<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
SCHEDULE 14D-1
TENDER OFFER STATEMENT PURSUANT TO SECTION 14(d)(1)
OF THE SECURITIES EXCHANGE ACT OF 1934
AND
SCHEDULE 13D
(AMENDMENT NO. 1)
UNDER THE SECURITIES EXCHANGE ACT OF 1934
SHOREWOOD PACKAGING CORPORATION
(Name of Subject Company)
---------------
CHESAPEAKE CORPORATION
SHEFFIELD, INC.
(Bidders)
---------------
Common Stock, $0.01 Par Value Per Share
(Including Associated Rights)
(Title of Class of Securities)
---------------
825229107
(CUSIP Number of Class of Securities)
---------------
Thomas H. Johnson
President & Chief Executive Officer
Chesapeake Corporation
1021 East Cary Street
Richmond, Virginia 23218-2350
(804) 697-1000
(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications on Behalf of Bidders)
Copies to:
Gary E. Thompson, Esq.
Hunton & Williams
Riverfront Plaza, East Tower
951 East Byrd Street
Richmond, Virginia 23219-4074
(804) 788-8200
---------------
December 3, 1999
(Date of Event Which Requires Filing of This Statement)
Calculation of Filing Fee
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<TABLE>
<CAPTION>
Transaction Valuation* Amount of Filing Fee**
- ---------------------------------------------------------------------------------------
<S> <C>
$554,311,500 $110,863
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
* Estimated for purposes of calculating the amount of the filing fee only.
This calculation assumes the purchase of 32,134,000 shares of common stock,
par value $0.01 per share, (the "Common Stock") including associated rights
to purchase preferred stock (the "Rights" and together with the Common
Stock, the "Shares"), at a price per Share of $17.25 in cash. Such number
of Shares consists of (i) 27,560,000 Shares outstanding as of September 1,
1999, according to the Shorewood Packaging Corporation (the "Company")
Quarterly Report on Form 10-Q for the quarter ended July 31, 1999, and (ii)
4,574,000 Shares reserved for issuance under stock incentive plans and
outstanding options, warrants and other rights to acquire Shares from the
Company as of May 1, 1999, according to the Company's Annual Report on Form
10-K for the fiscal year ended May 1, 1999, less (iii) 100 Shares owned by
Bidders.
** 1/50 of one percent of Transaction Valuation
[_]Check box if any part of this fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the form
or schedule and the date of its filing.
Amount Previously Paid: None Filing Party:Not Applicable
Form or Registration No.:Not Date Filed: Not Applicable
Applicable
- -------------------------------------------------------------------------------
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<PAGE>
14D-1/13D/A
CUSIP No. 825 229 107
- -------------------------------------------------------------------------------
1 NAME OF REPORTING PERSONS
Chesapeake Corporation
I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS
54-0166880
- -------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [_]
(b) [_]
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3 SEC USE ONLY
- -------------------------------------------------------------------------------
4 SOURCE OF FUNDS BK; WC
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED [_]
PURSUANT TO ITEMS 2(e) OR 2(f)
- -------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION Commonwealth of Virginia
- -------------------------------------------------------------------------------
7 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
4,106,540 Shares(1)
- -------------------------------------------------------------------------------
8 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES
CERTAIN SHARES [_]
- -------------------------------------------------------------------------------
9 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7) 14.9 %
- -------------------------------------------------------------------------------
10 TYPE OF REPORTING PERSON HC; CO
- -------------------------------------------------------------------------------
(1) On November 26, 1999, Chesapeake Corporation entered into a stock purchase
agreement with an investment advisor with discretionary authority over its
client's shares of Shorewood Packaging Corporation pursuant to which
Chesapeake agreed to purchase 4,106,440 shares of common stock of
Shorewood, subject to adjustment as set forth in the stock purchase
agreement, and the investment advisor agreed that, if Chesapeake commenced
a public tender offer for Shares prior to the closing of the purchase
agreement, the investment advisor would use its best efforts to exercise
its discretionary authority to cause its clients to tender such shares in
such tender offer and execute any proxies or written consents in the form
solicited by Chesapeake in any proxy or written consent solicitation
commenced in connection with such tender offer.
2
<PAGE>
14D-1/13D/A
CUSIP No. 825 229 107
- -------------------------------------------------------------------------------
1 NAME OF REPORTING PERSONS
Sheffield, Inc.
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS
Applied for.
- -------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [_]
(b) [_]
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3 SEC USE ONLY
- -------------------------------------------------------------------------------
4 SOURCE OF FUNDS AF
- -------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED [_]
PURSUANT TO ITEMS 2(e) OR 2(f)
- -------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION State of Delaware
- -------------------------------------------------------------------------------
7 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
100 Shares
- -------------------------------------------------------------------------------
8 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES
CERTAIN SHARES [_]
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9 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7) less than
1%
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10 TYPE OF REPORTING PERSON CO
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3
<PAGE>
TENDER OFFER
This Tender Offer Statement on Schedule 14D-1 (the "Schedule 14D-1") is
filed by Sheffield, Inc., a Delaware corporation ("Purchaser"), and Chesapeake
Corporation ("Chesapeake"), a Virginia corporation and the direct owner of all
of the outstanding capital stock of Purchaser, relating to the offer by
Purchaser to purchase all outstanding shares of common stock, $0.01 par value
per share (the "Common Stock"), including the associated rights to purchase
preferred stock (the "Rights" and together with the Common Stock, the
"Shares"), of Shorewood Packaging Corporation, a Delaware corporation (the
"Company"), not directly or indirectly owned by Chesapeake and its
subsidiaries, for a purchase price of $17.25 per Share, net to the seller in
cash, without interest thereon, on the terms and subject to the conditions set
forth in the Offer to Purchase, dated December 3, 1999 (the "Offer to
Purchase"), and in the related Letter of Transmittal and any amendments or
supplements thereto, copies of which are attached hereto as Exhibits (a)(1)
and (a)(2), respectively (which collectively constitute the "Offer"). This
Schedule 14D-1 also constitutes Amendment No. 1 to the statement on Schedule
13D of Purchaser and Chesapeake filed on November 30, 1999.
Item 1. Security and Subject Company
(a) The name of the subject company is Shorewood Packaging Corporation, a
Delaware corporation. The address of the Company's principal executive offices
is 277 Park Avenue, New York, New York 10172.
(b) The class of securities to which this statement relates is the Common
Stock, par value $0.01 per share, including the associated Rights, of the
Company. The information set forth on the cover page and in the "Introduction"
in the Offer to Purchase is incorporated herein by reference.
(c) The information set forth in Section 6 of the Offer to Purchase is
incorporated herein by reference.
Item 2. Identity and Background
(a)-(d); (g) This statement is filed jointly by Purchaser and Chesapeake.
The information set forth on the cover page, in the "Introduction," in Section
9 and in Schedule A of the Offer to Purchase is incorporated herein by
reference.
(e)-(f) During the last five years, neither Purchaser nor Chesapeake, nor,
to the best of their respective knowledge, any of the directors or executive
officers of Purchaser or Chesapeake has been convicted in a criminal
proceeding (excluding traffic violations or similar misdemeanors) or was a
party to a civil proceeding of a judicial or administrative body of competent
jurisdiction as a result of such proceeding was or is subject to a judgment,
decree or final order enjoining future violations of, or prohibiting
activities subject to, federal or state securities laws or finding any
violation of such laws.
Item 3. Past Contacts, Transactions, or Negotiations with the Subject Company
(a)-(b) The information set forth in the "Introduction" and Sections 10 and
11 of the Offer to Purchase is incorporated herein by reference.
Item 4. Source and Amount of Funds or Other Consideration
(a)-(c) The information set forth in Section 12 of the Offer to Purchase is
incorporated herein by reference.
Item 5. Purpose of the Tender Offer and Plans or Proposals of the Bidder
The information set forth in the "Introduction" and Sections 7 and 11 of the
Offer to Purchase is incorporated herein by reference.
Item 6. Interest in Securities of the Subject Company
(a)-(b) The information set forth in the "Introduction" and in Sections 9
and 10 of the Offer to Purchase is incorporated herein by reference.
4
<PAGE>
Item 7. Contracts, Arrangements, Understandings or Relationships with Respect
to the Subject Company's Securities
The information set forth in the "Introduction" and in Section 10 of the
Offer to Purchase is incorporated herein by reference.
Item 8. Persons Retained, Employed or to be Compensated
The information set forth in the "Introduction" and in Section 16 of the
Offer to Purchase is incorporated herein by reference.
Item 9. Financial Statement to Certain Bidders
The information set forth in Section 9 of the Offer to Purchase is
incorporated herein by reference.
Item 10. Additional Information
(a) Not applicable.
(b)-(c) The information set forth in Section 15 of the Offer to Purchase is
incorporated herein by reference.
(d) The information set forth in Section 7 of the Offer to Purchase is
incorporated herein by reference.
(e) The information set forth in the "Introduction" and Sections 10 and 15
of the Offer to Purchase is incorporated herein by reference. See Exhibits
(g)(1) and (g)(2).
(f) The information set forth in the Offer to Purchase and the Letter of
Transmittal, copies of which are attached hereto as Exhibits (a)(1) and
(a)(2), respectively, is incorporated herein by reference.
Item 11. Material to be Filed as Exhibits
(a)(1) Offer to Purchase, dated December 3, 1999.
(a)(2) Form of Letter of Transmittal with respect to the Shares.
(a)(3) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and
Other Nominees.
(a)(4) Letter to Clients for use by Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees.
(a)(5) Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
(a)(6) Form of Summary Advertisement, dated December 3, 1999.
(a)(7) Text of Press Release, dated December 3, 1999, by Chesapeake.
(a)(8) Notice of Guaranteed Delivery.
(b)(1) Commitment Letter, dated November 10, 1999, among Chesapeake, First
Union National Bank and First Union Securities, Inc. with attached Summary of
Terms and Conditions, accepted and agreed to by Chesapeake on December 2,
1999.
(c)(1) Stock Purchase Agreement, dated November 26, 1999, by and between
Ariel Capital Management, Inc. and Chesapeake Corporation.
(d) None.
(e) Not applicable.
(f) None.
(g)(1) Complaint in Chesapeake Corporation and Sheffield, Inc. v. Shore, et
al., filed in the Court of Chancery of the State of Delaware on December 3,
1999.
(g)(2) Complaint in Chesapeake Corporation and Sheffield, Inc. v. Shorewood
Packaging Corporation, filed in the U.S. District Court for the District of
Delaware on December 3, 1999.
5
<PAGE>
SIGNATURES
After due inquiry and to the best of my knowledge and belief, I certify that
the information set forth in this statement is true, complete and correct.
Dated: December 3, 1999
CHESAPEAKE CORPORATION
/s/ J. P. Causey Jr.
By: _________________________________
J. P. Causey Jr.
Senior Vice President, Secretary
& General Counsel
SHEFFIELD, INC.
/s/ J. P. Causey Jr.
By: _________________________________
J. P. Causey Jr.
Vice President & Secretary
6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<C> <S>
(a)(1) Offer to Purchase, dated December 3, 1999.
(a)(2) Form of Letter of Transmittal with respect to the Shares.
(a)(3) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and
Other Nominees.
(a)(4) Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees.
(a)(5) Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
(a)(6) Form of Summary Advertisement, dated December 3, 1999.
(a)(7) Text of Press Release, dated December 3, 1999, by Chesapeake.
(a)(8) Notice of Guaranteed Delivery.
(b)(1) Commitment Letter, dated November 10, 1999, among Chesapeake, First
Union National Bank and First Union Securities, Inc. with attached
Summary of Terms and Conditions, accepted and agreed to by Chesapeake
on December 2, 1999.
(c)(1) Stock Purchase Agreement, dated November 26, 1999, by and between
Ariel Capital Management, Inc. and Chesapeake Corporation.
(d) None.
(e) Not Applicable.
(f) None.
(g)(1) Complaint in Chesapeake Corporation and Sheffield, Inc. v. Shore, et
al., filed in the Court of Chancery of the State of Delaware on
December 3, 1999.
(g)(2) Complaint in Chesapeake Corporation and Sheffield, Inc. v. Shorewood
Packaging Corporation, filed in the U.S. District Court for the
District of Delaware on December 3, 1999.
</TABLE>
7
<PAGE>
Offer to Purchase for Cash
All Outstanding Shares of Common Stock
(Including the Associated Rights to Purchase Preferred Stock)
of
Shorewood Packaging Corporation
at
$17.25 Net Per Share
by
Sheffield, Inc.
a wholly owned subsidiary
of
Chesapeake Corporation
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON MONDAY, JANUARY 3, 2000, UNLESS THE OFFER IS EXTENDED.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS: (I) THERE BEING VALIDLY
TENDERED PRIOR TO THE EXPIRATION OF THE OFFER AND NOT WITHDRAWN A NUMBER OF
SHARES OF COMMON STOCK, PAR VALUE $0.01 PER SHARE (THE "COMMON STOCK")
(INCLUDING THE ASSOCIATED RIGHTS (THE "RIGHTS") TO PURCHASE PREFERRED STOCK)
(COLLECTIVELY, THE "SHARES") OF SHOREWOOD PACKAGING CORPORATION (THE
"COMPANY") WHICH, TOGETHER WITH THE SHARES BENEFICIALLY OWNED BY CHESAPEAKE
CORPORATION ("CHESAPEAKE") AND ITS SUBSIDIARIES, INCLUDING SHEFFIELD, INC.
("PURCHASER"), WILL CONSTITUTE AT LEAST A MAJORITY OF THE OUTSTANDING SHARES
ON A FULLY DILUTED BASIS (AS DEFINED HEREIN) AS OF THE DATE THE SHARES ARE
ACCEPTED FOR PAYMENT PURSUANT TO THE OFFER (THE "MINIMUM TENDER CONDITION");
(II) THE RIGHTS HAVING BEEN REDEEMED BY THE COMPANY'S BOARD OF DIRECTORS, OR
PURCHASER OTHERWISE BEING SATISFIED IN ITS SOLE DISCRETION THAT SUCH RIGHTS
ARE OTHERWISE INVALID OR INAPPLICABLE TO THE TRANSACTIONS CONTEMPLATED HEREIN
(THE "RIGHTS CONDITION"); (III) THE ACQUISITION OF SHARES PURSUANT TO THE
OFFER BEING APPROVED PURSUANT TO SECTION 203 OF THE DELAWARE GENERAL
CORPORATION LAW OR PURCHASER BEING SATISFIED IN ITS SOLE DISCRETION THAT THE
PROVISIONS OF SECTION 203 RESTRICTING CERTAIN BUSINESS COMBINATIONS ARE
INVALID OR INAPPLICABLE TO THE ACQUISITION OF SHARES PURSUANT TO THE OFFER AND
THE PROPOSED MERGER (BY ACTION OF THE COMPANY'S BOARD OF DIRECTORS, THE
ACQUISITION OF A SUFFICIENT NUMBER OF SHARES OR OTHERWISE) (THE "SECTION 203
CONDITION"); AND (IV) ANY WAITING PERIOD UNDER THE HART-SCOTT-RODINO ANTITRUST
IMPROVEMENTS ACT OF 1976, AS AMENDED, AND THE REGULATIONS THEREUNDER (THE "HSR
ACT") AND ANY LAWS OF CANADA, THE EUROPEAN UNION, ANY MEMBER STATE OF THE
EUROPEAN UNION, AND ANY OTHER FOREIGN JURISDICTIONS APPLICABLE TO THE PURCHASE
OF SHARES PURSUANT TO THE OFFER HAVING EXPIRED OR BEEN TERMINATED (THE
"ANTITRUST CONDITION"). THE OFFER IS ALSO SUBJECT TO CERTAIN OTHER CONDITIONS
DESCRIBED IN SECTION 13.
THE OFFER IS NOT CONDITIONED UPON CHESAPEAKE OR PURCHASER OBTAINING
FINANCING.
---------------
IMPORTANT
Any stockholder desiring to tender all or any portion of such stockholder's
Shares should either (1) complete and sign the Letter of Transmittal (or a
facsimile thereof) in accordance with the Instructions in the Letter of
Transmittal, including any required signature guarantees, and mail or deliver
the Letter of Transmittal or such facsimile with such stockholder's
certificate(s) evidencing the tendered Shares and any other required documents
to the Depositary (as defined herein), (2) follow the procedure for book-entry
tender of Shares set forth in Section 3 or (3) request such stockholder's
broker, dealer, commercial bank, trust company or other nominee to effect the
transaction for such stockholder. Stockholders having Shares registered in the
name of a broker, dealer, commercial bank, trust company or other nominee must
contact such broker, dealer, commercial bank, trust company or other nominee
if such stockholder desires to tender such Shares so registered. Unless the
context requires otherwise, all references to Shares herein shall include the
associated Rights.
The Rights are presently evidenced by the certificates for the Common Stock
and a tender by a stockholder of such stockholder's shares of Common Stock
will also constitute a tender of the associated Rights. If separate
certificates representing the Rights are issued to the holders of Common Stock
prior to the time a holder's Shares are tendered pursuant to the Offer,
certificates representing a number of Rights equal to the number of shares of
Common Stock tendered must be delivered by following the procedures set forth
in Section 3. A stockholder who desires to tender Shares and whose
certificates for such Shares are not immediately available, or who cannot
comply with the procedure for book-entry transfer on a timely basis, may
tender such Shares by following the procedures for guaranteed delivery set
forth in Section 3.
Questions and requests for assistance may be directed to the Information
Agent (as defined herein) or to the Co-Dealer Managers (as defined herein) at
their respective addresses and telephone numbers set forth on the back cover
of this Offer to Purchase. Requests for additional copies of this Offer to
Purchase, the Letter of Transmittal and the Notice of Guaranteed Delivery may
be directed to the Information Agent, the Co-Dealer Managers or to brokers,
dealers, commercial banks or trust companies.
---------------
The Co-Dealer Managers for the Offer are:
Goldman, Sachs & Co. Donaldson, Lufkin & Jenrette
December 3, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
INTRODUCTION................................................................ 1
1. Terms of the Offer.................................................... 4
2. Acceptance for Payment and Payment for Shares......................... 5
3. Procedure for Tendering Shares........................................ 6
4. Rights of Withdrawal.................................................. 11
5. Material Federal Income Tax Consequences of the Offer................. 11
6. Price Range of Shares; Dividends...................................... 12
7. Effect of the Offer on the Market for Shares; Stock Quotation, Margin
Regulations and Exchange Act Registration............................. 13
8. Certain Information Concerning the Company............................ 14
9. Certain Information Concerning Purchaser and Chesapeake............... 16
10. Background of the Offer; Contacts with the Company; Stock Purchase
Agreement............................................................. 18
11. Purpose of the Offer; Plans for the Company; The Proposed Merger...... 32
12. Source and Amount of Funds............................................ 35
13. Certain Conditions of the Offer....................................... 37
14. Dividends and Distributions........................................... 40
15. Certain Legal Matters................................................. 41
16. Fees and Expenses..................................................... 43
17. Miscellaneous......................................................... 44
SCHEDULES
Schedule A Information Concerning the Directors and Executive Officers of
Chesapeake and Purchaser....................................... A-1
Schedule B Transactions Effected During the Past 60 Days.................. B-1
Schedule C Summary of Rights.............................................. C-1
</TABLE>
i
<PAGE>
TO THE HOLDERS OF SHARES OF
SHOREWOOD PACKAGING CORPORATION:
INTRODUCTION
Sheffield, Inc., a Delaware corporation ("Purchaser") and a wholly owned
subsidiary of Chesapeake Corporation, a Virginia corporation ("Chesapeake"),
hereby offers to purchase all of the outstanding shares of common stock, par
value $0.01 per share (the "Common Stock"), of Shorewood Packaging
Corporation, a Delaware corporation (the "Company"), including the associated
rights to purchase preferred stock (the "Rights"), issued pursuant to the
Rights Agreement, dated as of June 12, 1995 (the "Rights Agreement"), between
the Company and The Bank of New York (the Common Stock and the Rights together
are referred to herein as the "Shares"), at $17.25 per Share, net to the
seller in cash, upon the terms and subject to the conditions set forth in this
Offer to Purchase and in the related Letter of Transmittal (which together
with any amendments or supplements hereto or thereto, collectively constitute
the "Offer"). Tendering stockholders who have Shares registered in their own
name and who tender directly to the Depositary will not be obligated to pay
brokerage fees or commissions or, subject to Instruction 6 of the Letter of
Transmittal, stock transfer taxes on the purchase of Shares by Purchaser
pursuant to the Offer. Stockholders who hold their Shares through their broker
or bank should consult with such institution as to whether there are any fees
applicable to a tender of Shares. Purchaser will pay all charges and expenses
of Harris Trust and Savings Bank, as depositary (the "Depositary"), Goldman,
Sachs & Co. ("Goldman Sachs") and Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ"), as the co-dealer managers (each of Goldman Sachs and DLJ,
a "Co-Dealer Manager" and together, the "Co-Dealer Managers"), and D.F. King &
Co., Inc., as information agent (the "Information Agent"). Unless the context
requires otherwise, all references to Shares herein shall include the
associated Rights, and all references to the Rights shall include all benefits
that may inure to the holders of the Rights pursuant to the Rights Agreement.
The Offer is conditioned upon, among other things: (i) the Minimum Tender
Condition; (ii) the Rights Condition; (iii) the Section 203 Condition; and
(iv) the Antitrust Condition. The Offer is also subject to certain other
conditions described in Section 13. The Offer is not conditioned upon
Chesapeake or Purchaser obtaining financing.
Chesapeake has entered into a stock purchase agreement with an investment
adviser with discretionary authority over its clients' shares pursuant to
which Chesapeake agreed to purchase 4,106,440 Shares, or approximately 14.9%
of the Company's outstanding Shares. Also, pursuant to such stock purchase
agreement, the investment adviser has agreed to use its best efforts to
exercise its discretionary authority to cause its clients to tender such
Shares in the Offer and to execute written consents in the form solicited by
Chesapeake in the Consent Solicitation (as defined herein). See Section 10.
Purpose of the Offer; The Proposed Merger. The purpose of the Offer is to
acquire for cash a majority of the outstanding Shares of, and ultimately the
entire equity interest in, the Company. Purchaser currently intends, as soon
as practicable upon consummation of the Offer, to propose and seek to have the
Company effect a merger or similar business combination (the "Proposed
Merger") between the Company and Purchaser or an affiliate thereof, pursuant
to which each then outstanding Share (other than Shares held by the Company in
treasury, or owned by Chesapeake, Purchaser or any other direct or indirect
wholly owned subsidiary of Chesapeake, or Shares, if any, that are held by
stockholders who are entitled to and who properly exercise appraisal rights
under Delaware law) would be converted pursuant to the terms of the Proposed
Merger into the right to receive an amount in cash equal to the per Share
price paid pursuant to the Offer, without interest. See Section 11.
Consent Solicitation. On December 3, 1999, Chesapeake filed preliminary
consent solicitation materials with the Securities and Exchange Commission
(the "SEC"), which, in definitive form, will be
<PAGE>
mailed to stockholders of the Company after completion of review by the staff
of the SEC and receipt from the Company of a current stockholder list. The
consent solicitation materials (the "Consent Solicitation") request
stockholders of the Company to, among other things, remove from the Company's
Bylaws the provision establishing a staggered Board of Directors of the
Company (the "Company Board"), remove the current members of the Company
Board, reduce the size of the Company Board to three members and fill the
newly created vacancies on the Company Board with independent nominees (the
"Nominees"). If the Nominees are elected, the Nominees will consider,
consistent with their fiduciary duties to the Company and its stockholders
under applicable law, whether to redeem the Rights (or amend the Rights
Agreement to make the Rights inapplicable to the Offer and the Proposed
Merger) and approve the Offer and the Proposed Merger under Section 203 of the
Delaware General Corporation Law (the "DGCL"), which would satisfy the Rights
Condition and the Section 203 Condition, and take such other actions as may be
required to expedite the prompt consummation of the Offer and the Proposed
Merger. Chesapeake and Purchaser expect that, subject to their fiduciary
duties under applicable law, the Nominees would redeem the Rights (or amend
the Rights Agreement to make the Rights inapplicable to the Offer and the
Proposed Merger) and approve the Offer and the Proposed Merger under Section
203 of the DGCL, which would satisfy the Rights Condition and the Section 203
Condition, and take such other actions as may be required to expedite the
prompt consummation of the Offer and the Proposed Merger. The Consent
Solicitation will be made pursuant to separate consent solicitation materials.
This Offer does not constitute a solicitation of proxies or consents. Any
such solicitation will be made pursuant to separate proxy or consent
solicitation materials complying with the requirements of Section 14(a) of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder (the "Exchange Act").
Chesapeake and Purchaser are prepared to commence immediate good faith
negotiations with the Company Board regarding the possibility of increasing
the Offer after appropriate due diligence and access to the Company's business
plan, as well as the possibility of utilizing alternatives to an all-cash
structure that could offer tax advantages to certain of the Company's
stockholders. See Section 10. Purchaser reserves the right to amend the Offer
at any time, including in the event it enters into a merger agreement with the
Company or it negotiates a merger agreement with the Company not involving a
tender offer pursuant to which Purchaser would terminate the Offer and the
Shares would, upon consummation of such merger, be converted into cash or
other securities.
In the event Purchaser obtains 90% or more of the outstanding Shares
pursuant to the Offer or otherwise, Purchaser will be able to effect the
Proposed Merger pursuant to Section 253 of the DGCL, without prior notice to,
or any action by, any other stockholder of the Company. See Section 11.
Minimum Tender Condition. The Minimum Tender Condition conditions the Offer
upon there being validly tendered prior to the Expiration Date (as defined
below) and not withdrawn at least that number of Shares that, together with
the Shares beneficially owned by Chesapeake and its subsidiaries, including
Purchaser, would represent a majority of all outstanding Shares on a fully
diluted basis on the date of purchase (the "Minimum Number of Shares"). For
purposes of the Offer (other than in the context of financial statement
information), on a "fully diluted basis" means, as of any date, the number of
Shares outstanding plus the number of Shares that the Company is required to
issue pursuant to obligations outstanding at that date under convertible
securities, warrants, stock options or otherwise upon conversion or exercise
thereof. Purchaser reserves the right (subject to the applicable rules and
regulations of the SEC) to waive or reduce the Minimum Tender Condition and to
elect to purchase, pursuant to the Offer, fewer than the minimum number of
Shares. See Sections 1 and 13 herein.
According to the Company's Quarterly Report on Form 10-Q for the quarter
ended July 31, 1999, as of September 1, 1999, there were 27,560,000 Shares
issued and outstanding. According to the
2
<PAGE>
Company's Annual Report on Form 10-K for the fiscal year ended May 1, 1999
(the "Company Form 10-K"), as of May 1, 1999, there were 4,574,000 Shares
reserved for issuance under stock incentive plans, outstanding options and
warrants. Based on the foregoing and assuming that no options or warrants were
granted after May 1, 1999, and no options or warrants were exercised, canceled
or expired from May 1, 1999, through September 1, 1999, and assuming no Shares
were issued or reacquired since September 1, 1999, there would be 32,134,000
Shares outstanding on a fully diluted basis on September 1, 1999, and, given
Purchaser's and its affiliates' ownership of 100 Shares, the Minimum Number of
Shares on such date would be 16,066,901. Therefore, 16,066,901 Shares must be
tendered and not withdrawn prior to the expiration of the Offer to satisfy the
Minimum Tender Condition. However, the actual Minimum Number of Shares will
depend on the facts as they exist on the date of purchase.
Rights Condition. The Offer is conditioned on, among other things, the
Rights Condition being satisfied. Unless the Rights Condition shall have been
satisfied, stockholders will be required to tender one Right for each share of
Common Stock tendered in order to effect a valid tender in accordance with the
procedures set forth in Section 3. The tender of Rights with Common Stock
shall not, in itself, however, satisfy the Rights Condition. Unless separate
certificates for the Rights are issued, a tender of Common Stock will also
constitute a tender of the associated Rights. For a description of the Rights,
see Schedule C attached hereto.
The Section 203 Condition. The Offer is conditioned on, among other things,
the Section 203 Condition being satisfied. The Offer is subject to the
condition that the acquisition of Shares pursuant to the Offer and the
Proposed Merger shall have been approved pursuant to Section 203 of the DGCL
("Section 203") or that Purchaser shall be satisfied in its sole discretion
that the provisions of Section 203 restricting certain business combinations
are invalid or inapplicable to the acquisition of Shares pursuant to the Offer
and the Proposed Merger (by action of the Company Board, the acquisition of a
sufficient number of Shares or otherwise). The provisions of Section 203 are
described in Section 11 herein.
There can be no assurance that the Company Board will, pursuant to Section
203, approve the acquisition of Shares pursuant to the Offer and the Proposed
Merger. Even if such Company Board approval is not obtained, Section 203 will
be inapplicable to the Offer and the Proposed Merger if, upon the purchase of
Shares pursuant to the Offer, Purchaser owns at least 85% of the outstanding
Shares, excluding for purposes of determining the number of Shares outstanding
those Shares owned (i) by persons who are directors and also officers and (ii)
employee stock plans in which employee participants do not have the right to
determine confidentially whether Shares held subject to the plan will be
tendered in a tender or exchange offer.
On December 3, 1999, Chesapeake and Purchaser commenced a lawsuit in the
Court of Chancery of the State of Delaware against the Company and its Board
of Directors seeking, among other things, an order (i) declaring that the
Company Board breached its fiduciary duties by adopting certain amendments to
the Company's bylaws, which amendments were first publicly announced on
December 2, 1999 (the "Bylaw Amendments"), which amendments, among other
things, purport to require the affirmative vote of holders of two-thirds of
the outstanding shares of Common Stock for the stockholders to amend, add to,
alter or repeal the Company's bylaws (the "Super Majority Bylaw") and purport
to reserve to the Company Board the right to set the record date for a
solicitation of written consents from the Company's stockholders (the "Consent
Record Date Bylaw"), (ii) declaring the Super Majority Bylaw and the Consent
Record Date Bylaw void, and enjoining the Company Board from implementing the
Super Majority Bylaw, the Consent Record Date Bylaw and the Bylaw Amendments
as a whole, (iii) declaring that failure to redeem the Rights or to render the
Rights inapplicable to the Offer and the Proposed Merger or to approve the
Offer and the Proposed Merger would constitute a breach of the Company Board's
fiduciary duties under Delaware law, (iv) invalidating the Rights or
compelling the Company Board to redeem the Rights or render the Rights
inapplicable
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to the Offer and the Proposed Merger, (v) declaring that failure to approve
the Offer and the Proposed Merger for purposes of Section 203 of the DGCL
would constitute a breach of the Company Board's fiduciary duties under
Delaware law, (vi) compelling the Company Board to approve the Offer and the
Proposed Merger for purposes of Section 203 of the DGCL, (vii) enjoining the
Company Board from taking any actions designed to impede or which have the
effect of impeding the Offer, the Consent Solicitation or the Proposed Merger
and declaring that any such actions would constitute a breach of the Company
Board's fiduciary duties under Delaware law, and (viii) enjoining the Company
Board from taking any actions to impede, or refuse to recognize the validity
of, the Consent Solicitation.
Also on December 3, 1999, Chesapeake and Purchaser commenced litigation
against the Company in the United States District Court for the District of
Delaware seeking, among other things, a declaratory judgment that Chesapeake
and Purchaser have disclosed all information required by, and are otherwise in
full compliance with, the Exchange Act and any other federal securities laws,
rules or regulations deemed applicable to the Offer and the Consent
Solicitation.
The Antitrust Condition. The Offer is conditioned on, among other things,
the Antitrust Condition being satisfied. For a more detailed description of
certain time periods applicable to this condition, see Section 15.
Certain other conditions to the Offer are described in Section 13 herein.
Purchaser reserves the right (but shall not be obligated) to waive any or all
such conditions. See Sections 1, 11, 13 and 15 herein.
The Offer is not conditioned upon Chesapeake or Purchaser obtaining
financing.
This Offer to Purchase and the related Letter of Transmittal contain
important information which should be read carefully before any decision is
made with respect to the Offer.
1. TERMS OF THE OFFER.
Upon the terms and subject to the conditions set forth in the Offer
(including the terms and conditions set forth in Section 13 (the "Offer
Conditions") and if the Offer is extended or amended, the terms and conditions
of such extension or amendment), Purchaser will accept for payment, and pay
for, all Shares validly tendered on or prior to the Expiration Date (as
defined herein) and not withdrawn as permitted by Section 4. The term
"Expiration Date" means 12:00 Midnight, New York City time, on Monday, January
3, 2000, unless and until Purchaser shall, in its sole discretion, have
extended the period for which the Offer is open, in which event the term
"Expiration Date" shall mean the latest time and date on which the Offer, as
so extended by Purchaser, shall expire.
Subject to the applicable rules and regulations of the SEC, Purchaser
expressly reserves the right, in its sole discretion, at any time or from time
to time, to extend the period of time during which the Offer is open by giving
oral or written notice of such extension to the Depositary and by making a
public announcement thereof. During any such extension, all Shares previously
tendered and not withdrawn will remain subject to the Offer, subject to the
right of a tendering stockholder to withdraw such stockholder's tender of
Shares. See Section 4. Subject to the applicable regulations of the SEC,
Purchaser also expressly reserves the right, in its sole discretion, at any
time or from time to time, (i) to delay acceptance for payment of or
(regardless of whether such Shares were theretofore accepted for payment)
payment for, any tendered Shares, or to terminate or amend the Offer as to any
Shares not then paid for, if any of the conditions set forth in Section 13 are
not satisfied and (ii) to waive any condition and to set forth or change any
other term or condition of the Offer, by giving oral or written notice of such
delay, termination or amendment to the Depositary and by making a public
announcement thereof. If Purchaser accepts any Shares for payment pursuant to
the terms of the Offer, it will accept for payment all Shares validly tendered
prior to the Expiration Date and not
4
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withdrawn, and, subject to the terms and conditions of the Offer, including
but not limited to the Offer Conditions, it will accept for payment and
promptly pay for all Shares so accepted for payment. Purchaser confirms that
its reservation of the right to delay payment for Shares which it has accepted
for payment is limited by Rule 14e-1(c) under the Exchange Act, which requires
that no person making a tender offer shall fail to pay the consideration
offered or return any securities deposited by or on behalf of tendering
security holders promptly after the termination or withdrawal of a tender
offer. Purchaser reserves the right to acquire Shares, after expiration or
termination of the Offer, through open market purchases, privately negotiated
transactions, a tender offer or exchange offer or otherwise, upon such terms
and at such prices as it may determine, which may be more or less than the
applicable offer price to be paid per Share in the Offer and could be for cash
or other consideration.
Any extension, delay, termination or amendment of the Offer will be followed
as promptly as practicable by public announcement thereof, such announcement
in the case of an extension to be issued no later than 9:00 A.M., New York
City time, on the next business day after the previously scheduled Expiration
Date. Subject to applicable law (including Rules 14d-4(c), 14d-6(d) and 14e-1
under the Exchange Act, which require that any material change in the
information published, sent or given to stockholders in connection with the
Offer be promptly disseminated to stockholders in a manner reasonably designed
to inform stockholders of such change) and without limiting the manner in
which Purchaser may choose to make any public announcement, Purchaser shall
have no obligation to publish, advertise or otherwise communicate any such
public announcement other than by issuing a press release or other
announcement.
Purchaser confirms that if it makes a material change in the terms of the
Offer or the information concerning the Offer, or if it waives a material
condition of the Offer, Purchaser will extend the Offer to the extent required
by Rules 14d-4(c), 14d-6(d) and 14e-1 under the Exchange Act.
If, prior to the Expiration Date, Purchaser, in its sole discretion, shall
decrease the percentage of Shares being sought or increase or decrease the
consideration offered to holders of Shares, such increase or decrease shall be
applicable to all holders whose Shares are accepted for payment pursuant to
the Offer and, if at the time notice of any increase or decrease is first
published, sent or given to holders of Shares, the Offer is scheduled to
expire at any time earlier than the tenth business day from and including the
date that such notice is first so published, sent or given, the Offer will be
extended so that it shall not expire earlier than the expiration of such ten
business day period. For purposes of the Offer, a "business day" means any day
other than a Saturday, Sunday or United States federal holiday and consists of
the time period from 12:01 A.M. through 12:00 Midnight, New York City time.
A demand is being made to the Company for the use of the Company's
stockholder list and security position listings for the purpose of, among
other things, disseminating the Offer to stockholders. Upon compliance by the
Company with such demand, this Offer to Purchase and the related Letter of
Transmittal will be mailed to record holders of Shares and will be furnished
to brokers, banks and similar persons whose names, or the names of whose
nominees, appear on the stockholder list or, if applicable, who are listed as
participants in a clearing agency's security position listing for subsequent
transmittal to beneficial owners of Shares.
2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES.
Upon the terms and subject to the conditions of the Offer (including the
Offer Conditions and, if the Offer is extended or amended, the terms and
conditions of any such extension or amendment), Purchaser will accept for
payment, and will pay for, Shares validly tendered and not withdrawn as
promptly as practicable after the later of (i) subject to compliance with the
applicable rules and regulations of the SEC, including Rule 14e-1(c) under the
Exchange Act, the satisfaction or waiver of the conditions set forth in
Section 13 of this Offer to Purchase and (ii) the Expiration Date.
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In addition, subject to applicable rules of the SEC, Purchaser expressly
reserves the right to delay acceptance for payment of or payment for Shares in
order to comply, in whole or in part, with any applicable law. See Section 13.
In all cases, payment for Shares tendered and accepted for payment pursuant to
the Offer will be made only after timely receipt by the Depositary of
certificates for such Shares (or a confirmation of a book-entry transfer of
such Shares (a "Book-Entry Confirmation") into the Depositary's account at The
Depository Trust Company (the "Book-Entry Transfer Facility")), a properly
completed and duly executed Letter of Transmittal, or facsimile thereof, with
any required signature guarantees, or an Agent's Message (as defined in
Section 3) and any other required documents.
For purposes of the Offer, Purchaser will be deemed to have accepted for
payment (and thereby purchased) Shares validly tendered and not withdrawn as,
if and when Purchaser gives oral or written notice to the Depositary of its
acceptance for payment of such Shares pursuant to the Offer. Upon the terms
and subject to the conditions of the Offer, payment for Shares accepted for
payment pursuant to the Offer will be made by deposit of the purchase price
therefor with the Depositary, which will act as agent for the tendering
stockholders for the purpose of receiving payments from Purchaser and
transmitting such payments to the tendering stockholders whose Shares have
been accepted for payment. Under no circumstances will interest on the
purchase price for Shares be paid, regardless of any delay in making such
payment. Upon the deposit of funds with the Depositary for the purpose of
making payment to validly tendering stockholders, Purchaser's obligation to
make such payment shall be satisfied and such tendering stockholders must
thereafter look solely to the Depositary for payment of the amounts owed to
them by reason of acceptance for payment of Shares pursuant to the Offer.
If any tendered Shares are not accepted for payment pursuant to the terms
and conditions of the Offer for any reason, or if certificates are submitted
for more Shares than are tendered, certificates for such unpurchased Shares
will be returned, without expense, to the tendering stockholder (or, in the
case of Shares tendered by book-entry transfer of such Shares into the
Depositary's account at the Book-Entry Transfer Facility pursuant to the
procedures set forth in Section 3, such Shares will be credited to an account
maintained on behalf of the tendering stockholder with the Book-Entry Transfer
Facility) as soon as practicable following expiration or termination of the
Offer.
Purchaser reserves the right to transfer or assign in whole or in part from
time to time to Chesapeake or one or more direct or indirect subsidiaries of
Chesapeake the right to purchase all or any portion of the Shares tendered
pursuant to the Offer, but any such transfer or assignment will not relieve
Purchaser of its obligations under the Offer and will in no way prejudice the
rights of tendering stockholders to receive payment for Shares validly
tendered and accepted for payment pursuant to the Offer.
3. PROCEDURE FOR TENDERING SHARES.
Valid Tender. To tender Shares pursuant to the Offer (a) a properly
completed and duly executed Letter of Transmittal (or a facsimile thereof) in
accordance with the instructions of the Letter of Transmittal, with any
required signature guarantees, certificates for Shares to be tendered, and any
other documents required by the Letter of Transmittal, must be received by the
Depositary prior to the Expiration Date at one of its addresses set forth on
the back cover of this Offer to Purchase, (b) such Shares must be delivered
pursuant to the procedures for book-entry transfer described below (and a
Book-Entry Confirmation of such delivery received by the Depositary, including
an Agent's Message (as defined herein) if the tendering stockholder has not
delivered a Letter of Transmittal), prior to the Expiration Date, or (c) the
tendering stockholder must comply with the guaranteed delivery procedures set
forth below. The term "Agent's Message" means a message transmitted by the
Book-Entry Transfer Facility to, and received by, the Depositary and forming a
part of a Book-Entry Confirmation, which states that the Book-Entry Transfer
Facility has received an express acknowledgment from the
6
<PAGE>
participant in the Book-Entry Transfer Facility tendering the Shares which are
the subject of the Book-Entry Confirmation, that such participant has received
and agrees to be bound by the terms of the Letter of Transmittal and that
Purchaser may enforce such agreement against the participant.
Unless the Rights Condition is satisfied, stockholders will be required to
tender one Right (subject to adjustment) for each Share tendered in order to
effect a valid tender of Shares. Accordingly, stockholders who sell their
Rights separately from their Shares and do not otherwise acquire Rights may
not be able to satisfy the requirements of the Offer for a valid tender of
Shares. Unless separate certificates representing the Rights are issued, a
tender of Shares will also constitute a tender of the associated Rights.
Rights are presently evidenced by the certificates for the Common Stock and
the tender by a stockholder of such stockholder's shares of Common Stock will
also constitute a tender of the associated Rights. However, after a
Distribution Date (as defined in the Rights Agreement), upon request the
Rights Agent will send to each record holder of Shares as of the close of
business on the Distribution Date a Rights certificate evidencing one Right
for each share of Common Stock held. Pursuant to the Offer, no separate
payment will be made by Purchaser for the Rights. If separate certificates
representing the Rights are issued to holders of Common Stock prior to the
time a holder's Shares are tendered pursuant to the Offer, certificates
representing a number of Rights equal to the number of shares of Common Stock
tendered must be delivered to the Depositary, or, if available, a Book-Entry
Confirmation received by the Depositary with respect thereto, in order for
such shares of Common Stock to be validly tendered. If the Distribution Date
occurs and separate certificates representing the Rights are not distributed
prior to the time shares of Common Stock are tendered pursuant to the Offer,
Rights may be tendered prior to a stockholder receiving the certificates for
Rights by use of the guaranteed delivery procedure described below. A tender
of shares of Common Stock constitutes an agreement by the tendering
stockholder to deliver certificates representing all Rights formerly
associated with the number of shares of Common Stock tendered pursuant to the
Offer to the Depositary prior to expiration of the period permitted by such
guaranteed delivery procedures for delivery of certificates for, or a Book-
Entry Confirmation with respect to, Rights (the "Rights Delivery Period").
However, after expiration of the Rights Delivery Period, Purchaser may elect
to reject as invalid a tender of shares of Common Stock with respect to which
certificates for, or a Book-Entry Confirmation with respect to, the number of
Rights required to be tendered with such Common Stock have not been received
by the Depositary. Nevertheless, Purchaser will be entitled to accept for
payment shares of Common Stock tendered by a stockholder prior to receipt of
the certificates for the Rights required to be tendered with such shares of
Common Stock, or a Book-Entry Confirmation with respect to such Rights, and
either (a) subject to complying with applicable rules and regulations of the
SEC, withhold payment for such shares of Common Stock pending receipt of the
certificates for, or a Book-Entry Confirmation with respect to, such Rights or
(b) make payment for shares of Common Stock accepted for payment pending
receipt of the certificates for, or a Book-Entry Confirmation with respect to,
such Rights in reliance upon the agreement of a tendering stockholder to
deliver Rights pursuant to such guaranteed delivery procedures. Any
determination by Purchaser to make payment for shares of Common Stock in
reliance upon such agreement and such guaranteed delivery procedures or, after
expiration of the Rights Delivery Period, to reject a tender as invalid will
be made in the sole and absolute discretion of Purchaser.
Book-Entry Delivery. The Depositary will make a request to establish an
account with respect to the Shares at the Book-Entry Transfer Facility for
purposes of the Offer within two business days after the date of this Offer to
Purchase. Any financial institution that is a participant in the Book-Entry
Transfer Facility's system may make book-entry transfer of Shares by causing
the Book-Entry Transfer Facility to transfer such Shares into the Depositary's
account in accordance with the Book-Entry Transfer Facility's procedures for
such transfer. However, although delivery of Shares may be effected through
book-entry transfer, either the Letter of Transmittal (or facsimile thereof),
properly completed
7
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and duly executed, together with any required signature guarantees, or an
Agent's Message in lieu of the Letter of Transmittal, and any other required
documents, must, in any case, be transmitted to and received by the Depositary
at one of its addresses set forth on the back cover of this Offer to Purchase
on or prior to the Expiration Date for such Shares to be validly tendered
pursuant to the Offer, or the tendering stockholder must comply with the
guaranteed delivery procedures described below. If the Distribution Date
occurs, the Depositary will also make a request to establish an account with
respect to the Rights at the Book-Entry Transfer Facility, but no assurance
can be given that book-entry transfer of Rights will be available. If book-
entry transfer of Rights is available, the foregoing book-entry transfer
procedures will also apply to Rights. If book-entry transfer of Rights is not
available and the Distribution Date occurs, a tendering stockholder will be
required to tender Rights by means of physical delivery of certificates for
Rights to the Depositary (in which event references in this Offer to Purchase
to Book-Entry Confirmations with respect to Rights will be inapplicable). The
confirmation of a book-entry transfer of Shares or Rights into the
Depositary's account at the Book-Entry Transfer Facility as described above is
referred to herein as a "Book-Entry Confirmation." Delivery of documents to
the Book-Entry Transfer Facility in accordance with the Book-Entry Transfer
Facility's procedures does not constitute delivery to the Depositary.
