[MASTER GRAPHICS LOGO HERE]
April 20, 1999
TO THE SHAREHOLDERS OF
MASTER GRAPHICS, INC.
In connection with our annual shareholders' meeting, to be held on May 19,
1999, we are sending you a Notice of Annual Meeting of Shareholders, a Proxy
Statement, and a form of Proxy.
At the meeting, you will be asked to:
* elect two Class I directors to serve until the 2002 Annual Meeting of
Shareholders;
* approve the adoption of our Employee Stock Purchase Plan;
* approve an increase in the number of shares that can be issued under
our 1998 Equity Compensation Plan; and
* ratify the appointment of KPMG LLP as our independent auditors for
1999.
Information about these matters is contained in the attached Proxy Statement.
Detailed information relating to Master Graphics' activities and operating
performance during 1998 is contained in our Annual Report to Shareholders, which
is being mailed to you with this Proxy Statement, but is not a part of the proxy
soliciting material. If you do not receive or have access to the 1998 Annual
Report, please notify Lance T. Fair, Secretary, Master Graphics, Inc., 6075
Poplar Avenue, Suite 401, Memphis, Tennessee 38119.
You are cordially invited to attend the Annual Meeting of Shareholders in
person. We would appreciate your completing the enclosed form of proxy so that
your shares can be voted in the event you are unable to attend the meeting. If
you are present at the meeting and want to vote your shares personally, your
form of proxy will be withheld from voting upon your request prior to balloting.
We urge you to return your proxy card to us in the stamped envelope as soon as
possible.
Very truly yours,
/s/ JOHN P. MILLER
John P. Miller
Chairman of the Board and
Chief Executive Officer
<PAGE>
Master Graphics, Inc.
6075 Poplar Avenue, Suite 401
Memphis, Tennessee 38119
Notice of Annual Meeting of Shareholders
to be held May 19, 1999
The annual meeting of shareholders of Master Graphics, Inc. will be held on
Wednesday, May 19, 1999, at 9:00 A.M., local time, at The Crescent Club, 6075
Poplar Avenue, Suite 900, Memphis, Tennessee 38119, for the following purposes:
1. Election of Directors. To elect two Class I directors to serve until
the 2002 Annual Meeting of Shareholders;
2. Adoption of Employee Stock Purchase Plan. To approve our Employee
Stock Purchase Plan;
3. Amendment to the 1998 Equity Compensation Plan. To approve an
amendment of our 1998 Equity Compensation Plan which increases from
750,000 to 1,500,000 the number of shares that can be issued under the
plan;
4. Ratification of Auditors. To ratify the selection of KPMG LLP as the
Company's independent auditors for 1999; and
5. Other Business. To transact such other business as may properly come
before the meeting or any adjournment thereof.
Only those shareholders of record at the close of business on April 2, 1999
are entitled to notice of, and to vote at, the annual meeting and any
adjournment thereof. On that day, approximately 7,923,026 shares of common stock
were outstanding. Each share entitles the holder to one vote.
We have enclosed with this proxy statement a copy of our annual report to
shareholders.
By Order of the Board of Directors
/s/ LANCE T. FAIR
Lance T. Fair
Secretary
Your vote is important.
Please mark, sign, and date your proxy card and return it promptly in the
enclosed envelope, whether or not you plan to attend the meeting.
<PAGE>
Master Graphics, Inc.
6075 Poplar Avenue, Suite 401
Memphis, Tennessee 38119
Proxy Statement for 1999 Annual Meeting of Shareholders
Your vote is very important. For this reason, the Board of Directors is
requesting that you allow your common stock to be represented at the annual
meeting of shareholders by the proxies named in the enclosed proxy card. This
proxy statement, the form of proxy and the annual report are being sent to you
in connection with this request and are being mailed to all shareholders
beginning on April 20, 1999.
Information about the Annual Meeting
Annual Meeting................May 19, 1999 The Crescent Club
9:00 a.m. 6075 Poplar Avenue,
local time Suite 900
Memphis, Tennessee 38119
Itemsto be voted upon......You will be voting on the following matters:
(1) Election of Directors. To elect two
Class I directors to serve until the
2002 Annual Meeting of Shareholders;
(2) Adoption of Employee Stock Purchase
Plan. To approve our Employee Stock
Purchase Plan;
(3) Amendment to the 1998 Equity
Compensation Plan. To approve an
amendment to our 1998 Equity
Compensation Plan which increases from
750,000 to 1,500,000 the number of
shares that can be issued under the
plan;
(4) Ratification of Auditors. To ratify the
selection of KPMG LLP as our independent
auditors for 1999; and
(5) Other Business. To transact such other
business as may properly come before the
meeting or any adjournment thereof.
<PAGE>
Who can vote..................You are entitled to vote your common stock if
our records show that you held your shares as of
the close of business on the record date, April 2,
1999. Each shareholder is entitled to one vote fo
each share of common stock held on that date.
On April 2, 1999, we had 7,923,026 shares of
common stock outstanding and entitled to vote.
How to vote by proxy..........If you sign, date and return your signed
proxy card before the annual meeting, we will vote
your shares as you direct. For the election of
directors, you may vote for (1) all of the
nominees, (2) none of the nominees, or (3) all of
the nominees except those you designate. For each
other item of business, you may vote "For" or
"Against" or you may "A bstain" from voting.
If you return your signed proxy card but do
not specify how you want to vote your shares, we
will vote them
* "For" the election of all of our
nominees for director;
* "For" the approval of the Employee Stock
Purchase Plan;
* "For" the approval of the amendment to
the 1998 Equity Compensation Plan; and
* "For" the ratification of KPMG LLP as
our independent auditors.
If any matters other than those set forth above
are properly brought before the annual meeting,
the individuals named in your proxy card may vote
your shares in accordance with their best
judgment.
Changing your vote............You can revoke your proxy at any time before it is
voted at the annual meeting by:
(1) submitting another proxy with a more
recent date than that of the proxy first
given;
(2) attending the annual meeting and voting
in person; or
(3) sending written notice of revocation to
our Corporate Secretary, Lance T. Fair.
<PAGE>
Votes required................If a quorum is present at the annual meeting,
* the director nominees will be elected by
a vote of a plurality of the shares
present in person or represented by
proxy at the meeting; and
* all other matters submitted to the
shareholders will require the
affirmative vote of a majority of the
shares of common stock present or
represented by proxy at the meeting.
Counting the vote.............Quorum. Voting can take place at the annual
meeting only if shareholders owning a majority of
the total number of shares of common stock
outstanding on the record date are present in
person or represented by effective proxies. If you
have returned valid proxy instructions or vote in
person, your common stock will be counted for the
purpose of determining whether there is a quorum,
even if you wish to abstain from some or all
matters introduced at the meeting. If you hold
your common stock through a broker, bank or other
nominee (in "street name"), generally the nominee
may only vote the common stock which it holds for
you in accordance with your instructions. However,
if it has not received your instructions within
ten days of the meeting, the nominee may vote on
matters which the Nasdaq Stock Market determines
to be routine. If a nominee cannot vote on a
particular matter because it is not routine, this
is a "broker non-vote" on that matter. Abstentions
will be counted as present or represented at the
annual meeting for purposes of determining whethe
a quorum exists. Broker non-votes will not be
counted as present or represented for that
purpose.
Effect of Abstentions and Broker Non-Votes.
Because abstentions with respect to any matter
are treated as shares present or represented and
entitled to vote for the purposes of determining
whether that matter has been approved by the
shareholders, abstentions have the same effect as
negative votes. Broker non-votes and shares as to
which proxy authority has been withheld with
respect to any matter are not deemed to be present
or represented and are not entitled to vote for
purposes of determining whether shareholder
approval of that matter has been obtained.
Therefore, these shares will have no effect on th
outcome of the vote on any such matter.
Inspectors of Election. Representatives of Union
Planters Bank, N.A., our transfer agent, will
tabulate the votes and act as inspectors of the
election.
<PAGE>
Other Information about the Annual Meeting
Costs of Solicitation.........We will pay the cost of preparing, printing and
mailing material in connection with this
solicitation of proxies. In addition to
solicitation by mail, regular employees of Master
Graphics and paid solicitors may make
solicitations personally and by telephone or
otherwise. We will, upon request, reimburse
brokerage firms, banks and others for their
reasonable out-of-pocket expenses in forwarding
proxy material to beneficial owners of stock or
otherwise in connection with this solicitation
of proxies. We have retained Corporate Investor
Communications, Inc. to assist in the solicitation
for a fee of $3,000, plus reasonable out-of-pocket
expenses.
Section 16(a) Beneficial Ownership Reporting
Compliance....................Section 16(a) of the Securities Exchange Act of
1934 requires our Directors and executive officers
to file reports of holdings and transactions in
Master Graphics common stock with the SEC. Based
on our records and representations from these
persons, we believe that all SEC beneficial
ownership reporting requirements for 1998 were
met, with the exception of Messrs. Hutson and
Hederman each inadvertently failing to file a
Form 4, in both cases which has subsequently been
filed.
Advance Notice Procedures.....Shareholder Proposals for Annual Meeting in 2000.
Proposals by shareholders to be considered for
inclusion in the proxy materials solicited by the
directors for the annual meeting in 2000 must be
received by the Corporate Secretary, 6075 Poplar
Avenue, Suite 401, Memphis, Tennessee 38119, no
later than December 2, 1999. The use of certified
mail, return receipt requested, is advised. To be
eligible for inclusion, a proposal must also
comply with Rule 14a-8 and all other applicable
provisions of Regulation 14A under the Securities
Exchange Act of 1934.
Information Concerning the Election of Directors
Role of the Board.............Pursuant to Tennessee law, our business, property
and affairs are managed under the direction of our
Board of Directors. The Board has responsibility
for establishing broad corporate policies and for
the overall performance and direction of Master
Graphics, but is not involved in day-to-day
operations. Members of the Board keep informed of
our business by participating in Board and
committee meetings, by reviewing analyses and
reports sent to them regularly, and through
discussions with our executive officers.
<PAGE>
Board Structure...............We currently have five directors. Our Board is
divided into three groups, Class I Directors,
Class II Directors, and Class III Directors. Each
class of directors is elected to serve a three
year term. This means that the Class I directors
who are elected at the 1999 meeting will serve
until the 2002 annual meeting of shareholders
unless they resign or are removed.
