356K
11: EX-99.A.10 Exhibit (A)(10) 2 12K
12: EX-99.A.11 Exhibit (A)(11) 2± 11K
13: EX-99.A.12 Exhibit (A)(12) 3± 18K
14: EX-99.A.13 Exhibit (A)(13) 1 10K
15: EX-99.A.14 Exhibit (A)(14) 4 22K
3: EX-99.A.2 Exhibit (A)(2) 9 57K
4: EX-99.A.3 Exhibit (A)(3) 4 20K
5: EX-99.A.4 Exhibit (A)(4) 2 16K
6: EX-99.A.5 Exhibit (A)(5) 2± 12K
7: EX-99.A.6 Exhibit (A)(6) 4± 18K
8: EX-99.A.7 Exhibit (A)(7) 1 10K
9: EX-99.A.8 Exhibit (A)(8) 2 13K
10: EX-99.A.9 Exhibit (A)(9) 2 13K
16: EX-99.B.1 Exhibit (B)(1) 7 35K
17: EX-99.B.2 Exhibit (B)(2) 8 24K
18: EX-99.C.1 Exhibit (C)(1) 39 148K
19: EX-99.C.2 Exhibit (C)(2) 14 52K
20: EX-99.G Exhibit (G) 1 8K
21: EX-99.H Exhibit (H) 1 9K
Exhibit (a)(1)
OFFER TO PURCHASE FOR CASH
BY
NEW AAP LIMITED
FOR
ALL OUTSTANDING SHARES OF COMMON STOCK
OF AMWAY ASIA PACIFIC LTD.
AT $18.00 PER SHARE OF COMMON STOCK
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT
12:00 MIDNIGHT, NEW YORK CITY TIME,
ON DECEMBER 17, 1999, UNLESS THE OFFER IS EXTENDED.
New AAP Limited., a Bermuda corporation ("Purchaser"), hereby offers to
purchase all the outstanding shares of the Common Stock of Amway Asia Pacific
Ltd., a Bermuda corporation ("AAP"), par value $.01 per share (the "Common
Stock" or "Shares"), that are beneficially owned by shareholders (the
"Shareholders") of AAP in accordance with the terms and conditions described or
referred to in this Offer to Purchase and the accompanying Letter of Transmittal
(the "Offer"). The Offer is being made pursuant to the Tender Offer and
Amalgamation Agreement (the "Amalgamation Agreement"), dated November 15, 1999,
among AAP, Purchaser and Apple Hold Co., L.P., a limited partnership organized
under the laws of Bermuda ("Hold Co."). Hold Co. is the parent of Purchaser and
an entity controlled and beneficially owned, directly and indirectly, by the
principal shareholders of AAP, along with certain corporations, trusts,
foundations and other entities established by or for the benefit of the
principal shareholders and their respective families (collectively, the
"Principal Shareholders"). The Amalgamation Agreement provides for, among other
things, Purchaser to first conduct the Offer and then for AAP and Purchaser to
amalgamate (the "Amalgamation"), with AAP as the surviving company. The purchase
price for each share of Common Stock will be $18.00 in cash (the "Purchase
Price"). There will be deducted from the Purchase Price paid to each holder any
U.S. backup or other applicable withholding taxes which may be required to be
withheld. The Offer is for all Shares of AAP or any lesser number of Shares
tendered and not withdrawn. The Offer will expire, unless extended, at 12:00
midnight, New York City time, on December 17, 1999.
Purchaser has been informed by the Principal Shareholders that the they
will not tender their Shares in response to the Offer. The Principal
Shareholders will contribute their Shares ("Non-Tendered Shares") to Hold Co.
contemporaneously with the consummation of the Offer.
THE BOARD OF DIRECTORS OF AAP (WITH MESSRS. RICHARD M. DEVOS, JR., DOUGLAS
L. DEVOS AND STEPHEN A. VAN ANDEL NOT PARTICIPATING) (THE "DISINTERESTED
DIRECTORS") HAS UNANIMOUSLY (1) DETERMINED THAT THE OFFER AND THE AMALGAMATION
ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE HOLDERS OF SHARES, OTHER THAN
NON-TENDERED SHARES (THE "PUBLIC SHAREHOLDERS"), (2) APPROVED THE AMALGAMATION
AGREEMENT AND (3) RESOLVED TO RECOMMEND THAT THE PUBLIC SHAREHOLDERS ACCEPT THE
OFFER AND TENDER THEIR SHARES IN RESPONSE TO THE OFFER.
THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES BEING
TENDERED OR SUBJECT TO ANY OTHER CONDITIONS.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF
THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY
IS UNLAWFUL.
Questions and requests for assistance may be directed to Georgeson
Shareholder Communications Inc. (the "Information Agent") or Morgan Stanley &
Co. Incorporated and J.P. Morgan Securities Inc. (each a "Dealer Manager" and
collectively, the "Dealer Managers") at their respective addresses and telephone
numbers set forth on the back page of this Offer to Purchase. Additional copies
of this Offer to Purchase, the Letter of Transmittal and other related materials
may be obtained from the Information Agent or brokers, dealers, commercial banks
and trust companies.
The Common Stock is listed and principally traded on the New York Stock
Exchange (the "NYSE") under the symbol "AAP" and is also listed on the
Australian Stock Exchange Limited ("ASX") under the symbol "AMW." On November
12, 1999, the last full NYSE trading day prior to the public announcement of the
Offer, the closing sales price of the Common Stock on the NYSE was $11.75 per
share and on November 16, 1999, the last full trading day prior to the date of
this Offer to Purchase (the "Commencement Date") for which quotations could be
obtained, the closing sales price was $17.81. The Purchase Price is $18.00 per
share. On November 15, 1999, the last full ASX trading day prior to the public
announcement of the Offer, the closing sales price of the Common Stock on the
ASX was AU$17.50 per share and on November 17, 1999, the last full trading day
prior to the Commencement Date, the closing sales price was AU$30.0. HOLDERS ARE
URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE COMMON STOCK.
THE DEALER MANAGERS FOR THE OFFER ARE:
MORGAN STANLEY DEAN WITTER J.P. MORGAN & CO.
November 18, 1999
IMPORTANT
Any shareholder desiring to accept the Offer should either (1) request the
holder's broker, dealer, commercial bank, trust company or nominee to effect the
transaction for the holder or (2) if the Shares are held in the holder's name,
complete and sign the Letter of Transmittal (or a facsimile thereof) and mail or
deliver it with the certificate(s) representing tendered Shares and any other
required documents to First Chicago Trust Company of New York (the "Depositary")
or tender such Shares pursuant to the procedures for book-entry transfer
described herein under "The Offer -- Procedure for Tendering Shares."
Any shareholder who desires to tender Shares and whose certificates
representing such Shares are not immediately available or who cannot comply with
the procedures for book-entry transfer on a timely basis may tender such Shares
pursuant to the guaranteed delivery procedure described herein under "The
Offer -- Procedure for Tendering Shares -- Guaranteed Delivery."
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OR RECOMMENDATIONS IN CONNECTION WITH THE OFFER OTHER THAN THOSE
CONTAINED HEREIN OR IN THE LETTER OF TRANSMITTAL. IF GIVEN OR MADE, SUCH
RECOMMENDATION AND SUCH INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY PURCHASER.
TABLE OF CONTENTS
[Download Table]
PAGE
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INTRODUCTION................................................ 1
SPECIAL FACTORS............................................. 4
1. Background of the Offer; Recommendation of the
Special Committee and the Disinterested Directors;
Reasons for the Recommendation; Opinion of Financial
Advisor to the Special Committee................... 4
2. The Offer; Amalgamation and Related Transactions;
Amalgamation Agreement................................. 14
3. Purpose of the Offer and Amalgamation; Other
Transactions........................................... 15
4. Position of Purchaser Regarding Fairness of the
Offer.................................................. 16
5. Certain Effects of the Amalgamation.................. 16
6. Interests of Certain Persons......................... 16
7. Appraisal Rights in the Amalgamation................. 17
THE OFFER................................................... 18
1. Number of Shares; Expiration and Extension of
Offer.................................................. 18
2. Procedure for Tendering Shares....................... 18
3. Withdrawal Rights.................................... 20
4. Acceptance for Payment of Shares and Payment of
Purchase Price......................................... 21
5. Market Information; Dividends and Dividend Policy.... 21
6. Certain Effects of the Offer......................... 23
7. Source and Amount of Funds........................... 24
8. Certain Information Regarding AAP.................... 24
9. Certain Information Regarding Purchaser.............. 28
10. Background of the Offer; Contacts with AAP........... 28
11. Interests of Certain Persons......................... 28
12. Transactions and Agreements Concerning the Shares.... 29
13. Certain Legal Matters; Regulatory Approvals.......... 29
14. U.S. Federal Income Tax Consequences................. 29
15. Extension of Offer; Termination; Amendments.......... 31
16. Fees and Expenses.................................... 31
17. Miscellaneous........................................ 32
SCHEDULE I PURCHASER EXECUTIVE OFFICERS AND DIRECTORS;
AAP EXECUTIVE OFFICERS AND DIRECTORS........ S-1
SCHEDULE II FAIRNESS OPINION OF THE FINANCIAL ADVISOR
SCHEDULE III AUDITED FINANCIAL STATEMENTS OF AMWAY ASIA
PACIFIC LTD. FOR THE FISCAL YEARS ENDED
AUGUST 31, 1996, 1997 AND 1998 AND UNAUDITED
FINANCIAL STATEMENTS FOR THE NINE MONTHS
ENDED MAY 31, 1998 AND MAY 31, 1999......... F-1
i
TO THE HOLDERS OF COMMON STOCK OF AMWAY ASIA PACIFIC LTD.:
INTRODUCTION
New AAP Limited, a Bermuda corporation ("Purchaser"), hereby offers to
purchase all the outstanding shares of the Common Stock of Amway Asia Pacific
Ltd., a Bermuda corporation ("AAP"), par value $.01 per share (the "Common
Stock" or "Shares"), that are beneficially owned by all shareholders (the
"Shareholders") of AAP in accordance with the terms and conditions described or
referred to in this Offer to Purchase and the accompanying Letter of Transmittal
(the "Offer"). The purchase price for each share of Common Stock will be $18.00
in cash (the "Purchase Price"). There will be deducted from the Purchase Price
paid to each holder any U.S. or other applicable backup withholding taxes which
may be required to be withheld. The Offer is for all Shares of AAP or any lesser
number of Shares tendered and not withdrawn. The Offer will expire, unless
extended, at 12:00 midnight, New York City time, on December 17, 1999.
The Offer is being made to all holders of Common Stock. The Offer, however,
will not be made to a particular holder if (i) the Offer is prohibited by
applicable administrative or judicial action pursuant to a statutory provision
of the jurisdiction in which such holder resides or (ii) the laws or practices
of the jurisdiction in which such holder resides would impose significant costs
upon Purchaser or would materially delay the Offer.
As of September 30, 1999, the principal shareholders of AAP, along with
certain corporations, trusts, foundations and other entities established by or
for the benefit of the principal shareholders and their respective families
(collectively, the "Principal Shareholders"), beneficially owned 47,943,530
shares of Common Stock, constituting approximately 85% of all shares of Common
Stock issued and outstanding on such date. Purchaser has been informed by the
Principal Shareholders that they will not tender their Shares in response to the
Offer. The Principal Shareholders will contribute their shares ("Non-Tendered
Shares") to Hold Co. (as defined below) contemporaneously with the consummation
of the Offer.
The Offer is being made pursuant to the Tender Offer and Amalgamation
Agreement (the "Amalgamation Agreement"), dated November 15, 1999, among AAP,
Purchaser and Apple Hold Co., L.P., a limited partnership organized under the
laws of Bermuda ("Hold Co."). Hold Co. is the parent of Purchaser and an entity
controlled by the Principal Shareholders. The purpose of the Offer is to
facilitate Purchaser's acquisition of all Shares for cash, and thereby enable
the Principal Shareholders to obtain indirect control of 100% of the capital
stock of AAP. The Amalgamation Agreement provides for, among other things,
Purchaser to first conduct the Offer and then for AAP and Purchaser to
amalgamate (the "Amalgamation"), with AAP continuing as the amalgamated company.
Simultaneously with the execution of the Amalgamation Agreement, the Principal
Shareholders, Hold Co. and Purchaser entered into a Shareholder and Voting
Agreement (the "Shareholder Agreement"). Pursuant to the Shareholder Agreement,
the Principal Shareholders have agreed, and Hold Co. agreed, after transfer to
it of the Non-Tendered Shares by the Principal Shareholders, not to dispose of
or otherwise transfer the Non-Tendered Shares, and Purchaser has agreed not to
dispose of or otherwise transfer any Shares purchased by it in the Offer
("Purchased Shares"), in either case prior to consummation of the Amalgamation.
The Principal Shareholders also have agreed to cause Hold Co. and Purchaser, as
the case may be, to vote, and Hold Co. and Purchaser, as the case may be, have
agreed to vote the Non-Tendered Shares and Purchased Shares in favor of the
Amalgamation.
Because the Principal Shareholders will contribute their shares to Hold
Co., the Principal Shareholders, indirectly as limited partners of Hold Co.,
will beneficially own approximately 85% of the Shares. Under Bermuda law, an
amalgamation must be approved by a vote of three-fourths of those shareholders
voting at the shareholder meeting to approve such amalgamation provided that a
quorum representing at least one-third of the shareholders attend such meeting.
Because the Principal Shareholders will own, directly or indirectly, 85% of the
AAP Shares and 100% of the capital stock of Purchaser, the Principal
Shareholders will be able to effect the Amalgamation even if the Public
Shareholders (as defined below) do not tender any Shares. As a result of the
Amalgamation, those holders who do not tender their Shares in the Offer will
receive cash equal to the Purchase Price upon consummation of the Amalgamation.
If Shareholders tender their Shares in connection with the Offer, then they will
not have to wait for the Amalgamation to be completed to receive cash for their
Shares. The Amalgamation is expected to occur as soon as possible following
consummation of the Offer.
Alternatively, if at any time after consummation of the Offer, Purchaser
and Hold Co. own, in the aggregate, 95 percent or more of the outstanding shares
of the Common Stock, then Purchaser may, if it elects to do so in lieu of the
Amalgamation, compulsorily purchase at the Purchase Price in cash the remaining
Shares from the remaining Shareholders pursuant to Section 103 of the Bermuda
Companies Act of 1981, as amended (the "Bermuda Act"). Accordingly, as a result
of the consummation of the Offer and the Amalgamation or alternatively, the
purchase of the Shares for cash in accordance with Section 103 of the Bermuda
Act, the Principal Shareholders will, indirectly as limited partners of Hold
Co., beneficially own 100 percent of the outstanding Shares. See, "Special
Factors -- The Offer, Amalgamation and Related Transactions; Amalgamation
Agreement".
Over the last several years, a variety of alternatives have been considered
by the Principal Shareholders and AAP management to increase shareholder value,
while at the same time enhance operations, results and business prospects of
AAP. After consideration of various alternatives and based on the difficult
business environment and the limited public float of Shares, the Principal
Shareholders and AAP concluded that it was unlikely that any meaningful
improvement in liquidity of AAP would occur or that the Public Shareholders
would realize the full potential of their investment in the foreseeable future.
AAP and the Principal Shareholders concluded that, as a private company, AAP
would have greater flexibility to invest in its future, realign the business
relationships with Amway Corporation, a privately held Michigan corporation
owned and controlled by the Principal Shareholders ("Amway"), and other Amway
affiliates and allow senior management of Amway and AAP to focus on the
long-term interests of AAP without concern for the impact that any action might
have on operating results or share price of AAP. The Principal Shareholders view
the Offer as an opportunity to create value for the Public Shareholders through
a premium purchase price and to provide flexibility for restructuring and
realignment of all Amway entities controlled by the Principal Shareholders.
Purchaser will pay for the Shares purchased pursuant to the Offer with
funds borrowed from Morgan Guaranty Trust Company of New York, Tokyo Branch, an
affiliate of J.P. Morgan & Co. Incorporated ("Morgan Guaranty"), and possibly
other commercial banks and lending institutions under a new senior credit
facility.
The Offer is not contingent upon receiving financing. The Offer will allow
those holders desiring to receive cash for their Shares an opportunity to do so
at a premium to the pre-Offer market price without the usual transaction costs
associated with open market sales.
THE BOARD OF DIRECTORS OF AAP (WITH MESSRS. RICHARD M. DEVOS, JR., DOUGLAS
L. DEVOS AND STEPHEN A. VAN ANDEL NOT PARTICIPATING) (THE "DISINTERESTED
DIRECTORS") HAS UNANIMOUSLY (1) DETERMINED THAT THE OFFER AND THE AMALGAMATION
ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE HOLDERS OF SHARES, OTHER THAN
NON-TENDERED SHARES (THE "PUBLIC SHAREHOLDERS"), (2) APPROVED THE AMALGAMATION
AGREEMENT AND (3) RESOLVED TO RECOMMEND THAT THE PUBLIC SHAREHOLDERS ACCEPT THE
OFFER AND TENDER THEIR SHARES IN RESPONSE TO THE OFFER. SEE "SPECIAL
FACTORS -- BACKGROUND OF THE OFFER; RECOMMENDATION OF THE SPECIAL COMMITTEE AND
THE DISINTERESTED DIRECTORS; REASONS FOR THE RECOMMENDATION; OPINION OF
FINANCIAL ADVISOR TO THE SPECIAL COMMITTEE" FOR FURTHER INFORMATION REGARDING
THE MATTERS CONSIDERED BY THE SPECIAL COMMITTEE AND THE DISINTERESTED DIRECTORS
IN REVIEWING THE TERMS OF AND FAIRNESS OF THE OFFER.
AAP has advised Purchaser that Goldman, Sachs & Co., an independent
investment bank and financial advisory firm (the "Financial Advisor" or "Goldman
Sachs"), has delivered to the Special Committee, its written opinion that, as of
the date of the Amalgamation Agreement, the Purchase Price in cash to be
received by the Public Shareholders in the Offer and the Amalgamation or the
compulsory purchase of the remaining Shares pursuant to Section 103 of the
Bermuda Act as contemplated by the Amalgamation Agreement is fair from a
financial point of view to such holders. See "Special Factors -- Background of
the Offer; Recommendation of the Special Committee and the Disinterested
Directors; Reasons for the Recommendation; Opinion of the Financial Advisor to
the Special Committee" for further information concerning the opinion of Goldman
Sachs.
AAP has filed with the Securities and Exchange Commission (the
"Commission") a Solicitation/ Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9"), a copy of which is enclosed.
2
All Shares validly tendered and not withdrawn on or prior to the Expiration
Date (as defined in "The Offer -- Number of Shares; Expiration and Extension of
Offer") will be purchased at the Purchase Price on the terms and subject to the
conditions of the Offer. Certificates representing Shares not validly tendered
and Shares validly withdrawn on or prior to the Expiration Date will be returned
without delay to the applicable holder. See "The Offer -- Number of Shares;
Expiration and Extension of Offer."
Tendering holders will not be obligated to pay brokerage commissions or
solicitation fees. Such brokerage commissions and solicitation fees, if
applicable, will be paid by Purchaser as expenses of the Offer. Purchaser will
pay all fees and certain expenses of the Dealer Managers, the Information Agent
and the Depositary incurred in connection with the Offer. See "The Offer -- Fees
and Expenses." However, any U.S. backup withholding taxes which may be required
to be withheld will be withheld from the Purchase Price to be paid to each
holder pursuant to the Offer. See "The Offer -- Acceptance for Payment of Shares
and Payment of Purchase Price," and "The Offer -- U.S. Federal Income Tax
Consequences."
Participants in the Direct Purchase and Sale of Amway Asia Pacific Ltd.
Common Stock (the "Dividend Reinvestment Plan") may tender part or all of the
shares credited to their accounts in the Dividend Reinvestment Plan by following
Instruction 10 of the Letter of Transmittal and submitting the Letter of
Transmittal to the Depositary. Participants in the Amway Corporation Profit
Sharing and 401(k) Plan ("401(k) Plan") may tender part or all of the shares
credited to their accounts in the 401(k) Plan by submitting the letter of
transmittal and the election form included in the materials sent by the trustee
in the 401(k) Plan. Participants may only use the letter of transmittal sent to
participants by the trustee for the 401(k) Plan to tender Shares credited to a
401(k) Plan account. See "The Offer -- Procedures for Tendering
Shares -- 401(k) Plan."
AAP has advised Purchaser that, as of September 30, 1999, there were
approximately 56,441,960 shares of Common Stock (including 40,954.247 shares of
Common Stock held in the 401(k) Plan) issued and outstanding. According to AAP's
records, there were approximately 2,166 holders of record of the issued and
outstanding shares of Common Stock.
AAP has advised Purchaser that AAP's Board of Directors has taken action so
that option rights to receive shares of Common Stock under the Amway Asia
Pacific Ltd. Long-Term Incentive Plan and the Amway Asia Pacific Ltd. Outside
Director Long-Term Award Plan (collectively, the "Option Plans") at the time of
the Amalgamation or consummation of the compulsory purchaser will be converted
into the right to receive cash in accordance with the terms of the Option Plans.
The determination of the amount of cash to be paid to participants in the Option
Plans will be based on the Black-Scholes Option Pricing Model.
THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES BEING
TENDERED OR SUBJECT TO ANY OTHER CONDITIONS.
The United States federal income tax consequences of a sale by a holder of
Shares pursuant to the Offer depend upon the facts and circumstances of the
sale. U.S. backup withholding taxes may, in circumstances described herein, be
required to be withheld from the Purchase Price of any sale of Shares. See "The
Offer -- U.S. Federal Income Tax Consequences." EACH HOLDER IS URGED TO CONSULT
AND RELY ON SUCH HOLDER'S OWN TAX ADVISOR WITH RESPECT TO THE FEDERAL, STATE,
LOCAL AND FOREIGN TAX CONSEQUENCES TO SUCH HOLDER OF A SALE OF SHARES PURSUANT
TO THE OFFER.
The principal trading market for the Common Stock is the NYSE. On November
12, 1999, the last full NYSE trading day prior to the public announcement of the
Offer, the closing sales price of the Common Stock as reported on the NYSE was
$11.75 and on November 16, 1999, the last full day of trading prior to the
Commencement Date for which quotations could be obtained, the closing sale price
was $17.81. The Purchase Price is $18.00 per share. On November 15, 1999, the
last full ASX trading day prior to the public announcement of the offer, the
closing sales price of the Common Stock as reported on the ASX was AU$17.50 and
on November 17, 1999, the last full day of trading prior to the Commencement
Date the closing sale price was AU$30.0. See "The Offer -- Market Information;
Dividends and Dividend Policy" for historical prices of the Common Stock on the
NYSE and the ASX. HOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE
COMMON STOCK.
THIS OFFER TO PURCHASE AND THE LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION WHICH YOU SHOULD READ CAREFULLY BEFORE YOU MAKE ANY DECISION WITH
RESPECT TO THE OFFER.
3
SPECIAL FACTORS
1. BACKGROUND OF THE OFFER; RECOMMENDATION OF THE SPECIAL COMMITTEE AND THE
DISINTERESTED DIRECTORS; REASONS FOR THE RECOMMENDATION; OPINION OF FINANCIAL
ADVISOR TO THE SPECIAL COMMITTEE.
Background of the Offer. Over the last several years, a variety of
alternatives have been considered by the Principal Shareholders and AAP
management to increase shareholder value, while at the same time enhance the
operations, results and business prospects of AAP. Of particular focus was the
relatively illiquid and, at times, volatile market for the Common Stock. For
example, during the second half of 1996, AAP considered a possible secondary
offering in an effort to improve liquidity and expand ownership of shares of
Common Stock by investors. After consideration of this proposal, AAP's Board of
Directors, in January 1997, authorized AAP to conduct a secondary offering.
After submission of a registration statement to the Commission, AAP's Board of
Directors decided to delay this secondary offering due to deterioration in the
market conditions. Following the delay of the proposed secondary offering, AAP
authorized open market repurchases by AAP of shares of Common Stock valued up to
$50 million in the hope that this action would create value for shareholders.
Also considered was a realignment of AAP with other Amway affiliates either
by means of the combination of AAP and such other markets or the acquisition by
AAP of other Amway affiliates in the region. In particular, beginning in April
1997, AAP, representatives of Amway and financial and legal advisors reviewed
the possibility of forming a holding company which would own both Amway Japan
Limited, a Japanese corporation and a publicly held affiliate of Amway ("AJL"),
and AAP. In January 1998, there was a discussion regarding the possible creation
of such a holding company to acquire both AAP and AJL at a meeting of AAP's
Board of Directors. Following a presentation in April 1998 by financial advisors
regarding a proposed holding company structure, this alternative was rejected as
not feasible because of certain legal, structural and tax issues and accounting
concerns.
Starting in June of 1997, the Asian currency crisis impacted a number of
AAP's markets, particularly Malaysia, Thailand and Taiwan and to a lesser extent
Australia and New Zealand. This crisis exacerbated the concerns regarding share
value, market volatility and lack of liquidity for shareholders. In March of
1998, representatives of AAP and Amway, as well as legal, tax and financial
advisors, met to discuss alternatives to address share value, market volatility,
lack of liquidity and AAP's operating results. In order to address operating
results, AAP adopted more stringent cost cutting programs, as well as an
expansion of local sourcing opportunities. Further, compounding the market
volatility and adversely affecting operating results was the ban in China on
direct selling in the spring of 1998. Following the discussions in March of
1998, an alternative that was considered was whether shareholder value might be
best served by taking AAP private. As a private company, AAP would have greater
flexibility to invest in its future, realign the business relationship with
Amway and other Amway affiliates and allow senior management of Amway and AAP to
focus on the long-term interests of AAP without concern for the impact that any
action might have on operating results or share price in the short-term. In
addition, a going private transaction would minimize the impact of the legal,
structural and tax issues and accounting concerns associated with the
transactions previously considered as well as reduce costs through the
elimination of public company status.