The method of delivery of Shares, Rights, the Letter of Transmittal and all
other required documents, including delivery through the Book-Entry Transfer
Facility, is at the election and risk of the tendering stockholder. Shares
will be deemed delivered only when actually received by the Depositary
(including, in the case of a Book-Entry Transfer, by Book-Entry Confirmation).
If delivery is by mail, it is recommended that the stockholder use properly
insured registered mail with return receipt requested. In all cases,
sufficient time should be allowed to ensure timely delivery.
Signature Guarantees. Except as otherwise provided below, all signatures on
a Letter of Transmittal must be guaranteed by a financial institution
(including most commercial banks, savings and loan associations and brokerage
houses) that is a participant in good standing in the Security Transfer Agents
Medallion Program, the New York Stock Exchange Medallion Signature Guarantee
Program or the Stock Exchange Medallion Program (each, an "Eligible
Institution"). Signatures on a Letter of Transmittal need not be guaranteed
(a) if the Letter of Transmittal is signed by the registered holders (which
term, for purposes of this section, includes any participant in the Book-Entry
Transfer Facility's system whose name appears on a security position listing
as the owner of the Shares or Rights) of Shares and Rights tendered therewith
and such registered holder has not completed the box entitled "Special Payment
Instructions" or the box entitled "Special Delivery Instructions" on the
Letter of Transmittal or (b) if such Shares and Rights are tendered for the
account of an Eligible Institution. See Instructions 1 and 5 of the Letter of
Transmittal. If the certificates for Shares or Rights are registered in the
name of a person other than the signer of the Letter of Transmittal, or if
payment is to be made or certificates for Shares or Rights not tendered or not
accepted for payment are to be returned to a person other than the registered
holder of the certificates surrendered, then the tendered certificates must be
endorsed or accompanied by appropriate stock powers, in either case signed
exactly as the name or names of the registered holders or owners appear on the
certificates, with the signatures on the certificates or stock powers
guaranteed by an Eligible Institution as described above. See Instructions 1
and 5 of the Letter of Transmittal.
Guaranteed Delivery. A stockholder who desires to tender Shares (or Rights,
if applicable) pursuant to the Offer and whose certificates for Shares (or
Rights, if applicable) are not immediately available (including because
certificates for Rights have not yet been distributed by the Rights Agent), or
who cannot comply with the procedure for book-entry transfer on a timely
basis, or who cannot deliver all required documents to the Depositary on or
prior to the Expiration Date, may tender such Shares (and/or Rights, if
applicable) by following all of the procedures set forth below:
(i) such tender is made by or through an Eligible Institution;
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(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form provided by Purchaser, is received by
the Depositary, as provided below, on or prior to the Expiration Date; and
(iii) the certificates for all tendered Shares and/or Rights, in proper
form for transfer (or a Book-Entry Confirmation with respect to all such
Shares and/or Rights), together with a properly completed and duly executed
Letter of Transmittal (or facsimile thereof), with any required signature
guarantees (or, in the case of a book-entry transfer, an Agent's Message in
lieu of the Letter of Transmittal), and any other required documents, are
received by the Depositary within (a) in the case of Shares, three NYSE
trading days after the date of execution of such Notice of Guaranteed
Delivery or (b) in the case of Rights, a period ending on the later of (1)
three NYSE trading days after the date of execution of such Notice of
Guaranteed Delivery or (2) three NYSE trading days after the date
certificates for Rights are distributed to stockholders by the Rights
Agent. A "NYSE trading day" is any day on which the New York Stock Exchange
is open for business.
The Notice of Guaranteed Delivery may be delivered by hand to the Depositary
or transmitted by telegram, telex, facsimile transmission or mail to the
Depositary and must include a guarantee by an Eligible Institution in the form
set forth in such Notice of Guaranteed Delivery and a representation that the
stockholder on whose behalf the tender is being made is deemed to own the
Shares being tendered within the meaning of Rule 14e-4 promulgated under the
Exchange Act.
Other Requirements. Notwithstanding any provision hereof, payment for Shares
accepted for payment pursuant to the Offer will in all cases be made only
after timely receipt by the Depositary of (a) certificates for (or a timely
Book-Entry Confirmation with respect to) such Shares and, if the Distribution
Date occurs, certificates for (or a timely Book-Entry Confirmation, if
available, with respect to) the associated Rights (unless Purchaser elects to
make payment for such Shares pending receipt of the certificates for, or a
Book-Entry Confirmation with respect to, such Rights as described above), (b)
a Letter of Transmittal, or facsimile thereof, properly completed and duly
executed, with any required signature guarantees (or, in the case of a book-
entry transfer, an Agent's Message in lieu of the Letter of Transmittal) and
(c) any other documents required by the Letter of Transmittal. Accordingly,
tendering stockholders may be paid at different times depending upon when
certificates for Shares (or Rights, if applicable) or Book-Entry Confirmations
with respect to Shares (or Rights, if applicable) are actually received by the
Depositary. Under no circumstances will interest on the purchase price of the
Shares be paid by Purchaser, regardless of any extension of the Offer or any
delay in making such payment.
If the Rights Condition is satisfied, the guaranteed delivery procedures
with respect to certificates for Rights and the requirement for the tender of
Rights will no longer apply.
It is a violation of Section 14(e) of the Exchange Act and Rule 14e-4
promulgated thereunder for a person, directly or indirectly, to tender Shares
for his own account unless the person so tendering (i) has a net long position
equal to or greater than his amount of (x) Shares tendered or (y) other
securities immediately convertible into, exercisable, or exchangeable for the
amount of Shares tendered and will acquire such Shares for tender by
conversion, exercise or exchange of such other securities and (ii) will cause
such Shares to be delivered in accordance with the terms of the Offer. Rule
14e-4 provides a similar restriction applicable to the tender or guarantee of
a tender on behalf of another person.
A tender of Shares made pursuant to any one of the procedures set forth
above will constitute the tendering stockholder's acceptance of the terms and
conditions of the Offer, including the tendering stockholder's representation
and warranty that (i) such stockholder has a net long position in the Shares
being tendered within the meaning of Rule 14e-4 and (ii) the tender of such
Shares complies with Rule 14e-4.
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Tender Constitutes an Agreement. The valid tender of Shares and, if
applicable, Rights pursuant to one of the procedures described above will
constitute a binding agreement between the tendering stockholder and Purchaser
upon the terms and subject to the conditions of the Offer.
Appointment. By executing a Letter of Transmittal as set forth above, the
tendering stockholder irrevocably appoints designees of Purchaser as such
stockholder's proxies, each with full power of substitution, to the full
extent of such stockholder's rights with respect to the Shares tendered by
such stockholder and accepted for payment by Purchaser and with respect to any
and all cash dividends, distributions, rights, other Shares or other
securities issued or issuable in respect of such Shares on or after December
3, 1999. All such proxies will be considered coupled with an interest in the
tendered Shares and Rights. Such appointment is effective when, and only to
the extent that, Purchaser deposits the payment for such Shares with the
Depositary. Upon the effectiveness of such appointment, all prior powers of
attorney, proxies and consents given by such stockholder will be revoked
without further action, and no subsequent powers of attorney, proxies and
consents may be given (and, if given, will not be deemed effective). Purchaser
designees will, with respect to the Shares for which the appointment is
effective, be empowered to exercise all voting and other rights of such
stockholder as they, in their sole discretion, may deem proper at any annual,
special or adjourned meeting of the stockholders of the Company, by written
consent in lieu of any such meeting or otherwise. Purchaser reserves the right
to require that, in order for Shares to be deemed validly tendered,
immediately upon Purchaser's payment for such Shares, Purchaser must be able
to exercise full voting rights with respect to such Shares.
Determination of Validity. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance of any tender of Shares
or Rights will be determined by Purchaser in its sole discretion, which
determination will be final and binding. Purchaser reserves the absolute right
to reject any and all tenders determined by it not to be in proper form or the
acceptance for payment of or payment for which may, in the opinion of
Purchaser's counsel, be unlawful. Purchaser also reserves the absolute right
to waive any defect or irregularity in the tender of any Shares or Rights of
any particular stockholder whether or not similar defects or irregularities
are waived in the case of other stockholders. No tender of Shares or Rights
will be deemed to have been validly made until all defects and irregularities
relating thereto have been cured or waived. None of Purchaser, Chesapeake, the
Depositary, the Information Agent, the Co-Dealer Managers or any other person
will be under any duty to give notification of any defects or irregularities
in tenders or incur any liability for failure to give any such notification.
Purchaser's interpretation of the terms and conditions of the Offer (including
the Letter of Transmittal and the instructions thereto) will be final and
binding.
Backup Withholding. In order to avoid "backup withholding" of Federal income
tax on payments of cash pursuant to the Offer, a stockholder surrendering
Shares in the Offer must, unless an exemption applies, provide the Depositary
with such stockholder's correct taxpayer identification number ("TIN") on a
Substitute Form W-9 and certify under penalties of perjury that such TIN is
correct and that such stockholder is not subject to backup withholding. If a
stockholder does not provide such stockholder's correct TIN or fails to
provide the certifications described above, the Internal Revenue Service (the
"IRS") may impose a penalty on such stockholder and payment of cash to such
stockholder pursuant to the Offer may be subject to backup withholding of 31%.
All stockholders surrendering Shares pursuant to the Offer should complete and
sign the main signature form and the Substitute Form W-9 included as part of
the Letter of Transmittal to provide the information and certification
necessary to avoid backup withholding (unless an applicable exemption exists
and is proved in a manner satisfactory to Purchaser and the Depositary). If,
however, the tendering stockholder completes the box entitled "Special Payment
Instructions" on the Letter of Transmittal, the person to whom payment is to
be made, rather than the tendering stockholder, should complete and sign
Substitute Form W-9. Certain stockholders (including, among others,
corporations and certain foreign individuals and entities) are not subject to
backup withholding. Non-corporate foreign
10
<PAGE>
stockholders should complete and sign the main signature form and a Form W-8,
Certificate of Foreign Status, a copy of which may be obtained from the
Depositary, in order to avoid backup withholding. See Instruction 9 to the
Letter of Transmittal.
4. RIGHTS OF WITHDRAWAL.
Tenders of Shares made pursuant to the Offer are irrevocable, except that
Shares tendered pursuant to the Offer may be withdrawn at any time prior to
the Expiration Date and, unless theretofore accepted for payment by Purchaser
pursuant to the Offer, may also be withdrawn at any time after January 31,
2000.
For a withdrawal to be effective, a written, telegraphic, telex or facsimile
transmission notice of withdrawal must be timely received by the Depositary at
one of its addresses set forth on the back cover of this Offer to Purchase.
Any such notice of withdrawal must specify the name of the person having
tendered the Shares to be withdrawn, the number of Shares to be withdrawn and
the names in which the certificate(s) evidencing the Shares to be withdrawn
are registered, if different from that of the person who tendered such Shares.
The signature(s) on the notice of withdrawal must be guaranteed by an Eligible
Institution, unless such Shares have been tendered for the account of any
Eligible Institution. If Shares have been tendered pursuant to the procedures
for book-entry tender as set forth in Section 3, any notice of withdrawal must
specify the name and number of the account at the Book-Entry Transfer Facility
to be credited with the withdrawn Shares. If certificates for Shares to be
withdrawn have been delivered or otherwise identified to the Depositary, the
name of the registered holder and the serial numbers of the particular
certificates evidencing the Shares to be withdrawn must also be furnished to
the Depositary as aforesaid prior to the physical release of such
certificates. All questions as to the form and validity (including time of
receipt) of any notice of withdrawal will be determined by Purchaser, in its
sole discretion, which determination shall be final and binding. None of
Purchaser, Chesapeake, the Co-Dealer Managers, the Depositary, the Information
Agent, or any other person will be under any duty to give notification of any
defects or irregularities in any notice of withdrawal or incur any liability
for failure to give such notification. Withdrawals of tenders of Shares may
not be rescinded, and any Shares properly withdrawn will be deemed not to have
been validly tendered for purposes of the Offer. However, withdrawn Shares may
be retendered by following one of the procedures described in Section 3 at any
time prior to the Expiration Date.
If Purchaser extends the Offer, is delayed in its acceptance for payment of
Shares, or is unable to accept for payment Shares pursuant to the Offer, for
any reason, then, without prejudice to Purchaser's rights under the Offer, the
Depositary may, nevertheless, on behalf of Purchaser, retain tendered Shares,
and such Shares may not be withdrawn except to the extent that tendering
stockholders are entitled to withdrawal rights as set forth in this Section 4.
5. MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE OFFER.
Sales of Shares pursuant to the Offer and the exchange of Shares for cash
pursuant to the Proposed Merger will be taxable transactions for federal
income tax purposes and may also be taxable transactions under applicable
state, local, foreign and other tax laws. The tax consequences of the receipt
of cash in exchange for Shares pursuant to the Offer or the Proposed Merger
may vary depending on, among other things, the particular circumstances of a
stockholder. For federal income tax purposes, a stockholder whose Shares are
purchased pursuant to the Offer or who receives cash as a result of the
Proposed Merger generally will recognize gain or loss equal to the difference
between the adjusted basis of the Shares sold or exchanged and the amount of
cash received therefor. Such gain or loss generally will be capital gain or
loss if the Shares are held as capital assets by the stockholder and will be
long-term capital gain or loss if the stockholder's holding period in such
Shares for federal income tax purposes is more than one year at the time of
the sale or exchange. Long-term
11
<PAGE>
capital gain recognized by a non-corporate stockholder is generally subject to
tax at a maximum rate of 20%. In addition, a stockholder's ability to use
capital losses to offset ordinary income is limited.
A stockholder that tenders Shares pursuant to the Offer or Proposed Merger
may be subject to backup withholding at a rate of 31% unless such stockholder
provides a TIN and certifies under penalties of perjury that such TIN is
correct or properly certifies that such stockholder is awaiting a TIN, or
unless an exemption applies. See "Backup Withholding" under Section 3 hereof
and Instruction 9 in the Letter of Transmittal.
The income tax discussion set forth above is included for general
information only and may not be applicable to stockholders in special
situations, such as stockholders who received their Shares upon the exercise
of employee stock options or otherwise as compensation and stockholders who
are not United States persons. Stockholders should consult their own tax
advisors with respect to the specific tax consequences to them, in their
particular circumstances, of the Offer and the Proposed Merger, including the
application and effect of federal, state, local, foreign or other tax laws.
6. PRICE RANGE OF SHARES; DIVIDENDS.
According to the Company Form 10-K, the Shares are traded on the New York
Stock Exchange (the "NYSE") under the symbol "SWD" and, prior to January 28,
1998, the Company's Common Stock was traded in the over-the-counter market on
the Nasdaq National Market System under the symbol "SHOR." The following table
sets forth, for the fiscal periods indicated, the high and low sales prices
for the Common Stock on the NYSE and the Nasdaq National Market System as
reported in the Company Form 10-K with respect to periods occurring in fiscal
years 1998 and 1999 and as reported thereafter by published financial sources,
with respect to periods occurring in fiscal year 2000.
<TABLE>
<CAPTION>
Sales Price
-------------
Fiscal Year High Low
----------- ------ ------
<S> <C> <C>
Fiscal 1998
First Quarter............................................... $15.33 $11.92
Second Quarter.............................................. 17.67 12.92
Third Quarter............................................... 18.58 15.17
Fourth Quarter.............................................. 18.92 15.75
Fiscal 1999
First Quarter............................................... $16.19 $13.00
Second Quarter.............................................. 16.38 12.13
Third Quarter............................................... 20.63 13.13
Fourth Quarter.............................................. 19.94 16.56
Fiscal 2000
First Quarter............................................... $20.00 $17.00
Second Quarter.............................................. 17.94 12.38
Third Quarter (through December 2, 1999).................... 16.38 11.75
</TABLE>
The Rights trade together with the Common Stock. On November 17, 1999, the
last full trading day prior to the first public announcement of Chesapeake's
proposal to acquire the Company, the reported closing price per Share reported
on the NYSE was $13.38. On December 2, 1999, the last full trading day prior
to the first public announcement of Purchaser's intention to commence the
Offer, the reported closing price per Share reported on the NYSE was $15.69.
STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE SHARES.
According to the Company Form 10-K, the Company has not paid any cash
dividends on its Common Stock during either of its two most recent fiscal
years, and it is unlikely that any cash dividends will be paid on its Common
Stock in the near future.
12
<PAGE>
7. EFFECT OF THE OFFER ON THE MARKET FOR SHARES; STOCK QUOTATION, MARGIN
REGULATIONS AND EXCHANGE ACT REGISTRATION.
Market for Shares. The purchase of Shares by Purchaser pursuant to the Offer
will reduce the number of Shares that might otherwise trade publicly and may
reduce the number of holders of Shares, which could adversely affect the
liquidity and market value of the remaining Shares held by the public.
Stock Quotation. The Shares are listed on the NYSE. Depending on the number
of Shares purchased pursuant to the Offer, the Shares may no longer meet the
NYSE's listing requirements. According to the NYSE's published guidelines, the
NYSE would consider delisting the Shares if the number of record holders of at
least 100 Shares falls below 1,200, the number of publicly held Shares
(exclusive of holdings of officers, directors and their families and other
concentrated holdings of 10% or more (the "NYSE Excluded Holdings")) falls
below 600,000 or the aggregate market value of publicly held Shares (exclusive
of NYSE Excluded Holdings) falls below $5,000,000. If, as a result of the
purchase of Shares pursuant to the Offer or otherwise, the Shares no longer
meet the requirements of the NYSE for continued listing and the listing of the
Shares is discontinued, the market for the Shares could be adversely affected.
If the NYSE were to delist the Shares, it is possible that the Shares would
continue to trade on another securities exchange or in the over-the-counter
market and that price or other quotations would be reported by the exchange or
through the Nasdaq Stock Market or other sources. The extent of the public
market for the Shares and the availability of such quotations would depend,
however, upon factors such as the number of stockholders and the aggregate
market value of the Shares remaining at that time, the interest in maintaining
a market in the Shares on the part of securities firms, the possible
termination of registration under the Exchange Act, as described below, and
other factors. Purchaser cannot predict whether the reduction in the number of
Shares that might otherwise trade publicly would have an adverse or beneficial
effect on the market price for or marketability of the Shares or whether it
would cause future market prices to be higher or lower than the Offer price.
Margin Regulations. The Shares are presently "margin securities" under the
regulations of the Board of Governors of the Federal Reserve Board (the
"Federal Reserve Board"), which has the effect, among other things, of
allowing brokers to extend credit on the collateral of such Shares. Depending
upon factors similar to those described above regarding listing and market
quotations, the Shares might no longer constitute "margin securities" for the
purposes of the Federal Reserve Board's margin regulations, in which event the
Shares would be ineligible as collateral for margin loans made by brokers.
Exchange Act Registration. The Shares are currently registered under the
Exchange Act. This registration may be terminated upon application by the
Company to the SEC if the Shares are not listed on a national securities
exchange and there are fewer than 300 record holders of the Shares. The
termination of registration of the Shares under the Exchange Act would
substantially reduce the information required to be furnished by the Company
to holders of Shares and to the SEC and would make certain provisions of the
Exchange Act, such as the short-swing profit recovery provisions of Section
16(b), the requirement to furnish a proxy statement in connection with
stockholders' meetings pursuant to Section 14(a) and the requirements of Rule
13e-3 under the Exchange Act with respect to "going private" transactions, no
longer applicable to the Shares. In addition, "affiliates" of the Company and
persons holding "restricted securities" of the Company may be deprived of the
ability to dispose of these securities pursuant to Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act").
13
<PAGE>
If the registration of the Shares under the Exchange Act is not terminated
prior to the Proposed Merger, then the Shares will be delisted from all stock
exchanges and the registration of the Shares under the Exchange Act will be
terminated following consummation of the Proposed Merger.
If registration of the Shares under the Exchange Act were terminated, the
Shares would no longer be eligible for listing on the NYSE.
8. CERTAIN INFORMATION CONCERNING THE COMPANY.
The information concerning the Company contained in this Offer to Purchase,
including financial information, has been taken from or based upon publicly
available documents and records on file with the SEC and other public sources
and is qualified in its entirety by reference thereto. None of Chesapeake,
Purchaser, the Information Agent, the Depositary or the Co-Dealer Managers can
take responsibility for the accuracy or completeness of the information
contained in such documents and records, or for any failure by the Company to
disclose events which may have occurred or may affect the significance or
accuracy of any such information but which are unknown to Chesapeake,
Purchaser, the Information Agent, the Depositary or the Co-Dealer Managers.
According to the Company Form 10-K, the Company is a Delaware corporation
with its principal executive offices located at 277 Park Avenue, New York, New
York 10172 where its telephone number is (212) 371-1500. The Company has
described its business in the Company Form 10-K as follows:
The Company produces high quality specialized packaging, principally
folding cartons and set up boxes, for its customers in the United
States, Canada and China that require sophisticated precision graphic
packaging for their products, including customers in the home
entertainment industry, the tobacco industry, the software industry,
the personal care, cosmetic and toiletries industries and in consumer
markets such as the food, liquor, film, hosiery, consumer electronics
and pharmaceutical industries.
Set forth below is certain summary consolidated financial information for
each of the Company's last three fiscal years for the period ended May 1,
1999, as contained in the Company Form 10-K, which financial information has
been audited, and for the quarters ended July 31, 1999, and August 1, 1998, as
contained in the Company's Quarterly Report on Form 10-Q for the quarter ended
July 31, 1999 and in the Company's Quarterly Report on Form 10-Q for the
quarter ended August 1, 1998, which financial information has not been
audited. More comprehensive financial information is included in such reports
(including management's discussion and analysis of financial condition and
results of operations) and other documents filed by the Company with the SEC,
and the following summary is qualified in its entirety by reference to such
reports and other documents and all of the financial information and notes
contained therein. Copies of such reports and other documents may be examined
at or obtained from the SEC in the manner set forth below.
14
<PAGE>
SHOREWOOD PACKAGING CORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA
(In millions, except per share amounts)
<TABLE>
<CAPTION>
13 Weeks Ended 52 Week Period Ended
------------------ ---------------------
July 31, August 1, May 1, May 2, May 3,
1999 1998 1999 1998 1997(1)
-------- --------- ------ ------ -------
<S> <C> <C> <C> <C> <C>
Income Statement Data (2):
Net sales............................. $143.7 $115.4 $552.2 $415.4 $425.3
Earnings from continuing operations... 14.2 12.8 57.1 49.2 48.2
Earnings from continuing operations
before extraordinary item and
cumulative effect of a change in
accounting principle................. 7.7 6.8 34.3 26.3 24.9
Net earnings.......................... 7.7 3.8 31.0 26.3 23.4
Per Share Data:
Basic Earnings Per Share Information:
Earnings from continuing operations
before extraordinary item and
cumulative effect of a change in
accounting principle per common
share................................ $ .28 $ .26 $ 1.28 $ .97 $ .91
Net earnings per common share......... .28 .14 1.16 .97 .85
Diluted Earnings Per Share
Information:
Earnings from continuing operations
before extraordinary item and
cumulative effect of a change in
accounting principle per common
share................................ .28 .25 1.25 .95 .89
Net earnings per common share......... .28 .14 1.13 .95 .83
Weighted average number of common
shares............................... 27.2 26.5 26.8 27.1 27.4
Weighted average number of common
shares, assuming dilution............ 28.1 27.1 27.6 27.7 28.1
Balance Sheet Data:
Current assets........................ $127.7 $ 98.6 $123.9 $ 95.8 $ 94.5
Net property, plant and equipment..... 245.3 206.8 243.4 200.3 156.2
Total assets.......................... 532.1 332.1 515.5 326.0 277.9
Current liabilities................... 91.8 62.7 100.4 64.9 52.8
Long-term debt excluding current
maturities........................... 251.3 144.8 227.7 126.4 106.9
Stockholders' equity.................. 148.5 99.3 146.5 109.8 96.4
</TABLE>
- --------
(1) 53 week period.
(2) The operations of the Company's transportation business have been
reflected as discontinued operations for the period ended May 3, 1997,
and for all prior periods.
Available Information. The Company is subject to the information and
reporting requirements of the Exchange Act and, in accordance therewith, is
obligated to file reports and other information with the SEC relating to its
business, financial condition and other matters. Information, as of particular
dates, concerning the Company's directors and officers, their remuneration,
stock options granted to them, the principal holders of the Company's
securities, any material interests of such persons in transactions with the
Company and other matters is required to be disclosed in proxy statements
distributed to the Company's stockholders and filed with the SEC. Such
reports, proxy statements and other information should be available for
inspection at the public reference room at the SEC's offices at 450 Fifth
Street, N.W., Washington, D.C. 20549 and also should be available for
inspection and copying at the regional offices of the SEC located at Seven
World Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies may be
obtained by mail, upon payment of the SEC's customary charges, by writing to
its principal office at 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549 and can be obtained electronically on the SEC's World Wide Web site
at http://www.sec.gov. Such materials should also be available for inspection
at the office of the NYSE, 20 Broad Street, New York, New York 10005.
15
<PAGE>
9. CERTAIN INFORMATION CONCERNING PURCHASER AND CHESAPEAKE.
Chesapeake, a Virginia corporation headquartered in Richmond, Virginia, is
primarily engaged in the manufacture and sale of specialty packaging, point-
of-purchase displays and merchandising services. Chesapeake conducts its
business in two segments. Chesapeake's Merchandising and Specialty Packaging
segment produces and sells point-of-sale displays, graphic packaging and
corrugated shipping containers and provides merchandising services. The
European Specialty Packaging segment, which is comprised of the Field Group
plc operations, produces folding cartons for food/consumer and
pharmaceutical/healthcare companies. Chesapeake's common stock is listed on
the NYSE and, as of December 2, 1999, Chesapeake had a market capitalization
of $539 million.
Available Information. Chesapeake is subject to the informational
requirements of the Exchange Act and, in accordance therewith, files reports
relating to its business, financial condition and other matters. Information,
as of particular dates, concerning Chesapeake's directors and officers, their
remuneration, stock options and other matters, the principal holders of
Chesapeake's securities and any material interest of such persons in
transactions with Chesapeake is required to be disclosed in proxy statements
distributed to Chesapeake shareholders and filed with the SEC. Such reports,
proxy statements and other information should be available for inspection at
the SEC and copies thereof should be obtainable from the SEC and the NYSE in
the same manner as is set forth with respect to the Company in Section 8.
Purchaser is a Delaware corporation and to date has engaged in no activities
other than those incident to its formation and the commencement of the Offer.
Purchaser is a wholly owned subsidiary of Chesapeake. Purchaser is the record
owner of 100 Shares. The principal executive offices of Purchaser are located
at 1021 East Cary Street, Richmond, Virginia 23218-2350.
The name, citizenship, business address, present principal occupation, and
material positions held during the past five years of each of the directors
and executive officers of Chesapeake and Purchaser are set forth in Schedule A
to this Offer to Purchase.
Financial Information. Set forth below is selected consolidated financial
data relating to Chesapeake and its subsidiaries for Chesapeake's last three
fiscal years, which have been excerpted or derived from the audited
consolidated financial statements contained in Chesapeake's Annual Report on
Form 10-K (the "Chesapeake Form 10-K") for the fiscal year ended December 31,
1998, and from the unaudited consolidated financial statements contained in
Chesapeake's Quarterly Report on Form 10-Q for the quarter ended September 30,
1999, and in Chesapeake's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998, in each case filed by Chesapeake with the SEC. More
comprehensive financial information is included in such reports and other
documents filed by Chesapeake with the SEC, and the following financial data
is qualified in its entirety by reference to such reports and other documents,
including the financial information and related notes contained therein. Such
reports and other documents may be inspected and copies may be obtained from
the offices of the SEC and the NYSE in the same manner as set forth with
respect to information about the Company in Section 8.
16
<PAGE>
CHESAPEAKE CORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA
(In millions, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Years Ended December 31,
----------------- ------------------------
1999(1) 1998 1998 1997(2) 1996
----------------- ------ -------- --------
<S> <C> <C> <C> <C> <C>
Statement of Earnings Data:
Net sales.......................... $ 916.8 $ 714.5 $950.4 $1,021.0 $1,158.6
Income from operations............. 69.9 54.6 66.2 19.5 74.3
Income before extraordinary item
and cumulative effect of
accounting change................. 82.7 31.8 34.0 50.9 30.1
Net income......................... 82.7 45.1 47.3 48.6 30.1
Per Share Data:
Basic Earnings Per Share
Information:
Income before extraordinary item
and cumulative effect of
accounting change per common
share............................. $ 3.92 $ 1.50 $ 1.60 $ 2.20 $ 1.28
Net income per common share........ 3.92 2.12 2.23 2.10 1.28
Diluted Earnings Per Share
Information:
Income before extraordinary item
and cumulative effect of
accounting change per common
share............................. 3.87 1.48 1.57 2.18 1.27
Net income per common share........ 3.87 2.10 2.19 2.08 1.27
Weighted average number of common
shares............................ 21.1 21.2 21.2 23.1 23.5
Weighted average number of common
shares, assuming dilution......... 21.3 21.5 21.6 23.4 23.6
Balance Sheet Data:
Current assets..................... $ 436.0 $ 331.2 $313.4 $ 308.3 $ 320.8
Net property, plant and equipment.. 694.4 542.1 543.2 508.3 863.5
Total assets....................... 1,491.4 971.9 979.4 921.9 1,290.2
Current liabilities................ 296.5 150.3 157.6 142.3 159.5
Long-term debt, excluding current
maturities........................ 642.5 268.7 270.4 264.3 499.4
Total shareholders' equity......... 411.5 448.7 441.3 423.1 469.1
</TABLE>
- --------
(1) Includes an after-tax gain of $51.7 million, or $2.42 per share, for the
sale of the Company's building products business and approximately 278,000
acres of timberlands, net of an increase in estimated costs associated
with the disposal of the kraft products business.
(2) Includes an after-tax gain of $49.1 million, or $2.07 per share, on the
sale of the kraft products business.
Effective October 3, 1999, the Company completed the formation of a joint
venture with Georgia-Pacific Corporation through which the companies combined
their commercial tissue businesses. Chesapeake received a 5% equity interest
in the joint venture and a tax-deferred cash distribution of approximately
$755 million.
Other Information. Except as set forth in Section 10 and Schedule B, none of
Chesapeake or Purchaser, or, to the best of their knowledge, any of the
persons listed in Schedule A hereto or any associate or majority-owned
subsidiary of any of the foregoing, beneficially owns or has a right to
acquire any equity securities of the Company. Except as set forth in Section
10 and Schedule B, none of Chesapeake or Purchaser, or, to the best of their
knowledge, any of the persons or entities referred to above, or any director,
executive officer or subsidiary of any of the foregoing, has effected any
transaction in such equity securities during the past 60 days.
Except as set forth in Sections 10 and 11, none of Chesapeake or Purchaser,
or, to the best of their knowledge, any of the persons listed in Schedule A
hereto, has any contract, arrangement, understanding or relationship with any
other person with respect to any securities of the Company, including, but not
limited to, any contract, arrangement, understanding or relationship
concerning the transfer or the voting of any such securities, joint ventures,
loan or option arrangements, puts or calls, guaranties of loans, guaranties
against loss or the giving or withholding of proxies. Except as set forth in
Sections 10 and 11, there have been no contacts, negotiations or transactions
since April 28, 1996, between Chesapeake or Purchaser, or, to the best of
their knowledge, any of the persons listed in Schedule A hereto, on the one
hand, and the Company or its affiliates, on the other hand, concerning
17
<PAGE>
a merger, consolidation or acquisition, a tender offer or other acquisition of
securities, an election of directors, or a sale or other transfer of a
material amount of assets. Except as described in Sections 10 and 11, none of
Chesapeake or Purchaser, or, to the best of their knowledge, any of the
persons listed in Schedule A hereto, has since April 28, 1996, had any
transaction with the Company or any of its executive officers, directors or
affiliates that would require disclosure under the rules and regulations of
the SEC applicable to the Offer.
10. BACKGROUND OF THE OFFER; CONTACTS WITH THE COMPANY; STOCK PURCHASE
AGREEMENT.
Background and Contacts with the Company.
Between April 28, 1996, and October 26, 1999, Chesapeake had no contact with
the Company regarding any potential strategic transaction involving the
combination of the two companies. In the ordinary course of its business,
Chesapeake is engaged in the ongoing evaluation of potential candidates for
acquisitions and strategic transactions. As part of the development of
Chesapeake's strategy of divesting capital intensive, cyclical, commodity
businesses and focusing on value-added, specialty packaging businesses,
Chesapeake identified the Company as a potential acquisition target at least
as early as May 1998. In connection with the acquisition of Field Group plc
("Field Group") by Chesapeake in the first quarter of 1999, a preliminary
discussion with the Company took place centered on potential business
synergies between one or more Field Group plants and the Company. During two
meetings and a series of telephone calls during the summer of 1999,
representatives of Chesapeake and the Company discussed primarily
opportunities for alliances or transactions related to specific target markets
or individual plants. In their meetings and phone calls during the summer of
1999, representatives of Chesapeake and the Company did not discuss
opportunities for a business combination or potential strategic transaction
involving the companies. These discussions did not result in any negotiations
or proposals concerning a business combination.
On October 26, 1999, Mr. Marc P. Shore, Chairman of the Board & Chief
Executive Officer of the Company ("Mr. Shore"), called Mr. Thomas H. Johnson,
President & Chief Executive Officer of Chesapeake ("Mr. Johnson"), to discuss
the following letter, which Mr. Johnson received on October 27, 1999:
October 26, 1999
STRICTLY CONFIDENTIAL
The Board of Directors
Chesapeake Corporation
1021 East Cary Street
Richmond, VA 23218
ATTENTION: Mr. Thomas H. Johnson, Chief Executive Officer
Dear Tom:
As you know, you and I have had a number of discussions regarding various
business arrangements between Shorewood and Chesapeake. I believe it is in
both of our companies' and their respective shareholders' best interest to
move these discussions forward. The purpose of this letter is to propose that
Shorewood acquire Chesapeake at a substantial premium to your current market
value. Shorewood's Board of Directors met today and has authorized transmittal
of this proposal to you and your Board.
Tom, I believe our proposal is a compelling one and would be very exciting for
Chesapeake's shareholders, employees, management and customers. We are in a
position to make a proposal to acquire Chesapeake at $40 per share in cash
which represents a 41% premium to yesterday's closing
18
<PAGE>
price and a 38% premium to the 20-day average closing price. This proposal
reflects the input of our senior management team, many of whom were part of
the Shorewood due diligence team that reviewed our potential acquisition of
Field, and it also reflects a thorough review of all publicly available
information.
We have met with our financial advisors and financing sources and believe that
financing does not present an issue in this transaction. It would be our
expectation that the Board of Directors of Chesapeake would meet to review
this letter as soon as possible and authorize exclusive discussions with us.
At such time we would be prepared to discuss our financing plan for the
transaction with you (and would anticipate that our ultimate agreement to
acquire Chesapeake would not be subject to any type of financing condition).
Further, we do not believe that any significant obstacles such as anti-trust
or other conditions exist.
We are sensitive to the inherent difficulties faced by you in negotiating this
type of transaction in a public forum and are prepared to negotiate
confidentiality with you provided that you are prepared to begin these
negotiations in an exclusive and expedient fashion intended to result in a
transaction with Shorewood.
We feel that our proposal represents a significant immediate cash premium to
Chesapeake shareholders and represents a price that we believe your Board and
stockholders should enthusiastically support. We urge you and your fellow
directors to give serious consideration to the merits of this transaction and
reiterate our willingness to work with you in an expedient and confidential
manner intended to serve the interests of the shareholders of Chesapeake
Corporation.
I look forward to your response to this proposal and look forward to working
with all of you in achieving this major event for both of our companies and
their respective shareholders.
Sincerely,
shorewood packaging corporation
/s/ Marc P. Shore
Marc P. Shore
Chairman of the Board
During the telephone call on October 26, 1999, Mr. Johnson stated that
Chesapeake was not for sale, but that the Chesapeake Board would consider the
proposal included in Mr. Shore's letter (the "Shorewood Proposal").
On October 29, 1999, Mr. Johnson delivered the following letter to Mr. Shore
by facsimile:
October 29, 1999
Strictly Confidential
Mr. Marc P. Shore
Chairman of the Board & Chief Executive Officer
Shorewood Packaging Corporation
277 Park Avenue
New York, New York 10172
Dear Marc:
I have received your letter of October 26, 1999.
As you know, Chesapeake is not for sale. We are in the process of executing
our strategy of building a global specialty packaging and merchandising
company, which we believe is in the best interests of Chesapeake and its
shareholders.
19
<PAGE>
However, our Board of Directors, consistent with its fiduciary duties, will
consider carefully your letter. Completion of the appropriate analysis to give
due consideration to your letter and enable our Board to become fully informed
will require some time. I will respond to your letter no later than one week
from today, or Friday, November 5, 1999.
Sincerely,
/s/ Thomas H. Johnson
-------------------------------
Thomas H. Johnson
President & Chief Executive Officer
On November 3, 1999, the Chesapeake Board convened a special meeting to
discuss the Shorewood Proposal. The Chesapeake Board received presentations
from Chesapeake's management regarding Chesapeake's performance and the
Shorewood Proposal. The Chesapeake Board also received advice from its legal
counsel and from Goldman Sachs and DLJ, co-financial advisors to the
Chesapeake Board. Having received, considered and discussed such presentations
and advice, the Chesapeake Board unanimously determined, at the November 3,
1999, meeting, that the Shorewood Proposal was inadequate and not in the best
interests of Chesapeake and its shareholders. The Chesapeake Board authorized
and directed Mr. Johnson to inform the Company that the Chesapeake Board had
rejected the Shorewood Proposal.
The Chesapeake Board then reviewed its recent discussions with respect to
various strategic alternatives and business development opportunities it had
been considering as part of its ongoing strategy of building a global
specialty packaging and merchandising company, including a possible
acquisition of the Company. Among other things, the Chesapeake Board noted
that such an acquisition was consistent with Chesapeake's strategic plan. The
Chesapeake Board further considered that Chesapeake could unlock significant
value in the Company's assets by applying Chesapeake's management and
operational strategies and by incorporating an acquisition of the Company into
other potential acquisitions being explored by Chesapeake. At the conclusion
of the November 3, 1999, meeting, the Chesapeake Board authorized Mr. Johnson
to propose to Mr. Shore that Chesapeake acquire the Company.
On November 4, 1999, Mr. Johnson called Mr. Shore to suggest a meeting. At
the meeting, on November 10, 1999, Mr. Johnson (i) advised Mr. Shore that
Chesapeake was not for sale and that, after careful review, the Chesapeake
Board had unanimously determined that the Shorewood Proposal was inadequate
and not in the best interests of Chesapeake and its shareholders and (ii)
proposed that Chesapeake acquire the Company at a price of $16.50 per Share in
cash. While Mr. Shore stated that he would communicate the offer to the
Company Board, he indicated that a meeting of the Company Board to consider
such an offer would be a "very short one."
Later on November 10, 1999, Mr. Johnson delivered the following letter to
Mr. Shore reiterating that Chesapeake was not for sale and that, after careful
review, the Chesapeake Board had unanimously determined that the Shorewood
Proposal was inadequate and not in the best interests of Chesapeake and its
shareholders. The letter also confirmed Chesapeake's proposal to acquire the
Company and set forth the merits of the proposed acquisition and indicated
Chesapeake's desire to enter into a negotiated transaction.
20
<PAGE>
November 10, 1999
Strictly Confidential
Mr. Marc P. Shore
Chairman of the Board & Chief Executive Officer
Shorewood Packaging Corporation
277 Park Avenue
New York, New York 10172
Dear Marc:
This letter follows our meeting today to discuss your letter, dated October
26, 1999, in which you suggest a combination between Shorewood Packaging
Corporation and Chesapeake Corporation. Our Board of Directors, in
consultation with our management, legal, and financial advisors, has reviewed
thoroughly your expression of interest and related relevant considerations.
As I advised you today, our Board of Directors, after careful review, has
unanimously determined that the acquisition of Chesapeake by Shorewood, as set
forth in your letter, is not in the best interests of Chesapeake and its
shareholders and has charged me with firmly and unambiguously rejecting your
proposal. Our Board of Directors' firm conviction is that the interests of
Chesapeake and its shareholders are best served by continuing to pursue
vigorously our current strategic plan as an independent company.
While we believe that your proposal is not in the best interests of our
shareholders, our analysis suggests that a combination of our businesses
through an acquisition of Shorewood by Chesapeake would be in the best
interests of our respective shareholders, employees, and customers. Towards
that end, Chesapeake's Board of Directors has unanimously authorized me to
propose that Chesapeake acquire Shorewood at $16.50 in cash per share,
representing nearly a 40% premium over Shorewood's closing price yesterday.
The transaction we propose can be effected by Chesapeake immediately with its
cash on hand and committed credit facilities, and is, therefore, not subject
to a financing condition.
Chesapeake has been evaluating a possible acquisition of Shorewood since
early 1998, as part of our ongoing strategy of building a global specialty
packaging and merchandising company. We believe that the combination of
Chesapeake and Shorewood would create one of the world's premier specialty
packaging and merchandising companies, enhancing Chesapeake's position as a
leader in this segment and benefiting our customers through one-stop-shopping
for complementary products.
We are prepared to commence immediately good faith negotiations on an
exclusive basis with the objective of entering into a definitive merger
agreement consistent with our proposal. To date, your letter to us has been
kept confidential, and we have reciprocally made our proposal to you on a
confidential basis. Should you choose to pursue this matter in the public
forum, be assured that we are prepared to pursue aggressively our own
objectives.
We appreciate the obligation of your Board of Directors, which you
acknowledged today, to meet and consider our proposal from the standpoint of
the best interests of all of your shareholders. Of course, we were
disappointed that you stated today that such a meeting would be a very short
one. Nevertheless, we hope that your Board will give our proposal serious
consideration.
I look forward to your prompt response.
Sincerely,
/s/ Thomas H. Johnson
Thomas H. Johnson
President & Chief Executive Officer
21
<PAGE>
On November 18, 1999, Mr. Shore delivered the following letter to Mr.
Johnson by facsimile:
November 18, 1999
Mr. Thomas H. Johnson
President & Chief Executive Officer
Chesapeake Corporation
James Center II
1021 East Cary Street
Box 2350
Richmond, VA 23218
Dear Tom:
This is in response to the proposal you made at our meeting on November 10,
1999 and in the letter you delivered to me late the same day.
Our Board of Directors has given due consideration to your proposal and
concluded that it is inconsistent with Shorewood's clear and successfully
implemented strategic direction and not in the best interests of Shorewood's
stockholders. After consulting with our legal and financial advisors, our
Board has determined that our stockholders will benefit most if Shorewood
continues to position itself as the premier supplier of high end folding
cartons to a multinational customer base. Accordingly, I have been authorized
to inform you that the Shorewood Board of Directors has unanimously and
unequivocally rejected your proposal that we enter into negotiations for the
acquisition of Shorewood by Chesapeake.
Nevertheless, we continue to believe that an acquisition of Chesapeake by
Shorewood, at a fair price and a significant premium to Chesapeake's current
market value would be a step in the best interests of Chesapeake's
stockholders, management, employees and customers. Moreover, we believe that
the price of $40 per share, which we have proposed, would be embraced by
Chesapeake's stockholders. That price would enable Chesapeake's stockholders
to realize a valuation nearly equivalent to their company's all time market
high and more than 30% above its current market value.
Tom, we want to enter into an amicable, albeit arm's length, negotiated
transaction with your company. Toward that end, we again propose that your
Board authorize you to enter into negotiations with us, so that your
stockholders may decide whether the proposal we have made is fair, reasonable
and in their best interests. We believe, without having had an opportunity to
do any due diligence other than with respect to publicly available documents,
that $40 fully values Chesapeake's stock. I trust you will reconsider your
position and respond so that we may further our mutual interests.
Alternatively, we are willing to let Chesapeake's stockholders decide if our
proposal is acceptable to them, whether or not your Board endorses the
proposal. Therefore, if you and your Board are unwilling to enter into
negotiations with us, we request that you remove the existing legal
impediments to a Shorewood tender offer so that your stockholders may decide
for themselves where their best interests lie.
As you know, Shorewood has a shareholding in Chesapeake which, based on your
most recent published information, is almost 5% of Chesapeake's outstanding
common stock. If you make continued progress in your share repurchase program,
Shorewood will become a 5% shareholder in your company, even if it does not
increase its position. In any event, we believe it appropriate that
Chesapeake's stockholders be made aware of the opportunity that Shorewood is
seeking to provide and that they, as well as Shorewood's stockholders, be
informed of your response to our proposal. To
22
<PAGE>
accomplish that, we are issuing the enclosed press release simultaneously with
the delivery of this letter.
