<PAGE> 1
SCHEDULE 14C
(RULE 14C-101)
INFORMATION REQUIRED IN INFORMATION STATEMENT
SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(C)
OF THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Information Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14c-5(d)(2))
[x] Definitive Information Statement
</TABLE>
Pages, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant As Specified in Charter)
Payment of Filing Fee (Check the appropriate box):
[x] No Fee required.
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, $.01 par value
(2) Aggregate number of securities to which transaction applies:
6,101,955
(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):
Approximately $2.30 per share. Proforma book value of each of the
915,293 shares to be distributed as per Reg. Sec. 240.0-11(c)(2)(i), and Sec.
240.0-11(a)(4).
(4) Proposed maximum aggregate value of transaction:
Approximately $2,106,622.90
(5) Total fee paid:
$-0-
[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
PAGES, INC. (LETTERHEAD)
Date: December 27, 1996
To the Stockholders of Pages, Inc.:
We are pleased to inform you that the Board of Directors of Pages, Inc.
("Pages") has approved a pro rata tax-free (except for cash from the sale of
fractional shares as described below) distribution of the outstanding shares of
common stock of its wholly owned subsidiary, CA Short Company, to holders of
Pages common stock. Each stockholder of Pages will receive one and one-half
shares of CA Short Company common stock for every ten shares of Pages common
stock held at the close of business on December 31, 1996. No fractional shares
will be issued in the distribution; in lieu thereof, The Huntington National
Bank (the "Distribution Agent") will aggregate all fractional interests in
shares of CA Short Company common stock, sell such shares in the public trading
market and distribute the net proceeds thereof to the holders of Pages common
stock entitled thereto.
The distribution will occur on December 31, 1996. Holders of Pages common
stock are not required to take any action to participate in the distribution. A
stockholder vote is not required in connection with the distribution and
accordingly, your proxy is not being sought. The enclosed Information Statement
explains the distribution of CA Short Company shares and related transactions
and contains important financial and other information about CA Short Company,
its organization, business, management and other matters. Please read the
Information Statement carefully and keep it for future reference.
The Board of Directors of Pages believes the distribution of common stock
of CA Short Company is in the best interests of Pages and its stockholders.
Following the distribution, management of each company plans to concentrate its
attention and resources on their respective core businesses without regard to
the corporate objectives, policies and investment standards of the other. For
example, CA Short Company will focus on its distinct business while Pages will
increase its focus on expanding its leisure-based children's literature
business.
Sincerely,
S. Robert Davis
Chairman
<PAGE> 3
CA SHORT (LETTERHEAD)
Date: December 27, 1996
To the Stockholders of Pages, Inc.:
The enclosed Information Statement contains important financial and other
information about CA Short Company, the corporation of which you will become a
stockholder if you owned shares of Pages, Inc. common stock at the close of
business on December 31, 1996. CA Short Company creates, markets, and
administers safety, service recognition, and holiday gift awards programs for
businesses. We want to welcome you as an investor and invite you to learn more
about our company.
We at CA Short Company are excited about the future of our company. We look
forward to a long relationship with each of you.
Sincerely,
Charles R. Davis
President
CA SHORT (ADDRESS)
<PAGE> 4
INFORMATION STATEMENT
CA SHORT COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF PAGES, INC.)
This Information Statement is being furnished to stockholders of Pages,
Inc., a Delaware corporation ("Pages") in connection with the distribution (the
"Distribution") by Pages to its stockholders of substantially all of the shares
of Common Stock of its wholly owned subsidiary, CA Short Company ("CA Short
Company" or the "Company").
The Distribution will occur on December 31, 1996, to holders of record of
the outstanding shares of common stock of Pages, $.01 par value per share (the
"Pages Common Stock"), at the close of business on December 31, 1996, on the
basis of one and one-half shares of the common stock of CA Short Company, $.01
par value per share (the "Short Common Stock"), for every ten shares of the
common stock of Pages, $.01 par value per share ("Pages Common Stock") held. The
Distribution will result in substantially all of the outstanding shares of Short
Common Stock being distributed to holders of the outstanding shares of Pages
Common Stock on a pro rata basis.
No consideration will be required to be paid by Pages stockholders for the
shares of Short Common Stock to be received by them in the Distribution, nor
will they be required to surrender or exchange shares of Pages common stock to
receive Short Common Stock.
The Short Common Stock will be traded on the "pink sheets" and on the
National Association of Securities Dealers, Inc. OTC Bulletin Board Service.
---------------------
IN REVIEWING THIS INFORMATION STATEMENT, YOU SHOULD
CAREFULLY CONSIDER THE MATTERS DESCRIBED
UNDER THE CAPTION "RISK FACTORS."
NO STOCKHOLDER APPROVAL OF THE DISTRIBUTION IS REQUIRED OR
SOUGHT. WE ARE NOT ASKING YOU FOR A PROXY AND YOU
ARE REQUESTED NOT TO SEND US A PROXY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
INFORMATION STATEMENT.
The date of this Information Statement is December 27, 1996
<PAGE> 5
INFORMATION STATEMENT
TABLE OF CONTENTS
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PAGE
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SUMMARY............................................................................... S-1
The Company......................................................................... S-1
The Distribution.................................................................... S-1
INTRODUCTION.......................................................................... 1
THE DISTRIBUTION...................................................................... 1
Reasons for the Distribution........................................................ 1
Manner of Effecting the Distribution; Fractional Shares............................. 1
Trading Market for Short Common Stock............................................... 2
Relationship Between Pages and the Company after the Distribution................... 3
Certain Federal Income Tax Consequences of the Distribution......................... 3
Dividends on Short Common Stock..................................................... 4
Questions Relating to the Distribution.............................................. 5
RISK FACTORS.......................................................................... 8
UNAUDITED PRO FORMA FINANCIAL INFORMATION............................................. 8
SELECTED FINANCIAL DATA............................................................... 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.......................................................................... 12
General............................................................................. 12
Liquidity and Capital Revenues...................................................... 12
Results of Operations............................................................... 12
Nine Months Ended September 30, 1996 Compared to the Nine Months Ended September
30, 1995........................................................................ 12
Year Ended December 31, 1995, Compared to Year Ended December 31, 1994........... 13
Year Ended December 31, 1994, Compared to Year Ended December 31, 1993........... 14
Seasonality......................................................................... 14
Inflation........................................................................... 14
BUSINESS.............................................................................. 15
General............................................................................. 15
Recognition Programs................................................................ 15
Merchandise Selection and Brochures................................................. 16
Sales and Marketing................................................................. 16
Growth Strategy..................................................................... 16
Seasonality......................................................................... 17
Competition......................................................................... 17
Employees........................................................................... 17
Properties.......................................................................... 17
Financing........................................................................... 17
CAPITALIZATION........................................................................ 18
MANAGEMENT
Directors and Executive Officers of the Company..................................... 19
Compensation of Directors........................................................... 19
Executive Compensation................................................................ 20
CA Short Company 1996 Stock Option Plan............................................... 20
Committees of the Board of Directors.................................................. 20
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........................ 20
</TABLE>
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<TABLE>
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PAGE
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<S> <C>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................................ 21
DESCRIPTION OF CAPITAL STOCK.......................................................... 21
Authorized Shares................................................................... 21
Common Stock........................................................................ 21
Preferred Stock..................................................................... 22
No Preemptive Rights................................................................ 22
Trading of Short Common Stock....................................................... 22
Transfer Agent and Registrar........................................................ 22
ANTITAKEOVER EFFECTS OF THE COMPANY'S CERTIFICATE..................................... 22
Preferred Stock and Additional Common Stock......................................... 23
Control Share Acquisition Statute................................................... 23
LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS............................... 24
PRICE RANGE OF PAGES COMMON STOCK..................................................... 25
INDEPENDENT AUDITORS.................................................................. 25
INDEX TO FINANCIAL STATEMENTS......................................................... F-1
</TABLE>
<PAGE> 7
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"SEC") a Registration Statement on Form 10 (as the same may be amended or
supplemented from time to time, the "Registration Statement") under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") with respect to
the Short Common Stock to be received by Pages stockholders in the Distribution.
This Information Statement does not contain all of the information set forth in
the Registration Statement and the exhibits and schedules thereto, to which
reference is hereby made. Statements made in this Information Statement as to
the contents of any contract, agreement or other document referred to herein are
not necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made to
such exhibit for a more complete description of the matter involved, and each
such statement shall be deemed qualified in its entirety by such reference.
The Registration Statement and the exhibits thereto filed by the Company
with the SEC may be inspected and copied at the public reference facilities of
the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549; as well as
at the Regional Offices of the SEC at Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661; and 7 World Trade Center, Suite 1300, New
York, New York 10048. Copies of such information can be obtained by mail from
the Public Reference Branch of the SEC at 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. Electronic registration statements made through
the Electronic Data Gathering, Analysis, and Retrieval system are publicly
available through the Commission's Web site (http://www.sec.gov).
Following the Distribution, the Company will be required to comply with the
reporting requirements of the Exchange Act and will file annual, quarterly and
other reports with the SEC. The Company will also be subject to the proxy
solicitation requirements of the Exchange Act and will furnish audited financial
statements to its stockholders in connection with its annual stockholders'
meeting.
Prior to the Distribution, Pages stockholders with inquiries relating to
the Distribution or the Company should contact Pages, by writing to Pages, Inc.,
801 94th Street North, St. Petersburg, Florida 33702, Attention: S. Robert
Davis, or by telephoning (813) 578-3300. After the Distribution, holders of
Short Common Stock with inquiries relating to the Distribution or their
investment in the Company should contact the Company, by writing to CA Short
Company, 4205 East Dixon Boulevard, Shelby, North Carolina 28150, Attention:
Charles R. Davis, or by telephoning (704) 482-9591.
<PAGE> 8
SUMMARY
This Summary is qualified in its entirety by the more detailed information
appearing elsewhere in this Information Statement, which should be read in its
entirety. Unless the context indicates, or it is specifically indicated
otherwise, the information in this Information Statement gives effect to the
Distribution and assumes that the Distribution has occurred. Certain data
included herein applies to a distribution ratio for the Distribution of one and
one-half shares of Short Common Stock for every ten outstanding shares of Pages
Common Stock, which is the distribution ratio that has been established by the
Board of Directors of Pages. Capitalized terms used but not defined in this
Summary are defined elsewhere in this Information Statement.
THE COMPANY
The Company creates markets, and administers safety, sales incentive,
service recognition, and holiday gift awards programs for businesses. The
Company markets its awards programs throughout the United States.
Once viewed as a holiday gift business, the recognition awards industry has
been revitalized by the increasing emphasis on improving employee morale. The
Company has been quick to capitalize on this trend by developing a professional
sales approach to large corporate customers, and by offering collections of
quality merchandise in addition to more traditional items of emblematic jewelry
and gifts. The Company customizes its recognition awards to meet each client's
specific management challenge (generally either to recognize, educate or modify
behavior). In a typical program, a client's employee accrues performance credits
toward an award. Upon achieving the specified level of performance, the employee
is entitled to receive an award, which he or she may then select from attractive
brochures prepared by the Company. The client purchases the merchandise from the
Company, which then ships the merchandise either directly to the client or to
the designated recipient. The Company's growth strategy focuses on increasing
year-round sales, broadening geographic markets, and developing expanded awards
programs.
---------------------
THE DISTRIBUTION
DISTRIBUTING COMPANY....... Pages publishes, markets, and distributes
reasonably priced, leisure-based children's
literature.
DISTRIBUTED COMPANY........ CA Short creates, markets, and administers safety,
sales incentive, service recognition, and holiday
gift awards programs for businesses. See
"Business."
THE DISTRIBUTION........... Based on the number of shares of Pages Common Stock
outstanding on September 30, 1996 (and assuming
outstanding Pages stock options are not exercised),
Pages estimates that it will distribute
approximately 915,923 shares of Short Common Stock.
Pages will distribute one and one-half shares of
Short Common Stock for every ten shares of Pages
Common Stock outstanding as of the Record Date
described below. Immediately following the
Distribution, Pages will not own any shares of
Short Common Stock and the holders of Pages Common
Stock on the Record Date will own approximately
915,923 shares of Short Common Stock, which will
represent approximately 100% of the outstanding
shares of Short Common Stock.
REASONS FOR THE
DISTRIBUTION............... The Pages Board of Directors believes that the
Distribution will benefit both the Company's
business and Pages' other business and, therefore,
is in the best interests of the stockholders of
Pages for a number of reasons. Among these are: (a)
focusing the management of each company on the core
business of each company without regard to the
corporate objectives and policies of the other
company, (b) offering incentives more attractive
and appropriate for the motivation and retention of
key employees of
S-1
<PAGE> 9
each company, and (c) permitting a more objective
evaluation of each of the companies by the capital
markets.
RECORD DATE................ December 31, 1996 (close of business).
DISTRIBUTION DATE.......... December 31, 1996.
DISTRIBUTION AGENT......... The Huntington National Bank, 41 S. High Street,
11th Floor, Columbus, Ohio 43216, telephone (800)
225-1242.
FRACTIONAL SHARES.......... No fractional shares will be issued in the
Distribution; in lieu thereof, the Distribution
Agent will aggregate all fractional interests in
shares of Short Common Stock, sell such shares in
the public trading market and distribute the net
proceeds thereof to the holders of Pages Common
Stock entitled thereto. Pages stockholders
receiving cash from the sale of fractional shares
will be taxed upon the receipt of such cash. See
"The Distribution -- Manner of Effecting
Distribution: Fractional Shares."
MANNER OF DISTRIBUTION..... After the Distribution Date, the Distribution Agent
will commence mailing certificates representing
shares of Short Common Stock to holders of record
(as of the Record Date) of outstanding shares of
Pages Common Stock. See "The Distribution -- Manner
of Effecting Distribution: Fractional Shares."
