<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / Confidential, for Use of the Commission
Only
/X/ Definitive Proxy Statement as permitted by Rule 14a-6(e)(2))
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
AM International, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
AM International Logo
August 2, 1996
DEAR AM INTERNATIONAL
STOCKHOLDERS:
I am pleased to invite you to a special meeting of the stockholders of AM
International, Inc. (the "Company") called for August 26, 1996 to consider the
approval of the sale by the Company of substantially all of the assets of the
Sheridan Systems division (the "Proposed Sale") pursuant to an Asset Purchase
Agreement dated as of July 9, 1996 among the Company, AM Graphics International
Limited and Heidelberger Druckmaschinen AG for $50 million in cash and the
assumption of substantially all of the liabilities of the Sheridan Systems
division.
We previously announced that we had retained Bear, Stearns & Co., Inc. to
review strategic options including the sale of all or part of the operating
units of the Company or the Company as a whole. The management and Board of
Directors believes it is in the best interests of the stockholders to sell
Sheridan Systems now and to use the net proceeds to repay indebtedness, reduce
other liabilities, provide working capital, and for other general corporate
purposes.
Enclosed with this letter are a Notice of Special Meeting and Proxy
Statement which describes in detail the Proposed Sale, its background and other
relevant information. Also enclosed is a form of proxy solicited by the Board of
Directors of the Company in connection with the special meeting.
YOUR BOARD OF DIRECTORS HAS APPROVED AND RECOMMENDS THAT YOU VOTE FOR THE
PROPOSED SALE.
You should carefully consider all of the information in the proxy statement
and execute and return the enclosed form of proxy as soon as possible, whether
or not you expect to attend the special meeting. The giving of a proxy by a
stockholder will not prevent voting in person at the special meeting. The vote
of every stockholder of AM International is important. Your Board of Directors
and management appreciates your support and cooperation.
We look forward to seeing you on August 26, 1996.
Cordially,
Jerome D. Brady
Jerome D. Brady
Chairman, President and
Chief Executive Officer
<PAGE> 3
AM INTERNATIONAL, INC.
9399 WEST HIGGINS ROAD, SUITE 900
ROSEMONT, IL 60018
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 26, 1996
To The Stockholders of AM International, Inc.:
A Special Meeting of Stockholders of AM International, Inc. will be held at
the Riverway Auditorium, 6133 North River Road, Rosemont, Illinois on August 26,
1996 at 8:30 a.m. (Central Time) for the following purposes:
(1) To consider and vote upon a proposal to approve the sale by the Company
of substantially all of the assets of its Sheridan Systems division
pursuant to an Asset Purchase Agreement dated as of July 9, 1996 among
the Company, AM Graphics International Limited and Heidelberger
Druckmaschinen AG, a copy of which appears as Appendix I to the
accompanying Proxy Statement.
(2) To transact such other business as may properly come before the meeting
or any adjournment thereof.
The close of business on July 31, 1996 has been fixed as the record date
for the meeting. All holders of record of Common Stock on such date are entitled
to notice of and to vote at the meeting.
Each stockholder, even though he or she now plans to attend the meeting, is
requested to sign and date the enclosed proxy card and to return it without
delay in the enclosed postage-paid envelope. Any stockholder present at the
meeting may withdraw his or her proxy and vote personally on each matter brought
before the meeting.
By Order of the Board of Directors,
Steven R. Andrews, Secretary
Rosemont, Illinois
August 2, 1996
------------------------
IMPORTANT
TO ASSURE PROPER REPRESENTATION AT THE MEETING, ALL STOCKHOLDERS ARE
EARNESTLY REQUESTED TO FILL IN AND SIGN THE ENCLOSED PROXY AND RETURN IT IN THE
ACCOMPANYING ENVELOPE.
THANK YOU FOR ACTING PROMPTLY.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Introduction.......................................................................... 1
Summary............................................................................... 2
Voting Rights and Proxy Information................................................... 6
The Proposed Sale..................................................................... 7
Background of the Proposed Sale..................................................... 7
Opinion of the Company's Financial Advisor.......................................... 10
Recommendation of the Company's Board of Directors; Reasons for the Proposed Sale... 13
Stockholder Approval................................................................ 14
Purchase Price...................................................................... 15
Use of Proceeds..................................................................... 16
Representations and Warranties...................................................... 16
Certain Covenants Prior to Closing.................................................. 17
Cash Management Prior to Closing.................................................... 18
Conditions to Closing; Waiver....................................................... 19
Amendment; Termination; Assignment.................................................. 20
Employee Arrangements............................................................... 20
Covenant Not to Compete............................................................. 21
Interests of Certain Persons in the Proposed Sale................................... 21
Certain Federal Income Tax Consequences............................................. 22
Regulatory Requirements............................................................. 22
Possibility that the Proposed Sale Will Not be Consummated.......................... 23
Accounting Treatment................................................................ 23
Fees and Expenses................................................................... 23
No Dissenter's Rights of Appraisal.................................................. 24
Certain Information Concerning Buyer.................................................. 24
AM International, Inc. Unaudited Pro Forma Consolidated Financial Statements.......... 25
Unaudited Pro Forma Consolidated Statements of Operations From Continuing
Operations....................................................................... 25
Unaudited Pro Forma Consolidated Balance Sheet...................................... 26
Unaudited Pro Forma Capitalization.................................................. 27
Notes to Unaudited Pro Forma Consolidated Financial Statements...................... 28
Selected Financial Data............................................................... 29
Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 30
Market Prices of Common Stock; Dividends.............................................. 36
The Company's Business and Properties................................................. 37
Principal Stockholders................................................................ 43
Security Ownership of Directors and Executive Officers................................ 44
Independent Accountants............................................................... 45
Stockholder Proposals For 1996 Annual Meeting......................................... 45
Other Business........................................................................ 45
Index to Financial Statements of AM International, Inc. .............................. F-1
</TABLE>
APPENDICES
Appendix I -- Asset Purchase Agreement
Appendix II -- Opinion of Bear, Stearns & Co. Inc.
i
<PAGE> 5
AM INTERNATIONAL, INC.
9399 WEST HIGGINS ROAD, SUITE 900
ROSEMONT, ILLINOIS 60018
------------------------
PROXY STATEMENT
------------------------
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 26, 1996
INTRODUCTION
This Proxy Statement is being furnished to the stockholders of AM
International, Inc., a Delaware corporation (the "Company"), in connection with
the solicitation of proxies by the Board of Directors of the Company for use at
a Special Meeting of Stockholders of the Company to be held on August 26, 1996
at 8:30 a.m. (Central Time) and at any adjournment thereof (the "Special
Meeting"). This Proxy Statement, the accompanying Notice of Special Meeting of
Stockholders and the enclosed form of proxy are being initially mailed to
holders of the Company's Common Stock on or about August 2, 1996.
At the Special Meeting, stockholders will be asked to consider and vote
upon a proposal to approve the sale (the "Proposed Sale") by the Company of
substantially all of the assets of its Sheridan Systems division pursuant to the
Asset Purchase Agreement dated as of July 9, 1996 (the "Asset Purchase
Agreement") among the Company, AM Graphics International Limited, a corporation
organized under the laws of the United Kingdom and a wholly-owned subsidiary of
the Company (the "Subsidiary"), and Heidelberger Druckmaschinen AG, a
corporation organized under the laws of the Federal Republic of Germany
("Heidelberg" or "Buyer"). The Asset Purchase Agreement (without Schedules and
Exhibits) is attached to this Proxy Statement as Appendix I.
The Asset Purchase Agreement provides for the sale by the Company to Buyer
of substantially all of the assets of its Sheridan Systems division ("Sheridan
Systems") for cash in an amount equal to $50 million and the assumption of
substantially all of the liabilities of Sheridan Systems by Buyer (collectively,
the "Purchase Price"). See "THE PROPOSED SALE -- Purchase Price." The Company
intends to use the net proceeds of the Proposed Sale primarily to repay
indebtedness, reduce other liabilities, provide working capital, and for other
general corporate purposes. See "THE PROPOSED SALE -- Use of Proceeds; Repayment
of Indebtedness."
All information contained herein concerning Buyer has been supplied by
Buyer. Except as otherwise indicated, all other information contained in the
Proxy Statement has been furnished by the Company.
1
<PAGE> 6
SUMMARY
Certain significant matters discussed in the Proxy Statement are summarized
below. This Summary is not intended to be complete and is qualified in all
respects by reference to the more detailed information appearing or incorporated
by reference in this Proxy Statement. Stockholders are urged to review carefully
the entire Proxy Statement (including the Appendices and the documents
incorporated herein by reference).
GENERAL INFORMATION
AM INTERNATIONAL,
INC.....................The Company manufactures, sells and services a broad
range of printing and graphics arts production,
newspaper mailroom, and commercial and publication
bindery products, and provides supplies and services to
the global graphics industry. The Company currently
conducts its business in two business segments: Sheridan
Systems and AM Multigraphics. Earlier this year, the
Company discontinued its third business segment -- AM
Multigraphics-International. The mailing address of its
principal executive offices is 9399 West Higgins Road,
Suite 900, Rosemont, Illinois 60018, and its telephone
number is (847) 292-0600. See "THE COMPANY'S BUSINESS
AND PROPERTIES."
ASSET PURCHASE
AGREEMENT.............On July 9, 1996, the Company, the Subsidiary and
Heidelberg signed the Asset Purchase Agreement, a copy
of which is attached hereto as Appendix I, providing for
the sale by the Company to Buyer of substantially all of
the assets of Sheridan Systems. See "THE PROPOSED SALE."
DATE, TIME AND PLACE OF
THE SPECIAL MEETING...The Special Meeting of Stockholders of the Company is to
be held on Monday, August 26, 1996, at the Riverway
Auditorium, 6133 North River Road, Rosemont, Illinois at
8:30 a.m. (Central Time) (the "Special Meeting").
PURPOSES OF THE SPECIAL
MEETING...............The purposes of the Special Meeting are (1) to consider
and vote upon a proposal to approve the Asset Purchase
Agreement; and (2) to transact any other business that
may properly come before the Special Meeting.
RECORD DATE.............Only holders of record of shares of Common Stock, par
value $.01 per share, of the Company ("Common Stock") at
the close of business on July 31, 1996 (the "Record
Date") are entitled to vote at the Special Meeting. On
that date, 7,010,000 shares of Common Stock were
outstanding.
VOTE REQUIRED...........Pursuant to Section 271 of the General Corporation Law
of the State of Delaware (the "Delaware GCL"), approval
of the Proposed Sale will require the affirmative vote
of the holders of at least a majority of the outstanding
shares of Common Stock entitled to vote at the Special
Meeting. See "THE PROPOSED SALE -- Stockholder
Approval."
2
<PAGE> 7
THE PROPOSED SALE
GENERAL.................The Asset Purchase Agreement provides for the sale by
the Company to Buyer of substantially all of the assets
of Sheridan Systems.
SHERIDAN SYSTEMS........Sheridan Systems designs, manufactures and distributes
equipment, software and related control systems through
two business units: the Bindery Systems unit and the
Newspaper Mailroom Systems unit. These products are
manufactured at facilities in Dayton, Ohio and Slough,
England. The products are largely capital equipment
items and include: (i) bindery equipment, systems and
components used to assemble and collate a broad variety
of printed materials (bindery includes post press
collating, binding and trimming of multiple pages) and
(ii) equipment, software and related control systems
used for material handling and inserting in newspaper
mailroom facilities.
PURCHASE PRICE..........The Asset Purchase Agreement provides that the purchase
price for Sheridan Systems is cash in an amount equal to
$50 million. In addition, Buyer will assume
substantially all of the liabilities of Sheridan
Systems. See "THE PROPOSED SALE -- Purchase Price."
USE OF PROCEEDS.........The Company intends to use the net proceeds of the
Proposed Sale primarily to repay all of the indebtedness
outstanding under its credit facility, to reduce other
liabilities (including extended trade payables), to
provide working capital, and for other general corporate
purposes. See "THE PROPOSED SALE -- Use of Proceeds and
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- Liquidity and
Capital Resources."
RECOMMENDATION OF THE
COMPANY'S BOARD OF
DIRECTORS.............The Board of Directors of the Company believes that the
Proposed Sale is in the best interests of the Company
and its stockholders and has approved the Asset Purchase
Agreement. The Board of Directors of the Company
recommends that its stockholders approve the Proposed
Sale. The Board of Directors' recommendation is based
upon a number of factors discussed in this Proxy
Statement. See "THE PROPOSED SALE -- Recommendation of
the Company's Board of Directors; Reasons for the
Proposed Sale."
OPINION OF THE COMPANY'S
FINANCIAL ADVISOR.....Bear, Stearns & Co. Inc. has rendered an opinion to the
Board of Directors of the Company to the effect that the
Purchase Price is fair to the Company from a financial
point of view. See "THE PROPOSED SALE -- Opinion of
Company's Financial Advisor." A copy of such opinion is
contained in Appendix II to this Proxy Statement (the
"Opinion"), which Opinion sets forth the assumptions
made, the matters considered and limitations on the
review undertaken in rendering such Opinion.
CLOSING DATE OF THE
PROPOSED SALE.........If the Asset Purchase Agreement is approved by the
requisite vote of stockholders of the Company and the
other conditions to the Proposed Sale are satisfied or
waived, it is expected that, subject to the satisfaction
of these
3
<PAGE> 8
conditions, the Proposed Sale will be consummated
promptly after the Special Meeting (the "Closing Date").
CERTAIN FEDERAL INCOME
TAX CONSEQUENCES......Consummation of the Proposed Sale will not be a taxable
event for federal income tax purposes for the
stockholders of the Company. Although the consummation
of the Proposed Sale will be a taxable event for the
Company, the Company does not expect to incur any
significant income tax liability as a result of the
Proposed Sale. See "THE PROPOSED SALE -- Certain Federal
Income Tax Consequences."
CONDITIONS OF THE
PROPOSED SALE;
TERMINATION...........The consummation of the Proposed Sale is conditioned
upon the fulfillment or waiver (where permissible) of
certain conditions set forth in the Asset Purchase
Agreement. See "THE PROPOSED SALE -- Conditions to
Closing; Waiver." The Asset Purchase Agreement may be
terminated (i) by mutual written agreement of Buyer and
the Company, (ii) by either Buyer or the Company if the
Proposed Sale has not been consummated on or before
October 31, 1996 and (iii) in certain other situations.
See "THE PROPOSED SALE -- Amendment; Termination."
ACCOUNTING TREATMENT....The Proposed Sale has been reflected in the Company's
financial statements as a disposal of a segment of
business within the meaning of Accounting Principles
Board Opinion No. 30.
NO DISSENTER'S RIGHTS OF
APPRAISAL.............Under the Delaware GCL, holders of Common Stock will not
be entitled to rights of appraisal in connection with
the Proposed Sale.
4
<PAGE> 9
SUMMARY FINANCIAL INFORMATION
The following is a summary of certain consolidated financial information of
the Company (restated to reflect Sheridan Systems and the AM
Multigraphics -- International Operations as discontinued operations.) This
summary has been derived in part from, and should be read in conjunction with,
the consolidated financial statements of the Company and the related notes
thereto. Results of interim periods are not necessarily indicative of results to
be expected for the year. See "INDEX TO FINANCIAL STATEMENTS." Due to the
reorganization of the Company and the implementation of Fresh Start Reporting,
financial statements for the Reorganized Company (period starting September 30,
1993) are not comparable to those of the Predecessor Company. See Note 14 to
"Notes to Consolidated Financial Statements."
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
REORGANIZED COMPANY
---------------------------------------------------
PREDECESSOR COMPANY
NINE MONTHS ENDED ------------------------------------------------
AUG. 1, 1993
--------------------- YEAR ENDED SEPT. 30, 1993 THROUGH YEAR ENDED JULY 31
APRIL 27, APRIL 29, JULY 31, THROUGH SEPT. 19, --------------------------------
1996 1995 1995 JULY 31, 1994 1993 1993 1992 1991
--------- --------- ---------- -------------- ------------- --------- --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Historical Data:
Results of operations:
Net sales.............. $128,220 $138,324 $191,485 $163,816 $ 26,532 $ 195,698 $ 202,419 $193,827
Income (loss) from
continuing
operations........... $ (5,296) $ (3,399) $ (4,151) $ 2,082 $ 21,795 $ (43,787) $ (83,069) $ 2,872
Income (loss) from
discontinued
operations........... (5,874) 4,127 8,764 4,570 (27,810) (81,891) (41,709) 5,941
-------- -------- -------- -------- --------- ---------- --------- --------
Net income (loss)...... $(11,170) $ 728 $ 4,613 $ 6,652 $ (6,015) $(125,678) $(124,778) $ 8,813
======== ======== ======== ======== ========= ========== ========= ========
Financial position:
Assets of continuing
operations........... $156,829 $168,333 $163,072 $169,274 $ 164,438 $ 175,432 $ 271,802 $369,800
Assets of discontinued
operations, net...... 48,589 118,391 114,592 133,957 139,710 100,515 169,609 230,652
-------- -------- -------- -------- --------- ---------- --------- --------
Total assets........... $205,418 $286,724 $277,664 $303,231 $ 304,148 $ 275,947 $ 441,411 $600,452
======== ======== ======== ======== ========= ========== ========= ========
Long-term debt......... $ 10,902 $ 15,727 $ 14,915 $ 19,359 $ 25,505 $ 129,000 $ 62,592 $ 73,342
Stockholders' equity... 36,368 44,715 48,301 42,776 36,000 (49,651) 69,337 187,503
Per share of common
stock:
Income (loss) from
continuing
operations........... $ (0.76) (0.49) $ (0.59) $ 0.30 N/A N/A N/A N/A
Income (loss) from
discontinued
operations........... (0.83) 0.59 1.25 0.65 N/A N/A N/A N/A
-------- -------- -------- -------- --------- ---------- --------- --------
Net income (loss)...... $ (1.59) $ 0.10 $ 0.66 $ 0.95 N/A N/A N/A N/A
======== ======== ======== ======== ========= ========== ========= ========
Book value per share... $ 5.19 $ 6.38 $ 6.88 $ 6.11 N/A N/A N/A N/A
</TABLE>
SUMMARY PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma consolidated information illustrates the
effect of certain adjustments to the historical consolidated financial
statements (after restatement to reflect Sheridan Systems and the AM
Multigraphics -- International Operations as discontinued operations) of the
Company that result from the Proposed Sale of Sheridan Systems. The pro forma
information is not necessarily indicative of future operations or actual results
had the Proposed Sale and related transaction occurred at the beginning of the
periods presented for the Consolidated Statements of Operations and the
Consolidated Balance Sheets. See "AM INTERNATIONAL, INC. UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS"
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NINE MONTHS ENDED YEAR ENDED
APRIL 27, 1996 JULY 31, 1995
----------------- -------------
<S> <C> <C>
Pro Forma Information:
Net sales.......................................................................... $ 128,220 $ 191,485
Income (loss) from continuing operations........................................... (4,769) (3,951)
Total assets....................................................................... 124,408 *
Long-term debt..................................................................... 10,902 *
Total stockholders' equity......................................................... 17,472 *
Income (loss) per common share from continuing operations.......................... (0.68) (0.57)
Book value per share............................................................... 2.49 *
</TABLE>
- ---------------
* Not applicable
5
<PAGE> 10
VOTING RIGHTS AND PROXY INFORMATION
Proxies in the accompanying form are solicited on behalf of and at the
direction of the Board of Directors of the Company, which has fixed the close of
business on July 31, 1996 as the record date (the "Record Date") for the
determination of holders of outstanding shares of Common Stock entitled to
notice of and to vote at the Special Meeting or any adjournment(s) thereof. On
the Record Date, there were 7,010,000 shares of Common Stock issued and
outstanding, which were held of record on such date by approximately 1,230
registered holders. Each stockholder is entitled to one vote, exercisable in
person or by proxy, for each share of Common Stock held of record on the Record
Date. The affirmative vote of the holders of a majority of the shares of Common
Stock outstanding on the Record Date is required for approval of the Proposed
Sale. The presence, either in person or by proxy, of the holders of at least a
majority of the outstanding shares of Common Stock entitled to vote is necessary
to constitute a quorum at the Special Meeting. A vote to abstain from voting on
a proposal has the effect of a vote against the proposal. If a proxy indicates
that all or a portion of the shares represented by such proxy are not being
voted with respect to a particular matter, such nonvoted shares will not be
considered present and entitled to vote on such matter, although such shares may
be considered present and entitled to vote on other matters and will count for
the purpose of determining the presence of a quorum.
All shares of Common Stock represented by properly executed proxies will be
voted at the Special Meeting in accordance with the direction indicated on the
proxies unless such proxies have previously been revoked. If no direction is
indicated, the shares will be voted FOR approval of the Proposed Sale. The Board
recommends that stockholders vote FOR the Proposed Sale. See "THE PROPOSED
SALE -- Recommendation of the Company's Board of Directors; Reasons for the
Proposed Sale." If any other matters are properly presented at the Special
Meeting for action, including a question of adjourning the meeting from time to
time, the persons named in the proxies and acting thereunder will have
discretion to vote on such matters in accordance with their best judgment. The
Special Meeting may be adjourned, and additional proxies solicited, if at the
time of the Special Meeting the vote necessary to approve the Proposed Sale has
not been obtained. Any adjournment of the Special Meeting will require the
affirmative vote of the holders of at least a majority of the shares of Common
Stock represented at the Special Meeting (regardless of whether such shares
constitute a quorum).
A stockholder executing and returning a proxy has the power to revoke it at
any time before it is voted. A stockholder who wishes to revoke a proxy can do
so by executing a later-dated proxy relating to the same shares and delivering
it to the Secretary of the Company prior to the vote at the Special Meeting, by
giving written notice of revocation to the Secretary prior to the vote at the
Special Meeting or by appearing in person at the Special Meeting and voting in
person the shares to which the proxy relates. Any written notice revoking a
proxy should be sent to the Company, 9399 West Higgins Road, Suite 900,
Rosemont, Illinois 60018, Attention: Steven R. Andrews, Secretary.
In addition to the use of the mail, proxies may be solicited via personal
interview and telephone or telegraph by the directors, officers and regular
employees of the Company. Such persons will receive no additional compensation
for such services. Arrangements will also be made with certain brokerage firms
and certain other custodians, nominees and fiduciaries for the forwarding of
solicitation materials to the beneficial owners of Common Stock held of record
by such persons, and such brokers, custodians, nominees and fiduciaries will be
reimbursed by the Company for reasonable out-of-pocket expenses incurred by them
in connection therewith. In addition, the Company has retained Corporate
Investor Communications, Inc. to assist with the solicitation for a fee of
$2,500 plus expenses.
6
<PAGE> 11
THE PROPOSED SALE
The description of the Asset Purchase Agreement set forth in this Section
does not purport to be complete and is qualified in its entirety by reference to
the Asset Purchase Agreement, which is attached as Appendix I to this Proxy
Statement and is incorporated by reference.
BACKGROUND OF THE PROPOSED SALE
At a regular meeting of the Company's Board of Directors on June 2, 1995,
the Board determined to undertake a review of the Company's strategic
alternatives to maximize stockholder value and provide liquidity to stockholders
and directed management to conduct discussions with potential financial
advisors. The Board further concluded that the Compensation and Nominating
Committee should review measures designed to secure the continued services of
the Company's executive officers in view of the potential for a transaction
involving the Company.
Two prospective financial advisors were interviewed by members of
management and Jeffrey D. Benjamin, a Director of the Company. Management
subsequently recommended to the Board of Directors that Bear, Stearns & Co.,
Inc. ("Bear Stearns") be retained as the Company's financial advisor. At a
meeting of the Board of Directors on July 10, 1996, representatives of Bear
Stearns, Arthur Andersen LLP, the Company's auditor and tax advisor ("Arthur
Andersen"), and Sidley & Austin, the Company's counsel, reviewed with the Board
of Directors a range of financial, tax and legal issues concerning various
strategic alternatives. Bear Stearns addressed the four primary strategic
alternatives they considered to be available to maximize and realize stockholder
value, which included (1) an equity offering, (2) a leveraged recapitalization,
(3) a sale, or (4) maintaining the status quo. Bear Stearns advised that the
strength of the market for acquisition candidates led them to the preliminary
conclusion that a sale of the Company would likely produce the highest return to
the Company's stockholders of all the available alternatives. Also at that
meeting, the Board of Directors approved the agreements described under
"--Interest of Certain Persons in the Proposed Sale."
On July 19, 1995, the Company retained Bear Stearns to act as its financial
advisor in connection with the consideration of possible strategic alternatives
to enhance stockholder value. In light of the differences in the Company's two
principal businesses that could limit a buyer's interest in acquiring the entire
company, it was deemed appropriate to pursue a sale of the individual businesses
as well as the Company as a whole.
In the Fall of 1995, following the preparation of audited financial
statements for the Company's fiscal year ended July 31, 1995, the Company, with
the assistance of Bear Stearns, prepared a confidential memorandum describing
Sheridan Systems and began to solicit indications of interest from a number of
parties considered by the Company and Bear Stearns to be prospective purchasers
of Sheridan Systems. Subsequently, a similar memorandum was prepared with
respect to AM Multigraphics and circulated to potential interested parties.
In December 1995, the Company reported a net loss for its first fiscal
quarter ended October 28, 1995 of $3.8 million, on revenues that were $19.5
million lower than the comparable prior year period. Approximately one-half of
the revenue decrease was attributed to a low beginning backlog and weak market
demand for bindery and newspaper mailroom systems at Sheridan Systems. The
Company did not comply with restrictive financial covenants for the quarter
ended October 28, 1995 under its principal domestic credit facility but received
waivers of the violations from its lenders.
In January 1996, Directors A. Carl Mudd and Asher O. Pacholder determined
to recuse themselves from further consideration by the Board of Directors of the
Company's strategic alternatives in light of the relationships of these
directors to an entity with a potential interest in acquiring AM Multigraphics.
7
<PAGE> 12
Between October 1995 and early March 1996, Bear Stearns contacted
approximately one hundred companies, including Heidelberg, to solicit proposals
with respect to Sheridan Systems. In connection therewith, the Company and
Heidelberg entered into a Confidentiality Agreement in January 1996 pursuant to
which Heidelberg agreed to maintain the confidentiality of all nonpublic
information provided to it by the Company. Approximately 40 prospective
purchasers entered into confidentiality agreements with the Company and reviewed
the confidential memorandum, and several of those prospective purchasers
conducted meetings with management and undertook limited due diligence. In
January 1996, the parties which provided an expression of interest in Sheridan
Systems were provided with revised forecasts reflecting lower revenue and income
expectations due to the lower order intake and continued weak backlog. Of the
preliminary expressions of interest received from these prospective purchasers,
the Company deemed two such expressions (one of which was from Heidelberg) to be
of interest and the Company terminated discussions with the remaining entities
because the preliminary purchase price indications from such entities were
substantially lower. No expressions of interest were received for the purchase
of the entire Company.
On February 23, 1996 the Company announced the preliminary results for its
second fiscal quarter ended January 27, 1996, indicating that there would be a
loss in the range of $8-9 million. The net loss resulted in part from the lower
backlog at the beginning of the quarter at Sheridan Systems and weaker market
conditions generally for Sheridan Systems' bindery products. As a consequence,
the Company again lowered its forecasts for Sheridan Systems. The Company also
did not comply with certain restrictive financial covenants in its credit
agreement, received waivers from its lenders and stated that its projections
indicated that it might not meet income-related financial covenants in future
quarters. In granting the waivers relating to second fiscal quarter results, the
Company's lenders expressed concern over the financial results and projections
and the increased levels of borrowing and encouraged the Company to consummate a
transaction for the sale of one or more operating divisions or for the Company
as a whole.
On February 28, 1996, Heidelberg offered its non-binding indication of
interest in purchasing the assets of Sheridan Systems for $55 million, subject
to due diligence and certain adjustments. On March 14, 1996, an informational
meeting took place at the Company's facilities in Slough, England. Representing
Heidelberg were: Mr. Ulrich Mauser, member of its Management Board, Dr. Herbert
Meyer, a member of its Management Board and its Chief Financial Officer, Mr.
Howard Dare, Managing Director of Heidelberg Australia, and Dr. Lutz Bucken,
General Counsel and Secretary; representing the Company were: Mr. Jerome Brady,
its Chairman, President and CEO, Mr. Thomas Rooney, its Vice President and Chief
Financial Officer, and Mr. Ulrik Nygaard, Vice President and President of
Sheridan Systems. On March 28, 1996 Heidelberg submitted to the Company a
non-binding letter of intent which included a preliminary purchase price of $65
million, subject to due diligence and other conditions.
Subsequent meetings were held on April 17 and 18 at the Sheridan Systems
facility in Dayton, Ohio to discuss the terms of a proposed transaction. Among
others attending were: Mr. Hartmut Mehdorn, Chairman of the Management Board of
Heidelberg, Mr. Dare, Dr. Meyer, Dr. Bucken, and Messrs. Brady, Rooney and
Nygaard, as well as Mr. Steven Andrews, the Company's Vice President, General
Counsel and Secretary. On April 19, 1996, Dr. Bucken met in New York City at the
offices of Skadden Arps, Slate, Meagher & Flom, counsel to Heidelberg in
connection with this transaction ("Skadden Arps"), with representatives of
Skadden Arps, Mr. Andrews and a representative from Sidley & Austin, to discuss
legal issues and the scheduling of the various transactions.
As Heidelberg's due diligence review of Sheridan Systems proceeded, issues
arose which necessitated a meeting at the offices of Skadden Arps in New York
City on May 9, 1996 among Messrs. Dare and Ian Lyons, Senior Vice President,
Finance and Administration of Heidelberg USA, Dr. Bucken, and Messrs. Rooney and
Andrews, as well as representatives of Bear Stearns, Sidley & Austin and Skadden
Arps. At that meeting, Heidelberg personnel indicated that, based on further
investigation and analysis, their price indication would
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be substantially lower than previously indicated. Mr. Nygaard and David DaRin,
Chief Financial Officer of Sheridan Systems, joined the meetings on May 10 in
New York and the parties continued their discussions.
At a meeting of the Board of Directors held on May 21 and 22 at the
Sheridan Systems facility in Dayton, Ohio, management reported to the Board of
Directors that a review of the Company's cash resources and current revolving
credit facilities had been undertaken and management did not expect that the
Company's liquidity for the next twelve-month period would be adequate absent
the consummation of some transaction providing capital resources to the Company.
Accordingly, management had undertaken several initiatives to further reduce
expenses and had obtained preliminary indications of interest from new sources
of debt financing. The Board considered preliminary proposals from alternative
sources of debt financing, as well as preliminary indications of interest from
potential purchasers of AM Multigraphics and the current status of negotiations
for the sale of Sheridan Systems. The Board also heard detailed presentations
from members of the management team of Sheridan Systems as to the current
status, future prospects and investment requirements for operation of their
business segment for the foreseeable future. In addition, the Board of Directors
received a report from Bear Stearns addressing their activities to market both
Sheridan Systems and AM Multigraphics, the absence of any indications of
interest for the purchase of the Company as a whole, and possible strategic
alternatives which included: (1) continued operation of the Company with no
sale, (2) sale of Sheridan Systems and continued operation of the remainder of
the Company, (3) sale of AM Multigraphics and the continued operation of the
remainder of the Company, and (4) sale of both operating segments and
liquidation of the Company. At the conclusion of the meeting, the Board of
Directors directed management to continue its efforts to find new sources of
debt financing, but concluded that exploring the potential transaction with
Heidelberg should be the top priority among the Company's existing options.
On May 28, 1996, a meeting was held in Heidelberg, Germany, between Messrs.
Brady and Rooney, and Drs. Meyer and Bucken. Mr. Mehdorn later joined the group
for dinner. As a result of these meetings and further telephonic discussions
between the parties, Heidelberg sent to the Company a non-binding letter of
intent for the purchase by Heidelberg of the assets of the Sheridan Systems
division for a total cash purchase price of $56 million, subject to certain
adjustments, including a closing adjustment based on net asset value.
At a special telephonic meeting of the Company's Board of Directors held on
June 10, 1996, a representative of Sidley & Austin reviewed the terms of the
letter of intent. The Board also reviewed materials from Bear Stearns concerning
the proposal and received a report from Bear Stearns as to their marketing
efforts and the process that Bear Stearns would follow in issuing a fairness
opinion at the time of the execution of a definitive agreement. Finally, the
Board considered management's recommendation that the transaction be approved.
The Board of Directors then approved the letter of intent with Heidelberg, and
the letter of intent was executed by the Company.
On June 11 and 12, 1996, meetings with Heidelberg representatives continued
in Dayton. Dr. Bucken and members of Heidelberg's due diligence team met with
Messrs. Rooney and Andrews and representatives from Arthur Andersen. On June 24,
1996, the parties met again at the New York offices of Skadden Arps to discuss
various issues raised in the course of Heidelberg's due diligence process and to
discuss the draft of the Asset Purchase Agreement prepared by Skadden Arps. The
discussions included Messrs. Dare and Lyons and Dr. Bucken for Heidelberg, as
well as Messrs. Rooney and Andrews for the Company, along with representatives
of Bear Stearns, Sidley & Austin and Skadden Arps. On June 25, the discussions
included Mr. Mehdorn, Dr. Meyer and Mr. Brady. At the meeting, the parties took
note of the divergent views about many of the issues raised in Heidelberg's due
diligence process and discussed the need to avoid the uncertainty of potentially
substantial closing adjustments. The parties agreed to discuss the possible
resolution of these issues through a reduction of the purchase price to a fixed
sum of $50 million, without a closing net asset value adjustment. Discussions
continued over the course of the following weeks, and on July 5, 1996, Mr. Dare
met
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at the Company's headquarters in Rosemont, Illinois with Messrs. Rooney, Nygaard
and DaRin to discuss remaining open issues between the parties.
On July 8, 1996, the parties met at the offices of Skadden Arps to discuss
and document the final terms of the Asset Purchase Agreement. On July 9, 1996,
the document was executed by the parties subject, among other things, to the
approval of the Asset Purchase Agreement and the transactions contemplated
thereby by the Company's Board of Directors. On July 10, 1996, a telephonic
meeting of the Company's Board of Directors was held, at which the Directors
received presentations from a representative of Sidley & Austin concerning the
terms of the Asset Purchase Agreement and a presentation from Bear Stearns as to
its financial analyses and its opinion as to the fairness of the proposed
transaction to the Company from a financial point of view. The Board also
received management's recommendation that the transaction be approved. At the
conclusion of the presentations, the Board of Directors of the Company approved
the Asset Purchase Agreement.
The Company continues to explore strategic alternatives with respect to the
remainder of its business (including a sale of all or part of its remaining
operations), as well as the retention and operation of the remaining business.
OPINION OF THE COMPANY'S FINANCIAL ADVISOR
The Company retained Bear Stearns as its financial advisor in connection
with the consideration of certain strategic alternatives and asked Bear Stearns
to render its Opinion in connection with the Proposed Sale based on Bear
Stearns' qualifications, expertise and reputation. Bear Stearns is an
internationally recognized investment banking firm and is continually engaged in
the valuation of businesses and their securities and in rendering opinions in
connection with mergers and acquisitions and other purposes.
Bear Stearns has delivered to the Board of Directors of the Company its
Opinion to the effect that, based upon and subject to the various considerations
set forth in such Opinion, as of July 9, 1996, the Purchase Price was fair, from
a financial point of view, to the Company. The full text of Bear Stearns'
Opinion is attached as Appendix II to this Proxy Statement. The Company's
stockholders are urged to, and should, read such Opinion carefully in its
entirety in conjunction with this Proxy Statement for assumptions made, matters
considered and limits of the review by Bear Stearns. Bear Stearns' Opinion
addresses only the fairness of the Purchase Price from a financial point of view
and does not constitute a recommendation to any stockholder of the Company as to
how such stockholder should vote on the proposal to approve the Proposed Sale.
The summary of Bear Stearns' Opinion set forth in this Proxy Statement is
qualified in its entirety by reference to the full text of such Opinion.
In rendering its Opinion, Bear Stearns, among other things: (i) reviewed
the Asset Purchase Agreement and related transaction documents; (ii) reviewed
certain audited and unaudited financial statements of the Company and Sheridan
Systems; (iii) reviewed certain operating and financial information for Sheridan
Systems; (iv) reviewed certain estimated year end financial results for the
fiscal years 1996 through 2000 for Sheridan Systems which were provided to Bear
Stearns by the managements of the Company and Sheridan Systems; (v) met with
certain members of senior managements of the Company and Sheridan Systems to
discuss Sheridan Systems' operations, historical financial statements and
prospects; (vi) reviewed publicly available financial data and stock market
performance of publicly traded companies in businesses that Bear Stearns deemed
generally comparable to Sheridan Systems; (vii) reviewed the financial terms of
recent acquisitions of companies Bear Stearns deemed generally comparable to
Sheridan Systems; and (viii) conducted such other studies, analyses, inquiries
and investigations as Bear Stearns deemed appropriate. In addition, as part of
its engagement, Bear Stearns assisted the Company in identifying and contacting
various knowledgeable and qualified buyers which were given the opportunity to
make a thorough evaluation
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of Sheridan Systems in preparation for the submission of a proposal to acquire
Sheridan Systems. As a result of these efforts, the Company received various
indications of interest regarding possible business transactions involving
Sheridan Systems, which Bear Stearns assessed and reviewed with the senior
management and the Board of Directors of the Company. However, no firm proposals
were received that provided consideration equal to that of the Proposed Sale.
In rendering its Opinion, Bear Stearns relied upon and assumed the accuracy
and completeness of the financial and other information provided to Bear Stearns
by the Company and Sheridan Systems. Bear Stearns did not assume any
responsibility for such information and Bear Stearns relied upon the assurances
of the managements of the Company and Sheridan Systems that they were unaware of
any facts that would make the information provided to Bear Stearns incomplete or
misleading. With respect to the projections of the future financial performance
of Sheridan Systems, Bear Stearns determined not to rely on such projections in
its analyses because of, among other factors, the inherent uncertainty of the
projections, the numerous revisions made by management to their projections for
the current fiscal year and the fact that actual results for the interim periods
of the current fiscal year have differed materially from past projections for
such periods for Sheridan Systems. In arriving at its opinion, Bear Stearns did
not perform or obtain any independent appraisal of the assets of Sheridan
Systems. The Board of Directors of the Company has informed Bear Stearns that it
determined to sell Sheridan Systems due to the overall financial needs of the
Company and other business considerations, and Bear Stearns' Opinion should not
be deemed as expressing any view with respect to the appropriateness of such
reasons for the Proposed Sale. Bear Stearns' Opinion is necessarily based on
economic, market and other conditions, and the information made available to it,
as of the date thereof.
The following is a summary of certain of the financial and valuation
analyses presented by Bear Stearns to the Board of Directors of the Company on
July 10, 1996, in connection with Bear Stearns' Opinion. For each of the
valuation analyses discussed below, Bear Stearns compared the multiple of
enterprise value to earnings before interest, taxes, depreciation and
amortization ("EBITDA") implied by the Purchase Price to a reference range of
enterprise value to EBITDA multiples derived from each valuation analysis. Based
on EBITDA for the latest twelve months ("LTM"), for estimated fiscal 1996 and
for estimated fiscal 1997, the implied enterprise value to EBITDA multiples for
the Proposed Sale are 6.4x, 7.8x and 5.0x, respectively. These multiples were
considered in the context of the analyses described below and support the
conclusion in the Bear Stearns Opinion.
Analysis of Publicly Traded Comparable Companies. Bear Stearns reviewed,
analyzed and compared certain operating, financial, and trading information of a
variety of manufacturing and equipment companies and determined to focus on five
publicly traded companies that have operations in the commercial printing
machinery, bindery equipment, or related industries. These five companies
included Baldwin Technology Co., Inc., General Binding, Inc., Gradco Systems,
Inc., Sequa Corporation and Stevens Graphics, Inc. (collectively, the
"Comparable Companies"). Bear Stearns' analysis of the Comparable Companies
indicated that the Comparable Companies were trading in a range of enterprise
value to LTM EBITDA multiples, as estimated from publicly available information,
of 4.4x to 7.7x with a harmonic mean of 5.7x. This compared to an enterprise
value to LTM EBITDA multiple for the Proposed Sale of 6.4x. In addition, Bear
Stearns compared the Purchase Price to estimated fiscal 1996 EBITDA multiple and
the Purchase Price to estimated fiscal 1997 EBITDA multiple of 7.8x and 5.0x,
respectively, to the LTM multiple range of 4.4x to 7.7x, which had a harmonic
mean of 5.7x, of the Comparable Companies. Bear Stearns noted that the Proposed
Sale was valued at a significant premium, in terms of its enterprise value to
EBITDA multiple, when compared to the Comparable Companies' trading parameters,
and this was one of the primary factors in assessing the fairness, from a
financial point of view, of the Purchase Price.
