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WAVERLY, INC.
351 WEST CAMDEN STREET
BALTIMORE, MARYLAND 21201
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
This Information Statement is being mailed on or about May 1, 1998, to the
holders of record of shares of common stock, par value $2.00 per share (the
"Common Stock" or the "Shares"), of Waverly, Inc. (the "Company"). You are
receiving this Information Statement in connection with the expected election of
persons designated by Wolters Kluwer U.S. Corporation, a Delaware corporation
("Parent"), to a majority of the seats on the Board of Directors of the Company
(the "Company Board").
On February 10, 1998, the Company, Parent and MP Acquisition Corp., a
Maryland corporation and an indirect wholly owned subsidiary of Parent
("Newco"), entered into an Agreement and Plan of Merger (the "Merger
Agreement"), pursuant to which (i) on February 18, 1998, Newco commenced a
tender offer (the "Offer") for all outstanding Shares at a price of $39.00 per
Share, net to the seller in cash, and (ii) following the completion of the
Offer, Newco will be merged with and into the Company (the "Merger"). The Merger
Agreement provides that at the effective time of the Merger (the "Effective
Time"), each issued and outstanding Share (other than Shares owned by Parent,
Newco or any other wholly owned subsidiary of Parent and Shares owned by the
Company as treasury stock) will be converted into the right to receive $39.00
per Share in cash, without interest. On March 17, 1998, Parent extended the
expiration of the Offer until midnight on April 30, 1998, and on April 29, 1998,
Parent extended the expiration of the Offer until midnight on May 19, 1998. As a
result of the Offer and the Merger, the Company will become a wholly owned
subsidiary of Parent.
The Merger Agreement provides that, promptly after the purchase of at least
two-thirds of the outstanding Shares, Parent shall be entitled to designate such
number of directors to the Company Board as will give Parent representation
proportionate to its ownership interest. The Merger Agreement requires the
Company to take all action necessary to cause the Parent Designees (as defined
below) to be elected to the Company Board under the circumstances described
therein. This Information Statement is required by Section 14(f) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 14f-1
thereunder.
You are urged to read this Information Statement carefully. You are not,
however, required to take any action. Capitalized terms used herein and not
otherwise defined shall have the meaning set forth in the Schedule 14D-9 that
was mailed to stockholders of the Company on or about February 18, 1998.
The information contained in this Information Statement concerning the
Parent Designees (as defined below) has been furnished to the Company by Parent.
The Company assumes no responsibility for the accuracy or completeness of such
information.
CERTAIN INFORMATION CONCERNING THE COMPANY
The Shares are the only class of voting securities of the Company
outstanding. As of May 1, 1998, there were approximately 9,039,576 Shares
outstanding and approximately 10,013,326 Shares outstanding on a fully diluted
basis. Each Share that is outstanding as of the close of business on any
applicable record date for any matter to be acted upon by stockholders is
entitled to one vote on such matter.
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THE BOARD OF DIRECTORS
RIGHT TO DESIGNATE DIRECTORS; PARENT DESIGNEES
The Merger Agreement provides that promptly upon the purchase of and payment
by Parent for Shares which represent at least two-thirds of the outstanding
Shares (on a fully diluted basis), Parent will be entitled to designate such
number of directors (the "Parent Designees"), rounded up to the next whole
number, to the Company Board as is equal to the product of the total number of
directors on the Company Board (determined after giving effect to the directors
elected pursuant to this sentence) multiplied by the percentage that the
aggregate number of Shares beneficially owned by Newco, Parent and any of their
affiliates bears to the total number of Shares then outstanding. The Company
will take all action necessary to cause the Parent Designees to be elected or
appointed to the Company Board and to secure the resignations of such number of
its incumbent directors as is necessary to enable the Parent Designees to be so
elected. In addition, the Merger Agreement provides that the Company will use
its best efforts to cause the Parent Designees to constitute the same percentage
as the Parent Designees represent on the Company Board of (i) each committee of
the Company Board, and (ii) each board of directors (and committee thereof) of
each subsidiary in each case to the extent permitted by the National Association
of Securities Dealers Rules. Notwithstanding the foregoing, until the Effective
Time, the Company Board will have at least two directors who are directors of
the Company on February 10, 1998.
Set forth below is certain information with respect to the initial Parent
Designees:
C.J. BRAKEL
Age 61
Mr. Brakel has served as the Chairman of the Executive Board of Wolters
Kluwer nv since 1995 and has been a member of such board since 1981.
PETER W. VAN WEL
Age 51
Mr. van Wel has served as the President and Chief Executive Officer of
Parent since 1996 and from 1990 to 1993. He has served as the Chairman of the
Board of Parent since 1994. Mr. van Wel has been a member of the Executive Board
of Wolters Kluwer nv since 1993.
MARY MARTIN ROGERS
Age 52
Ms. Rogers has served as the Chief Executive Officer of Lipincott-Raven
Publishers, Inc. since 1995. Prior to 1995, Ms. Rogers served as the Chief
Executive Officer of Raven Press, Ltd.
Parent has informed the Company that each of the individuals listed above
has consented to act as a director, if so designated. If necessary, Parent may
choose additional or other Parent Designees, subject to the requirements of Rule
14f-1.
