<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
Master Graphics, Inc.
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------------------------
Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
<PAGE>
Master Graphics, Inc.
70 Timber Creek Drive, Suite 5
Cordova, Tennessee 38018
Notice of Annual Meeting of Shareholders
to be held June 16, 2000
The second regular annual meeting of shareholders of Master Graphics, Inc.
will be held on Friday, June 16, 2000, at 10:30 a.m., Memphis Tennessee time, at
the Radisson Inn Airport, 2411 Winchester Road, Memphis, Tennessee, for the
following purposes:
1. Amendment of the Company's Charter. To amend our Charter to eliminate
the current three-class structure of our Board of Directors and to
designate all directors as a single class.
2. Election of Directors. The number of directors to be elected at the
annual meeting and the length of the term they will serve depend on
whether the shareholders approve the proposal to amend our Charter.
Therefore, the shareholders will vote on two proposals with respect to
the election of directors:
(A) To elect five directors to serve until the 2001 Annual Meeting of
Shareholders in the event the shareholders approve the proposal to
amend our Charter.
(B) To elect two Class II directors to serve until the 2003 Annual
Meeting of Shareholders in the event the shareholders do not approve
the proposal to amend our Charter.
3. Amendment to the Non-Employee Director Stock Option Plan. To approve
an amendment of our 1998 Non-Employee Director Stock Option Plan which
increases from 50,000 to 350,000 the number of shares that can be
issued under the plan; and
4. 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 27,
2000 are entitled to notice of, and to vote at, the annual meeting and any
adjournment thereof. On that day, 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/ P. Melvin Henson, Jr.
-----------------------------------
P. Melvin Henson, Jr.
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 LOGO HERE]
April 28, 2000
TO THE SHAREHOLDERS OF
MASTER GRAPHICS, INC.
In connection with our annual shareholders' meeting to be held on June 16,
2000, 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:
. amend our Charter to eliminate the current three-class structure of
our Board of Directors;
. if the proposal to amend our Charter passes, elect five directors to
serve until the 2001 Annual Meeting of Shareholders;
. if the proposal to amend our Charter does not pass, elect two Class II
directors to serve until the 2003 Annual Meeting of Shareholders; and
. approve an increase in the number of shares that can be issued under
our Non-Employee Director Stock Option Plan.
Information about these matters is contained in the attached proxy
statement.
Detailed information relating to Master Graphics' activities and operating
performance during 1999 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 1999 Annual
Report, please notify P. Melvin Henson, Jr., Secretary, Master Graphics, Inc.,
70 Timber Creek Drive, Suite 5, Cordova, Tennessee 38018.
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 enclosed stamped envelope as
soon as possible.
Very truly yours,
/s/ Robert J. Diehl
-----------------------------
Robert J. Diehl
President and Chief Executive Officer
<PAGE>
Master Graphics, Inc.
70 Timber Creek Drive, Suite 5
Cordova, Tennessee 38018
- - --------------------------------------------------------------------------------
Proxy Statement for 2000 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 May 8, 2000.
- - --------------------------------------------------------------------------------
Information about the Annual Meeting
- - --------------------------------------------------------------------------------
Annual Meeting............ June 16, 2000 Radisson Inn Airport
10:30 a.m. 2411 Winchester Road
Memphis, Tennessee time Memphis, Tennessee
Items to be voted upon.... You will be voting on the following matters:
(1) Amendment of the Company's Charter. To amend
our Charter to eliminate the current three-
class structure of our Board of Directors and
to designate all directors as a single class.
(2) Election of Directors. The number of directors
to be elected at the annual meeting and the
length of the term they will serve depend
whether the shareholders approve the proposal
to amend our Charter. Therefore, the
shareholders will vote on two proposals with
respect to the election of directors:
(A) To elect five directors to serve until the
2001 Annual Meeting of Shareholders in the
event the shareholders approve the proposal to
amend our Charter.
(B) To elect two Class II directors to serve
until the 2003 Annual Meeting of Shareholders
in the event the shareholders do not approve
the proposal to amend our Charter.
(3) Amendment to the 1998 Non-Employee Director
Stock Option Plan. To approve an amendment of
our 1998 Non-Employee Director Stock Option
Plan to increase from 50,000 to 350,000 the
number of shares that can be issued under the
plan;
<PAGE>
(4) Other Business. To transact such other
business as may properly come before the
meeting or any adjournment thereof.
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 27, 2000. Each
shareholder is entitled to one vote for each
share of common stock held on that date. On
April 27, 2000, 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
each proposal regarding 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
"Abstain" 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 amendment of our Charter;
. "For" the election of all of the Board's
nominees for director in both proposals
regarding the election of directors;
and
. "For" the approval of the amendment to
our 1998 Non-Employee Director Stock
Option Plan.
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, P. Melvin
Henson, Jr.
2
<PAGE>
Votes required............ If a quorum is present at the annual meeting,
. the director nominees (in the applicable
proposal) will be elected by the affirmative
vote of a plurality of the votes cast at the
annual meeting, whether in person or by
proxy; and
. all other matters submitted to the
shareholders will require the affirmative
vote of a majority of the votes cast at the
annual meeting, whether in person or by
proxy.
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, clearing
agency 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. If a nominee is not allowed to
vote on a particular matter, 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 whether a
quorum exists. Broker non-votes will not be
counted as present or represented for that
purpose.
Effect of Abstentions and Broker Non-Votes.
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.
However, abstentions will not count in the voting
results. 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 the
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.
3
<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 $3500, 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 1999 were
met, with the exception of
the following:
. Mr. Michael B. Bemis, our
current Chairman of the
Board, inadvertently
failed to timely file a
Form 3, Initial Statement
of Beneficial Ownership
of Securities, at the
time he became a
director;
. Mr. John P. Miller, our
former President, Chief
Executive Officer and
Chairman of the Board,
inadvertently failed to
timely file a Form 4,
Statement of Changes of
Beneficial Ownership of
Securities, with respect
to transactions in our
common stock occurring in
November and December
1999; and
. Mr. Lance T. Fair, our
former Chief Financial
Officer, inadvertently
failed to timely file a
Form 4, Statement of
Changes of Beneficial
Ownership of Securities,
with respect to a
transaction in our common
stock occurring in
October 1999.
These inadvertent errors have
been corrected and all
necessary filings have now
been made.