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Analysis of Selected Merger and Acquisition Transactions. Bear Stearns
compared, reviewed and analyzed the publicly available financial terms of eight
selected recent merger and acquisition transactions in the commercial printing
machinery/binding industry which, in Bear Stearns' judgment, were reasonably
comparable to the Proposed Sale, and compared the financial terms of such
transactions to those of the Proposed Sale for purposes of this analysis. The
eight transactions, which occurred between 1988 and 1996, included
(acquirer/acquired company): The Jupiter Corporation / Elgin National
Industries, Inc.; Agfa-Gevaert, Inc. / Matrix Corporation; Baldwin Technology
Company, Inc. / Misomex of North America, Inc. and Misomex AB; Lee Enterprises,
Inc. / NAPP Systems Inc.; Print Tech International Inc. / W.R. Grace & Co.'s
Printing Products Inc.; Madge Networks N.V. / Lannet Data Communications Ltd.;
Globelle Corporation / GBC Technologies, Inc.; and Stonington Partners Inc. /
Rockwell International Corporation's Graphic Systems business (collectively, the
"Selected Transactions"). Bear Stearns reviewed the prices paid in the Selected
Transactions and analyzed various operating and financial information and
imputed valuation multiples and ratios. Bear Stearns noted that none of the
Selected Transactions was identical to the Proposed Sale and that, accordingly,
any analysis of the Selected Transactions necessarily involved complex
considerations and judgments concerning differences in financial and operating
characteristics and other factors that would necessarily affect the acquisition
value of Sheridan Systems versus the acquisition values of the companies to
which Sheridan Systems was being compared. Bear Stearns' analysis of the
Selected Transactions indicated that the range of enterprise value to LTM EBITDA
multiples, as estimated from publicly available information, was 4.9x to 7.1x
with a harmonic mean of 5.8x. This compared to an enterprise value to LTM EBITDA
multiple for the Proposed Sale of 6.4x. In addition, Bear Stearns compared the
Purchase Price to estimated fiscal 1996 EBITDA multiple and the Purchase Price
to estimated fiscal 1997 EBITDA multiple of 7.8x and 5.0x, respectively, to the
LTM multiple range of 4.9x to 7.1x which had a harmonic mean of 5.8x, for the
Selected Transactions. Bear Stearns noted that the Proposed Sale was valued at a
more favorable EBITDA multiple range when compared to the harmonic mean multiple
of the Selected Transactions and this was one of the primary factors in
assessing the fairness, from a financial point of view, of the Purchase Price.
Discounted Cash Flow Calculations. In preparing its Opinion, Bear Stearns
decided to exclude a discounted cash flow analysis from its valuation
methodologies. The managements of the Company and Sheridan Systems provided Bear
Stearns with estimated and projected financial results through fiscal year 2000
which, in the assessment of Bear Stearns, contained a degree of risk and
uncertainty that could not be quantified in a traditional discounted cash flow
analysis. Bear Stearns made this assessment based on various reasons, including
the following. First, the products sold by Sheridan Systems are largely capital
equipment items and market demand has historically been cyclical. Orders in
Sheridan Systems capital goods market can be in millions of dollars and
therefore revenues, margins and customer backlogs may vary significantly from
quarter to quarter or even year to year depending on the timing of customer
orders. No attempt was made in the projections to reflect changes resulting from
economic or industry cyclicality. Second, the managements of the Company and
Sheridan Systems had downwardly revised Sheridan Systems' estimated financial
results a number of times since July 1995. Third, based on the backlog and new
order activity during the Company's fourth quarter through the date of the
Opinion and other factors, Bear Stearns felt there was uncertainty regarding
Sheridan Systems' ability to attain the latest fiscal 1996 and fiscal 1997
projections provided to Bear Stearns.
Other Analyses. Bear Stearns conducted such other financial and valuation
analyses as it deemed necessary with respect to Sheridan Systems.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analysis as a whole, could create an incomplete view of the process
underlying Bear Stearns'
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Opinion. In arriving at its Opinion, Bear Stearns considered the results of all
such reviews, calculations and analyses. The analyses were prepared solely for
the purposes of providing its Opinion as to the fairness of the Purchase Price,
from a financial point of view, to the Company and do not purport to be
appraisals or necessarily reflect the prices at which businesses or securities
may actually be sold. The foregoing summary does not purport to be a complete
description of the analysis performed by Bear Stearns. As described above, Bear
Stearns' Opinion and presentation to the Board of Directors of the Company was
one of many factors taken into consideration by the Board of Directors of the
Company in making its determination to approve the Proposed Sale.
Pursuant to a letter dated July 19, 1995, the Company agreed to pay Bear
Stearns (i) a retainer fee of $100,000; (ii) a fee of $350,000 for rendering its
Opinion in connection with the Proposed Sale; and (iii) a success fee of
approximately $775,000, payable upon the consummation of the Proposed Sale.
Since all of the retainer fee and a certain portion of the Opinion fee are to be
credited against the success fee, the total fees payable to Bear Stearns
pursuant to the July 19, 1995 letter will be $1.1 million of which $450,000 has
already been paid. In addition, the July 19, 1995 letter provides that in
connection with the consummation of any other transaction involving the Company
or AM Multigraphics, the Company will pay Bear Stearns an opinion fee for any
such transaction and a success fee based on the aggregate consideration to be
paid by a potential buyer. The Company also has agreed to reimburse Bear Stearns
for its reasonable out-of-pocket expenses, including the reasonable fees and
disbursements of counsel, and to indemnify Bear Stearns and certain related
persons against certain liabilities in connection with the engagement of Bear
Stearns, including certain liabilities under federal securities law.
RECOMMENDATION OF THE COMPANY'S BOARD OF DIRECTORS; REASONS FOR THE PROPOSED
SALE
The Proposed Sale, including the Asset Purchase Agreement and the
transactions contemplated thereby, was submitted to the Board of Directors and
approved at a meeting held on July 10, 1996. The Board of Directors believes
that the Proposed Sale is in the best interests of the Company and its
stockholders and recommends to the stockholders of the Company that they vote
FOR the Proposed Sale. The offer to purchase Sheridan Systems received from
Buyer presented the Company with the opportunity to realize value for its
stockholders. In addition, the Board of Directors considered, among other
things, the following factors in approving and recommending the Proposed Sale:
1. The conclusion of Bear Stearns contained in its opinion to the
Board of Directors that the consideration to be received by the Company
pursuant to the Asset Purchase Agreement is fair to the Company from a
financial point of view.
2. The condition that the Proposed Sale be approved by the holders of
a majority of the outstanding shares of Common Stock.
3. The fact that the Company has solicited offers to purchase Sheridan
Systems from a large number of potential purchasers, the fact that the
Company received a limited number of preliminary offers to purchase
Sheridan Systems pursuant to such solicitation process, and the fact that
the prices and other terms of such preliminary offers were not as favorable
to the Company as the Proposed Sale.
4. The need of the Company for additional liquidity and capital
resources and the limited borrowing capacity of the business of Sheridan
Systems.
5. The anticipated utilization of the cash proceeds of the Proposed
Sale to reduce the Company's indebtedness and other liabilities and provide
working capital.
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6. Information with respect to the historical financial condition,
results of operations, business and prospects of Sheridan Systems and AM
Multigraphics and of the Company as a whole, together with current
industry, economic and market conditions.
7. The recommendation of the Company's management in favor of the
Proposed Sale.
8. Recent and historical trading prices of the Common Stock relative
to its trading volume, the Company's book value, and prices at which common
stock of similar companies have been trading.
9. Market statistics for selected companies in similar businesses,
including market valuation and capitalization, price-earnings ratios and
ratios of market capitalization to earnings and sales.
10. The interest of executive officers of the Company in the Proposed
Sale pursuant to their Change-in-Control Agreements described under
"--Interest of Certain Persons in the Proposed Sale".
11. The lack of attractive offers for the Company as a whole and the
view that the Proposed Sale would enhance the ability of the Company to
explore strategic alternatives involving the remainder of the Company.
Although basing its conclusion upon the different considerations discussed
above, the Board of Directors did not assign any relative weight to the various
factors it considered in reaching its decision. The Board of Directors, however,
placed special emphasis on the results of its solicitations of offers to
purchase such operations and its belief, as supported by the Bear Stearns
opinion, that the consideration to be received by the Company in the Proposed
Sale is fair, from a financial point of view, to the Company. In light of such
factors, the Board determined that the Proposed Sale is in the best interests of
the Company and its stockholders.
It is expected that if the Proposed Sale is not approved by the Company's
stockholders, or if the other conditions to the consummation of the Proposed
Sale are not satisfied or waived, the Company's management, under the general
direction of the Board, will seek to continue to manage Sheridan Systems as an
ongoing business and may seek other purchasers for Sheridan Systems or another
strategic alternative. In light of the competitive nature of the industry and
factors specific to Sheridan Systems, no assurance can be given that some other
offer for Sheridan Systems might be made or, if made, whether the consideration
will be more or less than that offered by Buyer. As described under
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Liquidity and Capital Resources" and Note 3 to "Notes to
Consolidated Financial Statements," the Company is facing significant capital
resources and liquidity issues and, based on current projections, the Company
expects that its cash resources and current revolving credit facility will not
provide sufficient capital resources and liquidity on an ongoing basis. Absent
the closing of the Proposed Sale, the Company believes that the sale of other
operations of the Company, the obtaining of new credit facilities or the
consummation of another transaction which would provide capital resources to the
Company would be necessary, and there is no assurance that its efforts in this
regard would be successful.
To the best of the Company's knowledge, all of its executive officers and
directors, who are the beneficial owners of 2,487,712 shares (35.5%) of Common
Stock outstanding as of the Record Date in the aggregate, intend to vote all
such shares for the approval of the Asset Purchase Agreement.
STOCKHOLDER APPROVAL
The Company believes that the Proposed Sale likely constitutes a sale of
"all or substantially all" of the property or assets of the Company within the
meaning of Section 271(a) of the General Corporation Law of the State of
Delaware (the "Delaware GCL") requiring the affirmative vote of the holders of
at least a majority of the outstanding shares of Common Stock entitled to vote
at the Special Meeting.
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PURCHASE PRICE
The Asset Purchase Agreement provides for the sale by the Company to Buyer
or its assignees of substantially all of the assets of Sheridan Systems for cash
in an amount equal to $50 million. In addition, Buyer has agreed to assume
substantially all of the liabilities of Sheridan Systems, including the
following: (i) all liabilities of the type reflected in the Sheridan Systems
balance sheet as of April 27, 1996, including, without limitation, Outstanding
Checks, Accounts Payable-Trade and Accrued Liabilities, Customer Advances, Other
Current and Long-Term Liabilities (each as defined below); (ii) all liabilities
and obligations of the Company or the Subsidiary under (A) contracts related
primarily to Sheridan Systems, (B) leases related primarily to Sheridan Systems
and (C) leases, contracts and other agreements entered into by the Company or
the Subsidiary with respect to Sheridan Systems after July 9, 1996 consistent
with the terms of the Asset Purchase Agreement; (iii) all liabilities and
obligations of the Company or the Subsidiary to provide parts and services on,
or to repair or replace, any products manufactured or sold primarily in
connection with Sheridan Systems on and after May 17, 1993 (the date on which
the Company had filed for reorganization in bankruptcy, the "Petition Date");
(iv) all liabilities and obligations of the Company or the Subsidiary under any
recalls after the Closing Date mandated by any governmental entity of the
products manufactured or sold primarily in connection with Sheridan Systems on
and after the Petition Date; (v) all liabilities and obligations primarily
arising from or primarily in connection with product liability claims relating
to products manufactured or sold by Sheridan Systems on and after the Petition
Date and the inventories included in the Sheridan Systems assets being sold to
Buyer; (vi) all liabilities for which Buyer is responsible with respect to
Sheridan Systems employees (described under "-- Employee Arrangements" below);
(vii) all scheduled pending litigation of Sheridan Systems and all other product
liability, contract and employee claims or proceedings of the same general type
arising out of or relating to Sheridan Systems arising out of events occurring
after the Petition Date; (viii) all liabilities and obligations related to,
associated with or arising out of (A) the occupancy, operation, use or control
of any real property of Sheridan Systems on and after the Petition Date or (B)
the operation of Sheridan Systems on and after the Petition Date, in each case
incurred under or imposed by any environmental law or other applicable law; and
(ix) all liabilities arising under the Change in Control and Termination
Benefits Agreement dated March 1996 between the Company and Ulrik T. Nygaard
(other than the Retention Bonus of $100,000 provided in Section 2 of such
agreement) (see "-- Interest of Certain Persons in the Proposed Sale") or under
the Supplemental Retirement Plan dated February 1, 1996 between the Company and
Mr. Nygaard.
For purposes of the Asset Purchase Agreement, (x) "Outstanding Checks"
means checks issued for payment of Sheridan Systems liabilities which have not
been presented for payment as of the Closing Date; (y) "Accounts Payable-Trade"
means all liabilities and obligations for goods and services received or
provided prior to the Closing Date; and (z) "Accrued Liabilities, Other Current
and Long-Term Liabilities" means, without limitation, (1) liabilities with
respect to Sheridan Systems employees for wages, salaries, holiday and vacation
obligations (except for vacation accrued on or before July 31, 1995), payroll
tax obligations, commissions and bonuses and other incentive compensation
obligations, retirement benefit obligations, supplemental retirement benefit
obligations, post-retirement benefit obligations, employment contract
obligations, severance and termination pay obligations (except for the first
$250,000 of any severance liability) and other fringe benefit obligations; (2)
any taxes, other than income taxes attributable to the operation of Sheridan
Systems up to and including the Closing Date and one-half of any sales and
transfer taxes relating to the transaction; (3) interest to the extent it
relates to Sheridan Systems liabilities; (4) royalty obligations; (5) customer
obligations including warranty, installation, customer overpayments and returns
and allowances; (6) recourse and buy back obligations (except for recourse
obligations related to the Company's Forms Press business); (7) agent and dealer
commissions, fees and obligations; (8) dilapidation obligations; (9) relocation
obligations; (10) workers compensation obligations; (11) repurchase obligations,
and (12) obligations relating to the items described in clauses (i) through (ix)
above.
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Notwithstanding the foregoing, Buyer has not agreed to assume and will not
be responsible for any liability owing to or relating to (i) retired or
permanently disabled former employees of the Company or the Subsidiary, (ii) any
facilities not currently used primarily in the business of Sheridan Systems
(including without limitation any environmental liabilities related thereto),
(iii) business units of the Company or the Subsidiary which have been sold or
liquidated, (iv) the Separation Agreement, dated January 19, 1996, between the
Company and Richard J. Bonnie, and (v) the Letter Agreement, dated February 4,
1994, between the Company and Richard J. Bonnie (regarding supplemental
retirement benefits); provided, however, that at the closing Buyer has agreed to
pay in cash to the Company 50% of the net present value (discounted at 6.0%) of
the Company's liability under clause (v) as of the Closing Date.
USE OF PROCEEDS
The Company intends to use a substantial portion of the net proceeds of the
Proposed Sale (after payment of taxes and expenses of approximately $2.7
million) to repay certain indebtedness, to repay other liabilities (including
extended trade payables) and for working capital. Indebtedness to be repaid
includes the Company's $25 million secured domestic revolving credit facility
with BT Commercial Corporation and LaSalle National Bank (of which $10.1 million
was outstanding at April 27, 1996). Indebtedness under this facility currently
bears interest at the rate of 10%, and this facility expires (unless earlier
terminated) in October 1996. In addition to reducing trade payables, the Company
also intends to use the net proceeds from the Proposed Sale to discharge certain
existing liabilities of the Company in the ordinary course, including
pre-petition liabilities and certain other legal contingencies and commitments.
See "THE COMPANY'S BUSINESS AND PROPERTIES -- Legal Proceedings" and
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Liquidity and Capital Resources."
REPRESENTATIONS AND WARRANTIES
The Asset Purchase Agreement contains various representations and
warranties of the Company, the Subsidiary and Buyer. The representations and
warranties do not survive the Closing Date. These include representations and
warranties by each of the Company and the Subsidiary as to (i) its organization
and good standing, (ii) equity securities owned by the Company, (iii) the
Company's ownership of the capital stock of the Subsidiary, (iv) the due
authorization of the Asset Purchase Agreement and the transactions contemplated
thereby, (v) required governmental and third party consents to the Proposed
Sale, (vi) the preparation and fair presentation of certain financial statements
of Sheridan Systems, (vii) the absence of undisclosed material liabilities
affecting Sheridan Systems, (viii) employee benefit plan matters, (ix) ownership
of intellectual property rights, (x) compliance of Sheridan Systems with laws,
(xi) the ownership or lease of real and personal property used in Sheridan
Systems, (xii) the identity and validity of contracts material to Sheridan
Systems, (xiii) the inventory of Sheridan Systems, (xiv) the accounts receivable
of Sheridan Systems, (xv) the absence of material adverse changes relating to
Sheridan Systems since April 27, 1996, (xvi) environmental, health and safety
matters, (xvii) the assets being acquired constituting all the assets of
Sheridan Systems necessary to conduct the business, (xviii) tax and insurance
matters, (xix) labor matters, (xx) the absence of certain legal proceedings,
(xxi) the validity of all governmental permits and (xxii) obligations for
financial advisory or brokerage fees in connection with the Proposed Sale,
The Asset Purchase Agreement also contains representations and warranties
of Buyer as to (i) its organization and good standing, (ii) the due
authorization of the Asset Purchase Agreement and the transactions contemplated
thereby, (iii) required governmental or third party consents to the Proposed
Sale, and (iv) obligations for financial advisory or brokerage fees in
connection with the Proposed Sale.
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CERTAIN COVENANTS PRIOR TO CLOSING
Each of the Company and the Subsidiary has agreed that, except as otherwise
expressly permitted or specifically contemplated by the Asset Purchase
Agreement, it will, prior to the Closing Date, conduct the business of Sheridan
Systems only in the ordinary course of business, and each of the Company and the
Subsidiary has agreed to use reasonable best efforts to preserve intact all
rights, privileges, franchises and other authority adequate for the conduct of
the business and operations of Sheridan Systems as currently conducted, to keep
available the services of the officers and employees of Sheridan Systems and to
maintain satisfactory relationships with licensors, licenses, suppliers,
contractors, distributors, customers and others having business relationships
with Sheridan Systems.
The Company has also agreed, except as agreed to by Buyer, that neither it
nor the Subsidiary will do any of the following: (i) (x) create, incur or assume
any long-term debt (including obligations in respect of capital leases), or,
except in the ordinary course of business under existing lines of credit,
create, incur or assume any short-term debt if, in either such case, such
long-term debt or short-term debt would constitute a Sheridan Systems liability
being assumed by Buyer or (y) assume, guarantee, endorse or otherwise become
liable or responsible (whether directly, contingently or otherwise) for the
obligations of any other person if such assumption, guarantee, endorsement or
other liability would constitute a Sheridan Systems liability being assumed by
Buyer; provided that the Company and the Subsidiary may endorse negotiable
instruments in the ordinary course of business of Sheridan Systems consistent
with past practice; (ii) (x) increase in any manner the compensation of any of
the officers or other employees of Sheridan Systems, except such increases as
are granted in the ordinary course of business in accordance with its customary
practices (which shall include normal periodic performance review and related
compensation and benefit increases but not any general across-the-board
increases), (y) pay or agree to pay any pension, retirement allowance or other
employee benefit not required or permitted by any existing plan, agreement or
arrangement to any such officer or employee, whether past or present or (z)
commit itself to any additional benefit plans, or, except as other expressly
required or permitted by the Asset Purchase Agreement, to amend or terminate any
of such plans or any of such agreements in existence on July 9, 1996; (iii)
permit any of its current insurance (or reinsurance) policies to be cancelled or
terminated or any of the coverage thereunder to lapse if such policy covers
Sheridan Systems assets or insures risks, contingencies or liabilities which
could result in a Sheridan Systems liability being assumed by Buyer, unless
simultaneously with such termination, cancellation or lapse, replacement
policies providing coverage equal to or greater than the coverage remaining
under those cancelled, terminated or lapsed are in full force and effect (it
being understood that there will be no obligation to extend such insurance
policies after the Closing Date); (iv)(x) sell, transfer, or otherwise dispose
of or agree to sell, transfer, or otherwise dispose of, any Sheridan Systems
assets, except sales of products produced and distributed in the ordinary course
of business consistent with past practice or (y) mortgage, pledge or otherwise
encumber any Sheridan Systems assets except for such mortgages or encumbrances
which constitute Permitted Exceptions (as defined in the Asset Purchase
Agreement); (v) sell, transfer, license or otherwise dispose of, or agree to
sell, transfer, license or otherwise dispose of any of the Sheridan Systems
intellectual property; (vi) enter into any agreements, commitments or contracts
relating to Sheridan Systems, except agreements, commitments or contracts made
in the ordinary course of business consistent with past practice and not in
excess of current requirements; (vii) voluntarily consent to the termination of
any Sheridan Systems contract or Sheridan Systems lease by any other party
thereto, or voluntarily withdraw any application constituting Sheridan Systems
intellectual property; (viii) amend its charter documents in a manner that
adversely affects the transactions contemplated by the Asset Purchase Agreement;
(ix) issue, sell, pledge, lease, dispose of, encumber or authorize the issuance,
sale, pledge, lease, disposition or encumbrance of any shares of capital stock
of any class or any options, warrants, convertible securities or other rights of
any kind to acquire any shares of capital stock of, or any other ownership
interest in, the Subsidiary; (x) change the accounting principles used by it
with respect to Sheridan Systems unless required by GAAP
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(or, if applicable with respect to the Subsidiary, U.K. GAAP); (xi) release any
third party from its obligations under any confidentiality or other similar
agreement entered into in respect of or otherwise relating to Sheridan Systems;
(xii) pay, discharge, satisfy, compromise, settle, grant any waiver or release
any claims, liabilities or obligations (absolute or otherwise) which may be
reasonably expected to be Sheridan Systems liabilities being assumed by Buyer,
except in the ordinary course of business consistent with past practice; (xiii)
take any action that would or is reasonably likely to result in any
representation or warranty of the Company or the Subsidiary set forth in the
Asset Purchase Agreement being untrue in any material respect, or in any of the
conditions set forth in the Asset Purchase Agreement not being satisfied; (xiv)
enter into or amend any agreement, commitment or contract, whether or not in the
ordinary course of business, which would grant recourse, directly or indirectly,
against any of the Sheridan Systems assets by a third party with respect to
customer lease obligations; (xv) enter into or amend any master agreement,
commitment or contract relating to Sheridan Systems with any person, whether or
not in the ordinary course of business, which governs on an ongoing basis sales
to such person; or (xvi) enter into any agreement, contract, commitment or
arrangement to do any of the foregoing.
In addition, the Company has agreed that it will not, directly or
indirectly, make, solicit, initiate or encourage submission of proposals or
offers from any persons (including any of its officers or employees) relating to
a Competing Proposal. The term "Competing Proposal" means any proposal or offer
involving a liquidation, dissolution, recapitalization, merger, consolidation or
acquisition or purchase of all or any significant part of the Sheridan Systems
assets (other than such sales of inventory to the Company's dealers or customers
in the ordinary course of business and consistent with past practices) or other
similar transaction or business combination involving Sheridan Systems whether
by means of acquiring the Sheridan Systems assets, the Company or otherwise.
The Company has also agreed that Buyer, at its discretion, may locate up to
three of its representatives at the offices of Sheridan Systems in Dayton, Ohio
and up to two of its representatives at the offices of the Subsidiary in Slough,
England. Prior to the Closing Date, the Company has agreed to cause one or more
of its designated representatives to consult as requested by Buyer on a regular
basis with such representatives of Buyer and to discuss the general status of
ongoing operations of Sheridan Systems. The Company has also agreed to use its
reasonable best efforts to insure that a Buyer's representative is given
reasonable advance notice of any action or commitment which could be expected to
involve a commitment, expenditure or other obligation in an amount exceeding
$50,000.
With respect to tax matters, the Company has agreed that, without the prior
written consent of Buyer, if a material adverse effect on the liability for
taxes of Buyer with respect to or arising from Sheridan Systems or the Sheridan
Systems assets will result therefrom, none of the Company or the Subsidiary nor
any of their affiliates will make or change any election, change an accounting
period, adopt or change any accounting method, file any amended tax return or
report, enter into any closing agreement, settle any tax claim or assessment
relating to Sheridan Systems or the Sheridan Systems assets, surrender any right
to claim a refund of taxes or consent to any extension or waiver of the
limitation period applicable to any tax claim or assessment relating to Sheridan
Systems or the Sheridan Systems assets.
CASH MANAGEMENT PRIOR TO CLOSING
Pending the earlier to occur of the Closing Date or a termination of the
Asset Purchase Agreement, the Company has agreed that no cash payments or other
disbursements will be made by Sheridan Systems' Dayton operations, except with
the written authorization of one of Buyer's designated representatives (each, a
"Buyer's Required Signatory"), which authorization will not be withheld in the
case of specified cash disbursement requirements to the Company for general
corporate requirements and otherwise will not be unreasonably withheld or
delayed. The specified disbursement schedule is based on the Company's practice
of
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allocating funding responsibility for one-half of its estimated overall
corporate expenses to Sheridan Systems (with the other half being allocated to
AM Multigraphics) and also allocating to Sheridan Systems the estimated amount
of certain expenses (such as payroll taxes for division employees) attributable
to Sheridan Systems that are paid by the corporate level. In addition, the
Company has agreed to provide to a Buyer's Required Signatory cash receipt data
for the Dayton operation of Sheridan Systems on a daily basis.
Pending the earlier to occur of the Closing Date or a termination of the
Asset Purchase Agreement, except as permitted by the next sentence, the Company
has agreed that it will not permit the Subsidiary to, and the Subsidiary will
not, transfer or otherwise disburse any cash to the Company or AM International
(UK Holdings) Limited. Cash transactions between the Dayton operation of
Sheridan Systems and the Subsidiary may only be conducted to or from specified
bank accounts and may only be made in respect of inventory payments within
standard invoice terms. Any cash generated by Sheridan Systems in excess of
amounts allowed to be disbursed will be transferred to Buyer at Closing.
CONDITIONS TO CLOSING; WAIVER
The respective obligations of the Company, the Subsidiary and Buyer to
consummate the Proposed Sale are subject to the satisfaction of certain
conditions, including (i) the expiration of the waiting period applicable under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended ("HSR
Act"); (ii) that no action, suit or proceeding shall be pending or threatened by
or on behalf of any governmental entity seeking to enjoin or otherwise
challenging the legality of the transactions contemplated by the Asset Purchase
Agreement, and that no order, decree or injunction restraining or prohibiting
consummation of any of such transactions shall be in effect; and (iii) the
approval of the Proposed Sale by the holders of a majority of the outstanding
shares of Common Stock. The Proposed Sale was approved by the Supervisory Board
(Aufsichtsrat) of Buyer on July 24, 1996 and by the Supervisory Board
(Aufsichtsrat) and the Management Board (Vorstand) of RWE Aktiengesellschaft, an
affiliate of Buyer, on July 25, 1996, which approvals were a condition to the
consummation of the Proposed Sale.
The obligation of Buyer to consummate the Proposed Sale is also subject to
the satisfaction of the following conditions: (i) the performance in all
material respects by the Company of the acts and undertakings to be performed by
the Company on or before the Closing Date pursuant to the Asset Purchase
Agreement; (ii) the representations and warranties of the Company and the
Subsidiary contained in the Asset Purchase Agreement being true and correct in
all material respects on and as of the Closing Date and the receipt of a
certificate of officers to that effect; and (iii) the receipt of (x) all
material permits, authorizations, consents or approvals of any governmental
entity (other than as may be required under any applicable laws of the Federal
Republic of Germany and of the United Kingdom) required for the effective
transfer to Buyer of the Sheridan Systems assets and rights and privileges
relating thereto, and (y) all material consents or waivers from other parties to
licenses, franchises, permits, indentures, agreements and other instruments that
are required for the lawful consummation of the transactions contemplated by the
Asset Purchase Agreement or are necessary in order for Buyer to conduct the
business of Sheridan Systems, substantially in the same manner as heretofore
conducted.
The obligation of the Company and the Subsidiary to consummate the Proposed
Sale is also subject to the satisfaction of the following conditions: (i) the
performance in all material respects by Buyer of the acts and undertakings to be
performed by it on or before the Closing Date pursuant to the Asset Purchase
Agreement; and (ii) the respective representations and warranties of Buyer
contained in the Asset Purchase Agreement being true and correct in all material
respects on and as of the Closing Date and the receipt of certificates of
officers to that effect.
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AMENDMENT; TERMINATION; ASSIGNMENT
Subject to applicable law, the Asset Purchase Agreement may be amended,
modified or supplemented only by written agreement among the parties thereto at
any time prior to the Closing Date. At the date of this Proxy Statement, the
Company knows of no material amendment of the Asset Purchase Agreement which is
to be made; and, consistent with its fiduciary duties, the Board of Directors of
the Company would authorize an amendment only if it believes such amendment to
be in the best interests of the Company and its stockholders.
The Asset Purchase Agreement may be terminated at any time prior to the
Closing Date, whether before or after approval by the Company's stockholders, by
mutual written agreement of Buyer and the Company, or by either Buyer or the
Company at any time after October 31, 1996 if the conditions set forth in the
Asset Purchase Agreement have not been satisfied or waived.
The Asset Purchase Agreement may also be terminated by the Company if there
has been a material violation or breach by Buyer of any agreement,
representation or warranty contained in the Asset Purchase Agreement which has
rendered the satisfaction of any condition to the obligations of the Company or
the Subsidiary impossible and such violation or breach has not been waived by
the Company.
The Asset Purchase Agreement may also be terminated by Buyer if there has
been a material violation or breach by the Company or the Subsidiary of any
agreement, representation or warranty contained in the Asset Purchase Agreement
which has rendered the satisfaction of any condition to the obligations of Buyer
impossible and such violation or breach has not been waived by Buyer or (ii) if
the Company shall have entered into a definitive agreement to accept a Competing
Proposal.
The Company and the Subsidiary have also agreed that if all or
substantially all of the Sheridan Systems assets are sold, whether by means of
an asset sale, stock sale, sale of the Company or otherwise, other than to Buyer
at any time on or prior to August 15, 1996 at a purchase price greater than $50
million, then the Company shall promptly pay upon receipt of documentation
therefor all of Buyer's reasonable expenses incurred in connection with the
transactions contemplated by the Asset Purchase Agreement up to a maximum of $1
million.
The Company and the Subsidiary have agreed that Buyer may cause one or more
of its wholly owned subsidiaries designated by Buyer to carry out all or part of
the transactions contemplated by the Asset Purchase Agreement; provided,
however, that no such designation will affect or diminish the liability of Buyer
under the Asset Purchase Agreement.
EMPLOYEE ARRANGEMENTS
Buyer has agreed to offer employment, on an at-will basis, to all current
active Sheridan Systems employees. In connection therewith, the Company has
agreed to retain the first $250,000 of any severance liability incurred within
six months of the Closing Date under the Company's severance policy as a result
of the termination by Buyer of Sheridan Systems employees located at Dayton.
Buyer has agreed to assume and be responsible for any severance liability to the
extent that it exceeds $250,000 in the aggregate or occurs more than six months
after the Closing Date, whichever is first applicable.
The Company and the Subsidiary have agreed to remain responsible for, and
indemnify and hold harmless Buyer against, any and all claims, losses, damages,
costs and expenses and other liabilities (other than those constituting Sheridan
Systems liabilities being assumed by Buyer) relating to or arising out of (i)
any of the Company's plans or obligations thereunder accrued prior to the
Closing Date and (ii) coverage of any and all claims for medical, dental or
other coverage of Sheridan Systems employees and their dependents occurring on
or prior to the Closing Date. Buyer has agreed to be responsible for, and
indemnify
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and hold harmless the Company and the Subsidiary against, any and all claims,
losses, damages, costs and expenses and other liabilities relating to or arising
out of (i) any of Buyer's plans or obligations thereunder accrued after the
Closing Date and (ii) coverage of any and all claims for medical, dental or
other coverage of Sheridan Systems employees and their dependents for medical,
dental or other covered services rendered after the Closing Date.
With respect to vacation pay obligations, the Company has agreed to remain
responsible for, and indemnify and hold harmless Buyer against, any and all
claims, losses, damages, costs and expenses and other liabilities relating to or
arising out of any vacation due to any Sheridan Systems employees of the Company
which accrued on or prior to July 31, 1995 and is unused as of the Closing Date
(currently expected to be approximately $200,000 at August 31, 1996). From and
after the Closing Date, Buyer has agreed to assume and be responsible for, and
indemnify and hold harmless the Company against, any and all claims, losses,
damages, costs and expenses and other liabilities relating to or arising out of
any vacation due to any Sheridan Systems employees of the Company which accrued
after July 31, 1995 and is unused as of the Closing Date (currently expected to
be approximately $960,000 at August 31, 1996).
COVENANT NOT TO COMPETE
The Company has agreed in the Asset Purchase Agreement that for a period of
two years after the Closing Date, it will not directly or through any of its
subsidiaries, agents or representatives (i) engage in the design or manufacture
of bindery or newspaper mailroom systems worldwide or (ii) sell any product or
spare part or render any service in connection with the bindery or newspaper
mailroom systems products which are competitive with the products, spare parts
and services currently offered by Sheridan Systems. Notwithstanding the
foregoing, the Company will retain the right to sell equipment, spare parts and
render service through AM Multigraphics substantially similar to the products
and services currently offered by AM Multigraphics.
INTEREST OF CERTAIN PERSONS IN THE PROPOSED SALE
In July 1995 the Board of Directors authorized the Company to enter into
agreements with each of Messrs. Brady, Rooney and Andrews to secure their
continued service in the event of any "Change-in-Control." In March 1996, the
Company entered into a similar agreement with Ulrik T. Nygaard (collectively,
the "Change-in-Control Agreements"). In the event that a "Change-in-Control"
occurs, such officers will receive a "Retention Bonus" ($800,000 for Mr. Brady,
$250,000 for Mr. Rooney, $200,000 for Mr. Andrews and $100,000 for Mr. Nygaard).
For purposes of the agreements, a "Change-in-Control" includes the sale or
disposition of all or substantially all of the Company's Sheridan Systems
assets; accordingly, the Proposed Sale (if consummated) would be a
Change-in-Control and, under such circumstances, with respect to Messrs. Brady,
Rooney and Andrews, the Retention Bonus will be paid in accordance with the
provisions of an escrow agreement on the earliest to occur of (1) the date of
the consummation of the sale of all or substantially all of the assets of AM
Multigraphics (if the officer remains employed by the Company on the date of
such sale of assets of AM Multigraphics), (2) six months after the date of the
Change-in-Control (if the officer remains employed by the Company), (3) the date
on which the officer's employment by the Company terminates on or after the date
of such Change-in-Control by reason of a "Qualifying Termination" or his death
or disability and (4) the date of the Change-in-Control in the event the officer
is terminated prior to the Change-in-Control but after a binding letter of
intent pertaining to such transaction is executed. With respect to Mr. Nygaard,
the Retention Bonus will be paid in accordance with the provisions of an escrow
agreement on the earliest to occur of (1) three months after the
Change-in-Control (if Mr. Nygaard remains employed), (2) the date on which Mr.
Nygaard is terminated on or after the date of a Change-in-Control by reason of a
"Qualifying Termination" or his death or disability, and (3) the date of the
Change-in-Control in the event that Mr. Nygaard is terminated prior to the
Change-in-Control but after a binding letter of intent
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pertaining to such transaction is executed. A "Qualifying Termination" means a
termination by the Company for a reason other than "cause" or by the officer for
"good reason" each as defined in the agreements. A "Qualifying Termination" also
includes a termination of employment by the officer for any reason whatsoever
during the 30-day period commencing on the first anniversary of the date of a
Change-in-Control. With respect to Messrs. Brady, Rooney and Andrews, the
definition of "good reason" provides that in the event a Change-in-Control which
results from the sale of Sheridan Systems, "good reason" shall be deemed to
exist on or after the date on which the Retention Bonus becomes payable to the
officer. In addition, if after a Change-in-Control there is a Qualifying
Termination, the officer will receive a lump sum cash amount equal to two times
the officer's highest rate of annual base salary in effect at any time after the
date of the execution of the Agreement (which amount is reduced over time
following the Change-in-Control), together with a pro rata portion of bonus for
the year and payments of certain accrued benefits. In the event of a Qualifying
Termination of each officer, such lump sum cash payments as of July 18, 1996 are
currently estimated to be $876,000 for Mr. Brady, $1 million for Mr. Rooney,
$437,000 for Mr. Andrews and $642,000 for Mr. Nygaard. With respect to Mr.
Nygaard, Buyer has agreed to assume his Change-in-Control Agreement (other than
the $100,000 Retention Bonus which will remain an obligation of the Company). A
Change-in-Control Agreement also was entered into with Mr. David Roberts, Vice
President and President of AM Multigraphics, on substantially similar terms to
the agreement with Mr. Nygaard except that a Change in Control for purposes of
the agreement with Mr. Roberts includes the sale of all or substantially all of
the assets of AM Multigraphics (rather than Sheridan Systems).
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The consummation of the Proposed Sale will not be a taxable event for
federal income tax purposes for the stockholders of the Company.
The sale of the Sheridan Systems assets will be a taxable event to the
Company. The Company believes, however, that its amount realized from the sale
of the Sheridan Systems assets will be equal to or less than its basis in such
assets. As a result, the Company does not expect to realize a gain on the sale
or to incur any significant federal, state or foreign income tax liability as a
result of the Proposed Sale.
REGULATORY REQUIREMENTS
HSR Act. The HSR Act provides that certain acquisition transactions
(including the Proposed Sale) may not be consummated until certain information
has been furnished to the Department of Justice and the Federal Trade Commission
("FTC") and certain waiting period requirements have been satisfied. The Company
and Buyer are making their respective filings with the Department of Justice and
the FTC with respect to the Proposed Sale at or near the date of the mailing of
this Proxy Statement. The waiting period under the HSR Act will terminate upon
the expiration of a 30-calendar day waiting period following the filing of such
materials, unless Buyer or the Company receives a request for additional
information or documentary material from the Department of Justice or the FTC or
unless early termination of the waiting period is granted.
At any time before or after the Closing Date, either the Department of
Justice or the FTC could take such action under the antitrust laws as it deems
necessary or desirable in the public interest. Such action could include seeking
to enjoin the consummation of the Proposed Sale or seeking divestiture of stock
of businesses acquired as a result of the Proposed Sale. Private actions may
also be brought under the antitrust laws seeking damages and other relief.
Based on information available to them, the Company and Buyer believe that
the Proposed Sale can be effected in compliance with the antitrust laws.
However, there can be no assurance that a challenge to the
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Proposed Sale on antitrust grounds will not be made or that, if such a challenge
were made, the Company and Buyer would prevail or would not be required to
accept certain conditions in order to consummate the Proposed Sale.
German Cartel Office. Similar requirements exist for the filing of a
pre-merger notification with the German Federal Cartel Office ("Cartel Office").
A filing has been made with the Cartel Office requesting a declaration that no
action will be taken in opposition to the consummation of the Proposed Sale. The
Cartel Office has one month from the date of the filing to respond to the
notification but may request an automatic extension of up to three months and
additional extensions with the consent of both parties. The waiting period with
the Cartel Office will terminate upon the expiration of the one-month period
following the filing of the notification unless the parties receive notice of
the extension of the period or unless a favorable response is received from the
Cartel Office prior to the expiration of the one-month period. The Cartel Office
may seek to enjoin the Proposed Sale only on antitrust grounds specifically
outlined in the relevant statutes.
POSSIBILITY THAT THE PROPOSED SALE WILL NOT BE CONSUMMATED
There are a number of conditions to the obligations of all or certain
parties under the Asset Purchase Agreement to consummate the Proposed Sale. See
"-- Conditions to Closing; Waiver." Obtaining appropriate debt and equity
financing is not a condition to Buyer's obligations under the Asset Purchase
Agreement.
It is expected that if the Proposed Sale is not approved by the Company's
stockholders, or if the other conditions to the consummation of the Proposed
Sale are not satisfied or waived, the Company's management, under the general
direction of the Board, will seek to continue to manage Sheridan Systems as an
ongoing business and may seek other purchasers for Sheridan Systems or another
strategic alternative. In light of the competitive nature of the industry and
factors specific to Sheridan Systems, no assurance can be given that some other
offer for Sheridan Systems might be made or, if made, whether the consideration
will be more or less than that offered by Buyer. As described under
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Liquidity and Capital Resources" and Note 3 of "Notes to
Consolidated Financial Statements," the Company is facing significant capital
resources and liquidity issues and, based on current projections, the Company
expects that its cash resources and current revolving credit facility will not
provide sufficient capital resources and liquidity on an ongoing basis. Absent
the closing of the Proposed Sale, the Company believes that the sale of other
operations of the Company, the obtaining of new credit facilities or the
consummation of another transaction which would provide capital resources to the
Company would be necessary, and there is no assurance that its efforts in this
regard would be successful. See "-- Background of the Proposed Sale."
ACCOUNTING TREATMENT
The Proposed Sale has been reflected in the Company's financial statements
as a disposal of a segment of business within the meaning of Accounting
Principles Board Opinion No. 30.