Based solely on the information set forth in the Offer to Purchase, none of
the Parent Designees (i) is currently a director of, or holds any position with,
the Company, (ii) has a familial relationship with any director or executive
officer of the Company, or (iii) to the best knowledge of Parent, beneficially
owns any securities (or any rights to acquire such securities) of the Company.
The Company has been advised by Parent that, to the best of Parent's knowledge,
none of the Parent Designees has been involved in any transactions with the
Company or any of its directors, officers, or affiliates which are required to
be disclosed pursuant to the rules and regulations of the Securities and
Exchange Commission (the "SEC"), except as may be disclosed herein or in the
Schedule 14D-9.
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CURRENT DIRECTORS OF THE COMPANY
The Company Board currently consists of 14 directors. The following sets
forth certain information with respect to the current directors of the Company
as of May 1, 1998.
BARBARA J. BONNELL
Director since 1974
Age 67
Ms. Bonnell has served as Director of Research and Information of the
Baltimore Development Corporation of Baltimore, Maryland, a private non-profit
corporation, for the past five years.
DAVID J. CALLARD
Director since 1974
Age 59
For the past five years, Mr. Callard has served as the President of Wand
Partners, Inc., a private investment firm in New York, New York. Mr. Callard
serves as a director of Chartwell RE Corporation.
DONALD W. DICK, JR.
Director since 1980
Age 55
Mr. Dick has been a principal of EuroCapital Advisors, LLC, a private
investment firm in Weehawken, New Jersey since July, 1995. Prior to July 1995,
Mr. Dick was a partner, Overseas Partners, Inc., a private investment firm in
Jersey City, New Jersey. Mr. Dick is a director of the T. Rowe Price Growth
Stock Fund, Inc., the T. Rowe Price New America Growth Fund, the T. Rowe Price
Growth & Income Fund, Inc., the T. Rowe Price Capital Appreciation Fund, the T.
Rowe Price Balanced Fund, Inc., the T. Rowe Price Mid-Cap Growth Fund, Inc., the
T. Rowe Price Dividend Growth Fund, Inc., the T. Rowe Price Blue Chip Growth
Fund, Inc., the T. Rowe Price New Horizons Fund, Inc., the T. Rowe Price New Era
Fund, Inc., the T. Rowe Price Equity Income Fund, the T. Rowe Price Science and
Technology Fund, Inc., the T. Rowe Price Small-Cap Value Fund, Inc., the T. Rowe
Price Index Trust, Inc., the T. Rowe Price Equity Series, Inc., the T. Rowe
Price Personal Strategy Funds, Inc., the T. Rowe Price Value Fund, Inc., the T.
Rowe Price Capital Opportunity Fund, Inc., the T. Rowe Price Health Sciences
Fund, Inc., the T. Rowe Price International Series, Inc., the T. Rowe Price
International Funds, Inc., the T. Rowe Price Mid-Cap Value Fund, Inc., the T.
Rowe Price Financial Services Fund, Inc., the T. Rowe Price Diversified
Small-Cap Growth Fund, Inc., the T. Rowe Price Media & Telecommunications Fund,
Inc., the T. Rowe Price Real Estate Fund, Inc., the T. Rowe Price Small-Cap
Stock Fund, Inc., the T. Rowe Price Tax-Efficient Balanced Fund, Inc., the
Institutional Equity Funds, Inc. and Institutional International Funds, Inc.
EDWARD B. HUTTON, JR.
Director since 1988
Age 52
Mr. Hutton has been the President and Chief Executive Officer of the Company
for the past five years.
MICHAEL E. JOHNS
Director since 1993
Age 56
Prior to June, 1996, Dr. Johns was Dean of the Medical Faculty and Vice
President for Medicine at The Johns Hopkins University in Baltimore, Maryland.
Since June, 1996, Dr. Johns has served as Executive Vice President for Health
Affairs and as a director of the Robert W. Woodruff Health Sciences Center,
Emory University, Atlanta, Georgia.
3
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SAMUEL G. MACFARLANE
Director since 1966
Age 66
Prior to December 31, 1991, Mr. Macfarlane was Vice President, Chief
Financial Officer and Treasurer of the Company. Mr. Macfarlane is currently
employed as a consultant to the Company.
CAROLYN MANUSZAK
Director since 1987
Age 59
Ms. Manuszak has served as the President of Villa Julie College in
Stevenson, Maryland for the last five years.
ACKNEIL M. MULDROW, II
Director since 1992
Age 60
Mr. Muldrow has been the President and Chief Executive Officer of
Development Credit Fund, Inc. of Baltimore, Maryland, a non-profit organization,
for the last five years.
E. MAGRUDER PASSANO, JR.
Director since 1972
Age 55
Mr. Passano has served as the Vice Chairman of the Company Board and the
Secretary of the Company for the last five years.
WILLIAM M. PASSANO, JR.
Director since 1965
Age 69
Mr. Passano has served as the Chairman of the Company Board for the past
five years. Mr. Passano is a director of First Maryland Bancorp and of the First
National Bank of Maryland.
JOSEPH M. PALAZZOLO
Director since 1996
Age 48
From 1992 to 1993, Mr. Palazzolo was the Chairman of Frost and Sullivan,
Inc. Since 1993, Mr. Palazzolo has served as the Chairman of Gateway
Investments, Inc. of Muttontown, New York.
