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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. 1)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Mickelberry Communications Incorporated
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Mickelberry Communications Incorporated
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
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[X] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
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PRELIMINARY COPY
----------------
MICKELBERRY COMMUNICATIONS INCORPORATED
405 PARK AVENUE
NEW YORK, NEW YORK 10022
____________, 1995
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
Mickelberry Communications Incorporated (the "Company") to be held on
_______________, 1995 at 9:00 a.m., local time, at
_____________________________________________. The purpose of the Special
Meeting is to consider the approval of the Agreement and Plan of Merger, dated
as of March 21, 1995 (the "Merger Agreement"), providing for the acquisition by
the Company of all of its outstanding shares of Common Stock and Preferred Stock
(collectively, the "Company Stock"), other than most of the shares owned
directly or indirectly by Mr. James C. Marlas (the "Major Shareholder"), for a
consideration of $4.25 in cash for each outstanding share. Pursuant to the
Merger Agreement, this acquisition would be effected by means of a merger of
Mickelberry Acquisition Corporation ("Newco"), a newly formed Delaware
corporation wholly owned by the Major Shareholder, into the Company (the
"Merger"), as a result of which the Company will become wholly owned by the
Major Shareholder. The Major Shareholder owns directly or indirectly
approximately 48% of the Company's outstanding Common Stock, and is the Chairman
of the Board, President and Chief Executive Officer of the Company.
A special committee of the Company's Board of Directors (the "Special
Committee") comprised of four independent members of the Board of Directors,
together with its financial advisor, Wertheim Schroder & Co. Incorporated
("Wertheim Schroder"), has reviewed the Merger Agreement and Wertheim Schroder
has delivered its written opinion that the $4.25 cash consideration to be
received pursuant to the Merger Agreement by holders of the Company's Common
Stock and of the Company's Preferred Stock other than the Major Shareholder and
its affiliates (collectively, the "Public Shareholders") is fair from a
financial point of view. The written opinion of Wertheim Schroder, which is
attached to the accompanying Proxy Statement as Annex B, should be read
carefully by shareholders in its entirety. You are also urged to read carefully
the accompanying Proxy Statement in its entirety, including the section entitled
"Special Factors," for important information regarding the Merger.
<PAGE>
Your Company's Board of Directors, which numbers 8, has reviewed the terms
and conditions of the Merger Agreement. It has considered the recommendation of
the Special Committee, the opinion of Wertheim Schroder and other factors.
After consideration of each of these factors, your Company's Board of Directors
(with the Major Shareholder and Mr. Robert Garrett abstaining) has unanimously
determined that the terms of the Merger are fair to Public Shareholders, has
approved the Merger Agreement and now RECOMMENDS THAT PUBLIC SHAREHOLDERS VOTE
FOR APPROVAL OF THE MERGER AGREEMENT. The affirmative vote of holders of a
majority of the outstanding Company Stock entitled to vote at the Special
Meeting is required for the approval of the Merger Agreement, among other
things. In addition, the Merger Agreement itself conditions the obligations of
the Company and Newco under the Merger Agreement to an affirmative vote of at
least (1) the holders of a majority of shares of Company Stock outstanding on
the record date of such Special Meeting or (2) 66 2/3% of the votes cast by the
holders of shares of Company Stock voting at the meeting, whichever is greater.
The Major Shareholder, who owns directly or indirectly 48% of the outstanding
Company Common Stock has agreed to vote for the Merger. A condition to
consummation of the Merger is that Newco obtain third party financing on terms
satisfactory to the Company and Newco for the funds required to be paid pursuant
to the Merger.
Promptly after the Merger is consummated, a Letter of Transmittal with
instructions will be mailed to all shareholders of record to use in surrendering
their Company stock certificates. PLEASE DO NOT SEND YOUR CERTIFICATES UNTIL
YOU RECEIVE THE LETTER OF TRANSMITTAL.
A form of proxy solicited by the Company's Board of Directors is enclosed
for your convenience. Please mark, sign, date and return it promptly. If you
attend the Special Meeting, you may vote your shares personally whether or not
you have previously submitted a proxy; however, please complete, sign, date and
promptly return the enclosed proxy. All properly executed proxies received
prior to or at the Special Meeting, unless revoked, will be voted at the Special
Meeting in accordance with the instructions on the proxies. Your vote is
important regardless of the number of shares you own.
