UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

 

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. 2)

 

Filed by the Registrant  ý

 

Filed by a Party other than the Registrant  o

 

Check the appropriate box:

ý

Preliminary Proxy Statement

o 

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

o

Definitive Proxy Statement

o

Definitive Additional Materials

o

Soliciting Material Pursuant to §240.14a-12

 

CRUZAN INTERNATIONAL, INC.

(Name of Registrant as Specified In Its Charter)

 

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

o

No fee required.

ý

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

(1)

Title of each class of securities to which transaction applies:

 

 

Common stock, $0.01 par value per share, of Cruzan International, Inc.

 

(2)

Aggregate number of securities to which transaction applies:

 

 

2,998,471 shares of Cruzan common stock, consisting of 2,454,409 outstanding shares of Cruzan common stock not beneficially owned by Absolut and 544,062 shares of Cruzan common stock underlying stock options that have an exercise price per share less than $28.37 that may be cashed out in connection with the merger.

 

(3)

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

 

The filing fee of $8,541.89 was calculated pursuant to Exchange Act Rule 0-11(c) and is equal to $107.00 per million of the aggregate merger consideration of $28.37.  The aggregate merger consideration is calculated as the sum of (a) the product of 2,454,409 outstanding shares of Cruzan common stock not beneficially owned by Absolut and the merger consideration of $28.37 per share in cash and (b) the difference between $28.37 and the exercise price per share for each of the 544,062 options outstanding to purchase shares of Cruzan common stock that have an exercise price of less than $28.37 per share.

 

(4)

Proposed maximum aggregate value of transaction:

 

 

$79,830,707

 

(5)

Total fee paid:

 

 

$8,541.89

o

Fee paid previously with preliminary materials.

ý 

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

(1)

Amount Previously Paid:

 

 

$8,483.80

 

(2)

Form, Schedule or Registration Statement No.:

 

 

Preliminary Schedule 14A (File No. 001-13453)

 

(3)

Filing Party:

 

 

Cruzan International, Inc.

 

(4)

Date Filed:

 

 

December 1, 2005

 

 

Persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number.

 



 

 

Letter to Stockholders

 

February    , 2006

Dear Stockholder:

 

We cordially invite you to attend a special meeting of stockholders of Cruzan International, Inc. to be held on •, 2006 at 11:00 a.m., local time, at the offices of Gunster, Yoakley & Stewart, P.A., located at 777 South Flagler Drive, Suite 500 East, West Palm Beach, FL 33401.

 

At the special meeting, we will ask you to consider and vote on a proposal to approve the merger of a subsidiary of The Absolut Spirits Company, Incorporated, or Absolut, with and into Cruzan, and to adopt and approve the Agreement and Plan of Merger entered into as of September 30, 2005 with Absolut, and its wholly-owned subsidiary, Cruzan Acquisition, Inc. In the merger, Cruzan Acquisition, Inc. will merge with and into Cruzan, and each outstanding share of our common stock, par value $0.01 per share, will be converted into the right to receive $28.37 in cash, without interest.  After the merger, Cruzan will be a wholly-owned subsidiary of Absolut, and an indirect, wholly-owned subsidiary of Absolut’s parent, V&S Vin & Sprit AB (publ), a Swedish company.

 

The merger and the merger agreement have not been approved or disapproved by the Securities and Exchange Commission or any state securities commission nor has any such commission passed upon the merits of the merger or the merger agreement nor upon the adequacy of the information contained in this document.  Any representation to the contrary is a criminal offense.

 

A special committee of Cruzan’s board of directors was formed to consider the sale by Angostura Limited of its controlling stake in Cruzan as well as Absolut’s subsequent merger proposal.

 

Pursuant to the terms of the merger agreement, five members of Cruzan’s board of directors resigned their seats on the board effective upon the execution by all parties of the merger agreement on September 30, 2005.  Prior to their resignations, the resigning directors and Edward F. McDonnell, a continuing director and a consultant to the special committee, appointed four new directors designated by Absolut.  These appointments took effect on October 11, 2005.

 

THE BOARD OF DIRECTORS AND THE SPECIAL COMMITTEE BOTH UNANIMOUSLY DETERMINED THAT THE TERMS OF THE MERGER ARE FAIR TO AND IN THE BEST INTERESTS OF CRUZAN AND OUR STOCKHOLDERS OTHER THAN ABSOLUT AND ITS AFFILIATES.  THE BOARD OF DIRECTORS AND THE SPECIAL COMMITTEE BOTH UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE MERGER AND BOTH RECOMMEND THAT YOU VOTE “FOR” APPROVAL OF THE MERGER AND ADOPTION AND APPROVAL OF THE MERGER AGREEMENT.

 

Your vote is very important. Even though Absolut owns approximately 63.6% of our common stock, and has agreed in the merger agreement to vote such common stock “FOR” the merger proposal, we cannot complete the merger unless the merger agreement and the merger are approved by holders of 66 2/3% of our outstanding shares not “owned” (as defined in Section 203 of the Delaware General Corporation Law) by Absolut or its “affiliates” or “associates” (as defined by Section 203 of the Delaware General Corporation Law).  WHETHER OR NOT YOU PLAN TO BE PRESENT AT THE SPECIAL MEETING, WE URGE YOU TO SUBMIT A PROXY TO ENSURE YOUR SHARES ARE REPRESENTED AT THE MEETING. MOST SHAREHOLDERS MAY USE THE INTERNET, TELEPHONE OR THE ENCLOSED PROXY TO SUBMIT A PROXY IN ADVANCE OF THE MEETING.  PLEASE REFER TO THE ENCLOSED PROXY CARD FOR INSTRUCTIONS. If you do not send in your proxy, do not instruct your broker to vote your shares, or abstain from voting, it will have the same effect as a vote “AGAINST” approval of the merger and the adoption and approval of the merger agreement.

 



 

The enclosed proxy statement provides you with detailed information about the merger and related matters.  We urge you to read the proxy statement carefully, including the annexes. If the merger agreement is adopted and approved and the merger is completed, you will be sent written instructions for exchanging your Cruzan common stock certificates for your cash payment.  If you hold Cruzan common stock, please do not send us your certificates until you receive these instructions.

 

If you have any questions about the merger please call Georgeson Shareholder Communications Inc. at 1-888-219-8292.

 

On behalf of the board of directors, I thank you for your support and appreciate your consideration of this matter.

 

 

Yours truly,

 

 

 

 

 

Jay S. Maltby

 

Chief Executive Officer and President

 

This proxy statement is dated February      , 2006 and is first being mailed to stockholders on or about February      , 2006.

 



 

CRUZAN INTERNATIONAL, INC.

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON
, 2006

 

To the Stockholders of Cruzan International, Inc.:

 

NOTICE IS HEREBY GIVEN that a special meeting of the stockholders of Cruzan International, Inc., a Delaware corporation, has been called by Cruzan’s board of directors to be held on • , 2006 at 11:00 a.m., local time, at the offices of Gunster, Yoakley & Stewart, P.A., located at 777 South Flagler Drive, Suite 500 East, West Palm Beach, FL 33401, for the following purposes:

 

(1)           To consider and vote on a proposal to approve the merger of a subsidiary of The Absolut Spirits Company, Incorporated with and into Cruzan and to adopt and approve the Agreement and Plan of Merger, dated as of September 30, 2005, among Cruzan, The Absolut Spirits Company, Incorporated, and Cruzan Acquisition, Inc., a copy of which agreement is attached as Annex A to the enclosed proxy statement.

 

(2)           To approve adjournments of the special meeting, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the special meeting to approve the merger and adopt and approve the merger agreement.

 

(3)           To transact such other business as may properly come before the meeting or any adjournment or postponement thereof.

 

The merger and the merger agreement have not been approved or disapproved by the Securities and Exchange Commission or any state securities commission nor has any such commission passed upon the merits of the merger or the merger agreement nor upon the adequacy of the information contained in this document.  Any representation to the contrary is a criminal offense.

 

Only stockholders of record as of the close of business on • , 2006, are entitled to notice of, and to vote at, the special meeting or any adjournments or postponements of the meeting.  The number of outstanding shares of our common stock entitled to notice and to vote on • , 2006, was • .  Each holder of Cruzan common stock is entitled to one vote for each share of our common stock held on the record date.  Holders of shares of common stock are entitled to appraisal rights under the Delaware General Corporation Law in connection with the merger if they meet certain conditions.  See “SPECIAL FACTORS – Appraisal Rights of Cruzan Stockholders” on page 34 of the enclosed proxy statement.

 

A form of proxy and a proxy statement containing more detailed information with respect to the matters to be considered at the special meeting, including a copy of the merger agreement, accompany and form a part of this notice. You should not send any certificates representing your Cruzan common stock with your proxy card.

 

WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING IN PERSON, WE URGE YOU TO SUBMIT A PROXY TO ENSURE YOUR SHARES ARE REPRESENTED AT THE MEETING.  MOST SHAREHOLDERS MAY USE THE INTERNET, TELEPHONE OR THE ENCLOSED PROXY TO SUBMIT A PROXY IN ADVANCE OF THE MEETING.   PLEASE REFER TO THE ENCLOSED PROXY CARD FOR INSTRUCTIONS.  SUBMITTING A PROXY IN ADVANCE DOES NOT DEPRIVE YOU OF YOUR RIGHT TO ATTEND THE MEETING AND TO VOTE YOUR SHARES IN PERSON.  THANK YOU FOR ACTING PROMPTLY.

 

 

By order of the Board of Directors,

February    , 2006

 

 

Ezra Shashoua

 

Secretary

 



 

TABLE OF CONTENTS

 

SUMMARY OF THE PROXY STATEMENT

 

 

 

 

 

Purpose and Structure of the Merger

 

 

 

 

 

Information About the Participants in the Merger

 

 

 

 

 

The Change in the Majority of the Board of Directors

 

 

 

 

 

Formation and Recommendation of the Special Committee

 

 

 

 

 

Recommendation of the Board of Directors

 

 

 

 

 

Interests of Executive Officers, Members of the Special Committee and Members of the Board of Directors in the Merger

 

 

 

 

 

Fairness Opinion of Houlihan Lokey

 

 

 

 

 

The Position of Absolut, V&S and Merger Sub as to the Fairness of the Merger

 

 

 

 

 

Effects of the Merger

 

 

 

 

 

Material U.S. Federal Income Tax Consequences of the Merger

 

 

 

 

 

Conditions to the Merger

 

 

 

 

 

Termination of the Merger Agreement

 

 

 

 

 

Fees and Expenses

 

 

 

 

 

Appraisal Rights of Stockholders

 

 

 

 

 

Voting

 

 

 

 

QUESTIONS AND ANSWERS ABOUT THE MERGER

 

 

 

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

 

 

 

SPECIAL FACTORS

 

 

 

 

 

Background of the Merger

 

 

 

 

 

Reasons for the Merger

 

 

 

 

 

Effects of the Merger

 

 

 

 

 

Interests of Executive Officers, Members of the Special Committee and Members of the Board of Directors in the Merger

 

 

 

 

 

Recommendation of the Special Committee and the Board of Directors

 

 

 

 

 

Opinion of Houlihan Lokey

 

 

 

 

 

The Position of Absolut, V&S and Merger Sub as to the Fairness of the Merger to the Unaffiliated Stockholders

 

 

 

 

 

Financial Projections

 

 

 

 

 

Plans for Cruzan if the Merger Is Not Completed

 

 

 

 

 

Required Regulatory Approvals

 

 

 

 

 

HSR Act Approvals

 

 

i



 

 

Anticipated Accounting Treatment

 

 

 

 

 

Material U.S. Federal Income Tax Consequences of the Merger

 

 

 

 

 

Appraisal Rights of Cruzan Stockholders

 

 

 

 

 

Provisions for Cruzan’s Unaffiliated Stockholders

 

 

 

 

 

Purpose and Structure of the Merger

 

 

 

 

 

Effective Time of the Merger

 

 

 

 

 

The Merger Consideration

 

 

 

 

 

Treatment of Cruzan Stock Options in the Merger

 

 

 

 

 

Surrender of Stock Certificates

 

 

 

 

 

Lost Certificates

 

 

 

 

 

Unclaimed Amounts

 

 

 

 

 

Fees and Expenses of the Merger

 

 

 

 

INFORMATION CONCERNING THE SPECIAL MEETING

 

 

 

 

 

Date, Time and Place

 

 

 

 

 

Matters to be Considered

 

 

 

 

 

Record Date and Shares Entitled to Vote; Procedures for Voting; Quorum

 

 

 

 

 

Vote Required

 

 

 

 

 

Abstentions

 

 

 

 

 

Voting of Proxies

 

 

 

 

 

Revocability of Proxies

 

 

 

 

 

Proxy Solicitation

 

 

 

 

THE MERGER AGREEMENT

 

 

 

 

 

Form of the Merger

 

 

 

 

 

Closing and Effective Time

 

 

 

 

 

Directors and Executive Officers of Surviving Corporation

 

 

 

 

 

Conversion of Shares; Procedures for Exchange of Certificates

 

 

 

 

 

Treatment of Cruzan Stock Options

 

 

 

 

 

Representations and Warranties

 

 

 

 

 

Covenants

 

 

 

 

 

Access to Information; Confidentiality

 

 

 

 

 

Cruzan’s Conduct of the Business before Completion of the Merger

 

 

 

 

 

No Solicitation of Alternative Transactions

 

 

ii



 

 

Conditions to the Merger

 

 

 

 

 

Termination of the Merger Agreement

 

 

 

 

 

Payment of Fees and Expenses

 

 

 

 

 

Indemnification of Directors and Officers; Advancement of Expenses and Insurance

 

 

 

 

 

Amendments, Extensions and Waivers

 

 

 

 

 

Continuing Authority of the Special Committee

 

 

 

 

CRUZAN SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION

 

 

 

 

 

Book Value Per Share

 

 

 

 

 

Ratio of Earnings to Fixed Charges

 

 

 

 

CRUZAN COMMON STOCK MARKET PRICE AND DIVIDEND INFORMATION

 

 

 

 

 

Market Price

 

 

 

 

 

Dividend Information

 

 

 

 

INFORMATION CONCERNING CRUZAN COMMON STOCK TRANSACTIONS

 

 

 

 

 

Common Stock Offerings

 

 

 

 

 

Common Stock Purchases

 

 

 

 

 

Transactions Within 60 Days

 

 

 

 

CURRENT EXECUTIVE OFFICERS AND DIRECTORS OF CRUZAN

 

 

 

 

CURRENT EXECUTIVE OFFICERS AND DIRECTORS OF ABSOLUT

 

 

 

 

CURRENT EXECUTIVE OFFICERS AND DIRECTORS OF V&S

 

 

 

 

CURRENT EXECUTIVE OFFICERS AND DIRECTORS OF MERGER SUB

 

 

 

 

SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN OTHER BENEFICIAL OWNERS

 

 

 

 

PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS

 

 

 

 

 

Angostura Stock Purchase Agreement

 

 

 

 

 

Angostura/Cruzan Management Letter Agreement

 

 

 

 

 

Distribution Agreement between V&S and Cruzan

 

 

 

 

 

V&S Loan Facility

 

 

 

 

MISCELLANEOUS OTHER INFORMATION

 

 

 

 

 

Stockholder Proposals

 

 

 

 

 

Where You Can Find More Information

 

 

iii



 

ANNEX A

 

The Merger Agreement

ANNEX B

 

The Opinion of Houlihan Lokey Howard & Zukin Financial Advisors, Inc.

ANNEX C

 

Section 262 of the Delaware General Corporation Law

ANNEX D

 

Cruzan Form 10-K Annual Report for the Fiscal Year Ended September 30, 2005

ANNEX E

 

Cruzan Form 10-Q Quarterly Report for the Quarter Ended December 31, 2005

ANNEX F

 

The Stock Purchase Agreement between V&S Vin & Sprit AB (publ) and Angostura Limited, dated June 3, 2005, and Assignment Agreement between V&S Vin & Sprit AB (publ) and The Absolut Spirits Company, Inc. dated June 7, 2005

ANNEX G

 

The Angostura/Cruzan Management Letter Agreement

 

iv



 

SUMMARY OF THE PROXY STATEMENT

 

The summary highlights selected information from this proxy statement and may not contain all of the information that is important to you.  So that you fully understand the merger, the merger agreement and the transactions contemplated thereby, and for a more complete description of the legal terms of the merger, you should carefully read this entire proxy statement, the annexes attached to this proxy statement and the documents to which we refer.  See “MISCELLANEOUS OTHER INFORMATION – Where You Can Find More Information” beginning on page 75.  In particular, you should carefully read the documents attached to this proxy statement, including the merger agreement and the Houlihan Lokey Howard & Zukin Financial Advisors, Inc. (“Houlihan Lokey”) fairness opinion, which are attached as Annexes A and B, respectively and made part of this proxy statement.  The summary and the balance of this proxy statement contain forward-looking statements about events that are not certain to occur as described or at all, and you should not place undue reliance on those statements.  For a discussion of these forward-looking statements, please see “CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS” beginning on page 13.  We have included page references in parentheses to direct you to the appropriate place in this proxy statement for a more complete description of the topics presented in this summary.

 

Purpose and Structure of the Merger (See pages 19 and 38)

 

Cruzan’s primary reason for entering into the merger is to provide you with an opportunity to receive $28.37 in cash for each of your shares, a premium over the market price at which Cruzan common stock traded before the announcement of Absolut’s agreement to purchase Angostura Limited’s (“Angostura”) controlling stake for $28.37 per share on June 3, 2005.  Absolut’s primary reason for entering into the merger is to turn Cruzan into a privately held wholly-owned subsidiary of Absolut.  To achieve this result, the merger has been structured so that Cruzan Acquisition, Inc., a wholly-owned subsidiary of Absolut will merge with and into Cruzan, with Cruzan continuing as the surviving corporation after the merger.  If the merger is completed, as a stockholder of Cruzan, you will be entitled to receive $28.37 in cash, without interest, in exchange for each of your shares of Cruzan common stock outstanding at the effective time of the merger, unless you perfect your appraisal rights under Delaware law.  For additional reasons behind the merger for each of Cruzan and V&S/Absolut, see “SPECIAL FACTORS – Reasons for the Merger.”

 

Information About the Participants in the Merger

 

Cruzan International, Inc.

 

Cruzan International, Inc. (“Cruzan,” the “company,” “us,” “we,” or “our”), formerly Todhunter International, Inc., is a leading producer and supplier of rum, brandy, wine and spirits to other beverage alcohol manufacturers; produces, imports and markets premium branded spirits, including CRUZAN rum; bottles beverage alcohol and other beverages on a contract basis and under its own labels; and produces vinegar and cooking wine.  The company operates four production facilities in the United States and one in St. Croix, United States Virgin Islands.  Cruzan is a Delaware corporation organized in 1970 as a successor to a business founded in the Bahamas in 1964.

 

The Absolut Spirits Company, Incorporated

 

The Absolut Spirits Company, Incorporated (“Absolut”) is a Delaware corporation principally engaged in the business of selling and marketing alcoholic beverages in the United States. Absolut is a wholly-owned subsidiary of V&S Vin & Sprit AB (publ) (“V&S”) and is the exclusive U.S. importer of certain of V&S’s alcohol brands, including ABSOLUT vodka.

 

On September 26, 2005, Absolut completed the purchase of 4,294,583 shares of Cruzan common stock from Angostura, which shares currently represent approximately 63.6% of our total issued and

 

1



 

outstanding common stock.  Absolut paid Angostura $28.37 per share, or approximately $121.8 million in the aggregate, for these shares. V&S entered into the stock purchase agreement with Angostura on June 3, 2005, and V&S subsequently assigned its rights under the stock purchase agreement to Absolut on June 7, 2005. See “SPECIAL FACTORS – Background of the Merger” and “PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS – Angostura Stock Purchase Agreement.”  The stock purchase agreement is also attached to this proxy statement as Annex F.  Absolut has agreed to vote all of its shares of Cruzan common stock “FOR” approval of the merger and adoption and approval of the merger agreement at the special meeting.

 

Cruzan Acquisition, Inc.

 

Cruzan Acquisition, Inc. (“Merger Sub”) is a Delaware corporation that was formed at the direction of Absolut solely for the purpose of consummating the merger.  Absolut currently holds 100% of the capital stock of Merger Sub.  The separate existence of Merger Sub will cease upon consummation of the merger.

 

The Change in the Majority of the Board of Directors

 

Prior to our entry into the merger agreement, five members of our board of directors resigned their seats on the board effective upon the execution by all parties of the merger agreement on September 30, 2005.  Prior to such resignations, however, the board of directors (i) approved the merger agreement and the merger, (ii) determined that the terms of the merger are fair to and in the best interests of Cruzan’s stockholders other than Absolut and its affiliates, (iii) recommended that Cruzan’s stockholders adopt and approve the merger agreement and approve the merger, and (iv) declared the merger agreement advisable. 

 

Pursuant to additional resolutions adopted prior to the effectiveness of their resignations and in connection with the merger agreement, the board of directors, except for the special committee of the board of directors (see “- Formation and Recommendation of the Special Committee”), resolved to appoint four new directors designated by Absolut.  These appointments became effective as of October 11, 2005. 

 

Formation and Recommendation of the Special Committee (See page 22)

 

As described above, Absolut acquired its controlling stake in Cruzan common stock through a stock purchase agreement between our former controlling stockholder, Angostura, and V&S that was executed on June 3, 2005.  On the same date, V&S announced that it intended to treat the minority stockholders in Cruzan equitably.  One of the conditions to the closing of the sale of Angostura’s shares to V&S was obtaining the approval of such sale by Cruzan’s board of directors.  Due to this closing condition, and the prospect that V&S might make an offer to acquire the shares of the remaining Cruzan stockholders in a subsequent business combination, Cruzan’s board of directors appointed a special committee of Cruzan’s independent directors for the purpose of considering the sale of Angostura’s controlling stake in Cruzan, as well as to consider any business combination proposal from V&S.  The special committee was composed of Donald L. Kasun and Leonard G. Rogers, two Cruzan directors determined to be independent by the board of directors due to their lack of affiliation with Cruzan, Cruzan management or Angostura.  Edward F. McDonnell, another Cruzan independent director, was named as a consultant to the special committee.  In light of Mr. McDonnell’s interest in a distributorship partially owned by Cruzan, he was not appointed to the special committee by the board of directors.

 

The special committee evaluated several factors related to Absolut’s merger proposal, including the opinion delivered by Houlihan Lokey as to the fairness, from a financial point of view, of the cash consideration to be received by our stockholders (other than Absolut and its affiliates).  The special committee unanimously recommends that Cruzan’s stockholders vote “FOR” approval of the merger and adoption and approval of the merger agreement.

 

2



 

Recommendation of the Board of Directors (See page 22)

 

The board of directors also unanimously recommends that Cruzan’s stockholders vote “FOR” approval of the merger and adoption and approval of the merger agreement.  The board’s recommendation was originally made at a meeting on September 29, 2005.  As described above in “– The Change in the Majority of the Board of Directors,” immediately following the board’s recommendation, five members of our board resigned their seats on the board effective upon the execution of the merger agreement. Prior to resigning, however, the board of directors, except for the special committee members, resolved to appoint four new directors designated by Absolut.  These new directors took their seats on October 11, 2005.  At a board meeting on January 18, 2006 attended by all of the members except for Ketil Eriksen, who was unable to attend, the current board of directors affirmed the prior board of directors’ original recommendation to the Cruzan stockholders.

 

Interests of Executive Officers, Members of the Special Committee and Members of the Board of Directors in the Merger (See page 20)

 

In considering the recommendations of the special committee and our board of directors to vote for the proposal to adopt the merger agreement, you should be aware that all of our executive officers, each member of the special committee, the five members of Cruzan’s board of directors who resigned on September 30, 2005 and each current member of our board of directors have personal interests in the merger that are, or may be, different from, or in addition to, your interests.  These interests include the following:

 

              Four members of our current board of directors are directly or indirectly employed by V&S, and each of these directors and each of our executive officers are deemed to be “affiliates” of V&S and Absolut;

 

              Five of our executive officers would become entitled to receive severance payments and the continuation of certain employee benefits for the greater of one year from the date of termination or the remainder of the terms of their respective employment agreements in the event their employment is terminated under certain circumstances defined in those employment agreements;

 

              Two of these five executive officers would also be entitled to additional severance payments if they are terminated during certain periods and under certain circumstances pursuant to the “change of control” provisions of their employment agreements;

 

              Each vested option to purchase our common stock with an exercise price less than the merger consideration of $28.37 per share held by our executive officers and Edward F. McDonnell, a director and a consultant to the special committee, will be converted into the right to receive a cash payment equal to the excess of the $28.37 per share merger consideration over the per share exercise price, multiplied by the number of shares of our common stock subject to the option;

 

              Under the “change of control” provisions of our defined benefit supplemental executive retirement plan, which covers five of our executive officers and three other non-executive officers, we may not terminate the supplemental executive retirement plan without the executive’s consent unless the executive is terminated for cause; and

 

              The terms of the merger agreement provide for the continued indemnification, advancement of expenses and liability insurance coverage of our executive officers, the members of the special committee, Edward F. McDonnell and the five members of our board of directors who resigned on September 30, 2005.

 

Fairness Opinion of Houlihan Lokey (See page 23)

 

On September 29, 2005, the special committee received the opinion of Houlihan Lokey to the effect that, as of that date, and based upon the assumptions made, matters considered and limitations on the review described in the written opinion, the cash consideration to be received by the minority public stockholders of Cruzan common stock in connection with the merger, was fair from a financial point of view, to those stockholders.  In addition, the special committee received a report dated September 28, 2005 and updated on November 29, 2005, from Houlihan Lokey that supports its fairness opinion.

 

The Position of Absolut, V&S and Merger Sub as to the Fairness of the Merger (See page 29)

 

Absolut, V&S and Merger Sub have considered the factors examined by the special committee and our board of directors described in the section of this proxy statement entitled “SPECIAL FACTORS – Recommendation of the Special Committee and the Board of Directors.”  Based on these factors and the conclusion of the special committee, which conclusion Absolut, V&S and Merger Sub have adopted based upon their view of the reasonableness of the analysis underlying such conclusion, Absolut, V&S and Merger Sub believe that the merger is substantively and procedurally fair

 

3



 

to Cruzan’s unaffiliated stockholders.  However, none of Absolut, V&S or Merger Sub has performed, or engaged a financial advisor to perform, any valuation analysis for the purposes of assessing the fairness of the merger to Cruzan’s unaffiliated stockholders.

