<PAGE> 1
Securities and Exchange Commission
Washington, D.C. 20549
RULE 13E-3 TRANSACTION STATEMENT
(Pursuant to Section 13(e) of the Securities Exchange Act of 1934)
[Amendment No. ______]
BOOK CENTERS, INC.
(Name of the Issuer)
BOOK CENTERS, INC.
(Name of Person(s) Filing Statement)
Common Stock, no par value, of Book Centers, Inc.
(Title of Class of Securities)
098539 10 9
(CUSIP Number of Class of Securities)
David R. Ludwig
Farleigh, Wada & Witt, P.C.
600 Bank of America Financial Center
121 S.W. Morrison Street
Portland, Oregon 97204
(503) 228-6044
(Name, address, and telephone number of person authorized
to receive notices and communications on behalf of
person(s) filing statement)
This statement is filed in connection with
(check the appropriate box):
a. __X__ The filing of solicitation materials or an information statement
subject to Regulation 14A [17 CFR 240.14a-1 to 240.14b-1],
Regulation 14C [17 CFR 240.14c-1 to 240.14c-101] or Rule 13e-
3(c) [Section 240.13e-(c)] under the Securities Exchange Act of
1934.
b. _____ The filing of a registration statement under the Securities Act
of 1933.
c. _____ A tender offer.
d. _____ None of the above.
Check the following box if the soliciting material or information statement
referred to in checking box (a) are preliminary copies: __X__.
Calculation of Filing Fee
Transaction valuation Amount of Filing Fee
$37,219* $7.44
__x__ Check box if any part of the fee is offset as provided by Rule 0-
11(a)(2) and identify the filing with which the offsetting fee was
previously paid. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
<PAGE> 2
Amount Previously Paid: $125.00
Form or Registration No.: Preliminary Proxy Statement
Filing Party: Book Centers, Inc.
Date Filed: April 26, 1996
Notes:
- -----
* 413,541 shares of the Issuer's Common Stock, no par value, redeemed for
cash consideration of nine cents per share.
<PAGE> 3
INTRODUCTION
This Rule 13E-3 Transaction Statement is being filed by Book Centers, Inc.
(the "Corporation") with respect to the class of equity securities of the
Corporation that is subject to a Rule 13e-3 transaction. The Corporation is
submitting to its stockholders a proposal to approve and adopt Articles of
Amendment to its Restated Articles of Incorporation providing (a) for a
reduction in the number of authorized shares of the Corporation's common stock,
no par value (the "Common Stock"), from 50,000,000 shares to 500 shares (the
"New Common Stock"), (b) for a 100,000 to one reverse stock split of the
Corporation's Common Stock, and (c) for a cash payment in the amount of nine
cents per share of the currently outstanding Common Stock in lieu of the
issuance of any resulting fractional shares of the New Common Stock to
stockholders who, after the reverse stock split, own less than one share of the
New Common Stock (items (a), (b), and (c) will be considered one proposal and
will be referred to herein as the "Reverse Stock Split"). The Reverse Stock
Split is upon the terms and subject to the conditions set forth in the
Corporation's Proxy Statement for the Corporation's Special Meeting of
Stockholders scheduled to be held on May 30, 1996, a copy of which is filed as
an exhibit hereto and is incorporated herein by reference in its entirety.
The following Cross Reference Sheet is supplied pursuant to General
Instruction F to Schedule 13E-3 and shows the location in the Proxy Statement
filed by Corporation with Securities and Exchange Commission on April 26, 1996
(including all annexes and schedules thereto, the "Proxy Statement") of the
information required to be included in response to the items of this Statement.
The information in the Proxy Statement, a copy of which is attached thereto as
Exhibit (d)(1), is hereby expressly incorporated by reference and the responses
to each item are qualified in their entirety by the provisions of the Proxy
Statement.
i
<PAGE> 4
CROSS REFERENCE SHEET SHOWING LOCATION
IN PRELIMINARY PROXY STATEMENT OF INFORMATION
REQUIRED BY ITEMS IN SCHEDULE 13E-3
<TABLE>
<CAPTION>
SCHEDULE 13E-3 ITEM LOCATION IN PROXY STATEMENT
------------------- ---------------------------
<S> <C> <C>
1. Issuer and Class of Security Subject
to the Transaction
Item 1(a)........................... Cover Page
Item 1(b)........................... Cover Page, "Introduction - Record
Date, Quorum; Required Vote," "The
Reverse Stock Split Voting; Voted
Required," and "Market Prices of
Shares of Common Stock; Dividends"
Item 1(c)........................... "Market Prices of Shares of Common
Stock; Dividends"
Item 1(d)........................... "Market Prices of Shares of Common
Stock; Dividends"
Item 1(e)........................... Not applicable
Item 1(f)........................... "Market Prices of Shares of Common
Stock; Dividends" and "Transactions
in Shares of Common Stock of
Corporation"
2. Identity and Background
Items 2(a)-(d) and (g).............. "Directors and Executive Officers"
and "Security Ownership of Certain
Beneficial Owners and Management"
Items (e) and (f)................... Not applicable
3. Past Contacts, Transactions or
Negotiations
Item 3(a)(1)........................ Not applicable
Items 3(a)(2) and (b)............... "Special Factors - Background and
Reasons for the Reverse Stock Split"
and "Special Factors -
Recommendations of the Board of
Directors of the Corporation;
Fairness of the Reverse Stock Split"
4. Terms of the Transaction
Items 4(a)-(b)...................... "The Reverse Stock Split - Amendment
of Restated Articles of Incorporation
to Effect the Reverse Stock Split"
and "The Reverse Stock Split -
Exchange of Shares and Payment in
Lieu of Issuance of Fractional
Shares"
ii
<PAGE> 5
5. Plans or Proposals of the Issuer or
Affiliate
Items 5(a)-(g)...................... "Special Factors - Plans for the
Corporation after the Reverse Stock
Split" and "Special Factors - Certain
Effects of the Reverse Stock Split"
6. Source and Amounts of Funds or Other
Consideration
Item 6(a)-(c)....................... "Special Factors - Source and Amounts
of Funds for and Expenses of the
Reverse Stock Split"
Items 6(d).......................... Not applicable
7. Purpose(s), Alternatives, Reasons
and Effects
Item 7(a)........................... "Special Factors - Purposes of the
Reverse Stock Split"
Item 7(b)........................... "Special Factors - Recommendations of
the Board of Directors of the
Corporation; Fairness of the Reverse
Stock Split"
Item 7(c)........................... "Special Factors - Background and
Reasons for the Reverse Stock Split"
Item 7(d)........................... "Special Factors - Certain Effects of
the Reverse Stock Split" and "Special
Factors - Certain Federal Income Tax
Consequences"
8. Fairness of the Transaction
Item 8(a)........................... "Special Factors - Recommendations of
the Board of Directors of the
Corporation; Fairness of the Reverse
Stock Split"
Item 8(b)........................... "Special Factors - Recommendations of
the Board of Directors of the
Corporation; Fairness of the Reverse
Stock Split" and "Transactions in
Shares of Common Stock of
Corporation"
Item 8(c)........................... "Introduction - Record Date; Quorum;
Vote Required" and "The Reverse Stock
Split - Voting; Vote Required"
Item 8(d)........................... "Special Factors - Interest of
Certain Persons in Reverse Stock
Split; Conflicts of Interest"
Item 8(e)........................... "Special Factors - Background and
Reasons for the Reverse Stock Split"
and "Special Factors -
Recommendations of the Board of
Directors of the Corporation;
Fairness of the Reverse Stock Split"
Item 8(f)........................... Not applicable
iii
<PAGE> 6
9. Reports, Opinions, Appraisals and
Certain Negotiations
Item 9(a)-(c)....................... "Special Factors - Lack of Reports,
Opinions, and Appraisals," "Special
Factors - Recommendations of the
Board of Directors of the
Corporation; Fairness of the Reverse
Stock Split," and "Transactions in
Shares of Common Stock of the
Corporation"
10. Interest in Securities of the Issuer
Item 10(a).......................... "Security Ownership of Certain
Beneficial Owners and Management"
Item 10(b).......................... "Transactions in Shares of Common
Stock of Corporation"
11. Contracts, Arrangements or
Understandings with Respect to the
Issuer's Securities................. "Special Factors - Interest of
Certain Persons in the Reverse Stock
Split; Conflicts of Interest"
12. Present Intention and Recommendation
of Certain Persons with Regard to
the Transaction
Item 12(a)-(b)...................... "Introduction - Record Date; Quorum;
Required Vote," "Special Factors -
Recommendations of the Board of
Directors of the Corporation;
Fairness of the Reverse Stock Split,"
and "The Reverse Stock Split -
Voting; Vote Required"
13. Other Provisions of the Transaction
Item 13(a).......................... "The Reverse Stock Split - Dissenting
Stockholders' Rights"
Items 13(b) and (c)................. Not applicable
14. Financial Information
Item 14(a).......................... "Financial Information"
Item 14(b).......................... Not applicable
15. Persons and Assets Employed,
Retained or Utilized
Items 15(a) and (b)................. "Introduction - Solicitation of
Proxies"
16. Additional Information.............. Proxy Statement in its entirety
17. Material to be Filed as Exhibits.... Separately included herewith
</TABLE>
iv
<PAGE> 7
Item 1. Issuer and Class of Security Subject to the Transaction.
(a) The name of the issuer is Book Centers, Inc., an Oregon corporation,
and the address of its principal executive offices is 5600 N.E. Hassalo Street,
Portland, Oregon 97213.
(b) The exact title of the class of equity securities to which this
statement relates is Common Stock, no par value. The information set forth
under the captions "Introduction - Record Date, Quorum; Required Vote," "The
Reverse Stock Split Voting; Vote Required," and "Market Prices of Shares of
Common Stock; Dividends" of the Proxy Statement is incorporated herein by
reference.
(c) The information set forth under the caption "Market Prices of Shares
of Common Stock; Dividends" of the Proxy Statement is incorporated herein by
reference.
(d) The information set forth under the caption "Market Prices of Shares
of Common Stock; Dividends" of the Proxy Statement is incorporated herein by
reference.
(e) Not applicable.
(f) The information set forth under the captions "Market Prices of Shares
of Common Stock; Dividends" and "Transactions in Shares of Common Stock of
Corporation" of the Proxy Statement is incorporated herein by reference.
Item 2. Identity and Background.
(a)-(d) and (g) This Statement is filed by Book Centers, Inc., an Oregon
corporation, engaged in the business of the distribution of books, with its
principal executive offices at 5600 N.E. Hassalo Street, Portland, Oregon
97213. The information set forth under the captions "Directors and Executive
Officers" and "Security Ownership of Certain Beneficial Owners and Management"
of the Proxy Statement is incorporated herein by reference.
(e) and (f) To the best of the Corporation's knowledge, each person
described under the captions "Directors and Executive Officers" and "Security
Ownership of Certain Beneficial Owners and Management" of the Proxy Statement
is a citizen of the United States and during the last five years no such person
has been convicted in a criminal proceeding (excluding traffic violations or
similar misdemeanors) and no such person was a party to a civil proceeding of a
judicial or administrative body of competent jurisdiction as a result of which
he was or is subject to a judgment, decree, or final order enjoining future
violations of, or prohibiting activities subject to, federal or state
securities laws or finding any violation of such laws.
Item 3. Past Contracts, Transactions or Negotiations.
(a)(1) Not applicable.
(a)(2) and (b) The information set forth under the captions "Special
Factors - Background and Reasons for the Reverse Stock Split" and "Special
Factors - Recommendations of the Board of Directors; Fairness of the Reverse
Stock Split" of the Proxy Statement is incorporated herein by reference.
Item 4. Terms of the Transaction.
(a)-(b) The information set forth under the captions "The Reverse Stock
Split - Amendment of Restated Articles of Incorporation to Effect the Reverse
Stock Split" and "The Reverse Stock Split - Exchange of Shares and Payment in
Lieu of Issuance of Fractional Shares" of the Proxy Statement is incorporated
herein by reference.
1
<PAGE> 8
Item 5. Plans or Proposals of the Issuer or Affiliate.
(a)-(g) The information set forth under the caption "Special Factors
- - Plans for the Corporation after the Reverse Stock Split" and "Special Factors
- - Certain Effects of the Reverse Stock Split" of the Proxy Statement is
incorporated herein by reference.
Item 6. Source and Amounts of Funds or Other Consideration.
(a)-(c) The information set forth under the caption "Special Factors
- - Source and Amounts of Funds for and Expenses of the Reverse Stock Split" of
the Proxy Statement is incorporated herein by reference.
(d) Not applicable.
Item 7. Purpose(s), Alternatives, Reasons and Effects.
(a) The information set forth under the caption "Special Factors -
Purposes of the Reverse Stock Split" of the Proxy Statement is incorporated
herein by reference.
(b) The information set forth under the captions "Special Factors -
Recommendations of the Board of Directors of the Corporation; Fairness of the
Reverse Stock Split" of the Proxy Statement is incorporated herein by
reference.
(c) The information set forth under the caption "Special Factors -
Background and Reasons for the Reverse Stock Split" of the Proxy Statement is
incorporated herein by reference.
(d) The information set forth under the caption "Special Factors -
Certain Effects of the Reverse Stock Split" and "Special Factors - Certain
Federal Income Tax Consequences" of the Proxy Statement is incorporated herein
by reference.
Item 8. Fairness of the Transaction.
(a) The information set forth under the caption "Special Factors -
Recommendations of the Board of Directors of the Corporation; Fairness of the
Reverse Stock Split" of the Proxy Statement is incorporated herein by
reference.
(b) The information set forth under the captions "Special Factors
- - Recommendations of the Board of Directors of the Corporation; Fairness of the
Reverse Stock Split" and "Transactions in Shares of Common Stock of
Corporation" of the Proxy Statement is incorporated herein by reference.
(c) The information set forth under the captions "Introduction - Record
Date; Quorum; Vote Required" and "The Reverse Stock Split - Voting; Vote
Required" of the Proxy Statement is incorporated herein by reference.
(d) The information set forth under the caption "Special Factors -
Interest of Certain Persons in Reverse Stock Split; Conflicts of Interest" of
the Proxy Statement is incorporated herein by reference.
(e) The information set forth under the captions "Special Factors -
Background and Reasons for Reverse Stock Split" and "Special Factors -
Recommendations of the Board of Directors of the Corporation; Fairness of the
Reverse Stock Split" of the Proxy Statement is incorporated herein by
reference.
(f) Not applicable.
2
<PAGE> 9
Item 9. Reports, Opinions, Appraisals and Certain Negotiations.
(a)-(c) The information set forth under the captions "Special Factors -
Lack of Reports, Opinions, and Appraisals," "Special Effects - Recommendations
of the Board of Directors of the Corporation; Fairness of the Reverse Stock
Split," and "Transactions in Shares of Common Stock of the Corporation" of the
Proxy Statement is incorporated herein by reference.
Item 10. Interest in Securities of the Issuer.
(a) The information with respect to the ownership of and transactions
in Common Stock set forth under the caption "Security Ownership of Certain
Beneficial Owners and Management" of the Proxy Statement is incorporated herein
by reference.
(b) The information with respect to the ownership of and transactions
in Common Stock set forth under the caption "Transactions in Shares of Common
Stock of Corporation" of the Proxy Statement is incorporated herein by
reference.
Item 11. Contracts, Arrangements, or Understandings with Respect to the
Issuer's Securities.
The information set forth under the captions "Special Factors -
Interest of Certain Persons in the Reverse Stock Split; Conflicts of Interest"
is incorporated herein by reference.
Item 12. Present Intention and Recommendation of Certain Persons with Regard
to the Transaction.
(a)-(b) The information set forth under the captions "Introduction -
Record Date; Quorum; Required Vote," "Special Factors - Recommendations of the
Board of Directors of the Corporation; Fairness of the Reverse Stock Split,"
and "The Reverse Stock Split - Voting; Vote Required" of the Proxy Statement is
incorporated herein by reference.
Item 13. Other Provisions of the Transaction.
(a) The information set forth under the caption "The Reverse Stock Split
- - Dissenting Stockholders' Rights" of the Proxy Statement is incorporated
herein by reference.
(b)-(c) Not applicable.
Item 14. Financial Information.
(a) The information set forth under the caption "Financial Information"
of the Proxy Statement is incorporated herein by reference.
(b) Not applicable.
Item 15. Persons and Assets Employed, Retained or Utilized.
(a)-(b) The information set forth under the caption "Introduction -
Solicitation of Proxies" of the Proxy Statement is incorporated herein by
reference.
Item 16. Additional Information.
All of the information set forth in the Proxy Statement is incorporated
herein by reference.
3
<PAGE> 10
Item 17. Material to be Filed as Exhibits.
(a), (c), and (f) Not applicable.
(b) Appraisal of The Parrott Partnership.
(d)(1) Proxy Statement of Book Centers, Inc. for the Special Meeting of
Stockholders to be held on May 30, 1996.
(d)(2) Proxy Card.
(e) Statement of appraisal rights is incorporated by reference from Annex
B to the Proxy Statement filed as Exhibit (d) hereto.
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
BOOK CENTERS, INC.
Dated: April 26, 1996 By: /s/ Daniel P. Halloran
-----------------------------
Name: Daniel P. Halloran
Title: Chairman of the Board, Chief
Executive Officer, and
President
4
<PAGE> 11
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
- ------- ----------- ----
<S> <C> <C>
(a), (c), and (f) Not applicable.
(b) Appraisal of The Parrott Partnership.
(d)(1) Proxy Statement of Book Centers, Inc. for the
Special Meeting of Stockholders to be held on
May 30, 1996.
(d)(2) Proxy Card.
(e) Statement of appraisal rights is incorporated
by reference from Annex B to the Proxy
Statement filed as Exhibit (d)(1) hereto.
</TABLE>
5
<PAGE> 1
Exhibit (b)
BOOK CENTERS, INC.
AND SUBSIDIARIES
Valuation of Common Stock
As of September 30, 1995
Table of Contents
-----------------
Page
----
Valuation Report 1-2
Supporting Information and Calculations 3-11
Assumptions and Limiting Conditions 12
Sources of Information Relied Upon 13
Statement of Qualifications 14
Certifications 15
Statement of Independence 16
i
<PAGE> 2
THE PARROTT PARTNERSHIP Brad M. Parrott
Certified Public Accountants Craig J. Olson
& Business Consultants (503) 245-4511
FAX 452-6010
Daniel P. Halloran
Book Centers, Inc.
And Subsidiaries
5600 NE Hassalo Street
Portland, OR 97213
Dear Mr. Halloran:
The Parrott Partnership has been engaged to render an opinion regarding the
Fair Market Value of BOOK CENTERS, INC. AND SUBSIDIARIES, a corporation, at
September 30, 1995.
The purpose of the valuation is in the consideration of compensation of
employees/officers/shareholders in the form of equity interests. This
valuation report is for internal purposes only and, therefore, does not include
any discussion regarding company background and history, economic and industry
conditions, and financial analysis, including operations, management, strengths
and weaknesses, etc. All relevant facts regarding these elements have been
considered in the determination of Fair Market Value.
The valuation considers IRS Revenue Ruling 59-60 which presents the approach,
methods and factors to be considered in valuing the equity interest of closely
held companies.
Fair Market Value is defined as the price at which property would change hands
between a willing buyer and a willing seller, neither being under a compulsion
to buy or sell, and both having reasonable knowledge of relevant facts.
We have arrived at our conclusion by using several different standard valuation
methods. Considering all the relevant circumstances of this case, we have
relied on a weighted average of methods as the best indication of Fair Market
Value.
Five Lincoln Center/10200 S.W. Greenburg Rd./Suite 340/Portland, Oregon 97223-
5505
For the Accounting Advantage
& Powerful Business Planning
<PAGE> 3
In our opinion, and based on recognized valuation techniques and the following
analysis, the Fair Market Value of owner's equity of BOOK CENTERS, INC. AND
SUBSIDIARIES at September 30, 1995, is:
<TABLE>
<CAPTION>
Owner Percentage FMV
- ----- ---------- ---
<S> <C> <C>
Barry Fast 17.85% $11,000
Daniel Halloran 18.66% 12,000
ESOP 8.79% 5,000
Frank Ford 1.57% 1,000
Others 53.13% 27,000
----- ------
100.0% $56,000
</TABLE>
The following supporting information outlines the different valuation
approaches, methods, and the related calculations. The financial information
presented includes hypothetical adjustments, estimates, projections and
calculations, and are included solely to assist in the development of the
conclusions, and are not intended to restate historical results nor are they
intended to forecast the future.
This valuation is subject to the assumptions and limiting conditions set forth
in this report.
Respectfully submitted,
/s/ The Parrott Partnership
The Parrott Partnership
December 5, 1995
Enclosures
<PAGE> 4
VALUATION APPROACHES
The following valuation approaches detail the Total Entity Value calculation
under each different approach. Although each approach calculates value
differently, each one attempts to determine Fair Market Value. Therefore, each
approach should be considered independently while all assumptions remain
constant between all value calculations. Our selection of the most
representative valuation approaches and methods, and our Fair Market Value
opinion have been made with consideration given to all of the relevant facts in
this case and the definition of Fair Market Value above.