1998 Board Meetings...........In 1998, the Board met four times. Each director
attended all of the board meetings and meetings of
the committees on which they served, with the
exception of Walter P. McMullen, who attended
only one meeting. Mr. McMullen became seriously
ill and passed away in 1998.
Board Committees..............The Board has established an Audit Committee, a
Compensation Committee, an Options and Benefits
Committee and an Acquisition Committee.
The Audit Committee met two times during 1998. The
committee has the responsibility for:
* recommending the selection of our
independent public accountants;
* reviewing and approving the scope of the
independent public accountants' audit
activity and the extent of non-audit
services;
* reviewing with management and our
independent public accountants the
adequacy of our basic accounting systems
and the effectiveness of our internal
audit plan and activities;
* reviewing with management and the
independent public accountants our
financial statements;
* exercising general oversight over our
financial reporting process; and
* reviewing with management litigation and
other legal matters that may affect
Master Graphics' financial condition.
The Compensation Committee met one time during
1998. The committee reviews and makes
recommendations to the Board concerning the
compensation of the President and Chief Executive
Officer and our other executive officers.
The Options and Benefits Committee met one time
during 1998. The committee has the responsibility
to assist in the oversight of the our employee
benefit plans.
<PAGE>
The Acquisition Committee met one time during
1998. The committee has the authority to approve
our acquisitions priced at less than $10.0
million.
Director Compensation.........We pay non-employee directors a fee of $1,000 for
each meeting attended. In addition, we reimburse
directors for expenses incurred in attending
meetings. Directors who are also officers or
employees of Master Graphics receive no
compensation for their duties performed as
directors.
Non-Employee Director Stock
Option Plan...................In 1998, we granted each non-employee director a
non-qualified stock option to purchase 1,000
shares of common stock at $10.00 per share, the
fair market value on the date of grant. These
options vest 25% on June 8, 1999, 25% on June 8,
2000, and 50% on June 8, 2001 (unless terminated
earlier pursuant to the plan) and expire on June
8, 2003, or earlier if a director leaves the
Board.
Executive Officers
The following table sets forth certain information concerning the executive
officers of Master Graphics.
Name Age Position
John P. Miller............. 44 Chairman of the Board; Chief Executive
Officer and President; Class III
Director
Lance T. Fair.............. 36 Senior Vice President - Acquisitions;
Chief Financial Officer
Robert J. Diehl............ 56 Senior Vice President; Chief Operating
Officer
P. Melvin Henson, Jr....... 41 Senior Vice President - Finance and
Administration; Chief Accounting Officer
Donald H. Goldman.......... 62 Senior Vice President; Chief Information
Officer
James B. Duncan............ 55 Senior Vice President - Sales and
Marketing
John P. Miller has been Chairman of the Board of Directors, Chief Executive
Officer and President of Master Graphics since its inception. Prior to assuming
his position with Master Graphics, Mr. Miller was the Chairman of the Board of
Directors and Chief Executive Officer of B&M Printing from December 1992 to June
1997.
Lance T. Fair has been the Senior Vice President - Acquisitions and Chief
Financial Officer of Master Graphics since September 1997. From July 1995 until
he joined Master Graphics, Mr. Fair was Vice President and Chief Financial
Officer of Warterfield Holdings, Inc., which subsequently has changed its name
to American Crop Services. From June 1989 to July 1995, Mr. Fair was a principal
at Asset Services, L.P., a Memphis, Tennessee-based mergers and acquisition
advisory firm.
<PAGE>
Robert J. Diehl has been the Chief Operating Officer of Master Graphics
since January 1998. Mr. Diehl has over 25 years of experience in the general
commercial printing industry. From January 1994 to December 1997, Mr. Diehl was
President of Hollis Digital Imaging Systems, Inc., a digital printing company
located in Tucson, Arizona. From 1989 to December 1993, Mr. Diehl was Managing
Director of R.H. Rosen Associates, Inc., a printing industry consulting firm.
P. Melvin Henson, Jr. has been the Senior Vice President - Finance and
Administration and Chief Accounting Officer of Master Graphics since December
1997. From July 1979 to December 1997, Mr. Henson was employed in a variety of
financial management positions with International Paper Company including
Manager--Finance for International Paper's business process redesign project and
controller for International Paper's pulp and paper manufacturing facility in
Erie, Pennsylvania.
Donald H. Goldman has been a Senior Vice President and the Chief
Information Officer of Master Graphics since July 1998. From 1981 through June
1998, Mr. Goldman served as the President of ConsultWare, Inc., a graphic arts
consulting firm located in Marblehead, Massachusetts. Mr. Goldman has been a
consultant and speaker to trade organizations within the printing industry. Mr.
Goldman also serves on the advisory board for CIMSPrint, an educational and
research service for the printing industry sponsored by the Rochester Institute
of Technology.
James B. Duncan has been the Senior Vice President - Sales and Marketing of
Master Graphics since October 1997. From November 1996 to September 1997, Mr.
Duncan operated a consulting practice focused on sales training and management.
From April 1989 to October 1996, Mr. Duncan was a Division President for Smith &
Nephew PLC, where he directed global operations for the Center of Excellence for
Smith & Nephew's ear, nose and throat products.
Executive Compensation
Summary Compensation Table.
The following table sets forth certain information concerning the
compensation paid by Master Graphics to its Chief Executive Officer and the
three other most highly paid executive officers earning in excess of $100,000
during 1998.
<TABLE>
Annual Compensation
-------------------
Fiscal
Name and Principal Position Year Salary Bonus (1)
--------------------------- ---- ------ ---------
<S> <C> <C> <C>
John P. Miller ................................................ 1998 $250,000 --
Chairman of the Board, President and 1997 145,833 --
Chief Executive Officer 1996 86,666 --
Lance T. Fair.................................................. 1998 120,000 --
Senior Vice President Acquisitions and 1997 34,153 600,000
Chief Financial Officer
Robert J. Diehl................................................ 1998 175,000 --
Chief Operating Officer 1997 -- 300,000
James B. Duncan................................................ 1998 100,000 --
Senior Vice President - Sales and Marketing 1997 20,833 50,000
</TABLE>
<PAGE>
(1) Includes deferred compensation payments to the executive officers as
indicated. The amount indicated is payable in cash on December 31, 2002 or,
at the option of the applicable executive officer, in common stock on or
before December 31, 2002. Master Graphics may prepay the full deferred
compensation obligation at any time. If the executive officer elects to
receive common stock in lieu of cash, he is entitled to receive the number
of shares of common stock equal to the quotient of (i) the deferred
compensation amount owed to such executive officer divided by (ii) $10.00.
Employment Agreements
We have employment agreements with each of the executive officers named in
the Summary Compensation Table above. We also have employment agreements with P.
Melvin Henson, Jr. and Donald H. Goldman. The general terms of the employment
agreements are described in the table below:
Term..........................Each employment agreement has an initial term of
three years and is automatically renewed for one
year periods unless terminated by one of the
parties.
Compensation..................The employment agreements provide for the
following annual salaries: Mr. Miller--$250,000;
Mr. Diehl--$175,000; Mr. Fair--$120,000; Mr.
Henson--$100,000; Mr. Duncan--$100,000; and Mr.
Goldman--$100,000. The annual salaries are subject
to adjustment at the discretion of the Board of
Directors, but may not be decreased more than 5%
from the previous year's salary. In addition, the
agreements provide for annual incentive
compensation to each officer of up to 100% of his
base salary based on performance targets
established by the Compensation Committee of the
Board of Directors.
Termination Provisions........In the event that the officer's employment is
terminated without cause or the officer suffers a
constructive termination of his employment and
there has been no change of control, we will pay
such officer a lump sum severance payment equal to
200% of the sum of his combined (1) base salary in
effect at the time of termination and (2) the
average of the annual incentive award for the two
immediately preceding calendar years.
In the event the officer's employment is
terminated with cause, regardless of whether there
has been a change of control, we will pay the
officer only accrued but unpaid base salary
through the date of termination.
If the officer's employment is terminated without
cause or the officer suffers a constructive
termination of his employment upon a change of
control, he is entitled to receive a lump sum upon
such termination of an amount equal to the sum of
(1) 299% of such officer's combined (A) base salary in
effect at the time of termination and (B) the
average of the annual incentive award for the two
immediately preceding completed calendar years and
<PAGE>
(2) to the extent that such payment constitutes an
"excess parachute payment" within the meaning of
Section 280G of the Internal Revenue Code, an
amount equal to any tax incurred by such officer
pursuant to Section 280G of the Internal Revenue
Code.
Confidentiality and
Non-Compete...................Each agreement contains certain confidentiality
and non-competition covenants.
Option Grants
The following table sets forth the number of options to purchase shares of
common stock that have been granted to each executive officer named in the
Summary Compensation Table above.
<TABLE>
Potential Realizable Value
at Assumed Annual Rates
of Stock Price
Appreciation for Option
Individual Grants Term (3)
- ---------------------------------------------------------------------------------------------------------------------------
Options % of Total Exercise
Granted Options Price
(No. of Granted to Per Expiration
Shares) (1) Employees (2) Share(3) Date 5% 10%
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
John P. Miller..... -- -- --
Lance T. Fair...... 100,000 14.1% $10.00 June 2003 $628,895 $1,593,742
Robert J. Diehl.... 30,000 4.2% $10.00 June 2003 188,668 478,122
James B. Duncan.... 10,000 1.4% $10.00 June 2003 62,900 159,400
</TABLE>
(1) The options reported in this column consist of options granted under the
1998 Equity Compensation Plan. The options will become exercisable on each
of the first, second, and third anniversaries of the date of grant with
respect to 25%, 25% and 50%, respectively, of the shares subject to the
option.
(2) Based on outstanding options to purchase an aggregate of 711,429 shares of
common stock.
(3) The dollar amounts under these columns are the result of calculations at
the 5% and 10% appreciation rates set by SEC rules and, therefore, are not
intended to forecast possible future appreciation, if any, in the price of
the common stock. In order to realize the potential values set forth in the
5% and 10% columns of this table, the per share price of the common stock
would be $16.29 and $25.94 respectively, or 62.9% and 159.4%, respectively,
above the exercise price per share. Because the common stock was not
publicly traded prior to the Offering, these amounts were calculated based
on the assumption that the fair market value of one share of common stock
on the date of grant was equal to the exercise price.
<PAGE>
The following table sets forth the number of options to purchase shares of
common stock held, as of December 31, 1998, by the executive officers named in
the Summary Compensation Table above.