CERTAIN TAX CONSEQUENCES... In general, it is anticipated that Pages, CA Short
Company, and the Pages stockholders should not
recognize any taxable gain or income solely as a
result of the Distribution. As a condition of the
Distribution, Pages will receive a tax opinion from
Johnson, Blakely, Pope, Bokor, Ruppel & Burns,
P.A., Tampa, Florida, to the effect that the
Company may reasonably report the Distribution of
Short Common Stock to Pages stockholders as a
tax-free distribution for federal income tax
purposes. The tax opinion will be subject to
certain qualifications and assumptions, the
accuracy of which are critical to the Distribution
qualifying as a tax-free distribution. See "The
Distribution -- Certain Federal Income Tax
Consequences of the Distribution."
TRADING MARKET............. Although the Company intends to apply for a listing
if it becomes eligible, the Company does not expect
to be eligible for listing of its Common Stock on
the Nasdaq Small Cap Market upon completion of the
Distribution. Trading, if any, in the Company's
Common Stock will be conducted in the
over-the-counter market on the Nasdaq Electronic
Bulletin Board Service or in what are commonly
referred to as the "pink sheets." See "Risk
Factors -- Absence of Public Market; Possible
Illiquidity of Trading Market and Possible
Volatility of Stock Price."
RISK FACTORS............... Stockholders should carefully consider each of the
matters discussed under the section entitled "Risk
Factors" in this Information Statement.
DIVIDENDS.................. The CA Short Board of Directors anticipates that
the Company will retain any earnings and will not
pay dividends to its stockholders in the
foreseeable future. See "The
Distribution -- Dividends on Short Common Stock."
PRINCIPAL OFFICE OF THE
COMPANY.................. 4205 East Dixon Boulevard, Shelby, North Carolina
28150, telephone (704) 482-9591.
S-2
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TRANSFER AGENT AND
REGISTRAR FOR SHORT COMMON
STOCK.................... The Huntington National Bank, 41 S. High Street,
Columbus, Ohio 43216, will act as CA Short's
Transfer Agent and Registrar for the Short Common
Stock.
RELATIONSHIP WITH PAGES
AFTER THE DISTRIBUTION..... Except for certain matters provided for in the
Distribution Agreement, including the execution and
delivery by the Company of a subordinated debenture
payable to Pages in the principal amount of $5
million, it is expected that Pages and the Company
will cease to have any material contractual or
other relationships with each other. S. Robert
Davis, Chairman of the Board and President of Pages
will continue to be Chairman of the Board of the
Company. Charles R. Davis, a director and the
President of the Company, will continue to be a
director of Pages and will be an Executive Vice
President and the Secretary of Pages. See "The
Distribution -- Relationship Between Pages and the
Company After the Distribution."
S-3
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INFORMATION STATEMENT
FOR THE STOCKHOLDERS OF
CA SHORT COMPANY
---------------------
INTRODUCTION
CA Short Company (the "Company") is a Delaware corporation and a subsidiary
of Pages, Inc., a Delaware corporation ("Pages"). Pages is distributing all of
the outstanding shares of common stock, par value $.01 per share (the "Short
Common Stock") of the Company owned by Pages to the holders of the outstanding
shares of common stock, par value $.01 per share (the "Pages Common Stock"), of
Pages (the "Distribution"). Pages currently owns all of the shares of the Short
Common Stock. Immediately after the Distribution, Pages will own no shares of
Short Common Stock and the holders of Pages Common Stock on the Record Date will
own substantially all of the outstanding shares of Short Common Stock.
The business of the Company is the creation, marketing and administration
of safety, sales, incentive, service recognition, and holiday gift awards
programs for businesses. The Company markets its awards programs throughout the
United States, however, its customer base is concentrated in the Southeastern
United States. The executive offices of the Company are located at 4205 East
Dixon Boulevard, Shelby, North Carolina 28150, and its telephone number is (704)
482-9591.
THE DISTRIBUTION
REASONS FOR THE DISTRIBUTION
The Pages Board of Directors believes that the value and potential of the
publishing business of Pages and the awards program business of the Company may
be better realized as separate public companies and that the Distribution will
benefit both the Company's business and Pages' business and, therefore, is in
the best interests of the stockholders of Pages. The consummation of the
Distribution is contingent upon several matters, including the receipt by the
Pages Board of Directors of the advice of and a fairness opinion from an
investment banking firm. The Distribution is designed to separate the businesses
of Pages and the Company, which have distinctly different products and services,
markets, opportunities, and investment, financial and operating characteristics
so that each can adopt strategies and pursue objectives appropriate to its
specific business. The Distribution will permit the management of each company
to concentrate its attention and resources on the challenges faced by their
respective core businesses without regard to corporate objectives, policies, and
investment standards of the other. In addition, the Pages Board of Directors
believes that, although there can be no assurance that either Pages or the
Company will have access to capital in the future, the access of both companies
to private and the public capital markets may be enhanced by the Distribution.
After the Distribution, each business could be more objectively evaluated by the
capital markets, on the basis of its individual merits. Separating the companies
should allow for increased executive focus for both Pages and the Company and
more effective incentive programs for key employees of each company. The
Distribution should also permit investors, customers, regulatory agencies and
other constituencies to evaluate the respective businesses of Pages and the
Company more effectively.
MANNER OF EFFECTING THE DISTRIBUTION; FRACTIONAL SHARES
The Distribution will be made on the basis of one and one-half shares of
Short Common Stock for every ten shares of Pages Common Stock outstanding on the
Record Date. The Huntington National Bank, as distribution agent (the
"Distribution Agent"), will commence mailing the certificates representing
shares of the Short Common Stock after the Distribution Date to holders of
record of Pages Common Stock on the Record Date. Brokers and other nominees will
have one week following the Record Date in which to notify the Distribution
Agent of their requirements for stock certificates. It is anticipated that,
after the Record Date and prior to receipt of such stock certificates, holders
of shares of the Short Common Stock will be able to sell their shares on a
"when-issued" basis, for settlement after receipt of such certificates; there
can be no
<PAGE> 12
assurance, however, that a "when-issued" market in shares of the Short Common
Stock will develop or that shareholders will be able to sell their shares of
Short Common Stock prior to the receipt of their certificates representing such
shares. All shares of Short Common Stock distributed in the Distribution will be
fully paid and nonassessable and the holders thereof will not have preemptive
rights. See "Description of Capital Stock."
No certificates or scrip representing fractional shares of Short Common
Stock will be issued to Pages stockholders as part of the Distribution. In lieu
of receiving fractional shares, each holder of Pages Common Stock who would
otherwise be entitled to receive a fractional share of Short Common Stock will
receive cash for such fractional interest. On or after the Distribution Date,
but not later than forty-five business days after the Distribution Date (the
"Final Date"), the Distribution Agent will cause all fractional shares of the
Short Common Stock to which Pages stockholders would otherwise be entitled to be
aggregated and the resulting shares sold for the account of such stockholders.
On or before the Final Date, the Distribution Agent will compute the average
price per share of Short Common Stock resulting from all such sales and will
remit to each stockholder of Pages entitled to a fractional share of Short
Common Stock an amount equal to such average price multiplied by his or her
fractional interest (after making appropriate deductions of any amount required
for tax withholding purposes and after deducting an amount equal to all
brokerage charges, commissions, and transfer taxes attributed to such sale).
An aggregate of approximately 915,293 shares of Short Common Stock is
expected to be distributed in the Distribution to approximately 443 holders of
record, based on the number of shares, and holders of record of shares, of Pages
Common Stock outstanding on September 30, 1996 (assuming that outstanding Pages
employee stock options are not exercised) prior to the Record Date.
Holders of Pages Common Stock on the Record Date will not be required to
pay cash or any other consideration for the shares of the Short Common Stock
received in the Distribution or to surrender or exchange certificates
representing shares of Pages Common Stock in order to receive shares of the
Short Common Stock. The Distribution does not affect the number of, or the
rights attaching to, the outstanding shares of Pages Common Stock.
TRADING MARKET FOR SHORT COMMON STOCK
A "when-issued" trading market in the Short Common Stock may develop prior
to the Distribution. A "when-issued" trading market occurs when trading in
shares begins prior to the time stock certificates are actually available or
issued.
There has been no public trading market for the Short Common Stock.
Although the Company intends to apply for a listing if it becomes eligible, the
Company does not expect to be eligible for listing of its Common Stock on the
Nasdaq Small Cap Market upon the completion of the Distribution. However, at
least one member of the National Association of Securities Dealers, Inc.
("NASD") has agreed to register as a market maker and to enter quotations of the
Short Common Stock on the NASD OTC Bulletin Board Service and trading may be
conducted in what are commonly referred to as the "pink sheets." There can be no
assurance that an active trading market for the Short Common Stock will develop
after the Distribution. Market making activity may be discontinued at any time.
The prices at which the Short Common Stock will trade cannot be predicted and
may fluctuate significantly. Such prices will be determined in the marketplace
and may be influenced by many factors, including the performance of the Company,
investor expectations for the Company, the trading volume in Short Common Stock,
and general economic and market conditions. See "Risk Factors -- Absence of
Public Market; Possible Illiquidity of Trading Market and Possible Volatility of
Stock Price." Based on the number of record holders of Pages Common Stock as of
September 30, 1996, the Company is expected to have approximately 443
stockholders of record at the Distribution Date. There are no outstanding
options to purchase Short Common Stock.
Shares of the Short Common Stock received by the holders of Pages Common
Stock in the Distribution will be freely transferable, except for shares
received by persons who may be deemed "affiliates" of the Company under the
Securities Act of 1933, as amended (the "Securities Act"). Persons who may be
deemed affiliates of the Company after the Distribution generally include
individuals or entities that control, are controlled by or are under common
control with the Company, and may include the directors, executive
2
<PAGE> 13
officers and principal stockholders of the Company. Persons who are affiliates
of the Company will be permitted to sell the Short Common Stock only pursuant to
an effective registration statement under the Securities Act or an exemption
from the registration requirements thereunder.
RELATIONSHIP BETWEEN PAGES AND THE COMPANY AFTER THE DISTRIBUTION
For purposes of governing certain of the ongoing relationships between
Pages and the Company after the Distribution and to provide for an orderly
transition to the status of two separate companies, prior to the Distribution,
Pages and the Company will enter into a Distribution Agreement. The form of the
Distribution Agreement summarized in this section is included as an exhibit to
the Company's Registration Statement on Form 10, of which this Information
Statement forms a part, and the following summary is qualified in its entirety
by reference to the Distribution Agreement as filed with the Securities and
Exchange Commission.
The Distribution Agreement will provide, among other things, for
cooperation between Pages and the Company prior to the Distribution, the
indemnification by each party of the other against certain liabilities,
including certain tax liabilities. In addition, the Distribution Agreement will
provide for the execution and delivery by the Company to Pages of a subordinated
debenture in the principal amount of $5 million bearing interest at 7% per annum
payable quarterly, with principal payments of $100,000 each due at the end of
each of the first four years, and a final payment of $4,600,000 due at the end
of the fifth year. The Distribution Agreement also will provide that Pages and
the Company will be granted access to certain records and information in the
possession of the other, and will require the retention by each for a period of
five years following the Distribution of all such information in its possession.
The Distribution Agreement also will provide for the allocation of certain
taxes. In general, Pages will be responsible for filing all tax returns and
paying all taxes relating to the Company for periods through the Distribution
Date, and the Company will be responsible for filing all such tax returns and
paying all such taxes for period beginning after the Distribution Date. Pages
and the Company will agree to cooperate with one another and to share
information in preparing such tax returns and in dealing with other tax matters.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION
The following discussion sets forth a summary of the material federal
income tax consequences under the Internal Revenue Code of 1986, as amended (the
"Code"), to holders of Pages Common Stock with respect to the receipt of the
Short Common Stock pursuant to the Distribution. The summary is based on the
opinion of Johnson, Blakely, Pope, Bokor, Ruppel & Burns, P.A. ("Counsel"), a
copy of which is included as exhibit 8 to the Company's Registration Statement
on Form 10, of which this Information Statement is a part. The discussion may
not address all federal income tax consequences that may be relevant to
particular Pages stockholders, e.g., foreign persons, dealers in securities and
persons who received Pages Common Stock in compensatory transactions. In
addition, the discussion does not address any state, local or foreign tax
considerations relative to the Distribution. ACCORDINGLY, ALL HOLDERS OF PAGES
COMMON STOCK ARE URGED TO CONSULT THEIR OWN TAX ADVISORS.
Pages has not requested a ruling from the Internal Revenue Service (the
"Service") with respect to the federal income tax consequences of the
Distribution. However, as a condition of the consummation of the Distribution,
Pages will receive an opinion of Counsel that: (i) for federal income tax
purposes, there is a reasonable basis for treating the Distribution as a
transaction qualifying under Section 355 of the Code; and (ii) this discussion
insofar as it relates to the statements of law or legal conclusions is correct
in all material respects.
In rendering the tax opinion, Counsel will rely upon certain
representations and covenants made by Pages, certain of its stockholders, and
the Company, including the following: (a) following the Distribution, the
holders of Pages common stock must maintain a substantial continuing ownership
interest in the Short Common Stock they receive in the Distribution; and (b) the
Company and Pages must continue their historic businesses. The tax opinion will
be explicitly conditioned upon the accuracy of such representations and
covenants and upon certain assumptions critical to the Distribution qualifying
as a tax-free spin-off under Section 355 of the Code. The tax opinion does not
bind the Service nor does it preclude the Service from
3
<PAGE> 14
adopting a contrary position from that taken in the tax opinion. In the event
the representations or assumptions are not accurate or the covenants are
breached, then Pages and the Company will be unable to rely on the tax opinion.
