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SCHEDULE 14A INFORMATION
CONSENT STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT
OF 1934
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [X]
Check the appropriate box:
[ ] Preliminary Consent Statement
[ ] Confidential, for Use of the Commission only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Consent Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or Rule 14a-12
VESTCOM INTERNATIONAL, INC.
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(Name of Registrant as Specified in Its Charter)
HARISH K. CHOPRA, TIMETRUST, INC. -and- R-SQUARED LIMITED
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
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(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):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- -----------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- -----------------------------------------------------------------
(3) Filing Party:
- -----------------------------------------------------------------
(4) Date Filed:
- -----------------------------------------------------------------
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PRELIMINARY COPY; SUBJECT TO COMPLETION
MARCH 7, 2000
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CONSENT STATEMENT
OF
HARISH K. CHOPRA, TIMETRUST, INC., AND R-SQUARED LIMITED
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To the Shareholders of Vestcom International, Inc.:
This Consent Statement and the enclosed GOLD consent card are from
Harish K. Chopra, TimeTrust, Inc., and R-Squared Limited (the "Solicitors," "we"
or "us"). Through this Consent Statement we are providing you with the
opportunity to replace five of the seven current directors of Vestcom
International, Inc. ("Vestcom" or the "Company") with our nominees and to
approve three other proposals relating to Vestcom's by-laws that are described
in this Consent Statement. The Solicitors own more than 9% of the Company's
common stock and are asking all Vestcom shareholders to consent to all of our
proposals by marking, signing and dating the enclosed GOLD consent card and
returning it in the enclosed, postage-paid envelope, to our consent solicitor,
Beacon Hill Partners, as set forth in this Consent Statement.
This Consent Statement and the enclosed GOLD consent card are first
being furnished to the shareholders of Vestcom on or about March 8, 2000.
WHY YOUR CONSENT TO OUR PROPOSALS IS IMPORTANT
WE ARE SOLICITING YOUR CONSENT TO OUR PROPOSALS IN ORDER TO ADDRESS AND
REMEDY WHAT WE BELIEVE TO BE CRITICAL ISSUES OF VESTCOM'S MISMANAGEMENT, POOR
STOCK PERFORMANCE, REVENUE AND EARNINGS STAGNATION AND WHAT WE BELIEVE MAY BE
REPEATED FIDUCIARY VIOLATIONS BY THE BOARD THAT IMPROPERLY ENTRENCH MANAGEMENT.
It is important that these issues be addressed now, because we believe
the Board and senior management have shown no sign that they are willing to
institute the changes necessary to improve Vestcom's commercial performance,
stock price and financial condition, or to otherwise increase shareholder value.
We also believe that because of the poor operational decisions that the Board
and senior management have made and the failed strategic business model they
continue to follow, Vestcom cannot afford to waste precious time while its
condition continues to weaken. Further, we believe actions taken by the current
Board entrench itself and senior management, and also disenfranchise you and
Vestcom's other shareholders. In our view, the current Board's actions
potentially constitute on-going breaches of the Board's fiduciary obligations
that will only make it progressively more difficult to "turn around" the
Company's performance, financial condition and stock price.
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WE BELIEVE THAT BY CONSENTING TO OUR PROPOSALS THE SHAREHOLDERS OF
VESTCOM WILL ELECT A BOARD OF DIRECTORS THAT WILL SUBSTANTIALLY IMPROVE
VESTCOM'S BUSINESS AND MARKETPLACE PERFORMANCE, AND WILL THEREBY INCREASE THE
VALUE OF THE VESTCOM SHARES FOR THE BENEFIT OF ALL VESTCOM SHAREHOLDERS.
OUR PROPOSALS
We are asking all Vestcom shareholders to consent to the following five
actions (the 'Proposals"), as authorized by New Jersey law:
(1) Remove five of the seven current Vestcom directors (other than
Stephen R. Bova and Leonard J. Fassler) and remove any other director elected or
appointed to the Vestcom Board before the effective date of this shareholder
action other than those five nominees identified herein to be elected by this
consent;
(2) Elect the five nominees (the "Nominees") described in this Consent
Statement to serve as directors of Vestcom (or, if any such Nominee is unable to
serve as a director of Vestcom, any other person designated as a Nominee by the
remaining Nominee or Nominees);
(3) Amend Section 3.7 of Article III of the Vestcom by-laws to provide
that any vacancy or vacancies on the Vestcom Board created as a result of the
removal of any of the current directors by Vestcom's shareholders may be filled
only by a majority vote of Vestcom's shareholders;
(4) Amend Section 3.2 of Article III of the Vestcom by-laws to set the
number of directors of Vestcom at seven; and
(5) Repeal any amendment to the Vestcom by-laws that is adopted by the
current Vestcom Board between December 16, 1999 and the date on which these
Proposals become effective and the Nominees are seated.
The Vestcom Board has fixed April 7, 2000 (the "Consent Tabulation
Date") as the date on which the consents to our Proposals will be counted. Each
of our Proposals will be effective 10 days after Vestcom notifies the
shareholders of the results of that count, if on or prior to the Consent
Tabulation Date we receive and deliver to Vestcom consents of a majority of the
shares of Vestcom common stock that are issued and outstanding on February 8,
2000 (the "Consent Record Date"). The Consent Record Date is the date fixed by
Vestcom for determining the shares entitled to give such consents. Because New
Jersey law requires Vestcom to give the shareholders "prompt" notice of the
consent tabulation, we expect that if we receive the consent of a majority of
those shares by April 7, 2000, our Proposals will become effective on or shortly
after April 17, 2000. If Vestcom's Board had not elected to give such notice to
the shareholders, the effective date would have been April 7, 2000. (For the
basis of this delay, please see CONSENT PROCEDURE, at page 30.)
WE RECOMMEND THAT YOU CONSENT TO EACH OF THE PROPOSALS.
Unless we get approval for Proposals 1 AND 2, none of the Proposals
will become effective. Approval of each of the Proposals requires the
affirmative consent of a majority of the shares of Vestcom common stock
outstanding on the Consent Record Date. The overall purpose of the Proposals is
to elect the Nominees to the Vestcom Board. If they are elected to the Board, we
believe the Nominees will act in the best interest of Vestcom's shareholders.
The Nominees (three of whom are independent of the Solicitors) have indicated
that they believe that the best interests of the Vestcom shareholders would be
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served by removing five of the seven current Vestcom Board members and replacing
them with the Nominees.
If the five current directors are removed and our Nominees are elected
in their place, we believe that the resulting seven member Board will redirect
the Company's management and operations with the aim of prudently enhancing
shareholder value. In our opinion, the current Board has enhanced management
benefits at shareholder expense. Of course, there is no assurance that our
Nominees, if elected, will succeed in their efforts.
We also expect that, if elected, our Nominees will consider terminating
Joel Cartun as Vestcom's Chairman and Chief Executive Officer and consider
terminating Brendan Keating as Vestcom's President. If terminated, we expect
that the new Board would appoint Harish Chopra to these positions. Mr. Chopra
has agreed to serve in these capacities without salary for the initial year of
employment. For that initial year, he would be compensated solely by the grant
of options to purchase Vestcom common stock at a per share exercise price equal
to fair market value at the date of grant. The number of options granted for the
initial year and subsequent employment arrangements would be set by the
independent directors of the Company. Other than Mr. Chopra and Robert J.
Verrilli (who is the chief financial officer of TimeTrust, one of the
Solicitors), at the date of this Consent Statement none of the Nominees have
agreed to the foregoing, executive employment matters.
Removing five of Vestcom's current directors and replacing them with
our Nominees could result in Vestcom incurring certain expenses. Under the terms
of so-called "change of control" agreements that Vestcom entered into with each
of Mr. Cartun and Mr. Keating in January 1999 (and with Michael D. Helfand,
Vestcom's Chief Financial Officer, in September 1999), the removal of five of
Vestcom's present directors and their replacement with our Nominees would
constitute a change in control of the Company. If during the 12 months following
such reconstitution of the Board Mr. Cartun, Mr. Keating and/or Mr. Helfand were
to be terminated without "cause" as defined by the change of control agreements,
the Company would be obligated to pay to each such terminated executive two
times the sum of his then-current base salary and prior year's bonus. Because
Mr. Cartun's and Mr. Keating's base salaries for 1999 were $200,000, each, and
Mr. Helfand's base salary is $200,000, and because Mr. Cartun did not receive a
bonus for 1999, Mr. Keating's 1999 bonus was $70,000 and Mr. Helfand has a
guaranteed bonus of $50,000, the severance payments to those executives, if and
when terminated during such following 12 months, would be approximately $400,000
in the case of Mr. Cartun, $540,000 in the case of Mr. Keating and $500,000 in
the case of Mr. Helfand (or a total of approximately $1.44 million if all three
were terminated). Additionally, the Board of Directors might determine to
reimburse the Solicitors for the cost of their solicitation efforts, which we
estimate will be approximately $275,000. Were one or more such events to occur,
it would have the effect of a one time non-recurring charge to earnings and
would reduce the Company's working capital. This would be offset in part by Mr.
Chopra's willingness to work for a year without being paid a cash salary and the
availability of up to $3 million of additional working capital from one or more
of the Solicitors on such terms as may be agreed to with the independent
directors of the Board.
Further, although we are seeking the removal of only five of
Vestcom's seven current directors, it is possible that one or both of the
remaining two directors, Messrs. Bova and Fassler, might resign rather than
continue to serve on the Board or might refuse to stand for re-election to
the Board at the next Annual Meeting. On March 7, 2000, by letter addressed
to the Secretary of Vestcom, Mr. Fosster indicated that it is his intention
not to serve on the Vestcom Board if this Consent Solicitation is successful.
The effects on Vestcom if either of these events were to occur are explained
under QUESTIONS AND ANSWERS ABOUT THIS CONSENT SOLICITATION--WHAT ARE WE
ASKING YOU TO CONSENT TO? at page 5, BACKGROUND OF THIS CONSENT SOLICITATION
at page 17, and WHY THE PENDING LITIGATION IS IMPORTANT at pages 22-23.
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Other than the possibility of Vestcom incurring the foregoing expenses
and the effects if either or both Mr. Bova and Mr. Fassler were to resign from
or refuse to seek re-election to the Board, the removal of five of Vestcom's
current directors and their replacement with our Nominees would not have any
adverse consequences to Vestcom that the Solicitors are aware of.
Each of our Nominees has stated that, upon election to the Board, he
intends to act in accordance with his fiduciary obligations and apply his
experience and sound business judgment to managing Vestcom's business. Based on
our discussions with them, we also believe that our Nominees, if elected to the
Board, in conjunction with Mr. Chopra's leadership will expeditiously seek to:
- Carefully analyze the prior strategic decisions made by Vestcom's
present Board and management to determine to what extent they have damaged
Vestcom's performance;
- Determine how best to reverse what they determine to be poor
decisions in order to provide a sound basis for sustained revenue and earnings
growth; and then
- WITH THE ACTIVE INPUT AND INVOLVEMENT OF LOCAL MANAGEMENT,
formulate and implement a new business strategy that in a controlled way
completes the integration of Vestcom's operating subsidiaries, builds on
existing strengths, and cost-effectively eliminates areas of weakness.
While each of our Nominees has stated that he intends to, in all cases,
act upon the basis of his own independent and informed business judgment, it is
our view that a new Board composed of our Nominees and the two continuing
directors, Mr. Bova and Mr. Fassler, would carefully consider adopting a new
business strategy that emphasizes:
- LOCAL empowerment of regional management.
- LIMITED centralization of only those SELECTED corporate functions
whose effectiveness is ACTUALLY enhanced by centralization.
- Creation of a SEPARATED, INTEGRATED OPERATIONS CENTER for National
Accounts.
- Development of new, TECHNOLOGY-BASED service opportunities.
YOUR CONSENT IS IMPORTANT! TO CONSENT TO OUR PROPOSALS PLEASE DO
THE FOLLOWING:
- PROMPTLY SIGN AND RETURN THE ENCLOSED GOLD CONSENT CARD
- DO NOT RETURN ANY CARD SENT TO YOU BY VESTCOM MANAGEMENT
If your shares of Vestcom common stock are held in your own name,
please sign, DATE and mail the enclosed GOLD consent card today in the
postage-paid envelope provided or mail the completed card to BEACON HILL
PARTNERS at the address below.
If your shares of Vestcom common stock are held in "Street-Name, "only
your bank or broker can execute a consent on your behalf, but only upon receipt
of your specific instructions. Please sign, DATE and mail the enclosed GOLD
consent instruction form to your bank or broker today in the postage-paid
envelope provided. To ensure that your consent is effective, please contact the
persons responsible for your account and instruct them to execute the GOLD
consent card on your behalf.
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IF YOU HAVE ANY QUESTIONS OR REQUIRE ANY ASSISTANCE IN EXECUTING OR
DELIVERING YOUR CONSENT, PLEASE WRITE TO OR CALL:
Beacon Hill Partners
90 Broad Street, 20th Floor
New York, New York 10004
Banks and Brokerage Firms Call Collect: (212) 843-8500
Shareholders Please Call: (800) 755-5001
IF YOU DO NOTHING, THE EFFECT WILL BE A VOTE AGAINST THE PROPOSALS.
IN ORDER TO REMOVE AND REPLACE FIVE OF THE CURRENT DIRECTORS OF
VESTCOM, THE AFFIRMATIVE VOTE OF A MAJORITY OF ALL OUTSTANDING SHARES IS
NEEDED FOR PROPOSAL 1 AND FOR PROPOSAL 2.
IN ORDER TO ASSURE THAT THE REMOVAL AND REPLACEMENT OF FIVE OF THE
CURRENT VESTCOM DIRECTORS CANNOT BE CIRCUMVENTED BY VESTCOM'S MANAGEMENT, THE
AFFIRMATIVE VOTE OF A MAJORITY OF ALL OUTSTANDING SHARES IS NEEDED FOR ALL FIVE
OF OUR PROPOSALS.
WE URGE YOU TO VOTE FOR EACH OF OUR FIVE PROPOSALS.
QUESTIONS AND ANSWERS ABOUT THIS CONSENT SOLICITATION
Q: WHO IS MAKING THE SOLICITATION?
A: This Solicitation is being made by Harish K. Chopra who is an
experienced business critical document imaging executive, R-Squared
Limited ("R-Squared"), and TimeTrust, Inc., ("TimeTrust"), a company
wholly-owned by Mr. Chopra and R-Squared. Through TimeTrust, R-Squared
and personally, Mr. Chopra has acquired beneficial ownership of over 9%
of Vestcom's outstanding common stock.
Q: WHAT ARE WE ASKING YOU TO CONSENT TO?
A: You are being asked to consent to several proposals which would replace
five of Vestcom's current directors with directors independent of
current management who have indicated they intend to act in your best
interest. Stephen R. Bova and Leonard J. Fassler are currently
independent directors of Vestcom and our Proposals do not seek their
removal. Although we desire that each will continue in office as an
independent director, none of the Solicitors has any understanding or
arrangement with either of Messrs. Bova or Fassler and they have
neither requested nor consented to be named in this Consent Statement.
However, Mr. Chopra believes that when properly apprised of Vestcom's
governance and operating issues, they would act in the best interests
of Vestcom's shareholders. If Messrs. Bova and Fassler were to
subsequently resign prior to the election of directors at the next
Annual Meeting or refuse to seek re-election at the Annual Meeting,
there still would be a sufficient number of directors to constitute a
quorum, thereby permitting the new Board to fully transact business,
and the resulting vacancies would be filled by the remaining directors.