Number of Securities
Underlying Unexercised
Options at
December 31, 1998
-----------------
Exercisable Unexercisable
----------- -------------
John P. Miller....................... -- --
Lance T. Fair........................ -- 100,000
Robert J. Diehl...................... -- 30,000
James B. Duncan...................... -- 10,000
Compensation Committee Interlocks and Insider Participation
Mr. Miller serves as a member of the compensation committee of our Board of
Directors. Mr. Miller presently serves as our President and Chief Executive
Officer. Mr. Miller does not participate in actions or considerations by the
compensation committee with respect to his own compensation.
Compensation Committee Report on Executive Compensation
The Compensation Committee....The Compensation Committee is responsible for
establishing the salary rates of the executive
officers of Master Graphics and for examining
periodically the Master Graphics compensation
structure. We develop and communicate
recommendations to the Board of Directors with
respect to Master Graphics' executive compensation
policies.
Philosophy and Objectives.....We have developed a compensation program for
executives designed to meet the following goals:
* reward performance that increases the
value of your stock;
* attract, retain and motivate executives
with competitive compensation
opportunities; and
* balance short-term and long-term
strategic goals
Executive Compensation........Master Graphics' executive officers are parties to
employment contracts with Master Graphics.
Executive compensation includes a negotiated base
salary and performance-based incentive
compensation of up to 100% of base salary. Our
compensation policy recognizes that stock price
performance is only one measure of performance,
and, given our long-
<PAGE>
term strategic direction and goals, it may not be
the best current measure of executive performance.
Therefore, our compensation policy also gives
consideration to the achievement of specified
business objectives when determining executive
officer compensation.
In reviewing executive compensation for fiscal
1998, we determined that the executive officers
were sufficiently compensated with base salary
under the terms of their individual employment
contracts.
Compensation of the Chief
Executive Officer.............The Chief Executive Officer and President of
Master Graphics is John P. Miller. Mr. Miller's
1998 compensation was determined in accordance
with the provisions of his employment contract
entered into in March 1998, which provides for an
annual base salary of $250,000 and performance-
based incentive compensation of up to $250,000 per
year. Mr. Miller did not receive any incentive
compensation in 1998. Although Mr. Miller is a
member of this Compensation Committee, he did not
participate in any committee discussions relating
to his own compensation.
Respectfully submitted,
Frederick F. Avery
Donald L. Hutson
John P. Miller
<PAGE>
Performance Graph
The graph below compares the performance of Master Graphics since its
initial public offering in June 1998 with the Nasdaq Stock Market (US Companies)
Index and a peer group index. It shows an investment of $100 on June 10, 1998.
The peer group index includes Cadmus Communications Corp., Champion Industries
Inc., Consolidated Graphics Inc., Mail Well Inc., Wallace Computer Services
Inc., and World Color Press Inc.
[PERFORMANCE GRAPH GOES HERE]
<TABLE>
06/1998 08/1998 10/1998 12/1998
<S> <C> <C> <C> <C>
Master Graphics, Inc. 97.4 57.9 68.4 52.0
Nasdaq Stock Market (US Companies) 107.4 85.2 101.2 125.9
Self-Determined Peer Group 102.0 79.4 81.6 90.7
</TABLE>
<PAGE>
Master Graphics Stock Ownership
Five Percent Beneficial Owners. To the best of our knowledge, the following
are the only persons who beneficially own five percent or more of our
outstanding common stock:
<TABLE>
Name and Address of Beneficial Owner Number Percentage (1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
John P. Miller....................................................... 4,138,000 52.2
6075 Poplar Avenue, Suite 401
Memphis, Tennessee 38119
General Electric Capital Corporation................................. 397,776 (2) 5.0
977 Long Ridge Road
Building B, First Floor
Stamford, Connecticut 06927
</TABLE>
(1) Based on 7,923,026 shares of common stock outstanding as of the date of the
proxy statement. Beneficial ownership is determined in accordance with the
rules of the SEC and include voting or investment power with respect to
securities. Shares of common stock issuable upon the exercise of stock
options, warrants or other rights to acquire common stock, currently
exercisable or convertible, or exercisable or convertible within 60 days of
the date of this proxy statement are deemed outstanding and to be
beneficially owned by the person holding such option, warrant or other
right for purposes of computing such person's percentage ownership, but are
not deemed outstanding for the purposes of computing the percentage
ownership of any other person. Except for shares held jointly with a
person's spouse or subject to applicable community property laws, or
indicated to the footnotes to this table, each shareholder identified in
the table possesses sole voting and investment power with respect to all
shares of common stock shown as beneficially owned by such shareholder.
(2) Includes 177,776 shares of common stock issuable upon conversion of our 5%
Series A Cumulative Preferred Stock and 220,000 shares of common stock
issuable upon conversion of warrant issued to General Electric Capital
Corporation.
<PAGE>
Ownership of Management. The following table shows, as of March 31, 1999,
the number of shares of common stock beneficially owned by directors, the Chief
Executive Officer and other executive officers earning in excess of $100,000
during 1998, and all directors and executive officers as a group.
Name Number Percentage (1)
- --------------------------------------------------------------------------------
John P. Miller....................... 4,138,000 (1) 52.2
Cary Rosenthal....................... 232,500 (2) 2.9
H. Henry (Hap) Hederman, Jr.......... 242,850 (3) 3.0
Frederick F. Avery................... 2,250 (4) *
Donald L. Hutson..................... 7,841 (5) *
Lance T. Fair........................ 86,500 (6) *
Robert J. Diehl...................... 38,000 (7) *
James B. Duncan...................... 11,300 (8) *
All executive officers and
directors as a group (8 persons)..... 4,759,241 (1) 57.0
* Less than 1%
(1) Based on 7,923,026 shares of common stock outstanding as of the date of the
proxy statement. Beneficial ownership is determined in accordance with the
rules of the SEC. Beneficial ownership includes voting or investment power
with respect to securities. Shares of common stock issuable upon the
exercise of stock options, warrants or other rights to acquire common
stock, currently exercisable or convertible, or exercisable or convertible
within 60 days of the date of this proxy statement are deemed outstanding
and to be beneficially owned by the person holding such option, warrant or
other right for purposes of computing such person's percentage ownership,
but are not deemed outstanding for the purposes of computing the percentage
ownership of any other person. Except for shares held jointly with a
person's spouse or subject to applicable community property laws, or
indicated to the footnotes to this table, each shareholder identified in
the table possesses sole voting and investment power with respect to all
shares of common stock shown as beneficially owned by such shareholder.
(2) Includes 232,500 shares of common stock issuable upon exercise of a warrant
held by Mr. Rosenthal.
(3) Includes 70,350 shares of common stock issuable upon exercise of a warrant
held by Mr. Hederman; 120,000 shares of common stock held by the H. Henry
Hederman, Jr. Trust of which Mr. Hederman is a trustee; and 20,000 shares
held by Arrowhead Properties, L.P., for which Mr. Hederman has the power to
vote or direct the vote, and to dispose of or direct the disposition of,
such shares.
(4) Includes 250 shares of common stock issuable upon exercise of options held
by Mr. Avery.
(5) Includes 250 shares of common stock issuable upon exercise of options held
by Mr. Hutson.
(6) Includes 60,000 shares of common stock issuable to Mr. Fair in connection
with Master Graphics deferred compensation plan; and 25,000 shares of
common stock issuable upon exercise of options held by Mr. Fair.
(7) Includes 30,000 shares of common stock issuable to Mr. Diehl in connection
with Master Graphics deferred compensation plan; and 7,500 shares of common
stock issuable upon exercise of options held by Mr. Diehl.
(8) Includes 5,000 shares of common stock issuable to Mr. Duncan in connection
with Master Graphics deferred compensation plan; and 2,500 shares of common
stock issuable upon exercise of options held by Mr. Duncan.
<PAGE>
Certain Transactions
On December 10, 1992, Premier Graphics, Inc., Master Graphics' wholly owned
subsidiary, loaned Mr. Miller $950,000, at a rate of 7% per annum. Mr. Miller
repaid this amount in full in June 1998.
Premier Graphics leases from Mr. Miller the facilities in which the B&M
Printing Division is located. The lease expires on November 30, 2002. The annual
base rent under this lease is approximately $140,000. We believe that the terms
of the lease are no less favorable to us than could have been negotiated with
unaffiliated third parties.
On December 31, 1997, Mr. Miller purchased from Premier Graphics a web
press for total consideration of $2.8 million, which was represented by a
promissory note from Mr. Miller to Premier Graphics in the principal amount of
$2.8 million. Mr. Miller repaid all amounts owed to the Company in June 1998.
In connection with the acquisition of Hederman Brothers, Inc. in March
1998, Mr. Hederman and members of his immediate family (or trusts for the
benefit of such individuals) received consideration in the form of $1.5 million
cash. Mr. Hederman and such family members and trusts received warrants to
purchase a total of 199,998 shares of common stock at a price per share equal to
the $10.00. Mr. Hederman and such family members and trusts received promissory
notes in the aggregate principal amount of $2,000,0 00 which originally were to
mature on February 28, 2005 and bore interest at a rate of 12% per annum. In
December 1998, Master Graphics repaid approximately $400,000 of the debt
evidenced by the promissory notes and restructured the remaining approximately
$1.6 million of remaining debt into new promissory notes which mature in June
30, 2006 and bear interest at a rate of 12%. Moreover, Premier Graphics
currently leases its Hederman Brothers Division facility from Mr. Hederman for
annual rental of $300,000 per annum. We believe that the terms of this lease are
no less favorable to us than could have been negotiated with unaffiliated third
parties.
In the Company's acquisition of Phoenix Communications, Inc. and King
Mailing Services, Inc. in December 1997, Mr. Rosenthal received consideration in
the form of approximately $3.3 million cash, a warrant to purchase 232,500
shares of common stock at a price per share equal to $10.00, and a promissory
note in the principal amount of $557,750 which originally was to mature on
December 16, 2004 and bore interest at a rate of 12% per annum. In December
1998, Master Graphics restructured the promissory note to mature on June 30,
2006. Moreover, the acquisition documents provide up to $611,100 in contingent
consideration to be paid to Mr. Rosenthal in the event the Phoenix Division
achieves certain annual earnings targets specified in the acquisition agreement.