ASSET APPROACH
The asset approach theory states the value of a business is directly related to
the assets of the business.
Book Value
Book Value represents the "accounting value" of the assets minus liabilities at
the date of the balance sheet. At the valuation date, Book Value is a negative
($817,000.) Because balance sheets are usually historical cost, as required by
Generally Accepted Accounting Principles, the Book Value of a business does not
necessarily consider the Fair Market Value of the corporation's underlying
assets.
Adjusted Book Value/Equity FMV
The Adjusted Book Value of a corporation is represented by Total Equity as
presented on the adjusted balance sheet with adjustments for the Fair Market
Value of the assets and liabilities at the date of valuation. We have
therefore made adjustments to the assets and liabilities in the Current Balance
Sheet Analysis to reflect Fair Market Value, as follows:
Accounts receivable deemed uncollectible ($ 3,000)
Inventory decreased for obsolescence ( 200,000)
Net operating loss carryforward for income tax
purposes, at net present value 174,000
As an indicator of the total Fair Market Value of the equity, Equity FMV has
the disadvantage of only considering the status of the business at one point in
time. Additionally, Equity FMV does not properly take into account the earning
capacity of the business over a period of time. In many respects, Equity FMV
is an estimate of the unadjusted the Equity FMV of BOOK CENTERS, INC. AND
SUBSIDIARIES at the date of valuation was a negative ($846,000.)
3
<PAGE> 5
Liquidation Value
The Liquidation Value estimates the remaining cash value if all the Company's
assets were sold in a quick and orderly, piecemeal manner, and all liabilities
were immediately paid with the proceeds.
The liquidation value method was not selected as an appropriate valuation
method for purposes of estimating the Fair Market Value of the Company due to
the fact that the Company is functioning as a going concern and is anticipated
to remain in operation.
However, an understanding of relevant facts of the liquidation approach is
necessary in order to support the subjective risk factors identified in the
discount rate and capitalization factors.
To calculate this value, we have made an estimate of the liquidation proceeds
for each asset account as a percentage of the adjusted balance of each asset
account. The difference between the total proceeds from the liquidation of
assets and total liabilities is termed Liquidation Value. As set forth in the
Current Balance Sheet Analysis the Liquidation Value of BOOK CENTERS, INC. AND
SUBSIDIARIES at the date of valuation is $0.
ASSET APPROACHES TO VALUATION
<TABLE>
<CAPTION>
(000's)
Book Adjusted Book Liquidation
Value Value Value
----- ------------- -----------
<S> <C> <C> <C>
Current Assets 5,114 4,911 3,996
Long-Term Assets 159 333 82
----- ----- -----
Total Assets 5,273 5,244 4,078
===== ===== =====
Current Liab's 6,037 6,037 4,025
Long-Term Liab's 53 53 53
----- ----- -----
Total Liabilities 6,090 6,090 4,078
Total Equity -817 -846 0
----- ----- -----
Total Liab. & Eq. 5,273 5,244 4,078
===== ===== =====
</TABLE>
4
<PAGE> 6
INCOME APPROACH
The income approach theory states that the value of the business is directly
related to the earnings of the business.
Adjustments to income statement
Before the valuations methods can be applied, the business income must be
adjusted to remove nonbusiness expenditures and nonbusiness income, and add
business costs not borne by the business as well as add business income not
reflected in the business operations. The following represent adjustments to
the historic balance.
ADJUSTED NET INCOME ANALYSIS
<TABLE>
<CAPTION>
(000's)
06-91 06-92 06-93 06-94 06-95
------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Expense Addbacks:
Officers' Life Ins 0 0 10 28 30
Non-Oper. Exp. 1,200 0 0 -200 0
------ ----- ----- ----- -----
Total Addbacks 1,200 0 10 -172 30
Tax Adjustment 37 -55 16 -10 -15
------ ----- ----- ----- -----
Total Adjustments 1,237 -55 26 -182 15
Hist. Net Inc. -1,386 277 -91 221 47
------ ----- ----- ----- -----
Adj. Net Income -149 222 -65 39 62
====== ===== ===== ===== =====
</TABLE>
5
<PAGE> 7
BUSINESS RISK ANALYSIS
Capitalization rates vary among particular types of businesses and from one
period of time to another. Expressed as a percentage, the more speculative the
business' income stream, the higher the capitalization rate; conversely, the
more stable the income stream the lower the capitalization rate. This
stability or nonstability is termed "risk."
In order to compute this capitalization rate we have first looked to U.S.
Treasury Bond market yields which are generally considered to be risk free.
The risk-free long-term T-Bond yield at the date of valuation was 7.5 percent.
Since investing in a company is not risk-free, a premium above the T-Bond yield
of 7.0 percent was added for an equity investment as stated in Ibbotson
Associates, "Stocks, Bonds, Bills and Inflation (SBBI) Yearbook" for large
common stocks. SBBI also found that small companies are generally a higher
risk than the large common stocks on the stock exchanges. A small stock
premium, as noted in SBBI, is added for this higher risk in the amount of 5.2
percent. We have added a subjective premium for investing in this particular
business, which indicates additional risk over similar businesses in the same
general area. Finally, the rate of return required by a business owner is
called the discount rate. This discount rate is the annual return on
investment or cash return on investment available to the business owner.
However, for the purpose of this report, return on investment is based on
earnings rather than cash from operations. Therefore, the cash discount rate
was converted to an earnings discount rate by adding the return on investment
difference between cash and earnings: 3.0 percent. The result is a Discount
Rate of 48.7 percent.
Since the SBBI study is based on after-tax earnings of businesses, whether
partnership, corporation, or proprietorship, our application of these rates are
also to after-tax earnings except as noted.
Since the Discount Rate is used for forecasted earnings and includes growth,
the business' long-term growth rate, 3.8 percent, is subtracted from the
Discount Rate, 48.7 percent, to arrive at the Capitalization rate, 44.9 percent
for forecasted earnings. To convert this Capitalization rate and apply it to
recent earnings, the rate has been divided by (1+3.8%). The result is the
Earnings Capitalization Rate, 43.3 percent: the estimated risk based on
historical information.
The Excess Earnings Premium is added for companies in the upper earnings
quartile of their industry. There was no premium identified for the Company.
The result of our estimate is an Excess Earnings Capitalization Rate of 44.9
percent. To convert this Excess Earnings Capitalization rate and apply it to
recent earnings, the rate has been divided by (1+3.8%). The result is the
Excess Earnings Capitalization Rate, 43.3 percent: the estimated risk based on
historical information (same as the Earnings Capitalization Rate where there is
no premium).
6
<PAGE> 8
CAPITALIZATION RATE CONCLUSIONS
<TABLE>
<CAPTION>
Historical
Build-Up Model Rate Source Conversion
- -------------- ---- ------ ----------
<S> <C> <C> <C>
Risk-Free L.T. Gov. Bond Rate 7.5% (AVG SBBI 1994)
Common Stock Equity Risk Premium 7.0% (SBBI)
Small Stock Equity Risk Premium 5.2% (SBBI)
Subjective Risk Premium 26.0% (Sch. A)
Cash Flow to Net Income Conver. 3.0%
----
Discount Rate 48.7%
Less: L.T. Business Growth Rate 3.8% (Sch. B)
----
Capitalization Rate 44.9% /(1+3.8%) = 43.3%
Excess Earnings Risk Premium 0.0% (Sch. B)
----
Excess Earnings Cap. 44.9% /(1+3.8%) = 43.3%
</TABLE>
SBBI-Ibbotson Associates, Inc., Chicago 1995
SUBJECTIVE RISK RATE FACTORS
(Schedule A)
<TABLE>
<CAPTION>
Adjusted
Risk Assessment Factors: Industry Business Rating
- ------------------------ -------- -------- ------
<S> <C> <C> <C>
1. Pre-Tax ROE 11.3% -9.0% 4
2. Profitability % 1.1% 0.3% 4
3. Pre-Tax ROA 2.9% 1.5% 4
4. Current Ratio 1.7 0.8 4
5. Industry Stability/Potential 2
6. Earnings Diversity/Stability 3
7. Product/Service Quality 1
8. Location/Market Position 2
9. Competitiveness/Management 1
10. Suppliers/Regulations 1
----
Subjective Premium 26.0%
====
</TABLE>
CAPITALIZATION RATE ADJUSTMENTS
(Schedule B)
<TABLE>
<CAPTION>
Avg. Revenue
Cap. Rate Adjustment Growth Selected
- -------------------- ------------ --------
<S> <C> <C>
L.T. Business Growth -1.1% 3.8%
========
</TABLE>
<TABLE>
<CAPTION>
Excess Earnings Premium RMA Selected
- ----------------------- ---- --------
<S> <C> <C>
Industry Return on Equity 32.2%
(High)
Industry Return on Equity 11.3%
(Median)
---- --------
Excess Earnings Premium 20.9% 0.0%
========
</TABLE>
7
<PAGE> 9
CAPITALIZATION OF EARNINGS METHOD
The Capitalization of Earnings method, an income approach, considers the
business as a single investment. This method is similar to the price/earnings
method in that both methods value the business based on earnings. Unlike the
price/earnings ratio, which is based upon comparable business values, the
Capitalization of Earnings method is based upon a Capitalization Rate developed
by the appraiser for this specific business.
As noted in the "Adjustments To Income Statement" above, the historic net
income for the base years is adjusted for non-operating income and expenses to
arrive at the adjusted net income. The adjusted net income for each year is
weighted and an average is calculated.
In the instant situation, we have selected Adjusted Net Income as our earnings
to capitalize. These earnings are then capitalized into perpetuity using a
rate that reflects returns for both the tangible as well as intangible assets
in the business.
CAPITALIZATION OF EARNINGS
<TABLE>
<CAPTION>
000's
<S> <C>
Weighted Average Earnings 38
Capitalization Rate 43.3%
-----
Business Value 87
Plus: Net Non-Op. Assets 174
-----
Total Entity Value 261
=====
</TABLE>
8
<PAGE> 10
CAPITALIZATION OF EXCESS EARNINGS METHOD
The Capitalization of Excess Earnings is an income approach to valuation
wherein the Adjusted Book Value and Intangible Assets of the business entity
are valued independently. These component assets are then combined to
determine the total Fair Market Value of the business.
Adjusted Book Value is comprised of the Fair Market Value of total assets,
$5,244,000 minus total liabilities, $6,090,000. The Adjusted Book Value for
BOOK CENTERS, INC. AND SUBSIDIARIES is ($846,000.)
Intangible assets are then determined by capitalizing excess earnings. Excess
earnings are calculated as After-Tax Adjusted Net Income weighted by a yearly
average. Therefore, the Weighted Average Excess Earnings is $38,000.
To determine BOOK CENTERS, INC. AND SUBSIDIARIES's intangible value/goodwill,
the Excess Earnings are capitalized into perpetuity using a rate of return that
reflects the risk to produce those earnings; more commonly called the Excess
Earnings Capitalization Rate, 43.3% (See Business Risk Analysis, above, for
Capitalization rate calculation).
Finally, the intangible value is then added to Net Tangible Asset FMV for a
determination of Total Entity Value of negative ($759,000).
CAPITALIZATION OF EXCESS EARNINGS
<TABLE>
<CAPTION>
000's
<S> <C>
Weighted Average Earnings 38
Less: 11.3% Return on Equity 0
----
Weighted Average Excess Earnings 38
Excess Earnings Capitalization Rate 43.3%
----
Total Intangible Value 87
Plus: Adj Book Value -846
----
Total Entity Value -781
====
</TABLE>
9
<PAGE> 11
DISCOUNTED FUTURE EARNINGS METHOD
The Discounted Future Earnings Analysis is an income approach to valuation in
which the Total Entity Value is determined by estimating 10 years of forecasted
future earnings and then discounting those earnings back to the date of
valuation.
In the instant situation, we have selected forecasted after-tax income as our
earnings base for the projection. The annual earnings flows are then
discounted to present value by applying a discount rate of 48.7 percent (see
Business Risk Analysis, above, for discount rate calculation). The sum of the
discounted future earnings flows plus the income residual, or terminal value,
and net non-operating assets at the date of valuation, results in a Total
Entity Value of $410,000.
DISCOUNTED FUTURE EARNINGS
<TABLE>
<CAPTION>
(000's)
Forecasted Present
Year Earnings Value
---- ---------- -------
<S> <C> <C>
1 39 26
2 105 48
3 142 43
4 174 36
5 180 25
6 189 17
7 198 12
8 207 9
9 217 6
10 228 4
Residual 228 10
---
Present Value of Business Inc 236
Net Non-Op. Assets 174
Total Entity Value 410
===
</TABLE>
MARKET APPROACH
The market approach theory states the value of a business is directly related
to comparable sales.
A search for public companies and comparable sales of private companies was
made for comparison purposes.
No public company or comparable sale of a private company were found.
10
<PAGE> 12
CAPITAL ACCOUNT VALUE
Based on our analysis 100 percent of BOOK CENTERS, INC. AND SUBSIDIARIES is
valued to be $87,000. However, each owners' individual value may not be
directly related to the percentage of ownership due to lack of control, or lack
of marketability of ownership of the business.
Minority Discount
The minority discount is a reduction in value due to lack of control such as
declaring dividends, liquidating, issuing or buying stock, directing
management, etc.
Marketability Discount
The marketability discount is a reduction in value due to a stock restriction
or prohibition such as no ready market, security law restrictions, buy-sell
agreements, rights of first refusal restrictions, and shareholder agreements.
During our review of the non-financial records, we discovered the stock does
not have a ready market and therefore we included a marketability discount.
CAPITAL ACCOUNT VALUE
<TABLE>
<CAPITAL>
(000's)
Percent Percent Discount/ Marketability Account
Owner of Total Value Premium Discount FMV Value
- ----- -------- ------- --------- ------------- ---------
<S> <C> <C> <C> <C>
Fast 17.85% 16 -10.0% -20.0% 11
Halloran 18.66% 16 -10.0% -20.0% 12
ESOP 8.79% 9 -25.0% -20.0% 5
Ford 1.57% 1 -25.0% -20.0% 1
Others 53.13% 45 -25.0% -20.0% 27
----- -- --
100.0% 87 56
===== == ==
</TABLE>
11
<PAGE> 13
ASSUMPTIONS AND LIMITING CONDITIONS
This valuation is subject to the following assumptions and limiting conditions:
1. Information, estimates, and opinions contained in this report are obtained
from sources considered to be reliable. However, we assume no liability
for such sources.
2. The company and its representatives warranted to us that the information
they supplied was complete and accurate to the best of their knowledge and
that the financial statement information reflects the company's results of
operations and financial condition in accordance with generally accepted
accounting principles, unless otherwise noted. Information supplied by
management has been accepted as correct without further verification, and
we express no opinion on that information.
3. Possession of this report, or a copy thereof, does not carry with it the
right of publication of all or part of it, or may it be used for any
purpose by anyone but the client without the previous written consent of
the client or us and, in any event, only with a proper attribution.
4. We are not required to give testimony in court, or be in attendance during
any hearings or depositions, with reference to the company being valued,
unless previous arrangements have been made.
5. The various estimates of value presented in this report apply to this
valuation only and may not be used out of the context presented herein.
This valuation is valid only for the purpose or purposes specified herein.
6. This valuation assumes that the company will continue to operate as a going
concern, and that the character of its present business will remain intact.
7. The valuation contemplates facts and conditions existing as of the
valuation date. Events and conditions occurring after that date have not
been considered, an we have no obligation to update our report for such
events and conditions.
12
<PAGE> 14
SOURCES OF INFORMATION RELIED UPON
IN THIS VALUATION
1. Historical Financial Statements:
A. Independent audited financial statements for the years ended June 30,
1991 through 1995.
B. Internal interim financial statements through September 30, 1995.
2. Corporate income tax returns for the years 1991 through 1995.
3. Management prepared forecast of income.
4. Internal workpapers supporting financial statements.
5. Form 10-K for the year ended June 30, 1995, and a letter from management
regarding background, management, industry, financial condition,
relationships with customers and suppliers, ownership history and issues,
etc.
6. Oral and written representations from management regarding various aspects
and issues of operations and financial information, including asset value,
officer salaries, inventory, real property lease, etc.
7. Employment contracts.
13
<PAGE> 15
STATEMENT OF QUALIFICATIONS
The Parrott Partnership is a full service certified public accounting firm
established in 1984, and is a member of the American Institute of Certified
Public Accountants, Oregon Society of Certified Public Accountants, Management
Consulting Services Division of the AICPA, and various civic and business
affiliations. The firm specializes in consulting services to closely held
companies.
The Parrott Partnership, and the direction and supervision of Brad M. Parrott,
has performed valuation engagements for the past six years. Most engagements
have been for internal purposes such as buy/sell agreements, gifting and estate
planning, sale of interests, financing, incentive stock options, etc.
The firm maintains a substantial library and software services regarding
business valuation practice aids and information including "Guide to Business
Valuations" by Practitioners Publishing Company, "Valuation of a Closely Held
Business" by AICPA, "Conducting a Valuation of a Closely Held Business" by
Management Consulting Services Division of AICPA, "RMA on Disk" by Robert
Morris Associates, "Handbook of Small Business Valuation Formulas and Rules of
Thumb" by Glenn Desmond, ValuSource business valuation software, various data
bases, articles, etc.
14
<PAGE> 16
CERTIFICATIONS
We certify that, to the best of our knowledge and belief:
1. The statements of fact in this report are true and correct.
2. The reported analysis, opinions, and conclusions are limited only by the
reported assumptions and limiting conditions, and are our personal,
unbiased professional analyses, opinions, and conclusions.
3. Our analysis, opinions, and conclusions were developed, and this report was
prepared, in conformity with Uniform Standards of Professional Appraisal
Practice.
15
<PAGE> 17
STATEMENT OF INDEPENDENCE
This report was prepared under the direction of Brad M. Parrott. Neither the
professionals who worked on this engagement, nor the partners of The Parrott
Partnership, have any present or contemplate future interest in Book Centers,
Inc. and Subsidiaries, or any personal interest with respect to the parties
involved, nor any other interest that might prevent us from performing an
unbiased valuation. Our compensation is not contingent on an action or event
resulting from the analyses, opinions, or conclusions in, or the use of, this
report.
16
<PAGE> 1
Exhibit (d)(1)
BOOK CENTERS, INC.
5600 N.E. Hassalo Street
Portland, Oregon 97213
May 9, 1996
Dear Fellow Stockholder:
You are cordially invited to attend a Special Meeting of the Shareholders
(the "Special Meeting") of Book Centers, Inc. (the "Corporation") to be held at
the offices of Book Centers, Inc., 5600 N.E. Hassalo Street, Portland, Oregon
97213, on Thursday, May 30, 1996, at 10:00 a.m., local time.
At the Special Meeting, you will be asked to consider and vote upon a
proposal to approve and adopt Articles of Amendment to the Corporation's
Restated Articles of Incorporation ("Articles of Amendment") providing (a) for
a reduction of the number of authorized shares of Common Stock from 50,000,000
to 500 (such new shares of Common Stock to be referred to herein as the "New
Common Stock"), (b) for a 100,000 to one reverse stock split of the
Corporation's Common Stock, and (c) for a cash payment of nine cents per share
of the currently outstanding Common Stock in lieu of the issuance of any
resulting fractional shares of the New Common Stock to any stockholders who,
after the Reverse Stock Split, own less than one share of New Common Stock
(items (a), (b), and (c) will be considered one proposal and referred to herein
as the "Reverse Stock Split").
The text of the proposed Articles of Amendment is set forth in Annex A to
the accompanying Proxy Statement. If the proposed Reverse Stock Split is
approved, the Corporation will have only two stockholders and will therefore
cease filing certain reports with the Securities and Exchange Commission.
I enclose with this letter a Notice of Special Meeting, Proxy Statement,
Proxy Card, and return envelope. I urge you to read the enclosed material
carefully.
THE BOARD OF DIRECTORS HAS FULLY REVIEWED AND CONSIDERED THE TERMS AND
CONDITIONS OF THE PROPOSED REVERSE STOCK SPLIT AND HAS UNANIMOUSLY DETERMINED
THAT THE PROPOSED REVERSE STOCK SPLIT, TAKEN AS A WHOLE, IS FAIR TO, AND IN THE
BEST INTERESTS OF, THE STOCKHOLDERS.
Pursuant to the Oregon Business Corporation Act, the affirmative vote of
at least a majority of the shares of Common Stock present in person or by proxy
at the Special Meeting is required to approve the Reverse Stock Split. The
officers and directors of the Corporation, who own 65 percent of the issued and
outstanding shares of Common Stock of the Corporation, have indicated that they
will each vote their shares in favor of the Reverse Stock Split.
YOUR VOTE IS IMPORTANT. Whether or not you plan to attend the Special
Meeting, please complete, sign, and date the accompanying Proxy Card and return
it in the enclosed prepaid envelope as soon as possible. If you attend the
Special Meeting, you may vote your shares in person, even if you have
previously submitted a Proxy Card.
