<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 14, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
ROCK-TENN COMPANY
(Exact name of registrant as specified in its charter)
---------------------
<TABLE>
<S> <C> <C>
GEORGIA 2631 62-0342590
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
504 THRASHER STREET
NORCROSS, GEORGIA 30071
(770) 448-2193
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------------
BRADLEY CURREY, JR.
504 THRASHER STREET
NORCROSS, GEORGIA 30071
(770) 448-2193
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
COPIES TO:
MARY A. BERNARD
KING & SPALDING
120 WEST 45TH STREET
NEW YORK, NEW YORK 10036
(212) 556-2100
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable following the effectiveness of this Registration Statement.
If any securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
======================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) REGISTRATION FEE(2)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Common Stock, $.01 par
value per share................. 1,200,000 $9.77 $11,728,772 $3,555
======================================================================================================================
</TABLE>
(1) This number is the maximum number of shares of Class A Common Stock of
Rock-Tenn issuable pursuant to that certain Asset Purchase Agreement between
Rock-Tenn Company and The Davey Company. The actual number of shares that
will be issued pursuant to the Asset Purchase Agreement will be determined
according to a formula set forth therein.
(2) Estimated solely for the purpose of calculating the registration fee and
computed pursuant to Rule 457(f)(2) under the Securities Act of 1933, as
amended, based on the aggregate book value of The Davey Company's Common
Stock, which was $11,728,772 as of March 31, 1997.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
ROCK-TENN COMPANY
CROSS REFERENCE TABLE
LOCATION IN PROXY STATEMENT/PROSPECTUS OF INFORMATION
REQUIRED BY ITEMS OF FORM S-4
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION IN FORM S-4 LOCATION IN PROSPECTUS
----------------------------------- ----------------------
<C> <S> <C>
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus................... Outside Front Cover of Proxy
Statement/Prospectus; Facing Page of the
Registration Statement
2. Inside Front and Outside Back Cover Pages of
Prospectus....................................... Available Information; Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed Charges
and Other Information............................ Summary
4. Terms of the Transaction......................... Summary; The Transaction; Certain
Differences in the Rights of Rock-Tenn and
Davey Shareholders
5. Pro Forma Financial Information.................. Not Applicable
6. Material Contacts with the Company Being
Acquired......................................... Not Applicable
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters.... Not Applicable
8. Interests of Named Experts and Counsel........... Not Applicable
9. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities... Not Applicable
10. Information With Respect to S-3 Registrants...... Available Information; Incorporation of
Certain Documents by Reference; Summary
11. Incorporation of Certain Information by
Reference........................................ Incorporation of Certain Information by
Reference
12. Information With Respect to S-2 or S-3
Registrants...................................... Not Applicable
13. Incorporation of Certain Information by
Reference........................................ Not Applicable
14. Information With Respect to Registrants Other
Than S-3 or S-2 Registrants...................... Not Applicable
15. Information With Respect to S-3 Companies........ Not Applicable
16. Information With Respect to S-2 or S-3
Companies........................................ Not Applicable
17. Information With Respect to Companies Other Than
S-2 or S-3 Companies............................. Summary; Selected Financial Data of Davey;
Business of Davey; Common Stock Ownership
by Management and Principal Shareholders
of Davey; Management's Discussion and
Analysis of Financial Condition and
Results of Operations of Davey; Index to
Financial Statements of Davey
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION IN FORM S-4 LOCATION IN PROSPECTUS
----------------------------------- ----------------------
<C> <S> <C>
18. Information if Proxies, Consents or
Authorizations are to be Solicited............... Outside Front Cover of Proxy Statement
Prospectus; Summary; Davey Special
Meeting; The Transaction
19. Information if Proxies, Consents or
Authorizations are not to be Solicited, or in an
Exchange Offer................................... Not Applicable
</TABLE>
2
<PAGE> 4
[DAVEY LETTERHEAD]
Dear Shareholder:
You are cordially invited to attend a special meeting of shareholders
("Special Meeting") of The Davey Company, a New Jersey corporation ("Davey"), to
be held at , at 10:00 a.m. local time on , June ,
1997 at the Newark Airport Hilton, 1170 Spring Street, Newark, New Jersey 07201.
At the Special Meeting, you will be asked to consider and vote upon, and
give your written consent to, a proposal (i) to approve the Asset Purchase
Agreement (the "Purchase Agreement") dated as of May 7, 1997 between Rock-Tenn
Company ("Rock-Tenn") and Davey, pursuant to which Rock-Tenn will acquire
substantially all of the assets and assume certain of the liabilities of Davey
(the "Acquisition") and (ii) to approve a Plan of Liquidation (the "Davey Plan
of Liquidation") to be effective immediately upon consummation of the
Acquisition, pursuant to which Davey will be liquidated and dissolved (the
"Dissolution" and, together with the Acquisition, the "Transaction"). Copies of
the Purchase Agreement and Davey Plan of Liquidation are set forth in the
accompanying Proxy Statement/Prospectus as Annex A and Annex B, respectively. As
part of the Dissolution, Davey will effect the liquidation and dissolution of
The Davey Company, Downingtown, Pennsylvania a Pennsylvania corporation and a
wholly owned subsidiary of Davey ("Davey Downingtown"). The Plan of Liquidation
of Davey Downingtown (the "Downingtown Plan of Liquidation") is set forth in the
accompanying Proxy Statement/Prospectus as Annex C.
Rock-Tenn is a leading manufacturer of packaging and other converted
paperboard products and focuses primarily on folding cartons and recycled
paperboard. Rock-Tenn's Class A Common Stock, par value $.01 per share (the
"Rock-Tenn Common Stock"), is traded on the New York Stock Exchange ("NYSE")
under the symbol "RKT." The last reported sale price of the Rock-Tenn Common
Stock on the NYSE Composite Tape on May 12, 1997 was $14.00 per share.
THE TRANSACTION
Pursuant to the Purchase Agreement, as consideration for the Acquisition,
Rock-Tenn will issue and deliver to Davey an aggregate of approximately 863,500
shares of Rock-Tenn Common Stock, subject to certain adjustments. Assuming no
adjustment is required to be made to the number of shares of Rock-Tenn Common
Stock to be issued pursuant to the Purchase Agreement and that the Transaction
is consummated, each shareholder of Davey will be entitled to receive in the
Dissolution approximately 215.36 shares of Rock-Tenn Common Stock for each share
of common stock of Davey (provided that certain shareholders will receive from
Davey a small amount of cash in lieu of any fractional share of Rock-Tenn Common
Stock such shareholder is otherwise entitled to receive). There will be a number
of restrictions on the ability of a Davey shareholder to sell shares of
Rock-Tenn Common Stock following consummation of the Transaction, which are
discussed below and in the accompanying Proxy Statement/Prospectus. Management
of Davey believes that the consideration to be paid by Rock-Tenn pursuant to the
terms of the Purchase Agreement is fair, from a financial point of view, to
Davey's shareholders.
Substantially all the assets of both Davey and Davey Downingtown are to be
sold to Rock-Tenn pursuant to the Purchase Agreement. Certain assets will not be
sold to Rock-Tenn, the most significant of which is the real property owned by
Davey Downingtown, and an amount of cash estimated by management of Davey to
permit Davey to satisfy the remaining liabilities of Davey and Davey
Downingtown. In order to effect the transfer of these assets to Rock-Tenn,
immediately prior to consummation of the Acquisition, certain assets of Davey
Downingtown will be transferred to Davey, which assets will then be sold to
Rock-Tenn pursuant to the Purchase Agreement. Additionally, certain assets of
Davey will be transferred to Davey Downingtown to enable Davey Downingtown to
meet its anticipated obligations prior to its liquidation, as described below,
and certain liabilities and other obligations of Davey will be confirmed as
liabilities of Davey Dowingtown. In addition, substantially all the liabilities
(other than certain environmental obligations of Davey Downingtown set forth
below) of Davey and Davey Downingtown, including bank debt and trade payables,
will be assumed by Rock-Tenn pursuant to the Purchase Agreement.
<PAGE> 5
The Transaction is intended to qualify as a tax-free reorganization under
Section 368(a)(1)(C) and (a)(2)(G) of the Internal Revenue Code of 1986, as
amended (the "Code"). In order for the Transaction to qualify as a tax-free
reorganization, among other things, Davey must be liquidated and dissolved
pursuant to the Davey Plan of Liquidation. The Davey Plan of Liquidation
provides for (i) the sale to Rock-Tenn of substantially all of the assets of
Davey and the inventory, accounts receivable and certain machinery and equipment
owned by Davey Downingtown, (ii) payment of certain liabilities (which will
occur at the closing of the Acquisition with respect to such items as the
termination of certain employment contracts, payment of transactional expenses,
and all other amounts which are then due) and (iii) a liquidating distribution
to the Davey shareholders of both the Rock-Tenn Common Stock to be received by
Davey pursuant to the Purchase Agreement and the common stock of Davey
Downingtown.
Approximately six months after consummation of the Acquisition, all
remaining assets of Davey not sold in connection with the Acquisition and not
used to satisfy obligations of Davey during such six month period will be
transferred to a liquidating trust. I will be the trustee of the liquidating
trust, but if I am unable to serve, Stephen C. Dodd will become the trustee. The
liquidating trust will oversee certain continuing obligations of Davey. After
all of these obligations have been satisfied in full, the remaining assets, if
any, will be distributed to the shareholders of Davey, pro rata in accordance
with each shareholder's ownership interest in Davey.
In connection with the Dissolution, Davey Downingtown will also be
liquidated and dissolved pursuant to the Downingtown Plan of Liquidation, which
will be adopted by Davey as sole shareholder immediately prior to the Special
Meeting. Immediately following consummation of the Acquisition, Davey
Downingtown's assets will consist primarily of (i) the real property in
Downingtown, Pennsylvania and several acres of farmland in Lansing, Kansas, and
(ii) funds sufficient (in the judgment of Davey's management) to close down its
operations, pay its taxes, perform environmental remediation at its Pennsylvania
facility, and maintain and manage its real estate until it is sold. The Kansas
property will be sold and the proceeds of the sale will be used to fund
environmental remediation at the Pennsylvania property, as described below.
Thereafter, the remaining assets of Davey Downingtown will be transferred to a
liquidating trust, which will have substantially the same terms as the
liquidating trust for Davey. Upon the eventual sale of the Downingtown,
Pennsylvania property, Davey's shareholders will receive a taxable liquidating
dividend from Davey Downingtown equal to their pro rata portion of the proceeds
of the sale, less amounts required to pay the remaining liabilities or
obligations of Davey Downingtown, if any.
Assuming that the Transaction qualifies as a tax-free reorganization under
the Code, the shareholders of Davey will not recognize taxable gain or loss upon
receipt of shares of Rock-Tenn Common Stock. In addition, because management
believes that the fair market value of both the common stock of Davey
Downingtown and the value of the assets which will be retained in the
liquidating trusts (net of liabilities) will be de minimis, no significant
federal income tax should be incurred by the Davey shareholders. However, any
cash distributions made upon the termination of the liquidating trusts will be
taxable to shareholders.
CERTAIN ENVIRONMENTAL ISSUES
Davey and Davey Downingtown have identified certain environmental
conditions with respect to their facilities which will require significant
expenditures to remediate. In Jersey City, New Jersey, where Davey has operated
a manufacturing facility since the 1870s, certain fill material used in the
construction of portions of the facility prior to 1950 has been identified as
containing elevated levels of lead and arsenic. In Aurora, Illinois, where Davey
has operated a manufacturing facility since 1949, an area of approximately one
acre has been identified as having lead levels that are higher than those which
would be expected from paperboard manufacturing operations and which therefore
may pre-date Davey's occupancy of the land or which may have been deposited
there by a neighboring steel foundry which has since ceased operations. In
Downingtown, where Davey Downingtown has operated a mill since the 1920s (which
mill was operated by third parties since the 1790s), several areas have been
identified as being contaminated. Management of Davey believes that all of the
problems are historic. It is important for all shareholders to understand that
these environmental conditions have existed for some time and would have been a
factor in any course of action considered by the
2
<PAGE> 6
Board of Directors of Davey for streamlining and consolidating operations, which
would be necessary if Davey were to remain independent.
With respect to each of the three sites, the following determinations have
been made:
Jersey City. Management of Davey believes that the existing concrete
and other ground covering is sufficient to control access to the soil where
contaminants have been found and that the regulatory authority in New
Jersey would concur with this conclusion. Therefore, the Purchase Agreement
provides, among other things, that (i) if Rock-Tenn is required by
regulatory authorities during such three year-period to clean up any
hazardous materials that are not disclosed in the environmental reports
produced to date and not located under certain specified portions of the
Jersey City property, Davey will be required to reimburse Rock-Tenn for all
costs incurred by Rock-Tenn in such clean-up and (ii) if Rock-Tenn removes
certain specified materials on the Jersey City property during such
three-year period and the soil underneath cannot be disposed of in
accordance with the terms of the Purchase Agreement, Davey will reimburse
Rock-Tenn for the costs of disposing of such hazardous materials to the
extent the aggregate amount of such costs exceeds $475,000.
Aurora. The laws of the State of Illinois do not require any
remediation in connection with the Acquisition. Davey management estimates
that the cost of containment of the problem identified at the Aurora
facility is approximately $200,000. Rock-Tenn has agreed to accept such
amount from Davey and will not seek any additional funds unless there are
problems identified at the site which are not disclosed in the
environmental reports produced to date.
Downingtown. Rock-Tenn is not purchasing the Downingtown property.
However, in connection with the Dissolution, the facility will be closed
and thus remediation will be required. In order to protect past managers
and present shareholders, management will be seeking the greatest
protection afforded under Pennsylvania law as a result of completion of the
remediation. Due to the location of the facility on the Brandywine River,
the cleanup plan may be required to be approved by the U.S. Army Corps of
Engineers. Management of Davey believes a reasonable reserve for cleanup
costs which may be incurred is $1.0 million, based on preliminary
environmental testing. Further, management of Davey believes that the
contamination of the Downingtown property makes it virtually impossible to
sell prior to completion of the cleanup. This property will be the only
significant asset owned by Davey Downingtown after the Acquisition and,
therefore, management believes that the fair market value of the
outstanding common stock of Davey Downingtown is de minimis.
RESALE RESTRICTIONS ON ROCK-TENN COMMON STOCK
There are several important restrictions on the ability of the Davey
shareholders to realize immediately the value of the Rock-Tenn Common Stock
which they will receive in the Dissolution:
First, 40,000 shares of Rock-Tenn Common Stock issued to Davey
pursuant to the Purchase Agreement will be held in escrow until certain
post-closing adjustments relating to the Acquisition are completed. I will
be the escrow agent, pursuant to the Escrow Agreement, which is described
in the accompanying Proxy Statement/Prospectus. Alternatively, Davey may
use available cash to satisfy any post-closing adjustments. If shares of
Rock-Tenn Common Stock are used to satisfy any post-closing adjustments,
shareholders of Davey may recognize taxable gain in connection with such
use. When the post-closing adjustments are completed, which should occur
within three to four months after the closing assuming there are no
disputes with respect to the adjustments, Davey's shareholders will receive
the remaining balance of these shares, pro rata in accordance with each
shareholder's ownership interest in Davey.
Second, as a condition of the Purchase Agreement, all of the Davey
shareholders will be required to enter into an Indemnification and Stock
Pledge Agreement (the "Stock Pledge Agreement"), pursuant to which each
shareholder will pledge 10% of the shares of Rock-Tenn Common Stock to be
received by such shareholder in the Dissolution for a period of three years
(the "Pledged Shares"). The Pledged Shares will be held as security for the
liabilities and obligations of Davey to Rock-Tenn under the
3
<PAGE> 7
Purchase Agreement and Stock Pledge Agreement. Notwithstanding the
foregoing, if at the time any Pledged Shares are released under the Stock
Pledge Agreement, there are accrued liabilities of Davey or Davey
Downingtown, the designated shareholder representative (who will be the
same person as the trustee of the liquidating trust) will have the right to
utilize the proceeds of the Pledged Shares to satisfy those accrued
liabilities.
Third, certain restrictions on the resale of Rock-Tenn Common Stock
received in connection with the Dissolution must be observed in order to
ensure that the Transaction will qualify as a tax-free reorganization under
the Code. In order to qualify as a tax-free reorganization, the applicable
Treasury regulations require that the Davey shareholders have a "continuity
of interest" in the stock of the acquiring corporation. Therefore, in
connection with the Transaction, each shareholder of Davey will be required
to represent to Davey and Rock-Tenn that he or she does not have a present
intention to sell or otherwise dispose of more than 50% of the Rock-Tenn
Common Stock received in connection with the Dissolution. If the
Transaction qualifies as a tax-free reorganization, the shareholders of
Davey will receive their shares of Rock-Tenn Common Stock at the same tax
basis as their shares of Davey common stock and no federal income tax will
be payable by any shareholder until he or she sells such Rock-Tenn Common
Stock.
Fourth, for two years after consummation of the Acquisition, shares of
Rock-Tenn Common Stock distributed to shareholders of Davey who may be
deemed affiliates of Davey (which generally includes directors, executive
officers and 10% shareholders of Davey) may only be sold (i) pursuant to an
effective registration statement under the Securities Act, (ii) pursuant to
Rule 144 under the Securities Act in accordance with the volume and manner
of sale restrictions set forth therein or (iii) pursuant to another
applicable exemption from the registration requirements of the Securities
Act.
OTHER LIABILITIES OF DAVEY SHAREHOLDERS
The shareholders of Davey will have certain residual liabilities and
obligations after the Transaction. Under the Stock Pledge Agreement, each
shareholder will assume and be directly responsible for a pro rata portion of
Davey's liabilities and obligations to Rock-Tenn, up to the value of the
Rock-Tenn Common Stock he or she receives in connection with the Dissolution.
These liabilities and obligations, including the limits on Rock-Tenn's rights to
recover damages it may suffer from any misrepresentation by Davey, are explained
in detail in the accompanying Proxy Statement/Prospectus.
In addition, shareholders of Davey may be liable under New Jersey and
Pennsylvania law to certain creditors of Davey and Davey Downingtown following
their liquidation and dissolution. Such liability should generally be limited to
the value of the property each shareholder receives in connection with the
Dissolution. The Boards of Directors of Davey and Davey Downingtown will reserve
cash and other assets which they believe will be sufficient to pay all known and
estimated liabilities and obligations of Davey and Davey Downingtown not assumed
by Rock-Tenn. No assurance can be given that such cash and other assets will in
fact be sufficient to pay all liabilities and obligations of Davey and Davey
Downingtown, particularly those relating to the environmental conditions
discussed above. Alternatively, if the reserves exceed the liabilities and
obligations actually incurred, the excess will be delivered to the shareholders,
pro rata in accordance with each shareholder's ownership interest in Davey, in a
taxable distribution.
AS YOU CONSIDER YOUR VOTE ON THE TRANSACTION, PLEASE KEEP IN MIND THAT
DAVEY HAS BEEN REPRESENTED IN THE NEGOTIATION OF THE ACQUISITION AND THE
PREPARATION OF DOCUMENTS RELATING TO THE ACQUISITION AND THE DISSOLUTION BY THE
LAW FIRM OF GREENBAUM, ROWE, SMITH, RAVIN, DAVIS & HIMMEL, WOODBRIDGE, NEW
JERSEY, AS SPECIAL COUNSEL. ROCK-TENN HAS BEEN REPRESENTED IN THE NEGOTIATION OF
THE ACQUISITION AND THE PREPARATION OF DOCUMENTS RELATING TO THE ACQUISITION BY
THE LAW FIRM OF KING & SPALDING, ATLANTA, GEORGIA. NEITHER OF THE FOREGOING LAW
FIRMS HAS REPRESENTED THE INTERESTS OF ANY OF THE SHAREHOLDERS OF DAVEY WITH
RESPECT TO THE TRANSACTION OR THE RIGHTS, LIABILITIES AND OBLIGATIONS OF ANY OF
THE SHAREHOLD-
4
<PAGE> 8
ERS OF DAVEY ARISING FROM THE TRANSACTION OR THE FEDERAL OR STATE TAX
CONSEQUENCES THEREOF AND, THEREFORE, EACH SHAREHOLDER IS ENCOURAGED TO RETAIN
THEIR OWN COUNSEL AND/OR OBTAIN INDEPENDENT TAX AND FINANCIAL ADVICE. IN THE
EVENT OF A DISPUTE OR CLAIM ARISING UNDER THE PURCHASE AGREEMENT OR OTHERWISE IN
CONNECTION WITH THE TRANSACTION, NEITHER GREENBAUM, ROWE, SMITH, RAVIN, DAVIS &
HIMMEL, NOR KING & SPALDING WOULD REPRESENT ANY OF THE SHAREHOLDERS OF DAVEY AND
ANY SUCH SHAREHOLDER WOULD NEED TO RETAIN SEPARATE COUNSEL.
Enclosed are a (i) Notice of Special Meeting, (ii) Proxy
Statement/Prospectus and (iii) form of proxy for the Special Meeting. The Proxy
Statement/Prospectus describes in more detail the Transaction, including a
description of the conditions to consummation of the Transaction and the effects
of the Acquisition on the rights of Davey shareholders. You will also receive a
separate package containing documents for your signature, including the Stock
Pledge Agreement and the Escrow Agreement (in the form attached to the Purchase
Agreement), which will be needed to consummate the Transaction. At that time, I
will also ask you to forward your Davey stock certificates.
The affirmative vote and written consent of the holders of 66 2/3% of the
outstanding shares of common stock of Davey entitled to vote at the Special
Meeting is required to approve the Transaction. The Board of Directors of Davey
has determined that the Transaction is in the best interests of Davey and its
shareholders and, accordingly, has unanimously approved the Transaction and
unanimously recommends that you vote FOR approval of the Transaction.
It is important that your shares be represented at the Special Meeting
either in person or by proxy. Whether or not you plan to attend the Special
Meeting, please complete, sign and date the enclosed proxy and return it in the
enclosed postage pre-paid envelope. If you attend the Special Meeting, you can
vote (and give your written consent) in person if you wish, even if you have
previously returned your proxy. Your prompt cooperation will be greatly
appreciated.
I look forward to seeing you at the Special Meeting.
Sincerely,
Alfred C. Brooks
President
5
<PAGE> 9
THE DAVEY COMPANY
---------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD AT 10:00 A.M. ON JUNE , 1997
To the Shareholders of The Davey Company:
NOTICE IS HEREBY GIVEN that a special meeting of shareholders ("Special
Meeting") of The Davey Company ("Davey") will be held at the Newark Airport
Hilton, 1170 Spring Street, Newark, New Jersey 07201, at 10:00 a.m., local time
on , June , 1997 for the following purposes:
1. The Transaction. To consider, vote upon and give written consent
to a proposal (i) to approve the Asset Purchase Agreement (the "Purchase
Agreement") dated as of May 7, 1997 between Rock-Tenn Company ("Rock-Tenn")
and Davey, pursuant to which Rock-Tenn will acquire substantially all of
the assets and assume certain liabilities of Davey (the "Acquisition") and
(ii) to approve a Plan of Liquidation of Davey (the "Davey Plan of
Liquidation") to be effective immediately after consummation of the
Acquisition, pursuant to which Davey will be liquidated and dissolved (the
"Dissolution" and, together with the Acquisition, the "Transaction"). A
copy of the Purchase Agreement is set forth in Annex A to the accompanying
Proxy Statement/Prospectus. A copy of the Davey Plan of Liquidation, which
provides the terms for the Dissolution, is set forth in Annex B to the
accompanying Proxy Statement/Prospectus. As part of the Dissolution, Davey
will effect the liquidation and dissolution of The Davey Company,
Downingtown, Pennsylvania ("Davey Downingtown"), a Pennsylvania corporation
and a wholly owned subsidiary of Davey. The Plan of Liquidation of Davey
Downingtown (the "Downingtown Plan of Liquidation") is set forth in Annex C
to the accompanying Proxy Statement/Prospectus.
2. Other Business. To transact such other business as may properly
come before the Special Meeting or any adjournments or postponements
thereof.
Only shareholders of record at the close of business on May , 1997 (the
"Record Date") are entitled to receive notice of and to vote and give written
consent at the Special Meeting or any adjournment thereof. Holders of Common
Stock, no par value, of Davey ("Davey Common Stock") held of record at the close
of business on the Record Date are entitled to one vote per share on each matter
considered and voted on at the Special Meeting. The affirmative vote and written
consent of the holders of 66 2/3% of the Davey Common Stock entitled to vote at
the Special Meeting is required to approve the Transaction. A list of
shareholders as of the Record Date will be open for examination during the
Special Meeting.
Shareholders of Davey Common Stock do not have dissenters' rights or rights
of appraisal with respect to the approval of the Transaction.
THE BOARD OF DIRECTORS OF DAVEY HAS DETERMINED THAT THE TRANSACTION IS IN
THE BEST INTERESTS OF DAVEY AND ITS SHAREHOLDERS. THE BOARD OF DIRECTORS OF
DAVEY UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" APPROVAL OF THE
TRANSACTION.
BY ORDER OF THE BOARD OF DIRECTORS
Stephen C. Dodd
Secretary
Jersey City, New Jersey
May , 1997
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT
PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL
MEETING. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH,
EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD.
<PAGE> 10
SUBJECT TO COMPLETION, DATED MAY 14, 1997
PROXY STATEMENT
THE DAVEY COMPANY
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE , 1997
---------------------
PROSPECTUS
ROCK-TENN COMPANY
CLASS A COMMON STOCK
(PAR VALUE $.01 PER SHARE)
This Proxy Statement/Prospectus (the "Proxy Statement/Prospectus") is being
furnished to shareholders of The Davey Company, a New Jersey corporation
("Davey"), in connection with the solicitation of proxies by the Board of
Directors of Davey for use at a special meeting of shareholders to be held at
10:00 a.m., local time, on , June , 1997, at the Newark Airport
Hilton, 1170 Spring Street, Newark, New Jersey 07201, and at any adjournment
thereof (the "Davey Special Meeting"). The purpose of the Davey Special Meeting
is to consider, vote upon and give written consent to a proposal to (i) approve
the Asset Purchase Agreement (the "Purchase Agreement") dated as of May 7, 1997
between Rock-Tenn Company ("Rock-Tenn") and Davey, pursuant to which Rock-Tenn
will acquire substantially all of the assets and assume certain of the
liabilities of Davey (the "Acquisition") and to (ii) approve a Plan of
Liquidation of Davey (the "Davey Plan of Liquidation") to be effective
immediately after consummation of the Acquisition, pursuant to which Davey will
be liquidated and dissolved (the "Dissolution" and, together with the
Acquisition, the "Transaction"). A copy of the Purchase Agreement is set forth
in Annex A to this Proxy Statement/Prospectus. A copy of the Davey Plan of
Liquidation, which provides the terms for the Dissolution, is set forth in Annex
B to this Proxy Statement/Prospectus. As part of the Dissolution, Davey will
effect the liquidation and dissolution of The Davey Company, Downingtown,
Pennsylvania ("Davey Downingtown"), a Pennsylvania corporation and a wholly
owned subsidiary of Davey. The Plan of Liquidation of Davey Downingtown (the
"Downingtown Plan of Liquidation") is set forth in Annex C to this
Proxy/Prospectus. This Proxy Statement/Prospectus and the form of proxy for the
Special Meeting will be first sent to shareholders of Davey on or about May ,
1997.
This Proxy Statement/Prospectus also constitutes the prospectus of
Rock-Tenn relating to the issuance of shares of Class A Common Stock, par value
$.01 per share, of Rock-Tenn ("Rock-Tenn Common Stock") to Davey pursuant to the
terms of the Purchase Agreement. Rock-Tenn has filed a registration statement on
Form S-4 (the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), with the Securities and Exchange Commission (the
"Commission") covering the shares of Rock-Tenn Common Stock to be issued
pursuant to the Purchase Agreement.
---------------------
THE SHARES OF ROCK-TENN COMMON STOCK TO BE ISSUED IN CONNECTION WITH THE
ACQUISITION HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
---------------------
The date of this Proxy Statement/Prospectus is May , 1997.
<PAGE> 11
AVAILABLE INFORMATION
Rock-Tenn is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information can be
inspected and copied at the Commission's Public Reference Section at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
located at Citicorp Center, 500 West Madison, 14th Floor, Chicago, Illinois
60661 and Seven World Trade Center, 13th Floor, New York, New York 10048. Copies
of such material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. Such material may also be accessed electronically by means of the
Commission's home page on the Internet at http://www.sec.gov. In addition, such
reports, proxy statements and other information concerning Rock-Tenn can be
inspected and copied at the offices of The New York Stock Exchange, Inc., 20
Broad Street, New York, New York 10005.
This Proxy Statement/Prospectus constitutes a part of the Registration
Statement, which has been filed by Rock-Tenn with the Commission under the
Securities Act. This Proxy Statement/Prospectus does not contain all of the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. For
further information relating to Rock-Tenn and the Rock-Tenn Common Stock offered
hereby, reference is hereby made to the Registration Statement, including the
exhibits and schedules thereto, which may be inspected without charge at the
office of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and
copies of which may be obtained from the Commission at prescribed rates.
Statements contained in this Proxy Statement/Prospectus concerning the
provisions of certain documents filed as exhibits to the Registration Statement
are not necessarily complete, and each such statement is qualified in its
entirety by reference to the full text of such document filed as an exhibit to
the Registration Statement.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents previously filed with the Commission by Rock-Tenn
(Commission File No. 0-23340) under Section 13(a) or 15(d) of the Exchange Act
are hereby incorporated by reference in this Proxy Statement/Prospectus as of
their respective dates:
(i) Rock-Tenn's Annual Report on Form 10-K for the year ended
September 30, 1996;
(ii) Rock-Tenn's Quarterly Report on Form 10-Q for the quarters ended
December 31, 1996 and March 31, 1997;
(iii) Rock-Tenn's Current Reports on Form 8-K dated October 23, 1996,
December 20, 1996, January 8, 1997, January 10, 1997, and January 21, 1997
(as amended by the Current Report on Form 8-K/A dated January 21, 1997);
and
(iv) The description of the Rock-Tenn Common Stock in Rock-Tenn's
Registration Statement on Form 8-A filed with the Commission on February 2,
1994.
In addition, all documents filed by Rock-Tenn pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Proxy
Statement/Prospectus and prior to the date of the Davey Special Meeting are
hereby incorporated by reference in this Proxy Statement/Prospectus and shall be
deemed to be a part hereof from the date of filing of such documents. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Proxy Statement/Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein, modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Proxy Statement/Prospectus.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS OF
ROCK-TENN THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF THESE
DOCUMENTS (OTHER THAN EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS ARE
SPECIFICALLY INCORPORATED BY REFERENCE INTO SUCH DOCUMENTS) ARE AVAILABLE
WITHOUT
2
<PAGE> 12
CHARGE UPON WRITTEN OR ORAL REQUEST FROM GWEN HERRIN, INVESTOR RELATIONS
DEPARTMENT, ROCK-TENN COMPANY, 504 THRASHER STREET, NORCROSS, GEORGIA 30071;
TELEPHONE NUMBER (770) 448-2193. IN ORDER TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS, ANY REQUESTS SHOULD BE MADE BY JUNE , 1997.
No person is authorized to give any information or to make any
representation not contained or incorporated by reference in this Proxy
Statement/Prospectus or the documents incorporated or deemed incorporated by
reference herein and, if given or made, such information or representation must
not be relied upon as having been authorized by Rock-Tenn or Davey. This Proxy
Statement/Prospectus shall not constitute an offer to sell or a solicitation of
an offer to buy any securities in any jurisdiction in which such offer or
solicitation is not authorized or in which the person making such offer or
solicitation is not qualified to do so or to any person to whom it is unlawful
to make such offer or solicitation. Neither the delivery of this Proxy
Statement/Prospectus nor any sale made thereunder shall, under any
circumstances, create any implication that the information herein is correct as
of any time subsequent to the date thereof.
All information contained herein with respect to Rock-Tenn and its
subsidiaries has been supplied by Rock-Tenn, and all information with respect to
Davey and Davey Downingtown has been supplied by Davey.
3
<PAGE> 13
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY..................................................... 5
RISK FACTORS................................................ 14
DAVEY SPECIAL MEETING OF SHAREHOLDERS....................... 18
THE TRANSACTION............................................. 19
BUSINESS OF DAVEY........................................... 32
COMMON STOCK OWNERSHIP BY MANAGEMENT AND PRINCIPAL
SHAREHOLDERS OF DAVEY..................................... 32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF DAVEY........................ 34
CERTAIN DIFFERENCES IN THE RIGHTS OF ROCK-TENN AND DAVEY
SHAREHOLDERS.............................................. 37
EXPERTS..................................................... 50
LEGAL MATTERS............................................... 50
SHAREHOLDER PROPOSALS....................................... 50
INDEX TO FINANCIAL STATEMENTS OF DAVEY
ANNEX A: ASSET PURCHASE AGREEMENT........................... A-1
ANNEX B: DAVEY PLAN OF LIQUIDATION.......................... B-1
ANNEX C: DOWNINGTOWN PLAN OF LIQUIDATION.................... C-1
</TABLE>
4
<PAGE> 14
SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements and
notes thereto included or incorporated by reference in this Proxy
Statement/Prospectus. The Purchase Agreement is set forth in Annex A to this
Proxy Statement/Prospectus and reference is made thereto for a complete
description of the terms of the Acquisition. The Davey Plan of Liquidation is
set forth in Annex B to this Proxy Statement/Prospectus and the Downingtown Plan
of Liquidation is set forth in Annex C to this Proxy Statement/Prospectus, and
reference is made thereto for a complete description of the Dissolution.
Shareholders of Davey are urged to read carefully this Proxy
Statement/Prospectus, including the Annexes.
PARTIES TO THE ACQUISITION
Davey. Founded in 1842 and incorporated in 1923, Davey manufactures high
density recycled paperboard, which is used primarily by the book manufacturing
industry for the covers of hard bound books. Davey and Davey Downingtown operate
three mills, located in Jersey City, New Jersey, Downingtown, Pennsylvania, and
Aurora, Illinois.
Davey is incorporated under the laws of the State of New Jersey. There is
no public market for the Davey Common Stock. Unless the context otherwise
requires, references to Davey refer to The Davey Company and do not include
Davey Downingtown, which is not being acquired in the Acquisition. Davey's
principal executive offices are located at 164 Laidlaw Avenue, Jersey City, New
Jersey 07306 and its telephone number is (201) 653-0606.
Rock-Tenn. Founded in 1936 as a folding carton manufacturer, Rock-Tenn is
a leading manufacturer of packaging and other converted paperboard products and
focuses primarily on folding cartons and recycled paperboard. Rock-Tenn believes
that it is the second largest manufacturer of folding cartons in North America,
the largest U.S. producer of laminated paperboard products for the book cover
and furniture markets and the largest producer of solid fiber partitions in
North America. Rock-Tenn operates over 70 manufacturing and distribution
facilities located in the United States and Canada.
Rock-Tenn is incorporated under the laws of the State of Georgia. The
Rock-Tenn Common Stock is traded on the New York Stock Exchange under the symbol
"RKT." Unless the context otherwise requires, references to Rock-Tenn include
Rock-Tenn Company and it subsidiaries. Rock-Tenn's executive offices are located
at 504 Thrasher Street, Norcross, Georgia 30071 and its telephone number is
(770) 448-2193.
DAVEY SPECIAL MEETING
Purpose. The Davey Special Meeting will be held at 10:00 a.m., local time,
on , June , 1997 at the Newark Airport Hilton, 1170 Spring Street,
Newark, New Jersey 07201. At the Davey Special Meeting, shareholders will
consider, vote upon and give written consent to a proposal to approve the
Transaction and transact such other business as may properly come before the
Davey Special Meeting. See "The Davey Special Meeting."
Record Date and Shares Entitled to Vote. Only shareholders of record at
the close of business on May , 1997 are entitled to notice of and to vote at
the Davey Special Meeting (the "Record Date"). As of the close of business on
the Record Date, there were 4,010 shares of Common Stock, no par value, of Davey
("Davey Common Stock") issued and outstanding held by 28 holders of record.
Holders of Davey Common Stock on the Record Date are entitled to one vote per
share on each matter considered and voted on at the Davey Special Meeting.
Vote Required; Security Ownership of Management. The affirmative vote and
written consent of the holders of 66 2/3% of Davey Common Stock entitled to vote
at the Special Meeting is required to approve the Transaction. As of the Record
Date, directors and executive officers of Davey beneficially owned in the
aggregate 1,592 shares of Davey Common Stock (or approximately 39.7% of the
issued and outstanding Davey Common Stock), which includes as of the Record Date
shares owned of record by The Davey Company, Inc. 401(k) Savings and Profit
Sharing Plan (the "Profit Sharing Plan"), as to which the trustees
5
<PAGE> 15
of the Profit Sharing Plan, all of whom are directors of Davey, have the right
to vote. Each of the directors and executive officers of Davey has advised Davey
that he intends to vote his shares of Davey Common Stock (including the shares
owned of record by the Profit Sharing Plan) to approve the Transaction.
Recommendation of the Davey Board of Directors. The Board of Directors of
Davey has determined that the Transaction is in the best interests of Davey and
its shareholders and has unanimously approved the Transaction. Accordingly, the
Board of Directors of Davey unanimously recommends that the shareholders of
Davey vote FOR approval of the Transaction. In deciding to approve the
Transaction, the Davey Board of Directors considered a number of factors. See
"The Transaction -- Reasons for the Transaction -- Davey."
Proxies. A form of proxy (which includes a form of written consent) is
enclosed with this Proxy Statement/Prospectus. All shares of Davey Common Stock
represented by properly executed proxies will, unless such proxies have been
previously revoked, be voted in accordance with the instructions indicated on
such proxies. If no instructions are indicated, such shares will be voted
against approval of the Transaction and, in the discretion of the proxy holder,
voted for any other matter which may properly come before the Special Meeting.
ROCK-TENN CORPORATE ACTION
The Board of Directors of Rock-Tenn has unanimously determined that the
Acquisition is in the best interests of Rock-Tenn and its shareholders and has
approved the Acquisition. The shareholders of Rock-Tenn are not required to take
any action in connection with the Acquisition.
THE ACQUISITION
General. The Purchase Agreement provides that Rock-Tenn will purchase
substantially all of the assets (the "Assets") and assume certain of the
liabilities of Davey (the "Assumed Liabilities") and, in consideration thereof,
issue and deliver to Davey at the closing of the Acquisition (the "Closing")
863,500 shares of Rock-Tenn Common Stock, subject to certain working capital
adjustments. However, if the Average Closing Price is less than $14.00, the
number of shares of Rock-Tenn Common Stock to be issued and delivered to Davey
at the Closing will be equal to the result obtained by dividing $12,089,000 by
the Average Closing Price, subject to certain working capital adjustments. The
"Average Closing Price" shall be equal to the average closing price per share of
the Rock-Tenn Common Stock on the New York Stock Exchange ("NYSE") for the seven
consecutive trading days ending on (and including) the tenth day prior to the
Davey Special Meeting. The Transaction is intended to qualify as a tax-free
reorganization under Section 368(a)(1)(C) and (a)(2)(G) of the Internal Revenue
Code of 1986, as amended (the "Code") and, accordingly, Davey will be required
to consummate the Dissolution following consummation of the Acquisition.
Pursuant to the Dissolution, Davey will distribute all of its assets, including
the shares of Rock-Tenn Common Stock issued to Davey pursuant to the Purchase
Agreement, to its shareholders, subject to certain reserves established to meet
certain liabilities and obligations of Davey and Davey Downingtown. See "The
Transaction -- The Dissolution."
Conditions to the Acquisition. Consummation of the Acquisition is subject
to various conditions, including, among others, (a) the approval of the
Transaction by the requisite vote of the holders of Davey Common Stock, (b) the
effectiveness of the Registration Statement of which this Proxy Statement/
Prospectus is a part, (c) the authorization for listing on the NYSE of the
shares of Rock-Tenn Common Stock to be issued to Davey pursuant to the Purchase
Agreement, (d) that certain regulatory approvals have been granted, including
the expiration or termination of applicable waiting periods under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act")
and (e) the execution and delivery of the Stock Pledge Agreement (as defined
herein) by Rock-Tenn and the shareholders of Davey. See "The
Transaction -- Terms of the Purchase Agreement -- Conditions to Rock-Tenn's
Obligation to Effect Acquisition; Conditions to Davey's Obligation to Effect
Acquisition."
Amendment. The Purchase Agreement may be amended by mutual agreement of
the parties thereto. Any amendment to the Purchase Agreement must be in writing
and signed by the parties to the Purchase Agreement.
6
<PAGE> 16
Termination. The Purchase Agreement may be terminated at any time prior to
the date of the Closing (the "Closing Date") (a) by mutual agreement of Davey
and Rock-Tenn or (b) by Rock-Tenn or Davey if the Closing has not occurred on or
before 5:00 p.m. Eastern Standard Time on July 31, 1997.
Fees and Expenses. Davey and Rock-Tenn will each bear 50% of any sales,
transfer or similar taxes or transfer fees payable as a result of the sale of
the Assets or any other action contemplated by the Purchase Agreement, the
filing fees under the HSR Act and any title examination and survey costs and
expenses. All other costs and expenses, including legal and accounting fees,
will be borne by the party incurring such costs and expenses. See "The
Transaction -- Terms of the Purchase Agreement -- Fees and Expenses."
Indemnification. Under the Purchase Agreement, Davey has agreed to
indemnify Rock-Tenn for losses resulting from liabilities of Davey (other than
the Assumed Liabilities (as defined in the Purchase Agreement)), breaches of
representations and warranties, breaches of covenants, actions occurring or
conditions existing prior to the Closing Date, and fraud. Rock-Tenn has agreed
in the Purchase Agreement to indemnify Davey for losses relating to Assumed
Liabilities, breaches of representations and warranties, breaches of covenants
and fraud. With certain exceptions, neither party will be liable to the other
for indemnification except to the extent that such party's indemnifiable losses
exceed, in the aggregate, $250,000. In addition, Davey shall not be liable to
Rock-Tenn for indemnification for amounts which exceed the product of the
Average Closing Price multiplied by the number of shares of Rock-Tenn Common
Stock issued to Davey pursuant to the Purchase Agreement. See "The
Transaction -- Terms of the Purchase Agreement -- Indemnification."
Downingtown Assets. Immediately prior to the Acquisition, Davey will cause
Davey Downingtown to distribute to Davey all of the personal property owned by
Davey Downingtown, with certain exceptions. Davey will also assume certain of
the liabilities of Davey Downingtown which in turn will be assumed by Rock-Tenn
under the Purchase Agreement. Certain real property owned by Davey Downingtown
in Downingtown, Pennsylvania and Lansing, Kansas will remain assets of Davey
Downingtown and will not be transferred to Rock-Tenn. See "The
Transaction -- Terms of the Purchase Agreement -- Downingtown Assets."
New Jersey Environmental Matters. Under the Purchase Agreement, Davey and
Rock-Tenn have agreed to follow certain procedures with respect to obtaining
required approvals from the State of New Jersey relating to the environmental
condition of Davey's Jersey City, New Jersey facility for (a) the performance of
certain work relating to such environmental condition subsequent to the Closing
and (b) the allocation of certain expenses between Davey and Rock-Tenn relating
to the remediation of such environmental condition. See "The
Transaction -- Regulatory Approvals -- New Jersey Environmental Approvals."
Stock Pledge Agreement. As a condition to the Acquisition, each of Davey
and Davey's shareholders will enter into an Indemnification and Stock Pledge
Agreement (the "Stock Pledge Agreement") with Rock-Tenn for the purpose of
securing the punctual payment and performance of any and all liabilities and
obligations owed by Davey under the Purchase Agreement and the Stock Pledge
Agreement. Under the Stock Pledge Agreement, among other things, Davey's
shareholders will agree that each shareholder will assume and become directly
liable (on a several, not joint, basis pro rata in accordance with each
shareholder's ownership interest in Davey) for Davey's liabilities and
obligations to Rock-Tenn under the Purchase Agreement. In addition, as
collateral security for the payment and performance in full of Davey's
liabilities and obligations, the shareholders of Davey will pledge to Rock-Tenn
a first priority security interest in all right, title and interest to an
aggregate of 10% of the shares of Rock-Tenn Common Stock distributed to the
shareholders pursuant to the Dissolution. Pursuant to the Stock Pledge
Agreement, each Pledgor will irrevocably appoint Alfred C. Brooks as the true
and lawful agent and attorney-in-fact (the "Representative") of such Pledgor
with full powers of substitution to act in the name, place and stead of such
Pledgor with respect to the performance on behalf of such Pledgor under the
terms and provisions of the Stock Pledge Agreement and to do or refrain from
doing all such further acts and things, and to execute all such documents, as
the Representative shall deem necessary or appropriate in connection with any of
the transactions contemplated under the Stock Pledge Agreement. See "The
Transaction -- Stock Pledge Agreement."
7
<PAGE> 17
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION
Certain executive officers and directors of Davey have interests in the
Transaction in addition to their interests as shareholders of Davey generally.
In particular, certain executive officers of Davey, including Alfred C. Brooks
and Stephen C. Dodd, will receive certain termination payments from Davey in
connection with the Transaction and will enter into new employment agreements
with Rock-Tenn. See "The Transaction -- Interests of Certain Persons in the
Transaction" and "The Transaction -- Employment Agreements."
THE DISSOLUTION
The Transaction is intended to qualify as a tax-free reorganization under
Section 368(a)(1)(C) and (a)(2)(G) of the Code. In order to qualify, among other
things, "substantially all of the properties" of Davey must be transferred to
Rock-Tenn and Davey must be liquidated and dissolved. Therefore, the Dissolution
pursuant to the Davey Plan of Liquidation is an integral part of the
Transaction. In addition, in connection with the Dissolution, Davey Downingtown
will be liquidated and dissolved pursuant to the Downingtown Plan of
Liquidation. The Downingtown Plan of Liquidation will be approved by Davey, its
sole shareholder, as of the date of the Davey Special Meeting, subject to
approval of the Davey Plan of Liquidation by Davey's shareholders. See "The
Transaction -- The Dissolution."
REGULATORY APPROVALS REQUIRED
Under the Purchase Agreement, the obligations of both Davey and Rock-Tenn
to consummate the Acquisition are conditioned upon receipt of regulatory
approvals. Under the HSR Act, the Acquisition may not be consummated unless
notification has been given and certain information has been furnished to the
Federal Trade Commission (the "FTC") and the Antitrust Division of the
Department of Justice (the "Antitrust Division") and the waiting period has
expired or been terminated. Pursuant to HSR Act, on May 9, 1997, Davey and
Rock-Tenn each filed a Notification and Report Form with the FTC and the
Antitrust Division for review in connection with the Acquisition. The 30-day
waiting period under the HSR Act applicable to the Acquisition will expire on
June 8, 1997. Additionally, transfer of Davey's Jersey City facility to
Rock-Tenn pursuant to the Purchase Agreement will require approval by the New
Jersey Department of Environmental Protection ("NJDEP"). See "The
Transaction -- Regulatory Approvals -- New Jersey Environmental Approvals."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Transaction is intended to qualify as a tax-free reorganization under
Section 368(a)(1)(C) and (a)(2)(G) of the Code. If the Transaction does so
qualify, neither Davey nor the shareholders of Davey will recognize taxable gain
or loss upon the receipt of shares of Rock-Tenn Common Stock in connection with
the Acquisition or Dissolution, respectively. Davey, however, will recognize
gain in the Dissolution upon the sale or distribution of any appreciated assets
that are not acquired by Rock-Tenn in the Acquisition. Furthermore, the
shareholders of Davey will recognize gain in the Dissolution in an amount equal
to the lesser of (i) the fair market value of the property other than Rock-Tenn
Common Stock (including any cash payment in lieu of a fractional share of
Rock-Tenn Common Stock and common stock of Davey Downingtown) distributed to him
or her and (ii) the gain realized by the shareholders in the Transaction. See
"The Transaction -- Certain Federal Income Tax Consequences."
ACCOUNTING TREATMENT
For financial accounting purposes, the Acquisition will be accounted for by
Rock-Tenn using the purchase method of accounting in accordance with generally
accepted accounting principles. See "The Transaction -- Accounting Treatment."
APPRAISAL RIGHTS
Shareholders of Davey do not have dissenters' rights or rights of appraisal
with respect to the Transaction under the New Jersey Business Corporation Act
(the "New Jersey BCA").
8
<PAGE> 18
COMPARISON OF SHAREHOLDER RIGHTS
The rights of Davey shareholders currently are determined by reference to
the New Jersey BCA and Davey's Amended and Restated Certificate of Incorporation
(the "Davey Certificate") and Bylaws (the "Davey Bylaws"). Following the
Transaction, Davey shareholders will become shareholders of Rock-Tenn, and their
rights as shareholders will be determined by the Georgia Business Corporation
Code (the "Georgia BCC") and Rock-Tenn's Restated and Amended Articles of
Incorporation (the "Rock-Tenn Articles") and Bylaws (the "Rock-Tenn Bylaws").
See "Certain Differences in the Rights of Rock-Tenn and Davey Shareholders."
MARKET PRICES AND DIVIDENDS
The Rock-Tenn Common Stock has been traded on the NYSE under the symbol
"RKT" since December 31, 1996. Prior to December 31, 1996, the Rock-Tenn Common
Stock was traded on the Nasdaq National Market under the symbol "RKTN." As of
May 12, 1997, there were approximately 659 holders of record of Rock-Tenn Common
Stock.
The table below sets forth the high and low sales prices of the Rock-Tenn
Common Stock and the quarterly cash dividends declared per share of Rock-Tenn
Common Stock and the Class B Common Stock, par value $.01 per share, of
Rock-Tenn (the "Rock-Tenn Class B Common Stock") during the fiscal years
indicated (which in each case ended September 30 of such year). There is no
established trading market for the Rock-Tenn Class B Common Stock.
<TABLE>
<CAPTION>
PRICE RANGE CASH
--------------- DIVIDENDS
HIGH LOW DECLARED
------ ------ ---------
<S> <C> <C> <C>
Fiscal 1995:
First Quarter............................................. $16.36 $12.27 $0.068
Second Quarter............................................ 17.50 15.00 0.068
Third Quarter............................................. 16.14 14.09 0.068
Fourth Quarter............................................ 16.36 13.86 0.068
Fiscal 1996:
First Quarter............................................. 15.91 14.32 0.068
Second Quarter............................................ 16.59 14.32 0.068
Third Quarter............................................. 18.64 15.23 0.068
Fourth Quarter............................................ 19.77 15.00 0.068
Fiscal 1997:
First Quarter............................................. 24.00 17.50 0.075
Second Quarter............................................ 20.00 16.38 0.075
Third Quarter (through May 12, 1997)...................... 17.00 14.00 0.075
</TABLE>
On (i) May 9, 1997, the last trading day prior to the public announcement
of the Transaction and (ii) May 12, 1997, the last reported sale price of the
Rock-Tenn Common Stock, as reported on the NYSE Composite Tape, was $14.13 and
$14.00 per share, respectively. Davey shareholders should obtain current market
quotations for the Rock-Tenn Common Stock.
Davey is privately held and there is no established public market for the
Davey Common Stock. As of May 12, 1997, there were 28 holders of record of the
Davey Common Stock. Davey has paid no dividends on Davey Common Stock during its
last two fiscal years ended December 31, 1995 and December 31, 1996 or during
the three months ended March 31, 1997.
COMPARATIVE PER SHARE INFORMATION
The following table sets forth certain per share data of Rock-Tenn and
Davey on both historical and pro forma combined bases (giving effect to the
Acquisition using the purchase method of accounting) and certain information on
a equivalent pro forma combined basis for each share of Davey Common Stock. The
9
<PAGE> 19
information presented in this table is not necessarily indicative of future
combined earnings or financial position or of the combined earnings or financial
position that would have been reported had the Acquisition been consummated at
the beginning of the respective periods or as of the dates for which such
unaudited pro forma information is presented.
<TABLE>
<CAPTION>
PER SHARE OF COMMON STOCK
------------------------------------------
INCOME(1) BOOK VALUE(2) CASH DIVIDENDS
--------- ------------- --------------
<S> <C> <C> <C>
Rock-Tenn -- Historical
Year ended September 30, 1996..........................
Six months ended March 31, 1997........................
Rock-Tenn -- Pro Forma Combined
Year ended September 30, 1996..........................
Six months ended March 31, 1997........................
Davey -- Historical
Year ended December 31, 1996...........................
Three months ended March 31, 1997......................
Davey -- Equivalent Pro Forma
Combined Per Share(3)
Year ended December 31, 1996...........................
Three months ended March 31, 1997......................
</TABLE>
- ---------------
(1) Pro forma income represents income from continuing operations as if the
Acquisition had been consummated at the beginning of each period presented.
(2) Historical book value per share information for Rock-Tenn and Davey as of
the end of each period presented are computed by dividing historical
shareholders' equity for each respective company by the number of shares of
Rock-Tenn Common Stock and Rock-Tenn Class B Common Stock and Davey Common
Stock, as the case may be, outstanding at the end of each period presented,
excluding common stock equivalents. Pro forma combined book value per share
information as of the end of each period presented is computed by dividing
pro forma shareholders' equity by the number of shares of Rock-Tenn Common
Stock and Rock-Tenn Class B Common Stock outstanding on such dates plus the
shares of Rock-Tenn Common Stock to be issued in the Acquisition (assuming
the Davey Special Meeting had been held on May , 1997, the last trading
day before the date of this Proxy Statement/Prospectus, in which case the
number of shares of Rock-Tenn Common Stock issued pursuant to the Purchase
Agreement would have been ).
(3) Equivalent pro forma per share information for Davey is determined by
dividing Rock-Tenn's pro forma per share information by the implied exchange
ratio, which solely for the purposes hereof has been estimated to be
.
10
<PAGE> 20
SELECTED FINANCIAL DATA
Set forth below is certain unaudited historical consolidated selected
financial data relating to Rock-Tenn and Davey. This information should be read
in conjunction with the respective historical consolidated financial statements
of Rock-Tenn and Davey, including the respective notes thereto, included or
incorporated by reference in this Proxy Statement/Prospectus.
ROCK-TENN
The selected statement of income data, per share data and balance sheet
data for each of the five fiscal years in the period ended September 30, 1996
are derived from the consolidated financial statements of Rock-Tenn, which have
been audited by Ernst & Young LLP, independent auditors. The following table
also sets forth selected statement of income data, per share data and balance
sheet data for and as of the six months ended March 31, 1996 and 1997. Such data
was derived from the unaudited consolidated financial statements of Rock-Tenn
incorporated by reference herein, which unaudited consolidated financial
statements, in the opinion of Rock-Tenn's management, include all adjustments
(consisting of only normal recurring accruals) necessary for a fair presentation
of the financial position and results of operations for such periods. The
results of operations for the six months ended March 31, 1997 are not
necessarily indicative of results that may be expected for the year ending
September 30, 1997.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FISCAL YEAR ENDED SEPTEMBER 30, MARCH 31,
------------------------------------------ ----------------
1992 1993 1994 1995 1996 1996 1997(3)
------ ------ ------ ------ ------ ------ -------
(IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales............................ $655.5 $650.7 $705.8 $902.9 $876.1 $435.8 $483.7
Cost of goods sold................... 493.1 492.6 529.0 687.4 632.2 317.5 364.4
------ ------ ------ ------ ------ ------ ------
Gross profit......................... 162.4 158.1 176.8 215.5 243.9 118.3 119.3
Selling, general and administrative
expenses.......................... 103.3 102.0 113.5 139.5 151.7 74.3 88.4
Plant closure and other costs........ -- -- -- -- -- -- 12.8
Unusual items(1)..................... -- 11.8 -- -- -- -- --
------ ------ ------ ------ ------ ------ ------
Income from operations............... 59.1 44.3 63.3 76.0 92.2 44.0 18.1
Interest and other income............ 0.4 1.2 0.5 0.3 1.3 0.5 0.6
Interest expense..................... (3.8) (4.0) (2.8) (8.4) (11.0) (5.7) (9.2)
------ ------ ------ ------ ------ ------ ------
Income before income taxes........... 55.7 41.5 61.0 67.9 82.5 38.8 9.5
Provision for income taxes........... 22.5 16.0 23.5 26.5 31.4 14.7 9.3
------ ------ ------ ------ ------ ------ ------
Net income........................... $ 33.2 $ 25.5 $ 37.5 $ 41.4 $ 51.1 $ 24.1 $ 0.2
====== ====== ====== ====== ====== ====== ======
PER SHARE DATA:
Net income per common and common
equivalent share.................. $ 1.01 $ .76 $ 1.10 $ 1.21 $ 1.50 $ .71 $ .01
Dividends per common share........... .06 .07 .15 .27 .27 .14 .15
Weighted average number of shares
outstanding (in thousands)........ 32,743 32,749 33,874 34,166 34,014 33,954 34,114
------ ------ ------ ------ ------ ------ ------
</TABLE>
11
<PAGE> 21
<TABLE>
<CAPTION>
(IN MILLIONS)
AT SEPTEMBER 30,
------------------------------------------- AT MARCH 31,
1992 1993 1994(2) 1995 1996 1997(3)
------ ------ ------- ------ ------ ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................ $ 25.3 $ 51.2 $ 15.2 $ 21.5 $ 50.9 $ 7.2
Working capital.......................... 79.3 95.0 78.1 99.7 120.4 101.2
Total assets............................. 312.1 355.1 413.7 555.3 581.7 1,053.7
Property, plant and equipment............ 173.9 199.2 256.1 310.1 334.9 516.0
Long-term debt and redeemable preferred
stock (excluding current portion)..... 39.3 51.6 52.1 144.2 139.3 510.7
Shareholders' equity..................... 205.6 235.0 282.0 307.9 349.2 345.8
</TABLE>
- ---------------
(1) Includes $10.1 million paid by Rock-Tenn in connection with certain employee
stock option transactions and $1.0 million paid to, and on behalf of, the
former Chairman of the Board of Directors of Rock-Tenn upon his retirement.
(2) Effective October 1, 1993, Rock-Tenn changed the method of depreciation for
machinery and equipment from the 200% declining balance method to the 150%
declining balance method. The effect of this change was to increase net
income and earnings per share by $422,000 and $.01, respectively, in fiscal
1994.
(3) Reflects the results of operations of Waldorf Corporation, a manufacturer of
folding cartons, recycled clay-coated paperboard and recycled corrugating
medium, beginning January 21, 1997, the date Rock-Tenn acquired all of the
outstanding stock of the parent of Waldorf Corporation.
12
<PAGE> 22
DAVEY
The selected statement of income data, per share data and balance sheet
data for each of the five fiscal years in the period ended December 31, 1996 are
derived from the consolidated financial statements of The Davey Company and
Subsidiary, which have been audited by Amper, Politziner & Mattia, independent
auditors. The following table also sets forth selected statement of income data,
per share data and balance sheet data for the three months ended March 31, 1996
and 1997. Such data was derived from the unaudited consolidated financial
statements of Davey included elsewhere herein.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------- ---------------
1992 1993 1994 1995 1996 1996 1997
------- -------- -------- ------- ------- ------ ------
(IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales.......................... $ 21.6 $ 22.4 $ 20.5 $ 25.3 $ 26.3 $ 6.2 $ 7.5
Operating Profit (Loss)............ (0.4) (0.2) (1.2) (0.1) 3.3 0.9 0.6
Income (loss) before taxes......... (0.1) (0.7) (1.5) (0.3) 3.3 0.8 0.6
Net income (loss).................. $ 0.7 ($ 0.5) ($ 1.0) ($ 0.2) 2.0 0.5 0.4
PER SHARE DATA:
Net income (loss) per common
share........................... $175.1 $(125.4) $(250.9) $(50.2) $499.4 $125.4 $ 99.8
Cash dividends declared per common
share........................... $ 65 $ 30 $ -- $ -- $ -- $ -- $ --
Weighted average number of common
shares outstanding.............. 3,997 3,988 3,985 3,985 4,005 3,987 4,010
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, AT
------------------------------------------ MARCH 31,
1992 1993 1994 1995 1996 1997
------ ------ ------ ------ ------ ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets......................... $19.8 $19.5 $17.5 $16.7 $19.9 $19.8
Long-term debt....................... 6.2 5.3 4.7 3.8 3.8 3.7
</TABLE>
13
<PAGE> 23
RISK FACTORS
In addition to the other information in this Proxy Statement/Prospectus,
the following factors should be carefully considered in evaluating the proposed
Transaction and the shares of Rock-Tenn Common Stock to be issued pursuant to
the Purchase Agreement.
FEDERAL INCOME TAX RISKS RELATING TO THE TRANSACTION
There are material income tax risks associated with the Transaction.
Neither Davey nor Rock-Tenn has obtained a ruling from the Internal Revenue
Service (the "IRS") as to whether the Transaction qualifies as a tax-free
reorganization under Section 368(a)(1)(C) and (a)(2)(G) of the Code (a
"C-Reorganization"), or with respect to any other tax matter regarding the
Transaction, and no such ruling will be sought or obtained from the IRS. Davey
and Rock-Tenn has received an opinion of Davey's special counsel, Greenbaum,
Rowe, Smith, Ravin, Davis & Himmel, to the effect that the Transaction qualifies
as a C-Reorganization for federal income tax purposes and as to certain other
matters. Such opinion of counsel is qualified in certain significant respects
and will not be binding on the IRS. Accordingly, there can be no assurance that
the Transaction will not at some later date be found not to qualify as a
C-Reorganization, in which case both Davey and the shareholders of Davey will
incur taxable gains upon the receipt of Rock-Tenn Common Stock. Moreover, the
opinion of counsel is based on current law and administrative regulations, which
could change without notice and with retroactive effect. There can be no
assurance that the IRS will allow, on audit, the Transaction to be treated as a
C-Reorganization. If the C-Reorganization is disallowed by the IRS and such
disallowance is upheld by the courts, corresponding adjustments will be made in
the federal income tax returns of Davey and its shareholders for their affected
taxable years, with the result that both Davey and its shareholders will incur
additional taxes, interest and other costs, and possibly penalties. In addition,
audit of Davey's federal income tax returns may result in an examination and
audit of the individual shareholders' returns that would not otherwise occur.