Assuming the Distribution qualifies as a tax-free spin-off under Section 355,
the following tax consequences will result:
(1) No gain or loss will be recognized by or includable in the income
of a holder of Pages Common Stock solely as a result of the receipt of
Short Common Stock pursuant to the Distribution;
(2) No gain or loss will be recognized by Pages or the Company solely
as a result of the Distribution;
(3) The tax basis of Pages Common Stock held by a Pages stockholder
immediately before the Distribution will be apportioned between such Pages
Common Stock and the Short Common Stock received by such stockholder in the
Distribution based upon the relative fair market value of such Pages Common
Stock and Short Common Stock on the Distribution Date; and
(4) Assuming that Pages Common Stock held by a Pages stockholder is
held as a capital asset, the holding period for the Short Common Stock
received in the Distribution will include the period during which such
Pages Common Stock was held.
Notwithstanding the opinion of Counsel referred to above, the application
of Section 355 of the Code to the Distribution is complex and may be subject to
differing interpretation. In particular, the Service may challenge the tax-free
status of the Distribution on the grounds that it lacks an adequate "business
purpose" or that the active business requirement of Section 355(b) of the Code
(which requires the continuation after the Distribution of a business conducted
for at least five years prior to the Distribution) is not satisfied.
Accordingly, there can be no assurance that the Service will not successfully
assert that the Distribution is a taxable event.
If the Distribution does not qualify as a tax-free spin-off under Section
355 of the Code, then: (i) Pages would recognize capital gain equal to the
difference between the fair market value of the Short Common Stock on the
Distribution Date and Pages' tax basis in such stock; (ii) each stockholder
receiving shares of Short Common Stock in the Distribution may be treated as
having received a distribution equal to the value of the Short Common Stock
received which would be taxable as ordinary income to the extent of Pages'
current and accumulated earnings and profits; (iii) the holding period for
determining capital gain treatment of the Short Common Stock received in the
Distribution would commence on the Distribution Date; and (iv) each Stockholder
would have a tax basis in the shares of Short Common Stock received in the
Distribution equal to the fair market value of such shares. Corporate
stockholders may be eligible for a dividends-received deduction (subject to
certain limitations) with respect to the portion of the Distribution
constituting a dividend, and may be subject to the Code's extraordinary dividend
provisions which, if applicable, would require a reduction in such holder's tax
basis in his or her Short Common Stock to the extent of such deduction.
THE FOREGOING IS A SUMMARY OF MATERIAL FEDERAL INCOME TAX CONSIDERATIONS OF
THE DISTRIBUTION UNDER CURRENT LAW. EACH STOCKHOLDER SHOULD CONSULT HIS OR HER
TAX ADVISOR AS TO THE PARTICULAR CONSEQUENCES OF THE DISTRIBUTION TO SUCH
STOCKHOLDER, IN LIGHT OF HIS OR HER PERSONAL CIRCUMSTANCES, INCLUDING THE
APPLICATION OF STATE, LOCAL AND FOREIGN TAX LAWS.
DIVIDENDS ON SHORT COMMON STOCK
The Company anticipates that future earnings will be used principally to
support operations and to finance continued expansion and, thus, the Company
does not intend to pay cash dividends on the Short Common Stock for the
foreseeable future. The payment of cash dividends in the future will be at the
discretion of the Company's Board of Directors and will depend upon such factors
as earnings levels, capital requirements, the Company's financial condition, and
other factors deemed relevant by the Company's Board of Directors.
4
<PAGE> 15
QUESTIONS RELATING TO THE DISTRIBUTION
Questions relating to the Distribution or ownership of Common Stock of the
Company should be directed to the President, CA Short Company, 4205 East Dixon
Boulevard, Shelby, North Carolina 28150, telephone (704) 482-9591.
RISK FACTORS
An investment in Short Common Stock involves certain risks, including those
described below, which could adversely affect the value of the Short Common
Stock. Neither Pages nor the Company makes, nor is any other person authorized
to make, any representation as to the future market value of the Short Common
Stock.
DEPENDENCE UPON KEY PERSONNEL
The Company's future success depends to a significant degree upon the
continued service of key senior management personnel, none of whom is bound by
an employment agreement or covered by an insurance policy of which the Company
is the beneficiary. The Company's future success also depends on its continuing
ability to attract, retain and motivate highly qualified, managerial and sales
personnel. Competition for such personnel is intense, and there can be no
assurance that the Company will be able to retain its existing employees or
attract, retain and motivate highly qualified personnel in the future. If the
Company is unable to hire the necessary personnel, its ability to market the
Company's products could be impaired. Such impairment could have a material
adverse effect upon the Company's business, financial condition and results of
operations.
UNCERTAINTY OF TAX CONSEQUENCES
As a condition to the completion of the Distribution, Pages and the Company
will receive an opinion from Johnson, Blakely, Pope, Bokor, Ruppel & Burns,
P.A., to the effect that, Pages and the Company have a reasonable basis for the
position that the Distribution will qualify as a tax-free spin-off under Section
355 of the Internal Revenue Code. This tax opinion is offered in reliance on a
number of assumptions, covenants and representations made by Pages, the Company,
and certain Pages stockholders, including the following: (a) following the
Distribution, the holders of Pages Common Stock must maintain a substantial
continuing ownership interest in the Short Common Stock they receive in the
Distribution; and (b) the Company must continue its historic business. These
assumptions, representations, and covenants are critical to the Distribution
qualifying as a tax-free spin-off under Section 355 of the Internal Revenue
Code. If any of the representations or covenants are breached or any of the
assumptions are incorrect, then the factual foundation of the tax opinion would
be flawed and it may not be relied upon.
Further, as reflected in the tax opinion, the applicability of Section 355
to the Distribution is complex and may be subject to differing interpretations.
In particular, the Internal Revenue Service may challenge the tax-free status of
the Distribution on the grounds that (a) it lacks an adequate "business
purpose", or (b) that the active business requirement of Section 355(b)1 of the
Code (which requires the continuation after the Distribution of a business
conducted for at least five years prior to the Distribution) is not satisfied.
Accordingly, even if the representations and the covenants are not breached,
there can be no assurance that the Internal Revenue Service will not
successfully challenge the applicability of Section 355 to the Distribution, or
assert that the Distribution fails the requirements of Section 355 on the basis
of facts either existing at the time of the Distribution, or which may arise
after the Distribution Date.
Neither Pages nor the Company has undertaken any obligation to refrain from
any act that may be inconsistent with the Distribution qualifying as a tax-free
distribution under Section 355 or to indemnify each other or Pages stockholders
for any tax liability (including interest or penalties) arising out of an act
causing the Distribution to fail to so qualify. See "The Distribution -- Certain
Federal Income Tax Consequences of the Distribution."
5
<PAGE> 16
ABSENCE OF PUBLIC MARKET; POSSIBLE ILLIQUIDITY OF TRADING MARKET AND POSSIBLE
VOLATILITY OF STOCK PRICE
There has been no previous trading market for Short Common Stock and there
can be no assurance that a public market for the Common Stock will develop or be
sustained after the Distribution. The Company does not expect to be eligible for
listing of its Common Stock on the Nasdaq Small Cap Market upon completion of
the Distribution. Trading, if any, in the Company's Company Stock will be
conducted in the over-the-counter market on the NASD's Electronic Bulletin Board
System or in what are commonly referred to as the "pink sheets." Such trading
may cause the Short Common Stock to be significantly less liquid than common
stock or other securities listed on the Nasdaq National Market or the Nasdaq
Small Cap Market. As a result, an investor may find it difficult to dispose of,
or to obtain accurate quotations as to the price of, the Company's securities.
In addition, the Company's securities may be subjected to so-called "penny
stock" rules that impose additional sales practice and market making
requirements on broker-dealers who sell and/or make a market in such securities.
This could affect the ability or willingness of broker-dealers to sell and/or
make a market in the Company's securities and the ability of holders of the
Company's securities to sell their securities in the secondary market.
There can be no assurances regarding the prices at which the Short Common
Stock will trade before or after the Distribution Date. The market prices for
securities of emerging companies have historically been highly volatile. Future
announcements concerning the Company or its competitors' results, as well as
investor perception of the Company and industry and general economic and market
conditions, may have a significant impact on the market price of Short Common
Stock. In addition, the stock market is subject to price and volume fluctuations
that affect the market prices for companies in general, and small capitalization
companies in particular, and are often unrelated to their operating performance.
RESTRICTIONS IMPOSED BY THE CREDIT FACILITY
The credit facility to be obtained by the Company upon the consummation of
the Distribution will contain a number of significant covenants that will, among
other things, restrict the ability of the Company to dispose of assets, merge,
incur debt, pay dividends, repurchase or redeem capital stock and indebtedness,
create liens, make capital expenditures and make certain investments or
acquisitions and otherwise restrict corporate activities. In addition, the
credit facility will contain, among other covenants, requirements that the
Company maintain specified financial ratios, including a minimum capital base,
and minimum pre-tax profits from operations. The ability of the Company to
comply with such provisions may be affected by events beyond the Company's
control. The breach of any of these covenants would result in a default under
the credit facility. In the event of any such default, the lender could elect to
declare all amounts borrowed under the credit facility, together with accrued
interest and other fees, to be due and payable. If the indebtedness under the
credit facility were to be accelerated, there can be no assurance that the
assets of the Company would be sufficient to repay such indebtedness in full.
See "Business -- Financing."
THE COMPANY'S DIVIDEND POLICY
In addition to the restrictions contained in the credit facility on the
payment of dividends, the payment and level of cash dividends, if any, by the
Company after the Distribution will be at the discretion of the Company's Board
of Directors, based primarily upon the earnings, cash flow and financial
requirements of its business. The Company currently does not anticipate paying
cash dividends on Company Common Stock in the foreseeable future. The future
dividend policy will be determined on the basis of various factors, including
the Company's results of operations, financial condition, capital requirements,
and investment opportunities. See "Description of Capital Stock -- Dividends on
Common Stock."
EFFECTS ON PAGES STOCK
After the Distribution, the Pages Common Stock will continue to be listed
and traded on the Nasdaq National Market. As a result of the Distribution, the
trading prices of Pages Common Stock are expected to be correspondingly lower
than the trading prices of Pages Common Stock immediately prior to the
Distribution. The combined trading prices of Pages Common Stock and Short Common
Stock after the
6
<PAGE> 17
Distribution may be less than, equal to or greater than the trading prices of
Pages Common Stock prior to the Distribution.
CONTINUING CONTROL OF THE COMPANY BY MANAGEMENT
S. Robert Davis, the Chairman of the Board and President of Pages, and the
Chairman of the Board of the Company, and Charles R. Davis, a director of Pages
and the Company, the President of the Company, and the Executive Vice President
and Secretary of Pages, currently own beneficially 1,345,359 and 687,003 shares,
respectively, of Pages Common Stock, including options to purchase 43,750 and
43,750 shares, respectively, of Pages Common Stock exercisable within the next
sixty days. If they would exercise all of such options after the Distribution,
their holdings would represent approximately 21.87% and 11.18%, respectively, of
the issued and outstanding Pages Common Stock prior to any adjustment of their
outstanding options as a result of the Distribution. They will receive their pro
rata share of Short Common Stock in the Distribution. Accordingly, Mr. Robert
Davis and Mr. Charles Davis will, after the Distribution, own 195,241 and 96,487
shares, or 21.33% and 10.54%, respectively, of the Short Common Stock. As a
result of their holdings, they currently exert, and are likely to continue to
exert, significant control over Pages and the Company.
COMPETITION
The Company's business is highly competitive. Many of the Company's
competitors are significantly larger and better capitalized than the Company.
See "Business -- Competition."
7
<PAGE> 18
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited Pro Forma Balance Sheet of the Company as of
September 30, 1996 and the Pro Forma Condensed Statements of Operations of the
Company for the year ended December 31, 1995 and the nine months ended September
30, 1996, present the financial position and results of operations of the
Company assuming the Distribution had been completed as of September 30, 1996
and as of the beginning of 1995, respectively. In the opinion of management,
they include all material adjustments necessary to restate the Company's
historical results. The pro forma adjustments are described in the accompanying
notes to the pro forma financial information which should be read in conjunction
with such unaudited pro forma financial statements. Such pro forma statements
should also be read in conjunction with the Company's financial statements and
notes thereto included elsewhere herein. The following unaudited pro forma
condensed statements of operations do not purport to be indicative of the actual
results of the Company that would have occurred had the Distribution actually
been consummated on January 1, 1995 or of future results of operations which
will be obtained as a result of the consummation of the Distribution.