4
<PAGE>
Advance Notice Procedures.................. Shareholder Proposals for Annual
Meeting in 2001. Proposals by
shareholders to be considered
for inclusion in the proxy
materials solicited by the
directors for the annual
shareholders meeting in 2001
must be received by our
corporate Secretary, 70 Timber
Creek Drive, Suite 5, Cordova,
Tennessee 38018, no later than
December 31, 2000. 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.
Independent Auditor........................ KPMG LLP served as our
independent auditor for our 1999
fiscal year. However, as a
result of the delay in
finalizing our 1999 audit, as of
the date of this proxy statement
our Board of Directors has not
selected an independent auditor
for our 2000 fiscal year.
Representatives of KPMG LLP are
expected to be present at the
2000 annual meeting. At the
annual meeting, they will have
an opportunity to make a
statement if they desire to do
so, and they are expected to be
available to respond to
appropriate questions.
- - --------------------------------------------------------------------------------
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.
5
<PAGE>
Board Structure............................. Currently, our Board is composed
of seven directors, and it is
divided into three classes:
Class I directors, Class II
directors, and Class III
directors. Each class of
directors is elected to serve a
three year term. If the
shareholders approve the
proposal to amend our Charter,
this three-class structure of
the Board will be eliminated and
all directors then will be
elected on an annual basis. The
Board has nominated five
individuals for election by the
shareholders at the 2000 annual
meeting to serve until the 2001
annual meeting (unless those
directors resign or are
removed). With only five
directors, the Board would have
two vacancies. Those vacancies
may be filled by the affirmative
vote of a majority of our
directors. Any director
appointed to fill a vacancy on
the Board will serve a term that
expires at the next annual
meeting of shareholders
following that director's
appointment.
If the shareholders do not
approve the proposal to amend
our Charter, the classified
structure of our Board will
remain intact, and all directors
will continue to serve three
year terms. This means that the
shareholders would elect only
two Class II directors at the
2000 meeting to serve until the
2003 annual meeting of
shareholders, unless those
directors resign or are removed.
1999 Board Meetings......................... In 1999, the Board met six
times. During 1999, no incumbent
director attended less than 75%
of the aggregate of the board
meetings (held during the period
for which he has been a
director) and the meetings of
the committees on which he
served (during the periods that
he served).
Board Committees............................ During 1999, the Board had four
standing committees: an Audit
Committee; a Compensation
Committee; an Options and
Benefits Committee; and an
Acquisition Committee. Our Board
does not have a standing
Nominating Committee.
6
<PAGE>
The Audit Committee currently is
composed of three members, Mr.
Michael B. Bemis, Mr. Frederick
F. Avery and Mr. Donald L.
Hutson. The Audit Committee met
one time during 1999. The
committee has the responsibility
for:
. exercising general oversight
over our financial reporting
process;
. 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; and
. reviewing with management
litigation and other legal
matters that may affect Master
Graphics' financial condition.
The current members of the
Compensation Committee are Mr.
Frederick F. Avery and Mr.
Donald L. Hutson. The
Compensation Committee met one
time during 1999. The committee
reviews and makes
recommendations to the Board
concerning the compensation of
our President and Chief
Executive Officer and our other
executive officers.
The current members of the
Options and Benefits Committee
are Mr. Frederick F. Avery and
Mr. Donald L. Hutson. The
Options and Benefits Committee
did not meet during 1999. The
committee has the responsibility
to assist in the oversight of
the our employee benefit plans.
The current members of the
Acquisition Committee are Mr.
Henry H. (Hap) Hederman, Jr. and
Mr. Cary Rosenthal. The
Acquisition Committee did not
meet during 1999. The committee
has the authority to approve our
acquisitions priced at less than
$10.0 million.
7
<PAGE>
Director Compensation.......................... We pay non-employee directors
a fee of $1,000 for each Board
meeting attended and $500 for
each committee 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 the duties
they perform as directors.
1998 Non-Employee Director Stock Option Plan... We did not grant any options
under the plan in 1999.
However, in early 2000, we
granted options to purchase a
total of 160,000 shares of
common stock. The grant of
options to purchase 120,000 of
those shares is subject to
shareholder approval of the
proposed amendment to increase
the number of shares issuable
under the plan to a total of
350,000 shares. If that
amendment is not approved,
those options will be granted
outside the auspices of the
plan.
8
<PAGE>
- - --------------------------------------------------------------------------------
Executive Officers
- - --------------------------------------------------------------------------------
The following table sets forth certain information concerning the executive
officers of Master Graphics.
Name Age Position
Robert J. Diehl........ 58 Chief Executive Officer and President; Class II
Director
P. Melvin Henson, Jr... 42 Chief Financial Officer
Donald H. Goldman...... 64 Senior Vice President; Chief Operating Officer;
Chief Information Officer
James B. Duncan........ 57 Senior Vice President - Sales and Marketing
Robert J. Diehl has been the Chief Executive Officer and President of Master
Graphics since December 1999. Mr. Diehl served as Master Graphics' Chief
Operating Officer from January 1998 to December 1999. 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 Chief Financial Officer of Master Graphics
since January 2000. Mr. Henson previously served as Senior Vice President--
Finance and Administration and Chief Accounting Officer of Master Graphics from
December 1997 through December 1999. 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, controller for International Paper's pulp and paper
manufacturing facility in Erie, Pennsylvania, and Manager-Cost Analysis for
International Paper's Printing Papers business sector.
Donald H. Goldman has been a Senior Vice President and the Chief Information
Officer of Master Graphics since July 1998. Mr. Goldman also assumed the
position of Chief Operating Officer in January 2000. 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.
9
<PAGE>
________________________________________________________________________________
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 four other most
highly paid executive officers earning in excess of $100,000 during 1999.