Your continued support of and interest in Book Centers, Inc. is greatly
appreciated.
Sincerely,
/s/ Daniel P. Halloran
Daniel P. Halloran
Chairman of the Board,
Chief Executive Officer, and President
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR
MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<PAGE> 2
BOOK CENTERS, INC.
5600 N.E. HASSALO STREET
PORTLAND, OREGON 97213
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 30, 1996
To the Stockholders of Book Centers, Inc.:
Notice is hereby given that a Special Meeting of Stockholders of Book
Centers, Inc. (the "Corporation") will be held at the offices of the
Corporation, 5600 N.E. Hassalo Street, Portland, Oregon 97213, on Thursday, May
30, 1996, at 10:00 a.m., local time (the "Special Meeting"), for the following
purposes:
1. To consider and vote upon a proposal to approve and adopt
Articles of Amendment to the Corporation's Restated Articles of
Incorporation providing (a) for a reduction of the number of
authorized shares of common stock (the "Common Stock") from
50,000,000 shares to 500 shares (such new shares of Common Stock
to be referred to herein as the "New Common Stock"); (b) for a
100,000 to one reverse stock split of the Corporation's Common
Stock; and (c) for a cash payment in the amount of nine cents per
share of the currently outstanding Common Stock in lieu of the
issuance of any resulting fractional shares of the New Common
Stock to stockholders who, after the reverse stock split, own less
than one share of the New Common Stock (items (a), (b), and (c)
will be considered one proposal and will be referred to herein as
the "Reverse Stock Split"), all as described more fully in the
accompanying Proxy Statement; and
2. To transact such other business as may properly be
brought before the Special Meeting or any adjournments or
postponements thereof.
Only holders of shares of Common Stock of record at the close of business
on May 3, 1996, are entitled to notice of and to vote at the Special
Meeting. Each share of Common Stock outstanding on such date is entitled to
one vote at the Special Meeting.
If the Reverse Stock Split is approved, the stockholders of the
Corporation who dissent from the proposed Reverse Stock Split and strictly
comply with the requirements of Sections 60.551 to 60.594 of the Oregon
Business Corporation Act will have the right to receive payment in cash of the
fair value of their shares of Common Stock. See "The Reverse Stock Split --
Dissenting Stockholders' Rights" in the accompanying Proxy Statement for a
statement of the rights of dissenting stockholders and a description of the
procedures required to be followed to obtain the fair value of the shares of
Common Stock. A copy of Sections 60.551 to 60.594 of the Oregon Business
Corporation Act is attached as Annex B to the accompanying Proxy Statement.
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES OF COMMON STOCK
YOU OWN. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE
COMPLETE, SIGN, DATE, AND RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED
PREPAID ENVELOPE WITHOUT DELAY. ANY SHAREHOLDER PRESENT AT THE SPECIAL MEETING
MAY VOTE PERSONALLY ON EACH MATTER BROUGHT BEFORE THE SPECIAL MEETING AND ANY
PROXY GIVEN BY A STOCKHOLDER MAY BE REVOKED AT ANY TIME BEFORE IT IS EXERCISED.
By Order of the Board of Directors,
/s/ Daniel P. Halloran
Daniel P. Halloran
Chairman of the Board of Directors,
Chief Executive Officer, President, and
Secretary
Portland, Oregon
May 9, 1996
PLEASE DO NOT SEND ANY CERTIFICATES FOR YOUR SHARES AT THIS TIME.
<PAGE> 3
PRELIMINARY PROXY STATEMENT
BOOK CENTERS, INC.
5600 N.E. HASSALO STREET
PORTLAND, OREGON 97213
-------------------------
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 30, 1996
-------------------------
This Proxy Statement is being furnished to the stockholders of Book
Centers, Inc., an Oregon corporation (the "Corporation"), in connection with
the solicitation of proxies by the Board of Directors of the Corporation (the
"Board of Directors") from holders of outstanding shares of common stock, no
par value, of the Corporation (the "Common Stock"), for use at the Special
Meeting of the Stockholders to be held on Thursday, May 30, 1996, at the
Corporation's offices at 5600 N.E. Hassalo Street, Portland, Oregon 97213, and
any adjournments or postponements thereof (the "Special Meeting"). This Proxy
Statement and the attached Notice of Special Meeting of Stockholders and the
Proxy Card are first being mailed to stockholders on or about May 9, 1996.
At the Special Meeting, holders of shares of Common Stock on the
applicable record date will consider and vote upon the proposal by the Board of
Directors to approve and adopt Articles of Amendment to the Corporation's
Restated Articles of Incorporation (the "Articles of Amendment") providing (a)
for a reduction of the number of authorized shares of Common Stock from
50,000,000 shares to 500 shares (such new shares of Common Stock referred to
herein as the "New Common Stock"); (b) for a 100,000 to one reverse stock split
of the Corporation's Common Stock; and (c) for a cash payment of nine cents per
share (the "Cash Consideration") of the currently outstanding Common Stock in
lieu of the issuance of any resulting fractional shares of the New Common Stock
to any stockholders who, after the reverse stock split owns less than one share
of New Common Stock (the "Fractional Stockholders") (items (a), (b), and (c)
will be considered one proposal and will be referred to herein as the "Reverse
Stock Split").
Pursuant to the Oregon Business Corporation Act, the affirmative vote of
the holders of a majority of the outstanding shares of Common Stock present in
person or by proxy at the Special Meeting is required to approve the proposed
Reverse Stock Split. Mr. Daniel P. Halloran, Chairman of the Board of
Directors, Chief Executive Officer, and President of the Corporation, and Mr.
Barry E. Fast, Vice President of the Corporation, have advised the Corporation
that they intend to vote their shares, representing approximately 64 percent of
the outstanding shares of Common Stock, in favor of the approval of the
Reverse Stock Split.
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT IN
CONNECTION WITH THE SOLICITATION OF PROXIES MADE HEREBY, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE CORPORATION OR ANY OTHER PERSON.
-------------------------
The date of this Proxy Statement is May 9, 1996.
i
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SUMMARY 1
INTRODUCTION 3
General 3
The Special Meeting 3
Record Date; Quorum; Required Vote 3
Proxies 4
Solicitation of Proxies 4
SPECIAL FACTORS 4
Purposes of the Reverse Stock Split 4
Background and Reasons for the Reverse Stock Split 5
Recommendations of the Board of Directors of the Corporation;
Fairness of the Reverse Stock Split 7
Interest of Certain Persons in the Reverse Stock Split; Conflicts
of Interest 10
Lack of Reports, Opinions, and Appraisals 10
Plans for the Corporation after the Reverse Stock Split 10
Certain Effects of the Reverse Stock Split 11
Certain Federal Income Tax Consequences 11
Source and Amounts of Funds for and Expenses of the Reverse Stock
Split 13
THE REVERSE STOCK SPLIT 13
Amendment of Restated Articles of Incorporation to Effect the
Reverse Stock Split 13
Exchange of Shares and Payment in Lieu of Issuance of Fractional
Shares 13
Voting; Vote Required 14
Dissenting Stockholders' Rights 14
MARKET PRICES OF SHARES OF COMMON STOCK; DIVIDENDS 15
DIRECTORS AND EXECUTIVE OFFICERS 16
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 17
TRANSACTIONS IN SHARES OF COMMON STOCK OF CORPORATION 19
INDEPENDENT PUBLIC ACCOUNTANTS 22
FINANCIAL INFORMATION 22
ADDITIONAL INFORMATION 22
INDEX TO FINANCIAL INFORMATION F-1
ANNEXES:
A -- Form of Proposed Articles of Amendment to Restated Articles
of Incorporation
B -- Sections 60.551 to 60.594 of the Oregon Business Corporation
Act
</TABLE>
ii
<PAGE> 5
SUMMARY
The following is a brief summary of certain information contained
elsewhere in this Proxy Statement (the "Proxy Statement"). This summary is not
intended to be a complete description of the matters covered in this Proxy
Statement and is subject to and qualified in its entirety by reference to the
more detailed information contained elsewhere in this Proxy Statement,
including the Annexes hereto and the documents incorporated by reference
herein.
THE SPECIAL MEETING
Time, Date, and Place of Special Meeting.
A special meeting of the stockholders of the Corporation will be held at
10:00 a.m., local time, on Thursday, May 30, 1996, at the Corporation's offices
at 5600 N.E. Hassalo Street, Portland, Oregon 97213 (the "Special Meeting").
Purpose of the Special Meeting.
The purpose of the Special Meeting is to consider and vote upon a proposal
to approve and adopt the Articles of Amendment to the Corporation's Restated
Articles of Incorporation ("Articles of Amendment") providing (a) for a
reduction of the number of authorized shares of Common Stock from 50,000,000
shares to 500 shares; (b) for a 100,000 to one reverse stock split of the
Corporation's Common Stock; and (c) for a cash payment of nine cents per share
(the "Cash Consideration") of the currently outstanding Common Stock in lieu of
the issuance of any resulting fractional shares of the New Common Stock to any
stockholder who, after the Reverse Stock Split, own less than one share of New
Common Stock (the "Fractional Stockholders") (items (a), (b), and (c) will be
considered one proposal and referred to herein as the "Reverse Stock Split").
Record Date; Quorum.
The close of business on May 3, 1996 (the "Record Date") has been fixed as
the record date for the determination of those stockholders entitled to notice
of and to vote at the Special Meeting. As of the Record Date, 1,125,156 shares
of Common Stock were outstanding and held of record by 814 holders. The
presence, in person or by proxy, of the holders of majority of the shares of
Common Stock entitled to vote at the Special Meeting is necessary to constitute
a quorum for the transaction of business at the Special Meeting.
Vote Required.
Pursuant to the Oregon Business Corporation Act, the affirmative vote of
the holders of a majority of the outstanding shares of Common Stock present in
person or by proxy at the Special Meeting will be required to approve the
Reverse Stock Split. Mr. Daniel P. Halloran, Chairman of the Board of
Directors, Chief Executive Officer, and President of the Corporation, and Barry
E. Fast, Vice President of the Corporation, who collectively own approximately
64 percent of the outstanding shares of Common Stock, have indicated that they
intend to vote in favor of the approval of the Reverse Stock Split. They are
the owners of a sufficient number of shares of Common Stock to approve the
Reverse Stock Split.
SPECIAL FACTORS
Purposes of the Reverse Stock Split.
The purposes of the Reverse Stock Split are to reduce the number of
stockholders of record of the Corporation to less than 300 in order to permit
it to suspend its obligation to file reports and to terminate the registration
of its shares of Common Stock under the Securities Exchange Act of 1934 (the
"Exchange Act"), to relieve the Corporation of the burden and costs arising
from the regulatory and reporting requirements of the Exchange Act, to
facilitate and enhance the Corporation's long-term business plan, and to afford
stockholders an opportunity to receive a fair price for their shares in
1
<PAGE> 6
an otherwise illiquid market without such stockholders incurring the attendant
costs of sale. See "Special Factors - Purposes of the Reverse Stock Split."
Reasons for Reverse Stock Split.
The Board of Directors determined to propose the Reverse Stock Split,
because the Board of Directors believes that neither the Corporation nor its
stockholders derive any material benefit from the continued registration of the
Common Stock under the Exchange Act and that the monetary expense and burden to
management of continued registration significantly outweighs any material
benefit that may be received by the Corporation or its stockholders as a result
of such registration. See "Special Factors - Background and Reasons for the
Reverse Stock Split."
Recommendations of the Board of Directors; Fairness of the Reverse Stock
Split.
The Board of Directors concluded that the terms of the Reverse Stock Split
are fair to, and in the best interest of, the stockholders. Accordingly, the
Board of Directors has unanimously approved the Reverse Stock Split and
recommends a vote FOR approval of the Reverse Stock Split. See "Special
Factors - Recommendations of the Board of Directors of the Corporation;
Fairness of the Reverse Stock Split."
Certain Effects of the Reverse Stock Split Transaction.
Upon the effectiveness of the Reverse Stock Split, the stockholders of the
Corporation, other than Messrs. Daniel P. Halloran and Barry E. Fast, the
officers who are also stockholders of the Corporation, will no longer have any
continuing interest as stockholders of the Corporation, no market will exist
for the Corporation's shares of Common Stock, and the Corporation will suspend
its obligations to file reports and terminate the registration of its shares of
Common Stock pursuant to the Exchange Act. See "Special Factors - Certain
Effects of the Reverse Stock Split."
Lack of Reports, Opinions, and Appraisals.
Except as indicated in this Proxy Statement, neither the Corporation nor
the Board of Directors received any report, opinion, or appraisal from an
outside party with respect to the Reverse Stock Split generally or with respect
to its fairness. See "Special Factors - Lack of Opinions, Appraisals, and
Reports" and "Transactions in Shares of Common Stock of Corporation."
Conflicts of Interest.
Certain officers and directors have certain interests that present
potential or actual conflicts of interest in connection with the Reverse Stock
Split. Messrs. Daniel P. Halloran and Barry E. Fast, two of the three members
of the Board of Directors, who own in the aggregate 64 percent of the issued
and outstanding shares of Common Stock of the Corporation, voted in favor of
the Reverse Stock Split at the meetings of the Board of Directors at which it
considered the Reverse Stock Split. They are also the owner of a sufficient
number of shares of Common Stock to approve the Reverse Stock Split. They
will, upon the effectiveness of the Reverse Stock Split, be the sole remaining
stockholders of the Corporation.
THE REVERSE STOCK SPLIT
Terms of Reverse Stock Split.
The Articles of Amendment provide for a reduction of the authorized shares
of Common Stock of the Corporation from 50,000,000 shares of Common Stock to
500 shares. Immediately upon the filing of the Articles of Amendment with the
Secretary of State of the State of Oregon, every 100,000 shares of the
Corporation's Common Stock issued on the date of the filing of the Articles of
Amendment will be automatically converted into one share of the Corporation's
New Common Stock. The Corporation will then acquire for cash all resulting
fractional shares of New Common Stock at a price equal to nine cents per share
the ("Cash Consideration") from stockholders who, after the Reverse Stock
Split, are the owners of less
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than one share of New Common Stock (the "Fractional Stockholders"). The
Corporation will pay for such fractional shares upon the physical surrender by
the Fractional Stockholders of their share certificates pursuant to the
transmittal instructions to be mailed by the Corporation to the Fractional
Stockholders. See "The Reverse Stock Split - Amendment of Restated Articles of
Incorporation to Effect the Reverse Stock Split" and "The Reverse Stock Split -
Exchange of Shares and Payment in Lieu of Issuance of Fractional Shares of New
Common Stock."
Dissenting Stockholders' Rights.
Stockholders are entitled to seek payment in cash of the fair value of
their shares of Common Stock under Sections 60.551 to 60.594 of the Oregon
Business Corporation Act, subject to their satisfaction of the conditions for
dissenters' rights established by Sections 60.551 to 60.594. Sections 60.551
to 60.594 are set forth in full in Annex B hereto. See "The Reverse Stock
Split - Dissenting Stockholders' Rights."
Certain Federal Income Tax Consequences.
Stockholders who receive cash for their fractional shares as a result of
the Reverse Stock Split will recognize gain or loss based on their adjusted
basis in the shares. See "Special Factors - Certain Federal Income Tax
Consequences."
INTRODUCTION
GENERAL
This Proxy Statement is being furnished to holders of the outstanding
shares of Common Stock of the Corporation in connection with the solicitation
of proxies by the Board of Directors of the Corporation (the "Board of
Directors") for use at a Special Meeting of Stockholders of the Corporation to
be held on Thursday, May 30, 1996, at 10:00 a.m., local time, at the
Corporation's offices at 5600 N.E. Hassalo Street, Portland, Oregon 97213,
including any adjournments or postponements thereof.
THE SPECIAL MEETING
At the Special Meeting, holders of shares of Common Stock will consider
and vote upon a proposal to approve and adopt Articles of Amendment to the
Corporation's Restated Articles of Incorporation (the "Articles of Amendment")
providing (a) for a reduction in the number of authorized shares of Common
Stock from 50,000,000 shares to 500 shares (the "New Common Stock"), (b) for a
100,000 to one reverse stock split of the Corporation's Common Stock, and (c)
for a cash payment of nine cents per share (the "Cash Consideration") of
currently outstanding Common Stock in lieu of the issuance of any resulting
shares of New Common Stock (the "Fractional Stockholders") to stockholders who,
after the reverse stock split, own less than one share of New Common Stock
(items (a), (b), and (c) are considered one proposal and will be referred to
herein as the "Reverse Stock Split"). The Board of Directors has unanimously
approved the Reverse Stock Split. The Board of Directors unanimously
recommends that the stockholders vote FOR the approval of the Reverse Stock
Split.
RECORD DATE; QUORUM; REQUIRED VOTE
The close of business on May 3, 1996 (the "Record Date") has been fixed as
the record date for determining holders of shares of Common Stock entitled to
vote at the Special Meeting. Each share of Common Stock outstanding on such
date is entitled to one vote at the Special Meeting. As of the Record Date,
1,125,156 shares of Common Stock were outstanding and held of record by 814
holders. The presence, in person or by proxy, of the holders of a majority of
the outstanding shares of Common Stock entitled to vote at the Special Meeting
is necessary to constitute a quorum for the transaction of business at the
Special Meeting.
Pursuant to the Oregon Business Corporation Act, the affirmative vote of
holders of a majority of the shares of Common Stock present in person or by
proxy at the Special Meeting is required to approve the Reverse Stock Split.
Mr. Daniel P. Halloran, Chairman of the Board of Directors, Chief Executive
Officer, and President of the Corporation, and Barry
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E. Fast, Vice President of the Corporation, own collectively approximately 64
percent of the outstanding shares of Common Stock. They have indicated that
they intend to vote in favor of the approval of the Reverse Stock Split.
PROXIES
Shares of Common Stock represented by properly executed proxies received
at or prior to the Special Meeting and which have not been revoked will be
voted in accordance with the instructions indicated thereon. If no
instructions are indicated on a properly executed proxy, such proxies will be
voted FOR the approval of the Reverse Stock Split.
A stockholder who has given a proxy may revoke such proxy at any time
prior to its exercise at the Special Meeting by (i) giving written notice of
revocation to the Secretary of the Corporation, (ii) properly submitting to the
Corporation a duly executed proxy bearing a later date, or (iii) attending the
Special Meeting and voting in person. Attendance at the Special Meeting will
not in and of itself revoke a proxy. All written notices of revocation and
other communications with respect to revocation of proxies should be addressed
as follows: Book Centers, Inc., 5600 N.E. Hassalo Street, Portland, Oregon
97213, Attention: Daniel P. Halloran, Secretary.
If the Special Meeting is adjourned or postponed for any purpose, at any
subsequent reconvening of the Special Meeting, all proxies will be voted in the
same manner as such proxies would have been voted at the original convening of
the meeting (except for any proxies which have theretofore effectively been
revoked or withdrawn), notwithstanding that they may have been effectively
voted on the same or any other matter at a previous meeting.
STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR PROXY
CARDS. IF THE REVERSE STOCK SPLIT IS CONSUMMATED, THE PROCEDURE FOR THE
EXCHANGE OF CERTIFICATES REPRESENTING SHARES OF COMMON STOCK WILL BE AS SET
FORTH IN THIS PROXY STATEMENT. SEE "THE REVERSE STOCK SPLIT -- EXCHANGE OF
SHARES AND PAYMENT IN LIEU OF ISSUANCE OF FRACTIONAL SHARES."
SOLICITATION OF PROXIES
The cost of solicitation of the stockholders of the Corporation will be
paid by the Corporation. Such cost will include the reimbursement of banks,
brokerage firms, nominees, fiduciaries, and custodians for the expenses of
forwarding solicitation material to beneficial owners of shares. In addition
to the solicitation of proxies by use of mail, the directors, officers, and
employees of the Corporation, may solicit proxies personally or by telephone,
telegraph, or facsimile transmission. Such directors, officers, and employees
will be not be additionally compensated for such solicitation but may be
reimbursed for out-of-pocket expenses incurred in connection therewith.
SPECIAL FACTORS
PURPOSES OF THE REVERSE STOCK SPLIT
The Board of Directors has proposed the Reverse Stock Split for the
following purposes:
1. To reduce the number of stockholders of record of the Corporation
to less than 300 in order to suspend the Corporation's obligations to file
reports under Section 15(d) of the Exchange Act and terminate the registration
of the Corporation's shares of Common Stock under Section 12(g)(4) of the
Exchange Act.
2. To relieve the Corporation of the burden and costs arising from
and in connection with the regulatory and reporting requirements of the
Exchange Act and the rules and regulations of the Securities and Exchange
Commission (the "SEC") promulgated thereunder.
3. To facilitate and enhance the Corporation's long-term business
plan of emphasizing product development and improvement, cost efficiencies,
productivity, technological innovation, facility upgrading, and superior
service without consideration of short-term profits.
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4. To enable the Corporation to pursue such long-term business plan
without the necessity of considering the Corporation's unaffiliated public
stockholders and the risks of liability resulting from the Corporation's status
as a public company.
5. To afford stockholders an opportunity to receive a fair price for
their shares in an otherwise illiquid market without such stockholders
incurring the attendant costs of sale.