RICHARD C. RIGGS, JR.
Director since 1995
Age 58
Mr. Riggs has served as the President and Chief Executive Officer of
Barton-Cotton, Inc. of Baltimore, Maryland for the last five years.
JOHN F. SPAHR, JR.
Director since 1991
Age 47
From 1991 to 1993, Mr. Spahr was the Chief Executive Officer of Lea &
Febiger, a division of the Company. Since 1993, Mr. Spahr has served as Managing
Director of Teton Data Systems, Jackson, Wyoming.
Pursuant to the terms of an Agreement and Plan of Merger between the Company
and Lea & Febiger, L.P., the Company agreed to use its best efforts to cause the
election of Mr. Spahr to the Company Board (or if he is unable to serve, another
designated member of the Spahr family). If the Passano Voting Trust (see notes
to "Beneficial Owners of 5% or More of Outstanding Shares") fails to vote all
its Shares for the election of Mr. Spahr (or the designated substitute) as
director and Mr. Spahr (or such substitute)
4
<PAGE>
is thus not elected, each of the Spahr Voting Trusts (see notes to "Beneficial
Owners of 5% or More of Outstanding Shares") will automatically expire.
MICHAEL URBAN
Director since 1990
Age 58
For the past five years, Dr. Urban has served as the President and Chief
Executive Officer of Urban & Schwarzenberg Verlag fur Medizin GmbH ("Urban &
Schwarzenberg"), a subsidiary of the Company.
FAMILY RELATIONSHIPS
Mr. William M. Passano, Jr., the Chairman of the Company Board and Mr. E.
Magruder Passano, Jr., Vice Chairman of the Company Board and Secretary of the
Company, are first cousins. In addition, Mr. Samuel G. Macfarlane, a director of
the Company, is the brother-in-law of Mr. William M. Passano, Jr.
MEETINGS; DIRECTOR COMPENSATION AND BENEFITS
The Company Board conducted six meetings in 1997. During 1997, all of the
directors, with the exception of Dr. Michael Johns, attended in person or by
telephone, at least 75% of the total number of meetings of the Company Board and
of the committees on which they served during 1997.
An annual director's fee of $15,000 is paid to directors, other than Messrs.
Callard and Spahr, who are not employees of the Company, plus $500 for each
committee meeting they attend. Committee chairs also receive an annual fee of
$1,000 for such service. Pursuant to the terms of the Director Stock Plan,
one-half of the director's fee is payable in Common Stock. The stock awards are
made on the dates of the Company Board's regular February and July meetings and
consist of the number of Shares equal to one-half of the director's fee paid on
that date divided by the market value of the Common Stock on the business day
immediately preceding the grant. Pursuant to the Director Stock Plan, awards of
169 Shares and 156 Shares were made to each director (other than Messrs. Callard
and Spahr) in February 1997 and July 1997, respectively. For information
regarding Mr. Callard's and Mr. Spahr's waivers of director compensation, see
"Certain Relationships and Related Transactions."
COMMITTEES OF THE COMPANY BOARD
AUDIT COMMITTEE. The Company's Audit Committee in fiscal 1997 consisted of
Ms. Bonnell and Messrs. Macfarlane and Riggs (Chair). During fiscal 1997 the
Committee met on three occasions to review with the Company's independent
accountants the annual financial statements prior to their public release, to
receive and review with them their annual letter on internal controls and
interim reports on quarterly reviews and to review with them their scope and
fees for the 1997 audit.
EXECUTIVE COMMITTEE. The Board of Directors has an Executive Committee in
fiscal 1997 consisting of Messrs. Callard (Chair), Hutton, Macfarlane,
Palazzolo, E. Magruder Passano, Jr., William M. Passano, Jr., Riggs, Spahr, Drs.
Johns and Urban and Ms. Manuszak. The Executive Committee met three times in
1997 to approve an annual budget and strategic plans, review operations and
financial results during the year and evaluate and vote on significant financial
matters presented by management.
NOMINATING COMMITTEE. The Nominating Committee consisted in fiscal 1997 of
Messrs. E. Magruder Passano, Jr. and William M. Passano, Jr.
MANAGEMENT COMMITTEE. The Management Committee, consisting in fiscal 1997
of Ms. Manuszak (Chair), Dr. Johns and Messrs. Muldrow and Palazzolo, met in
February prior to the regular February Company Board meeting to formulate
recommendations to the Company Board for all executive compensation for the
ensuing year, including the awards of stock options and to determine bonus
awards for the preceding year's performance.
5
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EXECUTIVE OFFICERS
Set forth in the table below are the names, ages and current offices held by
all executive officers of the Company:
<TABLE>
<CAPTION>
POSITION AND BUSINESS EXPERIENCE
NAME AGE DURING PAST FIVE YEARS OR MORE
- --------------------------------------------- --- ------------------------------------------------------------
<S> <C> <C>
William M. Passano, Jr....................... 69 Chairman of the Company Board since 1988. Chief Executive
Officer from 1971 to 1991. Director since 1965. Employed by
the Company since 1955.
E. Magruder Passano, Jr...................... 55 Vice Chairman and Secretary since April, 1990. Vice
President, Administration and Corporate Secretary from 1971
to 1990. Director since 1972. Employed by the Company since
1965.