Sincerely yours,
Fred T. Pugliese
Secretary
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MICKELBERRY COMMUNICATIONS INCORPORATED
405 PARK AVENUE
NEW YORK, NEW YORK 10022
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON ____________, 1995
A Special Meeting of shareholders of Mickelberry Communications
Incorporated (the "Company") will be held at [_____________] on _____________,
1995, at 9:00 a.m., local time, for the following purposes:
1. To consider and vote upon approval of the Agreement and Plan of Merger
(the "Merger Agreement"), dated as of March 21, 1995, which provides for the
merger of Mickelberry Acquisition Corporation ("Newco"), a Delaware
corporation, into the Company. If the Merger Agreement is approved all shares
of the Company's Common Stock and all shares of the Company's Preferred Stock,
other than most of the shares of Company's Common Stock owned directly or
indirectly by Mr. James C. Marlas (who is a controlling shareholder, Chairman
of the Board, President and Chief Executive Officer of the Company), will be
converted into the right to receive $4.25 cash per share, and thereafter the
Company will be owned solely by Mr. Marlas.
2. To transact such other business as may properly come before the meeting
and any adjournment thereof.
The Board of Directors of the Company has fixed the close of business on
____________, 1995 as the record date for determining the shareholders entitled
to notice of and to vote at the Special Meeting and any adjournment thereof.
<PAGE>
PLEASE SIGN AND RETURN THE ENCLOSED PROXY CARD PROMPTLY TO ENSURE YOUR
REPRESENTATION AT THE MEETING, WHETHER OR NOT YOU PLAN TO ATTEND. YOUR PROXY
MAY BE REVOKED BY YOU AT ANY TIME BEFORE IT IS VOTED.
Fred T. Pugliese
Secretary
New York, New York
___________, 1995
YOUR VOTE IS IMPORTANT. PLEASE COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY PROMPTLY, WHETHER OR NOT
YOU INTEND TO BE PRESENT AT THE SPECIAL MEETING.
PLEASE DO NOT SEND IN ANY CERTIFICATES
FOR YOUR SHARES AT THIS TIME.
2
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_____________, 1995
MICKELBERRY COMMUNICATIONS INCORPORATED
405 PARK AVENUE
NEW YORK, NEW YORK 10022
(212) 832-0303
_______________
PROXY STATEMENT FOR SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON ______________ , 1995
_______________
INTRODUCTION
This Proxy Statement is being furnished to shareholders of Mickelberry
Communications Incorporated, a Delaware corporation (the "Company"), in
connection with the solicitation of proxies by the Board of Directors of the
Company (the "Board") for use at the Company's Special Meeting of Shareholders
to be held on ______, 1995 and at any adjournment or postponement thereof (the
"Special Meeting").
MATTERS TO BE CONSIDERED AT THE MEETING
At the Special Meeting, shareholders will be asked to consider and vote
upon the approval of the Agreement and Plan of Merger, dated as of March 21,
1995 (the "Merger Agreement") by and among the Company, Mickelberry Acquisition
Corporation, a Delaware corporation which is wholly owned by Mr. James C. Marlas
("Newco"), Mr. James C. Marlas (the "Major Shareholder") and Union Capital
Corporation, a Nevada corporation which is wholly owned by the Major Shareholder
("Union Capital"). The Merger Agreement provides, by means of a merger
("Merger") of Newco with and into the Company, for the acquisition by the
Company, for a consideration of $4.25 in cash per share to be paid by the
Company, without interest (the "Merger Consideration"), of each share of the
(i) Company's common stock (the "Company Common Stock") and (ii) the Company's
preferred stock (the "Company Preferred Stock", and together with the Company
Common Stock, the "Company Stock") outstanding at the effective time of the
Merger (the "Effective Time") other than shares of the Company Common Stock held
by the Major Shareholder and Union Capital (except for 59,400 shares of Company
Common Stock owned by the Major Shareholder in a Keogh Plan (the "Covered
Shares")). In the event that any of the conditions of the offer are altered or
waived, or the offer is terminated, the Company will issue a press release
describing such changes and stating the period of time during which consents and
proxies will be revocable. The Major Shareholder, who owns all of Newco's
outstanding capital stock, owns directly (or indirectly through Union Capital)
approximately 48% of the Company Common Stock and is the Chairman of the Board,
President and Chief Executive Officer of the Company. In connection with, and
only in
<PAGE>
connection with, the consummation of the Merger, each of the Major Shareholder
and Union Capital has agreed to cancel, simultaneously with the consummation of
the Merger, the shares of Company Common Stock owned by him or it, as the case
may be, and has waived its right to receive the Merger Consideration, except
with respect to the Covered Shares owned by the Major Shareholder in a Keogh
Plan. As a result of the Merger the Company will become wholly owned by the
Major Shareholder. A copy of the Merger Agreement is attached to this Proxy
Statement as Annex A. The surviving corporation in the merger will be the
Company (the "Surviving Corporation"). At the Effective Time of the Merger, each
share of Company Stock outstanding immediately prior to the Effective Time of
the Merger (other than shares of Common Stock held directly or indirectly by the
Major Shareholder, except for the Covered Shares) will be converted into the
right to receive the Merger Consideration in cash, without interest. See
"Special Factors" and "The Merger."