BACKGROUND AND REASONS FOR REVERSE STOCK SPLIT
Background of Reverse Stock Split.
The Corporation (formerly known as Industrial Investment Corporation) is
an Oregon corporation incorporated in 1961. The Corporation, after it was
incorporated, engaged principally in the businesses of agriculture and
ownership of real property.
In 1969, the Corporation filed a registration statement on Form 10 with
the SEC. At that time, it became subject to regulatory and reporting
requirements of the Exchange Act.
During the 1980s, the Corporation acquired all or substantially all of the
voting common stock of Academic Book Center, Inc. ("Academic") and Scholarly
Book Center, Inc. ("Scholarly"), Oregon and Illinois corporations,
respectively, engaged in the business of the distribution of books on a
wholesale basis worldwide to college, university, industrial, and other
research libraries either for their own use or for resale. At that time, the
Corporation also began to divest itself of its other businesses of agriculture
and real property ownership.
In June, 1991, the Corporation's Board of Directors closed Scholarly's
operations. In 1992, the Corporation also divested itself of International
Specialized Book Services, Inc., a division of Academic providing marketing,
promotional, warehousing order fulfillment, accounting, and consulting services
to publishers of books and periodicals. The Corporation now operates its
business through Academic only.
During this time, the Board of Directors has recognized that the
Corporation has neither developed any public market for its shares of Common
Stock nor has it ever paid any dividends to its stockholders. The Board of
Directors does not believe that a public market for its shares of Common Stock
is likely to develop in the foreseeable future. It also does not believe that
the Corporation will likely be in a postion to pay any dividends to its
stockholders in the foreseeable future. On the other hand, the Board of
Directors also has recognized that the Corporation is nonetheless required to
incur substantial general and administrative costs as a result of its status as
a public company under the Exchange Act and remains subject to the burden and
costs arising from and in connection with the regulatory and reporting
requirements of the Exchange Act. The Board of Directors has concluded that
neither the Corporation nor its stockholders derive any material benefit from
the continued registration of the Common Stock under the Exchange Act and that
the monetary expense and burden to management of continued registration
significantly outweighs any material benefit that the Corporation or its
stockholders may receive from such registration.
On February 29, 1996, and March 28, 1996, the Board of Directors met
to consider the appropriateness and desirability of the Reverse Stock Split and
to establish a fair price for the purchase of the fractional shares of New
Common Stock. The Board of Directors unanimously approved the Reverse
Stock Split, including the payment of the amount of nine cents per share of
Common Stock in lieu of the issuance of fractional shares of the New Common
Stock to stockholders who, after the Reverse Stock Split, own less than one
share of New Common Stock. The Board of Directors directed that the Reverse
Stock Split be placed on the agenda for the consideration of stockholders at
the Special Meeting.
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Reasons for going private.
Financial and Operational Constraints.
The Corporation is subject to certain financial and operational
constraints. These constraints prevent the Corporation from achieving any
flexibility with respect to future financing of corporate operations and
expansion. The Corporation is currently dependent upon a line of credit which
permits the Corporation to borrow up to $1,400,000. At June 30, 1995, it had
borrowed $1,029,136 from this line of credit. The Corporation's assets secure
this line of credit, and its present officers, who are also stockholders,
guarantee it. The Corporation does not have any other sources of liquidity.
Moreover, the Corporation has substantial other liabilities, including accounts
payable which, at June 30, 1995, totaled $3,073,561. These constraints on a
short term basis, require that the Corporation devote a substantial portion of
its cash flow from operations to the payment of interest on the line of credit
and in the payment of its other liabilities, including its accounts payable.
On a long term basis, they restrict the ability of the Corporation to obtain
additional financing in the future for working capital or other purposes upon
more favorable terms and conditions, makes the Corporation more vulnerable to
economic downturns, and limits its ability to withstand competitive pressures.
From the standpoint of the stockholders, these constraints prevent the
Corporation from paying any dividends to its stockholders. They also subject
the unaffiliated stockholders, all of whom have a limited economic interest in
the Corporation, to the risks associated with an investment in a highly
leveraged company without the benefit of a liquid market in which to dispose
of their shares.
Stock Ownership.
Of approximately 814 stockholders of record, 347 (approximately 43
percent of the Corporation's stockholders) hold 100 or fewer shares of Common
Stock and 673 (approximately 83 percent of the Corporation's stockholders) hold
500 or fewer shares. The Corporation also does not have current mailing or
forwarding addresses for 211 stockholders (approximately 26 percent of the
stockholders). On the other hand, two stockholders own 64 percent of the
Corporation's issued and outstanding shares. The ownership of the shares of
stock in such manner prevents the development of any meaningful market for the
Corporation's Common Stock and, thus, any opportunities for stockholders to
realize the value for their shares.
Reduction of Reporting Costs.
The Corporation incurs substantial costs as a result of its status as
a public company under the Exchange Act (estimated to be approximately $50,000
to $75,000 annually). It incurs costs, including legal, accounting, and
printing fees, to prepare Annual Reports on Form 10-K, quarterly reports on
Form 10-Q, Current Reports on Form 8-K, reports and schedules required by the
Corporation's officers and directors under Sections 13 and 16 of the Exchange
Act, and the proxy solicitation materials and formal annual reports for
distribution to stockholders prior to an annual meeting. If the Corporation
was not a publicly held company, then it would neither be required to incur
these costs nor would it be required to incur the substantial indirect costs as
a result of, among other things, management time required for the preparation
and review of such filings, the furnishing of information to stockholders, and
the attention to stockholder matters.
Furtherance of Business Plan.
If the Corporation is no longer required to comply with the reporting
regulatory and requirements of the Exchange Act, the Corporation would realize
strategic benefits in furtherance of its long range business plan. The
Corporation's competitive position would also be enhanced, since continued
compliance with the reporting and regulatory requirements of the Exchange Act
gives to the Corporation's competitors, none of which are similarly burdened,
information and insight into the Corporation's operations which assist them in
competing with the Corporation.
Little Benefit to Stockholders in Illiquid Market.
The shares of Common Stock are not traded in any established market
and transactions occur infrequently. For the fiscal years ended June 30, 1994
and 1995, the Corporation's market maker, Carr Securities, effected only two
purchases and sales of the shares of Common Stock. The Corporation also does
not qualify for listing on any national
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securities exchange or for quotation in an inter-dealer quotation system of a
registered national securities association (such as NASDAQ). As a result, the
limited supply of shares traded in the public market and the predominant
ownership by management results in a market that is inefficient and, as a
consequence, provides little opportunity for a stockholder to realize the value
of such stockholder's investment in the Corporation after the payment of
commissions and other market transaction costs.
RECOMMENDATIONS OF THE BOARD OF DIRECTORS; FAIRNESS OF THE REVERSE STOCK SPLIT
General.
The Board of Directors at its meetings on February 29, 1996, and March 28,
1996, considered the fairness of (i) the proposed 100,000 to one Reverse Stock
Split of the Corporation's Common Stock and (ii) the Cash Consideration equal
to nine cents per share of Common Stock. The Board of Directors, on the basis
of the factors discussed below and elsewhere in this Proxy Statement, concluded
that the Reverse Stock Split (including the Cash Consideration), taken as a
whole, is fair to, and in the best interests of, the unaffiliated stockholders
of the Corporation.
Fairness of the Reverse Stock Split.
Opportunity for stockholders to receive fair value for shares of
Common Stock in illiquid market.
The Board of Directors recognized that the Corporation currently has
little or no market for its shares. The Corporation's shares are not traded in
any established market and the purchases and sales of shares of Common Stock
occur infrequently. The Corporation's shares are also not eligible for listing
on any national securities exchange or for quotation in an inter-dealer
quotation system of a registered national securities association. The Board of
Directors concluded that the Corporation will not likely in the future have any
market for its shares of Common Stock or be eligible to list its shares on any
national securities exchange or quote them in an inter-dealer quotation system
of a registered national securities association. Thus, the Board of Directors
believed that the Reverse Stock Split would provide an opportunity for
stockholders to receive fair value for their shares of Common Stock in an
illiquid market.
Opportunity for stockholders to liquidate shares of Common Stock
without incurrence of brokerage costs.
The Board of Directors noted that the Corporation has a
disproportionately high number of shareholders owning 500 or less shares of
Common Stock. Since stockholders would typically be charged a minimum
brokerage commission ($30 to $50) to sell any of their shares through a
brokerage firm, the Board of Directors believed that the Reverse Stock Split
would provide to stockholders an opportunity to liquidate their holdings
without the necessity of incurring any brokerage costs.
Substantial costs savings to Corporation by reason of suspension of
reporting obligations and termination of registration of Common Stock.
The Board of Directors recognized that suspension of the
Corporation's reporting obligations and the termination of the registration of
the shares of Common Stock under the Exchange Act, after the Reverse Stock
Split, would result in substantial cost savings to the Corporation, since the
Corporation would no longer be required to incur the costs associated with the
regulatory and reporting requirements of the SEC (which approximate $50,000 to
$75,000 annually). Management also would not be required to devote time and
attention to matters related to the Corporation's publicly traded status and
would permit them to direct such time and attention to the Corporation's long-
term business plans. The Board of Directors believed for these reasons that
the Reverse Stock Split would result in substantial cost savings to the
Corporation.
Consideration of alternatives.
The Board of Directors considered other alternatives to reduce the
number of stockholders to less than 300. It rejected these alternatives for
the reasons set forth below.
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First, the Board of Directors considered the alternative of privately
negotiated or open market purchases. It determined that this alternative would
not be feasible because the vast majority of stockholders hold small numbers of
the shares of Common Stock and the Corporation does not have current or
forwarding addresses for many of its stockholders. It also determined that, in
all likelihood, it would not be possible, in any reasonable period of time, to
purchase a significant number of the shares of the Corporation's Common Stock
to ensure the reduction of the number of the holders of the shares of its
Common Stock to less than 300. Finally, it determined that the legal and other
transaction costs to implement this alternative would be substantially greater
than the costs to implement the Reverse Stock Split.
Similarly, the Board of Directors considered the alternative of a
self-tender offer without the Reverse Stock Split. It considered that this
alternative would not be feasible for the same reasons that the alternative of
privately negotiated or open market purchases would not be feasible.
Third, the Board of Directors determined that the sale of the
Corporation (involving the sale of all or substantially all of its assets, the
merger of the Corporation into or with another corporation, or other form of
business combination) would not be a feasible alternative. No third party has
expressed any interest in purchasing any of the assets of the Corporation or
otherwise in entering into a business combination with the Corporation.
Moreover, if a third party desired to purchase the assets of the Corporation,
then the Corporation would be required to utilize the sales proceeds to pay its
indebtedness. Since the indebtedness of the Corporation would exceed in all
likelihood the amount of the purchase price for the assets, then the
stockholders of the Corporation would likely receive little or nothing for
their shares of Common Stock.
The Board of Directors likewise concluded that the liquidation and
dissolution of the Corporation would not be a feasible alternative. The
Corporation would likely receive disproportionately low consideration for its
properties and business. Thus, the proceeds from the liquidation of the assets
of the Corporation would likely not be sufficient to pay in full the
Corporation's indebtedness and, therefore, the Corporation would likely not be
in a position to pay to its stockholders any amount for their shares of Common
Stock in liquidation.
Finally, the Board of Directors considered the alternative of
additional public financing. It concluded that this alternative would not be
feasible. The Corporation would be required to sell a substantial number of
additional shares of its Common Stock, given the current value of such shares,
resulting in the dilution of all of the stockholders' interest in the
Corporation. The Corporation would also remain subject to the regulatory and
reporting requirements of the Exchange Act without the benefits thereof,
including in all likelihood the development of a market for the shares of
Common Stock.
Appraisal rights.
The Board of Directors noted that the Corporation's stockholders
would each have appraisal rights under the Oregon Business Corporation Act.
That is, stockholders who do not vote in favor of the adoption of the Reverse
Stock Split would have the right to seek payment in cash of the fair market
value of their shares of Common Stock by complying with the requirements of
Sections 60.551 to 60.594 of the Oregon Business Corporation Act.
Fairness of Cash Consideration.
The Board of Directors considered a number of factors in deciding upon the
fairness of the Cash Consideration. On the basis of the examination of these
factors, it concluded that the payment to each Fractional Stockholder of the
Cash Consideration in the amount of nine cents per share of Common Stock in
lieu of the issuance of less than one share of New Common Stock would be fair
to the Fractional Stockholders.
The Board of Directors considered the historical and current market prices
for the shares of Common Stock. The Corporation's shares of Common Stock do
not trade on any established market. The sales and purchases of them are
infrequent. For these reasons, the Board of Directors did not consider this
factor meaningful.
The Board of Directors also considered net book, going concern, and
liquidation values. It noted that net book value equaled a negative $712,671
on the basis of the Corporation's unaudited balance sheet at December 31, 1995.
It did
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not consider this value meaningful, since book value is generally
historical cost (less, where applicable, accumulated depreciation) and,
therefore, does not necessarily consider the fair market value of the
Corporation's assets. It also does not generally consider certain assets,
particularly intangible assets such as goodwill or the Corporation's net
operating carryforward for income tax purposes. Moreover, after the adjustment
of the Corporation's assets and liabilities to their fair market value and the
inclusion of assets such as goodwill and the net operating carryforward, it
still did not consider such value a meaningful factor, since it did not reflect
going concern value.
The Board of Directors considered going concern value a better measure of
the Corporation's value as reflected in the capitalization of earnings,
capitalization of excess earnings, and the discounted future earnings analyses
in the Parrott Appraisal Report (as described below). However, it did not
consider such value determinative, since the Corporation has substantial
indebtedness and has a substantial accumulated deficit. Moreover, the Reverse
Stock Split would not result in a disposition of the Corporation's entire
business. The Reverse Stock Split would result only in the termination of the
equity interest of the Fractional Stockholders.
It did not consider liquidation value an appropriate measure of value.
The Corporation does not have any present intention of liquidating the
Corporation or selling a substantial portion of its assets. If the Corporation
was forced for any reason to liquidate its assets, it would likely receive
disproportionately low consideration for its properties and business.
It considered an appraisal the Corporation recently obtained from The
Parrott Partnership in connection with the payment of compensation to
management in the form of shares of Common Stock (the "Parrott Appraisal
Report"). The Parrott Appraisal Report concluded that the fair market value of
the Corporation at September 30, 1995, was $56,000. Although the Corporation
did not obtain the Parrott Appraisal Report for purposes of the Reverse Stock
Split, the Board of Directors regarded the Parrott Appraisal Report as a fair
valuation and considered reliance on this appraisal reasonable under the
circumstances. First, it provided to the Board of Directors a recent appraisal
of the shares of Common Stock. Second, the Corporation obtained such appraisal
from a qualified, independent third party. Third, the appraisal provided a
detailed analysis of the value of the shares of Common Stock.
It considered the results of another appraisal the Corporation's Employee
Stock Ownership Plan obtained from Alpen Securities, Inc. That appraisal
concluded that the fair market value of the Corporation at December 31, 1994,
was $280,000. The Board of Directors did not regard such appraisal as a fair
valuation and, thus, it did not consider reliance on this appraisal reasonable
under the circumstances. First, the appraisal did not provide the basis for
its analysis, except to state generally that as of that date the operating
statements of the Corporation reflected 18 months of profitable operations and
that as of December 31, 1994, the Corporation's recent operations had made a
noticeable improvement in its balance sheet. Second, its appraisal
substantially differed from the Parrott Appraisal Report and recent purchases
and sales of the shares of Common Stock. Finally, it did not reflect any
marketability or minority discounts.
The Board of Directors considered purchases and sales of the shares of
Common Stock by the Corporation and its affiliates during the two most recent
fiscal years. It considered these purchases and sales by the Corporation and
its affiliates a helpful, but not determinative factor, because these purchases
and sales had been infrequent. On the other hand, it considered the
Corporation's issuance of shares to Messrs. Daniel P. Halloran and Barry E.
Fast, officers and directors of the Corporation in February 1996, at nine cents
per share in payment of certain compensation owing to them particularly
meaningful in determining the fairness of the Cash Consideration because the
price equaled the value set forth in the Parrott Appraisal Report.
It considered the Corporation's business, prospects, and business strategy
and its financial condition, results of operations, assets, and liabilities.
It also considered current industry, economic, and market conditions.
The Board of Directors, in view of the circumstances and the wide variety
of factors considered in connection with the evaluation of the fairness of the
Reverse Stock Split did not find it practicable to assign relative weights to
the factors considered in reaching its determination that the Reverse Stock
Split, taken as a whole, would be fair to, and in the best interest of, the
stockholders of the Corporation.
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Recommendations of the Board of Directors.
The Board of Directors unanimously concluded that, on the basis of these
factors, the Reverse Stock Split and the Cash Consideration of nine cents per
share of Common Stock to be paid to the Fractional Stockholders in lieu of the
issuance to them of fractional shares of New Common Stock is fair to the
Corporation and both the Fractional Stockholders and remaining stockholders of
the Corporation. For these reasons and the reasons described in "Special
Factors - Purposes of the Reverse Stock Split" and "Special Factors -
Background and Reasons for the Reverse Stock Split" above, the Board of
Directors, including the only director who is not an employee of the
Corporation, unanimously approved the Reverse Stock Split and recommended that
the stockholders vote FOR the approval of the Reverse Stock Split.
INTEREST OF CERTAIN PERSONS IN THE REVERSE STOCK SPLIT; CONFLICTS OF INTEREST.
Certain officers and directors of the Corporation have certain interests
in the Reverse Stock Split that present potential or actual conflicts of
interest in connection with the Reverse Stock Split. The Board of Directors
was aware of these potential and actual conflicts of interest and concluded
that the Reverse Stock Split is, taken as a whole, fair to the Corporation and
its stockholders. Daniel P. Halloran, who is Chairman of the Board, Chief
Executive Officer, and President of the Corporation, and Mr. Barry E. Fast,
Vice President of the Corporation, comprising two of the three members of the
Board of Directors were present and voted at the meetings of the Board of
Directors held on February 29, 1996, and March 28, 1996. See "Special Factors
- - Background and Reasons for Reverse Stock Split." Messrs. Halloran and Fast
own, as of the date of this Proxy Statement, in the aggregate 720,781 shares of
Common Stock, representing approximately 64 percent of the shares of Common
Stock outstanding on that date. Messrs. Halloran and Fast acquired 488,267 of
such shares for nine cents per share as of February 29, 1996, from the
Corporation in payment of certain compensation owing to them under their
respective employment agreements with the Corporation. See "Transaction of
Shares of Common Stock of Corporation." Messrs. Halloran and Fast have
indicated that they will each vote their shares in favor of the approval of the
Reverse Stock Split. They own sufficient number of shares of Common Stock to
approve the Reverse Stock Split. They will also continue to be officers and
directors of the Corporation and to be its only stockholders upon consummation
of the Reverse Stock Split.
The directors of the Corporation who are not employees of the Corporation
did not retain an unaffiliated representative to act solely on behalf of
unaffiliated security holders for the purpose of negotiating the terms of the
Reverse Stock Split or for the purpose of preparing a report with respect to
the fairness of the Reverse Stock Split. The Board of Directors also did not
appoint an independent committee of the Board of Directors to review the
fairness of the Reverse Stock Split.
LACK OF OPINIONS, APPRAISALS, AND REPORTS.
Neither the Corporation nor the Board of Directors received any report,
opinion, or appraisal from an outside party with respect to the Reverse Stock
Split, including, but not limited to, any report, opinion, or appraisal with
respect to the Cash Consideration or its fairness or the fairness of the
Reverse Stock Split to the Corporation, to any affiliate of the Corporation, or
to any stockholders who are not affiliates of the Corporation. The Corporation
obtained an appraisal from The Parrott Partnership for purposes of the issuance
of shares of Common Stock to Messrs. Daniel P. Halloran and Barry E. Fast in
payment of certain compensation owing to them under their respective employment
agreements (previously referred to in this Proxy Statement as the "Parrott
Appraisal Report"). Although the Corporation did not obtain the Parrott
Appraisal Report for purposes of the Reverse Stock Split, the Board of
Directors considered it a meaningful factor in determining the fairness of the
Cash Consideration. A description of the Parrott Appraisal Report is set forth
in "Special Factors - Recommendations of the Board of Directors; Fairness of
the Reverse Stock Split" and "Transactions in Shares of Common Stock of
Corporation."
PLANS FOR THE CORPORATION AFTER THE REVERSE STOCK SPLIT
Except as indicated in this Proxy Statement, the Corporation does not have
any present plans or proposals which relate to or would result in an
extraordinary corporate transaction, such as a merger, reorganization, or
liquidation, involving the Corporation or any of its subsidiaries; a sale or
transfer of a material amount of assets of the Corporation or any of its
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subsidiaries; any change in the present Board of Directors or management of the
Corporation including, but not limited to, any plan or proposal to change the
number or term of directors, to fill any existing vacancy on the Board of
Directors or to change any material term of the employment contract of any
executive officer; or any material change in the present dividend rate or
policy or indebtedness or capitalization of the Corporation. Upon consummation
of the Reverse Stock Split, the assets, business, and operations of the
Corporation will be continued substantially as they are currently being
conducted.