However, if Messrs. Bova and Fassler were to resign or refuse to stand
for re-election, the Company would at that time not have any
"continuing directors" as that term is defined in the Company's
recently enacted Shareholder Protection Rights Agreement (a so-called
"poison pill"), and in that event the new Board might not be able to
"turn off" the Poison Pill. On March 7, 2000, by letter addressed to
the Secretary of Vestcom, Mr. Fosster indicated that it is his
intention not to serve on the Vestcom Board if this Consent
Solicitation is successful (For more information concerning the
effects of a resignation of Mr. Bova and/or Mr. Fassler, please see WHY
THE PENDING LITIGATION IS IMPORTANT, at pages 22-23.)
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Q: WHY ARE WE SOLICITING YOUR CONSENT?
A: We are soliciting your consent because we believe the current members
of Vestcom management are not acting, and will not act, in your best
interest. Specifically, we believe that:
- In January 1998 when Vestcom management acknowledged that its
consolidation plan for existing operations was over budget and
experiencing delays, and that a further acquisition had been
operating at a loss, the Company's stock dropped from $18.875 per
share to $7.25 per share, thereby losing over $102 million of
market capitalization. One year later in January 1999, Vestcom's
stock price failed to recover and traded even lower ranging from
$8.50 to $6.625 per share, but Joel Cartun, who then owned
1,474,198 shares, entrenched both himself and Brendan Keating by
putting in place change in control agreements that superceded
their August 1997 IPO employment agreements . The new agreements
permit them to be paid an estimated $400,000 in the case of Joel
Cartun and $540,000 in the case of Brendan Keating if a new board
were elected and their employment were subsequently terminated for
reasons other than cause. Later, in October 1999, Michael Helfand,
Vestcom's Chief Financial Officer, was also given a change of
control agreement, which permits him to be paid an estimated
$500,000 if a new board were elected and his employment
subsequently terminated for other than cause.
- After the Board, in January 1999 provided Mr. Cartun and Mr.
Keating with change of control agreements that preserve their
employment and salaries, Vestcom's operating results and financial
condition continued to dramatically weaken, with stagnant
revenues, growing administrative costs, falling operating profits
and, ultimately, substantial operating losses.
- In late November 1999, after Mr. Chopra reported he had acquired
6.68% of Vestcom's shares and intended at a future date to seek
representation on Vestcom's Board or seek changes in Vestcom
management, Mr. Cartun sought, as a precondition to meeting with
Mr. Chopra--who was then Vestcom's 4th largest shareholder--that
Mr. Chopra agree for the next two years not to discuss with other
shareholders his ideas concerning the Company or to purchase any
more Vestcom shares. Mr. Chopra refused to so limit his
shareholder rights by entering into such an arrangement.
- Based on the allegations set forth by Vestcom in the lawsuit it
initiated against the Solicitors, on or about December 16,
1999--three weeks after Mr. Chopra's reported ownership of 6.68%
of Vestcom's common stock--the Solicitors understand that Mr.
Cartun came to believe that Mr. Chopra was arranging to call a
special meeting of shareholders to assess management's stewardship
of Vestcom and to consider replacing the Vestcom Board. On
December 16, 1999, the Board amended Vestcom's by-laws to
eliminate the ability of the shareholders to call a special
meeting, leaving that power only with the Board, the Chairman (Mr.
Cartun) or the President (Mr. Keating). However, the New Jersey
Business Corporation Act provides that in the absence of a by-law
permitting shareholders to call a special meeting, any shareholder
or group of shareholders holding at least 10% of a corporation's
outstanding shares can, with the prior approval of a state court
judge, call a special meeting. However, the Vestcom Board also
adopted a Shareholder Protection Rights Agreement dated December
17, 1999 (a so-called "Poison Pill"). When it is triggered, the
Poison Pill's provisions massively dilute the stock ownership of
persons who acquire 10% or more of Vestcom's common stock. For
this reason, we believe the Poison Pill was designed by the
current Board to make it economically prohibitive for a
shareholder to acquire 10% of Vestcom shares and for existing
Vestcom shareholders holding 10% or more of Vestcom shares to act
together as
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a group to seek to change management whether by calling for a
special meeting or otherwise acting in the shareholders' best
interests. Although the Poison Pill was generally described by
Vestcom Management in a letter to shareholders dated December 28,
1999, Vestcom management failed to describe either the effect of
the by-law amendments and the Poison Pill on the ability of
shareholders to call a special meeting, or that a significant
group of shareholders were being thwarted in their desire to call
such a meeting.
In short, the Solicitors believe that the incumbent management team is
intent on entrenching itself despite what we see as its poor
performance to date. The Solicitors' proposed management team intends
to provide Vestcom's shareholders with substantially greater value than
the existing management team.
Q: WHO ARE THE NOMINEES?
A: The Nominees are Harish K. Chopra, Howard April, Parker S. Kennedy,
Frank E. Raab and Robert J. Verrilli, none of whom is currently
affiliated with Vestcom. They are highly qualified individuals who
believe that you are entitled and it is in the best interest of the
Vestcom shareholders to give a new management team a chance. Howard
April was one of the founding directors of Vestcom when it went public
in August 1997, and was employed by Vestcom under a three-year
employment agreement which would have run through August 2000, if Mr.
April hadn't been terminated in March 1999. (For additional information
about the proposed Solicitor Nominees, please see ADDITIONAL
INFORMATION REGARDING THE PROPOSAL -- PROPOSAL 2: ELECTION OF
NOMINEES.)
Q: IF YOU CONSENT TO THE CHANGE OF VESTCOM DIRECTORS, ARE YOU CONSENTING
TO ANY SUBSEQUENT BUSINESS COMBINATION?
A: No. The Solicitors are not aware of any pending or proposed business
combination, and there is no business combination or transaction being
proposed by the Solicitors. You will have the opportunity to consider
any such proposal if and when any such proposal is submitted for your
approval. If the Nominees are elected, that approval would be sought
only if a majority of the new Board believes that the transaction would
be in your best interest.
Q: WHO CAN CONSENT TO THIS MATTER?
A: If you owned Vestcom shares on February 8, 2000 (the "Consent Record
Date") you have the right to consent to the Proposals.
Q: WHAT IS THE DEADLINE FOR SUBMITTING CONSENTS?
A. Pursuant to Section 14A:5-6 of the New Jersey Business Corporation Act,
Vestcom has fixed April 7, 2000 as the Consent Tabulation Date--the
date on which the number of consents will be counted. Accordingly, the
deadline for submitting consents is April 7, 2000. Consequently, you
should act promptly so we can ensure that all consents are properly
executed and returned. The Solicitors urge the Vestcom shareholders to
expedite the return of these consents so as to promptly resolve the
direction of the Company.
Q: HOW MANY SHARES MUST BE VOTED IN FAVOR OF THE PROPOSALS TO EFFECT THEM?
A: We must receive consents from a majority of Vestcom's outstanding
shares for the Proposals to be adopted. As of November 1, 1999, Vestcom
reported having 9,056,806 shares of common
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stock outstanding (which the Solicitors understand to include voting
rights appurtenant to one share of Series B Preferred Stock convertible
into 239,988 shares of dividend access shares). Therefore, based on
available information, we estimate that the affirmative vote of at
least 4,528,404 shares is necessary to effect the Proposals.
Abstentions, failures to vote and broker non-votes will have the same
effect as a "no" vote.
Q: WHAT SHOULD YOU DO TO CONSENT?
A: Sign, DATE and return the enclosed GOLD consent card TODAY to Beacon
Hill Partners in the envelope provided. In order for your consent to be
valid, it must be dated.
Q: WHO DO YOU CALL IF YOU HAVE QUESTIONS ABOUT THE SOLICITATION?
A: Please call toll free Beacon Hill Partners at (800) 755-5001.
REASONS FOR THE SOLICITATION OF CONSENTS
In addition to what we believe to be mismanagement of the Company as
discussed elsewhere in this Consent Statement, the Solicitors are soliciting
your consent to the Proposals because we believe that the current members of the
Vestcom management may have breached their fiduciary duties to you and are not
acting, and will not act, in your best interest. The Solicitors believe this is
the case based on the following:
- The current Vestcom management sought to entrench themselves with
so-called "golden parachute" change of control agreements which would require
payment from the Company of approximately $1.44 million if, after the
shareholders elect a new Board, Messrs. Cartun (the present Chief Executive
Officer), Keating (the present President) and Helfand (the present Chief
Financial Officer) are terminated without "cause". "Cause" was defined in such a
limited manner that these payments would be due even if these executives are
terminated for poor performance.
- The current Vestcom management has inappropriately sought to
impose a standstill agreement upon the Solicitors to prevent the Solicitors from
even making or in any way participating in any solicitation to advise you of
Vestcom management's shortcomings.
- Believing that the Solicitors were ready, willing and able to
undertake a solicitation, on December 16, 1999 Vestcom's Board adopted
restrictive by-law amendments that severely limit the right of shareholders to
call a special meeting, and also adopted a Poison Pill which contains so-called
"dead hand" provisions that (i) in the context of a proxy or consent contest
permit only the current directors or new directors who are nominated or approved
by the current directors ("Continuing Directors") to redeem the Poison Pill, and
(ii) in the context of an unsolicited tender offer or other proposed business
combination permit only Continuing Directors or so-called "independent
directors" to redeem the Poison Pill. We believe that in most business
combinations and in proxy or consent contests these "dead hand" provisions
prevent the Vestcom shareholders from electing new directors who either intend
to redeem the Poison Pill or who could redeem the poison pill if they determine
it is in the best interest of the Vestcom shareholders to do so.
- Although in January 1999, the Board provided Mr. Cartun and Mr.
Keating with change of control agreements that preserve their employment and
salaries, Vestcom's operating results and financial condition continued to
weaken. On a quarter-to-quarter basis for the four quarters ending September 30,
1999, revenues became essentially stagnant, operating profits fell (ultimately
resulting in deep operating losses), administrative costs increased, and nearly
$6 million in "restructuring" charges were incurred.
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We believe that by approving the Poison Pill and the change of control
agreements for senior management (which include a total of up to an estimated
$1.44 million in severance payments), the current Vestcom management has gone to
unreasonable and disproportionate lengths to entrench itself. We also believe
that the "dead hand" provisions of the Poison Pill adopted by the present Board
will prevent third parties from buying shares of your stock in most unsolicited
tender offers and other proposed business combinations, and, together with the
restrictive by-laws will inhibit shareholders from making what they believe to
be beneficial changes in management.
In our opinion, by entrenching itself and senior management while
Vestcom's business, finances and stock price are all failing, the current
Vestcom Board is not acting, and will not act, in your best interest. Therefore,
we believe that five of the current directors should be removed and replaced
with our Nominees who have stated they intend to act in your best interest. The
Solicitors believe that the adoption of the Proposals will accomplish this goal.
A HISTORY OF MISMANAGEMENT
In addition to what we believe constitutes not acting in your best
interests as discussed elsewhere in this Consent Statement, the Solicitors are
requesting your consent to the Proposals because we believe that the incumbent
executive management has mismanaged the Company, all to the detriment of the
Vestcom stockholders. The Solicitors believe this is the case based on the
following:
Vestcom was created through a "roll-up" acquisition of seven operating
companies, based on a business strategy that recognized that each of those
companies was a locally-based business whose success resulted from the strong
personal relationships their owners and managers had, over the years, developed
with businesses and customers. Within a few months of its founding, however, we
believe that Vestcom began to abandon its business strategy and commenced what
we believe to be a series of poor strategic decisions which, we further believe,
resulted in Vestcom's rapidly deteriorating condition.
Within three months of Vestcom's IPO, and BEFORE COMPLETING THE
BUSINESS INTEGRATION OF ITS SEVEN INITIAL ACQUISITIONS, the Board and senior
management set out upon an aggressive program of further acquisitions. From
November 1997 through February 1999, Vestcom acquired EIGHT additional operating
companies. In late January 1998 Vestcom management announced two further
acquisitions, ONE OF WHICH, BUSINESS MAIL EXPRESS, WAS OPERATING AT A LOSS,
announced that management's facilities "consolidation" plan was over-budget and
experiencing delays, and also stated that it expected decreased future earnings.
Nonetheless, Vestcom decided to continue its acquisition program in the face of
difficulties in both integrating the business operations and consolidating the
facilities of its existing acquisitions, and despite expectations of depressed
future earnings. On January 26, 1998, the day of that announcement, Vestcom's
stock price dropped from $18.875 per share to $7.25 per share, thereby losing
over $102 million of market capitalization. It has never recovered, trading at
$4.625 per share on the trading day immediately preceding the date of this
Consent Solicitation.
Even after the January 26, 1998 fall in Vestcom's stock price, the
Board and senior management continued on what we believe to be a misguided
strategic path--acquisitions in the face of integration difficulties and poor
operating and financial results--that we believe initially caused the decline in
the Company's stock price. Between August 1998 and February 1999 Vestcom
acquired four more operating companies.* For all eight post-IPO acquisitions
Vestcom expended in excess of $30 million in cash, notes and shares of Vestcom
capital stock.*
Instead of following its initial business strategy of decentralized
operations, senior management
- --------
*Derived from Vestcom's Report on Form 10-K for the year ended December
31, 1998 and Vestcom's Report on Form 10-Q for the first quarter of 1999.
9
<PAGE>
and the Board have increasingly centralized operations and operating facilities.
Between the fourth quarter of 1998 and the first quarter of 2000, the Company
undertook a series of expensive, centralizing changes including consolidating
three New England facilities into one New England facility; consolidating seven
New Jersey operations into two New Jersey facilities, and relocating its New
York City facility and subsequently closing it. As a consequence, Vestcom
incurred almost $6 million in restructuring charges last year (i.e., $3,987,880
in the second quarter of 1999 and $1,930,144 in the third quarter of 1999). We
also believe that these relocations and consolidations directly contributed to
an increase in Vestcom's cost of revenue from 62.7% in the fourth quarter of
1998 to 70.5% in the third quarter of 1999, and the increase in Vestcom's SGA
expenses from 29.3% of revenues in the fourth quarter of 1998 to 32.7% of
revenues in the third quarter of 1999.** In the prior supporting materials
separately provided to Vestcom shareholders alerting them that this Consent
Solicitation would be forthcoming, the Solicitors indicated they believed that
Vestcom's incumbent management had spent an excessive amount of money on
infrastructure and that some of its larger facilities are under utilized. We
based those statements on information imparted to us in discussions with some of
the members of Vestcom's operating management. This characterization represents
the personal assessment of those operating managers and these assessments are
the basis for our belief that Vestcom's incumbent management has spent more
money than it needed to on infrastructure without adequately using such
infrastructure.
During the same period, AND DESPITE THE ACQUISITION OF EIGHT NEW
OPERATING COMPANIES, Vestcom's quarter-to-quarter revenues remained essentially
stagnant, at a per quarter average of approximately $31.3 million. IN CONTRAST,
PRIOR TO THEIR ACQUISITION BY VESTCOM, THE INITIAL SEVEN OPERATING COMPANIES HAD
A COMBINED, COMPOUNDED ANNUAL REVENUE GROWTH RATE OF APPROXIMATELY 12%.*** We
believe that this stagnation of Vestcom's revenues is also largely attributable
to the Board's and senior management's failure to complete the business
integration of the Company's seven initial acquisitions BEFORE embarking on
acquiring additional operating companies.