CA SHORT COMPANY
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
---------------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues............................................... $ 22,620 $ 22,620
Costs and expenses
Costs of goods sold.................................. 13,862 13,862
Selling, general, and administrative................. 8,155 30(a) 8,185
Interest............................................. 416 350(b) 766
Depreciation and amortization........................ 363 363
Management fees paid to Pages........................ 500 (500)(c) --
------- -------
23,296 23,176
------- -------
Loss from continuing operations........................ 676 556
Benefit for income taxes............................... (249) 44(d) (205)
------- -------
Net loss............................................... 427 351
Loss per common share.................................. .38
Weighted average common shares outstanding............. 915,293
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1996
---------------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues............................................... $ 13,694 $ 13,694
Costs and expenses
Costs of goods sold.................................. 8,396 8,396
Selling, general and administrative.................. 5,722 24(a) 5,746
Interest............................................. 58 257(b) 315
Depreciation and amortization........................ 252 252
Management fee paid to PAGES......................... 375 (375) (c) --
------- -------
14,803 14,709
Loss from continuing operations........................ 1,109 1,015
Benefit for income taxes............................... (121) (21) (d) (142)
Net loss............................................... 988 873
Loss per common share.................................. .95
Weighted average common shares outstanding............. 915,293
</TABLE>
8
<PAGE> 19
CA SHORT COMPANY
UNAUDITED PRO FORMA BALANCE SHEET
AS OF SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
SEPTEMBER 30, PRO FORMA
1996 ADJUSTMENTS PRO FORMA
------------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.................................................... $ 77 -- $ 77
Accounts receivable..................................... 2,169 -- 2,169
Inventory............................................... 6,650 -- 6,650
Prepaid expenses........................................ 944 -- 944
------- -------
Total current assets............................ 9,840 9,840
------- -------
Building and equipment:
Buildings............................................... 3,187 -- 3,187
Equipment............................................... 1,839 -- 1,839
------- -------
5,026 -- 5,026
Less accumulated depreciation........................... (1,262) -- (1,262)
------- -------
3,764 -- 3,764
Land.................................................... 212 -- 212
------- -------
Total property and equipment, net............... 3,976 -- 3,976
------- -------
Other assets:
Cost in excess of net assets acquired................... 1,142 -- 1,142
Other................................................... 616 -- 616
------- -------
1,758 -- 1,758
------- -------
TOTAL ASSETS.............................................. $15,574 $15,574
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable........................................ $ 658 -- $ 658
Short-term debt obligations............................. 2,448 -- 2,448
Accrued liabilities..................................... 272 -- 272
Due to PAGES............................................ 4,125 (4,125)(e) --
Advance deposits........................................ 5,940 -- 5,940
------- -------
Total current liabilities....................... 13,443 -- 9,318
------- -------
Deferred tax liability.................................. -- -- --
Note payable to PAGES................................... -- 5,000(f) 5,000
------- ------ -------
Stockholder's equity:
Common shares........................................... 34 (25)(g) 9
Capital in excess of par value.......................... 4,124 (850)(g) 3,274
Accumulated deficit..................................... (2,027) -- (2,027)
</TABLE>
9
<PAGE> 20
CA SHORT COMPANY
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION
The pro forma adjustments to the accompanying financial information as of
and for the nine months ended September 30, 1996, and for the year ended
December 31, 1995, are described below:
a. To reflect the additional stand alone general and administrative
costs associated with the Distribution.
b. To reflect the interest expense on the $5,000,000 debt payable to
Pages. Interest on the debt is 7% per annum.
c. To reflect the elimination of the management fees paid to Pages.
d. To record the estimated income tax benefit of pro forma adjustments
at the combined federal, state, and local income tax rate of 40%.
e. To reflect the elimination of the "Due to Pages" upon entering into
a $5 million subordinated debenture with Pages at the Distribution.
f. To reflect the debt that will be payable to Pages as a result of
the elimination of the amount due to Pages as of the Distribution.
g. To reflect the changes in stockholder's equity resulting a) from
the excess of note payable to Pages over the amount due to Pages that will
be eliminated, and b) from the recapitalization of common stock for the
Distribution by way of the elimination of the 334.91 common shares at $100
par value and the issuance of the 915,293 common shares at $0.01 par value.
These amounts are ($875,000) and $25,000, respectively.
10
<PAGE> 21
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table summarizes certain historical financial information of
the Company that has been derived from the financial statements of the Company
for the five years ended December 31, 1995 and the nine month periods ended
September 30, 1996 and September 30, 1995. The historical financial information
may not be indicative of the Company's future performance as a stand-alone
company. The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's Pro Forma Financial Information and Notes thereto
included elsewhere herein.
<TABLE>
<CAPTION>
TEN MONTHS
PERIOD ENDED PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, FEBRUARY 28,
1996 1995 1995 1994 1993 1992 1992
------------- ------------- ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED
STATEMENTS OF
OPERATIONS DATA:
Revenues.............. $ 13,695 $12,641 $ 22,620 $ 25,158 $ 28,909 $ 17,889 $21,405
Costs and expenses.... 14,804 14,231 23,296 25,635 28,759 17,952 21,475
-------- ------- -------- ------- ------- ------- -------
Income (loss) from
continuing
operations before
income taxes........ (1,109) (1,590) (676) (477) 150 (63) (70)
(Provision) benefit
for income taxes.... 121 510 249 193 (57) -- --
-------- ------- -------- ------- ------- ------- -------
Income (loss) from
continuing
operations.......... (988) (1,080) (427) (284) 93 (63) (70)
-------- ------- -------- ------- ------- ------- -------
Net income (loss)..... $ (988) $(1,080) $ (427) $ (284) $ 93 $ (63) $ (70)
======== ======= ======== ======= ======= ======= =======
PRO FORMA PER SHARE
DATA:
Income (loss) from
continuing
operations.......... $ (1.08) $ -- $ (0.47) -- -- -- --
Pro forma weighted
average common and
common equivalent
shares.............. 915,293 -- 915,293 -- -- -- --
CONSOLIDATED BALANCE
SHEET DATA:
Working capital....... $ (3,603) $(3,288) $ (2,338) $ (1,790) $ (1,810) $ (1,378) $ (796)
Total assets.......... 15,574 16,368 19,512 23,584 22,572 17,034 11,385
Stockholder's
equity.............. 2,131 2,467 3,119 3,547 3,831 3,738 3,808
</TABLE>
11
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following is a discussion and analysis of the historical results of
operations and financial condition of the Company and factors affecting the
Company's financial resources. The discussion should be read in conjunction with
the Company's financial statements, including the notes thereto, appearing
elsewhere herein.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity have been cash generated from
operating activities and amounts available under its existing credit facility.
The Company's primary uses of funds consist of financing inventory and
receivables.
Net working capital deficit increased to $3,603,000 as of September 30,
1996 from $2,338,000 as of December 31, 1995. The increase was primarily
attributed to reductions in trade accounts from collections which exceeded the
decrease in the level of borrowings.
The Company has adopted a growth strategy which will be accomplished
through increased efforts of the Company's existing highly trained sales force
to further expand current market share and by enlarging the existing sales force
in order to expand into new markets.
The Company anticipates that operating cash flows during the next twelve
months, coupled with its ability to borrow under the credit facility, will cover
operating expenditures and meet the short-term debt obligations. The Company
also plans to enter into a $5 million, 7% subordinated debenture with Pages
simultaneously with the Distribution in satisfaction of amounts due to Pages by
the Company. Any excess of the amount due to Pages as of the Distribution over
the $5 million subordinated debenture will be recorded as paid in capital. As a
result, the Company's working capital will become significantly positive.
Principal payments will be $100,000 per year for the first four years, and a
final payment due at the end of the fifth year for the remaining principal
balance. Interest will be 7% per annum and the interest will be payable
quarterly. See "Capitalization."
The Company does not anticipate any material expenditures for property and
equipment during the next twelve months.
The Company is aware of no trends or demands, commitments or uncertainties
that will result in, or that management believes are reasonably likely to result
in, the Company's liquidity increasing or decreasing in any material way. The
Company is aware of no legal or other contingencies, the effect of which are
believed by management to be reasonably likely to have a material adverse effect
on the Company's financial statements.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1996 Compared to the Nine Months Ended
September 30, 1995.
Revenues were approximately $13.7 million for the nine months ended
September 30, 1996, compared to $12.6 million for the same period in 1995 -- an
increase of approximately $1.1 million or 9%. The increase in revenues is
principally attributable to maintaining the volume on certain existing customers
coupled with increasing volume from new accounts.
Cost of goods sold for the nine months ended September 30, 1996 was
approximately $8.4 million compared to approximately $7.8 million for the
comparable period in 1995. This 8% increase in cost of goods sold is a result of
an increase in revenues for the nine months ended September 30, 1996.
Selling, general, and administrative expense for the nine months ended
September 30, 1996 was approximately $5.7 million, compared to $5.5 million for
the same period in 1995 -- an increase of 3.6%, or approximately $200,000. The
increase in selling, general, and administrative expense is primarily due to the
Company's expansion and increased focus in sales and marketing.
12
<PAGE> 23
Interest expense was approximately $58,000 for the nine months ended
September 30, 1996, compared to $286,000 for the nine months ended September 30,
1995 -- a decrease of 79.7% or approximately $228,000. The decrease is due to a
lower level of borrowings. The average outstanding debt for the nine months
ended September 30, 1996 approximated $1.5 million compared to $3.8 million for
the nine months ended September 30, 1995. Additionally, the average interest
rate for the nine months ended September 30, 1996 approximated 8.55% compared to
9.41% for the nine months ended September 30, 1995.
Depreciation and amortization expense was approximately $252,000 for the
nine months ended September 30, 1996, compared to $281,000 for the nine months
ended September 30, 1995 -- a decrease of 10% or approximately $29,000. The
decrease in depreciation and amortization expense is principally attributable to
the amortization of the remaining deferred loan costs during 1996.
Income tax benefit was approximately $121,000 for the nine months ended
September 30, 1996, compared to approximately $510,000 for the nine months ended
September 30, 1995. The provisions for income tax benefit were calculated
through the use of normal income tax rates. The Company was able to continue
recognizing an income tax benefit through September 30, 1996, based on the net
deferred tax liabilities that were in existence through that date. However, at
September 30, 1996, the remaining net deferred tax asset, liability is zero
after the establishment of a valuation allowance for the resulting net deferred
tax asset. Recognition of any income tax benefit for future losses will be
subject to the recognition provisions under SFAS No. 109.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994.
Revenues were approximately $22.6 million for the year ended December 31, 1995,
compared to $25.2 million for the year ended December 31, 1994 -- a decrease of
10% or approximately $2.6 million. The decline in revenue was due to a decrease
in volume on certain existing customers coupled with delayed redemption on new
accounts.
Cost of goods sold was approximately $13.9 million for the year ended
December 31, 1995, compared to approximately $15.5 million for the year ended
December 31, 1994 -- a decrease of 10% or approximately $1.6 million. The
decrease in cost of goods sold was attributable to the decrease in revenues. As
a percentage of revenues, cost of goods sold improved to 61.3% in 1995 from
61.7% in 1994. The 0.7% decrease in cost of goods sold is principally
attributable to a change in product mix.
Selling, general, and administrative expense was approximately $8.2 million
for the year ended December 31, 1995, compared to approximately $8.9 million for
the year ended December 31, 1994 -- a decrease of 8% or approximately $700,000.
The decrease in selling, general and administrative expenses was due to
decreased sales and cost reduction efforts implemented by the Company.
Interest expense was approximately $416,000 for the year ended December 31,
1995, compared to $430,000 for the year ended December 31, 1994 -- a decrease of
3% or $14,000. The decrease was due to lower levels of borrowings. The average
outstanding debt by month in 1995 approximated $3.9 million compared to $5.9
million for 1994. Additionally, the average interest rate for 1995 approximated
9.3% compared to approximately 7.9% for 1994.
Depreciation and amortization expense was approximately $362,500 for the
year ended December 31, 1995, compared to $297,500 for the year ended December
31, 1994 -- a decrease of 22% or approximately $65,000. The increase in
depreciation and amortization expense is principally attributable to the
amortization of additional deferred loan costs recorded as a result of certain
credit facility refinancing by Pages, the parent.
Income tax benefit was $248,600 for the year ended December 31, 1995,
compared to $193,500 for the year ended December 31, 1994. The provisions for
income tax benefit were calculated through the use of estimated income tax rates
based on annualized income.
13
<PAGE> 24
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993.
Revenues were approximately $25.2 million for the year ended December 31,
1994, compared to $28.9 million for the year ended December 31, 1993 -- a
decrease of 12.8% or approximately $3.7 million. The decline in revenue was due
to a decrease in volume on certain existing customers coupled with delayed
redemption on new accounts.
Cost of goods sold was approximately $15.5 million for the year ended
December 31, 1994, compared to approximately $19 million for the year ended
December 31, 1993 -- a decrease of 18.4% or approximately $3.5 million. The
decrease in cost of goods sold was attributable to the decrease in revenues. As
a percentage of revenues, cost of goods sold improved to 61.7% in 1994 from
65.6% in 1993. The decrease in cost of goods sold is principally attributable to
a change in product mix.
Selling, general, and administrative expense was approximately $8.9 million
for the year ended December 31, 1994, compared to approximately $8.0 million for
the year ended December 31, 1993 -- an increase of 11% or approximately
$900,000. The increase in selling, general and administrative expenses was due
to a substantial shift from non-commissioned sales to commissioned sales which
accounted for approximately $500,000 of the increase. Additionally, the selling,
general and administrative expenses includes approximately $400,000 of staffing
and marketing costs associated with anticipated fourth quarter sales which did
not materialize.
Interest expense was approximately $430,000 for the year ended December 31,
1994, compared to $252,500 for the year ended December 31, 1993 -- an increase
of 70% or $177,500. The increase was due to higher levels of borrowings. The
average outstanding debt by month in 1994 approximated $5.9 million compared to
$3.5 million for 1993. Additionally, the average interest rate for 1994
approximated 7.9% compared to approximately 7.0% for 1993.
Depreciation and amortization expense was approximately $297,500 for the
year ended December 31, 1994, compared to $265,000 for the year ended December
31, 1993 -- an increase of 12% or approximately $32,500. The increase in
depreciation and amortization expense was primarily due to acquisitions of
office equipment.
Income tax benefit was $193,500 for the year ended December 31, 1994,
compared to the income tax provision of $57,000 for the year ended December 31,
1993. The provisions for income tax benefit were calculated through the use of
estimated income tax rates based on annualized income.
SEASONALITY
The Company's business is highly seasonal, with approximately one-half of
its revenues and most of its profits recorded in the months of November,
December and January. As a result, the Company's working capital requirements
are highest during November and December when the combination of receivables and
inventory are at peak levels and the Company typically experiences losses in its
second and third quarters.
INFLATION
Although the Company cannot determine the precise effects of inflation,
inflation has an influence on the cost of the Company's products and services,
supplies, salaries, and benefits. The Company attempts to minimize or offset the
effects of inflation through increased sales volumes and sales prices, improved
productivity, alternative sourcing of products and supplies, and reduction of
other costs. The Company generally has been able to offset the impact of price
increases from suppliers by increases in the selling prices of the Company's
products and services.
14
<PAGE> 25
BUSINESS
GENERAL
The Company was formed as a North Carolina corporation in 1950. Pages
acquired all of the issued and outstanding common stock of the Company in
February, 1990. In November, 1996, the Company reincorporated in the State of
Delaware by merging into Clyde A. Short Incorporated, a Delaware corporation
which was the surviving corporation in the merger and which, in conjunction with
the merger, changed its name to CA Short Company. The Company creates, markets,
and administers recognition programs which address specific needs in employee
motivation and recognition. Programs offered by the Company include safety,
service recognition, attendance, birthday, and corporate holiday gift programs.