Throughout 1998, senior executives of AAP and Amway, along with their
financial, legal, tax and accounting advisors worked on various aspects of a
potential going private transaction focusing, in particular, on legal,
structural, tax, accounting and other regulatory issues. During the second
calendar quarter of 1998, representatives of Amway and Morgan Stanley & Co.
Incorporated ("Morgan Stanley") had discussions regarding the financing of such
transaction. These earlier efforts did not result in any specific proposal or
range of proposals being made to AAP by or on behalf of the Principal
Shareholders, Amway or any other controlled company. From August through October
1998, representatives of Amway on behalf of the Principal Shareholders and its
legal and financial advisors began to have discussions with J.P. Morgan
Securities Inc. ("J.P. Morgan") regarding various financing options for a going
private transaction. A decision was made not to proceed at that time.
4
In July and August of 1999, senior executives of Amway and Morgan Stanley
prepared a strategic and financial analysis of a proposed going private
transaction as a part of a broad based realignment of entities controlled by the
Principal Shareholders, including Amway, AJL and AAP. The proposed transaction
was presented to the Principal Shareholders on August 11 and August 20.
Following these meetings, the Principal Shareholders instructed senior
executives of Amway to continue to analyze going private transactions involving
AJL and AAP. In addition, Morgan Stanley and J.P. Morgan were retained following
these meetings by the Principal Shareholders to advise them on, and to explore
opportunities for, a potential transaction and financing alternatives for any
such transaction.
On behalf of the Principal Shareholders, senior executives of Amway, Morgan
Stanley, J.P. Morgan, Jones Day, Reavis & Pogue ("Jones Day"), as legal
advisors, and White & Case LLP ("White & Case"), as tax advisors, met in Chicago
on September 2, 1999, to discuss various aspects of a potential transaction,
including financing, structures, due diligence and other issues.
On September 10, 1999, senior executives of Amway met with the independent
members of the Board of Directors of AAP to discuss a potential going private
transaction. At this meeting, the participants discussed, among other things,
the rationale for the transaction, the desirability of establishing a special
committee of independent directors of AAP to consider such a transaction, the
need for independent legal and financial advisors and other business issues.
Senior executives of Amway and their legal and financial advisors,
including Morgan Stanley, J.P. Morgan, Jones Day and White & Case, met in Tokyo
the week of September 13, 1999 to conduct due diligence, to review a broad range
of issues involved in a going private transaction, including legal, tax,
accounting, regulatory and financing, and to discuss process issues. In
addition, these representatives had telephone conferences with certain other
senior executives of AAP. AAP's five-year financial projections were shared with
the financial advisors at this time.
The Principal Shareholders met on September 21, 1999, in Ada, Michigan to
review the status of a potential transaction with their financial advisors. At
this meeting, Morgan Stanley and J.P. Morgan reviewed preliminary financial and
strategic conclusions. Based on a discounted cash flow analysis, a review of
comparable companies and precedent transactions, and a trading analysis, Morgan
Stanley and J.P. Morgan discussed with the Principal Shareholders and senior
executives of Amway possible financial terms of a going private transaction.
Following this meeting, the Principal Shareholders concluded that a going
private transaction was the best way to enhance shareholder value and to
implement the various changes believed necessary to effect a long term
improvement in the operating results of Amway and all of its affiliates,
including AAP. As a result, the Principal Shareholders instructed senior
executives of Amway and their advisors to continue working towards a potential
going private transaction.
On September 29, 1999, a representative of Amway and Eoghan McMillan, a
director of AAP and proposed chairman of the Special Committee (as defined
below), had a telephone conversation regarding the decision of the Principal
Shareholders to proceed with the transactions and discussed with Mr. McMillan
the retention of independent legal and financial advisers for the Special
Committee. Following these discussions, AAP and Purchaser executed a
confidentiality agreement related to the going private transaction.
On October 2, 1999, the Board of Directors of AAP formed the Special
Committee, comprised of Eoghan M. McMillan, Jack C.K. So and John C.C. Chan (the
"Special Committee"), each an independent, non-employee member of the Board of
Directors of AAP. The Special Committee was formed for the purpose of evaluating
the terms of any proposed going private transaction and was empowered to review,
evaluate and, if deemed appropriate, negotiate on behalf of the Company the
terms of a possible transaction and to report its actions and conclusions to the
Board of Directors. The Special Committee further was authorized to retain
independent legal and financial advisors in connection with the performance of
its mandate.
During the week of October 4, 1999, Mr. McMillan contacted Goldman, Sachs
and Cleary, Gottlieb, Steen & Hamilton ("Cleary") to discuss retention of these
firms by AAP to assist the Special Committee in analyzing the proposed
transaction. Goldman Sachs met with the Special Committee, Mr. McMillan and
senior executives of AAP during the week of October 11 to conduct financial due
diligence.
5
In September and October 1999, senior executives of Amway, in consultation
with the Principal Shareholder's tax and legal advisors, addressed structural
issues and the terms of the proposed loans to Purchaser to fund the Offer.
On October 13, 1999, representatives of the Principal Shareholders
delivered to Mr. McMillan a written proposal informing AAP that the Principal
Shareholders were interested in discussing a transaction to acquire all the
publicly traded shares of AAP. This written proposal indicated that the
Principal Shareholders would propose to purchase the Shares for $15.50 per share
(the "Proposal").
On October 15, 1999, the Special Committee met with representatives of
Goldman Sachs, Cleary and Conyers, Dill & Pearman ("Conyers Dill"), Bermuda
counsel to AAP, to discuss their duties under applicable law with respect to the
Proposal and appropriate procedures for responding to it.
On October 20, 1999, the Special Committee met, together with
representatives of Goldman Sachs, Cleary and Conyers Dill. At this meeting,
representatives of Goldman Sachs summarized the results of their due diligence
review and presented certain preliminary analyses they had performed with
respect to AAP and the Shares. Later the same day, a representative of Goldman
Sachs communicated to a representative of Morgan Stanley that at that time and
based on preliminary analysis, the Special Committee was continuing to review
the Proposal and were not prepared to provide a response to the Proposal.
Goldman Sachs reported to Morgan Stanley that the Special Committee wanted more
time to consider the Proposal in order, among other things, to allow AAP to
review with the Special Committee projections of AAP's future financial results.
Following the discussion with Goldman Sachs, Morgan Stanley consulted with the
representatives of the Principal Shareholders and their advisors; and management
of AAP had discussions with Mr. McMillan and Goldman Sachs regarding the
projections.
On October 22, 1999, the Special Committee met by teleconference with
representatives of Goldman Sachs and Cleary. Goldman Sachs reported on its
conversation with Morgan Stanley and reviewed certain further preliminary
analyses they had performed taking into account certain information received
during conversations with the Special Committee and representatives of Amway.
On October 27, 1999, advisers to the Principal Shareholders, senior
executives of Amway, Jones Day and White & Case met in Washington, D.C. to
address structural, tax, accounting and regulatory issues relating to the
proposed transaction. Among the structural issues discussed during this meeting
and in follow-up discussions was the desirability of a voting and shareholder
agreement among the Principal Shareholders relating to the Amalgamation.
On October 27, 1999, the Special Committee met via teleconference, together
with representatives of Goldman Sachs and Cleary. Goldman Sachs reviewed its
preliminary valuation and financial analyses. After discussing these analyses,
the Special Committee directed Goldman Sachs to inform the Principal
Shareholders that the Special Committee would be prepared to consider a revised
offer price of $18.00 per Share.
On October 28, 1999, representatives of Goldman Sachs delivered to
representatives of Morgan Stanley the Special Committee's response to the
Proposal, indicating the Special Committee was initially willing to consider the
Proposal if the Principal Shareholders would consider a purchase price of $18.00
per share. Morgan Stanley consulted with representatives of the Principal
Shareholders and their advisers in order to prepare a response to the Special
Committee's reply.
While negotiations regarding the offer price continued, the representatives
of the Principal Shareholders and the Special Committee and their respective
advisors negotiated and finalized the terms of the Amalgamation Agreement.
On November 11, 1999, the Principal Shareholders delivered to Mr. McMillan
a written offer meeting the $18.00 per share price proposed by the Special
Committee on October 28, 1999. The written offer was conditioned upon acceptance
by the disinterested directors of the Board of Directors of AJL of an offer
proposal made to it by the Principal Shareholders on the same day.
On November 12, 1999, the Special Committee met via teleconference to
discuss the revised Proposal, together with representatives of Goldman Sachs,
Cleary and Conyers Dill. Based upon the financial and
6
valuation analyses which Goldman Sachs had performed with respect to the
Proposal and previously presented to the Special Committee, Goldman Sachs
expressed an oral opinion as of the date of the meeting that the $18.00 in cash
proposed to be received by the Public Shareholders in the Offer and the
Amalgamation or the compulsory purchase of Shares pursuant to the Amalgamation
Agreement, is fair from a financial point of view to such holders. See
" -- Opinion of Financial Advisor to the Special Committee." Following
discussion, the Special Committee then adopted a resolution stating that the
Special Committee has determined that the Offer and the Amalgamation are fair to
and in the best interests of the Public Shareholders, and further resolved to
recommend to the Board of Directors that it approve the Amalgamation Agreement
and recommend that the Public Shareholders accept the Offer and tender their
Shares in response to the Offer. Goldman Sachs delivered its written opinion
dated November 15, 1999 confirming its oral opinion.
Immediately following the November 12, 1999 Special Committee meeting, the
Board of Directors of AAP (without the participation of Messrs. Richard M.
DeVos, Jr., Douglas L. DeVos and Stephan A. Van Andel), held a meeting via
teleconference, together with representatives of Goldman Sachs, Cleary and
Conyers Dill. Mr. McMillan described the background of the written offer to the
other Disinterested Directors and reported on the Special Committee's
recommendation with regard to the written offer. Following this report,
representatives of Cleary reviewed the terms of the Amalgamation Agreement
submitted with the written offer leading to the Proposal, representatives of
Conyers Dill reviewed the legal standards applicable to their deliberations
under Bermuda law and representatives of Goldman Sachs presented the financial
and valuation analyses which they had performed with respect to the written
offer and informed the Disinterested Directors that it had given its oral
fairness opinion to the Special Committee. The meeting of the Board of Directors
was then adjourned and reconvened on November 15, 1999.
At the reconvened meeting, after further discussion, the Disinterested
Directors unanimously determined that the Offer and Amalgamation are fair to
and, in the best interest, of the Public Shareholders, approved the Amalgamation
Agreement and resolved to recommend that the Public Shareholders accept the
Offer and tender their Shares in response to the Offer. See "-- Recommendation
of the Special Committee and the Disinterested Directors" and "-- Reasons for
the Recommendation" for a description of certain of the material factors
considered by the Disinterested Directors in connection with their
recommendation.
Recommendation of the Special Committee and the Disinterested Directors. As
described below, the Special Committee unanimously (1) determined that the Offer
and the Amalgamation are fair to, and in the best interests of, the Public
Shareholders and (2) recommended to the Disinterested Directors that they
approve the Amalgamation Agreement and recommend that the Public Shareholders
accept the Offer and tender their Shares in response to the Offer.
The Disinterested Directors have unanimously (1) determined that the Offer
and the Amalgamation are fair to, and in the best interests of, the Public
Shareholders; (2) approved the Amalgamation Agreement; and (3) determined to
recommend that Public Shareholders accept the Offer and tender their Shares in
response to the Offer.
Reasons for the Recommendation of the Special Committee and the
Disinterested Directors. The Special Committee considered the following material
factors, among others, in connection with making its determinations and
recommendations:
- The opinion of Goldman Sachs, the independent financial advisor to the
Special Committee, that, as of the date of such opinion, the Purchase
Price in cash to be received by the Public Shareholders in the Offer and
the Amalgamation or the compulsory purchase of the remaining Shares
pursuant to Section 103 of the Bermuda Act as contemplated by the
Amalgamation Agreement is fair from a financial point of view to such
holders and the financial and valuation analyses presented by Goldman
Sachs to the Special Committee in connection with its opinion. THE PUBLIC
SHAREHOLDERS ARE URGED TO READ GOLDMAN SACHS' OPINION IN ITS ENTIRETY,
WHICH IS ATTACHED AS SCHEDULE II TO THIS OFFER TO PURCHASE.
- The current and historical market prices for the Shares and the fact that
the Purchase Price represents a premium of approximately 53.2% over the
per share closing price of the Shares on November 12, 1999, the last
trading day prior to the public announcement of execution of the
Amalgamation
7
Agreement and approximately 67.2% over the average price of the Shares
over the 52-week period prior to November 12, 1999. The Special Committee
also noted that the Purchase Price represents a multiple of 39.2x 1999
EBIT and 81.4x 1999 net income.
- The relatively low trading volume of the Shares and the fact that the
public float for the Shares consists of only approximately 15% of the
outstanding Shares. The Special Committee considered the uncertainty, in
the absence of the Offer, that the Public Shareholders would have the
opportunity in the foreseeable future to sell their Shares in the open
market for prices equal to or in excess of the Purchase Price.
- The Principal Shareholders' stated unwillingness to sell their Shares to
a third party, as well as the commercial relationships between AAP and
Amway, factors effectively precluding a sale of control of AAP or another
transaction that might be more favorable to AAP and the Public
Shareholders. In view of these factors, the Special Committee and Goldman
Sachs were not authorized to, and did not, solicit, nor did AAP receive,
third party indications of interest to acquire AAP as a whole or any of
its businesses, nor did they give any significant consideration to
theoretical prices which a hypothetical third party purchaser might be
willing to pay to acquire AAP.
- The commercial relationships between AAP and Amway and the value to the
Principal Shareholders of consummating the Offer and the Amalgamation,
including greater flexibility to invest in AAP, to realign AAP's business
relationship with Amway and to allow senior management of Amway and AAP
to focus on long-term interests without the short-term influence of the
equity markets.
- The recent and historical results of operations and financial condition
and the business strategy and prospects of AAP and recent and historical
economic, political and other developments in the direct distribution
industry and in the countries in which AAP conducts its business. In
particular, with respect to AAP's business prospects, the Special
Committee considered AAP's potential for expansion into new and within
existing markets, especially China, and the opportunities and risks
associated with those markets. The Special Committee also considered the
volatility of AAP's financial results in recent periods related to its
dependence on Asian regional markets.
- The fact that consummation of the transaction will preclude the Public
Shareholders from participating in any future growth of AAP. In the view
of the Special Committee, however, this loss of opportunity is adequately
reflected in the Purchase Price.
- The negotiations between the Special Committee and its representatives
and the Principal Shareholders and their representatives, including that
the negotiations that resulted in (1) an increase from the initial
proposed price of $15.50 per share at which Purchaser was prepared to
acquire the Shares, to the $18.00 per share Purchase Price and (2) the
Special Committee's belief, confirmed by Goldman Sachs in their
discussions with Morgan Stanley, that the Purchase Price was the highest
price that could likely be obtained from the Principal Shareholders under
the circumstances.
- The terms and conditions of the Amalgamation Agreement, the Offer and the
structure of the transaction generally, including that (1) the
transaction includes a first-step cash tender offer, enabling Public
Shareholders who accept the Offer to liquidate their investment in AAP
without waiting for the Amalgamation to be consummated, (2) Public
Shareholders who do not tender their Shares pursuant to the Offer will
receive in the Amalgamation the same cash price per share paid by the
Purchaser in the Offer (unless they elect to exercise appraisal rights
under Bermuda law), (3) the Offer and the Amalgamation are not subject to
any significant conditions and in particular that there is no financing
condition attached to either the Offer or the Amalgamation and (4)
without the consent of the Special Committee, the Purchaser may not
reduce the Purchase Price, impose additional conditions to the Offer or
amend or modify any other term of the Offer in a manner adverse to the
holders of the Shares.
- The availability of appraisal rights under Bermuda law pursuant to which
Public Shareholders who do not accept the Offer and properly dissent from
the Amalgamation may have the fair value of their Shares judicially
determined.
8
In reaching their determinations referred to above, the Disinterested
Directors considered the following factors, each of which, in the view of the
Disinterested Directors, supported such determinations: (1) the recommendations
of the Special Committee; (2) the factors referred to above considered by the
Special Committee, and (3) the fact that the Purchase Price and the terms and
conditions of the Amalgamation Agreement were the result of negotiations among
the Special Committee and the Principal Shareholders and their respective
advisors.
The Disinterested Directors, including the members of the Special
Committee, also believe that the Offer and the Amalgamation are procedurally
fair because, among other things: (1) the Special Committee consisted of three
independent directors who are not employees of AAP or affiliated with the
Principal Shareholders and were appointed by the Directors to represent the
interests of the Public Shareholders; (2) the Special Committee retained and
received advice from independent legal counsel; (3) the Special Committee
retained an independent financial advisor, Goldman Sachs, and received financial
advice and assistance from Goldman Sachs in evaluating and negotiating a
potential transaction with the Purchaser, as well as an opinion from Goldman
Sachs.
The Disinterested Directors and the Special Committee recognized that
neither the Offer nor the Amalgamation was structured to require the approval of
a majority of the Shareholders of AAP, excluding the Principal Shareholders and
that the Principal Shareholders currently have sufficient voting power to
approve the Amalgamation without the affirmative vote of any other Shareholders
of AAP.
The foregoing discussion of the information and factors considered by the
Special Committee and the Disinterested Directors, respectively, is not meant to
be exhaustive, but includes the material factors considered by each body in
reaching its conclusions and recommendations. In view of the variety of factors
considered in reaching their determinations, neither the Special Committee nor
the Disinterested Directors found it practicable to, and did not, quantify or
otherwise assign relative weights to the specific factors considered in reaching
their respective conclusions and recommendations. In addition, individual
members of each body may have given different weights to different factors.
The opinions, views, beliefs and recommendations of the Disinterested
Directors, including members of the Special Committee, and of their advisors and
other individuals that made statements to them, do not purport to be the only
possible views on the Offer and the Amalgamation and no one view is presented
here as objectively correct. Except for the recommendation made by the
Disinterested Directors, no person or entity, including the legal or financial
advisors to the Special Committee, is making any recommendation to the Public
Shareholders as to whether they should tender Shares in response to the Offer.
Although the Disinterested Directors have made a recommendation, the adequacy,
fairness and acceptability of the Offer is for each Public Shareholder to
decide. Consequently, the Disinterested Directors strongly urge the Public
Shareholders to consider all available information.
Opinion of Financial Advisor to the Special Committee. Goldman Sachs has
acted as financial advisor to the Special Committee. On November 12, 1999,
Goldman Sachs delivered to the Special Committee its oral opinion, subsequently
confirmed in writing as of November 15, 1999, that as of such date the Purchase
Price in cash to be received by the Public Shareholders in the Offer and the
Amalgamation or compulsory purchase of the remaining Shares under Section 103 of
the Bermuda Act as contemplated by the Amalgamation Agreement is fair from a
financial point of view to such holders.
THE FULL TEXT OF THE GOLDMAN SACHS OPINION, DATED AS OF NOVEMBER 15, 1999,
WHICH SETS FORTH THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED AND MATTERS
CONSIDERED IN, AND THE LIMITATIONS ON, THE REVIEW UNDERTAKEN IN CONNECTION WITH
ITS OPINION, IS ATTACHED HERETO AS SCHEDULE II. The Goldman Sachs opinion was
provided for the information and assistance of the Special Committee in
connection with its consideration of the Offer and the transactions contemplated
by the Amalgamation Agreement. It is does not constitute a recommendation to any
holder of Shares as to whether or not such holder should accept the Offer or
should vote in respect of the Amalgamation. The summary of the Goldman Sachs
opinion below is qualified by its full text. Shareholders of AAP should read the
Goldman Sachs opinion in its entirety.
9
In connection with its opinion, Goldman Sachs reviewed, among other things:
the Amalgamation Agreement; Annual Reports to Stockholders and Annual Reports on
Form 20-F of AAP for the five fiscal years ended August 31, 1998; certain
interim reports to shareholders and Quarterly Reports on Form 6-K of AAP;
certain other communications from AAP to its shareholders; and certain internal
financial analyses and forecasts for AAP prepared by its management. Goldman
Sachs also held discussions with members of the senior management of AAP
regarding its past and current business operations, financial condition and
future prospects. In addition, Goldman Sachs reviewed the reported price and
trading activity for the Shares, compared certain financial and stock market
information for AAP with similar information for certain other companies the
securities of which are publicly traded, reviewed the financial terms of certain
recent business combinations and performed such other studies and analyses as it
considered appropriate.
Goldman Sachs has relied upon the accuracy and completeness of all of the
financial and other information reviewed by it and has assumed such accuracy and
completeness for purposes of rendering its opinion. In that regard, Goldman
Sachs has assumed with the consent of the Special Committee that the internal
financial forecasts prepared by the management of AAP have been reasonably
prepared on a basis reflecting the best currently available estimates and
judgments of AAP. In addition, Goldman Sachs has not made an independent
evaluation or appraisal of the assets and liabilities of AAP or any of its
subsidiaries and Goldman Sachs has not been furnished with any such evaluation
or appraisal. Goldman Sachs notes that the Principal Shareholders own a majority
of the Shares, and that the Principal Shareholders have informed Goldman Sachs
and the Special Committee that the Principal Shareholders will not sell their
Shares to any third party. Accordingly, Goldman Sachs was not requested to
solicit, and did not solicit, interest from other parties with respect to an
acquisition of or other business combination with AAP.
The following is a summary of the material financial analyses used by
Goldman Sachs in connection with providing its written opinion to the Special
Committee. Some of the summaries of the financial analyses include information
presented in tabular format. The tables must be read together with the text
accompanying each summary.
Review of Summary Financial Information. Goldman Sachs reviewed certain
historical financial information for AAP for the years ended August 31, 1994
through 1999, and estimates prepared by AAP's management, in conjunction with
the SEC Reporting and Investor Relations Group of Amway, of AAP's financial
performance for the years ended August 31, 2000 through 2004.
Historical Stock Price Performance. Goldman Sachs reviewed the historical
closing stock prices and trading volume of the Shares for the period December
15, 1993 (the date of the Company's initial public offering (the "IPO")) through
October 29, 1999, and for the three-year, one-year and six-month periods ended
October 29, 1999. Goldman Sachs observed that the closing stock prices for
Shares have declined gradually from a high of $49.50 on January 21, 1997 to an
historic low of $7.125 on April 22, 1999. Over the one-year period ending
October 29, 1999 the Shares traded between a high of $14.375 on July 26, 1999
and a low of $7.125 on April 22, 1999. Goldman Sachs also reviewed the indexed
stock price of the Shares against a composite of two selected comparable public
companies in Asia, a composite of six selected comparable public companies in
the U.S., and a composite of five selected comparable public companies in Japan.
Future Trading Range Analysis. Assuming a range of forward price to
earnings ratios (20-30x) in four years' time and AAP's estimated 2004 earnings
per share, Goldman Sachs calculated a range of potential future stock prices for
AAP in November 2003. Assuming required annual returns to equity investors of 10
to 14% (assuming 2% in annual dividend yield with the remainder consisting of
annual share price appreciation), Goldman Sachs calculated the present value of
these potential future stock prices. The analysis indicated a range of $8.40 to
$14.57 per share today. Goldman Sachs also observed that, if an investor were to
invest in the Shares today at $18.00 per share, and exited the investment in
November 2003 at today's forward price to earnings ratio (25x on AAP's estimated
2000 earnings per share) as applied to AAP's current estimated 2004 earnings per
share, the annual return to such investor would be approximately (0.1)% over the
next four-year period. In addition, Goldman Sachs also observed that if an
investor were to invest in the Shares today at $18.00 per share, either AAP's
forward price earnings ratio or its estimated 2004 earnings per share at time of
10
exit in November 2003 must be greater by approximately 60% than current levels
for such investor to obtain an annual return of 12% (assuming 2% annual dividend
yield) over the next four-year period.
Historical Public Market Valuation Performance. Based on historical prices
and reported EBIT and net debt, Goldman Sachs observed the market's valuation of
AAP, as defined by enterprise value as a multiple of last fiscal year EBIT, to
have a mean of 14.8x over the last 5 years. Similarly, Goldman Sachs observed
the historical equity multiple of International Broker Estimate System's
projected one-year forward EPS to have a mean of 23.9x over the same period.
AAP's historical dividend yield reflected a mean of 3.4% over the same period.
Transaction Premiums. Goldman Sachs observed that, based on the proposed
price per share of AAP Common Stock of $18.00, the following premiums were
applicable as of November 10, 1999:
[Download Table]
PERIOD TRANSACTION PREMIUM
------ -------------------
November 10 market price................................. 55.7%
52-Week Average.......................................... 67.2%
52-Week High............................................. 24.7%
52-Week Low.............................................. 152.6%
All-Time High............................................ (63.6)%
Goldman Sachs compared the premium over November 10, 1999 closing price
with premiums paid in selected tender offers in Japan, Asia and the United
States, and selected minority buyouts in the United States (measured as premium
over closing price one day prior to announcement). Mean premiums paid in recent
Asia tender offers was 23.0% (median 18.2%) for transactions including Australia
and New Zealand, which accounted for 75.6% of total Asia deals, and 8.6% (median
6.1%), excluding Australia and New Zealand. Premiums paid in recent Japanese
transactions ranged from a high of 95.2% to a low of 3.3%, with a mean of 30.2%
and a median of 18.5%. Mean premiums paid in recent U.S. tender offers and
selected minority buyout transactions were 29.2% (median 33.5%) and 26.0%
(median 21.4%), respectively. Additionally, in the case of minority buyout
offers which were increased subsequent to the initial offer, the mean increase
was 10.9% (median 8.5%).