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
---------------------------- ---------------------
Fiscal Shares Underlying
Name and Principal Position Year Salary Bonus Options
<S> <C> <C> <C> <C>
John P. Miller (1)............................. 1999 $250,000 -- --
Former Chairman of the Board, President and 1998 250,000 -- --
Chief Executive Officer 1997 145,833 -- --
Robert J. Diehl (2)............................ 1999 $175,000 -- --
President and Chief Executive Officer 1998 175,000 -- 30,000
1997 -- 300,000(3) --
Lance T. Fair (4).............................. 1999 $120,000 60,000(5) --
Former Senior Vice President--Acquisitions 1998 120,000 -- 100,000
and Chief Financial Officer 1997 34,153 600,000(3) --
P. Melvin Henson, Jr. (6)...................... 1999 $100,000 -- --
Chief Financial Officer 1998 97,500 -- 10,000
1997 5,625 50,000(3) --
James B. Duncan................................ 1999 $100,000 -- --
Senior Vice President - Sales and Marketing 1998 100,000 -- 10,000
1997 20,833 50,000(3) --
Donald H. Goldman (7).......................... 1999 $100,000 -- --
Senior Vice President; Chief Operating 1998 50,000 -- --
Officer; Chief Information Officer 1997 -- -- --
</TABLE>
___________________________
(1) Mr. Miller resigned as President and Chief Executive Officer of Master
Graphics in December 1999. Mr. Miller subsequently resigned as Chairman of
the Board in January 2000.
(2) Mr. Diehl has been the Chief Executive Officer and President of Master
Graphics only since December 1999. Prior to that time, Mr. Diehl served as
Master Graphics' Chief Operating Officer beginning January 1998.
(3) 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.
(4) Mr. Fair resigned as Chief Financial Officer and Senior Vice President--
Acquisitions effective December 31, 1999.
(5) Represents a severance payment made to Mr. Fair upon his resignation. This
amount was offset against future payments due to Mr. Fair under the
deferred compensation plan described in note 3 above.
(6) Mr. Henson has been the Chief Financial Officer of Master Graphics since
January 2000.
10
<PAGE>
Mr. Henson previously served as Senior Vice President-Finance and
Administration and Chief Accounting Officer of Master Graphics from
December 1997 through December 1999.
(7) Mr. Goldman has been a Senior Vice President and the Chief Information
Officer of Master Graphics since July 1998. Mr. Goldman also assumed the
position of Chief Operating Officer in January 2000.
Employment Agreements
We have employment agreements with each of our current executive officers named
in the Summary Compensation Table above. The general terms of the employment
agreements are described in the table below:
Term............................ Each employment agreement, other than our
agreement with Mr. Duncan, has an initial
term of two years (commencing January 2000)
and is automatically renewed for one year
periods unless terminated by one of the
parties. The term of our agreement with Mr.
Duncan expires as of March 2001.
Compensation.................... The employment agreements provide for the
following annual base salaries: Mr. Diehl--
$250,000; Mr. Henson--$130,000; Mr. Goldman--
$130,000; and Mr. Duncan--$100,000. The
annual base salaries are subject to increase
at the discretion of the Board of Directors.
In addition, the agreements provide for
annual incentive compensation to each officer
of up to 100% of his base salary based on
established performance targets.
Termination Provisions.......... Except with respect to our agreement with Mr.
Duncan, in the event 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 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 fiscal years. Under
similar circumstances, we will pay Mr. Duncan
a lump sum severance payment equal to 200% 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 and incentive compensation through the
date of termination.
11
<PAGE>
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
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 fiscal years; and
(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
We did not grant any stock options during the 1999 fiscal year to any of the
executive officers named in the Summary Compensation Table above.
The following table sets forth the total number of options to purchase shares of
common stock held as of December 31, 1999, by the executive officers named in
the Summary Compensation Table above. No options were exercised by those
executive officers in 1999. In addition, no options held by those executive
officers as of December 31, 1999 were "in-the-money."
Number of Securities
Underlying Unexercised
Options at
December 31, 1999
-----------------------------
Exercisable Unexercisable
John P. Miller............................... -- --
Robert J. Diehl.............................. 7,500 22,500
Lance T. Fair................................ 25,000 75,000(1)
P. Melvin Henson, Jr......................... 2,500 7,500
James B. Duncan.............................. 2,500 7,500
Donald H. Goldman............................ -- --
__________________
(1) Upon Mr. Fair's resignation from the company effective as of December 31,
1999, the option held by Mr. Fair to purchase these shares of common stock
terminated.
12
<PAGE>
________________________________________________________________________________
Compensation Committee Interlocks and Insider Participation
________________________________________________________________________________
The Compensation Committee of the Master Graphics Board of Directors currently
is composed of Mr. Frederick F. Avery and Mr. Donald L. Hutson. However, Mr.
John P. Miller, our former Chairman of the Board, President and Chief Executive
Officer, also served as a member of the compensation committee of our Board of
Directors during 1999. Mr. Miller did not participate in actions or
considerations by the compensation committee with respect to his own
compensation. Mr. Miller resigned as our President and Chief Executive Officer
in December 1999 and as Chairman of the Board in January 2000.
Premier Graphics, Inc., our wholly-owned operating subsidiary, leases from Mr.
Miller the facilities in which our 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.
Premier Graphics also leases a printing press from Equipment Holding Company,
LLC. The equipment lease expires on January 31, 2004. The rental amount payable
under the lease agreement is $65,982.79 per month. Mr. John P. Miller and his
wife are the owners of Equipment Holding Company, LLC. We believe that the terms
of the equipment lease are no less favorable to us than could have been
negotiated with unaffiliated third parties.
________________________________________________________________________________
Report of the Compensation Committee on Executive Compensation
________________________________________________________________________________
The Committee. The Compensation Committee develops and recommends to the Board
of Directors compensation policies for the company's executive officers. The
Committee is responsible for establishing the salary rates and other
compensation policies and programs for the executive officers, examining
periodically the compensation structure for executive officers, and recommending
any changes to the Board of Directors. The Committee in 1999 was composed of
three members, John P. Miller, Frederick F. Avery and Donald L. Hutson. Mr.
Miller subsequently resigned from the Board in January 2000.
Compensation Philosophy and Policies. The philosophy of the Committee is to
develop a compensation program for the company's executive officers that is
designed to attract, retain and motivate executives capable of leading the
company, creating strong financial performance, maintaining the value and
capability of the company's assets, and acquiring and/or divesting assets which
enable the company to achieve a competitive advantage in its individual
markets.
The executive compensation program is intended to provide an overall level of
compensation which rewards individual performance, aligns compensation to
achieve both short term and long term performance goals of the company and links
the interests of executive officers with those of shareholders.
The Committee reviews and recommends to the Board of Directors changes in
compensation for executive officers including base salary and annual bonus.
Changes in compensation are based on judgments of past performance, job scope
and responsibilities and expected future contributions. However, the Committee's
primary determinant is most recent past performance.