VOTING AT THE MEETING
The Board has fixed the close of business on _______, 1995 as the record
date (the "Record Date") for determination of holders of Company Stock entitled
to notice of, and to vote at, the Special Meeting. As of the Record Date, there
were (i) 5,877,948 shares of Company Common Stock outstanding and entitled to
vote and approximately 1,250 holders of record of Company Common Stock and (ii)
242,334 shares of Company Preferred Stock outstanding and entitled to vote and
approximately 125 holders of record of Company Preferred Stock. The presence,
in person or by properly executed proxy, of holders of a majority of the
outstanding shares of Company Stock is necessary to constitute a quorum at the
Special Meeting. Each shareholder is entitled to (a) one vote for each share of
Company Common Stock held by such shareholder and (b) 1/10 of a vote for each
share of Company Preferred Stock held by such shareholder.
Under Delaware law and the Company's Certificate of Incorporation, as
amended, and By-laws, the affirmative vote of holders of a majority of the
outstanding shares of Company Stock entitled to vote at the Special Meeting is
required to approve the Merger. In addition, the Merger Agreement itself
conditions the obligations of the Company and Newco under the Merger Agreement
to an affirmative vote of at least (1) the holders of a majority of the shares
of Company Stock outstanding on the record date of such Special Meeting or (2)
66 2/3% of the votes cast by the holders of the shares of Company Stock voting
at the meeting, whichever is greater. The Major Shareholder, who owns directly
or indirectly approximately 48% of the Company Common Stock, has already agreed
to vote his shares in favor of the Merger.
ii
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PROXIES
All shares of Company Stock represented at the Special Meeting by properly
executed proxies received prior to or at the Special Meeting, unless such
proxies previously have been revoked, will be voted at the Special Meeting in
accordance with the instructions on the proxies. If no such instructions are
indicated, proxies will be voted FOR the approval of the Merger Agreement,
unless the Board determines otherwise, due to its assessment of the best
interests of shareholders. The Board does not know of any other matters which
are to come before the Special Meeting. If any other matters are properly
presented at the Special Meeting for action, the persons named in the enclosed
form of proxy and acting thereunder will have the discretion to vote on such
matters in accordance with their best judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by filing with
the Secretary of the Company written notice of revocation bearing a later date
than the proxy, by duly executing and delivering to the Secretary of the
Company, at or prior to the Special Meeting, a subsequent proxy relating to the
same shares of Company Stock, or by attending the Special Meeting and voting in
person (although attendance at the Special Meeting will not, by itself,
constitute revocation of proxy). Any written notice revoking a proxy should be
sent to Mickelberry Communications Incorporated, 405 Park Avenue, New York, New
York 10022, Fred T. Pugliese.
Proxies are being solicited by and on behalf of the Board. The Company will
bear the cost of preparing and mailing the proxy material furnished to the
Company's shareholders in connection with the Special Meeting. Proxies will be
solicited by mail. Directors, officers and employees of the Company may also
solicit proxies by telephone, telegram or personal contact. Such persons will
receive no additional compensation for such services but may be reimbursed for
out-of-pocket expenses in connection with such solicitation. Copies of
solicitation materials will be furnished to fiduciaries, custodians and
brokerage houses for forwarding to beneficial owners of Company Stock held in
the names of such fiduciaries, custodians and brokerage houses. MacKenzie
Partners, Inc. has been engaged to solicit proxies on behalf of the Company for
a fee of $4,000 plus reasonable out-of-pocket expenses.
iii
<PAGE>
All information contained in this Proxy Statement concerning Newco, the
Major Shareholder, Union Capital, and the plans for Newco and the Company after
the Merger, has been supplied by Newco. All other information contained in this
Proxy Statement has been supplied by the Company.