Discounted Cash Flow Analysis. Based on estimates provided by AAP
management, Goldman Sachs performed a discounted cash flow analysis for the
years ended August 31, 2000 to 2004. Using a range of discount rates of 10% to
14%, based on an estimated cost of capital for AAP, and a range of terminal
multiples of 2004 EBIT of 10x to 20x, Goldman Sachs calculated a range of net
present values of estimated future cash flows of AAP as of November 30, 1999.
Based on these parameters, Goldman Sachs calculated the enterprise value of AAP
to range from $368 million to $806 million and its equity value per share to
range from $8.36 to $16.12.
Comparison of Selected Companies. Goldman Sachs reviewed and compared
certain financial information relating to AAP to corresponding financial
information, ratios and public market multiples of the fifteen comparable public
companies (eight in the U.S., two in Asia and five in Japan): Amway Japan
Limited, Avon Products, Inc., Nu Skin Enterprises, Inc., Tupperware Corporation,
Thomas Nelson, Inc., Herbalife International, Inc., Rexall Sundown, Inc.,
Nature's Sunshine Products, Inc., USANA, Inc., Cosway Corporation Berhad, Amway
(Malaysia) Holdings Berhad, Avon Products Co., Ivy Cosmetics Corporation, Noevir
and Shaklee Japan. Among other analyses, for each of the comparison companies,
Goldman Sachs calculated the ratio of their enterprise value as of November 10,
1999 to their respective revenues, EBITDA and EBIT during the most recent
12-month period and the ratios of their stock prices as of November 10,
11
1999 to projected earnings per share for years 2000 and 2001. Results of those
analyses are summarized as follows:
ENTERPRISE VALUE MULTIPLES
[Download Table]
REVENUES EBITDA EBIT
-------- ------ ----
AAP......................................................... 1.1x 13.9x 20.7x
U.S. Comparables:
Low.................................................... 0.2x 1.8x 2.3x
High................................................... 1.5 11.3 12.7
Mean................................................... 0.8 5.6 7.1
Median................................................. 0.8 5.6 6.5
Asia Comparables:
Low.................................................... 1.1x 14.3x 21.0x
High................................................... 2.9 20.7 21.6
Mean................................................... 2.0 17.5 21.3
Median................................................. 2.0 17.5 21.3
Japan Comparables:
Low.................................................... 0.5x 3.0x 3.6x
High................................................... 1.5 11.5 26.4
Mean................................................... 0.8 8.1 13.0
Median................................................. 0.7 10.1 10.7
P/E MULTIPLES*
[Download Table]
2000E 2001E
----- -----
AAP:........................................................ 46.3x 17.8x
U.S. Comparables:
Low.................................................... 6.5x 1.5x
High................................................... 15.5 12.6
Mean................................................... 10.1 7.7
Median................................................. 10.1 8.2
Asia Comparables:
Low.................................................... 19.2x 15.9x
High................................................... 19.2 15.9
Mean................................................... 19.2 15.9
Median................................................. 19.2 15.9
Japan Comparables:
Low.................................................... 8.7x 15.3x
High................................................... 32.5 15.3
Mean................................................... 23.4 15.3
Median................................................. 29.1 15.3
---------------
* Fiscal year-end except for U.S. companies, for which data has been
calendarized.
Goldman Sachs' comparative analysis also included a comparison of
International Broker Estimate System's estimated five-year earnings per share
rates, and comparisons of historical annual sales growth, EBIT
12
margins for the most recent 12-month period and return on common equity. The
results of such analyses are summarized as follows:
- The International Broker Estimate System's estimated five-year projected
earnings per share growth for the comparison companies ranged from 2.0%
to 20.0%, with a median of 13.3% and mean of 11.5%, compared to 17.5% for
AAP.
- Historical annual sales growth for the comparison companies ranged from
(4.8)% to 99.3%, with a mean of 18.3% and median 9.4%, compared to (3.9)%
for AAP.
- EBIT margins for the comparison companies ranged from 1.8% to 17.5%, with
a mean of 11.0% and a median of 11.9%, compared to 5.2% for AAP, down
from a peak of 18.8% in 1993.
- Return on common equity for the comparison companies ranged from (0.3)%
to 55.6%, with a mean of 19.1% and median of 17.8%, compared to 8.5% for
AAP.
Comparison of Selected Transactions. Goldman Sachs reviewed certain
publicly available information relating to three selected transactions in the
direct sales industry from 1992 to 1999. The premium over market price (one day
prior to announcement) in such transactions were 39%, 28% and 19.1%,
respectively, compared to 55.7% for AAP (premium over November 10, 1999 closing
price). Ratio of offer price to the 52-week high ranged from (41)% to (0)% and
to 52-week low from 127% to 60%, compared to 24.7% and 152.6% for AAP.
Enterprise value as a multiple of last 12-month sales, EBIT and net income for
each transaction, and comparable figures for AAP, are as follows:
[Enlarge/Download Table]
TRANSACTION A TRANSACTION B TRANSACTION C AAP
------------- ------------- ------------- ---
EV Multiple of Sales......................... 0.2x 1.2x 1.1x 2.1x
EV Multiple of EBIT.......................... 5.0 9.6 12.9 39.2
EV Multiple of Net Income.................... 10.7 15.8 24.7 81.4
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 set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying the Goldman Sachs opinion. In arriving at its fairness determination,
Goldman Sachs considered the results of each of these analyses in their totality
and did not attribute any particular weight to any analysis or factor considered
by it; rather Goldman Sachs made its determination as to fairness on the basis
of its experience and professional judgment, after considering the results of
all these analyses. No company or transaction used in the above analyses as a
comparison is directly comparable to AAP, the Offer or the Amalgamation. The
analyses were prepared solely for the purpose of Goldman Sachs' providing its
opinion to the Special Committee as to the fairness from a financial point of
view of the Purchase Price in cash to be received by the Public Shareholders in
the Offer and the Amalgamation or the compulsory purchase of the remaining
Shares as contemplated by the Amalgamation Agreement and do not purport to be
appraisals or necessarily reflect the prices at which businesses or securities
actually may be sold. Analyses based upon forecasts of future results are not
necessarily indicative of actual future results, which may be significantly more
or less favorable than suggested by those analyses. Because these analyses are
inherently subject to uncertainty, being based upon numerous factors or events
beyond the control of the parties or their advisors, none of AAP, the Special
Committee, the Disinterested Directors, Goldman Sachs or any other person
assumes responsibility if future results are different from those forecast.
As described above, Goldman Sachs' opinion to the Special Committee was one
of many factors taken into consideration by the Special Committee in making its
determination to recommend the approval of the Amalgamation Agreement and by the
Disinterested Directors in their determination to approve the Amalgamation
Agreement and recommendation to the Public Shareholders to tender their Shares
in response to the Offer. This summary is not a complete description of the
analysis performed by Goldman Sachs. You should read the entire opinion of
Goldman Sachs in Schedule II.
13
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements,
and valuations for estate, corporate and other purposes.
Goldman Sachs may from time to time effect transactions and hold
securities, including derivative securities, of AAP for its own account and for
the accounts of its customers in the course of its normal trading activity. As
of November 11, 1999, which was the last trading day prior to the rendering of
its opinion, Goldman Sachs did not hold any positions in such securities.
Pursuant to a letter agreement dated October 8, 1999, the Special Committee
engaged Goldman Sachs to act as its financial advisor. Pursuant to the letter
agreement, AAP agreed to pay Goldman Sachs a fee totaling $2,000,000 for its
opinion and role as financial advisor to the Special Committee, upon delivery of
its opinion. In addition, AAP has agreed to reimburse Goldman Sachs for its
reasonable out-of-pocket expenses, including the fees and expenses of Goldman
Sachs' attorneys, and to indemnify Goldman Sachs and certain related persons
against various liabilities, including certain liabilities under the U.S.
federal securities laws, arising out of its engagement.
2. THE OFFER, AMALGAMATION AND RELATED TRANSACTIONS; AMALGAMATION AGREEMENT.
The Offer is being made pursuant to the Amalgamation Agreement. The purpose
of the Offer is to facilitate Purchaser's acquisition of all Shares for cash,
and thereby enable the Principal Shareholders to obtain indirect control of 100%
of the capital stock of AAP. The Amalgamation Agreement provides for, among
other things, Purchaser to first conduct the Offer to be followed by the
Amalgamation. Pursuant to the Shareholder Agreement, the Principal Shareholders
have agreed, and Hold Co. agreed, after transfer to it of the Non-Tendered
Shares by the Principal Shareholders, not to dispose of or otherwise transfer
the Non-Tendered Shares, and Purchaser has agreed not to dispose of or otherwise
transfer any Purchased Shares, in either case prior to consummation of the
Amalgamation. The Principal Shareholders have agreed to cause Hold Co. and
Purchaser, as the case may be, to vote, and Hold Co. and Purchaser, as the case
may be, have agreed to vote the Non-Tendered Shares and Purchased Shares in
favor of the Amalgamation.
Because the Principal Shareholders will contribute their shares to Hold
Co., the Principal Shareholders, indirectly as limited partners of Hold Co.,
will beneficially own approximately 85% of all Shares. Under Bermuda law, an
amalgamation must be approved by a vote of three-fourths of those shareholders
voting at the shareholder meeting to approve such amalgamation provided that a
quorum representing at least one-third of the shareholders attend such meeting.
Because the Principal Shareholders will own, directly or indirectly, 85% of the
AAP Shares and 100% of the capital stock of Purchaser, the Principal
Shareholders will be able to effect the Amalgamation even if the Public
Shareholders do not tender any Shares. As a result of the Amalgamation, those
holders who do not tender their Shares in the Offer will receive cash equal to
the Purchase Price upon consummation of the Amalgamation. If Shareholders tender
their Shares in connection with the Offer, then they will not have to wait for
the Amalgamation to be completed to receive cash for their Shares. The
Amalgamation is expected to occur as soon as possible following consummation of
the Offer.
Alternatively, if at any time after consummation of the Offer, Purchaser
and Hold Co. own, in the aggregate, 95 percent or more of the outstanding shares
of the Common Stock, then Purchaser may, if it elects to do so in lieu of the
Amalgamation, compulsorily purchase the remaining Shares for cash equal to the
Purchase Price from the remaining Shareholders pursuant to Section 103 of the
Bermuda Act. Accordingly, as a result of the consummation of the Offer and the
Amalgamation or alternatively, the purchase of the Shares for cash in accordance
with Section 103 of the Bermuda Act, the Principal Shareholders will, indirectly
as limited partners of Hold Co., beneficially own 100 percent of the outstanding
Shares. The Amalgamation and the transaction in accordance with Section 103 of
the Bermuda Act are collectively referred to as the "AAP Transaction."
Simultaneously with the Offer and Amalgamation, N.A.J. Co., Ltd., a
Japanese corporation (the "AJL Purchaser"), will be offering to purchase (the
"AJL Offer") shares of common stock, no par value of AJL (the "AJL Shares") from
the shareholders of AJL. The consummation of the AJL Offer and the Offer are
14
not contingent upon each other. As of September 30, 1999, the Principal
Shareholders owned approximately 76% of the outstanding shares of AJL common
stock. The AJL Purchaser has been informed by the Principal Shareholders that
they will not tender their AJL Shares in response to the AJL Offer (other than
550,000 AJL Shares owned by one charitable foundation established by certain of
the Principal Shareholders). The Principal Shareholders will contribute
substantially all of their AJL Shares, including the AJL Shares that are not
tendered by the charitable foundation in response to the AJL Offer ("AJL Offer
Non-Tendered Shares"), to ALAP Hold Co., Ltd., a limited partnership organized
under the laws of Nevada ("ALAP"), or the AJL Purchaser contemporaneously with
the consummation of the Offer. ALAP is the parent of the AJL Purchaser and an
entity controlled and beneficially owned, directly and indirectly, by the
Principal Shareholders. In addition, no later than immediately prior to the
effectiveness of the AJL Merger (as defined below), the Principal Shareholders
will transfer to ALAP their AJL Shares that were not previously transferred
prior to the consummation of the AJL Offer (the "AJL Merger Non-Tendered
Shares", and, together with the AJL Offer Non-Tendered Shares, the "AJL
Non-Tendered Shares"). The AJL Offer will be made in accordance with the Tender
Offer Agreement, dated November 15, 1999 (the "AJL Agreement"), among ALAP, the
AJL Purchaser and AJL.
Pursuant to the AJL Agreement, the AJL Purchaser will first make the AJL
Offer and, after consummation of the AJL Offer, the AJL Purchaser will take all
steps required by law or as may be necessary or advisable to effect a merger
(the "AJL Merger") of AJL with and into the AJL Purchaser. Simultaneously with
the execution of the AJL Agreement, the Principal Shareholders, ALAP and the AJL
Purchaser executed a Shareholder and Voting Agreement (the "AJL Shareholder
Agreement"). Pursuant to the AJL Shareholder Agreement, the Principal
Shareholders have agreed, and ALAP agreed, after transfer to it of the AJL
Non-Tendered Shares by the Principal Shareholders, not to dispose of or
otherwise transfer the AJL Non-Tendered Shares, and the AJL Purchaser has agreed
not to dispose of or otherwise transfer any AJL Non-Tendered Shares transferred
to it by the Principal Shareholders (the "AJL Purchaser Non-Tendered Shares") or
Shares purchased by it in the AJL Offer (the "AJL Acquired Shares" and, together
with the AJL Purchaser Non-Tendered Shares, the "AJL Purchased Shares")), in
either case prior to consummation of the AJL Merger. In addition, the Principal
Shareholders have agreed to cause ALAP and the AJL Purchaser, as the case may
be, to vote, and the Principal Shareholders, ALAP and the AJL Purchaser, as the
case may be, have agreed to vote the AJL Merger Non-Tendered Shares, the AJL
Offer Non-Tendered Shares and the AJL Purchased Shares, respectively, in favor
of the AJL Merger.
As a result of the AJL Offer and the AJL Merger, the Principal Shareholders
will own, indirectly as limited partners of ALAP, all or substantially all of
the AJL Shares. In addition, as a result of the Offer and the AAP Transaction,
the Principal Shareholders will own, indirectly as the limited partners of Hold
Co., all the outstanding shares of Common Stock. Currently, the Principal
Shareholders are the sole beneficial owners of Amway and various affiliates and
subsidiaries of Amway (collectively, the "Amway Companies"). The Principal
Shareholders may desire at some point in the future to transfer all of their
ownership in the Amway Companies to Hold Co., ALAP or an affiliate of each of
Hold Co. or ALAP. After consummation of the AAP Transaction and the AJL Merger,
the Principal Shareholders may consider, from time to time, restructuring
transactions involving one or more Amway Companies in order to improve liquidity
and value of their investments. Such transactions could include one or more
public offerings by one or more of the Amway Companies over the next several
years.
3. PURPOSE OF THE OFFER AND AMALGAMATION; OTHER TRANSACTIONS.
Over the last several years, a variety of alternatives have been considered
by the Principal Shareholders and AAP management to increase shareholder value,
while at the same time enhance operations, results and business prospects of
AAP. After considerations of various alternatives and based on the difficult
business environment and the limited public float of Shares, the Principal
Shareholders and AAP concluded that it was unlikely that any meaningful
improvement in liquidity of AAP would occur or that the Public Shareholders
would realize the full potential of their investment in the foreseeable future.
As a result, AAP and the Principal Shareholders concluded that, as a private
company, AAP would have greater flexibility to invest in its future, realign the
business relationships with Amway and other markets and allow senior management
of
15
Amway and AAP to focus on the long-term interests of AAP without concern for the
impact that any action might have on operating results or share price of AAP.
The Principal Shareholders see the Offer as an opportunity to create value for
the Public Shareholders through a premium purchase price and to create value for
the Principal Shareholders through a restructuring and realignment of all Amway
Companies.
4. POSITION OF PURCHASER REGARDING FAIRNESS OF THE OFFER.
Purchaser believes that the consideration to be received by the Public
Shareholders pursuant to the Offer is fair. Purchaser bases its belief on the
following facts: (i) the fact that the Special Committee concluded that the
Offer is fair to, and in the best interests of, the Public Shareholders, (ii)
notwithstanding the fact that Goldman Sachs' opinion was provided solely for the
information and assistance of the Special Committee and that Purchaser is not
entitled to rely on such opinion, the fact that the Special Committee received
an opinion from Goldman Sachs the date prior to the announcement of the Offer
that the $18.00 per share in cash to be received by the holders of Shares
pursuant to the Offer is fair to the Public Shareholders, (iii) the historical
and projected financial performance of AAP, (iv) Purchaser's assessment of
future economic conditions in the Asia-Pacific region, (v) the consideration to
be paid in the Offer represents a premium of 53.2% over the closing price for
November 12, 1999, the last full trading day prior to the public announcement of
the Offer, and (vi) the Offer will provide consideration to be paid to the
holders of Shares entirely in cash. Purchaser did not find it practicable to
assign, nor did it assign, relative weights to the individual factors considered
in reaching its conclusion as to fairness of the Offer.
5. CERTAIN EFFECTS OF THE AMALGAMATION.
Upon consummation of the Offer and the AAP Transaction, the Principal
Shareholders will, indirectly as limited partners of Hold Co., own 100 percent
of the shares of Common Stock.
6. INTERESTS OF CERTAIN PERSONS.
In considering the recommendations of the Disinterested Directors, based
upon the recommendation of the Special Committee, with respect to the Offer and
the Amalgamation Agreement, the Public Shareholders should be aware that certain
officers and directors of AAP have interests in connection with the Offer and
the Amalgamation Agreement which may present them with actual or potential
conflicts of interest as summarized below. The Disinterested Directors and the
Special Committee were aware of these interests and considered them among the
other matters described under "Background of the Offer; Recommendation of
Special Committee and the Disinterested Directors; Reasons for the
Recommendation; Opinion of Financial Advisor to the Special Committee." These
interests are described below.
The Board of Directors and Officers of AAP
Each of Messrs. Richard M. DeVos, Jr., Douglas L. DeVos and Stephen A. Van
Andel are Principal Shareholders and did not participate in meetings of the
Board of Directors relating to the transaction. In addition, as of November 1,
1999, the following individuals were the beneficial owners of the Shares as
follows:
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[Enlarge/Download Table]
Stephen A. Van Andel Chairman and a Director 26,666 Shares
Richard M. DeVos, Jr. Vice Chairman and Director 17,578,587 Shares
Douglas L. DeVos President and Director 2,955,185 Shares
Eoghan M. McMillan Director, Chairman of the compensation committee and Special
Committee and member of the audit committee 10,000 Shares
Jack C.K. So Director, Chairman of the audit committee and a member of
the Special Committee and compensation committee 10,000 Shares
John C.C. Chan Director, and member of the Special Committee and the
compensation and audit committees 7,000 Shares
L.H. Choong Director 33,000 Shares
Eva Cheng Executive Vice President and Director 62,333 Shares
Lawrence M. Call(1) Vice President 23,333 Shares*
Craig N. Meurlin(1) Vice President, General Counsel and Assistant Secretary 16,333 Shares*
John C. Brockman Vice President of Distributor Relations 200 Shares
Percy Chin Vice President and General Manager of Amway (China) Co.
Ltd. -- East China 5,333 Shares
Patrick Hau Vice President And General Manager of National Operations of
Amway (China) Co. Ltd. 7,666 Shares
Audie Wong Vice President and General Manager of Amway (China) Co.,
Ltd. -- North China 6,667 Shares
Martin Liou General Manager of Taiwan Company, Limited 2,333 Shares
Low Han Kee General Manager of Amway (Malaysia) Sdn. Bhd. 5,666 Shares
Preecha Prakobkit General Manager of Amway (Thailand) Ltd. 6,666 Shares
Peter Williams General Manager of Amway of Australia 4,000 Shares
Betty Yeung General Manager of Amway (China) Co. Ltd. -- South China 2,333 Shares
---------------
* Amount represents less than 0.01% of the outstanding Shares
(1) Includes the following Shares which such persons have, or had the right to
acquire, within 60 days after November 1, 1999: Mr. Call, 23,333 Shares and Mr.
Meurlin, 13,333 Shares.
In addition, under the terms of the Amalgamation Agreement, the directors
are indemnified against certain various liabilities and Purchaser has agreed
subject to certain exceptions to retain after consummation of the Amalgamation
D&O insurance substantially similar to the existing D&O insurance.
7. APPRAISAL RIGHTS IN THE AMALGAMATION.
Amalgamations. Under Bermuda law, a company may amalgamate with another
Bermuda company. A dissenting shareholder is entitled to be paid the fair value
of his or her shares. Any shareholder who does not vote in favor of the
amalgamation and who is not satisfied that he has been offered fair value for
his shares may within one month of the date of this notice apply to the Supreme
Court of Bermuda to appraise the fair value of his shares. There are no
statutory rules prescribing the process of appraisal by the court and it is
generally considered that the court will apply the general common law with a
view to determining the fair market value of such shares.
Compulsory Acquisitions Under Section 103 Companies Act of 1981. Bermuda
law provides that the shareholders of a company representing in the aggregate at
least 95% of the issued and outstanding shares or class of shares in a company
(the "majority shareholders") may compulsorily purchase the shares of the
minority. In order to compulsorily purchase the Shares pursuant to Section 103
of the Bermuda Act, the majority shareholders must give notice (the "acquisition
notice") to the outstanding shareholders of the intention to acquire their
shares and the terms thereof. The minority are entitled, within one month of
receiving such notice, to apply to the Supreme Court of Bermuda for an appraisal
of the value of the shares which the majority propose to purchase. Once the
court has appraised the value of the shares, the majority shareholders are
entitled to either acquire the shares at the court's price or cancel the
acquisition notice. Where shares have already been acquired from certain
minority shareholders who did not seek an appraisal from the court, and the
price paid for their shares is less than that appraised by the court, then the
majority shareholders must either pay the difference to those shareholders or
return the shares they had acquired.
17
THE OFFER
1. NUMBER OF SHARES; EXPIRATION AND EXTENSION OF OFFER.
Upon the terms and subject to the conditions described or referred to
herein and in the accompanying Letter of Transmittal, Purchaser will purchase
all Shares that are validly tendered and not withdrawn on or prior to the
Expiration Date (as defined below) or any lesser number of Shares validly
tendered and not so withdrawn. The term "Expiration Date" means 12:00 midnight,
New York City time, on December 17, 1999, unless and until Purchaser, in its
sole discretion will have extended the period of time during which the Offer
will remain open, in which event the term "Expiration Date" will refer to the
latest time and date at which the Offer as so extended by the Purchaser will
expire. For a description of Purchaser's right to extend the period of time
during which the Offer is open or to delay, terminate or amend the Offer, see
"-- Extension of Offer; Termination; Amendments." Only Shares validly tendered
and not withdrawn on or prior to the applicable Expiration Date will be eligible
for purchase. See "-- Description of Shares," "-- Procedure for Tendering
Shares" and "-- Withdrawal Rights."
All Shares purchased pursuant to the Offer will be purchased at the
Purchase Price. There will be deducted from the Purchase Price paid to each
holder any U.S. or other applicable backup withholding taxes which may be
required to be withheld. See "-- Acceptance for Payment of Shares and Payment of
Purchase Price."
Certificates representing Shares not purchased pursuant to the Offer
because they were not properly tendered will be returned to the tendering
holders at Purchaser's expense without delay following the Expiration Date.
Certificates for those Shares validly withdrawn on or prior to the Expiration
Date will be returned at Purchaser's expense without delay following such
withdrawal. See "-- Acceptance for Payment of Shares and Payment of Purchase
Price."
Purchaser expressly reserves the right, in its sole discretion, but shall
not be obligated, at any time or from time to time, to extend the period of time
during which the Offer is open by giving appropriate public notice of such
extension. See "-- Extension of Offer; Termination; Amendments." There can be no
assurance, however, that Purchaser will exercise its right to extend the Offer.
2. PROCEDURE FOR TENDERING SHARES.
Proper Tender of Shares. To tender Shares pursuant to the Offer, (a) the
Depositary must receive at one of its addresses set forth on the back cover of
this Offer to Purchase a properly completed and duly executed Letter of
Transmittal (or facsimile thereof), together with any other documents required
by the Letter of Transmittal, or an Agent's Message (as defined below) and (b)
either (i) certificates for the Shares must be received by the Depositary at one
of its addresses set forth on the back cover of this Offer to Purchase or (ii)
such Shares must be delivered pursuant to the procedures for book-entry transfer
described below and a confirmation of such delivery received by the Depositary,
in each case on or prior to the Expiration Date. Alternatively, the guaranteed
delivery procedure described below must be complied with. The term "Agent's
Message" means a message transmitted by the Book-Entry Transfer Facility (as
defined below) to, and received by, the Depositary and forming a part of a
Book-Entry Confirmation, which states that the Book-Entry Transfer Facility has
received an express acknowledgment from the participant in the Book-Entry
Transfer Facility tendering the Shares which are the subject of the Book-Entry
Confirmation, that such participant has received and agrees to be bound by the
terms of the Letter of Transmittal and that such agreement may be enforced
against such participant.