FEES AND EXPENSES
Pursuant to the terms of the Asset Purchase Agreement, the Company and
Buyer will each pay its own expenses in connection with the transactions
contemplated thereby, except as described under "-- Amendment; Termination;
Termination Fee."
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NO DISSENTER'S RIGHTS OF APPRAISAL
Under the Delaware GCL, holders of the Company's Common Stock will not be
entitled to rights of appraisal in connection with the Proposed Sale.
CERTAIN INFORMATION CONCERNING HEIDELBERG
Heidelberger Druckmaschinen AG, a corporation organized under the laws of
the Federal Republic of Germany ("Heidelberg" or "Buyer"), together with its
subsidiaries, develops, manufactures and markets a broad range of products for
the sheetfed and web offset printing press industry. With its headquarters
located in Heidelberg, Germany, Heidelberg competes around the world through
manufacturing and sales subsidiaries and affiliates located in the United
States, United Kingdom, Canada, Australia, France and Japan.
Heidelberg is a leader in the production of sheetfed offset presses and
also manufactures products for job and magazine as well as newspaper printing.
Heidelberg's sales subsidiaries Heidelberg USA, Inc., Heidelberg UK,
Heidelberg Canada and Heidelberg Australia, as well as its affiliate Heidelberg
PMT, Japan, provide customer support, from print shop planning to the
establishment of regional customer service networks. In addition, Heidelberg
maintains distribution partners in Asia, Western and Southern Europe, Mexico and
other strategic locations.
Heidelberg Harris, Inc. USA with its subsidiaries Heidelberg Harris S.A.,
France, and Heidelberg Harris GmbH, Germany, primarily specializes in the
production of job and magazine printing presses.
24
<PAGE> 29
AM INTERNATIONAL, INC.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited pro forma consolidated financial statements are
presented to illustrate the effect of certain adjustments to the historical
consolidated financial statements that result from the sale of Sheridan Systems,
as if the sale and related transactions had occurred at the beginning of the
periods presented for the Consolidated Statements of Income from Continuing
Operations and as of April 27, 1996 for the Consolidated Balance Sheet.
The accompanying pro forma consolidated financial statements should be read
in conjunction with the Company's historical consolidated financial statements
and notes thereto appearing elsewhere herein. The Company's historical financial
statements have been restated to reflect the Proposed Sale of Sheridan Systems
and its previously divested Multigraphics-International Operations as
discontinued operations. The pro forma consolidated financial statements are
presented for informational purposes only and are not necessarily indicative of
actual results had the sale and related transactions occurred at the beginning
of the periods presented for the Consolidated Statements of Operations from
Continuing Operations and as of April 27, 1996 for the Consolidated Balance
Sheet, nor do they purport to represent results of future operations of the
Company.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FROM CONTINUING OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED APRIL 27, 1996 YEAR ENDED JULY 31, 1995
------------------------------------ ------------------------------------
RESTATED PRO RESTATED PRO
HISTORICAL(A) ADJUSTMENTS FORMA HISTORICAL(A) ADJUSTMENTS FORMA
------------- ----------- ------ ------------- ----------- ------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Revenues........................................ $ 128.2 -- $128.2 191.5 -- 191.5
Cost of Sales................................... 96.6 -- 96.6 138.8 -- 138.8
------- --- ------ ------- ----- ------
Gross Margin.................................... 31.6 -- 31.6 52.7 -- 52.7
Operating Expenses:
Selling, general, and administrative.......... 33.6 -- 33.6 53.4 -- 53.4
Research, development, and engineering........ 0.6 -- 0.6 1.8 -- 1.8
Unusual income item........................... -- -- -- -- -- --
------- --- ------ ------- ----- ------
Total operating expenses.................... 34.2 -- 34.2 55.2 -- 55.2
------- --- ------ ------- ----- ------
Operating income (loss)......................... (2.6) -- (2.6) (2.5) -- (2.5)
Non-operating income (expense):
Interest income............................... 0.1 --(b) 0.1 0.2 --(b) 0.2
Interest expense.............................. (2.7) 0.5(c) (2.2) (3.4) 0.4(c) (3.0)
Other income (expense), net................... (0.1) -- (0.1) -- -- --
------- --- ------ ------- ----- ------
Income (loss) from continuing operations before
income taxes.................................. (5.3) 0.5 (4.8) (5.7) 0.4 (5.3)
Income tax expense (benefit).................... -- -- -- (1.5) 0.2(d) (1.3)
------- --- ------ ------- ----- ------
Net income (loss) from continuing operations.... ($ 5.3) 0.5 ($ 4.8) ($ 4.2) $ 0.2 ($ 4.0)
======= === ====== ======= ===== ======
Net income (loss) per common share from
continuing operations......................... ($ 0.76) ($0.68) ($ 0.59) ($0.57)
======= ====== ======= ======
</TABLE>
See the accompanying Notes to Unaudited Pro Forma Consolidated Financial
Statements
25
<PAGE> 30
AM INTERNATIONAL, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF APRIL 27, 1996
(IN MILLIONS)
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
RESTATED ---------------
HISTORICAL (E) DR. CR. PRO FORMA
-------------- ----- ----- ---------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents....................... $ 5.9 $31.9(f) -- $ 37.8
Accounts receivable, net........................ 32.0 -- -- 32.0
Inventories, net................................ 25.9 -- -- 25.9
Other current assets............................ 1.3 3.5(g) -- 4.8
Net assets of discontinued operations........... 67.8 -- 67.8(h) --
------
-
------ ----- -------
Total current assets......................... 132.9 35.4 67.8 100.5
Property, plant & equipment, net.................. 13.3 -- -- 13.3
Excess reorganization value....................... 5.1 -- -- 5.1
Other assets...................................... 5.5 -- -- 5.5
------
-
------ ----- -------
Total assets............................ $156.8 $35.4 $67.8 $ 124.4
====== ======= ===== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current maturities
of long-term................................. $ 17.2 $10.1(i) -- $ 7.1
Accounts payable................................ 24.5 8.0(j) -- 16.5
Service contract deferred income................ 13.1 -- -- 13.1
Payroll related expenses........................ 10.7 -- -- 10.7
Other current liabilities....................... 24.5 -- 2.1(k) 29.1
2.5(l)
------
-
------ ----- -------
Total current liabilities............... 90.0 18.1 4.6 76.5
Long-term debt.................................. 10.9 -- -- 10.9
Other long-term liabilities..................... 19.5 -- -- 19.5
------
-
------ ----- -------
Total liabilities............................ 120.4 18.1 4.6 106.9
------
-
------ ----- -------
Shareholders' equity
Common stock.................................... 0.1 -- -- 0.1
Capital in excess of par value.................. 35.9 -- -- 35.9
Less: Treasury stock............................ -- -- -- --
Warrants........................................ 0.4 -- -- 0.4
Accumulated earnings (deficit).................. 0.1 16.4(m) -- (18.8)
2.5(l)
Cumulative translation adjustments.............. (0.1) -- -- (0.1)
------
-
------ ----- -------
Total Shareholders' equity................... 36.4 18.9 -- 17.5
------
-
------ ----- -------
Total liabilities and shareholders' equity........ $156.8 $37.0 $ 4.6 $ 124.4
====== ======= ===== =======
</TABLE>
See the accompanying Notes to Unaudited Pro Forma Consolidated Financial
Statements.
26
<PAGE> 31
AM INTERNATIONAL, INC.
UNAUDITED PRO FORMA CAPITALIZATION
AS OF APRIL 27, 1996
(IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
RESTATED ---------------
HISTORICAL (E) DR. CR. PRO FORMA
-------------- ----- ----- ---------
<S> <C> <C> <C> <C>
SHORT-TERM DEBT:
Revolving Credit Facility....................... $ 10.1 $10.1(i) -- --
Current portion of General Unsecured Claims and
Priority Tax Claims.......................... 6.1 -- -- 6.1
Current portion of Capital Leases............... 1.0 -- -- 1.0
------- ----- ----- ---------
TOTAL SHORT-TERM DEBT AND CURRENT MATURITIES OF
LONG-TERM DEBT............................... $ 17.2 $10.1 -- $ 7.1
======= ===== ===== ========
LONG-TERM DEBT:
General Unsecured Claims and Priority Tax
Claims....................................... $ 8.6 -- -- $ 8.6
Capital Leases.................................. 2.3 -- -- 2.3
------- ----- ----- ---------
TOTAL LONG-TERM DEBT............................ $ 10.9 -- -- $ 10.9
======= ===== ===== ========
SHAREHOLDERS' EQUITY
Common Stock.................................... $ 0.1 -- -- $ 0.1
Capital in Excess of Par Value.................. 35.9 -- -- 35.9
Less: Treasury Stock............................ -- -- -- --
Warrants........................................ 0.4 -- -- 0.4
Accumulated Earnings (Deficit).................. 0.1 16.4(m) -- (18.8)
2.5(l)
Cumulative Translation Adjustments.............. (0.1) -- -- (0.1)
------- ----- ----- ---------
TOTAL SHAREHOLDERS' EQUITY...................... $ 36.4 $18.9 -- $ 17.5
======= ===== ===== =========
</TABLE>
See the accompanying Notes to Unaudited Pro Forma Consolidated Financial
Statements
27
<PAGE> 32
AM INTERNATIONAL, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
PRO FORMA CONSOLIDATED STATEMENTS OF INCOME FROM CONTINUING OPERATIONS
(a) The historical information has been restated to reflect the Company's
divested AM Multigraphics-International Operations and Sheridan Systems as
discontinued operations.
(b) The Company anticipates that it will invest at prevailing rates the net
proceeds of the Proposed Sale in excess of amounts applied to repay indebtedness
and reduce other liabilities. However, no interest income has been reflected
relative to the investment of such net proceeds.
(c) Interest expense has been reduced to give effect to the repayment of
the Company's revolving credit facility as a result of the proceeds from the
sale of Sheridan Systems. The Company's remaining debt is principally the
General Unsecured Claims & Priority Tax Claims.
(d) The provision for income taxes has been adjusted to reflect the tax
deductible portion of the above pro forma adjustments when appropriate.
PRO FORMA CONSOLIDATED BALANCE SHEET AND UNAUDITED PRO FORMA CAPITALIZATION
(e) The historical information has been restated to reflect Sheridan
Systems as a discontinued operation. The divestiture of the AM
Multigraphics-International Operations was reflected in the Company's financial
statements in the second quarter of fiscal 1996.
(f) Represents the net proceeds from the Proposed Sale of Sheridan Systems
after the expected repayment of the Company's revolving credit facility and the
reduction of extended trade payables.
(g) Represents the reduction in net assets of discontinued operations from
April 27, 1996 to the measurement date (i.e., July 9, 1996--the date of the
Asset Purchase Agreement) and the anticipated income of the discontinued
operation from the measurement date to the expected disposal date.
(h) Represents the reported net assets of Sheridan Systems to be disposed
in conjunction with the Proposed Sale.
(i) Reflects the expected repayment of the Company's revolving credit
facility.
(j) Represents the expected reduction of extended trade payables.
(k) Represents the accrual of certain closing costs associated with the
Proposed Sale.
(l) Represents the accrual of certain payments related to Change in Control
Agreements resulting from the Proposed Sale.
(m) Represents the estimated loss on the Proposed Sale.
28
<PAGE> 33
SELECTED FINANCIAL DATA
The following is a summary of certain consolidated financial information of
the Company (restated to reflect Sheridan Systems and the AM
Multigraphics-International Operations as discontinued operations.) This summary
has been derived in part from, and should be read in conjunction with, the
consolidated financial statements of the Company and the related notes thereto.
Results of interim periods are not necessarily indicative of results to be
expected for the year. See "INDEX TO FINANCIAL STATEMENTS." Due to the
reorganization of the Company and the implementation of Fresh Start Reporting,
financial statements for the Reorganized Company (period starting September 30,
1993) are not comparable to those of the Predecessor Company. See Note 14 to
"Notes to Consolidated Financial Statements."
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
REORGANIZED COMPANY PREDECESSOR COMPANY
----------------------------------------------------------------- -------------------------------
YEARS ENDED
NINE MONTHS ENDED SEPT. 30, 1993 AUG. 1, 1993 JULY 31,
------------------------------- YEAR ENDED THROUGH THROUGH --------------
APRIL 27, 1996 APRIL 29, 1995 JULY 31, 1995 JULY 31, 1994 SEPT. 29, 1993 1993
-------------- -------------- -------------- -------------- -------------- -------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Revenues..................... $128.2 $ 138.3 $ 191.5 $ 163.8 $ 26.5 $ 195.7
Gross profit................. 31.6 38.3 52.7 51.4 7.0 57.0
as a percent of revenues... 24.7% 27.8% 27.5% 31.4% 26.4% 29.1%
Unusual items (inc.)/exp..... -- -- -- -- -- 37.6
Operating income (loss)...... (2.6) (1.6) (2.5) 6.8 (2.0) (34.3)
Net Income (Loss) from
Continuing Operations...... (5.3) (3.4) (4.2) 2.1 21.8 (43.8)
Income (Loss) from
discontinued operations.... (5.9) 4.1 8.8 4.6 (27.8) (81.9)
Extraordinary Gain........... -- -- -- -- 58.7 --
Net income (loss)............ $(11.2) $ 0.7 $ 4.6 $ 6.7 $ 52.7 $ (125.7)
CAPITAL EMPLOYED
Working capital.............. 42.9 (7.3) 61.5 8.7 (17.6) 5.6
Total assets................. 156.8 163.1 163.9 169.2 164.4 175.4
Long-term debt............... 10.9 15.7 14.9 19.4 25.5 129.0
Shareholders' equity......... 36.4 44.7 48.3 42.8 36.0 (49.7)
PER COMMON SHARE
Net income (loss) from
continuing operations...... $(0.76) $ (0.49) $ (0.59) $ 0.30 N/A N/A
Market price -- High(1)(3)... 8.375 12.250 12.250 11.875 N/A N/A
Low(1)(3)....... 1.875 8.625 8.125 8.750 N/A N/A
Average number of common
shares and equivalents (in
thousands)(2)................ 7,009 7,009 7,021 7,006 N/A N/A
NUMBER OF EMPLOYEES AT YEAR
END.......................... 1,167 1,388 1,378 1,520 1,633 1,662
<CAPTION>
1992 1991
------- ------
<S> <C> <C>
OPERATIONS
Revenues..................... $ 202.4 $ 193.9
Gross profit................. 62.5 55.8
as a percent of revenues... 30.9% 28.8%
Unusual items (inc.)/exp..... -- --
Operating income (loss)...... (75.4) 6.4
Net Income (Loss) from
Continuing Operations...... (83.1) 2.9
Income (Loss) from
discontinued operations.... (41.7) 5.9
Extraordinary Gain........... -- --
Net income (loss)............ $ (124.8) $ 8.8
CAPITAL EMPLOYED
Working capital.............. (23.6) (17.4)
Total assets................. 271.8 369.8
Long-term debt............... 62.6 73.3
Shareholders' equity......... 69.3 187.5
PER COMMON SHARE
Net income (loss) from
continuing operations...... N/A N/A
Market price -- High(1)(3)... N/A N/A
Low(1)(3)....... N/A N/A
Average number of common
shares and equivalents (in
thousands)(2)................ N/A N/A
NUMBER OF EMPLOYEES AT YEAR
END.......................... 1,897 2,211
</TABLE>
- ---------------
(1) Trading of Reorganized Company Common Stock commenced on December 6, 1993.
(2) The net income per common share and average number of common shares and
equivalents for the Predecessor Company has not been presented as this
information is not comparable.
(3) Trading of Predecessor Company Common Stock and Preferred Stock was
suspended on May 21, 1993. Periods prior to this date are not presented as
they are not comparable.
Refer to "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" for explanations of significant factors affecting
comparability of the above data.
29
<PAGE> 34
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ANALYSIS OF CONTINUING OPERATIONS AND DISCONTINUED OPERATIONS
The Proposed Sale has been reflected as a disposal of a segment of business
in the Company's financial statements. See Note 2 of "Notes to Consolidated
Financial Statements." The Company's reasons for the Proposed Sale are described
under "THE PROPOSED SALE -- Background of the Proposed Sale" and
"-- Recommendation of the Company's Board of Directors; Reasons for the Proposed
Sale." The Discontinued Operations include historical financial information
which pertains to the previously disposed AM Multigraphics-International
Operations and Sheridan Systems.
CONTINUING OPERATIONS
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED JULY 31,
--------------------------------- ----------------------------
APRIL 27, 1996 APRIL 29, 1995 1995 1994 1993
-------------- -------------- ------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Revenues.............................. $128.2 $138.3 $191.5 $190.3 $195.7
Operating Income (Loss)............... (2.6) (1.6) (2.5) 4.8 (34.3)
Non Operating Expenses................ (2.7) (2.3) (3.2) 21.5 (9.0)
------ ------ ------ ------ -------
Pre Tax Income (Loss)................. $ (5.3) $ (3.9) $ (5.7) $ 26.3 $(43.3)
Net Income (Loss)..................... $ (5.3) $ (3.4) $ (4.2) $ 23.9 $(43.8)
====== ====== ====== ====== =======
</TABLE>
Note: To facilitate a meaningful discussion of the Company's comparative
operating performance in fiscal years 1995, 1994 and 1993 the results are
presented on a traditional comparative basis for all periods. Consequently, the
information presented for fiscal years 1994 and 1993 does not comply with the
accounting requirements for companies upon emergence from bankruptcy, which
calls for separate reporting for the Reorganized Company and the Predecessor
Company.
OPERATING RESULTS
The Continuing Operations are comprised of one business segment, the AM
Multigraphics segment. The AM Multigraphics segment serves the graphics arts
industries in North America and Japan by distributing an extensive range of
sheet fed offset duplicating presses, digital color printing equipment, pre and
post press equipment, and a wide range of supplies and technical services. In
1995 the operation initiated efforts to transition out of engineering and
manufacturing to focus primarily on distribution, sales and service activities.
The net loss of $5.3 million from Continuing Operations for the nine months
ended April 27, 1996 worsened by $1.9 million as compared with the comparable
period in 1995. For the full year 1995, Continuing Operations had a net loss of
$4.2 million as compared with a net income of $23.9 million for the full year
1994. During September of fiscal year 1994, the Company emerged from Chapter 11
Bankruptcy. The Company had operated under the protection of Chapter 11
following a voluntary petition for reorganization filed in May 1993. With the
emergence from Chapter 11 in 1994, the Company adopted Fresh Start Reporting,
which resulted in material changes to the balance sheet, including valuation
changes of assets and liabilities at fair market value and valuation of equity
based on the appraised reorganization value of the business. The reorganization
and adoption of Fresh Start Reporting in 1994 resulted in a one time
reorganization income of $23.9 million. In 1993, Continuing Operations had a net
loss of $43.8 million. The loss in 1993 included
30
<PAGE> 35
Unusual Item Expense of $37.6 million which included costs of restructuring
operations, costs for professional services and other Chapter 11 reorganization
costs and costs for asset write-downs.
Revenues declined in the nine months ended April 27, 1996 by 7% as compared
with the comparable prior year period. In 1995 revenues increased slightly after
a decline of 3% in 1994 from 1993. The decline in revenues, which has been
consistent with longer term trends, has occurred principally in the sheet fed
offset duplicator products which include machines, supplies and service
maintenance. The duplicator machines and supplies are products largely
manufactured by the Company. Market demand for the Company's duplicator products
has declined due to inroads from competing printing technologies. As a result of
these competitive inroads, the installed base of duplicator equipment has
experienced long term decline which has led to decreased sales of equipment,
supplies and services.
In response to the declining demand for manufactured duplicator products
and services, AM Multigraphics developed a strategic plan during 1995 to
transition from being a manufacturing based supplier to becoming a broad based
distributor of equipment, supplies and services to the graphics arts markets.
Efficiency in providing a broad line of products and services to its large
customer base and differentiation through the provision of technical service and
support are the tactical objectives of the strategy. The Company has efforts
underway to phase out its manufacturing operations, expand its product offering
through new distribution agreements and transition its organization structure
and capabilities to function as an efficient distribution business. While
progress has been made in adding new products, updating and enhancing systems
and restructuring the organization, significant efforts to complete the
transition from a manufacturing based supplier to a distribution business still
need to be completed and further costs to complete the restructuring of
operations will need to be recognized. In addition, with the divestiture of
Sheridan Systems, it will be necessary for the Company to restructure its
corporate staff and eliminate excess facilities and equipment.
Non Operating Expenses consisted primarily of interest expense in 1996,
1995 and 1994. The interest expense related primarily to borrowings under the
Domestic Revolving Credit Agreement, which have been required to fund
operations, and interest on general unsecured claims and priority tax claims
from the Company's reorganization. In 1994 the Company recorded reorganization
income of $23.9 million which pertained to the adoption of Fresh Start
Reporting, as previously described. The income resulted from fair market
adjustments to tangible assets and liabilities of $8.0 million, a provision of
$10.1 million to accrue for professional fees related to the reorganization, and
to record the Reorganization Value in Excess of Fair Market Value of $26.0
million.
The increase in the net loss in the nine months ended April 27, 1996 as
compared to the prior year comparable period was due primarily to the lower
revenues and a decrease in the gross margin rate which primarily resulted from a
change in product mix to lower margin distributed products from higher margin
manufactured products. The decrease in net income for the year ended July 31,
1995 as compared with fiscal year 1994 was again primarily due to lower gross
margins related to the change in product mix to lower margin distributed
products. In addition, in 1994 the Company recorded a favorable adjustment of
$23.9 million which resulted from the adoption of Fresh Start Reporting in 1994,
as previously described. The net loss in fiscal year 1993 included a charge for
unusual items of $37.6 million. The unusual items expense included a provision
of $12.6 million for expenses to implement restructuring actions, $14.0 million
in professional services and other costs related to the Company's reorganization
and $11.0 million for asset writedowns.
31
<PAGE> 36
DISCONTINUED OPERATIONS
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------
APRIL APRIL YEAR ENDED JULY 31,
27, 29, --------------------------------
1996 1995 1995 1994 1993
-------- -------- ------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Revenues
Sheridan Systems.................... $ 91.3 $126.2 $182.2 $158.1 $158.6
AM Multigraphics - Int.............. 40.0 102.3 135.8 142.4 180.4
------ ------ ------ ------ ------
Total....................... 131.3 228.5 318.0 300.5 339.0
Operating Income (Loss)
Sheridan Systems.................... 0.5 12.7 17.8 14.4 (3.2)
AM Multigraphics - Int.............. (4.2) (3.7) (5.7) (2.5) (18.3)
Unusual Items Inc (Exp)............. -- -- 4.8 -- (53.7)
------ ------ ------ ------ ------
Total....................... (3.7) 9.0 16.9 11.9 (75.2)
Non Operating Expense................. (2.1) (2.6) (3.5) (30.9) (7.2)
------ ------ ------ ------ ------
Pre-Tax Income (Loss)................. (5.8) 6.4 13.4 (19.0) (82.4)
Net Income (Loss)..................... $ (5.9) $ 4.1 $ 8.8 $(23.2) $(81.9)
====== ====== ====== ====== ======
</TABLE>
Note: To facilitate a meaningful discussion of the Company's comparative
operating performance in fiscal years 1995, 1994 and 1993 the results are
presented on a traditional comparative basis for all periods. Consequently, the
information presented for fiscal years 1994 and 1993 does not comply with the
accounting requirements for companies upon emergence from bankruptcy, which
calls for separate reporting for the Reorganized Company and the Predecessor
Company.
OPERATING RESULTS
The Discontinued Operations is comprised of two business segments, the
Sheridan Systems segment and the divested AM Multigraphics - International
segment. The Sheridan Systems business serves the printing and newspaper
publishing industries by providing bindery systems and newspaper mailroom
systems. The products sold by Sheridan Systems are largely capital equipment
items and market demand has historically been cyclical. The divested AM
Multigraphics - International segment served certain foreign graphics arts
markets through wholly owned subsidiaries, situated primarily in Europe. The
divested AM Multigraphics - International subsidiaries distributed an extensive
range of sheet-fed offset duplicating presses, digital color printing equipment,
pre and post press equipment and a wide range of supplies and technical
services.
The net loss of $5.9 million from Discontinued Operations in the nine
months ended April 27, 1996 was $10.0 million below the comparable prior year
period. For the full year 1995, Discontinued Operations had a net income of $8.8
million as compared with a net loss of $23.2 million in 1994. During September
of fiscal year 1994, the Company emerged from Chapter 11 Bankruptcy. The Company
had operated under the protection of Chapter 11 following a voluntary petition
for reorganization filed in May 1993. With the emergence from Chapter 11 in
1994, the Company adopted Fresh Start Reporting, which resulted in material
changes to the balance sheet, including valuation changes of assets and
liabilities at fair market value and valuation of equity based on the appraised
reorganization value of the business. The reorganization and adoption of Fresh
Start Reporting in 1994 resulted in a one time reorganization expense of $27.0
million. In 1993, Discontinued Operations had a net loss of $81.9 million. The
1993 net loss included an unusual item expense of $53.7 million for costs
primarily related to asset writedowns and costs to restructure operations.
32
<PAGE> 37
The operating results of Sheridan Systems have significantly varied from
period to period primarily due to the cyclical nature of the business which
dramatically affects revenue levels and gross margins. Orders for Sheridan
Systems bindery and newspaper mailroom products can be in the millions of
dollars and therefore revenues, margins and customer backlogs vary significantly
depending on the timing of customer orders. In the nine months ended April 27,
1996 Sheridan Systems revenues declined $34.9 million from the prior year
comparable period. Weak market demand and a low beginning backlog were the
principal reasons for the decrease in revenues. The current weak market demand
is attributable to a combination of factors which include a reduction in printed
product for magazines, catalogs and direct mail and the existence of excess
capacity in the printing industry. Historically, the health of the retail sector
of the U.S. economy which directly impacts advertising expenditures impacts
market demand. Sheridan Systems operating income of $0.5 million in the period
declined by $12.2 million as compared to the same prior year period due
principally to the lower volume. The full year 1995 revenues increased 15% over
the 1994 comparable period due to higher orders particularly for bindery
equipment, and a reduction in backlog. In 1995 Sheridan Systems recognized
approximately $20.0 million in revenues from prototype equipment which had been
shipped in 1994 and accepted by customers in 1995. The operating income in 1995
of $17.8 million improved by $3.4 million over 1994 due to the increased revenue
level and related gross margin increase. The 1994 operating results reflected
revenues of $158.1 million which was only slightly improved over 1993. Despite
the small increase in revenues in 1994 as compared with 1993, operating income
of $14.4 million improved by $17.6 million from 1993 due to a more favorable
product mix, lower expense levels, cost reductions and re-engineering efforts
which resulted in lower manufacturing costs.
The results of the divested AM Multigraphics - International segment have
consistently reflected operating losses and declining revenues. The revenue
decreases, throughout the periods, were attributable to declining market demand
for offset duplicating presses and the related erosion of the installed base of
duplicating equipment. The decline in market demand has been the result of
inroads made by competing printing technologies. The users of duplicators have
been the principal customers for the related supplies and services. The divested
AM Multigraphics - International operations were also adversely impacted by
decreases in sales and margins of electronic pre-press products due to
competitive pressures in all periods. The Company undertook numerous
restructuring initiatives in response to the declining revenues and operating
losses, with significant headcount reductions accomplished and overall cost
reductions implemented over the reporting periods. The restructurings were
costly due to local statutory requirements and required labor negotiations which
slowed the implementation of cost reduction actions. Despite these restructuring
efforts and cash expenditures the Company was not able to eliminate the
operating losses which ultimately led to the divestiture of these operations.
In 1995 the Company had unusual item income of $4.8 million. This income
resulted from divestitures of non-core product lines in the Discontinued
Operations. The divestitures included the sale of certain assets related to the
service of forms and sheetfed presses, the service and supply business formerly
known as Advanced Imaging Products, and the U.K. copier business. In 1993 the
Discontinued Operations had unusual item expense of $53.7 million which
primarily related to asset writedowns and costs of restructuring operations.
Non Operating expenses include interest expense, primarily on borrowings
under the Revolving Credit Agreement and goodwill amortization expense. In 1994
the Company recorded reorganization expense of $27.0 million which pertained to
the adoption of Fresh Start Reporting, as previously described. The expense
resulted from fair market adjustments to tangible assets and liabilities of $9.7
million, a write off of existing Goodwill of $39.8 million and to record the
Reorganization Value on Excess of Fair Market Value of $22.5 million.
33
<PAGE> 38
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents were $5.9 million as of April 27,
1996 as compared with $12.6 million on July 31, 1995 resulting in a reduction of
$6.6 million. In addition to the reduction in cash balances, net short term
borrowings increased $10.1 million for the nine month period ended April 27,
1996.
During the period ended April 27, 1996, the primary sources of cash from
operating activities were an accounts receivable reduction of $4.4 million, a
$3.3 million increase in trade accounts payable balances and a reduction in
inventories of $2.5 million. The reduction in accounts receivable was the result
of the collection of comparatively higher outstanding balances which existed at
July 31, 1995 due to a higher revenue level in the period. Throughout the
reporting periods, collection rates have remained relatively consistent while
increases and decreases in the overall accounts receivable balance were due
principally to changes in revenue levels. The inventory reduction in the current
period was primarily the result of the phase out of machine manufacturing
activities and a related reduction in parts and finished goods inventories. The
increase in trade payables was the result of efforts to extend payments with
vendors in response to limited liquidity in the Company from financing sources.
The primary uses of cash for operating activities in the nine month period
ended April 27, 1996 were the net loss of $11.2 million, and a reduction in
deferred service contract income of $4.2 million. The reduction in deferred
service contract income was the result of the continuing decline in the
installed base of offset duplicating equipment.
For the nine month period ended April 27, 1996, capital expenditures of
$8.3 million were primarily to upgrade systems and equipment and to provide for
leasehold improvements. The Company received $6.8 million in proceeds for the
sale of its AM Multigraphics headquarters, manufacturing and distribution
facility in Mt. Prospect, Illinois. The Company has committed to capital
expenditures related to certain increased systems capabilities. These
expenditures will be financed utilizing a combination of funds obtained under
the revolving credit facility and third party lease arrangements.
The Company's principal credit facility is its $25.0 million revolving
credit facility which expires (unless earlier terminated) in October 1996. The
utilizations under this facility are limited by a borrowing base which as of
April 27, 1996 was approximately $16.0 million. As described in Note 3 of "Notes
to Consolidated Financial Statements" for the nine months ended April 27, 1996,
the Company's lenders have indicated that they do not agree with the Company's
position that it was in compliance for the quarter ended April 27, 1996 with the
financial covenants in the credit agreement and have notified the Company that
they retain all rights and remedies available to them under the revolving credit
facility in the case of a default. The Company's projections indicate that it
may not meet such financial covenants for the quarter ending July 31, 1996, and
there can be no assurances as to what actions the lenders would take in
connection with any default. The $10.1 million increase in short term borrowings
for the period ended April 27, 1996 were required to principally fund the net
loss and the required payments to holders of general unsecured claims and
priority tax claims under the Company's Plan of Reorganization.
As described under "THE PROPOSED SALE -- Background of the Proposed Sale
and Opinion of the Company's Financial Advisor", the Company has been exploring
a variety of strategic and financial alternatives to meet its liquidity needs.
The Company retained Bear Stearns to act as its financial advisor in connection
with the Proposed Sale, in addition to certain other potential strategic
alternatives.
Although the Company has taken steps designed to reduce its use of cash
(such as expense reductions and in recent months, reducing purchases of
inventory), based on current projections, the Company expects that its cash
resources and current revolving credit facility will not provide sufficient
capital resources and liquidity for the next twelve-month period.
34
<PAGE> 39
The Company intends to use the proceeds from the Proposed Sale to repay the
indebtedness outstanding under its revolving credit facility, to provide working
capital and for other general corporate purposes, including restructuring costs
and believes that the closing of the Proposed Sale would provide it sufficient
financial resources for the foreseeable future. In addition, the Company is
seeking to obtain new revolving credit facilities or the consummation of another
transaction which would provide capital resources to the Company, but there is
no assurance that these efforts would be successful.
PLAN OF REORGANIZATION
On September 29, 1993 the Company's Reorganization Plan (the Plan) was
confirmed by the United States Bankruptcy Court, with the Plan being consummated
on October 13, 1993. As a result of the reorganization and the recording of the
restructuring transaction and implementation of Fresh Start Reporting, the
Company's results of operations for the year ending July 31, 1995 are not
comparable to the two preceding years. See Note 14 of "Notes to Consolidated
Financial Statements" for information on consummation of the Plan and
implementation of Fresh Start Reporting.
The most significant adjustments which resulted from recording the
restructuring transaction and the implementation of Fresh Start Reporting
affected the Company's Statement of Operations. These adjustments related to
decreased interest expense, deceased amortization of intangibles and increased
income tax expense. In the Consolidated Balance Sheet, the most significant
adjustments affected long term debt and equity.
To facilitate a meaningful discussion of the Company's comparative
operating performance in fiscal years 1995, 1994 and 1993, the preceding
discussion of results is presented in a traditional comparative basis for all
periods. Consequently, the comparative information for 1994 and 1993 does not
comply with accounting requirements for companies upon emergence from
bankruptcy, which calls for separate reporting for the Reorganized Company and
the Predecessor Company, and therefore would otherwise result in a comparison of
full years with partial years.
35
<PAGE> 40
MARKET PRICES OF COMMON STOCK; DIVIDENDS
The Common Stock is listed on the American Stock Exchange. The table below
sets forth for the fiscal periods indicated the high and low market prices per
share as reported on the American Stock Exchange Composite Tape.
<TABLE>
<CAPTION>
COMMON STOCK
-----------------
HIGH LOW
------ ------
<S> <C> <C>
Fiscal 1994
Sept. 30, 1993 through Oct. 30, 1993....................... N/A N/A
Second Quarter........................................... 10.250 9.500
Third Quarter............................................ 10.875 9.125
Fourth Quarter........................................... 11.875 8.750
Fiscal 1995
First Quarter............................................ 12.250 10.000
Second Quarter........................................... 10.125 8.875
Third Quarter............................................ 9.250 8.625
Fourth Quarter........................................... 9.250 8.125
Fiscal 1996
First Quarter............................................ 8.375 7.250
Second Quarter........................................... 7.500 4.688
Third Quarter............................................ 4.688 1.875
Fourth Quarter (through July 30, 1996)................... 2.375 1.875
</TABLE>
On June 10, 1996, the last full trading day preceding the initial public
announcement by the Company of the Proposed Sale, the high and low sale prices
of the Common Stock on the American Stock Exchange were $2.625 and $2.500 per
share, respectively. On July 10, 1996, the last full trading day preceding the
public announcement by the Company that it entered into the Asset Purchase
Agreement, the high and low sale prices of the Common Stock on the American
Stock Exchange were $2.125 and $1.875 per share, respectively. On July 30, 1996,
the last full trading day preceding the printing of this Proxy Statement, the
closing price of the Common Stock on the American Stock Exchange was $1.875 per
share. Stockholders are urged to obtain current quotations for the Common Stock.
As of the Record Date, there were approximately 1,230 holders of record of the
Common Stock.
The Company has not paid any cash dividends since 1981. It is anticipated
that, following consummation of the Proposed Sale, the Company will not pay cash
dividends for the foreseeable future in order that the Company may use the net
proceeds primarily to repay indebtedness, reduce other liabilities, provide
working capital, and for other general corporate purposes. However, the payment
of dividends will be a business decision to be made by the Board of Directors
from time to time based on the Company's earnings and financial position and
such other business considerations as the Board of Directors considers relevant.
36
<PAGE> 41
THE COMPANY'S BUSINESS AND PROPERTIES
GENERAL
The Company currently conducts its business in two business segments:
Sheridan Systems and AM Multigraphics. Sheridan Systems is a leading
manufacturer and supplier of systems and components to the printing and
newspaper publishing industries. AM Multigraphics is a distributor of equipment,
supplies and services to the graphic arts industry.
SHERIDAN SYSTEMS
Sheridan Systems is headquartered in Dayton, Ohio. The division changed its
name from AM Graphics to Sheridan Systems on May 10, 1995. The Sheridan(R) name
traces its roots back to 1835 when Bernard Sheridan began building print rollers
and bindery equipment in a New York City factory. A tradition of quality
products associated with the Sheridan name led the division to change its name.
Sheridan Systems designs, manufactures and distributes equipment, software
and related control systems. These products are manufactured primarily at
facilities in Dayton, Ohio and Slough, England. The division's products are
marketed primarily through a direct sales force in the United States and through
third party agents in Europe, South America and Asia-Pacific under the name
"Sheridan Systems(TM)".
Sheridan Systems operates through two business units: the Bindery Systems
unit and the Newspaper Mailroom Systems unit. The Company's wholly-owned
subsidiary, AM Graphics International (U.K.) Limited, operates as a part of
Sheridan Systems. Sheridan Systems' products are largely capital equipment items
and include:
- Bindery equipment systems and components used to assemble and collate a
broad variety of printed materials. Bindery includes post press
collating, binding and trimming of multiple pages.
- Newspaper mailroom equipment includes equipment, software and related
control systems used for material handling and inserting in newspaper
mailroom facilities.
In June, 1995 the Company entered into a strategic alliance with IDAB WAMAC
AB, a Swedish company, to jointly market their respective products and services
to newspaper customers throughout the world. Sheridan Systems hopes to expand
its products internationally in conjunction with IDAB WAMAC's growing
international presence and state-of-the art product portfolio. In June, 1995 the
Company also purchased certain product lines from IDAB International, Inc., a
U.S. affiliate of WAMAC, which included stacker, wrapper and other mailroom
equipment. Sheridan Systems has commenced manufacturing these products at its
Dayton facility. In July, 1995 the Company sold certain tangible and intangible
assets relating to its servicing and supplies business for forms and sheetfed
printing presses and its services and supplies business for the former business
unit known as Advanced Imaging Products ("AIP") to Graphics Systems Services,
Inc., an Ohio corporation.
Sheridan Systems' principal customers include publication and commercial
binderies and newspapers. Sheridan Systems has more than 2,500 customers
worldwide.
AM MULTIGRAPHICS
AM Multigraphics is headquartered in Mount Prospect, Illinois. The segment
manufactures and distributes a broad product line of equipment and supplies and
provides services for the graphics arts industry
37
<PAGE> 42
through its own direct sales and service organizations in the United States. AM
Multigraphics products include:
- Small offset printing equipment, automated copy/duplicating systems,
digital color printing systems, pre and post press products and supplies.
AM Multigraphics plans to exit the engineering and manufacturing of offset
duplicating equipment to become a distributor of supplies, services and
equipment to the graphics arts industry. The declining market for the segment's
traditional offset duplicator products, due to inroads by alternative
technologies, has resulted in the re-evaluation of its strategy and the decision
to exit manufacturing and focus upon the distribution of supplies, services and
equipment.
The principal customers of the segment include in-plant print shops,
franchised and independent quick print shops, small commercial printers and
governmental and educational institutions. AM Multigraphics has in excess of
50,000 customers.
DISCONTINUED OPERATION OF AM MULTIGRAPHICS-INTERNATIONAL
The Company discontinued its AM Multigraphics - International segment
earlier this year. The AM Multigraphics - International segment served certain
foreign graphics arts markets through wholly owned subsidiaries, situated
primarily in Europe. The AM Multigraphics - International subsidiaries
distributed an extensive range of sheetfed offset duplicating presses, digital
color printing equipment, pre and post press equipment and a wide range of
supplies and technical services.
The international subsidiaries of AM Multigraphics did not sustain
profitability due to the erosion of the installed base of traditional offset
duplicating equipment and the related decline in the sales of duplicator
supplies and services, which resulted primarily from inroads made by alternative
technologies. The operating losses in many of the subsidiaries were attributable
to declining revenues and consumed cash and debt resources of the Company.
In June, 1995 the Company sold its photocopier servicing business in the
United Kingdom which was operated by its AM Multigraphics U.K. subsidiary. Also,
in June 1995 the Company exited its unprofitable Australian subsidiary by
commencing a Voluntary Administrative Proceeding. In October, 1995 the Company's
German subsidiary instituted a bankruptcy proceeding. In February 1996, the
Company completed the exit of its AM Multigraphics European subsidiaries with
the sale of its subsidiaries in the Netherlands, France and Belgium and the
placement of the Company's AM Multigraphics UK holding company into an
Administration Proceeding. The sale of the subsidiaries in the Netherlands,
France and Belgium required the Company to provide consideration of
approximately $3 million in the form of cash and other assets.
COMPETITION AND COMPETITIVE CONDITIONS
The Company's business segments operate in highly competitive environments
in which quality, technical design, price, delivery and customer service are
principal factors considered by buyers.
Sheridan Systems' strongest market is in the United States, its second
strongest market is in Europe and the division sees growth opportunities in
Asia/Pacific, South America, and Africa. The majority of its revenues is derived
from new equipment sales. Individual customer orders can be quite large and
therefore variations in shipments between reporting periods can have a
significant impact on reported revenues and earnings for such periods.