It is our view that the business strategy adopted by the Board and
senior management has resulted in a lack of operating cohesion in the Company,
an inability to take advantage of existing opportunities for revenue growth,
increased operating costs and the incurring of further expenses in an
ineffective effort to trim excess costs and "consolidate" facilities and
operations among not merely seven, but FIFTEEN, operating companies that each
have their own unique market characteristics, management styles and operating
philosophies.
WE BELIEVE THAT THE RESULT OF THIS SHORT-SIGHTED STRATEGY IS THE
DETERIORATION OF VESTCOM'S OPERATING INCOME IN 1999, BEFORE RESTRUCTURING
CHARGES, FROM APPROXIMATELY $2,269,100 FOR THE FIRST QUARTER TO $643,100 FOR THE
SECOND QUARTER TO A LOSS OF $988,900 FOR THE THIRD QUARTER--A STUNNING 254%
SECOND TO THIRD QUARTER LOSS OF $1,632,000.****
The basis for our views as to the Company's current business strategy
is not only Vestcom's
- --------
**Derived from Vestcom's Reports on Form 10-K for the year ended
December 31, 1998, and Vestcom's Reports on Form 10-Q for the first, second and
third quarters of 1999.
***Derived from a comparison of Vestcom's financial statements as set
forth on its Reports on Form 10-Q for the first, second and third quarters of
1999, to the Summary of Individual Founding Companies Financial Data from 1994
to 1996 set forth in Vestcom's IPO Registration Statement.
****Derived from Vestcom's Reports on Form 10-K for the year ended
December 31, 1998, and Vestcom's Reports on Form 10-Q for the first, second and
third quarters of 1999.
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historical results but also extensive discussions Messrs. Chopra and Verrilli
have had with various current and former Vestcom executive and operating
officers as to the nature of the Vestcom business and the opportunities and
problems encountered therein.
In the prior supporting materials separately provided to Vestcom
shareholders, the Solicitors made pro-forma comparisons as to what the market
value of the Company would be if it would have been able to increase earnings
through reducing the cost of revenue, SGA expenses or interest expenses. The
period for comparison in the prior supporting materials was the 12- month period
from October 1, 1998 to September 31, 1999. This was the most recent financial
information then available from Vestcom at the time of the report. The
Solicitors believe that comparisons of operating data to earlier periods are not
meaningful, because Vestcom acquired 6 additional operating companies between
the fourth quarter 1997 and October 1998. Accordingly, the 12-month period from
October 1, 1998 to September 31, 1999 was used, as it is least affected by such
interim acquisitions. In each case based on our analysis of Vestcom's quarterly
financial statements for the fourth quarter of 1998 through the third quarter of
1999 and from our discussions with current and former Vestcom executives and
operations managers, we derived what we believe to be savings in these cost and
expense items that could reasonably have been achieved during those four
quarters. Next, in each case, we added those savings to Vestcom's pre-tax
earnings and divided the new, quarterly pre-tax earnings by the number of
outstanding shares of Vestcom common stock. This yielded a new pre-tax earnings
per share for the quarter. We then reduced these pre-tax earnings to give pro
forma effect to federal and state taxes assuming a blended tax rate of 40%. We
then subtracted the former earnings per share from the new earnings per share to
yield incremental earnings per share attributable to the cost/expense savings
being measured. Last, we multiplied the result of this calculation by an
"earnings multiple" of 20 to give effect to the estimated increased market value
of each share. This "earnings multiple" is set below the average 25.6 "earnings
multiple" of what the Solicitors believe to be four comparable publicly traded
companies, the multiples for which range from a high of 39.8 to a low of 11.7.
Further, the prior supporting materials projected that the Company will be
paying interest charges of approximately, $3,100,000 per year. This is based on
the assumption that the $33.4 million of long-term debt and capital lease
obligations as shown on September 30, 1999 bear the same interest rate as
available to the Company at that time. The Solicitors believe the Company's
interest charges could increase further unless this debt can be reduced,
particularly in an environment of rising interest rates.
The discussions with current and former Vestcom executives and the
Solicitor's pro-forma adjustments and predictions can only be viewed as
estimates and/or predictions and are subject to operating risks and
uncertainties that could cause actual results or events to differ and perhaps
differ materially. Although the Solicitors believe them to be reasonable, due to
the various underlying bases of the estimates and assumptions set forth in this
Section and the prior supporting materials separately provided to Vestcom
shareholders, the Vestcom shareholders are cautioned against attributing undue
certainty to these foregoing assessments.
The Solicitors' prior supporting material mailed to Vestcom
shareholders included copies of two internet "chat room" messages, one of which
predicted a lower Vestcom share price over the next 3-6 months. To date, this
prediction has not come to pass. Given the nature of internet "chat rooms", the
identity of the author or authors of these messages is unknown. Accordingly, the
Solicitors have not sought or obtained the consent of such authors for the use
of this uncopyrighted material and none of the Solicitors, Nominees or their
affiliates has paid or will pay directly or indirectly any fee or other
consideration for such materials' preparation or such use.
NEW LEADERSHIP CAN MAKE VESTCOM SUCCEED
We believe in Vestcom's potential for success. However, we believe the
Company's operating history demonstrates that the present Board and senior
management followed a strategic path that over-emphasized an aggressive
acquisition program while overlooking the fundamental necessity of FIRST
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completing the business integration of the seven initial acquisitions it "went
public" with. In doing so, we believe the Board and senior management lost
control of operations, failed to achieve revenue and earnings projections, and
financially over-extended the Company in a counter-productive attempt to restore
Vestcom's health through what we believe to be a poorly executed centralization
strategy.
These problems are not beyond repair. In our view, the present Board's
and senior management's current strategies can be re-directed in a manner that,
in our view, result in improved shareholder value. We believe the key is to
re-empower local management, create a national accounts group, centralize ONLY
those operations functions that can be substantially enhanced by centralized
control, and seize and grow technology-based market opportunities. These are
goals that, in our view, only a new Board and new senior management, led by Mr.
Chopra, realistically can be expected to achieve.
It is time for that change.
HOW OUR BOARD NOMINEES AND NEW SENIOR MANAGEMENT
WOULD IMPROVE VESTCOM'S PERFORMANCE
This Solicitation is being made by Harish K. Chopra, an experienced
business critical document imaging executive, and his affiliated companies,
TimeTrust, Inc., and R-Squared Limited. Through TimeTrust and R-Squared, Mr.
Chopra has acquired over 9% of Vestcom's common stock.
He believes that a new Board and new senior management led by himself
would combine the strategic vision, experience and management skills Vestcom
needs if it is to become profitable and successfully grow its business.
In this regard, Mr. Chopra intends to bring to Vestcom a record of
success at building and effectively managing businesses that we believe is
highly applicable to Vestcom. Mr. Chopra received a Bachelor of Science degree
in computer science from University of California Los Angeles. His 23-year
business career began in 1977 in satellite imaging research and development at
NASA's Jet Propulsion Laboratory. From 1980 to 1987 he held senior management
and technical management positions with Digital Equipment Corporation,
Volt-Delta Resources, Inc., Omex Systems, Inc., and 3M Corporation.
In 1988 Mr. Chopra founded DataTree Corporation, which over the next 10
years he managed and built into a successful company. In 1998, Mr. Chopra sold
DataTree Corporation for $58.8 million to First American Financial Corp.
DataTree is in the business of electronically imaging and producing business
documents such as real estate title reports and abstracts. Although not a
competitor of Vestcom, we believe that DataTree's business is very similar to
Vestcom's in a number of important ways. Like Vestcom, DataTree is based on
regional operations throughout the United States that rely on the strength of
locally developed business relationships. Like Vestcom, DataTree produces its
documents from a decentralized network of data bases. LIKE Vestcom, DataTree's
critical task was to successfully integrate and manage a decentralized,
nationwide operations network. UNLIKE Vestcom, under Mr. Chopra's leadership,
DataTree had a 10 year financial history of overall progressive growth in both
"top line" revenues and "bottom line" earnings. DataTree is a success story that
we believe can be repeated with Vestcom under Mr. Chopra's experienced
leadership.
In particular, we believe that the new Board and the new senior
management to be put into place by the new Board intend to adopt and implement a
business strategy having all or most of the following principal features:
- DECENTRALIZED OPERATIONS MANAGEMENT, whereunder the LOCAL
management of Vestcom's operating subsidiaries will be directly responsible for
marketing, customer service and operations execution in each subsidiary's
various localities and/or regions.
12
<PAGE>
- INDEPENDENT NATIONAL ACCOUNTS SALES GROUP, empowered to coordinate
the business critical documents services of Vestcom's subsidiaries with
Vestcom's nationally-based customers. Such a national accounts group would be
responsible for responsive, high quality customer service on a national scale.
- SELECTIVE CORPORATE CENTRALIZATION of only those limited functions
that are most clearly amenable to economies of scale and that most readily lend
themselves to efficiencies of centralized decision-making. Such functions could
include purchasing, finance, research and development and NATIONAL marketing and
sales.
- TECHNOLOGY-BASED, NEW BUSINESS OPPORTUNITIES. Mr. Chopra's
successful experience building and using an offshore software company is
intended to be used to provide Vestcom an opportunity to use similar "out of the
box" means to (i) improve business opportunities by implementing software
technology at reduced cost, and (ii) use technology to perform business
functions 24 hours a day, seven days a week. Vestcom can increase its
productivity, reduce labor costs and improve quality of service by implementing
software solutions that the new team can provide.
At DataTree, Mr. Chopra led the development of electronic imaging
technology for public records along with a high-speed retrieval system. Under
Chopra's guidance, DataTree continues to be in the forefront of developing
innovative systems to streamline customer operations and help clients increase
profits. DataTree maintains what is believed to be the world's largest
public-imaged database of recorded documents and maps which includes over 600
million images.
DataTree is believed to be an example of the effective use of
technology to process, manage and deliver very large document database.
Effective use of software technology is key in many other areas such as
automated billing, quality customer service and management reporting.
Our goal is for Vestcom's operations to benefit from Mr. Chopra's
expertise in imaging technology and his internet strategy for electronic
billing, with the objective of increasing shareholder value for the benefit of
all Vestcom shareholders.
In addition, the Solicitors believe that the initial reconstitution of
the Board caused by the removal of five directors and the election of the
Nominees may possibly have a one time disruptive effect on the Company but the
overall effect would be in the best interests of the Vestom shareholders. To
seek to minimize possible short-term reductions in Vestcom working capital, if
elected, Mr. Chopra has agreed to work for the Company without a salary for his
first year of employment in consideration of a grant of options as the
independent directors of the Board may determine and one or more of the
Solicitors would make available from their own personal funds up to $3 million
of additional working capital to Vestcom on such terms as may be mutually agreed
to with the independent directors of the Board.
BACKGROUND OF THIS CONSENT SOLICITATION
We believe that the following actions of the current Vestcom directors
are indicative of a board that has acted to entrench itself and Vestcom's
current management.
On August 4, 1997, Vestcom "went public" by completing an initial
public offering (the "IPO") of an aggregate of 4,427,500 shares of its common
stock (which includes 557,500 over allotment shares) at a price of $13.00 per
share. Although Vestcom's stock traded for as much as $22.625 in the first few
months following the IPO, just over 5 months later, on January 26, 1998, the
stock price precipitously fell to just $7.25 per share, and has never recovered.
In fact, since July 1, 1999, Vestcom's stock has traded in the even lower range
of from $5.50 to $2.625 per share, and on the day immediately preceding the
date of this Consent Solicitation, it traded at $4.625 per share. Vestcom's
stock also has
13
<PAGE>
only a limited following in the market, and its daily trading volume is low,
averaging only 22,240 shares per day since July 1, 1999. Combined with a very
low stock price, the absence of appreciable trading volume makes Vestcom's stock
not only potentially illiquid, but also, because only a few small trades can
have a large impact, highly vulnerable to potential price volatility.
During the fourth quarter of 1998 through the third quarter of 1999
Vestcom's operations and financial condition also weakened. Revenues for that
period were essentially flat, averaging approximately $31.3 million per quarter;
selling, general and administrative ("SGA") expenses increased approximately
17%; and operating income (BEFORE restructuring charges of approximately $4
million in the second quarter of 1999 and approximately $1.9 million in the
third quarter of 1999) FELL from approximately $2.4 million for the fourth
quarter of 1998 to $643,100 in the second quarter of 1999 and, finally, to a
LOSS of approximately $989,000 in the third quarter of 1999.*
We believe that the precipitous fall in Vestcom's stock price and the
weakening of Vestcom's operations and financial condition that took place during
an acquisition spree of acquiring eight companies--for an aggregate cost in
excess of $30 million**-- are attributable to what we believe are fundamentally
poor strategic decisions by the present Board of Directors and senior
management.
The Board and senior management have not followed Vestcom's initial
strategic business model--which we believe is still sound--and have, instead,
aggressively centralized management, operations and facilities.
- The Board and senior management carried out an aggressive series
of EIGHT NEW acquisitions BEFORE Vestcom had completed the business integration
and facilities consolidation of its ORIGINAL seven acquisitions.
- The Board and senior management have encumbered Vestcom with $33.4
million in debt and capitalized lease obligations that, at present rates, will
result in annual debt service payments of approximately $3.1 million.***
We believe these are poor strategic decisions that have distracted Vestcom from
integrating, solidifying and growing its core businesses. Instead, these
decisions have added substantial SGA expenses, drained cash
and--ultimately--resulted in the stagnant revenues and severe operating losses
from which Vestcom now suffers. HOWEVER, WE BELIEVE VESTCOM'S POOR PERFORMANCE
CAN BE SUBSTANTIALLY IMPROVED AND SHAREHOLDER VALUE CAN BE ENHANCED BY A NEW
BOARD AND NEW SENIOR MANAGEMENT.
In the face of this troubled picture and declining performance,
Vestcom's Board adopted a Poison Pill and amended the Company's by-laws so as
to, in our view:
- Deter and penalize shareholder challenges (such as proxy and
consent contests) to the Board's and senior management's decisions and policies;
- Deter and penalize acquisition proposals that are not first
solicited by the Board; and
- --------
*Based on Vestcom's Report on Form 10-K for the year ended December 31,
1998 and Vestcom's Reports on Form 10-Q for the first, second and third quarters
of 1999.
**Derived from the aggregate of Vestcom's public reporting of the
acquisition of each of the eight companies.
***Derived from Vestcom's Report on Form 10-Q for the third quarter
of 1999.
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- Penalize virtually every present shareholder who chooses to
acquire 10% of the Company's outstanding shares in order to exercise his or her
STATUTORY right to INDIVIDUALLY call a special shareholders' meeting; and
- Through the "dead hand" provisions of the Poison Pill that are
summarized below, improperly deprive Vestcom's shareholders of their right to
elect an ENTIRELY new Board that can remove such deterrents and penalties and
have the full authority to manage Vestcom's business and affairs.
It is our view that by continuing to follow a business model that
the Company's operating results for 1998 and the first three quarters of 1999
demonstrate to be ineffective, the Company's Board and senior management have
not acted prudently and as responsible stewards of the shareholders' interest
and investment. Indeed, for the reasons described below at pages 21-23, we
believe the Board has potentially violated its fiduciary obligations to the
shareholders by using an abusive "Poison Pill" and an unfair by-law amendment
to impede shareholder challenges to its failed operations policies, insulate
itself from unsolicited tender offers, insulate itself from criticism, and
entrench itself and senior management in their present positions.