Virtually every program employs merchandise (alternatively, jewelry) as the
principal incentive for the reinforcement or modification of employee behavior.
The common objective of all the Company's programs is to reduce client operating
costs by increasing employee productivity.
The Company begins a typical assignment by helping the client to determine
realistic performance goals and to establish an appropriate budget. Next, the
Company selects and recommends to the client an assortment of merchandise which,
in the Company's experience, will serve as an effective incentive to the
client's employees. Upon approval, the Company publishes and distributes all
materials (including appealing, full-color catalogues or brochures) necessary to
communicate the program's benefits. As the client's employees become eligible to
receive awards, the Company processes their requests and, in most cases, ships
the items directly to the employees from the Company's distribution center in
Shelby, North Carolina. The Company then invoices the client at prices
approximating comparable retail, as the merchandise is shipped.
RECOGNITION PROGRAMS
Safety Recognition Programs. Accidents in the workplace injure thousands
of workers each year and cost billions of dollars in worker's compensation
premiums, health care costs, and lost productivity. The Company's safety
programs are designed to reduce these costs by increasing awareness and
promoting safe work habits. Because each client has its own unique set of safety
concerns, the Company designs each safety program to meet the specific needs and
goals of the client. A typical safety program would grant an award for
accident-free operations over a specified period of time. As a consequence of
the present regulatory environment, clients are placing increasing emphasis on
safety and the Company has received a number of client testimonials regarding
the efficacy of the safety programs it has designed. Safety programs accounted
for approximately 56% of the Company's revenues in each of the last three fiscal
years.
Sales Incentive Programs. Sales incentive programs are designed to achieve
the client's specific goals, such as gaining market share, launching new
products or services, improving profitability, encouraging early ordering,
opening new territories, or boosting overall sales. When those goals are met,
the responsible employees are provided with awards.
Service Recognition Programs. Service award programs grant awards based on
years of service with the employer. Service awards are designed to improve
morale, increase productivity, and reduce costly employee turnover by delivering
messages of recognition and strengthening bonds of loyalty between employees and
employers. The Company's experience is that employee recognition is near the top
of the list of motivating factors that create on-the-job satisfaction. Service
award programs accounted for approximately 22% of the Company's revenues in each
of the last three fiscal years.
Quality Control Programs. Quality control programs are designed to create
and increase quality awareness and motivate workers to make a personal
commitment to quality. Participants are rewarded when corporate goals and
objectives are met. Effective programs result in reducing rework and downtime,
retaining existing business, and earning new business through increased customer
satisfaction.
Production Programs. Production programs are designed to motivate workers
by offering incentive awards for achieving corporate production quotas and
goals. By creating increased productivity awareness, thus increasing production,
the client is able to reduce its cost per unit and enhance profitability.
15
<PAGE> 26
Attendance Programs. The costs incurred by clients resulting from
absenteeism include loss of production, decrease in quality, downtime, extra
wages to replace absent workers, and added administration. Attendance
recognition programs are designed to reduce excessive absenteeism by providing
incentive awards to workers with perfect attendance.
Birthday and Holiday Gift Programs. Although a declining portion of the
Company's incentive/recognition business, many employers continue to have a
long-standing tradition of giving holiday gifts to employees as a way of
thanking them for their commitment and dedication throughout the year. Finding
the right gift has frequently posed a challenge for those responsible for
administration of the program. The Company's gift-giving solution provides
clients with a program that allows employees to select exactly the gift they
want, while eliminating the administrative burden associated with other types of
holiday gift programs. Holiday gift programs accounted for approximately 21% of
the Company's revenues in each of the last three fiscal years.
MERCHANDISE SELECTION AND BROCHURES
The Company presents the merchandise available for selection by its
clients' employees in a full-color catalog/brochure designed and produced by the
Company's art department. Except for apparel, the selection of which is limited,
the merchandise offered by the Company is similar to that found in a large
retail department store, including consumer electronics, housewares, hardware,
lawn and garden merchandise, sportswear, costume jewelry, and manufactured fine
jewelry. Unlike some of its competitors in the service award business which
manufacture the merchandise offered as awards, the Company has no "product
bias," allowing it to find the most reasonably priced, highest quality supplier
of merchandise for its programs. Merchandise is separated into over twenty
different price levels. This allows the client to select price levels which fit
its budget. The items in each of the price levels selected by the client are
presented to employees in separate brochures corresponding to the applicable
award level. The selection of merchandise within each price level is carefully
chosen to appeal to a wide segment of the industry work force. Products are
grouped by the Company within a particular price level based on the Company's
determination of the relative value of all merchandise offered by the Company,
rather than on the Company's cost of those items. This results in different
markups over the Company's cost for each item.
SALES AND MARKETING
The Company markets its incentive/recognition awards programs through a
combination of approximately one hundred independent commissioned sales
representatives, sales consultants, telephone sales representatives and by
direct mail, trade show participation, and trade journal advertising. The
Company is evaluating converting some independent sales representative positions
to employee sales positions. The Company employs a "consultative selling" or
"partner" approach to marketing its programs which relieves from the client much
of the design responsibilities associated with the programs. This often requires
personal client contact over extended periods of time. The Company's proprietary
computer software allows its sales consultants to monitor and administer the
programs of its clients, relieving the client from much of the administrative
burden associated with the program. Approximately 10% of the independent
commissioned sales representatives are exclusive to the Company in all their
business activities and 90% are non-exclusive and may represent a competitor.
Sales consultants and telephone sales representatives are Company employees.
GROWTH STRATEGY
The Company intends to add additional sales representatives in order to
penetrate geographic markets in the United States outside of the Southeastern
market in which its sales are now concentrated. Many of the Company's clients
participate in only one or two of the programs offered by the Company. As part
of its growth strategy, the Company also intends to expand its awards programs
and actively cross-sell its broad range of programs to its existing clients.
16
<PAGE> 27
SEASONALITY
The Company's business is highly seasonal, with approximately one-half of
its revenues and most of its profits recorded in the months of November,
December and January. As a result, the Company's working capital requirements
are highest during November and December when the combination of receivables and
inventory are at peak levels, and the Company typically experiences losses in
its second and third quarters. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Seasonality and Quarterly
Data."
COMPETITION
The incentive/recognition awards business is highly competitive, but
fragmented, with no company dominating the industry. The Company competes on the
basis of customer service, product quality and diversity, and competitive
pricing.
EMPLOYEES
As of September 30, 1996, the Company employed a total of 106 permanent and
35 seasonal persons. None of the Company's employees is represented by a labor
union.
PROPERTIES
The Company owns a 134,000 square foot office and warehouse building
located in Shelby, North Carolina and a 163,700 square foot warehouse located in
Kings Mountain, North Carolina. Both properties are in good condition. The
properties and all other Company assets collateralize its revolving line of
credit facility with a maximum availability of $4,500,000.
FINANCING
The Company has received a proposal from the Huntington National Bank to
provide to it a credit facility in the form of a $4.5 million revolving line of
credit. Under the proposal, borrowings will be limited to the sum of 80% of
accounts receivable less than 90 days old plus 60% of eligible inventory, plus
75% of the appraised value of the Company's real estate located 4205 East Dixon
Boulevard, in Shelby, North Carolina. Eligible inventory is limited to $3.5
million from January through May, and $6.5 million from June through December.
The credit facility will have an expiration date of June 30, 1997 and will bear
interest at the lender's prime rate of interest plus one percent, floating
daily. All business assets of the Company will be pledged as collateral for the
credit facility. The credit facility will also include certain financial
covenants, including covenants that the Company maintain certain financial
ratios including a minimum tangible capital base and a minimum pre-tax profit
from operations. In addition, the credit facility will contain limitations on
capital expenditures, fixed asset sales, loans and/or advances to shareholders
and employees and restrictions on operating leases. The proposal does not
constitute a commitment on the part of the lender. A commitment is subject to
further due diligence by the lender and the completion of the bank's formal
credit approval process. The consummation of the Distribution is contingent
upon, among other things, the receipt of a commitment for a credit facility
acceptable to the Board of Pages. The credit facility will be in addition to the
$5 million subordinated debenture payable by the Company to Pages.
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<PAGE> 28
CAPITALIZATION
The following table sets forth, as of September 30, 1996, the historical
capitalization of the Company and the pro forma capitalization of the Company to
reflect the Distribution. This information should be read in conjunction with
the Company's financial statements and the related notes thereto included
herein.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-------------------------
ACTUAL PRO FORMA
----------- -----------
<S> <C> <C>
Current liabilities:
Due to Pages...................................................... $ 4,124,975 $ --
Note payable to Pages -- noncurrent................................. -- 5,000,000
Stockholder's equity:
Common stock, par-value $100 per share (actual) $.01 per share
(pro forma) 334.91 shares authorized, 334.91 shares issued and
outstanding (actual) 915,293 shares issued and outstanding (pro
forma)......................................................... 33,491 9,152
Capital in excess of par value.................................... 4,124,494 3,273,808
Accumulated deficit............................................... (2,026,991) (2,026,991)
----------- -----------
Total Stockholder's Equity................................ 2,130,994 1,255,969
----------- -----------
Total Capitalization...................................... $ 6,255,969 $ 6,255,969
=========== ===========
</TABLE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information with respect to each
person who is a director or an executive officer of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- ----------------------------------------------------
<S> <C> <C>
S. Robert Davis(1)................. 58 Chairman of the Board
Charles R. Davis(1)................ 35 President and Director
Jeffrey A. Ross.................... 29 Chief Financial Officer and Secretary
Robert V. Boylan................... 33 Executive Vice President of Sales
</TABLE>
- ---------------
(1) S. Robert Davis is the father of Charles R. Davis.
S. ROBERT DAVIS is the Chairman of the Board and President of Pages. Prior
to his election to the Board of Directors of Pages, he served as Assistant to
the President of Pages from January, 1988, to March, 1990, on a part-time basis.
Additionally, during the past five years Mr. Davis has operated several private
businesses involving the developing, sale, and/or leasing of real estate, but
devotes substantially all of his business time to Pages.
CHARLES R. DAVIS was elected President of the Company in September, 1992.
Mr. Davis is also a Director and the Executive Vice President and Secretary of
Pages. Additionally, during the past five years Mr. Davis has operated several
private businesses involving the developing, sale and/or leasing of real estate
but devotes substantially all of his business time to the Company.
JEFFREY A. ROSS is a certified public accountant. He joined the Company as
its controller in June, 1993. Mr. Ross was employed as an accountant by a large
public accounting and consulting firm from September, 1989, until June, 1993.
ROBERT V. BOYLAN joined the Company in August, 1996, as Executive Vice
President of Sales. From April 1988 until August 1996, Mr. Boylan managed North
American sales and marketing activities of a large, diversified building
products manufacturer. Mr. Boylan has also served as a contract consultant for
the American Management Association, as well as Beauvestco Consulting,
specializing in sales development, and
18
<PAGE> 29
sales management. Mr. Boylan has also served as a general partner of a closely
held real estate management firm located in North Carolina.
Executive officers are elected by the Board of Directors and serve until
their successors are duly elected and qualify, subject to earlier removal by the
Board of Directors. Directors are elected at the annual meeting of shareholders
to serve for one year and until their respective successors are duly elected and
qualify, or until their earlier resignation, removal from office, or death. The
remaining directors may fill any vacancy in the Board of Directors for an
unexpired term. The next annual meeting of the Company's shareholders will take
place during 1997.
COMPENSATION OF DIRECTORS
Each director who is not an officer of the Company will receive a fee of
$500 for attendance at each non-telephonic Board meeting, a fee of $250 for
attendance of each telephonic Board meeting, and a fee of $250 for attendance at
each meeting of a Board committee of which he is a member. Directors who are
also officers of the Company will receive no additional compensation for their
services as directors.
The Company has adopted a Non-Employee Director Stock Option Plan, which
provides for the grant, at the discretion of the Company's Board of Directors,
of options to purchase up to 40,000 shares of Short Common Stock upon such terms
as are determined by the Board in its discretion. No options have been granted
under the Plan.
EXECUTIVE COMPENSATION
The Company's President, Charles R. Davis, was paid a salary of $147,890,
$140,000, and $140,000 in each of the 1995, 1994, and 1993 fiscal years,
respectively. Mr. Davis exercised options to purchase Pages Common Stock during
1995, the difference between the fair market value of the Pages Common Stock
received and the option exercise price of which was $103,389. He did not receive
any other compensation from the Company in those years and he did not receive
any grants of options to purchase Pages Common Stock in those years. He has not
received any Company option grants. Mr. Davis is paid a salary of $155,000
during fiscal 1996. No other executive officer of the Company received
compensation exceeding $100,000 during fiscal 1995.
CA SHORT COMPANY 1996 STOCK OPTION PLAN
The Company has adopted a 1996 Incentive Stock Option Plan which provides
for the grant, at the discretion of the Board of Directors, of options to
purchase up to 45,000 shares of Short Common Stock to key employees of the
Company. It is intended that options granted under such Plan qualify as
incentive stock options under Section 422 of the Internal Revenue Code of 1986,
as amended. No options have been granted under the Plan.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has no committees of the Board of Directors.