Cordially,
/s/ Marc P. Shore
Marc P. Shore
Chairman and Chief Executive Officer
Also on November 18, 1999, the Company issued the following press release:
CONTACTS:
Shorewood Packaging
Howard Liebman
President & Chief Financial
Officer
(212) 371-1500
FOR IMMEDIATE RELEASE
Morgan-Walke Associates
Investors: Robert P.
Jones/Stephanie Prince
Media: Jennifer Kirksey
(212) 850-5600
SHOREWOOD PACKAGING CORPORATION PROPOSAL
TO CHESAPEAKE CORPORATION
NEW YORK, NY, November 18, 1999--Shorewood Packaging Corporation (NYSE:SWD)
announced that Chesapeake Corporation's (NYSE:CSK) Board of Directors has
rejected a proposal by Shorewood to enter into negotiations for the
acquisition of Chesapeake with cash consideration of $40 per share, a premium
of 41% over the market price when the proposal was made, 33% over yesterday's
closing price and a valuation nearly equivalent to Chesapeake's all time
market high, reached in July 1998, well before it announced its current stock
buy-back program.
Shorewood stated that its proposal had been made to Chesapeake's Board of
Directors on October 26, 1999 and rejected by Chesapeake on November 10, 1999.
Chesapeake's rejection included a counterproposal that Chesapeake acquire
Shorewood for cash consideration of $16.50 a share, a price well below
Shorewood's trailing 12 month closing high. Shorewood's Board of Directors has
rejected the counterproposal as being inconsistent with the company's
strategic plan to position itself as the premier supplier of high end folding
cartons to a multinational customer base, as well as failing to recognize
Shorewood's value and the benefits that would be provided to Chesapeake's
customers, employees and stockholders if Shorewood were to acquire Chesapeake.
Shorewood owned 809,000 Chesapeake shares or 4.62% of Chesapeake as of October
29, 1999, the date of Chesapeake's most recent 10-Q. Shorewood noted that
Chesapeake's anti-takeover provisions have the practical effect of
disenfranchising Chesapeake's shareholders. For example, Chesapeake's "dead
hand poison pill" makes it difficult for Shorewood to present its proposal to
Chesapeake's shareholders without the prior approval of Chesapeake's Board of
Directors. Accordingly, Shorewood stated, although it is not currently
contemplating a tender offer to Chesapeake's shareholders without the prior
approval of Chesapeake's Board of Directors, it has requested Chesapeake's
Board to redeem the "poison pill". If the "poison pill" and other protective
provisions were removed, Shorewood would move promptly to bring its proposal
directly to Chesapeake's stockholders. Additionally, together with its
financial and legal advisors, Shorewood is considering other alternatives that
would enable Chesapeake's stockholders to decide whether $40 a share is a fair
price.
23
<PAGE>
Shorewood Packaging Corporation is a leading value-added provider of high
quality printing and paperboard packaging for the computer software, cosmetics
and toiletries, food, home video, music, tobacco and general consumer markets
in North America and China, with 16 plants in the United States, Canada and
China.
Certain statements included in this press release constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. These statements are typically identified by their inclusions of
phrases such as "the Company anticipates," "the Company believes" and other
phrases of similar meaning. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among others: general
economic and business conditions; competition; political changes in
international markets; raw material and other operating costs; costs of
capital equipment; changes in foreign currency exchange rates; changes in
business strategy or expansion plans; the results of continuing environmental
compliance testing and monitoring; quality of management; availability, terms
and development of capital; fluctuating interest rates and other factors
referenced in this release and in the Company's annual report on Form 10-K and
quarterly reports on Form 10-Q.
Also on November 18, 1999, Chesapeake issued the following press release:
Chesapeake Confirms Proposal to Acquire Shorewood for $16.50 Per Share in Cash
RICHMOND, Va., Nov. 18/PRNewswire/--Chesapeake Corporation (NYSE: CSK - news)
today confirmed that it made a proposal to acquire Shorewood Packaging
Corporation (NYSE: SWD - news) for $16.50 in cash per share, or in the
aggregate, approximately $480 million in equity plus approximately $260
million in debt. This represents nearly a 40% premium over Shorewood's closing
price on November 9, 1999, the day prior to Chesapeake's proposal. The
transaction can be effected by Chesapeake immediately with its cash on hand
and committed credit facilities, and is not subject to a financing condition.
Chesapeake noted that the company is prepared to commence immediate good faith
negotiations on an exclusive basis with the objective of entering into a
definitive merger agreement consistent with its proposal.
Thomas H. Johnson, president and chief executive officer of Chesapeake, said,
"Chesapeake has been evaluating a possible acquisition of Shorewood since
early 1998, as part of our ongoing strategy of building a global specialty
packaging and merchandising company. We believe Chesapeake's acquisition of
Shorewood would create, under Chesapeake's leadership, one of the world's
premier specialty packaging and merchandising companies, enhancing
Chesapeake's position as a leader in this segment and benefiting customers
through one-stop shopping for complementary products.
"We at Chesapeake are continuing to pursue our strategic plan of redeploying
our capital into appropriate acquisitions to further our growth and enhance
shareholder value. We are currently in discussions with several other
attractive acquisition candidates," Mr. Johnson continued.
"We believe that Shorewood's decision to make public its unsolicited proposal
is the latest in a series of ill-conceived actions by Shorewood following
Shorewood's unsuccessful attempt to acquire Field Group plc, which Chesapeake
acquired in March 1999," concluded Mr. Johnson.
24
<PAGE>
Chesapeake noted that its board of directors, in consultation with its
financial advisors, Goldman, Sachs & Co. and Donaldson Lufkin & Jenrette, and
legal advisor, Hunton & Williams, carefully considered Shorewood's unsolicited
proposal and unanimously concluded that the proposal is inadequate and not in
the best interests of Chesapeake's shareholders.
Chesapeake also noted that it has referred Shorewood's heretofore-undisclosed
accumulation of Chesapeake stock to the Federal Trade Commission, requesting
an investigation as to whether Shorewood has violated the Hart-Scott-Rodino
Antitrust Improvements Act.
Chesapeake Corporation, headquartered in Richmond, Va., is primarily engaged
in the manufacturing and sale of specialty packaging and point-of-purchase
displays. Chesapeake has over 40 locations in North America, Europe and Asia.
Chesapeake's net sales in 1998 were $950.4 million. Chesapeake's website is
http://www.cskcorp.com.
This news release, including comments by Thomas H. Johnson, contains forward-
looking statements that are made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. The accuracy of such
statements is subject to a number of risks, uncertainties, and assumptions
that may cause Chesapeake's actual results to differ materially from those
expressed in the forward-looking statements including, but not limited to:
competitive products and pricing; production costs, particularly for raw
materials such as corrugated box and display materials; fluctuations in
demand; government policies and regulations affecting the environment;
interest rates; currency translation movements; Year 2000 compliance issues;
and other risks that are detailed from time to time in reports filed by the
Company with the Securities and Exchange Commission.
On November 22, 1999, Mr. Johnson sent the following letter to each of the
directors of the Company Board:
November 22, 1999
The Board of Directors
Shorewood Packaging Corporation
277 Park Avenue
New York, NY 10172
Ladies and Gentlemen:
We were disappointed to learn of your rejection of our fully-financed proposal
to acquire Shorewood at $16.50 per share, representing a substantial premium
to your current market price. We continue to believe that a combination of our
businesses under Chesapeake's leadership would be in the best interests of our
respective shareholders, employees and customers.
Your President, Mr. Liebman, was quoted in The Wall Street Journal as saying
that you are prepared to consider an offer at the "right price." While we
believe that our $16.50 proposal represents a full valuation, we wish to
reiterate that we are prepared to commence immediate good faith negotiations
regarding our proposal. Our offer is based on publicly available information,
and we remain open to the possibility that we may be able to increase our
offer with appropriate due diligence and access to your business plan. We also
stand ready to discuss alternatives to an all-cash structure that may offer a
tax-advantaged alternative for your shareholders.
Given the importance to your stockholders of our continued interest and our
willingness to negotiate price and structure, we are issuing a press release
today concerning the subject of this letter.
25
<PAGE>
We look forward to your prompt response, and to commencing good faith
negotiations regarding our proposal.
Sincerely,
/s/ Thomas H. Johnson
Thomas H. Johnson
Also on November 22, 1999, Chesapeake issued the following press release:
FOR IMMEDIATE RELEASE
CHESAPEAKE SENDS LETTER TO SHOREWOOD DIRECTORS
Indicates Willingness to Negotiate Price and Structure
(Richmond, VA--November 22, 1999) Thomas H. Johnson, President and CEO of
Chesapeake Corporation (NYSE:CSK), today sent the following letter to each of
the directors of Shorewood Packaging Corporation (NYSE:SWD) regarding
Chesapeake's proposal to acquire Shorewood for $16.50 per share in cash:
November 22, 1999
The Board of Directors
Shorewood Packaging Corporation
277 Park Avenue
New York NY 10172
Ladies and Gentlemen:
We were disappointed to learn of your rejection of our fully-financed proposal
to acquire Shorewood at $16.50 per share, representing a substantial premium
to your current market price. We continue to believe that a combination of our
businesses under Chesapeake's leadership would be in the best interests of our
respective shareholders, employees and customers.
Your President, Mr. Liebman, was quoted in The Wall Street Journal as saying
that you are prepared to consider an offer at the "right price." While we
believe that our $16.50 proposal represents a full valuation, we wish to
reiterate that we are prepared to commence immediate good faith negotiations
regarding our proposal. Our offer is based on publicly available information,
and we remain open to the possibility that we may be able to increase our
offer with appropriate due diligence and access to your business plan. We also
stand ready to discuss alternatives to an all-cash structure that may offer a
tax-advantaged alternative for your shareholders.
Given the importance to your stockholders of our continued interest and our
willingness to negotiate price and structure, we are issuing a press release
today concerning the subject of this letter.
We look forward to your prompt response, and to commencing good faith
negotiations regarding our proposal.
Sincerely,
/s/ Thomas H. Johnson
Thomas H. Johnson
26
<PAGE>
Johnson commented that he hoped Shorewood's board, upon receiving the letter,
would realize the promising opportunities that could be created through a
combination of the companies under Chesapeake's leadership. "Under our
proposal, the combined company would have a strong balance sheet with
financial and management capabilities to compete and grow globally. Chesapeake
has a proven track record as a global consolidator with successful integration
of acquired businesses."
Johnson continued, "Chesapeake Corporation's international strength is
important, because we believe that global consolidation to offer multinational
customers one-stop business solutions will drive our business in the next
century. Chesapeake has an experienced international management team in place
to operate a global packaging and merchandising company."
Johnson also cited Chesapeake's multiple leadership positions in specialty
packaging and merchandising. "Chesapeake is the largest North American
producer of temporary and permanent point-of-purchase displays, the North
American leader for colorful, litho-laminated packaging, a leading European
folding carton, leaflet and label supplier, and a local leader in specific
U.S. markets for customized, corrugated packaging. Our net sales for 1998 were
$950.4 million and our net sales for 1999's first three quarters, ending
September 30, are $916.8 million. We are clearly in a strong position to make
the combination of our two businesses successful."
Chesapeake Corporation, headquartered in Richmond, Va., is primarily engaged
in the manufacturing and sale of specialty packaging and point-of-purchase
displays. Chesapeake has over 40 locations in North America, Europe and Asia.
Chesapeake's net sales in 1998 were $950.4 million. Chesapeake's website is
www.cskcorp.com.
###
This news release, including comments by Thomas H. Johnson, contains forward-
looking statements that are made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. The accuracy of such
statements is subject to a number of risks, uncertainties, and assumptions
that may cause Chesapeake's actual results to differ materially from those
expressed in the forward-looking statements including, but not limited to:
competitive products and pricing; production costs, particularly for raw
materials such as corrugated box and display materials; fluctuations in
demand; government policies and regulations affecting the environment;
interest rates; currency translation movements; Year 2000 compliance issues;
and other risks that are detailed from time to time in reports filed by the
Company with the Securities and Exchange Commission.
For media relations, call: For investor relations,
Molly Remes call:
804-697-1110 William Tolley/Joel
Mostrom
804-697-1157/804-697-
1147
Joele Frank or Andy Brimmer
Abernathy MacGregor Frank
212-371-5999
On November 26, 1999, Chesapeake entered into a stock purchase agreement
(the "Purchase Agreement") with Ariel Capital Management, Inc. ("Ariel")
pursuant to which Ariel agreed to use its best efforts as investment adviser
to exercise its discretionary authority to cause Ariel's clients to sell
4,106,440 Shares, or approximately 14.9% of the Company's outstanding Shares,
to Chesapeake at a purchase price of $17.25 per Share. Ariel also agreed that,
if Chesapeake commenced a public tender offer for Shares at a purchase price
that equaled or exceeded $17.25 per Share, then Ariel would use its best
efforts as investment adviser to exercise its discretionary authority to cause
Ariel's clients to tender such Shares in such tender offer and would execute
any proxies or written consents in the form solicited by Chesapeake in any
proxy or written consent solicitation commenced in connection with such tender
offer. See Section 10--Stock Purchase Agreement.
27
<PAGE>
On November 29, 1999, Chesapeake issued the following press release:
FOR IMMEDIATE RELEASE
CHESAPEAKE CORPORATION AGREES TO ACQUIRE 14.9% OF
SHOREWOOD PACKAGING SHARES
(Richmond, VA--November 29, 1999) Chesapeake Corporation (NYSE:CSK) today
announced that it has agreed to purchase approximately 4.1 million shares, or
14.9%, of Shorewood Packaging Corporation's (NYSE:SWD) outstanding common
stock from an institutional investor at a price of $17.25 per share.
Chesapeake previously announced that it has made a fully financed proposal to
Shorewood's directors to purchase Shorewood's shares at $16.50 per share,
nearly a 40% premium over Shorewood's closing price on November 9, 1999, the
day before Chesapeake's proposal was presented to Shorewood.
Thomas H. Johnson, president and chief executive officer of Chesapeake, said,
"We are pleased with this agreement, which validates our view that
Chesapeake's acquisition of Shorewood makes great sense for Shorewood's
shareholders. We believe Chesapeake's acquisition of Shorewood would create,
under Chesapeake's leadership, one of the world's premier specialty packaging
and merchandising companies, enhancing Chesapeake's position as a leader in
this segment and benefiting customers through one-stop shopping for
complementary products.
"Chesapeake has a strong balance sheet with the management and financial
capabilities to compete and grow globally. Chesapeake also has a proven track
record as a global consolidator with successful integration of acquired
businesses. We renew our offer to Shorewood's directors to meet and negotiate
the terms of an acquisition of Shorewood by Chesapeake."
Closing of the purchase of the Shorewood shares is subject to completion of
review of the transaction under the Hart-Scott-Rodino Antitrust Improvements
Act. Chesapeake will commence the time period of review by a filing to be made
today. Additional information will be set forth in a Schedule 13D expected to
be filed with the Securities and Exchange Commission today. Information in
this release is qualified by reference to the information to be included in
the Schedule 13D.
Chesapeake is the largest North American producer of temporary and permanent
point-of-purchase displays, the North American leader for colorful, litho-
laminated packaging, the premiere European folding carton, leaflet and label
supplier, and a local leader in specific U.S. markets for customized,
corrugated packaging.
Chesapeake Corporation, headquartered in Richmond, Va., is primarily engaged
in the manufacturing and sale of specialty packaging and merchandising
services. Chesapeake has over 40 locations in North America, Europe and Asia.
Chesapeake's net sales in 1998 were $950.4 million. Chesapeake's website is
www.cskcorp.com.
###
This news release, including comments by Thomas H. Johnson, contains forward-
looking statements that are made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. The accuracy of such
statements is subject to a number of risks, uncertainties, and assumptions
that may cause Chesapeake's actual results to differ materially from those
expressed in the forward-looking statements including, but not limited to:
competitive products and pricing; production costs, particularly for raw
materials such as corrugated box and display materials; fluctuations in
demand; government policies and regulations affecting the environment;
interest rates; currency translation
28
<PAGE>
movements; Year 2000 compliance issues; and other risks that are detailed from
time to time in reports filed by the Company with the Securities and Exchange
Commission.
For media relations, call: For investor relations,
Molly Remes call:
804-697-1110 William Tolley/Joel
Mostrom
804-697-1157/804-697-
1147
Joele Frank or Andy Brimmer
Abernathy MacGregor Frank
212-371-5999
Also on November 29, 1999, the Company issued the following press release:
Shorewood Packaging Corporation Issues Statement
NEW YORK, Nov. 29 /PRNewswire/ -- Shorewood Packaging Corporation (NYSE: SWD
- -- news) remains committed to its $40 per share cash proposal to acquire
Chesapeake. Given the unwillingness of Chesapeake's management and Board of
Directors to consider Shorewood's proposal, Shorewood is continuing to explore
options to enable Chesapeake's shareholders to consider the Shorewood
proposal. Shorewood's proposal of $40 per share is significantly above the
consensus one year price target for Chesapeake and also represents a 52-week
high for the company.
Shorewood reiterated that it is not for sale and believes Chesapeake's actions
to date are solely in response to the Shorewood premium cash proposal.
Shorewood also believes that Chesapeake's actions reflect a reckless disregard
for the best interests of their shareholders and do not reflect a careful
evaluation of Shorewood or its business. Shorewood noted that it views
Chesapeake's proposal to acquire Shorewood for $16.50 per share as grossly
inadequate. That price is considerably below Shorewood's 52-week high and
vastly below analysts' one-year price target for Shorewood, which range as
high as $25 per share.
Finally, Shorewood noted that an institutional investor has agreed to sell
14.9% of Shorewood to Chesapeake for $17.25 per share. In a call to Shorewood,
that investor informed Shorewood that its required regulatory filing will
disclose that the institution, which invested in Shorewood at a low-cost
basis, retains 100% of the upside with respect to those shares in the event of
a sale to Chesapeake at a higher price. Given the terms of this arrangement,
Shorewood does not believe the price to be paid by Chesapeake reflects fair
value for Shorewood, and believes its own $40 per share offer for Chesapeake
to represent superior value.
Shorewood Packaging Corporation is a leading value-added provider of high
quality printing and paperboard packaging for the computer software, cosmetics
and toiletries, food, home video, music, tobacco and general consumer markets
in North America and China, with 16 plants in the United States, Canada and
China.
Certain statements included in this press release constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. These statements are typically identified by their inclusion of
phrases such as "the Company anticipates," "the Company believes" and other
phrases of similar meaning. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among others: general
economic and business conditions; competition; political changes in
international markets; raw material and other operating costs; costs of
capital equipment; changes in foreign currency exchange rates; changes in
business strategy or expansion plans; the results of continuing environmental
compliance
29
<PAGE>
testing and monitoring; quality of management; availability, terms and
development of capital; fluctuating interest rates and other factors
referenced in this release and in the Company's annual report on Form 10-K and
quarterly reports on Form 10-Q.
On November 30, 1999, Chesapeake and Purchaser filed a Schedule 13D with the
SEC disclosing that Chesapeake had entered into an agreement to purchase
4,106,440 Shares, or approximately 14.9% of the Company's outstanding Shares,
from the clients of Ariel for $17.25 per Share.
On December 2, 1999, the Company filed a Current Report on Form 8-K with the
SEC disclosing the adoption of the Bylaw Amendments.
On December 3, 1999, Chesapeake and Purchaser commenced the Offer.
On December 3, 1999, Chesapeake and Purchaser filed preliminary materials
with the SEC to solicit consents from the stockholders of the Company in
connection with the Consent Solicitation.
On December 3, 1999, Chesapeake and Purchaser commenced a lawsuit in the
Court of Chancery of the State of Delaware against the Company and the Company
Board seeking, among other things, an order (i) declaring that the Company
Board breached its fiduciary duties by adopting the Bylaw Amendments, (ii)
declaring the Super Majority Bylaw and the Consent Record Date Bylaw void, and
enjoining the Company Board from implementing the Super Majority Bylaw, the
Consent Record Date Bylaw and the Bylaw Amendments as a whole, (iii) declaring
that failure to redeem the Rights or to render the Rights inapplicable to the
Offer and the Proposed Merger or to approve the Offer and the Proposed Merger
would constitute a breach of the Company Board's fiduciary duties under
Delaware law, (iv) invalidating the Rights or compelling the Company Board to
redeem the Rights or render the Rights inapplicable to the Offer and the
Proposed Merger, (v) declaring that failure to approve the Offer and the
Proposed Merger for purposes of Section 203 of the DGCL would constitute a
breach of the Company Board's fiduciary duties under Delaware law, (vi)
compelling the Company Board to approve the Offer and the Proposed Merger for
purposes of Section 203 of the DGCL, (vii) enjoining the Company Board from
taking any actions designed to impede or which have the effect of impeding the
Offer, the Consent Solicitation or the Proposed Merger and declaring that any
such actions would constitute a breach of the Company Board's fiduciary duties
under Delaware law, and (viii) enjoining the Company Board from taking any
actions to impede, or refuse to recognize the validity of, the Consent
Solicitation.
Also on December 3, 1999, Chesapeake and Purchaser commenced litigation
against the Company in the United States District Court for the District of
Delaware seeking, among other things, a declaratory judgment that Chesapeake
and Purchaser have disclosed all information required by, and are otherwise in
full compliance with, the Exchange Act and any other federal securities laws,
rules or regulations deemed applicable to the Offer and the Consent
Solicitation.
As of December 3, 1999, Chesapeake had agreed to purchase 4,106,440 Shares
pursuant to the Purchase Agreement and Purchaser was the record holder of an
aggregate of 100 Shares. A broker-dealer purchased such Shares in open-market
purchases for the account of Purchaser.
Schedule B attached hereto sets forth all transactions in Shares that were
effected by Purchaser, Chesapeake or, to the best knowledge of Purchaser, any
of the persons listed in Schedule A attached hereto, or any associate or
majority owned subsidiary of Purchaser, Chesapeake or any other person so
listed during the past 60 days. Except as described in this Offer to Purchase
(including Schedule B attached hereto), none of Purchaser, Chesapeake or, to
the best knowledge of Purchaser, any of the persons listed in Schedule A
attached hereto, or any associate or majority owned subsidiary of Purchaser,
Chesapeake or any of the persons so listed, beneficially owns any equity
security of the Company, and none of Purchaser, Chesapeake or, to the best
knowledge of Purchaser, any of the
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other persons referred to above, or any of the respective directors, executive
officers or subsidiaries of any of the foregoing, has effected any transaction
in any equity security of the Company during the past 60 days. Purchaser and
Chesapeake disclaim beneficial ownership of any Shares owned by any pension
plan of Chesapeake or any affiliate of Chesapeake.
Except as described in this Offer to Purchase and other than for ordinary
course intercompany inventory purchases and sales not material to the Company,
Chesapeake or its affiliates, as of the date hereof (a) there have not been
any contacts, transactions or negotiations between Purchaser or Chesapeake,
any of their respective subsidiaries or, to the best knowledge of Purchaser,
any of the persons listed in Schedule A attached hereto, on the one hand, and
the Company or any of its directors, officers or affiliates, on the other
hand, that are required to be disclosed pursuant to the rules and regulations
of the Commission and (b) none of Purchaser, Chesapeake or, to the best
knowledge of Purchaser, any of the persons listed in Schedule A attached
hereto has any contract, arrangement, understanding or relationship with any
person with respect to any securities of the Company. During the Offer,
Purchaser and Chesapeake intend to have ongoing contacts with the Company and
its directors, officers and stockholders.
Stock Purchase Agreement
On November 26, 1999, Chesapeake and Ariel entered into the Purchase
Agreement pursuant to which Ariel agreed to use its best efforts as investment
advisor to exercise its discretionary authority to cause Ariel's clients to
sell to Chesapeake an aggregate of 4,106,440 Shares (the "Purchased Shares"),
representing approximately 14.9% of the Company's outstanding Shares, at a
purchase price of $17.25 per Share, or approximately $70,836,000 in the
aggregate. The Purchase Agreement is conditioned on the satisfaction of the
requirements of the HSR Act and that the transaction not be subject to any
adverse litigation or governmental proceeding. The closing for the transaction
contemplated in the Purchase Agreement (the "Closing") is expected to occur on
the second business day following the satisfaction of the conditions.
If, on the proposed Closing date, Chesapeake's proposed purchase of the
Purchased Shares would not then be permitted under Rule 10b-13 promulgated
under the Exchange Act (because Chesapeake has commenced a public tender offer
for Shares that has not terminated or expired as of that date), the Closing
date will be postponed as necessary to permit closing in compliance with such
Rule.
The Purchase Agreement provides that if, prior to Closing, Chesapeake or any
of its affiliates commences a public tender offer for Shares of the Company at
a purchase price that equals or exceeds $17.25 per Share, then Ariel agrees to
use its best efforts as investment adviser to exercise its discretionary
authority to cause Ariel's clients to: (i) tender the Purchased Shares in such
tender offer; and (ii) execute proxies or written consents in the form
solicited by Chesapeake or any of its affiliates in any proxy or written
consent solicitation commenced in connection with such tender offer.
If, within one year following the Closing date, Chesapeake, directly or
indirectly, acquires a majority of the outstanding Shares of the Company
pursuant to a tender offer, merger, consolidation, business combination or
other similar transaction, then Chesapeake will pay each Ariel client 100% of
the excess, if any, of the per Share consideration paid by Chesapeake in such
transaction over $17.25, multiplied by the number of Shares purchased by
Chesapeake from such Ariel client pursuant to the Purchase Agreement. If,
within one year following the Closing date, any third party not affiliated
with either Chesapeake or Ariel, directly or indirectly, acquires a majority
of the outstanding Shares of the Company pursuant to a tender offer, merger,
consolidation, business combination or other similar transaction, then
Chesapeake will pay each Ariel client the sum of (i) 100% of the excess, if
any, of the highest per share consideration offered by Chesapeake in any
public tender offer for Shares (the "Highest Chesapeake Price") over $17.25
per Share, plus (ii) 50% of the excess, if any, of the per
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Share consideration paid by such third party over the Highest Chesapeake
Price, multiplied by the number of Shares purchased by Chesapeake from such
Ariel client pursuant to the Purchase Agreement.
If, prior to the Closing, Chesapeake's purchase of 4,106,440 Shares would
result in Chesapeake becoming (i) an "Acquiring Person" as defined in the
Rights Agreement, or (ii) an "interested stockholder" within the meaning of
Section 203, the number of Shares to be purchased under the Purchase Agreement
shall be reduced to one Share less than the number of Shares that, if
purchased, would cause Chesapeake to be deemed (A) an "Acquiring Person" as
defined in the Rights Agreement, or (B) an "interested stockholder" within the
meaning of Section 203.
If prior to the Closing, a Distribution Date shall have occurred within the
meaning of the Rights Agreement, Ariel's clients will sell to Chesapeake all
of the Rights associated with the Purchased Shares.
The foregoing description of the Purchase Agreement is qualified by and
subject to the terms of the Purchase Agreement. A copy of the Purchase
Agreement has been filed as Exhibit c(1) to the Schedule 14D-1 and is
incorporated herein by reference.
11. PURPOSE OF THE OFFER; PLANS FOR THE COMPANY; THE PROPOSED MERGER.
Purpose. The purpose of the Offer is to acquire for cash a majority of the
outstanding Shares of, and ultimately the entire equity interest in, the
Company. Purchaser currently intends, as soon as practicable upon consummation
of the Offer, to propose and seek to have the Company effect the Proposed
Merger, pursuant to which each then outstanding Share (other than Shares held
by the Company in treasury, or owned by Chesapeake, Purchaser or any other
wholly owned subsidiary of Chesapeake, or Shares, if any, that are held by
stockholders who are entitled to and who properly exercise appraisal rights
under Delaware law) would be converted pursuant to the terms of the Proposed
Merger into the right to receive an amount in cash equal to the per Share
price paid pursuant to the Offer, without interest.
On December 3, 1999, Chesapeake filed the Consent Solicitation materials
with the SEC, which, in definitive form, will be mailed to stockholders of the
Company after completion of review by the staff of the SEC and receipt from
the Company of a current stockholder list. The Consent Solicitation requests
stockholders of the Company to, among other things, amend the Company's bylaws
to remove the provision establishing a staggered Company Board, remove the
entire Company Board, reduce the size of the Company Board to three members
and fill the newly created vacancies on the Company Board with the Nominees.
Chesapeake and Purchaser expect that, subject to their fiduciary duties under
applicable law, the Nominees would redeem the Rights (or amend the Rights
Agreement to make the Rights inapplicable to the Offer and the Proposed
Merger) and approve the Offer and the Proposed Merger under Section 203, which
would satisfy the Rights Condition and the Section 203 Condition, and take
such other actions as may be required to expedite the prompt consummation of
the Offer and the Proposed Merger. The Consent Solicitation will be made
pursuant to separate consent solicitation materials.
This Offer does not constitute a solicitation of proxies or consents. Any
such solicitation will be made pursuant to separate proxy or consent
solicitation materials complying with the requirements of Section 14(a) of the
Exchange Act.
Chesapeake and Purchaser are prepared to commence immediate good faith
negotiations with the Company Board regarding the possibility of increasing
the Offer after appropriate due diligence and access to the Company's business
plan, as well as the possibility of utilizing alternatives to an all-cash
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structure that could offer tax advantages to certain of the Company's
stockholders. Accordingly, Purchaser reserves the right to amend the Offer
(including amending the number of Shares to be purchased and the Offer Price)
at any time, including in the event it enters into a merger agreement with the
Company or it negotiates a merger agreement with the Company not involving a
tender offer pursuant to which Purchaser would terminate the Offer and the
Shares would, upon consummation of such merger, be converted into cash.
In the event that Chesapeake is unable to negotiate a definitive merger
agreement with the Company and, pursuant to the Offer, Purchaser acquires
Shares which, together with Shares beneficially owned by Purchaser and its
affiliates, constitute at least 90% of the outstanding Shares, Chesapeake
currently intends to transfer (and cause any such affiliates to transfer) the
Shares owned by Chesapeake and any such affiliates to Purchaser to permit
Purchaser to consummate a "short-form" merger pursuant to Section 253 of the
DGCL. Section 253 of the DGCL provides that if Purchaser owns at least 90% of
the outstanding Shares, Purchaser may merge the Company into itself by
executing, acknowledging and filing, in accordance with Section 103 of the
DGCL, a certificate of such ownership and merger setting forth a copy of the
resolution of Purchaser's board of directors to so merge (including a
statement of the terms and conditions of the merger and the consideration to
be paid by Purchaser upon surrender of Shares not owned by Purchaser) and the
date of its adoption. Under Section 253 of the DGCL, such a merger of the
Company with Purchaser would not require the approval or any other action on
the part of the Board of Directors or the stockholders of the Company.
Therefore, if at least 90% of the outstanding Shares are acquired pursuant to
the Offer or otherwise, Purchaser will be able to, and intends to, effect the
Proposed Merger without a meeting of holders of Shares.
If Purchaser purchases a sufficient number of Shares to satisfy the Minimum
Tender Condition, but does not purchase a sufficient number of Shares to
effect a "short-form" merger, Purchaser currently intends to seek to effect a
merger of Purchaser with the Company pursuant to Section 251 of the DGCL.
Under the Company's Certificate of Incorporation and the DGCL, approval of the
Board of Directors of the Company and a vote of at least a majority of the
outstanding Shares of the Company entitled to vote thereon would be required
to approve such a merger. If the Minimum Tender Condition is satisfied
Purchaser would have a sufficient number of votes to effect the shareholder
approval of a merger pursuant to Section 251 of the DGCL, which approval could
be effected by a vote at a meeting of shareholders or by written consent.
Approval of such a merger would nonetheless also require the approval of the
Company Board.
Section 203 of the DGCL. In general, Section 203 of the DGCL prevents an
"Interested Stockholder" (defined generally as a person with 15% or more of a
corporation's outstanding voting stock) of a Delaware corporation from
engaging in a "Business Combination" (defined as a variety of transactions,
including mergers, as set forth below) with such corporation for three years
following the date such person became an Interested Stockholder unless (i)
before such person became an Interested Stockholder, the Board of Directors of
the corporation approved the transaction in which the Interested Stockholder
became an Interested Stockholder or approved the Business Combination; (ii)
upon consummation of the transaction which resulted in the Interested
Stockholder becoming an Interested Stockholder, the Interested Stockholder
owned at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced (excluding stock held by directors who are also
officers of the corporation and by employee stock ownership plans that do not
provide employees with the rights to determine confidentially whether shares
held subject to the plan will be tendered in a tender or exchange offer); or
(iii) following the transaction in which such person became an Interested
Stockholder, the Business Combination is approved by the Board of Directors of
the corporation and authorized at a meeting of stockholders by the affirmative
vote of the holders of at least two-thirds of the outstanding voting stock of
the corporation not owned by the Interested Stockholder.
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Section 203 provides that during such three-year period the corporation may
not merge or consolidate with an Interested Stockholder or any affiliate or
associate thereof, and also may not engage in certain other transactions with
an Interested Stockholder or any affiliate or associate thereof, including
without limitation: (i) any sale, lease, exchange, mortgage, pledge, transfer
or other disposition of assets (except proportionately as a stockholder of the
corporation) having an aggregate market value equal to 10% or more of the
aggregate market value of all assets of the corporation determined on a
consolidated basis or the aggregate market value of all the outstanding stock
of a corporation; (ii) any transaction which results in the issuance or
transfer by the corporation or by certain subsidiaries thereof of any stock of
the corporation or such subsidiaries to the Interested Stockholder, except
pursuant to a transaction which effects a pro rata distribution to all
stockholders of the corporation; (iii) any transaction involving the
corporation or certain subsidiaries thereof which has the effect of increasing
the proportionate share of the stock of any class or series, or securities
convertible into the stock of any class or series, of the corporation or any
such subsidiary which is owned directly or indirectly by the Interested
Stockholder (except as a result of immaterial changes due to fractional share
adjustments); or (iv) any receipt by the Interested Stockholder of the benefit
(except proportionately as a stockholder of such corporation) of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
There can be no assurance that the Company Board will approve the
acquisition of Shares pursuant to the Offer and the Proposed Merger for
purposes of Section 203. If the Nominees are elected, the Nominees will
consider, consistent with their fiduciary duties to the Company and its
stockholders under applicable law, whether to approve the Offer and the
Proposed Merger under Section 203, which would satisfy the Section 203
Condition, and take such other actions as may be required to expedite the
prompt consummation of the Offer and the Proposed Merger. Chesapeake and
Purchaser expect that, subject to their fiduciary duties under applicable law,
the Nominees would approve the Offer and the Proposed Merger under Section
203, which would satisfy the Section 203 Condition, and take such other
actions as may be required to expedite the prompt consummation of the Offer
and the Proposed Merger. See "Introduction."
The Offer is conditioned upon the acquisition of Shares pursuant to the
Offer and the Proposed Merger being approved pursuant to Section 203 or
Chesapeake being satisfied in its sole discretion that the provisions of
Section 203 are invalid or inapplicable to the acquisition of Shares pursuant
to the Offer and the Proposed Merger.
Appraisal Rights. Holders of Shares do not have appraisal rights as a result
of the Offer. However, if the Proposed Merger is consummated, each holder of
Shares whose Shares are to be converted in the Proposed Merger and who has
neither voted in favor of the Proposed Merger nor consented thereto in writing
will be entitled to an appraisal by the Delaware Court of Chancery of the fair
value of such stockholder's Shares, exclusive of any element of value arising
from the accomplishment or expectation of the Proposed Merger, together with a
fair rate of interest, if any, to be paid. In determining such fair value, the
Court may consider all relevant factors. The value so determined could be more
or less than the consideration to be paid in the Offer and the Proposed
Merger. Any judicial determination of the fair value could be based upon
considerations other than or in addition to the market value of the Shares,
including, among other things, asset values and earning capacity.
If any holder of Shares who demands appraisal under Section 262 of the DGCL
fails to perfect, or effectively withdraws or loses such stockholder's right
to appraisal as provided in the DGCL, the Shares of such stockholder will be
converted into the right to receive the merger consideration pursuant to the
Proposed Merger.
The foregoing discussion is not a complete statement of law pertaining to
appraisal rights under the DGCL and is qualified in its entirety by the full
text of Section 262 of the DGCL.
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Failure to follow the steps required by Section 262 of the DGCL for
perfecting appraisal rights may result in the loss of such rights.
Rule 13e-3. The Proposed Merger would have to comply with any applicable
Federal law operative at the time of its consummation. Rule 13e-3 under the
Exchange Act is applicable to certain "going private" transactions. Purchaser
does not believe that Rule 13e-3 will be applicable to the Proposed Merger
unless the Proposed Merger is consummated more than one year after the
termination of the Offer. If applicable, Rule 13e-3 would require, among other
things, that certain financial information concerning the Company and certain
information relating to the fairness of the Proposed Merger and the
consideration offered to minority stockholders be filed with the SEC and
disclosed to minority stockholders prior to consummation of the Proposed
Merger.
Rights Agreement. Set forth on Schedule C attached hereto is a summary
description of the Rights as included in the Company's Registration Statement
on Form 8-A dated June 8, 1995.
The Offer is conditioned, among other things, on the Rights Condition being
satisfied. See Introduction and Section 13. Chesapeake has requested that the
Company Board redeem the Rights or otherwise take action to render the Rights
inapplicable to the Offer and the Proposed Merger, in order to allow
stockholders the opportunity to receive the consideration offered pursuant to
the Offer. As described in Section 15, Purchaser has commenced litigation
against the Company and its directors seeking, among other things, an order
enjoining those defendants from implementing the Rights Agreement with respect
to the Offer and requiring them to redeem the Rights. Unless the Rights
Condition shall have been satisfied, stockholders will be required to tender
all Rights associated with each share of Common Stock tendered in order to
effect a valid tender of Shares in accordance with the procedures set forth in
Section 3. Unless separate certificates for the Rights are issued, a tender of
shares of Common Stock will also constitute a tender of the associated Rights.
If the Nominees are elected, the Nominees will consider, consistent with their
fiduciary duties to the Company and its stockholders under applicable law,
whether to redeem the Rights (or amend the Rights Agreement to make the Rights
inapplicable to the Offer and the Proposed Merger), which would satisfy the
Rights Condition and take such other actions as may be required to expedite
the prompt consummation of the Offer and the Proposed Merger. Chesapeake and
Purchaser expect that, subject to their fiduciary duties under applicable law,
the Nominees would redeem the Rights (or amend the Rights Agreement to make
the Rights inapplicable to the Offer and the Proposed Merger) and take such
other actions as may be required to expedite the prompt consummation of the
Offer and the Proposed Merger. See "Introduction" and Section 1.
12. SOURCE AND AMOUNT OF FUNDS.
Purchaser estimates that the total amount of funds required to purchase all
of the outstanding Shares (other than those already owned by Purchaser) on a
fully diluted basis pursuant to the Offer and the Proposed Merger and to pay
related fees and expenses will be approximately $525 million. Purchaser
intends to obtain all funds needed for the Offer and the Proposed Merger
through a capital contribution or a loan from Chesapeake. Chesapeake plans to
provide the funds for such capital contribution or loan from its available
cash and working capital and pursuant to the Credit Facilities described
below. At September 30, 1999, Chesapeake had short-term cash and investments
of approximately $36.06 million and working capital of approximately $139.5
million.
Chesapeake has entered into a commitment letter dated November 10, 1999, and
accepted and agreed to by Chesapeake on December 2, 1999 (the "Commitment
Letter"), with First Union National Bank (the "Bank") and First Union
Securities, Inc., an affiliate of the Bank ("FUS"). Pursuant to the Commitment
Letter, the Bank has committed to provide to Chesapeake, subject to the terms
and conditions stated in the Commitment Letter and the Summary of Terms and
Conditions attached
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thereto (the "Term Sheet"), (1) a 90-day senior secured short-term bridge
credit facility of up to $750,000,000 (the "Tender Offer Facility"), and (2)
senior secured credit facilities of up to $750,000,000 (the "Take Out
Facilities"), comprised of (i) an 18-month term loan facility of $150,000,000
(the "18-Month Facility"), (ii) a five-year term loan facility of $200,000,000
(the "Term Loan A Facility"), (iii) a six-year term loan facility of
$250,000,000 (the "Term Loan B Facility," and together with the 18-Month
Facility and the Term Loan A Facility, the "Term Loan Facilities"), and (iv) a
five-year revolving credit facility of $150,000,000 (the "Revolving Credit
Facility"). The Tender Offer Facility and the Take Out Facilities
(collectively, the "Credit Facilities") initially will be underwritten by the
Bank, and FUS will serve as the sole lead arranger and sole book runner to
syndicate all or part of the Credit Facilities to financial institutions
selected by FUS.
The proceeds of the Tender Offer Facility may be used by Chesapeake to
purchase the Shares pursuant to the Offer, to refinance certain debt of
Chesapeake and the Company and to pay certain costs and expenses relating to
the Offer and the Tender Offer Facility. The proceeds of the Term Loan
Facilities may be used to provide for cash payments upon consummation of the
Proposed Merger with respect to Shares not tendered and purchased pursuant to
the Offer, to refinance the Tender Offer Facility and to refinance certain
indebtedness. The proceeds of the Revolving Credit Facility may be used to
refinance the Tender Offer Facility, to finance capital expenditures and
certain permitted acquisitions, to refinance certain indebtedness, to pay
certain costs and expenses related to the Credit Facilities and the Offer, and
for working capital and general corporate purposes. The initial borrowing
under the Tender Offer Facility will be subject to the satisfaction of certain
conditions, including the valid tender of not less than a majority of the
outstanding Shares, the absence of any legal prohibitions to a merger between
Purchaser and the Company, no material changes to the Offer without the
consent of the Bank, and satisfaction of all material terms and conditions of
the Offer. The initial borrowing under the Take Out Facilities will be subject
to the satisfaction of certain conditions, including the consummation of the
Proposed Merger.
Under the Credit Facilities, Chesapeake will have the option of borrowing
funds at variable interest rates based either on a base rate of interest or
LIBOR (grossed up for statutory reserve requirements), plus, in each case, a
variable applicable margin. Interest on loans based on a base rate of interest
("Base Rate Loans") will be payable at the higher of the base rate of interest
charged by the Bank and the federal funds rate plus .50%. Interest on a loan
based on LIBOR ("LIBOR Loans") will be payable at the rate at which eurodollar
deposits in U.S. dollars are offered by the Bank in the London interbank
market in the same amount and for the same duration as the LIBOR Loan to be
made by the Bank. The applicable margin for Base Rate Loans will vary from
1.50% to 2.25% and for LIBOR Loans will vary from 2.50% to 3.25%. In addition,
Chesapeake will be required to pay certain commitment and agency fees in the
amounts and on the dates set forth in a confidential fee letter dated November
10, 1999, among Chesapeake, the Bank and FUS.
Each of the material direct and indirect subsidiaries of Chesapeake will
guarantee the Credit Facilities. The Credit Facilities will be secured by a
security interest in all material assets of Chesapeake and its subsidiaries,
including the stock of the material subsidiaries. After the 18-Month Facility
has been repaid, the guaranties and the security interests may be released if
Chesapeake achieves a debt to EBITDA ratio to be mutually determined by the
Bank and Chesapeake, or Chesapeake achieves an investment grade rating on its
senior unsecured unsupported long-term debt.
The documents governing the Credit Facilities will contain representations,
warranties, conditions to borrowing, covenants (including financial covenants
comprised of an EBITDA to interest coverage ratio, a Debt to EBITDA Ratio and
a limitation on capital expenditures) and events of default customary for
facilities of this nature.
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The foregoing description of the terms and conditions of the Credit
Facilities is qualified in its entirety by reference to the Commitment Letter
and the Term Sheet, which have been filed as an exhibit to the Tender Offer
Statement on Schedule 14D-1 and are incorporated herein by reference.
No final decisions have been made concerning the method Chesapeake will
employ to repay its borrowings incurred to consummate the Offer. These
decisions, when made, will be based on Chesapeake's review from time to time
of the advisability of particular actions, as well as on prevailing interest
rates, stock market and financial and other economic conditions. Furthermore,
of course, there can be no assurance that Chesapeake will be able to utilize
any one or more of the repayment options or as to the amount that will be
available under any of them.