On November 24, 1999, TimeTrust and TimeTrust's majority owner,
R-Squared Limited ("R-Squared"), disclosed in a Schedule 13D under the
Securities Exchange Act of 1934 that they constituted a group that together
beneficially owned 6.68% (604,300 shares) of Vestcom's outstanding common stock
and that they intended, at a future date, to seek representation on Vestcom's
Board or seek changes in Vestcom's executive management. R-Squared and Mr.
Chopra own TimeTrust. TimeTrust is an investment company of which Mr. Chopra is
the CEO. Mr. Chopra and R-Squared are the sole owners of TimeTrust. The
formation of a "13D group" by TimeTrust and R-Squared and the announcement of
their intentions as to future Board representation or changes in Vestcom's
management were motivated first by Mr. Chopra's concerns over the poor market
performance of Vestcom's common stock and by what they believe to be ineffective
management of the Company's business, and second by their belief that a new
Board and new senior management--led by Mr. Chopra--could improve the Company's
performance for the benefit of all shareholders.
On October 29, 1999, in accordance with those concerns, Mr. Chopra
requested a meeting with Joel Cartun, Vestcom's CEO and owner of 1,474,198
shares, or 16.43%* of Vestcom , for the purpose of discussing possible ways of
enhancing Vestcom shareholder value. On November 18, 1999, Mr. Cartun returned
Mr. Chopra's call and arranged for a December 1, 1999 meeting. On November 24,
1999, Mr. Cartun called Mr. Chopra and cancelled the scheduled meeting and did
not reschedule the meeting for another date.
On November 30, 1999, Mr. Cartun sent a letter requiring that as a
precondition to any such meeting the Solicitors enter into a lengthy and
one-sided "standstill agreement" as a pre-condition to any such meeting. Among
other restrictions, the proposed standstill agreement would have required the
Solicitors to agree not to contact any Vestcom shareholders, purchase any
additional Vestcom shares or solicit proxies to seek to change the Board of
Directors. Believing that the terms of Vestcom's proposed standstill agreement
would potentially impede efforts to improve the Company's performance by
restricting their rights as shareholders, on December 1, 1999, Mr. Chopra
advised Mr. Cartun that Mr.
Chopra would not sign the requested standstill agreement.
By letter to Vestcom dated December 3, 1999, TimeTrust and R-Squared
requested that they be furnished with a list of Vestcom's shareholders. Instead
of providing the requested shareholders' list, Vestcom's management referred the
request to its outside corporate counsel. The shareholder list was
- --------
*Derived from Vestcom's last Definitive Proxy Statement, filed with the
Securities and Exchange Commission on March 27, 1999.
15
<PAGE>
finally provided to Mr. Chopra on December 29, 1999.
On December 10, 1999, Mr. Cartun arranged for Mr. Chopra to meet at a
hotel facility near Vestcom's West Caldwell, New Jersey, facility on December
22, 1999. At that meeting, Mr. Chopra met with Joel Cartun, Brendan Keating,
Vestcom President and Bruce McCarthy of Oppenheimer. Mr. McCarthy advised Mr.
Chopra that Oppenheimer had been engaged to advise the Company. The meeting
proved uneventful. After listening to Mr. Chopra's ideas to improve Company
performance the remaining time was spent with Mr. McCarthy asking general
financial questions of Mr. Chopra without the Company management discussing any
plans or proposals for improving operations.
The response of Vestcom's Board to TimeTrust's and R-Squared's concerns
was on December 16, 1999 to adopt the Poison Pill and an amendment to Vestcom's
by-laws that, we believe, together disenfranchise the shareholders from their
full voting rights to elect effective directors, penalize the exercise of
shareholders' rights to call meetings that the New Jersey Business Corporation
Act expressly gives individually to each shareholder, and entrench the present
Board and senior management in their positions.
Pursuant to the Poison Pill, Vestcom has issued to each shareholder
rights (each a "Right" and collectively the "Rights") to purchase additional
shares of Vestcom common stock at a deep discount to the then-current market
price, upon the happening of certain "triggering" events. Each shareholder
(including the Solicitors) was issued one Right for each share of common stock
held by the shareholder. The Rights remain outstanding until either the Poison
Pill is redeemed or December 28, 2009, whichever occurs first.
Under the Poison Pill, the "triggering" events that bring about the
deep discount purchases are:
- the public announcement by either Vestcom or an individual,
corporation or other entity (a "Person") that such Person has become the
beneficial owner of 10% or more of Vestcom's outstanding common stock (an
"Acquiring Person") (except in certain specified cases that are not presently
applicable) and
- the commencement by a Person of a tender offer or exchange offer
for Vestcom's common stock (i) that is not withdrawn or canceled prior to
certain specified dates AND (ii) that, if completed, would result in that Person
becoming an Acquiring Person.
When a "triggering" event occurs, each Right--OTHER THAN RIGHTS OWNED
BY AN ACQUIRINg PERSON--entitles the holder to purchase from Vestcom, on a
per-Right basis, that number of shares of common stock that have an aggregate
"market price" (as defined by the Poison Pill) of $54 for a purchase price of
$27 (subject to adjustment in certain circumstances). For example, assuming a
"market price" of $3.50 per share, a Vestcom shareholder who owns 100 shares of
common stock--and who therefore has received 100 Rights--would upon exercise of
those Rights receive 1,540 ADDITIONAl shares for $1.75 per share. Since only the
Acquiring Person would not be permitted to exercise his or its Rights, the
Acquiring Person's 10% stock position would be suddenly and drastically reduced,
thereby making it exceedingly costly--if not impossible--for the Acquiring
Person to use his stock position as a basis for a tender offer or for acquiring
or even influencing control of the Company. As an example, since based on
Vestcom's report on Form 10-Q for the quarter ended September 30, 1999, Vestcom
has 9,056,806 shares of outstanding common stock,* and assuming a "market price"
of $3.50 per share, a person who amasses 10% (905,680 shares) would be diluted
to owning a mere 0.67% of Vestcom.
Importantly, the Rights can be redeemed (for $.01 per Right) and
thereby "turned off" only
- --------
*Assuming the full conversion of 239,988 dividend access shares.
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<PAGE>
BEFORE a "triggering" event has occurred, and then ONLY by the vote of :
- a majority of the "Continuing Directors" then in office, if the
Rights redemption is NOT in connection with a merger, consolidation, share
exchange or other transaction resulting in a change of control of the Company,
or a sale of 50% or more of the Company's assets (a "Business Combination") or
- a majority of the "Independent Directors" then in office (OR if
there are no "Independent Directors", a majority of the "Continuing Directors"
then in office), if the Rights redemption IS in connection with a Business
Combination.
The Poison Pill defines a "Continuing Director" as
"(i) any member of the Board while such Person is a member of the
Board, who is not an Acquiring Person, or an Affiliate or
Associate of an Acquiring Person, or an employee, director,
representative, nominee or designee of an Acquiring Person or of
any such Affiliate or Associate, AND WAS A MEMBER OF THE BOARD
PRIOR TO THE DATE OF THIS AGREEMENT, or (ii) any Person who
subsequently becomes a member of the Board, while such Person is a
member of the Board, who is not an Acquiring Person, or an
Affiliate or Associate of an Acquiring Person, or an employee,
director, representative, nominee or designee of an Acquiring
Person, or of any such Affiliate or Associate, IF SUCH PERSON'S
NOMINATING FOR ELECTION OR ELECTION TO THE BOARD IS RECOMMENDED OR
APPROVED BY A MAJORITY OF THE CONTINUING DIRECTORS." (Emphasis
added)
The Poison Pill defines an "Independent Director" as
"with respect to any event or transaction or series of events or
transactions, a member of the Board OTHER THAN a director who (i)
is an executive officer of the Company on, or was an executive
officer of the Company within five years immediately preceding,
the date on which the Board votes on a matter pertaining to such
transaction or series of transactions which matter, pursuant to
the terms of this Agreement, requires the concurrence of a
majority of Independent Directors, (ii) is a party to such event
or transaction or series of events or transactions, (iii) is an
Affiliate or Associate of a party (other than the Company) to such
event or transaction or series of events or transactions, or was
nominated for election to the Board by a party (other than the
Company) to such event or transaction or series of events or
transactions or by an Affiliate or Associate of such party, or
(iv) has (A) a relationship that would materially interfere with
the exercise of such director's independent judgment in carrying
out the responsibilities of a director with respect to such event
or transaction or series of events or transactions or (B) a
financial interest (other than as a Beneficial Owner of shares of
Common Stock) in or with respect to such event or transaction or
series of events or transactions." (Emphasis added)
Accordingly, a person proposing a tender offer for Vestcom could NOT,
after acquiring a sufficient number of common shares to replace the Board,
actually replace the Board and still be able to "turn off" the Poison Pill.
Similarly, ONLY Vestcom's PRESENT directors--or subsequent directors who THEY
nominate--could "turn off" the Poison Pill if "dissident" shareholders (such as
the Solicitors) seek to replace the Board, or otherwise affect control of
Vestcom.
17
<PAGE>
The Board also amended Article II, Section 2.3 of Vestcom's by-laws to
eliminate the right of shareholders holding 20% of Vestcom's outstanding shares
to call a special shareholders' meeting, and, instead, gave that right only to
the Board and senior management. As a result, a Vestcom shareholder who wants to
call a special shareholders' meeting must rely on and proceed under Section
14A:5-3 of the New Jersey Business Corporation Act, which permits only a
shareholder or shareholders who--alone or together--own 10% or more of a
corporation's outstanding stock to ask a New Jersey Court to order a special
meeting of shareholders for good cause. Because the share ownership threshold
for triggering the Poison Pill and for calling a special meeting of Vestcom's
shareholders are the same 10%, ONLY A SHAREHOLDER WHO OWNED AT LEAST 10% OF
VESTCOM'S COMMON STOCK ON OR BEFORE DECEMBER 16, 1999, CAN IN HIS OWN INDIVIDUAL
RIGHT CALL A SPECIAL MEETING WITHOUT TRIGGERING THE POISON PILL AND THEREBY BE
PENALIZED BY HAVING HIS OR HER OWNERSHIP POSITION SUBSTANTIALLY DILUTED. EACH
VESTCOM SHAREHOLDER SHOULD BE AWARE THAT, BASED SOLELY ON LAST YEAR'S VESTCOM
PROXY STATEMENT DATED APRIL 27, 1999, ONLY TWO VESTCOM SHAREHOLDERS--ONE OF WHOM
IS JOEL CARTUN, VESTCOM'S CHAIRMAN AND CEO AND A MEMBER OF ITS BOARD OF
DIRECTORS--OWN ENOUGH STOCK IN THEIR OWN INDIVIDUAL RIGHT TO CALL A SPECIAL
SHAREHOLDERS' MEETING WITHOUT TRIGGERING THE POISON PILL.
On December 17, 1999, the day after Vestcom's Board adopted the Poison
Pill and amended the by-laws, the Company filed a lawsuit against us (TimeTrust
and Chopra) and R-Squared in federal court alleging violations of the beneficial
ownership reporting requirements of Section 13(d) and the proxy solicitation
requirements of Section 14(a) of the Securities Exchange Act of 1934, and that
the Company would be irreparably harmed by our investment in the Company and
intention to--at some then future date--make changes in management.
Nevertheless, despite its claim of "irreparable" harm, the Company then WAITED
10 more days until December 27, 1999 before making us aware of that lawsuit.
On December 27, 1999, Vestcom's counsel provided the Solicitors with
copies of Vestcom's December 17, 1999 complaint and an application filed that
day for a temporary restraining order seeking to prevent the Solicitors from
contacting any shareholders of Vestcom or acquiring any further shares of
Vestcom Common Stock and for expedited discovery. Reserving decision, the
presiding judge declined to issue such temporary restraints at that time, and
scheduled a hearing on the matter for February 2, 2000.
By letter dated December 28, 1999, the Vestcom Board of Directors
advised the Vestcom shareholders that 12 days before, the Board had adopted its
Poison Pill with a "dead hand" provision of unlimited duration.
The Board disclosed the following reasons for adopting the Poison Pill:
"'Dear Shareholder:
On December 16, 1999, the Board of Directors adopted a Shareholder
Protection Rights Agreement. This letter briefly describes the Rights
Agreement and the Board's reasons for adopting it.
The Rights Agreement was adopted to assure that the Company's
shareholders receive fair and equal treatment in the event of any
proposal takeover of the Company, and to guard against partial tender
offers, squeeze-outs, open market accumulations, and other actions
intended to gain control of the Company without paying all shareholders
a fair price. More than 2,500 U.S. corporations have considered it
prudent to adopt shareholder protection plans similar to the Rights
Agreement.
The Rights Agreement does not in any way adversely affect
Vestcom's financial strength or interfere with its business plans. The
issuance of the Rights will not affect
18
<PAGE>
reported earnings per share, is not taxable to Vestcom or its
shareholders and will not change the way in which Vestcom shares are
traded.
Since the Rights may be redeemed by the Company at $0.01 per Right
prior to the day it is announced that a person or group has acquired
10% or more of the Company's Common Stock, the Rights should not
interfere with any merger or other business combination that is in the
best interests of the Company and its shareholders.
A summary of the terms of the Rights Agreement is attached. The
summary is not complete and is qualified in its entirety by the Rights
Agreement, a copy of which can be obtained free of charge from the
Company upon written request addressed to Vestcom International, Inc.,
5 Henderson Drive, West Caldwell, New Jersey 07006, Attention:
Secretary.'"
However, the letter (i) OMITS a discussion of the effect of the Poison
Pill on the shareholders' ability to call a special meeting under applicable
state law; (ii) OMITS any mention of the restrictive by-laws adopted the same
day that permit only the Board, the Chairman or the President to call a special
shareholders' meeting (although the new by-laws were filed via Edgar on December
20, 1999 without any comparison to the prior by-laws under which Vestcom went
public); (iii) OMITS disclosure of the Board's belief (which is set forth in
Vestcom's December 17, 1999 compliant in its pending lawsuit against us) that
the Solicitors then planned to seek to replace the Board and senior management;
(iv) OMITS the fact that Company management on December 17, 1999 initiated a
lawsuit in the United States District Court for the District of New Jersey
claiming the Solicitor's plan to oust management was a present plan and not a
future plan as described in the Schedule 13D filed November 15, 1999 and seeking
to disqualify any proxies that the Solicitors had obtained to date; and (v)
OMITS the fact that Company management on December 27, 1999 sought entry of a
temporary restraining order and preliminary injunction against the Solicitors
from (1) contacting any Vestcom shareholders and (2) acquiring any further
shares of Vestcom stock. We believe that these omissions are material and their
disclosure is important to Vestcom shareholders in assessing the fitness of the
current Board and senior management in serving the best interests of Vestcom
shareholders.
The Poison Pill adopted by Vestcom's Board is unlike conventional
shareholder rights plans, which are typically set at higher share ownership
trigger levels and without "dead hand" provisions so as to avoid creating
impermissible classes of directors and shareholders, some of which are entitled
to redeem poison pill rights or call special meetings and some of which are not.