19
<PAGE> 30
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Prior to the Distribution, Pages owns all of the outstanding shares of
Short Common Stock. Assuming the completion of the Distribution and that the
Pages stockholders continue to own beneficially on the Record Date the same
number of shares believed by Pages to be owned beneficially by such persons on
September 30, 1996, the following table sets forth certain information with
respect to the beneficial ownership of shares of Short Common Stock that will be
owned beneficially by (i) each person who beneficially owns more than 5% of the
outstanding Short Common Stock, (ii) each director of the Company, (iii) the
President of the Company (the only executive officer of the Company whose cash
and non-cash compensation for services rendered to the Company for the year
ended December 31, 1995, exceeded $100,000) and (iv) directors and executive
officers of the Company as a group:
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENT
NAME AND ADDRESS OWNERSHIP(1) OF CLASS(2)
-------------------------------------------------------- ----------------- -----------
<S> <C> <C>
S. Robert Davis......................................... 1,345,359(3) 21.89%
801 94th Avenue North
St. Petersburg, Florida 33702
Charles R. Davis........................................ 687,003(4) 11.18%
4205 East Dixon Boulevard
Shelby, North Carolina 28150
All directors and executive officers as a group (4
persons).............................................. 2,080,712(5) 33.37%
</TABLE>
- ---------------
(1) Represents sole voting and investment power unless otherwise indicated.
(2) Based on 6,101,955 shares of Pages Common Stock outstanding as of September
30, 1996, plus, as to each person listed, that portion of the 602,800
unissued shares of Pages Common Stock subject to outstanding options which
may be exercised by such person, and as to all directors and executive
officers as a group, unissued shares of Pages Common Stock as to which the
members of such group have the right to acquire beneficial ownership upon
the exercise of stock options within the next 60 days.
(3) Includes 25,100 shares owned by Mr. Davis' wife as to which Mr. Davis
disclaims beneficial ownership and includes 43,750 shares of Pages Common
Stock as to which Mr. Davis has the right to acquire beneficial ownership
upon the exercise of stock options within the next 60 days.
(4) Includes 781 shares owned by Mr. Davis' wife and 4,474 shares owned by Mr.
Davis' children as to which Mr. Davis disclaims beneficial ownership and
includes 43,750 unissued shares of Pages Common Stock as to which Mr. Davis
has the right to acquire beneficial ownership upon the exercise of stock
options within the next 60 days.
(5) The number of shares of common stock beneficially owned by all directors and
executive officers as a group includes all the shares of Pages Common Stock
listed above plus 3,000 shares of Pages Common Stock owned and 25,000
unissued shares of Pages Common Stock as to which Robert V. Boylan, an
executive officer of the Company, has the right to acquire beneficial
ownership upon exercise of stock options within the next 60 days and 350
shares of Pages Common Stock and 20,000 unissued shares of Pages Common
Stock as to which Jeffrey A. Ross, an executive officer of the Company, has
the right to acquire beneficial ownership upon exercise of stock options
within the next 60 days.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pages has provided services to the Company including, but not limited to
services related to administration, transportation, tax services, accounting and
reporting, and management consultation. Pages has also incurred costs related to
the services rendered to the Company by Pages, and also related to legal
services and general corporate expenses which have been allocated to the
Company. Pages has also incurred financing costs to provide non-interest bearing
advances to the Company, which costs approximated $263,000, $263,000, $450,000,
$450,000, and $400,000, respectively based on the prime interest rate as applied
to the average outstanding balance due to Pages during the nine month periods
ended September 30, 1996, and 1995 and during the years ended December 31, 1995,
1994 and 1993. All of the foregoing have been embodied in
20
<PAGE> 31
management fees charged by Pages to the Company. Those fees for the nine month
periods ended September 30, 1996, and 1995 and for the years ended December 31,
1995, 1994 and 1993 were in the amounts of $375,000, $375,000, $500,000,
$500,000 and $1,287,019, respectively. The allocation of costs and expenses by
Pages to the Company was based on methods Pages believes are reasonable. The
portion of such costs which CA Short believes will continue to be incurred after
the Distribution is approximately $30,000 per year. The balance of such costs
which are not expected to continue after the Distribution relates to duplicative
management responsibilities for financing and operating activities and
transportation and administration costs which will be eliminated by the
Distribution.
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED SHARES
Under the Company's Certificate of Incorporation ("Certificate" or
"Certificate of Incorporation"), the authorized capital stock of the Company
consists of 5,000,000 shares of Short Common Stock, par value $.01 per share,
and 300,000 shares of preferred stock, $.01 par value per share (the "Short
Preferred Stock"). Pages currently owns all outstanding shares of Short Common
Stock. No shares of Short Preferred Stock have been issued. Immediately after
the Distribution, based on the number of shares of Pages Common Stock
outstanding as of September 30, 1996 (and assuming a distribution ratio of one
and one-half shares of Short Common Stock for every ten shares of Pages Common
Stock), approximately 915,293 shares of Short Common Stock and no shares of the
Short Preferred Stock will be issued and outstanding. Pages will own no shares
of Common Stock after the Distribution.
COMMON STOCK
Holders of Short Common Stock are entitled to one vote for each share on
all matters voted on by stockholders. All shares of Short Common Stock to be
distributed will be fully paid and nonassessable. Holders of Short Common Stock
do not have any subscription, redemption or conversion privileges. Subject to
the preferences or other rights of any Short Preferred Stock that may issued
from time to time, holders of common stock are entitled to participate ratably
in dividends on the Short Common Stock as are declared by the Board of
Directors. Holders of Short Common Stock are entitled to share ratably in all
assets available for distribution to stockholders in the event of liquidation or
dissolution of the Company, subject to distribution of the preferential amount,
if any, to be distributed to holders of Short Preferred Stock.
PREFERRED STOCK
The Company's Certificate of Incorporation authorizes the Board, without
any vote or action by the holders of Short Common Stock, to issue Short
Preferred Stock from time to time in one or more series. The Board is authorized
to determine the number of shares and designation of any series of Short
Preferred Stock and the dividend rights, dividend rate, conversion rights and
terms, voting rights (full or limited, if any), redemption rights and terms,
liquidation preferences and sinking fund terms of any series of Short Preferred
Stock. Issuance of Short Preferred Stock would be subject to the applicable
rules of the NASD or other organizations on whose systems the stock of the
Company may then be quoted or listed. Depending upon the terms of Short
Preferred Stock established by the Board, any or all series of Short Preferred
Stock could have preference over the Short Common Stock with respect to
dividends and other distributions and upon liquidation of the Company. Issuance
of any such shares with voting powers, or issuance of additional shares of Short
Common Stock, would dilute the voting power of the outstanding Short Common
Stock.
NO PREEMPTIVE RIGHTS
No holder of any capital stock of the Company has any preemptive right to
subscribe for or purchase any securities of any class or kind of the Company.
21
<PAGE> 32
TRADING OF SHORT COMMON STOCK
No current public trading market exists for Short Common Stock, although a
"when-issued" market may develop prior to the Distribution Date. Although the
Company intends to apply for a listing if it is eligible, the Company does not
expect to be eligible for listing of its common stock on the Nasdaq Small Cap
Market upon completion of the Distribution. Trading, if any, in the Short Common
Stock will be conducted in the over-the-counter market on the NASD's OTC
Electronic Bulletin Board Service or in what are commonly referred to as the
"pink sheets." The extent of the market for the Short Common Stock and the
prices at which Short Common Stock may trade prior to or after the Distribution
cannot be predicted. See "Risk Factors -- Absence of Public Market; Possible
Illiquidity of Trading Market; Possible Volatility of Stock Price." Stockholders
should refer any questions concerning trading in either Short Common Stock or
Pages Common Stock to their brokers.
Shares of Short Common Stock distributed to stockholders of Pages will be
freely transferable, except for shares received by persons who may be deemed to
be "affiliates" of the Company under the Securities Act. Persons who may be
deemed to be affiliates of the Company after the Distribution generally include
individuals or entities that control, are controlled by or are under common
control with the Company. Affiliates of the Company may sell their Short Common
Stock only pursuant to an effective registration statement under the Securities
Act of 1933, or an exemption from the registration requirements of the
Securities Act.
TRANSFER AGENT AND REGISTRAR
The Huntington National Bank, Columbus, Ohio, will be the transfer agent
and registrar for the Short Common Stock immediately following the Distribution.
ANTITAKEOVER EFFECTS OF THE COMPANY'S CERTIFICATE
Certain of the provisions of the Company's Certificate of Incorporation may
discourage certain types of transactions that may involve an actual or
threatened change of control of the Company and encourage any person who might
seek to acquire control of the Company to negotiate with the Company's Board of
Directors. Management of Pages and the Company believe that generally the
interests of the Company's stockholders would be served best if any change in
control results from negotiations with its Board of the proposed terms, such as
the price to be paid, the form of consideration and the anticipated tax effects
of the transaction.
The provisions described herein may reduce the vulnerability of the Company
to an unsolicited proposal for a takeover of the Company that does not
contemplate the acquisition of all its outstanding shares of capital stock at an
adequate price or is otherwise unfair to its stockholders or an unsolicited
proposal for the restructuring or sale of all or part of the Company. Management
of Pages and the Company believe that, as a general rule, such proposals would
not be in the best interests of the Company and its shareholders. However, to
the extent that these provisions do not discourage takeover attempts, they could
make it more difficult to accomplish transactions that are opposed by the
incumbent Board and could deprive stockholders of opportunities to realize
temporary takeover premiums for their shares or other advantages that large
accumulations of stock would provide.
The description below is a summary of material terms and is qualified in
its entirety by reference to the Company's Certificate of Incorporation filed as
an exhibit to the Company's Registration Statement on Form 10 of which this
Information Statement is a part.
PREFERRED STOCK AND ADDITIONAL COMMON STOCK
Under the Company's Certificate of Incorporation, the Board has authority
to provide by resolution for issuance of shares of one or more series of Short
Preferred Stock. The Board is authorized to fix by resolution the terms and
conditions of each series. See "Description of Capital Stock -- Preferred
Stock." The Board also may issue additional shares of authorized but unissued
shares of Short Common Stock.
22
<PAGE> 33
The Company believes that the availability of Short Preferred Stock will
provide the Company with increased flexibility to facilitate possible future
financings and acquisitions and will allow the Company to better meet other
corporate needs that might arise. The authorized shares of Short Preferred
Stock, as well as authorized but unissued shares of Short Common Stock, will be
available for issuance without the expense and delay of stockholder action,
unless stockholder action is required by applicable law or the rules of the NASD
or other stock exchange or organization on which any class of stock of the
Company may then be quoted or listed.
These provisions give the Board of Directors the power to approve the
issuance of a series of Short Preferred Stock, or additional Short Common Stock,
with terms that could either impede or facilitate the completion of a merger,
tender offer or other takeover attempt. For example, the issuance of new shares
might impede a business combination if the terms of those shares include series
voting rights that would enable a holder to block business combinations, or the
issuance of new shares might facilitate a business combination if those shares
have general voting rights sufficient to cause an applicable percentage vote
required to be satisfied. The Board of Directors of the Company will make any
determination regarding issuance of additional shares based on its judgment as
to the best interest of its stockholders, customers, employees, or other
constituencies.
CONTROL SHARE ACQUISITION STATUTE
The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203"). Section 203 prohibits a publicly held Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless (i) prior to such time, the Board of
Directors of the corporation approves either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder, (ii) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder owns
at least 85% of the outstanding voting stock excluding certain shares held by
employee director and employee stock plans, or (iii) at or subsequent to such
time the business combination is approved by the Board of Directors and by the
affirmative vote of at least 66 2/3% of the outstanding voting stock that is not
owned by the interested stockholder. For purposes of Section 203, a "business
combination" includes, among other things, a merger, asset sale or other
transaction resulting in a financial benefit to the interested stockholder, and
an "interested stockholder" is generally a person who, together with affiliates
and associates, owns (or within three years, owned) 15% or more of the Company's
voting stock.
LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 145(a) of the Delaware General Corporation Law (the "DGCL")
provides in relevant part that "a corporation shall have power to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, partnership, joint venture, trust
or other enterprise, against expenses (including attorneys' fees), judgments
fines and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful." With respect to
derivative actions, Section 145(b) of the DGCL provides in relevant part that
"[a] corporation shall have power to indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment in
its favor [by reason of his service in one of the capacities specified in the
preceding sentence] against expenses (including attorney's fees) actually and
reasonably incurred by him in connection with the defense or settlement of such
action or suit if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation and except that
no indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the
23
<PAGE> 34
corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was bought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper." The
Company's Certificate of Incorporation provides for such indemnification to the
fullest extent provided for by the DGCL.
The Company's Certificate of Incorporation provides that no director of the
Company shall be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director except as limited by
the DGCL. The Certificate of Incorporation also provides that no amendment or
repeal of such provision shall apply to or have any effect on the right to
indemnification permitted thereunder with respect to claims arising from acts or
omissions occurring in whole or in part before the effective date of such
amendment or repeal whether asserted before or after such amendment or repeal.
The Company's Bylaws provide that the Company shall indemnify to the full
extent authorized by law each of its directors and officers against expenses
incurred in connection with any proceeding arising by reason of the fact that
such person is or was an agent of the corporation.
The Company has entered into indemnification agreements with its directors
and certain of its officers and has received a binder for officer and director
liability insurance in the amount of $3,000,000.
PRICE RANGE OF PAGES COMMON STOCK
The Pages Common Stock is traded on the Nasdaq National Market under the
symbol "PAGZ". The following table sets forth for the periods indicated the high
and low sales prices of the Pages Common Stock as reported by the Nasdaq
National Market.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
CALENDAR YEAR THROUGH SEPTEMBER 30, 1996
Third Quarter................................................................ 2 1/2 1 1/4
Second Quarter............................................................... 3 1
First Quarter................................................................ 2 1/8 1 1/8
CALENDAR YEAR ENDING DECEMBER 31, 1995
Fourth Quarter............................................................... 13 3/4 9 1/2
Third Quarter................................................................ 11 7/8 9 5/8
Second Quarter............................................................... 10 1/4 6
First Quarter................................................................ 7 5 7/8
CALENDAR YEAR ENDED DECEMBER 31, 1994
Fourth Quarter............................................................... 9 3/4 6 1/2
Third Quarter................................................................ 7 4
Second Quarter............................................................... 11 8 1/4
First Quarter................................................................ 12 1/4 10 1/4
</TABLE>
On November 12, 1996, Pages announced that it intended to pursue the
spin-off of the Company, subject to certain conditions precedent. On November
11, 1996, the last trading day before the announcement, the Pages Common Stock
traded at prices ranging from a low of $2.125 per share to a high of $2.50 per
share.