Components of Executive Compensation. Compensation for the company's executive
officers consists of both base salary and performance-based bonus
compensation:
Salary. In establishing salary compensation, the Committee considers
financial and operating performance compared to the company's internal
financial and operating plans for the fiscal year. Base salaries
reflect the individuals' experience, ability to work effectively with
other executive officers and outside organizations and achievement of
financial stability and strength.
Bonus. Bonus compensation, if any, is typically established as a
percentage of the executive officer's base salary, and it is based on
attainment of specific objectives, including EBITDA targets, cash flow,
financial strength and year-end earnings.
Executive officers are also eligible to receive awards, including stock options,
under the company's 1998 Equity Compensation Plan, which is administered by the
Options and Benefits Committee of the Board of Directors.
Executive Compensation for 1999. During fiscal year 1999, the company's
executive officers were parties to employment contracts with Master Graphics.
Pursuant to those contracts, compensation included negotiated base salary and
performance-based bonus compensation of up to 100% of base salary. In reviewing
executive compensation for fiscal year 1999, the Committee determined that the
executive officers were sufficiently compensated with base salary under the
terms of their individual employment contracts. The Committee did not award any
bonus compensation.
Compensation of the Chief Executive Officer. Mr. John P. Miller served as the
company's President and Chief Executive Officer until his resignation in
December 1999. At that time, Mr. Robert J. Diehl was elected by the Board to
those positions. Mr. Miller's 1999 compensation was determined in accordance
with the provisions of his employment contract entered into in March 1998, which
provided for an annual base salary of $250,000 and performance-based bonus
compensation of up to $250,000 per year. Mr. Miller did not receive any bonus
compensation in 1999. Mr. Diehl's 1999 compensation likewise was determined in
accordance with the provisions of his employment contract entered into March
1998 (at which time Mr. Diehl served as Chief Operating Officer), which provided
for an annual base salary of $175,00 and performance-based bonus compensation of
up to $175,000 per year. Mr. Diehl did not receive any bonus compensation in
1999. The company has subsequently entered into a new employment contract with
Mr. Diehl.
Although Mr. Miller served as a member of the Compensation Committee during
1999, he did not participate in any Committee discussions relating to his own
compensation.
Respectfully submitted,
Frederick, F. Avery (Chairman)
Donald L. Hutson
13
<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 (the "Current Peer Group"). It shows an investment of
$100 on June 8, 1998. The Current Peer Group comparison includes Cadmus
Communications Corp., Champion Industries, Inc., Consolidated Graphics, Inc.,
Mail Well, Inc. and Wallace Computer Services, Inc.
[GRAPH APPEARS HERE]
Legend
06/1998 12/1998 06/1999 12/1999
_______ ------- ------- -------
Master Graphics, Inc. 97.4 52.0 44.7 14.8
Nasdaq Stock Market
(US Companies) 107.4 125.9 154.4 233.0
Self-Determined Peer Group 98.8 88.9 85.1 51.9
Companies in the Self-Determined Peer Group
CADMUS COMMUNICATIONS CORP
CONSOLIDATED GRAPHICS INC CHAMPION INDUSTRIES INC
WALLACE COMPUTER SERVICES INC MAIL WELL INC
Notes:
A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization on the
previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a trading
day, the preceeding trading day is used.
D. The index level for all series was set to $100.0 on 06/10/1998.
14
<PAGE>
The graph included in our proxy statement for the 1999 Annual Meeting of
Shareholders likewise compared the performance of Master Graphics with a peer
group index (the "Former Peer Group"). Although the companies composing the
Current Peer Group were in the Former Peer Group, the Former Peer Group also
included World Color Press Inc. We did not include World Color Press Inc. in the
Current Peer Group because that company was acquired by Quebecor Printing Inc.
in 1999, and the stock of World Color Press Inc. is no longer publicly traded.
We believe the business of Quebecor Printing Inc. is much broader than our
business, and, therefore, we do not believe Quebecor Printing Inc. is a peer
company.
However, if we had included World Color Press Inc. in our Current Peer Group,
the returns index for the self-determined peer group set forth above would have
been slightly different. 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 the Former Peer Group (as opposed to the Current
Peer Group).
[GRAPH APPEARS HERE]
Legend
06/1998 12/1998 06/1999 12/1999
------- ------- ------- -------
Master Graphics, Inc. 97.4 52.0 44.7 14.8
Nasdaq Stock Market
(US Companies) 107.4 125.9 154.4 233.0
Self-Determined Peer Group 102.0 90.7 85.4 62.6
Companies in the Self-Determined Peer Group
CADMUS COMMUNICATIONS CORP CHAMPION INDUSTRIES INC
CONSOLIDATED GRAPHICS INC MAIL WELL INC
WALLACE COMPUTER SERVICES INC WORLD COLOR PRESS INC DEL
Notes:
A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization on the
previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a trading
day, the preceding trading day is used.
D. The index level for all series was set to $100.0 on 06/10/1998.
15
<PAGE>
________________________________________________________________________________
Master Graphics Stock Ownership
________________________________________________________________________________
Certain Beneficial Owners. To the best of our knowledge, as of April 12, 2000,
the following are the only persons who beneficially own five percent or more of
our outstanding common stock:
Name and Address of Beneficial Owner Number Percentage (1)
- - ------------------------------------ ------ --------------
H. Henry (Hap) Hederman, Jr............ 722,850(2) 9.0
500 Steed Road
Ridgeland, Mississippi 39158
Arrowhead Properties, L.P.............. 532,500 6.7
500 Steed Road
Ridgeland, Mississippi 39158
J. Richard Price....................... 457,200(3) 5.8
1168 Old Sumrall Road
Columbia, Mississippi 39429
__________________
(1) Based on 7,923,026 shares of common stock outstanding as of April 12, 2000.
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 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 532,500 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.
(3) Includes 220,500 shares of common stock held by the Richard Price & Leigh
Price Living Trust, of which Mr. Price is co-trustee with his wife, Ms.
Leigh F. Price; and 110,000 shares of common stock held by Mr. Price, Ms.
Latta Price Herring and Ms. Paige Franklin as co-tenants.
16
<PAGE>
Ownership of Management. The following table shows, as of March 6, 2000, the
number of shares of common stock beneficially owned by directors, nominees for
director, the executive officers named in the Summary Compensation Table above,
and all directors and executive officers as a group.