Book Entry Delivery. The Depositary will cause a book-entry account in
respect of the Shares to be established at The Depository Trust Company (the
"Book-Entry Transfer Facility") for purposes of the Offer within two business
days after the date of this Offer to Purchase. Any financial institution that is
a participant in the system of the Book-Entry Transfer Facility may make
book-entry delivery of Shares by causing the Book-Entry Transfer Facility to
transfer such Shares into the Depositary's account in accordance with the
procedures of the Book-Entry Transfer Facility. However, although delivery of
Shares may be effected through book-entry transfer, the Letter of Transmittal
(or facsimile thereof) properly completed and duly
18
executed together with any required signature guarantees and any other required
documents or an Agent's Message must, in any case, be received by the Depositary
at one of its addresses set forth on the back cover of this Offer to Purchase on
or prior to the Expiration Date, or the guaranteed delivery procedure described
below must be complied with. DELIVERY OF THE LETTER OF TRANSMITTAL AND ANY OTHER
REQUIRED DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE
DELIVERY TO THE DEPOSITARY.
THE METHOD OF DELIVERY OF SHARE CERTIFICATES AND ALL DOCUMENTS IS AT THE
ELECTION AND RISK OF THE TENDERING HOLDER AND THE DELIVERY WILL BE DEEMED MADE
ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF CERTIFICATES FOR SHARES ARE
SENT BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED,
IS RECOMMENDED.
Signature Guarantees. Except as otherwise provided below, all signatures
on a Letter of Transmittal must be guaranteed by a financial institution
(including most banks, savings and loans associations and brokerage houses)
which is a participant in the Securities Transfer Agents Medallion Program, the
New York Stock Exchange Medallion Guarantee Program or the Stock Exchange
Medallion Program (an "Eligible Institution"). Signatures on a Letter of
Transmittal need not be guaranteed if (a) the Letter of Transmittal is signed by
the registered holder of the Common Stock tendered therewith and such holder has
not completed either the box entitled "Special Payment Instructions" or the box
entitled "Special Delivery Instructions" on the Letter of Transmittal or (b)
such Shares are tendered for the account of an Eligible Institution. See
Instructions 1 and 6 of the Letter of Transmittal.
Guaranteed Delivery. If a holder desires to tender Shares pursuant to the
Offer and such holder's certificates evidencing such Shares are not immediately
available or time will not permit all required documents to reach the Depositary
on or prior to the Expiration Date, or such holder cannot complete the procedure
for delivery by book-entry transfer on a timely basis, such Shares may
nevertheless be tendered if all of the following conditions are met:
(a) such tender is made by or through an Eligible Institution;
(b) a properly completed and duly executed Notice of Guaranteed
Delivery substantially in the form provided with this Offer to Purchase is
received by the Depositary (as provided below) by the Expiration Date; and
(c) the certificates for all Shares tendered in proper form for
transfer (or a confirmation of a book-entry transfer of such Shares into
the Depositary's account at the Book-Entry Transfer Facility), together
with (i) a properly completed and duly executed Letter of Transmittal (or
facsimile thereof) with any required signature guarantee and any other
documents required by the Letter of Transmittal or (ii) an Agent's Message,
are received by the Depositary within two NYSE trading days after the
Expiration Date.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted
by facsimile transmission or mail to the Depositary and must include a guarantee
by an Eligible Institution in the form set forth in such Notice.
Dividend Reinvestment Plan. If you participate in the Dividend
Reinvestment Plan, and you want to tender Shares held under such plan pursuant
to the Offer, you should mark the appropriate box on the Letter of Transmittal
and follow the relevant instructions set out there. See Instruction 10 of the
Letter of Transmittal.
401(k) Plan. Participants in the 401(k) Plan who wish to have the trustee
of such plan tender Shares attributable to their accounts should so indicate by
completing, executing and returning to such trustee the election form included
in the materials sent by the trustee to such participants. The participants in
the 401(k) Plan may not use the Letter of Transmittal accompanying this Offer to
Purchase to direct the tender of such Shares. Participants may only use the
letter of transmittal and the separate election form sent to them by the
trustee. Participants are urged to carefully read the separate election form and
related materials sent to them by the trustee. See Instruction 11 of the Letter
of Transmittal.
19
U.S. Federal Income Tax Withholding. Under U.S. federal income tax backup
withholding rules, 31% of the gross proceeds payable to a holder of Shares who
elects to tender Shares into the Offer or other payee pursuant to the Offer must
be withheld and remitted to the United States Treasury if the holder or other
payee does not provide its taxpayer identification number ("TIN"), employer
identification number ("EIN") or social security number ("SS No.") to the
Depositary and certify that such number is correct, or if the Internal Revenue
Service ("IRS") notifies the Depository that the TIN, EIN or SS No. is incorrect
or that backup withholding shall be imposed with respect to a particular holder.
Certain holders (including, among others, all corporations and certain
non-resident alien individuals) are not subject to these backup withholding and
reporting requirements ("exempt recipients").
All holders of Shares who elect to tender Shares into the Offer, other than
exempt recipients, should execute and return to the Depositary the Substitute
Form W-9 included as part of the Letter of Transmittal. In order for a foreign
individual to qualify as an exempt recipient, that individual must submit a
statement, signed under penalties of perjury, attesting to that individual's
exempt status. Such statements may be obtained from the Depositary or in
Australia from J.P. Morgan & Co. at the address and telephone number set forth
on the cover page of this Offer to Purchase. See "-- U.S. Federal Income Tax
Consequences" and Instruction 9 of the Letter of Transmittal.
ANY TENDERING HOLDER OR OTHER PAYEE WHO FAILS TO COMPLETE FULLY AND SIGN
THE SUBSTITUTE FORM W-9 INCLUDED IN THE LETTER OF TRANSMITTAL MAY BE SUBJECT TO
REQUIRED FEDERAL INCOME TAX WITHHOLDING OF 31% OF THE GROSS PROCEEDS PAID TO
SUCH HOLDER OR OTHER PAYEE PURSUANT TO THE OFFER.
Tender Constitutes An Agreement. The tender of Shares pursuant to any one
of the procedures described above will constitute the tendering holder's
acceptance of the terms and conditions of the Offer and an agreement by the
tendering holder to be subject to the terms and conditions of the Offer,
including the tendering holder's representation and warranty that the tender of
such Shares complies with Regulation 14D under the Securities Exchange Act of
1934 (the "Exchange Act"). Purchaser's acceptance for payment of Shares
represented by Shares validly tendered and not withdrawn pursuant to the Offer
will constitute a binding agreement with the tendering holder of Shares subject
to the terms and subject to the conditions of the Offer. See "-- Acceptance for
Payment of Shares and Payment of Purchase Price."
Determination of Validity; Rejection of Shares; Waiver of Defects; No
Obligation to Give Notice of Defects. All questions as to the Purchase Price,
the number of Shares accepted, the form of documents and the validity,
eligibility (including time of receipt) and acceptance for payment of any tender
of Shares will be determined by Purchaser, in its sole discretion, which
determination shall be final and binding on all parties. Purchaser reserves the
absolute right to reject any or all Shares tendered which it determines not to
be in proper form, or the acceptance of which or payment for which may, in the
opinion of Purchaser's counsel, be unlawful. Purchaser also reserves the
absolute right to waive any defect or irregularity in any tender of particular
Shares, and Purchaser's interpretation of the terms of the Offer, including the
instructions in the Letter of Transmittal, will be final and binding on all
parties. No tender of Shares will be deemed to be properly made until all
defects and irregularities have been cured or waived. Unless waived, any defects
or irregularities in connection with tenders must be cured within such time as
Purchaser shall determine. NONE OF PURCHASER, THE DEALER MANAGERS, THE
INFORMATION AGENT, THE DEPOSITARY OR ANY OTHER PERSON WILL BE UNDER ANY DUTY TO
GIVE NOTIFICATION OF ANY DEFECT OR IRREGULARITY IN TENDERS OR INCUR ANY
LIABILITY FOR FAILURE TO GIVE ANY SUCH NOTIFICATION.
3. WITHDRAWAL RIGHTS.
Except as otherwise provided in this Section 3, tenders of Shares made
pursuant to the Offer are irrevocable. The Shares tendered pursuant to the Offer
may be withdrawn at any time prior to the Expiration Date and, unless they have
been accepted for payment by Purchaser, may also be withdrawn at any time after
60 days from the Commencement Date. See "-- Acceptance for Payment of Shares and
Payment of Purchase Price." If Purchaser extends the period of time during which
the Offer is open, is delayed in accepting for payment or paying for Shares or
is unable to accept for payment or pay for Shares pursuant to the Offer for
20
any reason, then, without prejudice to Purchaser's rights under the Offer, the
Depositary may, on behalf of Purchaser, retain all Shares tendered, and such
Shares may not be withdrawn except as otherwise described under this caption.
However, in any event, Purchaser will comply with Rule 14e-1 under the Exchange
Act, which provides that settlement for the purchase of securities pursuant to a
tender offer must take place promptly after the expiration or termination of
such offer.
In order to withdraw Shares, a written or facsimile transmission notice of
withdrawal must be received by the Depositary on or prior to the Expiration Date
at one of its addresses set forth on the back cover of this Offer to Purchase
and must specify the name of the person who tendered the Shares to be withdrawn
and the number of Shares to be withdrawn. If the Shares to be withdrawn have
been delivered to the Depositary, a signed notice of withdrawal with signatures
guaranteed by an Eligible Institution (except in the case of Shares tendered by
an Eligible Institution) must be submitted prior to the release of such Shares.
In addition, such notice must specify, in the case of Shares tendered by
delivery of Shares, the name of the registered holder (if different from that of
the tendering holder) and the serial numbers shown on the particular
certificates evidencing the Shares to be withdrawn or, in the case of Shares
tendered by book-entry transfer, the name and number of the account at the
Book-Entry Transfer Facility to be credited with the withdrawn Shares.
Withdrawals may not be rescinded and Shares withdrawn will thereafter be
deemed not validly tendered for purposes of the Offer. However, withdrawn Shares
may be tendered into the Offer again by following one of the procedures
described in "-- Procedure for Tendering Shares" at any time on or prior to the
applicable Expiration Date.
ALL QUESTIONS AS TO THE FORM AND VALIDITY (INCLUDING TIME OF RECEIPT) OF
ANY NOTICE OF WITHDRAWAL WILL BE DETERMINED BY PURCHASER, IN ITS SOLE
DISCRETION, WHICH DETERMINATION SHALL BE FINAL AND BINDING. NONE OF PURCHASER,
THE DEALER MANAGERS, THE INFORMATION AGENT, THE DEPOSITARY OR ANY OTHER PERSON
WILL BE UNDER ANY DUTY TO GIVE NOTIFICATION OF ANY DEFECT OR IRREGULARITY IN ANY
NOTICE OF WITHDRAWAL OR INCUR ANY LIABILITY FOR FAILURE TO GIVE ANY SUCH
NOTIFICATION.
4. ACCEPTANCE FOR PAYMENT OF SHARES AND PAYMENT OF PURCHASE PRICE.
Upon the terms and subject to the conditions of the Offer, and without
delay after the Expiration Date, Purchaser will, subject to withdrawal
provisions of the Offer, accept for payment, and thereby purchase, and pay for
Shares validly tendered and not withdrawn.
For purposes of the Offer, Purchaser will be deemed to have accepted for
payment, and thereby purchased, Shares that are validly tendered and not
withdrawn as, if and when it gives written notice to the Depositary of its
acceptance for payment of the aggregate number of Shares to be purchased
pursuant to the Offer. It is presently anticipated that this notification will
be made as promptly as practicable after the Expiration Date. Under no
circumstances will interest be paid on amounts to be paid to tendering holders
by Purchaser by reason of any delay in making any such payment.
All Shares purchased pursuant to the Offer will be purchased at the
Purchase Price. There will be deducted from the Purchase Price paid to each
holder any U.S. backup withholding taxes which may be required to be withheld.
See "-- U.S. Federal Income Tax Consequences."
Certificates representing Shares not properly tendered will be returned to
the tendering holders at Purchaser's expense without delay following the
Expiration Date. Certificates representing those Shares validly withdrawn on or
prior to the Expiration Date will be returned at Purchaser's expense without
delay following such withdrawal.
5. MARKET INFORMATION; DIVIDENDS AND DIVIDEND POLICY.
Market Information. The principal market for the shares of Common Stock is
the NYSE, such shares having been traded since December 14, 1993. The Common
Stock is also listed on the ASX, such shares having been listed on the ASX since
December 23, 1993. The high and low sales prices of AAP's shares of
21
Common Stock on the NYSE and the ASX during each fiscal quarterly period shown
is set forth in the following table. AAP's fiscal year ends August 31 in each
year.
[Download Table]
NYSE
-------------
HIGH LOW
---- ---
FY 1997
First Quarter............................................. $42 5/8 $29 5/8
Second Quarter............................................ 49 5/8 40 1/4
Third Quarter............................................. 47 1/4 34 3/4
Fourth Quarter............................................ 48 32 5/16
FY 1998
First Quarter............................................. 34 19 1/2
Second Quarter............................................ 22 15/16 15 3/4
Third Quarter............................................. 21 1/16 12 15/16
Fourth Quarter............................................ 16 1/2 9 3/6
FY 1999
First Quarter............................................. 13 3/16 8 1/4
Second Quarter............................................ 13 1/2 7
Third Quarter............................................. 14 1/2 6 7/8
Fourth Quarter............................................ 14 15/16 9 15/16
FY 2000
First Quarter (through November 12, 1999)................. 13 3/8 10 7/8
[Download Table]
ASX
--------------------
HIGH LOW
-------- --------
FY 1997
First Quarter............................................. AU$49.00 AU$36.10
Second Quarter............................................ 60.60 48.00
Third Quarter............................................. 60.00 47.00
Fourth Quarter............................................ 62.00 47.01
FY 1998
First Quarter............................................. AU$46.50 AU$36.50
Second Quarter............................................ 36.00 26.00
Third Quarter............................................. 32.51 23.00
Fourth Quarter............................................ 28.50 19.50
FY 1999
First Quarter............................................. AU$21.00 AU$14.50
Second Quarter............................................ 21.00 12.00
Third Quarter............................................. 20.80 11.80
Fourth Quarter............................................ 24.00 15.90
FY 2000
First Quarter (through November 12, 1999)................. AU$20.50 AU$17.00
On November 12, 1999, the last full NYSE trading day prior to the public
announcement of the Offer, the closing sales price of the Common Stock as
reported on the NYSE was $11.75 and on November 16, 1999, the last full day of
trading prior to the Commencement Date for which quotations could be obtained,
the closing sale price was $17.81. The Purchase Price is $18.00 per share. On
November 15, 1999, the last full ASX trading day prior to the public
announcement of the Offer, the closing sales price of the Common Stock as
reported on the ASX was AU$17.50 and on November 17, 1999, the last full day of
trading prior to the Commencement Date for which quotations could be obtained,
the closing sale price was AU$30.0. HOLDERS ARE URGED TO OBTAIN A CURRENT MARKET
QUOTATION FOR THE COMMON STOCK.
22
Dividends and Dividend Policy. AAP's Board of Directors suspended AAP's
quarterly dividend on October 14, 1998, because of adverse economic conditions
in AAP's markets at that time, declining profitability and uncertainty as to
whether either of these two factors would improve. The AAP Board of Directors
has regularly reviewed AAP's ability to pay a quarterly dividend and based on
the continuation of weak profitability and the need to use cash flow in China
has not reinstated the dividend. The Company does not intend to pay any future
dividends.
6. CERTAIN EFFECTS OF THE OFFER.
As of September 30, 1999, AAP had issued and outstanding (i) 56,441,960
shares of Common Stock (held by approximately 2,166 holders of record). The
Principal Shareholders held approximately 85% of the issued and outstanding
shares of Common Stock as of that date.
Elimination of Public Float. The purchase of Shares pursuant to the Offer
will reduce the number of holders of Shares and the number of Shares that might
otherwise trade publicly. Consequently, depending upon the number of Shares
tendered pursuant to the Offer, the liquidity and market value of the remaining
publicly held Shares might also be reduced. In any event, after consummation of
the Amalgamation, the Shares will no longer be publicly traded.
NYSE and ASX Delisting. Depending on the number of Shares purchased
pursuant to the Offer, it is anticipated that the shares of Common Stock will no
longer meet the standards for continued inclusion in the NYSE and the ASX. If
the shares of Common Stock no longer meet the standards for inclusion in the
NYSE and the ASX, then the shares of Common Stock will be delisted after
consummation of the Offer. In any event, after consummation of the Amalgamation,
the shares of Common Stock will no longer be outstanding and as a result will no
longer satisfy the standards for inclusion in the NYSE and the ASX. As a result,
the shares of Common Stock will be delisted.
Potential Exchange Act Deregistration. The shares of Common Stock are
currently registered under the Exchange Act. Such registration may be terminated
following application by AAP to the Commission if, following the Offer, the
shares of Common Stock are not listed on a national securities exchange and
there are fewer than 300 holders of record of the shares of Common Stock. After
consummation of the Amalgamation, AAP will apply for deregistration of the
shares of Common Stock. See "--NYSE Delisting and ASX Delisting". The
termination of the registration of the shares of Common Stock under the Exchange
Act will substantially reduce the information required to be furnished by AAP to
holders of the shares of Common Stock and to the Commission, and will result in
the future inapplicability of certain provisions of the Exchange Act to the
shares of Common Stock, including, among other things, the requirements of Rule
13e-3 under the Exchange Act with respect to "going private transactions." When
the registration of the shares of Common Stock under the Exchange Act is
terminated, certain affiliates of AAP or Purchaser, as the case may be, will be
deprived of the ability to dispose of any shares of capital stock held by them
pursuant to Rule 144 promulgated under the Exchange Act.
Status of Shares as "Margin Securities." The shares of Common Stock are
currently "margin securities" under the rules of the Federal Reserve Board. This
has the effect, among other things, of allowing brokers to extend credit on the
collateral of the shares of Common Stock. After consummation of the Offer and
the Amalgamation, the shares of Common Stock will no longer constitute "margin
securities" for purposes of the margin regulations of the Federal Reserve Board,
and therefore such shares of Common Stock may no longer be used as collateral
for loans made by brokers.
Concentration of Shares with Affiliates of AAP. The Principal Shareholders
will contribute their shares of Common Stock to Hold Co. contemporaneously with
the consummation of the Offer and so they will not tender any shares of Common
Stock owned by them in the Offer. Following the Offer, assuming that all Shares
owned by persons other than the Principal Shareholders are tendered pursuant to
the Offer, the Principal Shareholders will own, as a result of the contribution
of their shares of Common Stock to Hold Co., beneficially, indirectly as limited
partners of Hold Co., 100 percent of the outstanding Shares.
23
As discussed above in "Special Factors -- The Offer, Amalgamation, and
Related Transactions; Amalgamation Agreement," the Offer is being made in
accordance with the terms and conditions of the Amalgamation Agreement. Pursuant
to the Amalgamation Agreement, after consummation of the Offer, Purchaser and
AAP will amalgamate. As a result of the transfer of their shares of Common
Stock, the Principal Shareholders will, indirectly as limited partners of Hold
Co., beneficially own 85% of all shares of Common Stock. Hold Co. will be able
to effect the Amalgamation even if the Public Shareholders do not tender any
Shares. As a result of the Amalgamation, those holders who do not tender their
Shares in the Offer will receive cash equal to the Purchase Price after
consummation of the Amalgamation. However, if the Public Shareholders tender
their Shares in connection with the Offer, then they will not have to wait for
the Amalgamation to be completed to receive cash for their Shares. The
Amalgamation is expected to occur as soon as possible following consummation of
the Offer. Alternatively, if at any time after consummation of the Offer,
Purchaser and Hold Co. own, in the aggregate, 95 percent or more of the
outstanding shares of Common Stock, then Purchaser may, if it elects to do so in
lieu of the Amalgamation, compulsorily purchase the remaining Shares from the
remaining Shareholders pursuant to Section 103 of the Bermuda Act. Accordingly,
as a result of the consummation of the Offer and the Amalgamation or
alternatively, the purchase of the Shares for cash equal to the Purchase Price
in accordance with Section 103 of the Bermuda Act, the Principal Shareholders
will, beneficially own 100 percent of the outstanding Shares. See "Special
Factors-- Interests of Certain Persons" for a discussion of management's and the
Principal Shareholders' beneficial ownership of Shares prior to the Offer and
the potential effect of their participation in the Offer.
ALTHOUGH THE DISINTERESTED DIRECTORS, BASED ON THE RECOMMENDATION OF THE
SPECIAL COMMITTEE, HAVE RECOMMENDED THAT HOLDERS OF SHARES ACCEPT THE OFFER,
EACH HOLDER MUST MAKE ITS OWN DECISION WHETHER TO TENDER SHARES AND, IF SO, HOW
MANY SHARES TO TENDER.
7. SOURCE AND AMOUNT OF FUNDS.
Assuming that Purchaser purchases all outstanding Shares pursuant to the
Offer at the Purchase Price, Purchaser estimates that the total amount of funds
required to purchase such Shares and pay related fees and expenses will be
approximately $150.0 million all of which will be from funds borrowed from
Morgan Guaranty and possibly other commercial banks and lending institutions
under a new senior credit facility (the "Credit Facility"). It is expected that
the Credit Facility will be unsecured and will consist of one or more term
loans. Repayments under the Credit Facility will begin in November 2000 and end
in November 2005. The interest rate of the facility will be the LIBO Rate plus a
margin equal to 6.35% for amounts borrowed in the first eight months of the
facility and determined by Morgan Guaranty based on Purchaser's credit
worthiness thereafter. The Credit Facility will contain covenants that will
restrict each of Purchaser and its subsidiaries from, among other things,
selling substantially all of its assets, incurring liens on its assets (subject
to dollar limit exceptions) and incurring debt (subject to dollar limit
exceptions). In addition, the Credit Facility will require Purchaser to maintain
or limit, as the case may be, dividend levels, consolidated net worth,
consolidated interest coverage ratios, cash flow ratios and restricted payments
to shareholders. Finally, each of Hold Co. and ALAP has, jointly and severally,
guaranteed the obligations of Purchaser and the AJL Purchaser under the Credit
Facility. Other conditions of the Credit Facility are expected to be those
customary for similar debt transactions. The Offer is not contingent upon
receipt of the financing.
Following the Offer and Amalgamation, Purchaser (together with AJL or the
AJL Purchaser) may be required to dedicate a substantial portion of its cash
flows from operations to pay principal and interest under the Credit Facility.
8. CERTAIN INFORMATION REGARDING AAP.
Except as otherwise set forth herein, the information concerning AAP
contained in this Offer to Purchase, including financial information, has been
furnished to Purchaser by AAP or has been taken from or based upon publicly
available documents and records on file with the Commission and other public
sources.
24
General. AAP is a Bermuda corporation, whose principal executive office is
located at 38/F The Lee Gardens, 33 Hysan Avenue, Causeway Bay, Hong Kong. AAP
is the exclusive distribution vehicle for Amway Corporation in Australia,
Brunei, the People's Republic of China, Hong Kong, Macau, Malaysia, New Zealand,
Taiwan and Thailand.
Financial Information. Provided below is certain selected financial
information relating to AAP which has been excerpted or derived from the audited
financial statements contained in AAP's Annual Report on Form 20-F for the
fiscal year ended August 31, 1998 (the "Form 20-F") and AAP's Form 6-K for the
fiscal quarter ended May 31, 1999 (the "Form 6-K"). More comprehensive
information is included in the Form 20-F and Form 6-K and other reports and
documents filed by AAP with the Commission. The financial information that
follows is qualified in its entirety by reference to such reports and other
documents as may be examined at the offices of the Commission in the manner set
forth below. In addition, Schedule III sets forth AAP's audited financial
statements for the fiscal year ended August 31, 1998, including comparative
statements as contained in the Form 20-F for the fiscal year ended August 31,
1998, as well as AAP's unaudited financial statements for the nine months ended
May 31, 1999, including comparative statements as contained in the Form 6-K for
the fiscal quarter ended May 31, 1999. The financial statements and notes
thereto contained in the Form 20-F and the Form 6-K for the period ended May 31,
1999 are hereby incorporated by reference herein.
25
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(U.S. DOLLARS IN THOUSANDS, EXCEPT RATIOS AND PER SHARE AMOUNTS)
[Enlarge/Download Table]
YEARS ENDED AUGUST 31, NINE MONTHS ENDED MAY 31,
---------------------- ------------------------------
1998 1997 1999 1998
--------- --------- ----------- -----------
(UNAUDITED) (UNAUDITED)
INCOME STATEMENT DATA:
Net sales................................. $587,579 $845,166 $365,929 $463,403
Cost of sales............................. 257,220 313,287 159,542 201,800
-------- -------- -------- --------
330,359 531,879 206,387 261,603
-------- -------- -------- --------
Distributor incentives.................... 157,018 219,111 97,063 125,621
Distribution expenses..................... 45,199 49,662 28,315 35,569
Selling and administrative expenses....... 102,849 114,523 70,269 80,163
-------- -------- -------- --------
Total operating expenses.................. 305,066 383,296 195,647 241,353
-------- -------- -------- --------
Operating income.......................... 25,293 148,583 10,740 20,250
Other income -- net....................... 9,683 24,707 1,689 5,851
-------- -------- -------- --------
Income before income taxes and minority
interest................................ 34,976 173,290 12,429 26,101
Income taxes.............................. 23,508 54,909 9,798 19,520
-------- -------- -------- --------
Income before minority interest........... 11,468 118,381 2,631 6,581
Minority interest in net income of
consolidated subsidiaries............... 10,015 14,350 4,478 7,812
-------- -------- -------- --------
Net income (loss)......................... $ 1,453 $104,031 $ (1,847) $ (1,231)
======== ======== ======== ========
Basic and diluted earnings (loss) per
share(1)................................ $ 0.03 $ 1.76 $ (0.03) $ (0.02)
======== ======== ======== ========
Cash dividends per share.................. $ 0.88 $ 0.84 $ -- $ 0.66
======== ======== ======== ========
Weighted average number of shares
outstanding (in thousands).............. 56,442 59,124 56,442 56,442
======== ======== ======== ========
Ratio of earnings to fixed charges(2)..... 7.5 46.5 4.8 9.1
======== ======== ======== ========
[Enlarge/Download Table]
AUGUST 31, MAY 31,
-------------------- --------------------------
1998 1997 1999 1998
-------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
BALANCE SHEET DATA:
Working capital............................... $102,128 $186,451 $100,289 $105,954
Total assets.................................. 387,073 520,143 361,763 388,729
Non-current liabilities....................... 184 1,079 248 422
Total shareholders' equity.................... 176,098 252,484 180,721 188,885
Book value per share(3)....................... 3.12 4.47 3.20 3.35
---------------
(1) The computation of earnings per share is based on the weighted average
number of shares of Common Stock outstanding during the period.