Even if the Transaction qualifies as a C-Reorganization for federal income
tax purposes, Davey shareholders may be required to recognize gain for federal
income tax purposes (i) upon the distribution by Davey of assets and liabilities
to the liquidating trust established pursuant to the Davey Plan of Liquidation
and (ii) upon the distribution by Davey of any assets (other than shares of
Rock-Tenn Common Stock) to its shareholders, including the shares of common
stock of Davey Downingtown. Management of Davey believes that gain is unlikely
to be recognized pursuant to the above because the net value of assets so
distributed in each case is likely to be zero or de minimis. There can be no
assurance, however, that the actual value of any assets so distributed will be
in accordance with Davey management's belief or that the IRS will not take the
position that such distributed assets have a significant net value and that
Davey shareholders are required to recognize taxable gain.
INTEGRATION OF THE WALDORF ACQUISITION
On January 21, 1997, Rock-Tenn acquired all of the outstanding capital
stock of the parent of Waldorf Corporation (the "Waldorf Acquisition"). Waldorf
Corporation ("Waldorf") is a leading manufacturer of folding cartons and
recycled clay-coated paperboard as well as a manufacturer of corrugating medium.
The Waldorf Acquisition is significantly larger than Rock-Tenn's previous
acquisitions and represents a substantial increase in the size of Rock-Tenn's
business. Waldorf's net sales for its fiscal 1996 were $377.1 million, and
Rock-Tenn's net sales for its fiscal 1996 were $876.1 million. Successful
integration of Waldorf's operations will depend primarily on Rock-Tenn's ability
to manage Waldorf's manufacturing operations (which added eight manufacturing
facilities) and to eliminate redundancies and excess costs. There can be no
assurance that Rock-Tenn can successfully integrate Waldorf and any failure or
inability to do so may have a material adverse effect on Rock-Tenn's results of
operations and financial condition. In addition, Rock-Tenn expects to realize
certain cost savings and other business synergies as a result of the Waldorf
Acquisition. Realization of such cost savings and other synergies could be
affected by a number of factors beyond Rock-Tenn's control, such as general
economic conditions, increased operating costs, the response of competitors or
customers and regulatory developments. There can be no assurance that Rock-Tenn
will achieve the expected cost savings and other business synergies.
14
<PAGE> 24
Further, although Rock-Tenn and its advisors conducted a due diligence
investigation with respect to the Waldorf Acquisition, there can be no assurance
that such due diligence investigation uncovered all material adverse facts
relating to the business, results of operations, financial condition and
properties of Waldorf. The existence of any such facts could have an adverse
effect on Rock-Tenn's results of operations and financial condition. Rock-Tenn
has received certain indemnification for liabilities arising out of the Waldorf
Acquisition.
POSSIBLE ADVERSE EFFECT OF INCREASED COSTS AND REDUCED SUPPLY OF RAW MATERIALS
Historically, the cost of recovered paper, virgin paperboard and
containerboard, Rock-Tenn's principal raw materials, have fluctuated
significantly due to market and industry conditions. Increasing demand for
products packaged in 100% recycled paper and the shift by virgin paperboard
manufacturers to the production of paperboard with some recycled paper content
may increase demand for recovered paper and result in cost increases. There can
be no assurance that Rock-Tenn will be able to recoup any future increases in
the cost of recovered paper or other raw materials through price increases for
its products. Further, a reduction in supply of recovered paper, virgin
paperboard and containerboard due to increased demand or other factors could
have an adverse effect on Rock-Tenn's business.
POSSIBLE ADVERSE EFFECT OF PRICING VARIABILITY
The folding cartons, other converted products and paperboard industries
historically have experienced significant fluctuations in selling prices.
Rock-Tenn's inability to maintain the selling prices of products within these
industries during periods of weak economic conditions may have a material
adverse effect on Rock-Tenn's results of operations and financial condition.
Rock-Tenn is not able to predict with certainty market conditions or the selling
prices for its products.
The paperboard industry is currently experiencing a period of weak
conditions and selling prices within the industry have been adversely affected.
These lower selling prices have had a material adverse effect on the results of
operations of Rock-Tenn's paperboard segment as well as Rock-Tenn's overall
results during the six months ended March 31, 1997. In addition, in connection
with the Waldorf Acquisition, Rock-Tenn acquired a plant that manufactures
corrugating medium, a product that was not previously manufactured by Rock-Tenn.
Due primarily to these adverse industry conditions, Rock-Tenn's corrugating
medium business incurred significant losses during the period from acquisition
(January 22, 1997) through March 31, 1997. Rock-Tenn anticipates that results of
operations attributable to Rock-Tenn's paperboard operations, including its
medium business, will continue to be materially, adversely affected until
industry conditions improve.
IMPACT OF COMPETITION AND INCREASING ACCEPTANCE OF COMPETING PRODUCTS ON DEMAND
FOR ROCK-TENN'S PRODUCTS
The converted products and paperboard industries are highly competitive,
and no single company is dominant. Rock-Tenn's competitors include large,
vertically integrated converted products and paperboard companies and numerous
smaller companies. In recent years, there has been a trend toward consolidation
within the converted products and paperboard industries, and Rock-Tenn believes
that this trend will continue. The primary competitive factors in the converted
products and paperboard industries are price, design, quality and service, with
varying emphasis on these factors depending on the product line. To the extent
that one or more of Rock-Tenn's competitors becomes more successful with respect
to any key competitive factor, Rock-Tenn's business could be materially,
adversely affected.
In addition, as demand for environmentally friendly packaging has
increased, producers of virgin paperboard have begun to manufacture paperboard
having some recycled paper content. Increasing acceptance of partially recycled
paperboard by consumers as an environmentally friendly alternative to paperboard
produced from 100% recovered paper could have an adverse effect on demand for
Rock-Tenn's paperboard.
15
<PAGE> 25
POTENTIAL UNFORSEEN ENVIRONMENTAL LIABILITIES OR COSTS
Rock-Tenn is subject to various Federal, state, local and Canadian
provincial environmental laws and regulations, including those relating to
wastewater discharge, air quality and the storage, handling and disposal of a
variety of substances. Rock-Tenn regularly makes capital expenditures to stay in
compliance with applicable environmental laws and regulations. However,
environmental laws and regulations are becoming increasingly more stringent.
Consequently, unforeseen expenditures required to comply with such laws and
regulations, including remediation costs, or unforeseen environmental
liabilities could have a material adverse effect on Rock-Tenn's results of
operations and financial condition. In addition, Rock-Tenn cannot assess with
certainty at this time the impact upon its operations or capital expenditure
requirements of the future emissions standards and enforcement practices under
the 1990 amendments to the Clean Air Act. There can be no assurance that future
amendments or modifications of environmental laws, rules or regulations
applicable to Rock-Tenn will not require further expenditures by Rock-Tenn or
that any such expenditures will not be material. Further, Rock-Tenn has been
either notified that it may be, or has been named as, a potentially responsible
party at various sites pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act or comparable state statutes (such sites being
commonly known as "Superfund" sites). There can be no assurance that any
liability Rock-Tenn may incur in connection with such Superfund sites will not
be material.
ACQUISITION RISKS
Rock-Tenn intends to seek additional acquisition opportunities. There can
be no assurance that Rock-Tenn will be able successfully to identify suitable
acquisition candidates, complete acquisitions, integrate acquired operations
into its existing operations or expand into new markets. There can also be no
assurance that future acquisitions will not have an adverse effect upon
Rock-Tenn's operating results, particularly in the fiscal quarters immediately
following the completion of such acquisitions while the operations of the
acquired business are being integrated into Rock-Tenn's operations. Once
integrated, acquired operations may not achieve levels of revenues,
profitability or productivity comparable with those achieved by Rock-Tenn's
existing operations, or otherwise perform as expected.
CONTROL BY PRINCIPAL SHAREHOLDERS
Rock-Tenn's directors and executive officers control approximately 68.0% of
the combined outstanding voting power of all classes of Rock-Tenn's common
stock. As a result, the directors and executive officers are able to control the
vote on all matters submitted to a vote of holders of Rock-Tenn's common stock
(except with respect to matters as to which the holders of Rock-Tenn Common
Stock are entitled to vote as a separate voting group under Rock-Tenn's Restated
and Amended Articles of Incorporation and applicable law), to elect all of
Rock-Tenn's directors and effectively to control Rock-Tenn.
LOSS OF KEY CUSTOMERS
Each of Rock-Tenn's product lines has certain key customers, the loss of
which could have an adverse effect on the sales of such product line and,
depending on the significance of the division to Rock-Tenn's operations,
Rock-Tenn's results of operations.
ANTI-TAKEOVER PROVISIONS -- LIMITATIONS ON ABILITY TO GAIN CONTROL OF ROCK-TENN
AND INFLUENCE CORPORATE GOVERNANCE
Rock-Tenn's Restated and Amended Articles of Incorporation and Bylaws
contain certain provisions which may discourage or make more difficult any
attempt by a person or group to obtain control of Rock-Tenn. These provisions
may negatively impact the price that certain investors might be willing to pay
in the future for shares of Rock-Tenn Common Stock.
16
<PAGE> 26
RESIDUAL LIABILITY
Shareholders of Davey, who will also become shareholders of Davey
Downingtown upon the liquidation and dissolution of Davey, may be liable under
state law to certain creditors of Davey and Davey Downingtown after the
Dissolution. Such liability should generally be limited to the value of the
property each shareholder receives in the Dissolution. The Board of Directors of
both Davey and Davey Downingtown will reserve cash and other assets believed to
be sufficient to pay all known and estimated liabilities and obligations of both
such companies, but no assurance can be given that these assets will be
sufficient to pay all liabilities and obligations of such companies,
particularly those relating to environmental matters.
POTENTIAL LOSS OF SHARES RETAINED FOR POST-CLOSING ADJUSTMENTS
For a period of several months prior to its complete liquidation and
dissolution, 40,000 of the shares of Rock-Tenn Common Stock issued to Davey
pursuant to the Purchase Agreement (the "Adjustment Shares") will be held in
escrow under an escrow agreement to satisfy any post-closing adjustments deemed
necessary as a result of Rock-Tenn's audit of the Working Capital Statement (as
defined herein) and to compensate Rock-Tenn for certain other specified items.
Any of the shares not required to satisfy such obligations will be distributed
to the Davey Shareholders pro rata. There can be no assurance that the
shareholders of Davey will receive the Adjustment Shares upon the completion of
post-closing adjustments. See "The Transaction -- Terms of the Purchase
Agreement."
POTENTIAL LOSS OF PLEDGED SHARES; SHAREHOLDER LIABILITY
Pursuant to the Stock Pledge Agreement, the shareholders of Davey will
pledge to Rock-Tenn the Pledged Shares to secure the obligations of Davey
pursuant to the Purchase Agreement, which include certain representations and
warranties respecting title to real and personal property, the environmental
condition of real property transferred to Rock-Tenn, the absence of fraud in
connection with the Acquisition, and other matters. See "The
Transaction -- Terms of the Purchase Agreement -- Indemnification," and "The
Transaction -- Stock Pledge Agreement." In addition, pursuant to the Stock
Pledge Agreement, the representative of the Davey shareholders will have the
authority to liquidate the pledged shares in order to meet the residual
obligations of Davey and Davey Downingtown, including their respective
environmental remediation obligations. Accordingly, there can be no assurance
that the shareholders of Davey will receive the Pledged Shares or the proceeds
of the Pledged Shares upon the termination of the Stock Pledge Agreement. The
Stock Pledge Agreement also provides that each shareholder of Davey will assume
and be directly responsible for a pro rata portion of Davey's liabilities and
obligations to Rock-Tenn, up to the value of the Rock-Tenn Common Stock such
shareholder receives in connection with the Dissolution. See "The
Transaction -- Terms of the Purchase Agreement -- Indemnification."
RECOGNITION OF GAIN UPON RETURN OF ESCROWED OR PLEDGED SHARES
If any of the Adjustment Shares or Pledged Shares are used to satisfy
obligations of Davey to Rock-Tenn under the Purchase Agreement or the Stock
Pledge Agreement, each Davey shareholder will be required to recognize taxable
gain for federal income tax purposes as if such shareholder had sold his or her
pro rata share of such shares of Rock-Tenn Common Stock.
17
<PAGE> 27
DAVEY SPECIAL MEETING OF SHAREHOLDERS
TIME, DATE, PLACE AND PURPOSE
The Davey Special Meeting will be held at 10:00 a.m., local time, on
, June , 1997, at the Newark Airport Hilton, 1170 Spring Street,
Newark, New Jersey 07201. At the Davey Special Meeting, Davey's shareholders
will consider, vote upon and give their written consent to a proposal to approve
the Transaction and transact such other business as may properly come before the
Davey Special Meeting.
RECORD DATE AND SHARES ENTITLED TO VOTE
Only shareholders of record as of the close of business on the Record Date
are entitled to receive notice of and to vote at the Davey Special Meeting. As
of the close of business on the Record Date, there were 4,010 shares of Davey
Common Stock issued and outstanding held by 28 holders of record. Holders of
Davey Common Stock on the Record Date are entitled to one vote per share on each
matter considered and voted on at the Davey Special Meeting.
The presence in person or by proxy of the holders of a majority of the
shares of Davey Common Stock issued and outstanding on the Record Date is
necessary to constitute a quorum at the Davey Special Meeting. The affirmative
vote and written consent of the holders of 66 2/3% of the Davey Common Stock
entitled to vote at the Special Meeting is necessary to approve the Transaction.
Abstentions will be counted as shares that are present and entitled to vote for
purposes of determining the presence of a quorum at the Davey Special Meeting.
Abstentions with respect to the proposal to approve the Transaction will not
count as either votes for or against such proposal at the Davey Special Meeting.
As of the Record Date, directors and executive officers of Davey
beneficially owned in the aggregate 1,592 shares of Davey Common Stock (or
approximately 39.7% of the issued and outstanding Davey Common Stock), which
includes shares owned of record by the Profit Sharing Plan as to which the
trustees of the Profit Sharing Plan, all of whom are directors of Davey, have
the right to vote. Each of the directors and executive officers of Davey has
advised Davey that he intends to vote his shares of Davey Common Stock
(including the shares owned of record by the Profit Sharing Plan) to approve the
Transaction.
RECOMMENDATION OF DAVEY BOARD OF DIRECTORS
The Board of Directors of Davey has determined that the Transaction is in
the best interests of Davey and its shareholders and has unanimously approved
the Transaction. Accordingly, the Board of Directors of Davey unanimously
recommends that the shareholders of Davey vote FOR approval of the Transaction.
PROXIES
A form of proxy (which includes a form of written consent) is enclosed with
this Proxy Statement/Prospectus. All shares of Davey Common Stock represented by
properly executed proxies will, unless such proxies have been previously
revoked, be voted in accordance with the instructions indicated on such proxies.
If no instructions are indicated, such shares will be voted against approval of
the Transaction and, in the discretion of the proxy holder, voted for any other
matter which may properly come before the Special Meeting.
A Davey shareholder who has given a proxy may revoke it at any time prior
to its exercise at the Davey Special Meeting by (i) giving written notice of
revocation to the Secretary of Davey, (ii) properly submitting to Davey a duly
executed proxy bearing a later date, or (iii) voting in person at the Davey
Special Meeting. All written notices of revocation and other communications with
respect to revocation of proxies should be addressed to Davey as follows: The
Davey Company, 164 Laidlaw Avenue, Jersey City, New Jersey 07306, Attention:
Alfred C. Brooks, President. A proxy appointment will not be revoked by death or
supervening incapacity of the shareholder executing the proxy unless, before the
shares are voted, notice of such death or incapacity is filed with Davey's
Secretary or other person responsible for tabulating votes on behalf of Davey.
The expenses of soliciting proxies for the Davey Special Meeting will be
borne by Davey. Davey intends to solicit shareholders of record by mail,
telephone or personal contact.
18
<PAGE> 28
THE TRANSACTION
The following information describes certain information pertaining to the
Transaction. This description does not purport to be complete and is qualified
in its entirety by reference to the Annexes hereto, including the Purchase
Agreement, a copy of which is set forth in Annex A to this Proxy
Statement/Prospectus and incorporated herein by reference, the Davey Plan of
Liquidation, a copy of which is set forth in Annex B to this Proxy
Statement/Prospectus and incorporated herein by reference, and the Downingtown
Plan of Liquidation, a copy of which is set forth in Annex C to this Proxy
Statement/Prospectus and incorporated herein by reference. All shareholders are
urged to read the Annexes in their entirety.
GENERAL
The Purchase Agreement provides that Rock-Tenn will purchase the Assets and
assume the Assumed Liabilities and, in consideration thereof, issue and deliver
to Davey at the Closing 863,500 shares of Rock-Tenn Common Stock, subject to
certain working capital adjustments. However, if the Average Closing Price is
less than $14.00, the number of shares of Rock-Tenn Common Stock to be issued
and delivered to Davey at the Closing will be equal to the result obtained by
dividing $12,089,000 by the Average Closing Price, subject to certain working
capital adjustments. The "Average Closing Price" shall be equal to the average
closing price of the Rock-Tenn Common Stock on the NYSE for the seven
consecutive trading days ending on (and including) the tenth day prior to the
Davey Special Meeting. The Transaction is intended to constitute a tax-free
reorganization under Section 368(a)(1)(C) and (a)(2)(G) of the Code and,
accordingly, Davey will consummate the Dissolution following consummation of the
Acquisition and will distribute all of its assets, including the shares of
Rock-Tenn Common Stock (and cash in lieu of fractional shares) issued to Davey
pursuant to the Purchase Agreement, to its shareholders, together with dividends
and other distributions to which each shareholder is entitled, if any, subject
to certain reserves established to meet certain obligations of Davey and Davey
Downingtown.
REASONS FOR THE TRANSACTION
Davey. During its history of more than 150 years, Davey has experienced
periods of both profitability and operating losses. During the period 1990
through 1995, Davey experienced a series of operating losses from which it
substantially recovered during 1996 and the first quarter of 1997.
The manufacture of recycled paperboard is capital intensive and requires
substantial investment on an on-going basis. In order to maintain its position
in the marketplace, Davey's management recognized as early as 1993 that
substantial capital expenditures would be required within a short time period.
In addition, several significant customers of Davey had expressed a desire for
multiple grades of coverboard and single source purchasing. Since Davey
manufactures only one niche product, it would not be able to be a single source
supplier without significant diversification, which would also require a
significant additional investment of capital and time.
In September 1995, Davey received an unsolicited indication of Rock-Tenn's
interest in acquiring Davey. The Board of Directors of Davey determined to
pursue such a transaction and in October 1995 retained counsel to advise it as
to legal matters. The Board of Directors considered Rock-Tenn's interest in
acquiring Davey and Davey's prospects as an independent entity in light of the
on-going consolidation in the paperboard industry generally.
During February and March 1996, discussions between Davey and Rock-Tenn
began in earnest. During the spring of 1996, Rock-Tenn executive officers
visited Davey's facilities and Davey executive officers visited certain of
Rock-Tenn's facilities. Davey executive officers noted that Rock-Tenn has
available to it substantial capital resources, as well as engineering and
laboratory testing resources. It also has a diversified product mix, but does
not produce the high density recycled paperboard book covers manufactured by
Davey.
During September and October 1996, representatives of Davey and Rock-Tenn
negotiated a proposed letter of intent (the "Letter of Intent"). On October 15,
1996, the Board of Directors of Davey met and reviewed the status of the
negotiations and the draft Letter of Intent with representatives from Davey
19
<PAGE> 29
management and counsel. In addition, executives of Rock-Tenn provided a
presentation in which the Board of Directors of Davey were provided with
financial and other information about Rock-Tenn. On October 15, 1996, Davey's
Board of Directors approved the Letter of Intent.
At a meeting of the Board of Directors of Davey on April 21, 1997, the
Board discussed the merits of the Transaction. The Board determined that the
Transaction was in the best interests of the shareholders of Davey and voted
unanimously to approve the Transaction. In making its determination, the Board
considered a number of factors including the following (none of which was
assigned any relative weight): (i) Davey's historical and projected results of
operations and financial condition and business prospects; (ii) Rock-Tenn's
historical results of operations and financial condition and business prospects;
(iii) the uncertainty regarding Davey's ability to make the capital investments
required to maintain its competitiveness over the long term; (iv) the
desirability of providing access to the public securities markets to Davey's
shareholders; (v) in light of the ongoing consolidation within the paperboard
industry, the desirability of combining the operations of Davey and Rock-Tenn to
achieve greater critical mass for Davey's operations; and (vi) the business
advantages expected to result from the combination of Rock-Tenn and Davey.
BASED ON THE FOREGOING, THE BOARD OF DIRECTORS OF DAVEY HAS DETERMINED THAT
THE TRANSACTION IS IN THE BEST INTERESTS OF DAVEY AND ITS SHAREHOLDERS.
ACCORDINGLY, THE BOARD OF DIRECTORS OF DAVEY UNANIMOUSLY RECOMMENDS THAT DAVEY'S
SHAREHOLDERS VOTE FOR APPROVAL OF THE TRANSACTION.
Rock-Tenn. Rock-Tenn believes that the Acquisition will, among other
things, (i) expand its product line to include certain high density recycled
paperboard book covers not previously manufactured by Rock-Tenn, (ii) expand
Rock-Tenn's customer base, giving rise to cross selling opportunities for
Rock-Tenn's other grades of recycled paperboard book covers and (iii) provide
opportunities to lower overall manufacturing costs by producing a portion of
Davey's products in Rock-Tenn's plants at lower costs per unit.
TERMS OF THE PURCHASE AGREEMENT
Purchase Price. In consideration for the Assets and the Assumed
Liabilities, Rock-Tenn has agreed to issue and deliver to Davey at the Closing
863,500 shares of Rock-Tenn Common Stock, subject to certain working capital
adjustments. However, if the Average Closing Price is less than $14.00, the
number of shares of Rock-Tenn Common Stock to be issued and delivered at the
Closing will be equal to the result obtained by dividing $12,089,000 by the
Average Closing Price, subject to certain working capital adjustments (in either
case, the 863,500 shares or such other number of shares determined pursuant to
this sentence are referred to herein as the "Estimated Shares"). The number of
Estimated Shares to be issued to Davey is subject to adjustment immediately
prior to and following the Closing based on (among other things) the amount of
working capital of Davey as of the date of Closing, as further described below
(such shares actually issued and delivered to Davey are referred to herein as
the "Acquisition Shares").
Rock-Tenn and Davey have agreed that, immediately prior to the Closing,
they will estimate the Working Capital Amount (as defined in the Purchase
Agreement) of Davey as of the day prior to the Closing Date in accordance with
generally accepted accounting principles consistently applied (the "Estimated
Working Capital Amount"). If the Estimated Working Capital Amount exceeds
$2,016,074 (the "Target Working Capital Amount"), at the Closing Rock-Tenn will
issue to Davey a number of Acquisition Shares equal to (a) the number of
Estimated Shares plus (b) (x) the amount by which the Estimated Working Capital
Amount exceeds the Target Working Capital Amount (the "Estimated Surplus")
divided by (y) the Formula Price. "Formula Price" shall be equal to $18.18
unless the Average Closing Price is less than $14.00, in which event the Formula
Price shall be equal to (i) $18.18 multiplied by (ii) 863,500 divided by the
number of Estimated Shares. If the Estimated Working Capital Amount is less than
the Target Working Capital Amount, at the Closing Rock-Tenn will issue to Davey
a number of shares of Rock-Tenn Common Stock equal to (a) the number of
Estimated Shares minus (b) (x) the amount by which the Estimated Working Capital
Amount is less than the Target Working Capital Amount (the "Estimated Deficit")
divided by (y) the Formula Price. The Target Working Capital Amount as increased
or decreased (as applicable) by the Estimated Surplus or the Estimated Deficit,
respectively, is defined as the "Adjusted Target Value." Management of Davey
believes that it will transfer to Rock-Tenn the Target Working Capital Amount,
and
20
<PAGE> 30
that it will utilize all remaining cash, cash equivalents and other assets to
discharge its obligations incurred in connection with the Transaction and to
establish reserves sufficient to discharge all of its remaining obligations and
those of Davey Downingtown pursuant to the Dissolution. See "The
Transaction -- The Dissolution."
In addition, Rock-Tenn has agreed to prepare, as promptly as practicable
after the Closing Date but in any case not later than 90 days thereafter, a
working capital statement as of the Closing Date prepared in accordance with
generally accepted accounting principles applied on a basis consistent with the
June 30, 1996 balance sheet of Davey (the "Working Capital Statement") setting
forth the Working Capital Amount of Davey as of the Closing Date and the
components thereof. Upon receipt of the Working Capital Statement, Davey and its
accountants have 30 days to review the working capital statement (the "Review
Period") and to deliver a notice of dispute (a "Notice of Dispute") setting
forth any objections to the working capital statement. If no Notice of Dispute
is received within the Review Period, the Working Capital Statement shall be the
final Working Capital Statement. If a timely Notice of Dispute is received,
Davey and Rock-Tenn will, for a period of 20 days following the delivery of such
Notice of Dispute, seek in good faith to resolve all disputed items and agree
upon a final Working Capital Statement. If any disputed items are not agreed
upon during such 20-day period, such items will be submitted to an accounting
firm to be mutually agreed upon by Rock-Tenn and Davey for final resolution. The
Working Capital Amount set forth on the final Working Capital Statement shall be
referred to as the "Final Working Capital Amount".
Within five business days after the determination of the final Working
Capital Statement (either by termination of the Review Period or by resolution
of disputed items), (i) in the event the Final Working Capital Amount exceeds
the Adjusted Target Value, Rock-Tenn will issue to Davey a number of additional
shares of Rock-Tenn Common Stock equal to (x) the amount by which the Final
Working Capital Amount exceeds the Adjusted Target Value divided by (y) the
Formula Price. Notwithstanding the foregoing, in no event will Rock-Tenn issue
to Davey more than that number of additional shares of Rock-Tenn Common Stock
equal to 25% of the Acquisition Shares issued on the Closing Date. In the event
the Final Working Capital Amount is less than the Adjusted Target Value, Davey
will at its option (i) surrender to Rock-Tenn without consideration that number
of the Acquisition Shares equal to (x) the amount by which the Final Working
Capital Amount is less than the Adjusted Target Value divided by (y) the Formula
Price or (ii) pay to Rock-Tenn in cash an amount equal to the excess of the
Adjusted Target Value over the Working Capital Amount. Until the final
determination of the Final Working Capital Amount and final delivery of any
shares of Rock-Tenn Common Stock as permitted above, 40,000 of the Acquisition
Shares issued at the Closing will remain on deposit with Alfred C. Brooks, as
escrow agent, under an escrow agreement entered into on the Closing Date (the
"Escrow Agreement").
In addition, Davey has agreed to surrender to Rock-Tenn cash or such number
of Acquisition Shares (based on a per share value equal to the Formula Price) as
is sufficient to cover certain returns and allowances, unsold inventory and
uncollectible accounts receivable which exceed applicable allowances and (in the
case of unsold inventory and uncollectible account receivables) which exceed any
unused balance of the Davey Basket (as defined below).
Conditions to Each Party's Obligation to Effect the Acquisition. The
obligations of Davey and Rock-Tenn to consummate the Acquisition shall be
subject to the fulfillment at or prior to the Closing of certain conditions,
including: (a) there shall be no effective injunction, writ or preliminary
restraining order or any order of any nature issued by a court or governmental
agency of competent jurisdiction to the effect that the Acquisition may not be
consummated, no proceeding or lawsuit shall have been commenced by any
governmental or regulatory agency or any third party for the purpose of
obtaining any such injunction, writ or preliminary restraining order or any
material damages or other material equitable relief with respect to the
Transactions contemplated by the Purchase Agreement, and no written notice shall
have been received from any agency indicating an intent to restrain, prevent,
materially delay or restructure the Transactions contemplated by the Purchase
Agreement; (b) the applicable waiting period shall have expired under the HSR
Act; (c) the Registration Statement shall have become effective and no stop
order suspending the effectiveness of the Registration Statement shall be in
effect nor any proceedings for such purpose or under the proxy rules shall be
pending, and all applicable state securities laws shall have been complied with,
and no stop order suspending the effectiveness of any qualification or
registration of the Acquisition Shares under such
21
<PAGE> 31
state securities laws shall be issued and pending or threatened by the
authorities of any such state; (d) the Acquisition Shares shall have been
approved for listing on the NYSE; (e) all consents, authorizations, orders and
approvals of (or filings or registrations with) any governmental commission,
board or other regulatory body required in connection with the execution,
delivery and performance of the Purchase Agreement by Davey and Rock-Tenn shall
have been obtained or made, except for the filing of any documents required to
be filed after the Closing Date; (f) each of Alfred C. Brooks, Stephen C. Dodd,
Jeff J. Chiesa and Jerry T. McCluskey shall have entered into employment
agreements with Rock-Tenn; and (g) each of Davey's shareholders shall have duly
executed and notarized and delivered a shareholder representation letter
relating to certain representations of such shareholders as to their intentions
not to transfer Rock-Tenn Common Stock.
Conditions to Rock-Tenn's Obligation to Effect Acquisition. The obligation
of Rock-Tenn to consummate the Acquisition is further subject to the fulfillment
at or prior to Closing of the certain additional conditions, including: (a) the
representations and warranties of Davey set forth in the Purchase Agreement
shall have been true and correct in all material respects as of the date of the
Purchase Agreement and shall be true and correct in all material respects as of
the Closing Date as though made on and as of the Closing Date; (b) Davey shall
have performed in all material respects all covenants and agreements required to
be performed by it under the Purchase Agreement prior to Closing; (c) Davey
shall have furnished Rock-Tenn with a certificate executed by its President and
Vice President, Finance as to compliance with the conditions set forth in
clauses (a) and (b); (d) Rock-Tenn shall have received opinions of Davey's
counsel and counsel to certain shareholders of Davey, dated the Closing Date, in
each case substantially in the form attached to the Purchase Agreement; (e)
Rock-Tenn shall have obtained to its reasonable satisfaction evidence that the
material suppliers and customers of Davey prior to the Closing intend to remain
customers or suppliers, as the case may be, of Rock-Tenn at a substantially
similar volume level as was maintained with Davey during the previous 12-month
period; (f) Rock-Tenn shall have received consents to the assignment to
Rock-Tenn of the Assumed Contracts (as defined in the Purchase Agreement) or
written waivers of the provisions of Assumed Contracts requiring the consents of
third parties; (g) between the date of the Purchase Agreement and the Closing,
there shall not have been (nor shall Rock-Tenn have become aware of) any
material adverse change, or any development likely to result in a material
adverse change, in or affecting the assets, liabilities, results of operations,
business or prospects of the business of Davey; (h) Davey shall have delivered
to Rock-Tenn satisfactory evidence that all liens, pledges, security interests,
charges, claims, restrictions and encumbrances (other than certain permitted
liens and those relating to the Assumed Liabilities), affecting the Assets have
been released; (i) Rock-Tenn shall have been able to obtain a title insurance
policy or policies in a form reasonably satisfactory to Rock-Tenn at standard
rates ensuring Rock-Tenn that at the Closing it will acquire good, marketable
and insurable title to the Real Property, free and clear of all liens, pledges,
security interests, charges, claims, leasehold interests, tenancies,
restrictions and encumbrances of any nature whatsoever, other than certain
permitted liens and liens relating to the Assumed Liabilities, if applicable and
Davey shall have executed and delivered such owner's affidavits (in customary
form) as are reasonably necessary to enable Rock-Tenn to obtain any such title
insurance policy or policies; (j) Rock-Tenn shall have received such licenses
and permits as are required for Rock-Tenn to consummate the Transactions
contemplated hereby by the Purchase Agreement and to conduct the business of
Davey immediately following the Closing consistent with past practice; (k)
Rock-Tenn's Board of Directors shall have approved the issuance of the
Acquisition Shares; (l) each of Davey's Shareholders shall have executed and
delivered to Rock-Tenn the Stock Pledge Agreement; (m) Rock-Tenn shall be
reasonably satisfied with the results of its review and examination of the
business, properties, assets, liabilities, financial condition, books and
records of Davey, including without limitation, the results of any environmental
audits or assessments performed on the Real Property; (n) Davey shall have
delivered to Rock-Tenn tax clearance certificates with respect to Davey and
Davey Downingtown issued by the appropriate tax authorities of the States of
Illinois and New Jersey with dates reasonably close to the Closing Date; and (o)
the shareholders of Davey shall have executed and delivered to Rock-Tenn the
Escrow Agreement.
Conditions to Davey's Obligation to Effect Acquisition. The obligation of
Davey to consummate the Acquisition is further subject to the fulfillment at or
prior to the Closing of certain additional conditions, including: (a) the
representations and warranties of Rock-Tenn set forth in the Purchase Agreement
shall
22
<PAGE> 32
have been true and correct in all material respects as of the date of the
Purchase Agreement and shall be true and correct in all material respects as of
the Closing Date as though made on and as of the Closing Date; (b) Rock-Tenn
shall have performed in all material respects all covenants and agreements
required to be performed by it under the Purchase Agreement prior to the
Closing; (c) Rock-Tenn shall have furnished Davey with a certificate of its
President and Chief Financial Officer as to Rock-Tenn's compliance with the
conditions set forth in clauses (a) and (b); (d) Davey shall have received an
opinion of counsel to Rock-Tenn, substantially in the form attached to the
Purchase Agreement; (e) Rock-Tenn shall have duly executed and delivered the
Stock Pledge Agreement; (f) the Purchase Agreement and the Dissolution have been
approved by the holders of Davey Common Stock; and (g) between the date of the
Purchase Agreement and Closing, there shall not have been (nor shall Davey have
become aware of) any material adverse change, or any development likely to
result in a material adverse change, in or affecting the assets, liabilities,
results of operations, business or prospects of Rock-Tenn.
Amendment. The Purchase Agreement may be amended by mutual agreement of
the parties thereto. Any amendment to the Purchase Agreement must be in writing
and signed by the parties to the Purchase Agreement.
Termination. The Purchase Agreement may be terminated at any time prior to
the Closing Date (a) by mutual agreement of Davey and Rock-Tenn or (b) by
Rock-Tenn or Davey if the Closing has not been completed on or before 5:00 p.m.
Eastern Standard Time on July 31, 1997.
Fees and Expenses. Davey and Rock-Tenn will each bear 50% of any sales,
transfer or similar taxes or transfer fees payable as a result of the sale of
the Assets or any other action contemplated by the Purchase Agreement, the
filing fees under the HSR Act and any title examination and survey costs and
expenses. All other costs and expenses will be borne by the party incurring such
costs and expenses. Davey's share of such other costs and expenses will be
reflected as a reduction in the number of Acquisition Shares, or paid to Rock-
Tenn in cash.
Indemnification. Under the Purchase Agreement, Davey is required to
indemnify, defend and hold harmless Rock-Tenn and its subsidiaries and
affiliates, each of their respective officers, directors, shareholders,
employees, agents and representatives and each of the heirs, executors,
successors and assigns of any of the foregoing (collectively, the "Rock-Tenn
Indemnified Parties") from, against and in respect of any and all claims,
liabilities, obligations, losses, costs, expenses, penalties, fines and
judgments (at equity or at law) and damages whenever arising or incurred
(including, without limitation, amounts paid in settlement, costs of
investigation and reasonable attorneys' fees and expenses) arising out of or
relating to: (a) any liability or obligation of Davey or Davey Downingtown of
any nature whatsoever, except the Assumed Liabilities; (b) any breach or
inaccuracy of any representation or warranty made by Davey in the Purchase
Agreement; (c) any breach of any covenant, agreement or undertaking made by
Davey in the Purchase Agreement, the Stock Pledge Agreement and certain other
agreements; (d) subject to certain liabilities assumed by Rock-Tenn, any
provision of any Environmental Law (as defined in the Purchase Agreement) and
arising out of or relating to (i) any act or omission of Davey, Davey
Downingtown or their respective employees, agents or representatives or (ii) the
ownership, use, control or operation on or prior to the Closing Date of any
plant, facility, site, area or property used in the business of Davey or Davey
Downingtown (whether currently or previously owned or leased by Davey or Davey
Downingtown), including, without limitation, arising from any release of any
hazardous materials or off-site shipment of any hazardous materials at or from
any such plant, facility, site, area or property; (e) any past or current
violation or noncompliance by Davey or Davey Downingtown with any law,
regulation or administrative order to which it is or has been subject, except
with respect to the environmental matters referred to in clause (d) above; (f)
any failure of Davey or Davey Downingtown to hold or any violation by Davey or
Davey Downingtown of any authorization, license, permit or order of any
governmental or regulatory authority applicable to Davey, Davey Downingtown or
its assets; (g) the loss or unavailability of the benefit to Rock-Tenn of any
alternative minimum tax credits for which Davey received credit in computing the
Working Capital Amount, unless such loss is the result of any action or inaction
by Rock-Tenn; (h) any acts or omission by any environmental consultants engaged
by Davey to perform the actions contemplated in Section 5.16 of the Purchase
Agreement with respect to Davey's Jersey City facility; or (i) any fraud,
willful misconduct, bad faith or any intentional breach of any representation,
warranty,
23
<PAGE> 33
covenant, agreement or undertaking made by Davey in the Purchase Agreement. The
claims, liabilities, obligations, losses, costs, expenses, penalties, fines and
damages of the Rock-Tenn Indemnified Parties as to which the Rock-Tenn
Indemnified Parties are entitled to indemnification are hereinafter collectively
referred to as "Rock-Tenn Losses."
Under the Purchase Agreement, Rock-Tenn is required to indemnify and hold
harmless Davey and its subsidiaries and affiliates, each of their respective
officers, directors, shareholders, employees, agents and representatives and
each of the heirs, executors, successors and assigns of any of the foregoing
(collectively, the "Davey Indemnified Parties") from, against and in respect of
any and all claims, liabilities, obligations, losses, costs, expenses,
penalties, fines and judgments (at equity or at law) and damages whenever
arising or incurred (including, without limitation, amounts paid in settlement,
costs of investigation and reasonable attorneys' fees and expenses) arising out
of or relating to: (a) any of the Assumed Liabilities; (b) any breach of
inaccuracy of any representation or warranty made by Rock-Tenn in the Purchase
Agreement; (c) any breach of any covenant, agreement or undertaking made by
Rock-Tenn in the Purchase Agreement, the Stock Pledge Agreement and certain
other agreements; (d) certain activities of Rock-Tenn in connection with the
removal of equipment from the premises at Davey Downingtown; or (e) any fraud,
willful misconduct, bad faith or any intentional breach of any representation,
warranty, covenant, agreement or undertaking made by Rock-Tenn in the Purchase
Agreement. The claims, liabilities, obligations, losses, costs, expenses,
penalties, fines and damages of the Davey Indemnified Parties as to which the
Davey Indemnified Parties are entitled to indemnification are hereinafter
collectively referred to as "Davey Losses."
With respect to Rock-Tenn Losses resulting from any breach or inaccuracy of
any representation or warranty relating to Davey's organization, authorization,
absence of restrictions or conflicts, or ownership of assets and related matters
(the "Davey Surviving Representations"), or from liabilities of Davey or Davey
Downingtown other than the Assumed Liabilities, breaches of covenants,
agreements or undertakings made by Davey, or any fraud, willful misconduct, bad
faith or any intentional breach of any representation, warranty, covenant,
agreement or undertaking (the "Davey Surviving Obligations"), the period for
making claims for such losses will continue indefinitely, subject to applicable
statutes of limitation.
With respect to Rock-Tenn Losses resulting from breach or inaccuracy of
Davey's representations and warranties regarding tax returns and taxes, the
period during which Rock-Tenn may make claims for such Rock-Tenn losses shall
terminate on the sixth anniversary of the Closing Date.
With respect to Davey Losses resulting from any of the Assumed Liabilities,
breaches by Rock-Tenn of any of its covenants, agreements or undertakings in the
Purchase Agreement, the Stock Pledge Agreement and certain other agreements or
any fraud, willful misconduct, bad faith or any intentional breach of any
representation, warranty, covenant, agreement or undertaking on the part of
Rock-Tenn, the period during which Davey may make claims for such Davey Losses
shall continue indefinitely, subject to applicable statutes of limitation.
With respect to all other Rock-Tenn Losses or Davey Losses arising under
the Purchase Agreement, the period for making claims terminates five years after
the Closing Date.
Davey will only be liable for Rock-Tenn Losses arising out of a breach or
an inaccuracy of a representation or warranty of Davey to the extent that such
Rock-Tenn Losses exceed, in the aggregate, $250,000 (less any deductions already
applied against such amount for unsold inventory and uncollectible accounts
receivable) (the "Davey Basket"), provided that the Davey Basket does not apply
to Rock-Tenn Losses arising from breaches of Davey's representations and
warranties with respect to its authority to consummate the Transactions
contemplated by the Purchase Agreement, ownership of assets and related matters.
If any event or circumstance that gives rise to a claim by a Rock-Tenn
Indemnified Party for any Rock-Tenn Losses gives rise to any claim under any
insurance policy included in the Assets or any title insurance obtained by
Rock-Tenn with respect to the Real Property, the amount of such Rock-Tenn Losses
shall be deemed reduced by the amount of any proceeds actually paid to the
Rock-Tenn Indemnified Party under such policy with respect to such event or
circumstance. In addition, Davey will only be liable for Rock-Tenn Losses to the
extent that such Rock-Tenn Losses do not exceed the product of the Average
Closing Price multiplied by the number of Acquisition Shares issued to Davey in
the Acquisition.
24
<PAGE> 34
Rock-Tenn will only be liable for Davey Losses arising out of a breach or
an inaccuracy of a representation or warranty of Rock-Tenn to the extent that
the aggregate amount of Davey Losses exceeds $250,000 (the "Rock-Tenn Basket").
No Solicitation; Acquisition Proposals. From the date of the Purchase
Agreement until the Closing or until the Purchase Agreement is terminated or
abandoned, Davey may not directly or indirectly (a) solicit or initiate
(including by way of furnishing any information) discussions with or (b) enter
into negotiations or agreements with, or furnish any information to, any
corporation, partnership, person or other entity or group (other than Rock-Tenn
or its authorized representatives pursuant to the Purchase Agreement) concerning
any proposal for a merger, sale of any substantial portion of its assets, sale
of shares of stock or securities or other takeover or business combination
transaction (an "Acquisition Proposal") involving Davey or Davey Downingtown
(except the proposed sale by Davey Downington of any assets not included in the
Assets), and Davey will instruct its officers, directors, advisors and other
financial and legal representatives and consultants not to take any such action.
Davey will notify Rock-Tenn promptly if any proposals are received by, any
information is requested from, or any negotiations or discussions are sought to
be initiated with Davey or Davey Downingtown with respect to an Acquisition
Proposal. As of the signing of the Purchase Agreement, Davey must immediately
cease any existing activities, discussions or negotiations with any third
parties which may have been conducted on or prior to the date of the Purchase
Agreement with respect to an Acquisition Proposal and shall direct and cause its
officers, advisors and representatives not to engage in such activities,
discussions or negotiations.
Downingtown Assets. Immediately prior to consummation of the Acquisition,
Davey will cause Davey Downingtown to distribute to Davey the "Downingtown
Assets," which shall consist of all the assets owned by Davey Downingtown except
for real property held by Davey Downingtown and improvements thereon and with
the exception of certain specified equipment and other assets. In addition,
Davey will assume the accounts payable and certain other operating liabilities
from Davey Downingtown which liabilities will in turn be assumed by Rock-Tenn.
Rock-Tenn is responsible for removing the Downingtown Assets from the premises
of Davey Downingtown in Downingtown, Pennsylvania no later than 180 days after
the Closing. If Rock-Tenn fails to remove the Downingtown Assets from the
premises of Davey Downingtown within 180 Days after the Closing, Rock-Tenn must
pay the Representative for distribution to the shareholders of Davey a use and
occupancy charge of $325 per day for each additional day until Rock-Tenn has
fully removed the Downingtown Assets. Such payment must be made in registered
shares of Rock-Tenn Common Stock.
New Jersey Environmental Matters. Davey and Rock-Tenn have agreed in the
Purchase Agreement to follow certain procedures with respect to obtaining
required approvals from the State of New Jersey relating to the environmental
condition of Davey's Jersey City, New Jersey facility for (a) the performance of
certain work relating to such environmental condition subsequent to the Closing
and (b) the allocation of certain expenses between Davey and Rock-Tenn relating
to such environmental condition. See "Regulatory Approvals -- New Jersey
Environmental Approvals."
Noncompetition Covenant. Under the Purchase Agreement, for a period of ten
years from the Closing Date, Davey may not in any manner engage in, have an
equity or profit interest in, or render services to any business that conducts
the manufacturing, marketing and selling of paperboard products for use in book
covers and binders in the continent of North America. In addition, Davey has
agreed that it shall not, prior to the third anniversary of the Closing Date, in
any manner, directly or indirectly or by assisting others, recruit or hire away
or attempt to recruit or hire away, on its behalf or on behalf of any other
person, firm or corporation, any employee of Davey who is hired by Rock-Tenn,
except that Davey may use certain former employees as necessary to consummate
the Dissolution, to the extent permitted in their employment agreements with
Rock-Tenn.
Under the Purchase Agreement, Davey must hold in confidence at all times
after the date of the Purchase Agreement all Trade Secrets and may not disclose,
publish or make use of Trade Secrets at any time without the prior written
consent of Rock-Tenn. "Trade Secrets" include information, including, but not
limited to, technical or nontechnical data, a formula, pattern, compilation,
program, device, method, technique, drawing, process, financial data, financial
plan, product plan, list of actual or potential customers or
25
<PAGE> 35
suppliers, or other information similar to any of the foregoing, which derives
economic value, actual or potential, from not being generally known to, and not
being readily ascertainable by proper means by, other persons who can derive
economic value from its disclosure or use. In addition, for a period of three
years following the Closing Date, Davey must hold in confidence all data or
information relating to Davey, other than Trade Secrets, which is valuable to
the operation of the business of Davey and not generally known to competitors.
Under the Purchase Agreement, Davey Downington may continue to engage in
wastepaper collection in Downingtown, Pennsylvania and within a 75 mile distance
from its city limits.
REGULATORY APPROVALS
HSR Act. Under the Purchase Agreement, the obligations of both Davey and
Rock-Tenn to consummate the Acquisition are conditioned upon receipt of
regulatory approvals. Under the HSR Act, the Acquisition may not be consummated
unless notification has been given and certain information has been furnished to
the FTC and the Antitrust Division and the waiting period has expired or been
terminated. Pursuant to the HSR Act, on May 9, 1997, Davey and Rock-Tenn each
filed a Notification and Report Form with the FTC and the Antitrust Division for
review in connection with the Acquisition. The 30-day waiting period under the
HSR Act applicable to the Acquisition will expire on June 8, 1997.
At any time before or after the consummation of the Acquisition, and
notwithstanding the granting of early termination or the expiration of the
waiting period under the HSR Act, 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 consummation of the Acquisition
or seeking divestiture of substantial assets of Davey or Rock-Tenn. Private
parties (including individual states) may also seek to take legal action under
the antitrust laws under certain circumstances. Based on information available
to them, Davey and Rock-Tenn believe that the Acquisition can be effected in
compliance with applicable federal and state antitrust laws. However, there can
be no assurance that a challenge to the consummation of the Acquisition on
antitrust grounds will not be made or that, if such a challenge were made,
Rock-Tenn and Davey would prevail or would not be required to accept certain
adverse conditions in order to consummate the Acquisition.
New Jersey Environmental Approvals. Pursuant to the Industrial Site
Remediation Act ("ISRA"), approval from the NJDEP is required to transfer
ownership of any real property in New Jersey used as an "Industrial
Establishment," as such term is defined by ISRA. Under ISRA, Davey's Jersey City
facility is an "Industrial Establishment." To receive approval for the transfer
of the real property to Rock-Tenn, and as required by the Purchase Agreement,
Davey has filed with NJDEP an application for a Remediation Agreement with the
State of New Jersey, which Remediation Agreement will set forth the obligations
of Davey after consummation of the Acquisition. NJDEP's issuance of the
Remediation Agreement will, by law, constitute NJDEP's authorization, pursuant
to ISRA, for the contemplated transfer of title as part of the Acquisition.
Davey has also agreed in the Purchase Agreement to request from NJDEP
either an unconditional No Further Action Letter ("NFA") or, in Davey's
discretion, a conditional No Further Action Letter ("CNFA") authorizing the use
of certain measures to contain environmental conditions at the site. All
necessary construction work and all additional investigative or remedial work
required by NJDEP to obtain the NFA or CNFA shall be performed at Davey's
expense. Rock-Tenn shall have the right to approve any consultants, contractors
and other persons employed by Davey to undertake any required investigatory or
remedial actions. All filings with the NJDEP in connection with the
environmental condition of the Jersey City Property are subject to the approval
of Rock-Tenn, which approval shall not be unreasonably withheld. After
completion of Davey's work required by NJDEP to obtain the NFA or CNFA, any
additional remedial work to the Cap (as defined in the Purchase Agreement)
required by NJDEP will be performed and paid for solely by Rock-Tenn.
If at any time within three years after the date of the Closing, NJDEP
requires Rock-Tenn to perform any remedial work at the Jersey City Property with
respect to any hazardous materials not located under the Cap and not expressly
identified in an Environmental Site Assessment Report prepared by
Conestoga-Rovers & Associates, Davey shall reimburse Rock-Tenn for any
additional costs incurred by Rock-Tenn in connection with such hazardous
materials. During such three-year period, if Rock-Tenn removes all or any
portion of the
26
<PAGE> 36
Cap, disposes of the soils and other materials under the Cap and such soils,
materials and Cap fragments are not classified as nonhazardous ID27 Waste (as
defined in the Purchase Agreement) or cannot be utilized as daily landfill cover
at the landfill located at the Hackensack Meadowlands, Davey shall reimburse
Rock-Tenn for the additional costs incurred in excess of those costs which would
have been incurred if the disposal of the soils, materials and fragments were
classified as ID27 Waste and could have been utilized as a daily landfill cover
in a landfill located at the Hackensack Meadowlands; provided that Davey shall
be required to reimburse Rock-Tenn for such costs only to the extent that
Rock-Tenn's total out-of-pocket costs incurred in connection with the remedial
work excluding the removal and disposal of the Cap exceeds $475,000. Such
reimbursement shall be made in cash or such number of shares of Rock-Tenn Common
Stock as has a value (based on the average closing price of the Rock-Tenn Common
Stock on the New York Stock Exchange for the seven consecutive trading days
ending on (and including) the tenth day prior to the date of such payment) equal
to the amount of such incremental cost (rounded to the nearest whole share).
Other than the approvals discussed above, Rock-Tenn and Davey are not aware
of any federal, state or foreign regulatory requirements that must be complied
with or approvals that must be obtained in connection with the Acquisition other
than the filing with the Commission of the Registration Statement and this Proxy
Statement/Prospectus and compliance with applicable state securities laws and
regulations. Should any such approval be required, it is currently contemplated
that such approval will be sought.
EMPLOYMENT AGREEMENTS
In connection with the Acquisition, Rock-Tenn will enter into employment
agreements with each of Alfred C. Brooks, Stephen C. Dodd, Jeff J. Chiesa and
Jerry T. McCluskey (the "Executives") pursuant to which Rock-Tenn will agree to
employ each individual for a period of 5 years, 5 years, 12 months and 18
months, respectively (collectively, the "Employment Agreements"). Pursuant to
the Employment Agreements, Rock-Tenn will pay Alfred C. Brooks, Stephen C. Dodd,
Jeff J. Chiesa and Jerry T. McCluskey annual salaries of $180,000, $135,000,
$97,500 and $100,000, respectively, and Alfred C. Brooks, Stephen C. Dodd and
Jerry McCluskey will be entitled to participate in Rock-Tenn's bonus plan.
Rock-Tenn may terminate the respective Employment Agreements if the Executive
(a) is convicted of, pleads guilty to, or confesses to any felony or any act of
fraud, misappropriation or embezzlement or (b) is engaged in a dishonest act to
the damage or prejudice of Rock-Tenn or any of its affiliated entities or (c)
fails to comply with any of Rock-Tenn's material policies. The Employment
Agreements also contain covenants not to (i) disclose certain trade secrets and
confidential information of Rock-Tenn, (ii) compete with Rock-Tenn during the
term of the Employment Agreements and (other than Jeff Chiesa) for a period
ranging from one to two years following the termination of such Executive's
employment with Rock-Tenn or (iii) solicit certain clients or employees of, or
interfere with the business of, Rock-Tenn for a period ranging from one to two
years following the termination of such Executive's employment.
STOCK PLEDGE AGREEMENT
In connection with the Acquisition, Davey and Davey's shareholders (the
"Pledgors") will enter into the Stock Pledge Agreement with Rock-Tenn for the
purpose of securing the punctual payment and performance of any and all
obligations, liabilities and amounts owed by Davey under the Purchase Agreement
and by the Pledgors under the Stock Pledge Agreement, including prompt
observance and performance by Davey of all of its covenants, agreements and
indemnification and other obligations under the Purchase Agreement (the "Secured
Obligations").
Under the Stock Pledge Agreement, each Pledgor will assume and become
directly liable for Davey's obligations and liabilities, with each Pledgor being
severally liable for a portion of such obligations and liabilities equal to such
Pledgor's percentage ownership of the outstanding Davey Common Stock as of the
Closing Date (the "Ownership Percentage"). Each Pledgor will agree to directly
indemnify and hold harmless Rock-Tenn against such Pledgor's share of Rock-Tenn
Losses suffered by Rock-Tenn under the Purchase Agreement and the Stock Pledge
Agreement up to an amount equal to the number of Acquisition Shares distributed
to each Pledgor multiplied by the Average Closing Price.
27
<PAGE> 37
Under the Stock Pledge Agreement, as collateral security for the payment
and performance in full of the Secured Obligations, each Pledgor will pledge to
Rock-Tenn a first priority security interest in all rights, title and interest
of 10% of the Acquisition Shares to be received by such Pledgor (collectively,
the "Pledged Shares"), all dividends, interest, cash and other property received
or receivable in respect of or in exchange for the Pledged Shares, any
certificates or other instruments or documents representing any of the foregoing
and all proceeds of any of the foregoing and any property of any character
whatsoever into which any of the foregoing may be converted (all such property,
the "Pledged Collateral").
If any Pledgor fails to pay and perform in full any of the Secured
Obligations for which such Pledgor is responsible at any time on or after such
Secured Obligations become due, or if such Pledgor breaches any of its
representations, warranties or covenants under the Stock Pledge Agreement (a
"Pledgor Default"), Rock-Tenn may exercise all rights of a secured party under
the applicable Uniform Commercial Code with respect to the Pledged Collateral
owned by such Pledgor and may sell, assign, transfer, endorse and deliver the
whole or, from time to time, any part of the Pledged Collateral owned by such
Pledgor. In addition, Rock-Tenn also has the right, at such time as the
liability of the Pledgors is determined pursuant to the Purchase Agreement, to
cancel a total number of the Pledged Shares as has a value (based on the
then-current trading value of the Rock-Tenn Common Stock) equal to the amount of
such liability. The number of Pledged Shares owned by each Davey Shareholder
that are canceled will be determined pro rata based on such Pledgor's Ownership
Percentage.
Each Pledgor shall exercise all voting and consensual rights and powers
with respect to the Pledged Collateral owned by such entity and shall be
entitled to receive cash dividends paid with respect to the Pledged Collateral;
provided that such voting rights shall be forfeited and the distribution of such
dividends will be retained and added to the Pledged Collateral during certain
periods that Rock-Tenn is asserting a claim against the Pledged Collateral. On
the third anniversary of the Stock Pledge Agreement, Rock-Tenn shall release the
balance of the Pledged Collateral; however, in the event that a Pledgor Default
then exists or is continuing, Rock-Tenn may retain the Pledged Collateral to the
extent of the reasonably estimated amount attributable to the Pledgor Default
until finally determined.
Pursuant to the Stock Pledge Agreement, each Pledgor will irrevocably
appoint Alfred C. Brooks as the Representative of such Pledgor with full powers
of substitution to act in the name, place and stead of such Pledgor with respect
to the performance on behalf of such Pledgor under the terms and provisions of
the Stock Pledge Agreement and to do or refrain from doing all such further acts
and things, and to execute all such documents, as the Representative shall deem
necessary or appropriate in connection with any of the transactions contemplated
under the Stock Pledge Agreement, including, without limitation, the power: (a)
to act for such Pledgor with respect to all indemnification matters referred to
in the Stock Purchase Agreement, including the right to compromise or settle any
such claims on behalf of such Pledgor; (b) to act for such Pledgor with respect
to any decision to sell the Pledged Shares pursuant to the Stock Pledge
Agreement and to execute the escrow agreement contemplated thereby on behalf of
such Pledgor; (c) to amend or waive any provision of the Stock Pledge Agreement
in any manner which does not differentiate among the Pledgors; and (d) to incur
any expenses, to liquidate and withhold assets received on behalf of the
Pledgors prior to their distribution to the Shareholder Pledgors (including the
right to sell any of the Pledged Shares) to the extent of any amount which the
Representative deems necessary for payment of or as a reserve against (i)
expenses incurred by the Representative in acting under the Stock Pledge
Agreement or the Purchase Agreement and (ii) liabilities, obligations or
expenses of Davey or Davey Downingtown in excess of the assets retained by such
entities for the purpose of settling such liabilities, obligations and expenses,
and to use the proceeds of such sale for such purposes or to deposit the same in
one or more bank or investment accounts established for such purposes, as
permitted under the applicable plan of liquidation.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION
Certain executive officers and directors of Davey have interests in the
Transaction in addition to their interests as shareholders of Davey generally.
As a result of the Transaction, Alfred C. Brooks and Steven C. Dodd, the
President and Vice President, respectively, of Davey, will receive amount of
severance and deferred compensation equal to their respective average annual
salaries, and one month's salary for each year of
28
<PAGE> 38
employment by Davey, up to 24 months. Neither Mr. Brooks nor Mr. Dodd shall
receive any additional compensation from Davey or Davey Downingtown (other than
reimbursement of expenses) for work performed by them in connection with the
liquidation and dissolution of Davey and Davey Downingtown after the
consummation of the Transaction, including services rendered as Trustee of the
liquidating trust for Davey and Davey Downingtown. In addition, certain other
key employees will receive severance and deferred compensation packages. Total
payments by Davey to all former managerial employees as a result of the
Transaction will be approximately $800,000. In addition, certain members of
Davey's management and the Board of Directors of Davey will enter into
employment agreements with Rock-Tenn in connection with the Acquisition. See
"The Transaction -- Employment Agreements."
THE DISSOLUTION
The Transaction is intended to qualify as a tax-free reorganization under
Section 368(a)(1)(C) and (a)(2)(G) of the Code. In order to so qualify, among
other things, "substantially all of the properties" of Davey must be transferred
to Rock-Tenn and Davey must be liquidated and dissolved in pursuance of the plan
of reorganization. Therefore, the Dissolution pursuant to the Davey Plan of
Liquidation is an integral part of the Transaction. In addition, in connection
with the Dissolution, Davey Downingtown will be liquidated and dissolved
pursuant to the Downingtown Plan of Liquidation. The Downingtown Plan of
Liquidation will be approved by Davey, its sole shareholder, subject to approval
of the Davey Plan of Liquidation by Davey's shareholders, on the date of the
Davey Special Meeting.
Davey
The Davey Plan of Liquidation provides for (i) the sale and liquidation of
Davey's assets, (ii) payment of certain liabilities (which will occur at the
closing of the Acquisition with respect to such items as the termination of
certain employment contracts, payment of transactional expenses, and all other
amounts which are then due) and (iii) a liquidating distribution to the Davey
shareholders of the Rock-Tenn Common Stock to be received by Davey pursuant to
the Purchase Agreement, the common stock of Davey Downingtown, and any other
Davey assets not acquired by Rock-Tenn. All remaining assets of Davey will be
transferred to a liquidating trust and held in reserve to satisfy any
liabilities and obligations of Davey, as provided in the Liquidation Trust
Agreement which is Exhibit A to the Davey Plan of Liquidation. In addition,
Davey will transfer certain assets and liabilities to Davey Downingtown pursuant
to the Bill of Sale and Assignment and Assumption Agreement, which is Exhibit B
to both the Davey Plan of Liquidation and the Downingtown Plan of Liquidation.
Liquidating distributions to Davey's shareholders and formal dissolution under
applicable corporate statutes will occur as soon as possible, and in any event
within six months, after post-closing adjustments have been made under the
Purchase Agreement.
As part of the approval of the Davey Plan of Liquidation, the shareholders
of Davey will appoint Alfred C. Brooks (and Stephen C. Dodd as his successor) as
trustee of the liquidating trust. The trustee will control the assets of the
liquidating trust, which will be used to satisfy Davey's liabilities and
obligations, required under the Purchase Agreement or by governmental
authorities, any Federal, State and local taxes, workers compensation and health
benefit payments accruing prior to the Acquisition, and other obligations and
liabilities. In addition to other assets held by the liquidating trust, in the
event that any Pledged Shares remain after all indemnification obligations of
Davey to Rock-Tenn have been satisfied under the Purchase Agreement, such
Pledged Shares may be used by the trustee to satisfy any liabilities and
obligations of Davey or Davey Downingtown which have not been satisfied as of
the date of the release of such Pledged Shares under the Stock Pledge Agreement,
including any environmental cleanup and/or containment costs in excess of the
amount reserved pursuant to the Davey Plan of Liquidation or the Downingtown
Plan of Liquidation.