Mr. Rosenthal owns 50% of RFTA Associates, LLC, which leases the Phoenix
Communications Division facilities to Premier Graphics for an annual rent of
approximately $252,000 per year subject to annual adjustment based upon changes
in the consumer price index. We believe that the terms of such leases are no
less favorable to us than could have been negotiated with unaffiliated third
parties.
On March 30, 1998, General Electric Capital Corporation exercised two
warrants to purchase an aggregate of 177,776 shares of common stock. The shares
of common stock were issued to a wholly-owned subsidiary of General Electric
Capital Corporation. On March 31, 1998, this subsidiary entered into an exchange
agreement with Master Graphics pursuant to which the 177,776 shares of common
stock were converted into 177,776 shares of Series A Preferred Stock. On April
1, 1998, the Company issued to General Electric Capital Corporation a warrant to
purchase 220,000 shares of common stock for nominal consideration. The Company
paid $3.0 million in advisory fees to General Electric Capital Corporation for
its advice and assistance in structuring and negotiating the acquisitions of
certain of the acquired companies and approximately $2.3 million in loan
origination fees. In addition, General Electric Capital Corporation is a lender
under, and administrative agent for, Premier's senior credit facility.
<PAGE>
Proposal 1
Election of Directors
The Board proposes to nominate the following two individuals to serve as
Class I Directors: Donald L. Hutson and H. Henry (Hap) Hederman, Jr. We do not
anticipate that either nominee will be unavailable for election but, if such a
situation arises, the proxy will be voted in accordance with the best judgment
of the named proxies unless you have directed otherwise. The remaining members
of the Board listed below will continue as members of the Board until their
respective terms expire, as indicated below.
Information about the two individuals nominated as directors and the
remaining members of the Board is provided below. Shares of common stock
represented by proxy cards returned to us will be voted for the nominees listed
below unless you specify otherwise.
Nominees for Election as Class I Directors
(Terms Expiring 2002)
H. Henry (Hap) Hederman, Jr., age 52, has been a Director of Master
Graphics since March 1998 and has served as the President of the Hederman
Brothers Division since March 1998. Mr. Hederman has over 30 years of experience
in the general commercial printing industry. From 1982 through March 1998, Mr.
Hederman served as the President and Chief Executive Officer of Hederman
Brothers, Inc. (which was acquired by the Company in March 1998). Mr. Hederman
currently serves as a member of the board of directors and a member of the
executive committee of the board of directors of MS Diversified Corp.
Committees: Acquisition
Donald L. Hutson, age 52, has been a Director of Master Graphics since
March 1998. Since September 1966, Mr. Hutson has been a business trainer,
professional speaker and consultant to corporations and trade associations on
employee development issues.
Committees: Audit, Compensation, Options and Benefits
Incumbent Director -- Class II
(Term expiring 2000)
Frederick F. Avery, age 67, has been a Director of Master Graphics since
March 1998. Mr. Avery has been a business consultant since April 1994. From July
1987 to March 1994, Mr. Avery served in a variety of roles with Kraft Foods,
including President of Kraft Food Ingredients and Group Vice President.
Committee: Audit, Compensation, Options and Benefits
<PAGE>
Incumbent Directors -- Class III
(Terms expiring 2001)
John P. Miller, age 44, has been Chairman of the Board of Directors, Chief
Executive Officer and President of Master Graphics since its inception. Prior to
assuming his position with the Company, Mr. Miller was the Chairman of the Board
of Directors and Chief Executive Officer of B&M Printing from December 1992 to
June 1997.
Committees: Audit, Compensation, Acquisition
Cary Rosenthal, age 58, has been a Director of Master Graphics since March
1998 and has served as the President of the Phoenix Division since December
1997. Mr. Rosenthal has over 30 years of experience in the general commercial
printing industry. From September 1979 to December 1997, Mr. Rosenthal served as
President and Chief Executive Officer of Phoenix Communications, Inc. and King
Mailing Services, Inc. (both of which were acquired by the Company in December
1997). Mr. Rosenthal currently serves as a member of the board of directors and
serves on the audit and option committees of the board of directors of SED
International Holdings, Inc. Additionally, Mr. Rosenthal serves as a member of
the board of directors of Printing Industries Association of Georgia, a trade
organization.
Committees: Acquisition
Election of Directors requires the affirmative vote of the holders of a
plurality of the shares of common stock represented at the annual meeting.
The Board of Directors recommends a vote "FOR" each of the nominees listed
above.
<PAGE>
Proposal 2
Approval of the Master Graphics Employee Stock Purchase Plan
The Employee Stock
Purchase Plan.................On February 10, 1999, the Board of Directors
adopted the Master Graphics, Inc. Employee Stock
Purchase Plan. The Board believes that the
employee stock purchase plan will be an important
employee recruitment and retention tool and will
further align the interests of employees with
shareholders. If approved by the shareholders, the
employee stock purchase plan will authorize the
issuance and the purchase by employees of up to
500,000 shares of common stock through payroll
deductions. The following summary of the employee
stock purchase plan is qualified by reference to
the employee stock purchase plan, a copy of which
is attached to this proxy statement as Appendix A
and incorporated herein by this reference. All
capitalized or quoted terms in this section have
the meanings set forth in the employee stock
purchase plan.
Eligibility...................Generally, all regular, full-time Employees are
eligible to participate in the Plan. Employees who
beneficially own more than 5% of the common stock
are not eligible to participate.
Administration................The Plan will be administered by the Options and
Benefits Committee of the Board. The committee is
authorized to establish rules for the
administration of the Plan, to interpret the Plan
and to supervise its administration, to make
determinations about Plan entitlements, and to
take other actions consistent with the delegation
from the Board.
Participation.................Employees will enroll in the Plan by completing a
payroll deduction form. The maximum payroll
deduction allowed is the lesser of (1) 5% of an
Employee's pay or (2) $5,000. An Employee may
discontinue participation in the Plan at any time.
An Employee's eligibility to participate in the
Plan ends at the termination of employment.
Purchase Price................Employees who choose to participate in the Plan
will receive an option to acquire common stock at
a discount. Under the option, the purchase price
of common stock is the lower of: (1) 85% of the
closing price of the common stock on the Entry
Date; or (2) 85% of the closing price of the
common stock on the Exercise Date.
Purchase of Stock.............On June 30 and December 31 each year, a
Participant's Option will be exercised
automatically to purchase the number of shares of
common stock that the Participant's accumulated
payroll deductions will buy at the purchase price
described above.
<PAGE>
Payment and Delivery..........Within a reasonable period of time after an
Exercise Date, we will deliver shares of common
stock purchased on the Exercise Date to each
Participant.
Recapitalization..............In the event any change is made in our
capitalization, such as a stock split or stock
dividend, which results in an increase or decrease
in the number of outstanding shares of our common
stock without our receipt of consideration,
appropriate adjustments will be made to the shares
available in the Plan, the maximum number of
shares and the price of the option.
Transferability...............Options under the Plan cannot be voluntarily or
involuntarily assigned. No Participant can
transfer any shares of common stock acquired under
the Plan until the later of (1) a period of one
year after the applicable Exercise Date or (2) two
years after the date on which the Option was
granted.
Amendment and Termination.....The Board of Directors may amend the Plan, except
that no amendment may, without the approval of
shareholders:
(1) increase the number of shares authorized
under the Plan;
(2) materially modify the eligibility
requirements for participation in the
Plan; or
(3) amend the Plan in any way that results
in the Plan not being an "employee stock
purchase plan" as defined in Section 423
of the Internal Revenue Code.
Employee Stock Purchase
Plan Benefits.................Master Graphics is unable to predict the amount of
benefits that will be received by or allocated to
any particular participant in the Employee Stock
Purchase Plan at this time.
U.S. Federal Income Tax
Consequences..................In the U.S., no taxable income will be recognized
by a Participant until the sale or other
disposition of the shares of common stock acquired
under the Plan. At that time, a Participant
generally will recognize ordinary income and
capital gains. When the shares are disposed of by
a Participant two years or more after the Entry
Date for the applicable shares of common stock,
he or she will recognize ordinary income equal to
the lesser of:
(1) the excess of the fair market value of
the shares on the purchase date over the
purchase price; or
(2) the excess of the fair market value of
the shares at disposition over the
purchase price.
<PAGE>
When shares are disposed of after less than two
years, the Participant must recognize ordinary
income in the amount set forth in (1) above, even
if the disposition is a gift or is at a loss.
In the event of a Participant's death while owning
shares acquired under the Plan, ordinary income
must be recognized in the year of death as though
the shares had been sold.
In the cases discussed above (other than death),
the amount of ordinary income recognized by a
Participant is added to the purchase price paid by
the Participant, and this amount becomes the tax
basis for determining the amount of the capital
gain or loss from the disposition of the shares.
Additional gain, if any, will be short-term or
long-term capital gain depending on whether the
holding period is 12 months or less, or more than
12 months.
Net capital gains from the disposition of capital
stock held more than 12 months are currently taxed
at a maximum federal income tax rate of 20%, and
net gains from the disposition of stock held not
more than 12 months are taxed as ordinary income
(maximum rate of 39.6%). However, limitations on
itemized deductions and the phase-out of personal
exemptions may result in effective marginal tax
rates higher than 20% for net capital gains and
39.6% for ordinary income.
We are entitled to tax deductions in the U.S. for
shares issued under the Plan only in the event of
disqualifying dispositions. For disqualifying
dispositions in the U.S., we are allowed a
deduction to the extent of the amount of ordinary
income includa ble in gross income by such
Participant for the taxable year as a result of
the premature disposition of the shares.
Approval of the Plan requires the affirmative vote of the holders of a
majority of the shares of common stock represented at the annual meeting.
The Board of Directors believes that approval of the Plan is in Master
Graphics' best interests since it will facilitate Master Graphics' ability to
attract, motivate and retain employees, while aligning their interests with
those of the shareholders.
The Board of Directors recommends a vote "FOR" the approval of the Employee
Stock Purchase Plan.
<PAGE>
Proposal 3
Amendment to the 1998 Equity Compensation Plan
Proposed Amendment............The Board of Directors and our shareholders have
previously adopted and approved our 1998 Equity
Compensation Plan. A total of 750,000 shares of
common stock are presently reserved for issuance
under the 1998 Equity Compensation Plan. On
February 10, 1999, the Board of Directors approved
an amendment to the 1998 Equity Compensation Plan,
subject to shareholder approval, to increase the
shares reserved for issuance under the plan by
750,000 shares, bringing the total number of
shares issuable under the plan to 1,500,000. To
date, we have issued options to purchase 722,363
shares of common stock under the 1998 Equity
Compensation Plan, 10,934 of which have expired or
been cancelled.