(2) The ratio of earnings to fixed charges was computed by dividing income
before income taxes and minority interest plus fixed charges by the fixed
charges. Fixed charges consist of interest expense and that portion of
operating lease rental expense that is representative of the interest
factor.
(3) Book value per share was computed by dividing shareholders' equity by the
shares of Common Stock outstanding. Shares of Common Stock consist of the
number of fully paid shares outstanding at the end of the period.
26
1999 Fiscal Year Results and Fiscal 2000 Outlook. In October 1999, AAP
reported its results for the fiscal year ended August 31, 1999. Net sales for
the fiscal year declined 14.7% compared to the prior year; net income was $12.5
million compared to $1.5 million for fiscal 1998. In contrast, AAP's net sales
in the fourth quarter increased 9.2% compared to the prior year period and net
income was $14.3 million compared to $2.7 for the fourth quarter of fiscal 1998.
These improved fourth quarter results were primarily due to strong sales in
China and Malaysia. The performance in China reflected the positive impact of
the China Business Revitalization Program in that market, while Malaysia's net
sales increase was driven by the very favorable distributor response to a
benefits program and various promotions on high ticket items.
In October 1999, AAP reported that it expected positive sales growth in
fiscal 2000 primarily due to the expected continuation of stronger sales in
China as the business there continues to attain a higher level of acceptance and
expanded manufacturing capabilities result in an increase in the number of
product launches in China. Increased sales in Malaysia and Thailand are also
expected to favorably impact AAP's overall net sales.
The statements contained herein that are not historical facts, including
the statements in the preceding paragraph, are forward looking statements. These
forward looking statements involve risks and uncertainties with respect to AAP's
markets. With respect to operations in China, these risks and uncertainties
include AAP's ability to manage effectively transition issues associated with
the modification and refinement of its marketing plan and its distribution
system. AAP is still in the process of obtaining the necessary approvals from
certain provinces and cities for all aspects of its new mode of operations,
including the use of independent sales agents. In addition, AAP is also trying
to obtain licenses for new cities and branches. Obtaining these approvals and
licenses involves regular discussions with national, provincial and city
government officials; AAP believes that it has good relations with governmental
officials, but there can be no assurance that the approvals and licenses will be
obtained. In addition, operations can always be adversely affected by new or
existing government regulations, or interpretations thereof, or by other
governmental action. In addition, risks and uncertainties in China include: (i)
AAP's ability to source materials necessary to achieve portions of its fiscal
2000 product launch schedule; and (ii) the possibility that because of AAP's
relationship with Amway, it can be affected by changes in the US-China
relationship.
In addition, the forward looking statements, including the statements in
this second paragraph under "--1999 Fiscal Year Results and Fiscal 2000
Outlook," contained herein are subject to other risks and uncertainties with
respect to AAP's markets, which could cause results to differ materially such
as, without limitation, a worsening of economic turmoil in AAP's markets, such
as the occurrence of further adverse currency volatility in the markets in which
AAP operates, the creation of adverse government regulation or the occurrence of
adverse government action in AAP's markets related to either AAP's Sales and
Marketing Plan or its products, import or price restrictions in any of AAP's
markets, the possibility of adverse publicity directed at AAP in its markets,
the difficulty in passing on the full impact of the cost increases to
distributors, given the economic situation in AAP's markets and a deterioration
of AAP's positive relationship with its distributor leadership. The most
significant uncertainty, with respect to currencies that impact AAP, is whether
the Chinese yuan will be devalued against the dollar; in addition to its impact
on operations in China, that could in turn lead to further weakening of other
Asian currencies. These and other risks and uncertainties are further detailed
in AAP's Annual Report on Form 20-F for the fiscal year ended August 31, 1998,
filed with the U.S. Securities and Exchange Commission, in the sections titled
"Description of Business -- Government Regulation" and "Description of
Business -- Risks and Uncertainties."
Additional Information About AAP. The Schedule 14D-9, Form 20-F and the
Form 6-K, together with certain other documents and reports concerning AAP
(collectively, the "AAP Filings") have been filed by AAP with the Commission.
Copies of the AAP Filings may be obtained from Ms. Holly Clemente, Director of
Investor Relations, AAP, at (914) 961-1564 or as described immediately below.
AAP is subject to the informational filing requirements of the Exchange Act
and, in accordance therewith, is required to file periodic reports and other
information with the Commission relating to its business, financial condition
and other matters. Information as of particular dates concerning AAP's directors
and officers, their remuneration, stock options granted to them, the principal
holders of AAP's securities and
27
any material interest of such persons in transactions with AAP is required to be
disclosed in periodic reports filed with the Commission. Such reports and other
information can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and at the Commission's regional offices located at Seven World
Trade Center, Suite 1300, New York, New York 10048 and the Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Information regarding
the public reference facilities may be obtained from the Commission by
telephoning 1-800-SEC-0330. Copies of such materials may also be obtained by
mail from the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549 at prescribed rates. Certain reports and other
information concerning AAP may also be inspected at the offices of the New York
Stock Exchange, 20 Broad Street, New York, New York 10005.
9. CERTAIN INFORMATION REGARDING PURCHASER.
General. Purchaser was incorporated under the laws of Bermuda in October
1999 for the principal purpose of acquiring all of the outstanding shares of AAP
and has no prior operating history. The principal executive offices of Purchaser
are currently located at 7575 Fulton Street, East, Ada, Michigan 49355,
telephone number (616) 787-6000. Purchaser does not have any significant assets
or liabilities and it has not engaged in activities other than those incidental
to its formation and capitalization, its execution of the Amalgamation Agreement
and preparation for the Offer. Because Purchaser is acquiring the Shares for
cash, financial information regarding it is not meaningful.
During the last five years none of Purchaser's officers or directors were
(1) convicted in a criminal proceeding, or (2) party to a civil proceeding of a
judicial or administrative body and as a result of the proceeding were or are
subject to a judgment enjoining future violations of or prohibiting activities
subject to, Federal or state securities laws or finding any violation of such
laws. Schedule I attached hereto sets forth information regarding Purchaser's
officers and directors.
The Principal Shareholders are certain corporations, trusts, foundations
and other entities established by or for the benefit of Richard M. DeVos and Jay
Van Andel, and their respective families. As of the Commencement Date, the
Principal Shareholders beneficially own, in the aggregate, 47,943,530 shares of
Common Stock, approximately 85% of the outstanding Common Stock of AAP. See
"-- Interests of Certain Persons."
Additional Information About Purchaser. Purchaser is not subject to the
informational filing requirements of the Exchange Act.
Purchaser has filed with the Commission a Tender Offer Statement on
Schedule 14D-1 (the "Schedule 14D-1") and a Rule 13e-3 Transaction Statement on
Schedule 13E-3 (the "Schedule 13E-3") that contain additional information with
respect to the Offer. The Schedule 14D-1 and the Schedule 13E-3, and any
amendments thereto, may be examined and copies may be obtained at the same
places and in the same manner as set forth above except that the Schedule 14D-1
and the Schedule 13E-3 and such amendments may not be available in the regional
offices of the Commission.
10. BACKGROUND OF THE OFFER; CONTACTS WITH AAP.
See "Special Factors."
11. INTERESTS OF CERTAIN PERSONS.
As noted above, the Principal Shareholders are certain corporations,
trusts, foundations and other entities established by or for the benefit of the
Principal Shareholders and their respective families. As of the Commencement
Date, the Principal Shareholders, beneficially own, in the aggregate, 47,943,530
shares (approximately 85%) of the outstanding shares of Common Stock. As of the
Commencement Date, directors and executive officers of AAP, other than those who
are Principal Shareholders, own beneficially and of record, in the aggregate,
202,863 Shares, less than 0.01% of the outstanding Common Stock. Based on a
review of information provided by directors and executive officers of AAP, it is
not anticipated, however, that any material amount of shares will be tendered by
the directors and executive officers. In the event such
28
individuals do not tender their shares, they will receive cash in the
Amalgamation. See "Special Factors -- Certain Effects of the Offer."
As a result of the Offer and the Amalgamation, 100 percent of the shares of
Common Stock will be owned, indirectly as limited partners of Hold Co., by the
Principal Shareholders.
12. TRANSACTIONS AND AGREEMENTS CONCERNING THE SHARES.
Based upon Purchaser's records and upon information provided to its and
AAP's directors, executive officers and affiliates, neither Purchaser nor, to
Purchaser's knowledge, any director or executive officer of Purchaser or AAP any
person controlling Purchaser or AAP any director or executive officer of any
corporation ultimately in control of Purchaser or AAP or any associate or
subsidiary of any of the foregoing, including any director or executive officer
of any such subsidiary, has effected any transactions in the Common Stock during
the 60 business day period prior to the Commencement Date. Except as described
in this Offer to Purchase, neither Purchaser or AAP nor, to Purchaser's or AAP's
knowledge, any director or executive officer of Purchaser or AAP any person
controlling Purchaser or AAP or any director or executive officer of any
corporation ultimately in control of Purchaser is a party to any contract,
arrangement, understanding or relationship with any other person relating,
directly or indirectly, to the Offer with respect to the Common Stock
(including, but not limited to, any contract, arrangement, understanding or
relationship concerning the transfer or the voting of any such securities, joint
ventures, loan or option arrangements, puts or calls, guaranties of loans,
guaranties against loss or the giving or withholding of proxies, consents or
authorizations).
13. CERTAIN LEGAL MATTERS; REGULATORY APPROVALS.
Except with respect to matters in Australia described herein, Purchaser is
not aware of any approval or other action by any government or governmental,
administrative or regulatory authority or agency, domestic or foreign, that
would be required for Purchaser's acquisition or ownership of Shares as
contemplated by the Offer or of any license or regulatory permit that appears to
be material to its business that might be adversely affected by its acquisition
of Shares as contemplated in the Offer. Foreign investment in Australia is
regulated by the Foreign Acquisitions and Takeovers Act 1975 ("FTA"). Certain
foreign investments and takeovers in Australia require that the Foreign
Investment Review Board ("FIRB") be notified. FIRB is the body responsible for
reviewing and approving foreign investments under FTA. Generally, FIRB will
approve a proposal unless it considers it to be against the national interest.
Because the Offer by Purchaser is technically an acquisition under the FTA, a
FIRB notice relating to the Offer will be lodged, as the proposed Offer by
Purchaser is a foreign to foreign acquisition involving an Australian
subsidiary, Amway of Australia, a wholly owned subsidiary of AAP. This
notification will be filed with the FIRB contemporaneously with the commencement
of the Offer and it is expected that FIRB will have no objection to this
transaction.
Should any other such approval or other action be required, Purchaser
currently contemplates that it will seek such approval or other action.
Purchaser cannot predict whether it may determine that it is required to delay
the acceptance of, or payment for, Shares tendered pursuant to the Offer pending
the outcome of any such matter. There can be no assurance that any such approval
or action, if needed, would be obtained or would be obtained without substantial
conditions.
14. U.S. FEDERAL INCOME TAX CONSEQUENCES.
General. The following discussion addresses the U.S. federal income
taxation of a United States person (i.e., a United States citizen or resident, a
United States corporation, a United States estate or trust subject to United
States tax on all of its income regardless of source (a "U.S. Shareholder")) who
has Shares purchased pursuant to the Offer. The following discussion does not
address the tax consequences to a person who holds, directly or indirectly, 10%
or more of the Shares (a "10% Shareholder"). Non-United States persons and 10%
Shareholders are urged to consult their own tax advisors regarding the tax
considerations incident to a sale of Shares pursuant to the Offer.
In addition, this summary does not address the U.S. tax treatment of
certain types of U.S. Shareholders (e.g., individual retirement and other
tax-deferred accounts, life insurance companies and tax-exempt
29
organizations) or of persons other than U.S. Shareholders, all of whom may be
subject to tax rules that differ significantly from those summarized below.
The discussion below, as it relates to U.S. federal income tax
consequences, is based upon the provisions of the Internal Revenue Code of 1986,
as amended (the "Code"), and regulations, rulings and judicial decisions
thereunder as of the date of this Offer to Purchase, and such authorities may be
repealed, revoked or modified so as to result in U.S. federal income tax
consequences different from those discussed below. Each holder is advised to
consult such holder's own tax advisor with respect to federal, state, local and
foreign tax law consequences of a sale of Shares pursuant to the Offer.
Purchases of Shares by Purchaser pursuant to the Offer will generally be
taxable transactions to U.S. Shareholders for federal income tax purposes under
the Code, and may also be taxable transactions under applicable state, local and
foreign tax laws.
Tax Treatment of Proceeds from Sale. The sale of Shares pursuant to the
Offer will generally be accorded sale or exchange treatment for federal income
tax purposes and gain or loss (rather than dividend income) will be recognized
by a tendering U.S. Shareholder if the U.S. Shareholder satisfies one of the
following tests: (i) its interest in AAP is completely sold; (ii) its percentage
interest in AAP is reduced (as measured before Purchaser's purchase of any
Shares pursuant to the Offer) by more than 20% (as measured after Purchaser's
purchase of all Shares redeemed pursuant to the Offer); or (iii) it is
demonstrated that the disposition of Shares to Purchaser is "not essentially
equivalent to a dividend." A U.S. Shareholder's contemporaneous dispositions or
acquisitions of Shares deemed for federal income tax purposes to be part of an
integrated transaction with the Offer may be taken into account in determining
whether the holder satisfied any of these tests.
If sale or exchange treatment applies, any gain or loss recognized will be
equal to the difference between the amount of cash received in the exchange and
the U.S. Shareholder's tax basis in the Shares purchased. Provided that the
Shares constitute a capital asset in the hands of the U.S. Shareholder and have
a holding period of more than one year, this gain or loss generally will be
long-term capital gain or loss.
If sale or exchange treatment does not apply, the gross proceeds received
from Purchaser for Shares purchased pursuant to the Offer will be treated as a
taxable dividend to the extent of AAP's current or accumulated earnings and
profits. In that event, the tax basis of Shares purchased by Purchaser pursuant
to the Offer will generally be added to the tax basis of the Shares that the
tendering U.S. Shareholder continues to own, and such increase in basis may
cause any subsequent taxable disposition of retained Shares to give rise to a
loss, which would be a capital loss if such Shares were held as a capital asset.
A U.S. Shareholder who intends to avoid dividend treatment of the gross
proceeds received by demonstrating that such proceeds are "not essentially
equivalent to a dividend" is urged to consult its tax advisor because this test
will be met only if the reduction in its proportionate interest in AAP is a
"meaningful reduction" given the particular facts and circumstances in the
context of the Offer. The Internal Revenue Service has indicated in published
rulings that any reduction in the percentage interest of a U.S. Shareholder
whose relative stock interest is minimal (e.g., less than 1%) in a publicly-held
corporation who exercises no control over corporate affairs may constitute such
a "meaningful reduction."
Backup Withholding. Under U.S. federal income tax backup withholding
rules, 31% of the gross proceeds payable to a holder of Shares who elects to
tender Underlying Shares into the Offer or other payee pursuant to the Offer
must be withheld and remitted to the United States Treasury if the holder or
other payee does not provide its taxpayer identification number ("TIN"),
employer identification number ("EIN") or social security number ("SS No.") to
the Depositary and certify that such number is correct, or if the IRS notifies
the Depositary that the TIN, EIN or SS No. is incorrect or that backup
withholding should be imposed with respect to a particular holder. Certain
holders (including, among others, all corporations and certain non-resident
alien individuals) are not subject to these backup withholding and reporting
requirements ("exempt recipients").
All holders of Shares who elect to tender Shares pursuant to the Offer,
other than exempt recipients, should execute and return to the Depositary the
Substitute Form W-9 included as part of the Letter of
30
Transmittal. In order for a foreign individual to qualify as an exempt
recipient, that individual must submit a statement, signed under penalties of
perjury, attesting to that individual's exempt status. Such statements may be
obtained from the Depositary. See Instruction 9 of the Letter of Transmittal.
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION
ONLY. EACH HOLDER IS URGED TO CONSULT ITS OWN TAX ADVISOR TO DETERMINE THE
PARTICULAR TAX CONSEQUENCES TO IT OF THE OFFER, INCLUDING THE APPLICABILITY AND
EFFECT OF STATE, LOCAL AND FOREIGN TAX LAWS.
15. EXTENSION OF OFFER; TERMINATION; AMENDMENTS.
Purchaser expressly reserves the right, in its sole discretion, but shall
not be obligated, at any time or from time to time, to extend the period of time
during which the Offer is open by giving appropriate public notice of such
extension. During any such extension, all Shares previously tendered and not
purchased or withdrawn will remain subject to the Offer, except to the extent
that such Shares may be withdrawn as set forth in "-- Withdrawal Rights."
Subject to compliance with applicable law and the terms of the Amalgamation
Agreement, Purchaser further reserves the right, in its sole discretion, to
amend the Offer. Any amendment to the Offer may be made at any time or from time
to time by giving appropriate public notice thereof. Any public announcement
made pursuant to the Offer will be disseminated promptly to holders in a manner
reasonably designed to inform holders of such change. Without limiting the
manner in which Purchaser may choose to make a public announcement, except as
required by applicable law, Purchaser shall have no obligation to publish,
advertise or otherwise communicate any such public announcement with respect to
the Shares other than by making a release to the Dow Jones News Service.
If Purchaser materially changes the terms of the Offer or the information
concerning the Offer, Purchaser will extend the Offer to the extent required by
Rules 14e-1(a) and 14e-1(d) promulgated under the Exchange Act. These rules
provide that the minimum period during which an offer must remain open following
material changes in the terms of the offer or information concerning the offer
(other than a change in price or in the dealer's soliciting fee) will depend on
the facts and circumstances, including the relative materiality of such terms or
information.
Pursuant to the Amalgamation Agreement, Purchaser may not amend the Offer
to reduce the number of Shares subject to the Offer, reduce the Offer Price,
change the form of consideration payable in the Offer to amend, alter, add or
waive any term of the Offer in any manner adverse to the holders of the Shares,
in each case without the express written consent of AAP as authorized by the
Special Committee.
16. FEES AND EXPENSES.
Other than as described below, no fees will be paid to brokers, dealers or
others by Purchaser in connection with the Offer.
Dealer Managers. Morgan Stanley and J.P. Morgan have been retained by
Purchaser to act as dealer managers (each a "Dealer Manager" and collectively,
the "Dealer Managers") in connection with the Offer. Morgan Stanley and J.P.
Morgan will receive reasonable and customary compensation for their services as
Dealer Managers. Morgan Stanley and J.P. Morgan will also be reimbursed by
Purchaser for certain out-of-pocket expenses, including attorneys' fees, and
will be indemnified by Amway against certain liabilities, including liabilities
under the federal securities laws, in connection with the Offer. Morgan Stanley
and J.P. Morgan have from time to time provided investment banking services to
AAP and other affiliates of Purchaser for which Morgan Stanley and J.P. Morgan
have received, or will receive, reasonable and customary compensation. It is
expected that Morgan Stanley and J.P. Morgan will continue to provide such
services to Purchaser and its affiliates in the future. Morgan Guaranty Trust
Company of New York, Tokyo Branch, an affiliate of J.P. Morgan & Co.
Incorporated, is providing funds to Purchaser in connection with the Offer. See
"-- Source and Amount of Funds."
The fees Purchaser will pay to the Dealer Managers consist of advisory
fees, an exposure fee and a transaction fee. Morgan Stanley's advisory fees are
$62,500 per month for the months of September, October
31
and November of 1999 and $37,500 per month thereafter until the transaction is
terminated. The exposure fee that will be paid to Morgan Stanley is $750,000 and
the transaction fee paid to Morgan Stanley is $2,000,000. J.P. Morgan's exposure
fee is $375,000 and its transaction fee is $1,000,000. The total fees estimated
to be paid by Purchaser to Morgan Stanley and J.P. Morgan are set forth below.
The monthly advisory fees for Morgan Stanley and the exposure fees for Morgan
Stanley and J.P. Morgan are creditable against the applicable transaction fees.
Depositary. Purchaser has retained First Chicago Trust Company of New York
to act as depositary in connection with the Offer (the "Depositary"). The
Depositary will receive reasonable and customary compensation for its services
as Depositary. The Depositary will be reimbursed by Purchaser for certain out-
of-pocket expenses and will be indemnified against certain liabilities,
including liabilities under the federal securities laws, in connection with the
Offer.
Information Agent. Purchaser has retained Georgeson Shareholder
Communications Inc. to act as the Information Agent in connection with the
Offer. The Information Agent will receive reasonable and customary compensation
for its services as Information Agent. The Information Agent will be reimbursed
by Purchaser for certain out-of-pocket expenses in connection with the Offer.
Expenses. Purchaser will pay all expenses of the Offer, including, without
limitation, brokerage commissions and solicitation fees. Brokers, dealers,
commercial banks and trust companies will, upon request, be reimbursed by
Purchaser for reasonable and necessary costs and expenses incurred by them in
forwarding materials to their customers. Holders of Shares will have withheld
from the Purchase Price payable to them with respect to Shares accepted for
purchase pursuant to the Offer any applicable U.S. backup withholding taxes, if
any. See "-- U.S. Federal Income Tax Consequences."
It is estimated that expenses incurred by Purchaser and AAP in connection
with the Offer will be approximately as set forth below.
[Download Table]
Filing Fees................................................. $ 30,595
Financial Advisory Fees and Expenses of Purchaser
Morgan Stanley............................................ $2,000,000
J.P. Morgan............................................... $1,000,000
Financial Advisory Fees and Expenses of AAP................. $2,050,000
Financial and Commitment Fees............................... $ 875,000
Accounting and Legal Fees and Expenses...................... $ 444,243
Printing and Mailing........................................ $ 479,782
Miscellaneous............................................... $ 444,280
----------
Total.................................................. $7,323,900
==========
17. MISCELLANEOUS.
The Offer is not being made to, nor will Purchaser accept tenders from,
holders of Shares in any state of the United States or any foreign jurisdiction
in which the Offer or the acceptance thereof would not be in compliance with the
laws of such state or foreign jurisdiction. Purchaser is not aware of any state
or foreign jurisdiction the laws of which would prohibit the Offer or such
acceptance. In those jurisdictions whose laws require the Offer to be made by a
licensed broker or dealer, the Offer is being made on behalf of Purchaser by the
Dealer Managers or one or more registered brokers or dealers licensed under the
laws of such jurisdictions.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OR RECOMMENDATIONS IN CONNECTION WITH THE OFFER OTHER THAN THOSE
CONTAINED HEREIN, IN THE LETTER OF TRANSMITTAL OR IN THE EXPLANATORY STATEMENT.
IF GIVEN OR MADE, SUCH RECOMMENDATION AND SUCH INFORMATION AND REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY PURCHASER.
NEW AAP LIMITED
32
SCHEDULE I
PURCHASER EXECUTIVE OFFICERS AND DIRECTORS; AAP EXECUTIVE
OFFICERS AND DIRECTORS
PURCHASER DIRECTORS
Lawrence M. Call
Craig N. Meurlin
PURCHASER EXECUTIVE OFFICERS
Lawrence M. Call -- President
Craig N. Meurlin -- Vice President, Assistant Secretary
E.J. Thompson -- Secretary
May Coye -- Assistant Secretary
Messrs. Call and Meurlin are U.S. citizens.