Edward B. Hutton, Jr......................... 52 President and Director since May, 1988. Chief Executive
Officer since 1991. From 1983 to 1988 was President of
Professional Information Group of Simon & Schuster, Inc.
Michael Urban................................ 58 President of Urban & Schwarzenberg and Director since 1990.
Employed by the Company since the April, 1990 acquisition of
Urban & Schwarzenberg. President and Chief Executive Officer
of Urban & Schwarzenberg since 1990.
Arthur E. Newman............................. 49 Executive Vice President since 1990. From 1986 through
October, 1989 held various executive positions at Simon &
Schuster, Inc., ending as Chief Operating Officer of
Prentice Hall Information Services. This division was sold
to Maxwell MacMillan in October, 1989 where he continued in
the same capacity until March, 1990.
Frederick Fusting............................ 47 President, Professional Learning Systems Division since
January, 1996. Vice President, PLS Division from 1988 to
1995. Employed by the Company since 1980.
Richard J. Perry............................. 52 President, Waverly International since January, 1998.
President, W & W Marketing Division, 1993 to 1997. Executive
Vice President of Lea & Febiger from 1991 to 1992. From 1989
to 1990 was Vice President and General Manager of Times
Mirror, Canada.
Alma J. Wills................................ 50 President, Periodical Publishing since 1986. Vice President,
Journal Development from 1984 to 1986. Employed by the
Company since 1976.
Stephan Joss................................. 41 Chief Operating Officer of Urban & Schwarzenberg since 1997.
Executive Vice President since 1992.
E. Philip Hanlon............................. 49 Chief Financial Officer since 1992. Vice President, Finance,
since March, 1989. Vice President, Marketing-Book Division
from 1987 to 1989. Controller from 1985 to 1987.
Jonas A. Ryckis.............................. 34 Treasurer since February, 1997. Assistant Treasurer from
1995 to 1997. Employed by the Company since 1989.
</TABLE>
6
<PAGE>
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth for the fiscal years
ended December 31, 1997, 1996 and 1995 information as to the total compensation
received by each of the Chief Executive Officer and the four highest paid
executive officers who received total compensation in excess of $100,000 in all
capacities.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION ALL
ANNUAL COMPENSATION (1) AWARDS OTHER
------------------------ OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($)(2) BONUS($)(3) (#) ($)(4)
- ------------------------------------------------ --------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Edward B. Hutton, Jr. .......................... 1997 375,000 38,800 20,000 28,813
President and CEO 1996 350,000 61,250 17,000 10,693
1995 335,000 80,200 15,000 12,952
William M. Passano, Jr. ........................ 1997 340,000 35,200 -- 6,734
Chairman of the Board 1996 325,000 56,875 -- 9,260
1995 300,000 71,800 -- 8,610
Michael Urban................................... 1997 270,900 -- -- --
President and CEO, 1996 302,000 67,000 -- --
Urban & Schwarzenberg(5) 1995 313,000 52,500 -- 540
Arthur E. Newman................................ 1997 215,000 22,200 10,000 2,993
Executive Vice President 1996 205,000 35,875 9,000 2,960
1995 194,000 46,500 9,000 2,811
Alma J. Wills................................... 1997 150,000 29,500 7,000 2,783
President, Periodical Publishing 1996 135,000 45,900 6,000 1,836
1995 130,000 20,300 6,000 2,018
</TABLE>
- ------------------------
(1) Does not include perquisites and other personal benefits where the aggregate
value of such compensation to the executive officer is less than 10% of
annual salary and bonus.
(2) Includes salary deferrals under the Company's Incentive Savings Plan (the
"WISP").
(3) Comprises bonuses under the WIN Plan, which were accrued during the fiscal
year indicated but were paid in the following fiscal year.
(4) Includes life insurance premiums paid by the Company and Company matching
contributions under the WISP. Under the WISP, the Company makes matching
contributions of 25% of each participant's contribution subject to a maximum
of 1.5% of an employee's compensation up to $9,240. The amounts for 1997 are
as follows:
<TABLE>
<CAPTION>
WISP INSURANCE
--------- -----------
<S> <C> <C>
Hutton................................................................... $ 2,375 $ 6,743
Passano, W............................................................... $ 2,375 $ 634
Urban.................................................................... -- --
Newman................................................................... $ 2,375 $ 618
Wills.................................................................... $ 2,375 $ 408
</TABLE>
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
7
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(FOOTNOTES CONTINUED FROM PRECEDING PAGE)
(5) Dr. Urban's compensation has been converted into dollars based upon the
currency exchange rate of .5562 DM per dollar as of December 31, 1997, .6494
DM per dollar in effect on December 31, 1996, and .6961 DM per dollar in
effect December 29, 1995.