CERTAIN EFFECTS OF THE REVERSE STOCK SPLIT
General Effects.
If the Reverse Stock Split is approved by the vote of a majority of the
outstanding shares of Common Stock, the number of authorized shares of Common
Stock will be decreased from 50,000,000 to 500. After giving effect to the
Reverse Stock Split, the Corporation will have only two stockholders of record.
Each share of Common Stock owned by all other stockholders, the Fractional
Stockholders, will be automatically converted into the right to receive from
the Corporation, in lieu of fractional shares of New Common Stock, cash in the
amount of nine cents for each share of Common Stock. The Fractional
Stockholders will cease to be stockholders or to have any equity interest in
the Corporation and, therefore, will not share in its future earnings and
growth, if any, and will not have any right to vote on any corporate matter.
Termination of Exchange Act Registration.
The shares of Common Stock are currently registered under the Exchange
Act. Such registration may be terminated upon application of the Corporation
to the SEC if the Corporation has fewer than 300 record holders of the shares.
The Corporation currently intends to make an application for termination of
registration of the shares of New Common Stock as promptly as possible after
filing the Articles of Amendment. Termination of registration of the shares of
New Common Stock under the Exchange Act would substantially reduce the
information required to be furnished by the Corporation to its stockholders and
to the SEC and would be make certain provisions of the Exchange Act, such as
the short-swing profit recovery provisions of Section 16(b) of the Exchange
Act, the requirement of furnishing a proxy or information statement in
connection with stockholder meetings pursuant to Section 14(a) of the Exchange
Act, and the requirements of Rule 13e-3 promulgated by the SEC under the
Exchange Act with respect to "going private" transactions, no longer applicable
to the Corporation. Termination of the registration of the shares of the New
Common Stock would also deprive "affiliates" of the Corporation and persons
holding "restricted securities" of the Corporation of the ability to dispose of
such securities pursuant to Rule 144 promulgated under the Securities Act of
1933, as amended.
Effect on Market for Shares.
If the Reverse Stock Split is approved and, as contemplated, the shares of
New Common Stock are deregistered under the Exchange Act, the Corporation will
not have any market for the shares of New Common Stock.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The receipt by each Fractional Stockholder of cash in lieu of fractional
shares of New Common Stock pursuant to the Reverse Stock Split will be a
taxable transaction for federal income tax purposes under the Internal Revenue
Code of 1986, as amended (the "Code").
Under Section 302 of the Code, a Fractional Stockholder will recognize
gain or loss upon receiving cash in lieu of fractional shares of New Common
Stock if (i) the Reverse Stock Split results in a "complete redemption" of all
of the Fractional Stockholder's shares of Common Stock, (ii) the receipt of
cash is "substantially disproportionate" with respect to the Fractional
Stockholder, or (iii) the receipt of cash is "not essentially equivalent to a
dividend" with respect to the Fractional Stockholder. These three tests are
applied by taking into account not only shares that a Fractional Stockholder
actually owns, but also shares that a Fractional Stockholder constructively
owns pursuant to Section 318 of the Code, described below.
11
<PAGE> 16
If any one of these three tests is satisfied, the Fractional Stockholder
will recognize gain or loss equal to the difference between the amount of cash
received by the Fractional Stockholder pursuant to the Reverse Stock Split and
the tax basis in the existing shares of Common Stock held by the Fractional
Stockholder. Provided that the shares of Common Stock constitute a capital
asset in the hands of the Fractional Stockholder, this gain or loss will be
long-term capital gain or loss if the shares of Common Stock are held for more
than one year and will be short-term capital gain or loss if the shares of
Common Stock are held for one year or less.
Pursuant to the constructive ownership rules of Section 318 of the Code, a
stockholder is deemed to constructively own shares owned by certain related
individuals and entities in addition to shares actually owned by the
stockholder. For instance, an individual stockholder is considered to own
shares owned by or for his or her spouse and his or her children,
grandchildren, and parents ("family attribution"). A stockholder is also
considered to own a proportionate number of shares owned by estates or certain
trusts in which the stockholder has a beneficial interest, by partnerships in
which the stockholder is a partner, and by corporations in which 50 percent or
more of the value of the stock is owned directly or indirectly by or for such
stockholder. Similarly, shares directly or indirectly owned by beneficiaries
of estates of certain trusts, by partners of partnerships and, under certain
circumstances, by stockholders of corporations may be considered owned by these
entities ("entity attribution"). A stockholder is also deemed to own shares
which the stockholder has the right to acquire by exercise of an option.
The receipt of cash by a Fractional Stockholder pursuant to the Reverse
Stock Split will result in a "complete redemption" of all of the Fractional
Stockholder's shares of Common Stock, so long as the Fractional Stockholder
does not constructively own any shares of New Common Stock immediately after
the Reverse Stock Split. However, a Fractional Stockholder may qualify for
gain or loss treatment under the "complete redemption" test even though such
Fractional Stockholder constructively owns shares of New Common Stock provided
that (i) the Fractional Stockholder constructively owns shares of New Common
Stock as a result of the family attribution rules (or, in some cases, as a
result of a combination of the family and entity attribution rules), and (ii)
the Fractional Stockholder qualifies for a waiver of the family attribution
rules (such waiver being subject to several conditions, one of which is that
the Fractional Stockholder has no interest in the Corporation immediately after
the Reverse Stock Split (including as an officer, director, or employee), other
than an interest as a creditor).
It is anticipated that most Fractional Stockholders will qualify for
capital gain or loss treatment as a result of satisfying the "complete
redemption" requirements. However, if the constructive ownership rules prevent
compliance with these requirements, a Fractional Stockholder may nevertheless
qualify for capital gain or loss treatment by satisfying either the
"substantially disproportionate" or the "not essentially equivalent to a
dividend" requirements. In general, the receipt of cash pursuant to the
Reverse Stock Split will be "substantially disproportionate" with respect to
the Fractional Stockholder if the percentage of shares of New Common Stock
constructively owned by the Fractional Stockholder immediately after the
Reverse Stock Split is less than 80 percent of the percentage of Existing
shares of Common Stock actually and constructively owned by the Fractional
Stockholder immediately before the Reverse Stock Split. Alternatively, the
receipt of cash pursuant to the Reverse Stock Split will, in general, be "not
essentially equivalent to a dividend" if the Reverse Stock Split results in a
"meaningful reduction" in the Fractional Stockholder's proportionate interest
in the Corporation.
If none of the three tests described above is satisfied, the Fractional
Stockholder will be treated as having received a taxable dividend in an amount
equal to the entire amount of cash received by the Fractional Stockholder
pursuant to the Reverse Stock Split.
The receipt of shares of New Common Stock in the Reverse Stock Split by
stockholders of the Corporation who are not Fractional Stockholders will be a
non-taxable transaction for federal income tax purposes. Consequently, a
stockholder of the Corporation receiving shares of New Common Stock will not
recognize gain or loss, or dividend income, as a result of the Reverse Stock
Split with respect to the shares of New Common Stock received. In addition,
the basis and holding period of such stockholder's shares of Common Stock will
carry over as the basis and holding period of such stockholder's shares of New
Common Stock.
Various legislative proposals have been introduced in Congress that would
reduce the rate of federal income taxation of certain capital gains. Such
legislation, if enacted, might apply only to gain realized on transactions
occurring after
12
<PAGE> 17
a date specified in the legislation. It cannot be predicted
whether any such legislation ultimately will be enacted and, if enacted, what
its effective date will be.
THE FOREGOING IS ONLY A GENERAL DESCRIPTION OF CERTAIN OF THE FEDERAL
INCOME TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT TO THE STOCKHOLDERS WITHOUT
REFERENCE TO THE PARTICULAR FACTS AND CIRCUMSTANCES OF ANY PARTICULAR
STOCKHOLDER. EACH STOCKHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR
TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO SUCH STOCKHOLDER OF THE REVERSE
STOCK SPLIT (INCLUDING THE APPLICATION AND EFFECT OF STATE AND LOCAL INCOME AND
OTHER TAX LAWS).
SOURCE AND AMOUNTS OF FUNDS FOR AND EXPENSES OF THE REVERSE STOCK SPLIT
Estimated fees and expenses incurred or to be incurred by the Corporation
in connection with the Reverse Stock Split are approximately as follows:
<TABLE>
<CAPTION>
Approximate
Item Amount
- ---- -----------
<S> <C>
Payment of Cash Consideration $ 37,219
Legal Fees and Expenses $ 25,000
Accounting Fees and Expenses $ 2,500
Commission Filing Fees $ 125
Printing and Mailing Expenses $ 2,500
Proxy Solicitation Fees and Expenses $ 500
Miscellaneous Expenses $ 1,000
-------
Total $ 68,844
</TABLE>
The Corporation has paid or will be responsible for paying all of such
expenses. It will not borrow any part of such funds to pay these expenses from
its existing line of credit. If the Corporation is required to borrow all or
any part of such funds to pay such expenses, it will borrow such funds from
Messrs. Halloran and Fast upon mutually agreeable terms and conditions. The
Corporation has not made any such plans or arrangements as of the date of this
Proxy Statement.
THE REVERSE STOCK SPLIT
AMENDMENT OF RESTATED ARTICLES OF INCORPORATION AND TO EFFECT THE REVERSE STOCK
SPLIT
Pursuant to the terms of the Articles of Amendment, if approved, the
authorized shares of Common Stock will be reduced from 50,000,000 to 500, each
100,000 shares of the Corporation's Common Stock then issued will be
automatically converted into one new share of the Corporation's New Common
Stock, and each share of Common Stock owned by a stockholder whose share
ownership would, as a result of the Reverse Stock Split, be reduced to less
than one share of New Common Stock (a "Fractional Stockholder"), will be
automatically converted into the right to receive from the Corporation, in lieu
of the issuance of fractional shares of New Common Stock, cash in the amount of
nine cents for each share of Common Stock. The form of the Articles of
Amendment is attached as Annex A to this Proxy Statement. If the Reverse Stock
Split is approved by the holders of a majority of the currently issued and
outstanding Common Stock present in person or by proxy at the Special Meeting,
the Corporation expects to file the Articles of Amendment to the Restated
Articles of Incorporation with the Secretary of State of the State of Oregon on
May 30, 1996, immediately following the Special Meeting, or as soon as
practicable thereafter (the "Effective Date").
EXCHANGE OF SHARES AND PAYMENT IN LIEU OF ISSUANCE OF FRACTIONAL SHARES
Within 10 days after the Effective Date, the Corporation will mail to the
Fractional Stockholders a notice of the filing of the Articles of Amendment
(the "Notice of Filing") and a letter of transmittal (the "Letter of
Transmittal") containing
13
<PAGE> 18
instructions with respect to the submission of shares of Common Stock to the
Corporation. Fractional Stockholders will be entitled to receive, and the
Corporation will be obligated to make payment of, cash in lieu of fractional
shares of New Common Stock only by transmitting stock certificate(s) for shares
of Common Stock to the Corporation, together with the properly executed and
completed Letter of Transmittal and such evidence of ownership of such shares
as the Corporation may require.
VOTING; VOTE REQUIRED
The proposed Reverse Stock Split must be approved by a vote of not less
than a majority of the shares of Common Stock present in person or by proxy at
the meeting. Each share of Common Stock is entitled to one vote on each matter
submitted to a vote at the Special Meeting. The Board of Directors has been
informed that the executive officers and directors of the Corporation will vote
in favor of that Amendment. They presently hold sufficient shares of Common
Stock to approve the Reverse Stock Split at the Special Meeting. The Reverse
Stock Split has not been structured so as to require the approval of a majority
of the unaffiliated stockholders. There are no contracts, arrangements,
understandings, or relationships in connection with the Reverse Stock Split
between the Corporation (including its officers or its directors) and any other
person with respect to any securities of the Corporation.
THE NOTICE OF FILING AND THE LETTER OF TRANSMITTAL WILL BE TRANSMITTED BY
THE CORPORATION TO STOCKHOLDERS AT A DATE SUBSEQUENT TO THE EFFECTIVE DATE.
STOCKHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THE NOTICE OF FILING
AND LETTER OF TRANSMITTAL ARE RECEIVED AND SHOULD SURRENDER THEIR CERTIFICATES
ONLY WITH SUCH LETTER OF TRANSMITTAL.
There will be no service charges payable by the Fractional Stockholders in
connection with the payment of cash in lieu of the issuance of fractional
shares of New Common Stock. These costs will be borne by the Corporation.
DISSENTING STOCKHOLDERS' RIGHTS
Stockholders who do not vote in favor of the approval of the Reverse Stock
Split may have the right to seek payment in cash of the fair value of their
shares of Common Stock by complying with the requirements of Sections 60.551 to
60.594 of the Oregon Business Corporation Act (the "OBCA"). Failure of a
stockholder to strictly adhere to the requirements of Sections 60.551 to 60.594
of the OBCA may result in the loss of such stockholder's dissenter's rights.
A stockholder who wishes to assert such stockholder's dissenter's rights
must deliver to the Corporation a written notice before the vote on the Reverse
Stock Split at the Special Meeting to be held on May 30, 1996, of the
stockholder's intent to demand payment for the stockholder's shares of Common
Stock if the Reverse Stock Split is effectuated (the "Notice of Intent to
Demand Payment"). The written Notice of Intent to Demand Payment should be
delivered to Book Centers, Inc., 5600 N.E. Hassalo Street, Portland, Oregon
97213, Attention: Daniel P. Halloran, Secretary, prior to the Special Meeting.
A dissenting stockholder may not dissent as to less than all shares of Common
Stock beneficially owned by the stockholder. A dissenting stockholder also may
not vote any of such stockholder's shares of Common Stock for the Reverse Stock
Split.
If the stockholders approve the Reverse Stock Split, the Corporation must
then give, within ten days after the approval of the Reverse Stock Split, a
written dissenters' notice (the "Dissenters' Notice") to each stockholder who
delivered to the Corporation a Notice of Intent to Demand Payment in accordance
with the OBCA. The Dissenters' Notice must: (a) state where the payment
demand will be sent and where and when certificates of shares will be
deposited; (b) inform holders of uncertificated shares to what extent transfer
of the shares will be restricted after the payment demand is received; (c)
supply a form for demanding payment that (i) includes the date of the first
announcement of the terms of the proposed corporate action to news media or to
shareholders and (ii) that requires that the person asserting dissenters'
rights certify whether or not the person acquired beneficial ownership of the
shares before that date; (d) set a date by which the Corporation must receive
the payment demand (which date may not be fewer than 30 and no more than 60
days after the date the Dissenters' Notice is delivered); and (e) be
accompanied by a copy of Sections 60.551 to 60.594 of the OBCA.
14
<PAGE> 19
A stockholder sent a Dissenters' Notice must (a) demand payment, (b)
certify whether the stockholder acquired beneficial ownership of the shares
before the date required to be set forth in the Dissenters' Notice, and (c)
deposit the stockholder's certificates in accordance with the terms of the
Dissenters' Notice. A stockholder who does not demand payment or deposit the
stockholder's certificates where required, each by the date set forth in the
Dissenters' Notice, is not entitled to payment for the stockholder's shares
under Section 60.551 to 60.594 of the OBCA.
As soon as the proposed corporate action is taken or upon receipt of a
payment demand in accordance with the OBCA, the Corporation must pay each
dissenter the amount the Corporation estimates to be the fair value of the
stockholder's shares, plus accrued interest. The payment must be accompanied
by (a) the Corporation's balance sheet as of the end of the fiscal year, ending
not more than 16 months before the date of payment, income statement for that
year, and the latest available interim financial statements, if any; (b) a
statement of the Corporation's estimate of the fair value of the shares; (c) an
explanation of how the interest was calculated; (d) a statement of the
dissenter's rights to demand payment if the dissenter is not satisfied with
such payment; and (e) a copy of Sections 60.551 to 60.594 of the OBCA.
A dissenter may notify the Corporation in writing of the dissenter's own
estimate of the fair value of the dissenter's shares and amount of interest
due, and demand payment of the dissenter's estimate, if the dissenter believes
that the amount paid is less than the fair market value of the dissenter's
shares or believes that the interest due is incorrectly calculated, if the
Corporation fails to make payment within 60 days after the date set for
demanding payment, or if the Corporation, having failed to take the proposed
action, does not return the deposited certificates or release the transfer
restrictions imposed on uncertificated shares within 60 days after the date set
for demanding payment. A dissenter waives the right to demand payment, unless
the dissenter notifies the Corporation of the dissenter's demand in writing
within 30 days after the Corporation made or offered payment for the
dissenter's shares.
If a demand for payment remains unsettled, the Corporation must commence a
proceeding within 60 days after receiving the payment demand and petition the
court to determine the fair value of the shares and accrued interest. If the
Corporation does not commence the proceeding within the 60 day period, it shall
pay each dissenter whose demand remains unsettled the amount demanded.
A vote AGAINST approval of the Reverse Stock Split does not constitute the
written objection required to be filed by a dissenting stockholder. However,
failure by a stockholder to vote AGAINST approval of the Reverse Stock Split
will not constitute a waiver of rights under Sections 60.551 to 60.594 of the
OBCA provided that a written notice has been properly delivered to the
Corporation and such stockholder has not voted any of such stockholder's shares
FOR the approval of the Reverse Stock Split.
The foregoing does not purport to be a complete statement of the
provisions of Section 60.551 to 60.594 of the OBCA and is qualified in its
entirety by reference to such sections, which are reproduced in full as Annex B
to this Proxy Statement.
THE PROVISIONS OF SECTION 60.551 TO 60.594 OF THE OBCA ARE COMPLEX AND
TECHNICAL IN NATURE. STOCKHOLDERS DESIRING TO EXERCISE DISSENTERS' RIGHTS MAY
WISH TO CONSULT COUNSEL, SINCE THE FAILURE TO COMPLY STRICTLY WITH THESE
PROVISIONS WILL RESULT IN THE LOSS OF THEIR DISSENTERS' RIGHTS.
MARKET PRICES FOR SHARES OF COMMON STOCK; DIVIDENDS
The Corporation's Common Stock is not traded on any exchange or quoted in
an inter-dealer quotation system of a registered national securities
association. An established public trading market for the stock has not
existed for the past ten years.
Carr Securities in New York, New York, serves as the "market maker" for
the Corporation. It has served in such position since 1985. Carr Securities
effected only two transactions for the purchase and sale of 500 shares of
Common Stock in the aggregate at 25 cents per share in the fiscal years ended
June 30, 1995. It did not effect any purchases and sales for the fiscal year
ended June 30, 1994. Prospective purchasers and sellers have engaged Carr
Securities only sporadically since
15
<PAGE> 20
1985 with the stock price ranging from a low bid of 1/8 to a high bid of 1/2.
Information on stock prices on a quarterly basis and for years prior to 1985 is
not available due to the absence of an established market.
Messrs. Daniel P. Halloran and Barry E. Fast and the Corporation's
Employee Stock Ownership Plan ("ESOP") from time to time have purchased shares
of Common Stock from stockholders. During the fiscal year ended June 30, 1995,
Messrs. Halloran and Fast purchased in the aggregate 10,700 of shares of Common
Stock at ten cents per share. During the fiscal year ended June 30, 1994, they
purchased in the aggregate 2,450 shares at prices ranging from 12 cents to 15
cents per share. During such fiscal years, the ESOP did not purchase any such
shares of Common Stock.
The Corporation has not declared any dividends since its incorporation.
The payment of dividends in the future is subject to the discretion of the
Board of Directors. The Corporation does not plan to pay dividends in the
foreseeable future.
DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS
The following table shows, as to each director and executive officer of
the Corporation, the identified information as of April 26, 1996:
<TABLE>
<CAPTION>
Director Term as
and/or Director
Name and Executive and/or
Position with Principal Occupation During Officer Executive
Corporation Age Past Five Years Since Officer Ends
- --------------- --- -------------------------------- --------- ------------
<S> <C> <C> <C> <C>
Daniel P. 48 Chief Executive Officer, 1985 1996
Halloran President, Chairman of the Board
of Directors, Chief Financial
Officer, Secretary/Treasurer,
Chief Executive and Director of Book Centers,
Officer, Inc., and Scholarly Book Center,
President, Inc.; previously Executive Vice
Chief Financial President and Director of
Officer, Industrial Investment
Controller, Corporation and Vice President,
Secretary, Treasurer, and General Manager
Treasurer, of Scholarly Book Center, Inc.,
Chairman of the and Academic Book Center, Inc.
Board of
Directors, and
Director
Barry E. Fast 52 Vice President and Director of 1986 1996
Book Centers, Inc., Academic
Vice President Book Center, Inc., and
and Director Scholarly Book Center, Inc.;
President of Taylor Carlisle's
Bookstore, Inc. (book seller);
previously Vice President of
East Woods Press (publisher)
Frank L. Ford 45 Registered Representative for 1988 1996
Minnesota Mutual and owner of
Director Certified Bookkeeping Services;
Director of S. I. Ford Designs,
Inc.; previously owner of Frank
Ford & Associates (management
consultants)
</TABLE>
16
<PAGE> 21
Directors are elected to hold office until their successors are elected and
qualified, subject to prior death, resignation, or removal.