The trustee under the liquidating trust established for Davey is required
to maintain funds in short-term assets, such as bank certificates of deposit,
and is not permitted to hold any securities or operating assets. All assets
remaining in the liquidating trust will be distributed to the shareholders of
Davey, pro rata in accordance with each shareholder's ownership interest in
Davey, no later than three years after the trust is established.
29
<PAGE> 39
Davey Downingtown
Davey, as sole shareholder of Davey Downingtown, will approve the
Downingtown Plan of Liquidation, subject to approval of the Transaction,
immediately prior to the Davey Special Meeting. Pursuant to the Downingtown Plan
of Liquidation, Davey will transfer to Davey Downingtown certain assets and
liabilities, pursuant to the Bill of Sale and Assignment and Assumption
Agreement which is Exhibit B to the Downingtown Plan of Liquidation.
The assets transferred by Davey to Davey Downingtown will include
$1,000,000 in cash or cash equivalents to be used to fund the environmental
cleanup of the Davey Downingtown's facility. Reserves will also be established
to be used to maintain and manage the real property owned by Davey Downingtown,
to pay real estate taxes and for other matters during a period estimated for
cleanup and sale of the property. While management of Davey Downingtown believes
that reserves sufficient to meet all liabilities and obligations will be
established, in the event the reserves established to fund these liabilities and
obligations are inadequate, Davey Downingtown will have the right to receive and
liquidate any Pledged Shares that are not required to satisfy the
indemnification obligations of Davey to Rock-Tenn under the Purchase Agreement.
In the event that environmental and other liabilities exceed the assets
available to the Trustee, the shareholders of Davey Downingtown may be liable
for such excess costs, up to the value of assets they received from Davey
Downingtown, and potentially from Davey, in the Dissolution.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of certain federal income tax consequences of
the Transaction to Davey shareholders who are individuals and citizens and
residents of the United States of America. The discussion is based upon the
Code, Treasury Regulations, rulings of the IRS and administrative and judicial
decisions in effect as of the date hereof. All are subject to change and any
such changes may have retroactive effect. Neither Rock-Tenn nor Davey has
requested the IRS to issue a ruling with respect to whether the Transaction
qualifies as reorganization under Section 368(a)(1)(C) and (a)(2)(G) of the
Code. Accordingly, the treatment of the Transaction as a C-Reorganization may be
challenged by the IRS on audit. See "Risk Factors -- Federal Income Tax Risks
relating to the Transaction."
This discussion relies upon representations which will be made to Davey by
its shareholders that they have no present intention to sell or otherwise
transfer more than 50% of the Rock-Tenn Common Stock received in the
Dissolution.
Based upon the foregoing, and subject to the qualifications set forth
therein, Davey and Rock-Tenn have received an opinion from Greenbaum, Rowe,
Smith, Ravin, Davis & Himmel, special counsel to Davey, stating, subject to
significant conditions, assumptions and reservations, that the federal income
tax consequences of the Transaction are likely to be as follows:
1. The Transaction will qualify as a reorganization described by
Section 368(a)(1)(C) of the Code.
2. Davey shareholders will not be required to recognize federal
taxable income or gain with respect to the receipt of Rock-Tenn Common
Stock in exchange for the shares of Davey Common Stock surrendered. Davey
shareholders will not be entitled to deduct for federal income tax purposes
any loss realized in the exchange.
3. Upon the liquidation of Davey and the distribution of property
other than Rock-Tenn Common Stock (including the issued stock of Davey
Downingtown and any cash distributed in lieu of fractional shares of
Rock-Tenn Common Stock) to shareholders, each Davey shareholder will
recognize income for federal income tax purposes in an amount equal to the
lesser of (i) the fair market value of the property, including stock of
Davey Downingtown and any cash distributed in lieu of fractional shares of
stock but not including shares of Rock-Tenn Common Stock, distributed to
him or her, and (ii) the gain realized by the shareholder in the
Transaction. For the purposes of the foregoing it is likely that each Davey
shareholder will be deemed to have received from Davey, in addition to
Davey Downingtown common stock and any cash distributed in lieu of
fractional shares of Rock-Tenn Common Stock, a distribution of an amount
equal in value to his or her pro rata share of the net assets contributed
by Davey to the Davey
30
<PAGE> 40
Liquidating Trust. In the event, therefore, that the assets contributed by
Davey to the Davey Liquidating Trust have a net value greater than zero,
each shareholder will recognize gain in the taxable year in which the
assets are contributed to the Davey Liquidating Trust.
4. Any liquidating distribution made by Davey Downingtown to its
shareholders including the net value of any such distribution made to the
Davey Downingtown Liquidating Trust will result in the recognition of
income or loss by each Davey Downingtown shareholder (who, collectively,
will be the former Davey shareholders) measured by the difference, if any,
between the value of the liquidating distribution and the shareholder's
basis in his or her Davey Downingtown common stock. Davey Downingtown may
recognize gain on the distribution but may be limited in its ability to
deduct a loss.
5. In the event that any shares of Rock-Tenn Common Stock are returned
to Rock-Tenn pursuant to the terms of the Stock Pledge Agreement, it is
likely that Pledgor shareholders will recognize gain or loss on the
transfer as if such shares of Rock-Tenn Common Stock had been sold for
their fair market value. Pledgor shareholders may also be required to
recognize gain or loss upon the return to Rock-Tenn of any of the 40,000
shares of Rock-Tenn Common Stock held pursuant to the terms of the Escrow
Agreement.
THE FOREGOING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF CERTAIN UNITED
STATES FEDERAL INCOME TAX CONSEQUENCES OF THE TRANSACTION AND DOES NOT PURPORT
TO BE A COMPLETE ANALYSIS OF ALL POTENTIAL TAX EFFECTS RELEVANT TO A DECISION AS
TO WHETHER DAVEY SHAREHOLDERS SHOULD VOTE IN FAVOR OF THE TRANSACTION. THE
DISCUSSION DOES NOT ADDRESS THE TAX CONSEQUENCES THAT MAY BE RELEVANT TO A
PARTICULAR DAVEY SHAREHOLDER SUBJECT TO SPECIAL TREATMENT UNDER FEDERAL INCOME
TAX LAWS SUCH AS FINANCIAL INSTITUTIONS, TAX EXEMPT ENTITIES AND RETIREMENT
PLANS AND DOES NOT ADDRESS ANY CONSEQUENCES ARISING UNDER THE TAX AND OTHER LAWS
OF ANY STATE, LOCALITY OR FOREIGN JURISDICTION. DAVEY SHAREHOLDERS ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS CONCERNING THE FEDERAL, STATE, LOCAL AND FOREIGN
TAX CONSEQUENCES OF THE TRANSACTION TO THEM.
ACCOUNTING TREATMENT
For financial reporting purposes, the Acquisition will be accounted for by
Rock-Tenn using the purchase method of accounting in accordance with generally
accepted accounting principles. Accordingly, the purchase price will be
allocated to the assets and liabilities of Davey acquired based on their
estimated fair values as of the date on which the Acquisition is consummated
with the excess of cost over the net assets acquired being allocated to
goodwill.
APPRAISAL RIGHTS
Shareholders of Davey do not have dissenters' rights or rights of appraisal
with respect to the Transaction under the New Jersey BCA.
RESALES OF ROCK-TENN COMMON STOCK
Subject to the limitation imposed by each Davey shareholder's
representation that he or she has no present intention to sell more than 50% of
the shares of Rock-Tenn Common Stock distributed to him or her in the
Dissolution, shares of Rock-Tenn Common Stock issued in connection with the
Acquisition will be freely transferable under the Securities Act, except for
shares distributed to any shareholder in connection with the Dissolution who may
be deemed to be an "affiliate" of Davey (which generally includes directors and
executive officers of Davey, and beneficial owners of 10% or more of the Davey
Common Stock) for purposes of Rule 145 under the Securities Act as of the date
of the Davey Special Meeting. Such affiliates may not sell shares of Rock-Tenn
Common Stock received in connection with the Dissolution except (i) pursuant to
an effective registration statement under the Securities Act, (ii) pursuant to
an applicable exemption from the registration requirements of the Securities
Act, or (iii) pursuant to Rule 144 under the Securities Act in accordance with
the volume and manner of sale restrictions set forth therein. Rock-Tenn may
place restrictive
31
<PAGE> 41
legends on certificates representing Rock-Tenn Common Stock received by all
persons who are deemed to be "affiliates" of Davey under Rule 145. This Proxy
Statement/Prospectus does not cover resales of Rock-Tenn Common Stock.
BUSINESS OF DAVEY
Davey manufactures high density recycled paperboard used primarily by the
book manufacturing industry for the covers of hard bound books. Approximately
90% of Davey's production is sold under the trademark "Red Label." These Red
Label products occupy a niche market, consisting of high-quality paperboard used
in elementary and high school textbooks, children's books, high school and
college year books, and bound books and periodicals for libraries. Davey has a
nationwide distributorship network, and also makes direct sales. Most sales are
direct shipments to the book manufacturer, as directed by the distributors, only
a few of which stock board in their own warehouses. Davey operates three mills
located in Jersey City, New Jersey, Downingtown, Pennsylvania, and Aurora,
Illinois.
COMMON STOCK OWNERSHIP BY MANAGEMENT
AND PRINCIPAL SHAREHOLDERS OF DAVEY
The following table sets forth the beneficial ownership of shares of Davey
Common Stock as of May 12, 1997 for (i) the Chief Executive Officer and each of
the four other most highly compensated executive officers of Davey
(collectively, the "Named Executive Officers"), (ii) each director of Davey
owning shares of Davey Common Stock, (iii) the directors and executive officers
of Davey as a group and (iv) each person who beneficially owns more than 5% of
the outstanding shares of Davey Common Stock. Unless otherwise indicated, the
shareholders named below have sole voting and investment power with respect to
the Davey Common Stock shown as being beneficially owned by them.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
BENEFICIALLY PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNED(2) OF CLASS
- --------------------------------------- ------------ ----------
<S> <C> <C>
Alfred C. Brooks............................................ 750.0(3) 18.7%
Stephen C. Dodd............................................. 675.0 16.8
John C. Dodd................................................ 1,095.0(4) 27.3
William A. Dodd............................................. 524.1(5) 13.1
Robert C. Dodd.............................................. 1,130.0(6) 28.2
Daniel C. M. Crabbe......................................... 670.0 16.7
Thomas A. Ewig.............................................. 665.0 16.6
Edward J. Meell............................................. 670.0 16.7
Mary L. Nelson.............................................. 444.0(7) 11.1
Peter D. Nelson............................................. 240.0 6.0
Marjorie D. Alger........................................... 217.0 5.4
William F.A. Stride III..................................... 220.0 5.5
The Profit Sharing Plan..................................... 660.0 16.5
All executive officers and directors as a group............. 1,592.0(8) 39.7%
</TABLE>
- ---------------
* Less than 1%
(1) Unless otherwise indicated, the business address of each beneficial owner is
the principal executive office of Davey at 164 Laidlaw Avenue, Jersey City,
New Jersey 07306.
(2) With respect to Messrs. Brooks, Crabbe, Ewig, Meell, Stephen C. Dodd, John
L. Dodd and Robert C. Dodd includes 660 shares of Davey Common Stock held by
the Profit Sharing Plan. Such shares are beneficially owned by such
individuals, who are trustees of the Profit Sharing Plan and share the right
to vote such shares.
(3) Includes 90 shares held by the Alfred C. Brooks Trust, of which Mr. Brooks
is Trustee.
(4) Includes 83 shares held by Mr. Dodd's spouse.
32
<PAGE> 42
(5) Includes (i) 67 shares held by Mr. Dodd's spouse and (ii) 135.10 shares held
by the Profit Sharing Plan, in which Mr. Dodd has a 20.47% beneficial
interest.
(6) Includes 20 shares held by Mr. Dodd's spouse.
(7) Includes 310 shares held by Ms. Nelson's spouse.
(8) Includes 660 shares held by the Profit Sharing Plan, which are deemed to be
beneficially owned by the directors of Davey, who have the right to vote
such shares.
33
<PAGE> 43
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF DAVEY
Davey manufactures high density recycled paperboard, used to manufacture
binders board. Davey and Davey Downingtown operate three mills in the United
States. The following discussion reflects the consolidated results of operations
and financial condition of Davey and Davey Downingtown.
The primary raw material used by Davey in its manufacturing operations is
recovered paper. Historically, the cost of recovered paper has fluctuated due to
market conditions. During 1994 and 1995 the cost of recovered paper increased
significantly as a result of, among other things, increased demand by paperboard
manufacturers generally and an increase in the use of recovered paper in
printing grades of paper (e.g., greeting cards and United States government
forms, resulting from mandates respecting use of recycled paper by all federal
agencies). This increased demand was coupled with decreased availability due to
increased export demand. During 1996, recovered paper prices declined to their
historic levels.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1997 Compared to Three Months Ended March 31,
1996
Net Sales for the three months ended March 31, 1997 increased 21.0% to $7.5
million from $6.2 million for the three months ended March 31, 1996. This
increase was due to increased volume.
Cost of goods sold for the three months ended March 31, 1997 increased
22.9% to $5.9 million from $4.8 million for the three months ended March 31,
1996. As a percentage of net sales, costs of goods sold increased to 78.7% for
the three months ended March 1997 from 77.4% for the three months ended March
31, 1996. The increase was due primarily to a decrease in per unit selling
prices of finished goods.
Selling, general and administrative expenses for the three months ended
March 31, 1997 increased 50.0% to $0.9 million from $0.6 million for the three
months ended March 31, 1996. This increase was due primarily to increased salary
expense as a result of the addition of a Vice President of Manufacturing, and
accruals for the profit sharing plan which were not made in 1996.
Operating profit for the three months ended March 31, 1997 decreased to
$0.6 million from $0.9 million for the three months ended March 31, 1996. The
decrease was due to the decreased per unit selling prices and increased selling,
general and administrative expenses as compared to the three months ended March
31, 1996.
Interest expense for the three months ended March 31, 1997 decreased 23.5%
to $65,000 from $85,000 for the three months ended March 31, 1996. The decrease
was due primarily to lower interest rates, coupled with a reduction in
outstanding borrowings.
Income before taxes for the three months ended March 31, 1997 decreased to
$0.6 million from $0.8 million for the three months ended March 31, 1996, due to
the reasons set forth above. While Davey has significant alternative minimum tax
carryforwards, an accrual for current taxes of $349,000 was made for financial
statement purposes.
Fiscal Year 1996 Compared to Fiscal Year 1995
Net sales for 1996 increased 4.0% to $26.3 million from $25.3 million in
1995. This increase was primarily due to increased volume.
Cost of goods sold for 1996 decreased 13.0% to $20.1 million from $23.1
million in 1995. As a percentage of net sales, cost of goods sold decreased to
76.4% in 1996 from 91.3% in 1995. The decrease in cost of goods sold was due
primarily to the return to historically lower recovered paper market prices,
Davey's primary raw material, which declined from $4.8 million in 1995 to $1.4
million in 1996.
Selling, general and administrative expenses for 1996 increased 20.8% to
$2.9 million from $2.4 million in 1995. The increase was due to additional
administrative personnel, including a Vice President of Sales and Marketing and
its undertaking of a significantly enhanced marketing effort.
34
<PAGE> 44
Operating profit for 1996 increased to $3.3 million from an operating loss
of $145,000 in 1995 due primarily to the reduction in cost of goods sold as a
percentage of net sales.
Interest expense for 1996 decreased 2.5% to $392,000 from $402,000
primarily due to prime rate fluctuations and changes in rates pursuant to new
lending agreements with Davey's lenders.
Net income for 1996 increased to $2.0 million from a net loss of $213,000
in 1995 for the reasons given above.
Fiscal Year 1995 Compared to Fiscal Year 1994
Net sales for 1995 increased 23.4% to $25.3 million from $20.5 million in
1994. This increase was due to increased volume.
Cost of goods sold for 1995 increased 16.7% to $23.1 million from $19.8
million in 1994. As a percentage of net sales, cost of goods sold decreased to
91.3% in 1995 from 96.6% in 1994. The increase in the cost of goods sold was
primarily due to the 23.4% increase in sales. The decrease in cost of goods sold
as a percentage of sales was due primarily to the return to historically lower
waste paper market prices, as detailed above.
Selling, general and administrative expenses for 1995 increased 26.3% to
$2.4 million from $1.9 million in 1994. The increase was due to additional
administrative personnel, including the Vice President -- Finance and the Vice
President of Sales and Marketing, its undertaking of a significantly enhanced
marketing effort and the accrual for retiree health benefits made pursuant to
SFAS 106 in December 1995, which was not required in 1994.
Operating loss for 1995 decreased 87.9% to $145,000 from an operating loss
of $1.2 million in 1994, due primarily to the reduction in cost of goods sold as
a percentage of sales.
Interest expense for 1995 increased 3.6% to $403,000 from $389,000 in 1994,
primarily due to prime rate fluctuations and changes in rates pursuant to
agreements with Davey's lenders.
Net loss for 1995 decreased 77.6% to $213,000 from a net loss of $952,000
in 1994 for the reasons given above.
LIQUIDITY AND CAPITAL RESOURCES
Davey's business is capital intensive. Capital expenditures in 1995
consisted of approximately $542,000 in improvements to production machinery,
equipment and buildings. Davey finances its capital requirements out of cash
flow from operations and borrowings. In June 1996, Davey entered into a $4.1
million loan agreement and $500,000 revolving credit agreement. The $4.1 million
facility bears interest at 1.65% over LIBOR and is payable over seven years. The
$500,000 facility bears interest at 1.5% over LIBOR and terminates on May 31,
1997 unless renewed. Both facilities are secured by Davey's accounts receivable
and certain equipment, and Davey has granted a negative pledge on its inventory
to the lender. The loan agreements require Davey to meet covenants relating to
net worth, current ratio, working capital, debt service coverage and debt to net
worth ratio.
Net cash used by operating activities for the three months ended March 31,
1997 was $1.5 million compared to $0.8 million of net cash provided by operating
activities for the three months ended March 31, 1996. This change was due
primarily to an increase in accounts receivable of $1.0 million and a $0.8
million increase in other current assets.
Net cash used by financing activities was $146,000 for the three months
ended March 31, 1997 compared to $289,000 for the three months ended March 31,
1996. This reduction was due to a decrease in the repayment of outstanding
borrowings during the three months ended March 31, 1997 compared to the three
months ended March 31, 1996 and decreased long term debt payback in accordance
with new bank financings.
Net cash provided by operating activities in 1996 was $4.92 million
compared to $2.18 million in 1995. This increase was due primarily to a $2.18
million increase in Davey's net profit in 1996 to $1.96 million from a loss of
$213,000 in 1995 and by a $573,000 increase in accounts payable compared to a
decrease in accounts
35
<PAGE> 45
payable of $93,000 in 1995. This increase in accounts payable was offset by an
increase of $336,000 in inventory in 1996 compared to a decrease in inventory of
$201,000 in 1995.
Net cash used by financing activities was $152,000 in 1996 as compared to
$1.1 million in 1995. This reduction was primarily due to proceeds from long
term refinancing of $640,000 and payments on outstanding debt of $682,000 in
1996 compared to payments on outstanding debt of $1,077,000 in 1995.
Net cash provided by operating activities in 1995 was $2.18 million
compared to $1.08 million in 1994. This increase was due primarily to a $739,000
decrease in Davey's net loss in 1995 to $213,000 in 1995 compared to $952,000 in
1994 and by a $198,000 decrease in trade receivables in 1995 compared to an
increase of $531,000 in 1994. This was offset by a decrease of $93,000 in
accounts payable and accrued expenses in 1995 compared to an increase of
$234,000 in 1994.
Net cash used by financing activities was $1,077,000 in 1995 as compared to
$821,000 in 1994. This increase was primarily due to increased payments on
long-term debt in 1995 of $834,000 compared to $559,000 in 1994, partially
offset by $18,000 lower repayments on short-term borrowings of $244,000 in 1995
compared to $262,000 in 1994.
36
<PAGE> 46
CERTAIN DIFFERENCES IN THE RIGHTS OF ROCK-TENN
AND DAVEY SHAREHOLDERS
Following the Transaction, shareholders of Davey will become shareholders
of Rock-Tenn, and their rights as shareholders will be determined by the
Rock-Tenn Articles and the Rock-Tenn Bylaws. In addition, Rock-Tenn is a Georgia
corporation governed by the Georgia BCC, and Davey is a New Jersey corporation
governed by the New Jersey BCA. The following is a summary of the material
differences in the rights of shareholders of Rock-Tenn and Davey. Except as set
forth below, there are no material differences between the rights of a Rock-Tenn
shareholder under Rock-Tenn's Articles and Bylaws and the Georgia BCC, on the
one hand, and the rights of a Davey shareholder under Davey's Certificate and
Bylaws and the New Jersey BCA, on the other hand. This summary does not purport
to be a complete discussion of, and is qualified in its entirety by reference
to, the Georgia BCC, the New Jersey BCA and the Articles or Certificate, as the
case may be, and Bylaws of each corporation. Copies of the Articles or
Certificate, as the case may be, and Bylaws of each corporation are on file at
Rock-Tenn's and Davey's respective principal executive offices. The following
summary does not discuss the rights of shareholders of Davey Downingtown because
Davey Downingtown is a wholly-owned subsidiary of Davey. The rights of Davey's
shareholders are governed solely by Davey's Certificate and Bylaws and the New
Jersey BCA.
AUTHORIZED CAPITAL STOCK
Rock-Tenn. Rock-Tenn is authorized to issue 175 million shares of
Rock-Tenn Common Stock, 60 million shares of Rock-Tenn Class B Common Stock, and
50 million shares of Preferred Stock, par value $.01 per share. As of May 12,
1997, Rock-Tenn had issued and outstanding 21,454,722 shares of Rock-Tenn Common
Stock and 11,934,384 shares of Rock-Tenn Class B Common Stock and no shares of
Preferred Stock. As of May 12, 1997, Rock-Tenn had 659 and 137 holders of record
of Rock-Tenn Common Stock and Rock-Tenn Class B Common Stock, respectively. The
rights of holders of Rock-Tenn Common Stock and Rock-Tenn Class B Common Stock
are identical except for voting, conversion and transfer rights.
Subject to compliance with the First Offer Rights (as hereinafter defined),
each share of Rock-Tenn Class B Common Stock will be convertible at any time, at
the option of its holder, into one share of Rock-Tenn Common Stock. The
Rock-Tenn Class B Common Stock will convert automatically into Rock-Tenn Common
Stock, and thereby lose its special voting rights, generally (i) as to any
outstanding share of Rock-Tenn Class B Common Stock if such share is sold or
otherwise transferred to, or otherwise held by, any person or entity other than
a Permitted Transferee or an Offeree (both as defined under "Restrictions on
Transfer; First Offer Rights" below) or (ii) on the last day of any fiscal
quarter of Rock-Tenn if the aggregate outstanding shares of Rock-Tenn Class B
Common Stock constitute less than 15% of the aggregate outstanding shares of
Common Stock (treating for the purposes of such calculation each outstanding
share of Rock-Tenn Class B Common Stock as one outstanding share of Rock-Tenn
Common Stock). The shares of Rock-Tenn Common Stock do not have any conversion
rights.
No shares of Rock-Tenn Class B Common Stock may be transferred or otherwise
disposed of, or converted into shares of Rock-Tenn Common Stock, except (i) with
respect to a transfer by any holder, for any transfer or other disposition to a
Permitted Transferee of such holder or any bona fide gift to any person or
entity, or (ii) as expressly permitted by Rock-Tenn's Restated and Amended
Articles of Incorporation after complying with the First Offer Rights. For
purposes of the Rock-Tenn Articles, "Permitted Transferees" of a holder of
Rock-Tenn Class B Common Stock include (i) the spouse or surviving spouse and
natural and adopted children of such holder provided that such holder was a
beneficial owner of Voting Stock (as defined in the Rock-Tenn Articles)
immediately prior to the effectiveness of Articles, (ii) any trust existing
solely for the benefit of any person who would be a Permitted Transferee of such
holder under clause (i), (iii) upon the death of such holder that was a
beneficial owner of Voting Stock immediately prior to the effectiveness of the
Rock-Tenn Articles, such holder's estate or any executor, administrator or other
legal representative of such holder, (iv) any corporation, partnership or other
entity all of the outstanding equity interests of which are owned, or all of the
outstanding voting power of which is controlled, directly or indirectly by such
holder that was a beneficial owner of Voting Stock immediately prior to the
effectiveness of the Rock-Tenn Articles or certain Permitted Transferees of such
holder and (v) any organization or institution that is recognized as a
37
<PAGE> 47
charity under Sections 170, 2055 or 2522 of the Code, provided that the control
of the outstanding voting power of any shares of Rock-Tenn Class B Common Stock
transferred to any such organization or institution is retained by a holder of
Rock-Tenn Class B Common Stock that was a beneficial owner of Voting Stock
immediately prior to the effectiveness of the Rock-Tenn Articles or certain
Permitted Transferees of such holder. The Rock-Tenn Articles do not contain any
restrictions on the transfer of shares of Rock-Tenn Common Stock.
Except for a proposed transfer or other disposition to a Permitted
Transferee or in connection with a bona fide gift, prior to any proposed
transfer or conversion of Rock-Tenn Class B Common Stock, the holder thereof is
required to give notice to Rock-Tenn, which constitutes an offer to sell to the
management committee (as designated from time to time by the Board of Directors
from the full-time officers of Rock-Tenn) (the "Offerees"), or to the extent
that the Offerees do not elect to purchase all such shares, to sell to
Rock-Tenn, up to all of the shares proposed to be transferred or as to which
conversion has been requested at a purchase price per share equal to the Current
Market Price (the "First Offer Rights"). As defined in the Rock-Tenn Articles,
the Current Market Price will be an amount equal to (i) if the Rock-Tenn Common
Stock is not publicly traded, the fair market value per share of the Rock-Tenn
Class B Common Stock as determined in good faith by the Board of Directors from
time to time, or (ii) if the Rock-Tenn Common Stock is publicly traded, the
average of the "average sales prices." The "average sales prices" will mean
generally the weighted average of the sales prices of a share of Rock-Tenn
Common Stock (or if no such sales occur, the weighted average of the last bid
and asked prices) as reported by the NYSE on each of the four consecutive
business days commencing on the day after Rock-Tenn receives a notice of a
proposed transfer or requesting conversion. Under the Rock-Tenn Articles, shares
of Rock-Tenn Common Stock are not subject to the First Offer Rights.
Upon the liquidation, dissolution or winding up of Rock-Tenn, after payment
in full of creditors and any liquidation preference payable to the holders of
any Preferred Stock the remaining assets of Rock-Tenn will be distributed
ratably to the holders of Rock-Tenn Common Stock and Rock-Tenn Class B Common
Stock, in proportion to the number of shares held by them.
In the event of a reorganization, consolidation, share exchange or merger
of Rock-Tenn, each holder of a share of Common Stock shall be entitled to
receive the same kind and amount of consideration (whether consisting of cash,
property or securities), if any, to be received by each other holder of a share
of Common Stock, regardless of whether such share of Common Stock is a share of
Rock-Tenn Common Stock or Rock-Tenn Class B Common Stock.
Under the Rock-Tenn Articles, Rock-Tenn is only authorized to issue shares
of Rock-Tenn Class B Common Stock (i) in connection with a dividend or other
distribution with respect to, or a subdivision of, all outstanding shares of
Common Stock and (ii) upon the exercise of stock options to purchase Rock-Tenn
Class B Common Stock to the extent such options were options to purchase Voting
Stock outstanding immediately prior to the effectiveness of the Rock-Tenn
Articles that are adjusted by the Board of Directors to cover Rock-Tenn Class B
Common Stock, as the same may be adjusted pursuant to their terms or the plan
under which they were granted.
The Board of Directors is empowered by the Rock-Tenn Articles to designate
and issue from time to time one or more series of Preferred Stock without
shareholder approval. The Board of Directors may fix and determine the
preferences, limitations and relative rights of each series of Preferred Stock
so issued. Because the Board of Directors has the power to establish the
preferences and rights of each series of Preferred Stock, it may afford the
holders of any series of Preferred Stock preferences, powers and rights, voting
or otherwise, senior to the rights of holders of Common Stock. The issuance of
Preferred Stock could have the effect of delaying or preventing a change in
control of Rock-Tenn. The Board of Directors has no present plans to issue any
shares of Preferred Stock.
Davey. Davey is authorized to issue 100,000 shares of common stock. The
stock has no stated par value. As of May 12, 1997 the Company had issued and
outstanding 4,010 shares of common stock outstanding.
38
<PAGE> 48
SHAREHOLDER PREEMPTIVE RIGHTS
Rock-Tenn. The holders of Rock-Tenn Common Stock are not entitled to
preemptive or similar rights.
Davey. The Davey Certificate provides that no shareholders of Davey shall
have any preemptive rights.
DIRECTORS; VACANCIES
Rock-Tenn. The Georgia BCC provides that the board of directors of a
Georgia corporation must consist of one or more individuals with the number
specified in or fixed in accordance with the articles of incorporation or bylaws
of the corporation. The articles of incorporation or bylaws may authorize the
shareholders or the board of directors to fix or change the number of directors
or may establish a variable range for the size of the board of directors by
fixing a minimum and maximum number of directors. The Rock-Tenn Bylaws provide
that the number of directors constituting the entire Board of Directors shall
not be less than one nor more than 20 and the exact number shall be fixed from
time to time by the Board of Directors, provided, however, that the number of
directors constituting the entire Board shall be 14 until otherwise changed by
the Board of Directors or by the shareholders at any annual or special meeting.
The Rock-Tenn Articles provide that the Board of Directors be divided into three
groups, each composed, as nearly as possible, of one-third of the total number
of directors. Under the Rock-Tenn Articles, each group of directors is elected
for a term of three years and only one group of directors stands for reelection
each year.
The Rock-Tenn Bylaws provide that any vacancy occurring in the Board of
Directors or any newly created directorship shall be filled by the affirmative
vote of a majority of the remaining directors. A director elected to fill a
vacancy shall serve for the unexpired term of his predecessor and until the
election and qualification of his successor, or, if the vacancy results from an
increase in the number of directors, until the next election of directors by the
shareholders.
Davey. The New Jersey BCA provides that the board of directors of a
corporation shall consist of one or more members. Subject to any provisions
contained in the certificate of incorporation, the by-laws shall specify the
number of directors, or that the number of directors shall not be less than a
stated minimum nor more than a stated maximum, with the actual number to be
determined in the manner prescribed in the by-laws, except as to the number
constituting the first board. The Davey Bylaws provide that the number of
directors of the corporation shall not be less than five nor more than nine and
that the number of directors may be increased or decreased from time to time by
action of the Board of Directors taken not less than twenty days prior to the
date of the annual meeting of stockholders next following the date of such
action, provided, however, in no case shall the number of directors be reduced
to less than five or increased to more than nine. Davey's Bylaws provide that a
director shall be elected by the stockholders at the annual meeting of
stockholders and shall hold office until the next annual election and until his
successor is elected and qualified.
The Davey Bylaws provide that any vacancy occurring in the Board of
Directors may be filled by a majority vote of the directors in office, for the
unexpired term or until the director's successor is chosen and qualified, or any
such vacancies may be filled by the stockholders at any duly convened meeting.
REMOVAL OF DIRECTORS
Rock-Tenn. The Rock-Tenn Bylaws provide that the entire Board of Directors
or any individual director may be removed only for cause and only at a
shareholders' meeting. The Georgia BCC provides that a director may be removed
by the shareholders only at a meeting called for the purpose of removing him.
Davey. Neither the Davey Certificate nor the Davey Bylaws contain a
specific provision with regard to removal of directors. The New Jersey BCA
provides that one or more or all the directors of a corporation may be removed
for cause, or, unless otherwise provided in the certificate of incorporation,
without cause by the shareholders by the affirmative vote of a majority of the
votes cast by the holders of shares entitled to vote for the election of
directors.
39
<PAGE> 49
VOTING RIGHTS
Rock-Tenn. The Georgia BCC provides that if a quorum exists, action on a
matter (other than the election of directors) by a voting group is approved if
the votes cast within the voting group favoring the action exceed the votes cast
opposing the action, unless the articles of incorporation, a bylaw adopted by
the shareholders, or the Georgia BCC requires a greater number of affirmative
votes. Unless otherwise provided in the articles of incorporation, directors are
elected by a plurality of the votes cast by the shares entitled to vote in the
election at a meeting at which a quorum is present. The Georgia BCC further
provides that shareholders do not have a right to cumulate their votes for
directors unless the articles of incorporation so provide.
The Rock-Tenn Articles provide that, unless otherwise provided in the
Articles or required by Georgia law, holders of Rock-Tenn Common Stock and
Rock-Tenn Class B Common Stock vote together as a single group with respect to
all matters submitted to a vote of Rock-Tenn's shareholders. Under the Rock-Tenn
Articles, each share of Rock-Tenn Common Stock is entitled to one vote and each
share of Rock-Tenn Class B Common Stock will be entitled to 10 votes with
respect to all such matters. Holders of shares of Rock-Tenn Common Stock are
entitled to vote as a single voting group with respect to certain proposed
amendments to the powers, preferences, rights or limitations of the Rock-Tenn
Class B Common Stock and other limited matters; provided that with respect to
any such vote, each holder of Rock-Tenn Class B Common Stock is entitled to vote
with the holders of Rock-Tenn Common Stock and is entitled to one vote for each
share of Rock-Tenn Common Stock that would be issuable to such holder upon
conversion of such share of Rock-Tenn Class B Common Stock. Holders of Common
Stock are not entitled to cumulate votes in the election of directors.
Davey. The New Jersey BCA provides that whenever any action, other than
the election of directors, is to be taken by vote of the shareholders, it shall
be authorized by a majority of the votes cast at a meeting of shareholders by
the holders of shares entitled to vote thereon, unless a greater plurality is
required by the certificate of incorporation or any other section of the New
Jersey BCA. The New Jersey BCA provides that, at each election of directors
every shareholder entitled to vote at such election shall have the right to vote
the number of shares owned by him for as many persons as there are directors to
be elected and for whose election he has a right to vote, or, if the certificate
of incorporation so provides, to cumulate his votes by giving one candidate as
many votes as the number of such directors multiplied by the aggregate number of
his votes shall equal, or by distributing such votes on the same principle among
any number of such candidates.
The New Jersey BCA further provides that the provisions of the certificate
of incorporation shall control whenever, with respect to any action be to
authorized by the shareholders of a corporation, including the election of
directors, the certificate of incorporation requires the affirmative vote of a
greater proportion of the votes cast, including a unanimous vote, by the holder
of shares entitled to vote thereon, or by the holders of shares of any class or
series thereof, than is required by the New Jersey BCA with respect to such
action. An amendment of the certificate of incorporation which changes or
deletes such a provision must be authorized by the same vote as would be
required to take action under the provision.
The Davey Bylaws provide that, except as provided otherwise by statute or
Davey's Certificate of Incorporation, at every meeting of shareholders every
holder of record of stock entitled to vote shall be entitled to one vote in
person or by proxy for each share of such stock standing in his name on the
records of the corporation. Elections of directors shall be determined by a
plurality of votes cast at such shareholder meeting and, except as otherwise
provided by statute or the Davey Certificate or the Davey Bylaws, all other
action shall be determined by a majority of the votes cast at such meeting.
Neither the Davey Certificate nor the Davey Bylaws contain any provision
regarding cumulative voting.
SHAREHOLDER MEETINGS
Rock-Tenn. The Georgia BCC provides that a corporation shall hold a
special meeting of shareholders on call of its board of directors or the person
or persons authorized to do so by the articles of incorporation or bylaws or if
the holders of at least 25% or such greater or lesser percentage as may be
provided in the articles of incorporation or bylaws, of all the votes entitled
to be cast on any issue proposed to be considered at the proposed special
meeting, deliver to the corporation's secretary one or more written demands for
the meeting
40
<PAGE> 50
describing the purpose for which it is to be held. Under the Rock-Tenn Bylaws,
special meetings of shareholders may be called only by the Chief Executive
Officer of Davey, the Chairman of the Board or a majority of the Board of
Directors.
Davey. Under the New Jersey BCA, special meetings of the shareholders may
be called by the president or the board of directors, or by such other officers,
directors or shareholders as may be provided in the Bylaws. The Davey Bylaws
provide that special meetings of the shareholders may be called by the Board of
Directors or by the President.
AMENDMENT OF CERTIFICATE OR ARTICLES AND BYLAWS
Rock-Tenn. The Georgia BCC provides that, unless the articles of
incorporation provide otherwise, a corporation's board of directors may adopt
one or more amendments to the corporation's articles of incorporation without
shareholder action in order to extend the duration of the corporation, to delete
the names and addresses of the initial directors, to delete the name and address
of the initial registered agent or registered office, to delete the name and
address of each incorporator, to delete the mailing address of the initial
principal office of the corporation, to change each issued or each issued and
unissued authorized share of an outstanding class into a greater number of whole
shares if the corporation has only shares of that class outstanding, to change
or eliminate the par value of each issued and unissued share of an outstanding
class if the corporation has only shares of that class outstanding, or to change
the corporate name. All other amendments to the articles of incorporation must
be recommended to the shareholders by the board of directors (except under
certain special circumstances) and, unless the articles of incorporation or the
board of directors require a greater vote or a vote by voting groups, the
amendment to be adopted must be approved by a majority of the votes entitled to
be cast on the amendment by each voting group entitled to vote on the amendment.
Rock-Tenn's Articles provide that the shareholders of the corporation may not
amend, modify or repeal such provision or the provisions of the Articles
relating to the structure of the Board of Directors, Amendment of Bylaws,
Director Liability, Board Consideration of Other Constituencies unless approved
by the affirmative vote of the holders of at least 75% of the outstanding voting
power of the Rock-Tenn Common Stock and Rock-Tenn Class B Common Stock voting
together as a single voting group.
The Rock-Tenn Bylaws provide that, except as provided in the Rock-Tenn
Articles, the Rock-Tenn Bylaws may be altered, amended or repealed by the
affirmative vote of a majority of all directors then holding office. In
addition, any bylaws adopted by the Board of Directors may be altered, amended,
repealed or any new bylaws be adopted by the shareholders at an annual or
special meeting. Rock-Tenn's shareholders may prescribe that any bylaws adopted
by them shall not be altered, amended or repealed by the Board of Directors. The
Rock-Tenn Articles provide that, notwithstanding the above, the shareholders may
not amend, modify or repeal or adopt any provision inconsistent with any
provision of the Rock-Tenn Bylaws relating to shareholder meetings unless
approved by the affirmative vote of the holders of at least 75% of the
outstanding voting power of the Rock-Tenn Common Stock and Rock-Tenn Class B
Common Stock voting together as a single group.
Davey. The New Jersey BCA provides that a corporation may amend its
certificate of incorporation in any and as many respects as may be desired so
long as the amendment contains only such provisions as might lawfully be
contained in an original certificate of incorporation filed at the time of
making such amendment. The New Jersey BCA further provides that the board of
directors shall have the power to make, alter and repeal by-laws unless such
power is reserved to the shareholders in the certificate of incorporation, but
by-laws made by the board may be altered or repealed, and new bylaws made, by
the shareholders. The shareholders may prescribe in the by-laws that any by-law
made by them shall not be altered or repealed by the board.
Pursuant to the Davey Certificate, further amendments thereto which require
the action of the shareholders shall be adopted upon receiving the affirmative
vote of a majority of the votes cast by the holders of shares entitled to vote
thereon.
The Davey Bylaws provide that the vote of the holders of at least a
majority of the shares of stock of Davey issued and outstanding and entitled to
vote, shall be necessary at any meeting of shareholders to amend or repeal the
Davey Bylaws or to adopt new bylaws. The Davey Bylaws may also be amended or
repealed, or
41
<PAGE> 51
new bylaws adopted, at any meeting of the Board of Directors by the vote of at
least a majority of the entire Board; provided that any bylaw adopted by the
Board may be amended or repealed by the shareholders in the manner set forth
above.
DIRECTOR EXCULPATION AND INDEMNIFICATION
Rock-Tenn. The Georgia BCC provides that a director shall discharge his
duties as a director, including his duties as a member of a committee, in a
manner he believes in good faith to be in the best interest of the corporation
and with the care an ordinarily prudent person in a like position would exercise
under similar circumstances. In discharging his duties a director is entitled to
rely upon information, opinions, reports, or statements, including financial
statements and other financial data, if prepared or presented by one or more
officers or employees of the corporation whom the director reasonably believes
to be reliable and competent in the matters presented, legal counsel, public
accountants, investment bankers or other persons as to matters the director
reasonably believes are within the person's professional or expert competence or
a committee of the board of directors of which he is not a member if the
director reasonably believes the committee merits confidence but is not entitled
to so rely if he has knowledge concerning the matter in question that makes
reliance that would otherwise be so permitted unwarranted. A director is not
liable to the corporation or to its shareholders for any action taken as a
director, or any failure to take any action, if he performed the duties of his
office in compliance with the above provisions of the Georgia BCC. The Rock-Tenn
Articles provide that no director of Rock-Tenn shall be personally liable to
Rock-Tenn or its shareholders for monetary damages for breach of duty of care or
other duty as a director, except for liabilities if any, that the Georgia BCC
expressly provides may not be limited or eliminated.
The Georgia BCC provides that a corporation may indemnify an individual who
is a party to a proceeding because he or she is or was a director against
liability incurred in the proceeding if such individual conducted himself or
herself in good faith and such individual reasonably believed, in the case of
conduct in his or her official capacity, that such conduct was in the best
interests of the corporation, in all other cases, that such conduct was at least
not opposed to the best interests of the corporation and, in the case of any
criminal proceeding, that the individual had no reasonable cause to believe such
conduct was unlawful. As an exception to this rule, the Georgia BCC provides
that a corporation may not indemnify a director in connection with a proceeding
by or in the right of the corporation, except for reasonable expenses incurred
in connection with the proceeding if it is determined that the director has met
the relevant standard of conduct under the Georgia BCC or in connection with any
proceeding with respect to conduct for which he was adjudged liable on the basis
that personal benefit was improperly received by him, whether or not acting in
his official capacity. The Georgia BCC provides for mandatory indemnification of
a director who was wholly successful on the merits or otherwise in the defense
of any proceeding to which he or she was a party because he or she was a
director of the corporation against reasonable expenses incurred by the director
in connection with the proceeding.
The Georgia BCC provides that if authorized by the articles of
incorporation or a bylaw, contract or resolution approved or ratified by the
shareholders by a majority of the votes entitled to be cast, a corporation may
indemnify or obligate itself to indemnify a director made a party to a
proceeding including a proceeding brought by or in the right of the corporation,
without regard to the above limitations of the Georgia BCC, but shares owned or
voted under the control of a director who at the time does not qualify as a
disinterested director with respect to any existing or threatened proceeding
that would be covered by the authorization may not be voted on the
authorization. As an exception, the Georgia BCC provides that a corporation
shall not so indemnify a director for any liability incurred in a proceeding in
which the director is adjudged liable to the corporation or is subjected to
injunctive relief in favor of the corporation for any appropriation, in
violation of the director's duties, of any business opportunity of the
corporation, for acts or omissions which involve intentional misconduct or a
knowing violation of law, for unlawful distributions to shareholders or for any
transaction from which he received an improper personal benefit.
The Georgia BCC provides that a corporation may indemnify and advance
expenses to an officer of the corporation who is a party to a proceeding because
he or she is an officer of the corporation to the same extent as a director and,
if he or she is not a director (or, if he or she is also a director, if the sole
basis on which he or she is made a party to the proceeding is an act or omission
solely as an officer), to such further extent as may
42
<PAGE> 52
be provided by the articles of incorporation, the bylaws, a resolution of the
board of directors, or contract except for liability arising out of conduct that
constitutes appropriation, in violation of his or her duties, of any business
opportunity of the corporation, acts or omissions which involve intentional
misconduct or knowing violation of law, for unlawful distributions to
shareholders or for receipt of an improper personal benefit. An officer who is
not a director is also entitled under the Georgia BCC to mandatory
indemnification to the same extent mandatory indemnification is required for a
director. Under the Georgia BCC, a corporation may also indemnify and advance
expenses to an employee or agent who is not a director to the extent, consistent
with public policy, that may be provided by its articles of incorporation,
bylaws, general or specific action of its board of directors, or contract.
The Rock-Tenn Bylaws provide that Rock-Tenn may indemnify to the fullest
extent permitted by the Georgia BCC, any individual made a party to a
proceeding, because he is or was an employee or agent of Rock-Tenn, against
liability if such person acted in a manner he believed in good faith to be in or
not opposed to the best interests of the Corporation and, in the case of any
criminal proceeding, if he had no reasonable cause to believe his conduct was
unlawful.
Davey. The New Jersey BCA provides that directors and members of any
committee designated by the board shall discharge their duties in good faith and
with that degree of diligence, care and skill which ordinarily prudent people
would exercise under similar circumstances in like positions. In discharging
their duties, such individuals shall not be liable if, acting in good faith,
they rely a) upon the opinion of counsel for the corporation; b) upon written
reports setting forth financial data concerning the corporation and prepared by
an independent public accountant or certified public accountant or firm of such
accountants; c) upon financial statements, books of account or reports of the
corporation represented to them to be correct by the president, the officer of
the corporation having charge of its books of account, or the person presiding
at a meeting of the board; or d) upon written reports of committees of the
board. A director shall not be personally liable to the corporation or its
shareholders for damages for breach of duty as a director if and to the extent
that such liability has been eliminated or limited by a provision in the
certificate of incorporation authorized by the New Jersey BCA. In taking action,
including, without limitation, action which may involve or relate to a change or
potential change in the control of the corporation, a director shall be entitled
to consider, without limitation, both the long-term and the short-term interests
of the corporation and its shareholders. The Davey Certificate provides that any
director or officer of the corporation shall not be personally liable to the
corporation or its shareholders for damages for breach of any duty owed to the
corporation or its shareholders, except that this provision shall not relieve a
director or officer from liability for any breach of duty based upon an act or
omission a) in breach of such person's duty of loyalty to the corporation or its
shareholders, b) not in good faith or involving a knowing violation of law or c)
resulting in receipt by such person of an improper personal benefit.
The New Jersey BCA provides that any corporation shall have the power to
indemnify a corporate agent, including directors, against his expenses and
liabilities in connection with any proceeding involving the corporate agent by
reason of his being or having been such a corporate agent, other than a
proceeding by or in the right of the corporation, if a) such corporate agent
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation; and b) with respect to any
criminal proceeding, such corporate agent had no reasonable cause to believe his
conduct was unlawful.
The New Jersey BCA provides that a corporation shall have the power to
indemnify a corporate agent against his expenses in connection with any
proceeding by or in the right of the corporation to procure a judgment in its
favor which involves the corporate agent by reason of his being or having been
such corporate agent, if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation.
However, in such proceeding no indemnification shall be provided in respect of
any claim, issue or matter as to which such corporate agent shall have been
adjudged to be liable for negligence or misconduct, unless and only to the
extent that the court in which such proceeding was brought shall determine upon
application that despite the adjudication of liability, but in view of all
circumstances of the case, such corporate agent is fairly and reasonably
entitled to indemnity for such expenses as the court shall deem proper. The New
Jersey BCA provides for mandatory indemnification of a corporate agent against
expenses to the extent that such agent has been successful on the merits or
otherwise in the defense of any
43
<PAGE> 53
proceeding described above, or of any claim, issue or matter therein. Expenses
incurred by a corporate agent in connection with a proceeding may be paid in
advance of the final disposition of the proceeding upon receipt of an
undertaking by or on behalf of the corporate agent to repay such amount if it
shall ultimately be determined that he is not entitled to be indemnified
pursuant to the New Jersey BCA.
The Davey Bylaws provide that Davey (1) shall indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of Davey) by reason of
the fact that he is or was a director, officer or trustee of Davey or of any
constituent corporation absorbed by Davey in a consolidation or merger and (2)
except as otherwise required by the Davey Bylaws, may indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of Davey) by reason of
the fact that he (a) is or was an employee or agent or the legal representative
of a director, officer, trustee, employee or agent of Davey or of any absorbed
constituent corporation, or (b) is or was serving at the request of Davey or of
any absorbed constituent corporation as a director, officer, employee, agent of
or participant in another corporation, partnership, joint venture, trust or
other enterprise, or the legal representative of such a person against expenses,
costs, disbursements (including attorneys' fees), judgments, fines and amounts
actually and reasonably incurred by him in good faith and in connection with
such action, suit or proceeding if he acted in a manner he reasonably believed
to be in or not opposed to the best interests of Davey, and with respect to any
criminal action or proceeding, he had no reasonable cause to believe that his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not meet the applicable standard of conduct.
The Davey Bylaws provide that Davey shall indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of Davey to procure a judgment in
its favor by reason of the fact that he is or was a director, officer, trustee,
employee or agent of Davey or of any constituent corporation absorbed by Davey
by consolidation or merger, or the legal representative of any such person, or
is or was serving at the request of Davey or of any absorbed constituent
corporation, as a director, officer, trustee, employee, agent of or participant,
or the legal representative of any such person in another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of Davey and except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to Davey unless and only to the extent that the New Jersey
Court or the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the New Jersey Court or such other court shall
deem proper.
The Davey Bylaws further provide that to the extent that a person who is or
was a director, officer, trustee, employee or agent of Davey or of any
constituent corporation absorbed by Davey by consolidation or merger, or the
legal representative of any such person, has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in the
indemnification section of the Davey Bylaws of this Section, or in defense of
any claim, issue, or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
Any indemnification under the indemnification section of the Davey Bylaws
(unless ordered by a court) shall be made by Davey only as authorized in the
specific case upon a determination that indemnification of the director,
officer, trustee, employee, agent, or the legal representative thereof, is
proper in the circumstances because he has met the applicable standard of
conduct set forth in said indemnification section. Such determination shall be
made (1) by the Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to such suit or proceeding, or (2) if such a
quorum is not obtainable, a quorum of disinterested directors so directs, by
independent legal counsel for a written opinion, (3) by the shareholders.
44
<PAGE> 54
Expenses incurred by any person who may have a right of indemnification
under the Davey Bylaws in defending civil or criminal action, suit or proceeding
may be paid by Davey in advance of the final distribution of such action, suit
or proceeding as authorized by the Board of Directors upon receipt of an
undertaking by or on behalf of the director, officer, trustee, employee, or the
legal representative thereof, to repay such amount unless it shall ultimately be
determined that he is entitled to be indemnified by Davey pursuant to the
indemnification section of the Davey Bylaws. The indemnification and advancement
of expenses provided by the Davey Bylaws shall not exclude any other rights to
which those seeking indemnification may be entitled under the Davey Certificate
or any bylaw, agreement, vote of shareholders or otherwise; provided that no
indemnification shall be made to or on behalf of a director, officer, trustee,
employee, agent, or legal representative if a judgment or other final
adjudication adverse to such persons establishes that his acts or omissions (a)
were in breach of his duty of loyalty to Davey or its shareholders, as defined
by law, (b) were not in good faith or involved a knowing violation of law or (c)
resulted in receipt by such person of an improper personal benefit.
ABILITY TO CONSIDER OTHER CONSTITUENCIES
Rock-Tenn. The Georgia BCC provides that a corporation's articles of
incorporation may set forth a provision that, in discharging the duties of their
respective positions and in determining what is believed to be in the best
interests of the corporation, the board of directors, committees of the board of
directors, and individual directors, in addition to considering the effects of
any action on the corporation or its shareholders, may consider the interests of
the employees, customers, suppliers, and creditors of the corporation and its
subsidiaries, the communities in which offices or other establishments of the
corporation and its subsidiaries are located, and all other factors such
directors consider pertinent; provided, however, that any such provision shall
be deemed solely to grant discretionary authority to the directors and shall not
be deemed to provide to any constituency any right to be considered.
The Rock-Tenn Articles permit the Board of Directors, in determining what
it believes to be in the best interests of Rock-Tenn, to consider the interests
of the employees, customers, suppliers and creditors of Rock-Tenn, the
communities in which offices or other establishments of Rock-Tenn are located,
and all other factors the directors consider pertinent, in addition to
considering the effects of any action on Rock-Tenn or its shareholders.
Davey. Under the New Jersey BCA, the director of a New Jersey corporation
may consider, in discharging his or her duties to the corporation and in
determining what he or she reasonably believes to be is the best interest of the
corporation (in addition to the effects of any action on shareholders) (i) the
effects of the action on the corporation's employees, suppliers, creditors and
customers, (ii) the effects of the action on the community in which the
corporation operates and (iii) the long-term as well as the short-term interest
of the corporation and its shareholders, including the possibility that these
interests may best be served by the continued independence of the corporation.
If, on the basis of the foregoing factors, the Board of Directors determines
that any proposal or offer to acquire the corporation is not in the best
interest of the corporation, it may reject such proposal or offer, in which
event the Board of Directors will have no duty to remove any obstacles to, or
refrain from impeding, such proposal or offer.
ACTIONS BY SHAREHOLDERS WITHOUT A MEETING
Rock-Tenn. The Georgia BCC provides that action required or permitted by
the Georgia BCC to be taken at a shareholders' meeting may be taken without a
meeting if the action is taken by all the shareholders entitled to vote on the
action. The action must be evidenced by one or more written consents describing
the action taken, signed by shareholders entitled to take action without a
meeting and delivered to the corporation for inclusion in the minutes or filing
with the corporate records.
Davey. The New Jersey BCA provides that action required to be taken at a
shareholders' meeting may be taken without a meeting if the action is taken by
all the shareholders entitled to vote on the action. The action must be
evidenced by one or more written consents describing the action taken, signed by
shareholders
45
<PAGE> 55
entitled to take action without a meeting and delivered to the corporation for
inclusion in the minutes or filing with the corporate records.
The Davey Bylaws provide that any action required or permitted to be taken
at any meeting of shareholders may be taken without a meeting, if, prior to such
action, a written consent or consents thereto, setting forth such action, is or
are signed by the holders of record of all of the shares of stock of the
Corporation or, in the alternative, by the holders of record of so many of the
shares of the stock of the Corporation as are required by law for the taking of
such action by written consent, if, either the Corporation solicits for such
consents or proxies for consents from the holders of all of the shares of stock
of the Corporation, issued, outstanding and entitled to vote thereon and
promptly notifies all non-consenting holders of stock of the Corporation as
required by law.
PAYMENT OF DIVIDENDS
Rock-Tenn. The Georgia BCC provides that a board of directors may
authorize and the corporation may make distributions to its shareholders subject
to restriction by the articles of incorporation and provided that no
distribution may be made if, after giving it effect, the corporation would not
be able to pay its debts as they become due in the usual course of business or
the corporation's total assets would be less than the sum of its total
liabilities plus (unless the articles of incorporation permit otherwise) the
amount that would be needed, if the corporation were to be dissolved at the time
of the distribution, to satisfy the preferential rights upon dissolution of
shareholders whose preferential rights are superior to those receiving the
distribution. Holders of shares of Common Stock are entitled to receive such
dividends as may be declared by Rock-Tenn's Board of Directors out of funds
legally available for such purpose. No dividend may be declared or paid in cash
or property on any share of either class of Common Stock unless simultaneously
the same dividend is declared or paid on each share of the other class of Common
Stock. Dividends payable in Common Stock of Rock-Tenn shall be payable in shares
of Rock-Tenn Common Stock to the holders thereof and in shares of Rock-Tenn
Class B Common Stock to the holders thereof.
Davey. Pursuant to the New Jersey BCA, a corporation may, from time to
time, by action of its board, declare and pay dividends, except when the
corporation is insolvent or would thereby be made insolvent, or when the payment
would be contrary to any restrictions contained in the certificate of
incorporation. Unless the certificate of incorporation provides otherwise, such
payments may be made whether or not the net assets remaining after the
transaction are less than the aggregate amount of the preferences of outstanding
shares in the assets of the corporation upon liquidation. Dividends may be
declared or paid out of surplus only, except in dissolution. The Davey Bylaws
provide that the Board of Directors may declare dividends out of the net profits
or surplus of the corporation. Before payment of any dividend or making any
distributions of profits, there may be set aside out of the surplus or net
profits of the corporation such sum or sums as the directors from time to time,
in their absolute discretion, think proper as a reserve fund to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the corporation, or for such other purpose as the directors shall
think conducive to the interest of the corporation.
DISSOLUTION
Rock-Tenn. The Georgia BCC provides that a corporation's board of
directors may propose dissolution for submission to the shareholders and that
for a proposal to be adopted, the shareholders entitled to vote must approve the
proposal to dissolve, unless the articles of incorporation or the board of
directors requires a greater vote or a vote by voting groups, by a majority of
all the votes entitled to be cast on that proposal.
The Rock-Tenn Articles provide that upon the liquidation, dissolution or
winding up of the Corporation, whether after any preferential amounts required
to be paid or distributed to holders of outstanding shares of Preferred Stock,
if any, are so paid or distributed, the remaining assets of the Corporation
shall be distributed ratably to the holders of Class A Common and Class B Common
as a single class, in proportion to the number of shares held by them.
Davey. The New Jersey BCA provides that a corporation's board of directors
may propose dissolution for submission to the shareholders and that such
proposal shall be approved upon receiving the affirmative vote
46
<PAGE> 56
of two-thirds of the votes cast by holders of shares of the corporation entitled
to vote thereon if the corporation was incorporated prior to 1969 and if, like
Davey, it has not elected to change its Certificate of Incorporation to adopt
the majority voting requirement which applies to corporations formed after 1969.
Neither the Davey Certificate nor the Davey Bylaws contain any specific
provision regarding dissolution.
MERGER, CONSOLIDATION, AND SALES OF ASSETS
Rock-Tenn. The Georgia BCC provides that one or more corporations may
merge into another corporation if the board of directors of each corporation
adopts a plan of merger and the shareholders of each corporation approve the
plan of merger by (a) a majority of all the votes entitled to be cast on the
plan by all shares entitled to vote on the plan, voting as a single group, and
(b) a majority of all the votes entitled to be cast by holders of the shares of
each voting group entitled to vote separately on the plan as a voting group by
the articles of incorporation unless the Georgia BCC, the articles of
incorporation, the bylaws, or the board of directors requires a greater vote or
a vote by voting groups; provided, however, that action by the shareholders of
the surviving corporation on a plan of merger is not required if (i) the
articles of incorporation of the surviving corporation will not differ (except
for such changes which are authorized by the Georgia BCC to be made without
action of shareholders) from its articles before the merger, (ii) each share of
stock of the surviving corporation outstanding immediately before the effective
date of the merger is to be an identical outstanding or reacquired share
immediately after the merger and (iii) the number and kind of shares outstanding
immediately after the merger, plus the number and kind of shares issuable as a
result of the merger and by the conversion of securities issued pursuant to the
merger or the exercise of rights and warrants issued pursuant to the merger,
will not exceed the total number and kind of shares of the surviving corporation
authorized by its articles of incorporation immediately before the merger.
Similarly, a corporation may sell, lease, exchange or dispose of all or
substantially all of the property of a corporation if approved by the board of
directors and the shareholders approve such transaction by a vote of at least a
majority of all votes entitled to be cast on the transaction.
The Rock-Tenn Articles provide that in the event of a reorganization,
consolidation, share exchange or merger of the Corporation, each holder of a
share of Common Stock shall be entitled to receive the same kind and amount of
consideration (whether consisting of cash, property or securities) to be
received by each other holder of a share of Common Stock, if any, regardless of
whether such share of Common Stock is a share of Class A Common or Class B
Common.
Davey. Under the New Jersey BCA, the consummation of a merger or
consolidation of a New Jersey corporation, such as Davey, which was organized
prior to January 1, 1969, requires the approval of such corporation's Board of
Directors and the affirmative vote of two-thirds of the votes cast by the
holders of the shares of the corporation entitled to vote thereon, unless such
corporation is the surviving corporation and (i) such corporation's certificate
of incorporation is not amended, (ii) the shareholders of the surviving
corporation whose shares were outstanding immediately before the effective date
of the merger will hold the same number of shares, with identical designations,
preferences, limitations, and rights, immediately after, and (iii) the number of
voting shares and participating shares outstanding after the merger will not
exceed by 40% the total number of voting or participating shares of the
surviving corporation before the merger. A corporation organized prior to
January 1, 1969 may adopt a majority voting requirement for a plan of merger or
plan of consolidation, by an amendment of its certificate of incorporation
adopted by the affirmative vote of two-thirds of the votes cast by the holders
of shares entitled to vote thereon. Similarly, in the case of a corporation
organized prior to 1969, such as Davey, a sale of all or substantially all of a
New Jersey corporation's assets other than in the ordinary course of business,
or a voluntary reorganization of a New Jersey corporation, requires the approval
of such corporation's Board of Directors and the affirmative vote of two-thirds
of the votes cast by the holders of shares of the corporation entitled to vote
thereon.
The Davey Certificate provides that any proposed plan of merger,
consolidation, sale or exchange of shares of Davey shall be approved by an
affirmative vote of a majority of the votes cast by the holders of shares
entitled to vote thereon.
47
<PAGE> 57
The Davey Certificate provides that Davey has the power, with the consent
in writing and pursuant also to the affirmative vote of two-thirds ( 2/3) of the
stock issued and outstanding at a stockholder's meeting duly called for that
purpose, to sell, assign, transfer, or otherwise dispose of the property of
Davey as an entirety, provided always, that a majority of the Board concur
therein.