THE BOARD, BASED ON THE REPORT OF A SPECIAL COMMITTEE OF INDEPENDENT
DIRECTORS THAT THE MERGER CONSIDERATION WAS FAIR TO THE HOLDERS OF THE COMPANY
COMMON STOCK (OTHER THAN THE MAJOR SHAREHOLDER) AND THE OPINION OF WERTHEIM
SCHRODER & CO. INCORPORATED ("WERTHEIM SCHRODER") THAT THE MERGER CONSIDERATION
WAS FAIR, FROM A FINANCIAL POINT OF VIEW, TO THE HOLDERS OF THE COMPANY STOCK
(OTHER THAN THE MAJOR SHAREHOLDER), HAS DETERMINED THAT THE ACQUISITION OF THE
COMPANY STOCK PURSUANT TO THE MERGER AGREEMENT IS FAIR AND IN THE BEST INTERESTS
OF THE COMPANY AND ITS SHAREHOLDERS. THE BOARD HAS APPROVED THE MERGER AGREEMENT
AND RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
The date of this Proxy Statement, and the approximate date it will first be
mailed to shareholders, is _______, 1995.
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.
No person is authorized to give any information or make any representation not
contained in this Proxy Statement, and, if given or made, such information or
representation should not be relied upon as having been authorized. The
delivery of this Proxy Statement shall not, under any circumstances, create any
implication that there has been no change in the information set forth herein or
in the affairs of the Company or Newco since the date hereof.
ADDITIONAL INFORMATION
Pursuant to the requirements of Section 13(e) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and Rule 13e-3 promulgated
thereunder, the Company, as issuer of the Common Stock, $1.00 par value per
share, which is the subject of the Rule 13e-3 transaction, together with Newco,
Union Capital and the Major Shareholder has filed with the Securities and
Exchange Commission (the "Commission") a Transaction Statement on Schedule 13E-3
(the "Schedule 13E-3") relating to the transactions contemplated by the Merger
Agreement. As permitted by the rules and regulations of the Commission, this
Proxy Statement omits certain information, exhibits and
iv
<PAGE>
undertakings contained in Schedule 13E-3. Such additional information can be
inspected at and obtained from the Commission and the New York Stock Exchange
(the "NYSE") in the manner set forth below under "Available Information."
Statements contained herein concerning any documents are not necessarily
complete and, in each instance, reference is made to the copy of such document
filed as an exhibit to the Schedule 13E-3. Each such statement is qualified in
its entirety by such reference.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith is required to file periodic reports, proxy
statements and other information with the Commission relating to its business,
financial statements and other matters. Such reports, proxy statements and
other information, as well as the aforementioned Schedule 13E-3, may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington D.C. 20549, and at
the Regional Offices of the Commission located at Room 3190 Kuczynsky Federal
Building, 230 South Dearborn Street, Chicago, Illinois 60604, and Seven World
Trade Center, New York, New York 10048. Copies of such material can also be
obtained from the Commission at prescribed rates by addressing written requests
for such copies to the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549.
THIS PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE WITHOUT
CHARGE UPON REQUEST FROM THE CORPORATE SECRETARY'S OFFICE, MICKELBERRY
COMMUNICATIONS INCORPORATED, 405 PARK AVENUE, NEW YORK, NEW YORK 10022;
TELEPHONE NUMBER (212) 832-0303. IN ORDER TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS, ANY REQUEST SHOULD BE MADE NO LATER THAN _____, 1995.
INFORMATION INCORPORATED BY REFERENCE
The following documents are incorporated by reference herein:
The Company's Annual Report on Form 10-K for the year ended December
31, 1994.
The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1995.
v
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All other documents filed by the Company pursuant to Section 13(a) or 15(d) of
the Exchange Act after the date of this Proxy Statement, and prior to the date
of the Special Meeting, shall be deemed to be incorporated by reference herein.
Any statement contained in a document filed with the Commission prior to
the date hereof and incorporated by reference herein shall be deemed to be
modified or superseded for purposes hereof to the extent that a statement
contained herein (or in any other subsequently filed document which also is
incorporated by reference herein) modifies or supersedes such statement. The
modifying or superseding statement may, but need not, state that it has modified
or superseded a prior statement or include any other information set forth in
the document that is not so modified or superseded. The making of a modifying
or superseding statement shall not be deemed an admission that the modified or
superseded statement, when made, constituted an untrue statement of a material
fact, an omission to state a material fact necessary to make a statement not
misleading, or the employment of a manipulative, deceptive or fraudulent device,
contrivance, scheme, transaction, act, practice, course of business or artifice
to defraud, as those terms are used in the Securities Act of 1933, as amended
(the "Securities Act"), the Exchange Act or the rules and regulations
thereunder. Any statement so modified shall not be deemed in its unmodified
form to constitute a part hereof for purposes of the Exchange Act. Any
statement so superseded shall not be deemed to constitute a part hereof for
purposes of the Exchange Act.