13. CERTAIN CONDITIONS OF THE OFFER.
Notwithstanding any other provision of the Offer, Purchaser shall not be
required to accept for payment and, subject to any applicable rules and
regulations of the SEC, including Rule 14e-1(c), Purchaser shall not be
required to pay for any Shares, may postpone the acceptance for payment of, or
payment for, tendered Shares, and may, in its sole discretion, extend,
terminate or amend the Offer as to any Shares not then accepted for payment if
the Minimum Tender Condition, the Section 203 Condition, the Rights Condition
or the Antitrust Condition has not been satisfied or, on or after the date of
this Offer to Purchase and at or prior to the Expiration Date, any of the
following events shall occur:
(a) there shall be threatened, instituted or pending any action,
proceeding or application before any court, government or governmental
authority or other regulatory or administrative agency or commission,
domestic or foreign, (i) which challenges the acquisition by Purchaser of
the Shares, seeks to restrain, delay or prohibit the consummation of the
Offer or the transactions contemplated by the Offer, the Proposed Merger or
other subsequent business combination or, seeks to obtain any material
damages or otherwise directly or indirectly relates to the transactions
contemplated by the Offer, the Proposed Merger or other subsequent business
combination, or, seeks to impose voting, procedural, price or other
requirements, in addition to those required by the federal securities laws
or the DGCL (each as in effect on the date of this Offer to Purchase), (ii)
which seeks to prohibit or impose material limitations on Chesapeake's or
Purchaser's acquisition, ownership or operation of all or any portion of
their or the Company's business or assets (including the business or assets
of their respective affiliates and subsidiaries) or of the Shares
(including, without limitation, the right to vote the Shares purchased by
them, on an equal basis with all other Shares, on all matters presented to
the stockholders of the Company), or seeks to compel Chesapeake or
Purchaser to dispose of or hold separate all or any portion of their own or
the Company's business or assets (including the business or assets of their
respective affiliates and subsidiaries) as a result of the transactions
contemplated by the Offer, the Proposed Merger or other subsequent business
combination, (iii) which in the sole judgment of Purchaser is reasonably
likely to materially adversely affect the Company, Chesapeake or Purchaser,
or any of their respective affiliates or subsidiaries (such an effect, an
"Adverse Effect"), or result in a material diminution in the value of the
Shares or the benefits expected to be derived by Chesapeake or Purchaser as
a result of the transactions contemplated by the Offer and the Proposed
Merger (such a diminution, a "Diminution in Value"); or (iv) which seeks to
impose any condition to the Offer or the Proposed Merger unacceptable to
Chesapeake or Purchaser; or
(b) other than the waiting periods that must expire or otherwise
terminate in satisfaction of the Antitrust Condition, any statute, rule,
regulation or order or injunction shall be sought, proposed, enacted,
promulgated, entered, enforced or deemed to become applicable to the Offer,
the Proposed Merger or the transactions contemplated by the Offer or other
subsequent business combination that might, directly or indirectly, result
in any of the consequences referred to in clauses (i) through (iv) of
paragraph (a) above; or
37
<PAGE>
(c) any change (or any condition, event or development involving a
prospective change) shall have occurred that has or in the sole judgment of
Purchaser is reasonably likely to have a materially adverse effect on the
business, properties, assets, liabilities, capitalization, stockholders'
equity, financial condition, operations, licenses or franchises, results of
operations or prospects of the Company or any of its subsidiaries, or
Chesapeake or Purchaser shall have become aware of any fact that has or in
the sole judgment of Purchaser is reasonably likely to have an Adverse
Effect or results or in the sole judgment of Purchaser is reasonably likely
to result in a Diminution in Value; or
(d) there shall have occurred (i) any general suspension of, or
limitation on times or prices for, trading in securities on any national
securities exchange or in the over-the-counter market, (ii) a declaration
of a banking moratorium or any suspension of payments in respect of banks
in the United States, (iii) the outbreak or escalation of a war, armed
hostilities or other international or national calamity directly or
indirectly involving the United States, (iv) any limitation (whether or not
mandatory) by any governmental authority on, or any other event which might
affect the extension of credit by banks or other lending institutions, (v)
a suspension of or limitation (whether or not mandatory) on the currency
exchange markets or the imposition of, or material changes in, any currency
or exchange control laws in the United States or abroad, (vi) a general
decline in the market prices of securities of publicly-traded United States
companies in the packaging industry or (vii) in the case of any of the
foregoing existing at the time of commencement of the Offer, a material
acceleration or worsening thereof; or
(e) other than the redemption of the Rights, the Company or any
subsidiary of the Company shall have (i) issued, distributed, pledged, sold
or authorized, or proposed the issuance of or sale, distribution or pledge
to any person of (A) any shares of its capital stock other than sales or
issuances pursuant to employee stock options disclosed in the Company's
publicly available filings with the SEC prior to, and outstanding on,
November 10, 1999 (in accordance with the then-existing terms thereof) of
any class (including, without limitation, the Common Stock) or securities
convertible into or exchangeable for any such shares of capital stock, or
any rights, warrants or options to acquire any such shares or convertible
securities or any other securities of the Company, (B) any other securities
in respect of, in lieu of or in substitution for Common Stock outstanding
on November 10, 1999 (in accordance with the then-existing terms thereof)
or (C) any debt securities or any securities convertible into or
exchangeable for debt securities or any rights, warrants or options
entitling the holder thereof to purchase or otherwise acquire any debt
securities, (ii) purchased or otherwise acquired, or proposed or offered to
purchase or otherwise acquire any outstanding shares of Common Stock or
other securities, (iii) proposed, recommended, authorized, declared, issued
or paid any dividend or distribution on any shares of Common Stock or any
other security, whether payable in cash, securities or other property, (iv)
altered or proposed to alter any material term of any outstanding security,
(v) incurred, agreed to incur or announced its intention to incur any debt
other than in the ordinary course of business and consistent with past
practice, (vi) authorized, recommended, proposed or publicly announced its
intent to enter into any merger, consolidation, liquidation, dissolution,
business combination, acquisition or disposition of assets or securities
other than in the ordinary course of business consistent with past
practice, any material change in its capitalization, any release or
relinquishment of any material contractual or other rights or any
comparable event, or taken any action to implement any such transaction
previously authorized, recommended, proposed or publicly announced or (vii)
entered into any other agreement or otherwise effected any other
arrangement with any other party or with its officers or other employees of
the Company that might, individually or in the aggregate, have an Adverse
Effect or result in a Diminution in Value; or
(f) the Company or any of its subsidiaries shall have amended or proposed
or authorized any amendment to its respective certificate of incorporation
or bylaws or similar organizational
38
<PAGE>
documents or Purchaser shall have learned that the Company or any of its
subsidiaries shall have proposed, adopted or recommended any such amendment
which has not previously been publicly disclosed by the Company and also
set forth in filings with the SEC; or
(g) a tender or exchange offer for some portion or all of the Shares
shall have been commenced or publicly proposed to be made by another person
(including the Company or its subsidiaries), or it shall have been publicly
disclosed or Purchaser shall have learned that (i) any person (including
the Company or its subsidiaries), entity or "group" (as defined in Section
13(d)(3) of the Exchange Act) shall, other than for bona fide arbitrage
purposes, have acquired or proposed to acquire more than five percent of
the outstanding Shares, or shall have been granted any option or right,
conditional or otherwise, to acquire more than five percent of the
outstanding Shares, other than acquisitions by persons or groups who have
publicly disclosed in a Schedule 13D or 13G (or amendments thereto on file
with the SEC) such ownership on or prior to November 10, 1999, (ii) any
such person, entity or group who has publicly disclosed any such ownership
of more than five percent of the outstanding Shares prior to such date
shall have acquired or proposed to acquire additional Shares constituting
more than one percent of the outstanding Shares, or shall have been granted
any option or right to acquire more than one percent of the outstanding
Shares; (iii) any new group was, or is, formed which beneficially owns more
than five percent of the outstanding Shares; (iv) any person, entity or
group shall have entered into a definitive agreement or an agreement in
principal or made a proposal with respect to a tender offer or exchange
offer for some portion or all of the outstanding Shares or a merger,
consolidation or other business combination or sale of assets (other than
in the ordinary course of business consistent with past practice) with or
involving the Company or any of its affiliates or subsidiaries; or (v) any
person shall have filed a Notification and Report Form under the HSR Act or
made a public announcement reflecting an intent to acquire the Company or
assets or securities of the Company; or
(h) the Company and Chesapeake or Purchaser shall have reached an
agreement or understanding that the Offer be terminated or amended or
Purchaser or Chesapeake (or one of their respective affiliates) shall have
entered into a definitive agreement or an agreement in principle to acquire
the Company by merger or similar business combination, or purchase of
Shares or assets of the Company; or
(i) any change (or any condition, event or development involving a
prospective change) shall have occurred or be threatened in the general
economic, financial, currency exchange or market conditions in the United
States or abroad that has or might have an Adverse Effect or results or
might result in a Diminution in Value; or
(j) the Company or any of its subsidiaries shall have transferred into
trust, escrow or similar arrangement any amounts required to fund any
existing benefit, employment or severance agreements with any of its
employees or shall have entered into or otherwise affected with its
officers or any other employees any additional benefit, employment,
severance or similar agreements, arrangements or plans other than in the
ordinary course of business consistent with past practice or entered into
or amended any agreements, arrangements or plans so as to provide for
increased benefits to such employee or employees as a result of or in
connection with the transactions contemplated by the Offer or the Proposed
Merger; or
(k) (1) any material contractual right of the Company or any of its
subsidiaries or affiliates shall be impaired or otherwise adversely
affected or any material amount of indebtedness of the Company or any of
its subsidiaries, joint ventures or partnerships shall become accelerated
or otherwise become due before its started due date, in either case, with
or without notice or the lapse of time or both, as a result of the
transactions contemplated by the Offer or the Proposed Merger or (2) any
covenant, term or condition in any of the Company's or any of its
subsidiaries', joint ventures' or partnerships' instruments, licenses, or
agreements is or may have an Adverse
39
<PAGE>
Effect or a Diminution In Value (including, but not limited to, any event
of default that may ensue as a result of the consummation of the Offer or
the Proposed Merger or the acquisition by Chesapeake of control of the
Company);
which in the sole judgment of Chesapeake and Purchaser with respect to each
and every matter referred to above makes it inadvisable to proceed with the
Offer or with such acceptance for payment or payment.
The foregoing conditions are for the sole benefit of Chesapeake and
Purchaser and may be asserted by Chesapeake or Purchaser regardless of the
circumstances (including any action or inaction by Chesapeake or Purchaser)
giving rise to any such conditions or may be waived by Chesapeake or Purchaser
in whole or in part at any time and from time to time in its sole discretion.
The determination as to whether any condition has occurred shall be in the
sole judgment of Chesapeake and Purchaser and will be final and binding on all
parties. The failure by Chesapeake or Purchaser at any time to exercise any of
the foregoing rights shall not be deemed a waiver of any such right and each
such right shall be deemed an ongoing right which may be asserted at any time
and from time to time.
A public announcement shall be made of a material change in, or waiver of,
such conditions, and the Offer may, in certain circumstances, be extended in
connection with any such change or waiver.
14. DIVIDENDS AND DISTRIBUTIONS.
If, on or after the date of this Offer to Purchase, the Company should (1)
split, combine or otherwise change the Shares or its capitalization, (2)
acquire currently outstanding Shares or otherwise cause a reduction in the
number of outstanding Shares or (3) issue or sell additional Shares, shares of
any other class of capital stock, other voting securities or any securities
convertible into, or rights, warrants or options, to acquire any of the
foregoing, other than Shares issued pursuant to the exercise of stock options
outstanding as of the date of the Offer to Purchase, then, subject to the
provisions of Section 13 above, Purchaser, in its sole discretion, may make
such adjustments as it deems appropriate in the price per Share to be paid
pursuant to the Offer and other terms of the Offer, including, without
limitation, the number or type of securities offered to be purchased.
If, on or after the date of this Offer to Purchase, the Company should
declare or pay any cash dividend on the Shares or other distribution on the
Shares, or issue with respect to the Shares any additional Shares, shares of
any other class of capital stock, other voting securities or any securities
convertible into, or rights, warrants or options, conditional or otherwise, to
acquire, any of the foregoing, payable or distributable to stockholders of
record on a date prior to the transfer of the Shares purchased pursuant to the
Offer to Purchaser or its nominee or transferee on the Company's stock
transfer records, then, subject to the provisions of Section 13 above, (1) the
offer price may, in the sole discretion of Purchaser, be reduced by the amount
of any such cash dividend or cash distribution and (2) the whole of any such
non-cash dividend, distribution or issuance to be received by the tendering
stockholders will (a) be received and held by the tendering stockholders for
the account of Purchaser and will be required to be promptly remitted and
transferred by each tendering stockholder to the Depositary for the account of
Purchaser, accompanied by appropriate documentation of transfer, or (b) at the
direction of Purchaser, be exercised for the benefit of Purchaser, in which
case the proceeds of such exercise will promptly be remitted to Purchaser.
Pending such remittance and subject to applicable law, Purchaser will be
entitled to all rights and privileges as owner of any such noncash dividend,
distribution, issuance or proceeds and may withhold the entire offer price or
deduct from the offer price the amount or value thereof, as determined by
Purchaser in its sole discretion.
40
<PAGE>
15. CERTAIN LEGAL MATTERS.
General. Except as otherwise disclosed herein, based upon an examination of
publicly available filings with respect to the Company, Chesapeake and
Purchaser are not aware of any licenses or other regulatory permits which
appear to be material to the business of the Company and which might be
adversely affected by the acquisition of Shares by Purchaser pursuant to the
Offer or of any approval or other action by any governmental, administrative
or regulatory agency or authority which would be required for the acquisition
or ownership of Shares by Purchaser pursuant to the Offer. Should any such
approval or other action be required, it is currently contemplated that such
approval or action would be sought or taken. There can be no assurance that
any such approval or action, if needed, would be obtained or, if obtained,
that it will be obtained without substantial conditions or that adverse
consequences might not result to the Company's or Chesapeake's business or
that certain parts of the Company's or Chesapeake's business might not have to
be disposed of in the event that such approvals were not obtained or such
other actions were not taken, any of which could cause Purchaser to elect to
terminate the Offer without the purchase of the Shares thereunder. Purchaser's
obligation under the Offer to accept for payment and pay for Shares is subject
to certain conditions. See Section 13.
Antitrust Compliance. Under the HSR Act and the rules that have been
promulgated thereunder by the Federal Trade Commission ("FTC"), certain
acquisition transactions may not be consummated unless certain information has
been furnished to the Antitrust Division of the Department of Justice (the
"Antitrust Division") and the FTC and certain waiting period requirements have
been satisfied. The acquisition of Shares by Purchaser is subject to these
requirements. See Section 2 as to the effect of the HSR Act on the timing of
Purchaser's obligation to accept Shares for payment.
Pursuant to the HSR Act, Chesapeake expects to file a Notification and
Report Form with respect to the acquisition of Shares pursuant to the Offer
and the Proposed Merger with the Antitrust Division and the FTC on December 3,
1999. Under the provisions of the HSR Act applicable to the purchase of Shares
pursuant to the Offer, such purchases may not be made until the expiration of
a 15-calendar day waiting period following the filing by Chesapeake.
Accordingly, the waiting period under the HSR Act is expected to expire at
11:59 p.m., New York City time, on December 18, 1999, unless early termination
of the waiting period is granted or Chesapeake receives a request for
additional information or documentary material prior thereto. Pursuant to the
HSR Act, Chesapeake has requested early termination of the waiting period
applicable to the Offer. There can be no assurances given, however, that the
15-day HSR Act waiting period will be terminated early. If either the FTC or
the Antitrust Division were to request additional information or documentary
material from Chesapeake, the waiting period would expire at 11:59 p.m., New
York City time, on the tenth calendar day after the date of substantial
compliance by Chesapeake with such request unless the waiting period is sooner
terminated by the FTC or the Antitrust Division. Thereafter, the waiting
period could be extended only by agreement or by court order. Only one
extension of such waiting period pursuant to a request for additional
information is authorized by the rules promulgated under the HSR Act, except
by agreement or by court order. Any such extension of the waiting period will
not give rise to any withdrawal rights not otherwise provided for by
applicable law. See Section 4. Although the Company is required to file
certain information and documentary material with the Antitrust Division and
the FTC in connection with the Offer, neither the Company's failure to make
such filings nor a request from the Antitrust Division or the FTC for
additional information or documentary material made to the Company will extend
the waiting period.
The Antitrust Division and the FTC frequently scrutinize the legality under
the antitrust laws of transactions such as the proposed acquisition of Shares
by Purchaser pursuant to the Offer. At any time before or after Purchaser's
purchase of Shares, the Antitrust Division or the FTC could take such action
under the antitrust laws as it deems necessary or desirable in the public
interest, including seeking to enjoin the acquisition of Shares pursuant to
the Offer or seeking divestiture of Shares
41
<PAGE>
acquired by Purchaser or the divestiture of substantial assets of Chesapeake,
the Company or any of their respective subsidiaries. Private parties and state
attorneys general may also bring legal action under the antitrust laws under
certain circumstances. There can be no assurance that a challenge to the Offer
on antitrust grounds will not be made or, if a challenge is made, what the
result will be. See Section 13 for certain conditions to the Offer that could
become applicable in the event of such a challenge.
The acquisition of Shares by Purchaser pursuant to the Offer may be subject
to antitrust laws or merger control regulations in Canada, the European Union,
member states of the European Union, and other foreign jurisdictions. Such
laws or regulations may require notification with respect to the Offer and
impose a mandatory waiting period similar to or in excess of the requirements
of the HSR Act.
Foreign Approvals. The Company Form 10-K indicates that the Company and
certain of its subsidiaries own property or conduct business in various
foreign countries and jurisdictions. In connection with the acquisition of the
Shares pursuant to the Offer, the laws of certain of those foreign countries
and jurisdictions may require the filing of information with, or the obtaining
of the approval of, governmental authorities in such countries and
jurisdictions. The governments in such countries and jurisdictions might
attempt to impose additional conditions on the Company's operations conducted
in such countries and jurisdictions as a result of the acquisition of the
Shares pursuant to the Offer. There can be no assurance that Chesapeake will
be able to cause the Company or its subsidiaries to satisfy or comply with
such laws or that compliance or non-compliance will not have a material
adverse effect on the financial condition, properties, business, results of
operations or prospects of the Company and its subsidiaries taken as a whole
or impair Chesapeake, Purchaser or the Company or any of their respective
affiliates, following consummation of the Offer or Proposed Merger, to conduct
any material business or operations in any jurisdiction where they are now
being conducted. See Section 13 for certain conditions to the Offer that could
become applicable in the event that any such foreign approvals give rise to
the above described effects.
State Takeover Laws. A number of states have adopted laws and regulations
applicable to offers to acquire securities of corporations which are
incorporated in such states and/or which have substantial assets,
stockholders, principal executive offices or principal places of business
therein. In Edgar v. MITE Corporation, the Supreme Court of the United States
held that the Illinois Business Takeover Statute, which made the takeover of
certain corporations more difficult, imposed a substantial burden on
interstate commerce and was therefore unconstitutional. In CTS Corporation v.
Dynamics Corporation of America, the Supreme Court held that as a matter of
corporate law, and in particular, those laws concerning corporate governance,
a state may constitutionally disqualify an acquiror of "Control Shares" (ones
representing ownership in excess of certain voting power thresholds: e.g.,
20%, 33% or 50%) of a corporation incorporated in its state and meeting
certain other jurisdictional requirements from exercising voting power with
respect to those shares without the approval of a majority of the
disinterested stockholders. In BNS Inc. v. Koppers Co., the United States
District Court for the District of Delaware upheld the constitutionality of
Section 203, finding that it did not impermissibly impede interstate commerce
in violation of the Commerce Clause.
Section 203 of the DGCL limits the ability of a Delaware corporation to
engage in business combinations with "interested stockholders" (defined
generally as any beneficial owner of 15% or more of the outstanding voting
stock of the corporation) unless, among other things, the corporation's board
of directors has given its prior approval to either the business combination
or the transaction which resulted in the stockholder becoming an "interested
stockholder." The Company Board has not approved the acquisition of Shares by
Chesapeake or Purchaser pursuant to the Offer or the Proposed Merger and,
therefore, Section 203 of the DGCL is applicable to the Offer and the Proposed
Merger. See Section 11.
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<PAGE>
The Company, directly or through subsidiaries, conducts business in a number
of states throughout the United States, some of which have enacted takeover
laws. Purchaser reserves the right to challenge the applicability or validity
of any state law purportedly applicable to the Offer or the Proposed Merger
and nothing in this Offer to Purchase or any action taken in connection with
the Offer or the Proposed Merger is intended as a waiver of such right. If it
is asserted that any state takeover statute is applicable to the Offer or the
Proposed Merger and if an appropriate court does not determine that it is
inapplicable or invalid as applied to the Offer or the Proposed Merger, and if
an appropriate court does not determine that it is inapplicable or invalid as
applied to the Offer or the Proposed Merger, Purchaser might be required to
file certain information with, or to receive approvals from, the relevant
state authorities, and Purchaser might be unable to accept for payment or pay
for Shares tendered pursuant to the Offer, or be delayed in consummating the
Offer or the Proposed Merger. In such case, Purchaser may not be obligated to
accept for payment or pay for any Shares tendered pursuant to the Offer. See
Section 13.
Litigation. On December 3, 1999, Chesapeake and Purchaser commenced a
lawsuit in the Court of Chancery of the State of Delaware against the Company
and the Company Board seeking, among other things, an order (i) declaring that
the Company Board breached its fiduciary duties by adopting the Bylaw
Amendments, (ii) declaring the Super Majority Bylaw and the Consent Record
Date Bylaw void, and enjoining the Company Board from implementing the Super
Majority Bylaw, the Consent Record Date Bylaw and the Bylaw Amendments as a
whole, (iii) declaring that failure to redeem the Rights or to render the
Rights inapplicable to the Offer and the Proposed Merger or to approve the
Offer and the Proposed Merger would constitute a breach of the Company Board's
fiduciary duties under Delaware law, (iv) invalidating the Rights or
compelling the Company Board to redeem the Rights or render the Rights
inapplicable to the Offer and the Proposed Merger, (v) declaring that failure
to approve the Offer and the Proposed Merger for purposes of Section 203 of
the DGCL would constitute a breach of the Company Board's fiduciary duties
under Delaware law, (vi) compelling the Company Board to approve the Offer and
the Proposed Merger for purposes of Section 203 of the DGCL, (vii) enjoining
the Company Board from taking any actions designed to impede or which have the
effect of impeding the Offer, the Consent Solicitation or the Proposed Merger
and declaring that any such actions would constitute a breach of the Company
Board's fiduciary duties under Delaware law, and (viii) enjoining the Company
Board from taking any actions to impede, or refuse to recognize the validity
of, the Consent Solicitation.
Also on December 3, 1999, Chesapeake and Purchaser commenced litigation
against the Company in the United States District Court for the District of
Delaware seeking, among other things, a declaratory judgment that Chesapeake
and Purchaser have disclosed all information required by, and are otherwise in
full compliance with, the Exchange Act and any other federal securities laws,
rules or regulations deemed applicable to the Offer and the Consent
Solicitation.
16. FEES AND EXPENSES.
Goldman Sachs and DLJ have been engaged as co-financial advisors and Co-
Dealer Managers in connection with the Offer. Each will receive customary
fees, as well as reimbursement of reasonable out-of-pocket expenses.
Additionally, Purchaser and Chesapeake have agreed to indemnify Goldman Sachs
and DLJ against certain liabilities and expenses in connection with the Offer
and the Proposed Merger, including liabilities under the federal securities
laws. Each of the Co-Dealer Managers has rendered various investment banking
and other advisory services to Chesapeake and its affiliates in the past and
is expected to continue to render such services in the future, for which each
has received and will continue to receive customary compensation from
Chesapeake and its affiliates. In the ordinary course of business, each of the
Co-Dealer Managers and their affiliates may actively trade or hold Shares for
their own account or for the account of customers and, accordingly, may at any
time hold a long or short position in Shares.
43
<PAGE>
Purchaser has also retained D.F. King & Co., Inc., to act as the Information
Agent in connection with the Offer. The Information Agent may contact holders
of Shares by mail, telephone, telex, telegraph and personal interviews and may
request brokers, dealers and other nominee stockholders to forward materials
relating to the Offer to beneficial owners of Shares. The Information Agent
will receive reasonable and customary compensation for such services, plus
reimbursement of out-of-pocket expenses. Purchaser will also indemnify the
Information Agent against certain liabilities and expenses in connection with
the Offer, including liabilities under the federal securities laws.
Purchaser will pay the Depositary reasonable and customary compensation for
its services in connection with the Offer, plus reimbursement for out-of-
pocket expenses, and will indemnify the Depositary against certain liabilities
and expenses in connection therewith, including liabilities under the federal
securities laws.
Neither Purchaser nor Chesapeake will pay any fees or commissions to any
broker or dealer or other persons for soliciting tenders of Shares pursuant to
the Offer (other than the fees of the Co-Dealer Managers, the Information
Agent and the Depositary). Brokers, dealers, commercial banks and trust
companies will be reimbursed by Purchaser for customary mailing and handling
expenses incurred by them in forwarding material to their customers.
17. MISCELLANEOUS.
The Offer is not being made to (nor will tenders be accepted from or on
behalf of) holders of Shares in any jurisdiction in which the making of the
Offer or the acceptance thereof would not be in compliance with the laws of
such jurisdiction. However, Purchaser may, in its sole discretion, take such
action as it may deem necessary to make the Offer in any such jurisdiction and
extend the Offer to holders of Shares in such jurisdiction.
Neither Purchaser nor Chesapeake is aware of any jurisdiction in which the
making of the Offer or the acceptance of Shares in connection therewith would
not be in compliance with the laws of such jurisdiction.
Purchaser and Chesapeake have filed with the SEC a Statement on Schedule
14D-1 pursuant to Rule 14d-3 of the General Rules and Regulations under the
Exchange Act, furnishing certain additional information with respect to the
Offer, and may file amendments thereto. Such Statement and any amendments
thereto, including exhibits, may be examined and copies may be obtained from
the principal office of the SEC in Washington, D.C. in the manner set forth in
Section 8.
No person has been authorized to give any information or make any
representation on behalf of Chesapeake or Purchaser not contained in this
Offer to Purchase or in the Letter of Transmittal and, if given or made, such
information or representation must not be relied upon as having been
authorized.
Sheffield,
Inc.
December 3, 1999
44
<PAGE>
SCHEDULE A
INFORMATION CONCERNING THE DIRECTORS AND EXECUTIVE OFFICERS
OF CHESAPEAKE AND PURCHASER
The following tables set forth the name, business address, principal
occupation and material positions held within the past five years of each
director and executive officer of Chesapeake and Purchaser. Each person has a
business address at 1021 East Cary Street, Richmond, Virginia 23218-2350, and
is a citizen of the United States unless a different business address or
citizenship is indicated under his or her name.
Directors and Executive Officers of Chesapeake Corporation
<TABLE>
<CAPTION>
Present Principal Occupation and
Name and Citizenship Office(s) Employment During the Last Five Years
- -------------------- --------------------------- ----------------------------------------
<S> <C> <C>
Robert L. Hintz Director Chairman of the Board, R.L. Hintz and
Associates, a management services
consulting firm (since 1988); Director
of Arch Coal, Inc., Reynolds Metals
Company and Scott & Stringfellow
Financial, Inc.
Thomas H. Johnson Director, President & Chief President & Chief Executive Officer of
Executive Officer Chesapeake Corporation (since 1997);
former Vice Chairman (1996-1997) and
President and Chief Executive Officer
(1989-1996), Riverwood International
Corporation, a forest products and
packaging company.
James E. Rogers Director President, SCI Investors, Inc., a
private equity investment firm (since
1993); Director of Owens & Minor, Inc.,
Carustar Industries, Inc. and Wellman,
Inc.
John W. Rosenblum Director Dean, Jepson School of Leadership
Studies, University of Richmond (since
1996); former Tayloe Murphy Professor of
Business Administration (1993-1996),
Darden Graduate School of Business
Administration, University of Virginia;
Director of Cadmus Communications
Corporation, Comdial Corporation, Cone
Mills Corporation and Grantham, Mayo,
van Otterloo, LLP.
Frank S. Royal Director Physician (since 1969); Director of
Columbia/HCA Healthcare Corporation, CSX
Corporation, Dominion Resources, Inc.
and SunTrust Banks, Inc.
Wallace Stettinius Director Retired (since 1995); former Chairman of
the Board, Cadmus Communications
Corporation, a graphic communications
holding company; Director of Cadmus
Communications Corporation.
</TABLE>
A-1
<PAGE>
<TABLE>
<CAPTION>
Present Principal Occupation and
Name and Citizenship Office(s) Employment During the Last Five Years
- -------------------- --------------------------- ----------------------------------------
<S> <C> <C>
Richard G. Tilghman Director Chairman of the Board, Chief Executive
Officer and Director, Crestar Financial
Corporation, a bank holding company
(since 1985); Vice Chairman of the
Board, Executive Vice President and
Director, SunTrust Banks, Inc., a bank
holding company.
Joseph P. Viviano Director Vice Chairman (1999) and Director,
Hershey Foods Corporation, a
manufacturer of confectionery products,
and former President and Chief Operating
Officer (1993-1998), Hershey Foods
Corporation; Director of Harsco
Corporation, Huffy Corporation and R.J.
Reynolds Tobacco Holdings, Inc.
Harry H. Warner Director Chairman of the Board (Non-executive) of
Chesapeake Corporation (since 1998);
Financial Consultant; Director of Allied
Research Corporation and Pulaski
Furniture Corporation.
Hugh V. White, Jr. Director Senior Counsel, Hunton & Williams,
Chesapeake Corporation's principal law
firm (since 1999); Partner, Hunton &
Williams (1969-1999); Director of
Pulaski Furniture Corporation.
J.P. Causey Jr. Senior Vice President, Senior Vice President, Secretary &
Secretary & General Counsel General Counsel (since 1995); Vice
President, Secretary & General Counsel
(1986-1995); Director of C&F Financial
Corporation.
Keith Gilchrist Executive Vice President-- Executive Vice President--European
(a United Kingdom European Packaging Packaging (since 1999); Chief Executive,
citizen) Field Group plc (since 1993).
Andrew J. Kohut Senior Vice President-- Senior Vice President, Strategic
Strategic Development Business Development (since 1998); Group
Vice President--Display & Packaging
(1996- 1998); Group Vice President--
Finance & Strategic Development & Chief
Financial Officer (1995-1996); Vice
President--Finance and Chief Financial
Officer (1991-1995).
Octavio Orta Executive Vice President-- Executive Vice President--Display &
Display and Packaging Packaging (since 1998); Senior Vice
President, Coated Board Sales and
Packaging Operation Group, Riverwood
International Corporation (1995-1998);
Senior Vice President Europe and
Asia/Pacific, Riverwood International
Corporation (1993-1995).
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
Present Principal Occupation and
Name and Citizenship Office(s) Employment During the Last Five Years
- -------------------- --------------------------------- ----------------------------------------
<S> <C> <C>
Robert F. Schick Senior Vice President-- Senior Vice President--Containers (since
Containers 1998); President, Chesapeake Packaging
Co. (since 1996); Vice President,
Chesapeake Packaging Co. (1994-1996).
Thomas A. Smith Vice President-- Vice President--Human Resources &
Human Resources Assistant Secretary (since 1987).
William T. Tolley Senior Vice President-- Senior Vice President--Finance & Chief
Finance & Chief Financial Officer Financial Officer (since 1998); Group
Vice President--Finance & Chief
Financial Officer (1996-1998); Vice
President, Finance and Logistics, Chief
Financial Officer, North American
Operations, Carrier Corporation (1994-
1996).
</TABLE>
A-3
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS OF SHEFFIELD, INC.
<TABLE>
<CAPTION>
Present Principal Occupation and
Name and Citizenship Office(s) Employment During the Last Five Years
- -------------------- ------------------------- ----------------------------------------
<S> <C> <C>
Thomas H. Johnson President President & Chief Executive Officer of
Chesapeake Corporation (since 1997);
former Vice Chairman (1996-1997) and
President and Chief Executive Officer
(1989-1996), Riverwood International
Corporation, a forest products and
packaging company.
J.P. Causey Jr. Director, Vice President Senior Vice President, Secretary &
and Secretary General Counsel of Chesapeake
Corporation (since 1995). Vice
President, Secretary & General Counsel
(1986-1995); Director of C&F Financial
Corporation.
Andrew J. Kohut Vice President Senior Vice President, Strategic
Business Development of Chesapeake
Corporation (since 1998). Group Vice
President--Display & Packaging (1996-
1998). Group Vice President--Finance &
Strategic Development & Chief Financial
Officer (1995-1996). Vice President--
Finance and Chief Financial Officer
(1991-1995).
William T. Tolley Vice President Senior Vice President--Finance & Chief
Financial Officer of Chesapeake
Corporation (since 1998). Group Vice
President--Finance & Chief Financial
Officer (1996-1998). Vice President,
Finance and Logistics, Chief Financial
Officer, North American Operations,
Carrier Corporation (1994-1996).
</TABLE>
A-4
<PAGE>
SCHEDULE B
TRANSACTIONS EFFECTED DURING THE PAST 60 DAYS
<TABLE>
<CAPTION>
Shares Purchased Average Price
Reporting Person Date (Sold) Per Share
---------------- ----------------- ---------------- -------------
<S> <C> <C> <C>
Sheffield, Inc. November 10, 1999 100* $11.94**
Chesapeake Corporation November 26, 1999 4,106,440*** $17.25
</TABLE>
* Open market purchase effected on the New York Stock Exchange.
** Price excludes commission.
*** Privately negotiated agreement to purchase Shares pursuant to a Stock
Purchase Agreement, dated November 26, 1999, by and between Ariel Capital
Management, Inc. and Chesapeake Corporation.
B-1
<PAGE>
SCHEDULE C
SHOREWOOD PACKAGING CORPORATION
STOCKHOLDER RIGHTS PLAN
SUMMARY OF RIGHTS
On May 4, 1995, the Board of Directors of Shorewood Packaging Corporation
(the "Company") declared a dividend of one preferred share purchase right (a
"Right") for each outstanding share of common stock, par value $.01 per share
(the "Common Shares"), of the Company. The dividend is payable on June 14,
1995 (the "Record Date") to the stockholders of record on that date. Each
Right entitles the registered holder to purchase from the Company one one-
hundredth of a share of Series B Junior Participating Preferred Stock, par
value $10.00 per share (the "Preferred Shares"), of the Company at a price of
$17.00 per one one-hundredth of a Preferred Share (the "Purchase Price"),
subject to adjustment. The description and terms of the Rights are set forth
in a Rights Agreement (the "Rights Agreement") to be entered into by the
Company and The Bank of New York as Rights Agent (the "Rights Agent").
Until the earlier to occur of (i) 10 days following a public announcement
that a person or group of affiliated or associated persons (an "Acquiring
Person") have acquired beneficial ownership of 25% or more of the outstanding
Common Shares or (ii) 10 business days (or such later date as may be
determined by action of the Board of Directors prior to such time as any
person or group of affiliated persons becomes an Acquiring Person) following
the commencement of, or announcement of an intention to make, a tender offer
or exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 25% or more of the outstanding Common Shares
(the earlier of such dates being called the "Distribution Date"), the Rights
will be evidenced, with respect to any of the Common Share certificates
outstanding as of the Record Date, by such Common Share certificate.
The Rights Agreement provides that, until the Distribution Date (or earlier
redemption or expiration of the Rights), the Rights will be transferred with
and only with the Common Shares. Until the Distribution Date (or earlier
redemption or expiration of the Rights), new Common Share certificates issued
after the Record Date upon transfer or new issuance of Common Shares will
contain a notation incorporating the Rights Agreement by reference. Until the
Distribution Date (or earlier redemption or expiration of the Rights), the
surrender for transfer of any certificates for Common Shares outstanding as of
the Record Date, will also constitute the transfer of the Rights associated
with the Common Shares represented by such certificate. As soon as practicable
following the Distribution Date, separate certificates evidencing the Rights
("Right Certificates") will be mailed to holders of record of the Common
Shares as of the close of business on the Distribution Date and such separate
Right Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date. The Rights will
expire on June 14, 2005 (the "Final Expiration Date"), unless the Final
Expiration Date is extended or unless the Rights are earlier redeemed or
exchanged by the Company, in each case, as described below.
The Purchase Price payable, and the number of Preferred Shares or other
securities or property issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the
Preferred Shares, (ii) upon the grant to holders of the Preferred Shares of
certain rights or warrants to subscribe for or purchase Preferred Shares at a
price, or securities convertible into Preferred Shares with a conversion
price, less than the then-current market price of the Preferred Shares or
(iii) upon the distribution to holders of the Preferred Shares of evidences of
indebtedness or assets (excluding
C-1
<PAGE>
regular periodic cash dividends paid out of earnings or retained earnings or
dividends payable in Preferred Shares) or of subscription rights or warrants
(other than those referred to above).
The number of outstanding Rights and the number of one one-hundredths of a
Preferred Share issuable upon exercise of each Right are also subject to
adjustment in the event of a stock split of the Common Shares or a stock
dividend on the Common Shares payable in Common Shares or subdivisions,
consolidations or combinations of the Common Shares occurring, in any such
case, prior to the Distribution Date.
Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. Each Preferred Share will be entitled to a minimum preferential
quarterly dividend payment of $1 per share but will be entitled to an
aggregate dividend of 100 times the dividend declared per Common Share. In the
event of liquidation, the holders of the Preferred Shares will be entitled to
a minimum preferential liquidation payment of $100 per share but will be
entitled to an aggregate payment of 100 times the payment made per Common
Share. Each Preferred Share will have 100 votes, voting together with the
Common Shares. Finally, in the event of any merger, consolidation or other
transaction in which Common Shares are exchanged, each Preferred Share will be
entitled to receive 100 times the amount received per Common Share. These
rights are protected by customary antidilution provisions.
Because of the nature of the Preferred Shares' dividend, liquidation and
voting rights, the value of the one one-hundredth interest in a Preferred
Share purchasable upon exercise of each Right should approximate the value of
one Common Share.
In the event that the Company is acquired in a merger or other business
combination transaction or 50% or more of its consolidated assets or earning
power are sold after a person or group has become an Acquiring Person, proper
provision will be made so that each holder of a Right will thereafter have the
right to receive, upon the exercise thereof at the then current exercise price
of the Right, in lieu of Preferred Shares, a number of shares of common stock
of the acquiring company at a fraction of the then-current market price for
such shares. In the event that any person or group of affiliated or associated
persons becomes an Acquiring Person, proper provision shall be made so that
each holder of a Right, other than Rights beneficially owned by the Acquiring
Person (which will thereafter be void), will thereafter have the right to
receive upon exercise, in lieu of Preferred Shares, a number of Common Shares
at a fraction of the then-current market price for one Common Share. Based on
the market price for a Common Share as of the date hereof, such issuance of
Common Shares would be effected at approximately one-quarter the current
market price of a Common Share.
At any time after any person or group becomes an Acquiring Person and prior
to the acquisition by such person or group of 50% or more of the outstanding
Common Shares, the Board of Directors of the Company may exchange the Rights
(other than Rights owned by such person or group which will have become void),
in whole or in part, at an exchange ratio of one Common Share, for one one-
hundredth of a Preferred Share (or of a share of a class or series of the
Company's preferred stock having equivalent rights, preferences and
privileges), per Right (subject to adjustment).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price.
No fractional Preferred Shares will be issued (other than fractions which
are integral multiples of one one-hundredth of a Preferred Share, which may,
at the election of the Company, be evidenced by depositary receipts) and in
lieu thereof, an adjustment in cash will be made based on the market price of
the Preferred Shares on the last trading day prior to the date of exercise.
At any time prior to the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 25% or more of the outstanding
Common Shares, the Board of Directors of
C-2
<PAGE>
the Company may redeem the Rights in whole, but not in part, at a price of
$.01 per Right (the "Redemption Price"). The redemption of the Rights may be
made effective at such time on such basis with such conditions as the Board of
Directors in its sole discretion may establish. Immediately upon any
redemption of the Rights, the right to exercise the Rights will terminate and
the only right of the holders of Rights will be to receive the Redemption
Price.
The terms of the Rights may be amended by the Board of Directors of the
Company without the consent of the holders of the Rights, including an
amendment to lower certain thresholds described above to not less than the
greater of (i) any percentage greater than the largest percentage of voting
power of the Company then known to be beneficially owned by any person or
group of affiliated or associated person (excluding certain persons affiliated
with the Company), other than a person holding voting power of the Company in
excess of the then-existing thresholds pursuant to the written permission of
the Board of Directors, and (ii) 10%, except that from and after such time as
any person or group of affiliated or associated persons becomes an Acquiring
Person no such amendment may adversely affect the interests of the holders of
the Rights.
Until a Right is exercised, the holder thereof, as such, will have no rights
as a stockholder of the Company, including, without limitation, the right to
vote or to receive dividends.
The foregoing is a summary of certain principal terms of the Company's
stockholder rights plan only and is qualified in its entirety by reference to
the detailed terms of the Rights Agreement. The foregoing is based upon the
Company's public filings.
C-3
<PAGE>
Manually signed facsimile copies of the Letter of Transmittal, properly
completed and duly signed, will be accepted. The Letter of Transmittal,
certificates for the Shares and any other required documents should be sent by
each stockholder of the Company or such stockholder's broker-dealer,
commercial bank, trust company or other nominee to the Depositary as follows:
The Depositary for the Offer is:
Harris Trust and Savings Bank
By Overnight Courier:
c/o Harris Trust Company of New York
88 Pine Street, 19th Floor
New York, New York 10005
By Mail: Facsimile Transmission: By Hand:
c/o Harris Trust Company (Eligible Institutions c/o Harris Trust Company
of New York Only) of New York
Wall Street Station (212) 701-7636 88 Pine Street, 19th
P.O. Box 1010 Floor
New York, New York 10268- New York, New York 10005
1010 Confirm by Telephone:
(212) 701-7624
Any questions and requests for assistance or additional copies of the Offer
to Purchase, the Letter of Transmittal and the Notice of Guaranteed Delivery
may be directed to the Information Agent or the Co-Dealer Managers at their
respective telephone numbers and locations listed below. You may also contact
your broker, dealer, commercial bank or trust company or other nominee for
assistance concerning the Offer.
The Information Agent for the Offer is:
D. F. King & Co., Inc.
77 Water Street
New York, New York 10005
Stockholders Call 1-800-578-5378 (toll free)
Brokers and Bank Custodians Call 212-269-5550 (collect)
The Co-Dealer Managers for the Offer are:
Goldman, Sachs & Co. Donaldson, Lufkin & Jenrette
85 Broad Street 277 Park Avenue
New York, New York 10004 New York, New York 10172
(212) 902-1000 (call collect) (877) 864-4755 (toll free)
(800) 323-5678 (call toll free) (212) 892-5525
<PAGE>
Letter of Transmittal
To Tender Shares of Common Stock
(Including the Associated Rights to Purchase Preferred Stock)
of
Shorewood Packaging Corporation
Pursuant to the Offer to Purchase dated December 3, 1999
by
Sheffield, Inc.
a wholly owned subsidiary of
Chesapeake Corporation
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON MONDAY, JANUARY 3, 2000, UNLESS THE OFFER IS EXTENDED.
The Depositary for the Offer is:
Harris Trust and Savings Bank
By Overnight Courier:
c/o Harris Trust Company of New York
88 Pine Street, 19th Floor
New York, New York 10005
By Mail: Facsimile Transmission: By Hand:
c/o Harris Trust Company (Eligible Institutions c/o Harris Trust Company
of New York Only) of New York
Wall Street Station (212) 701-7636 88 Pine Street, 19th
Floor
P.O. Box 1010
New York, New York 10268- Confirm by Telephone: New York, New York 10005
1010 (212) 701-7624
Delivery of this Letter of Transmittal to an address other than as set forth
above does not constitute a valid delivery.
The instructions accompanying this Letter of Transmittal should be read
carefully before this Letter of Transmittal is completed.
This Letter of Transmittal is to be used either if certificates are to be
forwarded herewith or, unless an Agent's Message (as defined in Section 3 of
the Offer to Purchase (as defined below)) is utilized, if delivery is to be
made by book-entry transfer to the account maintained by Harris Trust and
Savings Bank (the "Depositary") at The Depository Trust Company (the "Book-
Entry Transfer Facility"), pursuant to the procedures set forth in Section 3
of the Offer to Purchase. Stockholders who deliver Shares by book-entry
transfer are referred to herein as "Book-Entry Stockholders" and other
stockholders are referred to herein as "Certificate Stockholders."
Stockholders whose certificates for Shares are not immediately available or
who cannot comply with the procedure for book-entry transfer on a timely
basis, or who cannot deliver all required documents to the Depositary prior to
the Expiration Date (as defined in Section 1 of the Offer to Purchase), may
tender their Shares in accordance with the guaranteed delivery procedure set
forth in Section 3 of the Offer to Purchase. See Instruction 2. Delivery of
documents to the Book-Entry Transfer Facility does not constitute delivery to
the Depositary.
<PAGE>
- --------------------------------------------------------------------------------
DESCRIPTION OF SHARES TENDERED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Name(s) and Address(es) of
Registered Holder(s)
(Please fill in, if blank
exactly as name(s)
appear(s) on Certificates Tendered
Certificate(s)) (Attach additional list if necessary)
- --------------------------------------------------------------------------------
Total Number of
Shares
Represented
Certificate by Number of Shares
Number(s)(1) Certificate(s)(1) Tendered(2)
----------------------------------------------------
<S> <C> <C> <C>
----------------------------------------------------
----------------------------------------------------
----------------------------------------------------
----------------------------------------------------
Total Shares
- --------------------------------------------------------------------------------
</TABLE>
(1) Need not be completed by Book-Entry Stockholders.
(2) Unless otherwise indicated, it will be assumed that all Shares
described above are being tendered. See Instruction 4.
[_] CHECK HERE IF CERTIFICATE HAS BEEN LOST OR DESTROYED. SEE SECTION 11.
[_] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE DEPOSITARY WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING (ONLY FINANCIAL INSTITUTIONS
THAT ARE PARTICIPANTS IN THE SYSTEM OF ANY BOOK-ENTRY TRANSFER FACILITY MAY
DELIVER SHARES BY BOOK-ENTRY TRANSFER):
Name of Tendering Institution: ________________________________________________
If delivered by book-entry transfer, check box: [_]
Account Number: __________________ Transaction Code Number: _________
[_] CHECK HERE IF CERTIFICATES FOR TENDERED SHARES ARE BEING DELIVERED PURSUANT
TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY.