Some commentators and corporate governance experts believe that
appropriately structured poison pills that have avoided the use of "dead hand"
provisions and low ownership trigger events may help a company achieve higher
premiums for their shareholders in unsolicited tender offers or business
combinations. Other commentators or corporate governance experts have maintained
that poison pills unduly interfere with the right of shareholders to change the
management of their companies and to themselves determine by vote or tender the
merits of such third party proposals. Few, if any commentators or corporate
governance experts have maintained that a poison pill is appropriate if it
unduly entrenches company management.
We believe that in adopting the Poison Pill and amending Vestcom's
by-laws the Board may have violated the fiduciary obligations it owes to
you--and to all other Vestcom shareholders--by seeking to (i) penalize any
shareholder who, for the purpose of challenging the Board's and management's
policies, accumulates a 10% or greater stock ownership position, because the
acquisition of that percentage of stock will "trigger" the Poison Pill and
thereby cause substantial dilution of that ownership position; (ii) effectively
block any offer to acquire the Company that is not initially solicited by the
PRESENT Board, regardless of the offer's economic benefits to the shareholders;
(iii) disenfranchise Vestcom's shareholders by preventing a wholly new Board
that is democratically elected by the
19
<PAGE>
shareholders from redeeming the Poison Pill Rights; and (iv) thereby improperly
entrench itself, despite any contrary wishes of the shareholders.
In light of the tactics used by Vestcom's management, we came to the
conclusion--and we continue to believe--that Vestcom's Board and senior
management are unwilling to treat seriously our legitimate concerns about the
Company's poor performance and management, and have no real desire to discuss
ways to reverse these unfortunate developments. Accordingly, we began
considering other means of bringing these concerns to the fore, including
calling a special meeting of Vestcom's shareholders and this Consent
Solicitation.
On December 29, 1999, we amended our original Schedule 13D to add Mr.
Chopra to the group, disclose certain additional purchases of Vestcom common
stock that brought our ownership of Vestcom's stock to 7.83% of the outstanding
shares, and to state our present intention to replace the Company's Board of
Directors and senior management.
On January 6, 2000, the Solicitors filed their answer to Vestcom's
complaint confirming that Mr. Chopra now had a present plan to oust Vestcom
management, secure seats on its Board, and take control of Vestcom by electing
at least a majority of the Vestcom Board; and denied that the purchase of
Vestcom common shares by the Solicitors, and the creation of business models and
other actions violated applicable securities laws. Further, we filed a
counterclaim seeking a declaration that the Vestcom poison pill was invalid and
sought relief to be able to call a special meeting of Vestcom shareholders
regardless of the restrictions imposed by the Vestcom poison pill so as to let
the Vestcom shareholders determine whether a change in Vestcom management was
warranted.
On January 18, 2000, the Solicitors requested that Vestcom establish a
consent record date so that the Solicitors could undertake a consent
solicitation of the Vestcom shareholders to determine one or more of these
issues.
On January 24, 2000, we further amended our Schedule 13D to disclose
additional purchases of Vestcom common stock that brought our ownership of
Vestcom's common stock to 8.16% of the outstanding shares and to state our
intention to initiate this Consent Solicitation to replace the Company's
Board of Directors and senior management.
On January 26, 2000, Vestcom voluntarily withdrew its application for
an order to show cause seeking temporary restraints in light of the amendment of
the proxy solicitation rules under the Securities Exchange Act of 1934 which now
expressly permit certain of the alleged conduct by the Solicitors that Vestcom
claimed was improper.
On Saturday, January 29, 2000, Vestcom advised us that the Consent
Record Date has been established as February 8, 2000 and that the last day for
submission of consents pursuant to this Consent Solicitation is April 7, 2000,
the Consent Tabulation Date.
On February 2, 2000, a preliminary conference was held before the
Honorable Alfred M. Wolin, United States District Judge. During the conference,
over the objection of Vestcom's counsel, Judge Wolin denied Vestcom's request
for expedited discovery. Also, counsel for the Solicitors informed Judge Wolin
that they intended to file a motion for summary judgment on their counterclaims
on the grounds that the Vestcom poison pill is invalid as a matter of law and a
motion to dismiss Vestcom's complaint on the grounds that it is moot. The
Solicitors filed both motions on February 22, 2000.
20
<PAGE>
WHY THE PENDING LITIGATION
IS IMPORTANT
We believe that the Poison Pill and the by-law amendments adopted by
Vestcom's Board on December 16, 1999 - and the lawsuit filed by Vestcom on
December 17, 1999 - constitute a coordinated attempt to prevent us from airing
our concerns about the management of Vestcom's business in an appropriate
corporate forum. In our view, it is not a coincidence that the Poison Pill is
triggered by the acquisition of the same percentage of Vestcom's outstanding
common stock as is needed under the New Jersey Business Corporation Act for a
shareholder to petition the Court to call a special shareholders' meeting; nor
is it a coincidence that Vestcom's lawsuit asked the Court to enjoin us from
soliciting your proxies (or consents).
We also believe the Poison Pill diminishes the prospects of enhancing
Vestcom shareholder value either through building an increasingly profitable
business or through a future, third-party exchange offer or tender offer. First,
because the share ownership threshold for calling a special shareholders'
meeting and triggering the Poison Pill are the same, it is our view that the
Poison Pill prevents you or any other Vestcom shareholder - other than Vestcom's
present chairman and CEO (who owns 16.43% of Vestcom's stock)* and one
institutional investor (which owns 12.7% of the stock)* - from calling a special
shareholders' meeting to replace five members of the current Board, whom we
believe the Company's prior performance has shown to be ineffective. Second,
because the completion of an exchange offer or a tender offer would trigger the
Poison Pill, we believe the Poison Pill also gives the present Board the power
to prevent a share exchange or acquisition from ever being consummated - even if
a majority of the shareholders want to exchange or sell their shares - simply by
refusing to redeem the Poison Pill Rights. Finally, the Poison Pill has a
"chilling effect" on ownership of Vestcom's shares by future private investors
or institutions as it limits their ability to invest in more than 10% of the
Company. We are concerned that the combined effect of these consequences of the
Poison Pill is to coercively entrench the present Board by pressuring you to
perpetuate it in office.
Because of the Company's prior performance and the foregoing reasons,
and because we do not believe the present Board will amend or redeem the Poison
Pill Rights so as to make them not coercive in entrenching management, we think
it is of the utmost importance to the profitable development of Vestcom's
business, and to the goal of enhancing the value of your investment in Vestcom,
that new management be put in place and the Poison Pill and the Rights be
invalidated.
Despite their harsh economic effects on persons seeking to acquire a
target company, poison pills often have been upheld by the courts on the basis
that if the shareholders do not believe an incumbent board is acting in their
best interests in the application of a poison pill, they could elect a new Board
that would redeem the poison pill. Since there is no relevant case law in New
Jersey on this issue, the New Jersey courts will likely look to relevant
decisions of the Delaware courts. SEE, E.G., IBS FINANCIAL CORP. V. SEIDMAN &
ASSOC., LLP, 136 F.3d 940, 949-950 (3d Cir. 1998) and cases cited therein. The
leading Delaware case in this field is MORAN V. HOUSEHOLD FINANCE CORP., 500
A.2d 1346 (Del. 1985). The basis for our belief that the current Board has
potentially violated its fiduciary obligations to you - and all other Vestcom
shareholders in adopting the Poison Pill--is that Vestcom's current Board
adopted its Poison Pill with a so-called "dead hand" provision, that permits
only the "continuing directors" to redeem the Poison Pill (in the context of a
proxy or consent contest) and only "continuing directors" or "independent
directors" to redeem the Poison Pill (in the context of a proposed business
combination).
In the absence of an unsolicited tender offer or other proposed
business combination (none of which are applicable to this Consent
Solicitation), Vestcom's Poison Pill is expressly designed to
- --------
*Derived from Vestcom's last amended preliminary consent revocation
statement filed with the Securities and Exchange Commission on March 2, 2000.
21
<PAGE>
withhold all power to redeem the Rights or amend the Poison Pill from any new
directors who are not nominated or otherwise approved by the present Board or by
a majority of "continuing directors" (who are themselves selected by the present
Board). Accordingly, the present Board is said to have a "dead hand", because
even after it is removed and replaced by the shareholders (and is metaphorically
"dead"), it still controls the ability of successor directors to redeem the
Poison Pill Rights.
A similar "dead hand" feature was examined by the Delaware Chancery
Court in CARMODY V. TOLL BROTHERS, 723 A.2d 1180 (Del. Ch. 1998) and was found
in July 1998 to give rise to a cause of action for breach of the board's
fiduciary duty of loyalty for two reasons. First, the court held that the "dead
hand" provision purposefully interfered with the shareholder voting franchise
without any compelling justification and was therefore, unlawful. Second, the
court held that the "dead hand" provision was a "disproportionate" defensive
measure, because it either precluded or materially abridged the shareholders'
rights to receive unsolicited tender offers or to wage a proxy contest to
replace the board. In such circumstances, the board's approval of the "dead
hand" provision would not enjoy the presumption of validity conferred by the
business judgment review standard. SEE ALSO QUICKTURN DESIGN SYS., INC. V.
SHAPIRO, 721 A.2d 1281, 1290-1291 (Del. 1998) (agreeing with and applying the
reasoning of TOLL BROTHERS in rejecting a poison pill which "would impermissibly
deprive any newly elected board of both its statutory authority to manage the
corporation under 8 Del. C. ss. 141(a) and its concomitant fiduciary duty
pursuant to that statutory mandate").
In our view, Vestcom's Poison Pill suffers from the same, fatal
defects, because its 10% share acquisition "trigger" is the same percentage of
shares as the New Jersey Business Corporation Act prescribes as the threshold
for calling a special shareholders' meeting at which a Vestcom shareholder
dissatisfied with Vestcom management could seek proxies or consents to remove
the incumbent Board. The CARMODY V. TOLL BROTHERS case had been published for
over a year when the Vestcom Board adopted its Poison Pill with a similar "dead
hand" provision of unlimited duration. Although to our knowledge a New Jersey
court has not ruled on the enforceability of a poison pill with a "dead hand"
provision of unlimited duration, we believe that as New Jersey courts have
followed Delaware law in this matter for poison pills in general, they will also
apply CARMODY V. TOLL BROTHERS to find Vestcom's Poison Pill with its "dead
hand' provision to be void and unenforceable, and the Board to have breached its
fiduciary duty in adopting it.
A motion for summary judgment has been filed by the Solicitors in the
United States District Court for the District of New Jersey (Civil Action
99-5935), a court of competent jurisdiction, seeking a determination that the
Vestcom Poison Pill is invalid. In the litigation we have taken the position
that among other matters the Poison Pill violates New Jersey's corporate
statutes by unlawfully creating two classes of directors and two classes of
shareholders, and thereby unlawfully deprives the shareholders of their full
voting rights. We expect that the Court will agree with us and invalidate the
Poison Pill. The Court's decision is expected in late March 2000.
In the meantime, we are seeking to remove only five of the present
seven Vestcom directors in order to provide that, if this Consent Solicitation
is successful, but the Court nevertheless decides against us in the pending
litigation, there will be two "continuing directors" who will be able to redeem
or amend the Poison Pill Rights and, thereby, return to the shareholders the
full voting rights which we believe the Poison Pill has deprived you. Messrs.
Bova and Fassler have not been asked nor have they advised the Solicitors as to
whether they would consider amending or redeeming the Vestcom Poison Pill but
the Solicitors would expect that when properly apprised of the limiting
circumstances imposed upon the Company's shareholders by the Poison Pill and
restrictive by-law amendments, Messrs. Bova and Fassler would seek to act in the
best interests of the Vestcom shareholders.
It is, however, possible that Messrs. Bova and Fassler might resign
rather than continue to serve as Vestcom directors, or that they might refuse to
seek re-election to Vestcom's Board when their present terms expire at the next
Vestcom Annual Meeting, which we believe will be held in the Summer of 2000.
22
<PAGE>
If they were to resign, the new Board would still have a sufficient number of
directors to constitute a quorum and thereby allow the new Board to fully
transact business. Any vacancies resulting from resignations would be filled by
the remaining directors and the individuals elected to fill those vacancies
would serve until the election of directors at the next Annual Meeting. If
Messrs. Bova and Fassler resign or refuse to stand for re-election, and if the
court does not invalidate the Poison Pill, there will not be any "continuing
directors" who will be able to redeem the Rights.
As to what we believe may be the current Vestcom Board's breach of
fiduciary duties owed to you, the Vestcom shareholders, we intend to ask the
Vestcom independent directors to review the corporate records and circumstances
under which incumbent management presented to the independent directors the
merits of the Poison Pill and restrictive by-law amendments and to what extent
the independent directors were aware of the personal benefits derived by the
directors employed by the Company from these actions. Any final determinations
as to whether one or more members of the current Vestcom Board breached their
fiduciary duties would be made only to the extent that these claims are brought
before and determined by a court of competent jurisdiction.
OUTSTANDING VESTCOM SECURITIES
As of March 1, 2000 the Solicitors and their affiliates were the
beneficial owners of 761,100 shares of Vestcom common stock, representing 8.4%
of the outstanding shares. Two of the Nominees owned an aggregate of 143,464
shares of Vestcom common stock as of that date, representing approximately 1.58%
of Vestcom's outstanding shares. According to Vestcom's Form 10-Q for the
quarter ended September 30,1999, as of October 31, 1999, there were 9,056,806
shares of Vestcom common stock, which the Solicitors understand include the
voting power of one share of Series B Preferred Stock convertible into 239,988
dividend access shares. It is the Solicitors' understanding that these
outstanding shares are entitled to vote as a single class on all matters
including the Proposals. The record date for determining the shareholders of
Vestcom who are entitled to consent is February 8, 2000.
ADDITIONAL INFORMATION REGARDING THE PROPOSALS
PROPOSAL 1: REMOVAL OF DIRECTORS
Shareholders are being asked to adopt a proposal to remove five of the
current directors of Vestcom. Section 14A:6-6 of the New Jersey Business
Corporation Act allows shareholders to remove directors with or without cause.
Joel Cartun, Stephen R. Bova, Leonard J. Fassler, Brendan Keating, Fred S.
Lafer, Robert J. Levenson, and Richard D. White are the current members of
Vestcom's Board of Directors. As explained in this Consent Statement, the
Solicitors strongly believe that the current Vestcom management may have
breached its fiduciary duties to you and is not acting, and will not act, in the
best interest of the Vestcom shareholders and that five of these directors
(other than Messrs. Bova and Fassler) should, therefore, be removed.
PROPOSAL 2: ELECTION OF NOMINEES
The Vestcom shareholders are being asked to adopt a proposal to
elect as directors of Vestcom each of the five Nominees named below, each of
whom has consented to serve as a director, if elected, until the next Annual
Meeting of Vestcom's shareholders (which we believe will be held in the
Summer of 2000) or until his successor has been elected and qualified. When
elected, the Nominees would serve together with the two remaining directors,
Messrs. Bova and Fassler (assuming neither of them resigns from or referes to
stand for re-election to the Board), as a single class, except that the
Company's recently enacted Poison Pill would purportedly give to Messrs. Bova
and Fassler (or either of them if one should resign or decline to stand for
re-election) the sole decision making power as to whether to amend or redeem
the Company's Poison Pill. (Please see WHY THE PENDING LITIGATION IS
IMPORTANT.) The Solicitors' primary purpose in seeking to elect the Nominees
to the Vestcom Board is to create a better management team, to enhance the
value of Vestcom for the benefit of all Vestcom shareholders. If elected, the
Nominees would be responsible for
23
<PAGE>
managing the business and affairs of Vestcom and would consider any and all
feasible alternatives to Vestcom's current business operations and practices.