BUSINESS COMBINATIONS AND TRANSACTIONS WITH CERTAIN PERSONS
Rock-Tenn. Rock-Tenn has not elected in the Rock-Tenn Articles or the
Rock-Tenn Bylaws to be subject to certain optional provisions of the Georgia BCC
which impose additional voting requirements and substantive and procedural
restrictions on the ability of Rock-Tenn to enter into certain transactions with
persons who are deemed to be "interested shareholders." These provisions fall
into two categories: (i) fair price provisions which are focused on the
substantive fairness of transactions consummated between a corporation and an
interested shareholder and (ii) provisions which are designed to encourage any
person, before acquiring 10% of voting stock of a resident domestic corporation,
to seek approval of its board of directors for the terms of any contemplated
business combination.
Davey. Subject to exceptions, the New Jersey BCA provides that certain
corporations organized under the laws of New Jersey having principal executive
offices or significant operations located in New Jersey (a "resident domestic
corporation") may not engage in any "business combination" (as defined in the
New Jersey BCA) with any interested shareholder (generally, a 10% or greater
shareholder) of such corporations for a period of five years following such
interested shareholder's stock acquisition, unless such business combination is
approved by the Board of Directors of such corporations prior to the stock
acquisition. Unless a company's certificate of incorporation provides otherwise,
these provisions do not apply to any business combination of a resident domestic
corporation with an interested stockholder if, among other factors, the resident
domestic corporation did not have a class of voting stock registered or traded
on a national securities exchange or registered with the Securities and Exchange
Commission pursuant to section 12(g) of the Exchange Act on that interested
stockholder's stock acquisition date. Because Davey does not have a class of
stock registered or traded on a national exchange or registered with the
Securities and Exchange Commission, and because the Davey Certificate does not
provide otherwise, the provisions in the New Jersey BCA which restrict business
combinations with interested stockholders do not apply to Davey.
DISSENTERS' RIGHTS OF APPRAISAL
Rock-Tenn. The Georgia BCC provides that a record shareholder of a
corporation is entitled to dissent from, and obtain payment of the fair value of
his shares in the event of, consummation of a plan of merger to which the
corporation is a party if approval of the shareholders of the corporation is
required for the merger and the shareholder is entitled to vote on the merger or
if the corporation is a subsidiary that is merged with its parent, consummation
of a plan of share exchange to which the corporation is a party as the
corporation whose shares will be acquired, if the shareholder is entitled to
vote on the plan, consummation of a sale or exchange of all or substantially all
of the property of the corporation if a shareholder vote is required on the sale
or exchange, or certain amendments to the articles of incorporation that
materially and adversely affect certain rights in respect of a dissenter's
shares. A shareholder entitled to dissent and obtain payment for his shares
under the Georgia BCC may not challenge the corporate action creating his
entitlement except for failure to comply with the procedural requirements of the
Georgia BCC or the corporation's articles of incorporation or bylaws or in cases
of fraud or deception. The Georgia BCC provides that there shall be no right of
dissent in favor of the holder of shares of any class or series which were
either listed on a national securities exchange or held of record by more than
2,000 shareholders unless, in the case of a plan of merger or share exchange,
the holders of shares of the class or series are required under the plan of
merger or share exchange to accept for their shares anything except shares of
the surviving corporation or another publicly held corporation which at the
effective date of the merger or share exchange are either listed on a national
securities exchange or held of record by more than 2,000 shareholders except for
scrip or cash payments in lieu of fractional shares, or the articles of
incorporation or a resolution of the board of directors approving the
transaction provides otherwise.
Davey. Under the New Jersey BCA, any shareholder may dissent from a plan
of merger or consolidation to which the corporation is a party and with regard
to which the shareholder may vote. However, unless
48
<PAGE> 58
the certificate of incorporation provides otherwise, a shareholder shall not
have the right to dissent from any plan of merger or consolidation with respect
to shares (i) of a class or series which is listed on a national securities
exchange or held of record by not less than 1,000 shareholders on the record
date fixed to determine the shareholders entitled to vote on such action, or
(ii) for which, pursuant to such action, the shareholder would receive (x) cash,
(y) shares, obligations or other securities which, upon consummation of the
transaction, will either be listed on a national securities exchange or held of
record by not less than 1,000 shareholders, or (z) cash and such securities. In
addition, any shareholder may dissent from any sale, lease, exchange or other
disposition of all or substantially all of the assets of a corporation not in
the usual or regular course of business as conducted by such corporation, other
than a sale by a parent corporation for which shareholder approval is not
required. However, unless the certificate of incorporation provides otherwise, a
shareholder shall not have the right to dissent from any such sale of assets
with respect to shares held by such shareholder of the type described in clause
(i) above, or from any such sale of assets pursuant to a plan of dissolution of
the corporation which provides for distribution of all of its net assets to
shareholders in accordance with their respective interests within one year,
where such sale of assets is wholly for any of the types of consideration listed
in clauses (x), (y), or (z) above. A stockholder who is entitled to dissent from
such action in accordance with the New Jersey BCA may make a written demand on
the corporation or on the surviving corporation for the payment of the fair
value of his shares.
INTERESTED DIRECTOR TRANSACTIONS
Rock-Tenn. The Georgia BCC provides that a transaction effected or
proposed to be effected by a corporation that is not a "director's conflicting
interest transaction" may not be enjoined, set aside or give rise to an award of
damages or other sanctions in an action by a shareholder on the ground of an
interest in the transaction of a director or any other person with whom he has
an economic, personal or other association. A "director's conflicting interest
transaction" means a transaction effected or proposed to be effected by the
corporation respecting which a director of the corporation has a "conflicting
interest."
The Georgia BCC defines "conflicting interest" as the interest a director
of the corporation has respecting a transaction effected or proposed to be
effected by the corporation if (a) whether or not the transaction is brought
before the board of directors of the corporation for action, to the knowledge of
the director at the time when the transaction is consummated or when the
corporation becomes contractually obligated to effect the transaction (the "time
of commitment") he or a "related person" (immediate family member, housemate,
trust or estate of which director is beneficiary or trust, estate, incompetent,
conservatee or minor of which the director is a fiduciary) is a party to the
transaction or has a beneficial financial interest in or so closely linked to
the transaction and of such financial significance to the director or a related
person that it would reasonably be expected to exert an influence on the
director's judgment if he were called upon to vote on the transaction or (b) the
transaction is brought (or is of the type that would normally be brought) before
the board of directors of the corporation for action and to the knowledge of the
director at the time of commitment any of the following persons is either a
party to the transaction or has a beneficial financial interest so closely
linked to the transaction and of such financial significance to that person that
it would reasonably be expected to exert an influence on the director's judgment
if he were called to vote on the transaction: (i) an entity (other than the
corporation) of which the director is a director, general partner, agent or
employee, (ii) a person that controls one or more of such entities or an entity
that is controlled by, or is under common control with, one or more of such
entities, or (iii) an individual who is a general partner, principal or employer
of the director.
The Georgia BCC provides that a director's conflicting interest transaction
may not be enjoined, set aside, or give rise to an award of damages or other
sanctions in an action by a shareholder if the transaction received the
affirmative vote of a majority (but not less than two) of those independent
directors on the board of directors or on a duly empowered committee thereof who
voted on the transaction after disclosure of the conflicting interest to them.
The Georgia BCC also provides that a director's conflicting interest transaction
may not be enjoined, set aside or give rise to an award of damages or other
sanctions in an action by a shareholder if (a) the transaction, judged in the
circumstances at the time of commitment, is established to have been fair to the
corporation or (b) a majority of the votes entitled to be cast by disinterested
shareholders were cast in favor of the transaction after disclosure of the
conflicting interest.
49
<PAGE> 59
Davey. The New Jersey BCA provides that no contract or other transaction
between a corporation and one or more of its directors, or between a corporation
and any domestic or foreign corporation, firm or association of any type or kind
in which one or more of its directors are directors or are otherwise interested,
shall be void or voidable solely by reason of such common directorship or
interest, or solely because such director or directors are present at the
meeting of the board or a committee thereof which authorizes or approves the
contract or transaction, or solely because his or their votes are counted for
such purpose, if any one of the following is true: (a) The contract or other
transaction is fair and reasonable as to the corporation at the time it is
authorized, approved or ratified; or (b) the fact of the common directorship or
interest is disclosed or known to the board or committee and the board or
committee authorizes, approves, or ratifies the contract or transaction by
unanimous written consent, provided at least one director so consenting is
disinterested, or by affirmative vote of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum; or (c)
the fact of the common directorship or interest is disclosed or known to the
shareholders, and they authorize, approve or ratify the contract or transaction.
Common or interested directors may be counted in determining the presence of a
quorum at a board or committee meeting at which such contract or transaction is
authorized, approved or ratified. The New Jersey BCA further provides that the
board, by the affirmative vote of a majority of directors in office and
irrespective of any personal interest of any of them, shall have authority to
establish reasonable compensation of directors for services to the corporation
as directors, officers, or otherwise.
EXPERTS
The consolidated financial statements of Rock-Tenn Company at September 30,
1995 and 1996 and for each of the three years in the period ended September 30,
1996 incorporated by reference herein have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon incorporated by
reference herein. Such consolidated financial statements are incorporated by
reference herein in reliance upon such reports given upon the authority of such
firm as experts in accounting and auditing.
The consolidated financial statements of Waldorf at June 30, 1995 and 1996
and for each of the three years in the period ended June 30, 1996 incorporated
in this Proxy/Prospectus by reference to the Current Report on Form 8-K/A dated
January 21, 1997 have been so incorporated in reliance on the report of Price
Waterhouse LLP, independent accountants given on the authority of such firm as
experts in accounting and auditing.
The consolidated financial statements of the Davey Company and Subsidiary
at December 31, 1995 and 1996 and for each of the three years in the period
ended December 31, 1996 appearing in this Proxy Statement/Prospectus and
Registration Statement have been audited by Amper, Politziner & Mattia,
independent auditors, as set forth in their reports thereon appearing elsewhere
herein. Such consolidated financial statements are included herein in reliance
upon such reports given upon the authority of such firm as experts in accounting
and auditing.
LEGAL MATTERS
The legality of the shares of Rock-Tenn Common Stock being offered hereby
is being passed upon for Rock-Tenn by King & Spalding, Atlanta, Georgia. The
federal income tax treatment of the Transaction is being passed upon for Davey
and Rock-Tenn by Greenbaum, Rowe, Smith, Ravin, Davis & Himmel, Woodbridge, New
Jersey.
SHAREHOLDER PROPOSALS
In order to be eligible for inclusion in Rock-Tenn's proxy solicitation
materials for its 1998 annual meeting of shareholders, any shareholder proposal
to be considered at such meeting must been received by Rock-Tenn on or before
September 18, 1997. Any such proposal will be subject to the requirements
contained in the Rock-Tenn Bylaws relating to shareholders proposals and the
proxy rules under the Exchange Act. See "Certain Differences in the Rights of
Rock-Tenn and Davey Shareholders."
50
<PAGE> 60
THE DAVEY COMPANY AND SUBSIDIARY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
AND FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets at December 31, 1996, December
31, 1995 and March 31, 1997............................... F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1996, 1995 and 1994 and for the Three Months
Ended March 31, 1997 and 1996............................. F-4
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1996, 1995 and 1994 and
for the Three Months Ended March 31, 1997................. F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994 and for the Three Months
Ended March 31, 1997 and 1996............................. F-6
Notes to Consolidated Financial Statements for the Years
Ended December 31, 1996, 1995 and 1994 and for the Three
Months Ended March 31, 1997 and 1996...................... F-7
</TABLE>
F-1
<PAGE> 61
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
The Davey Company and Subsidiary
We have audited the accompanying consolidated balance sheets of The Davey
Company and Subsidiary as of December 31, 1996 and 1995, and the consolidated
statements of operations, changes in stockholders' equity, and cash flows for
the years ended December 31, 1996, 1995 and 1994. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
The Davey Company and Subsidiary as of December 31, 1996 and 1995, and the
consolidated results of their operations and cash flows for the years ended
December 31, 1996, 1995 and 1994 in conformity with generally accepted
accounting principles.
As discussed in Notes 1 and 13 to the consolidated financial statements,
beginning January 1, 1995, the Company changed its method of accounting for
postretirement benefits.
/s/ AMPER, POLITZINER & MATTIA
April 14, 1997, except for Note 18
as to which the date is May 7, 1997
Flemington, New Jersey
F-2
<PAGE> 62
THE DAVEY COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ----------------------------
1997 1996 1995
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents..................... $ 1,513,082 $ 3,156,668 $ 726,160
Investments................................... 3,334,245 3,361,523 786,023
Accounts receivable -- trade less allowance
for doubtful accounts of $32,900, $25,000
and $155,500 in 1997, 1996 and 1995,
respectively............................... 2,826,700 1,826,688 1,940,483
Inventories................................... 1,318,843 1,274,113 937,753
Deferred tax asset............................ 18,500 18,500 154,400
Other current assets.......................... 1,207,752 394,702 342,016
----------- ----------- -----------
10,219,122 10,032,194 4,886,835
----------- ----------- -----------
Property and equipment, net..................... 8,645,309 9,042,463 10,438,901
----------- ----------- -----------
Other assets
Investments................................... 463,064 463,064 718,729
Loan origination costs, net................... 97,608 101,354 --
Other assets.................................. 327,652 305,252 67,408
----------- ----------- -----------
888,324 869,670 786,137
----------- ----------- -----------
$19,752,755 $19,944,327 $16,111,873
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt.......... $ 585,720 $ 585,720 $ 668,400
Accounts payable and accrued expenses......... 2,906,736 3,011,092 2,438,031
Income taxes payable.......................... 524,963 753,785 42,000
----------- ----------- -----------
4,017,419 4,350,597 3,148,431
----------- ----------- -----------
Long-term debt, net of current maturities....... 3,074,990 3,221,420 3,181,236
----------- ----------- -----------
Deferred tax liability.......................... 931,574 1,025,940 525,400
----------- ----------- -----------
Stockholders' equity
Common stock, no par value or stated value,
100,000 shares authorized.................. 770,672 770,672 770,672
Net unrealized gain on investments............ 163,099 163,099 49,147
Retained earnings............................. 13,222,417 12,840,015 10,906,903
----------- ----------- -----------
14,156,188 13,773,786 11,726,722
Less treasury stock at cost................... 2,427,416 2,427,416 2,469,916
----------- ----------- -----------
Total stockholders' equity............ 11,728,772 11,346,370 9,256,806
----------- ----------- -----------
$19,752,755 $19,944,327 $16,111,873
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 63
THE DAVEY COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE YEAR ENDED
MARCH 31, DECEMBER 31,
--------------------------- -------------------------------------------
1997 1996 1996 1995 1994
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............ $ 7,454,424 $ 6,249,610 $26,260,717 $25,330,861 $20,537,420
Cost of goods sold... 5,900,401 4,761,829 20,056,273 23,107,033 19,768,548
----------- ----------- ----------- ----------- -----------
Gross profit......... 1,554,023 1,487,781 6,204,444 2,223,828 768,872
Selling, general and
administrative
expenses........... 923,168 607,778 2,924,440 2,369,256 1,921,433
----------- ----------- ----------- ----------- -----------
Earnings (loss) from
operations......... 630,855 880,003 3,280,004 (145,428) (1,152,561)
----------- ----------- ----------- ----------- -----------
Other income
(expense)
Interest expense... (64,749) (85,119) (391,906) (402,638) (389,457)
Interest and
dividend
income.......... 68,123 14,463 285,444 63,958 92,217
Other.............. 3,107 16,197 106,870 143,886 (54,857)
----------- ----------- ----------- ----------- -----------
6,481 (54,459) 408 (194,794) (352,097)
----------- ----------- ----------- ----------- -----------
Earnings (loss)
before provision
for (benefit from)
income taxes....... 637,336 825,544 3,280,412 (340,222) (1,504,658)
Provision for
(benefit from)
income taxes....... 254,934 330,200 1,317,300 (127,000) (552,200)
----------- ----------- ----------- ----------- -----------
Net income (loss).... $ 382,402 $ 495,344 $ 1,963,112 $ (213,222) $ (952,458)
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 64
THE DAVEY COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
AND FOR THE THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
COMMON STOCK
---------------------- NET UNREALIZED TREASURY STOCK TOTAL
OUTSTANDING (GAIN) LOSS ON RETAINED -------------------- STOCKHOLDERS'
SHARES AMOUNT INVESTMENTS EARNINGS SHARES AMOUNT EQUITY
----------- -------- -------------- ----------- ------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1994................ 3,985 $770,672 $ -- $12,072,583 2,015 $(2,469,916) $10,373,339
Net loss.............. -- -- -- (952,458) -- -- (952,458)
Net unrealized loss on
investments......... -- -- (19,862) -- -- -- (19,862)
----- -------- -------- ----------- ----- ----------- -----------
Balance at December
31, 1994............ 3,985 770,672 (19,862) 11,120,125 2,015 (2,469,916) 9,401,019
Net loss.............. -- -- -- (213,222) -- -- (213,222)
Net unrealized gain on
investments......... -- -- 69,009 -- -- -- 69,009
----- -------- -------- ----------- ----- ----------- -----------
Balance at December
31, 1995............ 3,985 770,672 49,147 10,906,903 2,015 (2,469,916) 9,256,806
Net income............ -- -- -- 1,963,112 -- -- 1,963,112
Treasury stock sold
for $500 per
share............... 25 -- -- (30,000) (25) 42,500 12,500
Net unrealized gain on
investments......... -- -- 113,952 -- -- -- 113,952
----- -------- -------- ----------- ----- ----------- -----------
Balance at December
31, 1996............ 4,010 770,672 163,099 12,840,015 1,990 (2,427,416) 11,346,370
Net income
(unaudited)......... -- -- -- 382,402 -- -- 382,402
----- -------- -------- ----------- ----- ----------- -----------
Balance at March 31,
1997 (unaudited).... 4,010 $770,672 $163,099 $13,222,417 1,990 $(2,427,416) $11,728,772
===== ======== ======== =========== ===== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 65
THE DAVEY COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED FOR THE YEAR ENDED
MARCH 31, DECEMBER 31,
----------------------- ------------------------------------
1997 1996 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net income (loss).................. $ 382,402 $ 495,344 $1,963,112 $ (213,222) $ (952,458)
---------- ---------- ---------- ---------- ----------
Adjustments to reconcile net income
(loss) to net cash from
operating activities
Depreciation and amortization... 415,611 501,447 1,604,176 1,874,839 1,829,149
Deferred tax expense
(benefit)..................... (94,366) -- 559,900 (141,100) (470,400)
Bad debt expense................ 7,890 7,890 -- 25,897 21,459
Loss (gain) on sale of
investments................... -- -- 24,761 (27,496) 7,730
(Increase) decrease in
Accounts
receivable -- trade........ (1,007,902) (238,371) 113,795 197,918 (531,166)
Inventories................... (44,730) (249,921) (336,360) 201,238 161,735
Refundable income taxes....... -- -- -- 124,300 33,700
Other current assets.......... (813,050) 112,577 (52,686) 79,372 706,271
Other assets.................. (22,400) (340,802) (237,844) 112,851 51,150
Increase (decrease) in
Accounts payable and accrued
expenses................... (104,355) (27,398) 573,061 (92,681) 233,948
Income taxes payable.......... (228,821) 579,800 711,785 42,000 (8,500)
---------- ---------- ---------- ---------- ----------
Total adjustments.......... (1,892,123) 345,222 2,960,588 2,397,138 2,035,076
---------- ---------- ---------- ---------- ----------
(1,509,721) 840,566 4,923,700 2,183,916 1,082,618
---------- ---------- ---------- ---------- ----------
Cash flows from investing activities
Purchase of investments............ -- (140,147) (2,548,278) (206,289) (232,207)
Proceeds from sale of
investments..................... 27,277 -- 394,174 228,210 348,147
Payments for purchase of property
and equipment................... (14,739) (128,495) (199,942) (542,481) (505,854)
---------- ---------- ---------- ---------- ----------
12,538 (268,642) (2,354,046) (520,560) (389,914)
---------- ---------- ---------- ---------- ----------
Cash flows from financing activities
Proceeds from sale of treasury
stock........................... -- 2,500 12,500 -- --
Net proceeds from long-term debt... -- -- 639,974 -- --
Net payments on short-term
borrowings...................... -- -- -- (243,626) (262,042)
Principal payments on long-term
debt............................ (146,403) (291,699) (682,470) (833,542) (558,738)
Payments for loan origination
costs........................... -- -- (109,150) -- --
---------- ---------- ---------- ---------- ----------
(146,403) (289,199) (139,146) (1,077,168) (820,780)
---------- ---------- ---------- ---------- ----------
Net change in cash and cash
equivalents........................ (1,643,586) 282,725 2,430,508 586,188 (128,076)
Cash and cash
equivalents -- beginning........... 3,156,668 726,160 726,160 139,972 268,048
---------- ---------- ---------- ---------- ----------
Cash and cash equivalents --ending... $1,513,082 $1,008,885 $3,156,668 $ 726,160 $ 139,972
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 66
THE DAVEY COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of The Davey
Company and its wholly-owned subsidiary, The Davey Company, Downington
(collectively, the "Company"). All material intercompany accounts and
transactions have been eliminated in the consolidated financial statements.
Operations
The Company is a manufacturer of quality Binders Board, operating within
and selling to customers throughout the United States. The Company grants credit
to customers, a substantial number of whom are in the book binding industry.
The Company performs ongoing evaluations of its customers and generally
does not require collateral. The Company maintains allowances for potential
credit losses.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Inventories
Inventories are stated at the lower of cost (last-in, first-out basis) or
market.
Property and Equipment
Property and equipment is stated at cost, less accumulated depreciation.
Depreciation is computed on the straight-line method over the estimated useful
lives of assets.
Investments
Realized gains and losses are determined using the specific identification
method.
Loan Origination Costs
Loan origination costs are stated at cost, less accumulated amortization.
Amortization is computed on the straight-line method over seven years which is
the life of the loan.
Postretirement Benefit Plan
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions" (SFAS 106). SFAS 106 requires the Company to accrue the
estimated cost of retiree benefit payments during the years the employee
provides services. The Company previously expensed the cost of these benefits,
which are principally healthcare, as claims were paid. SFAS 106 allows
recognition of the cumulative effect of the liability in the year of adoption or
the amortization of the obligation over a period of up to 20 years. The Company
has elected to recognize the initial postretirement benefit obligation of
approximately $2,071,000 over a period of 20 years. The Company's cash flows
were not affected by the implementation of SFAS 106.
The financial statements for the year ended December 31, 1994 have not been
restated.
F-7
<PAGE> 67
THE DAVEY COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Unaudited Interim Financial Statements
The interim financial data as of and for the three months ended March 31,
1997 and 1996 is unaudited; however, in the opinion of management, the interim
data includes all adjustments, consisting only of normal recurring adjustments,
necessary for a fair statement of the results for the interim period.
NOTE 2 CASH EQUIVALENTS
The Company considers all highly liquid debt investments purchased with a
maturity of three months or less to be cash equivalents.
NOTE 3 INVENTORIES
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ------------------------
1997 1996 1995
----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials and supplies............................. $ 473,303 $ 523,736 $ 519,968
Work-in-process........................................ 791,916 600,564 248,635
Finished goods......................................... 452,580 548,769 725,762
---------- ---------- ----------
1,717,799 1,673,069 1,494,365
Less LIFO reserve...................................... 398,956 398,956 556,612
---------- ---------- ----------
$1,318,843 $1,274,113 $ 937,753
========== ========== ==========
</TABLE>
If the first-in, first-out method of inventory valuation had been used,
inventories would have been higher than amounts reported by approximately
$399,000, $399,000, $556,600, and $393,000 at March 31, 1997, December 31, 1996,
1995 and 1994, respectively.
Reduction of inventory during the years ended December 31, 1995 and 1994
resulted in a liquidation of LIFO inventory carried at costs which prevailed in
prior years which were lower than current costs. The effect of this reduction
was to decrease loss from operations for the years ended December 31, 1995 and
1994 by approximately $74,500 and $29,100, respectively.
NOTE 4 INVESTMENTS
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------------------------------
AMORTIZED
COST GROSS GROSS
(CARRYING UNREALIZED UNREALIZED MARKET
AMOUNT) GAINS LOSSES VALUE
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Held-to-maturity
Corporate debt securities..................... $265,615 $11,507 $ -- $277,122
State and local government securities......... 100,000 2,341 -- 102,341
Mortgage-backed securities.................... 97,449 1,247 4,108 94,588
-------- ------- ------ --------
$463,064 $15,095 $4,108 $474,051
======== ======= ====== ========
</TABLE>
F-8
<PAGE> 68
THE DAVEY COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------------------------------------
MARKET
GROSS GROSS VALUE
AMORTIZED UNREALIZED UNREALIZED (CARRYING
COST GAINS LOSSES AMOUNT)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Available-for-sale
Corporate debt securities.................. $1,201,852 $ 19,537 $ 153 $1,221,236
Corporate equity securities................ 799,873 262,488 27,224 1,035,137
U.S. Treasury securities................... 998,027 8,077 -- 1,006,104
Mortgage-backed securities................. 100,035 -- 989 99,046
---------- -------- ------- ----------
$3,099,787 $290,102 $28,366 $3,361,523
========== ======== ======= ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-------------------------------------------------
AMORTIZED
COST GROSS GROSS
(CARRYING UNREALIZED UNREALIZED MARKET
AMOUNT) GAINS LOSSES VALUE
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Held-to-maturity
Corporate debt securities..................... $265,699 $19,693 $ -- $285,392
State and local government securities......... 310,000 12,976 -- 322,976
Mortgage-backed securities.................... 124,438 6,245 3,832 126,851
U.S. Treasury securities...................... 18,592 986 -- 19,578
-------- ------- ------ --------
$718,729 $39,900 $3,832 $754,797
======== ======= ====== ========
</TABLE>
<TABLE>
<CAPTION>
MARKET
GROSS GROSS VALUE
AMORTIZED UNREALIZED UNREALIZED (CARRYING
COST GAINS LOSSES AMOUNT)
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Available-for-sale
Corporate equity securities................... $704,176 $133,280 $51,433 $786,023
======== ======== ======= ========
</TABLE>
Sales of available-for-sale securities were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------------
1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
Proceeds from sales................................. $394,174 $185,558 $27,646
Gross realized gains................................ 10,562 34,491 1,561
Gross realized losses............................... 35,323 6,995 9,291
</TABLE>
In 1996, held to maturity securities with an amortized cost of $227,400
were called resulting in a realized gain of $4,800.
The change in the net unrealized gain (loss) on the investment account held
as available-for-sale for the years ended December 31, 1996 and 1995 was as
follows:
<TABLE>
<CAPTION>
GAIN TAX
(LOSS) EFFECT NET
-------- --------- --------
<S> <C> <C> <C>
Balance -- January 1, 1995...................... $(33,162) $ 13,300 $(19,862)
Unrealized gain................................. 115,009 (46,000) 69,009
-------- --------- --------
Balance -- December 31, 1995.................... 81,847 (32,700) 49,147
Unrealized gain................................. 190,492 (76,540) 113,952
-------- --------- --------
Balance -- December 31, 1996.................... $272,339 $(109,240) $163,099
======== ========= ========
</TABLE>
F-9
<PAGE> 69
THE DAVEY COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a schedule by years of the approximate contractual
maturities of debt securities as of December 31, 1996:
<TABLE>
<CAPTION>
FOR THE YEARS ENDING AVAILABLE HELD TO
DECEMBER 31, FOR SALE MATURITY
- --------------------------------------------------- ---------- --------
<S> <C> <C>
1998............................................... $2,030,100 $ --
1999............................................... 98,700 50,000
2002............................................... -- 150,000
2003............................................... 98,100 165,700
2018............................................... -- 64,000
2020............................................... -- 8,000
2021............................................... -- 25,000
2026............................................... 99,000 --
---------- --------
$2,325,900 $462,700
========== ========
</TABLE>
NOTE 5 OTHER CURRENT ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, --------------------
1997 1996 1995
----------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Prepaid pension costs..................................... $ 175,220 $175,220 $138,532
Postretirement reimbursement receivable................... 90,000 90,000 90,000
Accrued interest receivable............................... 89,874 86,258 23,105
Prepaid expenses and other current assets................. 38,855 43,224 90,379
Termination benefits held in escrow....................... 813,803 -- --
---------- -------- --------
$1,207,752 $394,702 $342,016
========== ======== ========
</TABLE>
NOTE 6 PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, --------------------------
1997 1996 1995
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Land................................................ $ 294,867 $ 294,867 $ 294,867
Buildings and improvements.......................... 5,974,767 5,974,767 5,979,849
Machinery and equipment............................. 33,361,994 33,347,255 33,142,232
----------- ----------- -----------
39,631,628 39,616,889 39,416,948
Less accumulated depreciation....................... 30,986,319 30,574,426 28,978,047
----------- ----------- -----------
Property and equipment, net......................... $ 8,645,309 $ 9,042,463 $10,438,901
=========== =========== ===========
</TABLE>
Depreciation expense was $1,596,380, $1,874,839, $1,829,149, $411,892 and
$501,447 for the years ended December 31, 1996, 1995 and 1994 and the three
months ended March 31, 1997 and 1996, respectively.
F-10
<PAGE> 70
THE DAVEY COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 OTHER ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -------------------
1997 1996 1995
----------- -------- -------
(UNAUDITED)
<S> <C> <C> <C>
Insurance deposit.......................................... $ 246,996 $246,996 $ --
Mortgage receivable........................................ 26,958 27,435 29,227
Due from stockholders...................................... 21,047 21,047 26,309
Other miscellaneous........................................ 32,651 9,774 11,872
---------- -------- -------
$ 327,652 $305,252 $67,408
========== ======== =======
</TABLE>
NOTE 8 SHORT-TERM BORROWINGS
Pursuant to a refinancing of bank debt in 1996, the Company has a credit
facility with a bank including a line of credit available to a maximum of
$500,000. Borrowings under the line of credit bear interest at the London
Interbank Offered Rate ("LIBOR") plus 150 basis points (1.50%) and are due on
demand. The line of credit agreement expires May 31, 1997 and is collateralized
by accounts receivable and certain equipment. There was no amount outstanding at
December 31, 1996, and March 31, 1997.
During the year ended December 31, 1995, the Company had short-term
borrowings which consisted of a margin account with a brokerage firm. The
outstanding borrowings were collateralized by certain investments held by the
Company. The Company's weighted average interest rate for short-term borrowings
was 8.6%.
NOTE 9 LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ------------------------
1997 1996 1995
----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Note payable to a Bank pursuant to refinancing of bank
debt due July 2003, payable in monthly installments
of $48,810 plus interest at LIBOR plus 165 basis
points (1.65%). The note is collateralized by
accounts receivable and certain equipment............ $3,660,710 $3,807,140 $ --
Note payable to a Bank through March 31, 1996,
originally payable at $41,700 per month plus interest
at prime plus 1%, with the balance due at maturity,
collateralized by certain machinery and equipment.
The note was paid in June 1996....................... -- -- 2,375,000
Note payable to a Bank, originally due April 2000,
payable in monthly installments of $27,826 plus
interest at the lender's prime rate. The loan is
collateralized by specific machinery and equipment.
The note was paid in June 1996....................... -- -- 1,474,636
---------- ---------- ----------
3,660,710 3,807,140 3,849,636
Less current maturities................................ 585,720 585,720 668,400
---------- ---------- ----------
Long-term debt, net of current maturities.............. $3,074,990 $3,221,420 $3,181,236
========== ========== ==========
</TABLE>
The note payable to the bank contains certain covenants, the most
restrictive of which relate to dividend payments, sale of assets, future
indebtedness and liens on property and equipment. The note also contains
covenants requiring defined levels of working capital and net worth as well as
various financial ratios including minimum current debt service coverage and
maximum debt to equity.
F-11
<PAGE> 71
THE DAVEY COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The notes outstanding at December 31, 1995 were in the process of being
refinanced. The long-term portion of the debt was classified in accordance with
the loan commitment subsequently signed by the Company and the new bank.
The LIBOR rate at December 31, 1996 and March 31, 1997 was 5.53% and the
prime rate at December 31, 1995 was 8.5%.
The appropriate aggregate amount of long-term debt maturities for the next
five years are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDING MARCH 31,
- ------------------------------
<S> <C>
1998.............................................. $585,700
1999.............................................. 585,700
2000.............................................. 585,700
2001.............................................. 585,700
2002.............................................. 585,700
</TABLE>
NOTE 10 ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
----------- ------------------------
1997 1996 1995
----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Accounts payable......................................... $1,133,648 $1,630,365 $1,156,780
Accrued postretirement benefits.......................... 539,966 464,966 248,488
Accrued health benefits.................................. 393,222 293,654 293,634
Accrued other liabilities................................ 230,668 254,922 198,213
Accrued workers' compensation............................ 205,115 187,660 395,983
Accrued payroll.......................................... 262,932 179,525 144,933
Accrued customer rebates................................. 141,185 -- --
---------- ---------- ----------
$2,906,736 $3,011,092 $2,438,031
========== ========== ==========
</TABLE>
NOTE 11 INCOME TAXES
The Company files a consolidated federal tax return.
The provision for (benefit from) income taxes for the years ended December
31, consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Current
Federal.......................................... $ 672,500 $ 2,100 $ (81,800)
State............................................ 84,900 12,000 --
---------- ---------- ----------
757,400 14,100 (81,800)
---------- ---------- ----------
Deferred
Federal.......................................... $ 317,650 $ (93,900) $ (346,100)
State............................................ 242,250 (47,200) (124,300)
---------- ---------- ----------
559,900 (141,100) (470,400)
---------- ---------- ----------
$1,317,300 $ (127,000) $ (552,200)
========== ========== ==========
</TABLE>
The provision for (benefit from) income taxes for the years ended December
31, 1995 and 1994 has been reduced by $10,000 and $642,300, respectively, by the
benefits of net operating loss carryforwards. The change in valuation allowance
for the years ended December 31, 1996, 1995 and 1994 was $18,600, $23,000 and
$4,600, respectively.
F-12
<PAGE> 72
THE DAVEY COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred tax attributes resulting from differences between the financial
and tax bases of assets and liabilities at December 31, are as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Current assets and liabilities
Allowance for doubtful accounts........................... $ 10,000 $ 74,400
Inventory adjustment...................................... -- (3,800)
Accrued health insurance.................................. 117,700 129,800
Unrealized (gain) loss on investments..................... (109,200) (46,000)
----------- -----------
Net current deferred tax asset.............................. $ 18,500 $ 154,400
=========== ===========
Noncurrent assets and liabilities
Depreciation.............................................. $(2,111,200) $(1,987,700)
Prepaid pension costs..................................... (70,100) (46,200)
Accrued maintenance costs................................. -- 4,200
Accrued workers' compensation insurance................... 75,100 73,000
Accrued postretirement benefits........................... 186,000 86,800
Net operating loss carryforward........................... 237,100 954,500
AMT credit carryforward................................... 765,800 490,000
Capital loss carryforwards................................ 9,960 --
----------- -----------
(907,340) (425,400)
Valuation allowance....................................... (118,600) (100,000)
----------- -----------
Net noncurrent deferred tax liability....................... $(1,025,940) $ (525,400)
=========== ===========
</TABLE>
The effective rates for 1996, 1995 and 1994 were 40.2%, (37.3%) and
(36.7%), respectively. Reconciliation of the federal statutory rate of 34% with
the effective tax rate appears in the following table:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995 1994
% % %
---- ----- -----
<S> <C> <C> <C>
Provision for (benefit from) income taxes at the federal
statutory rate............................................ 34.0 (34.0) (34.0)
State tax, net of federal benefit........................... 5.9 (5.6) (5.4)
Entertainment expense limitation............................ (1.0) (5.1) (.5)
Tax exempt income........................................... .9 3.8 .8
Other....................................................... .4 3.6 2.4
---- ----- -----
40.2 (37.3) (36.7)
==== ===== =====
</TABLE>
As of December 31, 1996, the Company has available the following state net
operating loss carryforwards which may be used to offset future taxable income:
<TABLE>
<CAPTION>
EXPIRES DURING
THE YEAR ENDING
DECEMBER 31, NEW JERSEY
- --------------- ----------
<S> <C>
1999................................................... $ 149,450
2000................................................... 959,900
2001................................................... 1,244,100
2002................................................... 281,400
----------
$2,634,850
==========
</TABLE>
F-13
<PAGE> 73
THE DAVEY COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 1996, the Company has available:
<TABLE>
<CAPTION>
ITEM AMOUNT EXPIRE
- ---- -------- -------
<S> <C> <C>
Alternative minimum tax credit carryforwards................ $765,800 Never
Capital loss carryforwards.................................. 24,800 2001
</TABLE>
NOTE 12 RETIREMENT PLANS
The Company sponsors a contributory defined benefit pension plan covering
substantially all employees. Plan benefits are primarily based on each
employee's compensation and the number of years of participation in the Plan.
As of June 30, 1993, the Plan benefit accruals and employee contributions
were frozen which constitutes a curtailment of the Plan under SFAS 88,
"Employer's Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits." No gain or loss was generated by
the curtailment.
The Company's objective in funding its Plan was to contribute amounts
required to satisfy minimum funding standards. Net pension income for the
defined benefit plan for 1996, 1995 and 1994 included the following components:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Service cost -- benefits earned during the
period......................................... $ -- $ -- $ --
Interest cost on projected benefit obligations... 12,531 13,853 13,526
Actual return on assets.......................... (76,121) (71,252) (38,542)
Net amortization and deferral.................... 26,902 14,866 (21,189)
-------- -------- --------
Net periodic pension income...................... $(36,688) $(42,533) $(46,205)
======== ======== ========
</TABLE>
The following table sets forth the actuarial present value of benefit
obligations and funded status at December 31, 1996 and 1995 for the Company's
Plan, based upon the measurement dates of December 31, 1996 and 1995,
respectively.
<TABLE>
<CAPTION>
1996 1995
-------- ---------
<S> <C> <C>
Plan assets at fair value -- primarily U.S. Government
bonds..................................................... $458,366 $ 501,694
Accumulated and projected benefit obligation -- all
vested.................................................... 181,217 211,750
-------- ---------
Excess of plan assets over projected benefit obligation..... 277,149 289,944
Unrecognized net gain from past experience different from
that assumed.............................................. (3,225) (38,608)
Unamortized net transition asset as of January 1, 1989,
amortized over 15 years................................... (98,704) (112,804)
-------- ---------
Net prepaid pension cost.................................... $175,220 $ 138,532
======== =========
</TABLE>
The assumptions used to develop net periodic pension income and the
actuarial present value of projected benefit obligations for 1996, 1995 and 1994
were:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Expected long-term rate of return on Plan assets............ 7% 7% 7%
Weighted average discount rate.............................. 6% 7% 7%
Rate of increase in compensation levels..................... 0% 0% 0%
</TABLE>
The Plan was amended to adopt a separate account to fund postretirement
medical benefits with a portion of surplus plan assets. Assets of approximately
$90,000 and obligations related to postretirement medical benefits are excluded
from the above (see Note 13).
F-14
<PAGE> 74
THE DAVEY COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company maintains a 401(k) savings and profit sharing plan for
qualified full time non-union employees as defined. Employee contributions are
discretionary to a maximum of 10% of compensation. The Company matches 33 1/3%
of the employee deferral up to 5% of compensation. The Company may also make
discretionary contributions. The Company made no contributions pursuant to the
profit sharing portion of the plan for 1996, 1995 and 1994.
The Company maintains a 401(k) savings plan for qualified union employees
in accordance with two of the three union agreements. The terms of the plan
define qualified employees as those over 21 years of age with at least one year
of service as defined. Employee contributions are discretionary by union to a
maximum of 7% and 10% of compensation. The Company matches 10% of the employee
deferral. The Company contribution is limited to 5% of employee compensation
under one of the agreements.
401(k) expense under both plans for the years ended December 31, 1996, 1995
and 1994 was $55,100, $31,900 and $29,500, respectively.
NOTE 13 POSTRETIREMENT BENEFIT PLAN
Effective January 1, 1995, the Company sponsors an unfunded defined benefit
postretirement medical, dental and death benefit plan that covers all
non-contributory, non-union employees.
The following sets forth the plan's status at December 31:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Accumulated postretirement benefit obligation
Retirees.................................................. $ 1,115,062 $ 1,148,983
Fully eligible active plan participants................... 143,889 133,231
Other active plan participants............................ 754,087 627,133
----------- -----------
2,013,038 1,909,347
Unrecognized net gain from past experience different from
that assumed and changes in assumptions................... 316,046 306,821
Unrecognized transition obligation as of January 1, 1995,
being recognized over 20 years............................ (1,864,118) (1,967,680)
----------- -----------
Accrued postretirement benefit cost......................... $ 464,966 $ 248,488
=========== ===========
</TABLE>
A portion of the cost of this plan is funded by surplus assets of the
defined benefit plan.
Net periodic postretirement benefit cost (included with selling, general
and administrative expenses) for the years ended December 31, 1996 and 1995
includes the following components:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Service cost................................................ $ 68,813 $ 80,623
Interest cost............................................... 147,908 161,700
Amortization of transition obligation....................... 103,562 103,562
-------- --------
Net periodic postretirement benefit cost.................... $320,283 $345,885
======== ========
</TABLE>
Post retirement benefit costs for the three months ended March 31, 1997 and
1996 were $75,000 and $60,000, respectively.
The weighted average discount rate used to determine the accumulated
postretirement benefit obligation was 8% for each year. A 10% annual rate of
increase in the per capita costs of covered healthcare benefits was assumed for
1996 and 1995, gradually decreasing to 7% by the year 2002. Increasing the
assumed healthcare cost trend rates by one percentage point would have resulted
in an increase in the accumulated postretirement
F-15
<PAGE> 75
THE DAVEY COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
benefit obligation as of December 31, 1996 and 1995 of $90,900 and $194,600,
respectively, and an increase in the aggregate of the service cost and interest
cost components of net periodic postretirement benefit cost for the years ended
December 31, 1996 and 1995 of $31,700 and $40,800, respectively.
NOTE 14 NONCASH FINANCING ACTIVITIES
In June 1996, the Company refinanced its existing long-term debt. In
conjunction with the refinancing, the following occurred:
<TABLE>
<S> <C>
Long-term liability assumed................................. $4,100,000
Pay off of existing debt.................................... 3,460,026
----------
Net proceeds of long-term debt.............................. $ 639,974
==========
</TABLE>
NOTE 15 MAJOR CUSTOMERS
For the three months ended March 31, 1997, three customers accounted for
10%, 14% and 15% of net sales. For the three months ended March 31, 1996, three
customers accounted for 10%, 10% and 12% of net sales. Two customers accounted
for 10% and 16% of net sales in the year ended December 31, 1996. In the year
ended December 31, 1995, one customer accounted for 12% of net sales. There were
no major customers in the year ended December 31, 1994. Major customers are
considered to be those who accounted for more than 10% of net sales.
NOTE 16 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Supplemental disclosure of cash paid:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
------------------- ------------------------------
1997 1996 1996 1995 1994
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Interest............................ $ 64,749 $ 85,119 $422,400 $385,500 $389,500
Income taxes........................ 530,000 15,000 48,300 400 14,000
</TABLE>
NOTE 17 RELATED PARTY TRANSACTIONS
In 1996, the Company paid $25,000 in directors' fees to five board members
who are also stockholders.
NOTE 18 COMMITMENTS AND CONTINGENCIES
Employment Agreements
The Company has employment agreements with certain officers of the Company.
The agreements formally terminate in March 2000 and provide total annual base
salaries initially of $220,000 subject to annual increases as defined plus
certain benefits and buy-out options which are contingent upon the reason for
termination as defined in the agreement. As a result of the Asset Purchase
Agreement disclosed below these contracts will be terminated in conjunction with
the consummation of that Agreement.
Subsequent Event
On May 7, 1997, the Company signed an Asset Purchase Agreement whereby
substantially all of the assets of the Company will be sold and certain
liabilities will be assumed. In addition, a Plan of Liquidation will be
effective immediately upon consummation of the sale, pursuant to which the
Company will be liquidated and dissolved.
F-16
<PAGE> 76
THE DAVEY COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has identified certain environmental conditions which, based on
the pending sale, may require remediation with respect to each of its three
sites.
The Company's Aurora and Jersey City sites will be sold pursuant to the
Asset Purchase Agreement. The buyer has agreed to accept $200,000 and $475,000
from the Company to cover the estimated costs of remediation at Aurora and
Jersey City, respectively. As prescribed in the Asset Purchase Agreement, the
Company will be liable for any additional remediation costs at Jersey City, and
with respect to Aurora, if the buyer is required to perform remedial work by a
regulatory agency on hazardous materials not previously identified in
environmental reports.
The Downingtown site will be retained by the Company. Preliminary
environmental testing performed at the site revealed levels of contamination. At
this time, it is unknown whether the State of Pennsylvania will require
remediation to the site and if so, the extent and cost of any such remediation.
Management believes that if remediation is required the estimated costs of
remediation should not exceed $1,000,000.
As of March 31, 1997, the Company has not recorded any liability or asset
impairment related to the costs of remediation noted above.
F-17
<PAGE> 77
ANNEX A
ASSET PURCHASE AGREEMENT
BY AND BETWEEN
ROCK-TENN COMPANY
AND
THE DAVEY COMPANY
AS OF MAY 7, 1997
A-1
<PAGE> 78
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE I PURCHASE AND SALE...........................................
1.1 Agreement to Purchase and Sell..............................
1.2 Included Assets.............................................
1.3 Excluded Assets.............................................
1.4 Assumption of Assumed Liabilities...........................
1.5 Excluded Liabilities........................................
ARTICLE II PURCHASE PRICE; ISSUANCE OF SHARES.........................
2.1 Issuance of Shares..........................................
2.2 Working Capital Statement...................................
2.3 Arbitration.................................................
2.4 Closing Date Adjustment.....................................
2.5 Post-Closing Adjustment.....................................
2.6 Returns and Allowances......................................
2.7 Inventory...................................................
2.8 Accounts Receivable.........................................
2.9 Payment Methodology.........................................
2.10 Allocation of Certain Items.................................
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER..................
3.1 Organization................................................
3.2 Authorization...............................................
3.3 Absence of Restrictions and Conflicts.......................
3.4 Shareholders; Subsidiaries..................................
3.5 Ownership of Assets and Related Matters.....................
3.6 Financial Statements........................................
3.7 No Undisclosed Liabilities..................................
3.8 Absence of Certain Changes..................................
3.9 Legal Proceedings...........................................
3.10 Compliance with Law.........................................
3.11 Contracts...................................................
3.12 Tax Returns; Taxes..........................................
3.13 Officers, Directors and Employees...........................
3.14 Employee Benefit Plans......................................
3.15 Labor Relations.............................................
3.16 Insurance...................................................
3.17 Environmental Matters.......................................
3.18 Patents, Trademarks, Trade Names............................
3.19 Transactions with Associates................................
3.20 Transfer Restrictions; Affiliates...........................
3.21 Customer Relations..........................................
3.22 Nondisclosed Payments.......................................
3.23 Brokers, Finders and Investment Bankers.....................
3.24 Proxy Statement and Registration Statement..................
3.25 Disclosure..................................................
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER....................
4.1 Organization................................................
4.2 Authorization...............................................
4.3 Absence of Restrictions and Conflicts.......................
4.4 Common Stock................................................
4.5 Buyer SEC Reports...........................................
</TABLE>
A-2
<PAGE> 79
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
4.6 Proxy Statement and Registration Statement..................
4.7 Brokers and Finders.........................................
4.8 No Adverse Change...........................................
4.9 Other Representations.......................................
4.10 Environmental Knowledge.....................................
ARTICLE V CERTAIN COVENANTS AND AGREEMENTS............................
5.1 Conduct of Business by Seller...............................
5.2 Inspection and Access to Information........................
5.3 No Solicitation; Acquisition Proposals......................
5.4 Proxy Statement and Registration Statement..................
5.5 Seller Shareholders' Meeting................................
5.6 Additional Shares Notification..............................
5.7 Reasonable Efforts; Further Assurances; Cooperation.........
5.8 Public Announcements........................................
5.9 Financial Statements and SEC Reports........................
5.10 Supplements to Schedules....................................
5.11 Employee and Employee Benefit Matters.......................
5.12 Davey Downingtown Assets....................................
5.13 Transfer Taxes..............................................
5.14 Continuation of Business....................................
5.15 Real Property Title Reports.................................
5.16 Jersey City Environmental Matters...........................
5.17 Releases....................................................
5.18 No Further Actions..........................................
5.19 Purchase of Leased Property.................................
ARTICLE VI NONCOMPETITION.............................................
6.1 Definitions.................................................
6.2 Trade Secrets...............................................
6.3 Confidential Information....................................
6.4 Noncompetition..............................................
6.5 Nonsolicitation.............................................
6.6 Severability................................................
6.7 Injunctive Relief...........................................
ARTICLE VII CONDITIONS................................................
7.1 Conditions to Each Party's Obligations......................
7.2 Conditions to Obligations of Buyer..........................
7.3 Conditions to Obligations of Seller.........................
ARTICLE VIII CLOSING..................................................
8.1 The Closing.................................................
8.2 Documents to be Delivered by Seller.........................
8.3 Documents to be Delivered by Buyer..........................
ARTICLE IX INDEMNIFICATION............................................
9.1 Indemnification Obligations of Seller.......................
9.2 Indemnification Obligations of Buyer........................
9.3 Indemnification Procedure...................................
9.4 Claims Period...............................................
9.5 Liability Limits............................................
9.6 Recovery....................................................
ARTICLE X TERMINATION.................................................
10.1 Termination.................................................
</TABLE>
A-3
<PAGE> 80
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
10.2 Specific Performance and Other Remedies.....................
10.3 Effect of Termination.......................................
ARTICLE XI MISCELLANEOUS PROVISIONS...................................
11.1 Notices.....................................................
11.2 Exhibits....................................................
11.3 Assignment; Successors in Interest..........................
11.4 Number; Gender..............................................
11.5 Captions....................................................
11.6 Controlling Law; Amendment..................................
11.7 Seller and Buyer Knowledge..................................
11.8 Severability................................................
11.9 Counterparts................................................
11.10 Enforcement of Certain Rights...............................
11.11 Waiver......................................................
11.12 Arbitration.................................................
</TABLE>
A-4
<PAGE> 81
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
TERM SECTION
- ---- -------
<S> <C>
Accounts Receivable......................................... 2.2(a)(3)
Acquisition................................................. Recitals
Acquisition Proposal........................................ 5.3
Acquisition Shares.......................................... 2.1(a)
actively at work............................................ 5.11(a)
Adjusted Basket Balance..................................... 9.5(a)
Adjusted Target Value....................................... 2.5(a)
Adjusting Fraction.......................................... 2.1(c)
Affiliates.................................................. 3.20
Agreement................................................... Introduction
AMT Credits................................................. 2.2(a)(1)
Arbitrator.................................................. 2.3
Assets...................................................... 1.1
Associate................................................... 3.19
Assumed Contracts........................................... 1.2(e)
Assumed Liabilities......................................... 1.4
Aurora Plant................................................ 3.4
Average Closing Price....................................... 2.1(b)
Bad Accounts Receivable..................................... 2.8
Bad Accounts Receivable Reverse Amount...................... 2.8
Bad Inventory............................................... 2.7
Buyer....................................................... Introduction
Buyer Ancillary Documents................................... 4.2
Buyer Basket................................................ 9.5(b)
Buyer Indemnified Parties................................... 9.1
Buyer Losses................................................ 9.1
Buyer Opinion............................................... 7.3(d)
Buyer SEC Reports........................................... 4.5
CAP......................................................... 5.16(b)
CERCLA...................................................... 3.17(b)
Claimant.................................................... 11.12(a)
Claims Period............................................... 9.4
Closing..................................................... 8.1
Closing Date................................................ 8.1
CNFA........................................................ 5.16(b)
Code........................................................ Recitals
Commission.................................................. 5.4
Common Stock................................................ Recitals
Company Activities.......................................... 6.1(a)
Confidential Information.................................... 6.1(b)
Confidentiality Agreement................................... 5.2(c)
Continued Employees......................................... 5.11(a)
control, controlling, controlled............................ 3.19
Davey Downingtown........................................... 1.3(c)
Delivery Date............................................... 2.2
DER......................................................... 5.16(b)
Disputed Items.............................................. 2.2
Downingtown Access Agreement................................ 5.12(b)
Downingtown Assets.......................................... 5.12(a)
</TABLE>
A-5
<PAGE> 82
<TABLE>
<CAPTION>
TERM SECTION
- ---- -------
<S> <C>
Downingtown Liabilities..................................... 5.12(a)
Downingtown Premises........................................ 5.12(b)
Employment Agreements....................................... 7.1(f)
Environment................................................. 3.17(e)
Environmental Arbitrator.................................... 5.16(a)
Environmental Laws.......................................... 3.17(a)
Escrow Agreement............................................ 2.5(b)
Estimated Deficit........................................... 2.4
Estimated Surplus........................................... 2.4
Estimated Working Capital Amount............................ 2.4
Exchange Act................................................ 3.3
Excluded Assets............................................. 1.3
Excluded Liabilities........................................ 1.5
Final Working Capital Amount................................ 2.2(a)(1)
Financial Statements........................................ 3.6
Formula Price............................................... 2.1(d)
GAAP........................................................ 4.5
Greenbaum Opinion........................................... 7.2(d)(i)
Hazardous Materials......................................... 3.17
HSR Act..................................................... 3.3
ID27 Waste.................................................. 1.4(i)
Indemnifying Party.......................................... 9.3(a)
Indemnified Party........................................... 9.3(a)
Intellectual Property....................................... 3.18
Interim Financial Statements................................ 3.6
Inventory................................................... 2.2(a)(2)
Inventory Reserve Amount.................................... 2.7
ISRA........................................................ 5.16(b)
Jersey City Access Agreement................................ 5.16(b)
Jersey City Plant........................................... 3.4
Jersey City Property........................................ 5.16(b)
Lansing Property............................................ 1.3(b)
Licensed Intellectual Property.............................. 3.18
Licenses.................................................... 3.10
Maximum Indemnification Amount.............................. 9.5(c)
MOA......................................................... 5.16(a)
NFA......................................................... 5.16(b)
NJDEP....................................................... 5.16(a)
NLRB........................................................ 3.15
Non-Union Employees......................................... 5.11(a)
Noncompete Period........................................... 6.1(c)
Notice of Dispute........................................... 2.2
OFCCP....................................................... 3.15
OSHA........................................................ 3.15
Permitted Liens............................................. 3.5(a)
Person...................................................... 3.19
Prepaid Items............................................... 1.2(a)
Proprietary Intellectual Property........................... 3.18
Proxy Statement............................................. 3.24
RA.......................................................... 5.16(b)
Real Property............................................... 3.5(a)
</TABLE>
A-6
<PAGE> 83
<TABLE>
<CAPTION>
TERM SECTION
- ---- -------
<S> <C>
Reduction Payments.......................................... 2.9(a)
Registration Statement...................................... 3.24
Release..................................................... 3.17(e)
Respondent.................................................. 11.12(a)
Return Costs................................................ 2.6
Return Reserve.............................................. 2.6
Review Period............................................... 2.2
SEC......................................................... 4.5
Securities Act.............................................. 3.3
Seller's Remedial Work...................................... 5.16(b)
Seller...................................................... Introduction
Seller Ancillary Documents.................................. 3.2
Seller Basket Amount........................................ 9.5(a)
Seller Contracts............................................ 3.11
Seller Financial Statements................................. 3.6
Seller Indemnified Parties.................................. 9.2
Seller Losses............................................... 9.2
Seller Opinion.............................................. 7.2(d)(ii)
Seller Shareholders......................................... 3.4
Seller Surviving Obligations................................ 9.4(a)
Seller Surviving Representations............................ 9.4(a)
Settlement Date............................................. 2.6
Shareholder Opinion......................................... 7.2(d)(ii)
Shareholder Representation.................................. 7.1(g)
Shareholders' Meeting....................................... 5.5
Stock Event................................................. 2.1(b)
Stock Pledge Agreement...................................... 7.2(l)
Target Working Capital Amount............................... 2.4
Tax Opinion................................................. 7.2(d)
Territory................................................... 6.1(d)
the best knowledge of the Buyer............................. 11.7
the best knowledge of the Seller............................ 11.7
Total Share Amount.......................................... 2.1(a)
Trade Secrets............................................... 6.1(e)
Trading Period.............................................. 2.1(b)
Transferred Plants.......................................... 3.4
Value of Accounts Receivable................................ 2.2(a)(3)
Value of Cash and Cash Equivalents.......................... 2.2(a)(4)
Value of Inventory.......................................... 2.2(a)(2)
WARN........................................................ 3.15
Working Capital Amount...................................... 2.2(a)(1)
</TABLE>
A-7
<PAGE> 84
INDEX OF SCHEDULES
<TABLE>
<S> <C> <C>
1 Schedule 1.2(g) Goodwill, Customer Lists, Patents, Copyrights, etc.
2 Schedule 1.2(j) Government Permits, Licenses or Similar Rights Relating to
Business of Seller
3 Schedule 1.3(d) Government Permits, Licenses or Similar Rights Not
Transferable to Buyer
4 Schedule 1.3(h) Family Heirlooms, Records and Memorabilia
5 Schedule 1.3(j) Claims of Seller Against Third Parties
6 Schedule 3.1 Jurisdictions in which Seller is Qualified as Foreign Corp.
7 Schedule 3.4 Shareholders of Seller
8 Schedule 3.5(a) Real Property
9 Schedule 3.5(b) Necessary Assets
10 Schedule 3.5(c) Personal Property
11 Schedule 3.7 Undisclosed Liabilities
12 Schedule 3.8(a) Certain Changes
13 Schedule 3.8(b) Losses, Mortgages, Liabilities, Obligations, Claims, etc.
14 Schedule 3.9 Legal Proceedings
15 Schedule 3.10 Compliance with Law
16 Schedule 3.11 Assumed Contracts
17 Schedule 3.13 Officers, Directors, and Employees
18 Schedule 3.14 Employee Benefit Plans
19 Schedule 3.15 Labor Relations
20 Schedule 3.16 Current Insurance Policies and Coverages
21 Schedule 3.17 Environmental Matters
22 Schedule 3.17(f) Environmental Fines, Penalties and Assessments
23 Schedule 3.18 Patents, Trademarks, and Tradenames
24 Schedule 3.19 Transactions with Associates
25 Schedule 4.8 Adverse Changes
26 Schedule 5.1(d) Conduct of Seller
27 Schedule 5.1(g) Extensions or Modifications in Employment
28 Schedule 5.12(a)(i) Davey Downingtown Real Property, Improvements, and Equipment
29 Schedule 5.12(a)(ii) Downingtown Liabilities
30 Schedule 5.12(a)(iii) Downingtown Assets
31 Schedule 11.7 Applicable Individuals of Buyer under "to the best knowledge
of" Clause
</TABLE>
A-8
<PAGE> 85
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C> <C> <C>
A-1 -- Solid Waste Fill Area.......................................
A-2 -- Working Capital Statement...................................
B -- Escrow Agreement............................................
C -- Affiliate Letter............................................
D-1 -- Downingtown Access Agreement................................
D-2 -- Jersey City Access Agreement................................
E -- Shareholder Representation..................................
F -- Greenbaum Opinion...........................................
G -- Shareholder Opinion.........................................
H -- Tax Opinion.................................................
I -- Stock Pledge Agreement......................................
J -- Buyer Opinion...............................................
</TABLE>
A-9
<PAGE> 86
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement"), dated as of the 7th day
of May, 1997, by and between ROCK-TENN COMPANY, a Georgia corporation ("Buyer"),
and THE DAVEY COMPANY, a New Jersey corporation ("Seller").
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of Buyer and Seller each have
approved this Agreement and the acquisition by Buyer of substantially all of the
assets of Seller and the assumption by Buyer of certain of the liabilities of
Seller (the "Acquisition"), pursuant to this Agreement;
WHEREAS, as consideration for the purchase of the assets of Seller, Buyer
intends to issue to Seller shares of Class A common stock of Buyer, par value
$.01 per share (the "Common Stock");
WHEREAS, Seller and Buyer intend for this Agreement and related documents
to constitute a plan of reorganization for purposes of Sections 368(a)(1)(C) and
(a)(2)(G) of the Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, Buyer and Seller desire to make certain representations,
warranties and agreements in connection with the Acquisition.
NOW THEREFORE, in consideration of the premises and of the mutual covenants
and agreements set forth herein, the parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE
1.1 Agreement to Purchase and Sell. Subject to the terms and conditions of
this Agreement, at the Closing (as hereinafter defined) and except as otherwise
specifically provided in this Article I, Seller shall grant, sell, assign,
transfer and deliver to Buyer, and Buyer will purchase and acquire from Seller,
all right, title and interest of Seller in and to (a) the business of Seller as
a going concern and (b) all of the assets, properties and rights of Seller, of
every kind and description, real, personal and mixed, tangible and intangible,
wherever situated (which business, assets, properties and rights are hereinafter
collectively referred to as the "Assets"), free and clear of all mortgages,
liens, pledges, security interests, charges, claims, restrictions and
encumbrances 1.2 of any nature whatsoever, except Permitted Liens (as
hereinafter defined) and Assumed Liabilities (as hereinafter defined).