INDEPENDENT AUDITORS
The Board of Directors of the Company has selected Deloitte & Touche LLP to
audit the Company's financial statements for the year ending December 31, 1996.
The financial statements as of December 31, 1995 and 1994 and for the years then
ended, included in this Information Statement, have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report appearing herein.
The financial statements as of December 31, 1993 and for the year then ended,
also included in this Information Statement, have been audited by Hausser &
Taylor, independent auditors, as stated in their report appearing herein.
24
<PAGE> 35
On October 28, 1994, Pages dismissed both Hausser & Taylor as its principal
independent accountants and Arthur Andersen as its independent auditor of its
U.K. subsidiary, School Book Fairs Limited. The reports of Hausser & Taylor on
the financial statements for the prior two fiscal years contained no adverse
opinion or disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope or accounting principles. The report dated March 25,
1994, of Hausser & Taylor on the 1993 and 1992 financial statements expressed an
unqualified opinion with reliance on the audit report of Author Andersen
regarding their audits of the combined financial statements of School Book Fairs
Limited. The reports of Arthur Andersen on the financial statements for the
prior two fiscal years contained no adverse opinion or disclaimer of opinion and
were not qualified or modified as to uncertainty, audit scope or accounting
principle. The Pages Audit Committee participated in and approved the decision
to change independent accountants.
In connection with the audits of Pages for fiscal years ended December 31,
1992, and 1993 and through October 28, 1994, there were no disagreements with
Hausser & Taylor on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements if not
resolved to the satisfaction of Hausser & Taylor would have caused them to make
reference thereto in their report on the financial statements for such years.
In connection with the audits of Pages for fiscal years ended December 31,
1992, and 1993 and through October 28, 1994, there were no disagreements with
Arthur Andersen on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements if not
resolved to the satisfaction of Arthur Andersen would have caused them to make
reference thereto in their report on the financial statements for such years.
During fiscal years ended December 31, 1992, and 1993 and through October
28, 1994, there were no reportable events (as defined in Securities and Exchange
Commission Regulation S-K Item 304(a)(l)(v)) by either Hausser & Taylor or
Arthur Andersen.
Pages received from both Hausser & Taylor and Arthur Andersen letters
addressed to the Securities and Exchange Commission stating that they agree with
statements substantially similar to the foregoing included in Pages' Form 8-K
dated November 2, 1994, which was filed with the Securities and Exchange
Commission.
Pages engaged Deloitte & Touche LLP as its new independent accountants as
of October 28, 1994. During the fiscal years ended December 31, 1992, and 1993
and through October 28, 1994, Pages had not consulted with Deloitte & Touche LLP
on items which (i) were or should have been subject to Statement on Auditing
Standards No. 50 or (ii) concerned the subject matter of a disagreement or
reportable event with the former auditors.
25
<PAGE> 36
CLYDE A. SHORT COMPANY
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants............................................... F-2
Independent Auditors' Report........................................................... F-3
Statement of Operations................................................................ F-4
Balance Sheets......................................................................... F-5
Statements of Stockholder's Equity..................................................... F-6
Statements of Cash Flows............................................................... F-7
Notes to Financial Statements.......................................................... F-8
</TABLE>
F-1
<PAGE> 37
[HAUSSER & TAYLOR LETTERHEAD]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholder
Clyde A. Short Company
We have audited the accompanying statements of operations, cash flows and
stockholder's equity of Clyde A. Short Company for the year ended December 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 audits.
We conducted our audit in accordance with generally accepted auditing
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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations of Clyde A. Short Company
for the year ended December 31, 1993, in conformity with generally accepted
accounting principles.
/s/ HAUSSER & TAYLOR
--------------------------------------
Hausser & Taylor
Columbus, Ohio
March 25, 1994
F-2
<PAGE> 38
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Clyde A. Short Company, Inc.
Shelby, North Carolina
We have audited the accompanying balance sheets of Clyde A. Short Company,
Inc. (the "Company") as of December 31, 1995 and 1994, and the related
statements of operations, stockholder's equity, and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1995 and
1994, and the results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
--------------------------------------
Deloitte & Touche LLP
Tampa, Florida
October 11, 1996
F-3
<PAGE> 39
CLYDE A. SHORT COMPANY
STATEMENTS OF OPERATIONS
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND
1995 AND THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1995 1994 1993
------------- ------------- ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues........................ $ 13,694,621 $ 12,641,214 $ 22,620,011 $ 25,157,704 $ 28,909,206
----------- ----------- ----------- ----------- -----------
Costs and expenses:
Cost of goods sold............ 8,396,341 7,780,654 13,862,313 15,526,961 18,951,222
Selling, general and
administrative............. 5,722,472 5,509,082 8,155,260 8,880,315 8,003,242
Interest...................... 57,929 285,595 416,189 430,376 252,494
Depreciation and
amortization............... 252,112 281,028 362,523 297,506 265,290
Management fee paid to
Pages...................... 375,000 375,000 500,000 500,000 1,287,019
----------- ----------- ----------- ----------- -----------
14,803,854 14,231,359 23,296,285 25,635,158 28,759,377
----------- ----------- ----------- ----------- -----------
Income/(loss) from continuing
operations.................... (1,109,233) (1,590,145) (676,274) (477,454) 149,829
(Provision)/benefit for income
taxes......................... 120,900 509,700 248,600 193,500 (57,000)
----------- ----------- ----------- ----------- -----------
NET INCOME/(LOSS)............... $ (988,333) $ (1,080,445) $ (427,674) $ (283,954) $ 92,829
----------- ----------- ----------- ----------- -----------
Proforma income/(loss) per
common share.................. $ (1.08) $ -- $ 0.47 -- --
----------- ----------- ----------- ----------- -----------
Proforma weighted average common
and equivalent shares......... 915,293 -- 915,293 -- --
----------- ----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 40
CLYDE A. SHORT COMPANY
BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1996 1995 1994
------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.................................................. $ 76,932 $ 226,678 $ 13,414
Accounts receivable................................... 2,168,752 6,101,629 7,278,185
Inventory............................................. 6,649,996 6,780,412 9,709,989
Prepaid expenses...................................... 944,210 824,967 875,014
------------- ------------ ------------
Total current assets.......................... 9,839,890 13,933,686 17,876,602
------------- ------------ ------------
Building and equipment:
Buildings............................................. 3,186,680 3,186,680 3,180,131
Equipment............................................. 1,840,095 1,451,760 1,296,633
------------- ------------ ------------
5,026,775 4,638,440 4,476,764
Less accumulated depreciation......................... (1,262,264) (1,037,014) (758,766)
------------- ------------ ------------
3,764,511 3,601,426 3,717,998
Land.................................................. 211,468 211,468 211,468
------------- ------------ ------------
Total property and equipment, net............. 3,975,979 3,812,894 3,929,466
------------- ------------ ------------
Other assets:
Cost in excess of net assets acquired, net of
accumulated amortization of $224,902, $199,280 and
$165,116, respectively............................. 1,141,565 1,167,187 1,201,351
Other................................................. 616,257 598,256 576,165
------------- ------------ ------------
1,757,822 1,765,443 1,777,516
------------- ------------ ------------
TOTAL ASSETS............................................ $ 15,573,691 $ 19,512,023 $ 23,583,584
============= ============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable...................................... $ 657,816 $ 1,276,197 $ 3,431,220
Short-term debt obligations........................... 2,447,680 4,827,662 5,016,270
Accrued liabilities................................... 271,983 394,855 391,334
Due to Pages.......................................... 4,124,975 4,124,975 6,613,372
Advance deposits...................................... 5,940,243 5,648,107 4,214,887
------------- ------------ ------------
Total current liabilities..................... 13,442,697 16,271,796 19,667,083
------------- ------------ ------------
Deferred tax liability................................ -- 120,900 369,500
------------- ------------ ------------
Commitments and contingencies (note 3)................ -- -- --
Stockholder's equity:
Common shares: $100 par value; authorized 334.91
shares; 334.91 issued and outstanding.............. 33,491 33,491 33,491
Capital in excess of par value........................ 4,124,494 4,124,494 4,124,494
Accumulated deficit................................... (2,026,991) (1,038,658) (610,984)
------------- ------------ ------------
Total stockholder's equity.................... 2,130,994 3,119,327 3,547,001
------------- ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY.............. $ 15,573,691 $ 19,512,023 $ 23,583,584
============= ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 41
CLYDE A. SHORT COMPANY
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND FOR THE
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
CAPITAL IN
COMMON EXCESS OF ACCUMULATED
SHARES STOCK PAR VALUE DEFICIT TOTAL
------- ------ ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1992................ $334.91 33,491 $4,124,494 $ (419,859) $3,738,126
Net Income............................... 92,829 92,829
------ ------- ---------- ----------- ----------
Balance December 31, 1993................ 334.91 33,491 4,124,494 (327,030) 3,830,955
Net loss................................. (283,954) (283,954)
------ ------- ---------- ----------- ----------
Balance December 31, 1994................ 334.91 33,491 4,124,494 (610,984) 3,547,001
Net loss................................. (427,674) (427,674)
------ ------- ---------- ----------- ----------
Balance December 31, 1995................ 334.91 33,491 4,124,494 (1,038,658) 3,119,327
Net loss................................. (988,333) (988,333)
------ ------- ---------- ----------- ----------
Balance September 30, 1996............... $334.91 33,491 $4,124,494 $(2,026,991) $2,130,994
====== ======= ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> 42
CLYDE A. SHORT COMPANY
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 AND FOR THE
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1995 1994 1993
------------- ------------- ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income/(loss)........ $ (988,333) $ (1,080,445) $ (427,674) $ (283,954) $ 92,829
Adjustments to reconcile
net (loss)/income to
cash provided by (used
in) operating
activities:
Depreciation and
amortization........ 252,112 281,028 362,523 297,506 265,290
Changes in assets and
liabilities:
(Increase) decrease in
assets:
Accounts receivable... 3,932,877 5,574,813 1,176,556 1,425,658 (2,067,555)
Inventory............. 130,416 1,759,627 2,929,577 (2,150,382) (2,448,138)
Prepaid expenses and
other assets........ (138,484) (112,207) (22,151) (420,470) (482,085)
Increase (decrease) in
liabilities:
Accounts payable and
accrued
liabilities......... (741,253) (2,853,318) (2,151,502) (196,503) 1,547,200
Advance deposits...... 292,136 1,217,238 1,433,220 744,191 774,141
Deferred income
taxes............... (120,900) (509,700) (248,600) (193,500) 501,094
------------ ------------ ------------ ------------ ------------
Total
adjustments.... 3,606,904 5,357,481 3,479,623 (493,500) (1,910,053)
------------ ------------ ------------ ------------ ------------
Net cash provided by (used
in) operating
activities............... 2,618,571 4,277,036 3,051,949 (777,454) (1,817,224)
------------ ------------ ------------ ------------ ------------
Cash flows from investing
activities:
Payments for purchases of
property and
equipment............. (388,335) (111,382) (161,676) (254,787) (809,364)
------------ ------------ ------------ ------------ ------------
Cash used in investing
activities............ (388,335) (111,382) (161,676) (254,787) (809,364)
------------ ------------ ------------ ------------ ------------
Cash flows from financing
activities:
Due to Pages............. -- (2,488,397) (2,488,397) 2,670,919 28,760
Proceeds from debt
obligations........... 17,433,276 19,737,449 30,982,347 31,842,084 27,642,656
Principal payments on
debt.................. (19,813,258) (21,378,260) (31,170,959) (33,571,350) (25,048,672)
------------ ------------ ------------ ------------ ------------
Cash (used in) provided
by financing
activities............ (2,379,982) (4,129,208) (2,677,009) 941,653 2,622,744
------------ ------------ ------------ ------------ ------------
Increase (decrease) in
cash..................... (149,746) 36,466 213,264 (90,588) (3,844)
Cash, beginning of year.... 226,678 13,414 13,414 104,002 107,846
------------ ------------ ------------ ------------ ------------
Cash, end of year.......... $ 76,932 $ 49,860 $ 226,678 $ 13,414 $ 104,002
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE> 43
CLYDE A. SHORT COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)
AND THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Information pertaining to the nine month periods ended September 30, 1996
and September 30, 1995, the interim financial statements, is unaudited. The
accompanying interim financial statements reflect all adjustments which are, in
the opinion of management, necessary for a fair statement of the results for the
interim periods presented. Such adjustments consist solely of normal recurring
accruals. Results for interim periods are not necessarily indicative of results
for a full year. Effective November 12, 1996, Clyde A. Short Company (the
"Company") changed its name to CA Short Company and reincorporated in the State
of Delaware from North Carolina.
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
The Company is engaged in the design, implementation, and fulfillment of
incentive awards and recognition programs for businesses throughout the United
States. The Company's corporate headquarters is located in Shelby, North
Carolina.
BASIS OF PRESENTATION
On February 28, 1990, in a transaction accounted for as a purchase, all of
the outstanding stock of the Company was acquired by Pages, Inc. ("Pages").
These financial statements were prepared under the resulting new basis of
accounting that reflects the fair values of assets acquired and liabilities
assumed.
USE OF MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires that management make certain estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. The reported amounts of revenues and expenses during the reporting
period may be affected by the estimates and assumptions management is required
to make. Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenues from the sale of incentive awards are recognized upon shipment and
delivery of the related merchandise. Revenues from services are insignificant.
Returns from the sales of incentive awards and from services are insignificant.
ACCOUNTS RECEIVABLE
The Company sells its products to numerous commercial and industrial
customers, across the United States and Canada. The accounts receivable are well
diversified and are expected to be repaid in the normal course of business.
INVENTORY
Inventory consists of finished goods which are comprised of general retail
merchandise. Inventory is valued at the lower of cost or market using the
first-in, first-out (FIFO) method.