Each director of Vestcom has an obligation under law to discharge his duties
as a director in good faith, in a manner he reasonably believes to be in the
best interest of Vestcom and with such care, including reasonable inquiry,
skill and diligence, as a person of ordinary prudence would use under similar
circumstances.
Although the Solicitors have no reason to believe that any of the
Nominees may be unable or unwilling to serve as directors, if any of the
Nominees is unable to serve as a director of Vestcom due to death, disability or
otherwise, the remaining Nominee or Nominees may designate another person or
persons to replace the Nominee or Nominees unable to serve.
The name, age, business address, present principal occupation and
employment history of each of the Nominees for at least the past five years are
as follows:
<TABLE>
<CAPTION>
Name and Present Principal Occupation and
Business Address Age Five Year Employment History
- ---------------- --- ----------------------------
<S> <C> <C>
Harish K. Chopra 40 Mr. Chopra is the founder of TimeTrust, Inc. (one of the
c/o TimeTrust Solicitors) and has been its CEO since its inception of July
1455 Frazee Road 1999. In 1988, Mr. Chopra founded DataTree Corporation, a
Suite 420 document imaging and database management systems
San Diego, California 92108 company, and served as its CEO since its inception until
1998 when Mr. Chopra sold DataTree to First American
Financial Corp., a public company on the NYSE with
revenues exceeding $3 billion a year. Mr. Chopra resigned
as President of DataTree in July 1999, and Chopra is
currently its Chairman of the Board.
Howard April 68 Mr. April has been an independent business consultant from
1506-5150 MacDonald Ave. May 1998 to the present and was a director of Vestcom from
Montreal, Canada H3X 2V7 when it first went public in August 1997 until May 1998.
Mr. April was also the founder and President of COS
Information Inc., based in Montreal, Canada from 1972 to
1996 and Chairman of that company from 1996 to 1998.
COS Information Inc. was one of the founding companies of
Vestcom International Inc. when it went public in August
1997. In connection with the integration of COS Information
into Vestcom, Mr. April's employment with COS Information
was terminated and Mr. April will continue to be paid under
his employment agreement until August 2000.
Parker S. Kennedy 51 Mr. Kennedy has been the President of First American
One First American Way Financial Corp., a NYSE business information company
Santa Ana, California 92707 since 1993 after serving as executive vice present of First
American since 1986.
Frank E. Raab 78 Mr. Raab, CPCU, has been a business consultant over the
1280 Monte Cielo Drive last five years. He is the former CEO and President of
Beverly Hills, California 90210 Insurance Company of North America. Mr. Raab is also a
Rear Admiral, USNR (Retired).
</TABLE>
24
<PAGE>
<TABLE>
<S> <C> <C>
Robert J. Verrilli 55 Mr. Verrilli has been the Chief Financial Officer of
c/o TimeTrust, Inc. TimeTrust, Inc. since October 1999. Prior to joining
1455 Frazee Road TimeTrust, Mr. Verrilli was the CFO of DataTree
Suite 420 Corporation from April 1999 to October 1999. From June
San Diego, California 92108 1994 to April 1999, Mr. Verrilli was the CFO of Astar, a
multimedia instructional systems provider.
</TABLE>
This information has been furnished to the Solicitors by the respective
Nominees. Each of the Nominees has consented to serve as a director. None of the
Nominees nor any of their current employers is an affiliate of Vestcom. Annex
III contains additional information about the Nominees required to be disclosed
under the Securities Exchange Act of 1934.
It is expected that each Nominee, if elected and seated on the Vestcom
Board, will thereafter be reimbursed by Vestcom, based on its current fee
structure, for his reasonable out-of-pocket expenses incurred in the performance
of his service as director. Such directors will also be entitled to
indemnification by Vestcom in accordance with its Certificate of Incorporation
and by-laws.
In accordance with applicable regulations under the Securities Exchange
Act of 1934, the GOLD consent card delivered with this Consent Statement
provides each shareholder of Vestcom with the opportunity to designate the names
of any of the Nominees whom he or she does not desire to elect to the Vestcom
Board. THE SOLICITORS URGE SHAREHOLDERS TO VOTE FOR ALL OF THE NOMINEES ON THE
GOLD CONSENT CARD DELIVERED WITH THIS CONSENT STATEMENT.
PROPOSAL 3: BY-LAW AMENDMENT SETTING NUMBER OF DIRECTORS AT SEVEN
Shareholders are being asked to adopt a proposal to amend Section
3.2 of Article III of the Vestcom by-laws to set the number of directors of
Vestcom at seven. The proposed amendment is contained in Annex IV to this
Consent Statement. Vestcom's by-laws currently provide that the Vestcom Board
is to consist of not less than one nor more than 21 members, with the actual
number of directors to be determined from time to time by the Vestcom Board.
The proposed by-law amendment would retain the current size of the Vestcom
Board at seven members, and if the Proposal to elect the five Nominees is
approved, the Nominees, together with Messrs. Bova and Fassler (assuming
neither of them resigns from or referes to stand for re-election to the
Board), will constitute the entire Board of Directors of Vestcom. On March 7,
2000, by letter addressed to the Secretary of Vestcom, Mr. Fosster indicated
that it is his intention not to serve on the Vestcom Board if this Consent
Solicitation is successful
PROPOSAL 4: BY-LAW AMENDMENT PERMITTING SHAREHOLDERS TO FILL VACANCIES
ON VESTCOM BOARD
Shareholders are being asked to adopt a proposal to amend Section 3.7
of Article III of the Vestcom by-laws to provide that vacancies on the Vestcom
Board created by removal of directors from the Board by the shareholders of
Vestcom may be filled only with the approval of holders of a majority of the
outstanding voting shares of Vestcom. The proposed amendment to the Vestcom
by-laws is contained in Annex IV. The Vestcom by-laws now provide that vacancies
on the Vestcom Board, however caused, including removal of directors, may be
filled by the affirmative vote of a majority of the votes of the remaining
directors.
No provision is currently made for the filling of vacancies by
shareholders. The proposed by-law amendment would grant to shareholders the
exclusive right to elect the Nominees to fill the vacancies on the Vestcom Board
resulting from a removal of the five directors from the Vestcom Board by the
shareholders of Vestcom.
25
<PAGE>
PROPOSAL 5: REPEAL OF BY-LAWS ADOPTED AFTER DECEMBER 16, 1999 AND
BEFORE THE EFFECTIVENESS OF THE PROPOSALS AND THE SEATING OF THE NOMINEES
Shareholders are being asked to adopt a proposal which would repeal any
amendment to the Vestcom by-laws adopted by the current Vestcom Board after
December 16, 1999 and before the effectiveness of the proposals and the seating
of the Nominees. This proposal is designed to prevent the current Vestcom
directors from taking actions to amend the Vestcom by-laws to attempt to nullify
or delay the actions taken by the shareholders under these Proposals or to
create new obstacles to the ability of Vestcom shareholders to freely elect a
board of directors that represent their best interests. Based on publicly
available information, the most recent version of the Vestcom by-laws were
adopted on December 16, 1999, and no amendments after that date have been
publicly disclosed.
VOTING SECURITIES
According to Vestcom's Certificate of Incorporation, the shares of
Vestcom common stock, Class B Preferred Stock and Class C Preferred Stock
constitute the only classes of authorized voting securities of Vestcom.
Accordingly, only holders of Vestcom common stock, Class B Preferred Stock and
Class C Preferred Stock are entitled to execute consents. Vestcom stated in its
Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1999,
that, as of October 31, 1999, there were 9,056,806 shares of Vestcom common
stock outstanding. The Solicitors understand that: (a) the total includes the
one share of the Class B Preferred Stock that is convertible into and votes as
the equivalent of an aggregate of 239,988 common shares, and (b) there are no
shares of Class C Preferred Stock outstanding. Each share of Vestcom common
stock is entitled to one vote. Shareholders of Vestcom do not have cumulative
voting rights. The Consent Record Date for determining shareholders entitled to
vote is February 8, 2000.
VESTCOM SHARES BENEFICIALLY OWNED
BY THE SOLICITORS AND THE NOMINEES
The following table sets forth the number and percent of outstanding
shares of Vestcom common stock beneficially owned by the Solicitors and each of
the Nominees, as of March 1, 2000.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of
Beneficial Owner(1) Beneficial Ownership Percent of Class
- ------------------- -------------------- ----------------
<S> <C> <C>
Harish K. Chopra(2) 757,600 8.36%
Howard April(3) 141,464 1.56%
Parker S. Kennedy -0- -0-
Frank E. Raab 2,000 *
Robert J. Verrilli 3,500 *
Solicitors And
------- ------
Five Nominees 904,564 9.988%
As A Group
</TABLE>
- ----------
* Less than 1/100th of 1%.
(1) Address not included if otherwise disclosed in this Consent Statement.
(2) Includes 157,500 shares held by TimeTrust, Inc., 566,100 shares of Vestcom
common stock held by R-Squared Limited, an affiliate of TimeTrust, and
34,000 shares held by Mr. Chopra
26
<PAGE>
personally.
(3) Includes 13,718 shares of Vestcom common stock and 127,746 dividend access
shares held by Mr. April which are convertible into 127,746 shares of
Vestcom common stock. Mr. April's son, Leonard April, holds 112,248 shares
of Vestcom common shares, as to which Howard April disclaims beneficial
ownership.
OTHER ANTI-TAKEOVER MEASURES
If Vestcom's Poison Pill is judicially invalidated, other measures will
remain available to Vestcom and its shareholders to guard against coercive
take-over attempts.
UNDESIGNATED STOCK. Vestcom's Certificate of Incorporation authorizes
not only 20,000,000 shares of Common Stock, but also 10,000,000 shares of
undesignated stock. The undesignated stock may be issued from time to time by
the Company's Board of Directors as shares of one or more classes or series of
preferred stock or common stock. Subject to the provisions of the Company's
Certificate of Incorporation and limitations prescribed by law, the Board of
Directors is expressly authorized to adopt resolutions to issue the undesignated
shares, to fix the number of shares and to change the number of shares
constituting any series or class, and to provide for or change the voting
powers, designations, preferences and relative, participating, optional or other
special rights, qualifications, limitations or restrictions thereof, including
dividend rights (including whether dividends are cumulative), dividend rates,
terms of redemption (including sinking fund provisions), redemption prices,
conversion rights and liquidation preferences of the shares constituting any
class or series of preferred stock or common stock, in each case without any
further action or vote by the shareholders.
One of the effects of undesignated stock may be to enable the Board of
Directors to render more difficult or to discourage an attempt to obtain control
of the Company by means of a tender offer, proxy contest, merger or otherwise.
The issuance of shares of preferred stock may, however, adversely affect the
rights of the holders of Common Stock. For example, preferred stock issued by
the Company may rank prior to the Common Stock as to dividend rights,
liquidation preference or both, may have full or limited voting rights and may
be convertible into shares of Common Stock. Accordingly, the issuance of shares
of such stock may discourage bids for the Common Stock at a premium or may
otherwise adversely affect the market price of the Common Stock.
STATUTORY BUSINESS COMBINATION PROVISIONS. The New Jersey Business
Corporation Act provides that in determining whether a proposal or offer to
acquire a corporation is in the best interest of the corporation, the board of
directors may, in addition to considering the effects of any action on
shareholders, consider any of the following: (a) the effects of the proposed
action on the corporation's employees, suppliers, creditors and customers, (b)
the effects on the community in which the corporation operates and (c) the
long-term as well as short-term interests of the corporation and its
shareholders, including the possibility that these interests may best be served
by the continued independence of the corporation. The statute further provides
that if, based on these factors, the board determines that any such offer is not
in the best interest of the corporation, it may reject the offer. These
provisions may make it more difficult for a shareholder to challenge the Board's
rejection of, and may facilitate the Board's rejection of, an offer to acquire
the Company.
Vestcom is also subject to the New Jersey Shareholders Protection Act
(the "Protection Act"), which prohibits certain New Jersey corporations from
engaging in business combinations (including mergers, consolidations,
significant asset dispositions and certain stock issuances) with any interested
shareholder (defined to include, among others, any person that becomes a
beneficial owner of 10% or more of the affected corporation's voting power) for
five years after such person becomes an interested shareholder, unless the
business combination is approved by the board of directors prior to the date the
27
<PAGE>
shareholder became an interested shareholder. In addition, the Protection Act
prohibits any business combination at any time with an interested shareholder
other than a transaction that (i) is approved by the board of directors prior to
the date the interested shareholder became an interested shareholder, or (ii) is
approved by the affirmative vote of the holders of two-thirds of the voting
stock not beneficially owned by the interested shareholder, or (iii) satisfied
certain "fair price" and related criteria.'"
ADDITIONAL INFORMATION CONCERNING THE SOLICITORS
Certain information about the employees and representatives of the
Solicitors (other than Nominees) who may assist Solicitor in soliciting consents
is set forth in the attached Annex II. Annex III sets forth certain information
relating to the ownership of Vestcom common stock by certain of the Solicitors'
employees and representatives, and about any transactions between any of them
and Vestcom.
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
Our disclosure in this Consent Statement and in our documents
incorporated by reference contain some forward-looking statements.
Forward-looking statements give our current expectations or forecasts of future
events. You can identify these statements by the fact that they do not relate
strictly to historical or current facts. They use words such as "anticipate,"
"estimate," "expect," "project," "intend," "plan," "believe," and other words
and terms of similar meaning in connection with any discussion of future
operating or financial performance. In particular, these include statements
relating to:
- future actions;
- prospective products or product approvals;
- future performance or results of current or anticipated products,
sales efforts and expenses;
- the outcome of contingencies such as legal proceedings;
- potential growth and performance of Vestcom;
- projected revenues;
- annual research and development budgets; and
- financial results.
From time to time, we also may provide oral or written forward-looking
statements in other materials we release to the public.
Any and all of our forward-looking statements in this Consent
Statement, and in our documents incorporated by reference can be affected by
inaccurate assumptions we might make or by known or unknown risks and
uncertainties. Consequently, no forward-looking statement can be guaranteed.
Actual future results may vary materially.
We undertake no obligation to publicly update any forward-looking
statements, whether as a result of new information, future events or otherwise.
Because the statements are subject to risks and uncertainties, actual
results may differ materially from those expressed or implied by the
forward-looking statements. We caution you not to place undue
28
<PAGE>
reliance on the statements, which speak only as of the date of this Consent
Statement or, in the case of documents incorporated by reference, the date of
the document.
The cautionary statements contained or referred to in this section
should be considered in connection with any subsequent written or oral
forward-looking statements that the Solicitors or persons acting on their behalf
may issue. Solicitors undertake no obligation to review or confirm analysts'
expectations or estimates or to release publicly any revisions to any
forward-looking statements to reflect events or circumstances after the date of
this document or to reflect the occurrence of unanticipated events.
SOLICITATION
The solicitation of consents pursuant to this Consent Solicitation is
being made by the Solicitors--Harish K. Chopra, TimeTrust, Inc. and R-Squared
Limited. Solicitation of consents also may be made by the directors, officers,
investor relations personnel and other employees of the Solicitors, its
subsidiaries and their affiliates and by the Nominees. Consents will be
solicited by mail, advertisement, telephone or telecopier and in person. No such
persons will receive additional compensation for such solicitation.