ENCLOSE A PHOTOCOPY OF SUCH NOTICE OF GUARANTEED DELIVERY AND COMPLETE THE
FOLLOWING:
Name(s) of Registered Holder(s): ______________________________________________
Date of Execution of Notice of Guaranteed Delivery: ___________________________
Name of Institution which Guaranteed Delivery: ________________________________
If delivered by book-entry transfer, check box: [_]
Account Number: __________________ Transaction Code Number: _________
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
2
<PAGE>
To Harris Trust and Savings Bank:
The undersigned hereby tenders to Sheffield, Inc., a Delaware corporation
("Purchaser") and a wholly owned subsidiary of Chesapeake Corporation, a
Virginia corporation ("Chesapeake"), the above-described shares of common
stock, par value $0.01 per share (the "Common Stock") of Shorewood Packaging
Corporation, a Delaware corporation (the "Company"), including the associated
rights to purchase preferred stock (the "Rights") issued pursuant to the
Rights Agreement, dated as of June 12, 1995 (the "Rights Agreement"), between
the Company and The Bank of New York (the Common Stock and the Rights together
are referred to herein as the "Shares"), pursuant to the Offer to Purchase,
dated December 3, 1999 (the "Offer to Purchase"), all of the outstanding
Shares at a price of $17.25 per Share, net to the seller in cash, upon the
terms and subject to the conditions set forth in the Offer to Purchase,
receipt of which is hereby acknowledged, and in this Letter of Transmittal
(which, together with the Offer to Purchase, constitute the "Offer"). The
undersigned understands that Purchaser reserves the right to transfer or
assign, from time to time, in whole or in part, to one or more of its
affiliates, the right to purchase the Shares tendered herewith. Unless the
context requires otherwise, all references to Shares herein shall include the
associated Rights, and all references to the Rights shall include all benefits
that may inure to the holders of the Rights pursuant to the Rights Agreement.
On the terms and subject to the conditions of the Offer (including the
conditions set forth in Section 13 of the Offer to Purchase and together with,
if the Offer is extended or amended, the terms and conditions of such
extension or amendment), subject to, and effective upon, acceptance for
payment of, and payment for, the Shares tendered herewith in accordance with
the terms of the Offer, the undersigned hereby sells, assigns and transfers
to, or upon the order of, Purchaser, all right, title and interest in and to
all of the Shares being tendered hereby and any and all cash dividends,
distributions, rights, other Shares or other securities issued or issuable in
respect of such Shares on or after December 3, 1999 (collectively,
"Distributions"), and orders the registration of all such Shares if tendered
by book-entry transfer and irrevocably constitutes and appoints Harris Trust
and Savings Bank (the "Depositary") the true and lawful agent and attorney-in-
fact of the undersigned with respect to such Shares (and any Distributions)
with full power of substitution (such power of attorney being deemed to be an
irrevocable power coupled with an interest) to the fullest extent of such
stockholder's rights with respect to such Shares (and any Distributions) (a)
to deliver such Share Certificates (as defined herein) (and any Distributions)
or transfer ownership of such Shares (and any Distributions) on the account
books maintained by the Book-Entry Transfer Facility, together in either such
case with all accompanying evidences of transfer and authenticity, to or upon
the order of Purchaser, (b) to present such Shares (and any Distributions) for
cancellation and transfer on the books of the Company and (c) to receive all
benefits and otherwise exercise all rights of beneficial ownership of such
Shares (and any Distributions), all in accordance with the terms and the
conditions of the Offer.
The undersigned hereby irrevocably appoints the designees of Purchaser, and
each of them, the attorneys-in-fact and proxies of the undersigned, each with
full power of substitution, to the full extent of such stockholder's rights
with respect to the Shares tendered hereby which have been accepted for
payment by Purchaser and with respect to any Distributions. The designees of
Purchaser will, with respect to the Shares (and any associated Distributions)
for which the appointment is effective, be empowered to exercise all voting
and any other rights of such stockholder, as they, in their sole discretion,
may deem proper at any annual, special or adjourned meeting of the Company's
stockholders, by written consent in lieu of any such meeting or otherwise.
This proxy and power of attorney shall be irrevocable and coupled with an
interest in the tendered Shares. Such appointment is effective when, and only
to the extent that, Purchaser deposits the payment for such Shares with the
Depositary. Upon the effectiveness of such appointment, without further
action, all prior powers of attorney, proxies and consents given by the
undersigned with respect to such Shares (and any associated Distributions)
will be revoked, and no subsequent powers of attorney, proxies, consents or
revocations may be given (and, if given, will not be deemed effective).
Purchaser reserves the right to
3
<PAGE>
require that, in order for Shares to be deemed validly tendered, immediately
upon Purchaser's payment for such Shares, Purchaser must be able to exercise
full voting rights with respect to such Shares (and any associated
Distributions), including voting at any meeting of stockholders.
The undersigned hereby represents and warrants to Purchaser that the
undersigned has full power and authority to tender, sell, assign and transfer
the Shares (and any Distributions) tendered hereby and, when the same are
accepted for payment by Purchaser, Purchaser will acquire good, marketable and
unencumbered title thereto, free and clear of all liens, restrictions, charges
and encumbrances, and the same will not be subject to any adverse claim. The
undersigned understands that tenders of Shares pursuant to any one of the
procedures described in Section 3 of the Offer to Purchase and in the
instructions hereto will constitute the undersigned's acceptance of the terms
and conditions of the Offer, including the undersigned's representation and
warranty that: (i) the undersigned has a net long position in Shares or
equivalent securities at least equal to the Shares tendered within the meaning
of Rule 14e-4 promulgated under the Securities Exchange Act of 1934, as
amended, and (ii) such tender of Shares complies with Rule 14e-4. The
undersigned will, upon request, execute and deliver any additional documents
deemed by the Depositary or Purchaser to be necessary or desirable to complete
the sale, assignment and transfer of the Shares (and any Distributions)
tendered hereby. In addition, the undersigned shall promptly remit and
transfer to the Depositary for the account of Purchaser any and all
Distributions in respect of the Shares tendered hereby, accompanied by
appropriate documentation of transfer; and, pending such remittance or
appropriate assurance thereof, Purchaser shall be entitled to all rights and
privileges as owner of any such Distributions and may withhold the entire
purchase price or deduct from the purchase price the amount or value thereof,
as determined by Purchaser in its sole discretion. The undersigned has read
and agrees to all of the terms of the Offer.
All authority conferred or agreed to be conferred pursuant to this Letter of
Transmittal shall not be affected by, and shall survive, the death or
incapacity of the undersigned and any obligation of the undersigned hereunder
shall be binding upon the heirs, personal representatives, successors and
assigns of the undersigned. Except as stated in the Offer to Purchase, this
tender is irrevocable.
The undersigned understands that the valid tender of Shares pursuant to one
of the procedures described in Section 3 of the Offer to Purchase will
constitute a binding agreement between the undersigned and Purchaser upon the
terms and subject to the conditions of the Offer. The undersigned recognizes
that under certain circumstances set forth in the Offer to Purchase, Purchaser
may terminate or amend the Offer or may postpone the acceptance for payment
of, or the payment for, Shares tendered or may accept for payment fewer than
all of the Shares tendered hereby. The undersigned acknowledges that no
interest will be paid on the purchase price for Shares tendered regardless of
any extensions of the Offer or any delay in making such payment.
Unless otherwise indicated herein under "Special Payment Instructions,"
please issue the check for the purchase price and/or return any certificates
for Shares not tendered or accepted for payment in the name(s) of the
registered holder(s) appearing under "Description of Shares Tendered."
Similarly, unless otherwise indicated under "Special Delivery Instructions,"
please mail the check for the purchase price and/or return any certificates
for Shares not tendered or accepted for payment (and accompanying documents,
as appropriate) to the address(es) of the registered holder(s) appearing under
"Description of Shares Tendered." In the event that both the Special Delivery
Instructions and the Special Payment Instructions are completed, please issue
the check for the purchase price and/or issue any certificates for Shares not
tendered or accepted for payment (and any accompanying documents, as
appropriate) in the name of, and deliver such check and/or return such
certificates (and any accompanying documents, as appropriate) to, the person
or persons so indicated. The undersigned recognizes that Purchaser has no
obligation pursuant to the Special Payment Instructions to transfer any Shares
from the name of the registered holder thereof if Purchaser does not accept
for payment any of the Shares so tendered.
4
<PAGE>
SPECIAL PAYMENT INSTRUCTIONS (See SPECIAL DELIVERY INSTRUCTIONS
Instructions 1, 4, 5, 6 and 7) (See Instructions 1, 4, 5, 6 and
7)
To be completed ONLY if certifi-
cate(s) for Shares not tendered To be completed ONLY if certifi-
or not accepted for payment cate(s) for Shares not tendered
and/or the check for the purchase or not accepted for payment
price of Shares accepted for pay- and/or any check for the purchase
ment are to be issued in the name price of Shares accepted for pay-
of and sent to someone other than ment are to be sent to someone
the undersigned. other than the undersigned, or to
the undersigned at an address
Issue Check/Certificate(s) to: other than that above.
Name _____________________________ Deliver Check/Certificate(s) to:
(Please Print)
Name______________________________
Address __________________________ (Please Print)
__________________________________ Address __________________________
(Include Zip Code)
__________________________________
__________________________________ (Include Zip Code)
(Tax Identification or Social
Security No.)
(See Substitute Form W-9)
5
<PAGE>
IMPORTANT
PLEASE SIGN HERE
(ALSO COMPLETE SUBSTITUTE FORM W-9 BELOW)
____________________________________________________________________________
(Signature(s) of Holder(s))
____________________________________________________________________________
(Signature(s) of Holder(s))
(Must be signed by registered holder(s) exactly as name(s) appear(s) on
stock certificate(s) or on a security position listing or by person(s)
authorized to become registered holder(s) by certificates and documents
transmitted herewith. If signature is by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or
others acting in a fiduciary or representative capacity, please set forth
full title and see Instruction 5.)
Dated: ___________________________
Name(s): ___________________________________________________________________
(Please type or print)
Capacity (Full Title): _____________________________________________________
Address: ___________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
(Include Zip Code)
__________________________________ ______________________________________
(Area Code and Telephone No.) (Tax Identification or Social
Security No.)
GUARANTEE OF SIGNATURE(S)
(See Instructions 1 and 5)
Authorized Signature: ________________________________________________________
Name: ________________________________________________________________________
(Please Type or Print)
Address: _____________________________________________________________________
____________________________________________________________________________
(Include Zip Code)
Full Title and Name of Firm: _______________________________________________
Dated: ___________________________
6
<PAGE>
INSTRUCTIONS
Forming Part of the Terms and Conditions of the Offer
1. Guarantee of Signatures. Except as otherwise provided below, all
signatures on this Letter of Transmittal must be guaranteed by a financial
institution (including most commercial banks, savings and loan associations
and brokerage houses) that is a participant in good standing in the Securities
Transfer Agents Medallion Program, the New York Stock Exchange Medallion
Signature Guarantee Program or the Stock Exchange Medallion Program (each, an
"Eligible Institution"). Signatures on this Letter of Transmittal need not be
guaranteed (a) if this Letter of Transmittal is signed by the registered
holders (which term, for purposes of this document, includes any participant
in the Book-Entry Transfer Facility's system whose name appears on a security
position listing as the owner of the Shares or Rights) of Shares and Rights
tendered herewith and such registered holder has not completed the box
entitled "Special Payment Instructions" or the box entitled "Special Delivery
Instructions" on this Letter of Transmittal or (b) if such Shares and Rights
are tendered for the account of an Eligible Institution. See Instruction 5 of
this Letter of Transmittal.
2. Delivery of Letter of Transmittal and Certificates or Book-Entry
Confirmations. This Letter of Transmittal is to be used either if certificates
are to be forwarded herewith or if tenders are to be made pursuant to the
procedures for tender by book-entry transfer set forth in Section 3 of the
Offer to Purchase. Certificates for all physically tendered Shares ("Share
Certificates"), or confirmation of any book-entry transfer into the
Depositary's account at the Book-Entry Transfer Facility of Shares tendered by
book-entry transfer, as well as this Letter of Transmittal properly completed
and duly executed with any required signature guarantees, or an Agents Message
and any other documents required by this Letter of Transmittal, must be
received by the Depositary at one of its addresses set forth herein on or
prior to the Expiration Date (as defined in the Offer to Purchase) for such
Shares to be validly tendered pursuant to the Offer.
Stockholders whose certificates for Shares (or Rights, if applicable) are
not immediately available (including because certificates for Rights have not
yet been distributed by the Rights Agent) or who cannot comply with the
procedure for book-entry transfer on a timely basis or who cannot deliver all
required documents to the Depositary on or prior to the Expiration Date may
tender such Shares (and/or Rights, if applicable) by properly completing and
duly executing a Notice of Guaranteed Delivery pursuant to the guaranteed
delivery procedure set forth in Section 3 of the Offer to Purchase. Pursuant
to such procedure: (i) such tender must be made by or through an Eligible
Institution; (ii) a properly completed and duly executed Notice of Guaranteed
Delivery substantially in the form provided by Purchaser must be received by
the Depositary on or prior to the Expiration Date; and (iii) Share
Certificates or confirmation of any book-entry transfer (a "Book Entry
Confirmation") into the Depositary's account at The Depository Trust Company
of Shares tendered by book-entry transfer, together with a Letter of
Transmittal, properly completed and duly executed with any required signature
guarantees (or, in the case of a book-entry transfer, an Agent's Message in
lieu of the Letter of Transmittal), and any other documents required by this
Letter of Transmittal, must be received by the Depositary (a) within three
NYSE trading days after the date of execution of such Notice of Guaranteed
Delivery, and (b) in the case of Rights, a period ending on the later of (1)
three NYSE trading days after the date of execution of such Notice of
Guaranteed Delivery or (2) three NYSE trading days after the date certificates
for Rights are distributed to stockholders by the Rights Agent. A "NYSE
trading day" is any day on which the New York Stock Exchange is open for
business.
If Share Certificates are forwarded separately to the Depositary, a properly
completed and duly executed Letter of Transmittal must accompany each such
delivery.
The method of delivery of Share Certificates, this Letter of Transmittal and
all other required documents, including delivery through the Book-Entry
Transfer Facility, is at the election and risk of the tendering stockholder.
Shares will be deemed delivered only when actually received by the Depositary
(including, in the case of a Book-Entry Transfer, by Book-Entry Confirmation).
If delivery is by mail, it is recommended that such certificates and documents
be sent by registered mail, properly insured, with return receipt requested.
In all cases, sufficient time should be allowed to assure timely delivery.
7
<PAGE>
No alternative, conditional or contingent tenders will be accepted and no
fractional Shares will be purchased. All tendering stockholders, by execution
of this Letter of Transmittal (or facsimile thereof), waive any right to
receive any notice of the acceptance of their Shares for payment.
3. Inadequate Space. If the space provided herein is inadequate, the
certificate numbers and/or the number of Shares should be listed on a separate
schedule attached hereto.
4. Partial Tenders (Applicable to Certificate Stockholders Only). If fewer
than all the Shares evidenced by any certificate submitted are to be tendered,
fill in the number of Shares which are to be tendered in the box entitled
"Number of Shares Tendered." In such cases, new certificate(s) for the
remainder of the Shares that were evidenced by the old certificate(s) will be
sent to the registered holder, unless otherwise provided in the appropriate
box on this Letter of Transmittal, as soon as practicable after the Expiration
Date. All Shares represented by certificates delivered to the Depositary will
be deemed to have been tendered unless otherwise indicated.
5. Signatures on Letter of Transmittal; Stock Powers and Endorsements. If
this Letter of Transmittal is signed by the registered holders of the Shares
tendered hereby, the signature must correspond with the names as written on
the face of the certificates without alteration, enlargement or any other
change whatsoever.
If any of the Shares tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If any of the tendered Shares are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many
separate Letters of Transmittal as there are different registrations of
certificates.
If this Letter of Transmittal or any certificates or stock powers are signed
by trustees, executors, administrators, guardians, attorneys-at-fact, officers
of corporations or others acting in a fiduciary or representative capacity,
such persons should so indicate when signing, and proper evidence satisfactory
to the Purchaser of their authority so to act must be submitted.
If this Letter of Transmittal is signed by the registered holder(s) of the
Shares listed and transmitted hereby, no endorsements of certificates or
separate stock powers are required unless payment is to be made to, or
certificates for Shares not tendered or accepted for payment are to be issued
in the name of, a person other than the registered holder(s). Signatures on
such certificates or stock powers must be guaranteed by an Eligible
Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder of the certificates(s) listed, the certificate(s) must be
endorsed or accompanied by the appropriate stock powers, in either case signed
exactly as the name or names of the registered holder or holders appears on
the certificate(s). Signatures on such certificates or stock powers must be
guaranteed by an Eligible Institution.
6. Stock Transfer Taxes. Purchaser will pay any stock transfer taxes with
respect to the transfer and sale of Shares to it or its order pursuant to the
Offer. If, however, payment of the purchase price is to be made to, or (in the
circumstances permitted hereby) if certificates for Shares not tendered or
accepted for payment are to be registered in the name of, any person other
than the registered holder, or if tendered certificates are registered in the
name of any person other than the person(s) signing this Letter of
Transmittal, the amount of any stock transfer taxes (whether imposed on the
registered holder or such person) payable on account of the transfer to such
person will be deducted from the purchase price if satisfactory evidence of
the payment of such taxes, or exemption therefrom, is not submitted.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the Certificates listed in this Letter of
Transmittal.
8
<PAGE>
7. Special Payment and Delivery Instructions. If a check is to be issued in
the name of, and/or certificates for Shares not tendered or accepted for
payment are to be issued or returned to, a person other than the signer of
this Letter of Transmittal or if a check and/or such certificates are to be
mailed to a person other than the signer of this Letter of Transmittal or to
an address other than that shown above, the appropriate boxes on this Letter
of Transmittal should be completed.
8. Requests for Assistance or Additional Copies. Questions and requests for
assistance or for additional copies of the Offer to Purchase, the Letter of
Transmittal and the Notice of Guaranteed Delivery, may be directed to the
Information Agent or the Co-Dealer Managers at their respective telephone
numbers and locations set forth below. You may also contact your broker,
dealer, commercial bank, trust company or other nominee for assistance
concerning the Offer.
9. Substitute Form W-9. Each tendering stockholder should provide the
Depositary with a correct Taxpayer Identification Number ("TIN"), generally
the stockholder's social security or federal employer identification number,
on Substitute Form W-9 below. Failure to provide the information on the form
may subject the tendering stockholder to 31% federal income tax backup
withholding on the payment of the purchase price. The box in Part 3 of the
form may be checked if the tendering stockholder has not been issued a TIN and
has applied for a TIN or intends to apply for a TIN in the near future. If the
box in Part 3 is checked and the Depositary is not provided with a TIN within
60 days, the Depositary will withhold 31% of all payments of the purchase
price thereafter until a TIN is provided to the Depositary.
10. Waiver of Conditions. The conditions of the Offer may be waived by
Purchaser (subject to certain limitations), in whole or in part, at any time
or from time to time, in Purchaser's sole discretion.
11. Lost or Destroyed Certificates. If any Certificate(s) representing
Shares has been lost or destroyed, the holders should promptly notify the
Company's Transfer Agent. The holders will then be instructed as to the
procedure to be followed in order to replace the Certificate(s). This Letter
of Transmittal and related documents cannot be processed until the procedures
for replacing lost or destroyed Certificates have been followed.
IMPORTANT: This Letter of Transmittal or a manually signed facsimile thereof
(together with share certificates or confirmation of Book-Entry Transfer and
all other required documents) or the notice of Guaranteed Delivery must be
received by the Depositary prior to the Expiration Date.
IMPORTANT TAX INFORMATION
Under the federal income tax law, a stockholder whose tendered Shares are
accepted for purchase is required by law to provide the Depositary (as payer)
with such stockholder's correct TIN on Substitute Form W-9 below and to
certify that such TIN is correct (or that such stockholder is awaiting a TIN)
or otherwise establish a basis for exemption from backup withholding. If such
stockholder is an individual, the TIN is his or her social security number. If
a stockholder fails to provide a TIN to the Depositary, such stockholder may
be subject to a $50 penalty imposed by the Internal Revenue Service. In
addition, payments that are made to such stockholder with respect to Shares
purchased pursuant to the Offer may be subject to backup withholding of 31%
(see below).
Certain stockholders (including, among others, corporations and certain
foreign individuals and entities) are not subject to these backup withholding
and reporting requirements. In order for a non-corporate foreign stockholder
to qualify as an exempt recipient, that stockholder must generally submit a
Form W-8, signed under penalties of perjury, attesting to that individual's
exempt status. A Form W-8 can be obtained from the Depositary. See the
enclosed Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9 for additional instructions.
If backup withholding applies, the Depositary is required to withhold 31% of
any payments made to the stockholder or payee. Backup withholding is not an
additional tax. Rather, the tax liability of persons subject to
9
<PAGE>
backup withholding will be reduced by the amount of tax withheld. If
withholding results in an overpayment of taxes, a refund may be obtained from
the Internal Revenue Service.
The box in Part 3 of the Substitute Form W-9 may be checked if the tendering
stockholder has not been issued a TIN and has applied for a TIN or intends to
apply for a TIN in the near future. If the box in Part 3 is checked, the
stockholder or other payee must also complete the Certification of Awaiting
Taxpayer Identification Number below in order to avoid backup withholding. If
a stockholder's TIN is provided to the Depositary within 60 days of the date
of the Substitute Form W-9, payment will be made to such stockholder without
the imposition of backup withholding. If a stockholder's TIN is not provided
to the Depositary within such 60-day period, the Depositary will make such
payment, subject to backup withholding.
Purpose of Substitute Form W-9
To prevent backup withholding on payments made to a stockholder whose
tendered Shares are accepted for purchase, the stockholder is required to
notify the Depositary of its correct TIN by completing Substitute Form W-9
certifying that the TIN provided on such Form is correct (or that such
stockholder is awaiting a TIN, in which case the stockholder should check the
box in Part 3 of the Substitute Form W-9) and that (A) such stockholder is
exempt from backup withholding, (B) such stockholder has not been notified by
the Internal Revenue Service that such stockholder is subject to backup
withholding as a result of failure to report all interest or dividends or (C)
the Internal Revenue Service has notified the stockholder that the stockholder
is no longer subject to backup withholding. The stockholder must sign and date
the Substitute Form W-9 where indicated, certifying that the information on
such Form is correct.
Alternatively, a stockholder that qualifies as an exempt recipient (other
than a stockholder required to complete Form W-8 as described above) should
write "Exempt" in Part 1 of the Substitute Form W-9, enter its correct TIN and
sign and date such Form where indicated.
What Number to Give the Depositary
The stockholder is required to give the Depositary the social security
number or employer identification number of the record owner of the Shares or
of the last transferee appearing on the transfers attached to, or endorsed on,
the Shares. A stockholder who is a resident alien and does not have and is not
eligible to get a social security number should enter his or her taxpayer
identification number on the social security number line. If the Shares are in
more than one name or are not in the name of the actual owner, consult the
enclosed Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9 for additional guidance on which number to report.
10
<PAGE>
- --------------------------------------------------------------------------------
Part 1--PLEASE PROVIDE YOUR
TIN IN THE BOX AT RIGHT AND
CERTIFY BY SIGNING AND
DATING BELOW.
SUBSTITUTE Part 3--Social
Form W-9 Part 2--FOR PAYEES EXEMPT Security Number or
FROM BACKUP WITHHOLDING, SEE Employer
Department of the THE ENCLOSED GUIDELINES FOR Identification Number
Treasury, Internal CERTIFICATION OF TAXPAYER
Revenue Service IDENTIFICATION NUMBER ON ----------------------
SUBSTITUTE FORM W-9 AND
COMPLETE AS INSTRUCTED
THEREIN. Awaiting TIN [_]
Payer's Request for
Taxpayer --------------------------------------------------------
Identification CERTIFICATION--UNDER PENALTIES OF PERJURY, I CERTIFY
Number ("TIN") THAT:
(1) The number shown on this form is my correct
Taxpayer Identification Number (or I am waiting
To be completed by for a number to be issued to me), and
all Tendering (2) I am not subject to backup withholding either
Stockholders (See because (a) I am exempt from backup withholding,
Instruction 9) (b) I have not been notified by the Internal
Revenue Service (the "IRS") that I am subject to
backup withholding as a result of failure to
report all interest or dividends, or (c) the IRS
has notified me that I am no longer subject to
backup withholding.
---------------------------------------------------------
Certification Instructions--You must cross out item
(2) in Part 2 above if you have been notified by the
IRS that you are subject to backup withholding be-
cause of under-reporting interest or dividends on
your tax return. However, if after being notified by
the IRS that you were subject to backup withholding
you received another notification from the IRS stat-
ing that you are no longer subject to backup with-
holding, do not cross out item (2).
--------------------------------------------------------
Signature: ____________________________ Date: ______
Note: Failure to complete and return this form
may result in backup withholding of 31% of any
payments made to you pursuant to the offer.
Please review the enclosed guidelines for
certification of taxpayer identification number
on Substitute form W-9 for additional
information.
- --------------------------------------------------------------------------------
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE
IF YOU CHECKED THE BOX IN PART 3 OF SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (i) I have mailed or delivered an
application to receive a Taxpayer Identification Number to the appropriate
Internal Revenue Service Center or Social Security Administration Office, or
(ii) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a Taxpayer Identification Number within 60
days, 31% of all reportable payments made to me thereafter will be withheld
until I provide a Taxpayer Identification Number to the Depositary.
Signature _____________________________________________________________________
Date __________________________________________________________________________
Name (Please Print) ___________________________________________________________
11
<PAGE>
Manually signed facsimile copies of the Letter of Transmittal will be
accepted. The Letter of Transmittal, certificates for Shares and any other
required documents should be sent or delivered by each stockholder of the
Company or such stockholder's broker, dealer, commercial bank, trust company
or other nominee to the Depositary at one of its addresses set forth below.
The Depositary for the Offer is:
Harris Trust and Savings Bank
By Overnight Courier:
c/o Harris Trust Company of New York
88 Pine Street, 19th Floor
New York, New York 10005
By Mail: Facsimile Transmission: By Hand:
c/o Harris Trust Company(Eligible Institutions Only) c/o Harris Trust Company
of New York (212) 701-7636 of New York
Wall Street Station
88 Pine Street, 19th
P.O. Box 1010 Confirm by Telephone: Floor
New York, New York 10268- (212) 701-7624 New York, New York 10005
1010
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE TO A NUMBER OTHER THAN
AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY TO THE DEPOSITARY.
Questions and requests for assistance or for additional copies of the Offer
to Purchase, this Letter of Transmittal and the Notice of Guaranteed Delivery
may be directed to the Information Agent or the Co-Dealer Managers at their
respective telephone numbers and locations listed below. You may also contact
your broker, dealer, commercial bank, trust company or other nominee for
assistance concerning the Offer.
The Information Agent for the Offer is:
D. F. King & Co., Inc.
77 Water Street
New York, New York 10005
Stockholders Call 1-800-578-5378 (toll free)
Brokers and Bank Custodians Call 212-269-5550 (collect)
The Co-Dealer Managers for the Offer are:
Goldman, Sachs & Co. Donaldson, Lufkin & Jenrette
85 Broad Street 277 Park Avenue
New York, New York 10004 New York, New York 10172
(212) 902-1000 (call collect) (877) 864-4755 (toll free)
(800) 323-5678 (call toll free) (212) 892-5525
12
<PAGE>
Goldman, Sachs & Co. Donaldson, Lufkin & Jenrette
85 Broad Street 277 Park Avenue
New York, New York 10004 New York, New York 10172
Offer to Purchase for Cash
All Outstanding Shares of Common Stock
(Including the Associated Rights to Purchase Preferred Stock)
of
Shorewood Packaging Corporation
at
$17.25 Net Per Share
by
Sheffield, Inc.
a wholly owned subsidiary of
Chesapeake Corporation
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON MONDAY, JANUARY 3, 2000, UNLESS THE OFFER IS EXTENDED.
December 3, 1999
To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees:
We have been engaged by Sheffield, Inc., a Delaware corporation
("Purchaser") and a wholly owned subsidiary of Chesapeake Corporation, a
Virginia corporation ("Chesapeake"), to act as Co-Dealer Managers in
connection with Purchaser's offer to purchase all of the outstanding shares of
common stock, par value $0.01 per share (the "Common Stock"), including the
associated rights to purchase preferred stock (the "Rights" and, together with
the Common Stock, the "Shares"), of Shorewood Packaging Corporation, a
Delaware corporation (the "Company"), at $17.25 per Share, net to the seller
in cash, on the terms and subject to the conditions set forth in the Offer to
Purchase, dated December 3, 1999, and the related Letter of Transmittal (which
together with any amendments or supplements thereto, collectively constitute
the "Offer"). Please furnish copies of the enclosed materials to those of your
clients for whom you hold Shares registered in your name or in the name of
your nominee.
Enclosed herewith are the following documents:
1. Offer to Purchase, dated December 3, 1999;
2. Letter of Transmittal to be used by stockholders of the Company in
accepting the Offer;
3. A printed form of letter that may be sent to your clients for whose
account you hold Shares in your name or in the name of your nominee, with
space provided for obtaining such clients' instructions with regard to the
Offer;
4. Notice of Guaranteed Delivery;
1
<PAGE>
5. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9; and
6. Return envelope addressed to Harris Trust and Savings Bank, the
Depositary.
The Offer is conditioned upon, among other things: (i) there being validly
tendered prior to the expiration of the Offer and not withdrawn a number of
Shares which, together with the Shares beneficially owned by Chesapeake and
its subsidiaries, including Purchaser, will constitute at least a majority of
the outstanding Shares on a fully diluted basis as of the date the Shares are
accepted for payment pursuant to the Offer; (ii) the Rights having been
redeemed by the Company's Board of Directors (the "Company Board"), or
Purchaser otherwise being satisfied in its sole discretion that such Rights
are otherwise invalid or inapplicable to the transactions contemplated herein;
(iii) the acquisition of Shares pursuant to the Offer being approved pursuant
to Section 203 of the Delaware General Corporation Law ("Section 203") or
Purchaser being satisfied in its sole discretion that the provisions of
Section 203 restricting certain business combinations are invalid or
inapplicable to the acquisition of Shares pursuant to the Offer and the
Proposed Merger (by action of the Company Board, the acquisition of a
sufficient number of Shares or otherwise); and (iv) any waiting period under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the
regulations thereunder and any laws of Canada, the European Union, any member
state of the European Union, and any other foreign jurisdictions applicable to
the purchase of Shares pursuant to the Offer having expired or been
terminated. The Offer is also subject to certain other conditions described in
Section 13 of the Offer to Purchase.
The Offer is not conditioned upon Chesapeake or Purchaser obtaining
financing.
We urge you to contact your clients promptly. Please note that the Offer and
withdrawal rights will expire at 12:00 midnight, New York City time, on
Monday, January 3, 2000, unless the Offer is extended.
In all cases, payment for Shares accepted for payment pursuant to the Offer
will be made only after timely receipt by the Depositary of (i) certificates
for such Shares or timely confirmation of the book-entry transfer of such
Shares into the Depositary's account at the Book-Entry Transfer Facility (as
defined in Section 2 of the Offer to Purchase) pursuant to the procedures set
forth in Section 3 of the Offer to Purchase, (ii) the Letter of Transmittal,
or a manually signed facsimile thereof, properly completed and duly executed,
with any required signature guarantees (or, in the case of a book-entry
transfer, an Agent's Message (as defined in Section 3 of the Offer to
Purchase)) and (iii) any other documents required by such Letter of
Transmittal. Under no circumstances will interest be paid on the purchase
price for Shares, regardless of any extension of the Offer or any delay in
making such payment pursuant to the Offer.
Neither Chesapeake nor Purchaser will pay any fees or commissions to any
broker or dealer or other person (other than the Depositary, the Information
Agent and the Co-Dealer Managers, as disclosed in the Offer to Purchase) in
connection with the solicitation of tenders of Shares pursuant to the Offer.
You will be reimbursed upon request for customary mailing and handling
expenses incurred by you in forwarding the enclosed offering materials to your
clients.
2
<PAGE>
Questions and requests for assistance may be directed to the Information
Agent or the Co-Dealer Managers at their respective addresses and telephone
numbers set forth on the back cover of the enclosed Offer to Purchase. Requests
for additional copies of the enclosed materials may be directed to the
Information Agent or the Co-Dealer Managers or to brokers, dealers, commercial
banks or trust companies.
Very truly yours,
Goldman, Sachs & Co.
Donaldson, Lufkin & Jenrette Securities Corporation
Enclosures
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL RENDER YOU OR ANY
OTHER PERSON, THE AGENT OF CHESAPEAKE, PURCHASER, THE CO-DEALER MANAGERS, THE
DEPOSITARY OR THE INFORMATION AGENT, OR ANY AFFILIATE OF ANY OF THEM, OR
AUTHORIZE YOU OR ANY OTHER PERSON TO GIVE ANY INFORMATION OR USE ANY DOCUMENT
OR MAKE ANY REPRESENTATION ON BEHALF OF ANY OF THEM WITH RESPECT TO THE OFFER
NOT CONTAINED IN THE OFFER TO PURCHASE OR THE LETTER OF TRANSMITTAL.
3
<PAGE>
Offer to Purchase for Cash
All Outstanding Shares of Common Stock
(Including the Associated Rights to Purchase Preferred Stock)
of
Shorewood Packaging Corporation
at
$17.25 Net Per Share
by
Sheffield, Inc.
a wholly owned subsidiary of
Chesapeake Corporation
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK
CITY TIME, ON MONDAY, JANUARY 3, 2000, UNLESS THE OFFER IS EXTENDED.
To Our Clients:
Enclosed for your consideration is an Offer to Purchase, dated December 3,
1999 (the "Offer to Purchase"), and the related Letter of Transmittal (which
together with any amendments or supplements thereto, collectively constitute
the "Offer") relating to the offer by Sheffield, Inc., a Delaware corporation
("Purchaser") and a wholly owned subsidiary of Chesapeake Corporation, a
Virginia corporation ("Chesapeake"), to purchase for cash, all of the
outstanding shares of common stock, par value $0.01 per share (the "Common
Stock"), including the associated rights to purchase preferred stock (the
"Rights"), of Shorewood Packaging Corporation, a Delaware corporation (the
"Company") (the Common Stock and the Rights together are referred to herein as
the "Shares"), on the terms and subject to the conditions set forth in the
Offer.
WE ARE (OR OUR NOMINEE IS) THE HOLDER OF RECORD OF SHARES HELD BY US FOR
YOUR ACCOUNT. A TENDER OF SUCH SHARES CAN BE MADE ONLY BY US AS THE HOLDER OF
RECORD AND PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS
FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED TO TENDER SHARES
HELD BY US FOR YOUR ACCOUNT.
We request instructions as to whether you wish to tender any of or all the
Shares held by us for your account, pursuant to the terms and conditions set
forth in the Offer.
Your attention is directed to the following:
1. The Offer price is $17.25 per Share, net to the Seller in cash,
without interest thereon, upon the terms and subject to the conditions of
the Offer.
2. The Offer is being made for all of the outstanding Shares.
3. The Offer is conditioned upon, among other things: (i) there being
validly tendered prior to the expiration of the Offer and not withdrawn a
number of Shares which, together with the Shares beneficially owned by
Chesapeake and its subsidiaries, including Purchaser, will constitute at
least a majority of the outstanding Shares on a fully diluted basis as of
the date the Shares are accepted for payment pursuant to the Offer; (ii)
the Rights having been redeemed by the Company's Board of Directors (the
"Company Board"), or Purchaser otherwise being satisfied in its sole
discretion that such Rights are otherwise invalid or inapplicable to the
transactions contemplated herein; (iii) the acquisition of Shares pursuant
to the Offer being approved
1
<PAGE>
pursuant to Section 203 of the Delaware General Corporation Law ("Section
203") or Purchaser being satisfied in its sole discretion that the
provisions of Section 203 restricting certain business combinations are
invalid or inapplicable to the acquisition of Shares pursuant to the Offer
and the Proposed Merger (by action of the Company Board, the acquisition of
a sufficient number of Shares or otherwise); and (iv) any waiting period
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
and the regulations thereunder and any laws of Canada, the European Union,
any member state of the European Union, and any other foreign jurisdictions
applicable to the purchase of Shares pursuant to the Offer having expired
or been terminated. The Offer is also subject to certain other conditions
described in Section 13 of the Offer to Purchase.
The Offer is not conditioned upon Chesapeake or the Purchaser obtaining
financing.
4. The Offer and withdrawal rights expire at 12:00 midnight, New York
City time, on Monday, January 3, 2000, unless the Offer is extended by
Purchaser (the "Expiration Date").
5. Any stock transfer taxes applicable to a sale of Shares to Purchaser
will be borne by the Purchaser, except as otherwise provided in Instruction
6 of the Letter of Transmittal.
6. Tendering stockholders will not be obligated to pay brokerage fees or
commissions to the Co-Dealer Managers, the Depositary, or the Information
Agent or, except as set forth in Instruction 6 of the Letter of
Transmittal, stock transfer taxes on the purchase of Shares by Purchaser
pursuant to the Offer. However, federal income tax backup withholding at a
rate of 31% may be required, unless an exemption in provided or unless the
required taxpayer identification information is provided. See Instruction 9
of the Letter of Transmittal.
Your instructions to us should be forwarded promptly to permit us to submit
a tender on your behalf prior to the Expiration Date.
If you wish to have us tender any of or all of the Shares held by us for
your account, please so instruct us by completing, executing, detaching and
returning to us the instruction form on the detachable part hereof. Your
instructions should be forwarded to us in ample time to permit us to submit a
tender on your behalf prior to the Expiration Date.
In all cases, payment for Shares accepted for payment pursuant to the Offer
will be made only after timely receipt by Harris Trust and Savings Bank (the
"Depositary"), of (a) certificates for (or a timely Book-Entry Confirmation
(as defined in the Offer to Purchase) with respect to) such Shares, (b) a
Letter of Transmittal, or a facsimile thereof, properly completed and duly
executed, with any required signature guarantees, or, in the case of a book-
entry transfer effected pursuant to the procedure set forth in Section 3 of
the Offer to Purchase, an Agent's Message (as defined in Section 3 of the
Offer to Purchase), and (c) any other documents required by the Letter of
Transmittal. Accordingly, tendering stockholders may be paid at different
times depending upon when certificates for Shares or Book-Entry Confirmations
with respect to Shares are actually received by the Depositary. Under no
circumstances will interest be paid on the purchase price for Shares,
regardless of any extension of the Offer or any delay in making payment
pursuant to the Offer.
The Offer is not being made to, nor will tenders be accepted from, or on
behalf of, holders of Shares in any jurisdiction in which the making or
acceptance of the Offer would not be in compliance with the laws of such
jurisdiction. In any jurisdiction where the securities or blue sky laws
require the Offer to be made by a licensed broker or dealer, the Offer will be
deemed made on behalf of Purchaser by Goldman, Sachs & Co. or Donaldson,
Lufkin & Jenrette Securities Corporation, the Co-Dealer Managers for the
Offer, or one or more registered brokers or dealers that are licensed under
the laws of such jurisdiction. An envelope in which to return your
instructions to us is enclosed. If you authorize the tender of your Shares,
all such Shares will be tendered unless otherwise indicated in such
instruction form. Please forward your instructions to us as soon as possible
to allow us ample time to tender Shares on your behalf prior to the expiration
of the Offer.
2
<PAGE>
Instructions with Respect to the Offer to Purchase
for Cash All Outstanding Shares of Common Stock
(Including the Associated Rights to Purchase Preferred Stock)
of
Shorewood Packaging Corporation
The undersigned acknowledge(s) receipt of your letter, the Offer to
Purchase, dated December 3, 1999 (the "Offer to Purchase"), and the related
Letter of Transmittal relating to the offer by Sheffield, Inc., a Delaware
corporation and a wholly owned subsidiary of Chesapeake Corporation, a
Virginia corporation, to purchase for $17.25 per Share, net to the seller in
cash, all of the outstanding shares of common stock, par value $0.01 per share
(the "Common Stock"), including the associated rights to purchase preferred
stock (the "Rights"), of Shorewood Packaging Corporation, a Delaware
corporation. The Common Stock and the Rights together are referred to herein
as the "Shares."
This will instruct you to tender the number of Shares indicated below held
by you for the account of the undersigned, on the terms and subject to the
conditions set forth in the Offer to Purchase and the related Letter of
Transmittal.
NUMBER OF SHARES TO BE TENDERED:*
______________ Shares
Dated:______________
SIGN HERE
-------------------------------------
-------------------------------------
Signature(s)
-------------------------------------
-------------------------------------
(Please print name(s) and address(es))
-------------------------------------
-------------------------------------
Daytime Area Code and Tel. No.
-------------------------------------
Taxpayer Identification No. or Social Security No.
- --------
* Unless otherwise indicated, it will be assumed that all your Shares are to
be tendered.
3
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Guidelines for Determining the Proper Name and Identification Number to Give
the Payer.--Social Security numbers have nine digits separated by two hyphens:
i.e. 000-00-0000. Employer identification numbers have nine digits separated
by only one hyphen: i.e. 00-0000000. The table below will help determine the
name and number to give the payer.
<TABLE>
<CAPTION>
- -----------------------------------------------------
Give the
For this type of account: NAME and
SOCIAL SECURITY
NUMBER of--
- -----------------------------------------------------
<S> <C>
1. Individual The individual
2. Two or more individuals The actual owner
(joint account) of the account or,
if combined funds,
the first individual
on the account(1)
3. Custodian account of a The minor(2)
minor (Uniform Gift to
Minors Act)
4. a. The usual revocable The grantor-
savings trust account trustee(1)
(grantor is also trustee)
b. So-called trust account The actual
that is not a legal or valid owner(1)
trust under state law
5. Sole proprietorship The owner(3)
<CAPTION>
- -----------------------------------------------------
Give the
For this type of account: NAME and
EMPLOYER ID.
NUMBER of--
- -----------------------------------------------------
<S> <C>
6. Sole proprietorship The owner(3)
7. A valid trust, estate, or Legal entity(4)
pension trust
8. Corporate The corporation
9. Association, club, The organization
religious, charitable,
educational or other tax-
exempt organization
10. Partnership The partnership
11. A broker or registered The broker or
nominee nominee
12. Account with the The public entity
Department of Agriculture
in the name of a public
entity (such as a state or
local government, school
district, or prison) that
receives agricultural
program payments
- -----------------------------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish. If
only one person on a joint account has a SSN, that person's number must be
furnished.
(2) Circle the minor's name and furnish the minor's social security number.
(3) You must show your individual name, but you may also enter your business
or "doing business as" name. You may use either your Social Security
Number or Employer Identification Number.
(4) List first and circle the name of the legal trust, estate, or pension
trust. (Do not furnish the taxpayer identification number of the personal
representative or trustee unless the legal entity itself is not designated
in the account title.)
Note: If no name is circled when more than one name is listed, the number will
be considered to be that of the first name listed.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Page 2
Certification
For a joint account, only the person whose taxpayer identification number is
shown on Part 1 should sign (when required).
1. Interest, dividend, and barter exchange accounts opened before 1984 and
broker accounts considered active during 1983. You must give your correct
taxpayer identification number, but you do not have to sign the certification.
2. Interest, dividend, broker, and barter exchange accounts opened after 1983
and broker accounts considered inactive during 1983. You must sign the
certification or backup withholding will apply. If you are subject to backup
withholding and you are merely providing your correct taxpayer identification
number to the requester, you must cross out item (2) in the certification
before signing this form.
3. Real estate transactions. You must sign the certification. You may cross
out item (2) of the certification.
4. Other payments. You must give your correct taxpayer identification number,
but you do not have to sign the certification unless you have been notified
that you have previously given an incorrect taxpayer identification number.
"Other payments" include payments made in the course of the requester's trade
or business for rents, royalties, goods (other than bills for merchandise),
medical and health care services (including payments to corporations),
payments to a nonemployee for services, payments to certain fishing boat crew
members and fishermen, and gross proceeds paid to attorneys (including
payments to corporations).
5. Mortgage interest paid by you, acquisition or abandonment of secured
property, cancellation of debt, qualified state tuition program payments, IRA
or MSA contributions or distributions, and pension distributions. You must
give your correct taxpayer identification number, but you do not have to sign
the certification.
Resident Aliens
If you are a resident alien and you do not have and are not eligible to get a
social security number, your taxpayer identification number is your Internal
Revenue Service individual taxpayer identification number. You should enter
that number on the social security number line.
Obtaining a Number
If you do not have a taxpayer identification number, apply for one
immediately. To apply for a social security number, get Form SS-5, Application
for Social Security Card, from your local Social Security Administration
office. Get Form W-7, Application for Internal Revenue Service Individual
Taxpayer Identification Number, to apply for an individual taxpayer
identification number or Form SS-4, Application for Employer Identification
Number, to apply for an employer identification number. You can get Form W-7
and SS-4 from the Internal Revenue Service.
Payees Exempt from Backup Withholding
The following is a list of payees specifically exempt from backup withholding
depending upon the type of payment (see below):
(1) A corporation.
(2) An organization exempt from tax under section 501(a), any IRA, custodial
account under section 403(b)(7) if the account satisfies the requirements of
section 401(f)(2).
(3) The United States or any of its agencies or instrumentalities.