 

Effects of the Merger (See pages 20 and 38)

 

The consummation of the merger will result in:

 

                                          The conversion of each share of our common stock issued and outstanding immediately prior to the effective time of the merger into the right to receive $28.37 in cash, without interest (less any applicable withholding tax), other than shares of our common stock:

 

              held by us in our treasury;

 

              held by Cruzan stockholders who perfect their appraisal rights under Delaware law; and

 

              held by Absolut or Merger Sub.

 

                                          All options outstanding immediately prior to the effective time being cancelled or terminated or converting, if vested and exercisable, into the right to receive a cash amount equal to the excess, if any, between $28.37 per share and the exercise price of the option.

 

Upon completion of the merger, we will remove our common stock from listing on the American Stock Exchange, and our common stock will no longer be publicly traded.

 

Material U.S. Federal Income Tax Consequences of the Merger (See page 33)

 

For U.S. federal income tax purposes, the merger will be treated as a taxable sale by our stockholders of their shares of our common stock in which they will recognize a gain or loss equal to the difference between (1) $28.37 per share and (2) their adjusted tax basis in the shares of Cruzan common stock surrendered in the merger.

 

Conditions to the Merger (See page 49)

 

The completion of the merger depends on the satisfaction or waiver of a number of conditions, including the following:

 

                                          the approval of the merger agreement and the merger by the holders of two-thirds of our outstanding common stock not “owned” (as defined by Section 203 of the Delaware General Corporation Law or “DGCL”) by Absolut or its “affiliates” or “associates” (as defined by Section 203 of the DGCL) and adoption of the merger agreement by the holders of a majority of our outstanding common stock;

 

                                          the resignation from our board of directors of each member of the special committee and each other independent director;

 

                                          the termination or expiration of any applicable waiting period (and any extension thereof) under the Hart-Scott-Rodino Antitrust Improvements or “HSR” Act; and

 

                                          the accuracy of the representations and warranties made in the merger agreement by us, Absolut, and Merger Sub.

 

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Termination of the Merger Agreement (See page 51)

 

We, Absolut and Merger Sub may agree to terminate the merger agreement at any time prior to the effective time.

 

In addition, the merger agreement may be terminated:

 

by us or Absolut, if:

 

                                          the merger has not been consummated by April 30, 2006, unless the failure to consummate the merger is the result of a breach of the merger agreement by the party seeking to terminate the agreement;

 

                                          a governmental entity issues a permanent injunction or order prohibiting the transactions contemplated by the merger agreement and such order is final and nonappealable; or

 

                                          our stockholders do not approve the merger and adopt and approve the merger agreement;

 

by us, if Absolut or Merger Sub fails to perform in any material respect after a 30 day cure period any of their representations, warranties or covenants in the merger agreement which would give rise to a failure of any one of the closing conditions;

 

by Absolut, if:

 

                                          we or the special committee fail to perform in any material respect after a 30 day cure period any of our respective representations, warranties or covenants in the merger agreement, which would give rise to a failure of any one of the closing conditions;

 

                                          the special committee withdraws or modifies, or proposes to withdraw or modify, in a manner adverse to Absolut or Merger Sub, its approval or recommendation of the merger agreement or the merger, fails to recommend approval of this transaction to our stockholders or approves or recommends, or proposes to approve or recommend, any other competing takeover proposal; or

 

                                          the special committee or any of its representatives (i) solicits, initiates, encourages or takes any action to facilitate the making by any person of any competing takeover proposal; (ii) enters into any agreement relating to any competing takeover proposal; or (iii) enters into, participates in or continues any discussions or negotiations regarding, or furnishes to any person any information with respect to, any competing takeover proposal except at the direction of or with the written approval of Absolut, in breach of certain provisions of the merger agreement.

 

Fees and Expenses (See page 39)

 

Pursuant to the merger agreement, all fees and expenses incurred in connection with the merger will be paid by the party incurring those expenses, whether or not the merger is completed.  The merger agreement also provides that upon a termination in specified circumstances, we must pay a termination fee of $3,000,000 to Absolut.  In addition, if Absolut terminates the merger agreement in specified circumstances, we would be obligated to reimburse Absolut for all of its documented out-of-pocket expenses actually incurred up to a maximum of $1,500,000 in connection with the merger agreement or the merger.  The termination fee is subject to a credit for any expense reimbursement paid and no expense reimbursement shall be due if we have previously paid the termination fee.

 

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Appraisal Rights of Stockholders (See page 34)

 

Under Delaware law, you are entitled to appraisal rights in connection with the merger.

 

You will have the right under Delaware law to have the “fair value” of your shares of our common stock determined by the Court of Chancery of the State of Delaware, which “fair value” could be greater than, the same as or less than the $28.37 per share merger consideration. This right to appraisal is subject to a number of restrictions and procedural requirements. Generally, in order to exercise your appraisal rights you must:

 

                                          deliver a written demand to us for appraisal in compliance with the DGCL before the vote on the merger;

 

                                          not vote in favor of the merger; and

 

                                          continuously hold your shares of our common stock, from the date you make the demand for appraisal through the effective date of the merger.

 

A holder who is the record holder of shares of our common stock on the date the written demand for appraisal is made, but who thereafter transfers those shares prior to the effective time of the merger, will lose any appraisal rights with respect to those shares.

 

Merely voting against the merger will not protect your rights to an appraisal. In order to protect your rights to an appraisal you must take all the steps required under Delaware law. Delaware law requirements for exercising appraisal rights are described in further detail in this proxy statement. The relevant section of Delaware law regarding appraisal rights is reproduced and attached as Annex C to this proxy statement.

 

If you vote for the merger, you will waive your right to seek appraisal of your shares of our common stock under Delaware law.

 

Voting (See page 41)

 

Record Date

 

Only holders of record of Cruzan’s common stock at the close of business on • , 2006, the record date, are entitled to vote at the special meeting.  On the record date, • shares of Cruzan common stock were issued and outstanding and held by approximately • holders of record.

 

Abstentions

 

Abstentions from voting will be counted in the determination of a quorum and will have the same effect as votes “AGAINST” approval of the merger and adoption and approval of the merger agreement.  Brokers will be prohibited from exercising discretionary authority for beneficial owners who have not returned a proxy, and, therefore, the failure to return a proxy will have the same effect as a vote “AGAINST” approval of the merger and adoption and approval of the merger agreement, but will be counted in the determination of a quorum.

 

Revocation

 

You may revoke your proxy at any time before it is voted by delivering to us a subsequently executed proxy or a written notice of revocation. In addition, returning your completed proxy will not prevent you from voting in person at the special meeting should you be present and wish to do so.

 

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Common Stock Held in “Street Name” by Brokers

 

Brokers will be prohibited from exercising discretionary authority for beneficial owners who have not instructed the brokers to vote their shares, and, therefore, if you hold your shares of common stock through a broker, you must instruct your broker on how you wish to vote.  For those stockholders who hold their Cruzan common stock through a broker, the failure to return a proxy will have the same effect as a vote “AGAINST” approval of the merger and adoption and approval of the merger agreement, but such broker “non-votes” will be counted in the determination of a quorum.

 

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QUESTIONS AND ANSWERS ABOUT THE MERGER

 

Q1:         What is the date, time and place of the special meeting?

 

A1:         The special meeting will be held on • , 2006 at 11:00 a.m., local time, at the offices of Gunster, Yoakley & Stewart, P.A., located at 777 South Flagler Drive, Suite 500 East, West Palm Beach, FL 33401.

 

Q2:         What am I being asked to vote on at the special meeting?

 

A2:         You will be asked to vote on a proposal to approve the merger and adopt and approve the Agreement and Plan of Merger dated as of September 30, 2005, among Cruzan, Absolut and Merger Sub, a wholly-owned subsidiary of Absolut, pursuant to which, upon the merger becoming effective, each share of common stock, par value $0.01 per share, of Cruzan will be converted into the right to receive $28.37 in cash, without interest.

 

Q3:         What will happen in the merger?

 

A3:         In the merger, Merger Sub will merge with and into Cruzan, and each outstanding share of our common stock (excluding shares owned by Absolut) will be converted into the right to receive $28.37 in cash, without interest.  After the merger, Cruzan will be a wholly-owned subsidiary of Absolut, and an indirect, wholly-owned subsidiary of V&S.

 

Q4:         What will I be entitled to receive in the merger?

 

A4:         If the merger is completed, each of your shares of Cruzan common stock will be converted into the right to receive $28.37 in cash, without interest and less any applicable withholding taxes (unless you validly perfect appraisal rights under Delaware law). If the merger is completed, you will not have any continuing interest in Cruzan.

 

For more information, see “THE MERGER AGREEMENT.”

 

Q5:         Does Absolut intend to finance the payment of the merger consideration?

 

A5:         No.  Absolut will pay the merger consideration from a combination of its working capital funds and working capital loans from V&S.

 

Q6:         What vote is required to approve the merger and adopt and approve the merger agreement?

 

A6:         Notwithstanding the fact that Absolut owns approximately 63.6% of our common stock and has agreed to vote such common stock “FOR” approval of the merger, the approval of the merger and adoption and approval of the merger agreement require the affirmative vote of the holders of 66 2/3% of our outstanding shares not “owned” (as defined in Section 203 of the DGCL) by Absolut or its “affiliates” or “associates” (as defined in Section 203 of the DGCL) and the affirmative vote of the holders of a majority of our outstanding common stock.  If you do not send in your proxy, do not instruct your broker to vote your shares or abstain from voting, it will have the same effect as a vote “AGAINST” the approval of the merger and the adoption and approval of the merger agreement.

 

Q7:         What does the special committee recommend?

 

A7:         The special committee unanimously recommends that you vote “FOR” approval of the merger and adoption and approval of the merger agreement.

 

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For more information, see “SPECIAL FACTORS – Background of the Merger,” “– Recommendation of the Special Committee and the Board of Directors,” and “– Opinion of Houlihan Lokey.”

 

Q8 :        Why was a special committee of the board of directors formed?

 

A8:         Absolut acquired its controlling stake in Cruzan common stock through a stock purchase agreement between our former controlling stockholder, Angostura, and V&S that was executed on June 3, 2005.  On the same date, V&S announced that it intended to treat the minority stockholders in Cruzan equitably.  V&S subsequently assigned its rights under the stock purchase agreement to Absolut.  One of the conditions to the closing of the sale of Angostura’s shares to V&S was obtaining the approval of such sale by Cruzan’s board of directors.  Due to this closing condition, and the prospect that V&S might make an offer to acquire the shares of the remaining Cruzan stockholders in a subsequent business combination, Cruzan’s board of directors appointed a special committee of directors for the purpose of considering the sale of Angostura’s controlling stake in Cruzan, as well as to consider any business combination proposal from V&S.  The board of directors believed that it would not be appropriate to permit directors affiliated with Angostura to participate in the review of the Angostura sale transaction, or any business combination proposal made by V&S to the remaining minority stockholders.  The special committee was composed of Donald L. Kasun and Leonard G. Rogers, two Cruzan directors determined to be independent by the board of directors due to their lack of affiliation with Cruzan, Cruzan management or Angostura.  Edward F. McDonnell, another Cruzan independent director, was named as a consultant to the special committee.

 

Q9:         Does the special committee have any interests in the merger that are different from or in addition to my interests?

 

A9:         Each of Messrs. Rogers, Kasun and McDonnell are entitled to receive compensation for his service to the special committee of $12,000 per month as well as reimbursement of all out-of-pocket expenses reasonably incurred in connection with his provision of services to the special committee.  In addition, Mr. McDonnell holds in-the-money stock options that will be cashed out when the merger is completed and Messrs. Rogers, Kasun and McDonnell are entitled to continued indemnification, advancement of expenses and liability insurance coverage pursuant to the merger agreement.  For more information, see “SPECIAL FACTORS – Interests of Executive Officers, Members of the Special Committee and Members of the Board of Directors in the Merger,” “THE MERGER AGREEMENT – Indemnification of Directors and Officers; Advancement of Expenses and Insurance.”

 

Q10:       Has the special committee received any opinions, appraisals or reports from outside parties regarding the fairness of the merger consideration offered by Absolut?

 

A10:       Yes.  The special committee received the opinion from its financial advisor, Houlihan Lokey, that, as of September 29, 2005, the cash consideration to be received by Cruzan’s minority public stockholders in connection with the merger was fair, from a financial point of view, to such holders.  In addition, the special committee received a report dated September 28, 2005 and updated on November 29, 2005, from Houlihan Lokey that supports its fairness opinion.  Each of these documents is annexed to this proxy statement.

 

Q11:       Does Absolut, as the controlling stockholder, have any interests in the merger that are different from or in addition to my interests as a Cruzan stockholder generally?

 

A11:       Absolut is buying your shares in the merger so, as in any transaction involving a buyer and seller on opposite sides of a transaction, its interests in the transaction are very different from your interests.  In addition, Absolut’s parent, V&S, is a party to a distribution agreement with Cruzan whereby V&S acts as Cruzan’s sole and exclusive distributor of CRUZAN rum in Scandinavia, Northern Europe, Canada and all global duty free and travel retail markets other than those located in the U.S., Caribbean, Bermuda, Philippines and Israel.

 

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Q12:       Other than the stockholder vote, are there any other significant conditions to completing the merger?

 

A12:       Besides the stockholder vote, the other significant conditions to the completion of the merger include the following:

 

              the resignation from our board of directors of each member of the special committee and each other independent director;

 

              the termination or expiration of any applicable waiting period (and any extension thereof) under the HSR Act; and

 

              the accuracy of the representations and warranties made in the merger agreement by us, Absolut, and Merger Sub.

 

For more information, see “THE MERGER AGREEMENT – Conditions to the Merger.”

 

Q13:       When do you expect the merger to be completed?

 

A13:       We are working to complete the merger as quickly as possible. If the conditions to the merger are satisfied or waived (to the extent permitted by applicable law), including obtaining various regulatory approvals, we expect to complete the merger in the first quarter of 2006.

 

Q14:       What are the tax consequences of the merger to me?

 

A14:       The receipt of cash in exchange for shares of our common stock pursuant to the merger will be a taxable transaction for U.S. federal income tax purposes and may be taxable for state and local income tax purposes. For U.S. federal income tax purposes, if you receive cash in exchange for common stock pursuant to the merger, you will recognize gain or loss equal to the difference, if any, between the merger consideration and your adjusted tax basis in the common stock surrendered. We urge you to consult your own tax advisor regarding the specific tax consequences that may result from your individual circumstances, as well as the foreign, state and local tax consequences of the disposition of shares pursuant to the merger.

 

For more information, see “SPECIAL FACTORS – Material U.S. Federal Income Tax Consequences of the Merger.”

 

Q15:       Do I have appraisal rights in connection with the merger?

 

A15:       If you comply with the procedures required under Delaware law, you may elect to pursue your appraisal rights to receive the statutorily determined “fair value” of your shares, which could be more than, the same as or less than the $28.37 per share merger consideration. In order to qualify for these rights, you must (1) not vote in favor of the merger, (2) make a written demand for appraisal prior to the taking of the vote on the merger agreement at the special meeting and (3) otherwise comply with the Delaware law procedures for exercising appraisal rights. An executed proxy card that is not marked “AGAINST” or “ABSTAIN” will be voted for the adoption of the merger agreement and will disqualify you from demanding appraisal rights.

 

For more information, see “SPECIAL FACTORS – Appraisal Rights of Cruzan Stockholders.”

 

Q16:       What should I do now? How do I vote?

 

A16:       After you read and consider carefully the information contained in this proxy statement, please fill out, sign and date your proxy card and mail your signed proxy card in the enclosed return

 

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envelope as soon as possible so that your shares may be represented at the annual meeting. Failure to return your proxy card or vote in person at the meeting will have the same effect as a vote “AGAINST” the approval of the merger and the adoption and approval of the merger agreement.

 

For more information, see “INFORMATION CONCERNING THE SPECIAL MEETING – Voting of Proxies.”

 

Q17:       Can I vote in person?

 

A17:       Yes. You may attend the special meeting and vote your shares in person whether or not you sign and return a proxy card or otherwise vote by proxy.

 

Q18:       If my shares are held in “street name” by my broker, will my broker vote my shares for me?

 

A18:       Yes, but only if you provide instructions to your broker on how to vote. You should fill out, sign, date and return the proxy card and otherwise follow the directions provided by your broker regarding how to instruct your broker to vote your shares.

 

For more information, see “INFORMATION CONCERNING THE SPECIAL MEETING – Voting of Proxies.”

 

Q19:       Can I change my vote or revoke my proxy after I have mailed my signed proxy card?

 

A19:       You may revoke your proxy or change your vote at any time before the final vote at the meeting. If you are the owner of record, you may do this by:

 

              giving written notice of revocation to the Corporate Secretary, Cruzan International, Inc., 222 Lakeview Avenue, Suite 1500, West Palm Beach, FL 33401;

 

              submitting another valid proxy card bearing a later date; or

 

              voting in person at the meeting.

 

If you hold stock in street name, you must contact your broker or financial institution for information on how to revoke your proxy or change your vote.

 

Q20:       Can I send in my stock certificates now?

 

A20:       No. If the merger is completed, shortly thereafter you will receive a letter of transmittal with instructions informing you how to send in your stock certificates to our exchange agent. You should use the letter of transmittal to exchange your stock certificates for the $28.37 per share to which you will be entitled as a result of the merger. You should not send any stock certificates with your proxy cards. You should follow the procedures described in “SPECIAL FACTORS – Surrender of Stock Certificates.”

 

Q21:       What happens if I abstain from voting?

 

A21:       Abstentions from voting will be counted in the determination of a quorum and will have the same effect as votes “AGAINST” approval of the merger and adoption and approval of the merger agreement.

 

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Q22:       What will happen to Cruzan following the completion of the merger?

 

A22:       If the merger is completed, our common stock will be delisted from the American Stock Exchange and deregistered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  As a result, we will no longer be a public company.

 

Q23:       What would happen to Cruzan if the merger is not completed?

 

A23:       In the event that the merger is not completed, you will not receive any payment for your shares.  Neither we nor Absolut, our controlling stockholder, has any present plans or proposals for Cruzan in the event the merger is not completed, but we and Absolut expect that, regardless of whether or not the merger is completed, it is possible that we will explore changes in Cruzan’s business to increase profitability and enhance stockholder value.  For more information, see “SPECIAL FACTORS – Plans for Cruzan if the Merger Is Not Completed.”

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

This proxy statement and the other documents attached to this proxy statement as annexes may contain forward-looking statements with respect to the financial condition, results of operations, business plans and strategies, operating efficiencies or synergies, competitive positions, growth opportunities for existing products, plans and objectives of management, markets for the stock of Cruzan and other matters, including the projections set forth under “SPECIAL FACTORS – Financial Projections” and statements relating to Cruzan’s plans, intentions and expectations to consummate the merger.  We hereby identify statements in this proxy statement and the other documents attached to this proxy statement that are not historical facts as forward-looking statements. These forward-looking statements, including, without limitation, those relating to future business prospects, the projections set forth under “SPECIAL FACTORS – Financial Projections,” revenues and income, in each case relating to Cruzan, wherever they occur in this proxy statement or the other documents attached to this proxy statement, are necessarily based on assumptions and estimates reflecting the best judgment of the management of Cruzan and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Although we believe that Cruzan’s plans, intentions and expectations are reasonable, we can give no assurance that Cruzan will achieve its plans, intentions and expectations. These forward-looking statements should, therefore, be considered in light of various important factors, including those set forth in this proxy statement and attached to this proxy statement. Important factors that could cause actual results to differ materially from estimates or projections contained in the forward-looking statements include, without limitation:

 

              the satisfaction of the conditions to consummate the merger, including, but not limited to, the receipt of the required stockholder and regulatory approvals;

 

              the occurrence of any event, change or other circumstance that could give rise to the termination of the merger agreement;

 

              the failure of the merger to close for any other reason;

 

              the amount of the costs, fees, expenses and charges related to the merger;

 

              the strength of the economy in general, including changes in consumer purchasing power and/or spending patterns;

 

              changes in federal and state laws and regulations;

 

              interest rate fluctuations and changes in capital market conditions or other events affecting our ability to obtain necessary financing on favorable terms to fund the anticipated growth of our business;

 

              liability and other claims asserted against us;

 

              changes in our operating strategy or development plans;

 

              our ability to attract, hire and retain qualified personnel;

 

              labor disturbances;

 

              changes in our acquisition and capital expenditure plans;

 

              demographic changes;

 

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              changes in cost of goods and services; and

 

              other risks and uncertainties detailed from time to time in our filings with the SEC.

 

In addition, actual results could differ materially from the forward-looking statements contained in this proxy statement as a result of the timing of the completion of the merger or the impact of the merger on operating results, capital resources, profitability, cash requirements, management resources and liquidity.

 

Words such as “estimate,” “project,” “plan,” “intend,” “expect,” “anticipate,” “believe” and similar expressions are intended to identify forward-looking statements. These forward-looking statements are found at various places throughout this proxy statement and the other documents attached to this proxy statement. We caution you not to place undue reliance on these forward-looking statements, which speak only as of the date of this proxy statement, or, in the case of documents attached to this proxy statement, as of the respective dates of those documents.  We undertake no obligation to publicly update or release any revisions to these forward-looking statements to reflect circumstances or events occurring after the date of this proxy statement or to reflect the occurrence of unanticipated events, except as required by law.

 

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SPECIAL FACTORS

 

Background of the Merger

 

We regularly evaluate different strategies for improving our competitive position and maximizing shareholder value.  As part of these evaluations, we have, from time to time, considered various strategic alternatives in pursuing our business plan as an independent entity, including acquisitions, divestitures and business combinations.

 

We have historically relied upon third-party distribution agreements to market CRUZAN products in non-U.S. countries.  In March 2001, we were approached by V&S to discuss a possible distribution arrangement.

 

On October 10, 2003, we entered into a distribution agreement with V&S and appointed V&S the sole and exclusive distributor of CRUZAN rum and other Cruzan products in Scandinavia, Northern Europe and Canada.  Pursuant to the V&S distribution agreement, V&S also agreed to act as our sole and exclusive distributor to all global duty free and travel retail markets other than the U.S., Caribbean, Bermuda, the Philippines and Israel.  Our intent when the agreement was entered into was to expand the relationship into additional countries through the Maxxium network, a global distribution partnership, in which V&S holds a 25% interest.

 

In October 2004, V&S began considering the possibility of a business combination with Cruzan in order to add our CRUZAN rum brand to V&S’s existing portfolio of premium branded spirits.  During the fourth quarter of 2004, V&S indicated to members of Cruzan’s management that a continuation and expansion of the existing distribution relationship would be predicated on V&S obtaining a controlling interest in the company.  In January 2005, V&S made a non-binding offer to Angostura to purchase its controlling equity stake in Cruzan for a price of $18.75 to $20.30 per share, but Angostura decided not to pursue a sale of its interest at that time.  In May 2005, V&S engaged Lazard AB (“Lazard”) to act as its financial advisor with respect to a potential business combination with Cruzan.

 

Between May 5, 2005 and June 1, 2005, representatives of V&S and Angostura, and V&S and Absolut’s counsel, McDermott Will & Emery LLP (“McDermott”) and Angostura’s counsel, Sokolow, Carreras & Associés (“Sokolow”) negotiated the terms of a stock purchase agreement whereby V&S, or its assignee, would agree to purchase the 4,294,583 shares of Cruzan common stock held by Angostura for $28.37 per share, or approximately $121.8 million in the aggregate.  The stock purchase agreement included a condition to closing that V&S or its assignee shall have completed its due diligence investigation of Cruzan and not identified any matter or matters that individually, or in the aggregate, could reasonably be considered to have had, or could reasonably be expected to have, a material adverse effect.  The stock purchase agreement also included a condition to V&S or its assignee’s obligation to close that Cruzan’s board of directors approve the sale transaction.    During this time period, Cruzan’s executive officers and directors, other than Michael E. Carballo, an Angostura designee to the Cruzan board of directors, were not aware that such negotiations were ongoing.

 

During the period that V&S was privately negotiating with Angostura for the purchase of its shares of Cruzan stock, Cruzan was in the process of finalizing and launching a rights offering to its stockholders.  As described in “Information Concerning Cruzan Common Stock Transactions,” in connection with a private placement of common stock to Angostura in June 2004, Cruzan contractually agreed with Angostura to use its best efforts to launch a rights offering to Cruzan’s minority stockholders (whereby Angostura and its affiliates were specifically prohibited from participating) to permit Cruzan’s minority stockholders, including Cruzan’s executive officers and directors, to subscribe for that number of shares of Cruzan common stock required for each stockholder to retain the approximate percentage stock ownership that they each held prior to the June 2004 private placement of stock to Angostura.  While Cruzan had filed its rights offering registration statement with the SEC on August 30, 2004, this registration statement was subject to a review by the SEC Staff and was not declared effective until May 23, 2005.  Pursuant to the contractual terms agreed between Cruzan and Angostura, the record date for the rights offering was set at May 20, 2005, and the subscription price for the shares of common stock offered in the rights offering was set as the closing price of Cruzan’s common stock on the American Stock Exchange on May 19, 2005 - $13.91.  The closing of the rights offering was scheduled to occur on, and did occur on, June 21, 2005.  The rights offering was fully subscribed.  As described in “Information Concerning Cruzan Common Stock Transactions – Common Stock Purchases,” the following Cruzan executive officers and directors participated in the rights offering:

 

                                          Jay S. Maltby, Cruzan’s Chief Executive Officer and President, subscribed for and received 2,367 shares of common stock for a total purchase price of $32,924.97;

 

                                          Thomas A. Valdes, Cruzan’s Executive Vice President and Assistant Secretary, subscribed for and received 209 shares of common stock for a total purchase price of $2,907.19;

 

                                          D. Chris Mitchell, Cruzan’s Senior Vice President – Sales, subscribed for and received 1,051 shares of common stock for a total purchase price of $14,619.41;

 

                                          Ousik Yu, Cruzan’s Senior Vice President – Manufacturing, subscribed for and received 4,205 shares of common stock for a total purchase price of $58,491.55;

 

                                          Ezra Shashoua, Cruzan’s Executive Vice President and Chief Financial Officer, subscribed for and received 20 shares of common stock for a total purchase price of $278.20;

 

                                          Leonard G. Rogers, an independent director and a member of the special committee, subscribed for and received 209 shares of common stock for a total purchase price of $2,907.19; and

 

                                          Edward F. McDonnell, an independent director and a consultant to the special committee, subscribed for and received 200 shares of common stock for a total purchase price of $2,782.