vi
<PAGE>
INDEX OF DEFINED TERMS
Advertising and Promotion Businesses.....................................27
Appraisal Stockholders...................................................40
Argosy....................................................................6
Board.....................................................................i
Client....................................................................6
Commission...............................................................iv
Company Stock.............................................................i
Company Preferred Stock...................................................i
Company...................................................................i
Company Common Stock......................................................i
Convertible Debentures....................................................6
Covered Shares............................................................i
Delaware Court...........................................................39
Dissenting Shares........................................................41
Dissenting Stockholders..................................................41
EBIT.....................................................................26
EBITDA...................................................................26
Effective Time............................................................i
Engagement Letter........................................................32
Equity Value.............................................................26
Excel....................................................................28
Exchange Agent............................................................7
Exchange Act.............................................................iv
Five Year Projections....................................................17
Hart-Scott-Rodino Act....................................................47
Indemnification Letter...................................................32
Letter Agreement..........................................................6
LTM......................................................................26
Major Shareholder.........................................................i
Merger....................................................................i
Merger Agreement..........................................................i
Merger Consideration......................................................i
NASD.....................................................................12
Newco.....................................................................i
NYSE......................................................................v
120-Day Period...........................................................41
Original Proposal........................................................15
Petition.................................................................41
Printing Businesses......................................................27
Printing Segment or Segment..............................................55
Proposal.................................................................18
Public Shareholders.......................................................1
Public Common Shareholders................................................2
Record Date..............................................................ii
Schedule 13E-3...........................................................iv
Securities Act...........................................................vi
SFAS 115.................................................................63
Shares...................................................................39
Special Committee.........................................................2
Special Meeting...........................................................i
Stock Options.............................................................5
Surviving Corporation....................................................ii
Union Capital.............................................................i
Wertheim Schroder Presentation...........................................20
Wertheim Schroder........................................................iv
vii
<PAGE>
TABLE OF CONTENTS
Introduction..............................................................i
Additional Information...................................................iv
Available Information.....................................................v
Information Incorporated by Reference.....................................v
Index of Defined Terms..................................................vii
Summary...................................................................1
Special Factors
Background of the Merger...............................................15
Proceedings and Recommendation of the Special Committee and
the Board, Fairness of the Transaction.................................16
Opinion of Financial Advisor...........................................23
Projected Operating and Financial Results of the Company...............33
Reports and Appraisals.................................................34
Structure and Purpose of the Merger....................................34
Certain Effects of the Merger..........................................35
Interests of Certain Persons in the Merger; Conflicts of Interest......36
Certain Federal Income Tax Consequences of the Merger..................37
Appraisal Rights.......................................................39
Financing of the Merger................................................43
Expenses of the Merger.................................................44
Certain Litigation.....................................................44
The Merger
General................................................................45
Required Vote..........................................................45
Effective Time.........................................................46
Payment for Shares.....................................................46
Conditions to the Merger, Waiver.......................................47
Certain Covenants of the Company and Newco.............................48
Termination, Amendments................................................50
Certain Information Regarding Newco, Union Capital and the
Major Shareholder........................................................50
Description of Company Capital Stock.....................................51
Recent Market Prices; Dividend History...................................52
Business of the Company
Overview...............................................................55
Printing...............................................................55
Advertising and Promotion..............................................56
General................................................................59
Selected Consolidated Financial Data.....................................59
Management's Discussion and Analysis of Results of Operations
and Financial Condition..................................................61
Beneficial Ownership of Shares of the Company............................68
Certain Transactions in Company Stock....................................71
Proxy Solicitation.......................................................71
Current Information: Delisting and Deregistration.......................72
Independent Auditors.....................................................72
Future Shareholder Proposals.............................................73
Other Business...........................................................73
Financial Statements....................................................F-1
ANNEX A: Agreement and Plan of Merger..................................A-1
ANNEX B: Opinion of Wertheim Schroder..................................B-1
ANNEX C: Section 262 of the Delaware General Corporation Law...........C-1
ANNEX D: Letter Agreement dated November 23, 1994 by and among
the Major Shareholder, The Argosy Group L.P. and The
Argosy Securities Group L.P.........................................D-1
viii
<PAGE>
SUMMARY
The following is a summary of certain information contained in this Proxy
Statement. This summary is not intended to be a complete statement of all
material features of the Merger and is qualified in its entirety by reference to
the more detailed information appearing elsewhere in this Proxy Statement.