EXECUTIVE OFFICERS
Certain of the directors also serve as the executive officers of the
Corporation. Under the Corporation's Bylaws, executive officers are elected by
the Board of Directors and serve until their successors are elected and
qualified, subject to prior death, resignation, or removal. Those officers
are:
<TABLE>
<CAPTION>
Name Position
- ---- --------
<S> <C>
Daniel P. Halloran Chief Executive Officer, President, Chief Financial
Officer, Controller, Secretary/Treasurer, and Chairman
of the Board of Directors
Barry E. Fast Vice President
</TABLE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information as of April 26, 1996, with
respect to persons known to the Corporation to be beneficial owners of more
than 5 percent of the Corporation's outstanding shares of Common Stock. Unless
otherwise indicated, the beneficial ownership of securities includes sole
investment and voting power with respect to such securities.
17
<PAGE> 22
<TABLE>
<CAPTION>
Amount and
Nature of
Name and Address Beneficial Percent of
Title of Class of Beneficial Owner Ownership Class<F1>
- -------------- ------------------- ------------ ----------------
<S> <C> <C> <C>
Common Stock Daniel P. Halloran 379,625.815<F2> 33.7%
2538 N.E. 32nd Avenue
Portland, Oregon 97212
Common Stock Barry E. Fast 341,155.027<F3> 30.3%
11 Orlando Avenue
Ardsley, New York 10502
Common Stock Book Centers, Inc. 65,167.00 <F4> 5.8%
Employee Stock
Ownership Plan
5600 N.E. Hassalo Street
Portland, Oregon 97213
- -------------------------
<FN>
<F1>
1 Percentages are calculated based upon the number of total shares outstanding
(1,125,156).
<F2>
2 The number listed includes 7,584.815 shares held by the Book Centers, Inc.
Employee Stock Ownership Plan ("ESOP") which are allocated to the account of
Mr. Halloran as of December 31, 1994, all of which are vested to Mr.
Halloran's account as of such date. Mr. Halloran has voting and investment
power with respect to such shares in the manner set forth in footnote 4.
<F3>
3 The number listed includes 1,581.027 shares held by the ESOP which are
allocated to the account of Mr. Fast as of December 31, 1994, all of which
are vested for Mr. Fast's account as of such date. Mr. Fast has voting and
investment power with respect to such shares in the manner set forth in
footnote 4.
<F4>
4 All of the shares of Common Stock held by the ESOP are generally voted by
the trustee of the ESOP, as directed by the administrator of the ESOP. Each
participant in the ESOP is entitled to direct the trustee as to the exercise
of any and all voting rights attributable to the shares of Common Stock then
allocated to his or her account. If a participant directs the trustee as to
the voting of the shares of Common Stock allocated to his or her account,
all allocated shares of Common Stock as to which such instructions have been
received are voted in accordance with such instructions. The trustee votes
any unallocated shares of Common Stock held by the ESOP or any allocated
shares of Common Stock as to which no voting instructions have been
received, in such a manner as directed by the administrator. A participant
may not sell or otherwise transfer any shares of Common Stock allocated to
his or her account until the ESOP distributes such shares to him or her,
subject to the Corporation's right of first refusal to purchase any shares
the ESOP distributes to a participant in the manner and subject to the
conditions set forth in the ESOP. At June 30, 1995, all of the shares held
by the ESOP are allocated among the accounts of the participants.
</FN>
</TABLE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table shows the shares of the Corporation's Common Stock
owned by all directors and by all executive officers and directors as a group
as of April 26, 1996. Unless otherwise indicated, beneficial ownership
included sole voting and investment power as to the shares.
18
<PAGE> 23
<TABLE>
<CAPTION>
Amount and
Nature of
Name of Beneficial Percent of
Title of Class Beneficial Owner Ownership Class<F1>
- -------------- ---------------------- ------------ ----------------
<S> <C> <C> <C>
Common Stock Daniel P. Halloran 379,625.815<F2> 33.7%
Common Stock Barry E. Fast 341,155.027<F3> 30.3%
Common Stock Frank L. Ford 10,000.00 0.8%
Common Stock All executive officers
and directors as a
group (3 persons) 730,780.842 64.9%
TRANSACTIONS IN SHARES OF COMMON STOCK OF CORPORATION
Effective January 1, 1992, Messrs. Daniel P. Halloran and Barry E. Fast
each entered into four year employment agreements with the Corporation. Each
agreement expires on December 31, 1996, and thereafter is automatically
extended for additional one year terms, unless terminated according to each
such employment agreement. Each employment agreement requires that the
Corporation use its best efforts to cause the Corporation's lender (as
identified in each of the employment agreements) to use the Corporation's best
efforts to cause such lender to release certain guarantees which Messrs.
Halloran and Fast executed to such lender and the security interest which they
also granted to such lender in certain of their personal assets in the event of
their termination of employment. Each employment agreement also requires the
Corporation to pay them a base salary and to increase that base salary not less
than seven percent per year.
- ----------------------------
<FN>
<F1>
1 Percentages are calculated based upon the number of total shares outstanding
(1,125,156).
<F2>
2 The number listed includes 7,584.815 shares held by the ESOP which are
allocated to the account of Mr. Halloran as of December 31, 1994, all of
which are vested to Mr. Halloran's account as of such date. Mr. Halloran
has voting and investment power with respect to such shares in the manner
set forth in footnote 4 on page 18.
<F3>
3 The number listed includes 1,581.027 shares held by the ESOP which are
allocated to the account of Mr. Fast as of December 31, 1994, all of which
are vested for Mr. Fast's account as of such date. Mr. Fast has voting and
investment power with respect to such shares in the manner set forth in
footnote 4 on page 18.
</FN>
</TABLE>
Since entering into the employment agreements, Messrs. Halloran and Fast
have deferred the payment of a part of their compensation in order to permit
the Corporation to pay interest on its line of credit and to finance its
operations. The total amount which they will have deferred through December
31, 1996, equals in the aggregate $43,944. They proposed to the Corporation
that the Corporation issue them additional shares of Common Stock in lieu of
the payment of the compensation owing to them under their employment
agreements.
The Corporation retained The Parrott Partnership to determine the fair
market value of the Corporation for purposes of the issuance of such additional
shares to Messrs. Halloran and Fast. The Parrott Partnership, whose address is
Five Lincoln Center, 10200 S.W. Greenburg Road, Suite 340, Portland, Oregon
97223-5505, is a full service certified public accounting firm established in
1984. It also specializes in consulting services to closely held companies and
performs valuation engagements. It is a member of the American Institute of
Certified Public Accountants, Oregon Society of Certified Public Accountants,
Management Consulting Services Division of the AICPA, and various civic and
business affiliations. The Corporation selected The Parrott Partnership on the
basis of its expertise in valuing companies. It also selected The Parrott
Partnership because it did not have any previous relationship with, and was
independent of, the Corporation and its officers and directors.
The Parrott Partnership concluded in a report dated December 5, 1995, that
the fair market value of the Corporation at September 30, 1995, was $56,000.
It used several different standard valuation methods to arrive at this
conclusion. It also relied on a weighted average of methods as the best
indication of fair market value. The Parrott Partnership
19
<PAGE> 24
specifically limited the purpose of the valuation to the consideration of
compensation of employees, officers, and stockholders in the form of equity
interests. It also limited the report for internal purposes only and,
therefore, did not include any discussion of the background and history of the
Corporation, economic and industry conditions, and financial analysis,
including operations, management, strengths, and weaknesses, etc.
The Parrott Partnership considered several valuation approaches in its
report. It initially considered the asset approach. It stated that this
approach provides that the value of a business is directly related to the
assets of the business. It considered three valuation methods under this
approach. It determined that the book value of the Corporation, the first
method it considered under this approach, equaled a negative $817,000 as of
September 30, 1995. It defined book value to represent the "accounting value"
of the assets minus liabilities at the date of the balance sheet.
It next determined that the adjusted book value, the second method it
considered under this approach, equaled a negative $846,000 also at September
30, 1995. It defined adjusted book value to represent the total equity of the
Corporation set forth on its balance sheet, but with the value of the assets
and liabilities thereon stated at fair market value.
It considered the liquidation value under this approach. It stated that
liquidation value estimates the remaining cash value if all the Corporation's
assets were sold in a quick and orderly, piecemeal manner, and all liabilities
were immediately paid with proceeds. It calculated the liquidation value at
$0. It did not select liquidation value as an appropriate valuation method for
purposes of estimating the fair market value of the Corporation, since the
Corporation is functioning as a going concern and is anticipated to remain in
operation.
The Parrott Partnership next considered the income approach. It stated
that the income approach theory states that the value of the business is
directly related to the earnings of the business.
In order to determine the value of the Corporation under this approach,
The Parrott Partnership first adjusted the Corporation's income statement. It
adjusted the business income of the Corporation to subtract nonbusiness
expenses and income and to add business expenses not borne by the business and
business income not reflected in the business operations. It determined, after
these adjustments, that the Corporation's adjusted net loss was $149,000 for
the fiscal year ended June 30, 1991, its adjusted net income was $222,000 for
the fiscal year ended June 30, 1992, its adjusted net loss was $65,000 for the
fiscal year ended June 30, 1993, its adjusted net income was $39,000 for the
fiscal year ended June 30, 1994, and its adjusted net income was $62,000 for
the fiscal year ended June 30, 1995.
The Parrott Partnership, after these adjustments, next determined the
capitalization rate to apply under this approach. It first acknowledged the
capitalization rates vary among particular types of businesses and from one
period of time to another. As such, it stated that the more speculative the
business' income stream, the higher the capitalization rate; and, conversely,
the more stable the income stream, the lower the capitalization rate. It
defined this stability or nonstability as "risk."
In order to determine the capitalization rate, The Parrott Partnership
determined the discount rate. It defined the discount rate as the annual
return on investment or the cash return on investment available to a business
owner.
It first examined United States Treasury Bond market yields which it
considered risk free. The long term Treasury Bond yield at September 30, 1995,
equaled 7.5 percent. Since it did not consider investing in a company risk
free, it then added a premium of 7 percent above the Treasury Bond yield for an
equity investment on the basis of a publication entitled "Stocks, Bonds, Bills
and Inflation (SBBI) Yearbook" for large common stocks published by SBBI-
Ibbotson Associates, Inc. It then added a premium of 5.2 percent, again on the
basis of the SBBI Yearbook, since it considered small companies generally a
higher risk than large common stocks on stock exchanges. It next added an
additional subjective premium, based on certain specific factors enumerated in
the report, such as returns on equity and assets, profitability percentage,
current ratio, and the like, totalling 26 percent, since it believed an
investment in the Corporation represents an additional risk over similar
businesses in the same area. Finally, it added an additional premium of 3
percent, which represented the difference between the return on investment
based on earnings instead of cash. On the basis of each of these projected
factors, it concluded that the discount rate for the Corporation equaled 48.7
percent.
20
<PAGE> 25
Finally, in order to calculate the capitalization rate, it subtracted from
the discount rate 3.8 percent, an amount it calculated to be equal to the
business' long term growth rate. On this basis, it concluded that the
capitalization rate equaled 44.9 percent for forecasted earnings. It then
converted such capitalization rate to the Corporation's earnings. It
concluded, after such conversion, that the earnings capitalization rate equaled
43.3 percent.
The Parrott Partnership did not add an excess earnings premium, which it
stated is added for companies in the upper quartile of their industry, since it
did not identify such a premium for the Corporation. It, thus, concluded that
the excess earnings capitalization rate also equaled 43.3 percent.
After making these preliminary adjustments to the Corporation's income
statement and then determining a capitalization rate, The Parrott Partnership
considered first the capitalization of earnings method under the income
approach. It stated that this method considers the business as a single
investment. It determined that the value of the Corporation utilizing the
capitalization of earnings method was $261,000 at September 30, 1995. To
arrive at this value, it weighted the adjusted net income for each of the
Corporation's five most recent fiscal years and then calculated an average
thereof. It then capitalized these earnings utilizing its capitalization rate.
The value after capitalizing these earnings of the Corporation equaled $87,000.
It then added $174,000, the amount of the net nonoperating assets, to such
value.
It then determined that the value of the Corporation was a negative
$759,000 utilizing the capitalization of excess earnings method. It defined
the capitalization of excess earnings method as an income approach to valuation
in which the adjusted book value and the intangible assets of the business are
valued independently. This method then combines these assets to determine the
fair market value of the business. To arrive at this value, it first
determined the excess earnings in each of the Corporation's five most recent
fiscal years, weighted them for each such year, and then calculated an average.
It then capitalized such excess earnings by the excess earnings capitalization
rate. Such value equaled $87,000. It then added to that value a negative
$846,000, the adjusted book value of the Corporation.
Finally, it determined that the value of the Corporation using the
discounted future earnings method was $410,000. It defined the discounted
future earnings analysis as an income approach to valuation which the total
entity value is determined by estimating ten years of forecasted future
earnings and then discounting those earnings back to the date of valuation. To
arrive at this value, it discounted the annual earnings flows to present value
by applying a discount rate of 48.7 percent. The value of $410,000 equaled the
sum of the discounted future earnings flows, plus the income residual and net
operating assets of the Corporation.
The Parrott Partnership considered the market approach. It stated this
approach provides that the value of a business is directly related to
comparable sales. It did not determine a value for the Corporation under this
approach, since it did not find sales of public or private companies for
comparison purposes.
The Parrott Partnership, on the basis of its analysis under each of these
approaches, determined that the value of the Corporation before any minority or
marketability discounts equaled $87,000 at September 30, 1995. After taking
into account these discounts, it concluded that the fair market value of the
Corporation at September 30, 1995, was $56,000. It defined the minority
discount as a reduction in value due to a lack of control. It defined the
marketability discount as a reduction in value due to a stock restriction or
prohibition, such as a lack of a ready market, securities law restrictions,
buy-sell agreements, right of first refusal restrictions, and shareholder
agreements.
The foregoing is only a general description of the Parrott Partnership
Report and is qualified in its entirety by reference to the Parrott Appraisal
Report (including the assumptions and limiting conditions contained therein).
The Corporation will make available a copy of the Parrott Appraisal Report for
inspection and copying at the principal offices of the Corporation at 5600 N.E.
Hassalo Street, Portland, Oregon during its regular business hours by any
interested stockholder of the Corporation or such stockholder's representative
who has been so designated in writing. The Corporation will also transmit a
copy of the Parrott Appraisal Report to the interested stockholder or such
stockholder's representative who has so designated in writing upon written
request and at the expense of the requesting stockholder.
The Board of Directors concluded that the proposed issuance of the shares
of Common Stock to Messrs. Halloran and Fast would be in the best interest of
and fair to the Corporation. It remedied the failure of the Corporation to pay
the
21
<PAGE> 26
full amount of their salaries under their employment agreements without the
Corporation using its available cash resources or making any additional
advances on its line of credit. It also compensated them for continuing to
guarantee the Corporation's line of credit and granting to such lenders a
security interest in all or substantially all of their personal assets and for
deferring the payment of compensation otherwise owing to them under their
employment agreements to ensure that the Corporation continued as a going
concern.
The Board of Directors also discussed that after the issuance of the
additional shares under the proposal, that Messrs. Halloran and Fast would be
the owner of more than 50 percent of the issued and outstanding shares of
Common Stock of the Corporation and that, as a result, would then have
sufficient voting power to guarantee the approval of any proposal submitted to
the stockholders for going private. However, it considered its decision to
issue these shares was not related and not connected to any decision to submit
any proposal for going private to the stockholders. More importantly, it
concluded that Messrs. Halloran and Fast had sufficient voting power to ensure
the passage of any proposal submitted to the stockholders for going private
even without the issuance of these shares, given the number of stockholders for
which the Corporation does not have current addresses and given the substantial
number of stockholders who do not historically participate at annual or special
meetings of the stockholders.
The Board of Directors, after consideration of these factors, authorized
and approved the issuance of 488,267 shares of Common Stock in the aggregate to
Messrs. Halloran and Fast at a Special Meeting of the Board of Directors on
February 29, 1996, at nine cents per share in payment of the compensation
deferred through December 31, 1996, under their employment agreements.
As of February 29, 1996, Messrs. Halloran and Fast entered into amendments
to their employment agreements providing for the issuance of such shares of
Common Stock. They own 720,780.842 of shares of Common Stock representing 64
percent of the issued and outstanding shares of the Common Stock of the
Corporation. They owned 232,514 shares or 36.51 percent of the issued and
outstanding Common Stock prior to the issuance of such shares.
INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated financial statements and schedules included in the
Corporation's Annual Report on Form 10-K for the fiscal year ended June 30,
1995, incorporated by reference in this Proxy Statement, have been audited by
Deloitte & Touche, LLP, independent public accountants, as stated in their
reports with respect thereto. It is expected that representatives of Deloitte
& Touche, LLP, will be present at the Special Meeting, both to respond to
appropriate questions of stockholders of the Corporation and to make a
statement if they desire.
FINANCIAL INFORMATION
The Corporation hereby incorporates by reference the financial information
contained in Part II, Item 8, of the Corporation's Annual Report on Form 10-K
for the fiscal year ended June 30, 1995 (the "1995 10-K"), the report of the
independent accountants thereon contained in Part II, Item 8, of the 1995 10-K,
and Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in Part II, Item 7 of the 1995 10-K, and the financial
information contained in Part I, Item 1, of the Corporation's Quarterly Report
on Form 10-Q for the quarter December 31, 1995 (the "December 1995 10-Q"), and
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in Part 1, Item 2, of the December 1995 10-Q attached to
this Proxy Statement.
ADDITIONAL INFORMATION
The Corporation is subject to the informational requirements of the
Exchange Act and in accordance therewith files reports, proxy statements, and
other information with the SEC. Such reports, proxy statements, and other
information can be inspected and copied at the public reference facilities of
the SEC at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549 and at the regional offices of the SEC located at 7 World Trade Center,
13th Floor, Suite 1300, New York, New York 10048 and Suite 1400, Citicorp
Center, 14th Floor, 500 West Madison Street, Chicago, Illinois 60661. Copies
of such materials can also be obtained at prescribed rates by writing to the
Public Reference Section of the SEC at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549.
22
<PAGE> 27
This Proxy Statement includes information required by the SEC to be
disclosed pursuant to Rule 13e-3 under the Exchange Act, which governs so-
called "going private" transactions by certain issuers or their affiliates. In
accordance with that rule, the Corporation has filed with the SEC, under the
Exchange Act, a Schedule 13E-3 with respect to the Reverse Stock Split. This
Proxy Statement does not contain all of the information set forth in the
Schedule 13E-3, parts of which are omitted in accordance with the regulations
of the SEC. The Schedule 13E-3, and any amendments thereto, including exhibits
filed as a part thereof, will be available for inspection and copying at the
offices of the SEC as set forth above.
By Order of the Board of Directors
/s/ Daniel P. Halloran
--------------------------------------
Daniel P. Halloran
Chairman of the Board of Directors,
Chief Executive Officer, and
President
23
<PAGE> 28
INDEX TO FINANCIAL INFORMATION
Description Page
- ------------- ----
[S] [C]
Management's Discussion and Analysis of Financial Condition and F-2
Results of Operations (Item 7 of Part II of the 1995 10-K)
Audited Financial Statements (Item 8 of Part II of the 1995 10-K):
Report of Independent Certified Public Accountants Relating F-4
to the Consolidated Financial Statements and Notes Thereto
Consolidated Balance Sheets as of June 30, 1995 and 1994 F-5
Consolidated Statements of Operations and Accumulated F-6
Deficit for the Years Ended June 30, 1995, 1994, and 1993
Consolidated Statements of Cash Flows for the Years Ended F-7
June 30, 1995, 1994, and 1993
Notes to Consolidated Financial Statements F-8
Management's Discussion and Analysis of Financial Condition and F-13
Results of Operations (Item 2 of Part I of the December 1995
10-Q)
Unaudited Financial Statements (Item 1 of Part I of the December
1995 10-Q):
Consolidated Balance Sheet at December 31, 1995, and June F-14
30, 1995
Consolidated Statements of Operations for the Three Month F-15
Periods Ended December 31, 1995 and 1994
Consolidated Statements of Cash Flows for the Six Month F-16
Periods Ended December 31, 1995 and 1994
Consolidated Statements of Operations for the Six Month F-17
Periods Ended December 31, 1995 and 1994
Notes to Consolidated Financial Statements F-18
F-1
<PAGE> 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
- --------------------------------------------------------------------------
OPERATIONS
- ----------
(a) Results of Operations.
---------------------
1995 Compared to 1994
- ---------------------
The Company's sales increased in the fiscal year ended June 30, 1995, in the
amount of $1,498,433, from $21,496,122 to $22,994,555, a 6.5 percent increase.
Sales increased because of an eight percent increase in units sold. Margins
continued to decrease as a percentage of sales because of lower discounts from
publishers and increased competition requiring higher discounts to customers.
Management cannot determine if these trends will continue.