 

As mentioned above, none of these executive officers and directors were aware at the time that the rights offering commenced that V&S was in the process of negotiating for the purchase of Angostura’s stake in Cruzan.  Furthermore, they did not know that V&S/Absolut would subsequently announce its intention to seek a business combination with Cruzan or that such business combination would involve an offer of $28.37 per share to Cruzan’s minority stockholders, including its executive officers and directors.  The one member of Cruzan’s board of directors who was aware that V&S was currently negotiating with Angostura was Michael E. Carballo, who is an employee of Angostura and one of Angostura’s two former designees to the Cruzan board.  Michael E. Carballo did not participate in the Cruzan rights offering.

 

All Cruzan stockholders were given both a basic subscription right to purchase their proportionate share of the 408,787 shares offered in the rights offering and an oversubscription right to purchase a proportionate share of any shares remaining unpurchased from the 408,787 after the basic subscription right was completed.  While subscriptions were themselves made after the public announcement of V&S’s intentions with respect to Cruzan (June 3, 2005), the ability to participate was based upon record holdings on May 20, 2005, and no Cruzan stockholder had the ability to increase its participation level after the announcement on June 3, 2005.  All Cruzan stockholders were made aware of the June 3rd announcement during the subscription period, and the Cruzan executive officers and directors had no ability to increase their own subscriptions to the exclusion of the minority stockholders.

 

On June 1, 2005, Jay Maltby, Chief Executive Officer, Ezra Shashoua, Chief Financial Officer, and Thomas Valdes, Executive Vice President, of Cruzan received a phone call from Lawrence Duprey, Chairman of the Board of Angostura, requesting their presence at a meeting in Geneva, Switzerland on June 2, 2005.  Upon arriving in Geneva, the Cruzan officers were informed of Angostura’s intentions to sell its controlling equity stake in Cruzan to V&S.

 

On June 2, 2005, representatives of V&S met with Lawrence Duprey and Arnaud de Trabuc, Executive Director of CL Financial, Angostura’s parent company, in Geneva, Switzerland, and the stock purchase agreement was executed that same day (but made effective as of June 3, 2005).  Jay Maltby, Ezra Shashoua and Thomas Valdes of Cruzan were also present at the meeting.  On this same day, Angostura and Jay Maltby, Ezra Shashoua, and Thomas Valdes executed an agreement providing for the payment of $9 million by Angostura (for which Cruzan is not obligated) to Cruzan’s senior management,

 

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including Messrs. Maltby, Shashoua and Valdes, if the sale of Angostura’s Cruzan stock to V&S or its assignee was completed successfully.  As of the date of this proxy statement, Angostura has not yet paid these amounts to Cruzan’s senior management. On January 31, 2006, Messrs. Maltby, Shashoua and Valdes filed suit in Florida Circuit Court in Palm Beach County against Lawrence Duprey, Angostura Limited, Angostura Holdings Limited, CL Financial Limited and CL World Brands Limited for non-payment under the letter agreement. See “PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS – Angostura/Cruzan Management Letter Agreement.” The Angostura/Cruzan Management Letter Agreement is also attached to this proxy statement as Annex G.  Also on June 2, 2005, Angostura’s board had a telephonic board meeting whereby they formally approved the sale of the shares of Cruzan common stock held by Angostura to V&S and the execution of the stock purchase agreement.

 

On June 2, 2005, Cruzan’s board of directors met telephonically to discuss the execution of the stock purchase agreement.  Because of the prospect that V&S might make an offer to acquire the Cruzan shares held by stockholders unaffiliated with Angostura in a subsequent business combination, at the meeting Cruzan’s board of directors also appointed a special committee consisting of three directors for the purpose of considering the sale of Angostura’s controlling stake in Cruzan, as well as to consider any business combination proposal from V&S.

 

On June 3, 2005, the V&S board approved the execution of the stock purchase agreement with Angostura, and Cruzan issued a press release announcing the execution of the stock purchase agreement.  On the same date, V&S announced that it intended to offer the minority stockholders in Cruzan equitable treatment.  One of the conditions to the closing of the sale of Angostura’s shares to V&S was obtaining the approval of such sale by Cruzan’s board of directors.

 

On June 7, 2005, V&S exercised its right under the stock purchase agreement to assign its rights under such agreement to Absolut, including its right to purchase the Angostura shares.  On the same day, Absolut’s board of directors executed a unanimous written consent accepting the assignment of V&S’s rights under the stock purchase agreement.

 

On June 10, 2005, Donald L. Kasun and Leonard G. Rogers, two Cruzan directors who had been appointed to the special committee, and both of whom were determined to be independent by the board of directors due to their lack of affiliation with Cruzan, Cruzan management or Angostura, met with the special committee’s counsel, Morris, Nichols, Arsht & Tunnell (“MNAT”).  MNAT had determined prior to this first meeting of the special committee that one of the three directors originally appointed to the special committee, Edward F. McDonnell, should not be a member of the committee, but should be a consultant to the committee.  Mr. McDonnell was, therefore, not asked to participate in the committee meeting.  MNAT discussed with Messrs. Kasun and Rogers the applicability of Section 203 of the DGCL to the agreement by V&S to purchase the shares of Cruzan common stock owned by Angostura and any potential second-step merger, including the possibility that any second-step merger would be subject to the approval of the holders of at least two-thirds of Cruzan’s outstanding stock which is not owned by V&S or its affiliates or associates.  Section 203 of the DGCL generally prohibits, subject to certain exceptions, a business combination between a Delaware company and any “interested stockholder” (which is defined in Section 203 as any stockholder owning or beneficially owning 15% or more of such company’s voting securities) within three years of such stockholder becoming an “interested stockholder.”  Cruzan had previously added a specific provision to its certificate of incorporation, which “opted in” to the protections afforded by Section 203.  MNAT agreed to contact McDermott and company counsel, Gunster, Yoakley & Stewart, P.A. to discuss the Section 203 issue.

 

On June 13, 2005 through June 15, 2005, representatives of V&S met with Cruzan management in West Palm Beach to discuss a possible business combination and to prepare for the due diligence process.

 

On June 14, 2005, Cruzan’s board of directors met and determined that the special committee would be composed of Messrs. Kasun and Rogers, and that Mr. McDonnell, the other Cruzan director originally appointed to the special committee would be a consultant to the special committee.

 

On June 17, 2005, MNAT discussed with McDermott the applicability of Section 203 of the DGCL to the agreement by V&S to purchase the stock owned by Angostura, as well as the applicability of Section 203 to any second-step merger.  MNAT advised McDermott that in its view V&S, by signing the stock purchase agreement with Angostura, became an interested stockholder of the company subject to the restrictions of Section 203, including the requirement that any second-step merger would be subject to the approval of the holders of at least two-thirds of Cruzan’s outstanding stock which is not owned by V&S or its affiliates or associates.  McDermott took the position that V&S had not become an interested stockholder.  MNAT discussed with McDermott the possibility of the parties seeking a declaratory judgment with respect to the applicability of Section 203.  MNAT also advised McDermott that the special committee was not willing to move forward on any basis other than V&S agreeing to require any second-step merger to be approved by holders of two-thirds of the outstanding common stock not beneficially owned by V&S or its affiliates or associates.  McDermott advised MNAT that

 

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V&S would consider the special committee’s position and submit a proposal to the committee for its consideration.

 

From June 20 though June 24, 2005, representatives of McDermott performed legal due diligence at Cruzan’s headquarters and at Cruzan’s distillery in Lake Alfred, Florida.  Representatives of Lazard also performed financial due diligence at Cruzan’s headquarters that week.  Additional due diligence visits were made by V&S, McDermott and other consultants engaged by V&S from June 27 through June 29; July 6 through July 8 and July 20 through July 24.  These visits included site visits to Cruzan’s facilities in Lake Alfred and Winterhaven, Florida, Louisville, Kentucky and St. Croix, U.S. Virgin Islands.

 

On June 22, 2005, Cruzan and V&S executed a confidentiality agreement.  Pursuant to the terms of the agreement, V&S agreed to keep, and to cause its representatives, including McDermott and Lazard, to keep confidential the information regarding Cruzan and its business and affairs disclosed to V&S or its representatives by Cruzan during the due diligence process.

 

On June 23, 2005, the special committee met telephonically to again discuss the effect of Section 203 of the DGCL on a business combination between Absolut and Cruzan.  MNAT updated the special committee on the discussions with McDermott regarding Section 203.  The special committee decided to wait until the Section 203 issue was resolved to interview financial advisors.  Later that same day, MNAT informed McDermott that the special committee would not hire an investment advisor until it knew more about V&S’s proposed plans with respect to Cruzan.

 

On July 1, 2005, V&S delivered a merger proposal to the special committee to acquire the Cruzan shares held by stockholders unaffiliated with Angostura.  The merger proposal was for $28.37 per share in cash.  V&S also agreed, as requested by the special committee, that closing of the merger be conditioned upon the approval of the holders of at least two-thirds of Cruzan’s outstanding stock which is not owned by V&S or its affiliates or associates.  The merger proposal was accompanied by a draft merger agreement.  MNAT informed Lazard that the special committee would promptly retain a financial advisor and respond to the V&S merger proposal in due course.  Absolut filed its HSR Act pre-merger notification with respect to its proposed purchase of Angostura’s controlling stake in Cruzan with the Federal Trade Commission on the same day.

 

On July 5, 2005, Angostura filed its own HSR Act pre-merger notification with respect to its proposed sale of its controlling stake in Cruzan with the Federal Trade Commission.

 

During the week of July 11, 2005, the special committee interviewed three financial advisors.

 

On July 15, 2005, Absolut received notice of early termination with respect to its HSR Act filing.

 

On July 26, 2005, the special committee engaged Houlihan Lokey to act as its financial advisor and, if requested by the special committee, to provide a fairness opinion to the special committee and the Cruzan board of directors.  The special committee selected Houlihan Lokey because of Houlihan Lokey’s expertise in the industry and familiarity with Cruzan as a result of being retained by a prior special committee consisting of the same two committee members to render fairness opinions with respect to (i) Angostura’s purchase of $10 million of newly-issued shares of Cruzan common stock in August 2004 and (ii) two potential joint ventures among Cruzan, Angostura and members of Cruzan’s senior management that Cruzan had previously contemplated in 2003.  The special committee considered two other financial advisors in addition to Houlihan Lokey.

 

On August 16, 2005, the special committee met with MNAT and Houlihan Lokey.  Houlihan Lokey provided the special committee with its preliminary analysis of the $28.37 per share price proposed by V&S to acquire the shares held by the company’s minority public stockholders.  Houlihan Lokey reviewed with the special committee each valuation methodology it had used, including a market multiple approach, a comparable transaction approach and a discounted cash flow approach based on projections assuming that V&S did not acquire a controlling stake in Cruzan and assuming V&S did acquire a controlling stake in Cruzan.  Houlihan Lokey’s analyses based on projections which assumed that V&S did not acquire a controlling stake in Cruzan yielded a concluded value range of $22.86 to $27.01 per share.  The discounted cash flow analysis based on projections which assumed that V&S did acquire a controlling stake in Cruzan and Cruzan was able to expand its international presence through an expanded distribution network, yielded a valuation range of $27.86 to $34.19 per share.  The special committee tentatively determined to demand that V&S increase the merger price to $30.00 per share.  The special committee concluded that it would discuss the merger proposal and Houlihan Lokey’s analysis with its consultant, Edward F. McDonnell, before responding to the V&S proposal.

 

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On August 17, 2005, the special committee conferred with Edward F. McDonnell and MNAT.  Mr. McDonnell advised the special committee, based upon his industry experience, that V&S would like to diversify and add a rum brand to its portfolio, that V&S was the most likely buyer for the whole company, that V&S was the one buyer in the industry likely to pay the highest price, and that the committee’s proposed $30.00 price demand was reasonable.

 

The special committee and its advisors participated in a telephonic meeting with V&S and its advisors on August 19, 2005.  On the call, Leonard G. Rogers informed V&S, on behalf of the special committee, that a price of $30.00 per share for Cruzan’s minority stockholders would increase the likelihood that the required two-thirds vote on the merger would be obtained and was justified by the committee’s views on valuation.  V&S informed the special committee that it would consider the special committee’s demand and would respond in a few days.

 

On August 22, 2005, V&S delivered a letter to the special committee formally rejecting the special committee’s counterproposal and reiterating its view that the proposed price to the minority Cruzan stockholders was fair.  In support of its position, V&S informed the special committee that the offer price of $28.37 reflected a 102% premium over the closing price of $14.05 on June 3, 2005, the last trading day prior to the announcement of the stock purchase agreement between Angostura and V&S.  V&S also stated that the price included a substantial control premium. V&S also pointed out in the letter that the minority Cruzan stockholders were being offered the same price per share as V&S had agreed to pay to Angostura without bearing the same indemnification obligations and other risks that Angostura is subject to through the stock purchase agreement it entered into with V&S.  A telephonic meeting was convened for later that same afternoon between the special committee and its advisors and V&S and its advisors.  V&S again communicated directly to the special committee its position regarding the fairness of the $28.37 per share price.  The special committee informed V&S that it would discuss V&S’s response with its legal and financial advisors.

 

After the telephonic meeting with V&S and its advisors, the special committee met with MNAT.  The special committee discussed V&S’s rejection of the special committee’s counterproposal.  The special committee then discussed the treatment of the unvested options in the proposed merger agreement.  The special committee members concluded that before they made a final decision on the proposed $28.37 per share merger consideration to be paid to the minority Cruzan stockholders, they wanted to determine whether V&S was considering a change in its prior position that it would not cash-out the unvested options.  MNAT agreed to contact McDermott to determine whether V&S was prepared to cash-out the unvested options.  The special committee determined that if V&S was reconsidering its position with respect to the unvested options, the special committee intended to negotiate with V&S to obtain such additional consideration for the minority Cruzan stockholders.

 

On August 23, 2005, MNAT, on behalf of the special committee, contacted McDermott and inquired as to whether V&S intended to pay management any additional consideration for their unvested stock options as management had requested.  Under the draft merger agreement as proposed by V&S, unvested stock options were to be replaced with an incentive plan to be determined by the board of directors of the surviving corporation following the closing of the merger.  MNAT advised McDermott that if V&S intended to pay additional consideration for the unvested options, the special committee would negotiate with V&S on behalf of the minority Cruzan stockholders to instead increase the per share merger price to be paid to the minority Cruzan stockholders by that amount.  McDermott responded that V&S’s position remained as stated in the draft merger agreement.  MNAT, on behalf of the special committee, also asked whether V&S had completed its due diligence, whether such due diligence uncovered any information that V&S might later rely on to terminate the Angostura stock purchase agreement, and whether V&S intended to waive the condition to the closing of such stock purchase that Cruzan’s board of directors approve such transaction.

 

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On August 24, 2005, V&S, through McDermott, informed the special committee, through MNAT, that, subject to the satisfactory completion of its due diligence, which remained ongoing, it was prepared to close the stock purchase agreement with Angostura regardless of the status of discussions with the special committee.

 

On August 29, 2005, representatives of McDermott and MNAT convened a telephonic meeting to continue to negotiate basic issues with respect to the draft merger agreement, including whether the special committee could draft a response to the V&S merger proposal on the assumption, contrary to the V&S proposal’s assumption, that V&S would have purchased the Angostura shares prior to the execution of the merger agreement and that V&S would not require prior approval of that stock purchase by the Cruzan board.  Discussions between McDermott and MNAT concerning these issues took place for the next two days.  On August 31, McDermott informed MNAT that the closing of the stock purchase agreement with Angostura had been scheduled for September 26, 2005 in Trinidad.

 

On August 31, 2005, the special committee met with MNAT and Houlihan Lokey.  MNAT informed the special committee that McDermott had confirmed that, subject to the satisfactory completion of its due diligence, V&S was prepared to purchase the Angostura shares on September 26, 2005, and that V&S’s position with respect to the unvested options remained as stated in the draft merger agreement.  Houlihan Lokey presented its updated valuation analysis.  Houlihan Lokey’s valuation analysis had been updated to (1) factor in an appropriate control premium (10%) to be added to the implied equity value resulting from the market multiple approach to adjust for the minority discount inherent in stock market prices for minority shares, (2) factor in existing vested in-the-money stock options which had been excluded from Houlihan Lokey’s prior preliminary analysis and (3) take into account a $1.25 million dividend tax liability relating to Cruzan’s restructuring of its ownership of a Barbados subsidiary.  These adjustments, collectively, did not alter the fact that the preliminary concluded value range remained below the offer price of $28.37.  Accordingly, Houlihan Lokey advised the special committee that in its opinion the $28.37 per share merger price was fair, from a financial point of view, to Cruzan’s minority stockholders.  Based on Houlihan Lokey’s analysis, the committee’s own views with respect to Cruzan and its prospects and the firm position of V&S that it would not increase the merger price, the members of the special committee determined to accept the proposed merger price of $28.37 per share subject to the negotiation of an acceptable definitive merger agreement and the receipt of Houlihan Lokey’s written fairness opinion.

 

On September 1, 2005, MNAT advised McDermott that the special committee had met and had agreed to move forward in negotiating a definitive merger agreement with V&S on the basis of a price of $28.37 per share and that a formal letter from the special committee to that effect would follow.

 

On September 6, 2005, V&S received a letter from the special committee indicating that the special committee was prepared to recommend approval of the V&S merger proposal subject to negotiation of the definitive merger agreement and other conditions.

 

On September 8, 2005, MNAT, on behalf of the special committee, submitted a mark-up of V&S’s proposed merger agreement to McDermott that took the approach to the basic issues relating to (1) the independence of the stock purchase agreement and the merger agreement, (2) the prior approval of the stock purchase agreement by the Cruzan board and (3) the unvested options, that had been agreed to by V&S.

 

Negotiations relating to the terms of the merger agreement continued over the next several weeks.  On September 22, 2005, the special committee met with MNAT for an update on the merger agreement negotiations.

 

On September 26, 2005, Absolut completed its acquisition of a controlling interest in Cruzan from Angostura pursuant to the stock purchase agreement.  Absolut purchased all 4,294,583 shares of Cruzan’s common stock beneficially owned by Angostura, which represents approximately 63.6% of Cruzan’s outstanding common stock, for an aggregate consideration of approximately $121.8 million, or $28.37 per share.  Upon completion of this stock purchase transaction, Angostura became obligated, under the terms of its letter agreement with Messrs. Valdes, Maltby and Shashoua described above, to pay $9 million in the aggregate to these Cruzan executive officers.  As described above, as of the date of this proxy statement, Angostura has not yet made this payment.

 

The special committee met by telephone with MNAT daily from September 26, 2005 through September 29, 2005 for updates regarding the merger agreement negotiations.  At the September 27, 2005 meeting, Houlihan Lokey confirmed its opinion, subject to its review of the definitive merger agreement,

 

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that the $28.37 per share merger price was fair, from a financial point of view, to the minority public stockholders.  At the September 28, 2005 meeting, the special committee approved the merger agreement in the form presented at that meeting.  The Cruzan board of directors also approved that merger agreement.  Prior to the execution of that agreement, Absolut raised some additional issues relating to the timing of the effectiveness of the appointment of Absolut’s designees to Cruzan’s board of directors, the mechanics of the filing of a Schedule 14f-1 relating to the changes on Cruzan’s board of directors and the conduct of Cruzan’s business prior to the effectiveness of the appointment of Absolut’s representatives on the Cruzan board of directors.  On September 28 and 29, 2005, MNAT and McDermott negotiated changes to the merger agreement relating to these issues.  At the September 29, 2005 meeting, MNAT confirmed that Houlihan Lokey had reviewed the definitive merger agreement and had confirmed its opinion that the $28.37 merger price was fair, from a financial point of view, to the minority public stockholders.  At this same meeting, Houlihan also delivered a report, dated September 28, 2005, to the special committee which supported its fairness opinion.  Houlihan Lokey’s valuation analysis had been revised from that presented on August 31, 2005 to exclude the impact of the $1.25 million dividend tax liability relating to Cruzan’s restructuring of its ownership of a Barbados subsidiary as the liability would only be applicable upon Cruzan no longer being publicly held.  This adjustment did not alter the fact that the concluded value range remained below the offer price of $28.37.  The substance of this report is summarized below in “Opinion of Houlihan Lokey.”   The special committee unanimously determined that the merger agreement and the merger are advisable, fair to, and in the best interests of, the company and its minority public stockholders; recommended that Cruzan’s board of directors approve the merger agreement and the merger; recommended that the Cruzan board of directors recommend to the stockholders of the company that they vote to approve the merger and adopt and approve the merger agreement; and recommended that the stockholders of the company vote to approve the merger and adopt and approve the merger agreement.

 

On the same date, Cruzan’s board of directors unanimously (i) approved the merger agreement and the merger, (ii) determined the terms of the merger are fair to and in the best interests of Cruzan’s stockholders other than Absolut and its affiliates, (iii) recommended that Cruzan’s stockholders approve the merger and adopt and approve the merger agreement, and (iv) declared that the merger agreement is advisable.  On September 30, 2005, Cruzan, Absolut and Merger Sub executed the merger agreement.

 

Prior to the company’s entry into the merger agreement, Jay S. Maltby, Thomas A. Valdes, D. Chris Mitchell, Joseph R. Cook and Michael E. Carballo resigned as directors of Cruzan effective as of the time of execution of the merger agreement.  Prior to such resignations, the board of directors (other than the members of the special committee) appointed Mats Andersson, Ola Salmén, Ketil Eriksen and Lisa Derman, each nominated by Absolut, to Cruzan’s board of directors, to fill the vacancies created by such resignations, with such appointments to take effect as of 9:00 a.m. on October 11, 2005.  As a condition to the closing of the proposed merger, Leonard G. Rogers, Donald L. Kasun and Edward F. McDonnell are required to tender their resignations from Cruzan’s board of directors, effective upon the closing of the proposed merger.

 

As described below in “Opinion of Houlihan Lokey,” Houlihan Lokey valued the company based in part on two sets of financial projections provided by the company’s management – one set based on the assumption that V&S acquired its controlling stake in the company from Angostura, referred to as the “Synergistic Projections” in the “Opinion of Houlihan Lokey” section below, and the other set based on the assumption that V&S did not complete its purchase of a controlling stake from Angostura.  When Houlihan Lokey originally provided its estimated range of values to the special committee, however, it did not provide a valuation range that reflected the Synergistic Projections because V&S’s acquisition of Angostura’s controlling stake had not at that time been completed.  On November 29, 2005, the full board convened a brief informational meeting by telephone at which Houlihan Lokey formally updated its September 28, 2005 report to the special committee to provide updated valuation ranges under the market multiple and discounted cash flow valuation methodologies which reflected the Synergistic Projections, the substance of which is included below in the section entitled “Opinion of Houlihan Lokey.”  Houlihan Lokey confirmed that these updated valuation ranges did not affect Houlihan Lokey’s opinion that the $28.37 merger consideration was fair to the minority stockholders from a financial point of view.

 

On January 18, 2006, the current board of directors convened a telephonic board meeting attended by all of the directors except Ketil Eriksen, who was unable to attend.  At this meeting, the board of directors discussed the actions taken by the board of directors at the September 29, 2005 board meeting and determined that it was appropriate, given the change in the board of directors on October 11, 2005, to affirm both the prior board’s determination with respect to the fairness of the terms of the merger to Cruzan’s stockholders other than Absolut and its affiliates and the prior board’s recommendation to Cruzan’s stockholders to approve the merger and adopt and approve the merger agreement.

 

Reasons for the Merger

 

Cruzan’s Reasons for the Merger

 

Cruzan’s board of directors believes that the merger provides an opportunity for its unaffiliated stockholders to realize the same value from their investment that Cruzan’s former controlling stockholder, Angostura, was recently able to realize through a private sale of its own investment to Absolut.  Cruzan’s special committee also considered additional reasons for recommending the merger as set forth below under “Recommendation of the Special Committee and the Board of Directors.”

 

V&S’s, Absolut’s and Merger Sub’s Reasons for the Merger

 

V&S, Absolut and Merger Sub are proposing the merger with Cruzan at this time for the following reasons:

 

                                        The completion of the merger will consolidate ownership of Cruzan under V&S and Absolut;

 

                                        The completion of the merger would eliminate the substantial legal, accounting and regulatory compliance efforts and expenses associated with being a publicly traded company, including those arising under the Sarbanes-Oxley Act of 2002, which expenses Cruzan estimates to average approximately $1.0 million per year;

 

                                        The completion of the merger would allow Absolut to utilize Cruzan’s accumulated tax loss carryforwards to offset Absolut taxable income in future years and reduce Absolut’s tax liability.  As of September 30, 2005, Cruzan had accumulated approximately $25.3 million in tax loss carryforwards.  Absolut is limited under U.S. federal tax law with respect to the amount of Cruzan tax loss carryforwards that it can use to offset Absolut taxable income in any one tax year.  V&S, Absolut and Cruzan currently estimate that Absolut will be limited to using approximately $8 million per year in Cruzan’s accumulated tax loss carryforwards; however, because of certain U.S. federal tax laws, this amount may be reduced or even eliminated if the merger does not close by March 26, 2006.

 

Effects of the Merger

 

Effects of the Merger on Cruzan’s Unaffiliated Stockholders

 

If the merger is completed, Cruzan’s unaffiliated stockholders will be entitled to receive the merger consideration in cash.  The receipt of cash in exchange for shares pursuant to the merger will be a taxable transaction for U.S. federal income tax purposes and may be taxable for state and local purposes.  See “– Material U.S. Federal Income Tax Consequences of the Merger.”  After the effective time of the merger, there will be no further registration of transfers of outstanding shares of our common stock. See “The Merger Agreement.”

 

Effects of the Merger on Cruzan

 

If the merger is completed, Cruzan will remove its common stock from listing on the American Stock Exchange, such stock will no longer be publicly traded on any exchange or market system, and the registration of Cruzan common stock under the Exchange Act will be terminated.  As described under “—Reasons for the Merger” above, V&S, Absolut and Merger Sub believe that taking Cruzan private would have the benefit of eliminating the substantial compliance efforts and expenses associated with being a publicly traded company, which expenses Cruzan estimates at approximately $1.0 million per year.

 

Effects of the Merger on V&S and Absolut

 

If the merger is completed, Cruzan will become a wholly-owned subsidiary of Absolut and an indirect wholly-owned subsidiary of V&S.  In addition, as discussed above in “—Reasons for the Merger,” the completion of the merger would allow Absolut to utilize Cruzan’s accumulated tax loss carryforwards to offset Absolut taxable income in future years and reduce Absolut’s tax liability.  This effect may be reduced or effectively eliminated under the U.S. federal tax laws if the merger does not close by March 26, 2006.

 

Effects of the Merger on Merger Sub

 

If the merger is completed, Merger Sub will not survive, and each issued and outstanding share of Merger Sub’s common stock will be converted into one fully paid and non-assessable share of a surviving corporation which will be a wholly-owned subsidiary of Absolut and an indirect wholly-owned subsidiary of V&S.