Terms used but not defined in this summary have the meanings ascribed to them
elsewhere in this Proxy Statement, and an index to defined terms is located at
page vii (see Index to Defined Terms). Shareholders are urged to read this Proxy
Statement and the Annexes hereto in their entirety.
THE SPECIAL MEETING
A Special Meeting of Shareholders of the Company will be held on ____ day,
___________, 1995 at 9:00 a.m., local time, at ____________________, to consider
and vote upon a proposal recommended by the Board to approve the Merger
Agreement, by and among the Company, Newco, the Major Shareholder and Union
Capital which provides for the merger of Newco with and into the Company. A
copy of the Merger Agreement is attached hereto as Annex A. See "Introduction."
THE MERGER
The Merger Agreement provides that, subject to the approval of the Merger
Agreement by the shareholders of the Company and satisfaction of certain other
conditions, Newco will be merged with and into the Company, and the Company will
be the Surviving Corporation and will become wholly owned by the Major
Shareholder. The Major Shareholder, who owns all of Newco's outstanding capital
stock, owns directly or indirectly approximately 48% of the Company's Common
Stock and is the Chairman of the Board, President and Chief Executive Officer of
the Company. Pursuant to the Merger Agreement, at the Effective Time of the
Merger, each share of the Company's Stock outstanding, other than shares held
directly or indirectly by the Major Shareholder (except Covered Shares), will be
automatically converted into the right to receive the Merger Consideration. The
holders of such shares are referred to throughout this Proxy Statement as the
"Public Shareholders." In connection with, and only in connection with, the
consummation of the Merger, each of the Major Shareholder and Union Capital has
agreed to cancel, simultaneously with the consummation of the Merger, the shares
of Company Common Stock owned by him or it, as the case may be, and has waived
its right to receive the Merger Consideration, except with respect to the
Covered Shares. After consummation of the Merger, the entire equity interest in
the Company will be beneficially owned by the Major Shareholder. See "Special
Factors -- Interests of Certain Persons in the Merger; Conflicts of Interest"
and "Special Factors -- Certain Effects of the Merger."
<PAGE>
REQUIRED VOTE
Under Delaware law, the Company's Certificate of Incorporation, as amended,
and By-laws, the affirmative vote of the holders of a majority of the shares of
Company Stock voting at the Special Meeting is required for approval of the
Merger Agreement. In addition, the Merger Agreement itself conditions the
obligations of the Company and Newco under the Merger Agreement to an
affirmative vote of at least (1) the holders of a majority of shares of Company
Stock outstanding on the record date of such Special Meeting or (2) 66 2/3% of
the votes cast by the holders of shares of Company Stock voting at the meeting,
whichever is greater. The Major Shareholder, who owns directly or indirectly
approximately 48% of the outstanding Company Common Stock has agreed to vote for
the Merger. The approval of the Merger by at least a majority of unaffiliated
security holders is not required by the Merger Agreement.
THE EFFECTIVE TIME
The Merger will become effective by filing a Certificate of Merger,
consistent with the Merger Agreement, with the Secretary of State of Delaware.
The Merger will be consummated only upon satisfaction or waiver, where
permissible, of the terms and conditions contained in the Merger Agreement and
provided that the Merger Agreement has not been terminated. If the Merger has
not been consummated by September 30, 1995, either the Company or Newco may
terminate the Merger Agreement so long as the reason that the Merger has not
been consummated is not due to the failure of the party choosing to terminate to
fulfill any of its obligations thereunder. No such waiver or termination will
require the vote or consent of the holders of Company Stock.
BACKGROUND OF THE MERGER
For a description of the events leading up to the approval of the Merger
Agreement, see "Special Factors -- Background of the Merger."