Shown in the table below is information on stock options granted to the
President and Chief Executive Officer and to the four other named executive
officers shown in the Summary Compensation Table who received options to
purchase Shares for fiscal year 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF
NUMBER OPTIONS STOCK PRICE
OF SHARES GRANTED TO EXERCISE APPRECIATION FOR
UNDERLYING EMPLOYEES PRICE OPTION TERM ($)(2)
OPTIONS IN FISCAL PER EXPIRATION --------------------
NAME GRANTED(1) YEAR 1997 SHARE ($) DATE 5% 10%
- -------------------------------------- ----------- ----------- ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Hutton................................ 20,000 17.35% 21.500 02/14/07 270,425 685,309
Passano, W............................ 0 N/A N/A N/A N/A N/A
Urban................................. 0 N/A N/A N/A N/A N/A
Newman................................ 10,000 8.67% 21.500 02/14/07 135,212 342,655
Wills................................. 7,000 6.07% 21.500 02/14/07 94,649 239,858
</TABLE>
- ------------------------
(1) All options were granted with an exercise price equal to the fair market
value of the Common Stock underlying the option on the date of the grant.
The options are exercisable to the extent of 25% of the Shares one year from
the grant date, an additional 25% two years from the grant date, an
additional 25% three years from the grant date, and in full four years from
the grant date, subject to such limitations as are imposed by Section 162(m)
of the Internal Revenue Code on qualified options, unless accelerated upon a
change of control, retirement, death or disability. These options have a
term of ten years, unless terminated sooner in connection with death,
disability, retirement or termination.
(2) Amounts are based on the 5% and 10% annual compounded rates of appreciation
of the Common Stock price, prescribed by the SEC, and are not intended to
forecast future appreciation of the Company's Common Stock. The prices of
the Common Stock, assuming such annual compounded rates of appreciation,
would be $35.02 and $55.77, respectively.
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Shown in the following table, with respect to the President and Chief
Executive Officer and the four other named executive officers shown in the
Summary Compensation Table, are exercised and unexercised options to purchase
Shares granted in fiscal year 1997 and prior years pursuant to the Company's
stock option plans:
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1997
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE- MONEY OPTIONS
ACQUIRED ON OPTIONS AT FY-END(2) AT FY-END($)(1)
EXERCISE VALUE -------------------------- ---------------------------
NAME (#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------- ------------- ----------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Hutton................................. 0 0 217,970 64,030 8,103,368 1,895,258
Passano, W............................. 4,400 34,650 111,000 0 4,172,250 0
Urban.................................. 0 0 2,500 0 94,375 0
Newman................................. 0 0 56,750 21,250 2,071,469 322,031
Wills.................................. 0 0 45,600 14,500 1,678,350 393,188
</TABLE>
- ------------------------
(1) Value of Unexercised In-The-Money Options at the end of fiscal year 1997 is
based upon the difference between the closing price of $47.00 of the Shares
on December 31, 1997 (the last day of trading in 1997), and the exercise
price of each option.
(2) The Merger Agreement provides that Parent and the Company shall take all
actions necessary to provide that immediately prior to the Effective Time,
(i) the Company shall pay to the holder of each outstanding stock option (an
"Option"), whether or not then exercisable or vested, an amount in respect
thereof equal to the product of (A) the excess, if any, of the Offer Price
over the per Share exercise price of such Option and (B) the number of
Shares subject to such Option and (ii) each Option shall be cancelled.
DEFINED BENEFIT PENSION PLAN
The Company has a trusteed, noncontributory, defined benefit pension plan
(the "Pension Plan") in which all U.S. employees are eligible to participate.
The Pension Plan provides for an annual retirement benefit payable monthly based
on the sum of (i) amounts accrued to date under various career average pay
formulae and (ii) amounts accruing beginning for 1989 based on the following
formula: 1.5% of participant's compensation plus .65% of earnings in excess of
the Social Security Covered Compensation (the average of Social Security Taxable
Wage Basis for a specified 35-year period) for each year of credited service.
Earnings for purposes of the Pension Plan include base salary and commissions
but not overtime or bonuses. Benefits are payable upon retirement, death or
disability or upon termination of employment after five years of service.
Benefits are not subject to reduction for Social Security benefits. At their
normal retirement age of 65, estimated annual retirement payments (based on
compensation for 1997 and subject to the limitations imposed by Internal Revenue
Service regulations) would be as follows: Mr. Hutton $73,000; Mr. Newman
$70,000; and Ms. Wills $68,000. Mr. William M. Passano, Jr.'s annual retirement
payments, assuming retirement at age 70, would be $103,000.
The Company's subsidiary, Urban & Schwarzenberg, has agreed to provide
supplementary retirement benefits to two current and thirteen former employees,
including Dr. Urban. Monthly benefits are payable upon retirement based upon 50%
of the retiree's highest achieved salary level. Upon the retiree's death, his or
her spouse and/or other specified beneficiaries are generally entitled to
receive a benefit payment. At his normal retirement age of 65, the estimated
annual retirement payment to Dr. Urban under this plan (based on compensation
for 1997) would be 250,000 DM (approximately $139,000).
9
<PAGE>
SEVERANCE POLICY
The named executive officers (other than Mr. Passano) are entitled to
receive severance compensation pursuant to the Company's Severance Program.
Pursuant to the Severance Program, Messrs. Hutton and Newman are entitled to
receive 24 months, and Dr. Urban and Ms. Wills are entitled to 15 months,
severance pay (including base salary and prorated bonus) in the event their
employment is terminated by the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MR. CALLARD. The Company and Mr. David J. Callard, a director of the
Company, have an agreement (the "Retainer Agreement"), dated December 30, 1996,
pursuant to which Mr. Callard provides financial advisory services in the area
of acquisition and development. Under the Retainer Agreement, Mr. Callard in
fiscal 1995 was granted an option to purchase 5,000 Shares at an exercise price
of $14.25 per Share, which was the fair market value on the day of the grant.