Competitive positioning in its core businesses is technologically oriented and
driven by new product designs and related research and development as well as
product pricing. Each of Sheridan Systems' core business units has its own
competitors, including foreign manufacturers. The two main competitors on both
the bindery equipment and newspaper mailroom systems sides of the unit's
business are
38
<PAGE> 43
Swiss companies, namely Ferag and Mueller-Martini. Sheridan Systems continues to
focus its efforts on providing technically superior product offerings and the
material handling and systems support required by its customers.
The AM Multigraphics segment provides products in five major product
groups: offset printing and finishing equipment, digital color printing, pre
press products, graphic art supplies and service and parts for equipment
manufactured by AM Multigraphics and its competitors. The unit's customers are
in-plant, quick print and small commercial printer market segments. The market
for small offset duplicator presses, the traditional proprietary equipment of
the division, is mature and continues to face competition from alternative
technologies. Because the installed base of equipment has historically provided
the primary market for many of the Company's services and supplies, AM
Multigraphics is increasingly reliant on its general distribution capabilities
in continuing to serve its market segments. Gross margins are expected to
decrease as the unit seeks to add product lines through distribution agreements,
joint ventures and affiliations with third parties. To offset the lower margins
the division has invested in information systems and has undertaken other
reorganization measures to increase efficiency and lower expenses.
CYCLICAL NATURE OF BUSINESS AND LIQUIDITY
The revenues of the Company are dependent upon trends in the printing
industry, which are a function of (among other factors) overall economic factors
and advertising expenditures. Because of the capital goods nature of certain
products, the revenues of Sheridan Systems can be cyclical. Orders in the
Company's capital goods market can be in the millions of dollars, therefore
revenues, margins and customer backlogs may vary significantly from
quarter-to-quarter or even year-to-year depending on the timing of customer
orders. Due to the long lead times required to manufacture its products, the
unfilled backlog of orders provides an indicator of near term revenue
expectations for Sheridan Systems. The backlog of Sheridan Systems for bindery
equipment and newspaper mailroom systems was $45.4 million as of July 31, 1995
and $38.5 million for the nine months ended April 27, 1996, as compared with
$69.6 million and $57.8 million for the comparable prior year periods. Overall
backlog for Sheridan Systems decreased in 1995 due primarily to Sheridan Systems
recognition of approximately $20 million in revenues from prototype equipment
which had been shipped in 1994 and accepted by customers in 1995. In addition,
lower market demand, internal efforts to reduce cycle times and market forces
which increasingly demand shortened lead times have contributed to the reduction
in backlog in 1996.
The backlog for the AM Multigraphics segment is less than 5% of annual
revenues and is not a material factor in the conduct of the business.
In connection with the sale of machines, Sheridan Systems generally
receives advance deposits from its customers. As of July 31, 1995 and April 27,
1996, the amount of such advance deposits was approximately $8.3 million and
$11.5 million, respectively.
Certain customers of Sheridan Systems and AM Multigraphics require
long-term financing for their equipment purchases. The Company cooperates with
various independent finance and leasing companies to provide such financing.
These agreements are sometimes on a partial recourse basis with remarketing
arrangements on a non-discretionary, non-priority basis.
RESEARCH AND DEVELOPMENT; PATENT AND TRADEMARKS
Approximately $7.7 million was expended by the Company for research and
development in fiscal 1995, $5.2 million in 1994 and $4.0 million in 1993. In
connection with the foregoing expenditures, only $0.7 million in fiscal 1995,
$0.7 million in fiscal 1994 and $0.4 million in fiscal 1993 were attributable to
the AM Multigraphics segment. The Company's research, development and
engineering expenditures are made
39
<PAGE> 44
primarily to upgrade existing technology and maintain competitive product
offerings. For additional information, see Note 1 of the "Notes to Consolidated
Financial Statements."
The Company owns or is licensed under a large number of patents and
trademarks. While such rights are important, the Company does not believe that
its business as a whole is materially dependent on any one patent or trademark
or group of patents or trademarks.
BANKRUPTCY PROCEEDINGS
On May 17, 1993, the Company and its subsidiary, Addressograph-Multigraph
Corporation ("AMC"), filed for protection under Chapter 11 of the United States
Bankruptcy Code in the United States Bankruptcy Court for the District of
Delaware (the "Bankruptcy Court") case numbers 93-582 through 93-583 (the
"Bankruptcy Proceedings"). The Company also filed on that date a proposed Plan
of Reorganization. The Chapter 11 filing related to the Company's domestic
operations and did not include its foreign subsidiaries.
On August 26, 1993, a hearing was held by the Bankruptcy Court to consider
approval of a Disclosure Statement to be distributed to creditors and
stockholders of the Company. After that hearing, and by Order of the Bankruptcy
Court dated August 26, 1993, the Second Amended Disclosure Statement
(hereinafter the "Disclosure Statement") was approved as containing "adequate
information" for creditors and stockholders of the Company in accordance with
Section 1125(b) of the Bankruptcy Code.
On September 29, 1993, the Company's Plan was confirmed by the Bankruptcy
Court. In general, the Plan provided for distribution of approximately 7,000,000
shares of new Common Stock ("Common Stock"), of which 97% was distributed to
former holders of the Company's 12% Senior Subordinated Debentures, 2% to former
holders of the Company's $2.00 Convertible Exchangeable Preferred Stock ("Old
Preferred Stock") and 1% to former holders of the Company's Common Stock ("Old
Common Stock"). The Plan also provided for distribution of 1,095,000 Warrants to
purchase Common Stock ("Warrants") to former holders of Old Preferred Stock. The
Warrants permit the holders to purchase an aggregate of 1,095,000 shares of
Common Stock until October 15, 1996 at an exercise price of $18.00 per share.
Under the Plan, general unsecured creditors are to be paid in full over a period
of five years with interest at 5% per annum unless they elected to be paid in
full under the convenience class (claims under $2,000) or unless they elected
before September 29, 1993 to receive Common Stock in lieu of cash.
The Plan became effective on October 13, 1993 (the "Effective Date").
Distributions provided for in the Plan, including Common Stock and Warrants,
commenced on that date. On the Effective Date, all Old Preferred Stock, Old
Common Stock, Old Warrants to Purchase Common Stock and Old Preferred Stock
Purchase Rights attached to the Old Common Stock were canceled and became of no
further force and effect except as evidence of the holder's entitlement to a
distribution under the Plan. All exchange rights associated with the Old
Preferred Stock and Old Common Stock expired on October 13, 1995. For
information relating to shares of Common Stock outstanding and shares of Common
Stock held for exchange as described above, see Notes 4 and 14 of the "Notes to
Consolidated Financial Statements."
PROPERTIES
The Company's principal executive offices are located in Rosemont,
Illinois. The Company moved to its current headquarters on April 10, 1995. The
Company had been located at the AM Multigraphics facility in Mt. Prospect,
Illinois since March 22, 1993 when it moved from its Chicago location. The
Company sold its AM Multigraphics headquarters, manufacturing and distribution
facility in Mt. Prospect, Illinois in 1995 and received proceeds of $6.8
million.
40
<PAGE> 45
The Company owns or leases administrative, distribution, manufacturing,
sales and service facilities throughout the United States. In the United States,
the Company occupies 39 leased facilities with total square footage of 501,800
and the Company owns the Sheridan Systems (286,500 sq. ft.) facility in Dayton,
Ohio.
The facilities occupied by the Company as of July 1, 1996, which have more
than 20,000 square feet of space or which are otherwise material to the
Company's businesses, are set forth below. Although certain facilities remain
underused, the Company believes that the properties and equipment included
therein are well maintained, in good operating condition and adequate for the
current needs of its operations.
FACILITIES
<TABLE>
<CAPTION>
APPROXIMATE SQUARE
FEET OF FLOOR AREA
---------------------
LOCATION AND BUSINESS SEGMENT USE(1) OWNED LEASED(2)
-------------------------------------------- ------------ ------- ---------
<S> <C> <C> <C>
Corporate
Rosemont, Illinois ADM 10,700
AM Multigraphics
Arlington Heights, Illinois............... DIST 79,700(3)
Mt. Prospect, Illinois.................... MFG 175,000
Mt. Prospect, Illinois.................... ADM 64,400(3)
North York, Canada........................ ADM/DIST 41,500
Tokyo, Japan.............................. ADM/DIST 33,024(4)
Sheridan Systems
Dayton, OH................................ ADM/MFG/R&D 286,500
Dayton, OH................................ DIST 51,500
Bethlehem, PA............................. MFG/ADM 23,100
Slough, England........................... MFG/ADM 126,410
</TABLE>
- ---------------
(1) ADM = Administrative and Sales; MFG = Manufacturing and Engineering; DIST -
Distribution Center; R&D = Research and Development.
(2) The expiration dates of leases covering leased facilities range from 1996 to
2005. In certain areas the Company subleases excess space to third parties.
Such space is not included in stated floor areas. See Note 11 entitled
"Lease Transactions" to the Company's "Notes to Consolidated Financial
Statements."
(3) Occupancy commenced in early fiscal 1996.
(4) Aggregate number for several facilities utilized by AM Japan.
LEGAL PROCEEDINGS
The commencement of the Bankruptcy Proceedings resulted in an automatic
stay of certain litigation against the Company pursuant to Section 362 of the
Bankruptcy Code as of May 17, 1993. Therefore, with certain exceptions, all
legal proceedings against the Company pending as of May 17, 1993, will be
resolved through the bankruptcy process. In addition, there are significant
claims pending in the Bankruptcy Proceeding. The Company believes the resolution
of these legal proceedings and claims will not have a material adverse effect on
the business or the financial position of the Company.
The Company has been notified of various environmental matters in
connection with certain current or former locations in Connecticut, Illinois,
Indiana, Ohio, Pennsylvania, and Rhode Island. The Company believes that the
legal liability relating to such matters, if any, will either be resolved
consensually between the Company and relevant governmental authorities or will
be subject to resolution through the bankruptcy
41
<PAGE> 46
process as with other disputed claims. The Company believes the resolution of
these matters will not have a material adverse effect on the business or the
financial position of the Company.
The Company is involved in various other administrative and legal
proceedings incidental to its business, including product liability and general
liability lawsuits against which the Company is partially insured. The
resolution of these other proceedings is not expected to have a material adverse
effect on the business or the financial position of the Company. For further
information pertaining to Legal Proceedings, see Note 5 entitled "Commitments
and Contingencies" to the "Notes to Consolidated Financial Statements."
42
<PAGE> 47
PRINCIPAL STOCKHOLDERS
At July 31, 1996 to the Company's knowledge based on statements filed with
the Securities and Exchange Commission pursuant to Sections 13(d) and 13(g) of
the Securities Exchange Act of 1934 (the "Exchange Act") or upon information
furnished in writing to the Company by the persons or entities involved, the
following were the only persons, entities or groups owning beneficially 5% or
more of the outstanding Common Stock entitled to vote at the Special Meeting:
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL PERCENT OF
OF BENEFICIAL OWNER OWNERSHIP(1) CLASS(2)
--------------------------------------------------- ----------------- ----------
<S> <C> <C>
Lion Advisors, L.P.(3)............................. 1,875,000 26.8%
Two Manhattanville Road
Purchase, NY
AIF II, L.P.(3).................................... 600,412 8.6%
c/o Apollo Advisors, L.P.
Two Manhattanville Road
Purchase, NY
BEA Associates..................................... 1,290,117 18.4%(4)
153 East 53rd Street
One Citicorp Center
New York, New York 10022
State of Wisconsin Investment Board................ 669,100 9.6%
P. O. Box 7842
Madison, Wisconsin 53707
Fidelity Bankers Life Insurance Company............ 645,058 9.2%
1011 Boulder Springs Drive
Richmond, Virginia 2225
Hellmold Associates, Inc........................... 624,754 8.9%
640 Fifth Avenue
13th Floor
New York, New York 10019
Trust Company of the West.......................... 400,584 5.7%
865 South Figueroa
Los Angeles, California 90017
</TABLE>
- ---------------
(1) Unless otherwise indicated in a note to the table, to the Company's
knowledge, ownership includes sole voting power and sole investment power.
(2) Based on 7,010,000 shares of Common Stock outstanding, including treasury
shares, as of July 31, 1996 plus shares deemed outstanding pursuant to Rule
13d-3(d)(1) of the Exchange Act.
(3) The shares shown for Lion Advisors, L.P. are beneficially held for the
benefit of an account under management. Lion Advisors, L.P. is an affiliate
of Apollo Advisors, L.P., the managing general partner of AIF II, L.P. Mr.
Moore, a director of the Company, is an officer of the general partner of
each of (i) Lion Advisors, L.P. and (ii) Apollo Advisors, L.P., the managing
general partner of AIF II, L.P. and may be deemed to beneficially own these
shares. Mr. Moore disclaims beneficial ownership of all of such shares. See
"Security Ownership of Directors and Executive Officers."
(4) Shares held by BEA Associates for Executive Life Insurance Company of New
York. Executive Life Insurance Company has sole voting power and sole
investment power for these shares.
43
<PAGE> 48
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information concerning the number of shares
of Common Stock that are beneficially owned, directly or indirectly, as of July
31, 1996, by each director, by certain executive officers and by all directors
and all executive officers (including the named executive officers) as a group.
Unless otherwise indicated in a note to the table, to the Company's
knowledge, ownership includes sole voting power and sole investment power.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENTAGE OF TOTAL
NAME OF BENEFICIAL OWNER POSITION BENEFICIAL OWNERSHIP(1) OUTSTANDING SHARES
- -------------------------------- ------------------------- ----------------------- --------------------
<S> <C> <C> <C>
Jerome D. Brady Chairman, 81,000 1.2%
President and CEO
Robert E. Anderson, III Director 1,917 *
Jeffrey D. Benjamin(2) Director 2,000 *
Robert N. Dangremond Director 2,300 *
William E. Hogan Director 2,000 *
Jeff M. Moore(2) Director 2,476,412 35.4%
A. Carl Mudd Director 2,000 *
Asher O. Pacholder Director 2,000 *
Steven R. Andrews Vice President and 14,500 *
Secretary
Ulrik T. Nygaard Vice President (Company) 6,200 *
and President,
Sheridan Systems
David A. Roberts Vice President (Company) 30,000 *
and President, AM
Multigraphics
Thomas D. Rooney Vice President and CFO 30,500 *
All directors and executive 2,650,829 37.8%
officers as a group (12
persons)(1)(2)
</TABLE>
- ---------------
* Less than one percent
(1) Amounts include shares acquirable within 60 days of July 31, 1996 pursuant
to the exercise of currently outstanding stock options granted pursuant to
the Company's 1994 Long-Term Incentive Plan as follows: Mr. Andrews, 14,000
shares, Mr. Brady, 70,000 shares, Mr. Nygaard, 6,200 shares, Mr. Roberts,
30,000 shares, Mr. Rooney, 30,000 shares, Mr. Anderson 1,917 shares, Mr.
Moore, 1,000 shares, and 2,000 shares each for the remaining non-employee
directors.
(2) Includes shares beneficially owned by Lion Advisors, L.P. and AIF II, L.P.
Mr. Moore is an officer of the general partner of each of (i) Lion Advisors,
L.P. and (ii) Apollo Advisors, L.P., the managing general partner of AIF II,
L.P. Mr. Moore disclaims beneficial ownership of the indicated shares. Mr.
Benjamin is a limited partner of each of Lion Advisors, L.P., Apollo
Advisors, L.P. and AIF II, L.P.
44
<PAGE> 49
INDEPENDENT ACCOUNTANTS
The Consolidated Financial Statements of AM International, Inc. for the
year ended July 31, 1995 included in this Proxy Statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and have been so included upon the authority of
said firm as experts in accounting and auditing. Representatives of Arthur
Andersen LLP will be present at the Special Meeting to respond to appropriate
questions of stockholders and to make a statement if they desire.
STOCKHOLDER PROPOSALS FOR 1996 ANNUAL MEETING
Stockholder proposals submitted for presentation at the 1996 Annual Meeting
of Stockholders must have been received by the Corporate Secretary of the
Company at its principal executive offices on or before June 28, 1996.
OTHER BUSINESS
It is not intended that any business other than that set forth in the
Notice of Special Meeting and described in this Proxy Statement will be brought
before the Special Meeting. If any other matters are properly presented for
action at the Special Meeting, it is intended that the persons named in the
accompanying proxy will vote or refrain from voting in accordance with their
best judgment on such matters after consultation with the Board of Directors.
By Order of the Board of Directors,
Steven R. Andrews, Secretary
Chicago, Illinois
August 2, 1996
45
<PAGE> 50
INDEX TO FINANCIAL STATEMENTS OF
AM INTERNATIONAL, INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Statements of Operations................................................ F-2
Consolidated Balance Sheets.......................................................... F-3
Consolidated Statements of Cash Flows................................................ F-4
Consolidated Statements of Shareholders' Equity...................................... F-5
Notes to Consolidated Financial Statements........................................... F-6
Report of Independent Public Accountants............................................. F-22
Five Year Financial Summary (Unaudited).............................................. F-23
</TABLE>
F-1
<PAGE> 51
AM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
REORGANIZED COMPANY(a)
--------------------------------------------------------------- PREDECESSOR COMPANY
------------------------------
NINE MONTHS TWELVE MONTHS TEN MONTHS TWO MONTHS TWELVE MONTHS
ENDED ENDED ENDED ENDED ENDED
APRIL 27, 1996 APRIL 29, 1995 JULY 31, 1995 JULY 31, 1994 SEPT. 29, 1993 JULY 31, 1993
-------------- -------------- ------------- ------------- -------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
REVENUES...................... $128,220 $138,324 $ 191,485 $ 163,816 $ 26,532 $ 195,698
COST OF SALES................. 96,610 99,942 138,752 112,395 19,526 138,735
GROSS MARGIN.................. 31,610 38,382 52,733 51,421 7,006 56,963
OPERATING EXPENSES:
Selling, general and
administrative............ 33,637 38,860 53,427 43,068 8,745 51,358
Research, development and
eng....................... 607 1,087 1,797 1,564 287 2,259
Unusual items, net
(inc)/exp................. -- -- -- -- -- 37,628
-------- -------- --------- --------- -------- ----------
TOTAL OPERATING
EXPENSES........... 34,244 39,947 55,224 44,632 9,032 91,245
-------- -------- --------- --------- -------- ----------
OPERATING INCOME (LOSS)....... (2,634) (1,565) (2,491) 6,789 (2,026) (34,282)
Non-operating income
(expense):
Interest income............. 114 206 222 517 2 657
Interest expense............ (2,691) (2,486) (3,355) (2,663) (51) (7,701)
Reorganization items, net... -- -- -- 575 23,946 --
Other, net.................. (85) (61) (53) (742) (76) (2,061)
-------- -------- --------- --------- -------- ----------
Income (loss) before income
taxes, discontinued
operations and extraordinary
gain........................ (5,296) (3,906) (5,677) 4,476 21,795 (43,387)
Income tax expense
(benefit)................... -- (507) (1,526) 2,394 -- 400
-------- -------- --------- --------- -------- ----------
Net income (loss) before
discontinued operations
and extraordinary gain.... (5,296) (3,399) (4,151) 2,082 21,795 (43,787)
Net income (loss) of
discontinued operations, net
of tax...................... (5,874) 4,127 8,764 4,570 (27,810) (81,891)
-------- -------- --------- --------- -------- ----------
Net income (loss) before
extraordinary gain.......... $(11,170) $ 728 $ 4,613 $ 6,652 $ (6,015) $(125,678)
-------- -------- --------- --------- -------- ----------
Extraordinary gain............ -- -- -- -- 58,704 --
-------- -------- --------- --------- -------- ----------
NET INCOME (LOSS)............. $(11,170) $ 728 $ 4,613 $ 6,652 $ 52,689 $(125,678)
======== ======== ========= ========= ======== ==========
PER SHARE OF COMMON STOCK: (b)
Income (loss) from continuing
operations.................. $ (0.76) $ (0.49) $ (0.59) $ 0.30 N/A N/A
Income (loss) from
discontinued operations..... (0.83) 0.59 1.25 0.65 N/A N/A
-------- -------- --------- --------- -------- ----------
Net income (loss).... $ (1.59) $ 0.10 $ 0.66 $ 0.95 N/A N/A
======== ======== ========= ========= ======== ==========
Weighted average shares of
common stock and common
stock equivalents
outstanding (in
thousands).................. 7,009 7,009 7,021 7,006 N/A N/A
======== ======== ========= ========= ======== ==========
</TABLE>
- ---------------
(a) Due to the Reorganization and implementation of Fresh Start Reporting,
financial statements for the Reorganized Company (period starting September
30, 1993) are not comparable to those of the Predecessor Company. See Notes
to the Financial Statements (Note 14) for additional information.
(b) The weighted average number of common shares outstanding and net income per
common share for the Predecessor Company have not been presented because,
due to the Reorganization and implementation Fresh Start Reporting, they are
not comparable to subsequent periods.
The Notes to Consolidated Financial Statements are an integral part of these
financial statements.
F-2
<PAGE> 52
AM INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
APRIL 27, 1996 JULY 31, 1995 JULY 31, 1994
-------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................... $ 5,947 $ 12,563 $ 21,112
Accounts receivable, net.................................... 31,985 36,409 36,018
Inventories, net............................................ 25,938 28,432 31,135
Prepaid expenses and other assets........................... 1,302 1,722 1,350
Net assets of discontinued operations....................... 67,780 61,301 --
-------- --------- ---------
TOTAL CURRENT ASSETS.......................................... 132,952 140,427 89,615
Property, plant and equipment, net............................ 13,245 12,453 11,505
Excess reorganization value................................... 5,104 5,430 14,173
Other assets, net............................................. 5,528 4,762 5,376
Net assets of discontinued operations......................... -- -- 48,605
-------- --------- ---------
TOTAL ASSETS........................................ $156,829 $ 163,072 $ 169,274
======== ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings and current maturities of long-term
debt..................................................... 17,211 6,132 6,000
Accounts payable............................................ 24,498 21,134 18,244
Service contract deferred income............................ 13,088 17,312 18,376
Payroll related expenses.................................... 10,660 13,175 17,950
Other current liabilities................................... 24,556 21,172 20,380
-------- --------- ---------
TOTAL CURRENT LIABILITIES........................... 90,013 78,925 80,950
Long-term debt................................................ 10,902 14,915 19,359
Other long-term liabilities................................... 19,546 20,931 26,189
-------- --------- ---------
TOTAL LIABILITIES................................... 120,461 114,771 126,498
-------- --------- ---------
COMMITMENTS AND CONTINGENCIES (NOTE 5)
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value; 40 million shares authorized;
7,010,000 issued......................................... 70 70 70
Capital in excess of par value.............................. 35,865 35,637 35,547
Less: treasury stock, at cost; 1,280 shares................. (6) (6) (6)
Warrants, 1,095,000 issued, exercise price of $18.00........ 383 383 383
Accumulated earnings (deficit).............................. 95 11,265 6,652
Cumulative translation adjustment........................... (39) 952 130
-------- --------- ---------
TOTAL SHAREHOLDERS' EQUITY.......................... 36,368 48,301 42,776
-------- --------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................... $156,829 $ 163,072 $ 169,274
======== ========= =========
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
financial statements.
F-3
<PAGE> 53
AM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
REORGANIZED COMPANY(a)
---------------------------------------------------------------
PREDECESSOR COMPANY
NINE MONTHS ------------------------------
ENDED TWELVE MONTHS TEN MONTHS TWO MONTHS TWELVE MONTHS
------------------------------- ENDED ENDED ENDED ENDED
APRIL 27, 1996 APRIL 27, 1995 JULY 31, 1995 JULY 31, 1994 SEPT. 29,1994 JULY 31, 1993
-------------- -------------- ------------- ------------- -------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
NET INCOME (LOSS)............. ($11,170) $ 728 $ 4,613 $ 6,652 $ 52,689 ($125,678)
Adjustments to reconcile net
income (loss) to cash flow
from operating activities:
Depreciation of property,
plant and equipment....... 684 760 1,632 2,204 327 3,232
Amortization and writedown
of other assets........... 328 530 706 1,395 -- 10,996
Benefit from operating loss
carryforwards............. -- 8,037 8,037 10,494 -- --
Discontinued operations..... (4,869) (19,337) (15,715) 12,636 9,596 80,582
Change in assets and
liabilities:
Accounts receivable,
net..................... 4,424 6,146 (391) (5,105) 6,855 1,995
Inventory, net............ 2,494 (3,412) 2,703 (4,455) (559) 3,530
Prepaid expenses and other
assets.................. 420 380 (372) (2,816) 314 681
Accounts payable and
accruals................ 10 (7,462) (2,157) (6,843) 10,704 (21,903)
Other, net................ (2,964) (1,020) (3,950) 3,130 1,041 1,760
Changes due to Fresh Start
Reporting and
reorganization............ -- -- -- -- (82,650) --
-------- -------- --------- --------- -------- ---------
CASH FLOW FROM OPERATING
ACTIVITIES.................. (10,643) (14,650) (4,894) 17,292 (1,683) (44,805)
-------- -------- --------- --------- -------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures........ (8,251) (1,466) (2,362) (1,560) (135) (899)
Proceeds from disposition of
property.................. 6,822 -- -- -- -- --
Discontinued operations..... (1,099) (2,089) 886 (2,973) -- (6,069)
-------- -------- --------- --------- -------- ---------
CASH FLOW FROM INVESTING
ACTIVITIES.................. (2,528) (3,555) (1,476) (4,533) (135) (6,968)
-------- -------- --------- --------- -------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net borrowings (payments)
under short-term
borrowing................. 10,087 4,506 131 (1,074) 100 65
Principal borrowings
(payments) on long-term
debt...................... (3,021) (3,497) (4,443) (5,126) 1,831
Liabilities subject to
compromise................ -- -- -- -- -- 44,908
Discontinued operations..... (511) 1,501 2,133 2,565 1,061 (1,210)
-------- -------- --------- --------- -------- ---------
CASH FLOW FROM FINANCING
ACTIVITIES.................. 6,555 2,510 (2,179) (3,635) 2,992 43,763
-------- -------- --------- --------- -------- ---------
Increase (decrease) in cash
and cash equivalents........ (6,616) (15,695) (8,549) 9,124 1,174 (8,010)
Cash and cash equivalents at
beginning of period......... 12,563 21,112 21,112 11,988 10,814 18,824
-------- -------- --------- --------- -------- ---------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD............... $ 5,947 $ 5,417 $ 12,563 $ 21,112 $ 11,988 $ 10,814
======== ======== ========= ========= ======== =========
</TABLE>
- ---------------
(a) Due to the Reorganization and implementation of Fresh Start Reporting,
financial statements for the new Reorganized Company (period starting
September 30, 1993) are not comparable to those of the Predecessor Company.
See Notes to the Financial Statements (Note 14) for additional information.
The Notes to Consolidated Financial Statements are an integral part of these
financial statements.
F-4
<PAGE> 54
AM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK TREASURY STOCK WARRANTS
------------------ ------------------- -------------------- -----------------
NUMBER NUMBER NUMBER NUMBER
PREDECESSOR COMPANY: OF SHARES AMOUNT OF SHARES AMOUNT OF SHARES AMOUNT OF SHARES AMOUNT
---------- ------ ----------- ------ ---------- -------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance July 31, 1992...................... 3,430,100 $ 35 52,429,739 $ 524 5,459,765 $(22,974) -- $ --
Issuance of Treasury Stock to ESOP........ -- -- -- -- (156,166) 657
Loan forgiveness.......................... -- -- -- -- -- --
Net loss.................................. -- -- -- -- -- --
Deferred compensation..................... -- -- -- -- 180,001 (790)
Preferred Stock conversion................ (16,035) (1) 47,944 1 -- --
Aggregate effect of current year
translation adjustments................. -- -- -- -- -- --
---------- ---- ----------- ----- ---------- -------- --------- ----
Balance July 31, 1993...................... 3,414,065 34 52,477,683 525 5,483,600 (23,107)
Net Income................................ -- -- -- -- -- --
Reorganization Items:
Cancellation of Stock................... (3,414,065) (34) (52,477,683) (525) (5,483,600) 23,107
Fresh Start Adjustments................. -- -- -- -- -- --
Aggregate effect of current year
translation adjustments...............
Issuance of New Common Stock............ 7,000,000 70
Issuance of Warrants.................... 1,095,000 383
---------- ---- ----------- ----- ---------- -------- --------- ----
Reorganized Company Balance, September 30,
1993(a)................................... -- -- 7,000,000 70 -- -- 1,095,000 383
REORGANIZED COMPANY:
Net Income................................
Aggregate effect of current year
translation adjustments.................
Purchase of Treasury Stock................ 1,119 (6)
---------- ---- ----------- ----- ---------- -------- --------- ----
Balance July 31, 1994...................... -- -- 7,000,000 70 1,119 (6) 1,095,000 383
Net Income................................
Aggregate effects of current year
translation adjustments.................
Issuance of New Common Stock.............. 10,000 --
Purchase of Treasury Stock................ 126
---------- ---- ----------- ----- ---------- -------- --------- ----
Balance at July 31, 1995................... -- -- 7,010,000 70 1,245 (6) 1,095,000 383
---------- ---- ----------- ----- ---------- -------- --------- ----
Net Income (loss).........................
Aggregate effects of current year
translation adjustments.................
Other, Net................................
---------- ---- ----------- ----- ---------- -------- --------- ----
Balance at April 27, 1996.................. -- $ -- 7,010,000 $ 70 1,245 $ (6) 1,095,000 $383
========== ==== =========== ===== ========== ======== ========= ====
<CAPTION>
CAPITAL NOTES
IN RECEIVABLE CUMULATIVE TOTAL
EXCESS OF DEFERRED FROM ACCUMULATED TRANSLATION SHAREHOLDERS'
PREDECESSOR COMPANY: PAR VALUE COMPENSATION OFFICER EARNINGS/(DEFICIT) ADJUSTMENT EQUITY
--------- ------------ ---------- ------------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance July 31, 1992...................... $ 340,396 $ (4,983) $ (1,954) $ (243,164) $ 1,457 $ 69,337
Issuance of Treasury Stock to ESOP........ (615) -- -- -- -- 42
Loan forgiveness.......................... -- -- 1,954 -- -- 1,954
Net loss.................................. -- -- -- (125,678) -- (125,678)
Deferred compensation..................... -- 4,983 -- -- -- 4,193
Preferred Stock conversion................ -- -- -- -- -- --
Aggregate effect of current year
translation adjustments................. -- -- -- -- 501 501
---------- -------- -------- ---------- -------- ----------
Balance July 31, 1993...................... 339,781 -- -- (368,842) 1,958 (49,651)
Net Income................................ -- -- -- 52,689 -- 52,689
Reorganization Items:
Cancellation of Stock................... (339,781) -- -- -- -- (317,233)
Fresh Start Adjustments................. -- -- -- 316,153 (2,125) 314,028
Aggregate effect of current year
translation adjustments............... 167 167
Issuance of New Common Stock............ 35,547 35,617
Issuance of Warrants.................... 383
---------- -------- -------- ---------- -------- ----------
Reorganized Company Balance, September 30,
1993(a)................................... 35,547 -- -- -- -- 36,000
REORGANIZED COMPANY:
Net Income................................ 6,652 6,652
Aggregate effect of current year
translation adjustments................. 130 130
Purchase of Treasury Stock................ (6)
---------- -------- -------- ---------- -------- ----------
Balance July 31, 1994...................... 35,547 -- -- 6,652 130 42,776
Net Income................................ 4,613 4,613
Aggregate effects of current year
translation adjustments................. 822 822
Issuance of New Common Stock.............. 90 90
Purchase of Treasury Stock................
---------- -------- -------- ---------- -------- ----------
Balance at July 31, 1995................... 35,637 -- -- 11,265 952 48,301
---------- -------- -------- ---------- -------- ----------
Net Income (loss)......................... (11,170) (11,170)
Aggregate effects of current year
translation adjustments................. (991) (991)
Other, Net................................ 228 228
---------- -------- -------- ---------- -------- ----------
Balance at April 27, 1996.................. $ 35,865 $ -- $ -- $ 95 $ (39) $ 36,368
========== ======== ======== ========== ======== ==========
</TABLE>
- ---------------
(a) Due to the Reorganization and implementation of Fresh Start Reporting,
financial statements for the new Reorganized Company (period starting
September 30, 1993) are not comparable to the Predecessor Company. See Notes
to the Financial Statements (Note 14) for additional information.
The Notes to Consolidated Financial Statements are an integral part of these
financial statements.
F-5
<PAGE> 55
AM INTERNATIONAL, INC,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT AS OTHERWISE NOTED AND PER SHARE AMOUNTS)
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: The Consolidated Financial Statements of the
Reorganized Company (period beginning September 30, 1993) and the Predecessor
Company (periods prior to September 30, 1993) include the accounts of AM
International, Inc. and its subsidiaries (the "Company"). All significant
intercompany transactions have been eliminated. The Company's fiscal year end is
July 31. All references to years, unless otherwise indicated, refer to the
fiscal year. Certain prior year amounts have been reclassified to be consistent
with current year presentation.
Cash Equivalents: The Company considers all highly liquid investments
purchased with a maturity of three months or less to be cash equivalents.
Inventories: Inventories are valued at the lower of cost, which includes
material, labor and overhead, determined by the first-in, first out (FIFO)
method, or market.
Properties, Equipment and Depreciation: Properties and Equipment are stated
at cost. Properties and equipment are depreciated over estimated useful lives,
ranging from 5 to 30 years, primarily on a straight-line basis.
Intangibles: Excess reorganization values are amortized on a straight-line
basis over periods not exceeding 20 years. Identifiable intangible assets are
amortized on a straight-line basis over their estimated useful lives.
Accumulated amortization of excess reorganization value was $2,393 at April 27,
1996, $2,065 at July 31, 1995 and $1,359 at July 31, 1994. The Company
continually evaluates current events and circumstances in order to determine
whether the estimated useful lives and recorded balances of excess
reorganization value have been impaired. The Company utilizes evaluations of
estimated undiscounted future cash flows and financial ratios in this review.
Currency Translation: Foreign assets and liabilities have been translated
into United States dollars at current exchange rates as of the balance sheet
dates, and revenues and expenses have been translated at the average exchange
rates in effect during each period. Translation adjustments are reported as a
separate component of Shareholders' Equity. Exchange gains and losses on foreign
currency transactions are included in the Consolidated Statement of Operations
and are not material.
Revenue Recognition: Revenue is recognized from sales when a product is
shipped. Amounts billed for service contracts are credited to Service Contract
Deferred Income and recognized as revenues over the term of the contracts. The
Company recognizes warranty and equipment installation expenses at the time a
product is shipped, if applicable. The expense is estimated considering current
warranty policies and historical expense.
Research and Development Expense: Expenses for research and development are
charged to income as incurred. For the reorganized company, such expenses were
$364 for the nine months ended 1996, $744 in 1995, and $559 in 1994. Such
expenses were $95 and $401 for the Predecessor Company in 1994 and 1993,
respectively.
Income Taxes: Income taxes are provided based on the liability method of
accounting pursuant to Statement of Financial Accounting Standards No. 109, "
Accounting for Income Taxes" (SFAS No. 109). Deferred income taxes are recorded
to reflect the future tax consequences of differences between the tax basis of
assets and liabilities and their financial reporting amounts at each year end.
F-6
<PAGE> 56
AM INTERNATIONAL, INC,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS OTHERWISE NOTED AND PER SHARE AMOUNTS)
Income per Common Share: Income per share amounts are determined after
deducting any dividend requirements of preferred shares and are based on the
weighted average shares of common stock and common stock equivalents outstanding
during each period.
Financial Instruments: Financial instruments are recorded at cost, which
approximates fair market value.
NOTE 2 -- DISCONTINUED OPERATIONS
In July 1996, the Company reached agreement subject to shareholder approval
and certain other conditions to sell substantially all of the assets and
liabilities of Sheridan Systems for proceeds of approximately $50.0 million. A
loss of approximately $16.4 million will be recorded in the fourth quarter of
the Company's fiscal year ended July 31, 1996 as a result of the transaction,
with no recorded tax benefit. This transaction is expected to close in the first
quarter of the fiscal year ending July 31, 1997.
During the year, the Company completed the exit of its AM
Multigraphics-International subsidiaries with the sale of its subsidiaries in
the Netherlands, France, and Belgium and the placement of the Company's AM
Multigraphics UK holding company into an Administration Proceeding. The sale of
the subsidiaries in the Netherlands, France, and Belgium required the Company to
provide consideration of approximately $3.0 million in the form of cash and
other assets. No gain or loss was recorded as a result of the exit of the AM
Multigraphics-International subsidiaries.
The results of these discontinued business units are included in the
consolidated statements of income under "discontinued operations." The following
table summarizes key financial data related to the above discontinued
operations:
<TABLE>
<CAPTION>
REORGANIZED COMPANY PREDECESSOR COMPANY
--------------------------------------------------------------- ------------------------------
NINE MONTHS NINE MONTHS TWELVE MONTHS TEN MONTHS TWO MONTHS TWELVE MONTHS
ENDED ENDED ENDED ENDED ENDED ENDED
APRIL 27, 1996 APRIL 29, 1995 JULY 31, 1995 JULY 31, 1994 SEPT. 29, 1993 JULY 31, 1993
-------------- -------------- ------------- ------------- -------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net sales................... $131,376 $228,530 $ 318,016 $ 257,809 $ 42,682 $ 339,040
Gross margin................ 32,663 64,403 86,219 77,115 11,722 81,290
Unusual Items, net.......... -- -- (4,845) -- -- 53,676
Operating income (loss)..... (3,714) 9,004 16,944 12,220 (323) (75,182)
Non-operating (income)
expense................... 1,669 2,372 3,212 3,046 443 3,902
Allocated interest
expense................... 388 233 314 315 0 3,273
Reorganization items, net... -- -- -- -- 27,049 --
Income tax provision
(benefit) applicable to
discontinued businesses... 103 2,272 4,654 4,289 (5) (466)
-------- -------- --------- --------- -------- ---------
Net income (loss) of
discontinued operations,
net of tax................ $ (5,874) $ 4,127 $ 8,764 $ 4,570 $(27,810) $ (81,891)
======== ======== ========= ========= ======== =========
</TABLE>
The results of operations, net of taxes, and the net assets of Sheridan
Systems and the divested AM Multigraphics-International Operations are presented
in the consolidated financial statements as discontinued operations. Interest
expense pertaining to the Company's revolving credit facility has been allocated
based upon the ratio of the net assets of the discontinued operations to the
consolidated capitalization of the
F-7
<PAGE> 57
AM INTERNATIONAL, INC,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS OTHERWISE NOTED AND PER SHARE AMOUNTS)
Company. Continuing operations and discontinued operations reflect the net tax
benefit or tax expense generated by the respective operations, limited, however,
by the income tax benefit or tax expense recognized in the Company's historical
financial statements. No general corporate expenses have been allocated to the
discontinued operations. The results of the discontinued operations are not
necessarily indicative of the results of operations which may have been obtained
had continuing and discontinued operations been operating independently.
The net assets of discontinued operations included in the Consolidated
Balance Sheets at April 27, 1996, July 31, 1995 and July 31, 1994 amounted to
$67.8 million, $61.3 million and $48.6 million, respectively, and consisted
primarily of receivables, inventory, property and equipment, intangible assets
related to the discontinued operations, net of accounts payable and accrued
liabilities. These amounts have been classified as current at April 27, 1996 and
July 31, 1995 based on the intent to dispose of the operations within one year.
NOTE 3 -- BORROWING ARRANGEMENTS
The Company's short and long-term borrowings are comprised of the
following:
<TABLE>
<CAPTION>
APRIL 27, 1996 JULY 31, 1995 JULY 31, 1994
-------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Revolving Credit Facility.................. $ 10,087 $ -- $ --
General Unsecured Claims & Priority Tax
Claims.................................. 14,671 21,047 25,359
Capital Leases............................. 3,355 -- --
-------- ------- -------
Total.............................. $ 28,113 $21,047 $25,359
======== ======= =======
Classified in the Consolidated Balance
Sheet as follows:
Short-term............................ $ 17,211 $ 6,132 $ 6,000
Long-term............................. 10,902 14,915 19,359
-------- ------- -------
Total.............................. $ 28,113 $21,047 $25,359
======== ======= =======
</TABLE>
The Company maintains a $25,000 three year secured domestic Revolving
Credit Facility (subject to borrowing base limitations) which expires October
12, 1996 with BT Commercial Corporation and LaSalle National Bank. The Revolving
Credit Facility includes a $10,000 sub-facility for the issuance of letters of
credit. As of April 27, 1996, the calculated borrowing base was approximately
$16,000. As security for utilizations of the Revolving Credit Facility, the
Company granted a security interest and general lien upon its domestic assets.
As of April 27, 1996 the Company had borrowings of $10,087 under the Revolving
Credit Facility and was utilizing $3,222 of the facility to secure outstanding
letters of credit. Interest is charged at a rate which is 1.75% in excess of the
prime lending rate of Bankers Trust Company. Letter of credit fees are 2.5% per
annum plus a 0.5% facing fee on standby letters of credit and 1.5% per annum on
commercial documentary letters of credit. As of April 27, 1996, the interest
rate was 10.0%.