The business address of the directors and executive officers of Purchaser is
7575 Fulton Street, East, Ada, Michigan 45355.
AAP DIRECTORS AND OFFICERS
[Enlarge/Download Table]
DIRECTOR/EXECUTIVE
NAME AGE POSITION OFFICER SINCE
---- --- -------- ------------------
Stephen A. Van Andel............. 43 Chairman, Director 1994
Richard M. DeVos, Jr. ........... 43 Vice Chairman, Director 1994
Douglas L. DeVos................. 34 President and Director 1999
Eoghan M. McMillan............... 64 Director 1994
Jack C.K. So..................... 54 Director 1994
John C.C. Chan................... 56 Director 1996
L.H. Choong...................... 52 Director 1993
Eva Cheng........................ 46 Executive Vice President; Director 1993
Lynn Lyall....................... 46 Chief Financial Officer, Vice
President and Treasurer 1999
Lawrence M. Call................. 57 Vice President 1993
Craig N. Meurlin................. 47 Vice President, General Counsel and
Assistant Secretary 1993
John C. Brockman................. 55 Vice President, Distributor Relations 1997
Percy Chin....................... 44 Vice President, General Manager --
East China 1996
Patrick Hau...................... 47 Vice President, General Manager --
National Operations 1996
Audie Wong....................... 47 Vice President, General Manager --
North China 1995
Martin Liou...................... 41 General Manager -- Taiwan 1997
Low Han Kee...................... 40 Regional Manager -- Malaysia 1997
Preecha Prakobkit................ 51 General Manager -- Thailand 1997
Peter Williams................... 45 General Manager -- Australia 1997
Betty Yeung...................... 50 General Manager -- South China 1997
John C.R. Collis................. 41 Secretary 1993
Stephen A. Van Andel, age 43, has been Chairman of AAP since January 1995
and a Director since 1994. Since January 1995, Mr. Van Andel has been Vice
Chairman of Amway Japan Limited. Mr. Van Andel has been Chairman of Amway since
1995 and was a member of the Policy Board of Amway from 1992 through August 31,
1999. He has been on the Board of Directors of Amway since September 1, 1999.
Mr. Van Andel
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was Chairman of the Executive Committee of Amway and Vice President -- Corporate
Affairs of Amway from 1993 to 1995. He was appointed Vice President -- Marketing
of Amway in 1988 and in 1991, became Vice President -- Americas. Prior to 1988,
Mr. Van Andel held various administrative and management positions with Amway.
He holds a Bachelor's Degree from Hillsdale College and a Master's of Business
Administration from Miami University. Mr. Van Andel is also a director of
Michigan National Bank Corp. and Amway Japan Limited.
Richard M. DeVos, Jr., age 43, has been a Director of AAP since 1994 and
Vice Chairman since October 15, 1999. He served as President from January 1995
through October 15, 1999. Since January 1995, Mr. DeVos has been Chairman of
Amway Japan Limited. He has been President of Amway since 1993 and was a member
of the Policy Board of Amway from 1992 through August 31, 1999. He has been on
the Board of Directors of Amway since September 1, 1999. Mr. DeVos was President
and Chief Executive Officer of the Orlando Magic Ltd. from 1991 to 1993. He is
Chairman of the Windquest Group, a multi-company management group which he
founded in 1989. Prior to that, Mr. DeVos was Vice President -- International of
Amway since 1984. Previously, he held various research and development,
manufacturing, distribution, marketing, finance, public relations and government
affairs positions with Amway. Mr. DeVos holds a Bachelor of Business
Administration Degree from Northwood University and has attended the Executive
Study Program at the Wharton School of the University of Pennsylvania. He is
also a director of Old Kent Financial Corporation and Amway Japan Limited.
Douglas L. DeVos, age 34, has been a director of AAP since April 14, 1999
and President since October 15, 1999. Since June 1998, Mr. DeVos has been Senior
Vice President -- Asia Pacific Region, Global Distributor Relations of Amway and
a member of the Policy Board of Amway since 1989. Mr. DeVos has been on the
Board of Directors of Amway since September 1, 1999. He was appointed Vice
President, North American Sales, of Amway in 1993 and became Senior Vice
President, Managing Director -- Americas of Amway from 1996 to 1998. Prior to
1993, Mr. DeVos held various administrative and management positions with Amway.
He holds a Bachelor of Science Degree from Purdue University Krannert School of
Management. Mr. DeVos is also a director of National City Bank.
Eoghan M. McMillan, age 64, has been a director of AAP and the Chairman of
the Compensation Committee and a member of the Audit Committee since 1994. Mr.
McMillan has also been chairman of AAP's Special Committee since October 1999.
Mr. McMillan is the Chairman of Rodamco Asia N.V. incorporated in the
Netherlands, and Chairman of Rodamco Asia Management Pte Ltd. Prior thereto, he
practiced with Arthur Andersen & Co. since 1959 and served as Country Managing
Partner for its practices in Hong Kong and China from 1979 until September 1993
and as Regional Managing Partner for Southeast Asia for most of this period.
From 1989 to 1992, Mr. McMillan was Chairman of the Hong Kong Futures Exchange
and a director of its wholly-owned subsidiary, Hong Kong Futures Exchange
Clearing Corporation. He is a Certified Public Accountant, a Fellow of the
Chartered Association of Certified Accountants in the United Kingdom and a
Fellow of the Hong Kong Society of Accountants. Mr. McMillan was appointed by
the Hong Kong government as a Director of the Board of Hong Kong Securities
Clearing Company Limited. He is also a director of Vitasoy International
Holdings Ltd., Sun Hung Kai Development (China) Ltd., Shangri-la Asia Ltd., Land
Development Corporation, Pengursan Danaharta Nasional Berhad, Huan He Pacific
Limited, RoProperty Investment Management Pacific Limited, Hong Kong Securities
Clearing Company Ltd., Port Moresby Investments and several other entities in
which Rodamco holds investments, principally in countries in the Asia Pacific
region.
Jack C.K. So, age 54, has been a director of AAP and the Chairman of the
Audit Committee and a member of the Compensation Committee since 1994. Mr. So
has also been a member of AAP's Special Committee since October 1999. Mr. So is
Chairman of the Hong Kong Mass Transit Railway Corporation and has held such
position since 1995. From 1992 to 1995, he served as Managing Director of Sun
Hung Kai Development (China) Ltd. Previously, Mr. So served as Executive
Director of the Hong Kong Trade Development Council since 1985. Prior to that,
he spent seven years in the private sector and held various senior posts in
stockbrokering, trade and banking. Before joining the private sector, Mr. So
served as Administrative Officer and held significant positions in various
departments of the Hong Kong government. Mr. So holds a Bachelor's Degree from
the University of Hong Kong.
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John C.C. Chan, age 56, has been a director of AAP and a member of the
Compensation and Audit Committees since 1996. Mr. Chan has also been a member of
AAPs Special Committee since October 1999. Since 1993, Mr. Chan has been
Managing Director of The Kowloon Motor Bus Company, one of the largest privately
owned and operated bus companies in the world. He served in many governmental
positions in Hong Kong from 1967 to 1993. Mr. Chan is a director of Hang Seng
Bank Limited and of Guangdong Investment Limited, Hong Kong, a member of the
Council of the Stock Exchange of Hong Kong, Director of Hong Kong Exchanges and
Clearing Limited and a Chairman of the Hong Kong Securities Clearing Company
Limited. He holds degrees in English literature and management studies from the
University of Hong Kong.
L.H. Choong, age 52, has been a Director of AAP since its formation in
1993. Mr. Choong was an Executive Vice President of AAP from 1993 to 1998 and
held the positions of Managing Director of Amway (Malaysia) Sdn. Bhd. from 1981
to 1998 and Amway (Thailand) Limited from 1987 through August 31, 1997. He
joined Amway (Malaysia) Sdn. Bhd. in 1978. Before joining Amway (Malaysia) Sdn.
Bhd., Mr. Choong held various marketing, sales and product management positions
with ESSO Malaysia Berhad, Diethelm (Malaysia) Sdn. Bhd. and Colgate-Palmolive
(Malaysia) Sdn. Bhd. He holds a Bachelor's Degree from the University of Malaya.
Eva Cheng, age 46, has been Executive Vice President and a Director of AAP
since its formation in 1993. Ms. Cheng serves as Managing Director of the
Greater China Region. She joined Amway International, Inc. in 1977 and was named
General Manager of the Hong Kong operation in 1980, serving as Managing Director
of its Hong Kong and Taiwan operations from 1987 to 1993. Prior to joining
Amway, Ms. Cheng worked in various executive officer positions in the Hong Kong
government. She has a Bachelor's Degree and a Master's of Business
Administration from the University of Hong Kong.
Lynn Lyall, age 46, has been Chief Financial Officer, Vice President and
Treasurer of AAP since July 1, 1999. Mr. Lyall has also served as Vice President
of Finance of Amway since July 1, 1999. Prior to joining Amway, he had been
Executive Vice President and Chief Financial Officer of Blockbuster
Entertainment, Inc. since 1997. Before becoming Chief Financial Officer of
Blockbuster, Mr. Lyall held various financial positions with Cadbury Schweppes,
PLC from 1990 until 1997. He also held financial positions with Bordo Citrus
Products, Inc., Kraft, Inc. and Coca-Cola Company. Prior to that, Mr. Lyall
spent six years in public accounting with Arthur Anderson & Co. He is a
certified Public Accountant and holds a Bachelor's Degree from Northwestern
University.
Lawrence M. Call, age 57, has been Vice President of AAP since its
formation in 1993. Mr. Call served as Chief Financial Officer and Treasurer of
AAP until July 1, 1999. He has also served as Chief Financial Officer of Amway
since 1991. Prior to joining Amway, Mr. Call had been Treasurer of PPG
Industries, a manufacturer of flat glass, fiberglass, coatings, resins
industrial and special chemicals, since 1984. Before becoming Treasurer of PPG
Industries, he had held various other financial control positions with PPG
Industries. Prior to that, Mr. Call spent 15 years in public accounting with
Deloitte, Haskins and Sells (the predecessor to Deloitte and Touche). He is a
Certified Public Accountant and holds a Bachelor's Degree from Loyola
University.
Craig N. Meurlin, age 47, has been Vice President, General Counsel and
Assistant Secretary of AAP since 1993. Mr. Meurlin is Senior Vice President,
General Counsel and Secretary of Amway and has held such positions since 1993.
Prior to that, Mr. Meurlin was a partner in the law firm of Jones, Day, Reavis &
Pogue. Mr. Meurlin holds a Bachelors of Arts Degree from the University of
Vermont and a Juris Doctor from the University of Virginia.
John C. Brockman, age 55, is Vice President -- Distributor Relations of AAP
and has held such position since October 29, 1997. Mr. Brockman is also Director
of Worldwide Sale Plan Administration for Amway Corporation. He joined Amway in
1973 as a coordinator in the Meeting and Travel Department and was promoted to
Manager of that department in 1975. Mr. Brockman was named Regional Manager for
Amway's Western Sales Region in 1977. In November 1981, Mr. Brockman was
promoted to the position of Director -- International Sales, holding such
position until his promotion to his current position. He holds a Bachelor's
Degree in Business Administration from the University of Southern California.
S-3
Percy Chin, age 44, is Vice President and General Manager of Amway (China)
Co. Ltd. C East China and has held such position since January 1996. Mr. Chin
joined Amway China in 1992 as financial controller and was promoted to Regional
Director of Finance and Administration in 1995. Prior to joining Amway, he held
the position as Director of Finance at Heinz China, China Dyeing Holding Ltd.,
and with the Canadian Government -- Department of Education. Mr. Chin is a
member of Canadian Certified Management Accountants and holds Bachelor's Degrees
in Science and Communication from the University of Saskatchewan, Canada.
Patrick Hau, age 47, is Vice President and General Manager -- National
Operations of Amway (China) Co. Ltd. Mr. Hau joined Amway Hong Kong in 1987 as
Financial Controller, serving as General Manager from 1991 to 1996. Prior to
joining AAP, he was employed as financial controller at Pearl & Dean Ltd. in
Hong Kong and Australia and was a tax consultant with Price Waterhouse and a tax
officer of the Inland Revenue Department. Mr. Hau holds a diploma in Business
Studies from Hong Kong Polytechnic, a post-graduate diploma in Accounting &
Finance from the New South Wales Institute of Technology, and a Master's of
Business Administration Degree from Oklahoma City University. He is a member of
the Hong Kong Society of Accountants, the Chartered Association of Certified
Accountants, the Australia Society of Accountants and the Chartered Institute of
Secretaries & Administrators.
Audie Wong, age 47, is Vice President and General Manager of Amway (China)
Co. Ltd. -- North China and has held such position since May 1997. Mr. Wong
joined Amway Hong Kong in 1981 as Marketing Coordinator and was promoted to
Marketing Manager in 1986. From 1991 to 1994, Mr. Wong was General Manager of
Amway Taiwan and served as General Manager of South China from 1994 until April
1997. He holds a Bachelor of Arts Degree from State University of New York at
Buffalo, a Master's Degree from the University of Oregon and a Master's of
Business Administration from the University of Oklahoma City.
Martin Liou, age 41, is General Manager of Amway Taiwan Company, Limited
and has held such position since May 1997. Mr. Liou joined Amway Taiwan in 1985
as Distribution Manager, becoming Distribution Director of the Greater China
Region in 1994. In 1995, he assumed dual roles, Operations Director for Amway
Taiwan and Director of Planning and Development for Greater China, which he held
until March 1997 when he assumed the responsibilities as Deputy General Manager
of Amway Taiwan. Prior to joining Amway Taiwan, he was Production Supervisor for
ISI Company. Mr. Liou is a member of the Taiwan Direct Selling Association and
holds a Bachelor's Degree in Chemical Engineering from National Taiwan
University.
Low Han Kee, age 40, is General Manager of Amway (Malaysia) Sdn. Bhd, and
has held such position since 1993. Mr. Low joined Amway Malaysia in 1990 as
Divisional Manager, Finance & Administration. Prior to joining Amway Malaysia,
he worked for five years in various financial positions for companies listed on
the Kuala Lumpur Stock Exchange. From 1984 to 1985, Mr. Low worked for First
Allied Corporation Berhad and as Group Chief Accountant for Mulpha International
Trading Corporation Berhad from 1985 to 1990. Mr. Low is a Certified Public
Accountant and a member of The Malaysian Association of Certified Public
Accountants.
Preecha Prakobkit, age 51, is General Manager of Amway (Thailand) Ltd. and
has held such position since 1990. Mr. Prakobkit joined Amway Thailand in 1988
as Sales and Marketing Manager and was promoted to Sales Manager in 1990. Prior
to joining Amway Thailand, he worked as Marketing Manager for the Mall
Department Store and Product Manager for Philips Electrical Company. Mr.
Prakobkit is the Secretary General of the Thai Direct Selling Association and
holds a Bachelor's Degree in Marketing from Walter E. Heller School of Business.
Peter Williams, age 45, is General Manager of Amway of Australia and has
held such position since June 1997. Mr. Williams joined Amway of New Zealand in
March 1988 as the Northern Region Sales Manager and was promoted to National
Sales Manager in November 1988. He became General Manager in 1996, serving until
his promotion to his current assignment at Amway of Australia. Prior to joining
Amway of New Zealand, Mr. Williams worked for Enzed Fluid Connectors as Export
Sales Manager in the Middle East and as London Branch Manager for Extraman/OPS.
He has been an Executive Member of the New Zealand
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Direct Selling Association. Mr. Williams attended Northcote College and holds a
Diploma in Business (Marketing) from the University of Auckland.
Betty Yeung, age 50, is General Manager of Amway (China) Co. Ltd. C South
China and has held such position since May 1997. Mrs. Yeung joined Amway Hong
Kong as Marketing Coordinator in 1979, and was promoted to Sales/Marketing
Manager in 1980 and Sales/Public Relations Manager in 1985. She joined Amway
Canada as Distributor Relation Manager in 1991. Mrs. Yeung rejoined Amway China
in 1994 as Director of External Affairs and was appointed Director of Sales,
South China in 1996, General Manager, South China in 1996 and General Manager
National Sales in 1999. Prior to joining Amway Hong Kong, Mrs. Yeung worked at
Rediffusion Co. in customer service related positions. She holds a Bachelor's
Degree from the Chinese University of Hong Kong and a Diploma in Management
Studies from Hong Kong Polytechnic.
John C.R. Collis, age 41, is an attorney at Conyers, Dill & Pearman,
Hamilton, Bermuda.
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Goldman, Sachs & Co. | 85 Broad Street | New York, New York 10004
Tel: 212-902-1000
[GOLDMAN SACHS LOGO]
SCHEDULE II
FAIRNESS OPINION OF THE AAP FINANCIAL ADVISOR
PERSONAL AND CONFIDENTIAL
November 15, 1999
Special Committee of the Board of Directors
Amway Asia Pacific, Ltd.
38/F, The Lee Gardens
33 Hysan Avenue
Causeway Bay, Hong Kong
Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to the holders (other than the Controlling Shareholders (as defined below))
of the outstanding shares of Common Stock, par value US$.01 per share (the
"Shares"), of Amway Asia Pacific, Ltd. (the "Company") of the US$18.00 per Share
in cash (the "Acquisition Price") to be received by such holders in the Tender
Offer and the Amalgamation or the Compulsory Acquisition (each as defined below)
pursuant to the Tender Offer and Amalgamation Agreement, dated as of November
15, 1999, among Apple Hold Co., L.P. ("Hold Co."), New AAP Limited ("Buyer") and
the Company (the "Agreement"). The Agreement provides for a tender offer (the
"Tender Offer") for all of the Shares, other than Shares owned by the DeVos and
Van Andel families and their affiliates (the "Controlling Shareholders"),
pursuant to which Buyer will pay the Acquisition Price for each Share accepted.
Buyer is an entity controlled and beneficially owned directly and indirectly by
the Controlling Shareholders of the Company, who currently beneficially own
84.9% of the Shares in the aggregate. The Agreement further provides that
following completion of the Tender Offer, the Company will be amalgamated with
Buyer, with the Company continuing as the amalgamated company (the
"Amalgamation"), and each outstanding Share (other than Shares already owned by
Hold Co. or the Controlling Shareholders) will be converted into the right to
receive the Acquisition Price. The Agreement also provides, however, that if
following Buyer's purchase of Shares pursuant to the Tender Offer Buyer has
purchased in the Tender Offer and/or owns a sufficient number of Shares
compulsorily to acquire the remaining outstanding Shares from the remaining
public holders of Shares pursuant to the Bermuda Companies Act of 1981, as
amended (the "Act"), the Company and Buyer may not consummate the Amalgamation
and instead Buyer will purchase the remaining outstanding Shares from the
remaining public holders of Shares pursuant to the Act for the Acquisition Price
(the "Compulsory Acquisition").
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. We are
familiar with the Company having acted as financial advisor to the Special
Committee of the Board of Directors in connection with, and having participated
in certain of the negotiations leading to, the Agreement. Goldman, Sachs & Co.
also provides a full range of financial advisory and securities services and, in
the course of its normal trading activities, may from time to time effect
transactions and hold securities, including derivative securities, of the
Company for its own account and for the accounts of customers.
In connection with this opinion, we have reviewed, among other things, the
Agreement; Annual Reports to Stockholders and Annual Reports on Form 20-F of the
Company for the five fiscal years ended August 31, 1998; certain interim reports
to stockholders and Quarterly Reports on Form 6-K of the Company; certain
Special Committee of the Board of Directors
Amway Asia Pacific, Ltd.
November 15, 1999
Page Two
other communications from the Company to its stockholders; and certain internal
financial analyses and forecasts for the Company prepared by its management. We
also have held discussions with members of the senior management of the Company
regarding its past and current business operations, financial condition and
future prospects. In addition, we have reviewed the reported price and trading
activity for the Shares, compared certain financial and stock market information
for the Company with similar information for certain other companies the
securities of which are publicly traded, reviewed the financial terms of certain
recent business combinations and performed such other studies and analyses as we
considered appropriate.
We have relied upon the accuracy and completeness of all of the financial
and other information reviewed by us and have assumed such accuracy and
completeness for purposes of rendering this opinion. In that regard, we have
assumed with your consent that the internal financial forecasts prepared by the
management of the Company have been reasonably prepared on a basis reflecting
the best currently available estimates and judgments of the Company. In
addition, we have not made an independent evaluation or appraisal of the assets
and liabilities of the Company or any of its subsidiaries and we have not been
furnished with any such evaluation or appraisal. We note that the Controlling
Shareholders own a majority of the Shares, and that the Controlling Shareholders
have represented to Goldman Sachs and the Special Committee of the Board of
Directors of the Company that the Controlling Shareholders will not sell their
Shares to any third party. Accordingly, we were not requested to solicit, and
did not solicit, interest from other parties with respect to an acquisition of
or other business combination with the Company. Our advisory services and the
opinion expressed herein are provided for the information and assistance of the
Special Committee of the Board of Directors of the Company in connection with
its consideration of the transactions contemplated by the Agreement and such
opinion does not constitute a recommendation as to whether or not any holder of
Shares should tender such Shares in connection with such transaction or should
vote in respect of the Amalgamation.
Based upon and subject to the foregoing and based upon such other matters
as we consider relevant, it is our opinion that as of the date hereof the
US$18.00 per Share in cash to be received by the holders of Shares (other than
the Controlling Shareholders) in the Tender Offer and the Amalgamation or the
Compulsory Acquisition is fair from a financial point of view to such holders.
Very truly yours,
/s/ Goldman, Sachs & Co.
GOLDMAN, SACHS & CO.
SCHEDULE III
AUDITED FINANCIAL STATEMENTS OF AMWAY ASIA PACIFIC LTD.
FOR THE FISCAL YEARS ENDED AUGUST 31, 1996, 1997 AND 1998 AND
UNAUDITED FINANCIAL STATEMENTS FOR THE NINE MONTHS
ENDED MAY 31, 1999
AMWAY ASIA PACIFIC LTD.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
[Download Table]
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT AUDITORS:
Report of independent auditors.............................. F-2
Consolidated balance sheets at August 31, 1998 and 1997..... F-3
Consolidated statements of income for the years ended August
31, 1998, 1997 and 1996................................... F-4
Consolidated statements of shareholders' equity for the
years ended August 31, 1998, 1997 and 1996................ F-5
Consolidated statements of cash flows for the years ended
August 31, 1998, 1997 and 1996............................ F-6
Notes to consolidated financial statements.................. F-7
UNAUDITED INTERIM FINANCIAL STATEMENTS:
Consolidated statements of income for the nine months ended
May 31, 1999 and 1998..................................... F-21
Consolidated balance sheets at May 31, 1999 and August 31,
1998...................................................... F-22
Consolidated statements of cash flows for the nine months
ended May 31, 1999 and 1998............................... F-23
Notes to consolidated financial statements.................. F-24
F-1
INDEPENDENT AUDITORS REPORT
The Board of Directors and Shareholders
Amway Asia Pacific Ltd.:
We have audited the accompanying consolidated balance sheets of Amway Asia
Pacific Ltd. and subsidiaries as of August 31, 1998 and 1997, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the years in the three-year period ended August 31, 1998. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Amway Asia
Pacific Ltd. and subsidiaries as of August 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the years in the three-year
period ended August 31, 1998, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
--------------------------------------
KPMG LLP
Detroit, Michigan
October 2, 1998
F-2
AMWAY ASIA PACIFIC LTD.
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 1998 AND 1997
(U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
[Download Table]
1998 1997
-------- --------
ASSETS
Current assets:
Cash and cash equivalents................................. $157,157 $207,915
Short-term investments (note 4)........................... 143 48,613
Accounts receivable, net of allowance for doubtful
accounts of $2,144 and $2,093, respectively............ 21,264 17,995
Inventories (note 5)...................................... 75,104 106,227
Prepaid expenses and other current assets (notes 9 and
11).................................................... 23,234 28,913
-------- --------
Total current assets.............................. 276,902 409,663
Property, plant and equipment, net (note 6)................. 104,346 94,590
Other assets................................................ 5,825 15,890
-------- --------
Total assets...................................... $387,073 $520,143
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable (note 9)................................. $ 59,799 $ 85,628
Short-term borrowings (note 17)........................... 18,573 --
Accrued expenses and income taxes (notes 7 and 11)........ 92,150 128,023
Distributor deposits...................................... 4,252 9,561
-------- --------
Total current liabilities......................... 174,774 223,212
Deferred income taxes (note 11)............................. 184 1,079
-------- --------
Total liabilities................................. 174,958 224,291
-------- --------
Minority interests (note 14)................................ 36,017 43,368
-------- --------
Shareholders' equity (note 15):
Preferred stock, $0.01 par value -- authorized 20,000,000
shares, none issued.................................... -- --
Common stock, $0.01 par value -- authorized 110,000,000
shares; issued and outstanding: 56,441,960 shares...... 564 564
Additional paid-in capital................................ 79,246 79,605
Unrealized gain on marketable equity securities........... -- 582
Cumulative foreign currency translation adjustments....... (44,182) (16,955)
Retained earnings......................................... 140,470 188,688
-------- --------
Total shareholders' equity........................ 176,098 252,484
-------- --------
Commitments and contingencies (notes 8, 13 and 15)
Total liabilities and shareholders' equity........ $387,073 $520,143
======== ========
See accompanying notes to the consolidated financial statements.
F-3
AMWAY ASIA PACIFIC LTD.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED AUGUST 31, 1998, 1997 AND 1996
(U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
[Enlarge/Download Table]
1998 1997 1996
-------- -------- --------
Net sales.................................................. $587,579 $845,166 $716,757
Cost of sales (note 9)..................................... 257,220 313,287 269,377
-------- -------- --------
330,359 531,879 447,380
-------- -------- --------
Operating expenses (note 9):
Distributor incentives................................... 157,018 219,111 186,092
Distribution expenses.................................... 45,199 49,662 40,777
Selling and administrative expenses...................... 102,849 114,523 93,367
-------- -------- --------
Total operating expenses......................... 305,066 383,296 320,236
-------- -------- --------
Operating income...................................... 25,293 148,583 127,144
Other income -- net (note 10).............................. 9,683 24,707 19,781
-------- -------- --------
Income before income taxes and minority interest...... 34,976 173,290 146,925
Income taxes (note 11)..................................... 23,508 54,909 55,709
-------- -------- --------
Income before minority interest....................... 11,468 118,381 91,216
Minority interest in income of consolidated subsidiaries
(note 14)................................................ 10,015 14,350 8,983
-------- -------- --------
Net income............................................ $ 1,453 $104,031 $ 82,233
======== ======== ========
Basic and diluted earnings per share (note 16)............. $ 0.03 $ 1.76 $ 1.37
======== ======== ========
Dividends per share paid to Company shareholders........... $ 0.88 $ 0.84 $ 1.02
======== ======== ========
Weighted average number of shares outstanding (000s)....... 56,442 59,124 60,039
======== ======== ========
Weighted average number of shares outstanding including the
effect of dilutive securities (000s) (note 16)........... 56,446 59,176 60,097
======== ======== ========
See accompanying notes to the consolidated financial statements.