The option becomes exercisable in 25% increments on the anniversary date of the
day of the grant. Beginning in April 1996, the Company agreed to pay Mr. Callard
an annual retainer of $50,000. Pursuant to the Retainer Agreement, Mr. Callard
has waived his right to director's fees and future participation in the
Company's Director Stock Plan. On December 12, 1997, the Company renewed the
Retainer Agreement for 1998 (the "Renewal"). Under the terms of the Renewal,
payments made under the Retainer Agreement shall be deducted from the $400,000
contingent fee payable under the terms of the Callard Engagement Letter (as
defined below). The Company and Mr. Callard have agreed that the Retainer
Agreement will be terminated and cancelled at the Effective Time.
Pursuant to a letter agreement dated November 4, 1997 (the "Callard
Engagement Letter"), between the Company and Mr. Callard, Mr. Callard agreed to
advise and assist the Company in connection with the potential sale of the
Company. Under the terms of the Callard Engagement Letter, the Company has
agreed to pay Mr. Callard a contingent fee of $400,000 if (a) control of more
than 55% of the Company's Common Stock changes hands or (b) the Company sells a
substantial amount of its assets. The Company has further agreed to indemnify
Mr. Callard for certain costs, expenses and liabilities related to his services
in connection with the Callard Engagement Letter.
MR. SPAHR. The Company has entered into an agreement with Mr. John F.
Spahr, Jr., which replaces his prior employment agreement, pursuant to which Mr.
Spahr will provide consulting services to the Company. Under this agreement, Mr.
Spahr received $110,000 for 1995 and is entitled to receive $50,000 for each of
the years 1996 through 2000. In connection with the agreement, Mr. Spahr has
waived his right to director's fees and future participation in the Company's
Director Stock Plan.
DR. URBAN. The Company's subsidiary, Urban & Schwarzenberg, is indebted to
Gisela Urban, Dr. Urban's mother, for 150,000 DM (approximately $84,000) bearing
interest at 5.0% per annum payable on demand on one year's notice. Loan amounts
have been converted into dollars based upon the currency exchange rate of .5562
DM per dollar in effect on December 31, 1997.
MR. WILLIAM M. PASSANO, JR. On January 30, 1998, William M. Passano, Jr.
exercised options to purchase 26,000 Shares granted under the Company's
Incentive Plan at an exercise price of $7.875 per Share and the Company loaned
him the amount of the exercise price for the 26,000 Shares, $204,750.00 (the
"Loan"). The Company is holding the Shares as collateral and William M. Passano,
Jr. will pay interest on the Loan at an annual rate equal to the actual bank
borrowing rate charged to the Company during the period the Loan is outstanding.
The Loan and accrued interest are due no later than the time that the Shares are
sold, and the Loan is callable by the Company at such time as William M.
Passano, Jr. is freely able to dispose of the Shares.
10
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND DIRECTORS AND OFFICERS
BENEFICIAL OWNERS OF 5% OR MORE OF OUTSTANDING SHARES
The following individuals and entities (other than the officers and
directors whose ownership is disclosed below) beneficially own 5% or more of the
outstanding Shares:
<TABLE>
<CAPTION>
COMMON STOCK BENEFICIALLY
OWNED
---------------------------
<S> <C> <C>
PERCENT OF
NUMBER OF TOTAL
OWNER NAME AND ADDRESS SHARES(1) OUTSTANDING
- ---------------------------------------------------------------------------------------- ---------- ---------------
Life Estate under the Will of Edward B. Passano(2)(3)................................... 3,227,822 35.7%
Michael Urban(3)(4)..................................................................... 802,500 8.9%
John F. Spahr, Jr., Robert N. Spahr,
Christian C.F. Spahr, Jr. Revocable Trust,
K. Spahr Vanderbilt, N. Spahr Bush,
M. Spahr Clement, V. Spahr Heth(5).................................................... 495,000 5.5%
All members of the Passano family
and their associates, including the above(6).......................................... 5,249,149 57.3%
GeoCapital Corporation(7)
767 Fifth Avenue
New York, NY 10153.................................................................... 706,600 7.8%
Theodore L. Cross and certain persons(8)
200 West 57th Street
15th Floor
New York, NY 10019.................................................................... 499,912 5.5%
</TABLE>
- ------------------------
(1) Includes Shares issuable to the designated individuals under options
exercisable within 60 days of May 1, 1998.
(2) This is a Life Estate under the Will of Edward B. Passano (the "Life
Estate") presently held for the benefit of his son, Edward M. Passano, Sr.
The Shares subject to the Life Estate are voted by Edward M. Passano, Sr.,
William M. Passano, Jr. and Susan P. Macfarlane, all of 351 West Camden
Street, Baltimore, Maryland, 21201, as voting trustees (the "Trustees")
under a voting trust agreement (the "Passano Voting Trust") dated July 31,
1989. The Passano Voting Trust will expire on the earlier of (i) the
execution of a subsequent voting trust agreement by the Trustees; (ii) the
lapse of ten years from July 31, 1989; or (iii) the death of Edward M.