RECOMMENDATION OF THE SPECIAL COMMITTEE AND THE BOARD, FAIRNESS OF THE
TRANSACTION
At a meeting held on March 21, 1995, the Board received a report from the
special committee of independent directors of the Company (the "Special
Committee") that it was of the unanimous opinion that the Merger is advisable
and fair to the holders of the Company Common Stock, other than the shares held
directly or indirectly by the Major Shareholder, except the Covered Shares (the
"Public Common Shareholders") and to
2
<PAGE>
recommend that the Board approve the Merger and the Merger Agreement. The entire
Board considered the Special Committee's recommendation and based on the
independence of the Special Committee, the independence of Wertheim Schroder as
financial advisor to the Special Committee, the fairness opinion of Wertheim
Schroder and the recommendation of the Special Committee the Board adopted the
conclusion and analyses of Wertheim Schroder as its own and unanimously (with
Mr. Marlas and Mr. Garrett (who is Mr. Marlas' brother-in-law) abstaining)
concluded that the Merger is fair to and in the best interests of the Public
Shareholders, approved and adopted the Merger Agreement subject to the Board's
receipt of Wertheim Schroder's written opinion that the consideration payable to
the holders of the Company Preferred Stock is fair to such holders, from a
financial point of view and directed that a proposal to approve and adopt the
Merger and the Merger Agreement be submitted to a vote of the Company's
shareholders. Wertheim Schroder undertook an analysis of the fairness of the
Merger Consideration to holders of the Company Preferred Stock and reexecuted
and delivered its written opinion of March 21, 1995 that the Merger
Consideration was fair to the Public Shareholders from a financial point of
view. For a discussion of the factors considered by the Board and the Special
Committee in reaching their determination, see "Special Factors -- Proceedings
and Recommendation of the Special Committee and the Board, Fairness of the
Transaction."
THE BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND UNANIMOUSLY
RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
CERTAIN MEMBERS OF THE BOARD HAVE CERTAIN INTERESTS WHICH MAY PRESENT
THEM WITH CONFLICTS OF INTEREST IN CONNECTION WITH THE MERGER.
See "Special Factors -- Interests of Certain Persons in the Merger;
Conflicts of Interest."
OPINION OF FINANCIAL ADVISOR
Wertheim Schroder has given its opinion that the $4.25 cash per share
consideration to be received by the Public Shareholders is fair from a financial
point of view, based upon the various considerations set forth in its opinion.
For further information regarding the opinion of, and the fees paid or
payable by the Company to, Wertheim Schroder, see "Special Factors -- Opinion of
Financial Advisor" and the full text of the Wertheim Schroder opinion, a copy of
which is attached to this Proxy Statement as Annex B, which should be read in
its entirety.
PURPOSE AND REASONS FOR THE MERGER
The Company entered into the Merger Agreement because, based upon the
recommendation of the Special Committee, the Board concluded that the terms of
the Merger are fair to and in the best interests of the Public Shareholders.
See "Special Factors
3
<PAGE>
- -- Proceedings and Recommendation of the Special Committee and the Board,
Fairness of the Transaction."
The Major Shareholder, by engaging in the transaction contemplated by the
Merger Agreement, will acquire the entire equity interest in the Company, and,
as a result of the Merger, the Company will become wholly-owned by the Major
Shareholder. The Major Shareholder has been concerned that the performance of
the Company Common Stock in the market has been negatively impacted by the
Company's small size and resulting relative lack of attention provided to the
stock by professional investment advisors and money managers, the diversity and
nature of its various business units, and the Company's traditional focus on a
strong balance sheet as opposed to consistent quarterly earnings. The Major
Shareholder believes that by being private the Company would be aided by the
flexibility inherent in a closely held corporation to implement a long-term
business strategy, without concentrating on short-term performance. The purpose
of the Merger is to provide the Public Shareholders the opportunity to receive a
fair consideration for their shares in excess of the market price of the stock
preceding the announcement of the Merger, while at the same time providing the
Major Shareholder what he views both as an attractive investment opportunity and
as an opportunity to manage the Company with the flexibility inherent in a
closely-held enterprise. See "Special Factors -- Background of the Merger."
The structure of the acquisition as a merger was determined by Newco. The
Merger has been structured as a merger of Newco and the Company in order to
effectuate the acquisition of all the outstanding shares of the Company Stock
other than shares owned directly or indirectly by the Major Shareholder (except
for Covered Shares), thereby transferring the entire beneficial equity interest
in the Company to the Major Shareholder. The Merger has been structured as a
merger of Newco into the Company, with the Company as the Surviving Corporation,
in order to preserve the Company's corporate entity and existing contractual
arrangements with third parties. See "Special Factors -- Structure and Purpose
of the Merger."
INTERESTS OF CERTAIN PERSONS IN THE MERGER; CONFLICTS OF INTEREST
In considering the recommendation of the Board with respect to the Merger,
shareholders should be aware that certain members of the Company's management
and the Board have certain interests summarized below which present them with
conflicts of interest in connection with the Merger Agreement. The Special
Committee was aware of these conflicts and considered them among the other
matters described under "Special Factors -- Background
4
<PAGE>
of the Merger" and "--Proceedings and Recommendation of the Special Committee
and the Board, Fairness of the Transaction." See "Special Factors--Interests of
Certain Persons in the Merger, Conflicts of Interest."