(4) A state, the District of Columbia, a possession of the United States, or
any of their political subdivisions or instrumentalities.
(5) A foreign government, or any of its political subdivisions, agencies or
instrumentalities.
(6) An international organization or any of its agencies or
instrumentalities.
(7) A foreign central bank of issue.
(8) A dealer in securities or commodities required to register in the United
States, the District of Columbia or a possession of the United States.
(9) A futures commission merchant registered with the Commodity Futures
Trading Commission.
(10) A real estate investment trust.
(11) An entity registered at all times during the tax year under the
Investment Company Act of 1940.
(12) A common trust fund operated by a bank under section 584(a).
(13) A financial institution.
(14) A middleman known in the investment community as a nominee or custodian.
(15) A trust exempt from tax under section 664 or described in section 4947.
For interest and dividends, all listed payees are exempt except item (9). For
broker transactions, payees listed in items (1) through (13) and a person
registered under the Investment Advisers Act of 1940 who regularly acts as a
broker are exempt.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, WRITE "EXEMPT" IN PART 2 OF THE FORM, SIGN AND DATE THE
FORM, AND RETURN IT TO THE PAYER. If you are a nonresident alien or a foreign
entity not subject to backup withholding, give the payer a completed Form W-8,
Certificate of Foreign Status.
Privacy Act Notice.--Section 6109 requires most recipients of dividend,
interest, or other payments to give your correct taxpayer identification
numbers to payers who must report the payments to IRS. The IRS uses the
numbers for identification purposes. Payers must be given the numbers whether
or not recipients are required to file tax returns. Payers must generally
withhold 31% of taxable interest, dividend, and certain other payments to a
payee who does not furnish a taxpayer identification number to a payer.
Certain penalties may also apply.
Penalties
(1) Failure to Furnish Taxpayer Identification Number.--If you fail to furnish
your correct taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) Civil Penalty for False Information With Respect to Withholding.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to penalty of $500.
(3) Criminal Penalty for Falsifying Information.--Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
<PAGE>
- --------------------------------------------------------------------------------
This announcement is neither an offer to purchase nor a solicitation of
an offer to sell Shares (as defined below). The Offer (as defined
below) is made solely by the Offer to Purchase, dated December 3,
1999, and the related Letter of Transmittal and any amendments or
supplements thereto, and is being made to all holders of Shares.
The Offer is not being made to (nor will tenders be accepted
from or on behalf of) holders of Shares in any jurisdiction
in which the making of the Offer or the acceptance thereof
would not be in compliance with the laws of such
jurisdiction. In any jurisdiction where the securities,
blue sky or other laws require the Offer to be made
by a licensed broker or dealer, the Offer shall be
deemed to be made on behalf of the Purchaser (as
defined below) by Goldman, Sachs & Co.
("Goldman Sachs") or Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJ") or
one or more registered brokers or dealers
that are licensed under the laws of such
jurisdiction.
Notice of Offer to Purchase for Cash
All Outstanding Shares of Common Stock
(Including the Associated Rights to Purchase Preferred Stock)
of
Shorewood Packaging Corporation
at
$17.25 Net Per Share
by
Sheffield, Inc.
a wholly owned subsidiary
of
Chesapeake Corporation
Sheffield, Inc., a Delaware corporation ("Purchaser") and a wholly owned
subsidiary of Chesapeake Corporation, a Virginia corporation
("Chesapeake"), is offering to purchase all of the outstanding shares of
common stock, par value $0.01 per share (the "Common Stock"), of Shorewood
Packaging Corporation, a Delaware corporation (the "Company"), including
the associated rights to purchase preferred stock (the "Rights") issued
pursuant to the Rights Agreement, dated as of June 12, 1995 (as amended,
the "Rights Agreement"), between the Company and The Bank of New York (the
Common Stock and the Rights together are referred to herein as the
"Shares"), at $17.25 per Share, net to the seller in cash, upon the terms
and subject to the conditions set forth in the Offer to Purchase, dated
December 3, 1999 (the "Offer to Purchase"), and in the related Letter of
Transmittal (which together with any amendments or supplements thereto,
collectively constitute the "Offer"). Tendering stockholders who have
Shares registered in their name and who tender directly will not be charged
brokerage fees or commissions or, subject to Instruction 6 of the Letter of
Transmittal, stock transfer taxes on the purchase of Shares by Purchaser
pursuant to the Offer.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK
CITY TIME, ON MONDAY, JANUARY 3, 2000, UNLESS THE OFFER IS EXTENDED.
The purpose of the Offer is to acquire for cash a majority of the
outstanding Shares of, and ultimately the entire equity interest in, the
Company. Purchaser currently intends, as soon as practicable upon
consummation of the Offer, to propose and seek to have the Company effect a
merger or similar business combination (the "Proposed Merger") between the
Company and Purchaser or an affiliate thereof, pursuant to which each then
outstanding Share (other than Shares held by the Company in treasury, or
owned by Chesapeake, Purchaser or any other direct or indirect wholly owned
subsidiary of Chesapeake, or Shares, if any, that are held by stockholders
who are entitled to and who properly exercise dissenters' rights under
Delaware law), would be converted pursuant to the terms of the Proposed
Merger into the right to receive an amount in cash equal to the per Share
price paid pursuant to the Offer, without interest.
The Offer is conditioned upon, among other things: (i) there being
validly tendered prior to the expiration of the Offer and not withdrawn a
number of Shares which, together with the Shares beneficially owned by
Chesapeake and its subsidiaries, including Purchaser, will constitute at
least a majority of the outstanding Shares on a fully diluted basis as of
the date the Shares are accepted for payment pursuant to the Offer; (ii)
the Rights having been redeemed by the Board of Directors of the Company
(the "Company Board"), or Purchaser otherwise being satisfied in its sole
discretion that such Rights are otherwise invalid or inapplicable to the
transactions contemplated herein; (iii) the acquisition of Shares pursuant
to the Offer being approved pursuant to Section 203 of the Delaware General
Corporation Law ("Section 203") or Purchaser being satisfied in its sole
discretion that the provisions of Section 203 restricting certain business
combinations are invalid or inapplicable to the acquisition of Shares
pursuant to the Offer and the Proposed Merger (by action of the Company
Board, the acquisition of a sufficient number of Shares or otherwise); and
(iv) any waiting period under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, and the regulations thereunder and any laws of
Canada, the European Union, any member state of the European Union, and any
other foreign jurisdictions applicable to the purchase of Shares pursuant
to the Offer having expired or been terminated. The Offer is also subject
to certain other conditions described in Section 13 of the Offer to
Purchase.
The Offer is not conditioned upon Chesapeake or Purchaser obtaining
financing.
<PAGE>
For purposes of the Offer, Purchaser will be deemed to have accepted for
payment (and thereby purchased) Shares validly tendered and not withdrawn
as, if and when Purchaser gives oral or written notice to Harris Trust and
Savings Bank (the "Depositary") of its acceptance for payment of such
Shares pursuant to the Offer. Upon the terms and subject to the conditions
of the Offer, payment for Shares accepted for payment pursuant to the Offer
will be made by deposit of the purchase price therefor with the Depositary,
which will act as agent for the tendering stockholders whose Shares have
been accepted for payment. Upon the deposit of funds with the Depositary
for the purpose of making payment to validly tendering stockholders,
Purchaser's obligation to make such payment shall be satisfied and such
tendering stockholders must thereafter look solely to the Depositary for
payment of the amounts owed to them by reason of acceptance for payment of
Shares pursuant to the Offer.
In all cases, payment for Shares accepted for payment pursuant to the
Offer will be made only after timely receipt by the Depositary of (a)
certificates for (or a timely Book-Entry Confirmation (as defined in the
Offer to Purchase) with respect to) such Shares and, if the Distribution
Date (as defined in the Offer to Purchase) occurs, certificates for (or a
timely Book-Entry Confirmation, if available, with respect to) the
associated Rights (unless Purchaser elects to make payment for such Shares
pending receipt of the certificates for, or a Book-Entry Confirmation with
respect to, such Rights as described in the Offer to Purchase), (b) a
Letter of Transmittal (as defined in the Offer to Purchase), or facsimile
thereof, properly completed and duly executed, with any required signature
guarantees (or, in the case of a book-entry transfer, an Agent's Message
(as defined in the Offer to Purchase) in lieu of the Letter of Transmittal)
and (c) any other documents required by the Letter of Transmittal.
Accordingly, tendering stockholders may be paid at different times
depending upon when certificates for Shares (or Rights, if applicable) or
Book-Entry Confirmations with respect to Shares (or Rights, if applicable)
are actually received by the Depositary. Under no circumstances will
interest on the purchase price of the Shares be paid by Purchaser,
regardless of any extension of the Offer or any delay in making such
payment.
Subject to the applicable rules and regulations of the Securities and
Exchange Commission, Purchaser expressly reserves the right, in its sole
discretion, at any time or from time to time, to extend the period of time
during which the Offer is open by giving oral or written notice of such
extension to the Depositary and by making a public announcement thereof.
During any such extension, all Shares previously tendered and not withdrawn
will remain subject to the Offer, subject to the right of a tendering
stockholder to withdraw such stockholder's tender of Shares.
Tenders of Shares made pursuant to the Offer are irrevocable, except
that Shares tendered pursuant to the Offer may be withdrawn at any time
prior to the Expiration Date (as defined in the Offer to Purchase) and,
unless theretofore accepted for payment by the Purchaser pursuant to the
Offer, may also be withdrawn at any time after January 31, 2000.
For a withdrawal to be effective, a written, telegraphic, telex or
facsimile transmission notice of withdrawal must be timely received by the
Depositary at one of its addresses set forth on the back cover of the Offer
to Purchase. Any such notice of withdrawal must specify the name of the
person having tendered the Shares to be withdrawn, the number of Shares to
be withdrawn and the names in which the certificate(s) evidencing the
Shares to be withdrawn are registered, if different from that of the person
who tendered such Shares. The signature(s) on the notice of withdrawal must
be guaranteed by an Eligible Institution (as defined in the Offer to
Purchase), unless such Shares have been tendered for the account of any
Eligible Institution. If Shares have been tendered pursuant to the
procedures for book-entry tender as set forth in Section 3 of the Offer to
Purchase, any notice of withdrawal must specify the name and number of the
account at the Book-Entry Transfer Facility (as defined in the Offer to
Purchase) to be credited with the withdrawn Shares. If certificates for
Shares to be withdrawn have been delivered or otherwise identified to the
Depositary, the name of the registered holder and the serial numbers of the
particular certificates evidencing the Shares to be withdrawn must also be
furnished to the Depositary as aforesaid prior to the physical release of
such certificates. All questions as to the form and validity (including
time of receipt) of any notice of withdrawal will be determined by
Purchaser, in its sole discretion, which determination shall be final and
binding. None of Purchaser, Chesapeake, the Co-Dealer Managers, the
Depositary, the Information Agent, or any other person will be under any
duty to give notification of any defects or irregularities in any notice of
withdrawal or incur any liability for failure to give such notification.
Withdrawals of tenders of Shares may not be rescinded, and any Shares
properly withdrawn will be deemed not to have been validly tendered for
purposes of the Offer. However, withdrawn Shares may be retendered by
following one of the procedures described in Section 3 of the Offer to
Purchase at any time prior to the Expiration Date.
The information required to be disclosed by paragraph (e)(l)(vii) of
Rule 14d-6 of the General Rules and Regulations under the Securities
Exchange Act of 1934, as amended, is contained in the Offer to Purchase and
is incorporated herein by reference.
A demand is being made to the Company for the use of the Company's
stockholder list and security position listings for the purpose of, among
other things, disseminating the Offer to stockholders. Upon compliance by
the Company with such demand, the Offer to Purchase and the related Letter
of Transmittal will be mailed to record holders of Shares and will be
furnished to brokers, banks and similar persons whose names, or the names
of whose nominees, appear on the stockholder list or, if applicable, who
are listed as participants in a clearing agency's security position listing
for subsequent transmittal to beneficial owners of Shares.
The Offer to Purchase and the Letter of the Transmittal contain
important information which should be read carefully before any decision is
made with respect to the Offer.
Questions and requests for assistance may be directed to the Information
Agent or to the Co-Dealer Managers at their respective addresses and
telephone numbers set forth below. Requests for additional copies of the
Offer to Purchase, the related Letter of Transmittal and other tender offer
materials may be directed to the Information Agent or Co-Dealer Managers.
Such additional copies will be furnished at Purchaser's expense. All
questions as to the form and validity (including time of receipt) of any
notice of withdrawal will be determined by Purchaser, in its sole
discretion, which determination shall be final and binding. Purchaser will
not pay any fees or commissions to any broker or dealer or any other person
(other than the Co-Dealer Managers, the Information Agent and the
Depositary) for soliciting tenders of Shares pursuant to the Offer.
The Information Agent for the Offer is:
D.F. King & Co., Inc.
77 Water Street
New York, New York 10005
Stockholders Call 1-800-578-5378 (toll free)
Brokers and Bank Custodians Call 212-269-5550 (collect)
The Co-Dealer Managers for the Offer are:
Goldman, Sachs & Co. Donaldson, Lufkin & Jenrette
85 Broad Street 277 Park Avenue
New York, New York 10004 New York, New York 10172
(212) 902-1000 (call collect) (877) 864-4755 (toll free) (212)
(800) 323-5678 (call toll free) 892-5525
December 3, 1999
- --------------------------------------------------------------------------------
<PAGE>
FOR IMMEDIATE RELEASE
CHESAPEAKE COMMENCES $17.25 PER SHARE
CASH TENDER OFFER FOR SHOREWOOD
Intends To Conduct Consent Solicitation To Remove Shorewood Board
(Richmond, VA--December 3, 1999) Chesapeake Corporation (NYSE: CSK) today
announced that it has commenced a tender offer to acquire all outstanding
shares of Shorewood Packaging Corporation (NYSE: SWD) for $17.25 in cash per
share, or approximately $500 million. The tender offer would be followed by a
second step merger at the same cash price paid in the tender offer. Upon
completion of the transaction, Chesapeake would also assume approximately $270
million in Shorewood debt.
The transaction can be effected by Chesapeake with cash on hand and a
committed credit facility from First Union National Bank, and is not subject
to a financing condition. Chesapeake's tender offer represents an approximate
45% premium to Shorewood's closing stock price on November 9, 1999, the day
prior to Chesapeake's initial proposal to Shorewood's board of directors.
The acquisition of Shorewood is expected to be accretive to Chesapeake's
earnings per share in the first year of the combination. Based on available
public information, Chesapeake anticipates annual synergies of at least $20
million from the combination of corporate and administrative functions,
purchasing savings, and multiple cross-selling opportunities.
Chesapeake today also announced that it is filing preliminary materials with
the Securities and Exchange Commission related to a planned solicitation of
written consents from Shorewood's stockholders. Through the consent
solicitation, Chesapeake would, among other things, seek to amend the bylaws
of Shorewood to eliminate its classified board structure, remove Shorewood's
Board of Directors, and replace the Shorewood directors with independent
directors. Chesapeake expects that the independent director nominees, if
elected and subject to their fiduciary duties under applicable law, will seek
to maximize value for Shorewood stockholders.
As previously announced, Chesapeake has entered into an agreement with a
Shorewood institutional investor to purchase approximately 4.1 million shares,
or 14.9% of Shorewood's outstanding common stock. Under that agreement, the
investor will tender the 4.1 million shares to Chesapeake's tender offer and
will execute written consents with respect to those shares in Chesapeake's
consent solicitation.
Thomas H. Johnson, president and chief executive officer of Chesapeake,
said, "We believe Chesapeake's acquisition of Shorewood will be beneficial to
shareholders, employees and customers. Chesapeake's strategy is to expand its
international network of specialty packaging and merchandising services. The
acquisition of Shorewood, under Chesapeake's leadership, will allow Chesapeake
to provide our customers with an even larger, synergistic array of products
and services. Members of our senior management team have the proven expertise
to run large-scale global packaging operations. We look forward to working
with Shorewood to provide value for shareholders, opportunity for employees,
and excellent services and products for customers. It is our continued hope to
meet with Shorewood's board to discuss this unique opportunity," concluded Mr.
Johnson.
The tender offer is open to all holders of common stock. The offer and
withdrawal rights will expire at midnight, New York time on Monday, January 3,
2000, unless extended. The tender offer is conditioned upon, among other
things, there being validly tendered and not withdrawn before the expiration
date, a number of shares which, when added to the number of shares
beneficially owned by Chesapeake and its affiliates, represents a majority of
Shorewood's outstanding shares on a fully diluted basis, and the expiration or
termination of any applicable waiting period under the Hart-Scott-
<PAGE>
Rodino Antitrust Improvements Act of 1976. The complete terms and conditions
of the tender offer and anticipated consent solicitation are set forth in the
offering documents filed today with the Securities and Exchange Commission.
Goldman, Sachs & Co. and Donaldson, Lufkin & Jenrette are acting as co-
financial advisors to Chesapeake. Hunton & Williams is acting as legal
advisor. D.F. King & Co., Inc. is the information agent for the tender offer.
Chesapeake Corporation, headquartered in Richmond, Va., is a global leader
in specialty packaging and merchandising services. Chesapeake is the largest
North American producer of temporary and permanent point-of-purchase displays,
the North American leader for litho-laminated packaging, the leading European
folding carton, leaflet and label supplier, and a local leader in specific
U.S. markets for customized, corrugated packaging. Chesapeake has over 40
locations in North America, Europe and Asia. Chesapeake's net sales in 1998
were $950.4 million. Chesapeake's website is www.cskcorp.com.
###
This news release, including comments by Thomas H. Johnson, contains
forward-looking statements that are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. The
accuracy of such statements is subject to a number of risks, uncertainties,
and assumptions that may cause Chesapeake's actual results to differ
materially from those expressed in the forward-looking statements including,
but not limited to: competitive products and pricing; production costs,
particularly for raw materials such as corrugated box, folding carton and
display materials; fluctuations in demand; government policies and regulations
affecting the environment; interest rates; currency translation movements;
Year 2000 compliance; and other risks that are detailed from time to time in
reports filed by the Company with the Securities and Exchange Commission.
For media relations, call: For investor relations, call:
Molly Remes William Tolley/Joel Mostrom
804-697-1110 804-697-1157/804-697-1147
Joele Frank or Andy Brimmer
Abernathy MacGregor Frank
212-371-5999
2
<PAGE>
Notice of Guaranteed Delivery
for
Tender of Shares of Common Stock
(Including the Associated Rights to Purchase Preferred Stock)
of
Shorewood Packaging Corporation
Pursuant to the Offer to Purchase dated December 3, 1999
by
Sheffield, Inc.
a wholly owned subsidiary of
Chesapeake Corporation
As set forth in Section 3 of the Offer to Purchase (as defined below), this
form or one substantially equivalent may be used to accept the Offer (as
defined below) if certificates for shares of common stock, par value $0.01 per
share (the "Common Stock"), including the associated rights to purchase
preferred stock (the "Rights" and, collectively with the Common Stock, the
"Shares"), of Shorewood Packaging Corporation, a Delaware corporation (the
"Company"), are not immediately available, or if the procedure for book-entry
transfer cannot be complied with on a timely basis, or all required documents
cannot be delivered to the Depositary prior to the Expiration Date (as defined
in Section 1 of the Offer to Purchase). This form may be delivered by hand to
the Depositary or transmitted by telegram, facsimile transmission or mail to
the Depositary and must include a guarantee by an Eligible Institution (as
defined in Section 3 of the Offer to Purchase). See Section 3 of the Offer to
Purchase.
The Depositary for the Offer is:
Harris Trust and Savings Bank
By Mail: By Hand or Overnight Courier:
c/o Harris Trust Company of New York c/o Harris Trust Company of New York
Wall Street Station 88 Pine Street, 19th Floor
P. O. Box 1010 New York, New York 10005
New York, New York 10268-1010
Facsimile Transmission:
(Eligible Institutions Only)
(212) 701-7636
Confirm by Telephone:
(212) 701-7624
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE TO A NUMBER
OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY TO THE
DEPOSITARY.
This form is not to be used to guarantee signatures. If a signature on a
Letter of Transmittal is required to be guaranteed by an Eligible Institution
under the instructions thereto, such signature guarantee must appear in the
applicable space provided in the signature box on the Letter of Transmittal.
THE GUARANTEE ON THE REVERSE MUST BE COMPLETED
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Sheffield, Inc., a Delaware corporation
("Purchaser") and a wholly owned subsidiary of Chesapeake Corporation, a
Virginia corporation, on the terms and subject to the conditions set forth in
the Offer to Purchase, dated December 3, 1999 (the "Offer to Purchase"), and
the related Letter of Transmittal (which, as amended or supplemented from time
to time, together constitute the "Offer"), receipt of which is hereby
acknowledged, the number of shares of Common Stock, par value $0.01 per share
(the "Common Stock"), including the associated rights to purchase preferred
stock (the "Rights" and, collectively with the Common Stock, the "Shares"), of
Shorewood Packaging Corporation, a Delaware corporation (the "Company") set
forth below, all pursuant to the guaranteed delivery procedures set forth in
Section 3 of the Offer to Purchase.
Number of Shares: _________________ Name(s) of Record Holder(s): ______
Certificate Nos. (if available): ___________________________________
___________________________________ ___________________________________
Please Type or Print
CHECK BOX IF SHARES WILL BE Address(es): ______________________
TENDERED BY BOOK-ENTRY TRANSFER
[_] ___________________________________
Account Number: ___________________ Daytime Area Code and Tel. No.: ___
Dated: ____________________________ ___________________________________
Signature(s): _____________________
___________________________________
THE GUARANTEE SET FORTH BELOW MUST BE COMPLETED
GUARANTEE
(Not To Be Used for Signature Guarantee)
The undersigned, a participant in the Security Transfer Agents Medallion
Program, the New York Stock Exchange Medallion Signature Guarantee Program or
the Stock Exchange Medallion Program, hereby guarantees to deliver to the
Depositary either the certificates representing the Shares tendered hereby, in
proper form for transfer, or a Book-Entry Confirmation (as defined in the
Offer to Purchase) with respect to such Shares, in any such case together with
a properly completed and duly executed Letter of Transmittal, with any
required signature guarantees, or an Agent's Message (as defined in Section 3
of the Offer to Purchase), and any other required documents, within THREE New
York Stock Exchange trading days after the date hereof.
The Eligible Institution that completes this form must communicate this
guarantee to the Depositary and must deliver the Letter of Transmittal and
certificates for Shares to the Depositary within the time period shown herein.
Failure to do so could result in a financial loss to such Eligible
Institution.
Name of Firm: _______________________ _____________________________________
(Authorized Signature)
Address: ____________________________ Name: _______________________________
(Please Type or Print)
_____________________________________ Title: ______________________________
(Zip Code)
Area Code and Tel No.: ______________ Dated: ______________________________
NOTE: DO NOT SEND CERTIFICATES FOR SHARES WITH THIS NOTICE. CERTIFICATES FOR
SHARES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL.
2
<PAGE>
CONFIDENTIAL
November 10, 1999
Chesapeake Corporation
James Center II
Richmond, VA 23218-2350
Attention: William T. Tolley
Senior Vice President Finance & CFO
Re: Commitment Letter--Proposed Tender Financing Credit Facilities
Ladies and Gentlemen:
Chesapeake Corporation, a Virginia corporation ("Company "), has advised
First Union National Bank ("Bank ") that it (a) has formed a corporation
("AcquisitionCo ") to acquire, through an unsolicited and non-negotiated
tender offer (the "Tender Offer "), up to all of the issued and outstanding
capital stock (the "Shares ") and associated rights to purchase preferred
stock (the "Rights ") of a company which you have identified to us ("Target ")
for a purchase price per Share not in excess of an amount you have previously
identified to us (the "Acquisition "), (b) intends, as promptly as is
practicable following the consummation of such Acquisition, merge
AcquisitionCo with and into Target, such that the surviving entity of such
merger is a wholly-owned subsidiary of Company (the "Merger ") and (c) intends
to commence a written consent solicitation requesting shareholders of Target
to, among other things, remove and replace Target's Board of Directors (the
"Solicitation ").
In connection with the foregoing, you have informed us that as a result of
the Acquisition, existing debt of (a) Target in an outstanding principal
amount you have previously identified to us, and (b) Company in an outstanding
principal amount you have previously identified to us, is expected to be
refinanced (collectively, the "Refinancing ", and, together with the
Acquisition, the Tender Offer, the Solicitation, the Merger and the
transactions related thereto, the "Transaction "). You have also informed us
that Company will require up to $750 million in senior secured credit
facilities (the "Credit Facilities ") in order to (i) finance the Tender
Offer, (ii) consummate the Refinancing and the Solicitation, (iii) finance the
Merger, (iv) pay fees and expenses in connection with the Transaction and (v)
provide working capital for, and for the general corporate purposes of,
Company and its subsidiaries after consummation of the Merger.
Based upon and subject to the foregoing and the terms and conditions set
forth below, Bank is pleased to confirm to you its commitment to provide the
full amount of the Credit Facilities on the terms set forth in the Term Sheet
(as defined below) (our "Commitment ") and to act as the sole administrative
agent for a syndicate of financial institutions (together with Bank, the
"Lenders ") that it intends to form to provide a portion of the Credit
Facilities. It is agreed that Bank, through its affiliate, First Union
Securities, Inc. ("FUS " or the "Arranger "), will also serve as the sole lead
arranger and sole book runner of the Credit Facilities and that no additional
agents or co-agents or arrangers will be appointed or fees paid to any other
lenders in connection with the Credit Facilities without the prior written
consent of Bank and FUS.
Attached as Exhibit A to this letter is a Summary of Terms and Conditions
(the "Term Sheet ") setting forth a summary outline of the principal terms and
conditions on and subject to which Bank is willing to make available the
Credit Facilities. In addition, whether before or after the closing of the
Credit Facilities, Bank shall be entitled, after consultation with you, to
change the pricing, structure (including the reallocation of tranches of
loans) and/or terms of the Credit Facilities if Bank determines that such
changes are necessary in order to ensure a successful pre-closing or post-
closing syndication or an optimal credit structure of the Credit Facilities,
such right to continue and survive
<PAGE>
(together with your other obligations with respect to syndication provided for
herein) until the completion of such syndication notwithstanding any
termination of the Commitment or funding under the Credit Facilities; provided
that the total amount of the senior secured Credit Facilities remains
unchanged.
Bank and Arranger shall manage all aspects of the syndication of the Credit
Facilities, and you agree to assist Bank and to cause, from and after
consummation of the Tender Offer and/or the Solicitation, Target to assist
Bank in forming such syndicate and to provide Bank and the other Lenders,
promptly upon request, with all information reasonably requested by them to
complete successfully the syndication, including, but not limited to, (a) an
information package for delivery to potential syndicate members and
participants and (b) all information and projections prepared by you or your
advisers relating to the transactions described herein. You also agree to use
your best efforts to ensure that Bank's syndication efforts benefit from your
existing lending relationships as well as, from and after consummation of the
Tender Offer and/or the Solicitation, those of Target. You further agree to
make appropriate senior officers and representatives of Company and, from and
after consummation of the Tender Offer and/or the Solicitation, Target
available to participate in information meetings for potential syndicate
members and participants at such times and places as Bank may reasonably
request. Bank reserves the right to engage the services of FUS and other of
its affiliates in furnishing the services to be performed as contemplated
herein and to allocate (in whole or in part) to any such affiliates any fees
payable to it in such manner as it and its affiliates may agree in their sole
discretion. You agree that Bank may share with any of its officers, affiliates
and advisors any information related to the Transaction or any other matter
contemplated hereby, on a confidential basis.
You represent and warrant and covenant that:
(a) all information which has been or is hereafter made available to Bank
by you or any of your representatives or, from and after consummation of
the Tender Offer and/or the Solicitation, Target or any of its
representatives in connection with the transactions contemplated hereby is
and will be complete and correct in all material respects and does not and
will not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements contained therein
not materially misleading in light of the circumstances under which such
statements are made; and
(b) all financial projections that have been or are hereafter prepared by
you or on your behalf and made available to Bank or any other participant
in any Credit Facility have been or will be prepared in good faith based
upon reasonable assumptions.
You agree to supplement the information and projections referred to in clauses
(a) and (b) above from time to time until completion of each syndication so
that the representations and warranties in the preceding sentence remain
correct in all material respects. In arranging and syndicating the Credit
Facilities, Bank will use and rely on such information and projections without
independent verification thereof.
In connection with the syndication of the Credit Facilities, Bank may, in
its discretion, allocate to other Lenders portions of any fees payable to Bank
in connection with the Credit Facilities. You agree that no Lender will
receive any compensation of any kind for its participation in any Credit
Facility, except as expressly provided for in this letter or in the Fee Letter
referred to below or as may be mutually agreed upon in writing.
The commitments of Bank hereunder are also subject to (a) there not
occurring or becoming known to us any material adverse condition or material
adverse change in or affecting the business, property, operations, nature of
assets, assets, revenues, operations, tax position, liabilities, debt services
capacity, condition (financial or otherwise) or prospects of Company or
Company and its subsidiaries taken as a whole or Target or Target and its
subsidiaries taken as a whole, (b) our not
2
<PAGE>
being aware after the date hereof of any information or other matter which is
inconsistent in a material and adverse manner with any information or other
material disclosed to us prior to the date hereof, (c) there not having
occurred a material disruption of or material adverse change in financial,
banking or capital market conditions that, in our judgment, could materially
impair the syndication of the Credit Facilities, (d) there not being any
competing offering, placement or arrangement of any debt securities or bank
financing by or on behalf of Company or any of its affiliates or, after
consummation of the Tender Offer, Target or any of its affiliates, unless
otherwise agreed to by Bank, (e) our review and reasonable satisfaction with
the terms of the documentation governing the Transaction, (f) the negotiation,
execution and delivery on or before February 29, 2000 of definitive
documentation with respect to the Tender Offer Facility (as defined in the
Term Sheet) reasonably satisfactory to Bank and its counsel and the
negotiation, execution and delivery on or before April 30, 2000 of definitive
documentation with respect to the Take-Out Facilities (as defined in the Term
Sheet) satisfactory to Bank and its counsel, (g) compliance with all
applicable laws and regulations (including without limitation compliance of
the Commitment and the transactions described herein, with Regulation U and
all other applicable banking laws, rules and regulations), (h) sources and
uses of funds being as we have previously discussed, and (i) the other
conditions set forth in the Term Sheet. Additionally, it shall be a condition
to our commitments hereunder that the definitive documents to be filed with
the Securities and Exchange Commission with respect to the commencement of the
Tender Offer (including the Target shareholder consent solicitation materials)
shall be provided to us prior to the commencement of the Tender Offer and that
all matters relating to the Credit Facilities and the financing of the
Transaction shall be in form and substance reasonably satisfactory to us.
The reasonable out-of-pocket costs and expenses of Bank and Arranger
(including, without limitation, the fees and expenses of Mayer, Brown & Platt,
counsel to Bank and any appropriate local counsel and Bank's due diligence,
syndication and other out-of-pocket expenses) arising in connection with the
preparation, execution and delivery of this letter and the definitive
financing agreements and otherwise in connection with the Transaction shall be
for your account and shall be payable initially on the earlier to occur of the
initial funding under the Credit Facilities or upon termination or expiration
of the Commitments and thereafter on demand. You further agree to indemnify
and hold harmless each Lender, Bank and Arranger and each director, officer,
employee, affiliate and agent of each thereof (each, an "indemnified person ")
against, and to reimburse each indemnified person, upon its demand, for, any
losses, claims, damages, liabilities or other expenses ("Losses ") to which
such indemnified person may become subject insofar as such Losses arise out of
or in any way relate to or result from the Transaction or any aspect thereof,
this letter or the financings contemplated hereby, including, without
limitation, Losses consisting of legal or other expenses incurred in
connection with investigating, defending or participating in any legal
proceeding relating to any of the foregoing (whether or not such indemnified
person is a party thereto); provided that the foregoing will not apply to any
Losses of an indemnified person to the extent they are found by a final
decision of a court of competent jurisdiction to have resulted from the gross
negligence or willful misconduct of such indemnified person. Your obligations
under this paragraph shall remain effective whether or not definitive
financing documentation is executed and notwithstanding any termination or
expiration of this letter or the offer contained herein. Neither Bank nor
Arranger nor any of their affiliates nor any other indemnified person shall be
responsible or liable to any other person or entity for consequential damages
which may be alleged as a result of this letter or the financings contemplated
hereby and neither Bank nor any other indemnified person shall be responsible
or liable for any damages which may be alleged as a result of its failure, in
accordance with the terms of this letter, to provide or participate in the
Credit Facilities.
The provisions of this letter are supplemented as set forth in, and are
conditioned upon, a separate confidential fee letter dated the date hereof
from us to you (the "Fee Letter ") and are subject to the terms of such Fee
Letter. By executing this letter, you acknowledge that this letter and the Fee
Letter are the only agreements between you and Bank with respect to the Credit
Facilities and set forth
3
<PAGE>
the entire understanding of the parties with respect thereto. This letter and
the Fee Letter and the respective obligations and rights hereunder and
thereunder shall not be delegated or assigned by you without our prior written
consent. This letter may not be amended or otherwise modified except pursuant
to a writing signed by each of the parties hereto. This letter may be executed
by the signatories hereto in several counterparts, each of which shall be
deemed to be an original and all of which shall constitute together one and
the same letter. THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK. EACH OF THE UNDERSIGNED PARTIES
HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT
OF OR IN CONNECTION WITH, THIS COMMITMENT LETTER AND THE FEE LETTER, AND ANY
OTHER COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR
WRITTEN) OR ACTIONS OF ANY OF THE UNDERSIGNED PARTIES IN CONNECTION HEREWITH
OR THEREWITH.
By your acceptance hereof, you agree that neither this letter (including,
without limitation, the Term Sheet), the Fee Letter, nor any of their terms or
substance, shall be disclosed, directly or indirectly, to any other person
except (a) this letter and the Term Sheet (but not the Fee Letter) may be
disclosed to Target and those of your employees, agents and advisers who are
directly involved in the consideration of this matter and (b) this letter, the
Term Sheet and the Fee Letter may be disclosed if and to the extent disclosure
is compelled in a judicial or administrative proceeding or as otherwise
required by law or by an express request from the Securities and Exchange
Commission (provided that in any such case Company shall request, to the
maximum extent possible, confidential treatment for the Fee Letter) (and in
each such event of permitted disclosure you agree promptly to inform us and,
to the extent not proscribed by such proceeding or legal requirement, provide
us with a reasonable opportunity to review and comment upon the contents of
such disclosure). Your obligations under this paragraph shall remain effective
whether or not definitive financing documentation is executed and
notwithstanding any termination or expiration of this letter or the offer
contained herein.
If you are in agreement with the foregoing, please sign and return to Bank
and Arranger the enclosed copies of this letter and the Fee Letter (together
with payment of the fees described therein) no later than 3:00 p.m., New York
time, on December 2, 1999, at which time this offer shall terminate (and we
shall have no obligations whatsoever to you) unless prior thereto we shall
have received signed copies of such letters and payment of such fees.
Following your execution and delivery of this letter and the Fee Letter in
accordance with the preceding sentence, our commitments hereunder shall
terminate (and we shall have no obligations whatsoever to you) at 5:00 p.m.,
New York time, on February 29, 2000 unless on or prior to such time definitive
documentation with respect to the Tender Offer Facility satisfactory to us and
our counsel has been executed and delivered by you, any applicable Lenders and
us and at 5:00 p.m., New York time, on April 30, 2000, unless on or prior to
such time, definitive documentation with respect to the Take-Out Facilities
satisfactory to us and our counsel has been executed and delivered by you, the
applicable Lenders and us.
4
<PAGE>
We took forward to working with you on this transaction.
Sincerely,
First Union National Bank
/s/ Charles W. Lockyer
By: _________________________________
Title:Vice President
First Union Securities, Inc.
/s/ Ted Swimmer
By: _________________________________
Title:
Accepted and agreed to as of the
date first above written:
Chesapeake Corporation
/s/ William T. Tolley
By: _________________________________
Title: Senior Vice President--
Finance and Chief Financial
Officer
5
<PAGE>
EXHIBIT A
$750,000,000 CHESAPEAKE CORPORATION CREDIT FACILITIES
Summary of Terms and Conditions
November 10, 1999
(Unless otherwise defined, terms used and not defined in this Summary of
Terms and Conditions have the meanings assigned thereto in the letter
agreement dated November 10, 1999 (the "Commitment Letter"), to which this
Summary of Terms and Conditions is an exhibit.)
----------------
I.Parties
Borrower: Collectively, Chesapeake Corporation, a Virginia
corporation ("Company"), and/or a newly-formed
wholly-owned subsidiary thereof established
solely for the purpose of being an acquisition
vehicle named Sheffield, Inc., a Delaware
corporation ("AcquisitionCo").
Lead Arranger and Sole
Book Runner:
First Union Securities, Inc. ("FUS")
Administrative Agent: First Union National Bank (in such capacity, the
"Administrative Agent").
Lenders: The banks, financial institutions and other
entities, including Bank, selected by the
Arranger in the syndication effort (collectively,
the "Lenders").
Letter of Credit Issuer: Bank (or another Lender selected by the
Administrative Agent).
II.Type and Amount of Facilities
A.Tender Offer Facility: A 90-day senior, secured short-term bridge term
loan facility (the "Tender Offer Facility") in
the aggregate principal amount of the lesser of
(a) up to $750 million (the "Tender Offer
Facility Commitment Amount") and (b) the sum of
(i) the amount necessary to make payment for all
of the Shares of Target tendered and purchased
pursuant to the Tender Offer, (ii) the amount
necessary to refinance certain indebtedness of
Company and Target previously identified by
Company to the Administrative Agent, (iii) the
amount necessary to provide for the working
capital needs of Company during this period, and
(iv) the amount necessary to pay the Transaction
costs and expenses due on the Tender Offer
Closing Date.
Availability: The Tender Offer Facility shall be available in a
single drawing on the date upon which the
conditions precedent to such borrowing set forth
in Articles V.A. and V.C. below are satisfied
(the "Tender Offer Closing Date").
Amortization:
The Tender Offer Facility shall amortize in a
single installment on the date on which the
earlier of (a) the 90th day following the
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<PAGE>
drawing of the Tender Offer Loan and (b) the date
consummation of the Merger occurs.
Use of Proceeds: The proceeds of the loans under the Tender Offer
Facility (the "Tender Offer Loans") shall be
used by the Borrower to (a) pay for the purchase
of Shares tendered and purchased pursuant to the
Tender Offer at a purchase price not greater than
the price per Share previously identified by you
to us, (b) refinance certain indebtedness of
Company and Target previously identified by
Company to the Administrative Agent, (c) provide
for the working capital needs of Company during
this period, and (d) pay for Transaction fees and
expenses in connection with the Transaction.
B.Take-Out Facilities:
1.Term Loan Facilities:
(a)Eighteen Month Facility
Type of Facility: Eighteen Month Facility: an eighteen month
senior, secured term loan facility in the
aggregate principal amount of $150,000,000 (the
"Eighteen Month Facility").
Availability: The Eighteen Month Facility shall be available in
a single drawing on the date upon which the
conditions precedent to such borrowing set forth
Articles V.B. and V.C. below are satisfied (the
"Take Out Closing Date").
Amortization: Bullet maturity on the date that is eighteen
months after the Take-Out Closing Date.
(b)Term A Facility
Type of Facility: Term A Loan Facility: a five year senior, secured
term loan facility in the aggregate principal
amount of $200,000,000 (the "Term A Loan
Facility").
Availability: The Term A Loan Facility shall be available in a
single drawing on the date upon which the
conditions precedent to such borrowing set forth
in Articles V.A. and V.C. below are satisfied.
Amortization: To be mutually agreed upon.
(c)Term B Facility
Type of Facility: Term B Loan Facility: a six year senior, secured
term loan facility in the aggregate principal
amount of $250,000,000 (the "Term B Loan
Facility", and, together with the Eighteen Month
Facility and the Term A Loan Facility, the "Term
Loan Facilities").
Availability: The Term B Loan Facility shall be available in a
single drawing on the date upon which the
conditions precedent to such borrowing set forth
in Articles V.A. and V.C. below are satisfied.
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<PAGE>
Amortization: 1% of amount of facility in each of the first
five years after the Take-Out Closing Date; 95%
of amount of facility in the sixth year after the
Take-Out Closing Date.
(d) Use of Proceeds The proceeds of the loans under the Term Loan
of the "Term Facilities (the "Term Loans") shall be used by
Loan Facilities: the Borrower and its subsidiaries to (a) provide,
on the same terms and conditions as provided for
in the Tender Offer, for the "cash out" payment
at not more than the price per Share previously
identified by you to us for all outstanding
Shares not tendered and purchased pursuant to the
Tender Offer, (b) refinance the Tender Offer
Loans and (c) refinance certain indebtedness of
the Company.
2. Revolving Credit Facility:
Type of Facility: A secured revolving credit facility in the
aggregate principal amount of $150,000,000 (the
"Revolving Credit Facility", and, together with
the Term Loan Facilities, the "Take-Out
Facilities", and, together with the Tender Offer
Facility, the "Credit Facilities"), pursuant to
which (a) loans may be borrowed, repaid and
reborrowed by the Borrower (the "Revolving
Loans", and, together with the Tender Offer Loans
and the Term Loans, the "Loans") and (b) letters
of credit may be issued, reimbursed and re-issued
on behalf of the Borrower, subject to the
subfacility limit described below (the "Letters
of Credit").
Availability: The Revolving Credit Facility shall be available
on a revolving basis during the period commencing
on the Take-Out Closing Date and ending on the
fifth anniversary thereof (the "Termination
Date").
Letter of Credit
Sub-Facility Availability:
Outstanding Letters of Credit and related
reimbursement obligations may not at any time
exceed an aggregate amount to be agreed upon.
Each issuance of a Letter of Credit will
constitute usage under the Revolving Credit
Facility and will reduce availability of
Revolving Loans dollar for dollar. Letters of
Credit must expire on the earlier of (a) one year
from the date of issuance and (b) five days prior
to the Termination Date. Drawings under each
Letter of Credit shall be reimbursed by the
Borrower on the same business day. To the extent
that the Borrower does not so reimburse the
Letter of Credit Issuer, the Lenders under the
Revolving Credit Facility shall be irrevocably
and unconditionally obligated to reimburse the
Letter of Credit Issuer on a pro rata basis.
Maturity: Five years from the Take-Out Closing Date.
Use of Proceeds: The proceeds of the loans under the Revolving
Credit Facility (the "Revolving Loans") shall be
used by the Borrower and its subsidiaries to (a)
refinance the Tender Offer Loans, (b) refinance
certain indebtedness, finance capital
expenditures, certain permitted acquisitions and
for working capital and general
8
<PAGE>
corporate purposes, and (c) pay for Transaction
fees and expenses in an amount which, when added
to the amount of Transaction fees and expenses
paid for out of proceeds of the Tender Offer
Loans, do not exceed approximately $50 million.
The Letters of Credit shall be used by the
Borrower and its subsidiaries for working capital
purposes.
III. General Payment Provisions
Fees and Interest Rates: As set forth on Annex I hereto.
Optional Prepayments and Loans may be prepaid and commitments may be
Commitment Reductions: reduced by the Borrower in minimum amounts and in
integral multiples to be mutually agreed upon,
without premium or penalty, but subject to
breakage costs. Proceeds shall be applied to the
Term Facilities and then to the Revolving Credit
Facility.
Mandatory Prepayments Customary for financings of this type, including
and Commitment on account of (a) 100% of net insurance and
Reductions: condemnation proceeds paid on account of the loss
of or damage to or the condemnation of, as the
case may be, any asset of the Borrower or any of
its subsidiaries not used in certain permitted
situations to repair, restore or replace such
asset within a period to be agreed upon, (b) 100%
of the net proceeds of permitted asset sales by
the Borrower and its subsidiaries (except for
those in the ordinary course of business), (c)
100% of the net cash proceeds of debt issuances
and 50% (but 100% prior to the Take-Out Closing
Date) of the net cash proceeds of public and
private equity issuances of the Borrower and its
subsidiaries and any parent company and (d) 50%
of Excess Cash Flow (to be defined). All such
reductions after the Take-Out Closing Date shall
be applied first to the Term Facility (and within
the Term Facility, first to the Eighteen Month
Facility) and then to the Revolving Credit
Facility. At such time as the Eighteen Month
Facility has been paid in full and either (x) a
certain mutually agreeable Debt to EBITDA Ratio
has been achieved or (y) Company achieves an
investment grade rating on its senior unsecured
unsupported long-term debt by either Standard &
Poor's Ratings Group or Moody's Investors
Service, Inc., certain of the foregoing
prepayment requirements will be reduced or
eliminated.
IV. Guarantees and Collateral
Guarantees: Each of the material direct and indirect
subsidiaries of Company (the "Guarantors", and,
together with Company, the "Credit Parties")
shall guarantee the Credit Facilities, subject to
exceptions to be mutually agreed upon (including,
for example, non-U.S. subsidiaries shall not be
required to deliver guarantees to the extent it
would result in material increased tax or similar
liabilities for Company and its subsidiaries on a
consolidated basis). After payment in full of the
Eighteen Month Facility and either (x)
achievement of a Debt to EBITDA Ratio to be
mutually determined or (y) achievement of an
investment grade rating on
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<PAGE>
the senior unsecured unsupported long-term debt
of Company by either Standard & Poor's Ratings
Group or Moody's Investors Service, Inc., all of
such guaranties will be released.