<TABLE>
<CAPTION>
Name Number Percentage (1)
- - ---- ----------- --------------
<S> <C> <C>
Michael B. Bemis............................................ 24,000 (2) *
Cary Rosenthal.............................................. 232,500 (3) 2.9
H. Henry (Hap) Hederman, Jr................................. 722,850 (4) 9.0
Frederick F. Avery.......................................... 35,250 (5) *
Donald L. Hutson............................................ 47,286 (6) *
Robert J. Diehl............................................. 38,000 (7) *
Edmund L. Brunini, Jr....................................... 0 0.0
John P. Miller.............................................. 0 0.0
Lance T. Fair............................................... 80,700 (8) 1.0
P. Melvin Henson, Jr........................................ 8,250 (9) *
James B. Duncan............................................. 16,032 (10) *
Donald H. Goldman........................................... 0 0.0
All executive officers and directors as a group (10 persons) 1,124,168 13.4
</TABLE>
___________________
* Less than 1%
(1) Based on 7,923,026 shares of common stock outstanding as of April 12, 2000.
Beneficial ownership is determined in accordance with the rules of the SEC.
Beneficial ownership includes 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 in 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 20,000 shares of common stock issuable upon exercise of an option
held by Mr. Bemis.
(3) Includes 232,500 shares of common stock issuable upon exercise of a warrant
held by Mr. Rosenthal.
(4) 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 532,500 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.
(5) Includes 30,250 shares of common stock issuable upon exercise of options
held by Mr. Avery.
(6) Includes 30,250 shares of common stock issuable upon exercise of options
held by Mr. Hutson.
(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 an option held by Mr. Diehl.
(8) Includes 54,000 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 an option held by Mr. Fair.
17
<PAGE>
(9) Includes 5,000 shares of common stock issuable to Mr. Henson in connection
with Master Graphics deferred compensation plan and 2,500 shares of common
stock issuable upon exercise of an option held by Mr. Henson.
(10) 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 an option held by Mr. Duncan.
18
<PAGE>
________________________________________________________________________________
Certain Transactions
________________________________________________________________________________
Premier Graphics, Inc., our wholly-owned operating subsidiary, leases from Mr.
John P. Miller the facilities in which our B&M Printing Division is located. Mr.
Miller is our former Chairman of the Board, President and Chief Executive
Officer. 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.
Premier Graphics leases a printing press from Equipment Holding Company, LLC.
The equipment lease expires on January 31, 2004. The rental amount payable under
the lease agreement is $65,982.79 per month. Mr. John P. Miller and his wife are
the owners of Equipment Holding Company, LLC. We believe that the terms of the
equipment lease are no less favorable to us than could have been negotiated with
unaffiliated third parties.
In the 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 $2,000,000, which were later amended
and restated in December 1998. The amended and restated notes bear interest at a
rate of 12% per annum and mature June 30, 2006. Moreover, Premier Graphics
currently leases its Hederman Brothers Division facility from Mr. Hederman for
annual rental of $300,000 per annum. Mr. Hederman currently is a director of
Master Graphics. 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 was later amended and restated in December
1998. The amended and restated note bears interest at a rate of 12% per annum
and matures 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. Mr. Rosenthal currently is a
director of Master Graphics. We believe that the terms of such leases are no
less favorable to us than could have been negotiated with unaffiliated third
parties.
We entered into a consulting agreement effective as of February 1, 2000 with Mr.
Michael B. Bemis, our present Chairman of the Board, pursuant to which Mr. Bemis
will render consulting services to the company. The term of the agreement
extends through January 31, 2001. We pay Mr. Bemis a retainer of $4,999.99 per
month during the term of the agreement.
The law firm of Brunini, Grantham, Grower & Hewes, PLLC, rendered limited legal
services on our behalf with respect to our Hederman Brothers Division in 1999.
Mr. Edmund L. Brunini, Jr. is a member of that law firm.
19
<PAGE>
________________________________________________________________________________
Proposal 1
Amendment to Charter to Declassify the Board of Directors
________________________________________________________________________________
Our Charter currently divides our Board of Directors into three classes of
directors: Class I directors, Class II directors and Class III directors. Each
class of directors is elected to serve a three year term so that at each annual
shareholders meeting, our shareholders will elect, for a three year term, only
the members of the class of directors whose term is expiring at that annual
meeting. Our Bylaws also provide for this three-class Board structure. These
provisions of our Charter and Bylaws originally were implemented to enable us,
especially in the initial years of our existence as a publicly-owned company, to
develop our business in a manner that would foster our long-term growth without
the disruption of the threat of a takeover not deemed by our Board of Directors
to be in the best interests of the company and its shareholders. The classified
board structure also was designed to assure continuity and stability in the
Board's leadership and policies.
Our Board of Directors has unanimously approved and recommended that the
shareholders approve an amendment to our Charter that eliminates the three-class
structure of our Board. The Charter amendment will provide that all directors
will be elected annually for a term of one year. Therefore, at each annual
shareholders meeting, our shareholders will elect all of the members of our
Board of Directors. Our Board has adopted and approved a conforming amendment to
our Bylaws that will become effective only if the shareholders approve the
amendment of our Charter. If the Charter amendment is approved by our
shareholders, a future change in control of our Board of Directors could be made
by shareholders holding a plurality of the votes cast at a single annual
meeting. The declassification of the Board makes it easier for shareholders to
change the composition of the Board.
If the three-class structure of our Board is eliminated, additional conforming
changes will be made to our Charter to remove all references to the classified
nature of the Board.
The text of the Charter amendment adopted and approved by our Board and proposed
to be approved by our shareholders is attached to this proxy statement as
Appendix A. The Charter amendment will become effective only after approval by
the shareholders and filing with the Tennessee Secretary of State of articles of
amendment that set forth the text of the Charter amendment.
Because our Board of Directors unanimously adopted and approved the proposed
Charter amendment, approval of the amendment to our Charter requires only the
affirmative vote of a majority of the votes cast at the annual meeting, whether
in person or by proxy.
The Board of Directors recommends a vote "FOR" the approval of the amendment to
our Charter.
20
<PAGE>
________________________________________________________________________________
Proposal 2
Election of Directors
________________________________________________________________________________
The exact number of directors to be elected at the 2000 annual meeting and the
terms for which they will serve depend on whether the shareholders approve the
amendment to our Charter described as "Proposal 1" above. Therefore, two
proposals are submitted by the Board of Directors with respect to the election
of directors. Whether you vote "For," "Against," or "Abstain" with respect to
the Charter amendment described as "Proposal 1" above, please complete the
enclosed proxy card for both proposals regarding the election of directors.