Reasons for the Proposed
Amendment.....................The Board has determined that additional shares
need to be available for grants and awards under
the 1998 Equity Compensation Plan. These grants
and awards will be used to help attract, retain
and reward key employees.
Description of the 1998 Equity Compensation Plan
General.......................On April 1, 1998, the Board of Directors and
shareholders adopted and approved the 1998 Equity
Compensation Plan, which provides for grants of
* stock options
* stock appreciation rights; and
* restricted stock.
Prior to the proposed amendment to be voted on at
the annual meeting, a total of 750,000 shares of
common stock have been reserved for issuance under
the 1998 Equity Compensation Plan. Options granted
under the 1998 Equity Compensation Plan may be
either "incentive stock options" as defined in
section 422 of the Internal Revenue Code, or
nonqualified stock options, as determined by the
Options and Benefits Committee of the Board of
Directors.
All capitalized or quoted terms in this section
have the meanings set forth in the 1998 Equity
Compensation Plan.
<PAGE>
Purpose.......................The general purpose of the 1998 Equity
Compensation Plan is to attract, retain and
motivate employees, consultants and advisers of
Master Graphics and to encourage them to devote
their best efforts to the business and financial
success of the company.
Administration................The Options and Benefits Committee of the Board of
Directors currently administers the 1998 Equity
Compensation Plan.
Eligibility...................All employees of Master Graphics and its
subsidiaries and consultants and advisers
rendering bona fide services to Master Graphics or
any subsidiary are eligible to participate in the
1998 Equity Compensation Plan. We can grant
incentive stock options only to employees of
Master Graphics and its subsidiaries. Any optionee
who owns more than 10% of the combined voting
power of all classes of outstanding stock of
Master Graphics is not eligible for the grant of
an option unless the exercise price of the option
is at least 110% of the fair market value of the
common stock on the date of grant.
Terms and Conditions of
Options.......................Exercise Price. The Committee determines the
exercise price of options to purchase shares of
common stock at the time the options are granted.
However, excluding options issued to 10%
shareholders, the exercise price under an
incentive stock option must not be less than 100%
of the fair market value of the common stock on
the date the option is granted.
Form of Consideration. A grantee may pay the
option price (1) in cash; (2) by delivering shares
of common stock having a fair market value equal
to the exercise price; or (3) by another method
previously approved by the Committee.
Exercise of the Option. Each stock option
agreement will specify the term of the option and
the date when the option is to become exercisable.
However, in no event will an option granted under
the 1998 Equity Compensation Plan be exercisable
more than ten years after the date of grant.
Moreover, in the case of an incentive stock option
granted to a 10% shareholder, the term of the
option will be for no more than five years from
the date of grant.
Termination of Employment; Death and Disability.
The Committee determines the terms and conditions
relating to the effect of termination of the
participant's employment or the participant's
death or disability on an individual basis.
Stock Appreciation Rights.....Stock appreciation rights may be granted under the
1998 Equity Compensation Plan in conjunction with
all or part of a stock option and will be
exercisable only when the underlying stock option
is exercisable.
<PAGE>
Once a stock appreciation right has been
exercised, the related portion of the stock option
underlying the stock appreciation right will
terminate.
When a participant exercises a stock appreciation
right, Master Graphics will pay to the participant
in cash, common stock or a combination thereof an
amount equal to the difference between the fair
market value of the common stock on the exercise
date over the option price, multiplied by the
number of stock appreciation rights being
exercised.
Restricted Stock Awards.......Restricted stock awards may be granted alone, or
in addition to, or in tandem with, other awards
under the 1998 Equity Compensation Plan. In making
an award of restricted stock, the Committee will
determine the periods during which the restricted
stock is subject to forfeiture. During the
restricted period, the participant may not
transfer in any way or encumber the restricted
stock, but is entitled to vote, and receive
dividends on, the restricted stock.
Change of Control.............In the event of a Change of Control, all
outstanding Awards will become fully exercisable,
unless the Committee determines otherwise. Except
as provided below, unless the Committee determines
otherwise, in the event of a merger where Master
Graphics is not the surviving corporation, all
outstanding Awards will be assumed by or replaced
with comparable awards by the surviving
corporation. The Committee may require that the
grantees surrender their outstanding Awards in the
event of a Change of Control and receive a payment
in cash or common stock equal to the amount by
which the fair market value of the shares of
common stock subject to the Awards exceeds the
exercise price of the Awards.
Withholding Obligations.......All Awards issued under the 1998 Equity
Compensation Plan will be granted subject to
applicable federal, state and local withholding
requirements. We can deduct from wages paid to the
grantee any such taxes required to be withheld
with respect to the options. The Committee may
allow Participants to satisfy their withholding
obligations by electing to have a certain number
of shares of stock withheld which would otherwise
be received pursuant to exercise of the Award.
<PAGE>
Adjustments upon change in
Capitalization................If Master Graphics' common stock is changed by
reason of any stock split, reverse stock split,
stock dividend, recapitalization or other increase
or decrease in the number of issued shares of
common stock effected without receipt of
consideration by Master Graphics, appropriate
adjustments will be made in the number and class
of shares of stock subject to the 1998 Equity
Compensation Plan, the number of shares of stock
subject to any Awards outstanding, and the
exercise price of outstanding Awards. Any such
adjustment will be made by the Committee, whose
determination shall be conclusive.
Tax Aspects...................The grant of a nonqualified stock option or stock
appreciation right has no U.S. federal income tax
consequences for the participant or Master
Graphics. Upon exercise of a nonqualifed stock
option or stock appreciation right, Master
Graphics may take a tax deduction and the
participant realizes ordinary income. The amount
of this deduction and income is equal to the
difference between the fair market value of the
shares on the date of exercise and the grant price
of the nonqualified stock option or stock
appreciation right.
The grant and exercise of an incentive stock
option has no U.S. federal income tax consequences
for the participant or Master Graphics. If the
participant does not make a disqualifying
disposition of the shares underlying the incentive
stock option, all gain attributable to the option
upon sale of the underlying common stock will be
capital gain and Master Graphics will not receive
any tax deduction.
<PAGE>
1998 Equity Compensation Plan Benefits
Master Graphics is unable to predict the amount of benefits that will be
received by or allocated to any particular participant under the 1998 Equity
Compensation Plan. The following table sets for the dollar amount and the number
of shares granted under the 1998 Equity Compensation Plan during the last fiscal
year to (1) each executive officer named in the Summary Compensation Table
below; (2) all of those executive officers as a group; (3) all non-employee
directors as a group; and (4) all employees other than executive officers as a
group.
<TABLE>
Number of Value of
Shares Shares
Name and Position Granted Granted (1)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
John P. Miller........................................................ -- --
Chief Executive Officer, President and Chairman of the Board
Lance T. Fair......................................................... 100,000 $1,000,000
Chief Financial Officer and Senior Vice President-- Acquisitions
Robert J. Diehl....................................................... 30,000 $ 300,000
Chief Operating Officer and Senior Vice President
James B. Duncan....................................................... 10,000 $ 100,000
Senior Vice President Sales and Marketing
All executive officers as a group (3 persons)......................... 140,000 $1,400,000
All non-employee directors as a group (2 persons)..................... --(2) --
All employees other than executive officers as a group................ 571,429 $5,714,290
</TABLE>
(1) The dollar value of option grants under the 1998 Equity Compensation Plan
was computed by multiplying the number of shares granted times the $10.00
per share exercise price of the option. All options granted under the 1998
Equity Compensation Plan were granted at $10.00 per share, the fair market
value on the date of grant. As of the date of this Proxy Statement, none of
the options was "in-the-money."
(2) Each of the non-employee directors of the Master Graphics received an
option to purchase 1,000 shares of common stock at $10.00 per share
pursuant to Master Graphics 1998 Non-Employee Director Stock Option Plan.
Approval of the amendment to the 1998 Equity Compensation Plan requires the
affirmative vote of the holders of a majority of the shares of common stock
represented at the annual meeting. The Board of Directors recommends a vote
"FOR" the approval of the Employee Stock Purchase Plan.
<PAGE>
Proposal 4
Ratification of Appointment of Independent Auditors
The Board of Directors has selected KPMG LLP, independent accountants, to
audit our financial statements for the 1999 fiscal year. We are presenting this
nomination to the shareholders for ratification at the annual meeting. A
representative of KMPG LLP is expected to be present at the meeting, will have
the opportunity to make a statement, and is expected to be available to respond
to appropriate questions.
Ratification of the selection of KPMG LLP as Master Graphics' independent
auditors requires the affirmative vote of the holders of a majority of the
shares of common stock represented at the annual meeting.
The Board of Directors recommends a vote "FOR" the ratification of the
appointment of KMPG LLP as our independent auditors for the 1999 fiscal year.
Other Matters
The Board of Directors knows of no matters other than those discussed in
this proxy statement which will be presented at the 1999 annual meeting.
However, if any other matters are properly brought before the meeting, any proxy
given pursuant to this solicitation will be voted in accordance with the
recommendations of management.
Upon the written request of any record holder or beneficial owner of common
stock entitled to vote at the annual meeting, we, without charge, will provide a
copy of its Annual Report on Form 10-K for the year ended December 31, 1998.
Requests should be directed to Lance T. Fair, Secretary, Master Graphics, Inc.,
6075 Poplar Avenue, Suite 401, Memphis Tennessee 38119, which is the address of
Master Graphics' principal executive offices.
By order of the board of directors
/s/ LANCE T. FAIR
Lance T. Fair
Secretary
Memphis, Tennessee
April 20, 1999
<PAGE>
Annex A
Master Graphics, Inc.
Employee Stock Purchase Plan
The following sets forth the terms and conditions of an employee stock
purchase plan to be called The Master Graphics, Inc. Employee Stock Purchase
Plan (the "Plan").
ARTICLE 1
DEFINITIONS
The following terms when used in this plan shall have the following
meanings:
"Account" shall mean, with respect to a Participant, the cumulative total
of Payroll Deductions set aside from time to time pursuant to the Plan for the
purpose of acquiring Options Shares.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
"Committee" shall mean the Options and Benefits Committee of the Board of
Directors of the Company.
"Common Stock" shall mean shares of the $.001 par value per share common
stock of the Company.