1.2 Included Assets. Except as otherwise expressly set forth in Section
1.3 hereof, the Assets shall include, without limitation, the following assets,
properties and rights of Seller as of the Closing Date:
(a) all accounts receivable, prepaid expenses and credits (such
prepaid expenses and credits are referred to herein as the "Prepaid
Items");
(b) all notes receivable, deposits and advances;
(c) all inventories, including finished products, work-in-process, raw
materials, spare parts, stores and supplies, office supplies and other
inventory items;
(d) all machinery, equipment, business machines, computer hardware,
vehicles, furniture, fixtures, tools, dies, molds, parts, leasehold and
building improvements and other tangible property, whether or not carried
on the books of Seller;
(e) all right, title and interest of Seller in all contracts (written
or oral), agreements or other instruments, including, without limitation,
all purchase orders, contracts with customers and suppliers, all leases of
real and personal property and all insurance policies, except directors'
and officers' and fiduciary policies, and subject to separation of coverage
relating to Davey Downingtown (the "Assumed Contracts");
A-10
<PAGE> 87
(f) all real property, including the buildings, structures, fixtures
and improvements located thereon and all licenses, permits, approvals,
qualifications, easements and other rights relating thereto;
(g) all goodwill, customer lists, patents, copyrights, know-how,
software, technical documentation, trade secrets, trademarks and trade
names (and all rights thereto and applications therefor), including,
without limitation, those set forth on Schedule 1.2(g);
(h) all rights to causes of action, lawsuits, judgments, claims and
demands of any nature available to or being pursued by Seller with respect
to or the ownership, use, function or value of any Asset, whether arising
by way of counterclaim or otherwise;
(i) all guarantees, warranties, indemnities and similar rights in
favor of Seller, and all proceeds under insurance policies, with respect to
any Asset;
(j) (k) all governmental permits, licenses or similar rights relating
to the business of Seller as set forth on Schedule 1.2(j);
(l) the Downingtown Assets (as defined in Section 5.12);
(m) all other tangible and intangible assets of any kind or
description, wherever located, that are carried on the books of Seller or
which are owned by Seller; and
(n) all information, files, correspondence, records, data, plans,
contracts and recorded knowledge, including customer and supplier lists and
all accounting books and records.
1.3 Excluded Assets. Notwithstanding anything to the contrary set forth
herein, the Assets shall not include the following assets, properties and rights
of Seller as of the Closing Date (collectively, the "Excluded Assets"):
(a) an amount of cash to be reasonably determined by Seller prior to
the Closing as necessary to satisfy any liabilities of Seller that are not
assumed by Buyer;
(b) the real property, including the buildings, structures, fixtures
and improvements located thereon and all licenses, permits, approvals,
qualifications, easements and other rights relating thereto, located in
Lansing, Kansas (the "Lansing Property");
(c) all of the outstanding capital stock of The Davey Company,
Downingtown ("Davey Downingtown") and all of the assets, properties and
rights owned by Davey Downingtown other than the Downingtown Assets;
(d) any governmental permit, license or similar right that by its
terms is not transferable to Buyer, which permits, licenses and similar
rights are set forth on Schedule 1.3(d);
(e) the rights that accrue to Seller under this Agreement;
(f) the rights to any federal, state, local or foreign income tax
refunds relating to Seller or Davey Downingtown;
(g) the minute books and stock records of Seller;
(h) the family heirlooms, records and memorabilia as set forth on
Schedule 1.3(h);
(i) the cash collateral account maintained by Seller that is held by
Travelers regarding worker's compensation; and
(j) the claims of Seller against third parties listed on Schedule
1.3(j).
1.4 Assumption of Assumed Liabilities. Except as expressly provided in
this Section, Buyer shall not assume any claims, liabilities or obligations of
Seller or Davey Downingtown, whether or not related to the Assets. As the sole
exception to the foregoing, effective as of the Closing Date, Buyer shall assume
and agree to pay, discharge or perform, as appropriate, the following
liabilities and obligations of Seller existing as of the
A-11
<PAGE> 88
Closing Date arising out of the conduct of Seller's business prior to the
Closing Date (collectively, the "Assumed Liabilities"):
(a) obligations of Seller under Assumed Contracts to the extent such
obligations accrue after the Closing, are not required to be performed
prior to the Closing and are disclosed on the face of such Assumed
Contracts;
(b) accrued but unpaid vacation time and sick pay owed to employees of
Seller who are hired by Buyer in accordance with Section 5.11 hereof;
(c) accrued and unpaid salaries and wages of Seller attributable to
the pay period commencing immediately prior to the Closing Date owed to
employees of Seller who are hired by Buyer in accordance with Section 5.11
hereof;
(d) trade accounts payable;
(e) indebtedness (including principal and accrued interest)
outstanding under the credit agreement by and between Seller and First
Union National Bank dated June 28, 1996, to the extent such indebtedness
does not exceed Four Million Dollars ($4,000,000);
(f) the Downingtown Liabilities as defined in Section 5.12;
(g) any and all liabilities and obligations for releases of lead in
the area at the Aurora Plant identified as "solid waste fill area" on
Exhibit A-1 hereto (the "Solid Waste Fill Area");
(h) any and all liabilities and obligations disclosed on the reports
identified in Items I.1., I.2. and I.4. of Schedule 3.17 for other releases
of hazardous materials at the Aurora Plant to the extent expressly
identified, with respect to type, quantity (expressed as parts per the
relevant unit measurement) and approximate location of the contaminants in
question, in such reports; and
(i) subject to the obligations of Seller under Section 5.16, any and
all liabilities and obligations (A) for releases of hazardous materials at
the Jersey City Plant provided such materials are not located under the Cap
(as defined in Section 5.16(b)) and only to the extent such releases are
expressly identified, with respect to type, quantity (expressed as parts
per the relevant unit measurement) and approximate location of the
contaminants in question, in the report identified as Item II.1. of
Schedule 3.17 and (B) for costs incurred in the removal and disposal of the
Cap and soils and other materials beneath the Cap, provided such soils,
materials and Cap fragments are classified as ID27 waste (non-hazardous)
pursuant to N.J.A.C. sec. 7:26-2.13(g) ("ID27 Waste") and can be utilized
as daily landfill cover at any landfill located at the Hackensack
Meadowlands, or any other landfill for out-of-pocket costs to Buyer
(including, without limitation, transportation costs) that are not in
excess of the out-of-pocket costs that would have been incurred by Buyer if
such soils, materials and Cap fragments had been delivered to a landfill
located at the Hackensack Meadowlands.
1.5 Excluded Liabilities. Notwithstanding anything to the contrary set
forth herein, the Assumed Liabilities shall not include, and in no event shall
Buyer assume, agree to pay, discharge or perform or incur any liability or
obligation under this Agreement or otherwise become responsible in respect of,
the following (together with all other liabilities of Seller and Davey
Downingtown that are not Assumed Liabilities, the "Excluded Liabilities"):
(a) any liability or obligation of Seller, Davey Downingtown or any
other Affiliate (as defined in Section 3.19) of Seller including, without
limitation, any accounts payable, owed to Seller, Davey Downingtown or any
other Affiliate of Seller;
(b) any liability or obligation of Seller relating to or arising from
the breach of, default under or failure to comply with, at any time on or
prior to the Closing Date, any Assumed Contract or the failure to timely
pay or perform any other liability or obligation;
(c) any liability or obligation of Seller arising out of or incurred
in connection with the operation and administration of any employee benefit
plan, policy or program of any kind or description whatsoever
A-12
<PAGE> 89
sponsored by an ERISA Affiliate or to which an ERISA Affiliate was
obligated (through collective bargaining or otherwise) to make
contributions, including, without limitation, any plan or contract
providing for deferred compensation or health or death benefits, any
multiemployer plan or any plan subject to Title IV of ERISA; and
(d) any liability or obligation of Seller arising or incurred in
connection with the negotiation, preparation and execution of this
Agreement and the transactions contemplated hereby and any fees and
expenses of counsel, accountants, brokers, financial advisors or other
experts of Seller or any of its Affiliates.
ARTICLE II
PURCHASE PRICE; ISSUANCE OF SHARES
2.1 Issuance of Shares.
(a) Except as otherwise provided herein and subject to the Closing
Date Adjustment described in Section 2.4 and the Post-Closing Adjustment
described in Section 2.5, in consideration for the Assets, at the Closing
Buyer shall issue to Seller 863,500 shares of Common Stock (the
"Acquisition Shares"). The number of shares of Common Stock issued to
Seller on the Closing Date (prior to the adjustments referred to in
Sections 2.4 and 2.5) is hereinafter referred to as the "Total Share
Amount."
(b) Notwithstanding the provisions of Section 2.1(a), if the Average
Closing Price as determined pursuant to the following sentence is less than
$14.00, the Total Share Amount shall be equal to $12,089,000 divided by the
Average Closing Price. The "Average Closing Price" shall equal the average
closing price of the Common Stock on the New York Stock Exchange for the
seven consecutive trading days ending on (and including) the tenth day
prior to Seller's shareholders meeting (the "Trading Period").
(c) In the event of stock splits, stock dividends, stock combinations
or similar events (the "Stock Event") effected by Buyer after the date
hereof and prior to the Closing, the Total Share Amount shall be adjusted
by multiplying such number by a fraction, the numerator of which is the
number of shares of Common Stock outstanding immediately prior to the
occurrence of such event and the denominator of which is the number of
shares of Common Stock outstanding immediately subsequent to the occurrence
of such event (the "Adjusting Fraction"). If the Stock Event occurs during
the Trading Period then for purposes of calculating the Average Closing
Price, the closing price of the Common Stock on the New York Stock Exchange
for each trading day during the Trading Period prior to the Stock Event
shall be adjusted by multiplying such closing price by the Adjusting
Fraction.
(d) As used herein, the term "Formula Price" shall mean $18.18 or, if
the Average Closing Price is less than $14.00, it shall mean (i) $18.18
multiplied by (ii) 863,500 divided by the Total Share Amount.
2.2 Working Capital Statement. As promptly as practicable after the
Closing Date, but in any case not later than 90 days thereafter, Buyer shall
cause to be prepared and delivered to Seller a Working Capital Statement as of
the close of business on Closing Date prepared in accordance with generally
accepted accounting principles, applied on a basis consistent with the June 30,
1996 balance sheet of Seller (modified as provided below), which shall be in the
form attached as Exhibit A-2 and shall set forth the Working Capital Amount, the
Value of Inventory, the Value of Accounts Receivable, the Value of Cash and Cash
Equivalents, the value of Prepaid Items and the Assumed Liabilities, each as of
such date and as defined below.
(a) For purposes hereof the following terms shall have the meanings
set forth below:
(1) Working Capital Amount. The "Working Capital Amount" shall be
equal to the sum of the Value of Inventory plus the Value of Accounts
Receivable plus the Value of Cash and Cash Equivalents plus the book
value of the Prepaid Items for which Buyer will receive benefit
following the Closing plus the face value of any alternative minimum tax
credits of Seller that are usable by Buyer on a dollar-for-dollar basis
against Buyer's federal income tax liability ("AMT Credits")
A-13
<PAGE> 90
minus the book value of the Assumed Liabilities, all as of the Closing
Date. The "Final Working Capital Amount" shall be the Working Capital
Amount set forth on the Working Capital Statement deemed to be final
pursuant to Section 2.2 or 2.3 hereof.
(2) Value of Inventory. The "Value of Inventory" shall be
determined by a physical inventory conducted by Buyer as of the Closing
Date and shall be the sum of the lower of cost (determined under the
first-in, first-out inventory valuation method) or fair market value of
the items of inventory of Seller (the "Inventory").
(3) Value of Accounts Receivable. The "Value of Accounts
Receivable" will be equal to the amount of all accounts receivable
listed on a schedule to be delivered to Buyer on the Closing Date which
as of the Closing are not more than ninety (90) days old (the "Accounts
Receivable") minus a reserve for bad debts equal to one percent (1%) of
the face amount of the Accounts Receivable.
(4) Value of Cash and Cash Equivalents. The "Value of Cash and
Cash Equivalents" will be equal to the amount of cash and cash
equivalents that are included in the Assets determined in accordance
with generally accepted accounting principles.
Upon receipt by Seller of the Working Capital Statement, Seller shall have
30 days after the date the Working Capital Statement is delivered to Seller (the
"Delivery Date") to review the Working Capital Statement delivered by Buyer (the
"Review Period"). During such 30-day period, Seller shall have full access to
the work papers and other records of Buyer that were utilized or prepared in
connection with the preparation of the Working Capital Statement. If Seller
disputes the Working Capital Statement so delivered by Buyer, Seller shall, on
or prior to the last day of the Review Period, prepare and submit to Buyer a
notice of dispute (a "Notice of Dispute") which shall set forth Seller's
proposed Working Capital Statement and shall specifically enumerate the items
and calculations objected to in the Working Capital Statement delivered by Buyer
(the "Disputed Items"). If Seller fails to deliver a Notice of Dispute prior to
the last day of the Review Period, the Working Capital Statement delivered by
Buyer to Seller pursuant to this Section 2.2 shall be the final Working Capital
Statement for purposes of this Agreement. Upon receipt of a Notice of Dispute,
Seller and Buyer will, for a period of 20 days following delivery of such Notice
of Dispute, seek in good faith to resolve all Disputed Items and agree on a
final Working Capital Statement.
2.3 Arbitration. After receipt by Buyer of a Notice of Dispute, if Seller
and Buyer are unable to agree on a Working Capital Statement within the 20-day
period referred to in the last sentence of Section 2.2, Seller and Buyer shall,
within 30 days after the date on which the Notice of Dispute was delivered by
Seller to Buyer, prepare and submit to the other and to the Charlotte, N.C.
office of a "big six" accounting firm mutually agreed upon by Buyer and Seller
(the "Arbitrator") its respective proposed Working Capital Statement together
with a statement of its position with respect to the Disputed Items. The
Arbitrator shall, after the submission of such information by Buyer and Seller,
review the Disputed Items only and submit its written decision to Seller and
Buyer within 20 days after receipt of such information from Buyer and Seller,
and the Working Capital Statement as adjusted by the Arbitrator shall be the
final Working Capital Statement for purposes of this Agreement. In connection
with such review, the Arbitrator shall have complete access to all books and
records of Buyer and Seller relevant to the preparation of the Working Capital
Statement. Any determination by the Arbitrator with respect to any disputes
regarding the Working Capital Statement shall be based solely on the terms of
this Agreement and shall be final and binding on Seller and Buyer. The costs of
the Arbitrator shall be borne 50% by Seller and 50% by Buyer.
2.4 Closing Date Adjustment. Immediately prior to the Closing, Buyer and
Seller shall estimate the Working Capital Amount of Seller as of the day prior
to the Closing Date, in accordance with generally accepted accounting principles
consistently applied. Such estimate of the Working Capital Amount shall be
referred to herein as the "Estimated Working Capital Amount." If the Estimated
Working Capital Amount exceeds Two Million Sixteen Thousand Seventy-Four Dollars
($2,016,074) (the "Target Working Capital Amount"), at the Closing Buyer shall
issue to Seller a number of shares of Common Stock equal to (a) the Total Share
Amount plus (b) (x) the amount by which the Estimated Working Capital Amount
exceeds the Target Working Capital Amount (the "Estimated Surplus") divided by
(y) the Formula Price. If the
A-14
<PAGE> 91
Estimated Working Capital Amount is less than the Target Working Capital Amount,
at the Closing Buyer shall issue to Seller a number of shares of Common Stock
equal to (a) the Total Share Amount minus (b) (x) the amount by which the
Estimated Working Capital Amount is less than Target Working Capital Amount (the
"Estimated Deficit") divided by (y) the Formula Price. For purposes hereof and
the Post-Closing Adjustment, the number of shares to be issued to Seller shall
be rounded to the nearest whole share number.
2.5 Post-Closing Adjustment.
(a) Within five (5) business days after (i) the Review Period if no
Notice of Dispute is delivered to Buyer or (ii) the date of determination
of the final Working Capital Statement in accordance with Section 2.3
hereof, (A) in the event the Final Working Capital Amount exceeds the
"Adjusted Target Value" (as defined below), Buyer shall issue to Seller a
number of additional shares of Common Stock equal to (I) the amount by
which the Final Working Capital Amount exceeds the Adjusted Target Value
divided by (II) the Formula Price, and (B) in the event the Final Working
Capital Amount is less than the Adjusted Target Value, Seller shall
surrender to Buyer without consideration that number of shares of Common
Stock equal to (I) the amount by which the Final Working Capital Amount is
less than the Adjusted Target Value divided by (II) the Formula Price. For
purposes hereof, the "Adjusted Target Value" shall equal the Target Working
Capital Amount increased or decreased (as applicable) by the Estimated
Surplus or the Estimated Deficit, respectively. In lieu of the surrender of
shares of Common Stock by Seller pursuant to clause (B) above, Seller may
elect (in its discretion) to pay to Buyer within the five (5) business day
period specified above an amount in cash equal to the excess of the
Adjusted Target Value over the Final Working Capital Amount.
Notwithstanding the foregoing, in no event will Buyer issue to Seller
pursuant to this Section 2.5(a) more than that number of additional shares
of Common Stock equal to 25% of the number of Acquisition Shares issued on
the Closing Date, and all such additional shares of Common Stock shall be
issued within five (5) years following the Closing Date. Seller's rights
under this Section 2.5(a) are not assignable under any circumstances.
(b) Until the final resolution of the post-closing adjustment of the
Purchase Price pursuant to Sections 2.3 and 2.5(a) and final delivery of
any shares of Common Stock pursuant to Section 2.5(a), 40,000 Acquisition
Shares shall remain on deposit with Alfred C. Brooks, as escrow agent,
pursuant to an escrow agreement in the form attached as Exhibit B (the
"Escrow Agreement").
2.6 Returns and Allowances. Buyer shall be responsible for administering
and settling any returns by any customer, or any request for allowances with
respect to, any finished goods that were shipped by Seller on or prior to the
Closing Date. Buyer shall also be responsible for the costs of any such returns
and allowances (the "Return Costs") up to the amount of the reserve for returns
and allowances reflected on the final Working Capital Statement (the "Return
Reserve"). On or after the 240th day following the Closing Date (the "Settlement
Date"), Buyer shall deliver to Seller an itemization of any Return Costs
incurred by Buyer in excess of the Return Reserve, and Seller shall be required
to reimburse Buyer for such costs in accordance with Section 2.9. For each
return or allowance which exceeds the Return Reserve, Buyer shall, prior to
acceptance of the return or the granting of the allowance, confer in good faith
with Seller regarding the appropriateness of such return or allowance, but
Seller shall not have the right to veto any such return or allowance.
2.7 Inventory. If any of the Inventory has not been sold or consumed by
Buyer in the ordinary course of business prior to the Settlement Date (the "Bad
Inventory"), then Seller shall pay to Buyer pursuant to Section 2.9 an amount
equal to the excess (if any) of the value of the Bad Inventory as reflected on
the Working Capital Statement over the sum of (a) the amount of any inventory
reserves reflected on the final Working Capital Statement (the "Inventory
Reserve Amount") plus (b) any remaining unused balance of the Seller Basket
Amount (as defined in Section 9.5(a)) after application against such balance of
any Buyer Losses incurred by any Buyer Indemnified Party pursuant to Section 9.1
prior to the Settlement Date. (The amount of the excess (if any) of the value of
the Bad Inventory as reflected on the Working Capital Statement over the
Inventory Reserve Amount which does not exceed the remaining unused balance of
the Seller Basket Amount shall be applied against the Seller Basket Amount.)
Promptly following the Settlement Date, Buyer
A-15
<PAGE> 92
shall deliver to Seller a reasonably detailed itemization of the Bad Inventory
and a calculation of the amounts (if any) owing to Buyer under this Section 2.7.
If a dispute regarding the Bad Inventory arises between Buyer and Seller, it
will be resolved in accordance with the procedures established in Section 2.3.
2.8 Accounts Receivable. If any of the Accounts Receivable have not been
fully collected by Buyer prior to the Settlement Date (the "Bad Accounts
Receivable"), Seller shall pay to Buyer pursuant to Section 2.9 an amount equal
to the excess (if any) of the face value of the Bad Accounts Receivable over the
sum of (a) the amount of any reserve for uncollectible Accounts Receivable
reflected on the final Working Capital Statement (the "Bad Accounts Receivable
Reserve Amount") plus (b) any remaining unused balance of the Seller Basket
Amount after application against such balance of (i) Buyer Losses incurred by
any Buyer Indemnified Party pursuant to Section 9.1 prior to the Settlement Date
and (ii) any excess of the value of the Bad Inventory as reflected on the
Working Capital Statement over the Inventory Reserve Amount applied against such
unused balance pursuant to Section 2.7 above. (The amount of the excess (if any)
of the face value of the Bad Accounts Receivable over the Bad Accounts
Receivable Reserve Amount which does not exceed the remaining unused balance of
the Seller Basket Amount shall be applied against the Seller Basket Amount.)
Promptly following the Settlement Date, Buyer shall deliver to Seller a
reasonably detailed itemization of the Bad Accounts Receivable and a calculation
of the amount (if any) owing to Buyer under this Section 2.8, and Buyer will
assign to Seller any Bad Accounts Receivable. If a dispute regarding the Bad
Accounts Receivable arises between Buyer and Seller, it will be resolved in
accordance with the procedures established in Section 2.3.
2.9 Payment Methodology.
(a) Within five (5) days following Seller's receipt from Buyer of the
calculation of amounts owed by Seller to Buyer under Sections 2.6, 2.7 and
2.8 (the "Reduction Payments"), Seller shall surrender to Buyer for
cancellation a number of the Acquisition Shares (rounded to the nearest
whole number) equal to (i) the aggregate amount of the Reduction Payments
divided by (ii) the Formula Price. Such number of Acquisition Shares may
include (at Seller's discretion) any portion of the 40,000 Acquisition
Shares retained in escrow pursuant to Section 2.5(b). In lieu of such
surrender of shares, Seller may elect (in its discretion) to pay to Buyer
within the five (5) day period specified above an amount in cash equal to
the Reduction Payments.
(b) Buyer shall pay to Seller within ten (10) days of the collection
thereof, the amount of proceeds from Bad Accounts Receivable which are
collected after the Settlement Date.
2.10 Allocation of Certain Items. With respect to certain expenses
incurred in the operation of the Business, the following allocations shall be
made:
(a) Taxes. Real and ad valorem property taxes shall be apportioned at
the Closing based upon current tax bills if available; and if not
available, such apportionment shall be based on the most recent tax bills
available, with appropriate subsequent adjustment when bills for 1997 are
received.
(b) Utilities. Utilities, water and sewer charges shall be
apportioned based upon the number of operating days occurring before and
after the Closing Date during the billing period for each such charge.
Appropriate cash payments by Seller or Buyer, as the case may require,
shall be made hereunder from time to time, as soon as practicable after the
facts giving rise to the obligation for such payments are known to Seller and
Buyer, in the amounts necessary to give effect to the allocations provided for
in this Section 2.10; provided, however, that such payments shall not be
required to the extent that an accrued expense or prepaid expense is adequately
reflected with respect to such item on the final Working Capital Statement.
A-16
<PAGE> 93
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Buyer as follows:
3.1 Organization. Seller is a corporation duly organized, validly existing
and in good standing under the laws of New Jersey and has all requisite power
and authority (corporate and other) to own, lease and operate its properties and
to carry on its business as now being conducted. Seller is duly qualified to
transact business and is in good standing as a foreign corporation in each
jurisdiction where the character of its activities requires such qualification,
except where the failure to so qualify would not have a material adverse effect
on Seller. Seller has heretofore made available to Buyer true, correct and
complete copies of its articles of incorporation and bylaws as currently in
effect and its minute books. Schedule 3.1 contains a true and correct list of
the jurisdictions in which Seller is qualified to do business as a foreign
corporation.
3.2 Authorization. Seller has the full power and authority to execute and
deliver this Agreement and any other certificate, agreement, document or other
instrument to be executed and delivered by it in connection with the
transactions contemplated hereby (collectively, the "Seller Ancillary
Documents") and to perform its obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby. The execution and
delivery of this Agreement and the Seller Ancillary Documents by Seller and the
performance by Seller of its obligations hereunder and thereunder and the
consummation of the transactions provided for herein and therein have been duly
and validly authorized by all necessary corporate action on the part of Seller.
The board of directors of Seller has (and, as of the Closing Date, the
shareholders of Seller will have) approved the execution, delivery and
performance of this Agreement and the Seller Ancillary Documents and the
transactions contemplated hereby and thereby. This Agreement has been, and the
applicable Seller Ancillary Documents will be as of the Closing Date, duly
executed and delivered by Seller and do or will, as the case may be, constitute
the valid and binding agreements of Seller, enforceable against it in accordance
with their respective terms, subject to applicable bankruptcy, insolvency and
other similar laws affecting the enforceability of creditors' rights generally,
general equitable principles and the discretion of courts in granting equitable
remedies. Seller's charter has been amended to provide that the sale of all or
substantially all of its assets can be approved by the vote of its shareholders
holding 66- 2/3% of the shares eligible to vote on such matter.
3.3 Absence of Restrictions and Conflicts. The execution, delivery and
performance of this Agreement and the Seller Ancillary Documents, the
consummation of transactions contemplated by this Agreement and the Seller
Ancillary Documents and the fulfillment of and compliance with the terms and
conditions of this Agreement and the Seller Ancillary Documents do not or will
not (as the case may be), with the passing of time or the giving of notice or
both, violate or conflict with, constitute a breach of or default under, result
in the loss of any benefit under, or permit the acceleration of any obligation
under, (a) any term or provision of the articles of incorporation or bylaws of
Seller, (b) any Assumed Contract, (c) any judgment, decree or order of any court
or governmental authority or agency to which Seller is a party or by which
Seller or any of its properties is bound or (d) any statute, law, rule or
regulation applicable to Seller or its business. Except for compliance with the
applicable requirements of the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act") and the Securities Act of 1933, as amended (the
"Securities Act"), the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), applicable state securities and environmental laws, no consent,
approval, order or authorization of, or registration, declaration or filing
with, any governmental agency or public or regulatory unit, agency, body or
authority with respect to Seller or is required in connection with the
execution, delivery or performance of this Agreement or the Seller Ancillary
Documents by Seller or the consummation of the transactions contemplated by this
Agreement or the Seller Ancillary Documents by Seller.
3.4 Shareholders; Subsidiaries. Schedule 3.4 hereto lists each of the
shareholders of Seller (the "Seller Shareholders") and the number and type of
shares of capital stock of Seller owned by each Seller Shareholder. Other than
Davey Downingtown and marketable securities which will be sold at arms' length
transactions prior to the closing, Seller does not own, directly or indirectly,
any capital stock or any other equity or debt securities of any corporation,
firm, partnership, joint venture, association or other entity. Davey
A-17
<PAGE> 94
Downingtown does not own or possess any assets that are utilized in or necessary
to the operation of the business of Seller as conducted at its plants in Aurora,
Illinois (the "Aurora Plant") and Jersey City, New Jersey (the "Jersey City
Plant"), except as will be transferred to Seller as part of this Transaction
(the "Transferred Plants").
3.5 Ownership of Assets and Related Matters.
(a) Real Property. Schedule 3.5(a) sets forth a true, correct and
complete list and legal description of all of the real property owned by
Seller other than the Lansing Property (the "Real Property"). Except as set
forth in Schedule 3.5(a), Seller has good, marketable and insurable title
to the Real Property free and clear of all liens, pledges, security
interests, charges, claims, leasehold interests, tenancies, restrictions
and encumbrances of any nature whatsoever other than (i) liens for taxes
not yet due and payable, (ii) statutory liens of landlords and liens of
carriers, warehousemen, mechanics, materialmen and repairmen incurred in
the ordinary course of business and not yet delinquent, and (iii) zoning,
building or other restrictions, variances, covenants, rights-of-way,
encumbrances, easements and other minor irregularities in title, none of
which, individually or in the aggregate, (A) interfere with the present use
or occupancy of any of the Real Property by Seller, (B) have more than an
insignificant effect on the value thereof or its use or (C) would impair
the ability of Buyer to sell any such Real Property for its present use
(collectively, "Permitted Liens"). Seller is in possession of all of the
Real Property and all buildings, structures, fixtures and improvements
located thereon, and Seller has adequate rights of ingress and egress with
respect to such Real Property and the buildings, structures, fixtures and
improvements located thereon.
Seller has heretofore delivered to Buyer true, correct and complete
copies of all deeds, mortgages, deeds of trust, certificates of occupancy,
title insurance policies, title reports, surveys and similar documents
(including all amendments thereof) in the possession of Seller relating to
the Real Property. The improvements on the Real Property have continuously
been maintained in the ordinary course of business. There are no
condemnation or appropriation proceedings pending or, to the best knowledge
of Seller, threatened against any of the Real Property or the improvements
thereon. Except as set forth in the reports listed on Schedule 3.17, none
of the improvements included in the Real Property is constructed of or
contains any asbestos or PCBs.
Except for Permitted Liens and other matters set forth in Schedule
3.5(a), no Real Property is subject to any rights-of way, building use
restrictions, exceptions, variances, reservations or limitations of any
nature whatsoever, not of record. All damages caused at Seller's Aurora,
Illinois facility by flood and fire during 1996 have been repaired in full.
(b) Necessary Assets. The Assets constitute all of the assets
necessary and sufficient to conduct the operations of the Transferred
Plants in accordance with Seller's past practices. All assets owned by
Seller and its Affiliates that are used or held for use in the operation of
the Transferred Plants are included in the Assets. Except as set forth in
Schedule 3.5(b), Seller has (or, in the case of the Downingtown Assets,
will have at the Closing) and will convey to Buyer at the Closing good and
marketable title to the Assets free and clear of all liens, pledges,
security interests, charges, claims, restrictions and encumbrances of any
nature whatsoever other than Permitted Liens and Assumed Liabilities, if
applicable. All equipment and other items of tangible property and assets
included in the Assets have continuously been maintained in the ordinary
course of business. No person other than Seller owns any equipment or other
tangible assets or properties situated on the premises of the Transferred
Plants which are necessary to the operation of the business, except for the
leased items that are subject to personal property leases listed on
Schedule 3.11. Since January 1, 1996, neither Seller nor Davey Downingtown
has sold, transferred or disposed of any assets for an aggregate purchase
price in excess of $10,000 other than sales of inventory in the ordinary
course of business.
(c) Personal Property. Schedule 3.5(c) sets forth a true, correct and
complete list and general description of each item of personal property of
Seller or Davey Downingtown having a net book value of more than $5,000 as
of the date hereof.
A-18
<PAGE> 95
(d) Inventories. The inventories of Seller and Davey Downingtown (i)
are sufficient for the operation of Seller and Davey Downingtown in the
ordinary course consistent with past practice, (ii) consist of items which
are good and merchantable within normal trade tolerances, (iii) are of a
quality and quantity presently usable or saleable in the ordinary course of
business of Seller and Davey Downingtown (subject to applicable reserves),
(iv) are valued on the books and records of Seller and Davey Downingtown at
the lower of cost or market with the cost determined under LIFO inventory
valuation method consistent with past practice and (v) are subject to
reserves determined in accordance with generally accepted accounting
principles, consistently applied. No previously sold inventory is subject
to returns in excess of those historically experienced by Seller and Davey
Downingtown.
(e) Accounts Receivable. The accounts receivable of Seller and Davey
Downingtown arose from bona fide transactions in the ordinary course of
business, have been executed on terms consistent with the past practice of
Seller and Davey Downingtown and are not subject to any counterclaims or
setoffs (except for the amount of any applicable existing reserves for
counterclaims or setoffs).
(f) No Third Party Options. There are no existing agreements,
options, commitments or rights with, of or to any person to acquire any of
the assets, properties or rights or any interest therein of Seller or Davey
Downingtown.
3.6 Financial Statements. Seller has delivered (or will deliver prior to
the Closing Date) to Buyer the following: (a) the audited consolidated balance
sheets of Seller as of December 31, 1993, December 31, 1994, December 31, 1995
and December 31, 1996 and (b) the audited consolidated statements of operations,
shareholders' equity and cash flows of Seller for the years ended December 31,
1993, December 31, 1994, December 31, 1995 and December 31, 1996 ("Seller
Financial Statements"). In addition, Seller has delivered to Buyer: (i) the
unaudited consolidated balance sheet of Seller as of June 30, 1996 and (ii) the
unaudited consolidated statements of income, shareholders' equity and cash flows
of Seller for the six-month period ended June 30, 1996 (the "Interim Financial
Statements", together with the Seller Financial Statements, the "Financial
Statements"). The Financial Statements have been prepared from, and are in
accordance with, the books and records of Seller, which books and records are
maintained in accordance with generally accepted accounting principles,
consistently applied, and such books and records have been maintained on a basis
consistent with the past practice of Seller. Each of the balance sheets included
in the Financial Statements (including the related notes and schedules) fairly
presents the consolidated financial position of Seller as of the date thereof,
and each of the statements of income, shareholders' equity and cash flows
included in the Financial Statements (including any related notes and schedules)
fairly presents the consolidated results of operations and changes in cash
flows, as the case may be, of Seller and Davey Downingtown, for the periods set
forth therein, in each case in accordance with generally accepted accounting
principles consistently applied during the periods involved, except as may be
noted therein.
3.7 No Undisclosed Liabilities. Except as disclosed in Schedule 3.7,
Seller does not have any liabilities or obligations, contingent or otherwise
which are not adequately reflected or provided for in the Financial Statements,
except liabilities and obligations incurred since the date of the Financial
Statements in the ordinary course of business, or those disclosed on other
Schedules hereto and not being assumed by Buyer.
3.8 Absence of Certain Changes.
(a) Except as set forth on Schedule 3.8(a), since December 31, 1995,
there has not been (i) any material adverse change (or any event which is
reasonably likely to result in a material adverse change) in the assets,
liabilities, business, financial condition, results of operations of Seller
or Davey Downingtown, (ii) any damage, destruction, loss or casualty to
property or assets of Seller or Davey Downingtown, whether or not covered
by insurance, (iii) any declaration, setting aside or payment of any
dividend or distribution (whether in cash, stock or property) in respect of
the capital stock of Seller, any redemption or other acquisition by Seller
of any of the capital stock of Seller or any split, combination or
reclassification of shares of capital stock declared or made by Seller or
(iv) any agreement to do any of the foregoing. Since December 31, 1995,
Seller has (w) used its best efforts to preserve the business and customers
of Seller, (x) maintained supplies and inventory at levels that are and
otherwise maintained the Assets in the ordinary course of business
consistent with past practice, (y) extended credit to
A-19
<PAGE> 96
customers, collected accounts receivable and paid accounts payable and
similar obligations in the ordinary course of business consistent with past
practice and (z) conducted the business in the ordinary course on a basis
consistent with past practice and not engaged in any new line of business
or entered into any agreement, transaction or activity or made any
commitment except those in the ordinary course of business. Except for
changes in general market conditions that adversely affect substantially
all participants in Seller's industry, there are no events which have
occurred or are likely to occur that could cause Seller's historic profit
levels to decrease.
(b) Except as set forth in Schedule 3.8(b), since December 31, 1995,
there have not been with respect to Seller or Davey Downingtown (i) any
extraordinary losses suffered, (ii) any assets mortgaged, pledged or made
subject to any lien, charge or other encumbrance, (iii) any liability or
obligation (absolute, accrued or contingent) incurred except in the
ordinary course of business and consistent with past practice, (iv) any
claims, liabilities or obligations (absolute, accrued or contingent) paid,
discharged or satisfied, other than the payment, discharge or satisfaction
(in the ordinary course of business and consistent with past practice) of
claims, liabilities and obligations reflected or reserved against in the
Seller Financial Statements or incurred in the ordinary course of business
since June 30, 1996, (v) any guaranteed checks, notes or accounts
receivable which have been written off as uncollectible, except write-offs
in the ordinary course of business consistent with past practice, (vi) any
write-down of the value of any asset or investment on its books or records,
except for depreciation and amortization taken in the ordinary course of
business consistent with past practice, (vii) any cancellation of any debts
or waiver of any claims or rights of substantial value, or sale, transfer
or other disposition of any properties or assets (real, personal or mixed,
tangible or intangible) of substantial value, except, in each such case, in
transactions in the ordinary course of business consistent with past
practice and which in any event do not exceed $10,000 in the aggregate,
(viii) any single capital expenditure or commitment in excess of $10,000
for additions to property or equipment or aggregate capital expenditures
and commitments in excess of $25,000 for additions for property or
equipment, (ix) any increase in the compensation of officers, directors or
employees, whether now or hereafter payable, other than annual increases
made in the ordinary course in May, 1996, (x) any increase of any reserves
for contingent liabilities (excluding any adjustment to bad debt reserves
other than in the ordinary course of business consistent with past practice
and reserves for environmental clean-up), (xi) any transactions entered
into other than in the ordinary course of business, (xii) any agreements to
do any of the foregoing or (xiii) any other events, developments or
conditions of any character that have had or are reasonably likely to have
a material adverse effect on the assets, liabilities, results of
operations, business or prospects of Seller or Davey Downingtown, and
excluding events, developments or conditions arising from the contemplated
shutdown of Downingtown.
3.9 Legal Proceedings. Except as set forth in Schedule 3.9, there are no
suits, actions, claims, proceedings or investigations pending or, to the best
knowledge of Seller, threatened against, relating to or involving Seller or
Davey Downingtown or any of the Assets, before any court, arbitrator or
administrative or governmental body. None of such suits, actions, claims,
proceedings or investigations, if finally determined adversely, are reasonably
likely, individually or in the aggregate, to have a material adverse effect on
the assets, liabilities, results of operations business or prospects of Seller
or Davey Downingtown. Except as set forth on Schedule 3.9, neither Seller nor
Davey Downingtown is expressly subject to any judgment, decree, injunction, rule
or order of any court. Neither Seller nor Davey Downingtown is subject to any
governmental restriction expressly applicable to Seller which is reasonably
likely (a) to have a material adverse effect on the assets, liabilities, results
of operations or financial condition of Seller or Davey Downingtown or (b) to
cause a material limitation on Buyer's ability to operate the business after the
Closing in the same manner as heretofore conducted by Seller and Davey
Downingtown.
3.10 Compliance with Law. To their knowledge, except as set forth on
Schedule 3.10, Seller and Davey Downingtown have all authorizations, approvals,
licenses, permits and orders of and from all governmental and regulatory
officers and bodies necessary to carry on the business of Seller and Davey
Downingtown as it is currently being conducted, to own or hold under lease the
properties and assets they own or hold under lease and to perform all of their
respective obligations under the agreements to which either of them is a party
A-20
<PAGE> 97
(collectively, the "Licenses"). To their knowledge, each of Seller and Davey
Downingtown is (and has been during the past five years) in compliance with all
applicable laws, regulations and administrative orders (including, without
limitation, laws relating to employment of labor or use or occupancy of
properties or any part thereof) of any country, state or municipality or of any
subdivision thereof to which it is subject. Schedule 3.10 sets forth a true,
correct and complete list of all Licenses of Seller. Seller has previously
delivered to Buyer all reports and filings made or filed by Seller during the
past five years pursuant to the Occupational Safety and Health Act. During the
five-year period ending on the Closing Date, Seller has not received any notice
which has not been corrected alleging that Seller has violated or failed to
comply with the Occupational Safety and Health Act.
3.11 Contracts. Schedule 3.11 sets forth (a) a true, correct and complete
list of all Assumed Contracts (including every amendment, modification or
supplement to the foregoing) (which, together with the Seller Benefit Plans, are
herein referred to as the "Seller Contracts") and (b) a list of all consents or
notices required to be obtained or given under such Assumed Contracts in
connection with the Acquisition in order to permit the assignment of such Seller
Contracts to Buyer or otherwise avoid any breach of or default under any such
Seller Contract. True, correct and complete copies of all Assumed Contracts have
been delivered to Buyer. The Assumed Contracts are valid and enforceable in
accordance with their respective terms with respect to Seller and, to the best
knowledge of Seller, each other party thereto. There are no existing defaults of
Seller under any Assumed Contract or, to the best knowledge of Seller, of any of
the other parties thereto (or events or conditions which with notice or lapse of
time or both would constitute a default).
3.12 Tax Returns; Taxes. Each of Seller and Davey Downingtown has duly
filed all federal, state and local tax returns required to be filed by it and
has duly paid or made adequate provision for the payment of all taxes which are
due and payable pursuant to such returns or pursuant to any assessment with
respect to taxes in such jurisdictions whether or not in connection with such
returns. The liability for federal, state and local taxes reflected in the
Seller Financial Statements (excluding any reserve for deferred taxes or portion
thereof which is attributable to differences between the timing of income or
deductions for tax and financial accounting purposes) is sufficient for the
payment of all unpaid taxes (including any interest, penalties and additions to
tax), whether or not disputed, that are accrued or applicable for the period
ended June 30, 1996 and for all years and periods ended prior thereto. Since
January 1, 1990 no tax deficiencies have been asserted against Seller as a
result of any examination by the Internal Revenue Service or any other taxing
authority. There are no pending claims asserted for any federal, state or local
taxes of Seller or Davey Downingtown or outstanding agreements or waivers
extending the statutory period of limitation applicable to any tax return of
Seller for any period. Seller and Davey Downingtown have made all estimated
federal, state and local income tax deposits and all other required tax payments
or deposits and has complied for all prior periods in all material respects with
the tax withholding provisions of all applicable federal, state, local and other
laws. Seller has made available to Buyer true, correct and complete copies of
its federal, state and local income tax returns for the last three (3) taxable
years and has made available such other Seller tax returns as have been
requested by Buyer. Neither Seller nor Davey Downingtown has taken or omitted to
take any action, nor is Seller aware of any circumstance or event, that will
jeopardize the characterization of the Acquisition as a tax-free transaction
under Section 368(a)(1)(C) and (a)(2)(G) of the Code.
3.13 Officers, Directors and Employees. Schedule 3.13 contains a true and
complete list of (a) all of the officers of Seller specifying their office and
annual rate of compensation, (b) all of the employees of Seller involved in the
operation of the business as of the date hereof specifying their annual salary
or hourly wages, together with an appropriate notation next to the name of any
employee on such list to whom Seller has made verbal commitments which are
binding on Seller, and (c) all former employees entitled to post-retirement
benefits or any other compensation.
3.14 Employee Benefit Plans.
(a) Seller has furnished to Buyer a correct, complete and current copy
of each plan, program, policy or arrangement which is set forth in writing
and which provides cash or property or other compensation related benefits
of any kind or description whatsoever to or on behalf of any current or
former employee or director of Seller or any of their dependents and a
complete description of any such plan, program, policy
A-21
<PAGE> 98
or arrangement which is not set forth in writing. Each such plan, program,
policy or arrangement is listed on Schedule 3.14.
(b) Seller has furnished to Buyer a correct, complete and current copy
of all employee handbooks currently made available to Seller's employees
and any other materials which Seller distributes to employees or directors
or any of their dependents with respect to each plan, program, policy or
arrangement described in Section 3.14(a).
(c) Seller is not a party to any employment related contract or
agreement of any kind or description whatsoever which is, or purports to
be, binding in any way whatsoever on Buyer, and Buyer shall have no
liability of any kind or description under any plan, program, policy or
arrangement described in Section 3.14(a)
(d) Seller has made no statements or representations of any kind or
description whatsoever to Seller's employees with respect to their possible
employment by Buyer or, if employed by Buyer, their possible compensation
package from Buyer.
3.15 Labor Relations. Except as set forth in Schedule 3.9 or Schedule
3.15: (a) employees of Seller have not been and are not represented by a labor
organization which was either National Labor Relations Board ("NLRB") certified
or voluntarily recognized, (b) Seller has not been and is not a signatory to a
collective bargaining agreement with any labor organization; (c) no
representation election petition has been filed by employees of Seller or is
pending with the NLRB and no union organizing campaign involving employees of
Seller has occurred or is in progress; (d) no NLRB unfair labor practice claims
have been filed and are presently pending against Seller or any labor
organization representing its employees; (e) no grievance or arbitration demand,
whether or not filed pursuant to a collective bargaining agreement is pending
against Seller; (f) no handbilling, picketing, work stoppage (sympathetic or
otherwise), or other "concerted action" involving the employees of Seller has
occurred or is in progress; (g) no breach of contract and/or denial of fair
representation claim has been filed or is pending against Seller and/or any
labor organization representing its employees; (h) no claim for unpaid wages or
overtime or for child labor or record keeping violations has been filed or is
pending under the Fair Labor Standards Act, Davis-Bacon Act, Walsh-Healey Act,
or Service Contract Act or any other Federal, state or local law, regulation, or
ordinance; (i) no discrimination and/or retaliation claim has been filed or is
pending against Seller under the 1866 or 1964 Civil Rights Acts, the Equal Pay
Act, the Age Discrimination in Employment Act, as amended, the Americans with
Disabilities Act, the Family and Medical Leave Act, the Fair Labor Standards
Act, the Employee Retirement Security Act or any other Federal law or any
comparable state fair employment practices act regulating discrimination in the
workplace; (j) if Seller is a Federal or state contractor obligated to develop
and maintain an affirmative action plan, no discrimination claim, show cause
notice, conciliation proceeding, sanctions or debarment proceeding has been
filed or is pending with Office of Federal Contract Compliance Programs
("OFCCP") or any other Federal agency or any comparable State agency or court
and no desk audit or on-site review is in progress; (k) no citation has been
issued by Occupational Safety and Health Administration ("OSHA") against Seller
which has not been cured in full and no notice of contest or OSHA administrative
enforcement proceeding involving Seller has been filed and is pending or is
uncured; (l) no workers' compensation or retaliation claim is pending against
Seller; (m) no citation of Seller has occurred and no enforcement proceeding has
been initiated or is pending under Federal immigration law; and/or (n) except
for actions taken in connection with the planned shutdown of the Davey
Downingtown facility, Seller has not taken any action that would constitute a
"mass layoff" or "plant closing" within the meaning of the Worker Adjustment and
Retraining Notification ("WARN") Act or otherwise trigger notice requirements or
liability under any local or state plant closing notice law. To Seller's
knowledge, Seller is in compliance with all federal, state and local laws
respecting employment and employment practices, terms and conditions of
employment, wages and hours, and is not engaged in any unfair labor or unlawful
employment practice, and Seller has received no notice of any such violation
which has not been cured in full.
3.16 Insurance. Schedule 3.16 sets forth a true, correct and complete list
of Seller's current insurance policies and coverages. Seller has heretofore made
available to Buyer true, correct and complete copies of all such insurance
policies. Seller has been and is insured by financially sound and reputable
insurers in such
A-22
<PAGE> 99
amounts and against such risks as are reasonable in relation to its business,
and Seller will maintain such insurance at least through the Closing Date.
3.17 Environmental Matters. Except as set forth in Schedule 3.17, to the
best knowledge of Seller:
(a) Seller possesses, and is in full compliance with, all permits,
licenses and government authorizations and has filed all notices that are
required under local, state and federal laws and regulations relating to
protection of the environment, pollution control, product registration and
hazardous materials (as defined below) ("Environmental Laws"), and Seller
is in compliance with all applicable limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and
timetables contained in those laws or contained in any law, regulation,
code, plan, order, decree, judgment, notice, permit or demand letter
issued, entered, promulgated or approved thereunder;
(b) Seller has not received notice of actual or threatened liability
under CERCLA or any similar state or local statute or ordinance from any
governmental agency or any third party and there are no facts or
circumstances which could form the basis for the assertion of any claim
against Seller under any Environmental Laws including, without limitation,
the Federal Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA") or any similar local, state or foreign law with
respect to any on-site or off-site location;
(c) Seller has not entered into, agreed to nor contemplates entering
into any consent decree or order, and is not subject to any judgment,
decree or judicial or administrative order relating to compliance with, or
the cleanup of hazardous materials under, any applicable Environmental
Laws, except as entered into with Buyer's consent as required to consummate
the transactions contemplated by this Agreement;
(d) Seller has not been alleged to be in violation of, and has not
been subject to any administrative or judicial proceeding pursuant to,
applicable Environmental Laws or regulations either now or any time during
the past five years;
(e) Seller is not subject to any claim, obligation, liability, loss,
damage or expense of whatever kind or nature, contingent or otherwise,
incurred or imposed or based upon any provision of any Environmental Law
and arising out of any act or omission of Seller, its employees, agents or
representatives or arising out of the ownership, use, control or operation
by Seller of any plant, facility, site, area or property (including,
without limitation, any plant, facility, site, area or property currently
or previously owned or leased by Seller) from which any hazardous materials
were released into the environment (the term "release" meaning any
spilling, leaking, pumping, pouring, emitting, emptying, discharging,
injecting, escaping, leaching, dumping or disposing into the environment,
by Seller or any third party, and the term "environment" meaning any
surface or ground water, drinking water supply, soil, surface or subsurface
strata or medium, or the ambient air). For purposes of this Agreement, (i)
the presence of historic fill or soils disclosed in the reports referenced
in Schedule 3.17, with respect to the Jersey City Plant, where historic
fill and soils contain elevated levels of lead, arsenic or other
contaminants, shall be deemed a "release" regardless of the status of such
historic fill or soils under applicable Environmental Law and (ii) the
presence of lead within the area identified as the solid waste fill area at
the Aurora Plant on Figure 4 of the December 18th Report of Condition shall
be deemed a "release" regardless of the status of such lead under
applicable Environmental Law;
(f) Seller has heretofore provided Buyer with true, correct and
complete copies of all files of Seller relating to environmental matters
(or an opportunity to review such files), and Schedule 3.17(f) sets forth
the amount of all fines, penalties or assessments paid within the last five
years by Seller with respect to environmental matters, including the date
of payment and the basis for the assertions of liability; and
(g) Neither the Real Property, improvements or equipment included
within the Assets contain any asbestos, PCBs or underground storage tanks.
(h) The waste disposed of at the Aurora Plant, including, without
limitation, at the Solid Waste Fill Area, (except for immaterial and
incidental amounts disposed of by third parties without the authorization
or prior knowledge of Seller) was generated by Seller's own activities at
the Aurora Plant.
A-23
<PAGE> 100
As used in this Section 3.17 and in Section 1.4, the term "hazardous
materials" means any waste, pollutant, hazardous substance, toxic, ignitable,
reactive or corrosive substance, hazardous waste, special waste, industrial
substance, by-product, process intermediate product or waste, petroleum or
petroleum-derived substance or waste, chemical liquids or solids, liquid or
gaseous products, or any constituent of any such substance or waste, the use,
handling or disposal of which by Seller is in any way governed by or subject to
any applicable law, rule or regulation of any governmental or regulatory
authority.
3.18 Patents, Trademarks, Trade Names. Schedule 3.18 sets forth a true and
complete list of: (a) all patents, trademarks and trade names (including all
federal, state and foreign registrations pertaining thereto) and all copyright
registrations owned by Seller or Davey Downingtown (collectively, the
"Proprietary Intellectual Property"); and (b) all patents, trademarks, trade
names, copyrights, technology and processes used by Seller or Davey Downingtown
that are used pursuant to a license or other right granted by a third party
(collectively, the "Licensed Intellectual Property", and together with the
Proprietary Intellectual Property herein referred to as "Intellectual
Property"). Seller or Davey Downingtown owns, or has the right to use pursuant
to valid and effective agreements set forth in Schedule 3.18, all Intellectual
Property. No claims are pending against Seller or Davey Downingtown by any
person with respect to the use of any Intellectual Property or challenging or
questioning the validity or effectiveness of any license or agreement relating
to the same, and the current use by Seller and Davey Downingtown of the
Intellectual Property does not infringe on the rights of any third party.
Schedule 3.18 sets forth a list of all jurisdictions in which Seller is
operating the business under a trade name, and each jurisdiction in which any
such trade name is registered.
3.19 Transactions with Associates. Except as set forth in Schedule 3.19,
no shareholder, officer or director of Seller, or any person with whom any such
shareholder, officer or director has any direct or indirect relation by blood,
marriage or adoption, or any entity in which any such person, owns any
beneficial interest (other than a publicly held corporation whose stock is
traded on a national securities exchange or in the over-the-counter market and
less than 5% of the stock of which is beneficially owned by all such persons) or
any Associate of any of the foregoing or any current or former Associate of
Seller has any interest in: (a) any contract, arrangement or understanding with,
or relating to, business or operations of Seller or Davey Downingtown (including
any Assumed Contract); (b) any loan, arrangement, understanding, agreement or
contract for or relating to indebtedness of Seller; or (c) any property (real,
personal or mixed), tangible or intangible, used or currently intended to be
used in business or operations of Seller or Davey Downingtown. Any accounts due
and payable from Seller to any Associate of Seller are recorded on the books and
records of the business at the fair market value thereof. For purposes of this
Agreement, "Associate" of any specified Person means any other Person directly
or indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control",
when used with respect to any specified Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. In
addition, for purposes of this definition, "Person" means any individual,
corporation, partnership, joint venture, trust, unincorporated organization or
government or any agency or political subdivision thereof.
3.20 Transfer Restrictions; Affiliates. Schedule 3.4 identifies all
persons who are "affiliates" of Seller for purposes of Rule 145 under the
Securities Act, and Seller shall advise Buyer in writing if there is any change
in the identities of such persons on or prior to the date the Agreement is
submitted for approval to the Shareholders of Seller. Seller shall use all
reasonable efforts to cause each such person to deliver to Buyer on or prior to
the Closing Date a written agreement, substantially in the form attached as
Exhibit C.
3.21 Customer Relations. Seller has not received any notice that (a) any
single customer of Seller which accounted for more than 5% of Seller's total net
sales for the twelve-month period ending on December 31, 1995 or (b) any current
raw materials supplier of Seller that had total net sales to Seller in excess of
$50,000 the twelve month period ending December 31, 1995, may terminate its
business relations with Seller.
A-24
<PAGE> 101
3.22 Nondisclosed Payments. Neither Seller nor any of its officers or
directors, nor anyone acting on behalf of any of them, has made or received any
payments not correctly categorized and fully disclosed in Seller's books and
records in connection with or in any way relating to or affecting Seller or its
business.
3.23 Brokers, Finders and Investment Bankers. Neither Seller nor any of
its officers, directors or employees has employed any broker, finder or
investment banker or incurred any liability for any investment banking fees,
financial advisory fees, brokerage fees or finders' fees in connection with the
transactions contemplated herein.
3.24 Proxy Statement and Registration Statement. The information with
respect to Seller and Davey Downingtown and each of their respective officers,
directors and affiliates in the definitive proxy statement to be furnished to
the shareholders of Seller (the "Proxy Statement") that will form a part of the
Registration Statement on Form S-4 relating to the shares of Common Stock to be
issued in the Acquisition (the "Registration Statement") or in the Registration
Statement will not, in the case of the Proxy Statement, on the date the Proxy
Statement is first mailed to shareholders of Seller or on the date of the
Shareholders' Meeting (as hereinafter defined) contemplated by Section 5.5
hereof, or, in the case of the Registration Statement, at the time it becomes
effective and at the Effective Time, as such Proxy Statement or Registration
Statement is then amended or supplemented, contain any untrue statement of a
material fact, or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
3.25 Disclosure. No representation, warranty or covenant made by Seller in
this Agreement, the Schedules or the Exhibits attached hereto or any information
provided by Seller to Buyer in connection with the Acquisition contains an
untrue statement of a material fact or omits to state a material fact required
to be stated herein or therein or necessary to make the statements contained
herein or therein not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller as follows:
4.1 Organization. Buyer is a corporation duly organized, validly existing
and in good standing under the laws of the State of Georgia and has all
requisite power and authority (corporate and other) to own, lease and operate
its properties and to carry on its business as now being conducted. Buyer is
duly qualified to transact business and is in good standing as a foreign
corporation in each jurisdiction where the character of its activities requires
such qualification. Buyer has heretofore made available to Seller true, correct
and complete copies of its articles of incorporation and bylaws as currently in
effect.
4.2 Authorization. Buyer has the full corporate power and authority to
execute and deliver this Agreement and any other certificate, agreement,
document or other instrument to be executed and delivered by it in connection
with the transactions contemplated hereby (collectively, the "Buyer Ancillary
Documents") and to perform its obligations hereunder and thereunder and to
consummate the Acquisition and the other transactions contemplated hereby. The
execution and delivery of this Agreement and the Buyer Ancillary Documents by
Buyer and the performance by Buyer of its obligation hereunder and thereunder
and the consummation of the transactions provided for herein and therein have
been duly and validly authorized by all necessary corporate action on the part
of Buyer. The board of directors of Buyer has approved the execution, delivery
and performance of this Agreement and the Buyer Ancillary Documents and the
consummation of the Acquisition and the other transactions contemplated hereby
and thereby (other than with respect to the issuance of the Acquisition Shares,
which will be approved prior to the Closing Date) and the consent of the
shareholders of Buyer is not required. This Agreement has been, and the
applicable Buyer Ancillary Documents will be as of the Closing Date, duly
executed and delivered by Buyer and do or will, as the case may be, constitute
the valid and binding agreements of Buyer, enforceable against it in accordance
with their respective terms, subject to applicable bankruptcy, insolvency and
other similar laws affecting the enforceability of creditors' rights generally,
general equitable principles and the discretion of courts in granting equitable
remedies.
A-25
<PAGE> 102
4.3 Absence of Restrictions and Conflicts. The execution, delivery and
performance of this Agreement and the Buyer Ancillary Documents, the
consummation of the Acquisition and the other transactions contemplated by this
Agreement and the Buyer Ancillary Documents and the fulfillment of and
compliance with the terms and conditions of this Agreement and the Buyer
Ancillary Documents do not or will not (as the case may be), with the passing of
time or the giving of notice or both, violate or conflict with, constitute a
breach of or default under, result in the loss of any material benefit under, or
permit the acceleration of any obligation under, (a) any term or provision of
the articles of incorporation or bylaws of Buyer, (b) any material contract to
which Buyer is a party, (c) any judgment, decree or order of any court or
governmental authority or agency to which Buyer is a party or by which Buyer or
any of its respective properties is bound or (d) any statute, law, rule or
regulation applicable to Buyer. Except for compliance with the applicable
requirements of the HSR Act, the Securities Act, the Exchange Act and applicable
state securities laws, no consent, approval, order or authorization of, or
registration, declaration or filing with, any governmental agency or public or
regulatory unit, agency, body or authority with respect to Buyer is required in
connection with the execution, delivery or performance of this Agreement or the
Buyer Ancillary Documents by Buyer or the consummation of the transactions
contemplated by this Agreement or the Buyer Ancillary Documents by Buyer.
4.4 Common Stock. The shares of Common Stock to be issued in the
Acquisition will be validly issued, fully paid, nonassessable and (except as
imposed by this Agreement or related documents) free of pre-emptive rights,
liens, claims and encumbrances.
4.5 Buyer SEC Reports. Buyer has made available to Seller true and
complete copies of each registration statement, report and proxy or information
statement filed by Buyer with the Securities and Exchange Commission (the "SEC")
since February 25, 1994, (collectively, the "Buyer SEC Reports") all of which,
as of their respective filing dates, complied in all material respects with all
applicable requirements of the Securities Act and the Exchange Act, and the
rules and regulations promulgated thereunder. None of such Buyer SEC Reports, as
of the respective dates they were filed, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. Each of the audited
consolidated financial statements of Buyer (including any related notes and
schedules) included (incorporated by reference) in its Annual Report on Form
10-K for the fiscal year ended September 30, 1996, fairly present, in conformity
with generally accepted accounting principles ("GAAP") applied on a consistent
basis (except as may be indicated in the notes thereto), the consolidated
financial position of Buyer and its subsidiaries as of the date thereof and the
consolidated results of their operations and their cash flows for the periods
there ended.
4.6 Proxy Statement and Registration Statement. The information with
respect to Buyer and its subsidiaries and each of their respective officers,
directors and affiliates in the Proxy Statement or in the Registration Statement
will not, in the case of the Proxy Statement, on the date the Proxy Statement is
first mailed to shareholders of Seller or on the date of the Shareholders'
Meeting contemplated by Section 5.5 hereof, or, in the case of the Registration
Statement, at the time it becomes effective and at the Effective Time, as such
Proxy Statement or Registration Statement is then amended or supplemented,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
4.7 Brokers and Finders. Neither Buyer nor any of its affiliates nor
anyone acting on their behalf has done anything to cause or incur any liability
to any party for any brokers' or finders' fees in connection with this Agreement
or any transaction contemplated herein.
4.8 No Adverse Change. Except as set forth on Schedule 4.8, there has been
no material adverse change in the operations of Buyer or the condition of
Buyer's assets since January 1, 1996, and other than normal market changes, to
the knowledge of Buyer there are no impending events relating to Buyer's
business that could cause Buyer's historic profit levels to decrease.
A-26
<PAGE> 103
4.9 Other Representations. Other than as expressly provided in this
Agreement, Buyer has no current plan or intention to reacquire the Acquisition
Shares and Buyer has no current plan or intention to sell or dispose of the
Assets, except for dispositions made in the ordinary course of business or
transfers described in Section 368(a)(2)(C) of the Code. Buyer does not own,
directly or indirectly, nor has it owned at any time during the past five years,
directly or indirectly, any shares of capital stock of Davey.
4.10 Environmental Knowledge. Except as set forth on Schedule 3.17, to the
knowledge of Buyer, there have not been any releases of any hazardous materials
by Seller at or on any of the Real Property or any violation of any
Environmental Laws by Seller in connection with its operations at the Real
Property. To the knowledge of Buyer, the reports listed on Schedule 3.17 are the
only reports in existence that have been prepared by an independent third party
with respect to environmental conditions at the Real Property.