----
Doing so will ensure that your shares are voted in the election of directors as
you direct, regardless of whether the shareholders approve the Charter
amendment.
A. Upon Shareholder Approval of the Charter Amendment
In the event the shareholders approve the amendment to our Charter described
above as "Proposal 1," the Board nominates the following five individuals to
serve as directors: Frederick F. Avery, Michael B. Bemis, Robert J. Diehl,
Donald L. Hutson and Edmund L. Brunini, Jr. We do not anticipate that any
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. With only five directors, our Board will
have two vacancies. Those vacancies may be filled by the affirmative vote of a
majority of our directors. Any director appointed to fill a vacancy on the Board
will serve a term that expires at the next annual meeting of shareholders
following that director's appointment.
In the event the shareholders approve the amendment to our Charter, for personal
reasons, the following current directors have decided not to stand for
reelection to the Board:
H. Henry (Hap) Hederman, Jr., age 53, has been a director of Master Graphics
since March 1998, and he currently serves on the Board's Acquisition Committee.
Mr. Hederman also 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 Master Graphics 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.
Cary Rosenthal, age 60, has been a director of Master Graphics since March 1998,
and he currently serves as a member of the Board's Acquisition Committee. Mr.
Rosenthal 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 Master Graphics in
December 1997). Mr. Rosenthal currently serves as a member of the board of
directors and the option committee of the board of directors of SED
International Holdings, Inc.
Nominees for Election as Directors
(Terms Expiring 2001)
Information about the five individuals nominated as directors 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.
________________________________________________________________________________
Frederick F. Avery, age 69, has been a director of Master Graphics since March
1998. Mr. Avery has been a
21
<PAGE>
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
________________________________________________________________________________
Michael B. Bemis, age 53, has been a director of Master Graphics since January
2000. Mr. Bemis has been a business consultant since March 1999. From 1982 to
March of 1999, Mr. Bemis held various positions within Entergy Corporation, a
public utility holding company headquartered in New Orleans, Louisiana,
including Chief Executive Officer of London Electricity PLC, President and Chief
Operating Officer of Louisiana Power & Light/New Orleans Public Service and
President and Chief Operating Officer of Mississippi Power & Light. Mr. Bemis
also was formerly a partner with Deloitte Haskins & Sells (now Deloitte &
Touche).
Committee: Audit
________________________________________________________________________________
Robert J. Diehl, age 57, has been a director of Master Graphics since December
1999. Mr. Diehl has served as the Chief Executive Officer and President of
Master Graphics since December 1999. Prior to that time, Mr. Diehl served as
Master Graphics' Chief Operating Officer 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.
Committee: None
________________________________________________________________________________
Donald L. Hutson, age 53, 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.
Committee: Audit, Compensation, Options and Benefits
________________________________________________________________________________
Edmund L. Brunini, Jr., age 56, has been a director Master Graphics since April
2000. Mr. Brunini is a member of the law firm Brunini, Grantham, Grower & Hewes,
PLLC, located in Jackson, Mississippi, where he has practiced since 1969. Mr.
Brunini engages in a general practice, with a special emphasis on oil and gas
and health care law.
Committee: None
________________________________________________________________________________
Election of Directors requires the affirmative vote of a plurality of the votes
cast at the annual meeting, whether in person or by proxy.
The Board of Directors recommends a vote "FOR" each of the nominees listed
above.
B. Upon Shareholder Rejection of the Charter Amendment
In the event the shareholders reject the amendment to our Charter described
above as "Proposal 1," our Board will continue to be divided into three classes.
In that event, the term of only the Class II directors will expire in 2000. If
the Charter amendment is not approved, the Board nominates the following two
individuals to serve as Class II directors: Frederick F. Avery and Robert J.
Diehl. 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 of Directors will be Donald L. Hutson, Class
I director (term expiring 2002),
22
<PAGE>
Henry H. (Hap) Hederman, Jr., Class I director (term expiring 2002); Edmund L.
Brunini, Jr., Class I director (term expiring 2002); Michael B. Bemis, Class III
director (term expiring 2001); and Cary Rosenthal, Class III director (term
expiring 2001).
Election of Directors requires the affirmative vote of a plurality of the votes
cast at the annual meeting, whether in person or by proxy.
The Board of Directors recommends a vote "FOR" each of the nominees listed
above.
23
<PAGE>
- - --------------------------------------------------------------------------------
Proposal 3
Amendment to the 1998 Non-Employee Director Stock Option Plan
- - --------------------------------------------------------------------------------
Proposed Amendment................. The Board of Directors and our
shareholders have previously adopted and
approved our 1998 Non-Employee Director
Stock Option Plan. A total of 50,000
shares of common stock are presently
reserved for issuance under the 1998 Non-
Employee Director Stock Option Plan. On
February 22, 2000, the Board of Directors
approved an amendment to the 1998 Non-
Employee Director Stock Option Plan,
subject to shareholder approval, to
increase the shares reserved for issuance
under the plan by 300,000 shares, bringing
the total number of shares issuable under
the plan to 350,000. In 1998, we issued
options to purchase 2,000 shares of common
stock under the 1998 Non-Employee Director
Stock Option Plan. No options were issued
under the plan in 1999. However, as of the
date of this proxy statement, in 2000 we
have issued options to purchase an
additional 160,000 shares of common stock
under the plan, 120,000 of which are
conditioned upon shareholder approval of
the amendment to increase of the number of
shares issuable under the plan.
Reasons for the Proposed Amendment. The Board has determined that additional
shares should be made available for grants
and awards under the 1998 Non-Employee
Director Stock Option Plan. These grants
and awards will be used to attract
qualified non-employee directors and to
provide incentives for our non-employee
directors.
24
<PAGE>
- - --------------------------------------------------------------------------------
Description of the 1998 Non-Employee Director Stock Option Plan
- - --------------------------------------------------------------------------------
General............................ On April 1, 1998, the Board of Directors
and shareholders adopted and approved the
1998 Non-Employee Director Stock Option
Plan which provides for grants of stock
options to our non-employee directors. A
"non-employee director" is a director who
is not a contractual or common law
employee of Master Graphics or any of its
subsidiaries.