"Company" shall mean Master Graphics, Inc., a Tennessee corporation.
"Compensation" shall mean with respect to a Participant (a) the total
annual compensation paid to such Participant during a Plan Period by the Company
and each Subsidiary Corporation to the extent such compensation would be subject
to F.I.C.A. tax withholding but for the maximum dollar amount of the F.I.C.A.
wage base established by federal law; less (b) the amount of such compensation
that consists of contest awards, reimbursement of moving expenses, life
insurance premiums, payments characterized as deferred compensation for purposes
of Section 404 of the Code, and compensation reportable to the Participant on
account of his/her participation in any Restricted Stock or Incentive Stock
Option plans of the Company or any of its subsidiaries.
"Eligible Employee" shall mean an Employee meeting the requirements of
ARTICLE 3.
"Employee" shall mean each and every employee of the Company and each
Subsidiary Corporation.
"Entry Date" shall mean January 1, 1999, July 1, 1999, and January 1 and
July 1 of each succeeding calendar year during which this Plan is effective.
"Exercise" shall mean the purchase of Common Stock pursuant to the Plan for
a Participant in the manner set forth in ARTICLE 7 below.
"Exercise Date" shall mean June 30 and December 31 in each Plan Period
during which Options shall have been granted pursuant to the Plan.
"Option" shall mean the right of an Eligible Employee to purchase Common
Stock pursuant to the Plan.
"Option Price" shall mean the price per share of Common Stock determined in
the manner set forth in SECTION 6.2 below.
<PAGE>
"Option Share" shall mean each share of Common Stock purchased by a
Participant upon Exercise of an Option granted hereunder.
"Participant" shall mean each Eligible Employee who Participates in the
Plan.
"Participate" shall mean with respect to each Eligible Employee the act of
having Payroll Deductions made for the purpose of acquiring Option Shares.
"Payroll Deduction" shall mean money periodically deducted from the
Compensation of an Eligible Employee for the purpose of acquiring Option Shares.
"Plan" shall have the meaning set forth in the preface above.
"Plan Period" shall mean each 6 month period beginning January 1 and ending
on June 30 and beginning on July 1 and ending December 31 of each calendar year
during which this Plan is in effect, the first such Plan Period being the period
January 1, 1999 through December 31, 1999.
"Registration Statement" shall mean any registration statement filed with
the Securities and Exchange Commission pursuant to the Securities Act.
"Reorganization" shall mean any reorganization, recapitalization, stock
split, stock dividend, combination of shares, merger, consolidation, share
exchange, offering of rights, reclassification, conversion, or any other change
in the capital structure of the Company which would affect the number of shares
of Common Stock purchasable, or the Option Price payable therefor, or both, with
respect to the Options then in effect.
"Securities Act" shall mean the Securities Act of 1933, as amended from
time to time.
"Subsidiary Corporation" shall mean any present or future corporation which
(a) would be a "subsidiary corporation" of the Company as that term is defined
in Section 424 of the Code and (b) is designated as a participant in the Plan by
the Committee.
"Termination of Employment" shall mean with respect to a Participant the
termination of his or her employment by the Company or any subsidiary thereof
for any reason whatsoever, including death, disability, retirement, dismissal,
resignation or otherwise.
ARTICLE 2
PLAN PURPOSE
2.1. Purpose. The Plan is intended to provide a method whereby Employees of
the Company and its Subsidiary Corporations will have an opportunity to acquire
a proprietary interest in the Company through the purchase of shares of the
Common Stock of the Company. It is the intention of the Company to have the Plan
qualify as an "employee stock purchase plan" under Section 423 of the Code. The
provisions of the Plan shall be construed so as to extend and limit
participation in a manner consistent with the requirements of Section 423 of the
Code. It is felt that employee participation in the ownership of the Company
will be of mutual benefit to employees and the Company and its Subsidiary
Corporations.
<PAGE>
ARTICLE 3
ELIGIBILITY AND PARTICIPATION
3.1. Eligibility. Subject to the limitations contained in this ARTICLE 3,
any employee who is regularly and actively employed by the Company or any
Subsidiary Corporation on an Entry Date is eligible to participate in the Plan.
3.2. Restrictions on Participation. Notwithstanding any provisions of the
Plan to the contrary, no Employee shall be granted an option to participate in
the Plan:
(a) if such Employee's customary employment by the Company or a Subsidiary
Corporation is twenty (20) hours or less per week;
b) if such Employee's customary employment by the Company or a Subsidiary
Corporation is five (5) months or less in any calendar year;
(c) if, immediately after the grant, such employee would own stock, and/or
hold outstanding options to purchase stock, possessing five percent
(5%) or more of the total combined voting power or value of all
classes of stock of the Company (for purposes of this SECTION 3.3(C),
the rules of Section 424(d) of the Code shall apply in determining
stock ownership of any employee); or
(d) which permits his rights to purchase stock under all employee stock
purchase plans of the Company to accrue at a rate which exceeds
$25,000 in fair market value of the stock (determined at the time such
option is granted) for each calendar year in whic h such option is
outstanding.
3.3. Commencement of Participation. In order to Participate in the Plan
during a Plan Period, an Eligible Employee must sign and deliver to the
Committee, or its designated representative (which may be an officer or ad hoc
committee of officers of the Company), no later than January 15 or July 15, as
applicable, of the Plan Period during which he or she desires to Participate, a
Subscription Agreement (the form of which shall be adopted by the Committee
prior to the beginning of the first Plan Period) setting forth the Employee's
name, social security number, address, position and the percentage of his or her
Compensation to be withheld as his or her Payroll Deduction. The Committee shall
cause the form of Subscription Agreement to be distributed to all Eligible
Employees on or prior to the Entry Date of any Plan Period. Each Eligible
Employee shall sign and deliver to the Committee additional documents and
instruments reasonably required by the Committee to properly administer the
Plan.
ARTICLE 4
OFFERINGS; COMMON STOCK
4.1. Maximum Number of Shares to be Offered. The maximum number of shares
of Common Stock that will be offered under the Plan, subject to adjustment upon
changes in capitalization of the Company as provided in SECTION 11.4, shall be
one hundred thousand (100,000) shares on each Exercise Date plus on each
Exercise Date all unissued shares from any prior Exercise Date, whether offered
or not, not to exceed five hundred thousand (500,000) for all Exercise Dates.
4.2. Participant's Interest in Option Stock. A Participant does not become
the owner of Option Shares purchased under the Plan and does not have any
voting, dividend or other rights as a shareholder of the Company with respect to
such Option Shares until the transfer of the Option Shares to the Participant on
the shareholder
<PAGE>
records of the Company shall have occurred. The Option Shares shall be
transferred to the Participant within a reasonable time after the Exercise Date
of a particular Plan Period, but only after payment in full for said Option
Shares has been made and there has been compliance with all of the applicable
provisions of the Plan. The Option Shares may be issued in book-entry form or in
the form of physical certificates, at the discretion of the Company. If issued
in book-entry form, the Option Shares will not be evidenced by physical
certificates, and no Participant will have the right to demand the same. A
Participant's ownership of Option Shares will be recorded on or through the
records of the Company. At such time as a Participant shall become the owner of
Option Shares purchased pursuant to this Plan, the Participant shall have the
right to vote, receive dividends and enjoy all other rights as a shareholder of
the Company with respect to such shares.
4.3. Registration of Common Stock. The Common Stock to be delivered to a
Participant under the Plan will be registered in the name of the Participant,
or, if the Participant so directs by written notice to the Secretary of the
Company prior to the Exercise Date applicable thereto, in the names of the
Participant and one such other person as may be designate by the Participant, as
joint tenants with rights of survivorship or as tenants by the entireties, to
the extent permitted by applicable law.
4.4. Restrictions on Transfer of Common Stock.
(a) No Participant who is an affiliate (as defined in the Securities Act
and rules promulgated thereunder) of the Company may sell Option
Shares purchased hereunder unless he shall either (i) cause said
Option Shares to be registered under the Securities Act at his or her
own expense; (ii) comply with the provisions of Rule 144 promulgated
under the Securities Act; or (iii) provide the Company an opinion of
competent securities counsel to the effect that said Participant may
lawfully sell Options Shares without complying with SECTION 4.4(A)(I)
or SECTION 4.4(A)(II).
(b) No Participant shall sell, exchange, pledge, hypothecate or otherwise
transfer the shares of Common Stock received upon each Exercise under
the Plan until the later of (i) a period of one (1) year after the
Exercise Date with respect to such shares of Common Stock or (ii) a
period of two (2) years after the date the Option to acquire such
shares of Common Stock was granted by the Committee.
(c) The foregoing restrictions upon transfer shall be evidenced by an
appropriate legend on each share certificate issued to a Participant.
The restrictions described in SECTION 4.4(B) may be waived by the
Committee provided the Participant demonstrates to the Committee that
the Participant has a financial emergency which necessitates his or
her liquidating shares of Common Stock and makes adequate arrangements
to cover withholding taxes resulting from the early sale of such
Common Stock.
ARTICLE 5
PAYROLL DEDUCTIONS
5.1. Amount of Deduction. Each Eligible Employee shall be entitled to
contribute to the Plan in any Plan Period the lesser of (a) five (5%) percent of
his/her Compensation during the Plan Period or (b) Five Thousand ($5,000.00)
Dollars. By way of additional limitation, all Participant s during a Plan Period
shall be entitled to acquire Common Stock aggregating no more than the number of
shares designated by the Committee on the Entry Date. If, on the Exercise Date
of a Plan Period, the Committee shall determine that the maximum number of whole
shares of Common Stock purchasable at the Option Price out of the cumulative
balance of all Participants' Accounts exceeds the aggregate number of shares
with respect to which Options were granted by the Committee on the Entry Date,
then each Participant shall be entitled to acquire only that number of shares
determined in the manner set forth in SECTION 7.1 below.
<PAGE>
5.2. Participant's Account. All Payroll Deductions made for a Participant
shall be credited to his Account under the Plan. A Participant may not make any
separate cash payment into such Account. The Committee shall cause accurate
records of the Payroll Deductions of all Participants to be maintained, and
shall, upon written request by a Participant, report to the Participant his or
her Account balance as of the Date of the most-recently completed pay period
preceding the date of the Participant's request.
5.3. Changes in Payroll Deductions. A Participant may discontinue his
participation in the Plan as provided in ARTICLE 8, but no other change can be
made during any Plan Period and, specifically, a Participant may not alter the
amount of his payroll deductions for that Plan Period.