ARTICLE V
CERTAIN COVENANTS AND AGREEMENTS
5.1 Conduct of Business by Seller. From the date hereof to the Closing,
Seller will (and will cause Davey Downingtown to), except as required in
connection with the transactions contemplated by this Agreement and the closure
of operations at Davey Downingtown and except as otherwise consented to in
writing by Buyer:
(a) carry on its businesses in the ordinary course in substantially
the same manner as heretofore conducted and not engage in any new line of
business or enter into any agreement, transaction or activity or make any
commitment except those in the ordinary course of business and not
otherwise prohibited under this Section 5.1;
(b) neither change nor amend its articles of incorporation or bylaws;
(c) not dispose of or permit to lapse any rights to the use of any
patent, trademark, trade name, license or copyright, including, without
limitation, any of the Intellectual Property, or dispose of or disclose to
any person, any trade secret, formula, process, technology or know-how of
Seller or Davey Downingtown not heretofore a matter of public knowledge;
(d) except as set forth on Schedule 5.1(d), not (i) sell any assets,
other than finished goods sold in the ordinary course of business, (ii)
create, incur or assume any indebtedness secured by the Assets, (iii)
grant, create, incur or suffer to exist any liens, charges or encumbrances
on the Assets which did not exist on the date hereof, (iv) incur any
liability or obligation (absolute, accrued or contingent) except in the
ordinary course of business consistent with past practice; (v) write-off
any guaranteed checks, notes or accounts receivable except in the ordinary
course of business consistent with past practice, (vi) write-down the value
of any asset or investment (including, without limitation, any of the
Assets) on the books or records of the Business, except for depreciation
and amortization in the ordinary course of business and consistent with
past practice, (vii) cancel any debt or waive any claims or rights or
(viii) make any commitment for any capital expenditure relating to the
Business to be made on or after the Closing Date in excess of $5,000 in the
case of any single expenditure or $50,000 in the case of all capital
expenditures;
(e) not acquire or enter into an agreement to acquire, by merger,
consolidation or purchase of stock or assets, any business or entity;
(f) use its reasonable efforts to preserve intact the corporate
existence, goodwill and business organization of Seller, to keep the
officers and employees of Seller available to Buyer and to preserve the
relationships of Seller with customers, suppliers and others having
business relations with Seller;
(g) except as set forth on Schedule 5.1(g), not enter into, modify or
extend in any manner the terms of any employment, severance or similar
agreements with officers and directors nor grant any increase in the
compensation of officers, directors or employees, whether now or hereafter
payable, including any such increase pursuant to any option, bonus, stock
purchase, pension, profit-sharing, deferred compensation, retirement or
other plan, arrangement, contract or commitment, except year-end bonuses
paid in the ordinary course, consistent with historic practices;
A-27
<PAGE> 104
(h) perform in all material respects all of its obligations under all
of its contracts (except those being contested in good faith) and not enter
into, assume or amend any contract or commitment other than contracts to
provide services entered into in the ordinary course of business;
(i) use its reasonable efforts to maintain in full force and effect
and in the same amounts policies of insurance comparable in amount and
scope of coverage to that now maintained by Seller;
(j) use its reasonable efforts to continue to collect its accounts
receivable and pay its accounts payable in the ordinary course of business
and consistent with past practices;
(k) prepare and file all federal, state and local returns for taxes
and other tax reports, filings and amendments thereto required to be filed
by it, and allow Buyer, at its request, to review all such returns,
reports, filings and amendments at Seller's offices prior to the filing
thereof, which review shall not interfere with the timely filing of such
returns;
(l) continue to maintain and service the Assets used in the conduct of
the Business in the same manner as is consistent with past practice;
(m) continue to maintain its books and records in accordance with
generally accepted accounting principles, consistently applied (to the
extent applicable), and on a basis consistent with Seller's past practice;
and
(n) promptly notify Buyer of any event or occurrence that has had or
may reasonably be expected to have a material adverse effect on the assets,
liabilities, results of operations, business or prospects of Seller or
Davey Downingtown; provided that Seller will not be required to notify
Buyer regarding any material adverse effect on Davey Downingtown resulting
from the planned shutdown of its operations.
In connection with the continued operation of the business of Seller and
Davey Downingtown between the date of this Agreement and the Closing Date,
Seller shall confer in good faith on a regular and frequent basis with one or
more representatives of Buyer designated in writing regarding operational
matters of materiality and the general status of ongoing operations. Seller
acknowledges that Buyer does not and will not waive any rights it may have under
this Agreement as a result of such consultations.
5.2 Inspection and Access to Information.
(a) Between the date of this Agreement and the Closing Date, Seller
will provide Buyer and its accountants, counsel and other authorized
representatives full access, during reasonable business hours and under
reasonable circumstances to any and all of its employees, premises,
properties, contracts, books, records and other information and will cause
its officers to furnish to Buyer and its authorized representatives any and
all financial, technical and operating data and other information
pertaining to its business, as Buyer shall from time to time reasonably
request; provided that Buyer shall not contact any of Davey Downingtown
employees until these employees have been notified of the Purchase
Agreement by Seller or public announcement of such transaction and such
contact has been approved by Al Brooks.
(b) Prior to the Closing Date, Buyer shall be permitted to conduct, or
cause to be conducted, at its sole cost and expense, an environmental
audit/survey of the Real Property. If such environmental audit/survey with
respect to the Real Property shall reveal any potential environmental
concerns to Buyer, Buyer may conduct, or cause to be conducted, on-site
soil and ground water testing. To the extent practicable, all such
environmental audits and surveys shall be conducted in a manner which will
not disrupt the business of Seller and Seller shall cooperate in scheduling
any environmental audit work performed at the Real Property pursuant to
this Section 5.2(b).
(c) Information obtained by Buyer or Seller or any of their respective
representatives pursuant to this Agreement shall be subject to the
provisions of the Confidentiality Agreement (the "Confidentiality
Agreement") between Buyer and Seller dated November 7, 1995, which
agreement remains in full force and effect except to the extent it would
expressly prohibit Buyer or Seller from taking any of the actions
contemplated by this Agreement. The Confidentiality Agreement shall
terminate simultaneously with the Closing.
A-28
<PAGE> 105
5.3 No Solicitation; Acquisition Proposals. From the date hereof until the
Closing or until this Agreement is terminated or abandoned as provided in
Article X hereof, Seller shall not directly or indirectly (a) solicit or
initiate (including by way of furnishing any information) discussions with or
(b) enter into negotiations or agreements with, or furnish any information to,
any corporation, partnership, person or other entity or group (other than Buyer
or its authorized representatives pursuant to this Agreement) concerning any
proposal for a merger, sale of any substantial portion of its assets, sale of
shares of stock or securities or other takeover or business combination
transaction (the "Acquisition Proposal") involving Seller or Davey Downingtown
(except this Section will not prohibit the sale by Davey Downingtown of its
assets other than the Downingtown Assets), and Seller will instruct its
officers, directors, advisors and other financial and legal representatives and
consultants not to take any action contrary to the foregoing provisions of this
sentence. Seller will notify Buyer promptly if any proposals are received by,
any information is requested from, or any negotiations or discussions are sought
to be initiated with Seller or Davey Downingtown with respect to an Acquisition
Proposal. Seller shall immediately cease any existing activities, discussions or
negotiations with any third parties which may have been conducted on or prior to
the date hereof with respect to an Acquisition Proposal and shall direct and
cause its officers, advisors and representatives not to engage in any such
activities, discussions or negotiations.
5.4 Proxy Statement and Registration Statement. Buyer and Seller shall
cooperate and promptly prepare and Buyer shall file as soon as reasonably
practicable after Seller has reviewed and approved, with the Securities and
Exchange Commission (the "Commission"), the Registration Statement, and Buyer
and Seller shall use all reasonable efforts to have the Registration Statement
declared effective by the Commission as promptly as practicable. Buyer also
shall take any action required to be taken under state blue sky or securities
laws in connection with the issuance of the Common Stock pursuant to the
Acquisition. Buyer and Seller will cooperate and furnish each other with (and
each shall cause its respective accountants to cooperate in the furnishing and
preparation of) all information concerning themselves, their subsidiaries,
directors, officers and shareholders and such other matters as may be necessary
or advisable for the Registration Statement, the Proxy Statement, any listing
application to be filed by Buyer with the New York Stock Exchange, filings under
state blue sky or securities laws, and any other statement or application made
by or on behalf of Buyer or Seller to any governmental body in connection with
the Acquisition and the other transactions contemplated by this Agreement. The
Proxy Statement shall include the recommendation of the Board of Directors of
Seller contemplated by Section 5.5.
5.5 Seller Shareholders' Meeting. Seller shall call a special meeting of
its shareholders to be held as soon as practicable after the date hereof for the
purpose of voting to approve this Agreement and the transactions contemplated
hereby, including adoption of a plan of liquidation of Seller and Davey
Downingtown (the "Shareholders' Meeting"). Seller will use its good faith
reasonable efforts to hold such Shareholders' Meeting as promptly as
practicable. The Board of Directors of Seller shall recommend to Seller's
shareholders approval of this Agreement and the transactions contemplated hereby
at the Shareholders' Meeting and Seller shall take all lawful action to solicit
such approval, including, without limitation, timely mailing the Proxy
Statement.
5.6 Additional Shares Notification. Buyer will file an additional shares
notification with the New York Stock Exchange to approve for listing, subject to
official notice of its issuance, the shares of Common Stock to be issued to
Seller pursuant to this Agreement. Buyer shall exercise reasonable good faith
efforts to cause the shares of Common Stock to be issued to Seller pursuant to
this Agreement to be approved for listing on the New York Stock Exchange,
subject to official notice of issuance, prior to the Closing.
5.7 Reasonable Efforts; Further Assurances; Cooperation. Subject to the
other provisions of this Agreement, the parties hereto shall each use their
reasonable, good faith efforts to perform their obligations herein and to take,
or cause to be taken or do, or cause to be done, all things necessary, proper or
advisable under applicable law to obtain all regulatory approvals and satisfy
all conditions to the obligations of the parties under this Agreement and to
cause the transactions contemplated herein to be effected on or prior to June
30, 1997, in accordance with the terms hereof and shall cooperate fully with
each other and their respective officers, directors, employees, agents, counsel,
accountants and other designees in connection with
A-29
<PAGE> 106
any steps required to be taken as a part of their respective obligations under
this Agreement, including without limitation:
(a) Seller and Buyer shall promptly make their respective filings and
submissions and shall take, or cause to be taken, all actions and do, or
cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to obtain any required approval of any
federal, state or local governmental agency or regulatory body with
jurisdiction over the transactions contemplated by this Agreement.
(b) In the event any claim, action, suit, investigation or other
proceeding by any governmental body or other person is commenced which
questions the validity or legality of the Acquisition or any of the other
transactions contemplated hereby or seeks damages in connection therewith,
the parties agree to cooperate and use all reasonable efforts to defend
against such claim, action, suit, investigation or other proceeding and, if
an injunction or other order is issued in any such action, suit or other
proceeding, to use all reasonable efforts to have such injunction or other
order lifted, and to cooperate reasonably regarding any other impediment to
the consummation of the transactions contemplated by this Agreement.
(c) Each party shall give prompt written notice to the other of (i)
the occurrence, or failure to occur, of any event which occurrence or
failure would be likely to cause any representation or warranty of Seller
or Buyer, as the case may be, contained in this Agreement to be untrue or
inaccurate in any material respect at any time from the date hereof to the
Closing or that will or may result in the failure to satisfy any of the
conditions specified in Article VII and (ii) any failure of Seller or
Buyer, as the case may be, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder.
5.8 Public Announcements. The timing and content of all announcements
regarding any aspect of this Agreement or the transactions contemplated herein
to the financial community, government agencies, employees or the general public
shall be mutually agreed upon by Buyer and Seller in advance (unless Buyer or
Seller is advised by counsel in writing that any such announcement or other
disclosure not mutually agreed upon in advance is required to be made by law or
applicable rule of the New York Stock Exchange and then only after consulting
the other party and making a reasonable attempt to comply with the provisions of
this Section).
5.9 Financial Statements and SEC Reports. From the date hereof until the
Shareholders' Meeting, Buyer shall deliver to Seller as soon as available all
forms, reports and other documents filed by Buyer with the SEC. Prior to the
Closing, Buyer also shall deliver to Seller copies of each shareholder report
distributed by Buyer to its shareholders since the effective date of Buyer's
initial public offering of its stock. From and after the Closing, Buyer shall
file with the Commission all reports required to be so filed under the Exchange
Act.
5.10 Supplements to Schedules. From time to time up to the Closing Date,
Seller will promptly supplement or amend the Schedules which it has delivered
pursuant to this Agreement with respect to facts or circumstances first existing
or occurring after the date hereof which, if existing or occurring on or prior
to the date of this Agreement, would have been required to be set forth or
described in such Schedules or which is necessary to correct any information in
such Schedules which has been rendered inaccurate thereby. No supplement or
amendment to any Schedule shall have any effect for the purpose of determining
satisfaction of the conditions set forth in Section 7.2 or 7.3 of this Agreement
unless such supplement or amendment is accepted by Buyer in writing in its
absolute and sole discretion.
5.11 Employee and Employee Benefit Matters.
(a) On the Closing Date, Seller shall terminate all of its employees
except as otherwise provided in this Section 5.11. Commencing on the
Closing Date, Buyer shall offer employment, on an at will basis, to (a) all
of the employees of Seller who are members of a labor union which is party
to a collective bargaining agreement with Seller and (b) all other
employees of Seller (the "Non-Union Employees")
A-30
<PAGE> 107
who are actively at work on the Closing Date. Buyer shall have no
obligation with respect to the employees of Davey Downingtown. For these
purposes "actively at work" will mean:
1. Any employee who has averaged a minimum of 30 hours per week in
a permanent position in the last three months prior to the Closing Date;
2. Any employee absent on the Closing Date due to the Family Leave
Act or similar state laws;
3. Any employee absent on the Closing Date due to maternity leave
under the Seller's maternity leave policy;
4. Any employee absent on the Closing Date due to military duty;
and
5. Any employee absent on the Closing Date due to jury duty.
Employees of Seller who accept such offer are, as of the time they first perform
services for Buyer, referred to herein as the "Continued Employees." Buyer shall
have no obligation of any kind to offer employment or otherwise with respect to
any Non-Union Employee of Seller who is not actively at work on the Closing
Date, and each such Non-Union Employee shall remain an employee of Seller unless
otherwise agreed in writing by Buyer.
(b) Seller will be responsible and pay any and all workers'
compensation and other similar claims asserted by or with respect to any
employee or former employee in respect of any injury or other compensable
event or occupational illness or disease which occurred or is attributable
to any event, state of facts or condition which existed or occurred on or
prior to the Closing Date; provided that Seller will not be responsible
under this section for an injury to a Continued Employee that arises from
an accident that occurs after the Closing Date.
5.12 Davey Downingtown Assets.
(a) Immediately prior to Closing, Seller shall (i) cause Davey
Downingtown to distribute to Seller the "Downingtown Assets," which shall
consist of all of the assets owned by Davey Downingtown except for real
property held by Davey Downingtown and improvements thereon and the
equipment and other assets listed on Schedule 5.12(a)(i) and (ii) assume
those liabilities of Downingtown listed on Schedule 5.12(a)(ii) (the
"Downingtown Liabilities"). All of the Downingtown Assets are listed on
Schedule 5.12(a)(iii), and all of the assets of Davey Downingtown that are
not included in the Downingtown Assets are listed on Schedule 5.12(a)(i).
(b) Buyer shall, at its sole cost and expense, remove the Downingtown
Assets from the Premises of Davey Downingtown in Downingtown, Pennsylvania
(the "Downingtown Premises") as soon as possible after the Closing, but in
any event within one hundred eighty (180) days after the Closing Date.
Seller shall grant Buyer access to the Downingtown Premises for such
purpose pursuant to an access agreement in the form attached as Exhibit D-1
(the "Downingtown Access Agreement"). Buyer shall bear all risk of loss
with respect to the Downingtown Assets after the Closing Date. If Buyer
fails to remove the Downingtown Assets from the Downingtown Premises on or
prior to the 180th day following the Closing Date, Buyer shall pay the
Representative for distribution to the Seller Shareholders on a pro rata
basis a use and occupancy charge equal to $325 per day for each additional
day until Buyer has fully removed the Downingtown Assets. Such payment
shall be made in such number of registered shares of Common Stock as has a
value (based on the average closing price of the Common Stock on the New
York Stock Exchange for the seven consecutive trading days ending on (and
including) the tenth day prior to the date of such payment) equal to the
amount of such payment, provided that in no event will Buyer issue to
Seller pursuant to this Section 5.12(b) more than that number of additional
shares of Common Stock equal to 25% of the number of Acquisition Shares
issued on the Closing Date. All such additional shares of Common Stock
shall be issued within five (5) years following the Closing Date. Seller's
rights under this Section 5.12(b) are not assignable under any
circumstances. Buyer shall have no obligation to repair or restore the
Downingtown Premises after removal of the Downingtown Assets except with
respect to the repair of doorways, walls or roofs which Buyer alters or
removes in order to remove the Downingtown Assets, the reasonable repair of
which shall be the responsibility of Buyer. Buyer will leave the
A-31
<PAGE> 108
Downingtown Premises as broom clean as such facility was at the time Buyer
commenced the removal of the Downingtown Assets.
5.13 Transfer Taxes; Expenses. Any sales taxes, real property transfer
taxes or recording fees or any other similar taxes or fees payable as a result
of the sale of the Assets or any other action contemplated by this Agreement and
the filing fee under the HSR Act shall be borne half by Buyer and half by
Seller. Buyer and Seller shall cooperate in the preparation, execution and
filing of all returns, questionnaires, applications, or other documents
regarding any real property transfer or gains, sales, use, transfer, value
added, stock transfer and stamp taxes, any transfer, recording, registration and
other fees, and any similar taxes which become payable in connection with the
transactions contemplated hereby that are required or permitted to be filed on
or before the Closing. Any costs and expenses incurred in connection with the
title examination and survey to be performed in connection with Buyer's purchase
of the Real Property shall be borne half by Buyer and half by Seller. Buyer
shall bear the cost of any and all title insurance premiums payable with respect
to the Real Property. Buyer will pay the full amount of the expenses specified
above either in cash or by reducing the number of Acquisition Shares to be
issued to Seller at Closing (based on the Formula Price) to reimburse Buyer for
Seller's share of such expenses. Except as provided above, each party shall pay
its own fees, costs and expenses incurred in connection with this Agreement and
the transactions contemplated hereby, including, the fees, costs and expenses of
its financial advisors, accountants and counsel.
5.14 Continuation of Business. Buyer currently intends (following the
Acquisition) to continue the historic business of Seller or to use a significant
portion of Seller's Assets in a business.
5.15 Real Property Title Reports. Upon execution of this Agreement, Buyer
agrees to order title commitments and surveys on the Real Property and advise
Seller in writing within fifteen (15) days following the date of this Agreement
if (a) Buyer requests additional information regarding such title commitments
and surveys, or (b) Buyer finds any exceptions to title objectionable (i.e.
non-Permitted Exceptions). Seller shall then have a period of thirty (30) days
in which to provide such additional information and attempt to cure such
non-Permitted Exceptions. If Seller is unable to deliver title in accordance
with the terms hereof (including Section 3.5(a)), and as a result thereof this
Agreement is terminated, Seller's sole liability with respect to such failure to
deliver title to the Real Property shall be to reimburse Buyer for the actual
cost incurred for title examination and survey work, which in the aggregate
shall not exceed $10,000.00. The exceptions to title reflected on the final
title commitments with respect to the Real Property shall be deemed for all
purposes hereunder to be reflected as exceptions to title on Schedule 3.5(a).
Buyer further agrees to purchase title insurance, which shall be subject to the
exceptions to title reflected on the final title commitments, and which shall
provide insurance coverage for no less than the fair market value of the Real
Property, as reasonably determined by Buyer.
5.16 Jersey City Environmental Matters.
(a) Prior to the date hereof, Seller has applied to the New Jersey
Department of Environmental Protection ("NJDEP") for a Memorandum of
Agreement ("MOA") regarding certain conditions identified on the Jersey
City Property (as defined below). Seller has provided Buyer with copies of
the application and any correspondence relating thereto simultaneously with
delivery to NJDEP. Seller represents and warrants that neither the MOA
application nor any written or oral communications by or on behalf of
Seller in connection with the MOA process will include any material
misstatement or fail to include any information required to keep the
information provided by Seller to NJDEP from being materially misleading.
If Buyer believes any such communications fail to meet such standard, Buyer
shall provide written notice to Seller specifying Buyer's objection. If
Buyer and Seller are unable to resolve any such disagreement to their
mutual satisfaction within 5 days following Buyer's notice to Seller, then
the dispute will be submitted to a mutually agreed upon third party (the
"Environmental Arbitrator") for a final and binding determination of
whether the communication failed to meet the standard specified above.
Buyer and Seller shall use their best efforts to cause the Environmental
Arbitrator to issue a ruling within 10 days following Buyer's original
notice to Seller. Buyer and Seller shall each be permitted to submit a
written statement to the Environmental Arbitrator. If the Environmental
Arbitrator rules the communication in question failed to meet the standard
specified above, Seller shall be required to
A-32
<PAGE> 109
immediately advise NJDEP (orally and in writing) of the misstatement or
omission and to take all other necessary corrective action reasonably
requested by Buyer. The fees and expenses of the Environmental Arbitrator
will be shared equally between Buyer and Seller.
(b) Seller shall file with NJDEP a General Information Notice within
five days of the date hereof and shall make application on or prior to May
19, 1997, for approval, pursuant to a Remediation Agreement ("RA"), of the
transfer of the Jersey City Plant and the Jersey City Plant real property
(the Jersey City Plant and the Jersey City real property, including any
land leased from the State of New Jersey at this site, shall hereinafter be
collectively referred to as the "Jersey City Property"), to Buyer in
accordance with the New Jersey Industrial Site Recovery Act ("ISRA").
Seller shall obtain the RA and Seller shall also be responsible for posting
any financial assurance in the amount and in the manner as required by
NJDEP. As to such financial assurance, Seller will have the right, in its
sole discretion, to make application to NJDEP to permit utilization of such
funds to fund Seller's Remedial Work (as such term is defined below), or to
permit Seller to adjust the amount of such financial assurance to
accurately reflect any modifications to the estimated costs of Seller's
Remedial Work. Simultaneously with the filing of the RA application or
thereafter, Seller shall proceed to request from NJDEP an unconditional No
Further Action Letter ("NFA") or, in Seller's discretion, a Conditional No
Further Action Letter ("CNFA"), which may authorize the use of engineering
and/or institutional controls. The engineering controls may consist of, by
way of example, repair and replacement of existing floors, patios,
driveways and other paved areas (whether constructed of asphalt, concrete
or other materials) (collectively, the "Cap"), and the institutional
controls may include, without limitation, a Declaration of Environmental
Restrictions ("DER"), which will be recorded in the public land records.
All necessary repair work to the Cap required by NJDEP to obtain the CNFA
shall be performed at Seller's expense. In the event NJDEP requires
additional investigative or remedial work to be performed as a condition to
issuance of the NFA or CNFA, in accordance with the final remedial action
work plan approved by NJDEP and accepted by Seller and Buyer, such work
("Seller's Remedial Work") shall be performed at Seller's expense and
Seller shall take all necessary precautions to avoid disruption or
interference with Buyer's operation of the Jersey City Plant in the event
that such investigative or remedial work is required to be performed after
the Closing Date. Seller agrees to use diligent efforts to obtain the NFA
or CNFA in a timely manner. Seller further agrees that Seller's Remedial
Work shall be performed by or on Seller's behalf in a diligent manner and
in compliance with the requirements of ISRA, any regulations promulgated
pursuant thereto, New Jersey's Technical Requirements, NJAC sec. 7:26E and
any other applicable laws, regulations, rules and ordinances. Seller shall
have the right to select environmental consultants and contractors to
perform the work required in the approved work plan. Buyer shall have the
right to approve any such consultants and contractors prior to the
commencement of the work, which approval shall not be unreasonably withheld
or delayed; provided, that, Buyer hereby approves J.M. Sorge, Inc. to serve
as environmental consultant and grants to Seller, its agents and
contractor, the right to have physical access to the Jersey City Property
from and after the Closing Date pursuant to the terms of the access
agreement (the "Jersey City Access Agreement") attached hereto as Exhibit
D2. Prior to submitting any documents to NJDEP for review or approval,
Seller shall provide any such documents to Buyer for Buyer's review and
written approval, which shall not be unreasonably withheld or delayed. In
undertaking its investigatory and remedial activities, Seller shall be
obligated to adhere to the standards set forth in this Section 5.16, and in
the event of a dispute between Seller and Buyer as to any documents or
statements to NJDEP, the dispute settlement procedures of Section 5.16(a)
shall apply. Seller shall provide Buyer with timely notice of all meetings
to discuss such submittals with NJDEP, and Buyer shall have the right to
attend any of these meetings at Buyer's expense; provided that in no event
shall Buyer be permitted to communicate with NJDEP regarding Seller's
obligations under this Section 5.16(b) with respect to the Jersey City
Property unless (i) in the case of oral communications, representatives of
Seller are given the opportunity to participate in such communications or
(ii) in the case of written communications, representatives of Seller are
given the opportunity to review such writings prior to delivery to NJDEP.
If, after Seller's completion of Seller's Remedial Work and the issuance of
the NFA or CNFA, the NJDEP requires any additional remedial work to the
remaining portions of the Cap, such remedial work shall be performed by
Buyer at Buyer's sole cost and expense.
A-33
<PAGE> 110
(c) If at any time within three (3) years from the date of the
Closing, Buyer performs any remedial work at the Jersey City Property
required by NJDEP with respect to any hazardous materials not located under
the Cap and not expressly identified, with respect to type, quantity
(expressed as parts per the relevant unit measurement) and approximate
location of contaminants in question, in the report identified as Item
II.1. on Schedule 3.17, Seller shall reimburse Buyer, promptly upon demand,
for the full amount of additional costs incurred by Buyer if such hazardous
materials had not been present. If at any time within three (3) years from
the date of the Closing, Buyer removes all or any portion of the Cap (and
associated debris exceeding 3" in diameter) and disposes of all or any
portion of the soils and other materials beneath the Cap, and such soils,
materials and Cap fragments are not classifiable as ID27 Waste or cannot be
utilized as daily landfill cover at any landfill located at the Hackensack
Meadowlands, or at another landfill for out-of-pocket costs to Buyer
(including, without limitation, transportation costs) equal to or less than
the costs that would have been incurred if such soils, materials and Cap
fragments had been delivered to a landfill in the Hackensack Meadowlands,
Seller shall reimburse Buyer, promptly upon demand, for the full amount of
additional costs incurred by Buyer in excess of those costs which would
have been incurred by Buyer if the soils, materials and Cap fragments could
have been classified as ID27 Waste and could have been utilized as daily
landfill cover in and delivered to a Hackensack Meadowlands landfill;
provided that Seller shall be required to reimburse Buyer for such costs
only to the extent that Buyer's total out-of-pocket costs incurred in
connection with the remedial work (excluding the removal and disposal of
the Cap) performed pursuant to the this sentence exceeds $475,000. Such
reimbursement shall be made in cash or such number of shares of Common
Stock as has a value (based on the average closing price of the Common
Stock on the New York Stock Exchange for the seven consecutive trading days
ending on (and including) the tenth day prior to the date of such payment)
equal to the amount such incremental cost (rounded to the nearest whole
share).
(d) Neither party shall be liable for, or be considered to be in
breach of or default under this Section 5.16 on account of, any delay or
failure to perform as required by this Section 5.16 as a result of any
causes or conditions beyond its control, including without limitation, acts
of war, fire, accident, casualty, embargo, strike, civil commotion,
government prohibitions or pre-emptions, failure of any supplier to supply
necessary labor or equipment, labor difficulties, equipment malfunction, or
shortages of fuel or energy.
5.17 Releases. As to the Transferred Plants, Buyer shall be responsible
for any release of hazardous materials which Buyer shall cause after the Closing
Date.
5.18 No Further Actions. As between Buyer and Seller, from and after the
Closing Date there shall be no further testing required of Seller with respect
to the environmental condition of either of the Transferred Plants, unless
further testing or action is required by a governmental agency under applicable
Environmental Law. Any further testing conducted by Buyer shall be conducted in
a commercially reasonable manner and for commercially reasonable purposes.
Seller shall have no responsibility with respect to those matters identified as
Assumed Liabilities in Sections 1.4(g), (h) and (i), except as specifically set
forth herein.
5.19 Purchase of Leased Property. Buyer acknowledges that Seller shall not
have any obligation to purchase and convey to Buyer any leased real property
that is contiguous to the Real Property in Jersey City.
ARTICLE VI
NONCOMPETITION
6.1 Definitions. For the purposes of this Article VI, the following
definitions shall apply:
(a) "Company Activities" shall mean, with respect to Seller or Davey
Downingtown, the manufacturing, marketing and selling of paperboard
products for use in book covers and binders, all of which activities are
conducted, offered or provided by Seller or Davey Downingtown as of the
Closing Date.
A-34
<PAGE> 111
(b) "Confidential Information" shall mean any data or information of
Seller, other than Trade Secrets, which is valuable to the operation of the
business of Seller or Davey Downingtown and not generally known to
competitors.
(c) "Noncompete Period" shall mean, with respect to Seller, the period
beginning on the date hereof and continuing for a period of ten (10) years
from the Closing Date.
(d) The term "Territory" as used herein shall mean the continent of
North America, such area being where any customer or actively sought
prospective customer of Seller is located.
(e) "Trade Secrets" shall mean information, including, but not limited
to, technical or nontechnical data, a formula, pattern, compilation,
program, including, without limitation, computer software and related
source codes, device, method, technique, drawing, process, financial data,
financial plan, product plan, list of actual or potential customers or
suppliers, or other information similar to any of the foregoing, which
derives economic value, actual or potential, from not being generally known
to, and not being readily ascertainable by proper means by, other persons
who can derive economic value from its disclosure or use. For purposes of
this Article VI, the term Trade Secrets shall not include information that
Seller can show by competent proof becomes generally known to the public
after the Closing Date through no act or omission of Seller.
6.2 Trade Secrets. Seller shall (and shall cause Davey Downingtown to)
hold in confidence at all times after the date hereof all Trade Secrets, and
shall not disclose, publish or make use of Trade Secrets at any time after the
date hereof without the prior written consent of Buyer. Nothing in this
Agreement shall diminish the rights of Buyer regarding the protection of Trade
Secrets and other intellectual property pursuant to applicable law.
6.3 Confidential Information. Seller hereby agrees that, for a period of
three (3) years following the Closing Date, Seller shall (and shall cause Davey
Downingtown to) hold in confidence all Confidential Information and will not
disclose, publish or make use of Confidential Information without the prior
written consent of Buyer.
6.4 Noncompetition.
(a) Seller hereby acknowledges that it conducts Company Activities
throughout the Territory. Seller acknowledges that to protect adequately
the interest of Buyer in the business of Seller, it is essential that any
noncompete covenant with respect thereto cover all Company Activities and
the entire Territory.
(b) Seller hereby agrees that neither it nor Davey Downingtown shall,
during the Noncompete Period, in any manner, directly or indirectly or by
assisting others, engage in, have an equity or profit interest in, or
render services (of an executive, marketing, manufacturing, research and
development, administrative, financial or consulting nature) to any
business that conducts any of the Company Activities in the Territory.
6.5 Nonsolicitation. Seller hereby agrees that neither it nor Davey
Downingtown shall, prior to the third anniversary of the Closing Date, in any
manner, directly or indirectly or by assisting others, recruit or hire away or
attempt to recruit or hire away, on its behalf or on behalf of any other person,
firm or corporation, any employee of Seller who is hired by Buyer pursuant to
Section 5.11 hereof, except that Seller may use Alfred C. Brooks, Jeff J. Chiesa
and Stephen Dodd to the extent permitted in each of their employment agreements
with Buyer in order to liquidate Seller or Davey Downingtown and also to perform
the obligations of Seller hereunder.
6.6 Severability. If a judicial or arbitral determination is made that any
of the provisions of this Article VI constitutes an unreasonable or otherwise
unenforceable restriction against Seller, the provisions of this Article VI
shall be rendered void only to the extent that such judicial or arbitral
determination finds such provisions to be unreasonable or otherwise
unenforceable with respect to Seller. In this regard, Seller and Buyer hereby
agree that any judicial authority construing this Agreement shall be empowered
to sever any portion of the Territory, any prohibited business activity or any
time period from the coverage of this
A-35
<PAGE> 112
Article VI and to apply the provisions of this Article VI to the remaining
portion of the Territory, the remaining business activities and the remaining
time period not so severed by such judicial or arbitral authority. Moreover,
notwithstanding the fact that any provision of this Article VI is determined not
to be specifically enforceable, Buyer shall nevertheless be entitled to recover
monetary damages as a result of the breach of such provision by Seller. The time
period during which the prohibitions set forth in this Article VI shall apply
shall be tolled and suspended for a period equal to the aggregate time during
which Seller violates such prohibitions in any respect.
6.7 Injunctive Relief. Seller hereby agrees that any remedy at law for any
breach of the provisions contained this Article VI shall be inadequate and that
Buyer shall be entitled to injunctive relief in addition to any other remedy
Buyer might have under this Agreement.
6.8 Downingtown. Nothing in this Agreement shall prevent or restrict Davey
Downingtown from engaging in wastepaper collection in Downingtown, Pennsylvania
and within a 75-mile distance from its city limits.
ARTICLE VII
CONDITIONS
7.1 Conditions to Each Party's Obligations. The respective obligations of
each party to effect the transactions contemplated in this Agreement shall be
subject to the fulfillment at or prior to the Closing of each of the following
conditions:
(a) On the Closing Date, there shall be no effective injunction, writ
or preliminary restraining order or any order of any nature issued by a
court or governmental agency of competent jurisdiction to the effect that
the Acquisition may not be consummated as herein provided, no proceeding or
lawsuit shall have been commenced by any governmental or regulatory agency
or any third party for the purpose of obtaining any such injunction, writ
or preliminary restraining order or any material damages or other material
equitable relief with respect to the transactions contemplated hereby, and
no written notice shall have been received from any such agency indicating
an intent to restrain, prevent, materially delay or restructure the
transactions contemplated by this Agreement.
(b) The applicable waiting period shall have expired under the HSR
Act.
(c) The Registration Statement shall be effective under the Securities
Act, and no stop order suspending the effectiveness of the Registration
Statement shall be in effect and no proceedings for such purpose, or under
the proxy rules of the Commission pursuant to the Exchange Act and with
respect to the transactions contemplated hereby, shall be pending before or
threatened by the Commission. All applicable state securities laws shall
have been complied with in connection with the issuance of Common Stock to
be issued pursuant to the Acquisition, and no stop order suspending the
effectiveness of any qualification or registration of such Common Stock
under such state securities laws shall have been issued and pending or
threatened by the authorities of any such state.
(d) The Common Stock to be issued pursuant to the Acquisition shall
have been approved for listing on the New York Stock Exchange, subject only
to official notice of issuance by Buyer.
(e) All consents, authorizations, orders and approvals of (or filings
or registrations with) any governmental commission, board or other
regulatory body required in connection with the execution, delivery and
performance of this Agreement by Seller and Buyer shall have been obtained
or made, except for filing of any documents required to be filed after the
Closing Date.
(f) Each of the following employees shall have executed and delivered
employment agreements (the "Employment Agreements"), containing
noncompetition (other than with respect to Jeff J. Chiesa) and
nonsolicitation agreements and otherwise in form reasonably acceptable to
Buyer: Alfred C. Brooks, Stephen C. Dodd, Jeff J. Chiesa and Jerry T.
McClusky.
A-36
<PAGE> 113
(g) Each of the Seller Shareholders shall have duly executed and
notarized and delivered to Seller a Shareholder Representation in the form
attached hereto as Exhibit E (the "Shareholder Representation").
7.2 Conditions to Obligations of Buyer. The obligation of Buyer to effect
the transactions contemplated under this Agreement shall be subject to the
fulfillment at or prior to the Closing of each of the following additional
conditions:
(a) The representations and warranties of Seller set forth in Article
III of this Agreement shall have been true and correct in all material
respects as of the date of this Agreement and shall be true and correct in
all material respects as of the Closing Date as though made on and as of
the Closing Date.
(b) Seller shall have performed in all material respects all covenants
and agreements required to be performed by it under this Agreement prior to
the Closing.
(c) Seller shall have furnished Buyer with a certificate executed by
its President and Vice President, Finance, as to compliance with the
conditions set forth in Sections 7.2(a) and (b).
(d) Buyer shall have received (i) an opinion of Greenbaum, Rowe,
Smith, Ravin, Davis & Himmel, dated the Closing Date, substantially in the
form attached hereto as Exhibit F (the "Greenbaum Opinion"), and (ii) an
opinion of counsel from each Selling Shareholder (the "Shareholder
Opinion") who is acting as a trustee or in any other fiduciary,
representative or corporate capacity, dated the Closing Date, substantially
in the form of Exhibit G. In addition, Seller and Buyer shall have received
an opinion of Greenbaum, Rowe, Smith, Ravin, Davis & Himmel, dated the
Closing Date, substantially in the form attached hereto as Exhibit H,
regarding the federal income tax treatment of the Acquisition (the "Tax
Opinion" and, collectively with the Greenbaum Opinion, the "Seller
Opinion").
(e) Buyer shall have obtained to its reasonable satisfaction evidence
that the material suppliers and customers of Seller prior to the Closing
intend to remain customers or suppliers, as the case may be, of Buyer at a
substantially similar volume level as was maintained with Seller during the
previous 12-month period.
(f) Buyer shall have received consents to the assignment to Buyer of
the Assumed Contracts or written waivers of the provisions of Assumed
Contracts requiring the consents of third parties.
(g) Between the date of this Agreement and the Closing, there shall
not have been (nor shall Buyer have become aware of) any material adverse
change, or any development likely to result in a material adverse change,
in or affecting the assets, liabilities, results of operations, business or
prospects of the business of Seller.
(h) Seller shall have delivered to Buyer satisfactory evidence that
all liens, pledges, security interests, charges, claims, restrictions and
encumbrances (other than Permitted Liens and those relating to the Assumed
Liabilities) including, without limitation, those set forth in Schedules
3.5(a) and 3.5(b), affecting the Assets (including, without limitation, the
Real Property) have been released.
(i) Buyer shall have been able to obtain a commitment for a title
insurance policy or policies in a form reasonably satisfactory to Buyer at
standard rates ensuring Buyer that at the Closing it will acquire good,
marketable and insurable title to the Real Property, free and clear of all
liens, pledges, security interests, charges, claims, leasehold interests,
tenancies, restrictions and encumbrances of any nature whatsoever, other
than Permitted Liens and liens relating to the Assumed Liabilities, if
applicable. Seller shall have executed and delivered such owner's
affidavits (in customary form) as are reasonably necessary to enable Buyer
to obtain any such title insurance policy or policies.
(j) Buyer shall have received such licenses and permits as are
required for Buyer to consummate the transactions contemplated hereby and
to conduct the business of Seller immediately following the Closing
consistent with past practice.
(k) Buyer's board of directors shall have approved the issuance of the
Acquisition Shares.
A-37
<PAGE> 114
(l) Each of the Seller Shareholders shall have executed and delivered
(i) an Indemnification and Stock Pledge Agreement, substantially in the
form attached hereto as Exhibit I (the "Stock Pledge Agreement") pursuant
to which the Seller Shareholders shall pledge 10% of the Acquisition Shares
to Buyer to secure their obligations under this Agreement and (ii) an
undated stock power executed in blank with respect to the Acquisition
Shares to be pledged by such Seller Shareholder with the signature of the
Seller Shareholder being guaranteed by a member of the New York Stock
Exchange, or a U.S. commercial bank or trust company having assets in
excess of one billion dollars;
(m) Buyer shall be reasonably satisfied with the results of its review
and examination of the business, properties, assets, liabilities, financial
condition, books and records of Seller, including without limitation, the
results of any environmental audits or assessments performed with respect
to the business or the Real Property; and
(n) Seller shall have delivered to Buyer tax clearance certificates
with respect to Seller and Davey Downingtown issued by the appropriate tax
authorities of the States of Illinois and New Jersey, with dates reasonably
close to the Closing Date.
(o) Seller Shareholders shall have delivered to Buyer an escrow
agreement with Alfred C. Brooks, as escrow agent pursuant to Section
2.5(b).
(p) Seller shall have executed and delivered the Downingtown Access
Agreement and the Jersey City Access Agreement.
7.3 Conditions to Obligations of Seller. The obligation of Seller to
effect the transactions contemplated under this Agreement shall be subject to
the fulfillment at or prior to the Closing of each of the following additional
conditions:
(a) The representations and warranties of Buyer set forth in Article
IV of this Agreement shall have been true and correct in all material
respects as of the date of this Agreement and shall be true and correct in
all material respects as of the Closing Date as though made on and as of
the Closing Date.
(b) Buyer shall have performed in all material respects all covenants
and agreements required to be performed by it under this Agreement prior to
the Closing.
(c) Buyer shall have furnished Seller with a certificate of its
President and Chief Financial Officer as to compliance with the conditions
set forth in Sections 7.3(a) and (b).
(d) Seller shall have received an opinion of King & Spalding dated the
Closing Date, substantially in the form attached hereto as Exhibit J
("Buyer Opinion").
(e) Buyer shall have duly executed and delivered the Stock Pledge
Agreement.
(f) Buyer shall have executed and delivered the Downingtown Access
Agreement and the Jersey City Access Agreement.
(g) This Agreement and the transactions contemplated herein, including
approval of plan of liquidation and dissolution of Seller and Downingtown
shall have received the requisite approval of the holders of 66 2/3% of the
common stock of Seller at the Shareholders' Meeting.
(h) Between the date of this Agreement and the Closing, there shall
not have been (nor shall Seller have become aware of) any material adverse
change, or any development likely to result in a material adverse change,
in or affecting the assets, liabilities, results of operations, business or
prospects of the business of Buyer.
ARTICLE VIII
CLOSING
8.1 The Closing. The consummation of the transactions contemplated by this
Agreement are herein referred to as the "Closing." The "Closing Date" shall be
the date on which the Closing occurs. The Closing
A-38
<PAGE> 115
shall occur within five (5) business days following the satisfaction or waiver
of the conditions set forth in Article VII. The Closing shall take place at the
offices of Greenbaum, Rowe, Smith, Ravin, Davis & Himmel, 99 Wood Avenue South,
Iselin, New Jersey, or at such other place as Seller and Buyer shall agree.
8.2 Documents to be Delivered by Seller. At the Closing, Seller shall
deliver, or cause to be delivered, to Buyer the following:
(a) limited or special warranty deeds (or the equivalent thereof in
each jurisdiction where real property is being transferred), bills of sale,
instruments of assignment, certificates of title and other conveyance
documents, dated the Closing Date, transferring to Buyer all of the
Sellers' right, title and interest in and to the Assets together with
possession of the Assets;
(b) documents evidencing the assignment and assumption of the Assumed
Contracts and the assignment of any assignable permits and licenses;
(c) a copy of resolutions of the board of directors and shareholders
of Seller authorizing the execution, delivery and performance of this
Agreement by Seller and a certificate of the secretary or assistant
secretary of Seller, dated the Closing Date, that such resolutions were
duly adopted and are in full force and effect;
(d) a certificate, dated the Closing Date, executed by the President
and Chief Financial Officer of Seller certifying to the fulfillment of the
conditions specified in Sections 7.2(a) and 7.2(b);
(e) the affidavit of Seller required by Section 1445 (b)(2) of the
Code;
(f) the Stock Pledge Agreement and related stock powers;
(g) the Employment Agreements;
(h) the schedule of accounts receivable contemplated by Section
2.2(a)(3);
(i) the Seller Opinion and the Shareholder Opinions; and
(j) all other documents required to be entered into by Seller, Davey
Downingtown or the Seller Shareholders pursuant to this Agreement or
reasonably requested by Buyer to convey the Assets to Buyer or to otherwise
consummate the transactions contemplated hereby.
8.3 Documents to be Delivered by Buyer. At the Closing, Buyer shall
deliver to Seller the following:
(a) stock certificates representing the Acquisition Shares;
(b) documents evidencing the assignment and assumption of the Assumed
Contracts, the acceptance of assignable permits and licenses, and the
assumption of the Assumed Liabilities;
(c) a copy of the resolutions of the board of directors of Buyer
authorizing the execution, delivery and performance of this Agreement by
Buyer, and a certificate of its secretary or assistant secretary, dated the
Closing Date, that such resolutions were duly adopted and are in full force
and effect;
(d) a certificate, dated the Closing Date executed by the President
and Chief Financial Officer of Buyer certifying to the fulfillment of the
conditions specified in Section 7.3(a) and 7.3(b);
(e) the Buyer Opinion;
(f) the Stock Pledge Agreement;
(g) the Employment Agreements; and
(h) all other documents required to be entered into or delivered by
Buyer at or prior to the Closing pursuant to this Agreement.
A-39
<PAGE> 116
ARTICLE IX
INDEMNIFICATION
9.1 Indemnification Obligations of Seller. Seller shall indemnify, defend
and hold harmless Buyer and its subsidiaries and affiliates, each of their
respective officers, directors, employees, agents, shareholders and
representatives and each of the heirs, executors, successors and assigns of any
of the foregoing (collectively, the "Buyer Indemnified Parties") from, against
and in respect of any and all claims, liabilities, obligations, losses, costs,
expenses, penalties, fines and judgments (at equity or at law) and damages
whenever arising or incurred (including, without limitation, amounts paid in
settlement, costs of investigation and reasonable attorneys' fees and expenses)
arising out of or relating to:
(a) any liability or obligation of Seller or Davey Downingtown of any
nature whatsoever (including, but not limited to, the Excluded
Liabilities), except the Assumed Liabilities;
(b) any breach or inaccuracy of any representation or warranty made by
Seller in this Agreement;
(c) any breach of any covenant, agreement or undertaking made by
Seller in this Agreement, the Stock Pledge Agreement or the Jersey City
Access Agreement;
(d) except for the Assumed Liabilities under Sections 1.4(g), 1.4(h)
and 1.4(i), any provision of any Environmental Law and arising out of or
relating to (i) any act or omission of Seller, Davey Downingtown or their
respective employees, agents or representatives, (ii) the ownership, use,
control or operation on or prior to the Closing Date of any plant,
facility, site, area or property used in the business of Seller or Davey
Downingtown (whether currently or previously owned or leased by Seller or
Davey Downingtown), including, without limitation, arising from any release
of any hazardous materials or off-site shipment of any hazardous materials
at or from any such plant, facility, site, area or property or (iii) any
obligation arising under or triggered by this transaction pursuant to the
New Jersey Industrial Site Recovery Act or the New Jersey Environmental
Cleanup Responsibility Act or any regulations adopted pursuant to either of
these statutes; the obligations under this Section 9.1(d) shall not be
affected by any disclosures made on the Schedules to this Agreement, but
Seller shall have no liability under this Section 9.1(d) with respect to
those liabilities from which Seller is expressly released (or which are
expressly assumed by Buyer) under Section 5.16, 5.17 or 5.18;
(e) any past or current violation or non-compliance by Seller or Davey
Downingtown with any law, regulation or administrative order to which it is
or has been subject, except with respect to environmental matters as
referred to in 9.1(d) above;
(f) any failure of Seller or Davey Downingtown to hold, or any
violation by Seller or Davey Downingtown of, any authorization, license,
permit or order of any governmental or regulatory authority applicable to
Seller, Davey Downingtown or its assets;
(g) the loss or unavailability of the benefit to Buyer of any of the
AMT Credits for which Seller received credit in computing the Working
Capital Amount pursuant to Section 2.2(a)(1), unless such loss is a result
of any action or inaction by Buyer or the failure of Buyer to have
sufficient income to use the AMT Credits;
(h) any acts or omissions by any environmental consultants engaged by
Seller (or any employees or representatives of such environmental
consultants) in the performance of the activities contemplated by Section
5.16; or
(i) any fraud, willful misconduct, bad faith or any intentional breach
of any representation, warranty, covenant, agreement or undertaking made by
Seller in this Agreement.
The claims, liabilities, obligations, losses, costs, expenses, penalties,
fines and damages of the Buyer Indemnified Parties described in this Section 9.1
as to which the Buyer Indemnified Parties are entitled to indemnification are
hereinafter collectively referred to as "Buyer Losses."
A-40
<PAGE> 117
9.2 Indemnification Obligations of Buyer. Buyer shall indemnify and hold
harmless Seller and their subsidiaries and affiliates, each of their respective
officers, directors, employees, agents, shareholders and representatives and
each of the heirs, executors, successors and assigns of any of the foregoing
(collectively, the "Seller Indemnified Parties") from, against and in respect of
any and all claims, liabilities, obligations, losses, costs, expenses,
penalties, fines and judgments (at equity or at law) and damages whenever
arising or incurred (including, without limitation, amounts paid in settlement,
costs of investigation and reasonable attorneys' fees and expenses) arising out
of or relating to:
(a) any of the Assumed Liabilities;
(b) any breach or inaccuracy of any representation or warranty in this
Agreement;
(c) any breach of any covenant, agreement or undertaking made by Buyer
in this Agreement, the Stock Pledge Agreement or the Downingtown Access
Agreement;
(d) subject to the limitations on Buyer's responsibilities contained
in the last two sentences of Section 5.12(b), any acts or omissions by
Buyer (or any employees or representatives of Buyer) in the performance of
the activities contemplated by Section 5.12(b); or
(e) any fraud, willful misconduct, bad faith or any intentional breach
of any representation, warranty, covenant, agreement or undertaking made by
Buyer in this Agreement.
The claims, liabilities, obligations, losses, costs, expenses, penalties,
fines and damages of the Seller Indemnified Parties described in this Section
9.2 as to which the Seller Indemnified Parties are entitled to indemnification
are hereinafter collectively referred to as "Seller Losses."
9.3 Indemnification Procedure.
(a) Promptly after receipt by a Buyer Indemnified Party or a Seller
Indemnified Party (hereinafter collectively referred to as an "Indemnified
Party") of notice by a third party of any complaint or the commencement of
any action or proceeding with respect to which such Indemnified Party may
be entitled to receive payment from the other party for any Buyer Losses or
Seller Losses (as the case may be), such Indemnified Party shall notify
Buyer or Seller, whoever is the appropriate indemnifying party hereunder
(the "Indemnifying Party"), within 10 days of such complaint or of the
commencement of such action or proceeding; provided, however that the
failure to so notify the Indemnifying Party shall not relieve the
Indemnifying Party from liability for such claim arising otherwise than
under this Agreement and such failure to so notify the Indemnifying Party
shall relieve the Indemnifying Party from liability under this Agreement
with respect to such claim only if, and only to the extent that, such
failure to notify the Indemnifying Party results in the forfeiture by the
Indemnifying Party of rights and defenses otherwise available to the
Indemnifying Party with respect to such claim. The Indemnifying Party shall
have the right, upon written notice delivered to the Indemnified Party
within 20 days thereafter, to assume the defense of such action or
proceeding, including the employment of counsel reasonably satisfactory to
the Indemnified Party and the payment of the fees and disbursements of such
counsel. In the event, however, that the Indemnifying Party declines or
fails to assume the defense of the action or proceeding or to employ
counsel reasonably satisfactory to the Indemnified Party, in either case
within such 20-day period, then such Indemnified Party may employ counsel
to represent or defend it in any such action or proceeding and the
Indemnifying Party shall pay the reasonable fees and disbursements of such
counsel as incurred; provided, however, that the Indemnifying Party shall
not be required to pay the fees and disbursements of more than one counsel
for all Indemnified Parties in any jurisdiction in any single action or
proceeding. In any action or proceeding with respect to which
indemnification is being sought hereunder, the Indemnified Party or the
Indemnifying Party, whichever is not assuming the defense of such action,
shall have the right to participate in such litigation and to retain its
own counsel at such party's own expense. The Indemnifying Party or the
Indemnified Party, as the case may be, shall at all times use reasonable
efforts to keep the Indemnifying Party or the Indemnified Party, as the
case may be, reasonably apprised of the status of the defense of any action
the defense of which they are maintaining and to cooperate in good faith
with each other with respect to the defense of any such action.
A-41
<PAGE> 118
(b) No Indemnified Party may settle or compromise any claim or consent
to the entry of any judgment with respect to which indemnification is being
sought hereunder without the prior written consent of the Indemnifying
Party, unless (i) the Indemnifying Party fails to assume and maintain the
defense of such claim pursuant to Section 9.3(a) or (ii) such settlement,
compromise or consent includes an unconditional release of the Indemnifying
Party from all liability arising out of such claim, including any liability
to Buyer and anyone claiming liability on behalf of Buyer. An Indemnifying
Party may not, without the prior written consent of the Indemnified Party,
settle or compromise any claim or consent to the entry of any judgment with
respect to which indemnification is being sought hereunder unless such
settlement, compromise or consent includes an unconditional release of the
Indemnified Party from all liability arising out of such claim and does not
contain any equitable order, judgment or term which in any manner affects,
restrains or interferes with the business of the Indemnified Party or any
of the Indemnified Party's respective affiliates.
(c) In the event an Indemnified Party shall claim a right to payment
pursuant to this Agreement, such Indemnified Party shall send written
notice of such claim to the appropriate Indemnifying Party. Such notice
shall specify the basis for such claim. As promptly as possible after the
Indemnified Party has given such notice, such Indemnified Party and the
appropriate Indemnifying Party shall establish the merits and amount of
such claim (by mutual agreement, litigation, arbitration or otherwise) and,
within five business days of the final determination of the merits and
amount of such claim, the Indemnifying Party shall pay to the Indemnified
Party immediately available funds in an amount equal to such claim as
determined hereunder.
9.4 Claims Period. For purposes of this Agreement, a "Claims Period" shall
be the period after the earlier of the Closing Date or the date of any
termination of this Agreement pursuant to Article X during which a claim for
indemnification may be asserted under this Agreement by an Indemnified Party.
The Claims Periods under this Agreement shall commence on the date of this
Agreement and shall terminate as follows:
(a) with respect to Buyer Losses arising under Section 9.1(b) with
respect to any breach or inaccuracy of any representation or warranty in
Section 3.1, 3.2, 3.3 or 3.5 (collectively, the "Seller Surviving
Representations") or under Sections 9.1(a), 9.1(c), 9.1(g) and 9.1(i)
(collectively, the "Seller Surviving Obligations"), the Claims Period shall
continue indefinitely, except as limited by law (including by applicable
statutes of limitation);
(b) with respect to Buyer Losses arising under Section 9.1(b) with
respect to any breach or inaccuracy of any representation or warranty in
Section 3.12, the Claims Period shall terminate on the sixth anniversary of
the Closing Date;
(c) with respect to Seller Losses arising under Sections 9.2(a), (c)
and (d), the Claims Period shall continue indefinitely, except as limited
by law (including any applicable statutes of limitation); and
(d) with respect to all other Buyer Losses or Seller Losses arising
under this Agreement, the Claims Period shall terminate on the date that is
five (5) years after the Closing Date.
Notwithstanding the foregoing, if prior to the close of business on the
last day of the applicable Claims Period, an Indemnifying Party shall have been
properly notified as provided hereunder of a claim for indemnity hereunder and
such claim shall not have been finally resolved or disposed of at such date,
such claim shall continue to survive and shall remain a basis for indemnity
hereunder until such claim is finally resolved or disposed of in accordance with
the terms hereof.
9.5 Liability Limits. Notwithstanding anything to the contrary set forth
herein:
(a) Seller shall only be liable for Buyer Losses arising under Section
9.1(b) to the extent that any such Buyer Losses exceed, in the aggregate,
an amount (the "Adjusted Basket Balance") equal to (a) $250,000 (the
"Seller Basket Amount") minus (b) amounts applied against the Seller Basket
Amount pursuant to Sections 2.7 and 2.8, and such liability shall be only
for amounts in excess of the Adjusted Basket Balance (which shall not be
less than zero); provided, however, that the Seller Basket
A-42
<PAGE> 119
shall not apply with respect to Buyer Losses arising from the
representations and warranties set forth in Section 3.2 and 3.5;
(b) Seller Indemnified Parties shall not make a claim against Buyer
for indemnification under Section 9.2(b) for Seller Losses unless and until
the aggregate amount of the Seller Losses exceeds $250,000 (the "Buyer
Basket"), in which event the Seller Indemnified Parties may claim
indemnification for all Seller Losses, to the extent the amount of such
Seller Losses exceeds the amount of the Buyer Basket; and
(c) Buyer shall in no event be entitled to recover pursuant to this
Article IX an aggregate amount in excess of the Average Closing Price
multiplied by the number of shares of Common Stock issued to Seller
pursuant to Section 2.1, after final adjustment pursuant to Sections 2.4
and 2.5 (the "Maximum Indemnification Amount").
(d) If any event or circumstance that gives rise to a claim by a Buyer
Indemnified Party for any Buyer Losses gives rise to any claim by Buyer
under any insurance policy included in the Assets or any title insurance
obtained by Buyer with respect to the Real Property, the amount of such
Buyer Losses shall be deemed reduced by the amount of any proceeds actually
paid to the Buyer Indemnified Party under such policy with respect to such
event or circumstance.
9.6 Recovery. Buyer may recover Buyer Losses in accordance with the
provisions of the Stock Pledge Agreement; provided, however, that Buyer's
ability to recover Buyer Losses in accordance with the Stock Pledge Agreement
shall not in any way be construed to limit any remedy Buyer may have against
Seller; provided that Seller's aggregate liability shall not exceed the Maximum
Indemnification Amount.
ARTICLE X
TERMINATION
10.1 Termination. This Agreement may be terminated at any time prior to
the Closing Date:
(a) by mutual agreement of Seller and Buyer; or
(b) by either party if the Closing has not been completed on or before
5:00 p.m. Eastern Standard Time on July 31, 1997.
10.2 Specific Performance and Other Remedies. The parties hereto each
acknowledge that the rights of each party to consummate the transactions
contemplated hereby are special, unique and of extraordinary character, and
that, in the event that any party violates or fails or refuses to perform any
covenant or agreement made by it herein, the non-breaching party may be without
an adequate remedy at law. The parties each agree, therefore, that in the event
that either party violates or fails or refuses to perform any covenant or
agreement made by such party herein, the non-breaching party or parties may,
subject to the terms of this Agreement and in addition to any remedies at law
for damages or other relief, institute and prosecute an action in any court of
competent jurisdiction to enforce specific performance of such covenant or
agreement or seek any other equitable relief.
10.3 Effect of Termination. In the event of termination of this Agreement
pursuant to this Article X, this Agreement shall forthwith become void and there
shall be no liability on the part of any party or its respective officers,
directors or shareholders, except for obligations under Section 5.2(c), 5.8,
5.13 and Section 11.12 and this Section, all of which shall survive the
termination. Notwithstanding the foregoing, nothing contained herein shall
relieve any party from liability for any breach of any covenant or agreement in
this Agreement.
A-43
<PAGE> 120
ARTICLE XI
MISCELLANEOUS PROVISIONS
11.1 Notices. All notices, communications and deliveries hereunder shall
be made in writing signed by the party making the same, shall specify the
Section hereunder pursuant to which it is given or being made, and shall be
delivered personally or by telecopy transmission or sent by registered or
certified mail or by any national overnight courier service (with postage and
other fees prepaid) as follows:
To Buyer:
Rock-Tenn Company
504 Thrasher Road
Norcross, Georgia 30071
Attn: Chief Financial Officer
Telecopy No.: (770) 263-3582
with a copy to:
Rock-Tenn Company
504 Thrasher Road
Norcross, Georgia 30071
Attn: General Counsel
Telecopy No.: (770) 248-4402
To Seller:
The Davey Company
164 Laidlaw Avenue
Jersey City, New Jersey 07306
Attn: Alfred C. Brooks
Telecopy No.: (201) 653-0872
with a copy to:
Greenbaum, Rowe, Smith, Ravin, Davis & Himmel
99 Wood Avenue South
Iselin, New Jersey 08830
Attn: Alan E. Davis, Esq.
Telecopy No.: (908) 549-1881
or to such other representative or at such other address of a party as such
party hereto may furnish to the other parties in writing.
11.2 Exhibits. All Exhibits hereto are hereby incorporated into this
Agreement and are hereby made a part hereof as if set out in full in this
Agreement.
11.3 Assignment; Successors in Interest. No assignment or transfer by
Buyer or Seller of their respective rights and obligations hereunder prior to
the Closing shall be made except with the prior written consent of the other
parties hereto. However, Buyer shall be permitted to assign all or part of its
rights and obligations hereunder (other than its obligation to issue the
Acquisition Shares) to any subsidiary of Buyer. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their permitted
successors and assigns, and any reference hereto shall also be a reference to a
permitted successor or assign.
11.4 Number; Gender. Whenever the context so requires, the singular number
shall include the plural and the plural shall include the singular, and the
gender of any pronoun shall include the other genders.
11.5 Captions. The titles, captions and table of contents contained in
this Agreement are inserted herein only as a matter of convenience and for
reference and in no way define, limit, extend or describe the scope of this
Agreement or the intent of any provision hereof. Unless otherwise specified to
the contrary, all
A-44
<PAGE> 121
references to Articles and Sections are references to Articles and Sections of
this Agreement and all references to Exhibits are references to Exhibits to this
Agreement.
11.6 Controlling Law; Amendment.
(a) This Agreement shall be governed by and construed and enforced in
accordance with the internal laws of the State of New Jersey without
reference to New Jersey's choice of law rules.
(b) This Agreement may not be amended, modified or supplemented except
by written agreement of the parties hereto.
11.7 Seller and Buyer Knowledge. As used in this Agreement, the terms "the
best knowledge of Seller," or words of similar import used herein with respect
to Seller shall mean the actual knowledge of all persons who are officers or
directors of Seller on the date hereof together with the knowledge a reasonable
business person would have obtained after making reasonable inquiry and after
exercising reasonable diligence with respect to the matters at hand. As used in
this Agreement, the terms "the best knowledge of Buyer," or words of similar
import used herein with respect to Buyer shall mean the actual knowledge of
those individuals listed on Schedule 11.7 hereto, together with the knowledge a
reasonable business person would have obtained after making reasonable inquiry
and after exercising reasonable diligence with respect to the matters at hand.
11.8 Severability. Any provision hereof which is prohibited or
unenforceable in any jurisdiction will, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction will not invalidate or render unenforceable such provision in any
other jurisdiction. To the extent permitted by law, the parties hereto waive any
provision of law which renders any such provision prohibited or unenforceable in
any respect.
11.9 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and it shall not be
necessary in making proof of this Agreement or the terms hereof to produce or
account for more than one of such counterparts.