Without regard to the amendment to be
voted on at the annual meeting, a total of
50,000 shares of common stock have been
reserved for issuance under the 1998 Non-
Employee Director Stock Option Plan.
Options granted under the plan will be
nonqualified stock options.
All capitalized or quoted terms in this
section have the meanings set forth in the
1998 Non-Employee Director Stock Option
Plan.
Purpose............................ The general purpose of the 1998 Non-
Employee Director Stock Option Plan is to
provide non-employee directors with an
additional incentive to effectively manage
the company and contribute to its success.
Administration..................... The Master Graphics Board of Directors
administers the 1998 Non-Employee Director
Stock Option Plan.
Eligibility........................ All non-employee directors of Master
Graphics are eligible to receive options
under the plan. The Board determines which
non-employee directors will receive
options subject to the provisions of the
plan.
Terms and Conditions of Options.... Exercise Price. The Board determines the
exercise price of options to purchase
shares of common stock at the time the
options are granted. However, pursuant to
the terms of the plan, the exercise price
must equal 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
check, bank draft or money order payable
to the order of the company; (3) by
delivering shares of common stock having a
fair market value equal to the exercise
price; or (4) by a combination of any of
the foregoing.
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.
25
<PAGE>
Termination of Directorship; Death
and Disability. If the grantee
ceases to be a director for any
reason other than death or
permanent disability, the options
will terminate immediately to the
extent that they are not then
exercisable. The exercisable
portion of the options will then
expire one year following the date
the grantee ceases to be a
director.
If the grantee ceases to be a
director due to death or permanent
disability, the options will become
immediately exercisable by, in the
case of permanent disability, the
grantee or the grantee's guardian
or attorney-in-fact, or, in the
case of death, the grantee's
estate. The options will remain
exercisable for two years following
the grantee's death or permanent
disability unless the options
expire according to their terms
prior to the expiration of that
two-year period.
Change of Control......................... The agreement granting options to a
non-employee director may provide
that those options will become
immediately exercisable in the
event of a Change of Control. The
Board may require that the grantees
surrender their outstanding options
in the event of a Change of Control
and receive a payment in cash equal
to the amount by which the Change
in Control Price of the shares of
common stock subject to the options
exceeds the exercise price of the
options.
Withholding Obligations................... All options issued under the 1998
Non-Employee Director Stock Option
Plan will be granted subject to
applicable federal, state and local
withholding requirements. Grantees
may satisfy their withholding
obligations by electing to have a
certain number of shares of stock
withheld which otherwise would have
been received pursuant to exercise
of the options.
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
Non-Employee Director Stock Option
Plan, the number of shares of stock
subject to any options outstanding,
and the exercise price of
outstanding options. Any such
adjustment will be made by the
Board, whose determination with
respect to such adjustments shall
be conclusive.
26
<PAGE>
Tax Aspects........................ The grant of a nonqualified stock option
has no U.S. federal income tax
consequences for the grantee or Master
Graphics. Upon exercise of a nonqualifed
stock option, Master Graphics may take a
tax deduction and the grantee 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 exercise price of the nonqualified
stock option.
27
<PAGE>
- - --------------------------------------------------------------------------------
1998 Non-Employee Director Stock Option 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 Non-
Employee Director Stock Option Plan. The following table sets forth the dollar
amount and the number of options to purchase shares of common stock granted
under the 1998 Non-Employee Director Stock Option Plan as of the date of this
proxy statement to (1) each non-employee director and (2) all non-employee
directors as a group. Due to the terms of the plan, none of the executive
officers named in the Summary Compensation Table above is eligible to receive
awards under the plan.
<TABLE>
<CAPTION>
Number of Value of
Shares Shares
Name and Position Granted Granted (1)
- - ----------------- ------- -----------
<S> <C> <C>
Frederick F. Avery ........................................... 31,000(2) $ 36,250
Michael B. Bemis ............................................. 100,000(3) $ 81,250
Donald L. Hutson ............................................. 31,000(4) $ 36,250
All non-employee directors as a group (3 persons) ............ 162,000 $153,750
</TABLE>
_____________
(1) The dollar value of options granted under the 1998 Non-Employee Director
Stock Option Plan to Mr. Avery and Mr. Hutson was computed by multiplying
the number of shares granted times the applicable per share exercise price
of the option. All options granted under the 1998 Non-Employee Director
Stock Option Plan to Mr. Avery and Mr. Hutson were granted at $10.00 per
share, $1.00 per share or $0.8125 per share, an amount equal to or in
excess of the fair market value of the common stock on the respective dates
of grant. The dollar value of options granted under the 1998 Non-Employee
Director Stock Option Plan to Mr. Bemis was computed by multiplying the
number of shares granted times the $0.8125 per share exercise price of the
option. All options granted under the 1998 Non-Employee Director Stock
Option Plan to Mr. Bemis were granted at $0.8125 per share, an amount equal
to or in excess of the fair market value of the common stock on the date of
grant. As of the date of this proxy statement, none of the options granted
under the 1998 Non-Employee Director Stock Option Plan was "in-the-money."
(2) Includes an option to purchase 10,000 shares of common stock that is
subject to shareholder approval of the amendment to increase the number of
shares issuable under the plan to a total of 350,000 shares. If the
amendment is not approved by the shareholders, we will issue the option to
purchase 10,000 shares of common stock outside the auspices of the plan.
(3) Subject to shareholder approval of the amendment to increase the number of
shares issuable under the plan to a total of 350,000 shares. If the
amendment is not approved by the shareholders, we will issue the option to
purchase 100,000 shares of common stock outside the auspices of the plan.
(4) Includes an option to purchase 10,000 shares of common stock that is
subject to shareholder approval of the amendment to increase the number of
shares issuable under the plan to a total of 350,000 shares. If the
amendment is not approved by the shareholders, we will issue the option to
purchase 10,000 shares of common stock outside the auspices of the plan.
Approval of the amendment to the 1998 Non-Employee Director Stock Option Plan
requires the affirmative vote of a majority of the votes cast at the annual
meeting, whether in person or by proxy.
The Board of Directors recommends a vote "FOR" the approval of the amendment to
the 1998 Non-Employee Director Stock Option Plan to increase the number of
shares of common stock issuable under the plan to a total of 350,000 shares.