 

Interests of Executive Officers, Members of the Special Committee and Members of the Board of Directors in the Merger

 

In considering the recommendation of the special committee and our board of directors to vote for the proposal to approve the merger and adopt and approve the merger agreement, you should be aware that all of our executive officers, the five members of Cruzan’s board of directors who resigned on September 30, 2005, each member of the special committee and each current member of our board of directors have personal interests in the merger that are, or may be, different from, or in addition to, your interests.  These personal interests are described in greater detail below.

 

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Affiliation with V&S and Absolut

 

Four of our seven board members – Ola Salmen, Ketil Eriksen, Mats Andersson and Lisa Derman – are employed by V&S or Absolut and are deemed to be “affiliates” of V&S and Absolut. Because V&S and Absolut own a majority of our outstanding common stock and control the majority of our board seats, each of our executive officers is also deemed to be an “affiliate” of V&S and Absolut.

 

 

Severance Provisions of Executive Officer Employment Agreements

 

We entered into employment agreements with Thomas A. Valdes, Ezra Shashoua, D. Chris Mitchell, Ousik Yu and Jay Maltby on June 17, 2003 that provide that if any of these executives is terminated by us without “Cause,” or by the executive for “Good Reason,” then we will be obligated to continue to pay such executive his base salary, his base guaranteed bonus and to continue to permit such executive to participate in and receive the benefits offered under our employee benefit plans or arrangements for the greater of (i) one year from the date of termination, or (ii) the remainder of the term of employment under such executive’s employment agreement.  Mr. Valdes’ term of employment ends on September 30, 2008.  Mr. Shashoua’s term of employment ends on June 30, 2008.  Mr. Mitchell’s term of employment ends on December 31, 2008.  Mr. Yu’s term of employment ends on December 31, 2007.  Mr. Maltby’s term of employment ends on June 30, 2009.  “Good Reason” is defined in the employment agreements to include (i) diminution of duties, (ii) reduction of salary or benefits (unless such reduction is applicable to all executive officers equally), or (iii) relocation of our headquarters outside of Palm Beach County or Broward County, Florida.  “Cause” is defined in the employment agreements to include (i) an executive being convicted of a felony which, in the exclusive determination of our board of directors, would have a material adverse effect on our business, our reputation or on such executive’s ability to perform his employment duties, (ii) the executive’s gross misconduct resulting in material harm to us, our business or our reputation, (iii) the executive willfully misappropriating our assets or otherwise willfully defrauding us, including by way of theft, embezzlement or breach of a fiduciary duty involving the executive’s personal profit, or (iv) the executive intentionally failing to perform his employment duties.

 

Additional severance payments are payable if, within one year following a “Change of Control,” an executive’s employment is terminated without Cause or for Good Reason within the two-year period immediately preceding the end of the executive’s term.  Such severance payments would be equal to (i) two times the executive’s base salary plus two times the executive’s base bonus and employee benefits, less (ii) the amounts otherwise payable in connection with a without “Cause” or “Good Reason” termination, as described in the preceding paragraph.

 

Under the executive employment agreements, a “Change of Control” took place on September 26, 2005 when Absolut completed the purchase of its controlling equity stake in Cruzan from Angostura.

 

In the event Mr. Yu was terminated by us after December 31, 2005 but prior to September 26, 2006, he would be entitled to receive additional “Change of Control” related severance from us in an amount up to $227,866.

 

In the event Mr. Shashoua was terminated by us after June 30, 2006, but prior to September 26, 2006, he would be entitled to receive additional “Change of Control” related severance from us in an amount up to $103,289.

 

As the applicable “two year periods” in the employment agreements of Messrs. Valdes, Mitchell and Maltby do not begin to run until after the one-year anniversary of the “Change of Control,” these executives will not be entitled to any additional “Change of Control” related severance payments upon termination.

 

21



 

Treatment of Outstanding Stock Options

 

An aggregate of 677,500 shares of our common stock are subject to stock options granted to our executive officers and directors under various stock option plans, and all of these options have exercise prices below $28.37 per share. Messrs. Maltby, Valdes, Mitchell, Shashoua, Yu and McDonnell hold vested in-the-money options exercisable for 125,000, 107,500, 54,374, 20,000, 59,374 and 60,000 shares of our common stock, respectively.  In the merger, each outstanding vested option to purchase our common stock will be converted into the right to receive a cash payment equal to the excess of the $28.37 per share merger consideration over the per share exercise price, multiplied by the number of shares of our common stock subject to the vested option.  If the merger is completed, our executive officers and directors will receive total cash payments of $8,137,495, in respect of vested stock options, including $2,413,525, $2,067,838, $1,049,951, $296,550, $1,151,181 and $1,158,450 to Messrs. Maltby, Valdes, Mitchell, Shashoua, Yu and McDonnell, respectively.

 

Inability to Terminate Supplemental Executive Retirement Plan Without Consent

 

During fiscal 2004, we implemented a defined benefit supplemental executive retirement plan (“SERP”) for Jay Maltby, Thomas A. Valdes, Ezra Shashoua, D. Chris Mitchell, Ousik Yu and three other non-executive officers. The SERP is a nonqualified deferred compensation plan providing life insurance protection during employment and subsequent retirement benefits. The SERP replaced the Company’s Executive Nonqualified Deferred Compensation Program, which was cancelled during fiscal 2004.

 

For each of the executives, upon the termination of the executive’s employment after attainment of age 65, we will pay the executive a monthly retirement benefit over a period of 15 years.  Retirement prior to age 65 with our consent shall result in a reduced retirement benefit based on years of service.  In the event the executive becomes permanently and totally disabled while in our employ, we will pay the executive a monthly disability benefit over a period of five years in an amount equal to the monthly retirement benefit pro rated over a five-year vesting period, with full vesting on February 20, 2009.  In the event of the death of the executive prior to retirement, the executive’s beneficiary is entitled to receive a death benefit.

 

In the event of cessation of employment with us for any reason other than death, disability or retirement, the executive will not be entitled to benefits under the SERP.  In addition, the executive will forfeit all rights to benefits under the SERP if the executive engages in competition with us during the two years following cessation of employment with us.

 

Under the terms of the SERP, unless the executive is terminated for cause, we may not terminate the SERP without the executive’s consent beginning nine months before a “Change of Control.”  Under the SERP, a “Change of Control” took place on September 26, 2005, when Absolut completed the purchase of its controlling equity stake in Cruzan from Angostura.

 

Continued Indemnification, Advancement of Expenses and D&O Insurance Coverage

 

The terms of the merger agreement provide for continued indemnification and advancement of expenses for our executive officers, the members of the special committee, Edward F. McDonnell and the five members of our board of directors who resigned on September 30, 2005, as well as an additional six years of directors and officers liability insurance coverage.  See “THE MERGER AGREEMENT – Indemnification of Directors and Officers; Advancement of Expenses and Insurance.”

 

Recommendation of the Special Committee and the Board of Directors

 

At a meeting of the special committee held on September 29, 2005, and at a separate meeting of the board of directors held on the same date, the special committee and the board of directors as constituted on that date (for purposes of this section, the “prior board of directors”) both separately by unanimous vote:

 

              approved the merger agreement and the merger;

 

              determined that the terms of the merger are fair to and in the best interests of our stockholders other than Absolut and its affiliates;

 

              recommended that our stockholders approve the merger and adopt and approve the merger agreement; and

 

              declared that the merger agreement is advisable.

 

Subsequent to the prior board of directors’ September 29, 2005 meeting, five members of the prior board of directors resigned effective upon the execution of the merger agreement. Prior to resigning, however, these directors and Edward F. McDonnell appointed four new directors designated by Absolut. These four new directors took their seats on the Cruzan board on October 11, 2005.  The board of directors as constituted as of October 11, 2005 is referred to in this section as the “current board of directors.” At a telephonic board meeting on January 18, 2006 attended by all of the Cruzan directors except for Ketil Eriksen (who was unable to attend), the current board of directors affirmed both the prior board of directors’ determination that the terms of the merger are fair to Cruzan’s stockholders other than Absolut and its affiliates and the prior board of directors’ recommendation to Cruzan’s stockholders to approve the merger and adopt and approve the merger agreement.

 

The material factors considered by the prior board of directors and by the members of the special committee in making the approval, determination, recommendation and declaration set forth above were as follows:

 

              the presentation of and opinion delivered by Houlihan Lokey that the $28.37 per share cash consideration to be received by our minority public stockholders in the merger was fair, from a financial point of view, to our minority public stockholders.  The special committee concluded that the valuation analyses performed by Houlihan Lokey supported the special committee’s conclusion that the merger is fair to, advisable and in the best interests of our stockholders.  A summary of Houlihan Lokey’s report dated September 28, 2005, as updated on November 29, 2005 is described under “- Opinion of Houlihan Lokey,” and the written opinion of Houlihan Lokey dated September 29, 2005 is included as Annex B to this proxy statement;

 

              the fact that the merger consideration is all cash, which provides certainty of value to all of our stockholders;

 

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              the opinion of Edward F. McDonnell, consultant to the special committee, that V&S was the most likely buyer of Cruzan and the one most likely to pay the highest price;

 

              the relationship between the $28.37 price per share to be paid pursuant to the merger and the recent and historical market prices of our common stock. The special committee deliberated over the $28.37 merger consideration and considered information presented by Houlihan Lokey with respect to the fact that the $28.37 cash consideration was above the then current market price for our common stock. In its presentation to the special committee, Houlihan Lokey noted that on June 3, 2005 the $28.37 merger price represented a premium of 102% to Cruzan’s market price of $14.05 per share.  Houlihan Lokey advised the special committee that because of Cruzan’s small public float, small trading volume and lack of analyst coverage and because Cruzan has few institutional investors, its market trading price prior to the announcement of V&S’s purchase of the Angostura block of Cruzan stock did not necessarily provide an accurate indication of value; and

 

              the fact that Absolut paid the same price per share to Angostura for its controlling stake in Cruzan.

 

The special committee understood that Absolut intended to operate Cruzan as a going concern if it successfully completed the merger.  Neither the prior board of directors nor the special committee considered, and the special committee did not request from Houlihan Lokey that it attempt to determine, the estimated liquidation value of Cruzan.  Neither the special committee nor Houlihan Lokey deemed the liquidation approach relevant for purposes of determining the fair value of Cruzan as a going concern.  The special committee noted that the merger consideration of $28.37 per share represented a substantial premium to Cruzan’s net book value per share as of June 30, 2005, which was $12.44.  In addition, the special committee was not able to compare the merger consideration proposed to be paid with any prior firm offers for Cruzan’s stock by unaffiliated persons because Cruzan had not previously received any such firm offers.

 

In addition to the factors contributing to the prior board of directors’ and special committee’s determination of substantive fairness described above, the prior board of directors, including the members of the special committee, believed that the merger was procedurally fair because, among other things:

 

                                          A special committee of the board of directors, composed of members with no affiliation with Cruzan, Cruzan’s management, Angostura or V&S/Absolut was appointed to represent the interests of holders of Cruzan’s common stock other than V&S/Absolut and its affiliates, and the special committee, with the assistance of its own experienced legal counsel, devoted substantial time and effort in evaluating and negotiating the terms and conditions of the merger agreement;

 

                                          The merger agreement requires that the merger agreement and the merger be approved by the holders of at least two-thirds of Cruzan’s outstanding stock which is not “owned” (as defined in Section 203 of the DGCL) by V&S or its “affiliates” or “associates;” (as defined in Section 203 of the DGCL); and

 

                                          Cruzan’s stockholders have appraisal rights under Delaware law.

 

In light of the factors set forth above, and the fact that the use of a special committee of independent directors is a well recognized procedural device to ensure fairness in transactions of this type, the prior board of directors believed that it was not necessary to the procedural fairness of this transaction that a majority of the directors who are not employees of Cruzan retain an additional unaffiliated representative, other than the special committee, to act solely on behalf of Cruzan’s unaffiliated stockholders in connection with the merger.

 

While the special committee and the prior board of directors considered each of the factors discussed above, neither the special committee nor the prior board of directors quantified or otherwise attached any particular weight to such factors in reaching their respective determinations.

 

Cruzan believes that all of the executive officers and directors who own shares of our common stock intend to vote “FOR” approval of the merger, however, the shares owned by Cruzan’s executive officers, which reflect approximately 0.7% of Cruzan’s outstanding common stock, will be excluded in determining whether the requirement in the merger agreement that the holders of at least two-thirds of Cruzan’s outstanding stock which is not “owned” (as defined in Section 203 of the DGCL) by V&S or its “affiliates” or “associates” (as defined in Section 203 of the DGCL) approve the merger agreement and the merger has been met.  See “SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN OTHER BENEFICIAL OWNERS.”  The fairness opinion of Houlihan Lokey speaks to the fairness of the merger consideration of $28.37 per share to Cruzan’s “minority public stockholders.” This group would include Cruzan’s executive officers.  The special committee was aware that Cruzan’s executive officers were due to receive a $9 million payment from Angostura in connection with Angostura’s prior sale of its own Cruzan stock to Absolut, but the special committee understood that such payment was not contingent upon the completion of the merger, and therefore the special committee did not consider such payment in connection with its recommendation in connection with the merger.  Given the fact that the Cruzan executive officers were due to receive the same merger consideration for their shares as the unaffiliated stockholders, and the special committee’s belief that Houlihan Lokey’s opinion did not consider the additional payments to some of those affiliates, or other interests of such affiliates, as merger consideration, the special committee and the prior board of directors believed that the merger was also fair to Cruzan’s unaffiliated stockholders alone.

 

The special committee and the prior board of directors considered the scope of the Houlihan Lokey fairness opinion to be consistent with these determinations.

 

The current board of directors did not undertake its own formal evaluation of the fairness of the merger to Cruzan’s unaffiliated stockholders and has relied on the evaluation performed by the special committee and the prior board of directors.  The current board of directors considered the same factors considered by the prior board of directors and the special committee, as described above, and have adopted the conclusion, and the analysis underlying such conclusion, based upon its view as to the reasonableness of that analysis.

 

Opinion of Houlihan Lokey

 

The special committee retained Houlihan Lokey as its financial advisor to advise the special committee and to render an opinion as to whether the $28.37 per share cash consideration to be received in the merger is fair to the minority stockholders from a financial point of view. At the September 29, 2005 Cruzan board meeting, based on and subject to the matters described in the fairness opinion, Houlihan Lokey rendered its opinion that, as of that date, the consideration to be received by the minority stockholders in connection with the merger was fair to the minority stockholders from a financial point of view.  At a subsequent Cruzan board meeting held on November 29, 2005, Houlihan Lokey formally provided, for the Cruzan board’s information, valuation indications for each of the valuation approaches described below which reflected management’s projected increase in Cruzan value that would likely result from V&S’s acquisition of a controlling stake in Cruzan on September 26, 2005 (the “Synergistic Projections”).  Prior to September 26, 2005, Houlihan Lokey had previously provided the special committee its estimate of the value of the company under the discounted cash flow approach assuming the Synergistic Projections, but Houlihan Lokey had not formally provided the special committee with an updated valuation range based on such Synergistic Projections.

 

The following is a summary of the material terms of Houlihan Lokey’s fairness opinion.  The full text of the fairness opinion is attached as Annex B to this proxy statement and contains additional information relating to such fairness opinion, including additional information relating to the assumptions made, procedures followed, matters considered and limits on Houlihan Lokey’s review and analysis.  Houlihan Lokey has consented to Cruzan’s use of its opinion in this proxy statement.

 

On July 26, 2005, the special committee engaged Houlihan Lokey to act as its financial advisor and, if requested by the special committee, to provide a fairness opinion to the special committee and the Cruzan board of directors.  The special committee selected Houlihan Lokey because of Houlihan Lokey’s expertise in the industry and, as described further below, familiarity with Cruzan as a result of being retained by a prior special committee consisting of the same two committee members to render fairness opinions with respect to (i) Angostura’s purchase of $10 million of newly-issued shares of Cruzan common stock in August 2004 and (ii) two potential joint ventures among Cruzan, Angostura and members of Cruzan’s senior management that Cruzan had previously contemplated in 2003.  The special committee considered two other financial advisors in addition to Houlihan Lokey.

 

23



 

During the past two years, Houlihan Lokey was engaged by a prior special committee consisting of the same two committee members to render a fairness opinion with respect to Angostura’s purchase of $10 million of newly-issued shares of Cruzan common stock.  Houlihan Lokey received a fee of $200,000 for its work on that transaction, along with reimbursed out-of-pocket expenses.  In addition, during the past two years, Houlihan Lokey was engaged by that prior special committee to render fairness opinions for two joint ventures Cruzan was contemplating.  The first involved the possible transfer by Cruzan of the rights to the Cruzan trade name for certain countries into a joint venture with Cruzan Holdings, a wholly-owned subsidiary of CL Financial, an affiliate of Angostura.  The second involved the possible transfer of rights to the Cruzan trade name for other countries into a second joint venture involving Cruzan Holdings and V&S.  Neither of these joint ventures was consummated and Houlihan Lokey rendered no fairness opinions concerning either.  Houlihan Lokey received a fee of $130,000 for work provided on those two possible transactions, along with reimbursed out-of-pocket expenses.

 

Houlihan Lokey’s fairness opinion is directed only to the fairness, from a financial point of view, of the consideration to be received by the minority stockholders in the merger and is not intended to constitute and does not constitute a recommendation as to how any stockholder should vote with respect to the merger or as to any other matters relating to the merger.  The special committee did not put any limitations on Houlihan Lokey or its investigations or procedures.  Houlihan Lokey was not requested to, and did not, initiate any discussions with third parties with respect to a possible acquisition of the company.

 

In rendering the fairness opinion, among other things, Houlihan Lokey did the following:

 

              reviewed the company’s annual reports to shareholders on Form 10-K for the fiscal years ended September 30, 2002, September 30, 2003, and September 30, 2004, and quarterly reports on Form 10-Q for the quarters ended December 31, 2004, March 31, 2005, and June 30, 2005, which the company’s management had identified as being the most current financial statements then available;

 

              spoke with certain members of the management of the company regarding the operations, financial condition and prospects of the company and regarding the merger;

 

              visited the business offices of the company in West Palm Beach, Florida;

 

              reviewed the merger agreement;

 

              reviewed the stock purchase agreement;

 

              reviewed the distribution agreement dated October 10, 2003 between the company and V&S;

 

              reviewed a services license agreement and a product license agreement, each dated January 31, 2005, between the company, Virgin Islands Rum Industries, Ltd., and Cruz Land, Ltd.;

 

              reviewed a proposed marketing service agreement between the company and the Government of the U.S. Virgin Islands, Department of Property and Procurement;

 

              reviewed a production agreement between the company and Wilson Daniels, Ltd., a licensed Seagrams Vodka bottler;

 

24



 

              reviewed two financial projection models for the company provided by management which detail the expected financial performance of the company for fiscal years ended September 30, 2005 through September 30, 2009, one as if V&S did not have a controlling stake in the company and the Synergistic Projections, which assumed that the company was able to expand its international presence through an expanded distribution network, resulting in incremental profits that would not occur in the projections that assumed V&S did not have control of the company;

 

              reviewed the historical market prices and trading volume for the company’s publicly traded securities for the past three years and those of certain publicly traded companies which were deemed relevant;

 

              reviewed certain other publicly available financial data for certain companies that were deemed relevant and publicly available transaction prices and premiums paid in other transactions that were deemed relevant for companies in related industries; and

 

              conducted such other financial studies, analyses and inquiries as deemed appropriate.

 

Houlihan Lokey used several analyses in connection with providing the fairness opinion. Each analysis provides an indication of the company’s per share equity value in order to assess the fairness from a financial point of view of the consideration to be received by the minority stockholders.  Houlihan Lokey utilized each of the following analyses, based upon its view that each is appropriate and reflective of generally accepted valuation analyses given the company’s trading volume relative to total shares outstanding, the accessibility of comparable publicly traded companies, the availability of forecasts from management of the company, and the available information regarding transactions that Houlihan Lokey deemed similar to the merger:

 

              a public market pricing and premiums analysis based upon the company’s closing sale price as of June 3, 2005, the last trading date prior to the announcement of the stock purchase agreement;

 

              a comparable public company analysis whereby the company’s projected 2006 fiscal year and 2007 fiscal year revenues and earnings before interest, taxes, depreciation and amortization (“EBITDA”), considering both the financial projections that assumed that V&S did not have a controlling stake in the company and the Synergistic Projections, were multiplied by risk adjusted multiples based upon a comparison of the company and comparable public companies;

 

              a discounted cash flow analysis whereby the company’s projected cash flows, considering both the financial projections that assumed that V&S did not have a controlling stake in the company and the Synergistic Projections, were discounted to determine the company’s enterprise value; and

 

              a comparable transaction analysis whereby the company’s latest twelve months revenues as of June 30, 2005, were multiplied by risk adjusted multiples based upon a comparison of the company and the targets in certain comparable transactions.

 

Public Market Pricing Analysis.  Houlihan Lokey reviewed the historical market prices and trading volume for the company’s publicly traded common stock and reviewed publicly available analyst reports, news articles, and press releases related to the company.  Houlihan Lokey analyzed the company’s closing sale price of $14.05 for common stock as of June 3, 2005. In addition, Houlihan Lokey reviewed the company’s closing sale prices for common stock on a 30-day and 60-day average basis as of June 3, 2005, which were $13.78 and $13.43, respectively.  Houlihan Lokey also considered the company’s 52-week high, 52-week low, and the average closing sale prices during the 52 weeks prior to June 3, 2005, with such pricing ranging from $11.80 to $14.16 per share.

 

Market Multiple Analysis.  Houlihan Lokey reviewed certain financial information of publicly traded companies it deemed comparable to the company.  The comparable companies included: Brown-Forman Corp., Constellation Brands, Inc., Corby Distilleries Ltd., Davide Campari Milano S.p.A., Diageo PLC, Pernod Ricard S.A., Remy Cointreau S.A. and MGP Ingredients, Inc.  No company used in the

 

25



 

market multiple analysis was determined to be directly comparable to the company.  Accordingly, Houlihan Lokey performed this analysis to understand the range of multiples of revenue and EBITDA of these companies based upon market prices.  Houlihan Lokey calculated certain financial ratios of these companies based on the most recent publicly available information, including multiples of:

 

              “enterprise value” (that is, the equity value of the company plus all interest-bearing debt and less cash and cash equivalents) to projected next fiscal year plus one (“NFY+1”) revenue and next fiscal year plus two (“NFY+2”) revenue; and

 

              enterprise value to projected NFY+1 EBITDA and NFY+2 EBITDA.

 

The analysis showed that the multiples exhibited by these companies based on the closing stock price as of September 26, 2005, were as follows:

 

 

 

Enterprise
Value/Revenue
(NFY+1)

 

Enterprise
Value/EBITDA
(NFY+1)

 

Enterprise
Value/Revenue
(NFY+2)

 

Enterprise
Value/EBITDA
(NFY+2)

 

Low

 

1.9

x

9.9

x

1.8

x

8.7

x

High

 

4.9

x

12.3

x

4.0

x

11.3

x

Median

 

2.4

x

10.6

x

2.2

x

10.1

x

Mean

 

3.0

x

10.9

x

2.5

x

10.0

x

 

Based in part on these multiples, Houlihan Lokey derived indications of the enterprise value of the company by:

 

              applying selected revenue multiples ranging from 1.2x to 1.3x to the company’s NFY+1 projected revenues ending September 30, 2006, and 1.1x to 1.2x to the company’s NFY+2 revenues ending September 30, 2007; and

 

              applying selected EBITDA multiples ranging from 9.0x to 10.0x to the company’s NFY+1 EBITDA ending September 30, 2006, and from 8.0x to 9.0x to the company’s NFY+2 EBITDA ending September 30, 2007.

 

Houlihan Lokey utilized these selected multiples after considering the size and diversification of operations of the companies, the volatility of the company’s earnings and the relative risk of the company’s product offering vis-à-vis the companies.

 

Houlihan Lokey also considered that the multiples exhibited by these companies reflect marketable minority ownership, but not prices for change of control transactions.  Accordingly, Houlihan Lokey applied a 10% premium to the resulting equity indication to arrive at an enterprise value for the company.

 

The resulting indications of the enterprise value of the company, utilizing the financial projections that assumed that V&S did not have a controlling stake in the company, ranged from approximately $141.0 million to $155.7 million.  To arrive at an indicated per share value, certain adjustments were made, including adding the value of the company’s non-operating assets including its cash, proceeds from the exercise of in-the-money stock options, the value of the marketing services agreement and production agreement, and subtracting the company’s interest-bearing debt obligations and non-operating liabilities (collectively, the “Adjustments”).  The resulting indicated range of value from the market multiple analysis, utilizing the financial projections that assumed that V&S did not have a controlling stake in the company, was $19.63 to $22.72 per share.

 

The resulting indications of the enterprise value of the company, utilizing the Synergistic Projections, ranged from approximately $147.0 million to $162.5 million.  To arrive at an indicated per share value, the same Adjustments were made as described above and an additional dividend tax liability was subtracted related to a repatriation of funds which the company intended to pay in anticipation of the company no longer being publicly held.  The resulting indicated range of value from the market multiple analysis was $20.30 to $23.49 per share.

 

Discounted Cash Flow Analysis.  Houlihan Lokey performed a discounted cash flow analysis of the company utilizing both the Synergistic Projections and the set of projections that assumed V&S did not have a controlling stake in the company.  Utilizing these projections and publicly available information, Houlihan Lokey calculated

 

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the theoretical discounted present value for the company by adding together the present value of the future cash flows that the company could be expected to produce over approximately a five-year period (beginning with the fourth quarter of fiscal year 2005 through fiscal year 2009) and the present value of the terminal value.  The terminal value is the value of the enterprise at the end of the projected period and is determined by using a market multiple approach.  Houlihan Lokey utilized a range of EBITDA multiples of 9.0x to 10.0x to determine the terminal value.  The after-tax discount rate analyzed by Houlihan Lokey in the discounted cash flow analysis ranged from 12% to 14%. 

 

Based on the company’s projections that assumed that V&S did not have a controlling stake in the company and this analysis, Houlihan Lokey calculated the company’s enterprise value to be approximately $164.2 million to $193.4 million.  To arrive at an indicated per share value, the same Adjustments were made as were made in the Market Multiple Analysis described above.  The resulting indicated range of value from the discounted cash flow analysis was $22.85 to $27.97 per share.