Passano, Sr. Edward M. Passano, Sr. is entitled to a 50% vote with respect
to the Shares subject to the Passano Voting Trust and the other two Trustees
are entitled to the remaining 50% vote, so that, unless the Trustees are in
agreement, it is possible that the Shares subject to the Passano Voting
Trust could not be voted at all. William M. Passano, Jr., Susan P.
Macfarlane, and E. Magruder Passano, Jr., the three grandchildren of the
original testator, have agreed that upon the death of Edward M. Passano,
Sr., they will enter into a ten-year voting trust agreement pursuant to
which the Shares they will receive from the termination of the Life Estate
will be voted as a unit for such period. The voting trustees of such voting
trust will be the three grandchildren of the original testator or their
respective spouses.
(3) The address of such person is 351 West Camden Street, Baltimore, Maryland
21201.
(4) Includes 800,000 Shares held by a corporation and which Dr. Urban may be
deemed to own beneficially, which are subject to a voting trust agreement
(the "Urban Voting Trust") of which William M. Passano, Jr. and Dr. Urban
are co-trustees. The address of the trustees is 351 West
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
11
<PAGE>
(FOOTNOTES CONTINUED FROM PRECEDING PAGE)
Camden Street, Baltimore, Maryland 21201. The duration of the Urban Voting
Trust shall be coterminous with that of the Passano Voting Trust described
in note (3) above. The Shares subject to the Urban Voting Trust must be
voted in the same way as the Shares subject to the Passano Voting Trust
described in note (3) above unless such Shares are deadlocked and cannot be
voted at all, in which case Dr. Urban will have the sole right to vote the
800,000 Shares.
(5) The address of such persons is 351 West Camden Street, Baltimore, Maryland
21201. The 495,000 Shares are held collectively subject to a ten-year escrow
agreement and subject to four voting trust agreements (the "Spahr Voting
Trusts"), which expire on January 9, 2001. Robert N. Spahr has dispositive
power with respect to 155,000 Shares; John F. Spahr, Jr. has dispositive
power with respect to 155,000 Shares; John F. Spahr, Jr. and Regina O.
Thomas, Trustees under the Will of John F. Spahr, Sr. for Dorothy Spahr have
dispositive power with respect to 85,000 Shares and Ann Spahr Tyler and Jay
C. Rippard, Trustees, have dispositive power with respect to 100,000 Shares
owned by the Christian C. Febiger Spahr, Jr. Revocable Trust. The Shares in
each of the Spahr Voting Trusts must be voted in the same way as the Shares
subject to the Passano Voting Trust described in note (3) above, unless such
Shares are deadlocked and cannot be voted at all. In the event of a
deadlock, Messrs. Robert N. Spahr and John F. Spahr, Jr. will have the sole
right to vote their respective 155,000 Shares and William M. Passano, Jr.
will have the sole right to vote the 100,000 Shares owned by the Christian
C. Febiger Spahr, Jr. Revocable Trust and the 85,000 Shares owned by the
Trustees under the Will of John F. Spahr, Sr. for Dorothy Spahr. The 495,000
Shares subject to the Spahr Voting Trusts are subject to an escrow agreement
until January 10, 2001, to secure indemnification obligations in the
agreement relating to the acquisition of Lea & Febiger. Under the terms of
the escrow agreement, each of the Messrs. Spahr and the Christian C. Febiger
Spahr, Jr. Revocable Trust may obtain the release of up to 70,000 Shares
(adjusted for a 2-for-1 stock split on June 12, 1996) in the event of death,
disability or divorce.
(6) Includes 116,500 Shares issuable under options exercisable within 60 days of
May 1, 1998.
(7) GeoCapital Corporation ("GeoCapital") is an investment company. Information
obtained from GeoCapital contained in a Schedule 13G filed with the SEC on
February 23, 1998, states that GeoCapital has sole dispositive power with
respect to 706,600 Shares.
(8) Theodore Cross's principal occupation is editor and publisher of various
academic journals. Information contained in a Schedule 13D filed with the
SEC on or about December 19, 1994, states that Mr. Cross has sole voting and
dispositive power with respect to 357,574 Shares owned by Mr. Cross and is
deemed to have sole voting and dispositive power with respect to 6,500
Shares owned by Management Reports, Inc. by virtue of his ownership of 60%
of the issued and outstanding stock of Management Reports, Inc. James A.
Hellmuth, as sole trustee of the Louisville Charitable Remainder Unit Trust
(the "Louisville Trust"), has sole voting and dispositive power over 5,000
Shares held by the Louisville Trust. Mary Cross, Amanda B. Cross, Lisa W.
Pownall-Gray, Ann Fairchild Warner, Polly Mackwell and Stuart G. Warner each
has sole voting and dispositive power of their respective Shares.
STOCK OWNERSHIP OF DIRECTORS AND CERTAIN EXECUTIVE OFFICERS
As of May 1, 1998, the directors and officers of the Company, as a group,
beneficially owned 5,744,416 Shares (of which 571,863 Shares are represented by
options which are exercisable within 60 days by members of the group),
constituting approximately 59.8% of the total outstanding Shares of the Company.
Set forth in the following table is information concerning the beneficial
ownership of Shares by certain of its directors and executive officers on May 1,
1998. Except as set forth above, under "Beneficial Owners of 5% or More of
Outstanding Shares," the Company knows of no person (excluding officers and
directors of the Company) who may be deemed to own beneficially more than 5% of
the outstanding Shares of the Company.