28
<PAGE>
- - --------------------------------------------------------------------------------
Other Matters
- - --------------------------------------------------------------------------------
The Board of Directors knows of no matters other than those discussed in this
proxy statement which will be presented at the 2000 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 our Annual Report on Form 10-K for the year ended December 31, 1999.
Requests should be directed to P. Melvin Henson, Jr., Secretary, Master
Graphics, Inc., 70 Timber Creek Drive, Suite 5, Cordova, Tennessee 38018, which
is the address of Master Graphics' principal executive offices.
By order of the Board of Directors
/s/ P. Melvin Henson, Jr.
------------------------------------
Memphis, Tennessee P. Melvin Henson, Jr.
April 28, 1999 Secretary
29
<PAGE>
Appendix A to Proxy Statement
Text of the Amendment to the Charter of Master Graphics
1. Article 8 of the Charter shall be deleted in its entirety and the following
shall be inserted in lieu thereof:
8. Board of Directors.
------------------
8.1 Number; Election; Term. Subject to the rights of the holders of
----------------------
any series of Preferred Stock to elect directors under specific
circumstances, the Board of Directors shall consist of not less than three
(3) nor more than fifteen (15) members unless otherwise determined from
time to time by resolution adopted by the affirmative vote of at least
eighty percent (80%) of the members of the Board of Directors. However, the
number of directors shall never be less than the minimum number required by
the TBCA. A director need not be a shareholder. At each annual shareholder
meeting, the holders of shares of Common Stock shall elect directors to
serve until the next annual meeting of shareholders or until their
successors are duly elected and qualified.
8.2 Vacancies. Subject to applicable law and any rights of the
---------
holders of any series of Preferred Stock with respect to such series of
Preferred Stock, and unless the Board of Directors otherwise determines,
vacancies resulting from death, resignation, retirement, disqualification,
removal from office or other cause, and newly created directorships
resulting from any increase in the authorized number of directors, may be
filled only by the affirmative vote of a majority of the remaining
directors, though less than a quorum of the Board of Directors. The
directors chosen to fill vacancies shall hold office for a term expiring at
the next annual meeting of shareholders or until their successors are duly
elected and qualified.
8.3 Removal. Any director of the Corporation may be removed from
-------
office, but only for cause and only by (a) the affirmative vote of the
holders of a majority of the voting power of the shares entitled to vote
for election of directors, unless a vote of a special voting group is
otherwise required by law or (b) the affirmative vote of a majority of the
entire Board of Directors then in office.
2. Article 12 shall be deleted in its entirety and the following shall be
inserted in lieu thereof:
12. Amendment. Except as otherwise provided in this Article 12, this
---------
Charter may be amended in the manner now or hereafter prescribed by
statute; provided, however, that unless such action has been recommended by
a vote of a majority of the directors then in office at a meeting at which
a quorum is present, the provisions set forth in Articles 9, 10, 11, 12 and
13 hereof may not be repealed or amended in any respect and the provisions
set forth in Articles 10 and 11 hereof may not be amended or repealed in
any respect so as to adversely affect the rights therein conferred upon
directors (or such other persons who may be entitled to the rights provided
thereunder) of the Corporation, unless in any of such cases such action is
approved by the affirmative vote of the holders of sixty-six and two-thirds
percent (66-2/3%) of the voting power of all of the then outstanding shares
of the Corporation entitled to vote generally in the election of directors,
voting together as a single class; provided, however, that in no event
shall the last sentence of Article 10 be amended so as to adversely affect
the rights herein conferred upon directors.
Appendix A-1
<PAGE>
PROXY
-----
Master Graphics, Inc.
70 Timber Creek Drive, Suite 5, Memphis, Tennessee 38018
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned appoints Robert J. Diehl and P. Melvin Henson, Jr., 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 Radisson Inn Airport, 2411 Winchester
Road, Memphis, Tennessee on June 16, 2000 at 10:30 A.M., Memphis, Tennessee
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 notice of
annual meeting of shareholders enclosed herewith). The proxy is further
authorized to vote in his discretion as to any other matters that 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. SHAREHOLDERS COMPLETING THIS PROXY SHOULD GIVE
INSTRUCTIONS WITH RESPECT TO EACH PROPOSAL SET FORTH ON THIS PROXY, INCLUDING
BOTH PARTS (A) AND (B) OF PROPOSAL 2 BELOW. IF NO INSTRUCTIONS ARE GIVEN, THE
SHARES COVERED BY THIS PROXY WILL BE VOTED "FOR" THE PROPOSALS SET FORTH BELOW.
(1) To approve an amendment to the Company's Charter to eliminate the
current three-class structure of the Company's Board of Directors and
to designate all directors as a single class.
[_] For [_] Against [_] Abstain
(2) (A) To elect five directors to serve until the 2001 Annual Meeting of
Shareholders, in the event that the shareholders approve the
proposal to amend the Company's Charter.
[_] For all nominees listed below [_] WITHHOLD AUTHORITY to
(except as indicated to the vote for all nominees
contrary below). listed below.
Frederick F. Avery
Michael B. Bemis
Robert J. Diehl
Donald L. Hutson
Edmund L. Brunini, Jr.
Instruction: To withhold authority to vote for any individual
-----------
nominee, write such nominee's name in the space provided below.
-----------------------------------------------------------------
[Continued on other side.]
<PAGE>
(B) To elect two Class II directors to serve until the 2003 Annual
Meeting of Shareholders, in the event that the shareholders
reject the proposal to amend the Company's Charter.
[_] For all nominees listed below [_] WITHHOLD AUTHORITY to
(except as indicated to the vote for all nominees
contrary below). listed below.
Frederick F. Avery
Robert J. Diehl
Instruction: To withhold authority to vote for any individual
-----------
nominee, write such nominee's name in the space provided below.
-----------------------------------------------------------------
(3) To approve an amendment to the Company's 1998 Non-Employee Director
Stock Option Plan to increase from 50,000 to 350,000 the number of
shares of common stock that can be issued under the plan.
[_] For [_] Against [_] Abstain
The undersigned hereby acknowledges receipt of notice of said meeting and the
related proxy statement.
Dated: _____________________, 2000
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 the
President or other authorized
officer. If a partnership, please
sign in the partnership's name by and
authorized person.
____________________________________
Signature
____________________________________
Signature (if held jointly)
Please mark, sign, date and return this proxy card promptly using the enclosed
envelope.