 

Based on the Synergistic Projections and this analysis, Houlihan Lokey calculated the company’s enterprise value to be approximately $191.8 million to $227.0 million.  To arrive at an indicated per share value, the same Adjustments were made as were made in the Market Multiple Analysis described above and an additional dividend tax liability was subtracted related to a repatriation of funds which the company intended to pay in anticipation of the company no longer being publicly held.  The resulting indicated range of value from the discounted cash flow analysis was $26.52 to $32.47 per share.

 

Comparable Transaction Analysis. Using publicly available information, Houlihan Lokey reviewed the multiples exhibited and control premiums paid in change of control transactions announced and completed after July 31, 2000 for which financial information about both the transaction and the target company was publicly disclosed. Target companies had Standard Industrial Classification (SIC) codes of 2084 or 2085, which are companies whose primary business is the manufacture of wines, brandy and brandy spirits, or distilled and blended liquors. Houlihan Lokey identified 14 transactions with enterprise values ranging from approximately $80 million to $18 billion that met this criteria. Houlihan Lokey considered that the merger and acquisition transaction environment varies over time because of, among other things, interest rate and equity market fluctuations and industry results and growth expectations. No company or transaction used in this comparable transaction analysis was determined to be directly comparable to the company or the merger. Houlihan Lokey identified the following comparable transactions:

 

Announced

 

Effective

 

Target

 

Acquiror

 

 

 

 

 

 

 

4/21/2005

 

7/26/2005

 

Allied Domecq PLC

 

Pernod Ricard SA

1/17/2005

 

6/3/2005

 

Southcorp Ltd.

 

Foster’s Group Ltd.

12/20/2004

 

2/9/2005

 

Chalone Wine Group

 

Diageo PLC

10/20/2004

 

1/7/2005

 

Glenmorangie PLC

 

LVHM Moet Hennessey Louis Vuitton SA

10/19/2004

 

12/22/2004

 

The Robert Mondavi Corp

 

Constellation Brands, Inc.

3/17/2004

 

7/26/2004

 

Golden State Vintners, Inc.

 

The Wine Group LLC

8/29/2003

 

11/17/2003

 

Peter Lehmann Wines Ltd.

 

Hess Group AG

4/28/2003

 

7/29/2003

 

H.P. Bulmer Holdings PLC

 

Scottish & Newcastle PLC

11/5/2001

 

11/5/2001

 

Inver House Distillers Ltd.

 

Great Oriole Group

10/16/2001

 

10/16/2001

 

Invergordon Distillers/Whyte & Mackay

 

Kyndal International Ltd.

9/4/2001

 

9/4/2001

 

Kummerling GmbH

 

Allied Domecq plc

12/19/2000

 

12/25/2001

 

Drinks Business of Seagrams

 

Pernod Ricard/Diageo plc

8/28/2000

 

10/5/2000

 

R.H. Phillips, Inc.

 

Vincor International

8/28/2000

 

10/3/2000

 

Beringer Wine Estates

 

Fosters Brewing Group Ltd.

 

Houlihan Lokey’s analysis showed that the multiples exhibited in the change of control transactions were as follows:

 

Latest Twelve Months (“LTM”)

 

 

 

Enterprise
Value/Revenue

 

Enterprise
Value/EBITDA

 

Low

 

0.7

x

8.7

x

High

 

5.0

x

25.4

x

Median

 

2.9

x

16.2

x

Mean

 

2.7

x

15.7

x

 

Based in part on these multiples, Houlihan Lokey derived indications of the enterprise value of the company by applying selected revenue multiples ranging from 1.6x to 1.7x to the company’s LTM revenues ended June 30, 2005.  The application of an EBITDA multiple to the company’s LTM EBITDA did not yield a meaningful value indication and was therefore not considered.  The selection of multiples based on the comparable companies considered the risk profile, product mix, relative profitability, and other factors relative to Cruzan in comparing it to the comparable companies.  The multiples used for Cruzan were lower than the mean due in part to Cruzan’s significantly lower EBITDA margin than the comparable companies, the relatively small revenue generated by the Cruzan brand itself compared to the branded spirit and wine segments of most of the comparable companies, and Cruzan’s product mix, which was more heavily weighted towards commodity manufacturing than were most of the comparable companies.

 

Houlihan Lokey utilized these selected multiples after considering the size and diversification of operations of the comparable transactions, the volatility of the company’s earnings and the relative risk of the company’s product offering vis-à-vis the target companies in the comparable transactions.

 

Based on this comparable transaction analysis, the resulting indications of the enterprise value of the company ranged from approximately $166.3 million to $176.7 million.  To arrive at an indicated per

 

27



 

share value, the same Adjustments were made as were made in the Market Multiple Analysis described above. The resulting range of value was $23.15 to $25.65 per share.

 

Determination of Equity Value.  Houlihan Lokey determined the enterprise value of the operations of the company (before the Adjustments) based on (i) the market multiple analysis, (ii) the discounted cash flow analysis and (iii) the comparable transaction analysis.  The valuation indications, utilizing the financial projections that assumed V&S did not have a controlling stake in the company are summarized as follows:

 

Analysis

 

Low Indication of Enterprise Value

 

High Indication of Enterprise Value

 

Market Multiple

 

$

141.0 million

 

$

155.7 million

 

Discounted Cash Flow

 

$

164.2 million

 

$

193.4 million

 

Comparable Transaction

 

$

166.3 million

 

$

176.7 million

 

 

Based upon these three analyses, Houlihan Lokey selected a range of the company’s enterprise value of $160.2 million to $180.9 million, utilizing the financial projections that assumed V&S did not have a controlling stake in the company. Houlihan Lokey then made the same Adjustments as were made in the Market Multiple Analysis described above to conclude a range of equity value for the company of $160.3 million to $188.5 million, or $22.30 to $26.22 per share.

 

The valuation indications, utilizing the Synergistic Projections, are summarized as follows:

 

Analysis

 

Low Indication of
Enterprise Value

 

High Indication of
Enterprise Value

 

Market Multiple

 

$

147.0 million

 

$

162.5 million

 

Discounted Cash Flow

 

$

191.8 million

 

$

227.0 million

 

Comparable Transaction

 

$

166.3 million

 

$

176.7 million

 

 

Based upon these three analyses and utilizing the Synergistic Projections, Houlihan Lokey selected a range of the company’s enterprise value of $175.2 million to $199.0 million.  Houlihan Lokey then made the same Adjustments as were made in the Market Multiple Analysis described above and an additional dividend tax liability was subtracted related to a repatriation of funds which the company intended to pay in anticipation of the company no longer being publicly held to conclude a range of equity value for the company of $174.1 million to $205.4 million, or $24.22 to $28.57 per share.

 

Houlihan Lokey also noted that the consideration of $28.37 for each share of common stock in the merger represents (i) a premium of 102% over the closing price as of June 3, 2005, for the common stock, and (ii) a premium of approximately 106% and 111% over the average closing prices during the 30 trading days and 60 trading days, respectively, prior to and including June 3, 2005, the last trading date prior to the announcement of the stock purchase agreement.

 

Determination of Fairness.  After determining the equity value of the company, Houlihan Lokey noted that the consideration of $28.37 per share as provided for in the merger is above the range of the indications of value, utilizing the financial projections that assumed V&S did not have a controlling stake in the company.  Prior to Houlihan Lokey rendering its final written fairness opinion, Absolut completed its acquisition of the common stock of Cruzan held by Angostura and obtained effective control of Cruzan.  Houlihan Lokey subsequently reconsidered the Synergistic Projections to determine whether relying on these projections in its final analysis would affect its final conclusions as to fairness.  Management had previously stated that these synergies would not be available to the company without V&S having a controlling stake and therefore, Houlihan Lokey did not rely upon the Synergistic Projections in the analysis it had conducted prior to V&S taking control.  The results of its analysis, utilizing the Synergistic Projections, indicated that, although the Synergistic Projections resulted in a higher indicated range of value for Cruzan, they did not affect Houlihan Lokey’s fairness opinion.  Accordingly, Houlihan Lokey determined that as of September 29, 2005, the consideration to be received by the minority stockholders in the merger is fair to them from a financial point of view.

 

Houlihan Lokey’s fairness opinion was based on the business, economic, market and other conditions as they existed as of September 29, 2005, and on the financial projections of the company provided to Houlihan Lokey.

 

Houlihan Lokey relied upon and assumed, without independent verification, the accuracy and completeness of all data, material and other information (including, without limitation, the financial projections) furnished, or otherwise made available, to Houlihan Lokey, discussed with or reviewed by Houlihan Lokey, or publicly available.

 

The summary set forth above describes material points of more detailed analyses performed by Houlihan Lokey in arriving at the fairness opinion.  The preparation of a fairness opinion is a complex analytical process involving various determinations as to the most appropriate and relevant methods of financial analysis and application of those methods to the particular circumstances and is therefore not readily susceptible to summary description.  In arriving at its opinion, Houlihan Lokey made qualitative judgments as to the significance and relevance of each analysis and factor.  Accordingly, its analyses and summary set forth herein must be considered as a whole and selecting portions of its analyses, without considering all analyses and factors, or portions of this summary, could create an incomplete or inaccurate view of the processes underlying the analyses set forth in the fairness opinion.  In its analyses, Houlihan Lokey made numerous assumptions with respect to the company, the merger, industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of the respective entities.  The estimates contained in such analyses are not necessarily indicative of actual values or predictive of future results or values, which may be more or less favorable

 

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than suggested by such analyses.  Additionally, analyses relating to the value of businesses or securities of the company are not appraisals.  Accordingly, such analyses and estimates are inherently subject to substantial uncertainty.

 

The company agreed to pay Houlihan Lokey a fee of $150,000 for its services, plus reasonable out-of-pocket expenses. No portion of Houlihan Lokey’s fee is contingent upon the conclusions reached in the fairness opinion.  The company has agreed to indemnify Houlihan Lokey and any employee, agent, officer, director, attorney, shareholder or affiliate of Houlihan Lokey and any person who controls Houlihan Lokey, against all losses arising out of its engagement by the special committee, including losses arising under the federal securities laws.

 

The Position of Absolut, V&S and Merger Sub as to the Fairness of the Merger to the Unaffiliated Stockholders

 

Absolut, V&S and Merger Sub are making the statements included in this sub-section solely for the purposes of complying with the requirements of Rule 13e-3 and related rules under the Exchange Act. The positions of Absolut, V&S and Merger Sub as to the fairness of the merger is not a recommendation to any stockholder as to how such stockholder should vote on the merger.

 

Absolut, V&S and Merger Sub believe that the merger is substantively and procedurally fair to Cruzan’s unaffiliated stockholders.  However, none of Absolut, V&S or Merger Sub has undertaken any formal evaluation of the fairness of the merger to Cruzan’s unaffiliated stockholders and has relied, without independent investigation, on the evaluation performed by the special committee. Moreover, none of Absolut, V&S or Merger Sub participated in the deliberations of the special committee or received advice from Houlihan Lokey. However, Absolut, V&S and Merger Sub have considered the same factors examined by the special committee described above under “- Recommendation of the Special Committee and the Board of Directors” and have adopted the conclusion, and the analysis underlying such conclusion, of the special committee, based upon its view as to the reasonableness of that analysis. Based on their consideration of these factors, Absolut, V&S and Merger Sub believe that the merger is substantively and procedurally fair to Cruzan’s unaffiliated stockholders.  Absolut and V&S believe that the merger is procedurally fair to Cruzan’s unaffiliated stockholders for all of the reasons and factors described above under “- Recommendation of the Special Committee and the Board of Directors.”

 

Financial Projections

 

In the course of discussions between Cruzan and V&S, Cruzan provided V&S with selected, non-public financial projections prepared by its senior management.  Cruzan does not as a matter of course make public any projections as to future financial performance or earnings, and the projections set forth below are included in this proxy statement only because this information was provided to the board of directors, the special committee, Houlihan Lokey and/or V&S, in connection with their evaluation of a potential merger.

 

Management of Cruzan does not normally project earnings and is especially wary of making projections for extended earnings periods due to their unpredictability. However, in connection with the special committee’s review of the merger transaction, management of Cruzan prepared various financial projections.  V&S, who entered into a confidentiality agreement, was provided with projections of Cruzan’s future performance for the fiscal years ending 2005 through 2009 in June 2005.

 

29



 

Cruzan advised the recipients of the projections that its internal financial forecasts, upon which the projections were based, are subjective in many respects. The projections reflect numerous assumptions with respect to industry performance, general business, economic, market and financial conditions and other matters, all of which are difficult to predict and beyond Cruzan’s control. The projections also reflect numerous estimates and assumptions related to the business of Cruzan (including with respect to the growth and viability of certain segments of Cruzan’s business) that are inherently subject to significant economic, political, and competitive uncertainties, all of which are difficult to predict and many of which are beyond Cruzan’s control.  Two sets of projections were provided and are set forth below.

 

The projections set forth below were not prepared with a view to public disclosure or compliance with published guidelines of the SEC, any state securities commission or the American Institute of Certified Public Accountants regarding preparation and presentation of prospective financial information.  The projections were prepared by, and are the responsibility of, Cruzan.  McGladrey & Pullen, LLP, our auditors, have neither compiled nor examined our projections, and, accordingly, McGladrey & Pullen, LLP does not express an opinion or any other form of assurance with respect to the projections.  The McGladrey & Pullen, LLP report included in Annex D, which is attached to this proxy statement, relates to Cruzan’s historical financial information; it does not extend to prospective financial information and should not be read to do so.  The projections reflect numerous assumptions, all made by management of Cruzan, with respect to industry performance, general business, economic, market and financial conditions and other matters, all of which are difficult to predict and many of which are beyond Cruzan’s control.  There can be no assurance that the assumptions made in preparing the projections set forth below will prove accurate, and actual results may be materially greater or lower than those contained in the projections set forth below.

 

In light of the uncertainties inherent in forward-looking information of any kind, Cruzan cautions you against reliance on such information.  Except to the extent required by the securities laws, neither Cruzan nor its respective officers and directors intend to update or revise the projections to reflect the circumstances existing after the date when prepared or to reflect the occurrence of future events.  See “CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS.”

 

First Set of Projections (Assuming V&S Did Have a Controlling Stake in the Company)

 

The first set of projections were based on the company’s actual results through March 31, 2005 as adjusted for certain assumptions relating to pricing, unit volume, cost of raw materials and overhead.  The projections assume that V&S did have a controlling stake in the company and that Cruzan is able to expand its international presence, resulting in incremental profits that did not occur in the projections that did not contemplate the merger.  Material assumptions included:

 

              Net sales of bulk alcohol products increase slightly reflecting both price and volume increases and decreases of the underlying products.  Net sales of premium branded spirits were based on increasing volumes using the fiscal year ended September 30, 2004 as the base year.  Significant volume growth for CRUZAN rum is projected (at a minimum of 20% annually throughout the forecast period) and modest price increases through the term of projection, principally as a result of increased marketing spending and resulting market awareness, together with the growing popularity of the flavored rums category.  Net sales of the company’s bottling operations are projected to decrease 9% during 2006 primarily due to the loss of business from a major customer.  Thereafter, net sales of the company’s bottling operations are projected to decrease from 2% to 3% during the

 

30



 

projection period.  Net sales of vinegar and cooking wine are projected to increase by 1%, on an annualized basis, during the projection period.

 

              Cost of goods sold consists of material, direct labor, overhead costs and depreciation expense and is generally assumed to be consistent with historical quarterly experience on a percentage basis.

 

              Operating expenses include selling, general, administrative, marketing, amortization and non-manufacturing depreciation expense and are generally assumed to be consistent with historical quarterly experience on a percentage basis, with the exception of the premium branded spirits segment.  Corporate operating expenses are projected to increase 5% per year beginning in 2006.  Selling, general, administrative and marketing expenses for the premium branded spirits segment increase modestly during the projection period (prior to the adjustment due to the agreement described in the next paragraph) as the company continues to expand its selling infrastructure and reinvest gross profits into an expanding marketing program.

 

              In October 2003, the company entered into a distribution agreement with V&S by which V&S would market and be the distributor of CRUZAN rums in certain countries outside of the United States (for further details, see “PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS – Distribution Agreement between V&S and Cruzan” on page 74).  The agreement provides for the company and V&S to share equally in the costs of marketing CRUZAN rum and then split equally the net income or loss of the CRUZAN rum marketed and sold by V&S.  The projections assume that V&S will introduce CRUZAN rum into several foreign countries through its existing distribution networks, including the Maxxium partnership, during the projection period and include the company’s share of income or loss as an addition to, or subtraction from, operating expenses.  During the first two years of the projection period, the company records pre-tax losses in the aggregate of approximately $0.9 million and in the last three years records pre-tax gains aggregating $10.5 million.

 

              Historically, the company has experienced a low tax rate which is attributable to its U.S. Virgin Islands subsidiary.  The company’s U.S. Virgin Islands subsidiary has an exemption from U.S. Virgin Islands income taxes on 90% of its operating income.  A tax rate of 37.5% of U.S. income before income taxes, which includes deferred income tax expense, and 4% of foreign income before income taxes, was used.

 

              The projected balance sheets of the company are based on analyses of historical ratios, operating performance during the projection period and other assumptions relating to the company’s capital structure.  The projections assume the company’s credit facilities are refinanced prior to their maturity in January 2006 under the same terms as the existing revolving line of credit and term loan.

 

31



 

Management Projections Prepared in June 2005

(Assuming V&S Did Have a Controlling Stake in Cruzan)

(in thousands)

 

 

 

2005

 

2006

 

2007

 

2008

 

2009

 

Revenue

 

$

106,126

 

$

119,010

 

$

134,459

 

$

151,507

 

$

170,865

 

Gross Profit

 

38,411

 

44,215

 

50,411

 

57,070

 

63,984

 

Income Tax expense (benefit)

 

(2,670

)

38

 

2,483

 

5,304

 

8,839

 

Net Income (Loss)

 

(267

)

4,233

 

8,308

 

13,009

 

18,901

 

Assets

 

130,906

 

130,078

 

134,504

 

143,694

 

157,938

 

Liabilities

 

45,742

 

40,681

 

36,800

 

32,980

 

28,323

 

 

Second Set of Projections (Assuming V&S Did Not Have a Controlling Stake in the Company)

 

The second financial projection model assumed that Absolut’s purchase of controlling interest in Cruzan from Angostura did not occur.  The only change in the assumptions from the assumptions contained in the first set of financial projections relates to the distribution agreement with V&S.  In the following projections, it was assumed that the relationship with V&S would be discontinued in its present form, as V&S indicated to members of Cruzan’s management that V&S would not agree to a continuation and expansion of the relationship unless V&S were to obtain a controlling interest in the company.  The projections assume that the relationship with V&S in current markets would revert to a standard distribution relationship for the countries currently under the agreement.

 

Management Projections Prepared in June 2005

(Assuming V&S Did Not Have a Controlling Stake in Cruzan)

(in thousands)

 

 

 

2005

 

2006

 

2007

 

2008

 

2009

 

Revenue

 

$

106,563

 

$

116,299

 

$

129,957

 

$

145,481

 

$

162,061

 

Gross Profit

 

38,744

 

44,800

 

51,055

 

57,778

 

64,764

 

Income Tax expense (benefit)

 

(2,514

)

208

 

1,989

 

4,264

 

6,658

 

Net Income (Loss)

 

(6

)

4,516

 

7,484

 

11,276

 

15,267

 

Assets

 

131,161

 

130,109

 

134,755

 

143,058

 

155,432

 

Liabilities

 

45,737

 

40,169

 

37,332

 

34,359

 

31,465

 

 

While this set of projections was used by Houlihan Lokey in its original analysis, Houlihan Lokey did not consider them to be relevant in rendering its final fairness opinion because V&S did acquire a controlling interest in the company on September 26, 2005, when it purchased Angostura’s 63.6% stake in the company.

 

Plans for Cruzan if the Merger Is Not Completed

 

In the event that the merger agreement is not approved and the merger is not completed, you will not receive any payment for your shares.  Neither we nor Absolut, our controlling stockholder, has any present plans or proposals for Cruzan in the event the merger is not completed, but we and Absolut expect that, regardless of whether or not the merger is completed, we will explore changes in Cruzan’s business to increase profitability and enhance stockholder value.  It is possible that such changes may include

 

32



 

extraordinary corporate transactions such as reorganizations or liquidation, sale or transfer of a material amount of assets.  We would also expect that, regardless of whether or not the merger is completed, we will seek to integrate our distribution operations with Absolut to take advantage of the cost synergies that would arise out of such integration.

 

Required Regulatory Approvals

 

Alcohol Regulatory Approvals

 

The transactions contemplated by the merger agreement require that several state alcohol regulatory agencies approve the transaction in order for Cruzan to continue holding certain alcohol beverage licenses.  The transactions will trigger certain filing requirements with both federal and certain state alcohol regulatory agencies.

 

HSR Act Approvals

 

The merger is subject to the requirements of the HSR Act, which prevents certain acquisitions from being consummated until required information and materials are furnished to the Antitrust Division of the U.S. Department of Justice and the Federal Trade Commission and certain waiting periods are terminated or expire.  Absolut made the required filings with the U.S. Department of Justice and the Federal Trade Commission, and was granted early termination effective July 15, 2005.  The early termination of the HSR Act waiting period does not preclude the Antitrust Division or the Federal Trade Commission from challenging the acquisition on antitrust grounds.

 

Anticipated Accounting Treatment

 

In accordance with United States generally accepted accounting principles, Absolut will account for the merger using the purchase method of accounting.  Accordingly, it is expected that the basis of Cruzan in its assets and liabilities will be adjusted to fair market value upon completion of the merger, including the establishment of additional goodwill.

 

Material U.S. Federal Income Tax Consequences of the Merger

 

The following is a summary of the material U.S. federal income tax consequences of the merger to our stockholders with respect to their exchange of common stock for cash pursuant to the merger, such exchanging stockholders referred to herein as “stockholders,” and to us. This summary does not purport to be a description of all tax consequences that may be relevant to our stockholders. This summary is based on current provisions of the Internal Revenue Code of 1986, as amended, or the Code, existing regulations promulgated under the Code, and current administrative rulings and court decisions, all of which are subject to change, possibly retroactively. Any such change could alter the tax consequences to our stockholders described in this proxy statement. No ruling from the Internal Revenue Service has been or will be sought with respect to any aspect of the transactions described in this proxy statement. It is assumed that the shares of common stock are held as capital assets. This summary does not address the consequences of the merger under state, local or foreign law, nor does it address all aspects of U.S. federal income taxation that may be important to some or all of our stockholders in light of their individual circumstances. In addition, this discussion does not address the tax consequences of transactions effectuated prior to or after the merger (whether or not such transactions occur in connection with the merger). It also does not address tax issues that may be significant to stockholders subject to special rules, such as financial institutions; broker-dealers or traders in securities; pass-through entities (such as partnerships) and investors in such entities; persons who acquired their common stock pursuant to the exercise of a stock option or otherwise as compensation; persons that hold common stock which constitutes qualified small business stock for purposes of section 1202 of the Code; persons who are not citizens or residents of the United States or that are foreign corporations, partnerships, estates or trusts;

 

33



 

mutual funds; insurance companies; tax-exempt entities; holders who acquired their shares through stock option or stock purchase programs or otherwise as compensation; holders who are subject to alternative minimum tax; or holders who hold their shares as part of a hedge, straddle or other risk-reduction transaction.  The following summary also does not address holders of stock options.

 

Stockholders are encouraged to consult their own tax advisors to determine the particular tax consequences to them (including the application and effect of any federal, state, local and foreign income and other tax laws) of the merger.

 

Consequences to Our Stockholders

 

The merger will be treated for U.S. federal income tax purposes as a taxable sale by our stockholders of their shares of common stock. A stockholder will recognize gain or loss equal to the difference between (1) the amount of the cash consideration received pursuant to the merger and (2) the stockholder’s adjusted tax basis in the shares of our common stock surrendered in the merger. Gain or loss will be calculated separately for each block of shares surrendered in the merger (i.e., shares acquired at the same cost in a single transaction). Any gain or loss will be capital gain or loss and will be long-term capital gain or loss if, as of the date of the merger, the stockholder held such shares of common stock for more than one year. For individual stockholders, long-term capital gain generally is subject to preferential rates. There are limitations on the deductibility of capital losses.

 

Backup Withholding Tax

 

Under U.S. federal income tax law, the payment of the cash consideration to a stockholder (other than certain exempt stockholders, including among others, corporations) pursuant to the merger may be subject to backup withholding at a rate of 28%. To avoid backup withholding with respect to payments made pursuant to the merger, each stockholder must (a) provide his, her or its correct taxpayer identification number and certify that such stockholder is not subject to backup withholding on the Substitute Form W-9 included in the letter of transmittal or (b) provide a certification of foreign status on Internal Revenue Service Form W-8BEN or an appropriate substitute form. Any amount withheld from the payment of the merger consideration under the backup withholding rules will be allowed as a refund or credit against the stockholder’s U.S. federal income tax liability if the stockholder furnishes the required information to the Internal Revenue Service in a timely manner. Stockholders should consult their own tax advisors as to their qualification for exemption from backup withholding and the procedure for obtaining such exemption.

 

Consequences to Us

 

There will be no U.S. federal tax consequences to us as a result of the merger.

 

The tax law is very complex.  The foregoing discussion of the U.S. federal income tax consequences of the merger contains statements regarding general tax principles that may not be specific to your tax situation.  Accordingly, we strongly encourage our stockholders to consult their own tax advisors to determine the particular tax consequences to them (including the application and effect of any federal, state, local and foreign income and other tax laws) of the merger.

 

Appraisal Rights of Cruzan Stockholders

 

The following is a summary of the material provisions of Section 262 of the DGCL, which governs appraisal rights under Delaware law. The full text of Section 262 of the DGCL is attached as Annex C. All references in Section 262 and in this summary to a “stockholder” are to the record holder of the shares of common stock as to which appraisal rights are asserted. Stockholders intending to exercise appraisal rights should

 

34



 

carefully review Annex C. Failure to comply strictly with all of the procedures specified in Annex C will result in the loss of appraisal rights.

 

If the merger is consummated, holders of our common stock who follow the procedures specified in Section 262 of the DGCL within the appropriate time periods will be entitled to have their shares of our common stock appraised and receive the “fair value” of such shares in cash as determined by the Delaware Court of Chancery (the “Court”) in lieu of the consideration that such stockholder would otherwise be entitled to receive under the merger agreement.

 

The following is a brief summary of Section 262 of the DGCL, which explains the procedures and requirements for exercising statutory appraisal rights. Failure to precisely follow the procedures described in Section 262 could result in the loss of appraisal rights. This proxy statement constitutes notice to holders of our common stock concerning the availability of appraisal rights under Section 262. A stockholder of record wishing to exercise appraisal rights must hold the shares of stock on the date of making a demand for appraisal rights with respect to such shares and must continuously hold such shares through the effective date of the merger.