F-4
AMWAY ASIA PACIFIC LTD.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED AUGUST 31, 1998, 1997 AND 1996
(U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
[Enlarge/Download Table]
UNREALIZED CUMULATIVE
GAIN ON FOREIGN
ADDITIONAL MARKETABLE CURRENCY TOTAL
COMMON PAID-IN EQUITY TRANSLATION RETAINED SHAREHOLDERS'
STOCK CAPITAL SECURITIES ADJUSTMENTS EARNINGS EQUITY
------ ---------- ---------- ----------- -------- -------------
Balances at August 31, 1995.......... $600 $213,443 $ -- $ (875) $116,448 $ 329,616
Net income........................... -- -- -- -- 82,233 82,233
Dividends of $1.02 per share......... -- -- -- -- (61,163) (61,163)
Net change in fair value of
marketable equity securities....... -- -- 134 -- -- 134
Net change in cumulative foreign
currency translation adjustments... -- -- -- 1,700 -- 1,700
Stock options exercised for 10,000
common shares...................... -- 180 -- -- -- 180
Issuance of 9,000 restricted common
shares............................. -- 315 -- -- -- 315
Unearned portion of restricted common
stock.............................. -- (182) -- -- -- (182)
Distribution to majority shareholders
for purchase of Amway (B) Sdn. Bhd.
in excess of book value............ -- -- -- -- (3,196) (3,196)
Amount resulting from issuance of
Amway (Malaysia) common stock...... -- 14,579 -- -- -- 14,579
---- -------- ----- -------- -------- ---------
Balances at August 31, 1996.......... 600 228,335 134 825 134,322 364,216
Net income........................... -- -- -- -- 104,031 104,031
Dividends of $0.84 per share......... -- -- -- -- (49,665) (49,665)
Stock options exercised for 84,217
common shares...................... 1 1,863 -- -- -- 1,864
Purchase of common stock for
retirement......................... (37) (150,736) -- -- -- (150,773)
Net change in cumulative foreign
currency translation adjustments... -- -- -- (17,780) -- (17,780)
Net change in fair value of
marketable equity securities....... -- -- 448 -- -- 448
Amortization of unearned portion of
restricted common stock............ -- 143 -- -- -- 143
---- -------- ----- -------- -------- ---------
Balances at August 31, 1997.......... 564 79,605 582 (16,955) 188,688 252,484
Net income........................... -- -- -- -- 1,453 1,453
Dividends of $0.88 per share......... -- -- -- -- (49,671) (49,671)
Amway (Malaysia) repurchase of common
stock held by minority shareholders
(note 14).......................... -- (397) -- -- -- (397)
Amortization of unearned portion of
restricted common stock............ -- 38 -- -- -- 38
Realization of gain upon sale of
securities......................... -- -- (582) -- -- (582)
Net change in cumulative foreign
currency translation adjustments... -- -- -- (27,227) -- (27,227)
---- -------- ----- -------- -------- ---------
Balances at August 31, 1998.......... $564 $ 79,246 $ -- $(44,182) $140,470 $ 176,098
==== ======== ===== ======== ======== =========
See accompanying notes to the consolidated financial statements.
F-5
AMWAY ASIA PACIFIC LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED AUGUST 31, 1998, 1997 AND 1996
(U.S. DOLLARS IN THOUSANDS)
[Enlarge/Download Table]
1998 1997 1996
-------- --------- --------
Cash flows from operating activities:
Net income................................................ $ 1,453 $ 104,031 $ 82,233
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................ 13,516 13,009 10,896
Deferred income taxes................................ (2,662) (4,934) 4,518
Loss (gain) on sale or disposal of property and
equipment.......................................... 1,582 (44) 22
Loss (gain) on sales of investments.................. (637) 5 --
Changes in assets and liabilities:
Accounts receivable................................ (7,932) (7,522) (2,385)
Inventories........................................ 18,162 (31,984) 17,293
Prepaid expenses and other current assets.......... 2,964 (5,658) 10,138
Accounts payable................................... (18,894) 46,838 4,798
Accrued expenses and income taxes.................. (15,106) 10,611 17,105
Distributor deposits............................... (4,033) (1,617) 4,281
Other.............................................. 21,361 23,248 7,966
-------- --------- --------
Net cash provided by operating activities....... 9,774 145,983 156,865
-------- --------- --------
Cash flows from investing activities:
Capital expenditures.................................... (33,155) (28,546) (9,956)
Proceeds from sale of equipment......................... 375 701 415
Purchases of short-term investments..................... (80,851) (98,612) (35,376)
Proceeds from maturity of investments................... 117,548 78,284 85,353
Issuance of note receivable............................. -- (1,126) --
Payments received on notes receivable................... 273 -- --
-------- --------- --------
Net cash provided by (used in) investing
activities.................................... 4,190 (49,299) 40,436
-------- --------- --------
Cash flows from financing activities:
Net short-term borrowings............................... 18,529 -- --
Principal payments on notes payable and capital lease
obligations.......................................... -- (27,564) (8,953)
Dividends paid to shareholders.......................... (49,671) (49,665) (61,163)
Dividends paid by subsidiaries to minority
shareholders......................................... (5,976) (3,112) (3,648)
Proceeds from issuance of common stock.................. -- 1,864 180
Purchase of common stock for retirement................. -- (150,773) --
Amway (Malaysia) purchase for retirement of common stock
held by minority shareholders........................ (2,129) -- --
Net cash received from acquisition of Amway (B) Sdn.
Bhd. ................................................ -- -- 1,818
Proceeds from issuance of Amway (Malaysia) common
stock................................................ -- -- 33,265
-------- --------- --------
Net cash used in financing activities................ (39,247) (229,250) (38,501)
-------- --------- --------
Effect of exchange rate changes on cash................... (25,475) (20,201) 1,028
-------- --------- --------
Net increase (decrease) in cash and cash equivalents...... (50,758) (152,767) 159,828
Cash and cash equivalents at beginning of year............ 207,915 360,682 200,854
-------- --------- --------
Cash and cash equivalents at end of year.................. $157,157 $ 207,915 $360,682
======== ========= ========
Supplemental disclosures of cash flow information:
Interest paid........................................... $ 118 $ 51 $ 273
======== ========= ========
Income taxes paid....................................... $ 35,768 $ 60,772 $ 54,486
======== ========= ========
Non-cash investing activities:
Purchase of Amway (B) Sdn. Bhd. ..................... $ -- $ -- $ 4,809
======== ========= ========
See accompanying notes to the consolidated financial statements.
F-6
AMWAY ASIA PACIFIC LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1998, 1997 AND 1996
(U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(1) BASIS OF PRESENTATION
Amway Asia Pacific Ltd. ("AAP"), a Bermuda corporation, was incorporated on
September 7, 1993. On December 21, 1993, AAP completed its initial public
offering of common stock. AAP has subsidiaries in Australia, Brunei, China (the
Mainland, the Hong Kong Special Administrative Time Region, Macau and Taiwan),
Malaysia, New Zealand, and Thailand. Each subsidiary is wholly owned, except
Malaysia, in which AAP has a 51.7% ownership equity position (see note 14), and
Thailand, a partnership in which AAP is a general partner with a 99.0% economic
interest.
On April 30, 1996, all outstanding shares in Amway (B) Sdn. Bhd., the
exclusive distribution vehicle for Amway in Brunei, were acquired by Amway
(Malaysia) Sdn. Bhd. from Amway International Development, Inc. for a purchase
price of $4.8 million which was paid from the proceeds of the initial public
offering of the Malaysian subsidiary (see note 14). Both Amway (Malaysia) Sdn.
Bhd. and Amway International Development are considered entities under common
control as the ultimate controlling shareholders for both entities are the same
parties. As a result, the difference between the purchase price and the net
asset value of Amway (B) Sdn. Bhd. at April 30, 1996 of $3.2 million was
recorded as a distribution to these common shareholders. The results of
operations for Amway (B) Sdn. Bhd. subsequent to the date of acquisition are
included in the consolidated statements of income.
The consolidated financial statements include AAP and its subsidiaries. All
significant intercompany transactions and balances have been eliminated. Certain
prior year amounts have been reclassified to conform to the current year
presentation.
(2) DESCRIPTION OF BUSINESS
AAP is the exclusive distribution vehicle for Amway in Australia, Brunei,
China, Malaysia, New Zealand, and Thailand.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Cash Equivalents
For purposes of the consolidated balance sheets and statements of cash
flows, AAP considers all highly liquid debt instruments with maturities of three
months or less at the time of purchase to be cash equivalents.
(b) Short-term Investments
Management determines the proper classifications of investments in
obligations with fixed maturities and marketable equity securities at the time
of purchase and reevaluates such designations as of each balance sheet date. All
securities covered by Statement of Financial Accounting Standards ("SFAS") No.
115, "Accounting for Certain Investments in Debt and Equity Securities," are
designated as either held to maturity or available for sale. Securities
designated as held to maturity are stated at amortized cost, and securities
designated as available for sale are stated at fair value, with unrealized gains
and losses reported in a separate component of shareholders' equity. The
remaining investments at August 31, 1998 and 1997 consist of time deposits with
varied maturity dates within one year. These investments, which are not subject
to the provisions of SFAS No. 115, are carried at cost, which approximates
market value. Realized gains and losses on sales of investments, as determined
on a specific identification basis, are included in the consolidated statements
of income.
F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(c) Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method.
(d) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Equipment held under
capital lease is stated at the present value of minimum lease payments at the
inception of the lease.
Depreciation is calculated primarily on the straight-line method over the
estimated useful lives. Equipment held under capital lease and leasehold
improvements are amortized straight-line over the shorter of the lease term or
estimated useful life of the asset.
(e) Long-Lived Assets
AAP adopted the provisions of SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", on September
1, 1996. This Statement requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Adoption of this Statement did not have an impact on AAP's
financial position, results of operations or liquidity.
(f) Other Assets
Other assets at August 31, 1998 and 1997 are stated at cost, net of
amortization, if any. At August 31, 1998, other assets primarily consist of
deposits, land use rights, and employee loans. At August 31, 1997, other assets
primarily consisted of deposits, land use rights, and employee loans as well as
prepaid royalties totaling $9,165.
(g) Minority Interests
Minority interest represents the minority shareholders' share of the equity
and net income in the Malaysia subsidiary and the minority partners' share of
the equity and net income in the Thailand subsidiary.
(h) Accounting for Sales or Repurchase of Stock by a Subsidiary
Gains or losses arising from the issuance or repurchase of stock by a
subsidiary is accounted for as a capital transaction in the consolidated
financial statements.
(i) Stock Based Compensation
Prior to September 1, 1996, AAP accounted for its stock option awards in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees", and related interpretations.
As such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
September 1, 1996, AAP adopted SFAS No. 123, "Accounting for Stock-Based
Compensation", which permits entities to recognize as expense over the vesting
period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants made in fiscal
years beginning after December 15, 1994 as if the fair-value-based method
defined in SFAS No. 123 had been applied. AAP has elected to continue to apply
the provisions of APB Opinion No. 25 and provide the pro forma disclosure
provisions of SFAS No. 123.
F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(j) Revenue Recognition
AAP recognizes sales when products are shipped to or through distributors.
A reserve for sales returns is accrued based on historical experience.
(k) Earnings Per Share
On September 1, 1997, AAP adopted SFAS No. 128 "Earnings per Share". This
Statement, which supersedes APB Opinion No. 15, requires the presentation of
basic and diluted earnings per share. Basic earnings per share is computed by
dividing income available to common shareholders by the weighted average number
of common shares outstanding during the year. Diluted earnings per share is
calculated similarly to basic earnings per share except that the denominator is
increased to include the effect of additional common shares that would have been
outstanding if all dilutive potential common shares had been issued.
(l) Foreign Currency Translation
All operations of AAP occur outside of the United States. Each operation's
local currency is considered its functional currency. No currency is dominant
within the group and transactions in Bermuda are minimal. Therefore, the U.S.
dollar is used for translation purposes since most merchandise purchase
transactions, as discussed below, are conducted in U.S. dollars. All assets and
liabilities are translated into U.S. dollars at the current exchange rate as of
the balance sheet date. Revenues and expenses are translated at average currency
exchange rates. Shareholders' equity is recorded at historical exchange rates.
The resulting translation adjustment is recorded as a separate component of
shareholders' equity. Transaction gains and losses are included in other income.
All of AAP's subsidiaries, except Australia and New Zealand, pay for their
purchases of products from Amway in U. S. dollars and bear the risk of foreign
currency exchange fluctuations. Australia and New Zealand pay for their
purchases of products from Amway in local currencies, thereby transferring the
immediate risk of foreign currency exchange rate fluctuations to Amway. Amway
has the right to modify its prices at any time on at least 30 days advance
notice to its affiliates.
(m) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make reasonable estimates
and assumptions in certain circumstances that affect the amounts reported in the
accompanying consolidated financial statements and notes. Ultimate resolution of
uncertainties could cause actual results to differ from those estimates.
(n) New Accounting Pronouncements
The Financial Accounting Standards Board ("FASB") issued SFAS No. 130,
"Reporting Comprehensive Income" in 1997. This Statement requires the reporting
of comprehensive income in addition to net income from operations. Comprehensive
income is a more inclusive financial reporting methodology that includes
disclosure of certain financial information that historically has not been
recognized in the calculation of net income. This statement is effective for
periods beginning after December 15, 1997. AAP will adopt this statement in the
first quarter of fiscal 1999.
The FASB also issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" in 1997. This Statement requires that public
companies report certain information about operating segments. It also requires
the reporting of certain information about AAP's products and services, the
geographic areas in which AAP operates and AAP's major customers. This statement
is effective for fiscal years beginning after December 15, 1997 and will affect
the disclosure requirements for the fiscal 1999 annual financial statements. AAP
is currently evaluating the impact of this statement.
F-9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The FASB also issued SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities" in 1998. This Statement establishes comprehensive
accounting and reporting standards for derivative instruments and hedging
activities and is effective for fiscal years beginning after June 15, 1999. AAP
is currently evaluating the impact of this statement.
(4) INVESTMENTS
Securities subject to the provisions of SFAS No. 115 at August 31, 1998 and
1997 are summarized as follows:
[Download Table]
GROSS GROSS
UNREALIZED UNREALIZED
HOLDING HOLDING MARKET
COST GAINS LOSSES VALUE
------- ---------- ---------- -------
AUGUST 31, 1998:
Held to maturity:
Banker's acceptances.................... $15,154 $ -- $-- $15,154
Commercial paper........................ 255 -- -- 255
------- ---- -- -------
Total held to maturity.................. $15,409 $ -- $-- $15,409
======= ==== == =======
AUGUST 31, 1997:
Available for sale:
Common stock............................ $ 1,007 $582 $-- $ 1,589
======= ==== == =======
Held to maturity:
Banker's acceptances.................... $39,444 -- -- $39,444
Commercial paper........................ 1,368 -- -- 1,368
------- ---- -- -------
Total held to maturity.................. $40,812 $ -- $-- $40,812
======= ==== == =======
All securities displayed in the above table at August 31, 1998 have
original maturities of 3 months or less and, accordingly, are classified on the
balance sheet as cash equivalents. All debt securities held at August 31, 1997
have original maturities between 3 months and 1 year and are classified on the
balance sheet as short-term investments. The common stock available for sale
investments at August 31, 1997 are also classified as short-term investments.
Short-term investments at August 31, 1998 and 1997 also include time deposits of
$143 and $6,212, respectively, and are stated at cost, which approximates market
value.
(5) INVENTORIES
Inventories consist of the following at August 31:
[Download Table]
1998 1997
------- --------
Raw materials............................................... $ 6,996 $ 15,263
Manufactured finished goods and finished goods purchased for
resale...................................................... 68,108 90,964
------- --------
Total..................................................... $75,104 $106,227
======= ========
F-10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following at August 31:
[Download Table]
1998 1997
-------- --------
Land and improvements....................................... $ 7,633 $ 9,654
Buildings and improvements.................................. 46,151 28,630
Machinery and equipment..................................... 70,111 72,720
Leasehold improvements...................................... 15,760 16,585
Construction in progress.................................... 14,144 11,846
-------- --------
153,799 139,435
Less accumulated depreciation and amortization.............. (49,453) (44,845)
-------- --------
Net property, plant and equipment......................... $104,346 $ 94,590
======== ========
(7) ACCRUED EXPENSES AND INCOME TAXES
Accrued expenses and income taxes consist of the following at August 31:
[Download Table]
1998 1997
------- --------
Distributor incentives...................................... $29,837 $ 35,028
Distributor seminars........................................ 13,581 20,527
Income taxes................................................ 16,329 27,884
Deferred taxes.............................................. 3,029 4,900
Other taxes................................................. 2,362 2,766
Employee compensation and retirement........................ 7,565 6,998
Sales returns............................................... 6,491 15,861
Other....................................................... 12,956 14,059
------- --------
Total..................................................... $92,150 $128,023
======= ========
(8) LEASES
AAP leases real estate under noncancelable operating leases which expire at
various dates through 2004. Future minimum annual rentals under these
noncancelable operating leases as of August 31, 1998, are as follows:
[Download Table]
Year ending August 31:
1999........................................................ $ 9,579
2000...................................................... 7,650
2001...................................................... 4,019
2002...................................................... 3,462
2003...................................................... 1,724
Thereafter................................................ 233
-------
Total minimum lease payments................................ $26,667
=======
Rental expense charged to operations for the years ended August 31, 1998,
1997 and 1996, approximated $11,801, $10,953 and $9,775 respectively, including
amounts paid under short-term cancelable leases.
F-11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(9) RELATED PARTY TRANSACTIONS
AAP, as the distribution vehicle for Amway in the Asia Pacific markets in
which AAP operates, has a number of contractual relationships with Amway (1) for
the right to purchase Amway products which Amway makes available to its
international affiliates (the "Product Purchase Agreements"), (2) for the right
to manufacture and sell Amway licensed products in the PRC (the "PRC Technical
Agreement"), (3) for the right to use Amway's trade name and trademark along
with certain other intellectual property rights (the "Trademark License
Agreements"), (4) for receiving various executive management, administrative
support and information services (the "Amended and Restated Support Service
Agreements") and (5) for the right to use the Hong Kong and Taiwan distributor
lists (the "Distributor List and Certain Other Intangibles License Agreements").
Purchases from and other transactions with Amway for the years ended August
31 are as follows:
[Download Table]
1998 1997 1996
-------- -------- --------
Product purchases.................................. $151,560 $190,031 $141,001
PRC Technical royalty.............................. 885 3,725 1,960
Trademark license royalty.......................... 275 390 367
Support service and license fees................... 5,294 650 538
Distributor list royalty........................... 9,165 9,111 9,326
Prices for products are governed by a price schedule which Amway
establishes periodically based upon a U.S. dollar "cost plus" base price
calculation. At August 31, 1998 and 1997, AAP owed Amway $31,337 and $30,061,
respectively, for the purchase of inventory. These amounts are included in
accounts payable.
On August 31, 1994, AAP entered into two non-interest bearing notes
aggregating $18,365 payable to Amway over two years for the prepayment of
royalties on the Hong Kong and Taiwan distributor lists. The notes were recorded
at their discounted present value of $17,368. The notes were paid in full in
fiscal 1996.
On July 31, 1995, AAP entered into seven non-interest bearing negotiable
promissory notes aggregating $27,946 payable to Amway over three years beginning
in fiscal 1997 for the prepayment of fiscal 1997, 1998 and 1999 royalties on the
Hong Kong and Taiwan distributor lists. One note totaling $4,480 was payable in
six equal semiannual installments commencing February 28, 1997; while the other
six notes, each totaling $3,911, were to become payable in six-month intervals,
with the first note payable on February 28, 1997. Each of the notes is
denominated in the local currency of the country to which they relate, thereby
transferring the risk of foreign currency exchange rate fluctuations to Amway.
AAP prepaid these notes in full on February 27, 1997.
Prepaid royalties totaling $9,165 are included as a component of prepaid
expenses at August 31, 1998 and 1997. Prepaid royalties totaling $9,165 are also
included as a component of other assets at August 31, 1997.
Under Amended and Restated Support Services Agreements between Amway, AAP
and its affiliates, Amway provides information systems, executive management,
investor relations services and certain administrative support services
including legal, accounting, tax, treasury, marketing, insurance, inventory
control and human resources services to AAP. AAP pays Amway software license
fees and maintenance charges with respect to information systems provided by
Amway; AAP pays Amway for other services based on the internal labor and other
direct and indirect costs incurred by Amway in providing such services. These
charges were instituted by Amway effective September 1, 1997. Prior to September
1, 1997, AAP paid Amway for providing executive management and investor
relations services; other administrative support services were provided by Amway
at no charge to AAP.
F-12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(10) OTHER INCOME -- NET
Other income -- net consists of the following for the years ended August
31:
[Download Table]
1998 1997 1996
------- ------- -------
Interest income....................................... $11,792 $18,800 $17,979
Dividend income....................................... 411 3,661 2,212
Gain (loss) on foreign exchange....................... (3,914) (2,554) 82
Interest expense...................................... (1,329) (155) (273)
Other, net............................................ 2,723 4,955 (219)
------- ------- -------
Other income -- net................................. $ 9,683 $24,707 $19,781
======= ======= =======
(11) INCOME TAXES
Income is subject to taxation in each country where AAP operates and it
files separate income tax returns in each country. Income taxes consist of the
following for the years ended August 31:
[Download Table]
1998 1997 1996
------- ------- -------
Current............................................... $25,403 $59,532 $51,191
Deferred.............................................. (1,895) (4,623) 4,518
------- ------- -------
Total............................................... $23,508 $54,909 $55,709
======= ======= =======
The significant components of deferred income tax expense attributable to
income before income taxes for the years ended August 31 are as follows:
[Download Table]
1998 1997 1996
------- ------- ------
Deferred taxes on undistributed earnings............... $(1,937) $(4,798) $7,345
Valuation reserves..................................... 168 (257) (956)
Other.................................................. (126) 432 (1,871)
------- ------- ------
Total................................................ $(1,895) $(4,623) $4,518
======= ======= ======
The statutory tax rates by country are as follows:
[Download Table]
1998 1997 1996
---- ---- ----
Australia................................................... 36.0% 36.0% 36.0%
Brunei...................................................... 30.0% 30.0% 30.0%
Mainland China(1)........................................... 0.0% 0.0% 0.0%
Hong Kong................................................... 16.0% 16.5% 16.5%
Macau....................................................... 16.5% 16.5% 16.5%
Malaysia.................................................... 28.0% 30.0% 30.0%
New Zealand................................................. 33.0% 33.0% 33.0%
Taiwan...................................................... 25.0% 25.0% 25.0%
Thailand.................................................... 30.0% 30.0% 30.0%
---------------
(1) In Mainland China the current tax laws allow AAP's subsidiary to carry
forward losses up to five years and provide for no tax on profits for two
years once an accumulated profit is realized. After that point, AAP's
subsidiary pays a tax on profits at a rate of 7.5% for the first three
years, 10% for the subsequent three years and 15% thereafter. During the
1997 tax year, AAP's Mainland China subsidiary attained such an accumulated
profit for the first time. In order for AAP to continue to qualify for this
tax holiday,
F-13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Amway China must derive a specified percentage of its revenue from the
products manufactured by it in Mainland China.
As described above, AAP's subsidiary in Mainland China was not subject to
income tax in fiscal 1998. This subsidiary recorded a net operating loss in
fiscal 1998, causing AAP's weighted-average statutory tax rate to be above the
statutory rate of any one of AAP's markets. A reconciliation of the
weighted-average statutory tax rate to the weighted-average effective tax rate
is as follows:
[Download Table]
1998 1997 1996
---- ---- ----
Weighted average statutory tax rate......................... 51.9% 25.3% 29.1%
Add tax effect of non-deductible meals and entertainment.... 4.0% 1.0% 0.9%
Add dividend withholding tax................................ 11.8% 5.1% 8.6%
All other................................................... (0.5)% 0.3% (0.7)%
---- ---- ----
Weighted average effective tax rate......................... 67.2% 31.7% 37.9%
==== ==== ====
Taiwan and Thailand require a withholding tax of 20% and 10%, respectively,
on dividends paid to the Bermuda parent.
The tax effects of temporary differences which give rise to significant
portions of the deferred tax assets and deferred tax liabilities at August 31,
1998 and 1997, are presented below.
[Download Table]
1998 1997
------- -------
Deferred tax assets:
Inventories................................................. $ 1,420 $ 1,325
Sales returns............................................. 1,212 1,475
Accrued expenses.......................................... 1,675 1,346
Other.................................................. (126) 906
------- -------
Total deferred tax assets.............................. 4,181 5,052
------- -------
Deferred tax liabilities:
Withholding taxes......................................... (2,965) (4,902)
Other..................................................... (248) (1,077)
------- -------
Total deferred tax liabilities......................... (3,213) (5,979)
------- -------
Net deferred tax asset (liability)..................... $ 968 $ (927)
======= =======
The net deferred tax asset (liability) is included in the
consolidated balance sheet as follows:
Prepaid expenses and other current assets................. $ 3,960 $ 4,736
Other assets.............................................. 221 316
Accrued expenses and income taxes......................... (3,029) (4,900)
Deferred income taxes..................................... (184) (1,079)
------- -------
Net deferred tax asset (liability)..................... $ 968 $ (927)
======= =======
AAP had no valuation allowance for deferred tax assets as of, or for, the
years ended August 31, 1998 and 1997. In assessing the realizability of deferred
tax assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. Based upon the
level of historical taxable income and projections of future taxable income,
management believes it is more likely than not that AAP will realize the benefit
of these deferred tax assets.