5.4. Leave of Absence. If a Participant goes on a leave of absence, such
Participant shall have the right to elect: (a) to withdraw the balance in his or
her Account pursuant to SECTION 7.3; (b) to discontinue contributions to the
Plan but remain a Participant, or (c) remain a Participant, during such leave of
absence, authorizing deductions to be made from payments by the Company to the
Participant during such leave of absence and undertaking to make cash payments
to the Plan at the end of each payroll period to the extent that amounts payable
by the Company to such Participant are insufficient to meet such Participant's
authorized Plan deductions.
ARTICLE 6
GRANTING OF OPTIONS
6.1. Number of Option Shares. On each Entry Date, a Participant shall be
deemed to have been granted an option to purchase a maximum number of shares of
Common Stock in an amount equal to:
(a) (i) that percentage of the Employee's Compensation which he has
elected to have withheld (subject to the limitations set forth in
SECTION 5.1) multiplied by (ii) Employee's Compensation during the
Plan Period
divided by
(b) 85% of the market value of the Common Stock on the applicable Entry
Date. The market value of the Common Stock shall be determined as
provided in SECTION 6.2 below.
An Employee's Compensation during any Plan Period shall be determined by
multiplying his normal weekly rate of pay (as in effect on the last day prior to
the Entry Date of the particular Plan Period) by 26 or the hourly rate by 1,040.
6.2. Option Price. The Option Price of the Common Stock purchased pursuant
to Payroll Deductions made for a Participant therein shall be the lower of:
(a) 85% of the closing price of the stock on the Entry Date or the nearest
prior business day on which trading occurred on the Nasdaq Stock
Market; or
(b) 85% of the closing price of the stock on the Exercise Date or the
nearest prior business day on which trading occurred on the Nasdaq
Stock Market. If the Common Stock is not admitted to trading on any of
the aforesaid dates for which closing prices of the stock are to be
determined, then reference shall be made to the fair market value of
the Common Stock on that date, as determined on such basis as shall be
established or specified for the purpose by the Committee.
6.3. Entry Date. The Entry Date during any Plan Period shall be January 1
and July 1, as applicable, with the initial entry date being January 1, 1999.
The Committee may, in its discretion, grant Options to Eligible Employees on any
Entry Date so long as the Plan has not been terminated and the maximum number of
shares described in SECTION 4.1 shall not have been purchased by Participants.
<PAGE>
ARTICLE 7
EXERCISE OF OPTIONS
7.1. Automatic Exercise. On the Exercise Date of each Plan Period, the
Committee will automatically exercise on each Participant's behalf the Option to
purchase the number of whole Option Shares (no fractional shares will be issued
under the Plan) resulting by dividing the balance of each Participant's Account
by the Option Price; provided, however, that if the aggregate number of whole
Option Shares which could be purchased by the cumulative Account balances of all
Participants exceeds the total number of shares of Common Stock with respect to
which the Committee granted options on the Entry Date of the Plan Period, then
the Committee automatically will exercise on each Participant's behalf the
Option to purchase the number of Option Shares resulting by multiplying the
number of Option Shares purchasable by such Participant without regard to the
Committee's limitation times a fraction, the numerator of which shall be the
total number of shares of Common Stock with respect to which the Committee
granted Options to all Participants during the Plan Period and the denominator
of which shall be the total number of whole Option Shares which would have been
purchasable by all Participants if said limitation had not been in effect.
Assume, for example, that Employee A had $5,000 withheld between July 1 and
December 31 of the first Plan Period. Assume, further, that all Participants had
a total of $625,000 so withheld. Also assume that the formula Option Price
computed pursuant to SECTION 6.2 was $25. However, for that year, the Committee
made available only 12,500 shares under the Plan. The Participants have
contributed enough cash through payroll deductions to acquire 25,000 shares.
However, since the Committee has made available only one-half that number, then
Employee A would be entitled to Exercise his Option with respect to only
one-half the number of shares that he otherwise could have bought with his
$5,000 contribution. The mathematics with respect to Employee A are $5,000 / $25
= 200 possible shares. 200 possible shares x [12,500 available shares / 25,000
aggregate possible shares] = 100 shares of Common Stock acquired by Employee A.
If a Participant's Account balance as of any Exercise Date exceeds the aggregate
Option Price payable for that Participant's Option Shares pursusant o this
section, then such excess shall be refunded to the Participant no later than
fifteen (15) days after the applicable Exercise Date without interest.
7.2. Expiration of Option. If the number of shares of Common Stock with
respect to which Options have been granted during a Plan Period exceeds the
number of Option Shares actually acquired by Exercise on the Exercise Date, then
the Options with respect to such excess shares shall expire on the Exercise
Date; provided, however, that Options with respect to those unissued shares may
be granted in the future.
7.3. Withdrawal of Account. By written notice to the Secretary of the
Company, at any time prior to the Exercise Date in any Plan Period, a
Participant may elect to withdraw all the accumulated Payroll Deductions in his
Account at such time.
7.4. Fractional Shares. Fractional shares will not be issued under the Plan
and any accumulated payroll deductions which would have been used to purchase
fractional shares will be returned to any Eligible Employee promptly following
the applicable Exercise Date, without interest.
7.5. Transferability of Option. During a Participant's lifetime, Options
held by such Participant shall be exercisable only by that Participant.
7.6. Delivery of Common Stock. As promptly as practicable after the
Exercise Date of each Plan Period, the Company will deliver to each Participant,
as appropriate, the Common Stock purchased upon exercise of his Option.
<PAGE>
ARTICLE 8
WITHDRAWAL
8.1. In General. As indicated in SECTION 7.3, a Participant may withdraw
Payroll Deductions credited to his Account under the Plan at any time by giving
written notice to the Secretary of the Company. All of the Participant's Payroll
Deductions credited to his Account will be paid to him promptly after receipt of
his notice of withdrawal, and no further Payroll Deductions will be made from
his pay during such Plan Period. The Company may, at its option, treat any
attempt to borrow by an Employee on the security of his accumulated Payroll
Deductions as an election, under SECTI ON 7.3, to withdraw such deductions.
8.2. Effect on Subsequent Participation. A Participant's withdrawal during
any Plan Period will not have any effect upon his eligibility to participate in
any succeeding Plan Period or in any similar plan which my hereafter be adopted
by the Company.
8.3. Termination of Employment. Upon termination of the Participant's
employment for any reason, including retirement (but excluding death while in
the employ of the Company), the Payroll Deductions credited to his Account will
be returned to him, or, in the case of his death subsequent to the termination
of his employment, to the person or persons entitled thereto under SECTION 11.1.
8.4. Termination of Employment Due to Death. Upon termination of the
Participant's employment because of his death, his beneficiary (as defined in
SECTION 11.1) shall have the right to elect, by written notice given to the
Secretary of the Company prior to the earlier of the Exercise Date or the
expiration of a period of sixty (60) days commencing with the date of the death
of the participant, either:
(a) to withdraw all of the Payroll Deductions credited to the
Participant's Account under the Plan, or
(b) to exercise the Participant's Option for the purchase of Common Stock
on the Exercise Date next following the date of the Participant's
death for the purchase of the number of full shares of stock which the
accumulated Payroll Deductions in the Participant's Account at the
date of the Participant's death will purchase at the applicable Option
Price, and any excess in such Account will be returned to said
beneficiary, without interest.
In the event that no such written notice of election shall be duly received by
the office of the Secretary of the Company, the beneficiary shall automatically
be deemed to have elected, pursuant to SECTION 8.4(B), to exercise the
Participant's option.
ARTICLE 9
INTEREST
9.1. Payment of Interest. No interest will be paid or allowed on any money
paid into the Plan or credited to the Account of any Participant; provided,
however, that interest shall be paid on any and all money which is distributed
to an Employee or his beneficiary pursuant to the provisions of SECTION 7.3,
SECTION 8.1, SECTION 8.3 and SECTION 8.4. Such distributions shall bear simple
interest during the period from the date of withholding to the date of return at
the regular passbook savings account rates per annum in effect at Union Planters
Bank, Memphis, Tennessee during the applicable Plan Period or, if such rates are
not published or otherwise available for such purpose, at the regular passbook
savings account rates per annum in effect during such period at another major
commercial bank in Memphis, Tennessee selected by the Committee. Where the
amount returned represents an excess amount in a Participant's Account after
such Account has been applied to the purchase of Common Stock, the Participant's
Account shall be deemed to have been applied first toward purchase of Common
Stock under the Plan, so that interest shall be paid on the last withholdings
during the period which results in the excess amount.
<PAGE>
ARTICLE 10
ADMINISTRATIVE PROVISIONS
10.1. Administration of Plan. The Plan shall be administered under the
direction and control of the Committee.
10.2. Authority of Committee. Subject to the express provision of the Plan,
the Committee shall have plenary authority in its discretion to interpret and
construe any and all provisions of the Plan, to adopt rules and regulations for
administering the Plan, and to make all other determinations deemed necessary or
advisable for administering the Plan. The Committee's determination on the
foregoing matters shall be conclusive. Without limiting the generality of the
foregoing, in administering the Plan, the Committee shall have the following
rights and powers, subject only to the terms and the limitations contained
herein:
(a) to establish the maximum number of shares of Common Stock with respect
to which Options may be exercised during a Plan Period (subject to the
limits established in SECTION 4.1);
(b) to interpret the terms, conditions and limitations set forth in the
Plan, which determinations shall be final with respect to each and
every Participant;
(c) to refuse to grant Options during a Plan Period;
(d) to determine the eligibility of any Employee to Participate;
(e) to make all computations, maintain all accounts, provide for the
issuance of all Option Shares, and do all other acts and things
reasonably necessary to properly administer the Plan; and
(f) To revoke, alter, or amend the terms and conditions of the Plan
without obtaining the prior approval of the Participants or the
Company's shareholders, subject, however, to the limitations
hereinafter stated.
10.3. Rules Governing the Administration of the Committee. The Board of
Directors may from time to time appoint members of the Committee in substitution
for or in addition to members previously appointed and may fill vacancies,
however caused, in the Committee. The Committee may select one of its members as
its Chairman and shall hold its meetings at such times and places as it shall
deem advisable and may hold telephonic meetings. A majority of its members shall
constitute a quorum. All determinations of the Committee shall be made by a
majority of its members. The Committee may correct any defect or omission or
reconcile any inconsistency in the Plan, in the manner and to the extent it
shall deem desirable. Any decision or determination reduced to writing and
signed by a majority of the members of the Committee shall be as fully effective
as if it had been made by a majority vote at a meeting duly called and held. The
Committee may appoint a secretary and shall make such rules and regulations for
the conduct of its business as it shall deem advisable.