 

Stockholders who desire to exercise their appraisal rights must satisfy all of the conditions of Section 262, including:

 

              as more fully described below, the stockholder must deliver to Cruzan a written demand for appraisal of his, her or its shares before the vote on the merger agreement at the special meeting of stockholders on • ;

 

              the stockholder must not vote his, her or its shares of our common stock in favor of the merger.  A submitted signed proxy not marked “AGAINST” and not marked “ABSTAIN” will be voted for the proposal to approve the merger and adopt and approve the merger agreement and the transactions contemplated by the merger agreement and such a proxy will, therefore, result in the waiver of appraisal rights. A stockholder that has not submitted a proxy will not waive his, her or its appraisal rights solely by abstaining if the stockholder satisfies all other requirements of Section 262 of the DGCL; and

 

              the stockholder must continuously hold his, her or its shares from the date of making the demand through the effective date of the merger. A stockholder who is the record holder of shares of Cruzan common stock on the date the written demand for appraisal is made but who thereafter transfers those shares prior to the effective date of the merger will lose any right to appraisal in respect to those shares.

 

A demand for appraisal must be executed by or on behalf of the stockholder of record and must reasonably inform Cruzan of the identity of the stockholder of record. If the shares are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, this demand must be executed by or for the fiduciary. If the shares are owned by or for more than one person, as in a joint tenancy or tenancy in common, such demand must be executed by or for all joint owners. An authorized agent, including an agent for two or more joint owners, may execute the demand for appraisal for a stockholder of record. However, the agent must identify the record owner and expressly disclose the fact that, in exercising the demand, he is acting as agent for the record owner. A person having a beneficial interest in our common stock held of record in the name of another person, such as a broker or nominee, must act promptly to cause the record holder to follow the steps summarized below in a timely manner to perfect whatever appraisal rights the beneficial owners may have.

 

A stockholder who elects to exercise appraisal rights should mail or deliver his, her or its written demand to Cruzan International, Inc. at our principal executive offices at 222 Lakeview Avenue, Suite 1500,

 

35



 

West Palm Beach, FL  33401, Attention: Secretary.  The written demand for appraisal should state the stockholder’s name and mailing address, and must reasonably inform us that the stockholder intends thereby to demand appraisal of his, her or its shares of Cruzan common stock.

 

A record holder, such as a broker, fiduciary, depositary or other nominee, who holds shares of Cruzan common stock as a nominee for others, may exercise appraisal rights with respect to the shares held for all or less than all beneficial owners of shares as to which that person is the record owner. In that case, the written demand must set forth the number of shares covered by such demand. Where the number of shares is not expressly stated, the demand will be presumed to cover all shares of Cruzan common stock outstanding in the name of that record owner.

 

Within 120 days after the effective date of the merger (but not thereafter), any stockholder who has satisfied the requirements of Section 262 may deliver to us a written demand for a statement listing the aggregate number of shares not voted in favor of the merger and with respect to which demands for appraisal have been received and the aggregate number of holders of such shares. Cruzan must mail that written statement to the stockholder within ten days after the stockholders’ request is received by Cruzan or within ten days after the latest date for delivery of a demand for appraisal under Section 262, whichever is later.

 

Within 120 days after the effective date of the merger (but not thereafter), either Cruzan or any stockholder who has complied with the required conditions of Section 262 and who is otherwise entitled to appraisal rights may file a petition in the Court demanding a determination of the fair value of the Cruzan shares of stockholders entitled to appraisal rights. Cruzan has no present intention to file such a petition if a demand for appraisal is made and stockholders seeking to exercise appraisal rights should not assume that Cruzan will file such a petition or that Cruzan will initiate any negotiations with respect to the fair value of such shares.

 

Upon the filing of a petition in the Court by a stockholder demanding a determination of the fair value of Cruzan’s stock, service of a copy of the petition must be made upon Cruzan, which must, within 20 days after service, file in the office of the Register in Chancery in which the petition was filed, a duly verified list containing the names and addresses of all stockholders who have demanded payment for their shares and with whom agreements as to the value of their shares have not been reached by Cruzan. If we file a petition, the petition must be accompanied by the duly verified list. The Register in Chancery, if so ordered by the Court, will give notice of the time and place fixed for the hearing of such petition by registered or certified mail to us and to the stockholders shown on the list at the addresses therein stated, and notice also will be given by publishing a notice at least one week before the day of the hearing in a newspaper of general circulation published in the City of Wilmington, Delaware, or such publication as the Court deems advisable. The Court must approve the forms of the notices by mail and by publication, and we must bear the costs of the notices.

 

At the hearing on the petition, the Court will determine which stockholders have become entitled to appraisal rights. The Court may require the stockholders who have demanded an appraisal for their shares (and who hold stock represented by certificates) to submit their stock certificates to the Register in Chancery for notation of the pendency of the appraisal proceedings and the Court may dismiss the proceedings as to any stockholder that fails to comply with such direction.

 

After determining which stockholders are entitled to appraisal rights, the Court will appraise the shares owned by these stockholders, determining the “fair value” of such shares, exclusive of any element of value arising from the accomplishment or expectation of the merger, together with a fair rate of interest to be paid, if any, upon the amount determined to be the fair value. In determining “fair value,” the Court is required to take into account all relevant factors. In Weinberger v. UOP, Inc. the Delaware Supreme Court discussed the factors that could be considered in determining fair value in an appraisal proceeding, stating that “proof of value by any techniques or methods which are generally considered acceptable in

 

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the financial community and otherwise admissible in court” should be considered and that “[f]air price obviously requires consideration of all relevant factors involving the value of a company.” The Delaware Supreme Court has stated that in making this determination of fair value the court must consider market value, asset value, dividends, earnings prospects, the nature of the enterprise and any other facts which could be ascertained as of the date of the merger which throw any light on future prospects of the merged corporation. Section 262 provides that fair value is to be “exclusive of any element of value arising from the accomplishment or expectation of the merger.” In Cede & Co. v. Technicolor, Inc., the Delaware Supreme Court stated that such exclusion is a “narrow exclusion [that] does not encompass known elements of value,” but which rather applies only to the speculative elements of value arising from such accomplishment or expectation. In Weinberger, the Delaware Supreme Court construed Section 262 to mean that “elements of future value, including the nature of the enterprise, which are known or susceptible of proof as of the date of the merger and not the product of speculation, may be considered.” Our stockholders considering seeking appraisal of their shares should note that the fair value of their shares determined under Section 262 could be more than, the same as or less than the consideration they would receive pursuant to the merger agreement if they did not seek appraisal of their shares.

 

The costs of the appraisal proceeding may be determined by the Court and taxed against the parties as the Court deems equitable under the circumstances. Costs, however, do not include attorneys’ fees or the fees of expert witnesses. Upon application of a stockholder who has perfected appraisal rights, the Court may order that all or a portion of the expenses incurred by any stockholder in connection with the appraisal proceeding, including, without limitation, reasonable attorney’s fees and the fees and expenses of experts, be charged pro rata against the value of all shares entitled to appraisal.

 

No stockholder who has duly demanded appraisal in compliance with Section 262, and has not properly withdrawn such demand, will, after the effective date of the merger, be entitled to vote for any purpose the shares subject to demand or to receive payment of dividends or other distributions on such shares, except for dividends or distributions payable to stockholders of record at a date prior to the effective date of the merger.

 

At any time within 60 days after the effective date of the merger, any stockholder will have the right to withdraw his, her or its demand for appraisal and to accept the terms offered in the merger agreement. After this period, a stockholder may withdraw his demand for appraisal and receive payment for his shares as provided in the merger agreement only with our consent. If no petition for appraisal is filed with the court within 120 days after the effective date of the merger, the stockholders’ rights to appraisal (if available) will cease and all holders of shares of our common stock will be entitled to receive the consideration offered pursuant to the merger agreement. Inasmuch as we have no obligation to file such a petition, any stockholder who desires a petition to be filed is advised to file it on a timely basis. No petition timely filed in the court demanding appraisal may be dismissed as to any stockholder without the approval of the court, which approval may be conditioned upon such terms as the court deems just.

 

Any Cruzan stockholder wishing to exercise appraisal rights is urged to consult legal counsel before attempting to exercise appraisal rights. Failure to comply strictly with all of the procedures set forth in Section 262 of the DGCL may result in the loss of a stockholder’s statutory appraisal rights.

 

Provisions for Cruzan’s Unaffiliated Stockholders

 

Cruzan did not retain an unaffiliated representative to act solely on behalf of Cruzan’s unaffiliated stockholders nor were Cruzan’s unaffiliated stockholders provided with access to Cruzan’s company files.

 

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Purpose and Structure of the Merger

 

Cruzan’s primary reason for the merger is to provide Cruzan stockholders cash for their shares at a premium over the market price at which shares of Cruzan common stock traded before the announcement of the stock purchase agreement on June 3, 2005. Absolut’s primary reason for entering into the merger is to turn Cruzan into a privately-held wholly-owned subsidiary.  The transaction has been structured as a cash merger in order to provide the minority Cruzan stockholders (other than those who perfect their appraisal rights under Delaware law) with cash for all of their shares and to provide a prompt and orderly transfer of ownership of Cruzan with reduced transaction costs.  The merger agreement provides for the merger of Merger Sub, a newly formed, wholly-owned subsidiary of Absolut, with and into Cruzan.  Cruzan will survive the merger as a wholly-owned subsidiary of Absolut.  Additional reasons for the merger are described above in “—Reasons for the Merger.”

 

Effective Time of the Merger

 

The merger will be consummated and become effective at the time a certificate of merger is filed with the Secretary of State of the State of Delaware or at such later time as we and Absolut shall agree and specify in the certificate of merger.

 

The Merger Consideration

 

At the effective time of the merger, each share of our common stock issued and outstanding immediately prior to the effective time of the merger will automatically be canceled and will cease to exist and will be converted into the right to receive $28.37 in cash, without interest, other than shares of our common stock:

 

              that we hold as treasury stock, which will be canceled without any payment;

 

              held by Absolut or Merger Sub, which will be cancelled without any payment; and

 

              held by stockholders validly perfecting appraisal rights in accordance with the DGCL.

 

After the effective time of the merger, each of our outstanding stock certificates (other than certificates (i) representing shares of common stock as to which appraisal rights are asserted, and (ii) held by Absolut and its affiliates) will represent only the right to receive the merger consideration, without interest (less any applicable withholding taxes). The merger consideration paid upon surrender of each certificate will be paid in full satisfaction of all rights pertaining to the shares of our common stock represented by that certificate.

 

Treatment of Cruzan Stock Options in the Merger

 

At the effective time of the merger, each vested and exercisable option outstanding immediately prior to the effective time shall be converted into the right to receive a cash amount equal to the excess, if any, of (i) the merger consideration per share of our common stock over (ii) the per share exercise price of the option for each share of our common stock.  All unvested or unexercisable options shall be cancelled and terminated and replaced with an incentive plan to be determined by the board of directors of the surviving corporation following the closing of the merger.

 

Surrender of Stock Certificates

 

Immediately prior to the effective time of the merger, Absolut will cause to be deposited with an exchange agent an amount of cash sufficient to pay the merger consideration to each holder of shares of common stock entitled to receive the merger consideration in the merger.  As soon as reasonably practicable after the effective time of the merger, the exchange agent will mail a letter of transmittal and

 

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instructions to our stockholders. The letter of transmittal and instructions will tell you how to surrender your common stock certificates in exchange for the merger consideration.

 

You should not return your stock certificates with the enclosed proxy card, and you should not forward your stock certificates to the exchange agent without a letter of transmittal.

 

You will not be entitled to receive the merger consideration until you surrender your common stock certificate or certificates to the exchange agent, together with a duly completed and executed letter of transmittal and any other documents the exchange agent may reasonably require. The merger consideration may be paid to a person other than the person in whose name the corresponding certificate is registered if the certificate is properly endorsed or is otherwise in the proper form for transfer. In addition, the person requesting payment must either pay any applicable stock transfer taxes or establish to the satisfaction of the surviving corporation that those stock transfer taxes have been paid or are not applicable.

 

No interest will be paid or will accrue on the cash payable upon surrender of the certificates. Each of the exchange agent, Absolut, Merger Sub and Cruzan will be entitled to deduct and withhold any applicable taxes from the merger consideration.

 

After the effective time of the merger, there will be no further registration of transfers of outstanding shares of our common stock. If, after the effective time of the merger, certificates formerly representing shares of our common stock are presented to the surviving corporation or the exchange agent for any reason, they will be canceled and exchanged for the merger consideration.

 

Lost Certificates

 

If you have lost a certificate, or if it has been stolen or destroyed, then before you will be entitled to receive the merger consideration, you will have to make an affidavit that your certificate was lost, stolen or destroyed and, if the surviving corporation requires, you will have to post a bond in a reasonable amount determined by the surviving corporation, as indemnity against any claim that may be made against it with respect to that certificate.

 

Unclaimed Amounts

 

To the fullest extent permitted by law, neither the exchange agent, Absolut, Merger Sub nor Cruzan will be liable to any person for any cash delivered to a public official pursuant to any applicable abandoned property, escheat or similar law.  Any portion of the merger consideration deposited with the exchange agent that remains undistributed to the holders of certificates evidencing shares of our common stock for one year after the effective time of the merger, will be delivered, upon demand, to Absolut.  Holders of certificates who have not surrendered their certificates within one year after the effective time of the merger may only look to Absolut for the payment of the merger consideration.

 

Fees and Expenses of the Merger

 

Pursuant to the merger agreement, all fees and expenses incurred in connection with the merger agreement and the transactions contemplated by the merger agreement will be paid by the party incurring those expenses, whether or not the merger is consummated.

 

We estimate that the total fees and expenses incurred or to be incurred in connection with the merger transaction will be as follows:

 

SEC filing fees: $8,541.89

 

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Legal fees and expenses: $600,000

 

Accounting fees and expenses: $5,000

 

Investment banking fees and expenses: $170,000

 

Proxy solicitation fees and expenses: $10,000

 

We would be obligated to pay Absolut a fee of $3,000,000 if Absolut terminates the merger agreement because of (i) a withdrawal or modification of the special committee’s approval or recommendation of the merger, (ii) an approval or recommendation of, or a proposal to approve or recommend, a competing proposal to acquire us, or (iii) our breach of the non-solicitation provision in the merger agreement, except for any action taken at the direction of or with the written approval of Absolut.  In addition, if Absolut is entitled to terminate the merger agreement on any of the grounds referred to above, or if we or the special committee breach a representation, warranty or covenant in the merger agreement which breach causes a failure of certain of the conditions to closing, we would be obligated to reimburse Absolut for all of its documented out-of-pocket expenses actually incurred up to a maximum of $1,500,000 in connection with the merger agreement or the merger.  The termination fee is subject to a credit for any expense reimbursement paid and no expense reimbursement shall be due if we have previously paid the termination fee.  See “THE MERGER AGREEMENT – Payment of Fees and Expenses.”

 

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INFORMATION CONCERNING THE SPECIAL MEETING

 

Date, Time and Place

 

We are furnishing this proxy statement to holders of our common stock in connection with the solicitation of proxies by our board of directors for use at the special meeting to be held on • , 2006 at 11:00 a.m., local time, at the offices of Gunster, Yoakley & Stewart, P.A., located at 777 South Flagler Drive, Suite 500 East, West Palm Beach, FL 33401, and at any adjournments or postponements of the special meeting. This proxy statement, the attached notice of special meeting and the accompanying proxy card are first being sent or given to our stockholders on or about • , 2006.

 

Matters to be Considered

 

At the special meeting, holders of record of our common stock as of the close of business on • , 2006, will consider and vote to:

 

(1)           Approve the merger and adopt and approve the Agreement and Plan of Merger dated as of September 30, 2005, among Cruzan, Absolut and Merger Sub, a wholly-owned subsidiary of Absolut, pursuant to which, upon the merger becoming effective, each share of common stock, par value $0.01 per share, of Cruzan will, subject to certain exceptions, be converted into the right to receive $28.37 in cash, without interest. No other business will be transacted at the special meeting other than possible postponements or adjournments of the special meeting.

 

(2)           Adjourn the special meeting, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the special meeting or any adjournment thereof to approve the merger and adopt and approve the merger agreement.

 

(3)           Transact such other business as may properly come before the special meeting or any adjournments or postponements thereof.

 

Record Date and Shares Entitled to Vote; Procedures for Voting; Quorum

 

Our board of directors has fixed the close of business on • , 2006, as the record date for determining the holders of shares of our common stock who are entitled to notice of, and to vote at, the special meeting.  As of the record date, • shares of our common stock were issued and outstanding. You are entitled to one vote for each share of our common stock that you hold as of the record date.

 

If you are a record holder of shares of our common stock on the record date, you may vote those shares of our common stock in person at the special meeting or by proxy as described below under “-Voting of Proxies.” If you hold shares of our common stock in “street name” through a broker or other financial institution, you must follow the instructions provided by the broker or other financial institution regarding how to instruct it to vote those shares.  Your broker does not have the discretion to vote our shares of common stock without your specific instruction.

 

The presence, in person or by proxy, of shares representing at least a majority of all the outstanding shares of common stock as of the record date is necessary to constitute a quorum for the transaction of business at the special meeting.

 

Vote Required

 

The approval of the merger and the adoption and approval of the merger agreement require the affirmative vote of (i) a majority of the outstanding shares of Cruzan common stock and (ii) 66 2/3% of the outstanding shares of Cruzan common stock not “owned” (as defined in Section 203 of the DGCL) by Absolut or its “affiliates” or “associates” (as defined in Section 203 of the DGCL). Absolut covenanted in the merger agreement to vote

 

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all of its shares for the merger and the approval and adoption of the merger agreement.  If you do not send in your proxy, do not instruct your broker to vote your shares or abstain from voting, it will have the same effect as a vote “AGAINST” the merger and the approval and adoption of the merger agreement.

 

Approval of the adjournment of the special meeting, if necessary, to permit further solicitation of proxies, requires the affirmative vote of a majority of the shares present in person or represented by proxy at the special meeting and voting on the matter.  Absolut has enough votes to pass any adjournment proposal on its own, if required.  Therefore, if you do not send in your proxy, do not instruct your broker to vote your shares or abstain from voting, it will have no practical effect on the approval of the adjournment.

 

Abstentions

 

Abstentions from voting will be counted in the determination of a quorum and will have the same effect as votes “AGAINST” the merger and adoption of the merger agreement.

 

Voting of Proxies

 

Whether or not you plan to attend the special meeting in person, you are requested to submit a proxy in advance, which most shareholders may do by either using the Internet, telephone or the enclosed proxy card, to ensure that your shares are voted. Shares of our common stock represented by properly executed proxies received at or prior to the special meeting that have not been revoked will be voted at the special meeting in accordance with the instructions indicated on the proxies as to the proposal to approve the merger and to adopt and approve the merger agreement and the adjournment proposal and in accordance with the judgment of the persons named in the proxies on all other matters that may properly come before the special meeting. Shares of our common stock represented by properly executed proxies for which no instruction is given on the proxy card will be voted FOR approval of the merger and the adoption and approval of the merger agreement and the adjournment proposal.

 

If the special meeting is postponed or adjourned, at any subsequent reconvening of the special meeting, all proxies will be voted in the same manner as these proxies would have been voted at the original convening of the special meeting (except for any proxies that previously have been revoked or withdrawn effectively).

 

Revocability of Proxies

 

You may revoke your proxy or change your voting instructions at any time before the final vote at the meeting. If you are the owner of record, you may do this by:

 

              giving written notice of revocation to the Corporate Secretary, Cruzan International, Inc., 222 Lakeview Avenue, Suite 1500, West Palm Beach, FL 33401;

 

              submitting another valid proxy card bearing a later date; or

 

              voting in person at the meeting.

 

If you hold stock in street name, you must contact your broker or financial institution for information on how to revoke your proxy or change your vote.

 

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Proxy Solicitation

 

This proxy solicitation is being made on behalf of our board of directors. We will solicit proxies initially by mail. Further solicitation may be made by our directors, officers and employees personally, by telephone, facsimile, e-mail, Internet or otherwise, but they will not be specifically compensated for these services. Upon request, we will reimburse brokers, dealers, banks or similar entities acting as nominees for their reasonable expenses incurred in forwarding copies of the proxy materials to the beneficial owners of the shares of our common stock they hold of record. We have retained Georgeson Shareholder Communications Inc. to assist us in the solicitation of proxies, and Georgeson Shareholder Communications Inc. will receive fees of up to approximately $10,000 in the aggregate, plus reimbursement of out-of-pocket expenses.

 

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THE MERGER AGREEMENT

 

On September 30, 2005, Cruzan entered into the merger agreement with Absolut and Merger Sub.  The following is a summary of the material provisions of the merger agreement.  We have attached the merger agreement as Annex A to this proxy statement, and we incorporate it by reference into this proxy statement.   You should carefully read the merger agreement in its entirety because it, not the proxy statement, is the legal document that governs the merger.

 

Form of the Merger

 

The merger agreement provides for the merger of Merger Sub, a newly formed, wholly-owned subsidiary of Absolut, with and into Cruzan.  Cruzan will survive the merger as a wholly-owned subsidiary of Absolut.

 

Closing and Effective Time

 

The merger will be consummated as soon as practicable following satisfaction or waiver (to the extent permitted by applicable law) of the conditions precedent that are described under “- Conditions to the Merger.”  The merger will become effective at the time a certificate of merger is filed with the Secretary of State of the State of Delaware or at such later time as we and Absolut shall agree and specify in the certificate of merger.

 

Directors and Executive Officers of Surviving Corporation

 

The directors of Merger Sub in office immediately prior to the effective time of the merger will be the directors of the surviving corporation.  The officers of Cruzan in office immediately prior to the effective time of the merger will be the officers of the surviving corporation.

 

Conversion of Shares; Procedures for Exchange of Certificates

 

Prior to the effective time of the merger, Absolut will cause to be deposited with an exchange agent an amount of cash sufficient to pay the merger consideration to each holder of shares of common

 

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stock entitled to receive the merger consideration pursuant to the merger.  As soon as reasonably practicable after the effective time of the merger, the exchange agent will mail a letter of transmittal and instructions to our stockholders. The letter of transmittal and instructions will tell you how to surrender your common stock certificates in exchange for the merger consideration.

 

You should not return your stock certificates with the enclosed proxy card, and you should not forward your stock certificates to the exchange agent without a letter of transmittal.

 

You will not be entitled to receive the merger consideration until you surrender your common stock certificate or certificates to the exchange agent, together with a duly completed and executed letter of transmittal and any other documents the exchange agent may reasonably require. The merger consideration may be paid to a person other than the person in whose name the corresponding certificate is registered if the certificate is properly endorsed or is otherwise in the proper form for transfer. In addition, the person requesting payment must either pay any applicable stock transfer taxes or establish to the satisfaction of the surviving corporation that those stock transfer taxes have been paid or are not applicable.

 

No interest will be paid or will accrue on the cash payable upon surrender of the certificates. Each of the exchange agent and the surviving corporation will be entitled to deduct and withhold any applicable taxes from the merger consideration.

 

After the effective time of the merger, there will be no further registration of transfers of outstanding shares of our common stock. If, after the effective time of the merger, certificates formerly representing shares of our common stock are presented to the surviving corporation or the exchange agent for any reason, they will be canceled and exchanged for the merger consideration.

 

If you have lost a certificate, or if it has been stolen or destroyed, then before you will be entitled to receive the merger consideration, you will have to make an affidavit that your certificate was lost, stolen or destroyed and, if the surviving corporation requires, you will have to post a bond in a reasonable amount determined by the surviving corporation, as indemnity against any claim that may be made against it with respect to that certificate.

 

To the fullest extent permitted by law, neither the exchange agent, Absolut, Merger Sub nor we will be liable to any person for any cash delivered to a public official pursuant to any applicable abandoned property, escheat or similar law.  Any portion of the merger consideration deposited with the exchange agent that remains undistributed to the holders of certificates evidencing shares of our common stock for 1 year after the effective time of the merger, will be delivered, upon demand, to Absolut.  Holders of certificates who have not surrendered their certificates within 1 year after the effective time of the merger may only look to Absolut for the payment of the merger consideration.

 

Treatment of Cruzan Stock Options

 

At the effective time of the merger, each vested and exercisable option outstanding immediately prior to the effective time shall be converted into the right to receive a cash amount equal to the excess, if any, of (i) the merger consideration per share of our common stock over (ii) the per share exercise price of the option for each share of our common stock.  All unvested or unexercisable options shall be cancelled and terminated and replaced with an incentive plan to be determined by the board of directors of the surviving corporation following the closing of the merger.

 

Representations and Warranties

 

Each of the parties to the merger agreement made certain representations and warranties related to their due organization, good standing, and authorization to enter into the merger agreement, the merger and the other transactions contemplated by the merger agreement, consents of governmental entities

 

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required as a result of the transactions contemplated by the merger agreement and the absence of any violation of or conflict with such party’s organizational documents, applicable law or material contracts of such party as a result of entering into the merger agreement and consummating the transactions contemplated by the merger agreement, among others. In addition, each party made certain representations and warranties particular to such party. These representations and warranties are, in some cases, subject to specified exceptions and qualifications contained in the merger agreement or in the disclosure schedules delivered in connection therewith. You should read the merger agreement in its entirety to understand the nature of these representations and warranties and risks that they represent to completion of the merger.

 

We also made representations and warranties that relate to, among other things:

 

              our and our subsidiaries’ capitalization;

 

              the approval and recommendation by our board of directors and the special committee of the merger agreement, the merger and the other transactions contemplated by the merger agreement and the required stockholder vote for their adoption of the merger agreement;

 

              our filings with the SEC since October 1, 2002;

 

              our financial statements contained in our SEC filings since October 1, 2002 and the absence of liabilities, other than those disclosed in our filings with the SEC;

 

              our internal controls and procedures;

 

              the absence of certain changes and events since September 30, 2004;

 

              the absence of litigation or outstanding court orders against us;

 

              employment and labor matters affecting us, including matters relating to our employee benefit plans;

 

              our compliance with laws and possession of all licenses and permits necessary to conduct our business;

 

              taxes and transactions with our affiliates;

 

              receipt by us of a fairness opinion from Houlihan Lokey; and

 

              resignation of all members of our board of directors except for the special committee (Leonard G. Rogers and Donald L. Kasun) and Edward F. McDonnell effective as of execution of the merger agreement and the appointment by the prior board of directors of Mats Andersson, Ola Salmén, Ketil Eriksen and Lisa Derman effective as of 9 a.m. New York City time on October 11, 2005.