In addition, Solicitor has retained Beacon Hill Partners to assist in
the solicitation, for which services Beacon Hill Partners will be paid a fee of
$15,000, a $25,000 success fee and out-of-pocket expenses. Beacon Hill Partners
will be reimbursed for their reasonable out-of-pocket expenses. The Solicitors
have also agreed to indemnify Beacon Hill Partners against certain liabilities
and expenses, including certain liabilities and expenses under the federal
securities laws. It is anticipated that approximately 20 persons will be
employed by Beacon Hill Partners to solicit Vestcom shareholders.
Banks, brokers, custodians, nominees and fiduciaries will be requested
to forward solicitation material to the beneficial owners of shares of Vestcom
common stock. The Solicitors will reimburse banks, brokers, custodians, nominees
and fiduciaries for their reasonable expenses for sending solicitation material
to the beneficial owners.
Certain information about the directors and executive officers of the
Solicitors who are not Nominees and certain representatives of the Solicitors
who will assist Beacon Hill Partners in soliciting consents is contained in
Annex II. Annex III sets forth certain information relating to the ownership of
shares of Vestcom common stock by the Solicitors' directors, officers, employees
and representatives who may participate in the solicitation, and about any
transactions between any of them and Vestcom.
The cost of the solicitation of consents to the Proposals will
initially be borne by the Solicitors. The Solicitors may seek reimbursement of
the costs of this solicitation from Vestcom. If such reimbursement is sought,
the question of whether such reimbursement will be made will be submitted to the
Board of Directors for final decision. Costs related to the solicitation of
consents to the Proposals include expenditures for attorneys, accountants,
investment bankers, consent solicitors, public relations advisors, printing,
advertising, postage, litigation and related expenses and filing fees and are
expected to aggregate approximately $275,000, of which $185,000 has been spent
to date. The portion of such costs allocable solely to the solicitation of
consents to the Proposals is not readily determinable.
CONSENT PROCEDURE
Section 14A:5-6 of the New Jersey Business Corporation Act provides
that, absent a contrary provision in Vestcom's Certificate of Incorporation, any
action that may be taken at a meeting of the shareholders may be taken by the
written consent of at least the minimum number of votes that would be necessary
to take such action at a meeting in which all shares entitled to vote were
present and voting. Vestcom's Certificate of Incorporation contains no contrary
provision.
29
<PAGE>
Article II, Section 2.15 of the Vestcom by-laws provides that any
shareholder of record seeking to have the shareholders authorize or take
corporate action by written consent will, by written notice to the Secretary of
Vestcom, request that the Vestcom Board fix a Consent Record Date. The Vestcom
Board is required to promptly, but in all events within 10 days of the date on
which such a request is received, adopt a resolution fixing the Consent Record
Date. Under the Vestcom by-laws, the Consent Record Date fixed by the Vestcom
Board cannot be later than 10 days following the date on which the resolution
fixing the Consent Record Date was adopted by the Vestcom Board. Under the NJBCA
and the Vestcom by-laws, if no Consent Record Date has been fixed by the Vestcom
Board within 10 days of the receipt of the request, the Consent Record Date will
be the first date on which a signed, written consent setting forth the action
taken or proposed to be taken is delivered to Vestcom. On January 18, 2000, the
Solicitors delivered to Vestcom a notice of its intention to seek to have
Vestcom's shareholders take action by written consent and requested that the
Vestcom Board fix the Consent Record Date for the consent solicitation made
hereby. On January 29, 2000, the Vestcom Board fixed February 8, 2000, as the
Consent Record Date for the solicitation.
The Consent Tabulation Date was set by Vestcom management to be April
7, 2000 (the "Consent Tabulation Date") which is permitted under New Jersey law
to be the effective date of these Proposals as no merger or business combination
is contemplated and all Vestcom shareholders are being notified by the
Solicitors and the Company of this Consent Solicitation. We understand that
Vestcom's incumbent management is seeking, after the Consent Tabulation Date, to
send "prompt" written notice of the outcome of this Consent Solicitation to the
Vestcom shareholders. This would extend the effective date of our Proposals to
10 days after the date of such written notice. Because such notice is required
to be given promptly, we believe the effective date of our Proposals will be on
or shortly after April 17, 2000. We believe this additional step is not required
under the New Jersey Business Corporation Act but is being utilized merely as a
further delaying tactic by incumbent management. During that additional period,
we expect that Vestcom's incumbent management will continue to seek to dissuade
you and the other Vestcom shareholders from adopting our Proposals. THIS
DELAYING NOTIFICATION PERIOD DOES NOT EXTEND THE TIME IN WHICH YOU MAY CONSENT
TO OUR PROPOSALS; IT ONLY GIVES VESTCOM'S INCUMBENT MANAGEMENT FURTHER TIME TO
SEEK REVOCATION OF YOUR PREVIOUSLY DELIVERED CONSENTS. WE URGE YOU ONCE YOU HAVE
DELIVERED YOUR CONSENT NOT TO REVOKE IT.
Accordingly, pursuant to Section 14A:5-6(c) of the New Jersey Business
Corporation Act, the Proposals will become effective on or shortly after April
17, 2000, if as of that date properly completed, UNREVOKED consents to the
Proposals, signed by the record holders on the Consent Record Date of a majority
of Vestcom's outstanding shares, have been delivered to Vestcom. NJBCA Section
14A:5-6(a) provides that no written consent will be effective unless delivered
to Vestcom within 60 days of the date of the earliest dated consent delivered to
Vestcom in the manner provided by New Jersey law. The effectiveness of the
Proposals is subject to, and conditioned upon, the adoption of Proposals 1 and 2
by the holders of record, as of the close of business on the Consent Record
Date, of a majority of the shares of Vestcom common stock then outstanding.
Any failure to execute and return a consent, and all abstentions and
broker non-votes, will have the same effect as voting against the Proposals.
EFFECTIVENESS AND REVOCATION OF CONSENTS
Under Section 2.15 of Article II of the Vestcom by-laws, the Secretary
of Vestcom is required to engage a nationally recognized independent inspector
of election in connection with this consent solicitation. The inspector is
required, as soon as practicable after receipt of written consents for adoption
of the Proposals, to conduct such reasonable investigations as the inspector
deems necessary or appropriate for the purpose of ascertaining the validity of
the consents, including determining whether the holders of shares of Vestcom
common stock having the requisite voting power to authorize the
30
<PAGE>
Proposals have given consent. If after this investigation, the inspector
determines that actions proposed by this consent solicitation have been validly
taken, that fact is to be certified on Vestcom's records. The Solicitor plans to
present the results of a successful solicitation with respect to the corporate
actions proposed herein to Vestcom as soon as possible.
An executed consent card may be revoked by signing, dating and
delivering a written revocation at any time prior to April 17, 2000, a date
which is 10 days after the Consent Tabulation Date. The delivery of a
subsequently dated consent card that is properly completed and signed will
constitute a revocation of any earlier written revocation previously delivered
by such holder. The subsequently dated consent card may be delivered either to
the Solicitor, in care of BEACON HILL PARTNERS, or to an address provided by
Vestcom. Although a subsequently dated consent card is effective if delivered to
Vestcom, the Solicitor requests that either the original or photostatic copies
of all subsequently dated consent cards be mailed or delivered to the Solicitor
in care of BEACON HILL PARTNERS at the address set forth above, so that the
Solicitor will be aware of all subsequently dated consent cards and can more
accurately determine if and when unrevoked consents to the actions described in
this Consent Statement have been received from the holders of record on the
Consent Record Date of a majority of outstanding shares of Vestcom common stock.
SPECIAL INSTRUCTIONS
If you were a record holder of shares of Vestcom common stock as of the
close of business on the Consent Record Date, you may elect to consent to,
withhold consent to or abstain with respect to each Proposal by marking the
"CONSENT," "DOES NOT CONSENT" or "ABSTAIN" box, as applicable, underneath each
such Proposal on the accompanying GOLD consent card and signing, dating and
returning it promptly in the enclosed postage-paid envelope or by mailing the
consent card to BEACON HILL PARTNERS at the address stated below.
If the shareholder signing, dating and returning the GOLD consent card
has failed to check a box marked "CONSENT," "DOES NOT CONSENT" or "ABSTAIN" for
any of the Proposals, such shareholder will be deemed to have consented to each
such Proposal, except that such shareholder will not be deemed to have consented
to the removal of any current Vestcom director or to the election of any Nominee
whose name is written in on the consent card under the corresponding Proposal.
THE SOLICITORS RECOMMEND THAT YOU CONSENT TO
EACH OF THE PROPOSALS.
YOUR CONSENT IS IMPORTANT. PLEASE MARK, SIGN AND DATE THE ENCLOSED GOLD
CONSENT CARD AND RETURN IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE PROMPTLY OR
MAIL THE CARD TO MORROW AT THE ADDRESS STATED BELOW.
FAILURE TO RETURN YOUR CONSENT CARD WILL HAVE THE SAME EFFECT AS VOTING
AGAINST THE PROPOSALS.
If your shares of Vestcom common stock are held in "Street-Name," only
your bank or broker can execute a consent on your behalf, but only upon receipt
of your specific instructions. Please sign, date and return the enclosed GOLD
consent instruction form to your bank or broker today in the postage-paid
envelope provided. To ensure that your consent is effective, please contact the
persons responsible for your account and instruct them to execute a GOLD consent
card on your behalf. The Solicitors urge you to confirm in writing your
instructions to the person responsible for your account and provide a copy of
those instructions to the Solicitors in care of BEACON HILL PARTNERS at the
address set forth below so that the Solicitors will be aware of all instructions
given and can attempt to ensure that such instructions are followed.
31
<PAGE>
APPRAISAL RIGHTS
Holders of Vestcom common stock do not have dissenters' appraisal
rights under New Jersey law in connection with this consent.
COMPENSATION, REMUNERATION AND OTHER
INFORMATION ABOUT VESTCOM'S PRESENT
OFFICERS AND DIRECTORS
We refer you to Vestcom's last Proxy Statement, dated April 27, 1999,
for information concerning the compensation, enumeration and other information
about Vestcom's present officers and directors.
SHAREHOLDER PROPOSALS
According to Vestcom's Proxy Statement dated April 27, 1999,
shareholder proposals to be presented at Vestcom's next Annual Meeting MUST HAVE
BEEN received by Vestcom, in writing, no later than December 27, 1999, in order
to be eligible for inclusion in Vestcom's Proxy Statement and form of proxy for
that meeting, and must be received no later than March 12, 2000, to be
considered at the next Annual Meeting (but not included in Vestcom's Proxy
Statement for that meeting).
We believe, however, that pursuant to the amended by-laws of Vestcom
adopted on December 16, 1999, shareholder proposals to be presented at the next
Annual Meeting must be received by Vestcom no earlier than January 27, 2000 and
no later than February 26, 2000 in order to be considered at the next Annual
Meeting (but not included in Vestcom's Proxy Statement).
PROPOSALS OF THE SOLICITORS TO BE
VOTED ON AT THE 2000 ANNUAL MEETING
On February 25, 2000 the Solicitors submitted to Vestcom four proposals
to be voted on by the shareholders at Vestcom's 2000 Annual Meeting (the "Annual
Meeting Proposals"). The Annual Meeting Proposals are:
- the nomination of each of our five Nominees for election as
directors of Vestom
- to amend Section 3.2 of Vestcom's by-laws to set the number of
directors at seven
- to amend Section 3.7 of Vestcom's by-laws to provide that
vacancies on the Vestcom Board created by the shareholders'
removal of directors may be filled only with the approval of the
holders of a majority of Vestcom's outstanding voting shares
- to repeal any amendments to Vestcom's by-laws adopted by the
current Vestcom Board after December 16, 1999 and before the
effective time of any of the Annual Meeting Proposals.
The nominations and by-law amendments we have proposed for the Annual
Meeting mirror our Proposals set forth in this Consent Statement. They are being
proposed for the Annual Meeting, because it is possible that our Consent
Solicitation may not be successful, not based on its merits-which we believe are
compelling-but because procedural maneuvers that the incumbent management has
utilized (and may utilize in the future) might enable incumbent management to
cause the defeat of our Proposals in ways that we believe are unfair to the
shareholders. For example, because incumbent management has chosen to notify the
shareholders of the outcome of the consent tabulation, they will have from
April 7,
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<PAGE>
2000 until on or shortly after April 17, 2000 to solicit consent revocations.
During that period, however, the Solicitors will NOT be able to continue our
Consent Solicitation. For this reason, even if the Solicitors obtain the
consents of over 50% of Vestcom's outstanding shares by April 7, 2000, incumbent
management would have at least an additional 10 days to obtain a sufficient
number of revocations so that less than 50% of Vestcom's shares remain as having
consented to the Proposals.
Unlike a Consent Solicitation which requires the consent of more than
50% of Vestcom's outstanding shares to remove directors, at the Vestcom Annual
Meeting all directors are up for election and, assuming a quorum is present, a
simple majority of the shares actually voting at the meeting is sufficient to
elect our Annual Meeting nominees.
Our Annual Meeting Proposals will NOT be included in Vestcom's proxy
statement for the 2000 Annual Meeting. If this Consent Solicitation is not
successful, the Solicitors intend to solicit the shareholders' proxies with
respect to our Annual Meeting Proposals in a separate proxy statement
distributed by the Solicitors to the shareholders, AND NOT BY THIS CONSENT
STATEMENT.
YOUR CONSENT TO THE PROPOSALS CONTAINED IN THIS CONSENT STATEMENT
IS NOT EFFECTIVE TO ELECT DIRECTORS OR TO AMEND VESTCOM'S BY-LAWS AT THE 2000
ANNUAL MEETING.
QUESTIONS?
If you have any questions or require any assistance in executing or
delivering your consent, please write to, or call:
Beacon Hill Partners
90 Broad Street, 20th Floor
New York, NY 10004
Banks and Brokerage Firms Call Collect: (212) 843-8500
Shareholders Please Call: (800) 755-5001
Dated: March 7, 2000
33
<PAGE>
ANNEX I
INFORMATION CONCERNING VESTCOM'S OFFICERS AND DIRECTORS
The following table sets forth the share ownership of all current
directors and executive officers of Vestcom and holders of more than five
percent of Vestcom's Common Stock (other than the Solicitors and the Solicitors'
Nominees) as reported in Vestcom's amended preliminary consent revocation
statement filed with the SEC on March 2, 2000:
<TABLE>
<CAPTION>
Number of
Common Shares and Share
Name Equivalents of Class Percent
- ------------------------------- ----------------------- ---------------
<S> <C> <C>
Brookside Capital Partners Fund 1,150,700(1) 12.7%
L.P.
Dimensional Fund Advisors, Inc. 544,100(2) 6.0%
Gary J. Marcello 884,117(3) 9.76%
Joel Cartun 1,488,198(4) 16.43%
Brendan Keating 43,000(5) *
Stephen R. Bova 153,000(6) 1.68%
Leonard J. Fassler 18,500(7) *
</TABLE>
- --------
(1) Brookside has indicated in its filings with the SEC that it has the
sole power to vote and dispose of these shares.
(2) Dimensional has indicated in its filings with the SEC that it has the
sole power to vote and dispose of these shares.
(3) Includes 441,738 shares with respect to which Mr. Marcello has sole
voting and sole dispositive power and 442,379 shares (comprised of
375,152 shares held by a family partnership and 67,227 shares held by a
foundation) with respect to which Mr. Marcello shares voting and
dispositive power.