The agreement contains restrictive covenants limiting capital expenditures,
restricting the payment of dividends and other payments and providing for
quarterly measures of pretax net income and interest coverage, among other
things. In addition, the agreement limits the Company's ability to borrow or to
request
F-8
<PAGE> 58
AM INTERNATIONAL, INC,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS OTHERWISE NOTED AND PER SHARE AMOUNTS)
letters of credit following a material adverse change as determined by the
lenders. The Company violated certain restrictive financial covenants in its
first two fiscal quarters of 1996, however the Company received waivers of these
violations from its lenders. The Company believed that it complied with the
financial covenants for the quarter ended April 27, 1996. However the lenders do
not concur with the Company's certificate of compliance in that they contend
that certain income recorded by the Company, which related to the settlement of
legal disputes which had been previously reserved, should be excluded from
certain calculations and they have notified the Company that they retain all
rights and remedies available to them under the Revolving Credit Agreement in
the event of a default. The Company's projections indicate that it may not meet
the financial covenants for the quarter ending July 31, 1996, and there can be
no assurances as to what actions the lenders would take in connection with any
default. Based on current projections, the Company expects that its cash
resources and current revolving credit facility will not provide sufficient
capital resources and liquidity needs. The Company is exploring a variety of
strategic and financial alternatives to meet its liquidity needs. It is
anticipated that the sale of Sheridan Systems will generate sufficient capital
resources to meed these liquidity needs. If necessary, the Company will seek to
obtain new revolving credit facilities or the consummation of another
transaction which would provide capital resources to the Company. There can be
no assurances that the Company will be able to renew or replace the existing
Revolving Credit Facility upon its expiration or enter into any transaction
which would provide additional cash resources to the Company.
On October 13, 1993 the Company concluded a reorganization when the United
States Bankruptcy Court for the District of Delaware confirmed the Company's
Plan of Reorganization (Plan). The Plan provides that holders of allowed general
unsecured claims receive cash payments toward satisfaction of the full amount of
their claims in equal quarterly payments payable on the last business day of
each calendar quarter ending after October 13, 1993 over a five-year period,
together with interest at 5% per annum. Holders of priority tax claims are paid
10% of the allowed claim together with accrued and unpaid interest at 8% per
annum on the then outstanding amount on each anniversary of October 13, 1993
which occurs prior to the sixth anniversary of the date of assessment and the
balances of such claims along with accrued and unpaid interest on the sixth
anniversary. For financial reporting purposes interest on general unsecured
claims has been imputed at 9% per annum. At April 27, 1996 the Company had $851
of restricted cash which primarily pertains to the settlement of disputed claims
in accordance with the Plan.
Aggregate maturities of total borrowings, excluding capitalized leases, are
as follows:
<TABLE>
<CAPTION>
APRIL 27, 1996 JULY 31, 1995
-------------- -------------
<S> <C> <C>
Due Fiscal year ending:
1996..................................... $ 1,142 $ 6,132
1997..................................... 15,647 6,169
1998..................................... 5,561 6,169
1999..................................... 1,914 2,083
2000..................................... 494 494
Thereafter............................... -- --
</TABLE>
F-9
<PAGE> 59
AM INTERNATIONAL, INC,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS OTHERWISE NOTED AND PER SHARE AMOUNTS)
Cash paid for interest was $1,156 during the nine months ended 1996, $1,103
during fiscal 1995, and $655 for the of the Reorganized Company in 1994. The
Predecessor Company had interest of $0 in 1994 and $313 in 1993.
NOTE 4 -- CAPITAL STRUCTURE
The Company's charter authorizes 50 million shares of stock, of which 40
million shares are reserved for issuance as Common Stock and 10 million shares
are reserved for issuance as Preferred Stock. The Board of Directors has
authorized the issuance of 7,010,000 of such shares of $.01 par value Common
Stock. Of these shares, 7,000,000 were issued on the effective date to holders
of claims and interests as described in Note 14. In addition, the Company issued
Warrants on the Effective Date to purchase 1,095,000 shares of Common Stock. The
Warrants are exercisable at $18.00 per share and expire on October 15, 1996. The
Warrant Agreement includes standard and customary antidilution provisions, among
other things. As of July 31, 1995 the Company has not yet issued any Preferred
Stock. The Common Stock and all other equity securities issued under the new
charter are voting securities (although the voting rights of any preferred stock
issued would differ from those of the Common Stock) and will not have any
preemptive rights to subscribe for additional shares. The Common Stock is not
subject to conversion or redemption and when issued is fully paid and
non-assessable.
NOTE 5 -- COMMITMENTS AND CONTINGENCIES
The Company received creditor claims during its bankruptcy proceedings.
Although the disputed claims are in many cases in excess of recorded reserves,
the Company believes that many of the claims are duplicative, erroneous or
exaggerated and the Company believes it has valid defenses to the claims. The
Company has filed objections to these disputed claims in the United States
Bankruptcy Court in Delaware. As of July 31, 1995 and April 27, 1996, disputed
claims amounted to $50,700 and $31,600, respectively. During the third quarter
the Company expunged or settled approximately $17,400 in disputed claims for
amounts within previously established reserves. The disputed claims are
primarily comprised of environmental and product liability claims. The Company
has been notified of various environmental matters in connection with certain
current or former Company locations in Connecticut, Illinois, Ohio, Indiana,
Pennsylvania, and Rhode Island. In the third quarter of 1996, the Company
recorded a $2,800 favorable adjustment due to the resolution of legal disputes
which had been previously reserved. The Company is also involved in various
other administrative and legal proceedings incidental to its business, including
product liability and general liability lawsuits against which the Company is
partially insured. The disputed claims are in many cases in excess of recorded
reserves. At the present time, it is management's opinion, based on information
available to the Company and management's experience in such matters, that the
resolution of these legal proceedings is not expected to have a material adverse
effect on the Company's financial condition, results of operations or liquidity.
The Company has sold certain receivables related to machine sales, subject
to limited recourse provisions and repurchase provisions. Management believes
unreserved exposures pertaining to these contingencies will not materially
impact the Company's financial condition, results of operations or liquidity.
F-10
<PAGE> 60
AM INTERNATIONAL, INC,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS OTHERWISE NOTED AND PER SHARE AMOUNTS)
NOTE 6 -- INCOME TAXES
The components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
REORGANIZED COMPANY PREDECESSOR COMPANY
----------------------------------------------------------------- -------------------------------
NINE MONTHS NINE MONTHS TWELVE MONTHS TEN MONTHS TWO MONTHS TWELVE MONTHS
ENDED ENDED ENDED ENDED ENDED ENDED
APRIL 27, 1996 APRIL 29, 1995 JULY 31, 1995 JULY 31, 1994 SEPT. 29, 1993 JULY 31, 1993
-------------- -------------- --------------- ------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
The domestic and foreign
components of income
(loss) from continuing
operations are as
follows:
Domestic................ $ (4,709) $ (3,632) $(5,302) $ 4,029 $ 21,988 $(42,757)
Foreign................. (587) (274) (375) 447 (193) (630)
-------- -------- ------- ------- -------- --------
$ (5,296) $ (3,906) $(5,677) $ 4,476 $ 21,795 $(43,387)
======== ======== ======= ======= ======== ========
Provision (benefit) for
income taxes for
continuing operations:
Domestic................ $ -- $ (507) $(1,744) $ 2,050 $ -- $ --
Foreign................. -- -- 218 344 -- 400
-------- -------- ------- ------- -------- --------
$ -- $ (507) $(1,526) $ 2,394 $ -- $ 400
======== ======== ======= ======= ======== ========
A reconciliation of the
income tax expense
(benefit) on income
(loss) per the U.S.
federal statutory rate
to the reported income
tax expense (benefit)
follows:
US Federal statutory
rate applied to pretax
income................ $ (1,800) $ (1,328) $(1,930) $ 1,521 $ 7,410 $(14,752)
Intangibles with no tax
benefit............... 112 180 240 474 -- --
Operating loss with no
current tax benefit
and varying tax rates
of other national
governments........... 1,630 615 130 192 732 12,380
State income tax........ -- -- -- 162 -- --
Non taxable
reorganization items.. -- -- -- -- (8,142) --
Nondeductible bankruptcy
costs................. -- -- -- -- -- 1,938
Other................... 58 26 34 45 -- 34
-------- -------- ------- ------- -------- --------
INCOME TAX EXPENSE
(RECOVERY).............. $ -- $ (507) $(1,526) $ 2,394 $ -- $ (400)
======== ======== ======= ======= ======== ========
</TABLE>
F-11
<PAGE> 61
AM INTERNATIONAL, INC,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS OTHERWISE NOTED AND PER SHARE AMOUNTS)
The Company accounts for income taxes pursuant to SFAS No. 109. At July 31,
1995 and July 31, 1994 the approximate amounts of deferred tax assets and
deferred tax liabilities resulting from temporary differences and carryforwards
were as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Deferred Tax Assets
Inventory valuation.................................. $ 2,400 $ 2,500
Insurance reserves................................... 6,400 7,800
Other................................................ 6,600 9,400
-------- --------
Subtotal............................................... 15,400 19,700
Domestic tax operating loss carryforwards limited by
Sec 382.............................................. 21,000 21,000
Domestic tax operating loss carryforwards.............. 34,000 26,000
Foreign tax operating loss carryforwards............... 2,400 1,700
AMT credit carryforward................................ 1,800 1,800
-------- --------
Deferred Tax assets.................................... 74,600 70,200
Valuation allowance............................... (74,600) (70,200)
-------- --------
Net deferred tax asset................................. $ -- $ --
======== ========
</TABLE>
The Sec. 382 ownership change which resulted from the 1993 bankruptcy
reorganization imposed a limitation on the usage of pre-reorganization domestic
tax operating loss carryforwards. Usage of this loss carryforward is limited to
$3,689 per year or $55,335 for a period of 15 years following the ownership
change. In addition, as of July 31, 1995 the Company had domestic tax loss
carryforwards of $87,180 attributable to post-reorganization periods and
therefore not subject to limitation. The domestic tax loss carryforwards will
expire from 1997 to 2010. The AMT credit, although subject to the Sec. 382
limitation, has no expiration date.
During 1995, the deferred tax asset increased by $4,400 primarily due to
the creation of additional domestic loss carryforwards. Due to uncertainty as to
the realizability of the deferred tax assets, the Company has established
valuation allowances in accordance with SFAS No. 109. to offset these assets.
To the extent the Company realizes a tax benefit as a result of future
reductions in the valuation allowance related to the utilization of
pre-reorganization deferred tax assets, fresh start accounting rules provided
for the reporting of such benefit first by reducing "Reorganization Value in
Excess of Amounts Allocable to Identifiable Assets" and thereafter increasing
Capital in excess of par value. Although the future recognition of this benefit
will have no impact on net earnings, the Company will realize a cash benefit
from utilization of the "Pre-Reorganization Benefits" against any future tax
liabilities.
F-12
<PAGE> 62
AM INTERNATIONAL, INC,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS OTHERWISE NOTED AND PER SHARE AMOUNTS)
NOTE 7 -- DEFERRED COMPENSATION
Reorganized Company
The Company's 1994 Long Term Incentive Plan provides for the issuance of
1,400,000 shares of new $.01 par value Common Stock. Options to purchase the
Common Stock are awarded at a price not less than 100% of the market price on
the date of grant, which becomes exercisable at various dates generally from one
to four years after the date of grant, and expire ten years after the date of
grant.
<TABLE>
<CAPTION>
1995 1994
--------------------------- --------------------------
OPTION PRICE OPTION PRICE
NUMBER OF RANGE NUMBER OF RANGE
SHARES PER SHARE SHARES PER SHARE
--------- ------------- --------- ------------
<S> <C> <C> <C> <C>
OUTSTANDING AT BEGINNING OF THE YEAR..... 376,000 $9.625-11.5 -- --
Granted.................................. 277,917 $8.750-12.125 376,000 $9.625-11.5
Exercised................................ -- -- -- --
Canceled................................. (55,500) $9.625-10 -- --
------- ------------- ------- -----------
OUTSTANDING AT END OF PERIOD............. 598,417 $8.750-12.125 376,000 $9.625-11.5
======= ============= ======= ===========
EXERCISABLE AT END OF PERIOD............. 127,900 $9.125-11.5 -- $--
======= ============= ======= ===========
</TABLE>
Predecessor Company
On August 23, 1993, the Company's Board of Directors approved a resolution
to terminate the Employee Stock Ownership Plan (the "ESOP') effective July 31,
1993, in connection with its Plan of Reorganization. The ESOP Trust had made
advance purchases of the Company's old Common Stock with funds loaned to the
Trust by the Company under an ESOP Loan Agreement. The cost of the shares held
by the Trust, but not yet earned by the Plan participants, was reported as
deferred compensation within the Shareholders' Equity section of the balance
sheet. As the Company recognized compensation expense related to the ESOP
resulted in the forgiveness of $4,171 of indebtedness of the ESOP Trust to the
Company. Subsequent to confirmation of the Plan of Reorganization, the old
shares of Common Stock were exchanged for new shares of Common Stock and were
allocated to each participant's account for all of the shares held in the ESOP
Trust suspense account.
The Predecessor Company had stock option and incentive plans pursuant to
which awards of stock options and restricted stock had been made to officers and
certain key employees. Options to purchase old Common Stock were at a price not
less than 100% of the market price on the date of grant, became exercisable at
various dates generally from one to three years after date of grant and expired
ten years after date of grant. Restricted stock awards were made at par value
and vested over a five year period or with a change in control. On the Effective
Date all outstanding shares of restricted stock vested. During fiscal 1994, the
Company canceled its existing stock option and incentive plans.
F-13
<PAGE> 63
AM INTERNATIONAL, INC,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS OTHERWISE NOTED AND PER SHARE AMOUNTS)
NOTE 8 -- UNUSUAL ITEMS
UNUSUAL ITEMS
(INCOME)/EXPENSE
<TABLE>
<CAPTION>
REORGANIZED COMPANY PREDECESSOR COMPANY
TWELVE MONTHS ENDED TWELVE MONTHS ENDED
JULY 31, 1995 JULY 31, 1993
--------------------------- ---------------------------
CONTINUING DISCONTINUED CONTINUING DISCONTINUED
OPERATIONS OPERATIONS OPERATIONS OPERATIONS
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Costs of restructuring operations.......... $ -- $ -- $ 12,637 $ 15,001
Professional services and other Chapter 11
reorganization expenses.................. -- -- 13,995 --
Goodwill and other asset Writedowns........ -- -- 10,996 48,450
Net gain, concluded divestitures........... -- (4,845) -- (9,775)
-------- -------- -------- --------
Net Unusual Items................ $ -- $ (4,845) $ 37,628 $ 53,676
======== ======== ======== ========
</TABLE>
Continuing Operations
During 1993, the Company implemented or identified certain operational
restructuring actions which totaled $12,637. Expenses recorded in 1993 included
employee severance costs, closure and relocation costs. The Company additionally
incurred $13,995 in reorganization costs related to its liquidity problems.
These costs included the expenses of professional advisers, financing costs,
management retention payments and severance costs related to the reorganization.
In the fourth quarter of 1993, $10,996 of assets were written down,
primarily representing the Company's loan to the Employee Stock Ownership Plan
and other intangibles related to discontinued product lines.
Discontinued Operations
In July 1995, the Company sold certain tangible and intangible assets
relating to its servicing and supplies business for forms and sheetfed printing
presses and its services and supplies business for the former business unit
known as Advanced Imaging Products (AIP). Assets sold in the transaction
consisted of certain accounts receivable, inventory, and fixed assets. The sale
resulted in a gain of $1,800.
In June 1995, the Company sold its photocopier servicing business in
England. Assets sold included certain accounts receivable, certain tools and
equipment, certain inventories and all sales and promotional material. The sale
resulted in a gain of $3,000.
During 1993, the Company implemented or identified certain operational
restructuring actions which totaled approximately $15,001. Expenses recorded in
1993 included employees severance costs, closure and relocation costs and costs
which related primarily to anticipated losses on the divestitures of certain
operations, among other things.
In the fourth quarter of 1993, the Company wrote down approximately $48,450
of assets, primarily consisting of Goodwill related to several of the Company's
operating units. The 1993 noncash charge was based upon the Company's estimate
of its reorganization value, upon confirmation of its Plan Reorganization by the
Bankruptcy Court.
F-14
<PAGE> 64
AM INTERNATIONAL, INC,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS OTHERWISE NOTED AND PER SHARE AMOUNTS)
NOTE 9 -- BALANCE SHEET ACCOUNTS
The components of certain balance sheet accounts are as follows:
<TABLE>
<CAPTION>
APRIL 27, 1996 JULY 31, 1995 JULY 31, 1994
-------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Accounts receivable................................... $ 32,486 $37,721 $37,458
Allowance for doubtful accounts....................... (501) (1,312) (1,440)
-------- ------- -------
Total accounts receivable, net.............. $ 31,985 $36,409 $36,018
======== ======= =======
Raw materials......................................... $ 1,633 $ 1,594 $ 3,456
Work-in-process and finished goods.................... 24,305 26,838 27,679
-------- ------- -------
Total inventories, net...................... $ 25,938 $28,432 $31,135
======== ======= =======
Land.................................................. $ -- $ 4,600 $ 4,600
Buildings............................................. -- 2,101 2,101
Machinery and equipment............................... 13,783 8,699 6,608
Leasehold improvements................................ 3,543 608 388
-------- ------- -------
17,326 16,008 13,697
Less accumulated depreciation and amortization........ (4,081) (3,555) (2,192)
-------- ------- -------
$ 13,245 $12,453 $11,505
======== ======= =======
</TABLE>
NOTE 10 -- RETIREMENT BENEFIT PLANS
The Company maintains defined contribution retirement plans for domestic
employees comprised of savings plans (401(k)) and a Retirement Accumulation
Plan. Contributions to these plans take the form of (i) company contributions to
match a portion of employee contribution and (ii) contributions made at the
discretion of the Board of Directors. The Company's contributions to the
domestic defined contribution plans were $1,778 and $2,019 for the Reorganized
Company in 1995 and 1994 respectively, and $403 and $1,947 for the Predecessor
Company in 1994 and 1993.
Retirement plans are maintained for the Company's operations in Canada and
Japan, which supplement and are coordinated with required government plans.
These retirement plans are defined contribution plans and are funded through
mandatory government plans or insurance company plans. Once the Company makes
the required funding payments, the Company has no future obligation under these
plans. Expenses for such plans were $75 and $7 for the Reorganized Company in
1995 and 1994, respectively, and $0 and $101 for the Predecessor Company for the
1994 and 1993, respectively.
F-15
<PAGE> 65
AM INTERNATIONAL, INC,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS OTHERWISE NOTED AND PER SHARE AMOUNTS)
The Company maintains various defined benefit pension plans, primarily
foreign. The components of net periodic pension cost for these plans are shown
below for 1995, 1994 and 1993:
<TABLE>
<CAPTION>
REORGANIZED COMPANY PREDECESSOR COMPANY
------------------------------- --------------------------------
TWELVE MONTHS TEN MONTHS TWO MONTHS TWELVE MONTHS
ENDED ENDED ENDED ENDED
JULY 31, 1995 JULY 31, 1994 SEPT. 29, 1993 JULY 31, 1993
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Benefits earned during the year....... $ 629 $ 418 $ 78 $ 422
Interest accrued on projected
benefit............................. 875 756 141 949
Actual return on assets............... (886) (783) (147) (1,006)
Net amortization and deferral......... -- -- 21 (195)
----- ----- ------ -------
Net periodic pension cost............. $ 618 $ 391 $ 93 $ 170
===== ===== ====== =======
</TABLE>
The status of the defined benefit pension plans at July 31 was as follows:
<TABLE>
<CAPTION>
1995 1994
------------------------------- -------------------------------
ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS BENEFITS EXCEED ASSETS
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Plan assets at fair value.............. $10,747 $ 836 $11,551 $ 581
Actuarial present value of benefit
obligation
Vested............................... 7,726 4,176 7,624 3,166
Nonvested............................ 6 1,221 6 242
------- ------- ------- -------
Accumulated Benefit Obligation......... 7,732 5,397 7,630 3,408
Effect of projected future salary
increases............................ -- 1,409 -- 1,212
------- ------- ------- -------
Projected benefit obligation........... 7,732 6,806 7,630 4,620
Plan assets in excess of (less than)
projected benefit obligation......... 3,015 (5,970) 3,921 (4,039)
Unrecognized net transition (asset)
obligation........................... -- -- -- --
Unrecognized net (gain) loss........... (287) 638 (1,238) --
------- ------- ------- -------
Prepaid (accrued) pension cost at year
end.................................. $ 2,728 $(5,332) $ 2,683 $(4,039)
======= ======= ======= =======
</TABLE>
Plan assets consist primarily of marketable equity and fixed income
securities. The assumed rates of return on plan assets generally ranged from 5%
to 9% in 1995 and 6% to 9% in 1994. The assumed discount rates on benefit
obligations generally ranged from 4.5% to 9% in 1995 and 6% to 9% in 1994. The
assumed rates of compensation increases generally ranged from 3.5% to 8% in 1995
and 2% to 8% in 1994. The actuarial present value of vested benefit obligations
excludes future government required benefit increases for current employees
which generally are included in the projected benefit obligation.
In general, it is the Company's policy to make annual contributions to the
plans which meet minimum funding requirements.
In addition to pension benefits, the Company provides limited life
insurance and health care benefits to certain domestic retired employees and
provides for certain medical and life insurance benefits for retirees of
F-16
<PAGE> 66
AM INTERNATIONAL, INC,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS OTHERWISE NOTED AND PER SHARE AMOUNTS)
previously closed manufacturing locations. In 1993, the Company adopted
Statement of Financial Accounting Standards No. 106 - Employers' Accounting for
Postretirement Benefits other than Pensions (SFAS 106). The effect of adopting
SFAS 106 was not material.
Net post-retirement life and health care cost includes the following
components:
<TABLE>
<CAPTION>
REORGANIZED COMPANY PREDECESSOR COMPANY
----------------------------- ------------------------------
TWELVE MONTHS TEN MONTHS TWO MONTHS TWELVE MONTHS
ENDED ENDED ENDED ENDED
JULY 31, 1995 JULY 31, 1994 SEPT. 29, 1993 JULY 31, 1993
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Service Cost -- benefits earned during the
period.................................. $ 5 $ 5 $ 1 $ 6
Interest cost on accumulated
post-retirement benefit obligation...... 846 591 118 750
----- ----- ---- -----
Total life and health care costs.......... $851 $596 $119 $ 756
===== ===== ==== =====
</TABLE>
The plans' funded status at July 31, was as follows:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Actuarial present value of benefit
obligations--
Retirees................................ $10,244 $10,009
Fully eligible active participants...... 270 245
------- -------
Accumulated postretirement benefit
obligation.............................. 10,514 10,254
Plan assets -- --
------- -------
Accrued post-retirement life and health
care costs.............................. $10,514 $10,254
======= =======
</TABLE>
Assumptions used for the Company's retiree life and health care plans as of
July 31, were as follows:
<TABLE>
<CAPTION>
1995 1994
----- -----
<S> <C> <C>
Discount rate for determining obligations
and interest cost........................ 8.00% 7.75%
</TABLE>
If the health care cost trend rates were increased 1% for all future years,
the accumulated postretirement benefit obligation would have increased 0.1% at
July 31, 1995. The effect of this change on the aggregate of service and
interest cost would have been an increase of 4.9% for 1995. A 13% increase in
the health care cost trend rate was assumed for retirees under age 65 and an
11.0% increase for those over the age of 65. These rates are assumed to decrease
gradually to 5.5% in the year 2003.
The predecessor Company (prior to September 29, 1993) maintained defined
contribution plans for domestic employees comprised of a savings plan (401(k)),
a Retirement Accumulation Plan and an Employee Stock Ownership Plan (the
"ESOP"). On August 23, 1993 the Company's Board of Directors approved a
resolution to terminate the ESOP as of July 31, 1993 in connection with its Plan
of Reorganization. See Note 7 for further discussion.
F-17
<PAGE> 67
AM INTERNATIONAL, INC,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS OTHERWISE NOTED AND PER SHARE AMOUNTS)
NOTE 11 -- LEASE TRANSACTIONS
The Company leases certain real and personal property and is responsible
for most maintenance, insurance and tax expenses related to leased facilities.
At July 31, 1995, the future lease payments for continuing operating leases
are as follows:
<TABLE>
<S> <C>
1996............................... $ 2,495
1997............................... 2,199
1998............................... 1,477
1999............................... 1,087
2000............................... 1,041
2001 and thereafter................ 5,903
-------
Total future operating
lease payments......... $14,202
=======
</TABLE>
Rental expenses for all operating leases were $2,437 and $2,457 for the
Reorganized Company in 1995 and 1994, respectively, and $491 and $6,128 for the
Predecessor Company in 1994 and 1993, respectively.
During 1996, the Company has entered into certain capital lease
arrangements, primarily relating to computer hardware and software. Obligations
under these arrangements amount to approximately $3,355 as of April 27, 1996 and
extend for periods of three to five years.
NOTE 12 - GEOGRAPHIC SEGMENTS
The Company's operations are conducted through AM Multigraphics, its sole
continuing business segment. AM Multigraphics is a leading distributor and to a
lesser degree a manufacturer of equipment and service to the graphics arts
industry. Its principal operations are in North America. The Company also
distributes internationally through foreign dealers and a majority owned
subsidiary in Japan.
<TABLE>
<CAPTION>
REORGANIZED COMPANY PREDECESSOR COMPANY
-------------------------------------------------- --------------------------------
NINE MONTHS TWELVE MONTHS TEN MONTHS TWO MONTHS TWELVE MONTHS
ENDED ENDED ENDED ENDED ENDED
APRIL 27, 1996 JULY 31, 1995 JULY 31, 1994 SEPT. 29, 1993 JULY 31, 1993
-------------- ------------- ------------- -------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues
North America......... $106,876 $ 157,440 $ 137,047 $ 22,820 $ 168,784
Japan................. 21,344 34,045 26,769 3,712 26,914
-------- --------- --------- -------- ---------
Total.............. $128,220 $ 191,485 $ 163,816 $ 26,532 $ 195,698
======== ========= ========= ======== =========
Operating Profit (Loss)*
North America......... $ (2,677) $ 1,278 $ 9,292 $ 1,221 $ 3,951
Japan................. (587) 911 1,847 (292) 744
-------- --------- --------- -------- ---------
Total.............. $ (3,264) $ 2,189 $ 11,139 $ 929 $ 4,695
======== ========= ========= ======== =========
Assets**
North America......... $ 63,952 $ 69,555 $ 71,314 $ 60,495 $ 67,358
Japan................. 16,046 20,284 19,383 17,552 16,627
-------- --------- --------- -------- ---------
Total.............. $ 79,998 $ 89,839 $ 90,697 $ 78,047 $ 83,985
======== ========= ========= ======== =========
</TABLE>
- ---------------
* Before Corporate expenses and unusual items.
** Excludes Corporate assets primarily consisting of cash, excess reorganization
value and net assets of Discontinued Operations.
F-18
<PAGE> 68
AM INTERNATIONAL, INC,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS OTHERWISE NOTED AND PER SHARE AMOUNTS)
NOTE 13 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
A summary of quarterly financial information for the nine months ended
fiscal 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
QUARTER
------------------------------------------------------------
1996 1ST 2ND 3RD TOTAL PERIOD
- ------------------------------------------------------------ ------- ------- ------- ------------
<S> <C> <C> <C> <C>
Revenues.................................................... $42,994 $40,886 $44,340 $128,220
Gross Margin................................................ 10,889 9,400 11,321 31,610
Net income (loss) from continuing operations................ (3,460) (4,329) 2,493 (5,296)
Net income (loss) from discontinued operations.............. (310) (4,401) (1,163) (5,874)
------- ------- ------- --------
Net income (loss)........................................... (3,770) (8,730) 1,330 (11,170)
======= ======= ======= ========
Per Common Share (2):
Net income (loss) from continuing operations.............. $ (0.49) $ (0.62) $ 0.36 $ (0.76)
Net income (loss) from discontinued operations............ (0.05) (0.63) (0.17) (0.83)
------- ------- ------- --------
Total................................................... $ (0.54) $ (1.25) $ 0.19 $ (1.59)
======= ======= ======= ========
Closing Market Price
High................................................ $ 8.375 $ 7.500 $ 4.688 $ 8.375
Low................................................. $ 7.250 $ 4.688 $ 1.875 $ 1.875
</TABLE>
<TABLE>
<CAPTION>
QUARTER
------------------------------------------------------------
1995 1ST 2ND 3RD 4TH TOTAL YEAR
- ------------------------------------------------------------ ------- ------- ------- ------- ------------
<S> <C> <C> <C> <C> <C>
Revenues.................................................... $43,532 $47,697 $47,095 $53,161 $191,485
Gross Margin................................................ 12,392 12,787 13,203 14,351 52,733
Net income (loss) from continuing operations................ (1,442) (1,400) (557) (752) (4,151)
Net income (loss) from discontinued operations.............. 1,741 1,656 730 4,637 8,764
------- ------- ------- ------- --------
Net income (loss)........................................... $ 299 $ 256 $ 173 $ 3,885 $ 4,613
======= ======= ======= ======= ========
Per Common Share (2):
Net income (loss) from continuing operations.............. $ (0.20) $ (0.20) $ (0.08) $ (0.11) $ (0.59)
Net income (loss) from discontinued operations............ 0.24 0.24 0.10 0.66 1.25
------- ------- ------- ------- --------
Total................................................... $ 0.04 $ 0.04 $ 0.02 $ 0.55 $ 0.66
======= ======= ======= ======= ========
Closing Market Price
High................................................ $12.250 $10.125 $ 9.250 $ 9.250 $ 12.250
Low................................................. $10.000 $ 8.875 $ 8.625 $ 8.125 $ 8.125
</TABLE>
F-19
<PAGE> 69
AM INTERNATIONAL, INC,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS OTHERWISE NOTED AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY REORGANIZED COMPANY
-------------- -------------------------------------------------------------------
AUG. 1, 1993 SEPT. 30, 1993 QUARTER
THROUGH THROUGH ------------------------------------------------
1994 SEPT. 29, 1993 OCT. 30, 1993 2ND 3RD 4TH TOTAL PERIOD
- -------------------------------------- -------------- -------------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues.............................. $26,532 $19,030 $44,375 $47,121 $53,290 $163,816
Gross Margin.......................... 7,006 4,548 13,751 15,401 17,721 $ 51,421
Net income (loss) from continuing
operations (1)...................... 21,795 (1,277) 191 1,196 1,972 2,082
Net income (loss) from discontinued
operations.......................... (27,810) 1,506 1,166 1,477 421 4,570
------- ------- ------- ------- ------- --------
Total............................. $(6,015) $ 229 $ 1,357 $ 2,673 $ 2,393 $ 6,652
======= ======= ======= ======= ======= ========
Per Common Share (2):
Net income (loss) from continuing
operations........................ N/A (3) $(0.18) $ 0.03 $ 0.17 $ 0.28 $ 0.30
Net income (loss) from discontinued
operations........................ N/A (3) 0.21 0.16 0.21 0.06 0.65
------- ------- ------- ------- ------- --------
Total............................. N/A (3) $ 0.03 $ 0.19 $ 0.38 $ 0.34 $ 0.95
======= ======= ======= ======= ======= ========
Closing Market Price:
High.......................... N/A (4) N/A (4) $10.250 $10.875 $11.875 $ 11.875
Low........................... N/A (4) N/A (4) $ 9.500 $ 9.125 $ 8.750 $ 8.750
</TABLE>
- ---------------
(1) Net loss excludes $58,704 of Extraordinary Gain.
(2) Sum of quarters may not equal the total for the year due to changes in the
number of share outstanding during the year.
(3) The net income (loss) per common share for the Predecessor Company has not
been presented because it is not comparable.
(4) Trading of Predecessor Company Common Stock and Preferred Stock was
suspended on May 21, 1993. Periods prior to this date are not presented as
they are not comparable.
NOTE 14 -- PLAN OF REORGANIZATION AND FRESH START REPORTING
The United States Bankruptcy Court for the District of Delaware confirmed
the Company's Plan of Reorganization (the Plan) on September 29, 1993 (the
Confirmation Date), which allowed the Company to emerge from Chapter 11
Bankruptcy effective October 13, 1993 (the Effective Date). The Company operated
under the protection of Chapter 11 following a voluntary petition for
reorganization filed May 17, 1993. The Plan provided for the issuance of
approximately seven million new shares of common stock and distributions to
major creditors and shareholders. The holders of the Company's 12% senior
subordinated debentures received nearly 97% of the new common stock with the
balance of the new common stock distributed to preferred stock and common stock
holders. General unsecured creditors receive quarterly cash payments for five
years with payments commencing December 31, 1993. All distributions were made in
accordance with the plan provisions.
The distribution of shares of the new Common Stock and Warrants commenced
on October 13, 1993. The new Common Stock and new Warrants became listed on the
American Stock Exchange on December 6, 1993.
F-20
<PAGE> 70
AM INTERNATIONAL, INC,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS OTHERWISE NOTED AND PER SHARE AMOUNTS)
Fresh Start Reporting
As of the Confirmation Date, the Company adopted Fresh Start Reporting in
accordance with the American Institute of Certified Public Accountants Statement
of Position 90-7 (SOP 90-7) -- "Financial Reporting by Entities in
Reorganization under the Bankruptcy Code." Fresh Start Reporting resulted in
material changes to the consolidated balance sheet, including valuation of
assets and liabilities at fair market value and valuation of equity based on the
appraised reorganization value of the ongoing business.
The Company recorded a reorganization value of $36,000 (the approximate
fair value) which was based on the consideration of many factors and various
valuation methods, including discounted cash flows and price/earnings and other
applicable ratios and valuation techniques believed by management and its
financial advisors to be representative of the Company's business and industry.
The excess of the reorganization value over the fair value of net assets and
liabilities is reported as excess reorganization value and is amortized over a
twenty year period.
The Reorganization and the adoption of Fresh Start Reporting resulted in
the following adjustments to the Company's Consolidated Statement of Operations
for the period ended September 29, 1993:
Reorganization Items:
<TABLE>
<CAPTION>
INCOME/(EXPENSE)
----------------------------
CONTINUING DISCONTINUED
OPERATIONS OPERATIONS
----------- ------------
<S> <C> <C>
Fair Market Value Adjustments to tangible Assets and
Liabilities, net........................................... $ 8,024 ($ 9,680)
Write-off existing Goodwill.................................. -- (39,840)
Accrue Professional Fees to complete reorganization
process.................................................... (10,100) --
Reorganization Value in excess of Fair Market Value tangible
Assets and Liabilities..................................... 26,022 39,471
Certain foreign entities with Reorganization Value Less than
Fair Value of tangible Assets and Liabilities.............. -- (17,000)
-------- --------
Total Reorganization Items......................... $ 23,946 ($27,049)
======== ========
</TABLE>
Extraordinary Gain:
<TABLE>
<CAPTION>
INCOME/(EXPENSE)
----------------------------
CONTINUING DISCONTINUED
OPERATIONS OPERATIONS
----------- ------------
<S> <C> <C>
Carrying Value of 12% Senior Subordinated Debentures plus
accrued interest........................................... $ 93,624 $ --
Fair Value of Equity exchanged for Debt per the Plan......... (34,920) --
-------- --------
Total Extraordinary Gain........................... $ 58,704 $ --
======== ========
</TABLE>
F-21
<PAGE> 71
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and the
Board of Directors of
AM International, Inc.
We have audited the accompanying consolidated balance sheets of AM
International, Inc. (Reorganized Company) and subsidiaries as of July 31, 1995
and 1994 and the related consolidated statements of operations, shareholders'
equity and cash flows for the year ended July 31, 1995 and the period from
September 30, 1993 through July 31, 1994. We have also audited the related
consolidated statements of operations, shareholders' equity and cash flows of AM
International, Inc. (Predecessor Company) for the period from August 1, 1993
through September 29, 1993 and for the year ended July 31, 1993. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audits in accordance with generally accepted audited
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 14, on September 29, 1993, AM International, Inc.
completed a comprehensive financial restructuring through the implementation of
a reorganization plan under Chapter 11 of the United States Bankruptcy code and
applied fresh start accounting as set forth in the Statement of Position 90-7.
As such results of operations through September 29, 1993 (Predecessor Company)
are not comparable with results of operations subsequent to that date.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of AM International, Inc.
(Reorganized Company) and subsidiaries as of July 31, 1995 and 1994 and the
results of their operations and cash flows for the year ended July 31, 1995 and
for the period from September 30, 1993 through July 31, 1994 and the results of
operations and cash flows of AM International, Inc. (Predecessor Company) for
the period from August 1, 1993 through September 29, 1993 and the year ended
July 31, 1993, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
July 9, 1996
Chicago, Illinois
F-22
<PAGE> 72
FIVE YEAR FINANCIAL SUMMARY (UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
REORGANIZED COMPANY PREDECESSOR COMPANY
---------------------------------------------------------------- -------------------------------------------
NINE MONTHS ENDED SEPT. 30, 1993 AUG. 1, 1993 YEARS ENDED JULY, 31
------------------------------- YEAR ENDED THROUGH THROUGH --------------------------
APRIL 27, 1996 APRIL 29, 1995 JULY 31, 1995 JULY 31, 1994 SEPT. 29, 1993 1993 1992 1991
-------------- -------------- ------------- -------------- -------------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS
Revenues....... $128.2 $138.3 $ 191.5 $163.8 $ 26.5 $ 195.7 $ 202.4 $193.9
Gross profit... 31.6 38.3 52.7 51.4 7.0 57.0 62.5 55.8
as a percent
of
revenues... 24.7% 27.8% 27.5% 31.4% 26.4% 29.1% 30.9% 28.8%
Unusual items
(inc.)/exp.... -- -- -- -- -- 37.6 -- --
Operating
income
(loss)....... (2.6) (1.6) (2.5) 6.8 (2.0) (34.3) (75.4) 6.4
Net Income
(Loss) from
Continuing
Operations... (5.3) (3.4) (4.2) 2.1 21.8 (43.8) (83.1) 2.9
Income (Loss)
from
discontinued
operations... (5.9) 4.1 8.8 4.6 (27.8) (81.9) (41.7) 5.9
Extraordinary
Gain......... -- -- -- -- 58.7 -- -- --
Net income
(loss)....... $(11.2) $ 0.7 $ 4.6 $ 6.7 $ 52.7 $(125.7) $(124.8) $ 8.8
CAPITAL EMPLOYED
Working
capital...... 42.9 (7.3) 61.5 8.7 (17.6) 5.6 (23.6) (17.4)
Total assets... 156.8 163.1 163.1 169.2 164.4 175.4 271.8 369.8
Long-term
debt......... 10.9 15.7 14.9 19.4 25.5 129.0 62.6 73.3
Shareholders'
equity....... 36.4 44.7 48.3 42.8 36.0 (49.7) 69.3 187.5
PER COMMON SHARE
Net income
(loss) from
continuing
operations... $(0.76) $(0.49) $ (0.59) $ 0.30 N/A N/A N/A N/A
Market
price -- High(1)(3)... 8.375 12.250 12.250 11.875 N/A N/A N/A N/A
Low(1)(3).... 1.875 8.625 8.125 8.750 N/A N/A N/A N/A
Average number of
common shares
and equivalents
(in
thousands)(2).. 7,009 7,009 7,021 7,006 N/A N/A N/A N/A
Number of
Employees at
Year end....... 1,167 1,388 1,378 1,520 1,633 1,662 1,897 2,211
</TABLE>
- ---------------
(1) Trading of Reorganized Company Common Stock commenced on December 6, 1993.
(2) The net income per common share and average number of common shares and
equivalents for the Predecessor Company has not been presented as this
information is not comparable.
(3) Trading of Predecessor Company Common Stock and Preferred Stock was
suspended on May 21, 1993. Periods prior to this date are not presented as
they are not comparable.
Refer to "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" for explanations of significant factors affecting
comparability of the above data.
F-23
<PAGE> 73
APPENDIX I
[CONFORMED COPY]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ASSET PURCHASE AGREEMENT
AMONG
AM INTERNATIONAL, INC.