12
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
<TABLE>
<CAPTION>
SHARES PERCENT
BENEFICIALLY OF TOTAL
NAME OWNED(1)(2)(3) OUTSTANDING
- ------------------------------------------------------------------------------------ -------------- -------------
<S> <C> <C>
William M. Passano, Jr.,
Chairman, Director................................................................ 283,990(3) 3.1%
E. Magruder Passano, Jr.,
Vice Chairman, Director........................................................... 253,765 2.8%
Edward B. Hutton, Jr.,
President and CEO, Director....................................................... 232,777 2.5%
Arthur E. Newman,
Executive Vice President.......................................................... 62,493 *
Michael Urban,
President and CEO, Urban & Schwarzenberg, Director................................ 802,500(4) 8.9%
Alma J. Wills,
President, Periodical Publishing.................................................. 52,540 *
Barbara J. Bonnell,
Director.......................................................................... 6,454 *
David J. Callard,
Director.......................................................................... 71,448 *
Donald W. Dick, Jr.,
Director.......................................................................... 4,978 *
Michael E. Johns,
Director.......................................................................... 1,588 *
Samuel G. Macfarlane,
Director.......................................................................... 9,120 *
Carolyn Manuszak,
Director.......................................................................... 1,827 *
Ackneil M. Muldrow, II,
Director.......................................................................... 1,883 *
Joseph M. Palazzolo,
Director.......................................................................... 118,584 1.3%
Richard C. Riggs, Jr.,
Director.......................................................................... 1,050 *
John F. Spahr, Jr.,
Director.......................................................................... 155,000 1.7%
All executive officers, directors and nominees for director as a group (27 persons),
including the Life Estate under the Will of Edward B. Passano (3,227,822 Shares)
and all Shares held in the Spahr Voting Trusts (495,000 Shares) and the Urban
Voting Trust (800,000 Shares)..................................................... 5,744,416 59.8%
</TABLE>
- ------------------------
* Less than 1% of the Shares outstanding
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
13
<PAGE>
(FOOTNOTES CONTINUED FROM PRECEDING PAGE)
(1) Includes Shares owned by trusts, spouses and minor children of the indicated
persons.
(2) Includes the following numbers of Shares subject to options exercisable
within 60 days after May 1, 1998: William M. Passano, Jr., 85,000 Shares; E.
Magruder Passano, Jr., 29,000 Shares; Edward B. Hutton, Jr., 230,110 Shares;
Arthur E. Newman, 61,478 Shares; Alma J. Wills, 45,250 Shares; David J.
Callard, 12,500 Shares; and all executive officers, directors and nominees
for director as a group (27 persons), 571,863 Shares.
(3) Excludes 3,227,822 Shares held in the Life Estate, the 800,000 Shares held
in the Urban Voting Trust and the 495,000 Shares held in the Spahr Voting
Trust with respect to which William M. Passano, Jr. may be deemed to have
shared voting power by virtue of his status as a trustee of the various
voting trusts. For a description of the voting trust arrangements relating
to these Shares, see the description under "Beneficial Owners of 5% or More
of Outstanding Shares."
(4) For a description of the voting trust arrangements relating to these Shares,
see the description under "Beneficial Owners of 5% or More of Outstanding
Shares."
CHANGES IN CONTROL
In connection with the Merger Agreement, certain stockholders of the
Company, including certain directors and officers of the Company (collectively,
the "Stockholders"), have entered into a Stock Option and Tender Agreement (the
"Stock Option Agreement") with Parent and Newco dated as of February 10, 1998.
Pursuant to the Stock Option Agreement, the Stockholders have agreed to tender
their Shares in the Offer and have granted Parent and Newco an option (a "Stock
Option") to purchase 5,338,680 Shares (representing approximately 53.3% of the
Shares outstanding) owned by the Stockholders at a purchase price equal to the
Offer Price (or any higher price paid per Share pursuant to the Offer). The
Stock Option becomes exercisable in the event that the Offer is terminated by
Parent under certain circumstances set forth in the Stock Option Agreement or
the Offer expires without the purchase of Shares thereunder under certain
circumstances set forth in the Stock Option Agreement. Pursuant to the Stock
Option Agreement, the Stockholders have agreed to vote all their Shares (i) in
favor of the Merger, the Merger Agreement and the transactions contemplated
thereby, (ii) against any action or agreement that would result in a material
breach of a covenant, representation or warranty or other obligation of the
Company under the Merger Agreement, and (iii) against any action or agreement
that would materially impede, interfere with or attempt to discourage the Offer
or the Merger. In the event that certain of the Stockholders do not vote as
described above, such Stockholders shall be deemed to have granted Parent a
proxy to vote his, her or its Shares.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent of the issued and
outstanding Shares, to file with the SEC and the National Association of
Securities Dealers initial reports of ownership and reports of changes in
beneficial ownership of Common Stock and other equity securities of the Company.
Officers, directors and greater than ten percent shareholders are required by
SEC regulations to furnish the Company with copies of all Section 16(a) forms
they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, all Section 16(a) filing requirements applicable to the
officers, directors and greater than ten percent beneficial owners were complied
with during 1997.
May 1, 1998
14