<PAGE>
ARTICLE 11
MISCELLANEOUS
11.1. Designation of Beneficiary. A Participant may file a written
designation of a beneficiary who is to receive any Common Stock and/or cash.
Such designation of beneficiary may be changed by the Participant at any time by
written notice to the Secretary of the Company. Upon the death of a Participant
and upon receipt by the Company of proof of identity and existence at the
Participant's death of a beneficiary validly designated by him under the Plan,
the Company shall deliver such Common Stock and/or cash to such beneficiary. In
the event of the death of a Participant and in the absence of a beneficiary
validly designated under the Plan who is living at the time of such
Participant's death, the Company shall deliver such Common Stock and/or cash to
the executor or administrator of the estate of the Participant, or if no such
executor or administrator has been appointed (to the knowledge of the Company),
the Company, in its discretion, may deliver such Common Stock and/or cash to the
spouse or to any one or more dependents of the Participant as the Company may
designate. No beneficiary shall, prior to the death of the Participant by whom
he has been designated, acquire any interest in the Common Stock or cash
credited to the Participant under the Plan.
11.2. Transferability. Neither Payroll Deductions credited to a
Participant's Account nor any rights with regard to the exercise of an Option or
to receive Common Stock under the Plan may be assigned, transferred, pledged, or
otherwise disposed of in any way by the Participant other than by will or the
laws of descent and distribution. Any such attempted assignment, transfer,
pledge or other disposition shall be without effect, except that the Company may
treat such act as an election to withdraw funds in accordance with SECTION 7.3.
11.3. Use of Funds. All Payroll Deductions received or held by the Company
under this Plan may be used by the Company for any corporate purposes and the
Company shall not be obligated to segregate such Payroll Deductions.
11.4. Adjustments upon Change in Capitalization.
(a) If, while any Options are outstanding, the outstanding shares of
Common Stock of the Company have increased, decreased, changed
into, or been exchanged for a different number or kind of shares
or securities of the Company through reorganization, merger,
recapitalization, reclassification, stock split, reverse stock
split or similar transaction, appropriate and proportionate
adjustments may be made by the Committee in the number and/or
kind of shares which are subject to purchase under outstanding
Options and on the Option Price or prices applicable to such
outstanding Options. In addition, in any such event, the number
and/or kind of shares which may be offered shall also be
proportionately adjusted. No adjustments shall be made for stock
dividends. For the purposes of this SECTION 11.4, any
distribution of shares to shareholders in an amount aggregating
20% or more of the outstanding shares shall be deemed a stock
split and any distributions of shares aggregating less than 20%
of the outstanding shares shall be deemed a stock dividend.
(b) Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company with one
or more corporations as a result of which the Company is not the
surviving corporation, or upon a sale of substantially all of the
property or stock of the Company to another individual or entity,
the holder of each option then outstanding under the Plan will
thereafter be entitled to receive at the next Exercise Date upon
the Exercise of such Option for each share as to which such
Option shall be exercised, as nearly as reasonably may be
determined, the cash, securities and/or property which a holder
of one share of the Common Stock was entitled to receive upon and
at the time of such transaction. The Board of Directors shall
take such steps in connection
<PAGE>
with such transactions as the Board shall deem necessary to
assure that the provisions of this SECTION 11.4(B) shall
thereafter be applicable, as nearly as reasonably may be
determined, in relation to the said cash, securities and/or
property as to which such holder of such Option might thereafter
be entitled to receive.
11.5. Amendment and Termination. The Board of Directors shall have complete
power and authority to terminate or amend the Plan; provided, however, that the
Board of Directors shall not, without the approval of the shareholders of the
Corporation:
(a) increase the maximum number of shares which may be issued
pursuant to the Plan (except pursuant to SECTION 11.4);
(b) amend the requirements as to the class of Employees eligible
to purchase Common Stock under the Plan or permit the
members of the Committee to purchase stock under the Plan;
or
(c) amend the Plan in any manner which would have the effect of
causing the Plan not to be an "employee stock purchase plan"
as defined and set forth in Section 423 of the Code.
No termination, modification, or amendment of the Plan may, without the consent
of an employee then having an Option under the Plan to purchase stock, adversely
affect the rights of such employee under such Option.
11.6. Control of Funds; ERISA. The Plan shall not be subject to the
provisions of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and the Plan shall be unfunded. In that regard, the cumulative amount
of Account balances of all Participants shall remain part of the general funds
of the Company and shall at all times during a Plan Period be subject to the
claims of all the Company's creditors.
11.7. Shareholder Approval; Registration. This Plan shall not be effective
until:
(a) it shall have been approved by the shareholders of the Company in
accordance with the Company's bylaws and Tennessee law at the
annual meeting of such shareholders to be held in 1999;
(b) a Registration Statement filed with respect to the Common Stock
offered pursuant to this Plan shall have become effective, and
appropriate registration of the Common Stock with any state
agency or securities law administrator required by the Blue Sky
Law of any state shall likewise have become effective;
(c) each Participant shall have been provided a prospectus meeting
the requirements of Section 10 of the Securities Act no later
than the time such Participant delivers an executed Subscription
Agreement to the Committee, which prospectus will be updated and
supplemented as required by law; and
(d) prior to the issuance of Option Shares on any Exercise Date, the
Company shall have caused said Option Shares to be listed on the
Nasdaq Stock Market, whereupon the Option Shares may be freely
sold by Participants, subject to the limitations contained in the
Plan.
<PAGE>
Notwithstanding the foregoing, Participants may commence Payroll Deductions upon
adoption of this Plan by the Board of Directors of the Company and will be
deemed to have acquired Option Shares on the December 31, 1999 Exercise Date if
shareholder approval is so obtained, which approval will be retroactive to such
Exercise Date. The Company will pay dividends in respect of such Option Shares
deemed to be so acquired at such time as shareholder approval is obtained.
11.8. No Employment Rights. The Plan does not, directly or indirectly,
create any right for the benefit of any employee or class of employees to
purchase any shares of Common Stock under the Plan, or create in any employee or
class of employees any right with respect to continuation of employment by the
Company, and it shall not be deemed to interfere in any way with the Company's
right to terminate, or otherwise modify, an employee's employment at any time.
11.9. Effect of Plan. The provisions of the Plan shall, in accordance with
its terms, be binding upon, and inure to the benefit of, all successors of each
Participant, including, without limitation, such Participant's estate and the
executors, administrators or trustees thereof, heirs and legatees, and any
receiver, trustee in bankruptcy or representative of creditors of such
Participant.
11.10.Governing Law; Venue. The Plan shall be governed by and construed in
accordance with the domestic laws of the State of Tennessee without giving
effect to any choice or conflict of law, provision or rule (whether of the State
of Tennessee or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of Tennessee. Each of the parties
submits to the jurisdiction of any state or federal court sitting in Memphis,
Tennessee, in any action or proceeding arising out of or relating to the Plan
and agrees that all claims in respect of the action or proceeding shall be heard
and determined in any such court. No Participant shall bring any action or
proceeding arising out of or relating to the Plan in any other court. No
Participant shall raise any defense of inconvenient forum to the maintenance of
any action or proceeding so brought and waives any bond, surety, or other
security that might be required of any other party with respect thereto.
AS DULY ADOPTED BY THE BOARD OF DIRECTORS OF MASTER GRAPHICS, INC. AS OF
FEBRUARY 10, 1999.
[ATTACHMENT -- PROXY CARD]
PROXY
Master Graphics, Inc.
6075 Poplar Avenue, Suite 401, Memphis, Tennessee 38103
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned appoints John P. Miller and Lance T. Fair or either of them with
full power of substitution and revocation to vote as proxy for the undersigned
at the Annual Meeting of Shareholders of Master Graphics, Inc. (the "Company")
to be held at The Crescent Club, 6075 Poplar Avenue, Suite 900, Memphis,
Tennessee 38119 on May 19, 1999, at 9:00 A.M., local time, and at any and all
adjournments or postponements thereof, according to the number of votes the
undersigned would be entitled to vote if personally present on the proposals set
forth below (and as more fully set forth in the Note of Meeting enclosed
herewith). The Proxy is further authorized to vote in his discretion as to any
other matters which may properly come before the meeting. The Board of Directors
at the time of preparation of the Proxy Statement knows of no business to come
before the meeting other than that referred to in the Proxy Statement.
THE SHARES COVERED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE
INSTRUCTIONS GIVEN BELOW AND WHEN NO INSTRUCTIONS ARE GIVEN WILL BE VOTED FOR
THE PROPOSALS DESCRIBED IN THE ACCOMPANYING NOTICE OF ANNUAL MEETING AND PROXY
STATEMENT AND ON THIS PROXY.
(1) To elect 2 Directors
[ ] For all nominees listed below [ ] WITHHOLD AUTHORITY to vote for all
(except as indicated to the nominees listed below.
contrary below).
H. Henry (Hap) Hederman, Donald L. Hutson
Instruction: To withhold authority to vote for any individual nominee,
write such nominee's name in the space provided below.
(2) To approve and adopt the Master Graphics' Employee Stock Purchase Plan.
[ ] For [ ] Against [ ] Abstain
[Continued on other side]
(3) To approve an amendment to the Master Graphics' 1998 Equity Compensation
Plan to increase the number of shares of common stock issuable thereunder
from 750,000 to 1,500,00.
[ ] For [ ] Against [ ] Abstain
(4) To ratify the selection of KMPG LLP as the Company's independent auditors
for fiscal 1999.
[ ] For [ ] Against [ ] Abstain
The undersigned hereby acknowledges receipt of notice of said meeting and the
related Proxy Statement.
Dated:_____________________________, 1999 Please sign
exactly as the name appears to the left. When shares are
held by joint tenants, both should sign. When signing as
attorney, executor, administrator, trustee or guardian,
please give full title as such. If a corporation, please
sign the full corporate name by President or other
authorized officer. If a partnership, please sign in the
partnership's name by authorized person.
_______________________________________________________
Signature
_______________________________________________________
Signature (if held jointly)
Please mark, sign, date and return this proxy card promptly using the enclosed
envelope.