AM GRAPHICS INTERNATIONAL LIMITED
AND
HEIDELBERGER DRUCKMASCHINEN AG
DATED AS OF JULY 9, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 74
ASSET PURCHASE AGREEMENT
TABLE OF CONTENTS
(NOT PART OF THE AGREEMENT)
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE I CERTAIN DEFINITIONS
1.1 "affiliate"......................................................................... A-1
1.2 "Allocation"........................................................................ A-1
1.3 "Authorizations".................................................................... A-1
1.4 "business day"...................................................................... A-1
1.5 Intentionally omitted............................................................... A-1
1.6 "Buyer's Required Signatory"........................................................ A-1
1.7 "Closing"........................................................................... A-1
1.8 "Closing Date"...................................................................... A-1
1.9 Intentionally omitted............................................................... A-1
1.10 "Closing Period Taxes".............................................................. A-1
1.11 "Code".............................................................................. A-1
1.12 "Collective Bargaining Agreement"................................................... A-1
1.13 "Commission"........................................................................ A-1
1.14 "Company Bill of Sale".............................................................. A-1
1.15 "Consideration"..................................................................... A-1
1.16 "Delaware Law"...................................................................... A-2
1.17 "Department of Justice"............................................................. A-2
1.18 "Division Clearing Accounts"........................................................ A-2
1.19 "Division Employees"................................................................ A-2
1.20 "Effective Time".................................................................... A-2
1.21 "Environmental Claim"............................................................... A-2
1.22 "Environmental Laws"................................................................ A-2
1.23 "ERISA"............................................................................. A-2
1.24 "ERISA Affiliate"................................................................... A-2
1.25 "Exchange Act"...................................................................... A-2
1.26 "Excluded Assets"................................................................... A-2
1.27 "FTC"............................................................................... A-2
1.28 "GAAP".............................................................................. A-2
1.29 "Governmental Entity"............................................................... A-2
1.30 "Hazardous Substance"............................................................... A-2
1.31 "Law"............................................................................... A-2
1.32 "Material Adverse Effect"........................................................... A-2
1.33 "Permitted Exceptions".............................................................. A-2
1.34 "person"............................................................................ A-3
1.35 "Plans"............................................................................. A-3
1.36 "Proxy Statement"................................................................... A-3
1.37 "Purchase Price".................................................................... A-3
1.38 "Release"........................................................................... A-3
1.39 "Sheridan Division Assets".......................................................... A-3
1.40 "Sheridan Division Balance Sheet"................................................... A-3
</TABLE>
A-(i)
<PAGE> 75
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
1.41 "Sheridan Division Bank Accounts"................................................... A-3
1.42 "Sheridan Division Books and Records"............................................... A-3
1.43 "Sheridan Division Contracts"....................................................... A-4
1.44 "Sheridan Division Financial Statements"............................................ A-4
1.45 "Sheridan Division Intellectual Property"........................................... A-4
1.46 "Sheridan Division Leases".......................................................... A-4
1.47 "Sheridan Division Liabilities"..................................................... A-4
1.48 "Sheridan Division Real Properties"................................................. A-4
1.49 "Sheridan Financial Statements"..................................................... A-5
1.50 "Sheridan Systems Division"......................................................... A-5
1.51 "subsidiary"........................................................................ A-5
1.52 "Tax Indemnified Party"............................................................. A-5
1.53 "Tax Indemnifying Party"............................................................ A-5
1.54 "Tax Third Party Claim"............................................................. A-5
1.55 "Taxes"............................................................................. A-5
1.56 "Undertaking and Indemnity Agreement"............................................... A-5
ARTICLE II THE CLOSING
2.1 Time and Place of Closing........................................................... A-5
2.2 Purchase and Sale of the Sheridan Division Assets................................... A-5
2.3 Consideration for the Assets........................................................ A-5
2.4 Deliveries by the Company and the Subsidiary........................................ A-5
2.5 Delivery by the Buyer............................................................... A-6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND THE SUBSIDIARY
3.1 Organization; Qualification......................................................... A-7
3.2 Equity Investments.................................................................. A-7
3.3 Authority Relative to this Agreement................................................ A-7
3.4 Consents and Approvals; No Violation................................................ A-8
3.5 Financial Statements................................................................ A-8
3.6 Absence of Undisclosed Liabilities.................................................. A-9
3.7 Absence of Certain Changes or Events................................................ A-9
3.8 Title and Related Matters........................................................... A-9
3.9 Contracts........................................................................... A-10
3.10 Leases.............................................................................. A-10
3.11 Inventory........................................................................... A-11
3.12 Patents, Trademarks and Similar Rights.............................................. A-11
3.13 Legal Proceedings, etc.............................................................. A-11
3.14 Employee Benefit Plans; ERISA....................................................... A-11
3.15 Assets Necessary to Business........................................................ A-13
3.16 Governmental Authorizations and Regulations......................................... A-13
3.17 Conduct of Business................................................................. A-13
3.18 Disclosure.......................................................................... A-13
3.19 Accounts Receivable................................................................. A-13
3.20 Taxes............................................................................... A-13
3.21 Insurance........................................................................... A-14
3.22 Environmental Matters............................................................... A-14
</TABLE>
A-(ii)
<PAGE> 76
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
3.23 Labor Matters, etc.................................................................. A-15
3.24 Proxy Statement..................................................................... A-16
3.25 Brokers............................................................................. A-16
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE BUYER
4.1 Organization........................................................................ A-16
4.2 Authority Relative to this Agreement................................................ A-17
4.3 Consents and Approvals; No Violation................................................ A-17
4.4 Disclosure.......................................................................... A-17
4.5 Proxy Statement..................................................................... A-17
4.6 Brokers............................................................................. A-18
ARTICLE V COVENANTS OF THE PARTIES
5.1 Conduct of Business of the Company and the Subsidiary............................... A-18
5.2 Competing Proposal.................................................................. A-19
5.3 Current Operations.................................................................. A-20
5.4 Access to Information............................................................... A-20
5.5 Expenses............................................................................ A-21
5.6 Reasonable Best Efforts............................................................. A-21
5.7 Consents............................................................................ A-21
5.8 Filings............................................................................. A-21
5.9 Action of Stockholders and Supervisory Board........................................ A-21
5.10 Proxy Statement..................................................................... A-21
5.11 Disclosure Supplements.............................................................. A-22
5.12 Public Announcements................................................................ A-22
5.13 Further Assurances.................................................................. A-22
5.14 Sales and Transfer Taxes and Fees................................................... A-22
5.15 Use of Names........................................................................ A-23
5.16 Intercompany Accounts............................................................... A-23
5.17 Non-Competition..................................................................... A-23
5.18 Access to Records after Closing; Cooperation........................................ A-23
ARTICLE VI COMPANY EMPLOYEES
6.1 Employment.......................................................................... A-23
6.2 Certain Employee Vacation Liability................................................. A-24
ARTICLE VII CLOSING CONDITIONS
7.1 Conditions to Each Party's Obligations to Effect the Transactions Contemplated
Hereby.............................................................................. A-25
7.2 Conditions to the Obligations of the Company and the Subsidiary to Effect the
Transactions Contemplated Hereby.................................................... A-25
7.3 Conditions to the Obligations of the Buyer to Effect the Transactions Contemplated
Hereby.............................................................................. A-25
7.4 Certificates........................................................................ A-26
ARTICLE VIII CERTAIN TAX MATTERS
8.1 Tax Matters......................................................................... A-26
8.2 Indemnity for Taxes................................................................. A-27
</TABLE>
A-(iii)
<PAGE> 77
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE IX TERMINATION AND ABANDONMENT
9.1 Termination......................................................................... A-28
9.2 Procedure and Effect of Termination................................................. A-29
9.3 Transaction Expenses................................................................ A-29
ARTICLE X CASH MANAGEMENT
OF THE SHERIDAN SYSTEMS DIVISION
PENDING THE EFFECTIVE TIME
10.1 Representations and Warranties...................................................... A-29
10.2 Joint Disbursement Authority........................................................ A-30
10.3 Balance Sheets...................................................................... A-30
ARTICLE XI MISCELLANEOUS PROVISIONS
11.1 Delivery of Schedules............................................................... A-31
11.2 Amendment and Modification.......................................................... A-31
11.3 Waiver of Compliance; Consents...................................................... A-31
11.4 Notices............................................................................. A-31
11.5 Assignment.......................................................................... A-32
11.6 Designated Subsidiary............................................................... A-32
11.7 Governing Law....................................................................... A-32
11.8 Counterparts........................................................................ A-32
11.9 Interpretation...................................................................... A-32
11.10 Entire Agreement.................................................................... A-32
11.11 Severability........................................................................ A-33
11.12 Bulk Sales Law...................................................................... A-33
ARTICLE XII SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
12.1 Survival of Representations......................................................... A-33
12.2 Statements as Representations....................................................... A-33
Exhibit A -- Sheridan Division Balance Sheet............................................... A-1
Exhibit B -- Form of Undertaking and Indemnity Agreement................................... B-1
Exhibit C -- Form of Company Bill of Sale.................................................. C-1
</TABLE>
SCHEDULES
Schedule 1.26 -- Excluded Assets
Schedule 1.39 -- Sheridan Division Assets
Schedule 1.41 -- Sheridan Division Bank Accounts
Schedule 1.45 -- Sheridan Division Excluded Intellectual Property
Schedule 1.47 -- Sheridan Division Liabilities
Schedule 3.1 -- Organization; Qualification
Schedule 3.2(a) -- Subsidiaries
Schedule 3.2(b) -- Ownership of Capital Stock of Subsidiaries
Schedule 3.4(a) -- Consents and Approvals
Schedule 3.4(b) -- No Violation
Schedule 3.5 -- Financial Statements
Schedule 3.6 -- Absence of Undisclosed Liabilities
Schedule 3.7 -- Absence of Certain Changes or Events
A-(iv)
<PAGE> 78
Schedule 3.8(a) -- Title and Related Matters
Schedule 3.9(a) -- Contracts
Schedule 3.9(a)(i) -- Excluded Contracts
Schedule 3.9(b) -- No Default on Contracts
Schedule 3.10 -- Leases
Schedule 3.12 -- Patents Trademarks & Similar Rights
Schedule 3.13 -- Legal Proceedings
Schedule 3.14 -- Employee Benefit Plans; ERISA
Schedule 3.15 -- Assets Necessary to Business
Schedule 3.16(b) -- Proceedings to Revoke Authorizations
Schedule 3.16(c) -- Violations of Law
Schedule 3.17 -- Conduct of Business
Schedule 3.20 -- Taxes
Schedule 3.21 -- Insurance
Schedule 3.22(a) -- Environmental Compliance
Schedule 3.22(b) -- Environmental Claims
Schedule 3.23 -- Labor Matters, etc.
Schedule 4.3 -- Consents and Approvals; No Violation
Schedule 5.17 -- Non-competition
Schedule 6.2 -- Employee Vacation Liability
Schedule 8.1(c) -- Tax Matters
Schedule 10.2 -- Checkbook Balance Activity
Schedule 10.3(a) -- Balance Sheets
Schedule 10.3(b) -- Estimated Balance Sheet
A-(v)
<PAGE> 79
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated as of July 9, 1996 (the "Agreement"), among
AM International, Inc., a Delaware corporation (the "Company"), AM Graphics
International Limited, a corporation organized under the laws of the United
Kingdom (the "Subsidiary" and together with the Company, the "Sellers"), and
Heidelberger Druckmaschinen AG, a corporation organized under the laws of the
Federal Republic of Germany (the "Buyer").
WHEREAS, the Buyer wishes to acquire from the Company substantially all of
the Sheridan Division Assets (as hereinafter defined) from the Company; and
WHEREAS, the Sellers are willing to transfer the Sheridan Division Assets
to the Buyer in exchange for the assumption by the Buyer of the Sheridan
Division Liabilities (as hereinafter defined) and the payment to the Company by
the Buyer of the Purchase Price (as hereinafter defined).
NOW, THEREFORE, in consideration of the foregoing premises and the
respective representations, warranties, covenants, agreements and conditions
hereinafter set forth, and intending to be legally bound hereby, the parties
hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
As used in this Agreement each of the following terms shall have the
following meaning:
1.1 "affiliate" shall have the meaning ascribed thereto in Section 11.9.
1.2 "Allocation" shall have the meaning ascribed thereto in Section
8.1(c).
1.3 "Authorizations" shall have the meaning ascribed thereto in Section
3.16(a).
1.4 "business day" shall have the meaning ascribed thereto in Section
11.9.
1.5 Intentionally omitted.
1.6 "Buyer's Required Signatory" shall have the meaning set forth in
Section 10.2.
1.7 "Closing" shall mean the consummation of the transactions
contemplated by Article II of this Agreement in accordance with the terms and
upon the conditions set forth in Article II.
1.8 "Closing Date" shall mean the third business day following the later
to occur of (i) the expiration or termination of all waiting periods, including
any extensions thereof, if any, which are applicable to the transactions
contemplated by this Agreement pursuant to (A) Title II of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the rules and regulations
thereunder (the "HSR Act") and (B) the German cartel law (Gesetz gegen
Wettbewerbsbeschrankungen), and (ii) the satisfaction of all of the conditions
to each party's obligations hereunder or the waiver thereof by the party
entitled to the benefit thereof; or such other date as the parties hereto agree
upon in writing.
1.9 Intentionally omitted.
1.10 "Closing Period Taxes" shall have the meaning ascribed thereto in
Section 8.2(a).
1.11 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.12 "Collective Bargaining Agreement" shall have the meaning ascribed
thereto in Section 3.23.
1.13 "Commission" shall have the meaning ascribed thereto in Section 3.24.
1.14 "Company Bill of Sale" shall have the meaning ascribed thereto in
Section 2.4(c).
1.15 "Consideration" shall have the meaning ascribed thereto in Section
2.3(a).
<PAGE> 80
1.16 "Delaware Law" shall have the meaning ascribed thereto in Section
3.3.
1.17 "Department of Justice" shall have the meaning ascribed thereto in
Section 5.8.
1.18 "Division Clearing Accounts" shall have the meaning set forth in
Section 10.1(a).
1.19 "Division Employees" shall have the meaning ascribed thereto in
Section 6.1.
1.20 "Effective Time" shall mean the close of business on the Closing Date
at which time the Closing and all transactions contemplated thereby shall be
deemed to have occurred simultaneously; provided that the Closing has actually
occurred.
1.21 "Environmental Claim" shall have the meaning ascribed thereto in
Section 3.22(d).
1.22 "Environmental Laws" shall have the meaning ascribed thereto in
Section 3.22(d).
1.23 "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
1.24 "ERISA Affiliate" shall have the meaning ascribed thereto in Section
3.14(a).
1.25 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
1.26 "Excluded Assets" shall mean, except as otherwise specifically
provided in Section 10.2(b), (i) cash and cash equivalents (including bank
accounts), other than those bank accounts of the Company listed on Schedule
1.41; (ii) all of the rights, claims and privileges of the Company relating to
liabilities other than the Sheridan Division Liabilities; (iii) all contracts of
insurance; (iv) all rights to all refunds of any Taxes; (v) those contracts,
agreements and leases, if any, and other assets listed in Schedule 1.26; and
(vi) all property and assets of the Sheridan Systems Division that are not
primarily used or to be used in the generation of the income stream set forth in
the projections, dated May 2, 1996, set forth in Schedule 1.39.
1.27 "FTC" shall have the meaning ascribed thereto in Section 5.8.
1.28 "GAAP" shall mean United States generally accepted accounting
principles.
1.29 "Governmental Entity" shall have the meaning ascribed thereto in
Section 3.4(a).
1.30 "Hazardous Substance" shall have the meaning ascribed thereto in
Section 3.22(d).
1.31 "Law" shall have the meaning ascribed thereto in Section 3.4(b).
1.32 "Material Adverse Effect" shall mean any change in or effect on the
business of the Sheridan Systems Division that is materially adverse to the
business, properties, prospects, operations, assets, liabilities or conditions
(financial or otherwise) of the Sheridan Systems Division, taken as a whole
(other than any such change or effect set forth in Schedule 3.7 referred to in
Section 3.7).
1.33 "Permitted Exceptions" shall mean (i) those exceptions to title to
the Sheridan Division Assets listed in Schedule 3.8(a) referred to in Section
3.8(a); (ii) mortgages, liens, pledges, charges, encumbrances and restrictions
which secure debt that is reflected as a liability on the Sheridan Division
Balance Sheet (as hereinafter defined) or which are otherwise reflected in the
Sheridan Division Balance Sheet or disclosed in the notes thereto, with respect
to which no default exists; (iii) mortgages, liens, pledges, charges,
encumbrances and restrictions securing all or a portion of the purchase price of
a Sheridan Division Asset which arise in connection with the purchase of such
Sheridan Division Asset in the ordinary course of business consistent with past
practice after the date of the Sheridan Division Balance Sheet; (iv) statutory
liens for taxes or assessments not yet due or delinquent or the validity of
which is being contested in good faith by appropriate proceedings; (v) liens of
carriers', warehousemen's, mechanics' and materialmen's and other like liens
arising in the ordinary course of business for sums not yet due and payable or
delinquent or the validity of which is being contested in good faith by
appropriate proceedings which could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect; (vi) all exceptions,
restrictions, easements, rights of way and encumbrances set forth in the title
insurance policies contained in Schedule 3.8(a); and (vii) other
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liens or imperfections on property which are not material in amount or do not
materially detract from the value of or materially impair the use of the
property affected by such lien or imperfection.
1.34 "person" shall have the meaning ascribed thereto in Section 11.9.
1.35 "Plans" shall have the meaning ascribed thereto in Section 3.14(a).
1.36 "Proxy Statement" shall have the meaning ascribed thereto in Section
5.10.
1.37 "Purchase Price" shall have the meaning ascribed thereto in Section
2.3(b).
1.38 "Release" shall have the meaning ascribed thereto in Section 3.22(d).
1.39 "Sheridan Division Assets" shall mean:
(a) all of the property and assets of the Sheridan Systems Division
primarily used or to be used in the generation of the income stream shown
in the projections, dated May 2, 1996 set forth in Schedule 1.39, whether
or not reflected in the Sheridan Division Balance Sheet, including, without
limitation, the Sheridan Division Real Properties (as hereinafter defined),
the Sheridan Division Intellectual Property (as hereinafter defined),
inventories, plants, machinery, equipment, tools, supplies, spare parts,
furniture, fixtures, leasehold improvements, motor vehicles, accounts and
notes receivable and prepaid expenses (and including all items which would
be included on the Sheridan Division Balance Sheet except for the fact that
such items are fully depreciated or expensed), plus all items of a nature
customarily carried as assets in the accounts of the Sheridan Systems
Division which have been or will be acquired in the ordinary course of
business consistent with past practice by the Company or the Subsidiary
between the date of the Sheridan Division Balance Sheet and the Effective
Time, less any items which have been or will be disposed of or consumed in
the ordinary course of business consistent with past practice by the
Sheridan Systems Division between the date of the Sheridan Division Balance
Sheet and the Effective Time;
(b) the Sheridan Division Bank Accounts;
(c) the Sheridan Division Books and Records;
(d) the Sheridan Division Contracts;
(e) the Sheridan Division Leases;
(f) all rights, claims and privileges of the Company (including rights
to recovery under all insurance policies of the Company or the Subsidiary
to the extent they relate to the Sheridan Division Assets or the Sheridan
Division Liabilities which are in effect prior to the Effective Time and
which are not being assigned to the Buyer hereunder) arising primarily out
of or relating primarily to the business of the Sheridan Systems Division
or to any of the Sheridan Division Assets. Notwithstanding the foregoing
the Sheridan Division Assets shall not mean or include the Excluded Assets.
1.40 "Sheridan Division Balance Sheet" shall mean the unaudited
consolidated balance sheet of the Sheridan Systems Division as of April 27,
1996, attached hereto as Exhibit A.
1.41 "Sheridan Division Bank Accounts" shall mean all of the bank accounts
of the Company or the Subsidiary utilized for the Sheridan Systems Division
which are listed on Schedule 1.41 which includes, without limitation, the
Disbursing Accounts and the Division Clearing Accounts referred to in Section
10.1 and all of the bank accounts of the Subsidiary.
1.42 "Sheridan Division Books and Records" shall mean all of the books and
records of the Company or the Subsidiary primarily relating to the operations of
the Sheridan Systems Division, including, without limitation, all books and
records relating to the employees, the purchase of materials, supplies and
services, financial, accounting and operations matters, product engineering,
research and development, manufacture and sale of products and dealings with
customers of the Sheridan Systems Division. As used herein books and
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records shall include all computerized books and records and other computerized
storage media and the software used in connection therewith.
1.43 "Sheridan Division Contracts" shall mean all contracts, agreements
and commitments of the Company or the Subsidiary primarily relating to the
business of the Sheridan Systems Division, including, without limitation, (a)
the contracts, agreements and commitments listed in Schedule 3.9(a) referred to
in Section 3.9(a), and (b) all contracts, agreements and commitments of the
Company or the Subsidiary relating to the business of the Sheridan Systems
Division which are (i) entered into between the date of this Agreement and the
Effective Time and expressly permitted by this Agreement, excluding, however,
all contracts, agreements and commitments which (1) expire in accordance with
their terms prior to the Effective Time or (2) are not exclusively for the
benefit of the Sheridan Systems Division and which are listed on Schedule
3.9(a)(i).
1.44 "Sheridan Division Financial Statements" shall have the meaning
ascribed thereto in Section 3.5.
1.45 "Sheridan Division Intellectual Property" shall mean all letters
patent, patents, trademarks, trade names, service marks, copyrights (including
registrations and applications for any of the foregoing), licenses, technology,
know-how, trade secrets, tangible or intangible proprietary information or
material, formulae and inventions owned by the Company or the Subsidiary which
are primarily used in or primarily relate to the business of the Sheridan
Systems Division or the rights to which belong to the Company or the Subsidiary
and are primarily used in or primarily relate to the business of the Sheridan
Systems Division, including, without limitation, (a) all items listed in
Schedule 3.12 referred to in Section 3.12, (b) all such items which are acquired
or developed for use primarily in the business of the Sheridan Systems Division
between the date of this Agreement and the Effective Time, excluding, however,
all such items which expire in the ordinary course of business prior to the
Effective Time and (c) all such items acquired from Custom-Bilt Machinery, Inc.,
IDAB WAMAC AB and Prima Systems, Inc. (other than those items identified on
Schedule 1.45).
1.46 "Sheridan Division Leases" shall mean all leases of the Company or
the Subsidiary primarily relating to the business of the Sheridan Systems
Division (whether entered into as lessor or lessee), including, without
limitation, (a) the leases listed in Schedule 3.10 referred to in Section 3.10,
and (b) all leases of the Company or the Subsidiary relating to the business of
the Sheridan Systems Division which are entered into between the date of this
Agreement and the Effective Time and expressly permitted by this Agreement,
excluding, however, all leases which will expire in accordance with their terms
prior to the Effective Time.
1.47 "Sheridan Division Liabilities" shall mean and include only those
obligations and liabilities set forth on Schedule 1.47; provided, however,
"Sheridan Division Liabilities" shall not include any liability owing to or
relating to (i) retired or permanently disabled former employees of the Company
or the Subsidiary (except as specifically identified in Schedule 1.47 by name of
employee and amount thereof), (ii) any facilities not currently used primarily
in the business of the Sheridan Systems Division (including without limitation
any environmental liabilities related thereto), (iii) business units of the
Company or the Subsidiary which have been sold or liquidated, (iv) the
obligations under Section 2 of the Change in Control and Termination Benefits
Agreement, dated as of March, 1996, between the Company and Ulrik T. Nygaard,
(v) the Separation Agreement, dated January 19, 1996, between the Company and
Richard J. Bonnie, and (vi) the Letter Agreement, dated February 4, 1994,
between the Company and Richard J. Bonnie (regarding supplemental retirement
benefits); provided further that at the Closing the Buyer shall pay in cash to
the Company 50% of the net present value (discounted at 6.0%) of the Company's
liability under clause (vi) as of the Effective Time.
1.48 "Sheridan Division Real Properties" shall mean all of the real
properties of the Company or the Subsidiary relating primarily to the business
of the Sheridan Systems Division, all of which are listed in Schedule 3.8(a)
referred to in Section 3.8(a).
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1.49 "Sheridan Financial Statements" shall have the meaning ascribed
thereto in Section 3.5.
1.50 "Sheridan Systems Division" shall mean the business segment of the
Company which, through itself and the Subsidiary, is engaged in the
manufacturing and supplying of systems and components to the bindery product and
newspaper mailroom systems industries.
1.51 "subsidiary" shall have the meaning ascribed thereto in Section 11.9.
1.52 "Tax Indemnified Party" shall have the meaning ascribed thereto in
Section 8.2(e).
1.53 "Tax Indemnifying Party" shall have the meaning ascribed thereto in
Section 8.2(e).
1.54 "Tax Third Party Claim" shall have the meaning ascribed thereto in
Section 8.2(e).
1.55 "Taxes" shall mean all taxes, however denominated, including any
interest, penalties or additions to tax that may become payable in respect
thereof, imposed by any government, which taxes shall include without
limitation, all income taxes, payroll and employee withholding taxes, gross
receipt taxes, occupation taxes, real and personal property taxes, stamp taxes,
transfer taxes, workers' compensation taxes and other obligations of the same or
a similar nature, whether arising before, on or after the Effective Time; and
"Taxes" shall mean any one of the foregoing.
1.56 "Undertaking and Indemnity Agreement" shall have the meaning ascribed
thereto in Section 2.3(a).
ARTICLE II
THE CLOSING
2.1 Time and Place of Closing. Subject to the terms and conditions of this
Article II, the Closing will take place at the offices of Skadden, Arps, Slate,
Meagher & Flom, 919 Third Avenue, New York, New York, at 9:30 A.M. (local time)
on the Closing Date or at such other place or time or both as the parties may
agree.
2.2 Purchase and Sale of the Sheridan Division Assets. Subject to the
terms and conditions of this Agreement (or, with respect to any condition not
satisfied, the waiver thereof by the party for whose benefit the condition
exists) the Sellers will sell, convey, assign, transfer and deliver all of their
respective right, title and interest at the Effective Time in and to the
Sheridan Division Assets, and the Buyer will purchase, acquire, accept and pay
for, as hereinafter provided, the Sheridan Division Assets and will assume the
Sheridan Division Liabilities.
2.3 Consideration for the Assets.
(a) Total Consideration. The aggregate consideration (the
"Consideration") for the Sheridan Division Assets shall consist of (i) the
assumption by the Buyer of the Sheridan Division Liabilities and the
indemnification of the Company by the Buyer with respect to the Sheridan
Division Liabilities, in each case pursuant to an Undertaking and Indemnity
Agreement substantially in the form of Exhibit B to this Agreement (the
"Undertaking and Indemnity Agreement"), and (ii) payment or delivery of the
Purchase Price by the Buyer to the Company.
(b) Amount of Purchase Price. The portion of the Consideration
constituting the purchase price (the "Purchase Price") shall be an amount in
cash equal to U.S.$50,000,000.
2.4 Deliveries by the Company and the Subsidiary. At the Closing, the
Company or the Subsidiary, as the case may be, shall deliver the following to
the Buyer:
(a) Special warranty deeds (subject to Permitted Exceptions), in
recordable form, delivered by the Company with respect to the Sheridan Division
Real Properties owned by the Company.
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(b) Special warranty deeds (subject to Permitted Exceptions), in
recordable form, delivered by the Subsidiary with respect to the Sheridan
Division Real Properties owned by the Subsidiary.
(c) A duly executed bill of sale substantially in the form of Exhibit C
to this Agreement (the "Company Bill of Sale"), together with such other
appropriate instruments of transfer as the Buyer may reasonably request,
transferring to the Buyer all of the personal and intangible property owned or
held by the Company as of the Effective Time which is included in the Sheridan
Division Assets.
(d) Duly executed instruments of assignment of the Sheridan Division
Leases to which the Company or the Subsidiary is a party, in recordable form if
and to the extent necessary with respect to those relating to real property or
interests therein.
(e) Duly executed instruments of assignment of the Sheridan Division
Contracts to which the Company or the Subsidiary is a party.
(f) Duly executed instruments of assignment or transfer of the Sheridan
Division Intellectual Property owned or held by the Company or the Subsidiary,
in form suitable for recording in the appropriate office or bureau, and the
original certificates, if available, of such Sheridan Division Intellectual
Property together with any powers of attorney necessary to make the conveyance
effective.
(g) Duly executed instruments of assignment of the accounts and notes
receivable of the Company or the Subsidiary that are included in the Sheridan
Division Assets.
(h) Duly executed instruments of assignment of the Sheridan Division
Bank Accounts of the Company and the Subsidiary.
(i) The Sheridan Division Books and Records; provided that any Sheridan
Division Books and Records located on any of Sheridan Division Real Property
shall be deemed to be delivered upon transfer of such property as provided
herein; provided, further, that any records which relate to other parts of the
Company may be provided as copies.
(j) Copies of any consents obtained as contemplated by Sections 5.7 and
7.3.
(k) The Undertaking and Indemnity Agreement duly executed by the Company
and the Subsidiary.
(l) Such other and further instruments of conveyance, assignment and
transfer as the Buyer may reasonably request for the more effective conveyance
and transfer of any of the Sheridan Division Assets.
(m) The certificates contemplated by Sections 7.3 and 7.4.
2.5 Delivery by the Buyer. At the Closing,the Buyer shall deliver the
following to the Company:
(a) The Purchase Price by (i) the wire transfer of immediately available
funds to a bank account designated in writing by the Company at least two
business days prior to the Closing Date in any bank in the continental United
States or (ii) such means as are otherwise agreed in writing upon by the Buyer
and the Company.
(b) Copies of any consents obtained as contemplated by Section 5.7.
(c) The Undertaking and Indemnity Agreement duly executed by the Buyer.
(d) The certificates contemplated by Sections 7.2 and 7.4.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND THE SUBSIDIARY
The Company and the Subsidiary jointly and severally represent and warrant
to the Buyer as follows:
3.1 Organization; Qualification.
(a) Each of the Company and the Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and each has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted.
(b) Each of the Company and the Subsidiary is duly qualified or licensed
and in good standing to do business in each jurisdiction in which the property
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification necessary, except in those jurisdictions where the
failure to be so duly qualified or licensed and in good standing will not, in
the aggregate, have a Material Adverse Effect.
(c) Schedule 3.1 sets forth a complete and correct list of all
jurisdictions in which the Company or the Subsidiary is qualified or licensed to
do business.
(d) The Company has heretofore delivered to the Buyer complete and
correct copies of the Certificate of Incorporation and By-laws (or other similar
charter, by-law or other organizational documents), as currently in effect, of
the Company and the Subsidiary.
3.2 Equity Investments.
(a) Schedule 3.2(a) sets forth: (i) the name of each corporation,
partnership, joint venture or other entity (other than the Subsidiary) in which
the Company has, or pursuant to any agreement has the right to acquire by any
means, directly or indirectly, an equity interest or investment and which, in
each case, is a Sheridan Division Asset; (ii) in the case of each of such person
described in the foregoing clause (i), either (x) a listing of the relevant
agreement or agreements pursuant to which the Company has acquired such right or
such interest or investment or (y) (A) the jurisdiction of incorporation, (B)
the authorized and outstanding capitalization thereof and the percentage of each
class of voting capital stock owned, directly or indirectly, by the Company, (C)
a description of any contractual limitations on the holder's ability to vote or
alienate such securities, (D) a description of any outstanding options or other
rights to acquire by any means, or any plans, contracts or commitments providing
for the issuance or grant of any rights to acquire by any means securities of
such corporation, and (E) a description of any other contractual charge or
impediment which would materially limit or impair the Company's ownership of
such entity or interest or its ability effectively to exercise the full rights
of ownership of such entity or interest; and (iii) in the case of each of such
unincorporated entities, the equivalent of the information provided pursuant to
the preceding clause (ii) with regard to corporate entities.
(b) Except as set forth in Schedule 3.2(b), all outstanding shares of
capital stock of the Subsidiary are validly authorized and issued, fully paid
and non-assessable and are owned directly or indirectly by the Company (except
for directors' qualifying shares, if any) and, the Company's or the Subsidiary's
interest in each of the persons listed on Schedule 3.2(b), will, after giving
effect to the transactions contemplated hereby, be owned by the Buyer, directly
or indirectly, in each case free and clear of all liens, pledges, charges,
security interests and other encumbrances.
3.3 Authority Relative to this Agreement. Each of the Company and the
Subsidiary has full corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby will have been duly and validly authorized by the Boards of
Directors of the Company and the Subsidiary upon approval of the Company's Board
of Directors which will be convened to consider such
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authorization not later than July 11, 1996 and no other corporate proceedings on
the part of the Company or the Subsidiary are necessary to authorize this
Agreement or to consummate the transactions contemplated hereby other than the
requisite vote of the Company's stockholders in accordance with the General
Corporation Law of the State of Delaware ("Delaware Law"). This Agreement has
been duly and validly executed and delivered by the Company and the Subsidiary
and constitutes a valid and binding agreement of the Company and the Subsidiary,
enforceable against each of them in accordance with its terms.
3.4 Consents and Approvals; No Violation.
(a) Except as set forth in Schedule 3.4(a) and except for applicable
requirements of the HSR Act, any applicable "bulk sales" laws and the Exchange
Act, there is no requirement applicable to the Company or the Subsidiary to make
any filing with, or to obtain any permit, authorization, consent or approval of
any federal, state, local or foreign court, legislature, executive or regulatory
authority or agency (a "Governmental Entity") as a condition to the lawful
consummation by the Company or the Subsidiary of the transactions contemplated
by this Agreement except where the failure to obtain such permit, authorization,
consent or approval will not materially impair or delay the consummation of the
transactions contemplated by this Agreement.
(b) Except as set forth in Schedule 3.4(b), neither the execution and
delivery of this Agreement by the Company or the Subsidiary nor the consummation
by the Company or the Subsidiary of the transactions contemplated hereby nor
compliance by the Company or the Subsidiary with any of the provisions hereof
will (i) conflict with or result in any breach of any provision of the
Certificate of Incorporation or By-laws (or other similar charter, by-law or
other organizational documents) of the Company or the Subsidiary, (ii) conflict
with or result in a breach (or give rise to any right of termination,
cancellation or acceleration) of any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, license, agreement, lease or other
instrument or obligation to which the Company or the Subsidiary is a party or by
which the Company, the Subsidiary or any of the Sheridan Division Assets may be
bound, except as to which requisite waivers or consents either have been
obtained by the Company or the obtaining of which has been waived by the Buyer,
or (iii) assuming compliance with the HSR Act and the Exchange Act and except
for any applicable domestic "bulk sales" laws, violate any order, judgment,
writ, injunction, law, decree, statute, ordinance, rule or regulation ("Law")
applicable to the Company, the Subsidiary or any of the Sheridan Division
Assets, excluding from the foregoing clauses (ii) and (iii) those conflicts,
breaches, rights and violations which, in the aggregate, would not have a
Material Adverse Effect or materially impair or delay the consummation of the
transactions contemplated by this Agreement.
3.5 Financial Statements. The Company has previously furnished to the
Buyer (i) an unaudited consolidated balance sheet and statement of income of the
Sheridan Systems Division for the fiscal year ended July 31, 1995, (ii)
unaudited consolidated balance sheets and statements of income of the Sheridan
Systems Division as of October 28, 1995, January 27, 1996 and April 27, 1996,
respectively, and for the year-to-date periods then ended (the financial
statements referred to in Section 3.5(i) and Section 3.5(ii) are hereinafter
referred to as the "Sheridan Financial Statements"), and (iii) the Sheridan
Division Balance Sheet. Except as set forth in Schedule 3.5: (x) the Sheridan
Financial Statements and the Sheridan Division Balance Sheet have been prepared
from the books and records of the Sheridan Systems Division, have been prepared
in accordance with GAAP applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto) and each balance
sheet included therein presents fairly the financial position of the Sheridan
Systems Division as of the date thereof, and each statement of income included
therein present fairly the results of operations of the Sheridan Systems
Division for the respective periods therein set forth, except that the interim
financial statements are subject to normal recurring year-end and audit
adjustments which are not expected to be material and adverse, taken as a whole,
in amount, and are in a condensed presentation format and do not contain
footnotes; and (y) the statements of income included in the Sheridan
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Financial Statements reflect, for each of the periods to which they relate, all
costs and expenses of the business and operations of the Sheridan Systems
Division, allocated thereto on an objective and consistent basis.
3.6 Absence of Undisclosed Liabilities. Except as set forth in Schedule
3.6, neither the Company nor the Subsidiary has any liabilities or obligations
(whether absolute, accrued, contingent or otherwise) in each case of a nature
required by GAAP to be reflected or reserved against in an audited balance sheet
or disclosed in the notes thereto, except liabilities, obligations or
contingencies which are adequately accrued or reserved against in the Sheridan
Division Balance Sheet or reflected in the notes thereto or which were incurred
after the date of the Sheridan Division Balance Sheet in the ordinary course of
business consistent with past practice and which individually or in the
aggregate could not be reasonably be expected to have a Material Adverse Effect.
3.7 Absence of Certain Changes or Events. Except as set forth in Schedule
3.7 or as otherwise contemplated by this Agreement, since April 27, 1996, the
Company and the Subsidiary have conducted their respective operations only in
the ordinary course consistent with past practice and there has not been: (a)
any Material Adverse Effect; (b) any action taken by the Company or any of its
affiliates that if taken after the date hereof would constitute a violation of
Section 5.1; or (c) any change by the Company in accounting methods, principles
or practices except as may be required by GAAP; or (d) any fact or condition
(which is not attributable to adverse economic, market and industry conditions
generally applicable to the Sheridan Systems Division's business) which could
reasonably be anticipated to cause a Material Adverse Effect; or (e) any damage
or destruction in the nature of a casualty loss, whether covered by insurance or
not, which could reasonably be anticipated to have a Material Adverse Effect.
3.8 Title and Related Matters.
(a) Except as set forth in Schedule 3.8(a) and subject to other
Permitted Exceptions: (i) the Company or the Subsidiary has, and after the
Effective Time, the Buyer will have, good and marketable title to or a valid
leasehold or contractual interest in all of the Sheridan Division Assets (other
than the Sheridan Division Real Properties) free and clear of any liens,
mortgages, encumbrances, security interests or other claims or restrictions
(including any liens, encumbrances, security interests or other claims or
restrictions in respect of Taxes); and (ii) the Company or the Subsidiary has,
and after the Effective Time, the Buyer or the Subsidiary will have, good and
marketable title in fee simple (such as any reputable title insurance company
licensed to do business in the jurisdiction in which such Sheridan Division Real
Property is located will approve and insure subject only to Permitted
Exceptions) to all of the Sheridan Division Real Properties free and clear of
any liens, mortgages, encumbrances, security interests or other claims or
restrictions (including any liens, encumbrances, security interests or other
claims or restrictions in respect of Taxes). There are no outstanding options or
rights of first refusal to purchase any of the Sheridan Division Real Property.
The Sheridan Division Real Property constitutes all of the fee, leasehold and
other interests in real property held by the Company and the Subsidiary
primarily relating to the Sheridan Division Assets. The use and operation of the
Sheridan Division Real Property will not violate any instrument of record or
agreement affecting the Sheridan Division Real Property, except for such
violations which individually or in the aggregate could not reasonably be
expected to have or result in a Material Adverse Effect. Schedule 3.8(a)
contains (x) a complete and correct copy of each deed or other instrument or
evidence of title relating to any Sheridan Division Real Property and (y) a
complete and correct copy of each title insurance policy insuring title to any
of the Sheridan Division Real Properties.
(b) Subject to reasonable wear and tear and obsolescence, all of the
buildings and structures set forth on Schedule 3.8(a), taken as a whole, are in
good operating condition and repair reasonably suitable for the purposes for
which they are being used and each has adequate rights of ingress and egress for
operation of the business of the Sheridan Systems Division, in the ordinary
course.
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3.9 Contracts.
(a) Schedule 3.9(a) sets forth a complete and correct list of each
Sheridan Division Contract which, as of the date hereof, (i) is a collective
bargaining agreement, or any agreement that contains any severance pay
liabilities or obligations; (ii) is an employment or consulting agreement or
contract with an employee or individual consultant or a consulting agreement or
contract with a consulting firm or other organization; (iii) is a note, bond or
debenture or other agreement or instrument relating to borrowed money or an
agreement of guarantee or indemnification running to any person or entity
relating to the obligations of any third party; (iv) is an agreement or contract
containing any covenant limiting the freedom of the Company or the Subsidiary to
engage in any line of business or compete with any person; (v) provides for
aggregate future payments of more than $25,000 or, in the case of purchase
orders and sales contracts, provides for aggregate future payments of more than
$50,000; (vi) provides for aggregate future payments of more than $5,000, has a
term exceeding one year and which may not be cancelled upon 30 or fewer days'
notice without any liability, penalty or premium (other than a nominal
cancellation fee or charge); (vii) is a joint venture agreement, partnership
agreement or other similar contract or agreement involving the sharing of
profits and expenses; or (viii) is material to the business, operations or
financial condition of the Sheridan Systems Division taken as a whole; provided
that Schedule 3.9(a) does not list any Sheridan Division Contract for the
purchase or sale of goods or services entered into in the ordinary course of
business which may be cancelled on 30 or fewer days' notice without any
liability, penalty or premium (other than a nominal cancellation fee or charge).
(b) Except as set forth in Schedule 3.9(b), (i) each Sheridan Division
Contract is in full force and effect, and (ii) there is not, with respect to the
Sheridan Division Contracts, any existing default, or event of default, or event
which with or without due notice or lapse of time or both would constitute a
default or event of default, on the part of the Company or the Subsidiary or to
the knowledge of the Company or the Subsidiary any other party thereto, except
where the failure to be in full force and effect or where such default or event
of default could not reasonably be expected to have a Material Adverse Effect.