Collateral: The Credit Facilities shall be secured by (a) a
first-priority pledge of material assets of the
Company and its subsidiaries, including the
assets purchased in connection with the
financing, (b) a first-priority perfected
security interest on all capital stock of the
Company's material existing and future
subsidiaries (including all joint venture
interests), including the Shares purchased
pursuant to the Tender Offer; provided that no
more than 65% of the equity interests of non-U.S.
subsidiaries will be required to be pledged as
security in the event that a pledge of a greater
percentage would result in material increased tax
or similar liabilities for Company and its
subsidiaries on a consolidated basis and (c) a
first-priority perfected security interest in all
of the present and future material assets of the
Company and its material and future subsidiaries.
After payment in full of the Eighteen Month
Facility and either (x) achievement of a Debt to
EBITDA Ratio to be mutually determined or (y)
achievement of an investment grade rating on the
senior unsecured unsupported long-term debt of
Company by either Standard & Poor's Ratings Group
or Moody's Investors Service, Inc., all of such
collateral will be released.
V.Certain Conditions
A. Conditions to the The availability of the Tender Offer Facility
Tender Offer shall be conditioned upon the substantially
Facility: concurrent satisfaction of customary conditions
for financings of this nature, including the
following conditions precedent, on or before
February 29, 2000:
1. Execution and delivery of satisfactory credit,
guarantee, security and other related
documentation embodying the structure, terms
and conditions of the Tender Offer Facility
contained herein (collectively, the "Tender
Offer Credit Documentation").
2. The Tender Offer shall have been consummated
(a) at a price not exceeding the price per
Share previously identified by you to us, (b)
such that a majority of the Shareholders of
Target shall have elected the requisite number
of board of directors to approve the Merger
and such majority Shareholders shall take all
requisite actions to amend "poison pill,"
"shark repellant" or other similar items
(including such actions so that the Tender
Offer is approved pursuant to Section 203 of
the Delaware General Corporation Law or the
Administrative Agent being satisfied that the
provisions of such Section 203 are invalid or
inapplicable to the Tender Offer and Merger
(by action of Target's Board of Directors or
otherwise)) that could prevent or delay the
Merger and (c) such that (i) AcquisitionCo
shall have accepted for purchase Shares which
were validly
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tendered (and not withdrawn) and which when
added to the Shares already held by
AcquisitionCo constitute at least 50.1% (on a
fully diluted basis) of the issued and
outstanding common stock of Target and (ii) the
Rights have been redeemed by Target's Board of
Directors, or the Administrative Agent
otherwise shall be satisfied that such Rights
are otherwise invalid or inapplicable to the
transactions contemplated by the Tender Offer.
There shall not exist (a) any order, decree,
judgment, ruling or injunction which restrains
the consummation of the Credit Facilities or
the consummation of the Tender Offer or Merger
in the manner contemplated hereby, and (b) any
pending or threatened action, suit,
investigation or proceeding which would
reasonably be expected to materially and
adversely affect the Borrower and its
subsidiaries, taken as a whole, or Target and
its subsidiaries, taken as a whole, any
transaction contemplated hereby or the ability
of the Borrower and its subsidiaries to perform
their obligations under the documentation for
the Credit Facilities or the ability of the
Lenders to exercise their rights thereunder.
The documentation for, and the terms and
conditions of, the Tender Offer and the Proxy
Solicitation shall not be modified, amended or
waived in any material respect without the
prior written consent of the Administrative
Agent.
3. The Administrative Agent shall have received a
duly completed Federal Reserve Form U-1 in
connection with the Tender Offer and shall be
satisfied that the Tender Offer Facility will
be in full compliance with Regulation U.
4. The Administrative Agent shall be satisfied
that AcquisitionCo is a single purpose
acquisition vehicle that has been and will be
"sterilized", preventing it from engaging in
any business activity, other than holding the
stock of Target (and no changes in its
corporate structure, including the creation of
any new subsidiaries or the merging or
liquidation of any existing subsidiaries, shall
be permitted without the consent of the
Administrative Agent and the Lenders).
5. All amounts outstanding under the debt
agreements refinanced pursuant to the
Refinancing shall have been repaid in full (and
all commitments to make extensions of credit
thereunder shall have been terminated) and all
liens, if any, with respect thereto shall have
been released, in each case on terms reasonably
satisfactory to the Administrative Agent and
the Administrative Agent shall be reasonably
satisfied that concurrent with the closing of
the Credit Facilities, all pre-existing secured
debt of the Company and its subsidiaries (other
than capital leases and other indebtedness to
be mutually agreed upon) shall be repaid in
full. No other indebtedness shall exist at the
operating
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company level (other than existing capital
leases and certain guarantees).
6. The capital structure (including, without
limitation, the terms and amount of each
component thereof) of the Company and its
subsidiaries (including Target) immediately
before and after each aspect of the Transaction
and the equity contribution by Borrower to
AcquisitionCo in an amount not less than
$350,000,000 to be used for the purchase of the
tendered Shares (and such amount shall be
applied in full to such purchase prior to any
drawing under the Credit Facilities) shall be
satisfactory in all respects to the
Administrative Agent.
7. The Lenders and the Administrative Agent shall
have received all fees required to be paid on
or before the Tender Offer Closing Date and all
expenses in connection herewith and therewith.
8. All governmental and third party approvals
necessary or advisable in connection with the
Transaction (including the financing
contemplated hereby) and the continuing
operations of Company and its subsidiaries
(after giving effect to the consummation of the
Transaction), including Hart-Scott Rodino
filings, shall have been obtained and be in
full force and effect and all applicable
waiting periods shall have expired without any
action being taken or threatened by any
competent authority which would restrain,
prevent or otherwise impose adverse conditions
on the Transaction or the financing thereof;
and the prompt consummation of the Merger after
the Tender Offer Closing Date could not
reasonably be expected to be restrained,
prevented or otherwise subject to material
adverse conditions.
9. No material adverse change in the business,
assets, financial condition, revenues, tax
position, debt service capacity, operations or
prospects of any of the Borrower or any of its
subsidiaries including Target, taken as a
whole, since the date of their latest audited
financial statements.
10. The Lenders shall have received (a) guarantees
and first-priority security interests, as set
forth above under the captions "Guarantees"
and "Collateral", respectively, in each case
to the satisfaction of the Administrative
Agent and (b) the results of a recent lien
search in each of the jurisdictions and
offices where assets constituting Collateral
are located or recorded and such search shall
reveal no liens on any such assets except to
the extent consented to by the Administrative
Agent.
11. The Lenders shall have received a letter
agreement from the Company that suspends its
ability to borrow under the existing credit
facility agented by Bank with Company so long
as the Commitment Letter is in effect, in form
and
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substance reasonably satisfactory to the
Administrative Agent.
12. The Lenders shall have received such opinions
(including (a) legal opinions (including,
without limitation, opinions relating to the
Tender Offer) and (b) copies of a customary
"fairness" opinion), instruments, certificates
(including solvency certificates) and other
documents as are customary for transactions of
this type or as they may reasonably request.
B. Conditions to the The availability of the Take-Out Facilities shall
Take-Out be conditioned upon the substantially concurrent
Facilities: satisfaction of customary conditions for
financings of this nature, including the following
conditions precedent, on or before the 90th day
following the Tender Offer Closing Date:
1. Execution and delivery of satisfactory credit,
guarantee, security and other related
documentation embodying the structure, terms
and conditions of the Credit Facilities
contained herein (collectively, the "Take-Out
Credit Documentation", and, together with the
Tender Offer Credit Documentation, the "Credit
Documentation").
2. The Merger shall have been consummated and no
provision of the tender offer materials
relating thereto thereof shall have been
waived, amended, supplemented or otherwise
modified in a manner which could reasonably be
expected to be materially adverse to the rights
or interests of the Administrative Agent or the
Lenders.
3. The Administrative Agent shall be reasonably
satisfied with all aspects of the Transaction
consummated on the Take-Out Closing Date,
including, without limitation, the aggregate
sources and uses of proceeds utilized to
consummate the same (including fees and
expenses previously paid in connection with the
Tender Offer, together with all fees and
expenses payable in connection with the Take-
Out Facilities and the Merger, not exceeding
approximately $50 million in the aggregate) and
the terms of all agreements and documents
relating to the Transaction.
4. No material adverse change in the business,
assets, financial condition, revenues, tax
position, debt service capacity, operations or
prospects of the Borrower and its subsidiaries
including Target, taken as a whole, since the
date of their last audited financial
statements.
5. The Lenders and the Administrative Agent shall
have received all fees required to be paid on
or before the Take-Out Closing Date and all
expenses in connection herewith and therewith.
6. The Lenders shall have received satisfactory
unaudited interim consolidated financial
statements for each quarterly period ended
prior to the Take-Out Closing Date of
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Company and its subsidiaries and of Target and
its subsidiaries.
7. The Lenders shall have received a satisfactory
pro forma consolidated balance sheet of Company
(inclusive of Target and its subsidiaries) as
at the date of the most recent consolidated
balance sheet delivered pursuant to paragraph 6
above, adjusted to give effect to the
consummation on the Take-Out Closing Date of
the Transaction (including the financings
contemplated hereby).
8. The Lenders shall have received guarantees and
first-priority security interests, as set forth
above under the captions "Guarantees" and
"Collateral", respectively, as well as an
insurance broker's letter, in each case to the
reasonable satisfaction of the Administrative
Agent.
9. The Lenders shall have received environmental
reports (including Phase I reports) on all
material real properties on which mortgages
shall be required to be provided to the
Administrative Agent from independent
consultants satisfactory to the Administrative
Agent, which reports shall be reasonably
satisfactory in all respects to the
Administrative Agent and shall expressly permit
the Administrative Agent and the Lenders to
rely thereon, and the coverage of any issues
disclosed in such reports shall be reasonably
satisfactory to the Administrative Agent.
10. The Lenders shall have received (a)
satisfactory audited consolidated financial
statements for the three most recent fiscal
years ended prior to the Take-Out Closing Date
of Company and its subsidiaries and of Target
and its subsidiaries and (b) satisfactory
unaudited interim consolidated financial
statements for each quarterly period ended
subsequent to the date of the latest financial
statements delivered pursuant to clause (a) of
this paragraph as to which such financial
statements are available of Company and its
subsidiaries and of Target and its
subsidiaries.
11. The Lenders shall have received a satisfactory
business plan for fiscal year 2000,
satisfactory financial projections for the
term of the Credit Facilities and a
satisfactory written analysis of the business
and prospects of Company and its subsidiaries
(including Target and its subsidiaries) for
the term of the Credit Facilities.
12. The Lenders shall have received such opinions
(including legal opinions (including, without
limitation, opinions relating to the Merger)),
instruments, certificates (including solvency
certificates) and other documents as are
customary for transactions of this type or as
they may reasonably request.
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<PAGE>
C. Conditions to each The making of each extension of credit (including
Credit Extension: the initial loans under the Tender Offer Facility
and the Take-Out Facilities) shall be conditioned
upon (a) all representations and warranties in
the Credit Documentation (including, without
limitation, the material adverse change and
litigation representations) being true and
correct in all material respects and (b) there
being no default or event of default in existence
at the time of, or after giving effect to the
making of, such extension of credit.
VI. Representations, The Credit Documentation shall contain
Warranties, representations, warranties, covenants and events
Covenants and of default applicable to the Borrower and each
Events of Default other Credit Party and their respective
subsidiaries customary for financings of this
type and other terms reasonably deemed
appropriate by the Lenders, including, without
limitation:
Representations and Accuracy of financial statements (including pro
Warranties: forma financial statements); absence of
undisclosed liabilities; no material adverse
change; corporate existence; compliance with law;
corporate power and authority; authorization by
Board of Directors of the Borrower;
enforceability of Credit Documentation; no
conflict with law or material contractual
obligations; no material litigation; absence of
any material obligations or liabilities of the
subsidiaries; no default; ownership of property;
liens; intellectual property; no burdensome
restrictions; taxes; compliance with Regulations
T and U and other Federal Reserve regulations;
existence and validity of all material
governmental consents and permits; ERISA;
Investment Company Act; environmental matters;
accuracy of disclosure; creation, perfection and
priority of security interests and Year 2000
matters.
Affirmative Covenants: Delivery of financial statements, reports,
accountants' letters, projections, officers'
certificates and other information requested by
the Lenders; payment of other obligations;
continuation of business and maintenance of
existence and material rights and privileges;
compliance with laws and material contractual
obligations; maintenance of property and
insurance; maintenance of books and records;
right of the Lenders to inspect property and
books and records; notices of defaults,
litigation and other material events; maintenance
of capital expenditures and compliance with
environmental laws. Certain of the affirmative
covenants shall be subject to customary "baskets"
to be mutually agreed upon.
Financial Covenants: Financial Covenants shall be comprised of
EBITDA/Interest, Debt/EBITDA and limitation on
capital expenditures.
Negative Covenants: Customary for financing of this type, including
without limitation, limitations on: indebtedness
(including preferred stock); liens; guarantee
obligations; mergers, consolidations,
liquidations and dissolutions; sales of assets;
leases; dividends and other payments in respect
of capital stock; capital expenditures;
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<PAGE>
investments, loans and advances; payments and
modifications of subordinated and other debt
instruments; no material modification of tender
offer or merger documentation; transactions with
affiliates; sale and leasebacks; changes in
fiscal year; negative pledge clauses; and changes
in lines of business. Certain of the negative
covenants shall be subject to customary "baskets"
to be mutually agreed upon.
Events of Default: Nonpayment of principal when due; nonpayment of
interest, fees or other amounts; material
inaccuracy of representations and warranties;
violation of covenants (subject, in the case of
certain affirmative covenants, to a 30-day grace
period); cross-default to any other indebtedness
of the Borrower; bankruptcy of Borrower, a
restricted subsidiary or any other material
subsidiary; certain ERISA events; material
judgments; actual or asserted invalidity of any
guarantee or security document, subordination
provisions or security interest; failure of the
Merger to occur by April 30, 2000; and a change
of control. Certain of the events of default
shall include customary grace periods and/or
baskets to be mutually agreed upon.
VII.Certain Other Terms
Voting: Amendments and waivers with respect to the Credit
Documentation shall require the approval of
Lenders holding commitments representing not less
than a majority of the aggregate amount of the
commitments under the Credit Facilities (the
"Required Lenders"), except that (a) the consent
of each Lender directly affected thereby shall be
required with respect to certain customary issues
and (b) the consent of 100% of the Lenders shall
be required with respect to certain customary
issues. The Credit Documentation will contain
customary tranche voting provisions.
Assignments and The Lenders shall be permitted to assign and sell
Participations: participations in their Facilities to affiliates
or one or more banks, financial institutions or
other entities that are eligible assignees,
subject, in the case of assignments (other than
to another Lender or to an affiliate of the
assigning Lender), to the consent of the
Administrative Agent and Borrower (which consent
in each case shall not be unreasonably withheld
and, in the case of the Borrower, shall not be
required during a default or event of default)
and to the payment by the assigning Lender to the
Administrative Agent of a $3,500 transfer fee. In
the case of partial assignments, the minimum
assignment amount shall be $5,000,000 (unless, in
each case, an assigning Lender's aggregate
interest is less than $5,000,000, in which case
the full amount remaining may be assigned) and,
after giving effect thereto, the assigning Lender
shall have commitments and Loans aggregating at
least $5,000,000. Upon such assignment, such
affiliate entity shall become a Lender for all
purposes of the loan documentation. Participants
shall have the same benefits as the Lenders with
respect to yield protection and increased cost
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<PAGE>
provisions. Voting rights of participants shall
be limited to certain customary issues. Pledges
of Loans in accordance with applicable law shall
be permitted without restriction.
Yield Protection: The Credit Documentation shall contain customary
provisions (a) protecting the Lenders against
loss of yield resulting from changes in reserve,
tax, capital adequacy, funding losses,
illegality, changes to existing regulations and
other requirements of law and from the imposition
of withholding or other taxes (collectively,
"increased costs") and (b) indemnifying the
Lenders for "breakage costs" incurred in
connection with, among other things, prepayment
of a Eurodollar Loan (as defined in Annex I) on a
day other than the last day of an interest period
with respect thereto.
Expenses and The Borrower shall pay (a) all reasonable out-of-
Indemnification: pocket expenses of the Administrative Agent
associated with the syndication of the Credit
Facilities and the preparation, execution,
delivery and administration of the Credit
Documentation and any amendment or waiver with
respect thereto and all other aspects of the
Transaction (including the reasonable fees and
disbursements and other charges of counsel) and
(b) all out-of-pocket expenses of the
Administrative Agent and the Lenders in
connection with the enforcement of the Credit
Documentation (including the fees and
disbursements and other charges of counsel).
The Borrower shall indemnify, pay and hold
harmless the Administrative Agent, the Arranger
and the Lenders (and their respective directors,
officers, employees and agents) against any loss,
liability, cost or expense in respect of any
aspect of the Transaction, the financing
contemplated hereby or the use or the proposed
use of proceeds thereof (except to the extent
resulting from the gross negligence or willful
misconduct of the indemnified party).
Governing Law and Forum: State of New York.
Counsel to the Mayer, Brown & Platt.
Administrative Agent:
This indicative Term Sheet is intended as an outline only and does not purport
to summarize all the conditions, covenants, representations, warranties and
other provisions which would be contained in the definitive credit
documentation.
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ANNEX I
to EXHIBIT
A
INTEREST AND CERTAIN FEES
Interest Rate Options: The Borrower may elect that all or a portion of
the Loans borrowed by it bear interest at a rate
per annum equal to (a) the Alternate Base Rate
plus the Applicable Margin with respect thereto
or (b) the Eurodollar Rate plus the Applicable
Margin with respect thereto. For purposes hereof:
"Alternate Base Rate" means the higher of (i) the
rate of interest established by Bank as its base
or prime rate in effect at its principal office
in New York City (the "Prime Rate") and (ii) the
federal funds effective rate from time to time
plus .50%;
"Eurodollar Rate" means the rate (grossed-up for
maximum statutory reserve requirements for
eurocurrency liabilities) at which eurocurrency
deposits in U.S. dollars for one, two, three or
six months, or if available to all banks, nine or
twelve months (as selected by the Borrower) are
offered by Bank in the London interbank
eurocurrency market; provided that the Tender
Offer Loan may not be converted/continued as a
Eurodollar Loan having an interest period of more
than three months.
Applicable Margin: The Applicable Margin with respect to the Tender
Offer Facility shall be (a) initially 275 basis
points (until 2 months after the Tender Offer
Closing Date), such rate to increase by 25 basis
points if not repaid within 2 months of the
Tender Offer Closing Date and shall increase by
another 25 basis points thereafter until repaid
with respect to Loans bearing interest based on
the Eurodollar Rate ("Eurodollar Loans") and (b)
initially 175 basis points (until 2 months after
the Tender Offer Closing Date), such rate to
increase by 25 basis points if not repaid within
2 months after the Tender Offer Closing Date and
to increase by another 25 basis points thereafter
until repaid with respect to Loans bearing
interest based on the Alternate Base Rate ("Base
Rate Loans").
The Applicable Margin with respect to (a) the
Revolving Credit Facility, the Eighteen Month
Facility and the Term A Facility shall initially
be 250 basis points with respect to Eurodollar
Loans and 150 basis points with respect to Base
Rate Loans and the Term B Facility shall be 275
basis points with respect to Eurodollar Loans and
175 with respect to Base Rate Loans. Reductions
in the Applicable Margin with respect to the
Revolving Facility, the Eighteen Month Facility,
the Term A Facility and, to some extent, the Term
B Facility shall be available in a manner to be
determined and based on the Debt/EBITDA Ratio (to
be defined).
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Interest Payment Dates: In the case of Base Rate Loans, in arrears on the
last business day of each calendar quarter.
In the case of Eurodollar Loans, on the last day
of each relevant interest period and, in the case
of any interest period longer than three months,
on each successive date three months after the
first day of such interest period.
Commitment Fees: The Borrower shall pay to the Administrative
Agent, for the ratable benefit of the Lenders, a
commitment fee on the average daily unused
portion of the Credit Facilities, payable
quarterly in arrears on the last business day of
each calendar quarter, and calculated (a) during
the first 180 days of the Credit Facilities, at
40 basis points per annum and (b) thereafter,
reductions thereon calculated based on the
Debt/EBITDA Ratio (to be determined).
Letter of Credit Fees: The Borrower shall pay to the Administrative
Agent, for the ratable benefit of the Lenders, a
letter of credit fee on the aggregate amount
available under outstanding Letters of Credit,
payable in arrears on the last business day of
each calendar quarter, and calculated at a per
annum rate equal to the Applicable Margin under
the Revolving Credit Facility with respect to
Eurodollar Loans from time to time in effect. The
Borrower shall also pay to the Letter of Credit
Issuer, for its own account, a letter of credit
fronting fee on the aggregate amount available
under each Letter of Credit issued, payable in
arrears on the last business day of each calendar
quarter, and calculated at a per annum rate to be
determined.
Default Rate: At any time when the Borrower is in default in
the payment of any amount due under the Credit
Facilities or any other event of default shall
have occurred and be continuing, the principal of
all Loans shall bear interest at 2% above the
rate otherwise applicable thereto. Overdue
interest, fees and other amounts shall bear
interest at the rate applicable to Base Rate
Loans plus the applicable margin plus 2%.
Rate and Fee Basis: All per annum rates shall be calculated on the
basis of a year of 360 days (or 365/366 days, in
the case of Base Rate Loans the interest rate
payable on which is then based on the Prime Rate)
for actual days elapsed.
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STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement") is made and entered into as
of this 26th day of November, 1999, by and between ARIEL CAPITAL MANAGEMENT,
INC., an Illinois corporation ("Ariel"), and CHESAPEAKE CORPORATION, a
Virginia corporation (the "Buyer").
RECITALS
WHEREAS, Ariel is a registered investment adviser whose various clients,
including public investment companies and separate investment accounts
(collectively, "Ariel's Clients"), are the beneficial owners of approximately
5.6 million shares of common stock, $0.01 par value per share ("Common
Stock"), together with the associated rights to purchase shares of Series B
Junior Participating Preferred Stock (the "Rights," and together with the
Common Stock, the "Shares"), of SHOREWOOD PACKAGING CORPORATION, a Delaware
corporation (the "Corporation"); and
WHEREAS, Buyer desires to purchase, and Ariel desires to use its best
efforts as investment adviser to exercise its discretionary authority to cause
Ariel's Clients to sell, an aggregate 4,106,440 Shares (the "Purchased
Shares"), representing approximately 14.9% of the Corporation's outstanding
Shares, pursuant to this Agreement.
NOW, THEREFORE, in consideration of the premises, and of the mutual
covenants and promises set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
the parties agree as follows:
SECTION ONE
PURCHASE AND SALE OF STOCK;
AGREEMENT TO TENDER
(a) Upon all of the terms and subject to all of the conditions of this
Agreement, Ariel hereby agrees to use its best efforts as investment adviser
to exercise its discretionary authority to cause Ariel's Clients to transfer,
assign and convey to Buyer at the Closing (as defined below), and Buyer hereby
agrees to purchase and accept from Ariel's Clients at the Closing, the
Purchased Shares. To effect such purchase and sale, at a meeting to take place
at the principal offices of Ariel (the "Closing") on the Closing Date (as
defined below): (i) Ariel's Clients will deliver to Buyer certificates
representing the Purchased Shares, duly endorsed for transfer to Buyer, or
acceptable evidence of book-entry transfer of the Purchased Shares to Buyer;
and (ii) Buyer shall pay to each Ariel Client an amount equal to $17.25 (the
"Purchase Price") multiplied by the number of Purchased Shares purchased by
Buyer from such Ariel Client, such amount to be paid in cash by wire transfer
of immediately available funds in accordance with wire instructions to be
provided to Buyer. If, prior to the Closing, a Distribution Date shall have
occurred within the meaning of the Rights Agreement of the Corporation, dated
as of June 12, 1995 (the "Rights Agreement"), then, in addition to the
foregoing, Ariel's Clients shall transfer, assign and convey to Buyer at the
Closing any and all Rights and the certificates relating thereto (if any)
which are associated with the Purchased Shares.
(b) Unless otherwise agreed by the parties hereto, the closing date (the
"Closing Date") shall be the second business day following the satisfaction or
waiver of all of the conditions to Closing set forth in Section Five hereto.
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(c) Notwithstanding the foregoing, if for any reason prior to the Closing,
Buyer's purchase of the Purchased Shares would result in the Buyer becoming
(i) an "Acquiring Person" as defined in the Rights Agreement, or (ii) an
"interested stockholder" within the meaning of Section 203 of the Delaware
General Corporation Law ("Section 203"), the number of Purchased Shares
automatically shall be deemed and shall be reduced to one Share less than the
number of Shares that, if purchased, would cause the Buyer to be deemed (i) an
"Acquiring Person" as defined in the Rights Agreement, or (ii) an "interested
stockholder" within the meaning of Section 203.
(d) If, prior to the Closing, Buyer or any of its affiliates (as defined in
Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), commences a public tender offer for Shares of the
Corporation at a cash purchase price that equals or exceeds the Purchase Price
per Share, then Ariel agrees to use its best efforts as investment adviser to
exercise its discretionary authority to cause Ariel's Clients to: (i) tender
the Purchased Shares in such tender offer; and (ii) execute proxies or written
consents in the form solicited by Buyer or any of its affiliates in any proxy
or written consent solicitation commenced in connection with such tender
offer.
SECTION TWO
ADJUSTMENT OF THE PURCHASE PRICE
UPON A SUBSEQUENT TENDER OFFER OR MERGER
(a) If, within one year following the Closing Date, (i) Buyer or any of its
affiliates, directly or indirectly, acting alone or in concert with others,
acquires ownership (including, but not limited to, beneficial ownership as
defined in Rule 13d-3 under the Exchange Act) of a majority of the outstanding
Shares of the Corporation pursuant to a tender offer, merger, consolidation,
business combination or other similar transaction (each of the foregoing, a
"Transaction"); or (ii) any third party not affiliated with either Buyer or
Ariel, directly or indirectly, acting alone or in concert with others,
acquires ownership (including, but not limited to, beneficial ownership as
defined in Rule 13d-3 under the Exchange Act) of a majority of the outstanding
Shares of the Corporation pursuant to a tender offer, merger, consolidation,
business combination or other similar transaction (each of the foregoing, a
"Third Party Transaction"), then the Purchase Price paid by Buyer to Ariel's
Clients shall be adjusted in accordance with this Section.
(b) In the event a Transaction occurs after the Closing Date, Buyer shall
promptly pay to each Ariel Client an amount in cash equal to 100% of the
excess, if any, of the per Share consideration paid in such Transaction over
the Purchase Price, multiplied by the number of Purchased Shares purchased by
Buyer from such Ariel Client. In the event a Third Party Transaction occurs
after the Closing Date, Buyer shall promptly pay to each Ariel Client an
amount in cash equal to the sum of (i) 100% of the excess, if any, of the
highest per Share consideration offered by Buyer in any public tender offer
for Shares of the Corporation prior to the closing of such Third Party
Transaction (the "Highest Buyer Price"), over the Purchase Price, multiplied
by the number of Purchased Shares purchased by Buyer from such Ariel Client;
plus (ii) 50% of the excess, if any, of the per Share consideration paid in
such Third Party Transaction over the Highest Buyer Price, multiplied by the
number of Purchased Shares purchased by Buyer from such Ariel Client. In the
event the consideration paid in any Transaction or Third Party Transaction
includes contingent or non-cash consideration, the parties agree to negotiate
in good faith with respect to the fair valuation of such consideration.
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SECTION THREE
BUYER'S REPRESENTATIONS AND WARRANTIES
Buyer hereby represents and warrants to Ariel as follows:
(a) Buyer is a corporation duly incorporated, validly existing and in good
standing under the laws of the Commonwealth of Virginia;
(b) Buyer has full corporate power and authority to execute, deliver and
perform its obligations under this Agreement;
(c) this Agreement has been duly authorized, executed and delivered by Buyer
and constitutes the legal, valid and binding obligation of Buyer, enforceable
against Buyer in accordance with its terms;
(d) the execution, delivery and performance of this Agreement by Buyer will
not (i) conflict with or result in any breach of any provision of the Articles
of Incorporation or bylaws of Buyer, (ii) violate any requirement of law or
any existing mortgage, contract, lease, indenture or agreement binding on
Buyer or Buyer's property or (iii) result in the creation or imposition of any
lien on any of the properties or assets of Buyer pursuant to the provisions of
any of the foregoing;
(e) except for compliance with the requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the "HSR Act") and any applicable
reporting requirements under the Exchange Act, no consent of any other person
and no consent, license, permit, approval or authorization of, exemption by,
notice or report to, or registration, filing or declaration with, any
governmental authority is required in connection with the execution, delivery
or performance of this Agreement by Buyer. Buyer agrees promptly to file a
Premerger Notification and Report Form under the HSR Act with respect to the
transactions contemplated herein; and
(f) Buyer is an accredited investor (within the meaning of Rule 501 under
the Securities Act of 1933, as amended), and is purchasing the Purchased
Shares for investment and not with a present intent to conduct a distribution
thereof.
SECTION FOUR
ARIEL'S REPRESENTATIONS AND WARRANTIES
Ariel hereby represents and warrants to Buyer as follows:
(a) Ariel is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Illinois, and a registered investment
adviser under the Investment Advisers Act of 1940, as amended;
(b) Ariel has full corporate power and authority to execute, deliver and
perform its obligations under this Agreement;
(c) this Agreement has been duly authorized, executed and delivered by Ariel
and constitutes the legal, valid and binding obligation of Ariel, enforceable
against Ariel in accordance with its terms;
(d) the execution, delivery and performance of this Agreement by Ariel will
not (i) conflict with or result in any breach of any provision of the
Certificate of Incorporation or bylaws of Ariel, (ii) violate any requirement
of law or any existing mortgage, contract, lease, indenture or agreement
binding on Ariel or Ariel's property or (iii) result in the creation or
imposition of any lien on any of the properties or assets of Ariel pursuant to
the provisions of any of the foregoing;
(e) except for any applicable reporting requirements under the Exchange Act,
no consent, license, permit, approval or authorization of, exemption by,
notice or report to, or registration, filing or declaration with, any
governmental authority is required in connection with the execution, delivery
or performance of this Agreement by Ariel; and
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(f) to the best of Ariel's knowledge: Ariel's Clients are the legal and
beneficial owners of the respective Purchased Shares to be sold by them
hereunder, with good and valid title thereto, free and clear of any and all
mortgages, liens, encumbrances, charges, claims, restrictions, pledges,
security interests or impositions of any kind thereon or in the proceeds
thereof and, upon Buyer's payment of the Purchase Price therefor, good and
valid title to the Purchased Shares will pass to Buyer.
SECTION FIVE
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER
The obligations of Buyer to consummate the purchase of the Purchased Shares
as contemplated herein are subject to the satisfaction or waiver by Buyer at
or prior to the Closing of the following conditions precedent:
(a) No Litigation. No investigation, suit, action or other proceeding shall
be pending before any court or governmental agency that seeks restraint,
prohibition, damages or other relief in connection with this Agreement or the
consummation of the transactions contemplated hereby.
(b) Antitrust Filings. In the reasonable opinion of Buyer, all necessary
requirements of the HSR Act and the regulations promulgated thereunder shall
have been complied with, and any "waiting period" applicable to the
transactions contemplated by this Agreement which are imposed by such statute
or regulations shall have expired prior to the Closing Date or shall have been
terminated by the appropriate agency.
The parties agree that if, as of any proposed Closing Date when the
conditions precedent to Closing would otherwise be satisfied, Buyer's proposed
purchase of the Purchased Shares would not then be permitted under Exchange
Act Rule 10b-13, the Closing Date shall be postponed as necessary to permit
Closing in compliance with such Rule (subject, in any event, to the provisions
of Section 1(d) hereof related to the tender of the Purchased Shares into a
tender offer under certain circumstances, and to the termination provisions of
Section 8 hereof).
SECTION SIX
MUTUAL ACKNOWLEDGEMENTS
In executing this Agreement, Ariel has acted as investment adviser for
Ariel's Clients, and not with the purpose or effect of changing or influencing
the control of the Corporation, nor in connection with or as a participant in
any transaction having such purpose or effect. The parties agree that Ariel
and Ariel's Clients have reserved all of their respective rights with respect
to, and have no agreement, arrangement or understanding with Buyer relating
to, any Shares of the Corporation other than the Purchased Shares. Without
limiting the foregoing, Ariel and Ariel's Clients shall be free, subject to
applicable securities laws, to acquire or dispose of any additional Shares in
their sole discretion.
SECTION SEVEN
CONFIDENTIALITY
Ariel agrees that, except as may be required by applicable law (based on the
written advice of its outside counsel), until such time that Buyer files with
the SEC a Schedule 13D with respect to its planned acquisition of the
Purchased Shares pursuant to this Agreement or until such time that the
transactions contemplated herein are otherwise publicly announced (other than
through any action by Ariel or its affiliates), Ariel shall keep strictly
confidential from all persons (including, without limitation, the Corporation
and its officers and directors) all information concerning the execution and
delivery of
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this Agreement and the transactions contemplated herein. Buyer agrees to file
such Schedule 13D with the SEC within 10 days after the date hereof.
SECTION EIGHT
TERMINATION; EXPENSES
(a) This Agreement may be terminated, and the transactions contemplated
herein may be abandoned at any time prior to the Closing, under the following
circumstances:
(i) by the mutual written consent of Buyer and Ariel; or
(ii) by Ariel, if for any reason the Closing has not occurred by February
29, 2000; or by Buyer, if the Closing shall not have occurred by May 30,
2000, solely as a result of the failure to satisfy the conditions precedent
to Closing set forth in Section 5(a) hereof; provided, however, that the
right to terminate this Agreement shall not be available to any party whose
failure to fulfill its obligations hereunder has been the cause of, or has
resulted in, the failure of Closing to occur on or before such date.
(b) In the event of a termination of this Agreement by either party hereto
pursuant to this Section 8, written notice thereof shall promptly be given to
the other party and this Agreement shall thereupon terminate and be of no
further force or effect; provided, however, that the termination of this
Agreement shall not relieve either party from any liability to the other for
any breach of its obligations hereunder.
(c) Each party shall be responsible for and shall pay all of its own
expenses in connection with the transactions contemplated herein; provided,
however, that if this Agreement is terminated by Ariel pursuant to Section
8(a)(ii) hereof, Buyer shall reimburse Ariel, promptly upon demand, for all of
Ariel's actual out-of-pocket expenses incurred in connection with the
transactions contemplated in this Agreement (including, without limitation,
Ariel's reasonable attorneys' fees). In addition, Buyer agrees to indemnify
and hold Ariel harmless from and against any and all out-of-pocket costs and
expenses (including, without limitation, Ariel's reasonable attorneys' fees)
incurred by Ariel in connection with the investigation and defense of any
third party claims, proceedings or litigation related to the matters that are
the subject of this Agreement.
SECTION NINE
ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the parties and
supersedes any prior written or oral understandings, agreements or conditions.
No change, modification, amendment, or addition will be valid unless it is in
writing and signed by the party against whom enforcement of any change,
modification, amendment, or addition is assigned.
SECTION TEN
PARTIES BOUND; ASSIGNMENT
All covenants, agreements, representations and warranties set forth in this
Agreement are binding on and inure to the benefit of the successors and
assigns of the parties. Each party hereto agrees not to assign (by operation
of law or otherwise) this Agreement or any of its rights or obligations
hereunder without the express written consent of the other party hereto;
provided, however, that Buyer may assign any of its rights under this
Agreement to any affiliate of Buyer (it being understood that no such
assignment shall relieve Buyer of any of its obligations hereunder).
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SECTION ELEVEN
GOOD FAITH; SPECIFIC PERFORMANCE
The parties have entered into this Agreement, and will perform their
respective obligations hereunder, in good faith intending to be legally bound.
The parties agree that irreparable harm would occur in the event any of the
provisions of this Agreement were not performed in accordance with their terms
and that money damages would not be an adequate remedy for any such breach.
Accordingly, the parties agree that they shall be entitled to specific
performance in addition to any other remedy at law or in equity in the event
of a breach of this Agreement.
SECTION TWELVE
GOVERNING LAW
This Agreement shall be construed and enforced in accordance with the laws
of the Commonwealth of Virginia, without regard to the conflicts of laws
provisions thereof.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
ARIEL: BUYER:
ARIEL CAPITAL MANAGEMENT, INC. CHESAPEAKE CORPORATION
/s/ Franklin L. Morton /s/ Andrew J. Kohut
By:__________________________________ By:__________________________________
Title: Senior Vice President Title: Senior Vice President
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IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
CHESAPEAKE CORPORATION and
SHEFFIELD, INC.,
Plaintiffs,
v. No.
MARC P. SHORE, HOWARD M.
LIEBMAN, ANDREW N. SHORE,
LEONARD J. VEREBAY, VIRGINIA A.
KAMSKY, SHARON R. FAIRLEY,
R. TIMOTHY O'DONNELL, KEVIN J.
BANNON, WILLIAM P. WEIDNER, and
SHOREWOOD PACKAGING CORPORATION,
Defendants.
COMPLAINT
Plaintiffs Chesapeake Corporation ("Chesapeake") and Sheffield, Inc.
("Purchaser," jointly with Chesapeake, "Plaintiffs"), by and through its
undersigned attorneys, upon knowledge as to themselves and their own acts and
upon information and belief as to all other matters, allege for their
complaint against Marc P. Shore, Howard M. Liebman, Andrew N. Shore, Leonard
J. Verebay, Virginia A. Kamsky, Sharon R. Fairley, R. Timothy O'Donnell, Kevin
J. Bannon, William P. Weidner (collectively, the "Director Defendants") and
Shorewood Packaging Corporation ("Shorewood" or the "Company," together with
the Director Defendants, the "Defendants"), as follows:
NATURE OF THE ACTION
1. Plaintiffs commenced today a fully-financed, non-coercive, non-
discriminatory, all-cash, all-shares premium tender offer for Shorewood's
common stock at $17.25 per share (the "Tender Offer"). The $17.25 in cash
offered in the Tender Offer represents approximately a 45% premium over the
closing price of Shorewood's common stock on November 9, 1999, the last full
trading day before Chesapeake made a confidential proposal to acquire
Shorewood in a negotiated transaction at $16.50 per share. The $17.25 in cash
offered in the Tender Offer represents more than a 28% premium above the
closing price of Shorewood's stock on November 17, 1999, the last full trading
day before Shorewood disclosed to the markets Chesapeake's confidential
proposal.
2. The Tender Offer is the initial step in a two-step transaction pursuant
to which Chesapeake proposes to acquire all of the outstanding shares of
Shorewood. If successful, Chesapeake intends to follow the Tender Offer with a
merger or similar business combination (the "Proposed Merger," together with
the Tender Offer, the "Proposed Acquisition"), in which Shorewood's remaining
stockholders will receive an amount in cash equal to the price paid in the
Tender Offer.
3. Chesapeake also announced today its intention to solicit written
consents from Shorewood's stockholders to take certain actions without a
stockholder meeting (the "Consent Solicitation"). The purpose of the Consent
Solicitation is to obtain sufficient written consents from Shorewood's
stockholders in order to (i) amend Shorewood's Amended and Restated By-laws
(the "Bylaws") to remove the provision establishing a staggered board of
directors, (ii) remove all current members of
<PAGE>
the Shorewood board of directors (the "Shorewood Board"), (iii) reduce the
authorized number of Shorewood directors to three, (iv) elect to the Shorewood
Board three independent candidates for director nominated by Chesapeake (the
"Nominees"), and (v) repeal any recent or subsequent amendments to the Bylaws.
4. To commence the Tender Offer, Chesapeake prepared a press release
summarizing the terms of the Tender Offer (the "Press Release") and placed a
summary advertisement of the Tender Offer in the national edition of The Wall
Street Journal (the "Summary Advertisement") for immediate publication in the
next issue. These steps were completed and the Tender Offer and Consent
Solicitation process set in motion at 3:00 p.m. yesterday.
5. After Chesapeake had completed these steps, and admittedly in response to
the Chesapeake Proposal and in anticipation of the Consent Solicitation,
Shorewood announced yesterday evening that the Director Defendants had amended
the Bylaws to adopt various draconian provisions designed purposefully to
interfere with the ability of Shorewood's stockholders to exercise their
franchise rights (collectively, the "Bylaw Amendments"). Among other things,
the Director Defendants amended the Bylaws to adopt a new Article X, which
provides that "the by-laws may be amended, added to, altered or repealed, or
new by-laws may be adopted ...... by the affirmative vote of the holders of not
less than two thirds ( 2/3) of the stock issued and outstanding as of the
record date" (the "Super-Majority Bylaw").
6. The Super-Majority Bylaw is a blatant and undisguised effort by the
Director Defendants to entrench themselves by disenfranchising Shorewood's
stockholders. The Super-Majority Bylaw is a disproportionate and draconian
defensive response and constitutes a breach of the Director Defendants'
fiduciary duties. The Super-Majority Bylaw also is invalid and ultra vires
under both the Shorewood certificate of incorporation (the "Charter") and
Delaware law.
7. This action seeks declaratory relief invalidating the Bylaw Amendments
and injunctive relief barring Shorewood or any of its directors, officers,
agents or representatives from relying on, implementing, applying or enforcing
the Bylaw Amendments. This action further seeks declaratory and injunctive
relief requiring Shorewood to dismantle its takeover defenses, including its
"poison pill," and enjoining Shorewood from amending the Bylaws further or
taking any other action to defeat the Tender Offer and Proposed Merger or to
thwart the stockholder franchise and frustrate the Consent Solicitation.
THE PARTIES
8. Plaintiff Chesapeake is a corporation incorporated under the laws of the
Commonwealth of Virginia with its principal executive offices located in
Richmond, Virginia. Chesapeake is primarily engaged in the manufacture and
sale of specialty packaging, point-of-purchase displays, and merchandising
services. Chesapeake's shares are listed on the New York Stock Exchange.
Chesapeake is the beneficial owner of shares representing 14.9% of Shorewood's
common stock.
9. Plaintiff Purchaser is a corporation incorporated under the laws of the
State of Delaware and a wholly-owned subsidiary of Chesapeake. Purchaser was
formed to acquire all of the outstanding shares of Shorewood through the
Proposed Acquisition. Purchaser is the record owner of 100 shares of Shorewood
common stock.
10. Defendant Marc P. Shore ("Mr. Shore") is the Chairman and Chief
Executive Officer of Shorewood. Mr. Shore is the son of Paul B. Shore, the
founder of the Company. Mr. Shore owns beneficially 955,601 shares of
Shorewood common stock. Through a network of trusts and investment
partnerships created for the benefit of the Shore family, Mr. Shore controls
and is deemed to hold
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beneficially an additional 3,904,303 shares, more than four times his personal
holdings. In the aggregate, Mr. Shore owns or controls shares representing
17.38% of the Company's outstanding common stock. In fiscal year 1999, Mr.
Shore received $800,000 in salary, a bonus of $1,093,000, other compensation
of $149,625, and restricted stock awards valued at $825,000, for a total
compensation package immediately worth $2,867,625. He also received options to
purchase an additional 350,000 shares of the Company's stock, which options
the Company valued at $7,699,886 based on an estimated annual appreciation
rate for the Company's stock of 10%. During the same year, the Company's share
price dropped by 36.89% and yielded investors a one year total return of
negative 19.14%.
11. Defendant Howard M. Liebman is President, Chief Financial Officer and a
director of Shorewood. In fiscal year 1999, Mr. Liebman received $450,000 in
salary, a bonus of $150,000, other compensation of $107,875, and restricted
stock awards valued at $481,250, for a total compensation package immediately
worth $1,189,125. Mr. Liebman also received options to purchase an additional
150,000 shares of the Company's stock, which options the Company valued at
$3,287,094 based on an estimated annual appreciation rate for the Company's
stock of 10%.
12. Defendant Andrew N. Shore is Vice President, General Counsel, Secretary
and a director of Shorewood. Andrew Shore is the brother of Mr. Shore. Andrew
Shore's compensation is not publicly disclosed.
13. Defendant Leonard J. Verebay is Executive Vice President and a director
of Shorewood. Mr. Verebay's compensation is not publicly disclosed.
14. Defendant Virginia A. Kamsky is a director of Shorewood. Ms. Kamsky is
the founder, chief executive officer, chairman and principal stockholder of
Kamsky Associates, Inc. ("KAI"), which has advised Shorewood for approximately
three years in connection with the establishment of a manufacturing facility
in China. Pursuant to a consulting agreement, Shorewood paid KAI a consulting
fee of $25,000 per month. KAI further is entitled to participate in up to 5%
of Shorewood's allocable share of the "net profits," as defined in the
relevant agreement, from the China facility.
15. Defendant R. Timothy O'Donnell is a director of Shorewood. Mr. O'Donnell
is a President and a principal stockholder of Jefferson Capital Group, Ltd.
("Jefferson Capital"), an investment banking firm. Jefferson Capital receives
substantial revenues from its services to Shorewood. For example, in November
1998, Shorewood paid Jefferson Capital a fee of approximately $1.3 million and
awarded Jefferson Capital, effective as of October 13, 1998, a warrant to
purchase 50,000 shares of Shorewood common stock at an exercise price of $16
per share, exercisable upon grant.