11.10 Enforcement of Certain Rights. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any person,
firm or corporation other than the parties hereto, and their successors or
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Agreement, or result in such person, firm or corporation being deemed a
third party beneficiary of this Agreement.
11.11 Waiver. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party. A waiver by one party of the performance of any
covenant, agreement, obligation, condition, representation or warranty shall not
be construed as a waiver of any other covenant, agreement, obligation,
condition, representation or warranty. A waiver by any party of the performance
of any act shall not constitute a waiver of the performance of any other act or
an identical act required to be performed at a later time.
11.12 Arbitration.
(a) Any controversy, claim or question of interpretation arising out
of or relating to this Agreement or the breach thereof (other than any
dispute regarding the adjustment to the Purchase Price under Article II,
which shall be settled as provided in such Article) shall be finally
settled by arbitration in Charlotte, N.C. under the then-effective
Commercial Arbitration Rules of the American Arbitration Association as
modified by this Agreement, and judgment on the award rendered by the
arbitrators may be entered in any court having jurisdiction. The award
rendered by the arbitrators shall be final and binding on the parties and
not subject to further appeal. Such arbitration can be initiated by written
notice by either party (the "Claimant") to the other party, which notice
shall identify the Claimant's selected arbitrator. The party receiving such
notice (the "Respondent") shall identify its arbitrator within ten (10)
business days following its receipt of such notice. The arbitrator selected
by the Claimant and the arbitrator selected by the Respondent shall, within
ten (10) business days of their appointment, select a third neutral
arbitrator. In the event that they are unable to do so, either party may
request the American Arbitration Association to appoint the third neutral
arbitrator. The arbitrators shall have the authority to award any remedy or
relief that a court in Georgia could order or grant, including, without
A-45
<PAGE> 122
limitation, specific performance of any obligation created under this
Agreement, the issuance of injunctive or other provisional relief, or the
imposition of sanctions for abuse or frustration of the arbitration
process, but excluding punitive damages. The arbitration award will be in
writing and specify the factual and legal basis for the award.
(b) It is the intent of the parties that any arbitration shall be
concluded as quickly as reasonably practicable. Unless the parties
otherwise agree, once commenced, the hearing on the disputed matters shall
be held four (4) days a week until concluded with each hearing date to
begin at 9:00 a.m. and to conclude at 5:00 p.m. The arbitrators shall use
all reasonable efforts to issue the final award or awards within a period
of five (5) business days after closure of the proceedings. Failure of the
arbitrators to meet the time limits of this Section 11.12(b) shall not be a
basis for challenging the award.
(c) The arbitrators shall instruct the non-prevailing party to pay all
costs of the proceedings, including the fees and expenses of the
arbitrators and the reasonable attorneys' fees and expenses of the
prevailing party. If the arbitrators determine that there is not a
prevailing party, each party shall be instructed to bear its own costs and
to pay one-half of the fees and expenses of the arbitrators.
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement
as of the date and year first above written.
ROCK-TENN COMPANY
By:
------------------------------------
Name:
----------------------------------
Title:
-----------------------------------
THE DAVEY COMPANY
By:
------------------------------------
Name:
----------------------------------
Title:
-----------------------------------
A-46
<PAGE> 123
EXHIBIT B TO ANNEX A
ESCROW AGREEMENT
This ESCROW AGREEMENT (the "Agreement"), dated as of , 1997, is
entered into by and among each of the shareholders of Seller (the
"Shareholders"), Rock-Tenn Company, a Georgia corporation (the "Purchaser") and
Alfred C. Brooks, as escrow agent ("Escrow Agent").
W I T N E S S E T H:
WHEREAS, The Davey Company and the Purchaser entered into an Asset Purchase
Agreement, dated May , 1997 (the "Purchase Agreement"), pursuant to which the
Purchaser has acquired substantially all of the assets of The Davey Company(the
"Acquisition") in exchange for the issuance to The Davey Company of certain
shares of Class A common stock, par value $.01 per share, of the Purchaser (the
"Acquisition Shares"), subject to adjustment in accordance with the terms of the
Purchase Agreement;
WHEREAS, Escrow Agent is willing to act as escrow agent hereunder; and
WHEREAS, 40,000 of the Acquisition Shares shall remain on deposit with
Escrow Agent pursuant to Purchase Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual promises,
covenants and agreements contained herein, the parties hereto, intending to be
legally bound, hereby agree as follows:
SECTION 1
ESTABLISHMENT OF ESCROW FUND
Simultaneously with the closing of the Acquisition, pursuant to Section
2.5(b) of the Purchase Agreement, the Purchaser shall deposit with Escrow Agent
40,000 Acquisition Shares (the "Escrow Fund"). The Escrow Fund shall be held by
Escrow Agent subject to the terms and conditions hereinafter set forth.
SECTION 2
CLAIMS AGAINST THE ESCROW AMOUNT
The Escrow Amount shall secure the obligations of The Davey Company and the
Shareholders to Purchaser for the final resolution of the post-closing
adjustment of the Purchase Price under the Purchase Agreement. As promptly as
possible, after determination of the post-closing adjustment pursuant to Section
2.5 of the Purchase Agreement, Purchaser shall notify Escrow Agent (by written
instrument executed by Purchaser) of the final delivery instructions of the
Escrow Fund. Upon receipt of such instruction, Escrow Agent shall thereupon
transfer to Purchaser and/or Seller such shares as stated in the written
instrument.
SECTION 3
TERMINATION OF ESCROW FUND
The escrow provided for hereunder shall terminate completely upon the final
delivery of all shares in the Escrow Fund pursuant to Section 2.5 of the
Purchase Agreement.
SECTION 4
ESCROW AGENT
4.1 Duties. In performing any of its duties hereunder, Escrow Agent shall
not incur any liability to anyone for any damages, losses or expenses, except
for bad faith, willful default, gross negligence or breach of
A-47
<PAGE> 124
trust, and, accordingly, Escrow Agent shall not incur any such liability with
respect to any action taken or omitted (i) in good faith upon advice of its
counsel given with respect to any questions relating to the duties and
responsibilities of Escrow Agent under this Agreement, or (ii) in reliance upon
any instrument not only as to its due execution and validity and effectiveness
of its provisions but also as to the truth and accuracy of any information
contained therein, which Escrow Agent shall in good faith believe to be genuine,
to have been signed or presented by a proper person or persons and to conform
with the provisions of this Agreement.
4.2 Indemnity. Purchaser and Shareholders hereby agree to indemnify and
hold harmless Escrow Agent against any and all losses, claims, damages,
liabilities and expenses, including reasonable counsel fees and disbursements,
which may be incurred by Escrow Agent in connection with its acceptance of
appointment as the escrow agent hereunder, or the performance of its duties
hereunder, including any litigation arising from this Agreement or involving the
subject matter hereof.
4.3 Disputes. In the event of a dispute between the parties hereto
sufficient in the reasonable judgment of Escrow Agent to justify its doing so,
Escrow Agent shall be entitled to tender into the registry or custody of any
court of competent jurisdiction all money or property in its hands under this
Agreement, together with such legal pleadings as it deems appropriate, and
thereupon be discharged from all further duties and liabilities under this
Agreement. Any such legal action may be brought in such court as Escrow Agent
shall determine to have jurisdiction thereof. The filing of any such legal
proceedings shall not deprive Escrow Agent of its compensation earned prior to
such filing.
4.4 Receipt. By its execution and delivery of this Agreement, Escrow Agent
acknowledges receipt of the sum of 40,000 Acquisition Shares.
4.5 Fees. The Escrow Agent's fees hereunder shall be [ ], which
amount has been paid to Escrow Agent by [ ] contemporaneously with the
execution of this Agreement.
SECTION 5
MISCELLANEOUS
5.1 Binding Effect. This Agreement shall inure to the benefit of and shall
be binding upon Shareholders, Purchaser and Escrow Agent and their respective
successors and assigns.
5.2 Construction. This Agreement shall be deemed to be made in, and in all
respects shall be interpreted, construed and governed by and in accordance with,
the laws of the State of Georgia. No provision of this Agreement or any related
document shall be construed against or interpreted to the disadvantage of any
party hereto by any court or other governmental or judicial authority by reason
of such party's having or being deemed to have structured or drafted such
provision.
5.3 Headings. The section and paragraph headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
5.4 Notices. All notices, requests, demands and other communications made
hereunder shall be in writing and shall be deemed duly given if delivered in
person, by telecopy or sent by registered or certified mail, postage prepaid,
return receipt requested, or by overnight express courier, as follows, or to
such other address or person as either party may designate by notice to the
other party hereunder:
If to Shareholders:
[ADDRESS LISTED ON SCHEDULE 5.4 OF THIS ESCROW AGREEMENT]
If to Purchaser:
Rock-Tenn Company
504 Thrasher Road
Norcross, Georgia 30071
Attn: Chief Financial Officer
Telecopy No.: (770) 263-3582
A-48
<PAGE> 125
With copy to:
Rock-Tenn Company
504 Thrasher Road
Norcross, Georgia 30071
Attn: General Counsel
Telecopy No.: (770) 248-4402
If to Escrow Agent:
The Davey Company
164 Laidlaw Avenue
Jersey City, New Jersey 07306
Attn: Alfred C. Brooks
Telecopy No.: (201) 653-0872
With a copy to:
Greenbaum, Rowe, Smith, Ravin, Davis & Himmel
99 Wood Avenue South
Iselin, New Jersey 08830
Attn: Alan E. Davis, Esq.
Telecopy No.: (908) 549-1881
or to such other place or places or to such other person or persons as shall be
designated in writing by the parties hereto.
5.5 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
5.6 Modification. This Agreement may be modified only by a written
instrument signed by Purchaser, Representative and Escrow Agent.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
ROCK-TENN COMPANY
By:
------------------------------------
Name:
Title:
[THE DAVEY COMPANY SHAREHOLDERS]
ESCROW AGENT
By: /s/ ALFRED C. BROOKS
------------------------------------
Alfred C. Brooks
A-49
<PAGE> 126
EXHIBIT I TO ANNEX A
INDEMNIFICATION AND STOCK PLEDGE AGREEMENT
THIS INDEMNIFICATION AND STOCK PLEDGE AGREEMENT (this "Agreement"), dated
as of , 1997, is entered into by and among the parties listed on the
signature pages hereto (individually a "Pledgor" and together the "Pledgors")
and Rock-Tenn Company, a Georgia corporation (the "Company" or the "Secured
Party").
RECITALS
WHEREAS, the Pledgors are the shareholders of The Davey Company ("Davey");
WHEREAS, Davey and the Secured Party have entered into an Asset Purchase
Agreement, dated May , 1997 (the "Purchase Agreement"), pursuant to which the
Secured Party will acquire substantially all of the assets of Davey (the
"Acquisition") in exchange for the issuance to Davey of a number of shares of
Class A common stock, par value $.01 per share, of the Secured Party, as
determined pursuant to the Purchase Agreement, (the "Acquisition Shares"),
subject to adjustment in accordance with the terms of the Purchase Agreement;
WHEREAS, Davey has advised the Secured Party that it intends to distribute
to the Pledgors the Acquisition Shares and to liquidate and dissolve promptly
following the consummation of the Acquisition, such that the Pledgors will
become the direct owners of the Acquisition Shares;
WHEREAS, the Secured Party is unwilling to consummate the transactions
contemplated by the Purchase Agreement unless, among other things, each Pledgor
agrees to grant to the Secured Party, as security for the Secured Obligations
(as defined below) and on the terms and conditions hereinafter set forth, a
first priority security interest in all present and future right, title and
interest of each Pledgor in and to the Pledged Collateral (as defined below).
AGREEMENTS
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
promises and covenants contained herein, and for other good and valuable
consideration, the sufficiency and receipt of which are hereby acknowledged,
each Pledgor, intending to be legally bound, agrees with the Secured Party as
follows:
1.
SECURED OBLIGATIONS
(a) This Agreement is made in order to secure the punctual payment and
performance of any and all obligations, liabilities and amounts now or hereafter
owing to the Secured Party by Davey pursuant to the Purchase Agreement,
including without limitation, Article IX thereof (whether or not Davey's
corporate existence has then been terminated) or by any Pledgor pursuant to this
Agreement or at law, including, without limitation, the obligations of the
Pledgors as described in the next sentence, the prompt observance and
performance by each Pledgor of all of its covenants, agreements and
indemnification and other obligations hereunder and the prompt observance and
performance by Davey of its obligations under the Purchase Agreement
(collectively, the "Secured Obligations"). The Pledgors agree that they are
hereby liable (together with Davey) for Davey's obligations and liabilities
under the Purchase Agreement, with each Pledgor being severally liable for a
portion of such obligations and liabilities equal to such Pledgor's Ownership
Percentage (as hereinafter defined); provided that no Pledgor shall be liable
under this Agreement (or under any remedy available to the Secured Party under
the Purchase Agreement) with respect to such obligations and liabilities for an
amount in excess of the Maximum Indemnification Amount as defined in Section
9.5(c)
A-50
<PAGE> 127
of the Purchase Agreement multiplied by his/her respective Pledgor's Ownership
Percentage. A copy of Article IX of the Purchase Agreement is attached hereto as
Exhibit A.
(b) The Pledgors agree that Davey shall not distribute any of the Retained
Shares (as defined in the Purchase Agreement) to the Pledgors except as
permitted by Section 2.5(b) of the Purchase Agreement and the escrow agreement
referred to therein.
2.
PLEDGE
(a) As collateral security for the punctual payment and performance in full
of the Secured Obligations, each Pledgor hereby pledges, assigns, transfers,
delivers and grants to the Secured Party a first-priority security interest in
all right, title and interest of each Pledgor which presently exists or which
hereafter may arise in, to and under (i) the number of Acquisition Shares
indicated beside such Pledgor's name on Exhibit B hereto (initially represented
by the certificate number indicated beside such Pledgor's name) (the "Pledged
Shares") and all rights and privileges of each Pledgor with respect thereto,
(ii) all cash dividends, noncash dividends, stock dividends, interest, cash,
instruments and other property from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of the Pledged
Shares, (iii) any and all certificates or other instruments or documents
representing any of the foregoing, and (iv) all proceeds of any of the foregoing
and any property of any character whatsoever into which any of the foregoing may
be converted (all such property, collectively, the "Pledged Collateral").
(b) Until such time as (i) the Secured Party has provided notice to a
Pledgor of a claim against such Pledgor under this Agreement or the Purchase
Agreement or (ii) a Pledgor Default has occurred and is continuing, such Pledgor
shall be entitled to receive payment of any and all cash dividends paid by the
Secured Party with respect to the Pledged Shares to which it is otherwise
entitled, free and clear of any claim or lien of the Secured Party under this
Agreement. At any time that cash dividends are paid with respect to the Pledged
Shares following (i) a Pledgor's receipt of notice of any such claim or (ii) a
Pledgor Default, the Pledged Collateral with respect to such Pledgor shall
include a percentage of the total dividends payable with respect to the Pledged
Shares owned by such Pledgor equal to the fraction (expressed as a percentage)
(the "Claim Percentage") of (x) the aggregate sum of all amounts then claimed by
the Secured Party as being owed by such Pledgor to the Buyer Indemnified Parties
(as defined in the Purchase Agreement) as of the date of such dividend divided
by (y) the Formula Price (as defined in the Purchase Agreement) (as adjusted for
any stock splits, stock dividends or stock combinations of the Secured Party
after the date hereof) divided by (z) the total number of Pledged Shares owned
by such Pledgor as of such time. If the Claim Percentage equals or exceeds 100%,
the entire amount of such cash dividends shall constitute part of the Pledged
Collateral. Any such dividends which constitute part of the Pledged Collateral
shall be retained by the Secured Party and applied against the Secured
Obligations.
3.
REPRESENTATIONS AND WARRANTIES
Each Pledgor, severally and not jointly, represents and warrants to the
Secured Party solely as to itself and the Pledged Collateral owned (or hereafter
acquired) by it as follows:
(a) Each Pledgor is the legal and beneficial owner of the Pledged
Shares indicated on Exhibit B hereto, free and clear of any liens or other
encumbrances, other than the lien in favor of the Secured Party.
(b) The shares of common stock, no par value of Davey (the "Davey
Shares") set forth opposite such Pledgor's name on Exhibit B are legally
and beneficially owned by such Pledgor on the date hereof. Exhibit B sets
forth each Pledgor's percentage ownership of the Davey Shares (the
"Ownership Percentage").
A-51
<PAGE> 128
(c) Such Pledgor has all requisite power and authority and full legal
right to execute, deliver and perform all of such Pledgor's obligations
under this Agreement and to pledge and grant a first-priority security
interest in the Pledged Collateral owned (or to be owned) by such Pledgor
in the manner and for the purpose contemplated by this Agreement.
(d) This Agreement has been duly authorized, executed and delivered by
such Pledgor and constitutes the legal, valid and binding obligation of
such Pledgor, enforceable against such Pledgor in accordance with its
terms.
(e) The entering into and performance of this Agreement by such
Pledgor and the pledge of, and the grant of a first-priority security
interest in, the Pledged Collateral owned (or to be owned) by such Pledgor
in the manner and for the purpose contemplated by this Agreement, do not
and will not (i) violate any law, rule, regulation, order, judgment or
decree applicable to such Pledgor, (ii) result in (except as contemplated
by this Agreement), or require, the creation or imposition of any lien,
security interest, encumbrance or right of others of any nature upon or
with respect to any of the Pledged Collateral owned (or to be owned) by
such Pledgor, (iii) conflict with or constitute a breach or default under
any contract, agreement, instrument, mortgage or other obligation by which
such Pledgor is bound or (iv) require authorization, approval or other
action by, and no notice or filing with, any governmental agency or
authority or any other person.
(f) Upon the execution and delivery by such Pledgor of this Agreement
and the delivery of the Pledged Collateral owned (or to be owned) by such
Pledgor to the Secured Party, the Secured Party will obtain a valid and
perfected first-priority and only lien upon, and security interest in, such
Pledged Collateral owned (or to be owned) by such Pledgor as security for
the repayment and performance of the Secured Obligations.
(g) No portion of the Pledged Collateral owned (or to be owned) by
such Pledgor is subject to any option, agreement, assessment, charge, or
other contractual restriction of any nature which might prohibit, impair,
delay or otherwise affect the pledge of the Pledged Collateral owned (or to
be owned) by such Pledgor hereunder or the sale or disposition of the
Pledged Collateral owned (or to be owned) by such Pledgor pursuant hereto
by the Secured Party.
(h) Each Pledgor shall be deemed to restate each representation and
warranty set forth in this Section 3 as of each date that any of the
Acquisition Shares are transferred to the Pledgors.
4.
INDEMNIFICATION
(a) Each Pledgor agrees, severally and not jointly, to indemnify the
Secured Party, its successors and assigns, and the officers, directors,
affiliates, employees, controlling persons and agents of the foregoing, and to
hold each of them harmless against and in respect of any and all losses,
damages, taxes, penalties, fees or expenses incurred by any of them by reason of
(a) a breach of any of the representations and warranties made by such Pledgor
herein or (b) the nonperformance (whether partial or total) of any covenants,
agreements or obligations of such Pledgor in this Agreement.
(b) Each Pledgor agrees, severally and not jointly, to indemnify the
Secured Party, its successors and assigns, and the officers, directors,
affiliates, employees, controlling persons and agents of the foregoing, and to
hold each of them harmless against and in respect of, any and all losses,
damages, taxes, penalties, fees or expenses incurred by any of them by reason of
any circumstance or event in respect of which the Secured Party is or would be
entitled to indemnification from Davey pursuant to Article IX of the Purchase
Agreement. Each Pledgor's liability with respect to any amount payable to the
Secured Party under Article IX of the Purchase Agreement or otherwise under any
cumulative remedy (the "Indemnified Amount") shall equal (i) the Indemnified
Amount multiplied by (ii) such Pledgor's Ownership Percentage. The maximum
aggregate liability of the Pledgors under Article IX of the Purchase Agreement
shall not exceed the Maximum Indemnification Amount (as defined in Section
9.5(a) of the Purchase Agreement).
A-52
<PAGE> 129
5.
VOTING RIGHTS
(a) Subject to Section 5(b) hereof, each Pledgor shall exercise all voting
and consensual rights and powers with respect to the Pledged Collateral owned by
such Pledgor.
(b) If a Pledgor Default (as defined below) has occurred and is continuing
and the Secured Party provides notice to the Pledgors that the Secured Party
intends to exercise any or all voting and consensual rights and powers with
respect to the Pledged Collateral of each Pledgor, such rights of each Pledgor
to exercise the voting and consensual rights and powers which each such Pledgor
is entitled to exercise with respect to the Pledged Collateral of each Pledgor
shall cease, and such rights shall thereupon become vested in the Secured Party.
Thereafter, and until such time as any such Pledgor Default shall no longer be
continuing, as certified in writing by the Secured Party, the Secured Party
shall have the sole and exclusive right and authority to exercise such voting
and consensual rights and powers.
6.
DELIVERY OF PLEDGED COLLATERAL; COVENANT NOT TO TRANSFER OR ENCUMBER
(a) Each Pledgor has delivered to the Secured Party a duly executed stock
transfer power in blank with respect to the Pledged Shares of such Pledgor, with
signatures properly guaranteed. Each Pledgor agrees to promptly deliver or cause
to be delivered to the Secured Party all other Pledged Collateral of such
Pledgor received by such Pledgor in the future. At the time of any such
delivery, each Pledgor shall deliver to the Secured Party duly executed stock
transfer powers in blank with signatures properly guaranteed with respect to any
Pledged Collateral of such Pledgor the transfer of which would require such
powers.
(b) Each Pledgor agrees not to sell, assign, exchange, pledge or otherwise
transfer or encumber any of its right to any of the Pledged Collateral; provided
that a Pledgor may transfer the Pledged Collateral to any other Pledgor for any
reason or to any other person or entity for estate planning purposes so long as
the transferor, the transferee and the Representative execute and deliver to the
Secured Party such instrument as is reasonably requested by the Secured Party to
evidence the transferee's assumption of the transferor's obligations hereunder
with respect to the Pledged Collateral.
(c) At any time during the term of this Agreement, the Pledgors may elect
to cause all (but not less than all) of the Pledged Shares to be sold on the New
York Stock Exchange. Such sale shall be effected at the direction of the
Pledgors, and at least five (5) business days advance notice thereof shall be
given by the Pledgors to the Secured Party. The Pledgors will hold the Secured
Party harmless with respect to any losses to the Pledgors arising out of such
sale, and the Pledgors shall be responsible for all expenses of such sale. The
cash proceeds of such sale shall be deposited directly with a commercial bank,
as escrow agent, selected by the Secured Party, and such proceeds shall be held
and distributed by such escrow agent in accordance with an escrow agreement
substantially in the form of Exhibit C hereto, which shall be executed by the
Secured Party and the Pledgors.
7.
REMEDIES UPON DEFAULT
(a) If any Pledgor fails to pay and perform in full any of the Secured
Obligations for which such Pledgor is responsible at any time when such Secured
Obligations have become due, or if any representation or warranty of such
Pledgor hereunder is untrue, or if any Pledgor breaches any of its covenants
hereunder (any of the foregoing, a "Pledgor Default"), the Secured Party may
exercise all rights of a secured party under the Uniform Commercial Code as in
effect in the State of Georgia (the "Uniform Commercial Code") and any other
applicable laws with respect to the Pledged Collateral owned by such Pledgor.
Any obligations under the Purchase Agreement shall be treated as due for the
purposes hereof as provided in Section 9.3 of the Purchase Agreement, and any
obligations under this Agreement (including for inaccuracy of any representation
and
A-53
<PAGE> 130
warranty or breach of any covenant herein) shall be treated as due for purposes
of this Agreement when such obligation has been agreed upon in writing by the
Secured Party and the Pledgors or has been determined pursuant to any judicial
or arbitral proceeding.
(b) In addition to the foregoing, each Pledgor hereby acknowledges and
agrees that as long as the Pledged Shares are traded on the New York Stock
Exchange, the Pledged Shares constitute collateral of a type customarily sold on
a recognized market and is subject to widely distributed price quotations and
therefore, pursuant to Section 9-504(3) of the Uniform Commercial Code, the
Pledgors are not entitled to prior notice of any disposition of the Pledged
Shares following a Pledgor Default and the Secured Party is not required to
dispose of the Pledged Shares in a public sale in order to realize upon the
value thereof. Each Pledgor further acknowledges and agrees that since the
Pledges Shares constitute securities issued by the Secured Party, the Secured
Party may be subject to legal constraints in disposing of the Pledged Securities
through a sale of the Pledged Shares. Therefore, each of the Pledgors agree
that, upon a Pledgor Default, the Secured Party may, without being required to
give any notice, sell, assign, transfer, endorse and deliver the whole or, from
time to time, any part of the Pledged Collateral owned by such Pledgor, for
cash, upon credit or for other property, for immediate or future delivery, and
for such price or prices and on such terms as the Secured Party shall deem
appropriate; provided that such sale or transfer shall not occur at a price less
than the price at which such shares could then be sold through a broker on the
New York Stock Exchange or any applicable national securities exchange.
Notwithstanding the foregoing, if the Pledgor Default results from any breach by
a Pledgor of its representations and warranties under this Agreement, the
Secured Party shall give such Pledgor notice and a period of ten (10) days to
cure such breach prior to exercising any remedies under this Section 7.
(c) Upon consummation of any such sale, the Secured Party shall have the
right to assign, transfer, endorse and deliver to the purchaser or purchasers
thereof the Pledged Collateral of such Pledgor sold, and all of the voting and
consensual rights and powers with respect to the Pledged Shares shall thereupon
become vested in such purchaser or purchasers, subject to any reservations or
qualifications reasonably imposed by the Secured Party as part of such sale.
Each purchaser at any sale shall hold the property sold absolutely free from any
claim or right on the part of such Pledgor, and such Pledgor hereby waives and
releases (to the extent permitted by law) all rights of redemption, stay,
appraisal, reclamation and turnover which such Pledgor now has or may at any
time in the future have under any rule of law or statute now existing or
hereafter enacted.
(d) Each Pledgor hereby acknowledges and agrees that since the Pledged
Securities have been issued by the Secured Party, the Secured Party may be
subject to legal constraints in selling or purchasing the Pledged Securities.
Therefore, the parties hereto expressly agree that the following shall
constitute a commercially reasonable disposition of the Pledged Shares following
the occurrence of a Pledgor Default and shall not be deemed to be a retention of
the collateral in satisfaction of the Secured Obligations. Without notice to the
Pledgors, the Secured Party shall be entitled to retire and cancel a number of
the Pledged Shares (the "Forfeited Shares") equal to (A) the amount of (i) the
"Buyer Losses" (as defined in Section 9.1 of the Purchase Agreement) for which
the Pledgors are liable and (ii) any other losses or damages incurred by the
Secured Party as a consequence of a Pledgor Default divided by (B) the Share
Value (as defined below). The number of Pledged Shares so forfeited by each
Pledgor shall equal the number of Forfeited Shares multiplied by such Pledgor's
Ownership Percentage, rounded to the nearest whole share. The Secured
Obligations shall be reduced by the Share Value of the Pledged Shares forfeited
by the Pledgors hereunder. For the purposes hereof, the "Share Value" shall
equal the average closing trading price of the Secured Party's Class A Common
Stock on the New York Stock Exchange for the ten consecutive trading days ending
on the trading day prior to the cancellation of the Forfeited Shares by the
Secured Party.
(e) If the amount of such Secured Obligations exceeds the value of the
Pledged Collateral received upon any disposition hereunder, the Secured Party
may designate which of the Secured Obligations shall be credited and any amounts
not so credited shall remain as Secured Obligations and the Secured Party shall
have all rights, powers and privileges under this Agreement and applicable law
with respect to such Secured Obligations.
A-54
<PAGE> 131
(f) In the event of any claim by the Secured Party under this Agreement in
respect of any Pledgor Default, the Secured Party shall look first to the
Pledged Collateral to satisfy any such claim and may enforce such claim against
other assets of the Pledgors or any of them only to the extent the amount of the
claim exceeds the fair market value of the Pledged Collateral of such Pledgor,
and only up to the Maximum Indemnification Amount, as defined in Section 9.5(a)
of the Purchase Agreement.
8.
APPLICATION OF COLLATERAL
Any proceeds of any sale of, or realization upon, all or any part of the
Pledged Collateral owned by a Pledgor shall be applied by the Secured Party in
the following order of priority:
(a) to the payment of any and all of the Secured Obligations of such
Pledgor; and
(b) to the extent of any amounts then remaining from such proceeds, to
such Pledgor, its successors or assigns, or to whosoever may be lawfully
entitled to receive the same, or as a court of competent jurisdiction may
direct;
it being understood that subject to the limitations set forth in this Agreement
and in Article IX of the Purchase Agreement each Pledgor shall remain liable to
the Secured Party to the extent of any deficiency between the amount of the
proceeds of such distribution and the aggregate of the amounts referred to in
clause (b) of this Section 8.
9.
PLEDGEE APPOINTED ATTORNEY-IN-FACT
Upon the occurrence and during the continuance of a Pledgor Default, each
Pledgor shall be deemed to have appointed the Secured Party as the
attorney-in-fact of such Pledgor, with full authority in the place and stead of
such Pledgor and in the name of such Pledgor or otherwise, for the purpose of
carrying out the provisions of this Agreement and taking any action and
executing any instrument which the Secured Party may deem necessary or advisable
to accomplish the purposes hereof. Each Pledgor hereby declares that the
foregoing powers are granted for valuable consideration, constitute powers
granted as security for the performance of such Pledgor's obligations and are
coupled with an interest and shall be irrevocable by such Pledgor.
10.
TERMINATION OF SECURITY INTERESTS; RELEASE OF COLLATERAL
On the third anniversary of this Agreement, the Secured Party shall release
the balance of the Pledge Collateral to the respective Pledgors owning the same,
so long as no Pledgor Default then exists or is continuing. In the event that a
Pledgor Default then exists or is continuing, the Secured Party may retain the
Pledged Collateral to the extent of the Secured Party's good faith estimate of
the amount attributable to the Pledgor Default until finally determined. If the
amount finally determined to be attributable to any such Pledgor Default is less
than the fair market value of the Pledged Collateral retained by the Secured
Party, the Secured Party shall release such excess Pledged Collateral to the
Pledgor.
11.
PAYMENT OF COSTS AND EXPENSES, ETC.
Each Pledgor shall pay on demand to or for the account of the Secured
Party, on or before the date such payment is due, or reimburse the Secured Party
promptly on demand for, the Pledgor's pro rata portion (based, in the case of
the Pledgors, on such Pledgor's Ownership Percentage) all reasonable
out-of-pocket
A-55
<PAGE> 132
costs and expenses (including, without limitation, the reasonable fees and the
disbursements of counsel) of the Secured Party in connection with the proper
enforcement in accordance with the terms of this Agreement of any of the rights
of the Secured Party hereunder (other than any costs incurred in perfecting its
security interest hereunder) and the failure by such Pledgor to perform or
observe any of the provisions hereof to be performed or observed by it (but not
any other Pledgor). The Secured Party shall pay all reasonable costs and
attorneys fees incurred by such Pledgor to enforce the provisions of this
Agreement hereof if the Secured Party breaches its obligations under this
Agreement.
12.
NO IMPLIED WAIVERS; RIGHTS CUMULATIVE
No failure on the part of the Secured Party to exercise and no delay in
exercising any right, power, remedy or privilege under this Agreement, the
Purchase Agreement or provided by statute or at law or in equity or otherwise,
including, without limitation, the right to accelerate the maturity of any of
the Secured Obligations or the power of sale or foreclosure hereunder following
any Pledgor Default, shall impair, prejudice or constitute a waiver of any such
right, power, remedy or privilege or be construed as a waiver of any Pledgor
Default or as an acquiescence therein nor shall any single or partial exercise
of any such right, power, remedy or privilege preclude any other or further
exercise thereof or the exercise of any other right, power, remedy or privilege.
13.
NOTICES
All notices, communications and deliveries hereunder shall be made in
writing signed by the party making the same, shall specify the Section hereunder
pursuant to which it is given or being made, and shall be delivered personally
or by telecopy transmission or sent by registered or certified mail or by any
national overnight courier service (with postage and other fees prepaid) as
follows:
To Secured Party:
Rock-Tenn Company
504 Thrasher Road
Norcross, Georgia 30071
Attn: Chief Financial Officer
Telecopy No.: (770) 263-3582
with a copy to:
Rock-Tenn Company
504 Thrasher Road
Norcross, Georgia 30071
Attn: General Counsel
Telecopy No.: (770) 248-4402
To Pledgors (by notice to the Representative):
The Davey Company
164 Laidlaw Avenue
Jersey City, New Jersey 07306
Attn: Alfred C. Brooks
Telecopy No.: (201) 653-0872
A-56
<PAGE> 133
with a copy to:
Greenbaum, Rowe, Smith, Ravin, Davis & Himmel
99 Wood Avenue South
Iselin, New Jersey 08830
Attn: Alan E. Davis, Esq.
Telecopy No.: (908) 549-1881
or to such other representative or at such other address of a party as such
party hereto may furnish to the other parties in writing.
14.
FURTHER ASSURANCES
Each Pledgor agrees to duly execute and deliver (to the Secured Party or
otherwise), or cause to be duly executed and delivered (to the Secured Party or
otherwise), such further instruments and do and cause to be done such further
acts and things that may be necessary or as the Secured Party may at any time
and from time to time reasonably request in connection with its administration
of this Agreement or to carry out the provisions and purposes of, or to better
confirm to the Secured Party its rights and remedies under, this Agreement.
15.
SUCCESSORS AND ASSIGNS
The terms and provisions of this Agreement shall inure to the benefit of,
be binding upon, each Pledgor, the Secured Party, and all other persons from
time to time entitled to the benefit of any of the Secured Obligations, and
their respective heirs, representatives, successors and assigns; provided,
however, that no Pledgor may assign or otherwise transfer any of its rights and
interests nor delegate any of its obligations hereunder, without the prior
written consent of the Secured Party. The Secured Party shall be permitted to
assign all or part of its obligations hereunder to any subsidiary of the Secured
Party or, with the prior written consent of the Pledgor(s) then owning the
Pledged Shares, to any other party. Subject to the foregoing, any reference to
any Pledgor or the Secured Party hereunder shall be deemed to include the
successors thereto and assigns thereof.
16.
AMENDMENTS
No amendment, modification, waiver, termination or discharge of any
provision of this Agreement shall be effective unless the same shall be in
writing specifically identifying this Agreement and the provision intended to be
amended, modified, waived, terminated or discharged and signed by the Secured
Party and the Pledgors, and each such amendment, modification, waiver,
termination or discharge shall be effective only in the specific instance and
for the specific purpose for which given. No provision of this Agreement shall
be varied, contradicted or explained by any oral agreement, course of dealing or
performance or any other matter not set forth in an agreement in writing and
signed by the Secured Party and the Pledgors.
17.
GOVERNING LAW
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF GEORGIA WITHOUT REFERENCE TO ANY RULES
GOVERNING CONFLICTS OF LAWS.
A-57
<PAGE> 134
18.
SEVERABILITY
Any provision hereof which is prohibited or unenforceable in any
jurisdiction will, as to such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions
hereof, and any such prohibition or unenforceability in any jurisdiction will
not invalidate or render unenforceable such provision in any other jurisdiction.
To the extent permitted by law, the parties hereto waive any provision of law
which renders any such provision prohibited or unenforceable in any respect.
19.
HEADINGS
Headings used herein are for convenience only and shall not in any way
affect the construction of, or be taken into consideration in interpreting, this
Agreement.
20.
EXECUTION IN COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of which
counterparts, when so executed and delivered, shall be deemed to be an original,
and all of which counterparts, taken together, shall constitute one and the same
instrument.
21.
ENTIRE AGREEMENT
This Agreement and the Purchase Agreement constitute, on and as of the date
hereof, the entire agreement of the Pledgors and the Secured Party with respect
to the subject matter hereof, and all prior or contemporaneous understandings or
agreements, whether written or oral, between the Secured Party and the Pledgors
with respect to such subject matter are hereby superseded in their entireties.
22.
ENFORCEMENT OF CERTAIN RIGHTS
Nothing expressed or implied in this Agreement is intended, or shall be
construed, to confer upon or give any person, firm or corporation other than the
parties hereto, and their successors or assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement, or result in
such person, firm or corporation being deemed a third party beneficiary of this
Agreement.
23.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
All representations and warranties contained herein or made by or furnished
on behalf of the Pledgors or any of them shall survive the execution and
delivery of this Agreement and the dissolution of Davey until the fifth
anniversary hereof.
24.
ARBITRATION
(a) Any controversy, claim or question of interpretation arising out of or
relating to this Agreement or the breach thereof shall be finally settled by
arbitration in Charlotte, N.C. under the then-effective
A-58
<PAGE> 135
Commercial Arbitration Rules of the American Arbitration Association as modified
by this Agreement, and judgment on the award rendered by the arbitrators may be
entered in any court having jurisdiction. The award rendered by the arbitrators
shall be final and binding on the parties and not subject to further appeal.
Such arbitration can be initiated by written notice by any Pledgor (on the one
hand) or the Secured Party (on the other hand) (the "Claimant") to the relevant
party, which notice shall identify the Claimant's selected arbitrator. The party
receiving such notice (the "Respondent") shall identify its arbitrator within
ten (10) business days following its receipt of such notice. The arbitrator
selected by the Claimant and the arbitrator selected by the Respondent shall,
within ten (10) business days of their appointment, select a third neutral
arbitrator. In the event that they are unable to do so, either party may request
the American Arbitration Association to appoint the third neutral arbitrator.
The arbitrators shall have the authority to award any remedy or relief that a
court in Georgia could order or grant, including, without limitation, specific
performance of any obligation created under this Agreement, the issuance of
injunctive or other provisional relief, or the imposition of sanctions for abuse
or frustration of the arbitration process, but excluding punitive damages. The
arbitration award will be in writing and specify the factual and legal basis for
the award.
(b) It is the intent of the parties that any arbitration shall be concluded
as quickly as reasonably practicable. Unless the parties otherwise agree, once
commenced, the hearing on the disputed matters shall be held four (4) days a
week until concluded with each hearing date to begin at 9:00 a.m. and to
conclude at 5:00 p.m. The arbitrators shall use all reasonable efforts to issue
the final award or awards within a period of five (5) business days after
closure of the proceedings. Failure of the arbitrators to meet the time limits
of this Section 11.12(b) shall not be a basis for challenging the award.
(c) The arbitrators shall instruct the non-prevailing party to pay all
costs of the proceedings, including the fees and expenses of the arbitrators and
the reasonable attorneys' fees and expenses of the prevailing party. If the
arbitrators determine that there is not a prevailing party, each party shall be
instructed to bear its own costs and to pay one-half of the fees and expenses of
the arbitrators.
25.
PLEDGOR REPRESENTATIVE
By the execution and delivery of this Agreement, including counterparts
hereof, each Pledgor hereby irrevocably constitutes and appoints Alfred C.
Brooks as the true and lawful agent and attorney-in-fact (referred to in this
Agreement as the "Representative") of such Pledgor with full powers of
substitution to act in the name, place and stead of such Pledgor with respect to
the performance on behalf of such Pledgor under terms and provisions of this
Agreement, as the same may be from time to time amended, and to do or refrain
from doing all such further acts and things, and to execute all such documents,
as the Representative shall deem necessary or appropriate in connection with any
of the transactions contemplated under this Agreement, including without
limitation the power:
(a) to receive, hold and deliver to the Secured Party any of the
Pledged Collateral, accompanied by executed stock powers, signature
guarantees, and any other documents relating thereto on behalf of such
Pledgor, including the power to endorse and present any such certificate or
stock power on behalf of any such Pledgor;
(b) to execute and deliver all ancillary agreements, certificates, and
documents which the Representative deems necessary or appropriate in
connection with the consummation of the transactions contemplated by the
terms and provisions of this Agreement;
(c) to receive and receipt for any Pledged Collateral released by the
Secured Party;
(d) to act for such Pledgor with respect to all indemnification
matters referred to in this Agreement, including the right to compromise or
settle any such claims on behalf of such Pledgor;
(e) to act for such Pledgor with respect to any decision to sell the
Pledged Shares pursuant to Section 6(c) hereof and to execute the escrow
agreement contemplated thereby on behalf of such Pledgor;
A-59
<PAGE> 136
(f) to amend or waive any provision of this Agreement in any manner
which does not differentiate among the Pledgors;
(g) to employ and obtain the advice of legal counsel, accountants and
other professional advisors as the Representative, in its sole discretion,
deems necessary or advisable in the performance of its duties as
Representative and to rely on their advice and counsel;
(h) to incur any expenses, to liquidate and withhold assets received
on behalf of the Pledgors prior to their distribution to the Pledgors
(including the right to sell any of the Pledged Shares) to the extent of
any amount which the Representative deems necessary for payment of or as a
reserve against (i) expenses incurred by the Representative in acting under
this Agreement or the Purchaser Agreement and (ii) accrued liabilities,
obligations or expenses of Davey or Davey (Downingtown) in excess of the
assets retained by such entities for the purpose of settling such
liabilities, obligations and expenses, and to use the proceeds of such sale
for such purposes or to deposit the same in an interest-bearing bank
account or certificate of deposit or other authorized account, including a
brokerage account as permitted under the applicable plans of Liquidation of
Davey and Davey (Downingtown), established for such purpose;
(i) to receive all notices, communications and deliveries hereunder on
behalf of such Pledgor under this Agreement; and
(j) to do or refrain from doing any further act or deed on behalf of
such Pledgor which the Representative deems necessary or appropriate in its
sole discretion relating to the subject matter of this Agreement as fully
and completely as any of the Pledgors could do if personally present and
acting.
The appointment of the Representative shall be deemed coupled with an
interest and shall be irrevocable, and the Secured Party and any other person
may conclusively and absolutely rely, without inquiry, upon any action of the
Representative as the act of the Pledgors in all matters referred to in this
Agreement. Each Pledgor hereby ratifies and confirms all that the Representative
shall do or cause to be done by virtue of its appointment as Representative of
such Pledgor. The Representative shall act for the Pledgors on all of the
matters set forth in this Agreement in the manner the Representative believes to
be in the best interest of the Pledgors, but the Representative shall not be
responsible to any Pledgor for any loss or damage any Pledgor may suffer by
reason of the performance by the Representative of his duties under this
Agreement, other than loss or damage arising from willful misconduct in the
performance of his duties under this Agreement.
Each of the Pledgors hereby expressly acknowledges and agrees that the
Representative is authorized to act on behalf of such Pledgors notwithstanding
any dispute or disagreement among the Pledgors, and that the Secured Party shall
be entitled to rely on any and all action taken by the Representative under this
Agreement without liability to, or obligation to inquire of, any of the
Pledgors. If the Representative resigns or ceases to function in such capacity
for any reason whatsoever, then Stephen C. Dodd shall be the successor
Representative. If Stephen C. Dodd resigns or ceases to function then the
successor Representative shall be the person appointed as Trustee under the
Liquidating Trust Agreement adopted by Seller and made effective on the date
hereof, or if no such person is appointed, Pledgors which held a majority of the
Ownership Percentages on the date hereof shall appoint a successor; provided,
however, that if for any reason no successor has been appointed within thirty
(30) days, then any Pledgor shall have the right to petition a court of
competent jurisdiction for appointment of a successor Representative. Pledgors
do hereby jointly and severally agree to indemnify and hold the Representative
harmless from and against any and all liability, loss, cost, damage or expense
(including without limitation attorneys' fees) reasonably incurred or suffered
as a result of the performance of its duties under this Agreement except for
willful misconduct.
26.
PLEDGOR ACKNOWLEDGMENT
Davey has been represented in the preparation, negotiation and execution of
this Agreement and the Purchase Agreement by the law firm of Greenbaum, Rowe,
Smith, Ravin, Davis & Himmel, Woodbridge, New Jersey. Rock-Tenn has been
represented in the preparation, negotiation and execution of this Agreement
A-60
<PAGE> 137
and the Purchase Agreement by the law firm of King & Spalding, Atlanta, Georgia.
None of the foregoing law firms were retained to represent, nor have they
represented, the interests of any of the Pledgors with respect to this
Agreement, (including, without limitation, with respect to the tax treatment of
the transactions contemplated hereby) or the rights, liabilities and obligations
of the Pledgors, or any of them, arising from this Agreement. In the event of a
dispute or claim arising under this Agreement, neither Greenbaum, Rowe, Smith,
Ravin, Davis & Himmel nor King & Spalding, would represent the Pledgors, or any
of them, and the Pledgors would need to retain separate counsel.
EACH PLEDGOR HEREBY ACKNOWLEDGES THAT GREENBAUM, ROWE, SMITH, RAVIN, DAVIS
& HIMMEL AND KING & SPALDING DO NOT REPRESENT THE PLEDGORS OR ANY OF THEM, AND
THAT EACH SUCH PLEDGOR HAS BEEN ADVISED AND UNDERSTANDS HIS OR HER RIGHT TO
RETAIN HIS OR HER OWN COUNSEL AND TAX ADVISOR TO REVIEW THIS AGREEMENT, ADVISE
THE PLEDGOR OF HIS OR HER RIGHTS AND OBLIGATIONS UNDER THIS AGREEMENT AND THE
LEGAL, TAX AND FINANCIAL CONSEQUENCES OF THE PURCHASE AGREEMENT AND THIS
AGREEMENT TO THE PLEDGOR. BY SIGNING THIS AGREEMENT, EACH PLEDGOR REPRESENTS AND
WARRANTS TO DAVEY, ROCK-TENN, GREENBAUM, ROWE, SMITH, RAVIN, DAVIS & HIMMEL AND
KING & SPALDING THAT SUCH PLEDGOR HAS EITHER RETAINED SEPARATE COUNSEL AND TAX
ADVISOR TO REPRESENT HIS OR HER INTERESTS WITH RESPECT TO THIS AGREEMENT OR
WAIVED HIS OR HER RIGHT TO RETAIN SUCH COUNSEL AND TAX ADVISOR, WHICH WAIVER, IF
APPLICABLE, WAS MADE KNOWINGLY AND WITH KNOWLEDGE OF THE CONSEQUENCES.
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement
as of the date and year first above written.
ROCK-TENN COMPANY
By:
------------------------------------
Name:
----------------------------------
Title:
-----------------------------------
THE DAVEY COMPANY
By:
------------------------------------
Name:
----------------------------------
Title:
-----------------------------------
[DAVEY SHAREHOLDERS]
A-61
<PAGE> 138
ANNEX B
PLAN OF COMPLETE LIQUIDATION
OF THE DAVEY COMPANY
This Plan of Complete Liquidation (the "Plan") of The Davey Company, a New
Jersey corporation (the "Corporation"), is for the purpose of effecting the
complete liquidation of the Corporation in accordance with Sections 336 and
368(a)(1)(C) and (a)(2)(G) of the Internal Revenue Code of 1986, as amended (the
"Code"), Section 14A:12-4 of the New Jersey Business Corporation Act (the
"Act"), and in accordance with the terms and provisions of the Purchase and Sale
Agreement between the Corporation and Rock-Tenn Company ("Rock-Tenn"), dated as
of May 7, 1997 (the "Purchase Agreement"), pursuant to the following steps:
1. The Plan shall be adopted by the vote of the holders of 2/3 of the
outstanding shares of the Corporation entitled to vote thereon at a duly
authorized meeting of shareholders, and shall become effective upon the
Closing Date of the transaction described in and contemplated by the
Purchase Agreement.
2. The Corporation, through its officers and directors, shall take the
following action:
a. Sell substantially all of its assets to Rock-Tenn solely for
Class A common stock of Rock-Tenn, and otherwise sell or liquidate its
remaining assets into cash to the extent deemed necessary by the
officers and the directors of the Corporation (except for certain
documents and other items of historical interest which may, in the
discretion of the officers and directors of the Corporation, be donated
to any appropriate historical society);
b. Pay all of its ascertained liabilities and expenses;
c. To the extent deemed advisable by the officers and directors of
the Corporation, set apart reasonable reserves for the payment and
discharge of all unascertained contingent liabilities or expenses, and
transfer the same to a liquidating trust, pursuant to the Liquidating
Trust Agreement (the "Trust Agreement"), which shall be in the form
attached hereto as Exhibit A and made a part hereof, and which Trust
Agreement shall be adopted by the shareholders of the Corporation as an
integral part of this Plan;
d. Transfer to its wholly owned subsidiary, The Davey Company (a
Pennsylvania corporation) (the "Subsidiary"), certain assets and
liabilities, pursuant to the Bill of Sale and Assignment and Assumption
Agreement (the "Transfer Agreement"), which shall be in the form
attached hereto as Exhibit B and made a part hereof, and which Transfer
Agreement shall be adopted by the shareholders of the Corporation as an
integral part of this Plan;
e. Elect to dissolve and liquidate the Subsidiary, pursuant to a
Plan of Liquidation of the Subsidiary made effective on the effective
date of this Plan;
f. As soon as is practicable, and in all events within six (6)
months of the adoption of this Plan in accordance with paragraph 1
hereof, distribute all of its assets, less any reserve created under
subparagraph (c) and transferred pursuant to the Trust Agreement, to its
shareholders, on a pro rata basis, including, without limitation, the
capital stock of the Subsidiary (in dissolution), by one or more
liquidating distributions, in full and complete cancellation and
redemption of all of the outstanding shares of stock of the Corporation;
g. Formally dissolve in accordance with Section 14A:12-4 of the
Act; and
h. Immediately cease doing business as a going concern and continue
its activities merely for the purpose of winding up its affairs.
3. With respect to reserves established to meet claims against the
Corporation, and which are maintained after the expiration of the six (6)
month period referred to above, the Trustee, as such term is defined in the
Trust Agreement, shall arrange for distribution of any unused balance of
the reserve to the shareholders of the Corporation in accordance with the
terms and conditions of the Trust Agreement.
B-1
<PAGE> 139
4. The directors and officers of the Corporation shall carry out and
consummate the Plan, and shall have the power to adopt all resolutions,
execute all documents, and file all necessary papers, including, without
limitation, the filing of a Form 966 with the Internal Revenue Service
within thirty (30) days from the date hereof, and take all other action
they may deem necessary or desirable for the purpose of effecting the
complete liquidation and dissolution of the Corporation under Sections 336
and 368(a)(1)(C) and (a)(2)(G) of the Code, and Section 14A:12-1 et seq.,
of the Act.
B-2
<PAGE> 140
EXHIBIT A TO ANNEX B
LIQUIDATION TRUST AGREEMENT
THIS AGREEMENT made by and between The Davey Company ("Corporation") and
Alfred C. Brooks ("Trustee");
WHEREAS, the Corporation is a party to that certain Asset Purchase
Agreement by and between the Corporation and Rock-Tenn Company
("Rock-Tenn"), dated as of May 7, 1997 (the "Purchase Agreement"), pursuant
to which the Corporation has agreed to sell substantially all its assets,
and assign substantially all its liabilities, to Rock-Tenn, in exchange for
certain stock of Rock-Tenn, in a reorganization (the "Reorganization")
pursuant to Section 368(a)(1)(C) of the Internal Revenue Code of 1986, as
amended (the "Code"); and
WHEREAS, the Corporation has resolved to liquidate, as required
pursuant to the Code and related regulations governing the Reorganization;
and
WHEREAS, as part of the vote of the shareholders of the Corporation
(the "Shareholders") in which the Purchase Agreement was approved,
including the Reorganization, the Shareholders selected Alfred C. Brooks to
be Trustee of this Liquidating Trust and, upon the resignation or total
disability or death of the Trustee, Stephen C. Dodd to act as Successor
Trustee; and
WHEREAS, the Corporation desires to provide for the orderly and
expeditious payment of those of its obligations which have not been assumed
by Rock-Tenn pursuant to the Purchase Agreement, and for the distribution
of its assets, if any, remaining after payment of such obligations, to
Shareholders, as more fully set forth herein; and
WHEREAS, the Trustee has agreed to supervise such process to the
extent to which herein set forth.
NOW, THEREFORE, THE CORPORATION HEREBY ESTABLISHES THE DAVEY LIQUIDATING
TRUST, ON THE TERMS AND SUBJECT TO THE FOLLOWING CONDITIONS:
ARTICLE 1
IDENTIFICATION OF PARTIES AND TERM
Sec. 1.1 This Trust shall be known as the "Davey Liquidating Trust"
(hereinafter sometimes referred to as the "Trust."
Sec. 1.2 The "Trustee" of this Trust shall be Alfred C. Brooks. Upon the
termination, resignation or total disability or death of the Trustee, Stephen
Dodd shall act as Successor Trustee, or his successor, appointed in accordance
with Section 11.2 hereof.
Sec. 1.3 The term of this Trust shall terminate no later than three (3)
years from the date hereof; except to the extent to which the Trust only holds
installment obligations and, to that extent, only so long as is reasonably
necessary to collect and distribute the same.
ARTICLE 2
TRUST CORPUS
Simultaneously with the establishment of this Trust the Corporation shall
transfer to the Trustee of this Liquidating Trust the funds and other assets set
forth on Schedule A attached hereto and made a part hereof.
B-3
<PAGE> 141
ARTICLE 3
DEBTS OF THE CORPORATION
Sec. 3.1 The Corporation represents to the Shareholders and the Trustee
the following:
(A) To the best of its knowledge and belief, all of the assets of the
Corporation as of this date are the cash reserves and other assets listed
in Schedule A attached hereto and made a part hereof.
(B) To the best of its knowledge and belief, all of the enforceable
obligations of the Corporation are as listed in Schedule A attached hereto
and made a part hereof.
(C) To the best of its knowledge and belief, all of the claims which
could reasonably be expected to be made against the Corporation for alleged
obligations are as listed in Schedule A attached hereto and made a part
hereof.
Sec. 3.2 The Trustee shall not be under any obligation to make a diligent
search to identify any unlisted or locate any listed creditors of the
Corporation.
ARTICLE 4
REVOCABILITY
This Trust shall not be revocable.
ARTICLE 5
DISTRIBUTIONS OF INCOME AND CORPUS
Sec. 5.1 After making the determination of the obligations and contingent
liabilities against the Corporation as set forth in Article 3, the Trustee shall
determine and shall have the power to re-determine from time to time, at his
sole reasonable discretion the amount of assets necessary to satisfy such claims
and shall:
(A) identify which assets are to be retained for such purpose,
(B) identify which assets are to be retained to meet the expenses of
administering this Trust,
(C) identify which assets are to be liquidated and the proceeds used
for the purposes set forth in (A) and (B),
(D) identify which assets are, upon the satisfaction of the
obligations of this Trust, distributed in kind to the Shareholders.
Sec. 5.2 Thereafter, the Trustee shall, in his reasonable discretion, have
the power and duty to:
(A) Retain any assets to be retained for the purposes herein set
forth.
(B) Sell or liquidate assets which are to be sold for the purposes
herein set forth.
(C) Upon a determination of the maximum reasonable amounts needed to
meet claims and contingent liabilities, distribute any cash type items,
excess liquidation proceeds and investment income.
(D) Upon the satisfaction of the obligations of this Trust, distribute
assets which remain to the Shareholders, pro rata.
B-4
<PAGE> 142
ARTICLE 6
PERPETUITIES RULE
If the provisions of any Trust hereunder shall be violative of the rule
against perpetuities, then such Trust shall terminate if it has not previously
terminated, twenty-one (21) years after the death of the survivor of all of the
Shareholders.
ARTICLE 7
Accounting
Sec. 7.1 The Trustee shall have the entire care and custody of all of the
assets comprising the Trust estate and shall maintain full and accurate books of
account and records of receipts and disbursements and other financial
transactions relative to the Trust estate, all of which shall be available for
inspection upon the written request of any Shareholder or Board of Director or
officer of the Corporation, or his or her legal representative, which inspection
shall be held at a time and place mutually satisfactory to the Trustee and any
such person requesting such inspection.
Sec. 7.2 The Trustee shall not be required to render any accounting to any
court, but the Trustee shall render an account at least annually to each
Shareholder of the Corporation, and shall annually deliver to each Shareholder
any proceeds from the sale of assets or income from investments, to the extent
such funds are not required to meet contingent or known liabilities of the
Corporation. The (a) written approval of such account by such person or his or
her guardian or legal representative, or (b) the failure to object in writing to
such account within thirty (30) days of receipt of the report shall, as to all
matters and transactions stated therein, be final and binding upon all persons
(whether in being or not) who are then or may thereafter become interested in,
or entitled to share in, either the income or principal of such Trust; provided
always, however, that nothing contained in this Article shall be deemed to give
such person acting in conjunction with the Trustee the power to alter, amend,
revoke, or terminate such Trust.
ARTICLE 8
DEFINITIONS
Singular references to "Trustee" or other singular expressions used herein
shall include plural, masculine expressions shall include feminine and neuter,
and vice versa.
ARTICLE 9
POWER AND DUTIES OF TRUSTEES
Sec. 9.1 The Trustee shall have the following powers and duties, in
extension and not in limitation of the powers given to the Trustee by law, it
being intended that the Trustee possess the broadest, fullest and most complete
power and authority and in each case to be exercised from time to time in such
manner, and to such extent as the Trustee, in his sole and absolute discretion,
shall deem advisable and desirable, and without order or license of court:
(A) To take possession of any property forming a part of the Trust
estate and to hold and administer the same under the provisions hereof; and
to collect the income and profits from such property;
(B) To retain indefinitely all property in the form in which the same
shall be received by him without liability for any loss that may be
incurred thereby, and without regard to the proportion that any one asset
or class of assets may bear to the whole;
(C) To pay if deemed advisable any obligations of the Corporation,
including expenses of administration, federal and state income, transfer,
franchise, single business, license, or like taxes and fees;
B-5
<PAGE> 143
(D) To satisfy obligations of the Corporation, including the right to
compromise and to pay such claims, including without limiting the
generality of the foregoing, satisfying such obligations of the
Corporation's former wholly owned subsidiary as the Trustee, in his sole
discretion, deems are the valid, legally binding, obligations of the
Corporation;
(E) To borrow money upon terms acceptable to the Trustee from any
person or entity, including any banking corporation, and to pledge or
mortgage any property as security therefor;
(F) To open and to close checking or savings accounts, to purchase,
redeem, retain and sell certificates of deposit, in banks or similar
financial institutions, and/or to open and to close safety deposit boxes in
the name of a Trustee or in the name of a nominee, with or without
indication of any fiduciary capacity; to deposit cash and securities in and
withdraw cash from such accounts and/or boxes, with or without indication
of any fiduciary capacity; to hold such accounts and/or securities in
bearer form, or in the name of a Trustee or in the name of a nominee with
or without indication of any fiduciary capacity;
(G) To adjust, arbitrate, compromise, sue or defend, abandon or
otherwise deal with and settle any and all claims in favor of or against
the Trust estate as he shall deem proper;
(H) To employ investment counsel, custodians of estate property,
brokers, accountants, attorneys, and any other agents to act in his behalf;
generally to do any act or thing and execute all instruments necessary,
incidental or convenient to the proper administration of the Trust estate;
(I) To keep any or all of the Trust property at any place or places in
New Jersey or elsewhere within the United States or with a depository or
custodian at such place or places;
(J) To mingle, allocate and indicate the interest of any beneficiary
by book entry rather than by physical division of property;
(K) To pay over to the Shareholders the entire principal of the Trust,
thereby terminating the Trust, when in the uncontrolled discretion of the
Trustee it might become expedient or advisable to do so for the following
reasons or any other reason whatsoever which the Trustee may deem
sufficient: (a) changes in the political, economic, or social order in the
United States, (b) legislation, regulation, or court decisions detrimental
to any Trust or Trusts established hereunder, or any beneficiary thereof,
(c) lack of availability of suitable Trust investments for an extended
period, (d) insufficient principal to justify the expense of continuing the
Trust's existence, (e) other events which do or may tend to greatly impair
the intent and purposes of this instrument. Notwithstanding any other
provisions of this Agreement, the powers granted in this Subsection shall
be effective only so long as their existence will not cause the Trust
property or any part thereof to be included in the estate of the person
holding such power unless some other term or terms of this Trust Agreement
already cause such result.
Provided, however, nothing herein to the contrary otherwise withstanding, the
Trustee shall only have the power to invest cash assets in short-term
certificates of deposit or treasury bills, and shall not accept transfers of
assets consisting of listed stocks or securities, assets which are readily
marketable, operating assets of any going business, or cash in excess of a
reasonable amount to meet claims and contingent liabilities of the Corporation.
Sec. 9.2 All powers given to the Trustee by this instrument are
exercisable by the Trustee only in a fiduciary capacity. Notwithstanding any
other provisions of this Agreement, the powers vested in the Trustee under this
Article or under any other Article in this instrument shall be effective only so
long as their existence will not cause the Trust property or any part thereof to
be included in the estate of the person holding such power unless some other
term or terms of this Trust Agreement already cause such result.
Sec. 9.3 Except to the extent expressly limited or denied by the Code and
applicable regulations, and by the provisions of this Trust Agreement, the
Trustee shall be guided by the Prudent Investment Law of the State of New
Jersey, N.J.S.A. 3B:20-12 et seq., as same may be amended from time to time,
with respect to authorized investments, and without qualification, shall in all
respects, at all times, be held accountable to the standard of care required by
N.J.S.A. 3B:20-13, as the same may be amended from time to time.
B-6
<PAGE> 144
ARTICLE 10
NO OPERATION OF BUSINESS
The Trustee is not authorized to continue the Corporation's former business
of paperboard manufacturing, or any other business, but shall use his good faith
reasonable efforts to facilitate and expedite the complete liquidation of the
Corporation, and to dispose of all assets of the Corporation which were not
transferred to Rock-Tenn pursuant to the Purchase Agreement. Nothing contained
herein shall be construed so as to constitute the Shareholders, or their
successors in interest, members of an association of any type or kind.