 

The representations and warranties of each of the parties to the merger agreement will expire upon completion of the merger, which means that no party will have the right to pursue a claim for an alleged breach of any representation or warranty after the effective time of the merger.

 

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Covenants

 

The parties have agreed to use all commercially reasonable efforts to take all actions, and to do, and to assist and cooperate with the other parties in doing all things necessary, proper or advisable to consummate and make effective the merger and the other transactions, including:

 

              obtaining all necessary actions or nonactions, waivers, consents and approvals from governmental entities and the making of all necessary registrations and filings (including filings with governmental entities, if any) and the taking of all reasonable steps as may be necessary to obtain an approval or waiver from, or to avoid an action or proceeding by, any governmental entity;

 

              obtaining all necessary consents, approvals or waivers from third parties;

 

              defending any lawsuits or other legal proceedings, whether judicial or administrative, challenging the merger agreement or the consummation of the transactions, including seeking to have any stay or temporary restraining order entered by any court or other governmental entity vacated or reversed; and

 

              the execution and delivery of any additional instruments necessary to consummate the transactions and to fully carry out the purposes of the merger agreement.

 

The parties have also agreed to give prompt notice to the other parties of (i) any representation or warranty made by it contained in the merger agreement that is qualified as to materiality becoming untrue or inaccurate in any respect or any such representation or warranty that is not so qualified becoming untrue or inaccurate in any material respect or (ii) the failure by it to comply with or satisfy in any material respect any covenant, condition or agreement to be complied with or satisfied by it under the merger agreement; provided, however, that no such notification shall affect the representations, warranties, covenants or agreements of the parties or the conditions to the obligations of the parties under the merger agreement.

 

Absolut is not required to dispose of any of its assets or to limit its freedom of action with respect to any of its businesses, or to consent to any disposition of Cruzan’s assets or limits on Cruzan’s freedom of action with respect to any of its businesses, or to commit or agree to any of the foregoing, and Cruzan agreed that it is not authorized to commit or agree to any of the foregoing, to obtain any consents, approvals, permits or authorizations to remove any impediments to the merger relating to the HSR Act or other antitrust, competition or premerger notification, trade regulation law, regulation or order (“Antitrust Laws”) or to avoid the entry of, or to effect the dissolution of, any injunction, temporary restraining order or other order in any suit or proceeding relating to Antitrust Laws, other than dispositions, limitations or consents, commitments or agreements that in each such case may be conditioned upon the consummation of the merger and that, in the reasonable judgment of Absolut, individually or in the aggregate, have not had and could not reasonably be expected to (i) have a material adverse effect on it, (ii) have a material adverse effect on Cruzan, or (iii) materially impair the benefits or advantages which Absolut expects to be realized from the merger and the transactions.

 

Absolut and Merger Sub also agreed to vote or to cause to be voted all shares of Cruzan’s common stock owned by them or any of their affiliates or associates for the merger and the approval and adoption of the merger agreement.

 

Access to Information; Confidentiality

 

We have agreed to, and to cause our subsidiaries to, cooperate with Absolut and its representatives in their investigation of our business, and to grant them reasonable access to our offices,

 

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records and employees. We have also agreed to furnish them with a copy of each report, schedule, registration statement and other document filed by us pursuant to the requirements of federal or state securities laws during their review period as well as all other information concerning our business, properties and personnel as Absolut may reasonably request.  Absolut and its representatives have agreed to hold this information in confidence.

 

Cruzan’s Conduct of the Business before Completion of the Merger

 

We and Absolut (including in its capacity as controlling stockholder and through its representatives on our board of directors) have agreed that we will not, and will not permit any of our respective subsidiaries to, take any action that would reasonably be expected to result in:

 

              any of our representations or warranties, or for Absolut and Merger Sub, Absolut’s or Merger Sub’s representations or warranties, as set forth in the merger agreement that is qualified as to materiality becoming untrue;

 

              any of our representations or warranties, or for Absolut and Merger Sub, Absolut’s or Merger Sub’s representations or warranties, as set forth in the merger agreement that is not qualified as to materiality becoming untrue in any material respect; or

 

              except as otherwise permitted as described under “- No Solicitation of Alternative Transactions,” any condition to the merger not being satisfied.

 

No Solicitation of Alternative Transactions

 

We have agreed that neither we nor any of our subsidiaries nor any of our respective representatives will:

 

              directly or indirectly solicit, initiate, knowingly encourage or take any action designed to facilitate any inquiries or the making by any person of any competing takeover proposal;

 

              enter into any agreement relating to any competing takeover proposal; or

 

              directly or indirectly enter into, participate in or continue any discussions or negotiations regarding, or furnish to any person any information with respect to, any competing takeover proposal.

 

For purposes of the merger agreement, “competing takeover proposal” means (i) any proposal or offer from any person or group (except for Absolut and its affiliates) relating to any direct or indirect acquisition or purchase of 10% or more of the assets of Cruzan and its subsidiaries, taken as a whole, or 10% or more of any class of equity securities of Cruzan then outstanding; (ii) any tender offer or exchange offer that if consummated would result in any person beneficially owning 10% or more of any class of equity securities of Cruzan then outstanding; and (iii) any merger, consolidation, business, combination, recapitalization, liquidation, dissolution or similar transaction involving Cruzan, other than the transactions contemplated by the merger agreement.

 

At any time before our stockholders have adopted the merger agreement, we may furnish information with respect to Cruzan to the person making a competing takeover proposal and participate in discussions and negotiations with such person and its representatives regarding such competing takeover proposal; provided, that:

 

              the competing takeover proposal (i) was not solicited by us; (ii) did not otherwise result from a breach of our obligations under the merger agreement; (iii) our board of directors

 

48



 

or special committee determined that it was reasonably likely to lead to a superior proposal; and (iv) our board determines in good faith that it is required to take these actions in order to fulfill its fiduciary obligations; and

 

              we execute a customary confidentiality agreement.

 

In addition, our board of directors or the special committee may withdraw or modify its approval or recommendation of the merger and the merger agreement if it determines in good faith, after consultation with outside counsel, that it is necessary to do so in order to comply with their fiduciary obligations.

 

For purposes of the merger agreement, “superior proposal” means any proposal made by a third party to acquire 10% or more of the equity securities or assets of Cruzan, pursuant to a tender or exchange offer, a merger, a consolidation, a liquidation or dissolution, a recapitalization, or a sale of its assets, (i) on terms which our board of directors or the special committee determines in good faith to be superior from a financial point of view to the holders of Cruzan common stock than the merger with Absolut, taking into account all the terms and conditions of such proposal and the merger agreement, (ii) that is reasonably capable of being completed, taking into account all financial, regulatory, legal and other aspects of such proposal and (iii) for which any necessary financing is committed or, in the good faith determination of our board of directors, likely to be obtained.

 

We have agreed to advise Absolut orally and in writing of any competing takeover proposal or any inquiry with respect to or that could reasonably be expected to lead to any competing takeover proposal and the identity of the person making any such competing takeover proposal or inquiry.  The special committee has agreed to (i) keep Absolut fully informed of the status including any change to the details of any such competing takeover proposal or inquiry and (ii) provide to Absolut as soon as practicable after receipt or delivery thereof with copies of all correspondence and other written material sent or provided to Cruzan from any third party in connection with any competing takeover proposal or sent or provided by Cruzan to any third party in connection with any competing takeover proposal.

 

Conditions to the Merger

 

The obligations of the parties to complete the merger are subject to the following mutual conditions:

 

              (i) the approval of the merger and merger agreement by the affirmative vote of the holders of at least two-thirds of Cruzan’s outstanding common stock not “owned” (as defined in Section 203 of the DGCL) by Absolut or its “affiliates” or “associates” (as defined by Section 203 of the DGCL) and (ii) the adoption of the merger agreement by the affirmative vote of the holders of at least a majority of Cruzan’s outstanding common stock;

 

              the termination or expiration of the waiting period (and any extension thereof) applicable to the merger under the HSR Act;

 

              all other consents, approvals and filings under any other Antitrust Laws, the absence of which would prohibit the consummation of the merger or would reasonably be expected to have a material adverse effect on Absolut, must have been obtained or made; and

 

              no temporary judgment issued by any court of competent jurisdiction or other law preventing the consummation of the merger can be in effect, and the parties shall have used all commercially reasonable efforts to prevent the entry of any such injunction or other order and appealed as promptly as possible any such judgment that was entered.

 

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Our obligation to complete the merger is subject to the following additional conditions:

 

                                          the representations and warranties of Absolut and Merger Sub are true and correct as of the closing date as though made on the closing date (without giving effect to the words and terms “material,” “in all material respects” and “material adverse effect”), except to the extent such representations and warranties expressly relate to a particular date (in which case such representations and warranties are true and correct on and as of such particular date (without giving effect to the words and terms “material,” “in all material respects” and “material adverse effect”)) and receipt of certificates signed by officers of Absolut and Merger Sub certifying the same, provided, however, that notwithstanding anything in this paragraph to the contrary, the condition set forth in this paragraph will be deemed to have been satisfied even if any representations and warranties of Absolut and Merger Sub are not true and correct, unless the failure of such representations and warranties of Absolut and Merger Sub to be true and correct, individually or in the aggregate, would reasonably be expected to prevent the consummation of the merger or prevent Absolut or Merger Sub from performing its obligations under the merger agreement;

 

                                          Absolut and Merger Sub will have performed in all material respects all obligations required to be performed by each of them, and receipt of certificates signed by officers of Absolut and Merger Sub certifying that Absolut and Merger Sub have performed in all material respects the obligations required to be performed by them; and

 

                                          deposit of cash by Absolut with the exchange agent to pay for the merger consideration.

 

The consummation of the merger is also subject to the following additional conditions that are for the benefit of Absolut and Merger Sub:

 

                                          our representations and warranties, other than in Sections 3.01, 3.03, 3.04, 3.14 and 3.16 of the merger agreement, shall be true and correct as of the closing date as though made on the closing date (without giving effect to the words and terms “material,” “in all material respects” and “material adverse effect”), except to the extent such representations and warranties expressly relate to a particular date (in which case such representations and warranties shall be true and correct, on and as of such particular date (without giving effect to the words and terms “material,” “in all material respects” and “material adverse effect”)), provided, however, that notwithstanding anything in this paragraph to the contrary, the condition set forth in this paragraph will be deemed to have been satisfied even if our representations and warranties are not true and correct, unless the failure of our representations and warranties to be true and correct, individually or in the aggregate, would reasonably be expected to have a company material adverse effect, and receipt of a certificate signed by one of our officers certifying the same;

 

                                          our representations and warranties in Sections 3.01, 3.03, 3.04, 3.14 and 3.16 of the merger agreement shall be true and correct in all material respects, as of the closing date as though made on the closing date, except (A) to the extent such representations and warranties expressly relate to a particular date (in which case such representations and warranties shall be true and correct in all material respects, on and as of such particular date) and (B) that the representations and warranties as to the number of outstanding and reserved shares of Cruzan common stock shall be true and correct, except that an aggregate of up to 1,000 additional shares of Cruzan common stock may be outstanding and reserved, and receipt of a certificate signed by one of our officers certifying the same;

 

50



 

                                          we must have performed in all material respects all obligations required to be performed and delivered a certificate from one of our officers certifying that we have performed in all material respects the obligations required to be performed by us;

 

                                          the special committee must have performed in all material respects all obligations required to be performed and receipt of a certificate signed on behalf of the special committee certifying the same;

 

                                          there is no pending or threatened suit, action or proceeding by any governmental entity or any other person, that has a reasonable likelihood of success, (i) challenging the acquisition by Absolut or Merger Sub of any of our capital stock, seeking to restrain or prohibit the consummation of the merger or any other transaction or seeking to obtain from us, Absolut or Merger Sub any damages that are material in relation to us and our subsidiaries taken as a whole, (ii) seeking to prohibit or limit the ownership or operation by us, Absolut or any of our respective subsidiaries of any material portion of the business or assets of Cruzan, Absolut or any of our respective subsidiaries, or to compel us, Absolut or any of our respective subsidiaries to dispose of or hold separate any material portion of the business or assets of Cruzan, Absolut or any of our respective subsidiaries, as a result of the merger or any other transaction, (iii) seeking to impose limitations on the ability of Absolut to acquire or hold, or exercise full rights of ownership of, any shares of our capital stock, including the right to vote the shares of our capital stock purchased by it on all matters properly presented to the stockholders of Cruzan, (iv) seeking to prohibit Absolut or any of its subsidiaries from effectively controlling in any material respect the business or operations of Cruzan and our subsidiaries or (v) which is reasonably likely to have a material adverse effect on us;

 

                                          there has not been any event, change, effect or development that, individually or in the aggregate, has had or could reasonably be expected to have a material adverse effect on Cruzan since the date of the most recent audited financial statements included in our SEC documents except as previously disclosed in our SEC documents or in our disclosure letter; and

 

                                          each member of our special committee and each other member of our board of directors who is an independent director will have submitted their resignations from their position as a director of Cruzan.

 

Termination of the Merger Agreement

 

The merger agreement may be terminated at any time prior to the effective time of the merger, whether before or after stockholder approval has been obtained, as follows:

 

by the mutual written consent of us, Absolut and Merger Sub;

 

by either us or Absolut, if:

 

                                          the merger has not been consummated by April 30, 2006, unless the failure to consummate the merger is the result of a breach of the merger agreement by the party seeking to terminate the agreement; provided, however, that the passage of such period will be tolled for any part thereof during which any party is subject to a nonfinal order, decree, ruling or action restraining, enjoining or otherwise prohibiting the consummation of the merger;

 

51



 

                                          any governmental entity issues a permanent injunction or order enjoining, restraining or otherwise prohibiting the consummation of the transactions contemplated by the merger agreement and such action has become final and nonappealable; or

 

                                          our stockholders do not approve the merger and adopt and approve the merger agreement upon taking a vote at a special meeting;

 

by us, if:

 

                                          there has been a failure to perform in any material respect by Absolut or Merger Sub of any of their representations, warranties or covenants in the merger agreement, which would give rise to the failure of any of the applicable closing conditions set forth in the merger agreement and the breach cannot be or has not been cured within 30 days of receipt of notice of the breach;

 

by Absolut, if:

 

                                          there has been a failure to perform in any material respect by us or the special committee of any representations, warranties or covenants in the merger agreement, which would give rise to the failure of any of the applicable closing conditions set forth in the merger agreement and the breach cannot be or has not been cured within 30 days of receipt of notice of the breach;

 

                                          the special committee withdraws or modifies, in a manner adverse to Absolut or Merger Sub, or proposes to withdraw or modify, in a manner adverse to Absolut or Merger Sub, its approval or recommendation of the merger agreement or the merger, fails to recommend to our stockholders that they give approval for this transaction or approves or recommends, or proposes to approve or recommend, any competing takeover proposal; or

 

                                          the special committee or any of its representatives (i) solicits, initiates, knowingly encourages or takes any action designed to facilitate the making by any person of any competing takeover proposal; (ii) enters into any agreement relating to any competing takeover proposal; or (iii) enters into, participates in or continues any discussions or negotiations regarding, or furnishes to any person any information with respect to, any competing takeover proposal, in breach of certain provisions of the merger agreement.

 

If the merger agreement is terminated, it will become void and have no effect, other than the provisions relating to broker fees, confidentiality, termination, fees and expenses and other miscellaneous provisions.  Termination, however, will not relieve any party from liability or damages resulting from any willful breach by that party of the merger agreement.

 

Payment of Fees and Expenses

 

We have agreed to pay Absolut a termination and expense reimbursement fee of $3 million if Absolut terminates the merger agreement because of any of the following reasons:

 

                                          the special committee withdraws or modifies, in a manner adverse to Absolut or Merger Sub, or proposes to withdraw or modify, in a manner adverse to Absolut or Merger Sub, its approval or recommendation of the merger agreement or the merger, fails to recommend to our stockholders that they give approval for this transaction or approves or recommends, or proposes to approve or recommend, any competing takeover proposal; or

 

52



 

                                          the special committee or any of its representatives (i) solicits, initiates, knowingly encourages or takes any action designed to facilitate the making by any person of any competing takeover proposal; (ii) enters into any agreement relating to any competing takeover proposal; or (iii) enters into, participates in or continues any discussions or negotiations regarding, or furnishes to any person any information with respect to, any competing takeover proposal, in breach of certain provisions of the merger agreement.

 

In addition, if Absolut is entitled to terminate the merger agreement on any of the grounds referred to above, or if we or the special committee breach a representation, warranty or covenant in the merger agreement which breach causes a failure of one or more of the conditions to closing which has not been cured within 30 days of receipt of notice of the breach, we would be obligated to reimburse Absolut for all of its documented out-of-pocket expenses actually incurred up to a maximum of $1.5 million in connection with the merger agreement or the merger.  The termination fee is subject to a credit for any expense reimbursement paid and no expense reimbursement shall be due if we have previously paid the termination fee.

 

Indemnification of Directors and Officers; Advancement of Expenses and Insurance

 

Pursuant to the terms of the merger agreement, for a period of six years after the effective date of the merger, the certificate of incorporation and bylaws of the surviving corporation and its subsidiaries must contain provisions regarding the indemnification and advancement of expenses to directors and officers which are no less favorable than those in the company’s or its subsidiaries’ certificate of incorporation and bylaws in effect as of the date of the merger agreement.  Absolut agreed to and agreed to cause the surviving corporation to indemnify and advance reasonable expenses to each present and former director of the company or any of its subsidiaries (in and to the extent of their capacities as such but not as stockholders) in respect of actions, omissions or events through the effective time of the merger to the fullest extent permitted by law.

 

The surviving corporation will either (i) obtain a “tail” insurance policy with a claims period of at least six years from the effective time of the merger with respect to the directors’ and officers’ liability insurance in an amount and scope at least as favorable as the company’s policies existing as of the date of the merger agreement for claims arising from facts or events that occurred prior to the effective time of the merger or (ii) maintain the directors’ and officers’ liability insurance policies maintained by the company as of the date of the merger agreement for a period of six years after the effective time of the merger so long as the annual premium therefor is not in excess of 200% of the current annual premium.

 

If Absolut or the surviving corporation or any of its successors or assigns (i) consolidates with or merges into any other corporation or entity and is not the continuing or surviving corporation of such consolidation or merger or ceases to continue to exist for any reason or (ii) transfers all or substantially all of its properties and assets to any individual, corporation or other entity, provisions will be made so that the successors and assigns of Absolut or the surviving corporation and the transferee or transferees of such properties and assets will assume the foregoing obligations.

 

Amendments, Extensions and Waivers

 

Any provision of the merger agreement may be amended at any time before or after stockholder approval.  However, after our stockholders have approved the merger agreement, no amendment may be made that by law would require further approval by our stockholders without obtaining that approval.  Any amendment must be in writing and signed on behalf of each of the parties.  Any such amendment must be approved by the special committee.

 

At any time prior to the effective time of the merger, the parties may extend the time for the performance of any of the obligations or other acts of the other parties or waive any inaccuracies in the

 

53



 

representations and warranties contained in the merger agreement or in any document delivered pursuant to the merger agreement.  The parties may also waive to the fullest extent permitted by law compliance with any of the agreements or conditions contained in the merger agreement.  Any extension or waiver must be approved by the special committee, and will only be valid if in writing and signed on behalf of the waiving party.

 

Continuing Authority of the Special Committee

 

In order to protect the interests of the minority Cruzan stockholders, certain actions taken on behalf of Cruzan prior to the earlier of the effective time of the merger or the termination of the merger agreement must be approved by the special committee.  Such actions include (a) the exercise, enforcement or waiver of Cruzan’s rights under the merger agreement; (b) any action or failure to act on the part of Cruzan that could reasonably be expected to constitute or result in a breach of, or to delay or interfere with the performance of, the merger agreement; (c) any agreement or transaction involving the payment, transfer or disposition by Cruzan and our subsidiaries of consideration having a fair market value of $1,100,000 or more annually or the transfer of tangible or intangible assets by Cruzan and our subsidiaries with a fair market value of $1,100,000 or more between (x) Cruzan and any of our subsidiaries and (y) Absolut, Merger Sub or any of their affiliates other than a transaction pursuant to an arrangement in place on the date of the merger agreement; (d) any amendment to Cruzan’s certificate of incorporation or bylaws that would adversely affect the holders of our common stock; and (e) any change in the authority or membership of the special committee.

 

54



 

CRUZAN SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION

 

The selected historical consolidated financial information as of and for each of the fiscal years ended September 30, 2005, 2004 and 2003 have been derived from our audited consolidated financial statements and notes thereto included in Cruzan’s Annual Report on Form 10-K and filed with the SEC for the year ended September 30, 2005, which is attached hereto as Annex D and made a part of this proxy statement.  The selected historical consolidated financial data for the three months ended December 31, 2005 and December 31, 2004 have been derived from the unaudited consolidated financial statements of Cruzan.  In the opinion of Cruzan’s management, all adjustments (consisting of normal recurring items) necessary for a fair presentation of the results of operations, financial position and cash flows of Cruzan for such periods have been reflected therein.  Historical results are not necessarily indicative of any results to be expected in the future and partial year results are not necessarily indicative of the results that may be expected for the full year.  The information presented below should be read in conjunction with the consolidated financial statements and notes thereto, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Form 10-K for the year ended September 30, 2005 and in Cruzan’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2005, which is attached hereto as Annex E and made a part of this proxy statement.

 

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In thousands, except per share amounts

 

  

 

Year ended September 30,

 

Three Months ended December 31,

 

 

 

2005

 

2004

 

2003

 

2005

 

2004

 

Statements of Income Data:

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

106,491

 

$

96,416

 

$

90,444

 

$

28,447

 

$

24,192

 

Operating income (loss)

 

(12,574

)

(3,579

)

6,065

 

(3,581

)

(231

)

Income (loss) before income taxes

 

(14,540

)

(4,600

)

2,447

 

(4,316

)

(614

)

Income tax expense (benefit)

 

(3,887

)

(3,692

)

(956

)

(1,153

)

(763

)

Net income (loss)

 

$

(10,653

)

$

(908

)

$

3,403

 

$

(3,162

)

$

149

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share

 

 

 

 

 

 

 

 

 

 

 

Basic Income (loss)

 

$

(1.65

)

$

(0.16

)

$

0.61

 

$

(0.47

)

$

0.02

 

Diluted Income (loss)

 

$

(1.65

)

$

(0.16

)

$

0.60

 

$

(0.47

)

$

0.02

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

 

 

Basic

 

6,452

 

5,801

 

5,574

 

6,749

 

6,339

 

Diluted

 

6,452

 

5,801

 

5,644

 

6,749

 

6,458

 

Balance Sheet Data (at period end):

 

 

 

 

 

 

 

 

 

 

 

Working capital

 

$

45,401

 

$

40,556

 

$

56,791

 

$

14,401

 

$

43,576

 

Total assets

 

133,749

 

127,833

 

139,299

 

134,622

 

126,548

 

Short-term debt

 

 

 

4,000

 

4,000

 

38,000

 

4,000

 

Long-term debt

 

28,600

 

25,674

 

47,316

 

 

28,727

 

Stockholders’ equity

 

83,652

 

79,824

 

70,612

 

80,612

 

79,973

 

 

Book Value Per Share

 

As of December 31, 2005, our book value per share was approximately $11.94.  Book value per share is not a term defined under accounting principles generally accepted in the United States of America.  Book value per share is calculated by dividing total stockholders’ equity by the number of shares of common stock outstanding as of the date of determination.

 

Ratio of Earnings to Fixed Charges

 

The following table sets forth our ratio of earnings to fixed charges for the periods indicated. For purposes of calculating the ratio of earnings available to cover fixed charges:

 

                                          earnings consist of income (loss) before income taxes; and

 

                                          fixed charges consist of interest inclusive of the amortization of debt issuance costs.

 

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Year Ended September 30,   

 

Three Months Ended December 31,

 

2005

 

2004

 

2005

 

2004

 

(5.33

)

(2.07

(3.70

)

0.25

 

 

For the three months ended December 31, 2005, our earnings were insufficient to cover our fixed charges by approximately $2,309,000.

 

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CRUZAN COMMON STOCK MARKET PRICE AND DIVIDEND INFORMATION

 

Market Price

 

Our common stock is listed on the American Stock Exchange under the symbol “RUM.”  The following table sets forth the high and low daily closing prices as reported by the American Stock Exchange during each of the quarters for the last two-year period, and for the period from January 1, 2006 to •.

 

Quarter Ended

 

High

 

Low

 

 

 

 

 

 

 

March 31, 2004

 

12.15

 

10.50

 

June 30, 2004

 

14.50

 

11.92

 

September 30, 2004

 

14.05

 

12.10

 

December 31, 2004

 

13.18

 

11.70

 

March 31, 2005

 

13.91

 

12.42

 

June 30, 2005

 

26.75

 

12.85

 

September 30, 2005

 

28.19

 

25.15

 

December 30, 2005

 

28.18

 

28.01

 

Through • , 2006 (the most recent practicable date before printing of this document)

 

 

 

 

 

 

At • , 2006, there were • registered stockholders of our common stock.  Since a significant portion of our common stock is held in “street name” or nominee name, we are unable to determine the exact number of beneficial holders.

 

The merger consideration of $28.37 per share to be received by Cruzan’s stockholders represents an approximate 102% premium over the $14.05 per share closing price of Cruzan common stock on June 3, 2005, the last full trading day prior to the public announcement of the stock purchase agreement.  On • , 2006, the most recent practicable date before the printing of this document, the closing price of Cruzan common stock was $•.

 

YOU SHOULD OBTAIN CURRENT MARKET PRICE QUOTATIONS FOR CRUZAN COMMON STOCK IN CONNECTION WITH THE VOTING OF YOUR CRUZAN COMMON STOCK.

 

Dividend Information

 

We paid no dividends in our fiscal years ended September 30, 2005 and 2004, and do not currently anticipate paying cash dividends in the foreseeable future. The merger agreement prohibits Cruzan from declaring, setting aside or paying dividends or distributions until the effective date of the merger without the prior written consent of Absolut.

 

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INFORMATION CONCERNING CRUZAN COMMON STOCK TRANSACTIONS

 

Common Stock Offerings

 

2004 Private Placement to Angostura

 

During June 2004, Cruzan and Angostura completed a transaction whereby Angostura agreed to invest $10 million in Cruzan in exchange for 714,285 shares of common stock, which equates to an equity issue price of $14.00 per share.  The transaction was approved by the prior board of directors after having been determined to be fair to the public stockholders of Cruzan by a special committee of independent directors.  In addition, Angostura reimbursed one-half of Cruzan’s expenses in connection with this transaction.  The subscription agreement for this transaction also required that Cruzan use its best efforts to complete a rights offering pursuant to a registration statement to be filed with the Commission.  The rights offering (as described below) was intended to allow each stockholder of Cruzan, other than Angostura and its affiliates, to purchase such holder’s approximate pro rata amount of the number of shares of the common stock of Cruzan that would permit the public stockholders in the aggregate to maintain the percentage stock ownership the public stockholders owned prior to the stock purchase by Angostura.