16. Defendant Kevin J. Bannon is a director of Shorewood. Mr. Bannon is an
Executive Vice President of Bank of New York, a participant in the Company's
lending syndicate that loans substantial sums to the Company and receives
substantial revenues from the Company's business. For example, at the end of
fiscal year 1999, the Company had aggregate borrowings from the Bank of New
York in the amount of $25,039,500. The Bank of New York also acts as the
Company's transfer agent.
17. Defendants Sharon R. Fairley and William P. Weidner are directors of
Shorewood.
18. Defendant Shorewood is a corporation incorporated under the laws of the
State of Delaware with its principal executive offices located in New York,
New York. Shorewood and its subsidiaries print and manufacture paperboard
packaging through operations in the United States, Canada and China.
Shorewood's common stock is listed and traded on the New York Stock Exchange.
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BACKGROUND
Chesapeake Considers An Acquisition of Shorewood
19. In the ordinary course of business, Chesapeake engages in an ongoing
evaluation of potential candidates for acquisitions and strategic transactions.
As part of Chesapeake's business strategy of divesting capital intensive,
cyclical commodity businesses and focusing on value-added, specialty packaging
businesses, Chesapeake identified Shorewood as a potential acquisition
candidate as early as May 1998. Chesapeake at no time considered a potential
sale of Chesapeake to Shorewood.
20. In the first quarter of 1999, Chesapeake acquired Field Group plc (the
"Field Acquisition"). As part of the Field Acquisition, Chesapeake and
Shorewood discussed opportunities for alliances or transactions involving
specific target markets or individual plants. Chesapeake and Shorewood did not
discuss a potential strategic transaction or business combination involving the
companies.
21. On October 26, 1999, Mr. Shore called Thomas H. Johnson, President and
Chief Executive Officer of Chesapeake, and proposed an acquisition of
Chesapeake by Shorewood, thereby recognizing the significant value inherent in
a combination of the two companies. On October 27, 1999, Mr. Johnson received a
letter from Mr. Shore dated October 26, 1999, that outlined the terms of a
potential acquisition (the "Shorewood Proposal"). On October 29, 1999, Mr.
Johnson informed Mr. Shore by letter that Chesapeake was not for sale, but that
he would present the Shorewood Proposal to Chesapeake's board of directors (the
"Chesapeake Board") and that the Chesapeake Board would consider carefully the
Shorewood Proposal.
22. On November 3, 1999, the Chesapeake Board convened a special meeting to
consider the Shorewood Proposal. The Chesapeake Board received presentations
from Chesapeake's management regarding Chesapeake's performance and the
Shorewood Proposal. The Chesapeake Board also received advice from its legal
counsel and from Goldman, Sachs & Co. and Donaldson, Lufkin & Jenrette, co-
financial advisors to the Chesapeake Board. After receiving and considering
this information and advice, the Chesapeake Board unanimously determined that
the Shorewood Proposal was inadequate and not in the best interests of
Chesapeake and its stockholders. The Chesapeake Board instructed Mr. Johnson to
communicate with Mr. Shore and inform him of the Chesapeake Board's decision to
reject the Shorewood Proposal.
23. Also on November 3, 1999, the Chesapeake Board considered a potential
acquisition of Shorewood as one of the strategic acquisitions available to
Chesapeake. Among other things, the Board noted that such an acquisition was
consistent with Chesapeake's strategic plan. The Chesapeake Board further
considered that Chesapeake could unlock significant value in Shorewood's assets
by applying Chesapeake's management and operational strategies and by
incorporating an acquisition of Shorewood into other potential acquisitions
being explored by Chesapeake. At the conclusion of the meeting, the Chesapeake
Board authorized Mr. Johnson to propose an acquisition of Shorewood by
Chesapeake (the "Chesapeake Proposal").
Shorewood Rejects The Chesapeake Proposal
24. On November 10, 1999, Mr. Johnson met with Mr. Shore and communicated the
Chesapeake Board's decision regarding the Shorewood Proposal. Mr. Johnson then
presented Mr. Shore with the Chesapeake Proposal. Mr. Johnson also provided Mr.
Shore with a letter outlining the Chesapeake Proposal. Among other things, the
letter noted that the Chesapeake Proposal was not subject to any financing
condition and that Chesapeake was prepared to commence immediately good
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faith negotiations on an exclusive basis with the objective of entering into a
definitive merger agreement consistent with the Chesapeake Proposal.
25. Mr. Shore stated that he would communicate the proposal to the Shorewood
Board but that any meeting would be a "very short one." Mr. Shore thus implied
strongly that he was unwilling to accept or support the Chesapeake Proposal and
that the Shorewood Board, dominated by insiders and individuals beholden to Mr.
Shore, would follow his lead.
Shorewood Publicly Announces The Shorewood Proposal
And The Chesapeake Proposal
26. On the morning of November 18, 1999, Mr. Shore delivered a letter to Mr.
Johnson by facsimile in which he informed Mr. Johnson that the Shorewood Board
had "unanimously and unequivocally rejected" the Chesapeake Proposal. The
Shorewood Board thus had followed Mr. Shore's lead, just as Mr. Shore had
intimated during the November 10, 1999 meeting.
27. Mr. Shore's letter also informed Mr. Johnson that Shorewood would
publicize the Shorewood Proposal and the Chesapeake Proposal, notwithstanding
Chesapeake's desire for the Chesapeake Proposal to remain confidential. Indeed,
at the same time Mr. Shore was sending his letter to Mr. Johnson, Shorewood was
issuing a press release announcing the Shorewood Proposal and publicly
disclosing the confidential Chesapeake Proposal.
28. Later in the day on November 18, 1999, Chesapeake issued a press release
confirming the existence of the Chesapeake Proposal and noting that Chesapeake
was "prepared to commence immediate good faith negotiations on an exclusive
basis with the objective of entering into a definitive merger agreement
consistent with its proposal."
Chesapeake Attempts To Negotiate With Shorewood
29. On November 22, 1999, Mr. Johnson sent a letter to the members of the
Shorewood Board asking them to consider entering into immediate good faith
negotiations with Chesapeake regarding the Chesapeake Proposal. Mr. Johnson
noted the possibility of Chesapeake increasing its offer after appropriate due
diligence and access to the Company's business plan, as well as the possibility
of utilizing alternatives to an all-cash structure that could offer tax-
advantages to certain of Shorewood's stockholders. Chesapeake also issued a
press release announcing Mr. Johnson's letter. Shorewood did not respond to Mr.
Johnson's letter.
30. On November 26, 1999, Chesapeake entered into a stock purchase agreement
with Ariel Capital Management, Inc. ("Ariel") pursuant to which Ariel agreed to
use its best efforts as an investment adviser to exercise its discretionary
authority to cause Ariel's clients to sell approximately 4.1 million shares of
Shorewood common stock, representing approximately 14.9% of Shorewood's
outstanding shares, to Chesapeake. Ariel also agreed that if Chesapeake
commenced a public tender offer for Shorewood's common stock prior to the
closing of the purchase agreement, Ariel would use its best efforts as
investment adviser to exercise its discretionary authority to cause its clients
to (i) tender their shares to Chesapeake and (ii) execute any proxies or
written consents in the form solicited by Chesapeake in any proxy or written
consent solicitation commenced in connection with such tender offer.
31. On November 29, 1999, Chesapeake issued a press release announcing its
agreement with Ariel and renewing its offer to the members of the Shorewood
Board to meet and negotiate the terms of an acquisition of Shorewood by
Chesapeake. That same day, Shorewood issued a press release rejecting
Chesapeake's overtures.
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Chesapeake Commences The Tender Offer And Consent Solicitation
32. Faced with the Director Defendants' intransigence, Plaintiffs today
commenced the fully-financed, non-coercive, non-discriminatory, all-cash, all-
shares premium Tender Offer. The Tender Offer is conditioned, among other
things, upon (i) the tender and purchase of sufficient Shorewood shares to give
Chesapeake and Purchaser a majority of the outstanding Shorewood shares on a
fully diluted basis, (ii) the exemption of the Tender Offer from Section 203 of
the Delaware General Corporation Law ("Section 203") and (iii) the redemption
or inapplicability of Shorewood's stockholder rights plan (the "Rights Plan").
33. Chesapeake also announced today the Consent Solicitation. The purpose of
the Consent Solicitation is to obtain sufficient consents from Shorewood's
stockholders to take certain actions by written consent without a stockholder
meeting, including (i) amending Shorewood's Bylaws to remove the provision
establishing a staggered board of directors, (ii) removing all current members
of the Shorewood Board, (iii) reducing the authorized number of Shorewood
directors to three, (iv) electing the Nominees to the Shorewood Board, and (v)
repealing any recent or subsequent amendments to the Bylaws. In furtherance of
the Consent Solicitation, Purchaser is demanding that Shorewood produce a list
of its stockholders and related stocklist materials.
34. If elected, the Nominees will consider, subject to their fiduciary duties
to Shorewood's stockholders, (i) redeeming the Rights Plan (or amending the
Rights Plan to make it inapplicable to the Proposed Acquisition), (ii)
approving the Tender Offer under Section 203, and (iii) taking such other
actions as may be required to expedite the prompt consummation of the Proposed
Acquisition.
Shorewood Discloses The Bylaw Amendments
35. To commence the Tender Offer, Chesapeake prepared the Press Release,
which summarizes the terms of the Tender Offer, and placed the Summary
Advertisement in the national edition of The Wall Street Journal for immediate
publication in the next issue. These steps were completed and the Tender Offer
and Consent Solicitation process set in motion at 3:00 p.m. yesterday. Later
that evening, Shorewood disclosed that the Director Defendants had amended the
Bylaws to adopt the draconian Bylaw Amendments, which are designed to
purposefully interfere with the ability of Shorewood's stockholders to exercise
their franchise rights in the Consent Solicitation. Shorewood admitted in its
disclosure document that the Director Defendants adopted the Bylaw Amendments
"as a consequence of an unsolicited proposal" that Shorewood had received--
namely the Chesapeake Proposal.
36. All of the Bylaw Amendments are directed specifically at the stockholder
franchise in a blatant and undisguised attempt to eliminate the right of the
Shorewood's stockholders to control the destiny of their company. For example,
under Shorewood's previous bylaws (the "Old Bylaws"), stockholders of the
Company "owning 20% of the shares of the Corporation then entitled to vote"
could call a special meeting. The Bylaw Amendments purport to eliminate this
right and authorize only the Shorewood Board to call a special meeting.
37. In an even clearer attempt at entrenchment, the Director Defendants
purported in the Bylaw Amendments to eliminate the ability of the stockholders
to remove directors without cause. Article II, Section 3 of the Old Bylaws
expressly provided that "directors may be removed with or without cause." The
Bylaw Amendments ostensibly amend Article II, Section 3 of the Old Bylaws to
provide that directors only may be removed in accordance "with Delaware General
Corporation Law Section 141(k)(1)." Section 141(k)(1) provides that where a
corporation has a staggered board of directors, stockholders only may remove
directors for cause. The new Article II, Section 3 thus attempts to protect the
Director Defendants by eliminating the stockholders' ability to remove them
except for
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cause (the "For Cause Removal Bylaw"). Yet rather than taking this action
openly, the Director Defendants tried to hide this change from Shorewood's
stockholders by couching it in a technical reference to the Delaware General
Corporation Law.
38. Most egregiously, the Director Defendants enacted a series of amendments
that attempt to eliminate as a practical matter the right of Shorewood's
stockholders to act by written consent. Section 228 of the Delaware General
Corporation Law provides that
Unless otherwise provided in the certificate of incorporation, any
action required by this chapter to be taken at any annual or special
meeting of such stockholders of a corporation, or any action which may
be taken at any annual or special meeting of such stockholders, may be
taken without a meeting, without prior notice and without a vote, if a
consent or consents in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote
thereon were present and voted and shall be delivered to the
corporation by delivery to its registered office in the [State of
Delaware].
8 Del. C. (S) 228(a).
39. Shorewood's Charter does not limit or eliminate the power of Shorewood's
stockholders to act by written consent. To the contrary, the Charter confirms
that the Shorewood Board may not take actions designed to interfere with the
stockholder franchise. Article NINTH of the Charter states:
The power to make, alter, or repeal a By-Law, and to adopt a new By-
Law, except a By-Law classifying directors for election for staggard
[sic.] terms, shall be vested in the Board of Directors; provided,
however, that the power conferred upon the Board of Directors pursuant
to this Article shall not divest or limit the power of the stockholders
to adopt, amend or repeal Bylaws.
(Emphasis added). Shorewood's Charter thus strongly affirms the franchise
rights of Shorewood's stockholders.
40. Like the Charter, the Old Bylaws placed no limitation on the ability of
Shorewood's stockholders to act by written consent. Article IX, Section 1 of
the Old Bylaws provided that
Unless otherwise provided in the Certificate of Incorporation or by
law, any action required to be taken or which may be taken at any
annual or special meeting of stockholders may be taken without a
meeting, without prior notice and without a vote, if a consent in
writing, setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a
meeting at which all shares of stock entitled to vote thereon were
present and voted.
Shorewood's Old Bylaws also did not contain any provisions purporting to allow
the Board to set a record date for a consent solicitation, thereby permitting
Shorewood's stockholders to set the record date for action by consent by
delivering a consent to the Company.
41. In the Bylaw Amendments, the Director Defendants adopted a series of
provisions aimed directly at the consent process. First, the Director
Defendants adopted a provision purporting to require any stockholder seeking to
have the stockholders authorize or take corporate action by written consent to
"request the Board of Directors to fix a record date" (the "Consent Record Date
Bylaw"). As publicly disclosed, the Consent Record Date Bylaw contains no
provision permitting a stockholder to set the record date absent action by the
Board. The Director Defendants thus attempted to arrogate to themselves
exclusive authority over the setting of a record date for any consent
solicitation. This is
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contrary to Section 213(b) of the Delaware General Corporation Law, which
permits a stockholder to establish a record date for a consent solicitation in
the absence of action by the board of directors by delivering a signed written
consent setting forth the action taken or proposed to be taken to the
corporation. At the same time, the Director Defendants adopted a new Article
IX, Section 1, which purports to impose requirements on the form of consents
and to enlarge the circumstances under which consents can be revoked. Neither
provision nor anything similar to them existed under the Old Bylaws.
42. Finally, the Director Defendants adopted the Super-Majority Bylaw. It
provides:
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors of the Corporation from time to time
may make, amend, alter or repeal the by-laws of the Corporation. In
addition, the by-laws may be amended, added to, altered or repealed, or
new by-laws may be adopted, at any meeting of stockholders of the
Corporation at which a quorum is present by the affirmative vote of the
holders of not less than two thirds ( 2/3) of the stock issued and
outstanding as of the record date for stockholders entitled to vote at
such meeting.
The Super-Majority Bylaw thus requires the affirmative vote of the holders of
two thirds of the Company's outstanding stock. By contrast, under the Old
Bylaws, a majority of the Company's stockholders--which for action at a
stockholder meeting meant only a majority of a quorum--had the power to amend
the Bylaws. By enacting the Super-Majority Bylaw, the Director Defendants thus
attempted doubly to disenfranchise the Company's stockholders, first by raising
the vote required to a two-thirds majority, and second by raising the universe
for calculating the number of stockholders to all of the outstanding shares.
43. The Super-Majority Bylaw is a blatant attempt to change the rules of the
stockholder voting process in mid-stream and deprive the stockholders of rights
that they enjoyed and to which they are entitled under the corporate contract.
The Super-Majority Bylaw also is a grossly disproportionate response to the
minimal threat, if any, posed by the Chesapeake Proposal and Consent
Solicitation. By enacting the Super-Majority Bylaw, the Director Defendants are
attempting to coerce Shorewood's stockholders into inaction by creating the
impression that their votes will be futile. Indeed, the Director Defendants no
doubt believe that the Super-Majority Bylaw will prevent Shorewood's
stockholders as a practical matter from ever amending the Bylaws. As a group,
the Company's directors and senior officers own 25.09% of Shorewood's common
stock. Any stockholder proposal to make, amend, alter or repeal the Bylaws that
is opposed by Shorewood's officers and directors therefore must obtain the
affirmative vote of 89% of the holders of the remaining shares of the Company's
outstanding stock! The Super-Majority Bylaw thus in practice imposes an 89%
super-majority requirement. This makes success in any proxy or consent
solicitation realistically unattainable for any group of stockholders that is
opposed by Shorewood's officers and directors. The Super-Majority Bylaw
therefore is a preclusive and draconian defense.
The Effect Of The Bylaw Amendments On The Consent Solicitation
44. By adopting the Bylaw Amendments, the Director Defendants have attempted
to interfere purposefully with the stockholder franchise and frustrate the
Consent Solicitation. Without any possible motivation except entrenchment, the
Director Defendants have attempted to change the rules for stockholder voting
by raising the required vote to a two thirds super-majority, which as a
practical matter requires a realistically unattainable 89% super-majority vote.
45. The Bylaw Amendments also represent a wholly-disproportionate and
draconian response by the Director Defendants to a threat that is not legally
cognizable. Faced with a potential consent
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solicitation in which they could be voted out of office, the Director
Defendants attempted to coerce Shorewood's stockholders into inaction and to
preclude any chance of a successful solicitation. Moreover, in their rush to
protect themselves, the Director Defendants adopted provisions that are illegal
and invalid under the Shorewood Charter and Delaware law.
46. Viewed as a whole, the actions taken by the Director Defendants confirm
their twin goals of interfering with the stockholder franchise and entrenching
themselves. All of the Bylaw Amendments attempt to limit or eliminate
stockholder voting rights. The Director Defendants specifically have targeted
the consent process by adopting the Consent Record Date Bylaw, which allows the
Director Defendants to manipulate the consent process to their own advantage.
The For Cause Removal Bylaw demonstrates clearly that the sole goal of the
Director Defendants is to insulate themselves and protect their positions.
47. Chesapeake believes that Shorewood's stockholders will deliver written
consents to Chesapeake sufficient under the Old Bylaws to (i) amend Shorewood's
Bylaws to remove the provision establishing a staggered board of directors,
(ii) remove the Director Defendants, (iii) reduce the authorized number of
Shorewood directors to three, (iv) elect the Nominees and (v) repeal any recent
or subsequent amendments to the Bylaws. The Super-Majority Bylaw is frustrating
and will frustrate the ability of Shorewood's stockholders to exercise their
franchise rights and act by consent to amend the Bylaws--the prerequisite for
all the actions to be taken in the Consent Solicitation--by imposing a two
thirds super-majority requirement, which as a practical matter requires a
realistically unattainable 89% super-majority vote. The Super-Majority Bylaw is
a disproportionate and draconian response to the Consent Solicitation and the
non-coercive, non-discriminatory, premium Tender Offer. The Super-Majority
Bylaw instead is an entrenchment device that interferes purposefully with the
stockholder franchise without any justification. Moreover, the Super-Majority
Bylaw is contrary to Article Ninth of the Charter and Delaware law.
IRREPARABLE HARM
48. The Director Defendants' refusal to consider the Chesapeake Proposal is
preventing Shorewood's stockholders from receiving the benefits of a plainly
superior transaction. The Shorewood stockholders cannot rely on the Shorewood
Board to act in their best interests regarding the Chesapeake Proposal because
the Director Defendants have demonstrated that their primary goal is
entrenchment.
49. Until the Director Defendants enacted the Bylaw Amendments, Shorewood's
stockholders had the unfettered right under Delaware law, the Charter and the
Old Bylaws to act by written consent to amend the Bylaws, remove the staggered
board provision, remove the Director Defendants and elect the independent
Nominees, who will fulfill their fiduciary duties to Shorewood's stockholders
and consider, subject to their fiduciary duties, the Chesapeake Proposal. Now,
Shorewood's stockholders will be frustrated in their efforts to utilize the
consent process by the Super-Majority Bylaw, which makes success in a consent
solicitation realistically unattainable because as a practical matter it
imposes an 89% super-majority requirement. Moreover, even if under some
circumstances a consent solicitation could poll in excess of 90% of a
corporation's outstanding voting power, here the Super-Majority Bylaw will
chill the Consent Solicitation by making Shorewood's stockholders believe that
their votes are meaningless. This type of interference with the stockholder
franchise constitutes irreparable harm. In addition, because Shorewood's
stockholders now have no way to bypass the Director Defendants, Shorewood's
stockholders cannot receive the benefits of the Chesapeake Proposal. This also
constitutes irreparable harm.
50. At the same time, Chesapeake is suffering irreparable harm as a result of
the Bylaw Amendments and the inability of Shorewood's stockholders to receive
the Chesapeake Proposal. The
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chance to acquire Shorewood represents a unique opportunity, and the loss of
this opportunity constitutes irreparable harm.
51. Unless the Super-Majority Bylaw is enjoined or invalidated by this Court,
the substantial benefits of the Chesapeake Proposal will be forever lost. The
injury to Chesapeake and Shorewood's stockholders will not be compensable in
money damages, and Chesapeake has no adequate remedy at law. The proper remedy
is to enjoin and invalidate the Super-Majority Bylaw and the Bylaw Amendments
as a whole to permit the Consent Solicitation to go forward and the
stockholders to exercise their franchise rights in a free and uncoerced
environment.
COUNT I
(Breach of Fiduciary Duty: The Bylaw Amendments)
52. Plaintiffs repeat and reallege each and every allegation set forth in the
preceding paragraphs as if fully set forth herein.
53. The Director Defendants owe Shorewood's stockholders the highest duties
of care, loyalty and good faith.
54. The Director Defendants adopted the Bylaw Amendments as a defensive
response to the Chesapeake Proposal and in anticipation of the Consent
Solicitation. In adopting the Bylaw Amendments, the Director Defendants acted
in haste, without full information and for purposes of entrenchment.
55. As such, the actions of the Director Defendants are in breach of the
fiduciary duties the Director Defendants owe to Shorewood's stockholders under
applicable Delaware law, including the duties of loyalty and care.
56. Plaintiffs have no adequate remedy at law.
COUNT II
(Breach of Fiduciary Duty: The Super-Majority Bylaw
and the Consent Record Date Bylaw)
57. Plaintiffs repeat and reallege each and every allegation set forth in the
preceding paragraphs as if fully set forth herein.
58. The Director Defendants owe Shorewood's stockholders the highest duties
of care, loyalty and good faith.
59. The Director Defendants adopted the Super-Majority Bylaw and the Consent
Record Date Bylaw as a defensive response to the Chesapeake Proposal and in
anticipation of the Consent Solicitation. In responding to the Chesapeake
Proposal and in anticipation of the Consent Solicitation, the Director
Defendants failed to respond to a legally cognizable threat in good faith after
due investigation.
60. The Super-Majority Bylaw is an unreasonable, coercive and preclusive
defensive response. The Super-Majority Bylaw is unreasonable because it is a
dramatically disproportionate response to the minimal threat, if any, posed by
the Chesapeake Proposal and Consent Solicitation. The Super-Majority Bylaw is
coercive because it chills Shorewood's stockholders into voting in favor of the
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Director Defendants or not voting at all because the stockholders will believe
their votes to be meaningless. The Super-Majority Bylaw is preclusive because
as a practical matter it imposes a realistically unattainable 89% super-
majority requirement for Shorewood's stockholders to amend, alter or repeal the
Bylaws.
61. The Consent Record Date Bylaw is an unreasonable, coercive and preclusive
defensive response because it attempts to eliminate the right of the
stockholders to set a record date and arrogate that authority exclusively to
the Shorewood Board.
62. As such, the actions of the Director Defendants are in breach of the
fiduciary duties the Director Defendants owe to Shorewood's stockholders under
applicable Delaware law.
63. Plaintiffs have no adequate remedy at law.
COUNT III
(Breach of Fiduciary Duty: The Super-Majority Bylaw
and the Consent Record Date Bylaw)
64. Plaintiffs repeat and reallege each and every allegation set forth in the
preceding paragraphs as if fully set forth herein.
65. The Director Defendants owe Shorewood's stockholders the highest duties
of care, loyalty and good faith.
66. The Director Defendants adopted the Super-Majority Bylaw in response to
the Chesapeake Proposal and in anticipation of the Consent Solicitation. By
adopting the Super-Majority Bylaw and the Consent Record Date Bylaw, the
Defendant Directors purposely interfered with the stockholder franchise.
67. The Director Defendants have not and cannot offer any justification for
adopting the Super-Majority Bylaw and the Consent Record Date Bylaw.
68. As such, the actions of the Director Defendants are in breach of the
fiduciary duties the Director Defendants owe to Shorewood's stockholders under
applicable Delaware law.
69. Plaintiffs have no adequate remedy at law.
COUNT IV
(Ultra Vires: The Super-Majority Bylaw
and the Consent Record Date Bylaw)
70. Plaintiffs repeat and reallege each and every allegation set forth in the
preceding paragraphs as if fully set forth herein.
71. Section 109(a) of the Delaware General Corporation Law provides that
directors "shall not divest the stockholders...... of the power, nor limit their
power to adopt, amend or repeal bylaws." The Super-Majority Bylaw violates this
provision and is void.
72. Section 102(b)(4) of the Delaware General Corporation Law provides that
super-majority provisions may be placed in the certificate of incorporation.
There is no similar authorization for super-
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majority provisions in a corporation's bylaws. The Super-Majority Bylaw
attempts to circumvent this statutory scheme and is void.
73. Article NINTH of the Charter provides that the Shorewood Board "shall not
divest or limit the power of the stockholders to adopt, amend or repeal
Bylaws." The Super-Majority Bylaw violates this provision and is void.
74. Section 213(b) of the Delaware General Corporation Law permits a
stockholder to establish a record date for a consent solicitation in the
absence of action by the board of directors by delivering a signed written
consent setting forth the action taken or proposed to be taken to the
corporation. As publicly disclosed, the Consent Record Date Bylaw purports to
eliminate this right and is void.
75. Plaintiffs have no adequate remedy at law.
COUNT V
(Breach of Fiduciary Duty: The Rights Plan)
76. Plaintiffs repeat and reallege each and every allegation set forth in the
preceding paragraphs as if fully set forth herein.
77. The Director Defendants owe Shorewood's stockholders the highest duties
of care, loyalty and good faith.
78. In light of the superior value offered to Shorewood stockholders by the
Proposed Acquisition, there is no legitimate reason for the Director Defendants
to retain the Rights Plan. The Director Defendants' failure to redeem the
rights or to render the Rights Plan inapplicable to the Proposed Acquisition
deprives Shorewood's stockholders of the right to maximize their wealth by
selling their Shorewood shares at the premium price offered by the Proposed
Acquisition.
79. The Director Defendants' failure to redeem the rights or to render the
Rights Plan inapplicable to the Proposed Acquisition has no economic
justification, serves no legitimate purpose, and is not a reasonable response
to the Tender Offer and/or the Proposed Merger, which pose no threat to the
interests of Shorewood's stockholders or to Shorewood's corporate policy and
effectiveness. As such, the actions of the Director Defendants are in breach of
the fiduciary duties the Director Defendants owe to Shorewood's stockholders
under applicable Delaware law.
80. Plaintiffs have no adequate remedy at law.
COUNT VI
(Breach of Fiduciary Duty: Section 203)
81. Plaintiffs repeat and reallege each and every allegation set forth in the
preceding paragraphs as if fully set forth herein.
82. The Director Defendants owe Shorewood's stockholders the highest duties
of care, loyalty and good faith.
83. The Director Defendants are empowered by Section 203 to render the
statute inapplicable to the Proposed Acquisition by approving the Tender Offer.
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84. In light of the superior value offered to Shorewood stockholders by the
Proposed Acquisition, there is no legitimate reason for the Director Defendants
to fail to approve the Tender Offer or to fail to take any other steps
necessary to render Section 203 inapplicable to the Proposed Acquisition. Such
failures only have the effect of withholding from Shorewood's stockholders the
right to maximize their wealth by selling their Shorewood shares at the premium
price offered by the Proposed Acquisition.
85. The Director Defendants' failure to approve the Tender Offer or otherwise
render Section 203 inapplicable to the Proposed Acquisition has no economic
justification, serves no legitimate purpose, and is not a reasonable response
to the Proposed Acquisition, which poses no threat to the interests of
Shorewood's stockholders or to Shorewood's corporate policy and effectiveness.
As such, the actions of the Director Defendants are in breach of the fiduciary
duties the Director Defendants owe to Shorewood's stockholders under applicable
Delaware law.
86. Plaintiffs have no adequate remedy at law.
COUNT VII
(Declaratory And Injunctive Relief:
Additional Anti-Takeover Devices)
87. Plaintiffs repeat and reallege each and every allegation set forth in the
preceding paragraphs as if fully set forth herein.
88. The Director Defendants owe Shorewood's stockholders the highest duties
of care, loyalty and good faith.
89. The Tender Offer is non-coercive and non-discriminatory, it is fair to
Shorewood's stockholders, it poses no threat to Shorewood's corporate policy
and effectiveness, and it represents a substantial premium over the market
price of Shorewood common stock prior to the public announcement of the Tender
Offer.
90. Adoption of any additional defensive measures against the Tender Offer,
the Proposed Merger, the Consent Solicitation or proposed acquisition, or the
adoption of any additional measure that would prevent a future board of
directors from exercising its fiduciary duties, including, but not limited to,
amendments to the Rights Plan, amendments to the Bylaws, pursuit of alternative
transactions with substantial break-up fees and/or lock-ups, "White Knight"
stock issuances, changes to licensing agreements, or executive compensation
arrangements with substantial payments triggered by a change in control, would
itself be a breach of the Director Defendants' fiduciary duties to Shorewood's
stockholders.
91. Plaintiffs have no adequate remedy at law.
COUNT VIII
(Declaratory And Injunctive Relief: The Consent Solicitation)
92. Plaintiffs repeat and reallege each and every allegation set forth in the
preceding paragraphs as if fully set forth herein.
93. The Director Defendants owe Shorewood's stockholders the highest duties
of care, loyalty and good faith.
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94. The Consent Solicitation complies and will comply with the Delaware law,
the Charter and the Old Bylaws.
95. Plaintiffs are entitled to a declaration that Consent Solicitation
complies and will comply with the Delaware law, the Charter and the Old Bylaws.
96. Plaintiffs have no adequate remedy at law.
WHEREFORE, Plaintiffs respectfully request that this Court enter an Order
a. declaring that the Director Defendants have breached their fiduciary
obligations to Shorewood stockholders under Delaware law by adopting the Super-
Majority Bylaw, the Consent Record Date Bylaw, and the Bylaw Amendments as a
whole;
b. declaring that the Super-Majority Bylaw and the Consent Record Date Bylaw
are ultra vires and void;
c. enjoining Shorewood, its directors, officers, employees and agents from
relying on, implementing, applying or enforcing the Super-Majority Bylaw, the
Consent Record Date Bylaw, and the Bylaw Amendments as a whole;
d. declaring that the Director Defendants have breached their fiduciary
obligations to Shorewood stockholders under Delaware law by failing to redeem
the Rights in response to the Tender Offer;
e. compelling Shorewood and the Director Defendants to redeem the rights or
to render the Rights Plan inapplicable to the Proposed Acquisition;
f. declaring that the Director Defendants have breached their fiduciary
obligations to Shorewood stockholders under Delaware law by failing to render
Section 203 inapplicable to the Proposed Acquisition;
g. compelling the Director Defendants to approve the Proposed Acquisition for
purposes of Section 203 and enjoin them from taking any action to enforce or
apply Section 203 that would impede, thwart, frustrate or interfere with the
Proposed Acquisition;
h. temporarily, preliminarily and permanently enjoining Shorewood, its
employees, agents and all persons acting on its behalf or in concert with it
from taking any action with respect to the Rights Plan, except to redeem the
rights or render the Rights Plan inapplicable to the Tender Offer, and from
adopting any other Rights Plan or other measures, or taking any other action
designed to impede, or which has the effect of impeding, the Tender Offer or
the efforts of Chesapeake to acquire control of Shorewood;
i. temporarily, preliminarily and permanently enjoin Defendants, their
affiliates, subsidiaries, officers, directors and all others acting in concert
with them or on their behalf from bringing any action concerning the Rights
Plan, Section 203, any other defensive measure, the Tender Offer, the Proposed
Merger, the Consent Solicitation and the Proposed Acquisition in any other
court;
j. declaring that the adoption of any other measure that has the effect of
impeding, thwarting, frustrating or interfering with the Tender Offer, the
Proposed Merger, the Consent Solicitation and the Proposed Acquisition
constitutes a breach of the Director Defendants' fiduciary duties;
k. enjoining Shorewood and the Director Defendants from adopting any other
measure that has the effect of impeding, thwarting, frustrating or interfering
with the Tender Offer, the Proposed Merger, the Consent Solicitation and the
Proposed Acquisition;
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l. enjoining Shorewood and the Director Defendants from taking any other
action to delay, impede, postpone or thwart the voting or other rights of
Shorewood's stockholders in connection with the Consent Solicitation or
otherwise;
m. compelling Shorewood and the Director Defendants to recognize the ability
of Shorewood's stockholders to act by written consent in the Consent
Solicitation;
n. awarding Plaintiffs their costs and disbursements in this action,
including reasonable attorneys' and experts' fees; and
o. granting plaintiffs such other and further relief as this Court may deem
just and proper.
/s/ R. Franklin Balotti
_____________________________________
R. Franklin Balotti
J. Travis Laster
Richards, Layton & Finger
One Rodney Square
P.O. Box 551
Wilmington, Delaware 19899
(302) 658-6541
Attorneys for Plaintiffs
Dated: December 3, 1999
15
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IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
CHESAPEAKE CORPORATION and
SHEFFIELD, INC.,
Plaintiffs,
v. No.
SHOREWOOD PACKAGING
CORPORATION,
Defendant.
COMPLAINT
Plaintiffs Chesapeake Corporation ("Chesapeake") and Sheffield, Inc.
("Purchaser," jointly with Chesapeake, "Plaintiffs") file this action seeking
declaratory relief in connection with (i) Plaintiffs' offer to purchase shares
of defendant Shorewood Packaging Corporation's ("Shorewood") common stock, and
(ii) Chesapeake's solicitation of written consents from the stockholders of
Shorewood to take certain actions without a stockholder meeting.
JURISDICTION AND VENUE
1. This Court has jurisdiction over this action pursuant to 15 U.S.C. (S)
78aa, 28 U.S.C. (S) 1331(a) and 28 U.S.C. (S) 1337(a).
2. Venue in this Court is proper pursuant to 15 U.S.C. (S) 78aa and 28
U.S.C. (S) 1391(b).
THE PARTIES
3. Plaintiff Chesapeake is a corporation incorporated under the laws of the
Commonwealth of Virginia with its principal executive offices located in
Richmond, Virginia. Chesapeake is primarily engaged in the manufacture and
sale of specialty packaging, point-of-purchase displays, and merchandising
services. Chesapeake's shares are listed on the New York Stock Exchange
("NYSE"). Chesapeake is a beneficial owner of Shorewood common stock.
4. Plaintiff Purchaser is a corporation incorporated under the laws of the
State of Delaware and a wholly-owned subsidiary of Chesapeake. Purchaser was
formed to acquire all of the outstanding shares of Shorewood through the
tender offer and merger proposal described below. Purchaser is the record
owner of 100 shares of Shorewood common stock.
5. Defendant Shorewood is a corporation incorporated under the laws of the
State of Delaware with its principal executive offices located in New York,
New York. Shorewood and its subsidiaries print and manufacture paperboard
packaging through operations in the United States, Canada and China.
6. Shorewood's common stock is registered pursuant to Section 12(b) of the
Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. (S) 78l(b),
and is listed and traded on the NYSE.
<PAGE>
THE TENDER OFFER
7. Plaintiffs commenced today a fully-financed, non-coercive, non-
discriminatory, all-cash, all-shares premium tender offer for Shorewood's
common stock at $17.25 per share (the "Tender Offer"). Chesapeake commenced
the Tender Offer by issuing a press release summarizing the terms of the
Tender Offer (the "Press Release") and publishing a summary advertisement of
the Tender Offer in the national edition of The Wall Street Journal (the
"Summary Advertisement").
8. Shorewood stockholders whose shares are purchased by Purchaser in the
Tender Offer will receive $17.25 per share in cash. The $17.25 in cash offered
in the Tender Offer represents approximately a 45% premium over the closing
price of Shorewood's common stock on November 9, 1999, the last full trading
day before Chesapeake made a confidential proposal to acquire Shorewood in a
negotiated transaction at $16.50 per share. The $17.25 in cash offered in the
Tender Offer represents more than a 28% premium above the closing price of
Shorewood's stock on November 17, 1999, the last full trading day before
Shorewood disclosed to the markets Chesapeake's confidential proposal. The
Tender Offer is conditioned upon, among other things, (i) the tender and
purchase of sufficient Shorewood shares to give Plaintiffs a majority of the
outstanding Shorewood shares on a fully diluted basis, (ii) the exemption of
the Tender Offer from Section 203 of the Delaware General Corporation Law
("Section 203"), and (iii) the redemption or inapplicability of Shorewood's
stockholder rights plan (the "Rights Plan").
9. The Tender Offer is the initial step in a two-step transaction pursuant
to which Chesapeake proposes to acquire all of the outstanding shares of
Shorewood stock. If successful, Chesapeake intends to follow the Tender Offer
with a merger or similar business combination with Purchaser or a direct or
indirect subsidiary of Chesapeake (the "Proposed Merger," and together with
the Tender Offer, the "Proposed Acquisition"). Pursuant to the Proposed
Merger, it is currently anticipated that each then outstanding share of
Shorewood (other than shares owned by Chesapeake or any of its subsidiaries or
shares held in the treasury of Shorewood) would be converted into the right to
receive an amount in cash equal to the price paid in the Tender Offer.
10. The Tender Offer is, and will continue to be, in full compliance with
all applicable federal laws and regulations governing tender offers, i.e., the
provisions of the Williams Act, embodied in Sections 14(d) and 14(e) of the
Exchange Act, 15 U.S.C. (S)(S) 78n(d) and (e), and the rules and regulations
promulgated thereunder by the Securities and Exchange Commission ("SEC"). In
accordance with the Exchange Act and the rules and regulations promulgated
thereunder by the SEC, Plaintiffs commenced the Tender Offer by issuing the
Press Release and publishing the Summary Advertisement. In connection with the
Tender Offer and in accordance with the Exchange Act and the rules and
regulations promulgated thereunder by the SEC, Plaintiffs will file promptly,
and in any event within five business days, a Schedule 14D-1 with the SEC (the
"Schedule 14D-1") pursuant to Section 14(d)(1) of the Exchange Act and Rule
14d-3 promulgated thereunder, 17 C.F.R. (S) 240.14d-3.
11. Section 14(d) of the Exchange Act, 15 U.S.C. (S) 78n(d), and the rules
and regulations promulgated thereunder by the SEC, require that any person or
entity making a tender offer for beneficial ownership of more than five
percent of a class of registered equity securities file and disclose certain
specified information with respect to the tender offer. Any such bidder must
disclose, among other things, its identity and background, past contacts,
transactions or negotiations between the bidder and the company in whom the
bidder seeks to acquire stock, the source and amount of funds needed for the
tender offer, and any plans the bidder may have to change the capitalization,
corporate structure or business of the company whose stock it seeks to
acquire.
12. In addition, Section 14(e) of the Exchange Act, 15 U.S.C. (S) 78n(e),
makes it "unlawful for any person to make any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statement made, in light of the circumstances under which they are made, not
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misleading, or to engage in any fraudulent, deceptive, or manipulative acts or
practice in connection with any tender offer." Plaintiffs have complied fully
with the Exchange Act and all rules and regulations promulgated thereunder.
13. In connection with the Tender Offer, Plaintiffs will disseminate to
Shorewood's stockholders an offer to purchase containing all material
information required by applicable law to be disclosed (the "Offer to
Purchase").
THE CONSENT SOLICITATION
14. In furtherance of the Proposed Acquisition, Chesapeake publicly
disclosed in the Press Release its intention to solicit written consents from
Shorewood's stockholders to take certain actions without a stockholder meeting
(the "Consent Solicitation"). The purpose of the Consent Solicitation is to
obtain sufficient consents from Shorewood's stockholders in order to (i) amend
Shorewood's bylaws to remove the provision establishing a staggered board of
directors, (ii) remove all current members of the Shorewood Board, (iii)
reduce the authorized number of Shorewood directors to three, (iv) elect to
the Shorewood Board three individuals nominated by Chesapeake (the
"Nominees"), and (v) repeal any recent or subsequent amendments to the
Shorewood Amended and Restated By-laws (the "Bylaws"). If elected, the
Nominees will consider, subject to their fiduciary duties, (i) redeeming the
Rights Plan (or amending the Rights Plan to make it inapplicable to the
Proposed Acquisition), (ii) approving the Tender Offer under Section 203, and
(iii) taking such other actions as may be required to expedite the prompt
consummation of the Proposed Acquisition.
15. Section 14(a) of the Exchange Act, 15 U.S.C. (S) 78n(a), and the rules
and regulations promulgated thereunder by the SEC, require that a person
soliciting an authorization with respect to any registered security file and
disclose certain specific information with respect to the solicitation. Any
such solicitor must disclose, among other things, its identity, the date, time
and place when the proposed action will be taken, and any substantial interest
of the solicitor in the matters to be acted upon. In addition, Rule 14a-9, 17
C.F.R. (S) 240.14a-9, promulgated by the SEC under Section 14(a) of the
Exchange Act, provides that "[n]o solicitation subject to this regulation
shall be made........ containing any statement of which, at the time and in the
light of the circumstances under which it is made, is false or misleading with
respect to any material fact, or which omits to state any material fact
necessary in order to make the statements therein not false or misleading or
necessary to correct any statement in any earlier communication with respect
to the solicitation of a proxy for the same meeting or subject matter which
has become false or misleading.''
16. Chesapeake' preliminary materials relating to the Consent Solicitation
will be filed promptly with the SEC (the "Consent Solicitation Materials").
Chesapeake believes the Consent Solicitation Materials are in full compliance
with Section 14(a) of the Exchange Act and the rules and regulations
promulgated thereunder by the SEC, including Rule 14a-9. Chesapeake will
disseminate to Shorewood's stockholders the Consent Solicitation Materials
disclosing all material information required by applicable law.
17. In furtherance of the Consent Solicitation, Purchaser is demanding that
Shorewood produce a list of its stockholders and related stocklist materials.
DECLARATORY RELIEF
18. The Declaratory Judgment Act, 28 U.S.C. (S) 2201, provides that "[i]n a
case of actual controversy within its jurisdiction, . . . any court of the
United States, upon the filing of an appropriate pleading, may declare the
rights and other legal relations of any interested party seeking such
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declaration." Plaintiffs are entitled to a declaratory judgment that the
Schedule 14D-1 and all exhibits thereto and the Consent Solicitation Materials
are proper and in compliance with all applicable securities laws, rules and
regulations.
19. Although the Tender Offer, Proposed Merger and Proposed Acquisition are
fairly and attractively priced, Plaintiffs reasonably expect that Shorewood
will attempt to thwart or delay Plaintiffs' lawful efforts to consummate the
Tender Offer and pursue the Consent Solicitation. Plaintiffs believe Shorewood
will seek to delay and defeat the Tender Offer and Consent Solicitation
through efforts including the filing of a meritless suit claiming that public
disclosures and filings made by Plaintiffs in conjunction with the Tender
Offer and the Consent Solicitation violate applicable federal securities laws
and regulations. Thus, there is a substantial controversy between parties
having adverse interests which is of sufficient immediacy and reality to
warrant the issuance of a declaratory judgment.
20. In the absence of declaratory relief, Plaintiffs will suffer irreparable
harm. As evidenced by the course of action that Shorewood has pursued to date
and the actions taken generally by companies that receive unsolicited
acquisition proposals, Shorewood will likely defend against the Proposed
Acquisition and the Consent Solicitation by, among other things, filing false
claims designed to delay or defeat the Proposed Acquisition and the Consent
Solicitation. A declaratory judgment that the disclosures in the Schedule 14D-
1, the Offer to Purchase and the Consent Solicitation Materials comply with
all applicable federal laws will serve the purpose of adjudicating the
interests of the parties, resolving any complaints concerning the propriety of
the Tender Offer or the Consent Solicitation under federal law and permitting
an otherwise lawful transaction to proceed.
21. Plaintiffs therefore request pursuant to the Declaratory Judgment Act,
28 U.S.C. (S)(S) 2201 and 2202, that this Court enter a declaratory judgment
that the public disclosures and documents filed with the SEC by plaintiffs and
which are being disseminated to Shorewood stockholders in connection with the
Tender Offer and the Consent Solicitation comply fully with all applicable
provisions of law.
WHEREFORE, Plaintiffs respectfully request that this Court:
a. declare that Plaintiffs have disclosed all information required by,
and are otherwise in all respects in compliance with, all applicable laws
and other obligations, including, without limitation, Sections 14(a), 14(d)
and 14(e) of the Exchange Act and any other federal securities laws, rules
or regulations deemed or claimed to be applicable to the Schedule 14D-1,
the Tender Offer, the Consent Solicitation or the Consent Solicitation
Materials;
b. award plaintiffs their costs and disbursements in this action,
including reasonable attorneys' fees; and
c. grant plaintiffs such other and further relief as this Court may deem
just and proper.
/s/ R. Franklin Balotti
_____________________________________
R. Franklin Balotti
J. Travis Laster
Richards, Layton & Finger
One Rodney Square
P.O. Box 551
Wilmington, Delaware 19899
(302) 658-6541
Attorneys for Plaintiffs
Dated: December 3, 1999
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