ARTICLE 11
TRUSTEES
Sec. 11.1 The Trustee of this Trust shall be as set forth in ARTICLE 1.
Sec. 11.2 The Trustee may resign at any time by delivering to the
Successor Trustee his written resignation, in which event the resignation shall
take effect immediately. Upon the death, resignation or inability to act of the
Trustee, the Successor Trustee shall become the Trustee. Upon the death,
resignation or inability to act of the Successor Trustee, a successor shall be
appointed in writing by the affirmative vote of a majority of the then
Shareholders of the Corporation, or if none is appointed within sixty (60) days
after such death, resignation or inability to act, any Shareholder may apply to
the Superior Court of New Jersey to have a Trustee appointed by the Assignment
Judge of Hudson County.
Sec. 11.3 References to the Trustee or Trustees include the Successor
Trustee and any other successor Trustee. A successor Trustee shall succeed to
all of the title, powers, rights, discretion, obligations and immunities of the
original Trustee; provided, the successor Trustee shall not be obligated to
accept, ratify or approve of any of the acts, omissions, or defaults of the
Trustee, nor shall he be required to audit or verify the records of the Trustee.
Nor shall the fact the successor Trustee has assumed and carried out his duties
without protest or exception be deemed such an acceptance, ratification or
approval. The successor Trustee shall be entitled to rely upon any statements
and records (which may come into the successor Trustee's possession after a
reasonable search) of the Trustee as to the assets of this Trust and, shall have
no responsibility or liability hereunder to any person for the assets of this
Trust until reduced to the possession of the successor Trustee.
Sec. 11.4 No successor Trustee shall be liable for any action taken by the
Trustee prior to the time such successor Trustee becomes a Trustee.
Sec. 11.5 The Trust estate and the income therefrom shall be chargeable
with the reasonable expenses of the Trustee in the administration of the Trust,
which may include, in the sole discretion of the Trustee, the premiums for
liability insurance carried for the benefit of the Trustee. The Trustee shall
not receive compensation for performance of his services as Trustee hereunder,
but any person other than a Shareholder who is appointed to serve as Successor
Trustee shall receive compensation for such services at his or her then standard
hourly rate.
Sec. 11.6 The Trustee may rely upon any paper or document reasonably
believed by him to be genuine.
Sec. 11.7 The Trustee shall not be personally liable for any assessments,
charges or damages, or for any obligations in carrying out or effectuating the
purpose of this Trust Agreement; provided, however, that nothing shall relieve
the Trustee from liabilities arising out of his own willful misconduct.
Furthermore, the Trustee shall not be responsible in any manner whatsoever for
the validity or enforceability of this Trust Agreement.
Sec. 11.8 The Trustee may consult with legal counsel, accountants,
appraisers, and other licensed professionals, and any act or failure to act done
or omitted in good faith in accordance with the opinion of any such person shall
create no liability on the part of the Trustee.
B-7
<PAGE> 145
ARTICLE 12
MISCELLANEOUS
Sec. 12.1 No bond or other security shall be required of any Trustee
serving hereunder at any time, including any successor, any provision of law to
the contrary notwithstanding.
Sec. 12.2 No person dealing with a Trustee shall be required to see to the
application or disposition by the Trustee of any cash or property transferred or
delivered to or on the order of the Trustee, nor shall any such person be
required to inquire into the authority for or propriety of any action by the
Trustee.
Sec. 12.3 Any one or more of the Trustees may disclaim or release, in
whole or in part, any power or discretion given to them with respect to the
Trust by filing with the Court a written instrument to that effect, and giving
written notice to the other Trustee.
Sec. 12.4 All questions pertaining to the validity, interpretation,
construction and enforcement of this Trust Agreement, and to the administration
of the Trust and the Trust Fund, shall be determined in accordance with the laws
of the State of New Jersey in effect from time to time.
Sec. 12.5 To the same effect as if it were the original, anyone may rely
upon a copy certified by a notary public to be a true counterpart of this
instrument (and of the writings, if any, endorsed thereon or attached thereto).
Anyone may rely upon any statement of fact relating to this Trust Agreement or
the Trust, which statement of fact is certified under oath by any one who
appears from the original document, or a certified copy, to be the Trustee
hereunder. This Trust Agreement may be executed in several counterparts any of
which shall constitute an original.
Sec. 12.6 The headings and captions used herein are inserted for
convenience of reference only and are not intended to be a part of or to affect
the meaning or interpretation of this Trust Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement this
day of , 1997.
<TABLE>
<S> <C>
THE DAVEY COMPANY
Attest:
By:
- -------------------------------------------- --------------------------------------------
Stephen C. Dodd, Secretary Alfred C. Brooks, President
TRUSTEE:
Witness:
- -------------------------------------------- --------------------------------------------
Alfred C. Brooks
</TABLE>
B-8
<PAGE> 146
<TABLE>
<S> <C>
STATE OF NEW JERSEY
ss:
COUNTY OF MIDDLESEX
</TABLE>
BE IT REMEMBERED, that on , 1997, before me, the
subscriber, personally appeared ALFRED C. BROOKS, who I am satisfied, is the
person named in and who executed the within Instrument, and thereupon he
acknowledged that he signed, sealed and delivered the same as his act and deed,
for the uses and purposes therein expressed.
--------------------------------------
Notary Public
<TABLE>
<S> <C>
STATE OF NEW JERSEY
SS:
COUNTY OF MIDDLESEX
</TABLE>
I CERTIFY that on , 1997, STEPHEN C. DODD personally
came before me and this person acknowledged under oath, to my satisfaction,
that:
(a) this person is the Secretary of THE DAVEY COMPANY, the entity
named in this document;
(b) this person is the attesting witness to the signing of this
document by the proper corporate officer who is Alfred C. Brooks, President
of the corporation;
(c) this document was signed and delivered by the corporation as its
voluntary act duly authorized by its Board of Directors;
(d) this person knows the proper seal of the corporation which was
affixed to this document; and
(e) this person signed this proof to attest to the truth of these
facts.
--------------------------------------
Stephen C. Dodd, Secretary
Signed and sworn to before
me this day of , 1997.
- --------------------------------------
NOTARY PUBLIC
B-9
<PAGE> 147
SCHEDULE A
ASSETS AND LIABILITIES*
<TABLE>
<CAPTION>
CONTINGENT LIABILITIES AMOUNT OF RESERVE
- ---------------------- -----------------
<S> <C>
Professional (Legal and Accounting) Fees.................... $100,000
Workers Compensation Claims Payable by the Corporation...... $350,000
Health Insurance Benefits Payable by the Corporation........ $450,000
Taxes Payable to Federal, State and Local taxing
authorities............................................... $400,000
Contingency Reserve, to be held until all other reserves are
distributed............................................... The net proceeds of the
Escrowed Shares (as
defined below)
</TABLE>
The foregoing reserves consist of the following assets:
Cash in banks: to be determined by officers and directors of the
Corporation.
Certificates of Deposit: to be determined by officers and directors of
the Corporation.
Other (specify):
A. The net proceeds from the sale of any or all shares of the Class A
capital stock of Rock-Tenn, par value $.01, which is being held by
Rock-Tenn, as Secured Party, under Section 2 of that certain
Indemnification and Stock Pledge Agreement by and among the Corporation,
Rock-Tenn, the Shareholders of the Corporation, and the Trustee (as
Representative of the Pledgors), dated the date hereof (the "Escrowed
Shares"), may be transferred to the Trust, in the discretion of the
Representative.
B. The family heirlooms and other materials listed on Schedule 1.3(h)
of the Purchase Agreement.
- ---------------
* All amounts set forth on this Schedule are estimates made as of the date of
execution of the Purchase Agreement and are subject to final determination by
the officers and directors of the Corporation.
B-10
<PAGE> 148
EXHIBIT B TO ANNEX B
BILL OF SALE AND ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS BILL OF SALE AND ASSIGNMENT AND ASSUMPTION AGREEMENT ("Agreement"),
dated 1997, by and between THE DAVEY COMPANY, a New Jersey
corporation having its principal place of business at 164 Laidlaw Avenue, Jersey
City, New Jersey 07306 ("Davey"), and THE DAVEY COMPANY, a Pennsylvania
corporation, having its principal place of business at 600 Brandywine Avenue,
Downingtown, Pennsylvania 19335 ("Davey Downingtown").
WHEREAS, Davey is the sole shareholder of all the issued and outstanding
capital stock of Davey Downingtown, and Davey Downingtown is the sole subsidiary
of Davey; and
WHEREAS, Davey is a party to that certain Asset Purchase Agreement by and
between Davey and Rock-Tenn Company ("Rock-Tenn"), dated as of May 7, 1997 (the
"Purchase Agreement"), pursuant to which Davey has agreed to sell substantially
all its assets, and assign substantially all its liabilities, to Rock-Tenn, in
exchange for certain stock of Rock-Tenn, in a reorganization (the
"Reorganization") pursuant to Section 368(a)(1)(C) of the Internal Revenue Code
of 1986, as amended (the "Code"); and
WHEREAS, as part of the Reorganization and the consummation of the
transactions contemplated in the Purchase Agreement, certain assets and
liabilities of Davey Downingtown are to be transferred to Davey for further
transfer to Rock-Tenn, and certain assets and liabilities of Davey are to be
transferred to Davey Downingtown in order to accomplish the complete liquidation
and dissolution of both Davey and Davey Downingtown in an orderly fashion; and
WHEREAS, for many years, Davey Downingtown has owned and operated certain
real property located in Downingtown, Pennsylvania (the "Downingtown Property");
and
WHEREAS, it has come to the attention of Davey and Davey Downingtown that
the Downingtown Property may be the site of environmental contamination which
will require remediation (the "Remediation") prior to the sale of the
Downingtown Property as part of the liquidation and dissolution of Davey
Downingtown; and
WHEREAS, neither Davey nor Davey Downingtown is able to ascertain the
length of time which may be required to accomplish the Remediation; and
WHEREAS, Davey has determined to cease its operations and those of Davey
Downingtown, and as a result of such cessation of operations, certain
obligations to the former employees of Davey Downingtown have arisen under
Federal law; and
WHEREAS, the requirement to undertake the Remediation also arises as a
result of the termination of operations at Davey Downingtown; and
WHEREAS, Davey has accepted responsibility for certain of the aforesaid
liabilities; and WHEREAS, Davey desires to provide for the orderly payment of
all obligations of Davey and Davey Downingtown, pursuant to Plans of Liquidation
which are effective as of the effective date of this Agreement, including
without limitation the aforesaid employment-related and environmental
responsibilities, which liabilities have not been assumed by Rock-Tenn.
NOW, THEREFORE, it is agreed as follows:
1. Davey does hereby convey, transfer and assign as of the Transfer
Date (as hereafter defined), all of the assets listed on Schedule A
attached hereto and made a part hereof, for and in consideration of the
assumption by the Davey Downingtown of all of the liabilities listed on
Schedule A. As of the Transfer Date, Davey Downingtown in consideration of
the transfer of the assets set forth on Schedule A, hereby assumes from
Davey all of the liabilities set forth on Schedule A.
2. Davey Downingtown does hereby convey, transfer and assign as of the
Transfer Date (as hereafter defined), all of the assets listed on Schedule
B attached hereto and made a part hereof, for and
B-11
<PAGE> 149
in consideration of the assumption by the Davey Downingtown of all of the
liabilities listed on Schedule B. As of the Transfer Date, Davey
Downingtown in consideration of the transfer of the assets set forth on
Schedule B, hereby assumes from Davey all of the liabilities set forth on
Schedule B.
3. Each of Davey and Davey Downingtown hereby warrants and represents
to the other party hereto that (a) it has sole legal right, respectively,
to the assets listed on Schedules A and B, respectively, and no other
person has any legal rights or security interest in such assets, except the
interest of Rock-Tenn pursuant to the Purchase Agreement, and the interest
of First Union National Bank (which is to be discharged by Rock-Tenn as of
the Transfer Date); (b) there are no pending lawsuits or judgments against
it, or other legal obligations, which may be enforced against such assets;
(c) no bankruptcy or insolvency proceedings have been started or are
pending against it.
4. Davey agrees that in the event the costs of the Remediation exceed
the amount transferred to Davey Downingtown for such Remediation, as set
forth on Schedule A, and provided Davey determines that the Remediation is
the liability of Davey, Davey will make available to the Trustee under the
Davey Downingtown Liquidating Trust, dated the date hereof, the net
proceeds from the sale of those shares of Rock-Tenn Class A stock, par
value $.01, which shares are to be released by Rock-Tenn on that date which
is three (3) years from the Transfer Date, pursuant to the Indemnification
and Stock Pledge Agreement dated the date hereof.
5. For the avoidance of any doubt which may arise from the similarity
of the names of Davey and Davey Downingtown, the parties hereto agree that
the contracts and agreements set forth on Schedule C attached hereto and
made a part hereof are, and have been, those of Davey Downingtown, and are
not those of Davey.
6. For purposes of this Agreement, the Transfer Date shall be defined
as the date of the consummation of the transactions contemplated by the
Purchase Agreement.
7. This Agreement shall be construed in accordance with the laws of
the State of New Jersey.
IN WITNESS WHEREOF, the parties hereto have executed this Bill of Sale and
Assignment and Assumption Agreement as of the date first written above.
<TABLE>
<S> <C>
THE DAVEY COMPANY (a New Jersey corporation)
Attest:
By:
- --------------------------------------------- -----------------------------------------
Stephen C. Dodd, Secretary Alfred C. Brooks, President
THE DAVEY COMPANY (a Pennsylvania
corporation)
Attest:
By:
- --------------------------------------------- -----------------------------------------
Stephen C. Dodd, Secretary Alfred C. Brooks, President
</TABLE>
B-12
<PAGE> 150
SCHEDULE A
ASSETS AND LIABILITIES TRANSFERRED BY DAVEY TO DAVEY DOWNINGTOWN
ASSETS:
*1. Cash and marketable securities in the amount of $2,380,000.00, to be
used for following purposes:
<TABLE>
<S> <C>
Severance and other payments to former employees:........... $ 500,000
Building management......................................... 225,000
Refund of State grant....................................... 100,000
Utilities................................................... 115,000
Property Taxes.............................................. 65,000
Office, Travel and Miscellaneous............................ 225,000
Insurance................................................... 50,000
Professional Fees........................................... 50,000
Environmental Remediation................................... 1,000,000
</TABLE>
- ---------------
* All amounts set forth on this Schedule are estimates made as of the date of
execution of the Purchase Agreement and are subject to final determination by
the officers and directors of the Corporation.
2. Any and all amounts recovered or recoverable by Davey in the following
matters:
A. The Davey Company v. Montrose Paper, Inc. -- Sixteenth Judicial
Circuit, Kane County, Illinois, Case No. L KA 93-0537.
B. The Davey Company v. Shields Technologies, Ltd. -- Sixteenth
Judicial Circuit, Kane County, Illinois, Case No. L KA 94-0661, complaint
filed August 16, 1994.
C. Claims for the proceeds of insurance for losses suffered by Davey
in a dryer fire at the Aurora, IL facility of Davey during April, 1997.
3. Davey Downingtown hereby acknowledges that it has received from Davey a
deed to certain real property located in Leavenworth, Kansas, the fair market
value of which is approximately $150,000.
LIABILITIES:
1. Liabilities and obligations arising under Federal and State
environmental laws, rules and regulations as a result of the cessation of
business operations, at the direction and request of Davey, at the real property
owned by Davey Downingtown and located in Downingtown PA, up to the amount of
$1,500,000.
2. Liabilities arising under applicable Federal and State labor laws,
including the Worker Adjustment and Retraining Notification Act and the National
Labor Relations Board Act, and arising as a result of cessation of business
operations by Davey Downingtown at the direction and request of Davey.
B-13
<PAGE> 151
SCHEDULE B
ASSETS AND LIABILITIES TRANSFERRED BY DAVEY DOWNINGTOWN TO DAVEY
ASSETS:
1. All the following furniture, fixtures and equipment:
(a) Starting at the skip hoist feeding the pulper, all pulpers,
cyclone cleaners, refiners, pressure screens and metal stock chests
as paper fiber slurry is pumped to wet lap paper machine;
(b) The pipe that conveys fiber slurry and process water;
(c) All pumps, motors and motor control centers for the above
equipment;
(d) The wet lap paper machines (forming, pressing, drying and
take-off);
(e) All converting equipment (densifiers, cut-to-size machines,
rounded corner, ream cutter);
(f) All fork lifts;
(g) All mechanical and electrical spare parts along with machine shop
equipment;
(h) All spare parts for process equipment.
(i) All air compressors and air dryers.
2. All accounts receivable of Davey Downingtown as of the Transfer Date.
3. All inventory, raw materials and work in process of Davey Downingtown as
of the Transfer Date.
LIABILITIES:
1. Lease Agreement between The Davey Company and Sanwa Business Credit
Corporation -- concerns lease of Kamatsu Forklift.
2. Lease Agreement between The Davey Company and Associates Leasing,
Inc. -- concerns lease of Cat Lift Truck Model GP-25.
3. Long-Term Rental Agreement between The Davey Company and Caterpillar
Financial Services Corporation -- concerns one new Caterpillar V50E Lift Truck.
4. Lease between The Davey Company and Deere Credit, Inc. -- concerns one
JDN575 Skid Steer Loader.
5. Master Equipment Lease Agreement between The Davey Company and Citicorp
Dealer Finance -- concerns one 1994 Prime Mover, Model RC30B.
6. Lease between The Davey Company and Lease Associates, Inc. -- concerns
one RICOH Fax 800.
7. Lease between The Davey Company and Simplex Time Recorder
Co. -- concerns one time clock, Model No. 1403-9802 with bell ringer.
8. Maintenance Agreement between The Davey Company and Fairchild
Communications Services Company -- concerns maintenance of an NEC phone system.
9. Equipment Maintenance and Supply Annual Maintenance Agreement between
The Davey Company and Advanced Office Equipment -- concerns Minolta 4233 Copier.
10. Service Agreement between The Davey Company and Digital Equipment
Corporation -- concerns Tri-Com System.
11. Agreement between The Davey Company and Strategis Asset Valuation &
Management.
12. Contract between The Davey Company and Commercial Utility Consultants.
13. All trade accounts payable of Davey Downingtown.
B-14
<PAGE> 152
SCHEDULE C
CONTRACTS AND AGREEMENTS OF DAVEY DOWNINGTOWN
1. Paper Recycling Purchase Agreement between The Davey Company and The
Government of Chester County, P.A.
2. Paper Purchase Agreement between The Davey Company and Honeybrook
Township.
3. Recycled Paper Purchase Agreement between The Davey Company and The
Tredyffrin Eastown School District.
4. Recycled Paper Purchase Agreement between The Davey Company and
Unionville-Chadds Ford School District.
5. Recycled Paper Purchase Agreement between The Davey Company and
Phoenixville School District.
6. Recycled Paper Purchase Agreement between The Davey Company and West
Nottingham Township.
7. Paper Recycling Purchasing Agreement between The Davey Company and
Central Chester County Recycling Authority.
8. Recycled Paper Purchase Agreement between The Davey Company and Oxford
Area School District.
9. Municipal Recycling Program Grant Agreement between East Caln Township
and The Davey Company.
10. Agreement between The Davey Company and Security Service
Company -- Contract # KZ2321.
11. Agreement between The Davey Company and Security Service
Company -- Contract # KZ 0829.
12. Agreement between The Davey Company and Security Service
Company -- Contract # KZ-0877.
B-15
<PAGE> 153
ANNEX C
PLAN OF COMPLETE LIQUIDATION
OF THE DAVEY COMPANY
(A PENNSYLVANIA CORPORATION)
This Plan of Complete Liquidation (the "Plan") of The Davey Company, a
Pennsylvania corporation (the "Corporation"), is for the purpose of effecting
the complete liquidation of the Corporation in accordance with Sections 336 of
the Internal Revenue Code of 1986, as amended (the "Code"), pursuant to the
following steps:
1. The Plan shall be adopted by the vote of the holders of two-thirds
of the outstanding shares of the Corporation entitled to vote thereon at a
duly authorized meeting of shareholders, and shall become effective upon
the Closing Date of the transaction described in and contemplated by that
certain Purchase and Sale Agreement between The Davey Company, a New Jersey
corporation (the "Parent Corporation"), and Rock-Tenn Company, a Georgia
corporation ("Rock-Tenn"), dated as of May 7, 1997 (the "Purchase
Agreement")
2. The Corporation, through its officers and directors, shall take the
following action:
a. Receive from the Parent Corporation certain assets and
liabilities, pursuant to the Bill of Sale and Assignment and Assumption
Agreement (the "Transfer Agreement"), which shall be in the form
attached hereto as Exhibit B and made a part hereof, which Transfer
Agreement shall be adopted by the shareholders of the Corporation as an
integral part of this Plan, and the assets and liabilities transferred
in accordance with the Transfer Agreement shall be treated by the
officers and directors of the Corporation as being subject to the
provisions of subparagraph (e) hereof;
b. Immediately cease doing business as a going concern and continue
its activities merely for the purpose of winding up its affairs.
c. Formally dissolve in accordance with the Pennsylvania Business
Corporation Law of 1988; and
d. Sell or otherwise liquidate its remaining assets and pay all of
its to comment number and expenses;
e. To the extent deemed advisable by the officers and directors of
the Corporation, set apart reasonable reserves for the payment and
discharge of all unascertained contingent liabilities or expenses, and
transfer the same to a liquidating trust, pursuant to the Liquidating
Trust Agreement (the "Trust Agreement"), which shall be in the form
attached hereto as Exhibit A and made a part hereof, and which Trust
Agreement shall be adopted by the shareholders of the Corporation as an
integral part of this Plan;
f. Distribute all of its assets, less any reserve created under
subparagraph (e) above and transferred pursuant to the Trust Agreement,
to its shareholders, on a pro rata basis, by one or more liquidating
distributions.
3. The unused portion, if any, of the reserves established to meet
claims against the Corporation, and which are maintained pursuant to the
Trust Agreement, shall be distributed to the shareholders of the
Corporation in accordance with the terms and conditions of the Trust
Agreement.
4. The directors and officers of the Corporation shall carry out and
consummate the Plan, and shall have the power to adopt all resolutions,
execute all documents, and file all necessary papers, including, without
limitation, the filing of a Form 966 with the Internal Revenue Service
within thirty (30) days from the date hereof, and take all other action
they may deem necessary or desirable for the purpose of effecting the
complete liquidation and dissolution of the Corporation under Section 336
of the Code, and the Pennsylvania Business Corporation Law of 1988,
including without limitation, Subchapter H thereof.
C-1
<PAGE> 154
EXHIBIT A TO ANNEX C
LIQUIDATION TRUST AGREEMENT
THIS AGREEMENT made by and between The Davey Company (a Pennsylvania
corporation) ("Corporation") and Alfred C. Brooks ("Trustee");
WHEREAS, the Corporation is the wholly owned subsidiary of The Davey
Corporation, a New Jersey (the "Parent"), which is a party to that certain
Asset Purchase Agreement by and between the Parent and Rock-Tenn Company
("Rock-Tenn"), dated as of May 7, 1997 (the "Purchase Agreement"), pursuant
to which the Parent has agreed to sell substantially all its assets, and
assign substantially all its liabilities, to Rock-Tenn, in exchange for
certain stock of Rock-Tenn, in a reorganization (the "Reorganization")
pursuant to Section 368(a)(1)(C) of the Internal Revenue Code of 1986, as
amended (the "Code"); and
WHEREAS, the Parent has resolved to liquidate, as required pursuant to
the Code and related regulations governing the Reorganization; and
WHEREAS, as part of its liquidation, the Parent elected to liquidate
and dissolve the Corporation, pursuant to Section 336 of the Code, and
thereafter the Parent has distributed to its shareholders (the
"Shareholders"), pro rata, its shares of the Corporation; and
WHEREAS, as part of the vote of the shareholders of the Parent (the
"Shareholders") in which the Purchase Agreement was approved, including the
Reorganization, the Shareholders selected Alfred C. Brooks to be Trustee of
this Liquidating Trust and, upon the resignation or total disability or
death of the Trustee, Stephen C. Dodd to act as Successor Trustee; and
WHEREAS, the Corporation desires to provide for the orderly payment of
those of its obligations, and for the sale and distribution of its assets,
if any, remaining after payment of such obligations, to Shareholders, as
more fully set forth herein; and
WHEREAS, the Trustee has agreed to supervise such process to the
extent to which herein set forth.
NOW, THEREFORE, THE CORPORATION HEREBY ESTABLISHES THE DAVEY DOWNINGTOWN
LIQUIDATING TRUST, ON THE TERMS AND SUBJECT TO THE FOLLOWING CONDITIONS:
ARTICLE 1
IDENTIFICATION OF PARTIES AND TERM
Sec. 1.1 This Trust shall be known as the "Davey Downingtown Liquidating
Trust" (hereinafter sometimes referred to as the "Trust."
Sec. 1.2 The "Trustee" of this Trust shall be Alfred C. Brooks. Upon the
termination, resignation or total disability or death of the Trustee, Stephen
Dodd shall act as Successor Trustee, or his successor, appointed in accordance
with Section 11.2 hereof.
Sec. 1.3 The term of this Trust shall terminate upon completely providing
for all then known claims and obligations of the Corporation and the sale of its
assets and distribution of the proceeds, if any, to the Shareholders; except to
the extent to which the Trust only holds installment obligations and, to that
extent, only so long as is reasonably necessary to collect and distribute the
same, but in no event shall terminate in less than two (2) years from the date
hereof.
C-2
<PAGE> 155
ARTICLE 2
TRUST CORPUS
Simultaneously with the establishment of this Trust the Corporation shall
transfer to the Trustee of this Liquidating Trust the funds and other assets set
forth on Schedule A attached hereto and made a part hereof.
ARTICLE 3
DEBTS OF THE CORPORATION
Sec. 3.1 The Corporation represents to the Shareholders and the Trustee
the following:
(A) To the best of its knowledge and belief, all of the assets of the
Corporation as of this date are the cash reserves and other assets listed
in Schedule A attached hereto and made a part hereof.
(B) To the best of its knowledge and belief, all of the enforceable
obligations of the Corporation are as listed in Schedule A attached hereto
and made a part hereof.
(C) To the best of its knowledge and belief, all of the claims which
could reasonably be expected to be made against the Corporation for alleged
obligations are as listed in Schedule A attached hereto and made a part
hereof.
Sec. 3.2 The Trustee shall not be under any obligation to make a diligent
search to identify any unlisted or locate any listed creditors of the
Corporation, except as required to fulfill the Trustee's obligations under the
Pennsylvania Business Corporation Law of 1988 (the "Law").
ARTICLE 4
REVOCABILITY
This Trust shall not be revocable.
ARTICLE 5
DISTRIBUTIONS OF INCOME AND CORPUS
Sec. 5.1 After making the determination of the obligations and contingent
liabilities against the Corporation as set forth in Article 3, the Trustee shall
determine and shall have the power to re-determine from time to time, at his
sole reasonable discretion, subject only to the Law, the amount of assets
necessary to satisfy such claims and shall:
(A) identify which assets are to be retained for such purpose,
(B) identify which assets are to be retained to meet the expenses of
administering this Trust,
(C) identify which assets are to be liquidated and the proceeds used
for the purposes set forth in (A) and (B),
(D) identify which assets are, upon the satisfaction of the
obligations of this Trust, distributed in kind to the Shareholders.
Sec. 5.2 Thereafter, the Trustee shall, in his reasonable discretion,
subject only to the Law, have the power and duty to:
(A) Retain any assets to be retained for the purposes herein set
forth.
(B) Sell or liquidate assets which are to be sold for the purposes
herein set forth.
(C) Upon a determination of the maximum reasonable amounts needed to
meet claims and contingent liabilities, distribute any cash type items,
excess liquidation proceeds and investment income.
C-3
<PAGE> 156
(D) Upon the satisfaction of the obligations of this Trust, distribute
assets which remain to the Shareholders, pro rata, in full and complete
cancellation of all of the outstanding shares of stock of the Corporation,
the presentation of which shall be evidence of the interest of each
Shareholder in the proceeds of the Trust, if any.
ARTICLE 6
PERPETUITIES RULE
If the provisions of any Trust hereunder shall be violative of the rule
against perpetuities, then such Trust shall terminate if it has not previously
terminated, twenty-one (21) years after the death of the survivor of all of the
Shareholders.
ARTICLE 7
ACCOUNTING
Sec. 7.1 The Trustee shall have the entire care and custody of all of the
assets comprising the Trust estate and shall maintain full and accurate books of
account and records of receipts and disbursements and other financial
transactions relative to the Trust estate, all of which shall be available for
inspection upon the written request any Shareholder or Board of Director or
officer of the Corporation, or his or her legal representative, which inspection
shall be held at a time and place mutually satisfactory to the Trustee and any
such person requesting such inspection.
Sec. 7.2 Except as may be required under the Law, the Trustee shall not be
required to render any accounting to any court, but the Trustee shall render an
account at least annually to each Shareholder of the Corporation, and shall
annually deliver to each Shareholder any proceeds from the sale of assets or
income from investments, to the extent such funds are not required to meet
contingent or known liabilities of the Corporation. The (a) written approval of
such account by such person or his or her guardian or legal representative, or
(b) the failure to object in writing to such account within thirty (30) days of
receipt of the report shall, as to all matters and transactions stated therein,
be final and binding upon all persons (whether in being or not) who are then or
may thereafter become interested in, or entitled to share in, either the income
or principal of such Trust; provided always, however, that nothing contained in
this Article shall be deemed to give such person acting in conjunction with the
Trustee the power to alter, amend, revoke, or terminate such Trust.
ARTICLE 8
DEFINITIONS
Singular references to "Trustee" or other singular expressions used herein
shall include plural, masculine expressions shall include feminine and neuter,
and vice versa.
ARTICLE 9
POWER AND DUTIES OF TRUSTEES
Sec. 9.1 The Trustee shall provide for the post-dissolution liabilities of
the Corporation in accordance with 15 Pa.C.S.A. sec. 1991 et seq., and shall
have the following powers and duties, in extension and not in limitation of the
powers given to the Trustee by law, it being intended that the Trustee possess
the broadest, fullest and most complete power and authority and in each case to
be exercised from time to time in such
C-4
<PAGE> 157
manner, and to such extent as the Trustee, in his sole and absolute discretion,
shall deem advisable and desirable, and without order or license of court, in
order to carry out his duties:
(A) To take possession of any property forming a part of the Trust
estate. To receive additions to the Trust under this instrument by gift or
otherwise, and to hold and administer the same under the provisions hereof;
and to collect the income and profits from such property;
(B) To retain indefinitely all property in the form in which the same
shall be received by him so acquired through investments or otherwise
without liability for any loss that may be incurred thereby, and without
regard to the proportion that any one asset or class of assets may bear to
the whole;
(C) To pay if deemed advisable any obligations of the Corporation,
including expenses of administration, federal and state income, transfer,
franchise, single business, license, or like taxes and fees;
(D) To satisfy obligations of the Corporation, including the right to
compromise and to pay such claims;
(E) To borrow money upon terms acceptable to the Trustee from any
person or entity, including any banking corporation, and to pledge or
mortgage any property as security therefor and to renew any indebtedness
incurred by the Corporation or by the Trustee;
(F) To open and to close checking or savings accounts, to purchase,
redeem, retain and sell certificates of deposit, in banks or similar
financial institutions, and/or to open and to close safety deposit boxes in
the name of a Trustee or in the name of a nominee, with or without
indication of any fiduciary capacity; to deposit cash and securities in and
withdraw cash from such accounts and/or boxes, with or without indication
of any fiduciary capacity; to hold such accounts and/or securities in
bearer form, or in the name of a Trustee or in the name of a nominee with
or without indication of any fiduciary capacity;
(G) To adjust, arbitrate, compromise, sue or defend, abandon or
otherwise deal with and settle any and all claims in favor of or against
the Trust estate as he shall deem proper;
(H) To employ investment counsel, custodians of estate property,
brokers, accountants, attorneys, and any other agents to act in his behalf;
generally to do any act or thing and execute all instruments necessary,
incidental or convenient to the proper administration of the Trust estate;
(I) To keep any or all of the Trust property at any place or places in
Pennsylvania or elsewhere within the United States or with a depository or
custodian at such place or places;
(J) To mingle, to allocate and indicate the interest of any
beneficiary by book entry rather than by physical division of property;
(K) To pay over to the Shareholders the entire principal of the Trust,
thereby terminating the Trust, when in the uncontrolled discretion of the
Trustee it might become expedient or advisable to do so for the following
reasons or any other reason whatsoever which the Trustee may deem
sufficient: (a) changes in the political, economic, or social order in the
United States, (b) legislation, regulation, or court decisions detrimental
to any Trust or Trusts established hereunder, or any beneficiary thereof,
(c) lack of availability of suitable Trust investments for an extended
period, (d) insufficient principal to justify the expense of continuing the
Trust's existence, (e) other events which do or may tend to greatly impair
the intent and purposes of this instrument. Notwithstanding any other
provisions of this Agreement, the powers granted in this Subsection shall
be effective only so long as their existence will not cause the Trust
property or any part thereof to be included in the estate of the person
holding such power unless some other term or terms of this Trust Agreement
already cause such result;
(L) To purchase and sell publicly held and traded stock and other
securities; to give general or special proxies or powers of attorney for
voting or acting in respect of shares or securities, which may be
discretionary and with power of substitution; to deposit shares or
securities with, or transfer them to, protective committees or similar
bodies; to join in any reorganization called for in connection with shares
or securities held by the Trustee;
C-5
<PAGE> 158
(M) To option, sell and convey, mortgage, encumber, lease, exchange,
pledge, partition, plat, subdivide, improve, repair, surrender, abandon or
otherwise deal with or dispose of any and all property forming a part of
the Trust estate, at such time or times and in such manner and upon such
terms as, in the absolute and uncontrolled discretion of the Trustee may be
deemed expedient and proper; to execute deeds, transfers, leases, pledges,
mortgages, and other instruments of any kind. Any leases and contracts may
extend beyond the term of the Trust;
(N) As part of the liquidation or sale process, to construct, alter or
repair buildings or structures on real estate; to settle boundary lines and
easements and other rights with respect to real estate; to partition and to
join with co-owners and others in dealing with real estate in any way;
(O) To abandon any property, real or personal, which the Trustee shall
deem to be worthless or not of sufficient value to warrant keeping or
protecting; to abstain from the payment of taxes, water rents, assessments,
repairs, maintenance and upkeep of such worthless property; to permit such
worthless property to be lost by tax sale or other proceeding, or to convey
any such worthless property for nominal or no consideration;
(P) To pledge, mortgage or use as security any property; to pay off
and satisfy any mortgage or any other security interest to which any
property held under this Trust Agreement shall be subject, and to use for
that purpose any property, real or personal, held under this Trust
Agreement.
Sec. 9.2 All powers given to the Trustee by this instrument are
exercisable by the Trustee only in a fiduciary capacity. Notwithstanding any
other provisions of this Agreement, all powers and discretion vested in the
Trustee under this Article or under any other Article in this instrument such
as, but not limited to, powers, standards, and criteria for the determination to
distribute income or principal, shall be vested in the Trustee whenever such
vesting would prevent the Trust property or the income therefrom which is not
actually distributed to a vested beneficiary for federal income, gift, or estate
tax purposes. Notwithstanding any other provisions of this Agreement, the powers
vested in the Trustee under this Article or under any other Article in this
instrument shall be effective only so long as their existence will not cause the
Trust property or any part thereof to be included in the estate of the person
holding such power unless some other term or terms of this Trust Agreement
already cause such result.
Sec. 9.3 Except to the extent expressly limited or denied by the Code and
applicable regulations, and by the provisions of this Trust Agreement, the
Trustee shall be guided by the provisions of 20 Pa.C.S.A. sec. 7301 et seq., as
same may be amended from time to time, with respect to authorized investments,
and without qualification, shall in all respects, at all times, be held
accountable to the standard of care required by 20 Pa.C.S.A. sec. 7302(b), as
the same may be amended from time to time.
ARTICLE 10
NO OPERATION OF BUSINESS
The Trustee is not authorized to continue the Corporation's former business
of paperboard manufacturing, but shall use his good faith reasonable efforts to
facilitate the complete liquidation of the Corporation. Nothing contained herein
shall be construed so as to constitute the Shareholders, or their successors in
interest, members of an association of any type or kind.
ARTICLE 11
TRUSTEES
Sec. 11.1 The Trustee of this Trust shall be as set forth in ARTICLE 1.
Sec. 11.2 The Trustee may resign at any time by delivering to the
Successor Trustee his written resignation, in which event the resignation shall
take effect immediately. Upon the death, resignation or
C-6
<PAGE> 159
inability to act of the Trustee, the Successor Trustee shall become the Trustee.
Upon the death, resignation or inability to act of the Successor Trustee named
herein, a successor shall be appointed in writing by the affirmative vote of a
majority of the then Shareholders of the Corporation, or if none is appointed
within sixty (60) days after such death, resignation or inability to act, any
Shareholder may apply to any Pennsylvania court having jurisdiction.
Sec. 11.3 References to the Trustee or Trustees include the Successor
Trustee and any other successor Trustee. A successor Trustee shall succeed to
all of the title, powers, rights, discretion, obligations and immunities of the
original Trustee; provided, the successor Trustee shall not be obligated to
accept, ratify or approve of any of the acts, omissions, or defaults of the
Trustee, nor shall he be required to audit or verify the records of the Trustee.
Nor shall the fact the successor Trustee has assumed and carried out his duties
without protest or exception be deemed such an acceptance, ratification or
approval. The successor Trustee shall be entitled to rely upon any statements
and records (which may come into the successor Trustee's possession after a
reasonable search) of the Trustee as to the assets of this Trust and, shall have
no responsibility or liability hereunder to any person for the assets of this
Trust until reduced to the possession of the successor Trustee.
Sec. 11.4 No successor Trustee shall be liable for any action taken by the
Trustee prior to the time such successor Trustee becomes a Trustee.
Sec. 11.5 The Trust estate and the income therefrom shall be chargeable
with the reasonable expenses of the Trustee in the administration of the Trust
and with reasonable compensation for the services of the Trustee, which may
include, in the sole discretion of the Trustee, the premiums for liability
insurance carried for the benefit of the Trustee. The Trustee shall not receive
compensation for performance of his services as Trustee hereunder, but any
person other than a Shareholder who is appointed to serve as Successor Trustee
shall receive compensation for such services at his or her then standard hourly
rate.
Sec. 11.6 The Trustee may rely upon any paper or document reasonably
believed by him to be genuine.
Sec. 11.7 The Trustee shall not be personally liable for any assessments,
charges or damages, or for any obligations in carrying out or effectuating the
purpose of this Trust Agreement; provided, however, that nothing shall relieve
the Trustee from liabilities arising out of his own willful misconduct.
Furthermore, the Trustee shall not be responsible in any manner whatsoever for
the validity or enforceability of this Trust Agreement.
Sec. 11.8 The Trustee may consult with legal counsel, accountants,
appraisers, and other licensed professionals, and any act or failure to act done
or omitted in good faith in accordance with the opinion of any such person shall
create no liability on the part of the Trustee.
ARTICLE 12
MISCELLANEOUS
Sec. 12.1 No bond or other security shall be required of any Trustee
serving hereunder at any time, including any successor, any provision of law to
the contrary notwithstanding.
Sec. 12.2 No person dealing with a Trustee shall be required to see to the
application or disposition by the Trustee of any cash or property transferred or
delivered to or on the order of the Trustee, nor shall any such person be
required to inquire into the authority for or propriety of any action by the
Trustee.
Sec. 12.3 Any one or more of the Trustees may disclaim or release, in
whole or in part, any power or discretion given to them with respect to the
Trust by filing with the Court a written instrument to that effect, and giving
written notice to the other Trustee.
Sec. 12.4 All questions pertaining to the validity, interpretation,
construction and enforcement of this Trust Agreement, and to the administration
of the Trust and the Trust Fund, shall be determined in accordance with the laws
of the Commonwealth of Pennsylvania in effect from time to time.
C-7
<PAGE> 160
Sec. 12.5 To the same effect as if it were the original, anyone may rely
upon a copy certified by a notary public to be a true counterpart of this
instrument (and of the writings, if any, endorsed thereon or attached thereto).
Anyone may rely upon any statement of fact relating to this Trust Agreement or
the Trust, which statement of fact is certified under oath by any one who
appears from the original document, or a certified copy, to be the Trustee
hereunder. This Trust Agreement may be executed in several counterparts any of
which shall constitute an original.
Sec. 12.6 The headings and captions used herein are inserted for
convenience of reference only and are not intended to be a part of or to affect
the meaning or interpretation of this Trust Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement this
day of , 1997.
<TABLE>
<S> <C>
THE DAVEY COMPANY (a Pennsylvania
corporation)
Attest:
By:
- -------------------------------------------- --------------------------------------------
Stephen C. Dodd, Secretary Alfred C. Brooks, President
TRUSTEE:
Witness:
- -------------------------------------------- --------------------------------------------
Alfred C. Brooks
</TABLE>
C-8
<PAGE> 161
<TABLE>
<S> <C>
STATE OF NEW JERSEY:
SS.:
COUNTY OF MIDDLESEX:
</TABLE>
BE IT REMEMBERED, that on , 1997, before me, the subscriber,
personally appeared ALFRED C. BROOKS, who I am satisfied, is the person named in
and who executed the within Instrument, and thereupon he acknowledged that he
signed, sealed and delivered the same as his act and deed, for the uses and
purposes therein expressed.
--------------------------------------
Notary Public
<TABLE>
<S> <C>
STATE OF NEW JERSEY:
SS.:
COUNTY OF MIDDLESEX:
</TABLE>
I CERTIFY that on , 1997, STEPHEN C. DODD personally came
before me and this person acknowledged under oath, to my satisfaction, that:
(a) this person is the Secretary of THE DAVEY COMPANY, the entity
named in this document;
(b) this person is the attesting witness to the signing of this
document by the proper corporate officer who is Alfred C. Brooks, President
of the corporation;
(c) this document was signed and delivered by the corporation as its
voluntary act duly authorized by its Board of Directors;
(d) this person knows the proper seal of the corporation which was
affixed to this document; and
(e) this person signed this proof to attest to the truth of these
facts.
--------------------------------------
Stephen C. Dodd, Secretary
Signed and sworn to before
me this day of , 1997.
- --------------------------------------
NOTARY PUBLIC
C-9
<PAGE> 162
SCHEDULE A
ASSETS AND LIABILITIES*
<TABLE>
<CAPTION>
CONTINGENT LIABILITIES AMOUNT OF RESERVE
- ---------------------- -----------------
<S> <C>
Environmental Remediation of Real Property.................. 1,000,000
Professional (Legal and Accounting) Fees.................... 50,000
Building Management......................................... 225,000
Real Estate and other Taxes................................. 65,000
Utilities................................................... 115,000
Office, Travel and Miscellaneous Expenses................... 225,000
Return of Grant for Waste Paper Collection.................. 100,000
Insurance Premiums.......................................... 50,000
</TABLE>
The foregoing reserves consist of the following assets:
Cash in banks: to be determined
Certificates of Deposit: to be determined
The following assets are also held by the Corporation:
1. Certain real property owned by the Corporation and located at
Downingtown, PA.
2. Certain real property owned by the Corporation and located at
Lansing, KS.
3. Certain furniture, fixtures and equipment transferred to the
Corporation pursuant to the Transfer Agreement, the value of which is
unknown.
4. Certain claims against third parties assigned to the Corporation
pursuant to the Transfer Agreement, the value of which is unknown.
- ---------------
* All amounts set forth on this Schedule are estimates made as of the date of
execution of the Purchase Agreement and are subject to final determination by
the officers and directors of the Corporation.
C-10
<PAGE> 163
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Georgia BCC provides that a corporation may indemnify an individual who
is a party to a proceeding because he or she is or was a director against
liability incurred in the proceeding if such individual conducted himself or
herself in good faith and such individual reasonably believed, in the case of
conduct in his or her official capacity, that such conduct was in the best
interests of the corporation, in all other cases, that such conduct was at least
not opposed to the best interests of the corporation and, in the case of any
criminal proceeding, that the individual had no reasonable cause to believe such
conduct was unlawful. As an exception to this rule, the Georgia BCC provides
that a corporation may not indemnify a director in connection with a proceeding
by or in the right of the corporation, except for reasonable expenses incurred
in connection with the proceeding if it is determined that the director has met
the relevant standard of conduct under the Georgia BCC or in connection with any
proceeding with respect to conduct for which he was adjudged liable on the basis
that personal benefit was improperly received by him, whether or not acting in
his official capacity. The Georgia BCC provides for mandatory indemnification of
a director who was wholly successful on the merits or otherwise in the defense
of any proceeding to which he or she was a party because he or she was a
director of the corporation against reasonable expenses incurred by the director
in connection with the proceeding.
The Georgia BCC provides that if authorized by the articles of
incorporation or a bylaw, contract or resolution approved or ratified by the
shareholders by a majority of the votes entitled to be cast, a corporation may
indemnify or obligate itself to indemnify a director made a party to a
proceeding including a proceeding brought by or in the right of the corporation,
without regard to the above limitations of the Georgia BCC, but shares owned or
voted under the control of a director who at the time does not qualify as a
disinterested director with respect to any existing or threatened proceeding
that would be covered by the authorization may not be voted on the
authorization. As an exception, the Georgia BCC provides that a corporation
shall not so indemnify a director for any liability incurred in a proceeding in
which the director is adjudged liable to the corporation or is subjected to
injunctive relief in favor of the corporation for any appropriation, in
violation of the director's duties, of any business opportunity of the
corporation, for acts or omissions which involve intentional misconduct or a
knowing violation of law, for unlawful distributions to shareholders or for any
transaction from which he received an improper personal benefit.
The Georgia BCC provides that a corporation may indemnify and advance
expenses to an officer of the corporation who is a party to a proceeding because
he or she is an officer of the corporation to the same extent as a director and,
if he or she is not a director (or, if he or she is also a director, if the sole
basis on which he or she is made a party to the proceeding is an act or omission
solely as an officer), to such further extent as may be provided by the articles
of incorporation, the bylaws, a resolution of the board of directors, or
contract except for liability arising out of conduct that constitutes
appropriation, in violation of his or her duties, of any business opportunity of
the corporation, acts or omissions which involve intentional misconduct or
knowing violation of law, for unlawful distributions to shareholders or for
receipt of an improper personal benefit. An officer who is not a director is
also entitled under the Georgia BCC to mandatory indemnification to the same
extent mandatory indemnification is required for a director. Under the Georgia
BCC, a corporation may also indemnify and advance expenses to an employee or
agent who is not a director to the extent, consistent with public policy, that
may be provided by its articles of incorporation, bylaws, general or specific
action of its board of directors, or contract.
The Rock-Tenn Bylaws provide that Rock-Tenn may indemnify to the fullest
extent permitted by the Georgia BCC, any individual made a party to a
proceeding, because he is or was an employee or agent of Rock-Tenn, against
liability if such person acted in a manner he believed to be in good faith or
not opposed to the best interests of Rock-Tenn and, in the case of any criminal
proceeding, if he had no reasonable cause to believe his conduct was unlawful.
II-1
<PAGE> 164
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
a. Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
2.1 -- Stock Purchase Agreement, dated January 21, 1997 between
Rock-Tenn Company and the Shareholders of Wabash Corporation
(incorporated by reference to the Registrant's Current
Report on Form 8-K/A dated January 21, 1997).
2.2 -- Asset Purchase Agreement, dated May 7, 1997, by and between
Rock-Tenn Company and The Davey Company (included as Annex A
of the Proxy Statement/Prospectus which forms a part of this
Registration Statement).
4.1 -- Credit Agreement dated as of January 21, 1997 among
Rock-Tenn Company, the Lenders named therein and SunTrust
Bank, Atlanta, as Agent (incorporated by reference to the
Registrant's Current Report on Form 8-K dated January 21,
1997).
4.2 -- Agreement to Provide Other Debt Instruments.
5.1 -- Opinion of King & Spalding.
*8.1 -- Opinion of Greenbaum, Rowe, Smith, Ravin, Davis & Himmel as
to tax matters.
23.1 -- Consent of Ernst & Young LLP.
23.2 -- Consent of Price Waterhouse L.L.P.
23.3 -- Consent of Amper, Politziner & Mattia.
23.4 -- Consent of King & Spalding (included in Exhibit 5.1).
23.5 -- Consent of Greenbaum, Rowe, Smith, Ravin, Davis & Himmel
(included in Exhibit 8.1).
99.1 -- Form of Proxy.
</TABLE>
- ---------------
* To be filed by amendment
b. Financial Statement Schedules
None.
ITEM 22. UNDERTAKINGS
The undersigned registrant (the "Registrant") hereby undertakes that, for
purposes of determining any liability under the Securities Act of 1933, each
filing of the Registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
The registrant undertakes that every prospectus (i) that is filed pursuant
to the immediately preceding paragraph, or (ii) that purports to meet the
requirements of section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-2
<PAGE> 165
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such requests, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
The undersigned Registrant hereby undertakes:
1. To file during any period in which offers and sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement.
2. That for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
3. To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-3
<PAGE> 166
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Norcross, State of Georgia, on May 13, 1997.
ROCK-TENN COMPANY
By: /s/ BRADLEY CURREY, JR.
------------------------------------
Bradley Currey, Jr.
Chairman of the Board
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Bradley Currey, Jr. and Jay Shuster and any agent
for service named in this Registration Statement and each of them, his, her or
its true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him, her or it and in his, her, or its
name, place and stead, in any and all capacities, to sign any registration
statements filled pursuant to Rule 462(b) under the Securities Act of 1933, as
amended and any and all amendments (including post-effective amendments) to this
Registration Statement, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as he, she, or it might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agents or any of
them, their, his or her substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated on the 13th day of May 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ BRADLEY CURREY, JR. Chairman of the Board and Chief Executive
- ----------------------------------------------------- Officer of Rock-Tenn Company
Bradley Currey, Jr.
/s/ DAVID C. NICHOLSON Senior Vice President, Chief Financial Officer
- ----------------------------------------------------- and Secretary (Principal Financial and
David C. Nicholson Accounting Officer) of Rock-Tenn Company
/s/ STEPHEN G. ANDERSON Director
- -----------------------------------------------------
Stephen G. Anderson
/s/ J. HYATT BROWN Director
- -----------------------------------------------------
J. Hyatt Brown
/s/ MARY LOUISE MORRIS BROWN Director
- -----------------------------------------------------
Mary Louise Morris Brown
/s/ EUGENE U. FREY Director
- -----------------------------------------------------
Eugene U. Frey
</TABLE>
II-4
<PAGE> 167
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S> <C>
/s/ ROBERT B. CURREY Director
- -----------------------------------------------------
Robert B. Currey
/s/ LAWRENCE L. GELLERSTEDT, JR. Director
- -----------------------------------------------------
Lawrence L. Gellerstedt, Jr.
/s/ JOHN D. HOPKINS Director
- -----------------------------------------------------
John D. Hopkins
/s/ JAMES W. JOHNSON Director
- -----------------------------------------------------
James W. Johnson
/s/ CHARLES R. SEXTON Director
- -----------------------------------------------------
Charles R. Sexton
/s/ JAY SHUSTER Director
- -----------------------------------------------------
Jay Shuster
/s/ JOHN W. SPIEGEL Director
- -----------------------------------------------------
John W. Spiegel
</TABLE>
II-5
<PAGE> 168
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
2.1 -- Stock Purchase Agreement, dated January 21, 1997 between
Rock-Tenn Company and the Shareholders of Wabash Corporation
(incorporated by reference to the Registrant's Current
Report on Form 8-K/A dated January 21, 1997).
2.2 -- Asset Purchase Agreement, dated May 7, 1997, by and between
Rock-Tenn Company and The Davey Company (included as Annex A
of the Proxy Statement/Prospectus which forms a part of this
Registration Statement).
4.1 -- Credit Agreement dated as of January 21, 1997 among
Rock-Tenn Company, the Lenders named therein and SunTrust
Bank, Atlanta, as Agent (incorporated by reference to the
Registrant's Current Report on Form 8-K dated January 21,
1997).
4.2 -- Agreement to Provide Other Debt Instruments.
5.1 -- Opinion of King & Spalding.
*8.1 -- Form of Opinion of Greenbaum, Rowe, Smith, Ravin, Davis &
Himmel as to tax matters.
23.1 -- Consent of Ernst & Young LLP.
23.2 -- Consent of Price Waterhouse L.L.P.
23.3 -- Consent of Amper, Politziner & Mattia.
23.4 -- Consent of King & Spalding (included in Exhibit 5.1).
23.5 -- Consent of Greenbaum, Rowe, Smith, Ravin, Davis & Himmel
(included in Exhibit 8.1).
99.1 -- Form of Proxy.
</TABLE>
- ---------------
* To be filed by amendment.
II-6
<PAGE> 169
ANNEXES
<TABLE>
<CAPTION>
ANNEX DESCRIPTION
- ----- -----------
<C> <C> <S>
A. -- Asset Purchase Agreement dated May 7, 1997 by and between
Rock-Tenn Company and The Davey Company.
B. -- Davey Plan of Liquidation.
C. -- Downingtown Plan of Liquidation.
</TABLE>
II-7
<PAGE> 1
EXHIBIT 4.2
Rock-Tenn Company has excluded from filing herewith instruments relating to
(i) the $5,850,000 Industrial Development Revenue Bonds (Rock-Tenn Converting
Company Project), Series 1986, issued by the Waxahachie Industrial Development
Authority; (ii) the $4,100,000 Economic Development Revenue Bonds (Rock-Tenn
Converting Company Facility), Series 1987, issued by Baltimore City, Maryland;
(iii) the $6,750,000 Economic Development Revenue Bonds (Rock-Tenn Company, Mill
Division Inc. Project), Series 1995, issued by the City of Columbus, Indiana;
(iv) the $3,300,000 Economic Development Revenue Bonds (Rock-Tenn Converting
Company Facility), Series 1994, issued by the Maryland Industrial Develop ment
Financing Authority (v) the $2,750,000 Industrial Development Revenue Bonds
(Rock-Tenn Company Project), Series 1981, issued by the City of Conway,
Arkansas; (vi) the $4,000,000 Industrial Development Revenue Bonds (Rock-Tenn
Converting Company Project), Series 1995, issued by the Industrial Develop ment
Board of the City of Tullahoma, Tennessee; (vii) the $2,750,000 Industrial
Development Revenue Bonds (Rock-Tenn Converting Company Project, Series 1995,
issued by the Industrial Development Board of the County of Wilson; (viii) the
$2,500,000 Industrial Development Revenue Bonds (Rock-Tenn Converting Industrial
Development Revenue Bonds (Rock-Tenn Converting Company Project), Series 1993,
issued by Company Mill Division, Inc.), Series 1996, issued by the Development
Authority of DeKalb County, and (xi) the $25,000,000 Senior Unsecured Notes
Purchase Agreement, dated as of July 1, 1992, between Rock-Tenn Company and
Great-West Life and Annuity Insurance Company. Rock-Tenn Company hereby agrees
to furnish a copy of the constituent agreements relating to these bonds to the
Securities and Exchange Commission upon request.
<PAGE> 1
EXHIBIT 5.1
May 14, 1997
Rock-Tenn Company
504 Thrasher Street
Norcross, Georgia 30071
Ladies and Gentlemen:
We have acted as counsel to Rock-Tenn Company, a Georgia corporation (the
"Company"), in connection with the registration of 1,200,000 shares of Class A
Common Stock, $.01 par value per share (the "Shares"), pursuant to a
Registration Statement on Form S-4 (the "Registration Statement") of the Company
filed with the Securities and Exchange Commission under the Securities Act of
1933, as amended.
In our capacity as such counsel, we have reviewed (i) the Registration
Statement and (ii) the Asset Purchase Agreement (the "Purchase Agreement") dated
as of May 7, 1997 between the Company and The Davey Company, a New Jersey
corporation ("Davey"), pursuant to which the Company will acquire substantially
all of the assets and assume certain of the liabilities of Davey in exchange for
the Shares. We have also reviewed such matters of law and examined original,
certified, conformed or photographic copies of such other documents, records,
agreements and certificates as we have deemed necessary as a basis for the
opinions hereinafter expressed. In such review, we have assumed the genuineness
of signatures on all documents submitted to us as originals, the conformity to
original documents of all copies submitted to us as certified, conformed or
photographic copies, and, as to certificates of public officials, we have
assumed the same to be accurate and to have been given properly. We have relied,
as to the matters set forth therein, on certificates of public officials, and we
have assumed the same to have been properly given and to be accurate.
We have assumed that the execution and delivery of, and the performance of
all obligations under, the Purchase Agreement have been duly authorized by all
requisite action by each party thereto, and that the Purchase Agreement, when
executed and delivered by the parties thereto, will have been duly executed and
delivered by the parties thereto, and will be valid and binding agreements of
the parties thereto (other than the Company) enforceable against the parties
thereto (other than the Company) in accordance with their respective terms.
This opinion is limited in all respects to the laws of the State of Georgia
and no opinion is expressed with respect to the laws of any other jurisdiction
or any effect that such laws may have on the opinions expressed herein. This
opinion is limited to the matters stated herein, and no opinion is implied or
may be inferred beyond the matters expressly stated herein.
Based upon and subject to the foregoing, we are of the opinion that the
Shares to be issued pursuant to the Purchase Agreement are duly authorized, and,
when duly issued and delivered by the Company to Davey in accordance with the
terms of the Purchase Agreement, will be validly issued, fully paid and
nonassessable.
This opinion is given as of the date hereof, and we assume no obligation to
update this opinion to reflect any fact or circumstance that may hereafter come
to our attention or any change in any law or regulation that may hereafter
occur.
We hereby consent to the filing of this opinion letter as an exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Matters" in the prospectus included in the Registration Statement. In giving
such consent, we do not thereby admit that we are in the category of persons
whose consent is required under Section 7 of the Securities Act.
Very truly yours,
/s/ KING & SPALDING
<PAGE> 1
EXHIBIT 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the captions "Experts" and
"Selected Financial Data - Rock-Tenn" in the Registration Statement on Form S-4
and related Prospectus of Rock-Tenn Company for the registration of 1,200,000
shares of its Class A Common Stock and to the incorporation by reference
therein of our report dated October 24, 1996 with respect to the consolidated
financial statements and schedule of Rock-Tenn Company included in its Annual
Report (Form 10-K) for the year ended September 30, 1996, filed with the
Securities and Exchange Commission.
/s/ Ernst & Young LLP
Atlanta, Georgia
May 12, 1997
<PAGE> 1
EXHIBIT 23.2
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-4 of Rock-Tenn
Company of our report dated August 9, 1996, except as to Note 15 which is as of
January 21, 1997, with respect to the consolidated financial statements of
Waldorf Corporation included in the Current Report on Form 8-K/A of
Rock-Tenn Company dated as of January 21, 1997. We also consent to the
reference to us under the heading "Experts" in such Registration Statement.
/s/ Price Waterhouse LLP
May 13, 1997
Minneapolis, Minnesota
<PAGE> 1
Exhibit 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the inclusion of our report dated April 14, 1997,
except for Note 18 as to which the date is May 7, 1997, on financial statements
of The Davey Company and Subsidiary as of December 31, 1996 and 1995, and for
the years ended December 31, 1996, 1995 and 1994, which are included on pages
F-2 through F-17 in this Registration Statement on Form S-4 of Rock-Tenn
Company and to the reference to our firm under the caption "Experts" on page
50.
/s/ AMPER, POLITZINER & MATTIA
May 12, 1997
Flemington, New Jersey
<PAGE> 1
EXHIBIT 99.1
THE DAVEY COMPANY
PROXY AND CONSENT
The undersigned hereby appoints Alfred C. Brooks and Stephen C. Dodd, or
either of them, as proxies, each with the power to appoint his substitute, and
hereby authorizes each of them to vote in the name, place and stead of the
undersigned, at the Special Meeting of the Shareholders of The Davey Company to
be held , 1997 or any adjournments thereof, according to the number
of votes that the undersigned would be entitled to vote if personally present.
If so indicated on the reverse of this proxy, the undersigned hereby grants
written consent to the proposed Transaction, as defined in the Proxy
Statement/Prospectus dated , 1997, and further appoints Alfred C.
Brooks and Stephen C. Dodd, or either of them, as proxies, each with the power
to appoint his substitute, and hereby authorizes each of them to execute and
deliver such written consent at the said Special Meeting of the Shareholders of
The Davey Company to be held , 1997 or any adjournments thereof, as
they or either of them deem reasonably required to effectuate the vote and
written consent of the undersigned and otherwise in their discretion upon such
other business as may properly come before the Special Meeting or any
adjournment thereof.
The undersigned hereby gives the following instructions with respect to
written consent and approval of the Transaction, as defined in that certain
Proxy Statement/Prospectus of The Davey Company and Rock-Tenn Company dated
, 1997:
[ ] Hereby grants written consent and directs that the shares of the Common
Stock of The Davey Company standing in the name of the undersigned be voted
FOR the Transaction.
(Continued on reverse)
[ ] Does not consent to the Transaction and directs that the shares of the
Common Stock of The Davey Company standing in the name of the undersigned be
voted AGAINST the Transaction.
SHARES REPRESENTED BY THIS PROXY AND CONSENT WILL BE VOTED AS SPECIFIED AND,
IF NO SPECIFICATION IS MADE, WILL BE VOTED AGAINST THE PROPOSED TRANSACTION.
Signatures(s):
-------------------
Dated:
---------------------------
Note: Please sign exactly as name
appears hereon. Joint owners
should each sign. When signing as
attorney, executor, administrator,
trustee, guardian or corporate
owner, please give full title as
such. Please return the proxy
card/consent in the enclosed
envelope.