Operating and administrative costs declined by $25,895 from $3,443,153 for the
fiscal year ended June 30, 1994, to $3,417,258 for the fiscal year ended June
30, 1995. Efficiencies of the Company's new Firm Order computer system and
continuous analysis of how various functions are performed caused this
decrease. The Company will continue its efforts to improve the productivity of
its employees through education and training.
Negative pressures on the Company include increased competition from large
competitors, information being produced in electronic formats, increased use of
library materials budgets to purchase journals, and budgetary constraints of
state-supported educational institutions.
1994 Compared to 1993
- ---------------------
The Company experienced a decline in sales in 1994 in the amount of $497,193
due to a reduction in products sold. There were two primary reasons for this
reduction. One was the lower sales to several commercial customers. The other
was in 1993 the Company sold about $125,000 worth of an expensive reference
work to libraries. There were no comparable sales in 1994. The cost of goods
sold declined for the first time, because of efforts to work with major
suppliers to get better terms. It is impossible to tell if this trend will
continue.
Operating and administrative costs declined by $58,734, although as a
percentage of sales they increased by 1/10 of 1 percent. The Company will
continue efforts to improve the productivity of employees and to negotiate
better terms with suppliers of goods and services in an effort to reduce
operating and administrative costs. The Company introduced new software for
its Firm Order operations in June, 1994. It is impossible to predict the
effect on increased sales or lower costs.
As noted in previous years, there are several negative factors affecting the
Company. Libraries continue to spend larger portions of the budgets on non-
book materials such as journals, audio-visual material, and data base access.
1993 Compared to 1992
- ---------------------
The Company experienced a decline in sales in 1993 in the amount of $1,865,602
due to a reduction in products sold. This was primarily caused by the loss of
several former Scholarly customers and the reduction in sales to a large
corporate customer. The cost of goods sold continued to increase for several
reasons. Publishers continue to lower discounts to the Company in order to
prevent the list price of their material from increasing. Publishers also
switch the mix of trade, technical, and text discounts such that their overall
discounts decline even though their price structure remains the same. The
Company is also actively soliciting orders from its customers for audio-visual
material that carries little, if any, discount. It is impossible to predict
what the future cost of goods will be.
Operating and administrative expenses declined by $221,058 in the fiscal year
ended June 30, 1993. They continue to decline for two reasons: decreasing
volume and attention to all expenditures.
Two negative factors facing the Company are the continued upward spiral in the
cost of serials (the library term for magazines) and the pressure on
governmental agencies and departments at all levels to decrease costs. Serials
are bought from the same materials budget that a library uses to buy books. As
serials absorb a larger portion of the budget, the number of books purchased by
many institutions declines. This trend will not be reversed until the national
economy improves.
F-2
<PAGE> 30
The Company continues to work against these trends by reducing staff,
introducing labor-saving technologies, and working with the suppliers of its
goods and services to improve prices and the quality of service provided. The
Company will introduce a newly programmed Firm Order system in late 1993. It
is hoped that this will improve and enhance the quality of the services the
Company provides to its customers. It is impossible, at this point, to predict
the effect on increased sales or lower costs.
(b) Inflation, Market Trends, and Business Factors Beyond Company Control.
---------------------------------------------------------------------
Inflation is not considered to be a factor in the Company's business at this
time.
Negative pressures on the Company, as previously stated, include increased
competition from large competitors, information being produced in electronic
formats, increased use of library materials budgets to purchase journals, and
budgetary constraints of state-supported educational institutions.
(c) Liquidity and Capital Resources.
-------------------------------
It is anticipated that cash flows from financing and operating activities will
be sufficient to meet the Company's liquidity need over the next twelve months
and thereafter. The Company entered into a new line of credit in June 1995
with a bank. The new line of credit, which expires September 1996, permits the
Company to borrow up to $1,400,000 (subject to certain limitations) and bears
interest at a rate of two and one-half percent to four percent above the bank's
reference rate (the "Index"). The Index equaled nine percent at June 30, 1995.
The new line of credit is secured by all of the Company's assets and is
guaranteed by the present officers of the Company who are also stockholders.
The Company, at the time it entered into the new line of credit with the bank,
terminated its existing line of credit with another lending institution. This
line of credit, which the Company entered into in June 1993, permitted the
Company to borrow up to $1,250,000 and bore interest at the rate of six percent
above the prime rate (15 percent, 13.25 percent, and 12 percent at June 30,
1995, 1994, and 1993, respectively). It was secured by the Company's accounts
receivable, inventory, and equipment and was guaranteed by the present officers
of the Company who are also stockholders. The weighted average interest rate
under this line of credit in 1995 and 1994 was 14.33 and 12.27 percent,
respectively.
The Company does not have any other unused sources of liquid assets. The
Company will continue to improve its working capital situation through
profitable operations.
The Company did not make any material capital expenditures during the fiscal
year ended June 30, 1995.
F-3
<PAGE> 31
INDEPENDENT AUDITORS' REPORT
The Stockholders of Book Centers, Inc.
Portland, Oregon
We have audited the accompanying consolidated balance sheets of Book Centers,
Inc. and subsidiaries as of June 30, 1995 and 1994, and the related
consolidated statements of operations and accumulated deficit and of cash flows
for each of the three years in the period ended June 30, 1995. These
consolidated 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Book Centers, Inc. and
subsidiaries at June 30, 1995 and 1994, and the results of their operations and
their cash flows for each of the three years in the period ended June 30, 1995
in conformity with generally accepted accounting principles.
As discussed in Note 6 to the consolidated financial statements, Book Centers,
Inc. and subsidiaries changed their method of accounting for income taxes
effective June 1, 1993 to conform with Statement of Financial Accounting
Standards No. 109.
DELOITTE & TOUCHE LLP
Portland, Oregon
August 24, 1995
F-5
<PAGE> 32
<TABLE>
BOOK CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1995 AND 1994
- -------------------------------------------------------------------------------
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Accounts receivable (less allowance for
doubtful accounts of $24,525 and $12,155
in 1995 and 1994, respectively) $ 3,453,628 $ 3,151,717
Book inventories 1,083,856 1,233,136
Prepaid expenses and other 254,381 282,445
---------- ----------
Total current assets 4,791,865 4,667,298
OFFICE FURNISHINGS AND EQUIPMENT (Less
accumulated depreciation and amortization
of $650,667 and $583,515 in 1995 and 1994,
respectively) 157,370 186,570
---------- ----------
TOTAL $ 4,949,235 $ 4,853,868
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Bank overdraft $ 216,421 $ 738,721
Current portion of long-term debt (Note 5) 16,649 25,729
Accounts payable 3,073,561 3,089,979
Notes payable (Note 4) 1,029,136 752,567
Deferred revenue 1,129,164 725,201
Accrued expenses 262,097 329,135
---------- ----------
Total current liabilities 5,727,028 5,661,332
---------- ----------
LONG-TERM DEBT (Note 5) 43,201 60,698
---------- ----------
COMMITMENTS (Note 3) - -
STOCKHOLDERS' DEFICIT:
Common stock, no par value, 50,000,000
shares authorized, 636,889 shares issued 688,837 688,837
Paid-in capital 428,988 428,988
Accumulated deficit (1,938,819) (1,985,987)
---------- ----------
Total stockholders' deficit (820,994) (868,162)
---------- ----------
TOTAL $ 4,949,235 $ 4,853,868
========== ==========
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
F-5
<PAGE> 33
<TABLE>
BOOK CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
YEARS ENDED JUNE 30, 1995, 1994, AND 1993
- -------------------------------------------------------------------------------
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Sales $22,994,555 $21,496,122 $21,906,756
Other 30,422 66,772 153,331
---------- ---------- ----------
23,024,977 21,562,894 22,060,087
---------- ---------- ----------
OPERATING EXPENSES:
Cost of goods sold 19,380,974 17,930,209 18,475,858
Operating and administrative 3,417,258 3,443,153 3,501,887
Reversal of restructuring charge
accrual (Note 1) - (200,366) -
Interest 179,577 168,998 173,378
---------- ---------- ----------
22,977,809 21,341,994 22,151,123
---------- ---------- ----------
INCOME (LOSS) BEFORE TAXES 47,168 220,900 (91,036)
INCOME TAXES (Note 6) - - -
---------- ---------- ----------
NET INCOME (LOSS) 47,168 220,900 (91,036)
ACCUMULATED DEFICIT, BEGINNING
OF PERIOD (1,985,987) (2,206,887) (2,115,851)
---------- ---------- ----------
ACCUMULATED DEFICIT, END OF
PERIOD $(1,938,819) $(1,985,987) $(2,206,887)
========== ========== ==========
NET INCOME (LOSS) PER SHARE $ 0.07 $ 0.35 $ (0.14)
========== ========== ==========
WEIGHTED AVERAGE SHARES
OUTSTANDING 636,889 636,889 636,889
========== ========== ==========
- -------------------------
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
F-6
<PAGE> 34
<TABLE>
BOOK CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1995, 1994, AND 1993
- -------------------------------------------------------------------------------
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $ 47,168 $ 220,900 $ (91,036)
Adjustments to reconcile net
income (loss) to net cash
used in operating activities:
Depreciation and amortization 67,152 78,370 81,186
Gain on sale of division - - (16,047)
Loss on disposal of property - 3,306 -
Restructuring charges - (200,366) (13,118)
Change in assets and
liabilities net of effects of
sale of division:
Accounts receivable (301,911) 221,912 777,944
Book inventories 149,280 (338,909) 80,406
Prepaid expenses and other 28,064 32,924 13,448
Other assets - - 15,000
Bank overdraft (522,300) (284,052) 156,517
Accounts payable (16,418) (108,127) (594,402)
Deferred revenue 403,963 210,874 (447,875)
Accrued expenses (67,038) 43,512 (9,649)
---------- ---------- ----------
Net cash used in operating
activities (212,040) (119,656) (47,626)
---------- ---------- ----------
CASH FLOWS FROM INVESTING
ACTIVITIES -
Capital expenditures (37,952) (8,588) (41,369)
---------- ---------- ----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net increase in notes payable 276,569 164,394 116,641
Long-term debt:
Borrowings - - 8,100
Repayments (26,577) (36,150) (35,746)
---------- ---------- ----------
Net cash provided by
financing activities 249,992 128,244 88,995
----------- ----------- -----------
NET INCREASE IN CASH - - -
CASH AT BEGINNING OF YEAR - - -
---------- ---------- ----------
CASH AT END OF YEAR $ - - -
========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF
NONCASH INVESTING ACTIVITIES:
Book value of assets sold $ - $ - $ 32,272
Liabilities assumed by buyer - - 48,319
Capital expenditures financed
by long-term debt - 73,263 -
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
F-7
<PAGE> 35
BOOK CENTERS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1995, 1994, AND 1993
- -------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company - Book Centers, Inc. is an Oregon corporation organized in
1961. The Company engages in the business of marketing, warehousing and
distributing books worldwide to research and academic libraries.
Principles of Consolidation - The consolidated financial statements include
the accounts of the Company and its 100%-owned subsidiary, Academic Book
Center, Inc. ("Academic"). All significant intercompany accounts and
transactions have been eliminated upon consolidation.
Restructuring - During 1991, the Company closed its one hundred percent
owned subsidiary Scholarly Book Center, Inc. ("Scholarly"), recording
restructuring charges of $600,000. These charges included loss on
equipment disposal, employee severance liability, lease termination costs
and other incremental costs associated with the closure of these
operations. The remaining accrual at June 30, 1993 and 1992, was for lease
termination costs. These leases substantially expired during the year
ended June 30, 1994 and the remaining restructuring accrual of $200,366 was
reversed against operating expenses.
Statements of Cash Flows - For purposes of the statement of cash flows, the
Company considers interest bearing deposits with maturities of 90 days or
less to be cash. Cash paid for interest was $177,581, $169,711, and
$176,346 for the years ended June 30, 1995, 1994, and 1993, respectively.
Accounts Receivable - Trade receivables are recorded at estimated
collectible value.
Book Inventories - Inventories are valued at lower of cost or market value
using the specific identification method.
Income Taxes - Effective July 1, 1993, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 109, Accounting for Income
Taxes, which requires the provision of deferred income taxes based upon an
asset and liability approach and represents the change in deferred income
tax accounts during the year, including the effect of enacted tax rate
changes. A consolidated federal income tax return is filed by the Company
for the consolidated group. Federal tax credits are accounted for, when
applicable, under the flow-through method whereby the credit is reflected
as a reduction of federal income tax expense in the year in which the
credit is used.
Deferred Revenue - The subsidiary companies receive advance payments from
certain customers. These amounts are recognized as revenue when the
related books are shipped.
Office Furnishings and Equipment and Depreciation - Office furnishings and
equipment are stated at cost. Maintenance and repairs are charged to
expenses as incurred, and improvements are capitalized. Depreciation is
computed on a straight-line method over the estimated useful lives
(generally three to ten years) of the related assets. Upon disposal of
property subject to depreciation, the accounts are relieved of the related
costs and accumulated depreciation and resulting gains and losses are
reflected in operations.
Net Income (Loss) Per Share - Net income (loss) per share of common stock
is computed based on the weighted average number of shares of common stock
outstanding during each year. The weighted average number of shares for
each of the three years ended June 30, 1995 was 636,889.
Reclassifications - Certain amounts from prior periods have been
reclassified in order to conform to the 1995 presentation.
F-8
<PAGE> 36
2. EMPLOYEE STOCK OWNERSHIP PLAN
During 1985, the Company adopted a qualified Employee Stock Ownership Plan.
This Plan was initially funded with a $25,000 contribution and is available
to all eligible personnel who have been employed by the Company for a least
one year. As of June 30, 1995, 65,167 shares of the Company's outstanding
common stock had been acquired by the Plan. There were no contributions to
the Plan for the years ended June 30, 1995, 1994, and 1993.
3. LEASE COMMITMENTS
The Company and one of its subsidiaries are lessees under noncancelable
real property leases through 1996. Other leases shown are for automobiles
and office equipment. In September 1992, the Company sold certain assets
related to an operating division of its wholly-owned subsidiary, Academic.
In addition to the purchase of assets, the buyer assumed responsibility for
certain liabilities, including the lease for the operating division's
primary facility. The sale agreement provided that the Company would
guarantee this lease until the expiration of its original term at
October 31, 1995.
Minimum future rentals under capital and operating leases having initial or
remaining terms of one year or more as of June 30, 1995 are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------- ---------
<S> <C> <C>
1996 $12,284 $37,556
1997 12,419 1,776
1998 12,419 888
1999 4,677 -
2000 - -
------ ------
Total 41,799 $40,220
======
Less amount representing interest 9,227
------
Present value of minimum lease payments $32,572
======
</TABLE>
Total rent expense was $129,640, $116,210, and $114,830 for the years ended
June 30, 1995, 1994, and 1993, respectively.
4. NOTES PAYABLE
In June 1991, the Company entered into a new line of credit with a lending
institution. Beginning July 1, 1993, the line renewed annually unless the
Company elected to terminate the agreement. Under this agreement, the
Company could borrow up to a capacity of $1,250,000. The line bore
interest at 6% above the prime rate (15%, 13.25%, and 12% at June 30, 1995,
1994, and 1993, respectively), was secured by accounts receivable,
inventory and equipment and was personally guaranteed by present officers
who are stockholders of the Company. The weighted average interest rate in
1995 and 1994 was 14.33% and 12.27%, respectively. In June 1995, the
Company paid off their line of credit with this lending institution, and
entered into a new line of credit with a bank. This new agreement expires
September 1996, and bears interest at a rate of 2.5% to 4% above the bank's
reference rate (the "Index"). The Index was at 9% at June 30, 1995. The
Company may borrow up to a capacity of $1,400,000 subject to certain
limitations. These borrowings are secured by assets of the Company and are
guaranteed by stockholders of the Company who are also officers.
5. LONG-TERM DEBT
Long-term debt at June 30, 1995 and 1994 consisted of the following:
F-9
<PAGE> 37
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Note payable to related parties at 12% interest,
payable monthly through June 1995
collateralized by computer equipment $ - $ 8,483
Note payable to related parties at 12% interest,
payable monthly through November 1998,
collateralized by computer equipment 22,138 27,079
Note payable to a bank, at 8.9% interest,
payable monthly through February 1997,
collateralized by an automobile 5,140 7,879
Capital lease obligations (Note 3) 32,572 42,986
---------- ----------
Total 59,850 86,427
Less current portion 16,649 25,729
---------- ----------
Total long-term debt $ 43,201 $ 60,698
========== ==========
</TABLE>
Maturities of long-term debt, including minimum capital lease payments, net
of interest portion, at June 30, 1995 were as follows:
1996 $ 16,649
1997 17,738
1998 17,868
1999 7,595
2000 -
----------
Total $ 59,850
==========
The above notes payable to related parties are to individuals who are
present officers and stockholders of the Company.
6. INCOME TAXES
The Company adopted SFAS No. 109, Accounting for Income Taxes, effective
July 1, 1993. The statement requires the provision of deferred income
taxes based upon an asset and liability approach and represents the change
in deferred income tax accounts during the year, including the effect of
enacted tax rate changes. The statement also provides for the recognition
of net operating loss ("NOL") carryforwards as a deferred tax asset.
Income tax expenses attributable to operations consisted of the following:
<TABLE>
<CAPTION>
June 30,
-----------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal $ - $ - $ -
State - - -
Deferred:
Federal - - -
State - - -
---------- ---------- ----------
Total income tax expense $ - - -
========== ========== ==========
</TABLE>
F-10
<PAGE> 38
Reconciliation between the statutory federal income tax rate and the
effective tax is as follows:
<TABLE>
<CAPTION>
June 30,
-----------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Computed federal income taxes $ 16,000 $ 75,000 $ -
State taxes, net of federal
benefit 2,000 9,000 -
Nondeductible expenses 10,000 13,000 -
Operating loss carryforwards (28,000) (97,000) -
---------- ---------- ----------
Total income tax expense $ - $ - $ -
========== ========== ==========
</TABLE>
The tax effort of temporary differences that give rise to significant
deferred tax assets and deferred tax liabilities at June 30, 1995 and 1994
are presented below:
<TABLE>
<CAPTION>
June 30, June 30,
1995 1994
----------- -----------
<S> <C> <C>
Deferred tax assets:
Depreciation $ 70,000 $ 62,000
Accrued expenses 100,000 90,000
NOL carryforwards 254,000 297,000
Investment tax and jobs credit carryforward 21,000 51,000
---------- ----------
445,000 500,000
Valuation allowance (445,000) (500,000)
---------- ----------
Net deferred tax asset $ - $ -
========== ==========
</TABLE>
There were no deferred tax liabilities at June 30, 1995. Deferred tax
assets have been reduced by a valuation allowance as realization of some
portion of these future tax benefits is subject to significant
uncertainties. The net change in the valuation allowance for the year
ended June 30, 1995, was $55,000.
At June 30, 1995, the Company's net operating loss carryforwards totaled
approximately $1,220,000 for financial reporting purposes expiring through
2008. Net operating loss carryforwards totaled approximately $649,000 for
tax purposes and expire as follows:
<TABLE>
<CAPTION>
Amount of
Year of Loss
Expiration Carryforward
---------- ------------
<S> <C>
2002 $ 67,000
2003 224,000
2006 65,000
2007 238,000
2008 55,000
-------
Total $649,000
=======
</TABLE>
Investment tax and new jobs credit carryovers approximate $21,000 at June
30, 1995 and expire at various dates through 2000.
F-11
<PAGE> 39
7. BUSINESS SEGMENT INFORMATION
The Company's principal industry segment is book wholesaling. Other
segments and transfers between segments are immaterial. Export sales were
$9,524,537, $8,344,825, and $7,181,519 for the years ended June 30, 1995,
1994, and 1993, respectively, and were made to various countries. In
addition, accounts receivable from export sales were $1,726,442,
$1,418,251, and $1,529,259 at June 30, 1995, 1994, and 1993, respectively.
F-12
<PAGE> 40
BOOK CENTERS, INC.
AND SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition
and Results of Operations
------------------------------------
Sales in the first six months of this fiscal year increased by 3.18 percent
over the comparable period in the previous year. This included a 1.26 percent
increase in the number of units sold. Operating and administrative costs
increased only 1.07 percent. The new financing arrangement resulted in a
decrease of 56.83 percent in interest expense during the period. As reported
in previous periods, the cost of goods sold increased by 4.01 percent from the
year earlier period. As a result of the improvement in sales, lower interest
payments, and increase in the cost of goods sold, profits for the period
increased by 9.81 percent.
Overdue foreign receivables are still running at high levels; about 15 percent
are over normal terms. It is expected that increased collection efforts and
the end of many foreign libraries' fiscal years in March will result in a
significant improvement.
F-13
<PAGE> 41
BOOK CENTERS, INC.