At the Effective Time, the Sheridan Division Contracts will be valid, binding
and enforceable by the Buyer as assignee thereof in accordance with their
respective terms except for those Sheridan Division Contracts as to which the
failure to be valid, binding and enforceable could not reasonably be expected to
have a Material Adverse Effect.
3.10 Leases. Schedule 3.10 sets forth a complete and correct list of each
Sheridan Division Lease which (i) relates to real property; (ii) provides for
aggregate future payments of more than $50,000; (iii) provides for aggregate
future payments of more than $5,000, has a term exceeding one year and which may
not be cancelled upon 30 or fewer days' notice without any liability, penalty or
premium (other than a nominal cancellation fee or charge); or (iv) is material
to the business, operations or financial condition of the Sheridan Systems
Division taken as a whole. Each Sheridan Division Lease with respect to the
lease of real property by the Company or any affiliate thereof grants such
lessee under the lease the exclusive right to use and occupy the premises and
rights described thereunder free and clear of any liens, Mortgages,
encumbrances, security interests or other claims or restrictions (including any
liens, encumbrances, security interests or other claims or restrictions in
respect of Taxes) other than Permitted Exceptions. Except as set forth in
Schedule 3.10, there is not, with respect to the Sheridan Division Leases, any
existing default, or event of default, or event which with or without due notice
or lapse of time or both would constitute a default or an event of default, on
the part of the Company or the Subsidiary or, to the knowledge of the Company,
any other party thereto, except for such defaults or events of default which
individually or in the aggregate could reasonably be expected to have a Material
Adverse Effect. At the Effective Time, the Sheridan Division Leases will be
valid, binding and enforceable by the Buyer as the assignee thereof in
accordance with their respective terms except for those Sheridan Division Leases
as to which the failure to be valid, binding and enforceable could not
reasonably be expected to have a Material Adverse Effect.
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3.11 Inventory. All inventory included in the Sheridan Division Assets is,
and as of the Effective Time will be, of a quantity and quality usable and
salable in the ordinary course of business of the Sheridan Systems Division, net
of all applicable reserves.
3.12 Patents, Trademarks and Similar Rights. Schedule 3.12 sets forth a
complete and correct list of the letters patent, patents, patent applications,
trademarks, trade names, service mark, computer software, licenses, or other
material, copyrights, copyright registrations and applications used or proposed
to be used by the Company or the Subsidiary that are included in the Sheridan
Division Intellectual Property. Subject to the licenses and other restrictions
listed in Schedule 3.12, the Company or the Subsidiary owns or holds, and, at
the Effective Time, the Buyer will own or hold, the Sheridan Division
Intellectual Property in each case free and clear of all liens, pledges,
charges, security interests and other encumbrances except where the failure to
so own or hold could not reasonably be expected to have a Material Adverse
Effect. Except as set forth in Schedule 3.12, nothing has come to the attention
of the Company or the Subsidiary to the effect that: (i) any material Sheridan
Division Intellectual Property presently being sold or employed by the Sheridan
Systems Division infringes upon or conflicts with any rights owned or held by
any other person; (ii) any person is infringing any material Sheridan Division
Intellectual Property; or (iii) there is pending or threatened in writing any
claim or litigation against the Company or the Subsidiary contesting the rights
of the Company or the Subsidiary to the Sheridan Division Intellectual Property
except for any claims or litigation which could not reasonably be expected to
have a Material Adverse Effect. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby will not result in the
loss of, or the imposition of any limitation on, the rights of the Company or
the Subsidiary with respect to the Sheridan Division Intellectual Property,
except for such losses or impositions which, individually or in the aggregate,
could not reasonably be expected to have a Material Adverse Effect. Except as
set forth in Schedule 3.12, each patent, patent application, trademark, trade
dress or service mark and any registration or application therefor or copyright
registration or application therefor included in the Sheridan Division
Intellectual Property is in proper form, not disclaimed and has been properly
maintained and has otherwise been duly registered with, filed in or issued by,
as the case may be, the United States Patents and Trademarks Office, United
States Copyright Office or such other filing offices, domestic or foreign, and
the Company has taken such other actions necessary to ensure full protection
under any applicable laws, and such registrations, filings, issuances and other
actions remain in full force and effect. Except as set forth in Schedule 3.12,
there are no proceedings pending by or before any Governmental Entity involving
the Sheridan Division Intellectual Property.
3.13 Legal Proceedings, etc. Except as set forth in Schedule 3.13 and
except for any matter involving only monetary recovery in which the damages are
not reasonably expected to exceed $25,000, as of the date of this Agreement
there are no legal, administrative, arbitration or other proceedings or
governmental investigations pending or to the knowledge of the Company,
threatened against the Sheridan Systems Division or the Sheridan Division
Assets. As of the Effective Time, there will not have been commenced any
actions, suits or proceedings which, in the aggregate, could reasonably be
expected to have a Material Adverse Effect. Schedule 3.13 sets forth a complete
and correct list of all product liability insurance coverage in force and
applicable to products of the Sheridan Systems Division during the period from
May 17, 1993 through the date of this Agreement.
3.14 Employee Benefit Plans; ERISA.
(a) Schedule 3.14 sets forth a complete and correct list of each bonus,
deferred compensation, incentive compensation, stock purchase, stock option or
other equity based, severance, termination, change in control, retention,
employment, hospitalization or other medical, life insurance, disability, other
welfare, supplemental unemployment benefits, profit-sharing, pension or
retirement plan program, agreement or arrangement, and each other employee
compensation or benefit plan, program, agreement or arrangement, sponsored,
maintained or contributed to by the Company or the Subsidiary or by any trade or
business,
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whether or not incorporated (an "ERISA Affiliate"), that together with the
Company or the Subsidiary would be deemed a "single employer" within the meaning
of Section 4001 of ERISA, in each case covering current or former employees of
the Sheridan Systems Division (the "Plans").
(b) With respect to each Plan, the Company or the Subsidiary has
heretofore delivered or made available to the Buyer true and complete copies of
each of the following documents (including all amendments to such documents):
(i) the Plan or a written description of any Plan not in writing;
(ii) the most recent annual report and actuarial report if required
under ERISA;
(iii) the most recent Summary Plan Description with respect thereto if
required under ERISA;
(iv) if the Plan or any obligations thereunder are funded through a
trust or any other funding vehicle, the trust or other funding agreement
and the latest financial statements thereof; and
(v) the most recent determination letter received from the Internal
Revenue Service with respect to each Plan intended to qualify under section
401(a) of the Code.
(c) No liability under Title I or IV of ERISA, the penalty or excise tax
provisions of the Code relating to employee plans or equivalent legislation of a
foreign jurisdiction has been incurred by the Company or the Subsidiary or any
of their ERISA Affiliates that has not been satisfied in full, and no condition
exists or event has occurred that presents a material risk to the Company or the
Subsidiary or any of their ERISA Affiliates of incurring any such liability.
(d) No Plan is a "multiemployer plan," as defined in section 3(37) of
ERISA, nor is any Plan a plan described in section 4063(a) of ERISA. No Plan,
other than the Revised Chicago Shop Hourly-Rated Pension Plan of the Bindery
Systems Division of the Company is subject to Title IV of ERISA.
(e) No Plan or any trust established thereunder has incurred any
"accumulated funding deficiency" (as defined in section 302 of ERISA and section
412 of the Code), whether or not waived. Each Plan intended to be "qualified"
within the meaning of section 401(a) of the Code has been determined by the
Internal Revenue Service to be so qualified; to the Company's knowledge, no
condition exists or event has occurred since the date of such initial
determination that would adversely affect the qualified status of any such Plan;
and each trust maintained thereunder has been determined by the Internal Revenue
Service to be exempt from taxation under section 501(a) of the Code. Each Plan
has been operated and administered in all material respects in accordance with
its terms and applicable Law, including but not limited to ERISA, the Code and
equivalent legislation of a foreign jurisdiction. There are no pending, or to
the best knowledge of the Company and the Subsidiary, threatened, material
claims by or on behalf of any Plan, by any employee or beneficiary covered under
any such Plan or otherwise involving any such Plan or the assets thereof (other
than routine claims for benefits).
(f) Neither the Company nor the Subsidiary or any of their ERISA
Affiliates would be liable for any amount pursuant to section 4062, 4063 or 4064
of ERISA if any Plan were to terminate. All contributions required to be made to
each Plan under the terms of such Plan, applicable Law or any applicable
collective bargaining agreement have been paid in full when due.
(g) Except as set forth in Schedule 3.14, no Plan provides benefits,
including without limitation death or medical benefits, with respect to current
or former employees of the Company, the Subsidiary or any ERISA Affiliate beyond
their retirement or other termination of service, other than (i) coverage
mandated by applicable Law, and (ii) benefits payable pursuant to any Plan
qualified under Section 401(a) of the Code. Except for the Change in Control and
Termination Benefits Agreement dated March 1996 between the Company and Ulrik T.
Nygaard and the Supplemental Retirement Plan dated February 1, 1996, between the
Company and Mr. Nygaard, the consummation of the transactions contemplated by
this Agreement will not
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(i) entitle any Division Employees to severance pay, unemployment compensation
or any other payment or (ii) accelerate the time of payment or vesting (except
for vesting which may be required as a result of a partial termination of a
tax-qualified retirement plan), or increase the amount of compensation due any
such employee or officer.
3.15 Assets Necessary to Business. Except as set forth in Schedule 3.15,
the Sheridan Division Assets constitute all the assets and properties utilized
to carry on the business and operations of the Sheridan Systems Division as
presently conducted in all material respects. Following the Effective Time, the
Buyer will own, hold or have the right to use all of the Sheridan Division
Assets necessary to conduct the business of the Sheridan Systems Division in all
material respects in the manner in which it is currently being conducted.
3.16 Governmental Authorizations and Regulations.
(a) All licenses, franchises, permits, registrations, approvals and
other authorizations or consents held by the Company or Subsidiary to operate
the business of the Sheridan Systems Division (herein collectively called
"Authorizations") are valid and sufficient to conduct in all material respects
businesses conducted by them in the manner presently being conducted.
(b) Except as set forth in Schedule 3.16(b), no proceeding is pending or
to the knowledge of the Company or the Subsidiary, threatened by any person
seeking to revoke, modify or deny the renewal of any Authorization. Neither the
execution or delivery nor the consummation of the transaction contemplated by
this Agreement violate or will violate any Authorization or result in any
termination, modification or nonrenewal thereof, except for such violations,
terminations, modifications or nonrenewals thereof which, individually or in the
aggregate, do not and will not have a Material Adverse Effect.
(c) Except as set forth in Schedule 3.16(c), and for such possible
violations which individually or in the aggregate do not and will not have a
Material Adverse Effect neither the Company nor the Subsidiary is in violation
of, nor has the Company or the Subsidiary received notice of violation of, any
applicable Law of any Governmental Entity relating to the operation, conduct or
ownership of the property or business of the Sheridan Systems Division.
3.17 Conduct of Business. Except as set forth in Schedule 3.17, since
April 27, 1996, the business and operations of the Sheridan Systems Division
have been conducted and the facilities of the Sheridan Systems Division have
been maintained in all material respects consistent with good business practices
in accordance with the reasonable judgment of its management.
3.18 Disclosure. The representations and warranties by the Company and the
Subsidiary in this Agreement and the statements contained in the documents
(including financial statements and disclosure schedules), certificates and
other writings furnished and to be furnished by the Company and the Subsidiary
to the Buyer pursuant to this Agreement, when considered as a whole, do not and
will not contain any untrue statement of a material fact and do not and will not
omit to state any material fact necessary to make the statements herein or
therein not misleading, it being understood that as used in this Section 3.18
"material" means material to the Sheridan Systems Division.
3.19 Accounts Receivable. The notes and accounts receivable included in
the Sheridan Division Assets are genuine and represent the legal, valid and
binding obligation of the obligor thereon, enforceable in accordance with their
terms, subject to any applicable bankruptcy, insolvency and similar laws
affecting creditors' rights generally. The Company has established reasonable
reserves to provide for all doubtful accounts of, any valid counterclaims or
setoffs by, and allowances to, customers of the Sheridan Systems Division and
has accrued and maintains reasonable reserves for returns from and rebates to
customers of the Sheridan Systems Division.
3.20 Taxes. Each of the Company and the Subsidiary has or will have timely
filed all returns of income Taxes and all material returns of other Taxes
required to be filed by it on or prior to the Effective Time, and
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has timely and fully paid or provided for all Taxes shown to be due on such
returns, except such as are being contested in good faith by appropriate
proceeding. The foreign income tax returns of or in respect to the Subsidiary
have been examined by the appropriate foreign tax authorities for the periods
set forth in Schedule 3.20. Except as and to the extent shown in Schedule 3.20,
all deficiencies for Taxes asserted or assessments made as a result of such
examinations have been fully paid, settled or fully reflected on the books of
the Subsidiary. Except as set forth in Schedule 3.20, neither the United States
Internal Revenue Service, the United Kingdom Inland Revenue, nor any other
taxing authority or agency, whether domestic or foreign has asserted in writing
or, to the knowledge of the Company or the Subsidiary, threatening to assert any
material deficiency or claim for additional Taxes against the Sheridan Systems
Division or the Sheridan Division Assets. Except as set forth in Schedule 3.20,
neither the Company nor the Subsidiary has granted any waiver of any statute of
limitations with respect to, or any extension of a period for the assessment of,
any Tax in respect of the Sheridan Systems Division. Any and all agreements and
arrangements with respect to the sharing or allocation of Taxes between the
Company (or any of its affiliates) and the Sheridan Systems Division (or the
Subsidiary) shall be terminated as of the Effective Time, and no party thereto
shall have any further rights or liabilities thereunder.
3.21 Insurance. Schedule 3.21 contains a complete and correct description
of all policies of property, fire and casualty, product liability, workers'
compensation and other forms of insurance owned or held by the Company or the
Subsidiary relating to the business of the Sheridan Systems Division or the
Sheridan Division Assets. The coverage provided under such policies of insurance
is reasonable in scope and amount in light of the risks attendant to the
business and activities of the Sheridan Systems Division. There is no default
with respect to any provision contained in any such policy, and there has not
been any failure to give any notice or present any claim under such policy in a
timely fashion or in the manner or detail required by the policy.
3.22 Environmental Matters.
(a) Except as set forth in Schedule 3.22(a) and except for those
noncompliance matters, if any, that have been and are resolved, the Company and
the Subsidiary, with respect to the Sheridan Systems Division, have complied
throughout the past five years, and are in compliance, in all material respects
with all applicable Environmental Laws, which compliance includes the possession
and compliance in all material respects with the terms and conditions of all
licenses, permits, variances, consents, authorizations, waivers, grants,
franchises, concessions, exemptions, orders, registrations, and approvals of
Governmental Entities or other persons required under applicable Environmental
Laws.
(b) Except as set forth in Schedule 3.22(b), there are no Environmental
Claims pending or, to the knowledge of the Company or the Subsidiary,
threatened, against the Company or the Subsidiary that individually or in the
aggregate could reasonably be expected to have a Material Adverse Effect.
(c) Except as set forth in Schedule 3.22(a) or 3.22(b), neither the
Company nor the Subsidiary is subject to and neither the Company nor the
Subsidiary has knowledge of, any Environmental Claims or any other potential
environmental liability or obligation (accrued, contingent or otherwise) on the
part of any of the Company and the Subsidiary, including any Environmental
Claims or any other potential environmental liability or obligation to cleanup
or to take any response action in accordance with applicable or relevant and
appropriate cleanup standards under Environmental Laws, relating to (x) the
environmental conditions on, under, or about any of the properties or assets
owned, leased or operated by the Company or the Subsidiary in the business of
the Sheridan Systems Division or any predecessor thereto at the present time or
in the past, including the air, soil and groundwater conditions at such
properties, or (y) the past or present use, management, handling, transport,
treatment, generation, storage, disposal or Release of any Hazardous Substance
at any location whether or not owned, leased, operated or used by the Company or
the Subsidiary in the business of the Sheridan Systems Division or any
predecessor thereto at the present time or in the past, in either case other
than liabilities or obligations that individually and in the aggregate could not
reasonably be
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expected to have a Material Adverse Effect. The Company and the Subsidiary have
disclosed and, where requested, made available to the Buyer all material
knowledge and information, including such studies, analyses and test results, in
its possession, custody or control the Company or the Subsidiary relating to (1)
the environmental conditions on, under or about any of the properties or assets
owned, leased or operated by any of the Company and the Subsidiary in the
business of the Sheridan Systems Division or any predecessor in interest thereto
at the present time or in the past, and (2) any Hazardous Substance used,
managed, handled, transported, treated, generated, stored, disposed of or
Released by any person on, under, about or from any location whether or not
owned, leased, operated or used by the Company or the Subsidiary in the business
of the Sheridan Systems Division or any predecessor thereto at the present time
or in the past, or otherwise in connection with the use or operation of, any of
the properties, assets and businesses of the Company or the Subsidiary in the
business of the Sheridan Systems Division.
(d) As used in this Agreement:
(i) the term "Environmental Claim" means any claim, demand, suit,
action, proceeding, investigation or notice to the Company or the
Subsidiary by any person or entity alleging any potential liability
(including, without limitation, potential liability for investigatory
costs, cleanup costs, governmental response costs, natural resource
damages, personal injuries, or penalties) arising out of, based on, or
resulting from (a) the presence, or Release into the environment, of any
Hazardous Substance at any location, whether or not owned, leased, operated
or used by the Company or the Subsidiary, or (b) circumstances forming the
basis of any violation, or alleged violation, of any applicable
Environmental Law;
(ii) the term "Environmental Laws" means all Laws, relating to
pollution, cleanup, restoration or protection of the environment or to
human or occupational health or safety, including without limitation, (1)
Laws relating to emissions, discharges, Releases or threatened Releases of
Hazardous Substances, or otherwise relating to the manufacture, generation,
processing, distribution, use, sale, treatment, receipt, storage, disposal,
transport or handling of Hazardous Substances, including the Comprehensive
Environmental Response, Compensation and Liability Act and the Resource
Conservation and Recovery Act, and (2) the Occupational Safety and Health
Act;
(iii) the term "Hazardous Substance" means (1) chemicals, pollutants,
contaminants, hazardous wastes, toxic substances, and oil and petroleum
products, (2) any substance that is or contains friable asbestos, urea
formaldehyde foam insulation, polychlorinated biphenyls, petroleum or
petroleum-derived substances or wastes, radon gas or related materials, (3)
any substance that requires removal or remediation under any Environmental
Law, or is defined, listed or identified as a "hazardous waste" or
"hazardous substance" thereunder, or (4) any substance that is toxic,
explosive, corrosive, flammable, infectious, radioactive, carcinogenic,
mutagenic, or otherwise hazardous; in each case in clauses (1)-(4) above
which is regulated under any Environmental Law; and
(iv) the term "Release" means any releasing, disposing, discharging,
injecting, spilling, leaking, pumping, dumping, emitting, escaping,
emptying, dispersal, leaching, migration, transporting, placing and the
like, including into or upon, any land, soil, surface water, ground water
or air, or otherwise entering into the environment.
3.23 Labor Matters, etc. Except as set forth on Schedule 3.23, to the
extent relating to the business of the Sheridan Systems Division as conducted by
the Company and the Subsidiary, neither the Company nor the Subsidiary is a
party to or bound by and none of their employees is subject to any collective
bargaining agreement relating to the terms and conditions of employment for any
group of employees (any such agreement, memorandum or document, a "Collective
Bargaining Agreement"), and there are no labor unions or other organizations
representing or, to the actual knowledge of the Company or the Subsidiary,
purporting to represent, any employees employed by any of the Company or the
Subsidiary. No labor union is currently
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engaged in or, to the knowledge of the Company or the Subsidiary, threatening,
organizational efforts with respect to any employees of the Company or the
Subsidiary employed by the Company or the Subsidiary in the business of the
Sheridan Systems Division. The Company and the Subsidiary are not in material
breach of or default under any Collective Bargaining Agreement. Except as set
forth on Schedule 3.23, since January 1, 1994, there has not occurred or been
threatened, any strike, slowdown, picketing, work stoppage, concerted refusal to
work overtime or other similar labor activity with respect to any employees of
the Company or the Subsidiary employed by the Company or the Subsidiary in the
business of the Sheridan Systems Division. Except as set forth on Schedule 3.23,
there are no labor disputes currently subject to any pending arbitration or
litigation and there is no representation petition pending or, to the knowledge
of the Company or the Subsidiary, threatened with respect to any employee of the
Company or the Subsidiary employed by the Company or the Subsidiary in the
business of the Sheridan Systems Division. The Company and the Subsidiary have
complied with all applicable Laws pertaining to the employment or termination of
employment of the employees employed by the Company or the Subsidiary in the
business of the Sheridan Systems Division, including, without limitation, all
such Laws relating to labor relations, equal employment opportunities, fair
employment practices, prohibited discrimination or distinction and other similar
employment activities, except for any failures so to comply that individually
and in the aggregate could not reasonably be expected to have a Material Adverse
Effect.
3.24 Proxy Statement. The information supplied or to be supplied by the
Company for inclusion or incorporation by reference in the Proxy Statement, or
any amendment or supplement thereto, at the time of the mailing of the Proxy
Statement and at the time of the meeting of stockholders of the Company, will
not contain any untrue statement of a material fact and will not omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in the light of the circumstances under which they are
made, not misleading, except that no representation is made by the Company with
respect to statements made in the Proxy Statement based on information supplied
by the Buyer in writing. If at any time prior to the Effective Time any event
with respect to the Company, its officers and directors or any of its
subsidiaries should occur which is required to be described in an amendment of,
or a supplement to, the Proxy Statement, such event shall be so described, and
such amendment or supplement shall be promptly filed with the Securities and
Exchange Commission (the "Commission") and, as required by law, disseminated to
the stockholders of the Company. The Proxy Statement will comply as to form in
all material respects with the Exchange Act and the rules and regulations
promulgated thereunder.
3.25 Brokers. Except for Bear, Stearns & Co., Inc., no broker, finder or
investment banker is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Company or the Subsidiary,
that is or will be payable by the Company or the Subsidiary. The Company is
solely responsible for all fees and expenses of Bear, Stearns & Co., Inc.
payable in connection with the transactions contemplated by this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to the Company as follows:
4.1 Organization. The Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the Federal Republic of Germany
and has all requisite corporate power and authority to own, lease and operate
its properties and to carry on its business as now being conducted. The Buyer
has heretofore delivered to the Company complete and correct copies of the
Articles of Association (Satzung) of Buyer as currently in effect.
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4.2 Authority Relative to this Agreement. The Buyer has full corporate
power and authority to execute and deliver this Agreement and the Undertaking
and Indemnity Agreement and to consummate the transactions contemplated hereby
and thereby. The execution and delivery of this Agreement and the Undertaking
and Indemnity Agreement and the consummation of the transactions contemplated
hereby and thereby have been duly and validly authorized by the Board of
Management (Vorstand) of the Buyer and, except for the authorization by the
Supervisory Board (Aufsichtsrat) of the Buyer which will be requested at a
meeting to be held on or before July 24, 1996 and the authorization of the
Supervisory Board (Aufsichtsrat) and Board of Management (Vorstand) of RWE
Aktiengesellschaft ("RWE"), which will be requested at meetings scheduled for
July 25, 1996, no other corporate proceedings on the part of the Buyer
(including any required vote or consent of stockholders) are necessary to
authorize this Agreement and the Undertaking and Indemnity Agreement or to
consummate the transactions contemplated hereby and thereby. This Agreement has
been duly and validly executed and delivered by the Buyer and constitutes a
valid and binding agreement of the Buyer, enforceable against the Buyer in
accordance with its terms. The Undertaking and Indemnity Agreement will be, upon
the due and valid execution and delivery thereof, a valid and binding agreement
of the Buyer, enforceable against the Buyer in accordance with its terms.
4.3 Consents and Approvals; No Violation.
(a) Except as set forth in Schedule 4.3 and except for applicable
requirements of the HSR Act, and requirements, if any, under the laws of the
Federal Republic of Germany and the United Kingdom which may be applicable to
the transactions contemplated by this Agreement or the Undertaking and Indemnity
Agreement, there is no requirement applicable to the Buyer to make any filing
with, or to obtain any permit, authorization, consent or approval of, any public
body as a condition to the lawful consummation by the Buyer of the transactions
contemplated by this Agreement or the Undertaking and Indemnity Agreement.
(b) Except as set forth in Schedule 4.3, neither the execution and
delivery of this Agreement or the Undertaking and Indemnity Agreement by the
Buyer nor the consummation by the Buyer of the transactions contemplated hereby
or thereby nor compliance by the Buyer with any of the provisions hereof or
thereof will (i) conflict with or result in any breach of any provision of the
Articles of Association (Satzung) or other organizational documents of the
Buyer; (ii) conflict with or result in a breach (or give rise to any right of
termination, cancellation or acceleration) of any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, license, agreement, lease or
other instrument or obligation to which the Buyer or any of its assets may be
bound, except as to which requisite waivers have been obtained by the Buyer; or
(iii) assuming compliance with the HSR Act and any applicable laws of the
Federal Republic of Germany and the United Kingdom, violate any judgment, order,
writ, injunction, law, decree, statute, ordinance, rule or regulation applicable
to the Buyer or any of its properties or assets, excluding from the foregoing
clauses (ii) and (iii) those violations which, in the aggregate, would not have
a material adverse effect on the business, properties, prospects, operations,
assets, liabilities or condition (financial or otherwise) of the Buyer and its
subsidiaries taken as a whole or materially impair or delay the consummation of
the transactions contemplated by this Agreement.
4.4 Disclosure. The representation and warranties by the Buyer in this
Agreement and the statements contained in the documents (including disclosure
schedules), certificates and other writing furnished by the Buyer to the Company
pursuant to this Agreement, when considered as a whole, do not and will not
contain any untrue statement of a material fact and do not and will not omit to
state any material fact necessary to make the statements herein or therein not
misleading, it being understood that as used in this Section 4.4 "material"
means material to the Buyer and its Subsidiaries taken as a whole.
4.5 Proxy Statement. The information supplied or to be supplied by the
Buyer for inclusion or incorporation by reference in the Proxy Statement, or any
amendment or supplement thereto, at the time of the mailing of the Proxy
Statement and at the time of the meeting of stockholders of the Company, will
not
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contain any untrue statement of a material fact and will not omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they are made,
not misleading.
4.6 Brokers. No broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement.
ARTICLE V
COVENANTS OF THE PARTIES
5.1 Conduct of Business of the Company and the Subsidiary. Except as
otherwise contemplated by this Agreement, during the period from the date of
this Agreement to the Effective Time, each of the Company and the Subsidiary
will conduct the business and operations of the Sheridan Systems Division only
in the ordinary and usual course of business, will use its reasonable best
efforts to preserve intact all rights, privileges, franchises and other
authority adequate for the conduct of the business and operations of the
Sheridan Systems Division as currently conducted, to keep available the services
of the officers and employees of the Sheridan Systems Division and to maintain
satisfactory relationships with licensors, licensees, suppliers, contractors,
distributors, customers and others having business relationships with the
Sheridan Systems Division. Without limiting the generality of the foregoing and,
except as otherwise expressly provided in this Agreement, prior to the Effective
Time without the prior written consent of the Buyer (it being understood that
the Buyer will respond promptly to any such request) neither the Company nor the
Subsidiary will:
(a) (i) create, incur or assume any long-term debt (including
obligations in respect of capital leases), or, except in the ordinary course of
business under existing lines of credit, create, incur or assume any short-term
debt if, in either such case, such long-term debt or short-term debt would
constitute a Sheridan Division Liability; (ii) assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other person if such assumption,
guarantee, endorsement or other liability would constitute a Sheridan Division
Liability; provided that the Company and the Subsidiary may endorse negotiable
instruments in the ordinary course of business of the Sheridan Systems Division
consistent with past practice;
(b) (i) increase in any manner the compensation of any of the officers
or other employees of the Sheridan Systems Division, except such increases as
are granted in the ordinary course of business in accordance with its customary
practices (which shall include normal periodic performance reviews and related
compensation and benefit increases but not any general across-the-board
increases); (ii) pay or agree to pay any pension, retirement allowance or other
employee benefit not required or permitted by any existing plan, agreement or
arrangement to any such officer or employee, whether past or present; or (iii)
commit itself to any additional Plans or, except as otherwise expressly required
or permitted by Article VI, to amend or terminate any of such plans or any of
such agreements in existence on the date hereof;
(c) permit any of its current insurance (or reinsurance) policies to be
cancelled or terminated or any of the coverage thereunder to lapse if such
policy covers Sheridan Division Assets or insures risks, contingencies or
liabilities which could result in a Sheridan Division Liability, unless
simultaneously with such termination, cancellation or lapse, replacement
policies providing coverage equal to or greater than the coverage remaining
under those cancelled, terminated or lapsed are in full force and effect (it
being understood that there shall be no obligation to extend such insurance
policies after the Effective Time);
(d) (i) sell, transfer, or otherwise dispose of or agree to sell,
transfer, or otherwise dispose of, any Sheridan Division Assets, except sales of
products produced and distributed in the ordinary course of business consistent
with past practice, or (ii) mortgage, pledge or otherwise encumber any Sheridan
Division Assets except for such mortgages or encumbrances which constitute
Permitted Exceptions;
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(e) sell, transfer, license or otherwise dispose of, or agree to sell,
transfer, license or otherwise dispose of any of the Sheridan Division
Intellectual Property;
(f) enter into any agreements, commitments or contracts relating to the
Sheridan Systems Division, except agreements, commitments or contracts made in
the ordinary course of business consistent with past practice and not in excess
of current requirements;
(g) voluntarily consent to the termination of any Sheridan Division
Contract or Sheridan Division Lease by any other party thereto, or voluntarily
withdraw any application constituting Sheridan Division Intellectual Property;
(h) amend its charter documents in a manner that adversely affects the
transactions contemplated hereby;
(i) issue, sell, pledge, lease, dispose of, encumber or authorize the
issuance, sale, pledge, lease, disposition or encumbrance of (i) any shares of
capital stock of any class or any options, warrants, convertible securities or
other rights of any kind to acquire any shares of capital stock of, or any other
ownership interest in, the Subsidiary;
(j) change the accounting principles used by it with respect to the
Sheridan Systems Division unless required by GAAP (or, if applicable with
respect to the Subsidiary, U.K. GAAP);
(k) release any third party from its obligations under any
confidentiality or other similar agreement entered into in respect of or
otherwise relating to the Sheridan Systems Division;
(l) pay, discharge, satisfy, compromise, settle, grant any waiver or
release any claims, liabilities or obligations (absolute or otherwise) which may
be reasonably expected to be Sheridan Division Liabilities, except in the
ordinary course of business consistent with past practice;
(m) take any action that would or is reasonably likely to result in any
representation or warranty of the Company or the Subsidiary set forth in this
Agreement being untrue in any material respect, or in any of the conditions set
forth in Article VII not being satisfied;
(n) enter into or amend any agreement, commitment or contract, whether
or not in the ordinary course of business, which would grant recourse, directly
or indirectly, against any of the Sheridan Division Assets by a third party with
respect to customer lease obligations;
(o) enter into or amend any master agreement, commitment or contract
relating to the Sheridan Systems Division with any person, whether or not in the
ordinary course of business, which governs on an ongoing basis sales to such
person; or
(p) enter into any agreement, contract, commitment or arrangement to do
any of the foregoing.
5.2 Competing Proposal.
(a) From the date hereof until the termination hereof, the Company and
its subsidiaries shall not directly or indirectly, make, solicit, initiate or
encourage submission of proposals or offers from any persons (including any of
its officers or employees) relating to a Competing Proposal. As used herein, the
term "Competing Proposal" means any proposal or offer involving a liquidation,
dissolution, recapitalization, merger, consolidation or acquisition or purchase
of all or any significant part of the Sheridan Division Assets (other than such
sales of inventory to the Company's dealers or customers in the ordinary course
of business and consistent with past practices) or other similar transaction or
business combination involving the Sheridan Systems Division whether by means of
acquiring the Sheridan Division Assets, the Company or otherwise.
(b) The Company shall:
(i) immediately cease and cause to be terminated all discussions or
negotiations with third parties with respect to any Competing Proposal, if
any, existing on the date hereof; and
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(ii) promptly notify the Buyer after receipt of any bona fide
Competing Proposal or any inquiry from any person relating to a Competing
Proposal and promptly provide the Buyer with a reasonable summary of the
financial and other material terms of such Competing Proposal.
5.3 Current Operations.
(a) Between the date of this Agreement and the Effective Time the Buyer
at its discretion may locate up to three of its representatives at the offices
of the Sheridan Systems Division in Dayton, Ohio and up to two of its
representatives at the offices of the Subsidiary (it being understood that,
subject to Article X, such representatives shall have no authority whatsoever
with respect to the operation of the business of the Sheridan Systems Division
and shall not interfere with the operations of such business). During such
period the Company will cause one or more of its designated representatives to
consult as requested by the Buyer on a regular basis with such representatives
of the Buyer and to discuss the general status of ongoing operations of the
Sheridan Systems Division. Without limiting the generality of the foregoing, the
Company shall use its reasonable best efforts to insure that the Buyer's
representative is given reasonable advance notice of any action or commitment
which could be expected to involve a commitment, expenditure, or other
obligation in an amount exceeding $50,000.
(b) The Company will promptly notify the Buyer of any significant change
in the normal course of business or in the operations of the Sheridan Systems
Division and of any complaints, investigations or hearings (or communications
indicating that the same may be contemplated) of any Governmental Entity, or the
institution or threat or settlement of any litigation, in each case involving
the Sheridan Systems Division, and will keep the Buyer informed of such events
and permit the Buyer's representatives access to all materials prepared in
connection therewith.
5.4 Access to Information.
(a) Between the date of this Agreement and the Effective Time the
Company will (i) give the Buyer and its authorized representatives reasonable
access to all plants, offices, warehouses and other facilities and properties of
the Sheridan Systems Division and to the Sheridan Division Books and Records,
(ii) permit the Buyer to make such inspection thereof as the Buyer may
reasonably request, and (iii) cause its officers to furnish the Buyer with such
financial and operating data and other information with respect to the business
and properties of the Sheridan Systems Division as the Buyer may from time to
time reasonably request; provided, however, that any such investigation shall be
conducted in such a manner as not to interfere materially with the operation of
the business of the Sheridan Systems Division.
(b) Between the date of this Agreement and the Effective Time the Buyer,
the Company and the Subsidiary will hold and will cause their officers,
directors, employees, representatives, consultants and advisors to hold in
strict confidence in accordance with the terms of the confidentiality agreement,
dated January 19, 1996 between the Buyer and Bear, Stearns & Co., Inc., all
documents and information furnished to the Buyer by the Company or the Company's
representatives in connection with the transactions contemplated by this
Agreement. If the transactions contemplated by this Agreement are not
consummated, such confidence shall be maintained in accordance with such
agreement.
(c) From and after the date of this Agreement, the Company and the
Subsidiary shall (i) cause the original copy of all of the insurance policies
listed on Schedule 3.21 to be kept at the offices of the Company or the
Subsidiary and shall not destroy such policies; provided, however, that the
Company or the Subsidiary may at any time deliver such original copies to the
Buyer; and (ii) give the Buyer and its authorized representatives reasonable
access to all such insurance policies. The obligations of the Company or the
Subsidiary shall cease to be in effect with respect to a particular insurance
policy listed on Schedule 3.21 upon delivery of such policy to the Buyer. At or
prior to the Closing, the Company will deliver to the Buyer true and correct
copies of all of the insurance policies listed on Schedule 3.21.
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(d) No investigation pursuant to this Section 5.4 shall affect any
representations and warranties of the parties herein or the conditions to the
obligations of the parties hereto.
5.5 Expenses. Except as otherwise provided by this Agreement, whether or
not the transactions contemplated hereby are consummated, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby will be paid by the party incurring such costs and expenses.
5.6 Reasonable Best Efforts. Subject to its terms and conditions of this
Agreement, each of the parties hereto will use reasonable best efforts to take,
or cause to be taken, all action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
5.7 Consents. Each of the parties hereto will use its reasonable best
efforts to obtain consents of all persons and governmental authorities necessary
to the consummation of the transactions contemplated by this Agreement.
5.8 Filings. To the extent not previously filed, the Company and the Buyer
will promptly file with the United States Federal Trade Commission (the "FTC")
and the Antitrust Division of the United States Department of Justice (the
"Department of Justice") pursuant to the HSR Act all requisite documents and
notifications in connection with the transactions contemplated by this
Agreement. The Buyer, the Company and the Subsidiary will make all such filings
and submissions as may be required under the laws of the Federal Republic of
Germany and the United Kingdom, to the extent the provisions thereof are
applicable to each such party, provided that any applicable approval under the
laws of the Federal Republic of Germany or the United Kingdom shall not be
deemed a condition to either party's obligation to effect any of the
transactions contemplated by this Agreement. The Company, the Subsidiary and the
Buyer will take all such action as may be reasonably necessary under any laws,
rules and regulations applicable to or necessary for the consummation of the
transactions contemplated by this Agreement. The Company, the Subsidiary and the
Buyer will coordinate and cooperate with each other in exchanging such
information and reasonable assistance as any other may reasonably request in
connection with all of the foregoing.
5.9 Action of Stockholders and Supervisory Board.
(a) The Company shall take all action necessary in accordance with
Delaware Law and its Certificate of Incorporation and By-Laws to convene a
meeting of its stockholders promptly after execution of this Agreement to
consider and vote upon this Agreement and the transactions contemplated hereby.
The Company shall use all reasonable efforts to solicit from stockholders of the
Company proxies in favor of the adoption of this Agreement and the transactions
contemplated hereby and shall take all other action reasonably necessary, or
which otherwise may be reasonably requested by the Buyer, to secure a vote of
stockholders in favor of adoption of this Agreement and the transactions
contemplated hereby. At any such meeting, the Company shall, to the extent
permitted by applicable Law, vote or cause to be voted all shares of common
stock, par value $0.01 per share, of the Company with respect to which proxies
in the form distributed by the Company have been given, and not voted against
the adoption of this Agreement or as to which has abstained from voting, in
favor of adoption of this Agreement and the transactions contemplated hereby.
(b) The Supervisory Board (Aufsichtsrat) of the Buyer shall have
approved this agreement as contemplated by Section 4.1.
5.10 Proxy Statement. As promptly as practicable after the date hereof,
the Company shall prepare and file with the Commission under the Exchange Act
and the Buyer shall cooperate with the Company in such preparation and filing,
preliminary proxy statement or information statement (the "Proxy Statement")
with respect to the adoption by the Company's stockholders of this Agreement and
the transactions contemplated hereby and use its reasonable best efforts to
furnish the information required to be included
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therein by the Commission and to respond promptly to any comments made by the
Commission, with respect to the preliminary Proxy Statement and cause a
definitive Proxy Statement to be mailed to stockholders. The Company will
provide the Buyer and its counsel copies of all correspondence from the
Commission promptly upon receipt thereof and will consult with the Buyer prior
to communicating with the Commission in response to any comments with respect to
the Proxy Statement received from the Commission. The Proxy Statement shall,
subject to the exercise of fiduciary duties by the Board of Directors of the
Company under applicable law, contain the recommendation of the Board of
Directors of the Company that the stockholders of the Company approve this
Agreement and the transactions contemplated hereby.
5.11 Disclosure Supplements. From time to time after the date of this
Agreement and prior to the Effective Time, the Company and the Subsidiary will
promptly supplement or amend the schedules referred to in Article III with
respect to any matter hereafter arising which, if existing or occurring at or
prior to the date of this Agreement, would have been required to be set forth or
described in a schedule or which is necessary to correct any information in a
schedule or in any representation and warranty of the Company or the Subsidiary
which has been rendered inaccurate thereby. From time to time after the date of
this Agreement and prior to the Effective Time, the Buyer will promptly
supplement or amend the schedules referred to in Article IV with respect to any
matter hereafter arising which, if existing or occurring at or prior to the date
of this Agreement, would have been required to be set forth or described in a
schedule or which is necessary to correct any information so previously
disclosed or in any representation and warranty of the Buyer which has been
rendered inaccurate thereby. For purposes of determining the accuracy of the
representations and warranties of the Company and the Subsidiary contained in
Article III and the accuracy of the representations and warranties of the Buyer
contained in Article IV in order to determine the fulfillment of the conditions
set forth in Sections 7.3(a) and 7.2(a), respectively, the schedules delivered
by the Company and the Subsidiary and the schedules delivered by the Buyer shall
be deemed to include only that information contained therein on the date of this
Agreement and shall be deemed to exclude any information contained in any
subsequent supplement or amendment thereto; provided, however, that solely for
purposes of determining the accuracy of any list contained in a schedule which
list is referred to in the representations and warranties set forth in Sections
3.1(c), 3.2(a) and 3.9(a); the first sentences of Sections 3.10(a) and 3.12; and
Section 3.14(a) such updated information shall be deemed to be included.