(4) Includes 200,000 shares held by trusts for the benefit of Mr. Cartun's
children. As trustee for such beneficiaries, Mr. Cartun's wife has the
right to vote and dispose of such shares.
(5) Includes 32,500 shares issuable upon the exercise of stock options.
(6) Includes 15,000 shares issuable upon the exercise of stock options.
(7) Includes 1,000 shares held by Mr. Fassler's wife. Mr. Fassler disclaims
beneficial ownership of such shares. Also includes 15,000 shares
issuable upon the exercise of stock options.
34
<PAGE>
<TABLE>
<CAPTION>
Number of
Common Shares and Share
Name Equivalents of Class Percent
- ------------------------------- ----------------------- ---------------
<S> <C> <C>
Fred S. Lafer 22,100(8) *
Robert J. Levenson 18,100(9) *
Richard D. White 115,000(10) 1.26%
Michael D. Helfand 1,000 *
Sheryl B. Cilenti 12,700(11) *
</TABLE>
- --------
(8) Includes 1,200 shares held by family trusts of which Mr. Lafer is
trustee. Also includes 15,000 shares issuable upon the exercise of
stock options.
(9) Includes 600 shares held by Mr. Levenson's wife as custodian for the
benefit of her children. Also includes 10,000 shares issuable upon the
exercise of stock options.
(10) Includes 61,704 shares held in the aggregate by CIBC World Markets and
an affiliate of CIBC World Markets. Mr. White is a Managing Director of
CIBC Capital Partners, an affiliate of CIBC World Markets. Mr. White
disclaims beneficial ownership of these 61,704 shares. Also includes
15,000 shares issuable upon the exercise of stock options. Pursuant to
Mr. White's employment arrangement with CIBC, any economic benefit
derived from these options must be contributed by him to CIBC.
(11) Includes 11,700 shares issuable upon the exercise of stock options. *
Less than 1/2 of 1%.
35
<PAGE>
ANNEX II
INFORMATION CONCERNING DIRECTORS,
OFFICERS, EMPLOYEES AND OTHER
REPRESENTATIVES OF THE SOLICITORS
The following table sets forth the name and the present principal
occupation or employment, and the name and principal business address of any
corporation or other organization in which such employment is carried on, of the
directors, officers, employees and representatives of the Solicitors who may
assist in soliciting consents from Vestcom's shareholders. Unless otherwise
indicated, each person listed below is an officer and/or director of TimeTrust,
Inc., and the principal business address of each person listed below is 1455
Frazee Road, Suite 420, San Diego, California 92108.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL PRESENT PRINCIPAL OCCUPATION OR
BUSINESS ADDRESS EMPLOYMENT
- ------------------ --------------------------------
<S> <C> <C>
Harish K. Chopra - President, Secretary and Director of TimeTrust, Inc.
Robert Verrilli - Chief Financial Officer of TimeTrust, Inc.
Jim Jensen - Director of TimeTrust, Inc.
Leatrice Latts - Director of TimeTrust, Inc.
</TABLE>
Unless otherwise indicated, each person listed below is an officer
and/or director of R-Squared Limited and the principal business address of each
person listed below is P.O. Box 1586 GT, Cardinal Avenue, George Town, Grand
Cayman, British West Indies.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL PRESENT PRINCIPAL OCCUPATION OR
BUSINESS ADDRESS EMPLOYMENT
- ------------------ --------------------------------
<S> <C> <C>
Morgan Piers ap Peter Stradling Director of R-Squared Limited
Sheena Thompson Director of R-Squared Limited
Royal Bank of Canada Trust Secretary
</TABLE>
36
<PAGE>
ANNEX III
VESTCOM COMMON STOCK HELD BY CERTAIN
DIRECTORS, OFFICERS, EMPLOYEES AND OTHER REPRESENTATIVES
OF THE SOLICITORS AND THE NOMINEES AND CERTAIN TRANSACTIONS
BETWEEN ANY OF THEM AND VESTCOM
Except as disclosed in this Consent Statement, none of the Solicitors,
their directors or executive officers, the Nominees or the employees or other
representatives of the Solicitor named in Annex II owns any securities of
Vestcom or any parent or subsidiary of Vestcom, beneficially or of record; has
purchased or sold any such securities within the past two years; or is or was
within the past year a party to any contract, arrangement or understanding with
any person for such securities. Except as disclosed in this Consent Statement,
to the best knowledge of the Solicitors, its subsidiaries, their directors or
executive officers, the Nominees and the employees and other representatives of
the Solicitors named in Annex II, none of their Associates (as defined in Rule
14a-1 under the Exchange Act) beneficially owns, directly or indirectly, any
securities of Vestcom.
Except as disclosed in this Consent Statement, none of the Solicitors,
their subsidiaries, their directors or executive officers, the Nominees, the
employees or other representatives of the Solicitors named in Annex II, or, to
their best knowledge, their Associates has any arrangement or understanding with
any person as (1) to any future employment by Vestcom or its affiliates or (2)
to future transactions to which Vestcom or any of its affiliates will or may be
a party, nor any material interest, direct or indirect, in any transaction that
has occurred since January 1, 1998, or any currently proposed transaction, or
series of similar transactions, which Vestcom or any of its affiliates was or is
to be a party and in which the amount involved exceeds $60,000. Certain
Nominees, directors and executive officers of the Solicitors and/or its
respective associates may also be directors or officers of other companies and
organizations that have engaged in transactions with Vestcom or its subsidiaries
in the ordinary course of business since January 1, 1998, but the Solicitors
believe that the interest of such persons in such transactions is not material.
None of the Nominees have been involved in any legal proceedings in the
preceding five years which must be disclosed as material for purposes of an
evaluation of the integrity or ability of any person nominated to become a
director under the federal securities laws.
The following sets forth all purchases and sales during the past two
years of Vestcom common stock deemed to be beneficially owned by the Solicitors
and the Nominees. All transactions were effected in open market transactions.
<TABLE>
<CAPTION>
Transaction
Name Date Number of Shares Purchase/sold
- ---------------- ------------ ---------------- -------------
<S> <C> <C> <C>
Harish K. Chopra 12/27/99 10,000 Purchase
12/29/99 3,000 Purchase
12/30/99 5,500 Purchase
01/06/00 12,000 Purchase
02/02/00 3,500 Purchase
TimeTrust, Inc. 10/19/99 7,000 Purchase
10/26/99 1,100 Sold
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
Transaction
Name Date Number of Shares Purchase/sold
- ---------------- ------------ ---------------- -------------
<S> <C> <C> <C>
10/27/99 600 Purchase
10/28/99 9,900 Purchase
11/02/99 500 Purchase
11/05/99 200 Sold
11/16/99 35,000 Purchase
11/17/99 13,000 Purchase
11/18/99 3,800 Sold
11/18/99 101,200 Purchase
11/19/99 500 Sold
11/23/99 600 Sold
11/24/99 1,000 Purchase
12/01/99 15,500 Purchase
12/07/99 1,000 Purchase
12/14/99 3,000 Purchase
12/27/99 200 Purchase
12/28/99 2,800 Purchase
02/24/00 17,000 Sold
03/01/00 10,000 Sold
R-Squared Limited 10/13/99 4,000 Purchase
10/14/99 5,000 Purchase
10/15/99 50,000 Purchase
10/20/99 50,000 Purchase
10/21/99 51,000 Purchase
10/22/99 100,000 Purchase
10/27/99 115,500 Purchase
10/28/99 20,000 Purchase
11/01/99 5,000 Purchase
11/02/99 4,000 Purchase
11/03/99 7,000 Purchase
11/04/99 300 Purchase
11/08/99 15,000 Purchase
11/09/99 9,000 Purchase
11/18/99 2,500 Purchase
11/19/99 5,000 Purchase
11/23/99 1,000 Sold
11/29/99 25,000 Purchase
12/01/99 9,900 Purchase
12/02/99 6,500 Purchase
12/07/99 2,500 Purchase
12/08/99 8,700 Purchase
12/09/99 5,200 Purchase
12/15/99 4,300 Purchase
12/16/99 13,700 Purchase
12/22/99 1,000 Purchase
010/5/00 2,000 Purchase
01/18/00 6,000 Purchase
02/28/00 4,000 Purchase
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
Transaction
Name Date Number of Shares Purchase/sold
- ---------------- ------------ ---------------- -------------
<S> <C> <C> <C>
02/29/00 35,000 Purchase
Frank E. Raab 02/02/00 2,000 Purchase
Robert J. Verrilli 11/30/99 2,500 Purchase
02/04/00 500 Purchase
02/07/00 500 Purchase
Katrina Hanson 12/17/99 900 Purchase
12/20/99 600 Purchase
</TABLE>
39
<PAGE>
ANNEX IV
FORM OF PROPOSED AMENDMENTS
TO THE VESTCOM BY-LAWS
1. Proposed Amendment to Section 3.2 of Article III
Section 3.2 of Article III of the Vestcom by-laws is amended to read as
follows:
"The number of Directors constituting the whole Board shall be
seven."
2. Proposed Amendment of Section 3.7 of Article III
Section 3.7 of Article III of the Vestcom by-laws is amended to read as
follows:
"Subject to the last sentence of this Section, any vacancy or
vacancies which may occur among the Directors through death, resignation, or
disqualification or for any other cause, shall be filled by a majority of the
remaining Directors, though less than a quorum, or by the remaining Director,
and the Directors so chosen shall hold office until the next annual election and
until their respective successors shall be duly elected and shall have
qualified, unless sooner displaced as provided by the laws of the State of New
Jersey. Newly created directorships resulting from an increase in the number of
Directors shall be filled in the same manner. Notwithstanding anything in the
foregoing, any vacancies resulting from removal of a director or directors by
the shareholders through shareholder action without a meeting shall be filled
only by the affirmative vote of the majority of the issued and outstanding
shares of the stock of the Corporation entitled to vote."
40
<PAGE>
SOLICITATION ON BEHALF OF HARISH K. CHOPRA,
TIMETRUST, INC. AND R-SQUARED LIMITED
Unless otherwise indicated below, the undersigned, a shareholder of record of
Vestcom International, Inc. ("Vestcom") as of the close of business on
February 8, 2000 (the "Consent Record Date"), hereby consents, pursuant to
Section 14A.5-6 of the New Jersey Business Corporation Act and Section 2.15 of
Article II of the Vestcom by-laws for all shares of common stock of Vestcom held
by the undersigned, to the taking of the following actions without a meeting of
the shareholders of Vestcom:
Please mark your votes as [X] indicated in this example
<TABLE>
<CAPTION>
DOES NOT
CONSENT CONSENT ABSTAIN
<S> <C> <C> <C>
1. Remove Joel Cartun, Fred S. Lafer, Brendan Keating,
Robert J. Levenson, and Richard D. White, and any other
person (other than Stephen R. Bova, Leonard J. Fassler or
those elected pursuant to this consent) elected or
appointed to the Vestcom Board prior to the effective
date of this shareholder action. / / / / / /
</TABLE>
INSTRUCTION: TO CONSENT, NOT CONSENT OR ABSTAIN FROM CONSENTING TO THE REMOVAL
OF ALL THE PERSONS NAMED IN PROPOSAL #1, CHECK THE APPROPRIATE BOX ABOVE. IF YOU
WISH TO CONSENT TO THE REMOVAL OF CERTAIN OF THE PERSONS NAMED IN PROPOSAL #1,
BUT NOT ALL OF THEM, CHECK THE "CONSENT" BOX ABOVE AND WRITE THE NAME OF EACH
SUCH PERSON YOU DO NOT WISH REMOVED IN THE SPACE PROVIDED BELOW:
<TABLE>
<CAPTION>
DOES NOT
CONSENT CONSENT ABSTAIN
<S> <C> <C> <C>
2. Elect Howard April, Harish K. Chopra, Parker S. Kennedy,
Frank E. Raab, and Robert J. Verrilli (the "Nominees") to
serve as directors of Vestcom together with continuing
directors, Stephen R. Bova and Leonard J. Fassler (or, if
any such Nominee is unable to serve as a director of
Vestcom due to death, disability or otherwise, any other
person designated as a Nominee by the remaining Nominee
or Nominees). / / / / / /
</TABLE>
INSTRUCTION: TO CONSENT, NOT CONSENT OR ABSTAIN FROM CONSENTING TO THE ELECTION
OF ALL THE PERSONS NAMED IN PROPOSAL #2, CHECK THE APPROPRIATE BOX ABOVE. IF YOU
WISH TO CONSENT TO THE ELECTION OF CERTAIN OF THE PERSONS NAMED IN PROPOSAL #2,
BUT NOT ALL OF THEM, CHECK THE "CONSENT" BOX ABOVE AND WRITE THE NAME OF EACH
SUCH PERSON YOU DO NOT WISH ELECTED IN THE SPACE PROVIDED BELOW:
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.)
<PAGE>
<TABLE>
<CAPTION>
DOES NOT
CONSENT CONSENT ABSTAIN
<S> <C> <C> <C>
3. Amend Section 3.2 of Article III of the Vestcom by-laws
to set the number of directors of Vestcom at seven as set
forth in Annex IV to the Consent Statement. / / / / / /
4. Amend Section 3.7 of Article III of the Vestcom by-laws
to provide that vacancies on the Vestcom Board created as
a result of a removal of directors by Vestcom
shareholders may be filled only by a majority vote of
shares of Vestcom common stock as set forth in Annex IV
to the Consent Statement. / / / / / /
5. Repeal each provision of the Vestcom by-laws adopted
after December 16, 1999 and before the effective time of
any of the foregoing actions. / / / / / /
</TABLE>
IF NO BOX IS MARKED FOR ANY PROPOSAL, THE UNDERSIGNED WILL BE DEEMED TO CONSENT
TO SUCH PROPOSAL, EXCEPT THAT THE UNDERSIGNED WILL NOT BE DEEMED TO CONSENT TO
THE REMOVAL OF ANY CURRENT DIRECTOR OR TO THE ELECTION OF ANY NOMINEE WHOSE NAME
IS WRITTEN IN THE SPACE PROVIDED.
IN ORDER FOR YOUR CONSENT TO BE VALID, IT MUST BE DATED. PLEASE MARK, SIGN, DATE
AND MAIL YOUR CONSENT PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
The provisions of the Consent Statement dated March 7, 2000 of Harish K. Chopra,
TimeTrust Inc., and R-Squared Limited, which more fully set forth the amendments
to the Vestcom by-laws described in items 3 and 4 above, including the precise
wording of such amendments (see Annex IV) are incorporated by reference.
IN THE ABSENCE OF DISSENT OR ABSTENTION BEING
INDICATED ABOVE, THE UNDERSIGNED HEREBY
CONSENTS TO EACH ACTION LISTED ABOVE.
The effectiveness of proposals 1 through 5 is
subject to, and conditioned upon, the adoption
of proposals 1 and 2 set forth above by the
holders of record, as of the close of business
on the Consent Record Date, of a majority of
the shares of Vestcom common stock then
outstanding (including the receipt of consents
from such holders to the election of each
Nominee to the Vestcom Board).
Dated ________________________________________
Signature(s) _________________________________
Signature(s) _________________________________
Authority ____________________________________
Please sign exactly as the name appears on
stock certificate or on the attached label. If
shares are held by joint tenants, both should
sign. In case of joint owners, each joint
owner must sign. When signing as attorney,
executor, administrator, trustee guardian,
corporate officer, etc., please give full
title.