AND SUBSIDIARIES
Consolidated Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
12/31/95 6/30/95
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Accounts receivable, net of allowance
for doubtful accounts of
$34,674 and $24,525 $3,961,043 $3,453,628
Book inventories 1,179,736 1,083,856
Prepaid expenses 339,772 254,381
--------- ---------
Total current assets 5,480,551 4,791,865
Office furnishings and equipment, at cost
less accumulated depreciation of
$240,016 and $650,667 177,231 157,370
Other assets 5,599 ----
--------- ---------
$5,663,381 $4,959,235
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft $1,477,612 $ 216,421
Notes payable 296,936 1,029,136
Current portion of long-term debt 9,367 16,649
Accounts payable 2,491,462 3,073,561
Deferred revenue 1,797,493 1,129,164
Accrued expenses 234,377 262,097
--------- ---------
Total current liabilities 6,307,247 5,727,028
Long-term debt, less current portion 68,805 43,201
--------- ---------
Total liabilities 6,376,052 5,770,229
Stockholders' equity:
Common stock, no-par value
50,000,000 shares authorized
636,889 shares issued 688,837 688,837
Paid in capital 428,988 428,988
Accumulated deficit (1,830,496) (1,938,819)
--------- ---------
Total stockholders' deficit ( 712,671) ( 820,994)
--------- ---------
$5,663,381 $4,949,235
========= =========
See note to consolidated financial statements.
</TABLE>
F-14
<PAGE> 42
BOOK CENTERS, INC.
AND SUBSIDIARIES
Consolidated Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the
Three Month Periods
Ended December 31,
---------------------------
1995 1994
---------- ----------
<S> <C> <C>
Net sales $6,371,162 $6,028,207
Expenses:
Cost of goods sold 5,338,776 5,049,822
Operating and administrative 912,261 865,142
Interest 15,814 41,944
--------- ---------
Total expenses 6,266,851 5,956,908
Income (loss) before taxes 104,311 71,299
Income taxes ---- ----
--------- ---------
Net income (loss) 104,311 71,299
========= =========
Earnings (loss) per share:
Income (loss) $ .16 $ .11
--------- ---------
Net income (loss) per share $ .16 $ .11
========= =========
See note to consolidated financial statements.
</TABLE>
F-15
<PAGE> 43
BOOK CENTERS, INC.
AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the
Six Month Periods
Ended December 31,
---------------------------
1995 1994
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Operations:
Net income (loss) $ 108,323 $ 98,649
Gain on sale of equipment ---- ----
Adjustments to reconcile net income
(loss) to net cash used in operating
activities:
Depreciation and amortization 39,028 39,141
Changes in account balances:
Accounts receivable ( 507,415) ( 452,134)
Book inventories ( 95,880) ( 403,666)
Prepaid expenses and other ( 90,990) ( 14,301)
Accounts payable ( 582,099) 124,701
Deferred revenue 668,329 830,236
Accrued expenses ( 27,720) ( 76,283)
--------- ---------
Net cash provided by (used in)
operating activities ( 488,424) ( 146,343)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to office furnishings
and equipment ( 58,889) ( 27,036)
Other ( 5)
--------- ---------
Net cash used in investing activities ( 58,889) ( 27,041)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in notes payable
to commercial factors ( 732,200) ( 514,791)
Net (payments) borrowings on long term debt 18,322 ( 12,998)
--------- ---------
Net cash provided by (used in)
financing activities ( 713,878) ( 527,789)
--------- ---------
Net increase (decrease) in cash (1,261,191) ( 408,487)
Bank overdraft, beginning of period ( 216,421) ( 738,721)
Bank overdraft, end of period $(1,477,612) $(1,147,208)
========= =========
See note to consolidated financial statements.
</TABLE>
F-16
<PAGE> 44
BOOK CENTERS, INC.
AND SUBSIDIARIES
Consolidated Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the
Six Month Periods
Ended December 31,
----------------------------
1995 1994
----------- -----------
<S> <C> <C>
Net sales $11,630,968 $11,272,598
Expenses:
Cost of goods sold 9,784,053 9,406,560
Operating and administrative 1,703,010 1,685,111
Interest 35,522 82,278
---------- ----------
Total expenses 11,522,644 11,173,949
Income (loss) before taxes 108,323 98,649
Income taxes ---- ----
---------- ----------
Net income (loss) $ 108,323 $ 98,649
========== ==========
Earnings (loss) per share:
Income (loss) .17 .16
---------- ----------
Net income (loss) per share $ .17 $ .16
========== ==========
See note to consolidated financial statements.
</TABLE>
F-17
<PAGE> 45
BOOK CENTERS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
NOTE A: Earnings (loss) per Common Share
- -----------------------------------------
Earnings (loss) per common share is based on the average number of common
shares outstanding (exclusive of shares held in treasury). The number of
shares outstanding at December 31, 1995, was 636,889.
F-18
<PAGE> 46
ANNEX A
ARTICLES OF AMENDMENT
OF
BOOK CENTERS, INC.
Pursuant to the provisions of ORS 60.431, the undersigned corporation
executes the following Articles of Amendment to its Restated Articles of
Incorporation filed June 15, 1988 (as amended by Articles of Amendment filed
October 4, 1990):
1. The name of the corporation prior to amendment is: Book Centers,
Inc.
2. State the article number(s) and set forth the article(s) as it is
amended to read. Indicate the date each amendment was adopted.
The following amendment to Section 1 of Article III of the Articles
of Incorporation was adopted on May 30, 1996:
1. Classes of Shares. The Corporation is authorized to issue
two classes of shares to be designated respectively "Preferred" and
"Common." The total number of Preferred shares is 20,000,000 and
the total number of Common shares is 500. Upon the filing of these
Articles of Amendment, each 100,000 issued and outstanding Common
shares shall be reverse split into one Common share. Each record
holder of Common shares whose aggregate number of Common shares
held of record is less than 100,000 Common shares shall be deemed
by the Corporation to hold a fractional Common share. All such
fractional Common shares are hereby cancelled immediately. The
holder of such fractional Common share shall be entitled to a cash
payment equal to nine cents per Common share (pre-reverse split)
upon proper surrender of the holder's certificate or certificates
therefor.
3. Check the appropriate statement:
_____ Shareholder action was not required to adopt the amendment(s).
__x__ Shareholder action was required to adopt the amendment(s).
The shareholder vote was as follows:
<TABLE>
<CAPTION>
Number of Number of
Shares Votes Entitled Number of Number Votes
Class of Shares Outstanding to be Cast Votes Cast For Cast Against
- --------------- ----------- -------------- -------------- ------------
<S> <C> <C> <C> <C>
Common 1,125,156 1,125,156
</TABLE>
Page 1 - ARTICLES OF AMENDMENT
A-1
<PAGE> 47
4. Other provisions, if applicable: None.
Execution:
Daniel P. Halloran President
- -------------------------------------------------------------------------------
Signature Printed Name Title
Person to contact about this filing:
David R. Ludwig (503) 228-6044
- -------------------------------------------------------------------------------
Name Daytime Phone Number
Page 2 - ARTICLES OF AMENDMENT
A-2
<PAGE> 48
ANNEX B
SECTIONS 60.551 TO 60.594 OF THE
OREGON BUSINESS CORPORATION ACT
(Right to Dissent and Obtain Payment for Shares)
60.551 Definitions for 60.551 to 60.594. As used in ORS 60.551 to
60.594:
(1) "Beneficial shareholder" means the person who is a beneficial owner
of shares held in a voting trust or by a nominee as the record shareholder.
(2) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation by
merger or share exchange of that issuer.
(3) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under ORS 60.554 and who exercises that right when and in the
manner required by ORS 60.561 to 60.587.
(4) "Fair value," with respect to a dissenter's shares, means the value
of the shares immediately before the effectuation of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.
(5) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable under all the circumstances.
(6) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
60.554 Right to dissent. (1) Subject to subsection (2) of this section,
a shareholder is entitled to dissent from, and obtain payment of the fair value
of the shareholder's shares in the event of, any of the following corporate
acts:
(a) Consummation of a plan of merger to which the corporation is a party
if a shareholder approval is required for the merger by ORS 60.487 or the
articles of incorporation and the shareholder is entitled to vote on the merger
or if the corporation is a subsidiary that is merged with its parent under ORS
60.491;
(b) Consummation of a plan of share exchange to which the corporation is
a party as the corporation whose shares will be acquired, if the shareholder is
entitled to vote on the plan;
(c) Consummation of a sale or exchange of all or substantially all of the
property of the corporation other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution, but not including a sale pursuant to court
order or a sale for cash pursuant to court order or a sale for cash pursuant to
a plan by which all or substantially all of the net proceeds of the sale will
be distributed to the shareholders within one year after the date of sale;
(d) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
(A) Alters or abolishes a preemptive right of the holder of the shares to
acquire shares or other securities; or
B-1
<PAGE> 49
(B) Reduces the number of shares owned by the shareholder to a fraction
of a share if the fractional share so created is to be acquired for cash under
ORS 60.141; or
(e) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws or a resolution of the board of
directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
(2) A shareholder entitled to dissent and obtain payment for the
shareholder's shares under ORS 60.551 to 60.594 may not challenge the corporate
action creating the shareholder's entitlement unless the action is unlawful or
fraudulent with respect to the shareholder or the corporation.
(3) Dissenters' rights shall not apply to the holders of shares of any
class or series if the shares of the class or series were registered on a
national securities exchange or quoted on the National Association of
Securities Dealers, Inc. Automated Quotation System as a National Market System
issue on the record date for the meeting of shareholders at which the corporate
action described in subsection (1) of this section is to be approved or on the
date a copy or summary of the plan or merger is mailed to shareholders under
ORS 60.491, unless the articles of incorporation otherwise provide.
60.557 Dissent by nominees and beneficial owners. (1) A record
shareholder may assert dissenters' rights as to fewer than all the shares
registered in the shareholder's name only if the shareholder dissents with
respect to all shares beneficially owned by any one person and notifies the
corporation in writing of the name and address of each person on whose behalf
the shareholder asserts dissenters' rights. The rights of a partial dissenter
under this subsection are determined as if the shares regarding which the
shareholder dissents and the shareholder's other shares were registered in the
names of different shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to shares
held on the beneficial shareholder's behalf only if:
(a) The beneficial shareholder submits to the corporation the record
shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights; and
(b) The beneficial shareholder does so with respect to all shares of
which such shareholder is the beneficial shareholder or over which such
shareholder has power to direct the vote.
(Procedure for Exercise of Rights)
60.561 Notice of dissenters' rights. (1) If proposed corporate action
creating dissenters' rights under ORS 60.554 is submitted to a vote at a
shareholder's meeting, the meeting notice must state that shareholders are or
may be entitled to assert dissenters' rights under ORS 60.551 to 60.594 and be
accompanied by a copy of ORS 60.551 to 60.594.
(2) If corporate action creating dissenters' rights under ORS 60.554 is
taken without a vote of shareholders, the corporation shall notify in writing
all shareholders entitled to assert dissenters' rights that the action was
taken and send the shareholders entitled to dissenters' rights the dissenters'
notice described in ORS 60.567.
60.564 Notice of intent to demand payment. (1) If proposed corporate
action creating dissenters' rights under ORS 60.554 is submitted to a vote at a
shareholders' meeting, a shareholder who wishes to assert dissenters' right
shall deliver to the corporation before the vote is taken written notice of the
shareholder's intent to demand payment for the shareholder's shares if the
proposed action is effectuated and shall not vote such shares in favor of the
proposed action.
(2) A shareholder who does not satisfy the requirements of subsection (1)
of this section is not entitled to payment for the shareholders' shares under
this chapter.
B-2
<PAGE> 50
60.567 Dissenters' notice. (1) If proposed corporate action creating
dissenters' rights under ORS 60.554 is authorized at a shareholders' meeting,
the corporation shall deliver a written dissenters' notice to all shareholders
who satisfied the requirements of ORS 60.564.
(2) The dissenters' notice shall be sent no later than 10 days after the
corporate action was taken, and shall:
(a) State where the payment demand shall be sent and where and when
certificated shares shall be deposited;
(b) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(c) Supply a form for demanding payment that includes the date of the
first announcement of the terms of the proposed corporate action to news media
or to shareholders and requires that the person asserting dissenters' rights
certify whether or not the person acquired beneficial ownership of the shares
before that date;
(d) Set a date by which the corporation must receive the payment demand.
This date may not be fewer than 30 nor more than 60 days after the date the
subsection (1) of this section notice is delivered; and
(e) Be accompanied by a copy of ORS 60.551 to 60.594.
60.571 Duty to demand payment. (1) A shareholder sent a dissenters'
notice described in ORS 60.567 must demand payment, certify whether the
shareholder acquired beneficial ownership of the shares before the date
required to be set forth in the dissenters' notice pursuant to ORS
60.567(2)(c), and deposit the shareholder's certificates in accordance with the
terms of the notice.
(2) The shareholder who demands payment and deposits the shareholder's
shares under subsection (1) of this section retains all other rights of a
shareholder until these rights are canceled or modified by the taking of the
proposed corporate action.
(3) A shareholder who does not demand payment or deposit the
shareholder's share certificates where required, each by the date set in the
dissenters' notice, is not entitled to payment for the shareholder's shares
under this chapter.
60.574 Share restrictions. (1) The corporation may restrict the
transfer of uncertificated shares from the date the demand for their payment is
received until the proposed corporate action is taken or the restrictions
released under ORS 60.581.
(2) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
60.577 Payment. (1) Except as provided in ORS 60.584, as soon as the
proposed corporate action is taken, or upon receipt of a payment demand, the
corporation shall pay each dissenter who complied with ORS 60.571, the amount
the corporation estimates to be the fair value of the shareholder's shares,
plus accrued interest.
(2) The payment must be accompanied by:
(a) The corporation's balance sheet as of the end of a fiscal year ending
not more than 16 months before the date of payment, an income statement for
that year and the latest available interim financial statements, if any;
(b) A statement of the corporation's estimate of the fair value of the
shares;
(c) An explanation of how the interest was calculated;
B-3
<PAGE> 51
(d) A statement of the dissenter's right to demand payment under ORS
60.587; and
(e) A copy of ORS 60.551 to 60.594.
60.581 Failure to take action. (1) If the corporation does not take the
proposed action within 60 days after the date set for demanding payment and
depositing share certificates, the corporation shall return the deposited
certificates and release the transfer restrictions imposed on uncertificated
shares.
(2) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under ORS 60.567 and repeat the payment demand procedure.
60.584 After-acquired shares. (1) A corporation may elect to withhold
payment required by ORS 60.577 from a dissenter unless the dissenter was the
beneficial owner of the shares before the date set forth in the dissenters'
notice as the date of the first announcement to news media or to shareholders
of the terms of the proposed corporate action.
(2) To the extent the corporation elects to withhold payment under
subsection (1) of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares plus accrued interest and shall pay
this amount to each dissenter who agrees to accept it in full satisfaction of
such demand. The corporation shall send with its offer a statement of its
estimate of the fair value of the shares an explanation of how the interest was
calculated and a statement of the dissenter's right to demand payment under ORS
60.587.
60.587 Procedure if shareholder dissatisfied with payment or offer. (1)
A dissenter may notify the corporation in writing of the dissenter's own
estimate of the fair value of the dissenter's shares and amount of interest
due, and demand payment of the dissenter's estimate, less any payment under ORS
60.577 or reject the corporation's offer under ORS 60.584 and demand payment of
the dissenter's estimate of the fair value of the dissenter's shares and
interest due, if:
(a) The dissenter believes that the amount paid under ORS 60.577 or
offered under ORS 60.584 is less than the fair market value of the dissenter's
shares or that the interest due is incorrectly calculated;
(b) The corporation fails to make payment under ORS 60.577 within 60 days
after the date set for demanding payment; or
(c) The corporation, having failed to take the proposed action, does not
return the deposited certificates or release the transfer restrictions imposed
on uncertificated shares within 60 days after the date set for demanding
payment.
(2) A dissenter waives the right to demand payment under this section
unless the dissenter notifies the corporation of the dissenter's demand in
writing under subsection (1) of this section within 30 days after the
corporation made or offered payment for the dissenter's shares.
(Judicial Appraisal of Shares)
60.591 Court action. (1) If a demand for payment under ORS 60.587
remains unsettled, the corporation shall commence a proceeding within 60 days
after receiving the payment demand under ORS 60.587 and petition the court
under subsection (2) of this section to determine the fair value of the shares
and accrued interest. If the corporation does not commence the proceeding
within the 60-day period, it shall pay each dissenter whose demand remains
unsettled the amount demanded.
(2) The corporation shall commence the proceeding in the circuit court of
the county where a corporation's principal office is located, or if the
principal office is not in this state, where the corporation's registered
office is located. If the corporation is a foreign corporation, without a
registered office in this state, it shall commence the proceeding in the county
in this state where the registered office of the domestic corporation merged
with or whose shares were acquired by the foreign corporation was located.
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<PAGE> 52
(3) The corporation shall make all dissenters, whether or not residents
of this state, whose demands remain unsettled parties to the proceeding as in
an action against their shares. All parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(4) The jurisdiction of the circuit court in which the proceeding is
commenced under subsection (2) of this section is plenary and exclusive. The
court may appoint one or more persons as appraisers to receive evidence and
recommend decision on the question of fair value. The appraisers have the
powers described in the court order appointing them, or in any amendment to the
order. The dissenters are entitled to the same discovery rights as parties in
other civil proceedings.
(5) Each dissenter made a party to the proceeding is entitled to judgment
for:
(a) The amount, if any, by which the court finds the fair value of the
dissenter's shares, plus interest, exceeds the amount paid by the corporation;
or
(b) The fair value, plus accrued interest, of the dissenter's after-
acquired shares for which the corporation elected to withhold payment under ORS
60.584.
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<PAGE> 53
60.594 Court costs and counsel fees. (1) The court in an appraisal
proceeding commenced under ORS 60.591 shall determine all costs of the
proceeding, including the reasonable compensation and expenses of appraisers
appointed by the court. The court shall assess the costs against the
corporation, except that the court may assess costs against all or some of the
dissenters, in amounts the court finds equitable, to the extent the court finds
the dissenters acted arbitrarily, vexatiously, or not in good faith in
demanding payment under ORS 60.587.
(2) The court may also assess the fees and expenses of counsel and
experts of the respective parties in amounts the court finds equitable:
(a) Against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the requirements
of ORS 60.561 to 60.587; or
(b) Against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses are
assessed acted arbitrarily, vexatiously or not in good faith with respect to
the rights provided by this chapter.
(3) If the court finds that the services of counsel for any dissenter
were of substantial benefit to other dissenters similarly situated, and that
the fees for those services should not be assessed against the corporation, the
court may award to counsel reasonable fees to be paid out of the amount awarded
the dissenters who were benefitted.
B-5
<PAGE>
Exhibit (d)(2)
BOOK CENTERS, INC.
5600 N.E. HASSALO STREET
PORTLAND, OREGON 97213
PROXY SOLICITED FOR SPECIAL MEETING OF STOCKHOLDERS, MAY 30, 1996
The undersigned hereby appoints Daniel P. Halloran and Barry E. Fast, and each
of them, the proxy and attorney-in-fact for the undersigned, with full power of
substitution in each, to vote on behalf of the undersigned at the Special
Meeting of Stockholders of BOOK CENTERS, INC. to be held at 5600 N.E. Hassalo
Street, Portland, Oregon 97213, on Thursday, May 30, 1996, at 10:00 a.m., local
time, and at any adjournment or postponement of such meeting, all shares of
Common Stock, no par value, of BOOK CENTERS, INC. standing in the name of the
undersigned or which the undersigned may be entitled to vote on the matters
described herein.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF BOOK CENTERS,
INC. PLEASE MARK, SIGN, AND DATE THIS PROXY CARD ON THE REVERSE SIDE AND
RETURN IT PROMPTLY USING THE ENCLOSED ENVELOPE.
THIS PROXY MAY BE REVOKED BY A PROXY EXECUTED AT A LATER DATE OR OTHERWISE, AS
SET FORTH IN THE BOOK CENTERS, INC. PROXY STATEMENT WHICH ACCOMPANIED THIS
CARD.
THE PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS SPECIFIED BELOW BY THE
UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED
FOR THE PROPOSAL TO APPROVE AND ADOPT THE ARTICLES OF AMENDMENT (AS DESCRIBED
IN BOOK CENTERS, INC.'S PROXY STATEMENT DATED MAY 9, 1996).
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT
THE ARTICLES OF AMENDMENT (AS DESCRIBED IN BOOK CENTERS, INC.'S PROXY STATEMENT
DATED MAY 9, 1996).
1. THE PROPOSAL TO APPROVE AND ADOPT THE ARTICLES OF AMENDMENT (as the same is
described in Book Centers, Inc.'s Proxy Statement dated May 9, 1996.
FOR [__] AGAINST [__] ABSTAIN [__]
2. In their discretion, the parties are authorized to vote upon such other
business as may properly come before the meeting or any adjournment or
postponement thereof.
SIGNATURE(S) _____________________________________ DATED ________________, 1996
Please sign exactly as name appears on this card. Joint owners should each
sign. If signing as attorney, executor, administrator, trustee, or guardian,
please indicate the capacity in which signing. If a corporation, please sign
full corporate name and sign authorized officer's name and title. If a
partnership, please sign in partnership name and sign authorized person's name
and title.