 

2005 Rights Offering

 

On August 30, 2004, Cruzan filed a Form S-2 registration statement for a rights offering of 408,787 shares of common stock.  The offering granted holders of Cruzan’s common stock (except Cruzan’s former principal stockholder, Angostura and its affiliates) nontransferable subscription rights to purchase in the aggregate up to 408,787 shares of Cruzan’s common stock at a subscription price of $13.91 (the closing price of Cruzan’s common stock on the American Stock Exchange on May 19, 2005).  Under the terms of the offering, holders of Cruzan’s common stock (except Angostura and its affiliates) were entitled to one nontransferable basic subscription right to purchase one share of common stock for each five shares of common stock held at the close of business on the May 20, 2005 record date.  If any holders of subscription rights did not exercise their basic subscription rights in full, Cruzan permitted stockholders who did exercise their basic subscription rights in full to subscribe for additional shares at the same subscription price per share, on a pro rata basis.  The rights offering closed on June 21, 2005, and was fully subscribed.

 

Common Stock Purchases

 

Except as set forth below, none of Cruzan, Absolut, V&S, Merger Sub, or their respective directors and executive officers has purchased any shares of Cruzan common stock during the past two years.

 

Jay S. Maltby, our Chief Executive Officer and President:

 

                   acquired 2,000 shares of Cruzan common stock on April 6, 2004 through the laws of descent and distribution;

 

                   acquired 500 shares of Cruzan common stock on June 23, 2004 through the laws of descent and distribution;

 

                   was granted stock options representing 100,000 shares of Cruzan common stock on February 24, 2005; and

 

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                   acquired 2,367 shares of Cruzan common stock on June 21, 2005 as a result of our 2005 rights offering.

 

Thomas A. Valdes, our Executive Vice President and Assistant Secretary:

 

                   was granted stock options representing 80,000 shares of Cruzan common stock on February 24, 2005; and

 

                   acquired 209 shares of Cruzan common stock on June 21, 2005 as a result of our 2005 rights offering.

 

D. Chris Mitchell, our Senior Vice President – Sales:

 

                   was granted stock options representing 37,500 shares of Cruzan common stock on February 24, 2005; and

 

                   acquired 1,051 shares of Cruzan common stock on June 21, 2005 as a result of our 2005 rights offering.

 

Ousik Yu, our Senior Vice President – Manufacturing:

 

                   was granted stock options representing 37,500 shares of Cruzan common stock on February 24, 2005; and

 

                   acquired 4,205 shares of Cruzan common stock on June 21, 2005 as a result of our 2005 rights offering.

 

Ezra Shashoua, our Executive Vice President and Chief Financial Officer:

 

                   was granted stock options representing 80,000 shares of Cruzan common stock on February 24, 2005; and

 

                   acquired 20 shares of Cruzan common stock on June 21, 2005 as a result of our 2005 rights offering.

 

Leonard G. Rogers, an independent director, acquired 209 shares of Cruzan common stock on June 21, 2005 as a result of our 2005 rights offering.

 

Edward F. McDonnell, an independent director, acquired 200 shares of Cruzan common stock on June 21, 2005 as a result of our 2005 rights offering.

 

Transactions Within 60 Days

 

None of Cruzan, Absolut, V&S, Merger Sub, or their respective directors and executive officers has effected any transactions with respect to Cruzan common stock during the 60 days prior to the date of this proxy statement.

 

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CURRENT EXECUTIVE OFFICERS AND DIRECTORS OF CRUZAN

 

The following persons are the directors and executive officers of Cruzan as of the date of this proxy statement.  Each executive officer will serve until a successor is elected by the board of directors or until the earlier of his resignation or removal.  Except as noted below, the directors and executive officers of Cruzan are citizens of the United States.  The mailing address for the executive officers and directors of Cruzan is 222 Lakeview Avenue, Suite 1500, West Palm Beach, FL 33401 and their telephone number is (561) 655-8977.  None of our executive officers or directors was convicted in a criminal proceeding (other than traffic violations or similar misdemeanors) or party to any judicial or administrative proceeding during the past five years that resulted in a judgment decree or a final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws.

 

Our executive officers and directors, their ages, the year they became a director, their current principal occupation and their material employment during the last five years as of • , 2006 are as follows:

 

Name

 

Age

 

Position

 

 

 

 

 

Jay S. Maltby

Mr. Maltby joined Cruzan in 1995 as President, Chief Operating Officer and a director and was appointed as Chairman of the Board and Chief Executive Officer in 2002. Mr. Maltby resigned from our board of directors effective as of September 30, 2005. Prior to joining Cruzan, Mr. Maltby served with Bacardi Imports, Ltd. from 1978 in various executive capacities, including as a member of Bacardi’s Executive Committee and Vice President of Finance and Operations. Mr. Maltby also serves as a director of Angostura Holdings, Ltd.

 

55

 

Chief Executive Officer and President

 

 

 

 

 

Thomas A. Valdes

Mr. Valdes joined Cruzan in 1995 as Executive Vice President and, prior to his resignation from our board of directors on September 30, 2005, had been a director of Cruzan since 1996. Prior to joining Cruzan, Mr. Valdes held various executive positions with Bacardi Imports, Ltd., a beverage alcohol manufacturing and marketing company, from 1979, the latest of which was Vice President of Marketing and Operations.

 

62

 

Executive Vice President, Assistant Secretary

 

61



 

D. Chris Mitchell

Mr. Mitchell joined Cruzan in 1984 as manager of Cruzan’s bottling operations. Mr. Mitchell was promoted to Vice President—Sales in 1989 and appointed as Senior Vice President in 1994. Prior to his resignation from our board of directors on September 30, 2005, Mr. Mitchell had been a director of Cruzan since 1991. Prior to joining Cruzan, Mr. Mitchell was general manager of bottling operations for United States Distilled Products, a beverage alcohol marketing company, from 1980 to 1984.

 

56

 

Senior Vice President — Sales

 

 

 

 

 

Ezra Shashoua

Mr. Shashoua joined Cruzan as Executive Vice President, Chief Financial Officer and Secretary in June 2003. Prior to joining Cruzan, Mr. Shashoua worked at NationsRent, Inc., a national equipment rental chain, where he served in the same role from January 2001 to June 2003. Prior to joining NationsRent, Mr. Shashoua worked at 7-Eleven, Inc., a national convenience store chain, in Dallas, Texas, where he served in various capacities of increasing responsibility from 1982 to January 2001, most recently as Vice President and Chief Financial Officer. Mr. Shashoua began his career as an attorney at Sonnenschein, Nath and Rosenthal in Chicago, Illinois.

 

50

 

Executive Vice President and Chief Financial Officer

 

 

 

 

 

Ousik Yu

Mr. Yu joined Cruzan in 1990 and served as Vice President—Bottling Operations since that time until his appointment as Senior Vice President—Beverage Division in 1994. In 1996, Mr. Yu was appointed as Senior Vice President—Manufacturing. From 1986 to 1989, Mr. Yu was employed by Brown-Forman Corporation, a beverage alcohol manufacturing and marketing company, most recently as manager of packaging/process engineering. From 1981 to 1986, he was employed in plant engineering by The Stroh’s Brewery Company, a beverage alcohol company.

 

52

 

Senior Vice President — Manufacturing

 

 

 

 

 

Donald L. Kasun

Since 1978, Mr. Kasun has been president of Kasun Development Corp., an industrial real estate development and management company, and senior vice president of Southern Container Corp., a privately-held manufacturer of paperboard and corrugated boxes.

 

66

 

Director since 2001

 

62



 

Edward F. McDonnell

Mr. McDonnell is Chairman and Chief Executive Officer of The Premier Group, a company he founded in 1995. The Premier Group owns beverage alcohol distributing companies in the Caribbean, Philippines and South Pacific. Prior to founding The Premier Group, Mr. McDonnell served with The Seagram Company Ltd. from 1981 in various executive capacities, including as a director and Executive Vice President of The Seagram Company Ltd. and President of The Seagram Spirits and Wine Group. Mr. McDonnell owns an interest in a distributorship partially owned by Cruzan.

 

70

 

Director since 1998

 

 

 

 

 

Leonard G. Rogers

Mr. Rogers was Chairman of the Board of Cruzan from 1974 to 1985 and since 1985 has been a private investor. From 1969 to 1974, Mr. Rogers was Senior Vice President – Consumer Products Division for American conglomerate Gulf & Western Industries.

 

76

 

Director since 1992

 

 

 

 

 

Mats Andersson

Mr. Andersson has been Senior Vice President Business Development of V&S since 1999. Prior to serving in this capacity, Mr. Andersson was the Vice President of the Wines Division of V&S from 1994 through 1999. Mr. Andersson is a citizen of Sweden.

 

49

 

Director since 2005


 

 

 

 

 

Ketil Eriksen

Mr. Eriksen has been president of V&S Absolut Spirits since January 2005. Prior to joining V&S, he was Chief Executive Officer of Colgate-Palmolive Sweden & Finland from May 1999 to January 2005. Mr. Eriksen is a citizen of Norway.


 

42

 

Director since 2005


 

 

 

 

 

Ola Salmén

Mr. Salmén has been Senior Vice President Finance of V&S since 2002. Prior to joining V&S, Mr. Salmén was Chief Financial Officer of Adcore AB, a Swedish public IT consulting firm. From 1997 until 2002, Mr. Salmen served as Financial Director and Director of Risk Control for Handelsbanken Markets. Mr. Salmén is a citizen of Sweden.

 

51

 

Director since 2005


 

63



 

Lisa Derman

Ms. Derman has been the General Counsel of ASCI since January 2005. Prior to joining ASCI, Ms. Derman was employed by Schieffelin & Somerset, the national importer for Dom Perignon, Hennessey, Tanqueray and Johnnie Walker, where she served as Senior Counsel from July 2001 to January 2004. From 1994 to 2000, she was employed by the national law firm McDermott Will & Emery LLP as an associate or consultant where she specialized in alcohol beverage regulatory law and distributor relations.

 

40

 

Director since 2005

 

64



 

CURRENT EXECUTIVE OFFICERS AND DIRECTORS OF ABSOLUT

 

The following persons are the directors and executive officers of Absolut as of the date of this proxy statement.  Each executive officer will serve until a successor is elected by the board of directors of Absolut or until the earlier of his resignation or removal.  The mailing address for the executive officers and directors of Absolut is 1370 Avenue of the Americas, New York, New York 10019 and their telephone number is (212) 641-8700.  None of Absolut’s executive officers or directors was convicted in a criminal proceeding (other than traffic violations or similar misdemeanors) or was a party to any judicial or administrative proceeding during the past five years that resulted in a judgment decree or a final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws.

 

Absolut’s executive officers and directors, their ages, the year they became a director of Absolut, their current principal occupation and their material employment during the last five years as of • , 2006 are as follows:

 

Name

 

Age

 

Position

 

 

 

 

 

Carl Horton

Mr. Horton has been the President and Chief Executive Officer of Absolut since 2001. Prior to joining Absolut, Mr. Horton was employed by Seagram Spirits & Wine Group as Vice President of Marketing for Absolut. Mr. Horton is a citizen of the United States.

 

61

 

President and Chief Executive Officer. Director since 2001

 

 

 

 

 

Bengt Baron

Mr. Baron has been President and CEO of V&S since 2001. Previously, Mr. Baron served as Nordic Business Area Manager for StepStone Sweden. Mr. Baron is a member of the board of directors of Future Brands and Cloetta Fazer. Mr. Baron is a citizen of Sweden.

 

43

 

Director since 2002

 

 

 

 

 

Ketil Eriksen

Mr. Eriksen has been president of V&S Absolut Spirits since January 2005. Prior to joining V&S, he was Chief Executive Officer of Colgate-Palmolive Sweden & Finland from May 1999 to January 2005. Mr. Eriksen is a citizen of Norway.

 

42

 

Director since 2005

 

 

 

 

 

Matthias Aeppli

From 2002 through 2004, Mr. Aeppli served as Vice President of Marketing at Diageo NA. Prior to Diageo, Mr. Aeppli was a marketing Vice President with Seagram Spirits & Wine Group. Mr. Aeppli is a citizen of Switzerland.

 

46

 

Vice President of Marketing

 

65



 

Michael Misiorski

Mr. Misiorski has been Chief Financial Officer and Vice President of Finance and Administration of Absolut since October 2001. Prior to joining Absolut, Mr. Misiorski was the Director of Finance Global of Seagram Company Limited. Mr. Misiorski is a citizen of the United States.

 

43

 

Vice President of Finance and Administration, Chief Financial Officer, Secretary and Treasurer

 

 

 

 

 

James Schleifer

Mr. Schleifer has been the Vice President of Sales for Absolut since 2001. Prior to joining Absolut, Mr. Schleifer served as Marketing Director at Seagram’s Spirits & Wine Group Mr. Schleifer is a citizen of the United States.

 

49

 

Vice President of Sales

 

66



 

CURRENT EXECUTIVE OFFICERS AND DIRECTORS OF V&S

 

The following persons are the directors and executive officers of V&S as of the date of this proxy statement.  Each executive officer will serve until a successor is elected by the board of directors of V&S or until the earlier of his resignation or removal.  The mailing address for the executive officers and directors of V&S is 117 97 Stockholm, Sweden and their telephone number is +46 8 744 70 00.  None of V&S’s executive officers or directors was convicted in a criminal proceeding (other than traffic violations or similar misdemeanors) or was a party to any judicial or administrative proceeding during the past five years that resulted in a judgment decree or a final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws.

 

V&S’s executive officers and directors, their ages, the year they became a director of V&S, their current principal occupation and their material employment during the last five years as of •, 2006 are as follows:

 

Name

 

Age

 

Position

 

 

 

 

 

Claes Dahlbäck

Mr. Dahlbäck has been a director of the V&S board since 1991 and has served as Chairman of the Board since 1993. Mr. Dahlbäck is a member of the V&S board’s audit committee and remuneration committee. Mr. Dahlbäck also serves as Chairman of the Board of Stora Enso Oy and Gambro AB. Mr. Dahlbäck is a citizen of Sweden.

 

58

 

Chairman of the Board. Director since 1991

 

 

 

 

 

Lars Danielsson

Mr. Danielsson has been a director of the V&S board since 2003. Mr. Danielsson is also a member of the V&S board’s remuneration committee. Mr. Danielsson has served as Under-Secretary in the Swedish Prime Minister’s Office since 1999. Mr. Danielsson is a citizen of Sweden.

 

52

 

Non-Executive Director since 2003

 

 

 

 

 

Inger Lundberg

Mr. Lundberg has been a director of the V&S board since 2005. Mr. Lundberg has been a member of the Swedish Parliament since 1991. Mr. Lundberg is a citizen of Sweden.

 

57

 

Non-Executive Director since 2005

 

 

 

 

 

Arne Mårtensson

Mr. Mårtensson has been a director of the V&S board since 1993. Mr. Mårtensson is also a member of the V&S board’s audit committee. Mr. Mårtensson has been Chairman of the Board of Svenska Handelsbanken AB since 2001 and before that he was the CEO of Svenska Handelsbanken AB. Mr. Mårtensson is a citizen of Sweden.

 

54

 

Non-Executive Director since 1993

 

67



 

Mats G. Ringesten

Mr. Ringesten has been a director of the V&S board since 2004. Mr. Ringesten has served as Senior Partner of Neuman & Nydahl since 1995. Mr. Ringesten is a citizen of Sweden.

 

55

 

Non-Executive Director since 2004

 

 

 

 

 

Anders Björck

Mr. Björck has been a director of the V&S board since 2000. Mr. Björck has served as County Governor for the province of Uppsala since 2003. Mr. Björck was a member of the Swedish Parliament from 1968 through 2002 and served as First Deputy Speaker of Parliament from 1994 through 2002. Mr. Björck is a citizen of Sweden.

 

61

 

Non-Executive Director since 2000

 

 

 

 

 

Jonas Iversen

Mr. Iversen has been a director of the V&S board since 2003. Mr. Iversen has served as Director/Senior Adviser of the Ministry of Industry since 2000. He is also a member of the V&S board’s audit committee. Mr. Iversen is a citizen of Sweden.

 

40

 

Non-Executive Director since 2003

 

 

 

 

 

Ebbe M. Loiborg

Mr. Loiberg has been a director of the V&S board since 2000. He is also a member of the V&S board’s remuneration committee and a board member of various companies. Mr. Loiborg is a citizen of Denmark.

 

60

 

Non-Executive Director since 2000

 

 

 

 

 

Helle Kruse Nielsen

Ms. Nielsen has been a director of the V&S board since 2004. Ms. Nielsen also serves as a board member of various companies. Ms. Nielsen is a citizen of Denmark.

 

52

 

Non-Executive Director since 2004

 

 

 

 

 

Johan Lund

Mr. Lund has been an employee representative of the V&S board since 2003. Mr. Lund has served as Senior Editor at V&S since 1995. Mr. Lund is a citizen of Sweden.

 

47

 

Employee Representative Director since 2003

 

 

 

 

 

Kent Karlsson

Mr. Karlsson has been a deputy employee representative of the V&S board since 2004. Mr. Karlsson has served as Planning Manager at V&S since 2000. Mr. Karlsson is a citizen of Sweden.

 

55

 

Deputy Employee Representative Director since 2004

 

68



 

Jan Lundin

Mr. Lundin has been an employee representative of the V&S board since 1998. Mr. Lundin has served as line employee at V&S since 1989. Mr. Lundin is a citizen of Sweden.

 

59

 

Employee Representative Director since 1998

 

 

 

 

 

Roger Möller

Mr. Möller has been a deputy employee representative of the V&S board since 2000. Mr. Möller has served as warehouse worker at V&S since 1975. Mr. Möller is a citizen of Sweden.

 

49

 

Deputy Employee Representative Director since 2000

 

 

 

 

 

Bengt Baron

Mr. Baron has been President and CEO of V&S since 2004. Previously, Mr. Baron served as President of V&S Absolut Spirits from 2001. Former positions include Nordic Business Area Manager for Stepstone Sweden. Mr. Baron is a member of the board of directors of Future Brands and Cloetta Fazer. Mr. Baron is a citizen of Sweden.

 

43

 

President and Chief Executive Officer

 

 

 

 

 

Håkan Matz

Mr. Matz has been President of V&S Wine since 2001. Previously, Mr. Matz served as CEO of Hemköpskedjan AB from 1999 through 2001. Mr. Matz is a citizen of Sweden.

 

55

 

President, V&S Wine

 

 

 

 

 

Mats Andersson

Mr. Andersson has been Senior Vice President Business Development of V&S since 1999. Prior to serving in this capacity, Mr. Andersson was the Vice President of the Wines Division of V&S from 1994 through 1999. Mr. Andersson is a citizen of Sweden.

 

49

 

Senior Vice President Business Development

 

 

 

 

 

Rolf Cassergren

Mr. Cassergren has been Executive Vice President of V&S since 2001. Previously, Mr. Cassergren served as Head of V&S Finance since 1996 and President of V&S Distillers since 2004. Mr. Cassergren is a citizen of Sweden.

 

47

 

Executive Vice President

 

 

 

 

 

Ketil Eriksen

Mr. Eriksen has been President of V&S Absolut Spirits since January 2005. Prior to joining V&S, he was Chief Executive Officer of Colgate-Palmolive Sweden & Finland from May 1999 to January 2005. Mr. Eriksen is also a member of the boards of directors of Future Brands and Maxxium Worldwide. Mr. Eriksen is a citizen of Norway.

 

42

 

President, V&S Spirits

 

69



 

Ola Salmén

Mr. Salmén has been Senior Vice President Finance of V&S since 2002. Prior to joining V&S, Mr. Salmén was Chief Financial Officer of Adcore AB, a Swedish public IT consulting firm. From 1997 until 2002, Mr. Salmen served as Financial Director and Director of Risk Control for Handelsbanken Markets. Mr. Salmén is a member of the board of directors of Maxxium Worldwide. Mr. Salmén is a citizen of Sweden.

 

51

 

Senior Vice President Finance

 

 

 

 

 

Mikael Spångberg

Mr. Spångberg has been Senior Vice President Legal Affairs of V&S from 1996 through 2001 and again since 2003. From 2001 through 2003, Mr. Spångberg served as Senior Consultant to Cogent IPC AB. Mr. Spångberg is a citizen of Sweden.

 

48

 

Senior Vice President Legal Affairs

 

 

 

 

 

Gunilla Winlund

Ms. Winlund has been Senior Vice President Human Resources of V&S since 2000. Ms. Winlund is a citizen of Sweden.

 

54

 

Senior Vice President Human Resources

 

 

 

 

 

Jacob Broberg

Mr. Broberg has been Senior Vice President Corporate Affairs of V&S since 2005. Prior to joining V&S, he was Vice President Media Relations of Electrolux from 2001 to 2005. He was also Vice President Corporate Communications of Länsförsäkringar from 2000 to 2001. Mr. Broberg is a citizen of Sweden.

 

41

 

Senior Vice President Corporate Affairs

 

70



 

CURRENT EXECUTIVE OFFICERS AND DIRECTORS OF MERGER SUB

 

The following persons are the directors and executive officers of Merger Sub as of the date of this proxy statement.  Each executive officer will serve until a successor is elected by the board of directors of Merger Sub or until the earlier of his resignation or removal.  The directors and executive officers of Merger Sub are citizens of the United States.  The mailing address for the directors and executive officers of Merger Sub is 1370 Avenue of the Americas, New York, New York 10019 and their telephone number is (212) 641-8700.  None of Merger Sub’s executive officers or directors was convicted in a criminal proceeding (other than traffic violations or similar misdemeanors) or party to any judicial or administrative proceeding during the past five years that resulted in a judgment decree or a final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws:

 

Merger Sub’s executive officers and directors, their ages, the year they became a director of Merger Sub, their current principal occupation and their material employment during the last five years as of • , 2006 are as follows:

 

Name

 

Age

 

Position

 

 

 

 

 

Michael Misiorski

Mr. Misiorski has been the President, Vice President, Treasurer and Secretary of Merger Sub since its incorporation in September 2005. Mr. Misiorski also has served as Chief Financial Officer and Vice President of Finance and Administration of Absolut since October 2001. Prior to joining Absolut, Mr. Misiorski was the Director of Finance Global of Seagram Company Limited.

 

43

 

President, Vice President, Treasurer, Secretary

 

 

 

 

 

Lisa Derman

Ms. Derman has been the sole director of Merger Sub since its incorporation in September 2005. Ms. Derman has also served as General Counsel of Absolut since January 2005. Prior to joining ASCI, Ms. Derman was employed by Schieffelin & Somerset, the national importer for Dom Perignon, Hennessey, Tanqueray and Johnnie Walker, where she served as Senior Counsel from July 2001 to January 2004. From 1994 to 2000, she was employed by the national law firm McDermott Will & Emery LLP as an associate or consultant where she specialized in alcohol beverage regulatory law and distributor relations.

 

40

 

Director since 2005

 

71



 

SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN OTHER BENEFICIAL OWNERS

 

The following tables set forth information at • , 2006 with respect to the beneficial ownership of shares of Cruzan common stock by (i) the directors of Cruzan, (ii) the Chief Executive Officer and the four other most highly compensated executive officers, (iii) all executive officers and directors of Cruzan, as a group, and (iv) each person known to Cruzan to beneficially own more than 5% of the shares of Cruzan common stock outstanding.

 

AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP(1)

 

Name of Executive Officer
or Director

 

Number of
Shares

 

Presently
Exercisable
Options(1)

 

Total
Beneficial
Ownership

 

Percentage
Owned(2)

 

Jay S. Maltby

 

13,667

 

131,250

 

144,917

 

2.1

%

Ezra Shashoua

 

120

 

25,000

 

25,120

 

*

 

Thomas A. Valdes

 

1,209

 

112,500

 

113,709

 

1.7

%

D. Chris Mitchell

 

6,051

 

56,717

 

62,768

 

*

 

Ousik Yu

 

24,205

 

61,717

 

85,922

 

1.3

%

Donald L. Kasun(3)

 

 

 

 

 

Edward F. McDonnell(4)

 

1,200

 

60,000

 

61,200

 

*

 

Leonard G. Rogers(5)

 

1,209

 

 

1,209

 

*

 

Mats Andersson

 

 

 

 

 

Ola Salmén

 

 

 

 

 

Ketil Eriksen

 

 

 

 

 

Lisa Derman

 

 

 

 

 

All executive officers and directors as a group (10 persons)

 

47,661

 

446,759

 

494,420

 

6.9

%

 


* Less than 1%

 

Name and Address of
Other Beneficial Owners

 

Number of
Shares

 

Presently
Exercisable
Options(1)

 

Total
Beneficial
Ownership

 

Percentage
Owned(2)

 

The Absolut Spirits Company,
Incorporated (7)
1370 Avenue of the Americas
New York, New York 10019

 

4,294,583

(6)

 

4,294,583

(6)

63.6

%

 


(1)               The number of shares beneficially owned by each director, executive officer and stockholder is determined under rules of the Securities and Exchange Commission (the “Commission”), and the information provided under those rules is not necessarily indicative of beneficial ownership for any other purpose. Under those rules, beneficial ownership includes any shares as to which the individual has sole or shared voting power or investment power and any shares that the individual has the right to acquire within 60 days after •, 2006, including through the exercise of options granted under Cruzan’s 1992 Employee Stock Option Plan and 2004 Stock Option Plan (“Presently Exercisable Options”). The inclusion of shares covered by Presently Exercisable Options, however, does not constitute an admission that the named stockholder is a direct or indirect beneficial owner of such shares. Unless otherwise indicated, each person or entity named in the table has sole voting power

 

72



 

and investment power (or shares such power with his spouse) with respect to all shares of common stock listed as owned by such person or entity. Unless otherwise stated, the address for each executive officer or Director is Cruzan’s principal office, 222 Lakeview Avenue, Suite 1500, West Palm Beach, Florida 33401.

 

(2)               Number of shares outstanding consists of the 6,748,992 shares of Common Stock outstanding at November 15, 2005, plus any shares subject to Presently Exercisable Options held by the person in question.

 

(3)               Mr. Kasun’s address is 1080 N. Ocean Boulevard, Palm Beach, Florida 33480.

 

(4)               Mr. McDonnell’s address is The Premier Group, 10 Office Park Road, Suite 212, Hilton Head Island, South Carolina 29928