F-14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(12) EMPLOYEE BENEFIT PENSION PLANS
For all periods presented, AAP's China (Mainland, Macau, Taiwan and the
Hong Kong Special Administrative Region) subsidiaries each sponsored a pension
plan that covers substantially all employees, primarily under defined benefit
pension plans.
Net periodic pension expense for the defined benefit plans included the
following components:
[Download Table]
1998 1997 1996
---- ---- ----
Components of net periodic pension costs:
Service cost................................................ $751 $702 $732
Interest cost............................................. 461 342 303
Actual return on plan assets.............................. 513 (422) (400)
Net amortization and deferral............................. (950) (26) 53
---- ---- ----
Net periodic pension cost................................... $775 $596 $688
==== ==== ====
The following information details the funded status of the defined pension
plans:
[Download Table]
1998 1997
------- -------
Status of obligations:
Actuarial present value of benefit obligation:
Vested benefit obligation.............................. $ 4,064 $ 3,070
======= =======
Accumulated benefit obligation............................ $ 4,545 $ 3,590
======= =======
Projected benefit obligation for service rendered to date... $(5,960) $(5,255)
Plan assets at fair value................................... 4,836 5,630
------- -------
Plan assets in excess of (less than) projected benefit
obligation................................................ (1,124) 375
Unrecognized net loss....................................... 886 139
Unrecognized prior service costs............................ 465 32
Unrecognized net assets at date of initial application...... 41 (35)
Adjustment required to recognize minimum liability.......... (605) --
------- -------
Prepaid pension costs (liability)........................... $ (337) $ 511
======= =======
The weighted average discount rate used in determining the actuarial
present value of projected benefit obligation for defined benefit pension plans
ranged from 7% to 8% and from 7% to 10% for the fiscal years ended August 31,
1998 and 1997, respectively. The rate of increase in compensation levels ranged
from 5% to 7% and 7% to 9% for the fiscal years ended August 31, 1998 and 1997,
respectively. The expected long-term rate of return on assets ranged from 7% to
8% and 7% to 10% for the fiscal years ended August 31, 1998 and 1997,
respectively.
(13) CONTINGENCIES
AAP is a party to certain routine litigation incidental to its business,
none of which is currently expected to have a material adverse effect on AAP's
financial condition and results of operations.
(14) SALE OF STOCK BY A SUBSIDIARY
The government of Malaysia has policies that set forth certain local
ownership requirements for foreign companies which required Amway Malaysia Sdn.
Bhd. ("Amway Malaysia") to reduce its foreign equity to 51%.
F-15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In accordance with the directive given by the Foreign Investment Committee
("FIC"), Amway Malaysia, AAP and Amway entered into a Sale of Shares and
Restructuring Agreement ("Agreement") for the sale of the 30% interest of Amway
Malaysia that Amway had retained as part of a previous reorganization of AAP.
Pursuant to the terms of the Agreement, Amway sold its retained 30% interest in
Amway Malaysia to Bumiputras (the indigenous people of Malaysia) on September
28, 1994. In July 1995, Amway Malaysia issued additional shares for
consideration to Bumiputra investors increasing the Bumiputras ownership level
to 40.8%. In May 1996, the shareholders of Amway Malaysia exchanged their stock
in Amway Malaysia for stock in a newly formed company, Amway (Malaysia) Holdings
Berhad ("AMHB"). In August 1996, AMHB issued additional shares for consideration
to Malaysian citizens, as part of an initial public offering on the Kuala Lumpur
Stock Exchange, increasing the local ownership level (minority interest) to
49.0%.
In fiscal 1998, the Malaysia affiliate obtained regulatory and shareholder
approval to repurchase up to 10% of the outstanding shares of its own common
stock, subject to certain regulatory limitations. During fiscal 1998, the
Malaysia affiliate repurchased and cancelled 1,365,000 of its shares on the open
market at an aggregate price of Malaysian ringgit 8.6 million, decreasing the
local ownership level (minority interest) to 48.3%.
(15) STOCK OPTION/INCENTIVE AWARD PLANS
During fiscal 1994, AAP adopted the Long-term Incentive Plan which
authorizes the granting of stock-based awards of up to an aggregate of 500,000
shares of AAP's common stock to officers and key employees of or consultants to
AAP who demonstrate superior performance or achieve management objectives. The
plan is administered by the Compensation Committee of the Board of Directors who
determine the terms and conditions of each award within the guidelines
established by the plan.
During fiscal 1996 and 1997, non-qualified stock options for 24,000 and
149,500 shares, respectively, were granted at a price equal to the market value
on the date the options were granted. The weighted average fair value of these
options at the date of grant was $11 and $17 per share, respectively. These
options become exercisable over a period of three years and expire no later than
10 years after the date of grant. No such options were granted during fiscal
1998.
During fiscal 1995, AAP adopted an Outside Director Long-term Award Plan
which authorizes the granting of stock-based awards of up to an aggregate of
50,000 shares of AAP's common stock. During fiscal 1996 and 1997, AAP granted
non-qualified stock options for 11,000 and 9,000 shares, respectively, at a
price equal to the market value on the date the options were granted. The
weighted average fair value of these options at the date of grant was $12 and
$16 per share, respectively. No such options were granted during fiscal 1998.
F-16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The options issued under the Long-term Incentive Plan and the Outside
Director Long-term Award Plan are summarized in the table below.
[Enlarge/Download Table]
OPTIONS OPTIONS OPTIONS
OUTSTANDING OUTSTANDING EXERCISABLE
AT BEGINNING FORFEITED OR AT END AT END
OF YEAR GRANTED EXERCISED EXPIRED OF YEAR OF YEAR
------------ ------- --------- ------------ ----------- -----------
FISCAL 1996
Number of options............ 216,000 35,000 10,000 -- 241,000 95,333
Weighted average exercise
price...................... $ 24 $ 31 $ 18 $ -- $ 25 $ 21
FISCAL 1997
Number of options............ 241,000 158,500 84,217 3,278 312,005 101,672
Weighted average exercise
price...................... $ 25 $ 42 $ 22 $ 20 $ 35 $ 22
FISCAL 1998
Number of options............ 312,005 -- -- -- 312,005 194,672
Weighted average exercise
price...................... $ 35 $ -- $ -- $ -- $ 35 $ 31
The exercise prices for options outstanding at August 31, 1998 range from
$18 to $46 per share. The weighted average remaining contractual life for
options outstanding at August 31, 1998 is 6.6 years.
AAP during fiscal 1995 also granted stock appreciation rights for 5,000
shares at a price equal to the market value on the date the rights were granted
of $33 per share. The fair value of these stock appreciation rights at the date
granted was $11 per share. These stock appreciation rights for all 5,000 shares
expired during fiscal 1997.
During fiscal 1995 and 1996, pursuant to the Long-term Incentive Plan, AAP
granted 3,000 and 6,000 shares, respectively, of restricted common stock to an
officer at a cost of $0.01 per share. Of this restricted common stock, 2,000,
3,000 and 4,000 shares vested and became nonforfeitable on June 1, 1997, June
30, 1997 and June 1, 1998, respectively. The fair value of the restricted stock
awards at the date of grant, based on the stock's market value at the grant
date, was $36 and $34 per share, respectively. The cost of these restricted
stock awards, based on the stock's fair market value at the award date was
charged to shareholders' equity and amortized against earnings over the vesting
period.
As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation",
AAP has elected not to adopt the fair value based method to measure compensation
cost related to stock-based awards in determining net income in the basic
financial statements. If AAP had elected to adopt the fair value based method,
AAP's net income for the years ended August 31, 1998, 1997 and 1996 would have
been $403, $103,697 and $82,201, respectively, and earnings per share would have
been $0.01, $1.75 and $1.37 per share, respectively.
The options pricing model used to estimate the fair value of the
stock-based awards for purposes of this disclosure included the following
assumptions: Expected life of 7.5 years; 8.5% risk-free interest rate; 2% annual
rate of dividends; and expected volatility of 7% in fiscal 1994 and fiscal 1995,
17% in fiscal 1996 and 24% to 31% in fiscal 1997.
F-17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(16) EARNINGS PER SHARE
AAP's stock options represent potential dilutive common shares for the
purposes of computing diluted earnings per share in accordance with SFAS No.
128. The effect of these stock options on AAP's earnings per share computations
is summarized in the following table.
[Enlarge/Download Table]
W.A. SHARES
OUTSTANDING
NET INCOME (000S) PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
FISCAL 1998
Basic earnings per share............................... $ 1,453 56,442 $0.03
Effect of dilutive securities -- stock options....... 4
------
Diluted earnings per share............................. $ 1,453 56,446 $0.03
======== ====== =====
FISCAL 1997
Basic earnings per share............................... $104,031 59,124 $1.76
Effect of dilutive securities -- stock options....... 52
------
Diluted earnings per share............................. $104,031 59,176 $1.76
======== ====== =====
FISCAL 1996
Basic earnings per share............................... $ 82,233 60,039 $1.37
Effect of dilutive securities -- stock options....... 58
------
Diluted earnings per share............................. $ 82,233 60,097 $1.37
======== ====== =====
Options to purchase 255,000 shares of common stock at a weighted-average
exercise price of $38 per share were outstanding during fiscal 1998 but were not
included in the computation of fiscal 1998 diluted earnings per share because
the options' exercise price was greater than the average market price of the
common shares. Such options expire at various dates during fiscal 2005, 2006 and
2007.
(17) SHORT-TERM BORROWINGS
AAP's subsidiary in Mainland China had short-term borrowings of $11,473 at
August 31, 1998 under unsecured revolving line of credit agreements with two
local banks. The agreements are guaranteed by Standard Chartered Bank and
Societe Generale of China in the form of standby letters of credit which in turn
are guaranteed by AAP. The interest rates on loans under these agreements are
based on the published rates determined by the Central Bank in China for short
or medium-term loans. The weighted-average interest rate on these borrowings was
approximately 6.8% at August 31, 1998. There are no commitment fees on these
credit facilities. Unused credit available under these agreements at August 31,
1998 was $6,643.
AAP also had borrowings of $7,100 at August 31, 1998 under an unsecured
revolving line of credit agreement in the United States with Standard Chartered
Bank. The interest rates on loans under this credit facility are based on LIBOR
plus 0.25% at the time of loan. The weighted-average interest rate on these
borrowings was approximately 5.9% at August 31, 1998. There are no commitment
fees on these credit facilities. Unused credit available under these agreements
at August 31, 1998 was $17,900.
F-18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(18) UNAUDITED QUARTERLY FINANCIAL DATA
[Enlarge/Download Table]
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
-------- -------- -------- -------- --------
1998
Net sales........................... $169,124 $160,678 $133,601 $124,176 $587,579
Gross profit........................ 103,227 93,907 64,469 68,756 330,359
Operating income.................... 16,590 13,185 (9,525) 5,043 25,293
Income before income taxes and
minority interest................. 19,684 13,866 (7,449) 8,875 34,976
Net income.......................... $ 8,525 $ 5,539 $(15,295) $ 2,684 $ 1,453
======== ======== ======== ======== ========
Basic and diluted earnings per
share............................. $ 0.15 $ 0.10 $ (0.27) $ 0.05 $ 0.03
======== ======== ======== ======== ========
Weighted average number of shares
outstanding (000s):
For basic EPS..................... 56,442 56,442 56,442 56,442 56,442
======== ======== ======== ======== ========
For diluted EPS................... 56,461 56,449 56,442 56,442 56,446
======== ======== ======== ======== ========
1997
Net sales........................... $225,200 $205,201 $230,925 $183,840 $845,166
Gross profit........................ 143,303 129,002 146,663 112,911 531,879
Operating income.................... 44,724 34,815 43,200 25,844 148,583
Income before income taxes and
minority interest................. 51,387 40,817 49,226 31,860 173,290
Net income.......................... $ 29,890 $ 24,714 $ 31,018 $ 18,409 $104,031
======== ======== ======== ======== ========
Basic and diluted earnings per
share............................. $ 0.50 $ 0.41 $ 0.52 $ 0.33 $ 1.76
======== ======== ======== ======== ========
Weighted average number of shares
outstanding (000s):
For basic EPS..................... 60,047 60,055 59,985 56,438 59,124
======== ======== ======== ======== ========
For diluted EPS................... 60,120 60,156 60,060 56,497 59,176
======== ======== ======== ======== ========
(19) INDUSTRY AND GEOGRAPHIC SEGMENTS
AAP operates in a single industry which is the direct selling of cleaning
and other household products, personal care products and vitamins and dietary
supplements. Information related to AAP's geographic segments for each of the
years in the three-year period ended August 31, 1998 is presented below.
F-19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
[Enlarge/Download Table]
YEARS ENDED AUGUST 31,
--------------------------------
1998 1997 1996
-------- -------- --------
GEOGRAPHIC AREAS
Net Sales:
China (Mainland, the Hong Kong Special Administrative
Region, Macau and Taiwan)............................. $241,636 $377,226 $295,850
Brunei, Malaysia and Thailand............................ 199,032 316,818 279,157
Australia and New Zealand................................ 146,911 151,122 141,750
-------- -------- --------
$587,579 $845,166 $716,757
======== ======== ========
Operating Income:
China (Mainland, the Hong Kong Special Administrative
Region, Macau and Taiwan)............................. $(16,152) $ 50,538 $ 35,373
Brunei, Malaysia and Thailand............................ 31,947 83,683 72,451
Australia and New Zealand................................ 11,381 16,706 19,688
Corporate expenses and miscellaneous, net................ (1,883) (2,344) (368)
-------- -------- --------
$ 25,293 $148,583 $127,144
======== ======== ========
[Download Table]
AUGUST 31,
--------------------
1998 1997
-------- --------
Identifiable assets:
China (Mainland, the Hong Kong Special Administrative
Region, Macau and Taiwan)................................... $192,411 $261,418
Brunei, Malaysia and Thailand............................. 137,360 174,421
Australia and New Zealand................................. 48,808 61,216
Corporate(1).............................................. 22,250 30,039
Eliminations.............................................. (13,756) (6,951)
-------- --------
$387,073 $520,143
======== ========
---------------
(1) Corporate identifiable assets are principally receivables from AAP's
subsidiaries (which are deducted from total assets through eliminations) and
cash and cash equivalents.
F-20
AMWAY ASIA PACIFIC LTD.
CONSOLIDATED STATEMENTS OF INCOME
(U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
[Enlarge/Download Table]
THIRD QUARTER ENDED NINE MONTHS ENDED
MAY 31, MAY 31,
-------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- --------
(UNAUDITED)
Net sales....................................... $131,648 $133,601 $365,929 $463,403
Cost of sales................................... 57,554 69,132 159,542 201,800
-------- -------- -------- --------
74,094 64,469 206,387 261,603
-------- -------- -------- --------
Operating expenses:
Distributor incentives........................ 34,772 37,511 97,063 125,621
Distribution expenses......................... 9,372 11,038 28,315 35,569
Selling and administrative expenses........... 23,487 25,445 70,269 80,163
-------- -------- -------- --------
Total operating expenses................... 67,631 73,994 195,647 241,353
-------- -------- -------- --------
Operating income (loss).................... 6,463 (9,525) 10,740 20,250
Other income -- net............................. 1,366 2,076 1,689 5,851
-------- -------- -------- --------
Income (loss) before income taxes and
minority interest........................ 7,829 (7,449) 12,429 26,101
Income taxes.................................... 4,091 5,347 9,798 19,520
-------- -------- -------- --------
Income (loss) before minority interest..... 3,738 (12,796) 2,631 6,581
Minority interest in net income of consolidated
subsidiaries.................................. 1,627 2,499 4,478 7,812
-------- -------- -------- --------
Net income (loss).......................... $ 2,111 $(15,295) $ (1,847) $ (1,231)
======== ======== ======== ========
Basic earnings (loss) per share................. $ 0.04 $ (0.27) $ (0.03) $ (0.02)
======== ======== ======== ========
Earnings (loss) per share assuming dilution..... $ 0.04 $ (0.27) $ (0.03) $ (0.02)
======== ======== ======== ========
Dividends per share............................. $ -- $ 0.22 $ -- $ 0.66
======== ======== ======== ========
Weighted average number of shares outstanding
(000s)........................................ 56,442 56,442 56,442 56,442
======== ======== ======== ========
Weighted average number of shares outstanding
including dilutive potential shares (000s).... 56,442 56,442 56,452 56,452
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
F-21
AMWAY ASIA PACIFIC LTD.
CONSOLIDATED BALANCE SHEETS
(U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
[Enlarge/Download Table]
MAY 31, AUGUST 31,
1999 1998
----------- ----------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents................................. $146,680 $157,157
Short-term investments.................................... 6,471 143
Accounts receivable, net.................................. 19,929 21,264
Inventories (note 2)...................................... 57,921 75,104
Prepaid expenses and other current assets................. 16,023 23,234
-------- --------
Total current assets................................... 247,024 276,902
Property, plant and equipment, net.......................... 105,421 104,346
Other assets................................................ 9,318 5,825
-------- --------
Total assets........................................... $361,763 $387,073
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 46,128 $ 59,799
Short-term borrowings..................................... 15,341 18,573
Accrued expenses and income taxes......................... 80,952 92,150
Distributor deposits...................................... 4,314 4,252
-------- --------
Total current liabilities.............................. 146,735 174,774
Deferred income taxes....................................... 248 184
-------- --------
Total liabilities...................................... 146,983 174,958
-------- --------
Minority interests.......................................... 34,059 36,017
-------- --------
Shareholders' equity:
Preferred stock, $0.01 par value -- authorized: 20,000,000
shares, none issued.................................... -- --
Common stock, $0.01 par value -- authorized: 110,000,000
shares; issued and outstanding: 56,441,960 shares...... 564 564
Additional paid-in capital................................ 79,246 79,246
Accumulated other comprehensive income.................... (37,759) (44,182)
Retained earnings......................................... 138,670 140,470
-------- --------
Total shareholders' equity............................. 180,721 176,098
-------- --------
Total liabilities and shareholders' equity............. $361,763 $387,073
======== ========
See accompanying notes to consolidated financial statements.
F-22
AMWAY ASIA PACIFIC LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. DOLLARS IN THOUSANDS)
[Download Table]
NINE MONTHS ENDED
MAY 31,
---------------------
1999 1998
-------- ---------
(UNAUDITED)
Cash flows from operating activities:
Net loss.................................................... $ (1,847) $ (1,231)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization.......................... 9,637 9,857
Deferred income taxes.................................. (1,044) (3,043)
Loss on sale of equipment.............................. 1,234 367
Gain on sale of investments............................ -- (510)
Changes in assets and liabilities...................... 5,775 (19,611)
-------- ---------
Net cash provided by (used in) operating
activities.......................................... 13,755 (14,171)
-------- ---------
Cash flows from investing activities:
Capital expenditures...................................... (9,782) (29,443)
Proceeds from sale of equipment........................... 344 218
Purchase of held-to-maturity investments.................. (29,605) (79,288)
Proceeds from maturity of investments..................... 20,408 82,349
Net decrease (increase) in notes receivable............... (38) 128
-------- ---------
Net cash used in investing activities................ (18,673) (26,036)
-------- ---------
Cash flows from financing activities:
Principal payments on notes payable and capital lease
obligations............................................ -- (30)
Dividends paid to shareholders............................ -- (37,252)
Dividends paid by subsidiaries to minority shareholders... (8,626) (5,977)
Net increase (decrease) in short term borrowings.......... (3,257) 4,826
Subsidiary's purchase for retirement of common stock held
by minority shareholders............................... -- (426)
Investment in subsidiary by minority shareholder.......... 2,219 --
-------- ---------
Net cash used in financing activities................ (9,664) (38,859)
-------- ---------
Effect of exchange rate changes on cash..................... 4,105 (28,266)
-------- ---------
Net decrease in cash and cash equivalents................... (10,477) (107,332)
Cash and cash equivalents at beginning of year.............. 157,157 207,915
-------- ---------
Cash and cash equivalents at end of period.................. $146,680 $ 100,583
======== =========
Supplemental disclosures of cash flow information:
Interest paid............................................. $ 732 $ 34
======== =========
Income taxes paid......................................... $ 17,192 $ 26,564
======== =========
See accompanying notes to consolidated financial statements.
F-23
AMWAY ASIA PACIFIC LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(1) BASIS OF PRESENTATION
The accompanying consolidated financial statements of Amway Asia Pacific
Ltd. and subsidiaries ("AAP") have not been audited by independent accountants,
except for the balance sheet at August 31, 1998. In the opinion of AAP's
management, the consolidated financial statements reflect all adjustments,
including the use of management's estimates, necessary to present fairly, in
accordance with U.S. generally accepted accounting principles, AAP's results of
operations for the third quarter and nine months ended May 31, 1999 and 1998,
the financial position at May 31, 1999 and August 31, 1998, and cash flows for
the nine months ended May 31, 1999 and 1998. All such adjustments are of a
normal recurring nature. The results of operations for the nine months ended May
31, 1999 are not necessarily indicative of the results for the entire fiscal
year ending August 31, 1999.
These consolidated financial statements should be read in conjunction with
the consolidated financial statements (including Notes thereto) contained in
AAP's Form 20-F for the fiscal year ended August 31, 1998.
(2) INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method. Inventories consist of:
[Enlarge/Download Table]
MAY 31, AUGUST 31,
1999 1998
----------- ----------
(UNAUDITED)
Raw materials............................................... $ 6,306 $ 6,996
Work in process............................................. 51 --
Manufactured finished goods and finished goods purchased for
resale.................................................... 51,564 68,108
------- -------
$57,921 $75,104
======= =======
(3) COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130
Reporting Comprehensive Income which, for interim reporting purposes, requires
that an enterprise report a total for comprehensive income. AAP adopted this
statement effective September 1, 1998. Comprehensive income includes all changes
in equity during a period except those resulting from investments by and
distributions to AAP's shareholders. For AAP, this primarily represents net
income plus or minus the change in cumulative foreign currency translation
adjustments. Cumulative foreign currency translation adjustments, which were
previously identified separately in the equity section of AAP's balance sheets,
are now included in "Accumulated other comprehensive income" in the equity
section of AAP's balance sheets in accordance with SFAS No. 130. Total
comprehensive income (loss), net of related tax effects, was $4,576 and
$(26,065) for the nine months ended May 31, 1999 and 1998, respectively.
F-24
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Facsimile copies of the Letter of Transmittal will be accepted. The Letter
of Transmittal, certificates representing the Shares and any other required
documents should be sent or delivered by each holder of Shares or such holder's
broker, dealer, commercial bank or trust company to the Depositary at one of its
addresses set forth below.
THE DEPOSITARY FOR THE OFFER IS:
FIRST CHICAGO TRUST COMPANY OF NEW YORK
[Enlarge/Download Table]
BY MAIL: BY HAND:
FIRST CHICAGO TRUST COMPANY OF NEW YORK FIRST CHICAGO TRUST COMPANY OF NEW YORK
CORPORATE ACTIONS C/O SECURITIES TRANSFER AND REPORTING SERVICES
SUITE 4660 INC.
P.O. BOX 2569 ATTN: CORPORATE ACTIONS
JERSEY CITY, NJ 07303-2569 100 WILLIAM STREET, GALLERIA
NEW YORK, NY 10038
BY OVERNIGHT COURIER: BY FACSIMILE TRANSMISSION:
FIRST CHICAGO TRUST COMPANY OF NEW YORK (201) 324-3402 OR (201) 324-3403
CORPORATE ACTIONS, SUITE 4660
525 WASHINGTON BLVD CONFIRM BY TELEPHONE:
JERSEY CITY, NJ 07310
(201) 222-4707
Questions and requests for assistance may be directed to the Information
Agent or the Dealer Managers at their respective addresses and telephone numbers
set forth below. Additional copies of this Offer to Purchase, the Letter of
Transmittal and other related materials may be obtained from the Information
Agent or brokers, dealers, commercial banks and trust companies.
THE INFORMATION AGENT FOR THE OFFER IS:
GEORGESON SHAREHOLDER COMMUNICATIONS INC.
17 STATE STREET
NEW YORK, NY 10004
BANKS AND BROKERS CALL COLLECT: (212) 440-9800
OR
ALL OTHERS CALL TOLL-FREE: (800) 223-2064
THE DEALER MANAGERS FOR THE OFFER ARE:
[Download Table]
MORGAN STANLEY DEAN WITTER J.P. MORGAN & CO.
Morgan Stanley & Co. Incorporated 60 Wall Street
One Financial Place New York, NY 10260
440 South LaSalle Street (877) 576-0606 (call toll free)
Chicago, IL 60605
(322) 706-4411 (call collect)
FOR INFORMATION IN AUSTRALIA:
[Enlarge/Download Table]
Morgan Stanley Dean Witter Australia Limited J.P. Morgan & Co.
Level 33, the Chifley Tower Level 20, One O'Connel Street
22 Chifley Square Sydney, New South Wales, Australia 2061
Sydney, New South Wales, Australia 2000 (800) 872-2881 -- 877-576-4529
(612) 9770-1590 (call toll free)
Dates Referenced Herein and Documents Incorporated by Reference
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