PREPAID EXPENSES
Prepaid expenses at September 30, 1996 and December 31, 1995 and 1994
include $893,919, $747,233 and $788,047, respectively, of prepaid selling costs
that include costs for commissions paid to salespeople that
F-8
<PAGE> 44
relate to advance deposits for the sales of incentive and recognition awards
programs. Such costs are directly attributable to obtaining specific future
commitments and are expensed in the year the related sales occur.
BUILDINGS AND EQUIPMENT
Buildings and equipment are recorded at cost and depreciated over their
estimated useful life on the straight-line method. Estimated useful lives range
from three to thirty-one years. Major repairs and betterments are capitalized;
minor repairs are expensed as incurred. Depreciation expense for the nine month
periods ended September 30, 1996 and 1995 and for the years ended December 31,
1995, 1994 and 1993, totaled $225,250, $205,298, $278,254, $248,480 and
$217,104, respectively.
COST IN EXCESS OF NET ASSETS ACQUIRED AND OTHER ASSETS
Cost in excess of net assets acquired are amortized on a straight line
basis over 40 years. Management periodically evaluates its accounting for cost
in excess of net assets acquired by considering such factors as historical
performance, current operating results and future operating income. At each
balance sheet date, the Company evaluates the realizability of goodwill based
upon expectation of nondiscounted cash flows and operating income. Based upon
its most recent analysis, the Company believes that no material impairment of
goodwill exists at September 30, 1996. Based on this periodic review, management
believes that the carrying value of cost in excess of net assets acquired is
reasonable and the amortization period is appropriate. Amortization expense on
cost in excess of net assets acquired for the nine month periods ended September
30, 1996 and 1995 and for the years ended December 31, 1995, 1994 and 1993 and
totaled $25,622, $25,622, $34,162 and $34,162 and $34,162, respectively.
Other assets include cash surrender value of life insurance and deferred
loan costs. The deferred loan costs are amortized using the straight line method
over the terms of the related contracts. Amortization expense totaled $1,240,
$50,108, $50,107, $14,864 and $14,024, for the nine month periods ended
September 30, 1996 and 1995 and for the years ended December 31, 1995, 1994 and
1993, respectively.
DUE TO PARENT
Amounts due to parent are net borrowings which occurred in the ordinary
course of business. No interest has been recorded on the outstanding balance
(See Note 6).
ADVANCE DEPOSITS
Advance deposits represents customer prepayments for goods and services
that the Company will deliver in the future. Upon delivery of such goods and
services, advance deposits are recognized as revenues.
PER SHARE DATA
Per share amounts have been computed based on the weighted average number
of common shares outstanding during the period.
PROFIT SHARING PLANS
The Company has a noncontributory profit sharing retirement plan (the
"Plan"), covering a significant number of employees for which accrued costs are
funded. Company contributions to the Plans are discretionary. There were no
Company contributions for the nine month periods ended September 30, 1996 and
1995 and for the years ended December 31, 1995, 1994 and 1993.
LONG-LIVED ASSETS
FASB has issued SFAS No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of" which requires adoption in
1996. The general requirements of SFAS No. 121 apply to the fixed assets of the
Company and require impairment to be considered whenever assets are disposed of
or whenever events or change in circumstances indicate that the carrying amount
of the asset will
F-9
<PAGE> 45
not be recoverable based on expected future cash flows of the asset. The Company
does not anticipate that the adoption of SFAS No. 121 will have a material
impact on its financial position or results of operations.
2. DEBT OBLIGATIONS
Debt obligations consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1996 1995 1994
------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Line of credit with interest at prime plus 1
percent; interest payable monthly, maturing on
June 7, 1997, collateralized by substantially
all assets of the Company ($2,552,320 available
at September 30, 1996)......................... $ 2,447,680 $4,827,662 $5,016,270
</TABLE>
The interest rate for the line as of December 31, 1995 and 1994 was prime
+ 1/2 percent and prime + 1/2 percent, respectively. As of December 31, 1995,
the line was due in full by June 1, 1996, subject to annual renewals. As of
December 31, 1994, the line was due in full by June 1, 1995, subject to annual
renewals.
The prime interest rate at September 30, 1996 and December 31, 1995 and
1994, was 8 1/4, 8 1/2 and 8 1/2 percent, respectively. The carrying amount of
the Company's short term debt obligations approximates fair value.
On March 27, 1996, the Company's parent, Pages, entered into a $16 million
long-term revolving credit facility which replaced the previous multiple credit
lines that totaled $25 million, of which the above debt obligations as of
December 31, 1995 and 1994 represent the Company's portion. The maximum line
amount is calculated, in part, based on Pages eligible borrowing base that
includes inventory and other eligible accounts. The credit agreement contains
certain restrictive provisions for Pages including, among others, maintaining a
minimum tangible net worth, limitation on dividends paid on common stock to
$100,000 annually and certain other restrictions on actions which require lender
pre-approval.
The Company has received a proposal from the same creditor to provide to it
a credit facility in the form of a $4.5 million revolving line of credit. Under
the proposal, borrowings will be limited to the sum of 80% of accounts
receivable less than 90 days old plus 60% of eligible inventory, plus 75% of the
appraised value of the Company's real estate. Eligible inventory is limited to
$3.5 million from January through May, and $6.5 million from June through
December. The credit facility will have an expiration date of June 30, 1997 and
will bear interest at the lender's prime rate of interest plus one percent,
floating daily. All business assets of the Company will be pledged as collateral
for the credit facility. The credit facility will also include certain financial
covenants, including covenants that the Company maintain certain financial
ratios including a minimum tangible capital base and a minimum net profit from
operations. In addition, the credit facility will contain limitations on capital
expenditures, fixed asset sales, loans and/or advances to shareholders and
employees and restrictions on operating leases. There can be no assurances that
the Company will ultimately receive a commitment from the creditor that will be
accepted by the Company.
The Company also plans to enter into a $5 million 7% subordinated debenture
with Pages subsequent to the Distribution in satisfaction of amounts due to
Pages by the Company. Any excess of the amount due to Pages as of the
Distribution over the $5 million subordinated debenture will be recorded as paid
in capital. Principal payments will be $100,000 per year for the first four
years, with a balloon payment due at the end of the fifth year for the remaining
principle balance. Interest will be 7% per annum and the interest will be
payable quarterly.
3. COMMITMENTS AND CONTINGENCIES
The Company is obligated under various noncancelable operating leases.
Operating leases are principally for office and warehouse facilities, equipment
and vehicles. Rent expense under operating leases amounted to $109,295,
$109,480, $151,608, $76,037 and $102,500, for the nine month periods ended
September 30, 1996
F-10
<PAGE> 46
and 1995 and for the years ended December 31, 1995, 1994 and 1993, respectively.
Future minimum lease payments under leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, OPERATING
-------------------------------------------------------------------------- ---------
<S> <C>
1996.................................................................... $ 118,418
1997.................................................................... 54,261
1998.................................................................... 8,778
</TABLE>
The Company is also involved in certain legal proceedings in the ordinary
course of its business which, if determined adversely to the Company would, in
the opinion of management, not have a material adverse effect on the Company or
its operations.
4. INCOME TAXES
The Company employs SFAS No. 109, "Accounting for Income Taxes". Under SFAS
No. 109, the liability method is used in accounting for income taxes. Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes, and are measured using the enacted tax
rates and laws that will be in effect when the differences are expected to
reverse. Under SFAS No. 109, if on the basis of available evidence, it is more
likely than not that all or a portion of the deferred tax asset will not be
realized, the asset must be reduced by a valuation allowance. Based on available
evidence, a valuation allowance has been established for an amount of the asset
that more likely than not will not be recognized.
Temporary differences between income for financial reporting purposes and
tax reporting purposes relate primarily to accounting methods for inventory
costs, accrued and prepaid expenses and reserves, and depreciation.
For the periods presented, the (benefit) provision for income taxes
consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1995 1994 1993
------------- ------------- ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current................... -- -- -- -- $ 19,000
--------- --------- --------- --------- -------
Deferred
Federal................. $(102,800) $(433,300) $ (211,300) $ (164,500) 30,000
State and local......... (18,100) (76,400) (37,300) (29,000) 8,000
--------- --------- --------- --------- -------
Net deferred benefit
(provision)............. (120,900) (509,700) (248,600) (193,500) 38,000
--------- --------- --------- --------- -------
Net (benefit) provision
for taxes............... $(120,900) $(509,700) $ (248,600) $ (193,500) $ 57,000
========= ========= ========= ========= =======
</TABLE>
F-11
<PAGE> 47
For the periods presented, a reconciliation of income taxes based upon the
application of the federal statutory tax rate is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1995 1994 1993
------------- ------------- ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Benefit for taxes at
statutory rate.......... $(343,300) $(447,300) $ (229,900) $ (162,350) $ 51,000
Change in effective tax
rate.................... -- -- -- (25,100) (9,000)
Goodwill amortization..... 10,300 10,300 13,650 13,650
State taxes net of federal
benefit................. (60,600) (78,900) (40,550) (28,650) 11,000
Change in valuation
allowance............... 266,500 -- -- -- --
Other..................... 6,200 6,200 8,200 8,950 4,000
--------- --------- --------- --------- -------
Total (benefit)
provision for
income
taxes......... $(120,900) $(509,700) $ (248,600) $ (193,500) $ 57,000
========= ========= ========= ========= =======
</TABLE>
As of the periods presented, the components of net deferred taxes are as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1996 1995 1995 1994
------------- ------------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Assets:
Inventory costs capitalized for tax
purposes......................... $ 108,400 $ 129,600 $ 100,000 $ 146,100
Accruals and reserves to be expensed
as paid for tax purposes......... 73,200 73,200 73,200 45,200
Other............................... 7,700 5,000 5,650 2,950
Net operating loss carryforwards.... 820,200 654,550 427,600 142,750
Valuation allowance................. (266,500) -- -- --
--------- --------- --------- ---------
Deferred tax asset.................. 743,000 862,350 606,450 337,000
Liabilities:
Excess of tax over financial
accounting depreciation and
amortization..................... (743,000) (722,150) (727,350) (706,500)
--------- --------- --------- ---------
Net deferred tax
(liability)............... $ -- $ 140,200 $ (120,900) $ (369,500)
========= ========= ========= =========
</TABLE>
At December 31, 1995 and 1994, respectively, operating loss carryforwards
of approximately $1,069,000 and $357,000 offset future taxable income and will
expire during the years 2009 through 2010.
5. SUPPLEMENTAL DISCLOSURE FOR CASH FLOW INFORMATION
Cash paid for interest during the six month periods ended June 30, 1996 and
1995 and for the years ended December 31, 1995, 1994 and 1993 aggregated
$84,105, $349,736, $442,638, $366,236 and $253,745 and cash paid for taxes was
$0, $0, $0, $18,000 and $0 respectively.
6. RELATED PARTY TRANSACTIONS
For all periods presented Pages has provided services to and incurred costs
on behalf of the Company. Prior to the Distribution, Pages' management fee was
intended to encompass the element of Pages' financing costs to provide
non-interest bearing advances to the Company. Such element approximated
$263,000, $263,000, $450,000, $450,000 and $400,000, respectively, based on the
prime interest rate as applied to the average outstanding balance due to Pages
during the nine month periods ended September 30, 1996 and 1995 and during the
years ended December 31, 1995, 1994 and 1993. The remaining costs are for
certain services,
F-12
<PAGE> 48
including, but not limited to, administrative services, transportation, tax
services, accounting and reporting, management consultation, legal services, and
general corporate expenses, which have also been allocated to the Company. The
allocation of costs and expenses for these services were based on methods that
management believes are reasonable. The portion of such costs which management
believes will continue to be incurred subsequent to the Distribution
approximates $30,000. The balance of nonrecurring costs relates to duplicative
management responsibilities for financing and operating activities, as well as
other transportation and administrative costs which will be eliminated by the
Distribution.
Pages allocated general corporate expenses to the Company for the nine
month periods ended September 30, 1996 and 1995 and for the years ended December
31, 1995, 1994 and 1993 in the amounts of $375,000, $375,000, $500,000, $500,000
and $1,287,019, respectively.
7. SUBSEQUENT EVENT
The Company has adopted a 1996 Incentive Stock Option Plan which provides
for the grant, at the discretion of the Board of Directors, of options to
purchase up to 45,000 shares of Short Common Stock to key employees of the
Company. It is intended that options granted under such Plan qualify as
incentive stock options under Section 422 of the Internal Revenue Code of 1986,
as amended. No options have been granted under the plan.
The Company has also adopted a Non-Employee Director Stock Option Plan,
which provides for the grant, at the discretion of the Company's Board of
Directors, of options to purchase up to 40,000 shares of Short Common Stock upon
such terms as are determined by the Board in its discretion. No options have
been granted under the Plan.
F-13
<PAGE> 49
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<S> <C>
(2) Agreement and Plan of Merger
3(i).1 Certificate of Incorporation of Clyde A. Short Incorporated +
3(i).2 Certificate of Amendment to Certificate of Incorporation of Clyde A. Short
Incorporated +
3(ii) Bylaws of CA Short Company +
4 Form of Stock Certificate +
8 Form of Opinion of Johnson, Blakely, Pope, Bokor, Ruppel & Burns, P.A.
10.1 Form of Distribution Agreement between the Company and Pages, Inc. +
10.2 CA Short Company 1996 Incentive Stock Option Plan +
10.3 Form of Subordinated Debenture
10.4 Form of Security Agreement
10.5* Huntington Loan Documents
10.6 CA Short Company Non-Employee Director Stock Option Plan +
23** Consent of Johnson, Blakely, Pope, Bokor, Ruppel & Burns, P.A.
27 Financial Data Schedule (for SEC use only) +
99 Fairness Opinion of Recca & Company, Inc. +
</TABLE>
- ---------------
* To be filed by amendment.
** Included in Exhibit 8.
+ Previously filed.