5.12 Public Announcements. The Company and the Buyer (and their respective
affiliates) will consult with each other before issuing any press releases or
otherwise making any public statements with respect to this Agreement and the
transactions contemplated hereby, and neither of them (nor any of their
respective affiliates) shall issue any such press release or make any such
public statement prior to such consultation, except as may be required by law or
by obligations pursuant to any listing agreement with any national securities
exchange.
5.13 Further Assurances. From time to time, without further consideration,
each of the Company and the Subsidiary will, at its own expense, execute and
deliver such documents to the Buyer as the Buyer may reasonably request in order
more effectively to consummate the transactions contemplated hereby and to vest
in the Buyer good and marketable title to the Sheridan Division Assets
(including, without limitation, assistance in the reduction to possession of any
thereof). From time to time, without further consideration, the Buyer will, at
its own expense, execute and deliver such documents as the Company may
reasonably request in order more effectively to consummate the transactions
contemplated hereby and to perfect the assumption by the Buyer of the Sheridan
Division Liabilities.
5.14 Sales and Transfer Taxes and Fees. The parties agree that all sales
and transfer Taxes and related fees (including all real estate, patent and
trademark transfer taxes and recording fees, if any) incurred in connection with
this Agreement and the transactions contemplated hereby will be borne one-half
by the Sellers and one-half by the Buyer, and the Sellers will file all
necessary Tax returns and other documentation
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with respect to all such sales, transfer and recording Taxes and fees, and, if
required by applicable Law, the Buyer will join in the execution of any such Tax
returns or other documentation (including, without limitation, reseller or other
certificates of the Buyer reasonably requested by the Sellers).
5.15 Use of Names. After the Effective Time, none of the Company, the
Subsidiary or any of their affiliates shall have the right to continue to use
the name "Sheridan" other than in connection with its distribution or service of
products produced by the Sheridan Systems Division.
5.16 Intercompany Accounts. At or prior to the Effective Time the Company
shall net the amount of all intercompany payables and receivables between the
Company and the Sheridan System Division or the Subsidiary, and such net amount
shall be cancelled and forgiven without any payment in respect thereof.
5.17 Non-Competition.
(a) The Company will not directly or through any of its subsidiaries,
agents or representatives, at any time during the two year period commencing
with the date of the Effective Time, (i) engage in the design or manufacture of
bindery or newspaper mailroom systems world-wide or (ii) sell any product or
spare part or render any service in connection with the bindery or newspaper
mailroom systems products which are competitive with the products, spare parts
and services currently offered by the Sheridan Systems Division. Notwithstanding
the foregoing, the Company will retain the right to sell equipment, spare parts
and render service through its Multigraphics division substantially similar to
the products and services currently offered by the Multigraphics division (which
products and services are described in Schedule 5.17).
(b) No unauthorized use of the Sheridan Division Intellectual Property
will be made at any time after the Effective Time by the Company, the Subsidiary
or any of their subsidiaries, agents or representatives.
5.18 Access to Records after Closing; Cooperation. For a period of six
years after the Closing Date, the Company and its representatives shall have
reasonable access to all of the books and records relating to the Sheridan
Division Assets transferred to the Buyer hereunder (including, without
limitation, the right to make extracts thereof) to the extent that such access
may reasonably be required by the Company in connection with matters relating to
or affected by the operation of the Sheridan Division Assets prior to the
Closing Date. Such access shall be afforded by the Buyer upon receipt of
reasonable advance notice and during normal business hours. The Company shall be
solely responsible for any reasonable out-of-pocket costs or expenses incurred
by it pursuant to this Section 5.18. If the Buyer shall desire to dispose of any
of such books and records prior to the expiration of such six-year period, the
Buyer shall, prior to such disposition, give the Company a reasonable
opportunity, at the Company's expense, to segregate and remove such books and
records as the Company may select. In addition to the foregoing, the parties
agree to cooperate with each other with respect to the defense of any claims or
litigation relating to the Sheridan Systems Division or the transactions
contemplated hereby, provided that the party requesting such cooperation shall
reimburse the other party for the other party's reasonable out-of-pocket costs
and expenses of furnishing such cooperation.
ARTICLE VI
COMPANY EMPLOYEES
6.1 Employment.
(a) Effective as of the Effective Time (i) except as set forth herein,
the Company and the Subsidiary shall terminate the employment of each of its
employees employed by the Company or the Subsidiary in the business of the
Sheridan Systems Division (the "Division Employees") and (ii) the Buyer shall
offer employment, on an at-will basis, to all current active Division Employees.
The Sellers shall retain the first $250,000 of liability incurred within six
months of the Effective Time under the Company's severance policy applicable to
Division Employees located at Dayton. The Buyer shall assume and be responsible
for any
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severance liability to the extent that it exceeds $250,000 in the aggregate or
occurs more than six months after the Effective Time, whichever is first
applicable. Effective as of the Effective Time and for a period of one year
thereafter, each Division Employee shall be provided with (i) compensation and
employee benefit arrangements which shall, in the aggregate, be substantially
comparable to those provided by the Company and the Subsidiary to such Division
Employee immediately prior to the Effective Time and which shall not be subject
to additional waiting periods except for those which would be applicable to
similarly situated employees of the Buyer (and no such Division Employee shall
be subject to any restrictions or limitations for pre-existing conditions under
any medical or dental insurance plan, other than any pre-existing condition that
was not waived by the applicable Company or Subsidiary plan) and (ii) if
analogous plans are offered, credit for service with the Company and the
Subsidiary prior to the Effective Time for all purposes for which such service
was recognized by the Company and the Subsidiary, except for purposes of
calculating benefit accruals or to the extent that benefits previously provided
by the Company or the Subsidiary may be duplicated.
(b) Subject to Section 6.2, the Company and the Subsidiary shall remain
responsible for, and shall indemnify and hold harmless the Buyer, against any
and all claims, losses, damages, costs and expenses and other liabilities (other
than those constituting Sheridan Division Liabilities) relating to or arising
out of (i) any of its plans or obligations thereunder accrued prior to the
Effective Time and (ii) coverage of any and all claims for medical, dental or
other coverage of Division Employees and their dependents occurring on or prior
to the Effective Time. Buyer shall be responsible for, and shall indemnify and
hold harmless the Sellers, against any and all claims, losses, damages, costs
and expenses and other liabilities relating to or arising out of (i) any of the
Buyer's plans or obligations thereunder accrued after the Effective Time and
(ii) coverage of any and all claims for medical, dental or other coverage of
Division Employees and their dependents for medical, dental or other covered
services rendered after the Effective Time.
(c) The employment of any of the Division Employees of the Subsidiary
shall not be terminated for a reason arising from or in connection with this
Agreement. By virtue of the United Kingdom Transfer Regulations all of the
Subsidiary's rights, duties, powers, liabilities and obligations in respect of
any contract of employment with the Division Employees of the Subsidiary still
in force immediately before the Effective Time shall be transferred to the
Buyer.
(d) Except with the prior written consent of the Buyer (which consent
shall not be unreasonably withheld), the Sellers shall not terminate the
employment or vary the terms of employment of any of the Division Employees of
the Subsidiary at any time before the Effective Time.
(e) The Sellers shall cause the Buyer (or such other company as the
Buyer shall notify to the Sellers in writing) to be appointed as the principal
employer of the pension plan of the Subsidiary with effect from the Effective
Time. For this purpose, principal employer shall be construed as such term is
generally construed in connection with pension plans in the United Kingdom.
(f) The Sellers shall not amend, provide for nor promise augmented or
additional benefits in connection with the pension plan of the Subsidiary during
the period ending with the Effective Time.
6.2 Certain Employee Vacation Liability.
(a) The Company shall remain responsible for, and shall indemnify and
hold harmless the Buyer, against any and all claims, losses, damages, costs and
expenses and other liabilities relating to or arising out of any vacation due to
any Division Employees of the Company which accrued on or prior to July 31, 1995
and is unused as of the Effective Time.
(b) From and after the Effective Time, the Buyer shall assume and be
responsible for, and shall indemnify and hold harmless the Company against, any
and all claims, losses, damages, costs and expenses and other liabilities
relating to or arising out of any vacation due to any Division Employees of the
Company which accrued after July 31, 1995 and is unused as of the Effective
Time. It is understood that Buyer would
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not otherwise provide the vacation benefits contemplated by this Section 6.2(b)
were it not in consideration of the Company's obligations under this Agreement.
(c) The Company has delivered to the Buyer a schedule which shall list
(i) all vacation liability referred to in Section 6.2(a) which the Company
estimates will exist as of August 31, 1996 and (ii) all vacation liability
referred to in Section 6.2(b) which the Company estimates will exist as of
August 31, 1996, which is attached hereto as Schedule 6.2. At the Closing the
Company shall deliver an updated Schedule 6.2 showing the liabilities referred
to in Sections 6.2(a) and (b) as of the Effective Time.
ARTICLE VII
CLOSING CONDITIONS
7.1 Conditions to Each Party's Obligations to Effect the Transactions
Contemplated Hereby. The respective obligations of each party to effect the
transactions contemplated hereby shall be subject to the fulfillment at or prior
to the Effective Time of the following conditions:
(a) To the extent required by applicable law, each of the Company and
the Buyer and any other person (as defined in the HSR Act) required in
connection with the transactions contemplated hereby to file a Notification and
Report Form for Certain Mergers and Acquisitions with the Department of Justice
and the FTC pursuant to the HSR Act shall have made such filing and all
applicable waiting periods with respect to each such filing (including any
extensions thereof) shall have expired or been terminated.
(b) There shall be no action, suit or proceeding pending or threatened
by or on behalf of any Governmental Entity seeking to enjoin or otherwise
challenging the legality of the transactions contemplated by this Agreement, and
there shall not be any order, decree or injunction restraining or prohibiting
consummation of any of such transactions.
(c) The stockholders of the Company shall have approved this Agreement
pursuant to the terms of Section 5.9 hereunder.
(d) The Supervisory Board (Aufsichtsrat) of the Buyer and the
Supervisory Board (Aufsichtsrat) and the Management Board (Vorstand) of RWE
shall have approved this Agreement as contemplated by Section 4.1.
7.2 Conditions to the Obligations of the Company and the Subsidiary to
Effect the Transactions Contemplated Hereby. The obligations of the Company and
the Subsidiary to effect the transactions contemplated hereby shall be further
subject to the fulfillment at or prior to the Effective Time of the following
conditions, any one or more of which may be waived by the Company and the
Subsidiary:
(a) The Buyer shall have performed and complied in all material respects
with the agreements contained in this Agreement required to be performed and
complied with by it at or prior to the Effective Time and the representations
and warranties of the Buyer set forth in this Agreement shall be true and
correct in all material respects as of the date of this Agreement and as of the
Effective Time as though made at and as of the Effective Time (except as
otherwise contemplated by this Agreement), and the Company and the Subsidiary
shall have received a certificate to that effect signed by two executive
officers of the Buyer.
7.3 Conditions to the Obligations of the Buyer to Effect the Transactions
Contemplated Hereby. The obligations of the Buyer to effect the transactions
contemplated hereby shall be further subject to the fulfillment at or prior to
the Effective Time of the following conditions, any one or more of which may be
waived by the Buyer:
(a) Each of the Company and the Subsidiary shall have performed and
complied in all material respects with the agreements contained in this
Agreement required to be performed and complied with by it at or prior to the
Effective Time and the representations and warranties of the Company and the
Subsidiary set
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forth in this Agreement shall be true and correct in all material respects as of
the date of this Agreement and as of the Effective Time as though made at and as
of the Effective Time (except as otherwise contemplated by this Agreement), and
the Buyer shall have received a certificate from the Company and the Subsidiary
to that effect signed on behalf of the Company by two executive officers and on
behalf of the Subsidiary by two directors.
(b) The Company shall have obtained (i) all material permits,
authorizations, consents or approvals of any Governmental Entity (other than as
may be required under any applicable laws of the Federal Republic Germany and of
the United Kingdom) required for the effective transfer to the Buyer of the
Sheridan Division Assets and the Subsidiary and rights and privileges relating
thereto, (ii) all material consents or waivers from other parties to licenses,
franchises, permits, indentures, agreements and other instruments that are
required for the lawful consummation of the transactions contemplated hereby or
are necessary in order for the Buyer to conduct the business of the Sheridan
Systems Division, substantially in the same manner as heretofore conducted.
(c) The Buyer shall have obtained all material licenses, franchises,
permits, registrations, authorizations, consents or approvals of any
Governmental Entity that are necessary in order for the Buyer to conduct the
business of the Sheridan Systems Division, substantially in the same manner as
heretofore conducted.
7.4 Certificates. Each of the parties hereto will furnish to the other
party such certificates of such party's officers or others and such other
documents to evidence fulfillment of the conditions set forth in this Article
VII as the other party may reasonably request.
ARTICLE VIII
CERTAIN TAX MATTERS
8.1 Tax Matters.
(a) For any taxable period of the Sheridan Systems Division that
beginning after the Effective Time or that includes (but does not end on) the
date of the Effective Time, the Buyer shall timely prepare and file (or cause
such preparation and filing) with the appropriate authorities all Tax returns,
reports and forms required to be filed, and will pay (or cause to be paid) all
Taxes due with respect to such returns, reports and forms. For all taxable
periods of the Sheridan Systems Division ending on or before the Effective Time,
the Company shall timely prepare and file (or cause such preparation and filing)
with the appropriate authorities all Tax returns, reports and forms required to
be filed, and will pay (or cause to be paid) all Taxes due with respect to such
returns, reports and forms.
(b) The Company and the Buyer shall reasonably cooperate in preparing
and filing all returns, reports and forms relating to Taxes or relating to state
or local real property transfer or gains Taxes, including maintaining and making
available to each other all records reasonably necessary in connection with
Taxes or such real property Taxes and in resolving all disputes and audits with
respect to all taxable periods relating to Taxes or such real property Taxes.
(c) Buyer shall prepare, and Buyer and Sellers shall agree to, the
allocation of the Purchase Price and the Sheridan Division Liabilities among the
Sheridan Division Assets to be purchased hereunder, which allocation shall be
reflected in Schedule 8.1(c), finalized as of the Closing Date (the
"Allocation"). The Allocation shall be made in accordance with Section 1060 of
the Code and applicable Treasury regulations as well as under any analogous
provisions of German or United Kingdom Law; provided, however, that the
Allocation in respect of the Sheridan Division Assets of the Subsidiary shall
approximate the book value of such Sheridan Division Assets as of the Effective
Time. Each of the Sellers and the Buyer shall (i) be bound by the Allocation for
purposes of determining any Taxes, (ii) prepare and file, and cause its
affiliates to prepare and file, its Tax returns on a basis consistent with the
Allocation and (iii) take no position, and cause
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its affiliates to take no position, inconsistent with the Allocation on any
applicable Tax return, in any proceeding before any taxing authority or
otherwise. In the event that the Allocation is disputed by any taxing authority,
the party receiving notice of the dispute shall promptly notify the other party
hereto concerning resolution of the dispute.
8.2 Indemnity for Taxes.
(a) The Sellers and their respective affiliates hereby agree to
indemnify the Buyer and the Sheridan Systems Division against and hold them
harmless from all liability for (i) Taxes of the Sheridan Systems Division
attributable to taxable periods ending on or before the Effective Time for which
Tax returns were required to be filed prior to the Effective Time, (ii) all
federal, state or local income Taxes attributable to operations of the Sheridan
Systems Division (the "Closing Period Taxes") attributable to taxable periods
commencing before and ending after the Effective Time, (iii) Taxes of any of the
businesses of the Company or any of its affiliates other than the business of
the Sheridan Systems Division attributable to all taxable periods, (iv) Taxes
incurred as a result of any other transactions undertaken by the Sellers or any
of their affiliates, including without limitation the liquidation and
dissolution of the Company or any of its affiliates and (v) one-half of all
Taxes described in Section 5.14; provided, however, the Sellers shall not
indemnify the Buyer for any Taxes included in the Sheridan Division Liabilities.
(b) (i) The Sellers and their respective affiliates agree to indemnify
the Buyer and the Sheridan Systems Division against and hold them harmless from
all Taxes, expenses or other losses arising out of the failure of the Sellers
and their respective affiliates to perform any of the agreements set forth in
Section 8.1 and (ii) the Buyer agrees to indemnify the Sellers and their
respective affiliates and hold them harmless from all Taxes, expenses or other
losses arising out of the failure by the Buyer to perform any of the agreements
set forth in Section 8.1.
(c) Buyer and the Sellers agree to treat any payment under this Section
8.2 as an adjustment to the Purchase Price.
(d) The obligation of the Company to indemnify and hold harmless the
Buyer and the Sheridan Systems Division, on the one hand, and any of the
obligations of the Buyer to indemnify and hold harmless the Company, on the
other hand, pursuant to this Section 8.2, shall terminate upon the expiration of
the applicable statutes of limitations with respect to the Tax liabilities in
question (giving effect to any waiver, mitigation or extension thereof).
(e) A party seeking indemnification provided for under this Section 8.2
(a "Tax Indemnified Party") in respect of Taxes, arising out of or involving a
claim or demand made by any persons, firm, governmental authority or corporation
against such party (a "Tax Third Party Claim") must notify the party from whom
such indemnification is sought (the "Tax Indemnifying Party") in writing of the
Tax Third Party Claim as promptly as possible but in no event later than 30 days
after receipt by the Tax Indemnified Party of written notice of the Tax Third
Party Claim; provided, however, that failure to give such notification shall not
affect the indemnification provided hereunder except to the extent the Tax
Indemnifying Party shall have been actually prejudiced as a result of such
failure (except that the Tax Indemnifying Party shall not be liable for any
expenses incurred during the period in which the Tax Indemnified Party failed to
give such notice). Thereafter, the Tax Indemnified Party shall deliver to the
Tax Indemnifying Party, as promptly as possible but in no event later than 30
days after the Tax Indemnified Party's receipt thereof, copies of all notices
and documents (including court papers) received by the Tax Indemnified Party,
relating to the Tax Third Party Claim.
If a Tax Third Party Claim is made against the Tax Indemnified Party,
the Tax Indemnifying Party will be entitled to participate in the defense
thereof and to assume the defense thereof with counsel or other tax advisors
selected by the Tax Indemnifying Party and satisfactory to the Tax Indemnified
Party provided,
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however, that the Tax Indemnifying Party shall not be entitled to assume the
defense of any such contest unless the Tax Indemnifying Party at its option has
either provided bond or other security for its obligations under this Section
8.2 satisfactory to the Tax Indemnified Party or paid the Tax Third Party Claim.
If the Tax Indemnifying Party assumes such defense, the Tax Indemnifying Party
will not be liable to the Tax Indemnified Party for legal or other expenses
subsequently incurred by the Tax Indemnified Party in connection with the
defense thereof. If the Tax Indemnifying Party assumes such defense, the Tax
Indemnified Party shall have the right to participate in the defense thereof and
to employ counsel or other tax advisors, at its own expense separate from the
counsel or other tax advisors employed by the Tax Indemnifying Party. The Tax
Indemnifying Party shall be liable for all reasonable fees and expenses of
counsel or other tax advisors employed by the Tax Indemnified Party for any
period subsequent to the date the Tax Indemnified Party notifies the Tax
Indemnifying Party pursuant to this Section 8.2(e) and during which the Tax
Indemnifying Party has not assumed the defense thereof. Whether or not the Tax
Indemnifying Party chooses to defend or prosecute any Tax Third Party Claim, all
of the parties hereto shall reasonably cooperate in the defense or prosecution
thereof. Such cooperation shall include the provision to the Tax Indemnifying
Party of records and information which are reasonably relevant to such Tax Third
Party Claim, and making employees available on a mutually convenient basis to
provide additional information and explanation of any material provided
hereunder. Whether or not the Tax Indemnifying Party shall have assumed the
defense of a Tax Third Party Claim, the Tax Indemnified Party shall not admit
any liability with respect to, or settle, compromise or discharge, such Tax
Third Party Claim without the Tax Indemnifying Party's prior written consent,
which consent shall not be unreasonably withheld.
(f) Without the prior written consent of the Buyer, if a Material
Adverse Effect on the liability for Taxes of the Buyer with respect to or
arising from the Sheridan Systems Division or Sheridan Division Assets will
result therefrom, none of the Sellers nor any of their affiliates shall make or
change any election, change an accounting period, adopt or change any accounting
method, file any amended Tax return or report, enter into any closing agreement,
settle any Tax claim or assessment relating to the Sheridan Systems Division or
the Sheridan Division Assets, surrender any right to claim a refund of Taxes or
consent to any extension or waiver of the limitations period applicable to any
Tax claim or assessment relating to any of the Sheridan Systems Division or the
Sheridan Division Assets.
ARTICLE IX
TERMINATION AND ABANDONMENT
9.1 Termination. Subject to the parties' obligations as provided in
Section 5.6, this Agreement may be terminated at any time prior to the Effective
Time:
(a) by mutual consent of the Company and the Buyer;
(b) by the Company or the Buyer at any time after October 31, 1996 if
the conditions set forth in Article VII shall not have been satisfied or waived;
(c) by the Buyer, if (i) there has been a material violation or breach
by the Company or the Subsidiary of any agreement, representation or warranty
contained in this Agreement which has rendered the satisfaction of any condition
to the obligations of the Buyer impossible and such violation or breach has not
been waived by the Buyer or (ii) if the Company shall have entered into a
definitive agreement to accept a Competing Proposal or (iii) if the approval by
the Board of Directors of the Company contemplated by Section 3.3 shall not have
been obtained by July 14, 1996; or
(d) by the Company, if there has been a material violation or breach by
the Buyer of any agreement, representation or warranty contained in this
Agreement which has rendered the satisfaction of any
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condition to the obligations of the Company or the Subsidiary impossible and
such violation or breach has not been waived by the Company.
9.2 Procedure and Effect of Termination. In the event of termination of
this Agreement and abandonment of the transactions contemplated hereby by either
or both of the parties pursuant to Section 9.1, written notice thereof shall
forthwith be given to the other party and this Agreement shall terminate and the
transactions contemplated hereby shall be abandoned, without further action by
either of the parties hereto. If this Agreement is terminated as provided
herein:
(a) upon request therefor, each party will redeliver all documents, work
papers and other material of any other party relating to the transactions
contemplated hereby, whether obtained before or after the execution hereof, to
the party furnishing the same;
(b) each party hereto will use its best efforts to prevent disclosure to
third persons of all information received by either party with respect to the
business of the other party or its subsidiaries (other than information which is
a matter of public knowledge or which has heretofore been or is hereafter
published in any publication for public distribution or filed as public
information with any Governmental Entity except (i) as may be required by Law;
and (ii) as is permitted by this Agreement; and
(c) subject to Section 9.3, neither party hereto shall have any
liability or further obligation to the other party to this Agreement pursuant to
this Agreement except as stated in this Section 9.2 and in Sections 5.4(b) and
5.5, provided that nothing herein shall relieve any party from liability for its
willful breach of this Agreement.
9.3 Transaction Expenses. Each of the Company and the Subsidiary agrees
that if all or substantially all of the Sheridan Division Assets are sold,
whether by means of an asset sale, stock sale, sale of the Company or otherwise,
other than to the Buyer at any time on or prior to August 15, 1996 at a purchase
price greater than the Purchase Price, then the Company shall promptly pay upon
receipt of documentation therefor all of the Buyer's reasonable expenses
incurred in connection with the transactions contemplated by this Agreement up
to a maximum of $1,000,000. Such payment shall be made by wire transfer of
immediately available funds to an account designated by the Buyer without
set-off or deduction.
ARTICLE X
CASH MANAGEMENT
OF THE SHERIDAN SYSTEMS DIVISION
PENDING THE EFFECTIVE TIME
10.1 Representations and Warranties. (a) Every outstanding account
receivable reflected in the Sheridan Division Balance Sheet (except those owned
or held by the Subsidiary) and every other note receivable, account receivable
or other receivable which is currently outstanding and which is a Sheridan
Division Asset (except those owned or held by the Subsidiary), is subject to
payment instructions contained in the Sheridan Systems Division's standard form
invoice (a complete and accurate copy of which the Company has heretofore
delivered to the Buyer), and pursuant to such instructions each such outstanding
receivable will, if, as and when paid (in whole or in part), be paid by delivery
of cash, wire transfer or a check into Sheridan Systems Division bank accounts
at PNC Bank or the Bankers Trust Company listed in Schedule 1.41 (the "Division
Clearing Accounts"). Each of the Division Clearing Accounts and the Disbursing
Accounts (as hereinafter defined) is a Sheridan Division Bank Account. Amounts
collected in the Division Clearing Accounts are transferred daily into a BT
Commercial Corp. bank account as agent under the Company's credit facility. The
Company maintains a book account (the "Sheridan Division Checkbook"), which is
credited on a daily basis for amounts collected in the Division Clearing
Accounts and reduced on a daily basis for corporate requirements, (i.e., "Total
Requirements" as reflected on Schedule 10.2) and any
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checks written or moneys transferred on or from the disbursing accounts of the
Sheridan Systems Division (the accounts at National City Bank and Northern Trust
Company listed in Schedule 1.41, collectively, the "Disbursing Accounts"). For
purposes of this Agreement the Sheridan Division Checkbook shall have a balance
of zero as of the close of business on the date hereof. The Sheridan Systems
Division may not make disbursements from the Disbursing Accounts if such
disbursements would cause the balance in the Sheridan Division Checkbook to be
less than zero.
(b) All cash and third party checks and other negotiable instruments
convertible into cash upon deposit which constitute proceeds of any asset
reflected on the Sheridan Division Balance Sheet (except those owned or held by
the Subsidiary) or any other asset which would be a Sheridan Division Asset but
for its conversion to cash prior to the Effective Time (except those owned or
held by the Subsidiary) are received by the Sheridan Systems Division only by
deposit in the Division Clearing Accounts and not through any other bank,
clearing or lock box account.
(c) All cash and third party checks and other negotiable instruments which
the Dayton operation of the Sheridan Systems Division receives with new purchase
orders for goods or services or both which constitute customer advances relating
to specific purchase orders and all cash and third party checks and other
negotiable instruments which the Dayton operation of the Sheridan Systems
Division receives as progress payments relating to specific purchase orders
previously placed are received by the Sheridan Systems Division only by deposit
in the Division Clearing Accounts and not through any other bank, clearing or
lock box account.
10.2 Joint Disbursement Authority. (a) Pending the earlier to occur of the
Effective Time or a termination of this Agreement, the Company agrees that no
payments or other disbursements shall be made by the Company out of the Sheridan
Division Checkbook (including any payments from the Disbursing Accounts), except
with the written authorization of one of the Buyer's designated representatives
(each, a "Buyer's Required Signatory") which shall not be withheld in the case
of the daily cash disbursement requirements in the "Total Requirements"
reflected in the attached Schedule 10.2 and otherwise shall not be unreasonably
withheld or delayed. Buyer hereby designates each of Ian Lyons, Torben Wetche,
and Howard Dare to be a Buyer's Required Signatory, it being understood that
Buyer may change any Buyer's Required Signatory by notice given to the Company
as provided in this Agreement.
(b) At the Effective Time the Company will cause the Division Clearing
Accounts and the Disbursing Accounts to have funds aggregating the positive
balance in the Sheridan Division Checkbook, which funds shall constitute a
Sheridan Division Asset and shall be unconditionally sold, transferred and
delivered to the Buyer in accordance with the provisions of this Agreement.
(c) Pending the earlier to occur of the Effective Time or a termination of
this Agreement, the Company shall not amend or otherwise make any change in the
cash receiving and disbursing arrangements set forth in Section 10.1.
(d) In order to effectuate the intent and purposes of this Article X, the
Company shall provide to a Buyer's Required Signatory cash receipt data for the
Dayton operation of the Sheridan Systems Division on a daily basis.
(e) Pending the earlier to occur of the Effective Time or a termination of
this Agreement, except as permitted by the next sentence, the Company shall not
permit the Subsidiary to, and the Subsidiary shall not transfer or otherwise
disburse any cash to the Company or AM International (UK Holdings) Limited. Cash
transactions between the Dayton operation of the Sheridan Systems Division and
the Subsidiary may only be conducted to or from the Division Clearing Accounts
or the Disbursing Accounts and may only be made in respect of inventory payments
within standard invoice terms.
10.3 Balance Sheets. The Company has previously delivered to the Buyer
balance sheets reflecting the financial condition of the Sheridan Systems
Division as of May 25 and June 22, 1996, which balance sheets
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were in all respects prepared consistently with the Sheridan Division Balance
Sheet and fairly reflected the financial condition of the Sheridan Systems
Division as at that date. Such balance sheets, together with the Sheridan
Division Balance Sheet, are attached hereto as Schedule 10.3(a). Attached hereto
as Schedule 10.3(b) is an estimated balance sheet reflecting the projected
financial condition of the Sheridan Systems Division as of July 31, 1996. Such
balance sheet was in all respects prepared consistently with the Sheridan
Division Balance Sheet and fairly reflects the Company's best estimate as of the
date hereof of the projected financial condition of the Sheridan Systems
Division as of that date.
ARTICLE XI
MISCELLANEOUS PROVISIONS
11.1 Delivery of Schedules. The Schedules required to be delivered
pursuant to this Agreement are being delivered simultaneously with the execution
and delivery of this Agreement.
11.2 Amendment and Modification. Subject to applicable Law, this Agreement
may be amended, modified or supplemented only by written agreement of the
Company, the Subsidiary and the Buyer at any time prior to the Effective Time
with respect to any of the terms contained herein.
11.3 Waiver of Compliance; Consents. Except as otherwise provided in this
Agreement, any failure of either of the parties to comply with any obligation,
covenant, agreement or condition herein may be waived by the party entitled to
the benefits thereof only by a written instrument signed by the party granting
such waiver, but such waiver or failure to insist upon strict compliance with
such obligation, covenant, agreement or condition shall not operate as a waiver
of, or estoppel with respect to, any subsequent or other failure. Whenever this
Agreement requires or permits consent by or on behalf of a party, such consent
shall be given in writing in a manner consistent with the requirements for a
waiver of compliance as set forth in this Section 11.3.
11.4 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or mailed by
registered or certified mail (return receipt requested), postage prepaid,
telecopied (which is confirmed) or sent by reputable courier (providing proof of
delivery) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice, provided that notices of a
change of address shall be effective only upon receipt thereof):
(a) if to the Company or the Subsidiary, to
AM International, Inc.
9399 West Higgins Road
Rosemont, Illinois 60018
Telephone: (847) 685-2510
Facsimile: (847) 292-0610
Attention: Steven R. Andrews, Esq.
with a copy to
Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
Telephone: (312) 853-7567
Facsimile: (312) 853-7036
Attention: John J. Sabl, Esq.
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(b) if to the Buyer, to
Heidelberger Druckmaschinen AG
Postfach 10 29 40
D-69019 Heidelberg
Telephone: 011-49-6221-92-4060
Facsimile: 011-49-6221-92-4069
Attention: Dr. Lutz Bucken
with a copy to
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Telephone: (212) 735-3000
Facsimile: (212) 735-2000
Attention: J. Michael Schell, Esq.
11.5 Assignment. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, but neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by either of the
parties hereto without the prior written consent of the other party, nor is this
Agreement intended to confer upon any other person except the parties hereto any
rights or remedies hereunder; provided, however, that the Buyer may assign its
rights to purchase the Sheridan Division Assets to one or more of its wholly
owned subsidiaries, as provided in Section 11.6.
11.6 Designated Subsidiary. Anything in this Agreement to the contrary
notwithstanding, each of the Company and the Subsidiary agrees that the Buyer
may cause one or more of its wholly owned subsidiaries designated by the Buyer
to carry out all or part of the transactions contemplated by this Agreement;
provided, however, that no such designation shall affect or diminish the
liability of the Buyer under this Agreement.
11.7 Governing Law. This Agreement shall be governed by the laws of the
State of New York (regardless of the laws that might otherwise govern under
applicable principles of conflicts of law) as to all matters, including but not
limited to matters of validity, construction, effect, performance and remedies.
11.8 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11.9 Interpretation. The article and section headings contained in this
Agreement are solely for the purpose of reference, are not part of the agreement
of the parties and shall not in any way affect the meaning or interpretation of
this Agreement. As used in this Agreement: (i) the term "person" shall mean and
include an individual, a partnership, a joint venture, a corporation, a trust,
an unincorporated organization and a government or any department or agency
thereof; (ii) the term "subsidiary" when used in reference to any other person
shall mean any corporation of which outstanding securities having ordinary
voting power to elect a majority of the Board of Directors of such corporation
are owned directly or indirectly by such other person; (iii) the term
"affiliate" shall have the meaning set forth in Rule 12b-2 of the General Rules
and Regulations promulgated under the Exchange Act; and (iv) the term "business
day" means each day which is not a day on which banking institutions in New
York, New York are authorized or obligated by law or executive order to close.
11.10 Entire Agreement. This Agreement, including the exhibits hereto and
the documents, schedules, certificates and instruments referred to herein, and
the confidentiality agreement, dated January 19, 1996 between the Buyer and
Bear, Stearns & Co. Inc., embody the entire agreement and understanding of the
parties hereto in respect of the transactions contemplated by this Agreement.
There are no restrictions,
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promises, representations, warranties, covenants or undertakings, other than
those expressly set forth or referred to herein or therein. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such transactions.
11.11 Severability. If for any reason any term or provision of this
Agreement is held to be invalid or unenforceable, all other valid terms and
provisions hereof shall remain in full force and effect, and all of the terms
and provisions of this Agreement shall be deemed to be severable in nature. If
for any reason any term or provision containing a restriction set forth herein
is held to cover an area or to be for a length of time which is unreasonable, or
in any other way is construed to be too broad or to any extent invalid, such
term or provision shall not be determined to be null, void and of no effect, but
to the extent the same is or would be valid or enforceable under applicable law,
any court of competent jurisdiction shall construe and interpret or reform this
Agreement to provide for a restriction having the maximum enforceable area, time
period and other provisions (not greater than those contained herein) as shall
be valid and enforceable under applicable Law.
11.12 Bulk Sales Law. The Buyer waives compliance by Sellers with any bulk
sales or similar laws, and Sellers agree to indemnify from any liability
resulting from such noncompliance.
ARTICLE XII
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
12.1 Survival of Representations. All representations and warranties made
by either party pursuant to this Agreement shall not survive the Effective Time
and shall terminate and be of no further force or effect upon the earlier to
occur of the Effective Time or the date of the termination of this Agreement
pursuant to Section 9.1. The covenants and agreements of the parties hereto
shall survive in accordance with their respective terms.
12.2 Statements as Representations. All statements contained herein or in
any schedule or certificate delivered pursuant to this Agreement shall be deemed
representations and warranties as such term is used in this Agreement.
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IN WITNESS WHEREOF, the Company, the Subsidiary and the Buyer have caused
this Agreement to be signed by their respective duly authorized officers as of
the date first above written.
AM INTERNATIONAL, INC.
By /s/ Jerome D. Brady
------------------------------------
Its Chairman, President and CEO
-----------------------------------
AM GRAPHICS INTERNATIONAL LIMITED
By /s/ Robert Hutchings
------------------------------------
Its Acting Managing Director
-----------------------------------
HEIDELBERGER DRUCKMASCHINEN AG
By /s/ Hartmut Mehdorn
------------------------------------
Its Chief Executive Officer and
President
-----------------------------------
By /s/ Herbert Meyer
------------------------------------
Its Chief Financial Officer
-----------------------------------
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Bear Stearns Letterhead
APPENDIX II
July 9, 1996
AM International, Inc.
9399 West Higgins Road
Rosemont, IL 60018
Attention: Jerome D. Brady
Chairman, President and
Chief Executive Officer
Dear Sirs:
We understand that Heidelberger Druckmaschinen AG ("Heidelberg") intends to
acquire substantially all of the assets associated with the operation of the
Sheridan Systems Division ("Sheridan") of AM International, Inc. ("AMI") (the
"Transaction") in exchange for a cash payment of $50 million and the assumption
by Heidelberg of certain of the liabilities associated with the operation of
Sheridan (the "Acquisition Consideration"). We further understand that
Heidelberg plans to effectuate the Transaction through a wholly owned, direct or
indirect subsidiary of Heidelberg. You have provided us with the Asset Purchase
Agreement among Heidelberg, AMI and AM Graphics International (UK) Limited in
substantially final form (the "Asset Purchase Agreement").
You have asked us to render our opinion as to whether the Acquisition
Consideration is fair, from a financial point of view, to AMI.
In the course of our analyses for rendering this opinion, we have:
1. reviewed the Asset Purchase Agreement;
2. reviewed AMI's Annual Report to Shareholders and Annual Report on Form
10-K for the fiscal year ended July 31, 1995, and its Quarterly
Reports on Form 10-Q for the periods ended October 28, 1995, January
27, 1996 and April 27, 1996;
3. reviewed certain operating and financial information, including
projections, provided to us by management relating to Sheridan's
business and prospects;
4. met with certain members of Sheridan's senior management to discuss
its operations, historical financial statements and future prospects;
5. met with certain of AMI's senior management to discuss Sheridan's
operations, historical financial statements and future prospects;
6. visited Sheridan's facilities in Dayton, Ohio and Slough, England;
7. reviewed publicly available financial data and stock market
performance data of companies which we deemed generally comparable to
Sheridan;
8. reviewed the terms of recent acquisitions of companies which we deemed
generally comparable to Sheridan;
9. solicited indications of interest from companies and other parties
that we believed may have an interest in acquiring Sheridan; and
<PAGE> 114
10. conducted such other studies, analyses, inquiries and investigations as
we deemed appropriate.
In the course of our review, we have relied upon and assumed the accuracy and
completeness of the financial and other information provided to us by Sheridan
and AMI. With respect to the projections provided to us, we determined not to
rely on the estimates of Sheridan's future financial performance in our analyses
because of, among other factors, the inherent uncertainty of projections, the
numerous revisions made by management to their projections for the current
fiscal year and the fact that actual results for the interim periods of the
current fiscal year have differed materially from past projections for such
periods for Sheridan. We have not assumed any responsibility for the information
provided to us and we have further relied upon the assurances of the management
of Sheridan and AMI that they are unaware of any facts that would make the
information provided to us incomplete or misleading. In arriving at our opinion,
we have not performed or obtained any independent appraisal of the assets of
Sheridan. The Board of Directors of AMI has informed us that it has determined
to sell Sheridan at this time due to the overall financial needs of AMI and
other business considerations, and we are not commenting upon the
appropriateness of such reasons for the Transaction. Our opinion is necessarily
based on economic, market and other conditions, and the information made
available to us, as of the date hereof.
Based on the foregoing, it is our opinion that the Acquisition Consideration is
fair, from a financial point of view, to AMI.
We have acted as financial advisor to AMI in connection with the Transaction and
will receive a fee for such services, payment of a significant portion of which
is contingent upon the consummation of the Transaction.
It is understood that this letter is intended for the benefit and use of the
Board of Directors of AMI and does not constitute a recommendation to AMI
shareholders as to how to vote on the Transaction. This letter may be included
in its entirety in any proxy statement or other document distributed to
shareholders of AMI in connection with the solicitation of proxies in favor of
the Transaction (but any reference to or description of the opinion expressed
herein in any such proxy statement or other document shall be subject to our
prior written consent). This letter is not to be used for any other purpose, or
reproduced, disseminated, quoted or referred to at any time, in whole or in
part, without our prior written consent.
Very truly yours,
BEAR, STEARNS & CO. INC.
By: /s/ STEVEN WINOGRAD
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Senior Managing Director
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AM INTERNATIONAL, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE COMPANY FOR THE SPECIAL MEETING ON AUGUST 26, 1996
The undersigned hereby constitutes and appoints Jerome D. Brady, Thomas D. Rooney and Steven R. Andrews
and each of them, his true and lawful agents and proxies with full power of substitution in each, to
represent the undersigned at the Special Meeting of Stockholders of AM INTERNATIONAL, INC., to be held
P at the Riverway Auditorium, 6133 North River Road, Rosemont, Illinois on August 26, 1996,
and at any adjournment thereof, on all matters coming before said meeting.
R
O COMMENTS: (change of address)
___________________________________________
X ___________________________________________
___________________________________________
Y ___________________________________________
(If you have written in the above space, please mark the corresponding
box on the reverse side of this card.)
You are encouraged to specify your choice by marking the appropriate box ON THE REVERSE SIDE. If you do not mark any box,
your proxy will be voted in accordance with the Board of Directors' recommendation. The Proxies cannot vote your shares
unless you sign and return this card.
SEE REVERSE
SIDE
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/X/ Please mark your
vote as in the example.
This proxy when properly executed will be voted in the manner directed herein. If no direction is made, this proxy will be
voted FOR approval of the Proposed Sale.
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE PROPOSED SALE.
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FOR AGAINST ABSTAIN
1. Approval of the / / / / / / Change of Address/ / /
Proposed Sale Comments on Reverse Side
Please mark this Box if / /
you will personally be
attending the meeting.
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Please date and sign exactly as name appears hereon. Joint owners
should each sign. When signing as attorney, executor, administrator,
name of guardian, please give full title as such.
_____________________________________________________
_____________________________________________________
SIGNATURE(S) DATE
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