Ownership of the Company after the Merger. After the Merger, the Major
Shareholder will beneficially own all of the Company's outstanding capital
stock. See "Certain Information Regarding Newco and the Major Shareholder."
Directors of the Company after the Merger. The Merger Agreement provides
that after the Merger, the current directors of the Company (Mr. Robert Garrett,
Mr. John C. Mickle, Mr. Bernard S. White, Mr. George Kane, Mr. James C. Marlas,
Mr. Mel Gordon, Mr. C. Gordon Murphy and Mr. Frank Stillo) will remain in such
capacities with the Surviving Corporation until successors are duly elected or
appointed in accordance with applicable law.
Employment of Company's Employees. Newco has indicated that, subsequent to
the Merger, the current officers and employees of the Company will remain in
such capacities with the Surviving Corporation. However, no new employment
agreements are currently contemplated.
Cash Payments to be Received in Merger. Various members of management and
the Board will receive cash payments in the Merger for cancellation of all
outstanding and exercisable options other than options held by the Major
Shareholder (the "Stock Options"). Such payments will be equal to the difference
between the Merger Consideration and the per share exercise price of each Stock
Option. The table below summarizes the total amount each director and executive
officer of the Company will receive upon cancellation of the Stock Options.
Name Amount
---- ------
Robert Garrett $9,375
John C. Mickle 9,375
Bernard S. White 9,375
George Kane 35,937
James C. Marlas 0
Mel Gordon 9,375
C. Gordon Murphy 9,375
Frank Stillo 20,000
Gregory J. Garville 28,125
Fred T. Pugliese 8,062
Indemnification of Directors and Officers. The Merger Agreement provides
that the Company as the Surviving Corporation (i) for three years after the
Effective Time shall not change the provisions of its certificate of
incorporation relating to indemnification of present or former directors or
officers of the Company in a manner which adversely affects their rights to
indemnification, and (ii) for three years after the Effective Time will use its
best efforts to maintain specified officers' and directors' liability insurance
indemnifying them, or if the specified insurance is unavailable for the current
premium, the Surviving Corporation shall obtain as much insurance as can be
obtained for 125% of the current premium. In addition, pursuant to an agreement
entered into with the Company, the members of the Special Committee are
indemnified with respect to their activities as members of the Special
Committee.
Under the Company's existing Certificate of Incorporation, By-laws and
certain indemnification arrangements and under currently effective officers' and
directors' liability insurance, the Company's officers and directors may have
certain rights to indemnification with respect to litigation relating to the
Merger. See "Special Factors -- Proceedings and
5
<PAGE>
Recommendation of the Special Committee and the Board, Fairness of the
Transaction," and "The Merger --Certain Covenants of the Company and Newco."
FINANCING OF THE MERGER
Approximately $22,876,000 will be required in order to pay (i) the holders
of all outstanding shares of Company Stock, other than shares of Company Common
Stock held directly or indirectly by the Major Shareholder (except for Covered
Shares), for their shares, (ii) the value of the Stock Options, (iii) the
repayment and/or cancellation of the Company's 8% Convertible Debentures due
2002 ("Convertible Debentures") other than those held directly or indirectly by
the Major Shareholder, and (iv) the expenses in connection with the Merger. See
"Special Factors -- Financing of the Merger." A condition to consummation of
the Merger is that Newco obtain third party financing on terms satisfactory to
the Company and Newco for the funds required to be paid pursuant to the Merger.
EXPENSES OF THE MERGER
Whether or not the Merger is consummated, the Company has agreed to (i)
assume all of the obligations of the Major Shareholder and any entity formed by
him for purposes of completing the Merger, including Newco (collectively, the
"Client") under that certain Letter Agreement dated November 23, 1994 (the
"Letter Agreement"), by and among the Client, The Argosy Group L.P. and The
Argosy Securities Group L.P. (collectively "Argosy"), including without
limitation, indemnities, contribution, compensation and expense reimbursements
all in accordance with Section 15 of such Letter Agreement, and (ii) pay all
reasonable attorneys' fees, expenses and disbursements incurred in connection
with the transactions contemplated by the Merger Agreement. A copy of the Letter
Agreement is attached to this Proxy Statement as Annex D. Notwithstanding the
foregoing, the Company shall not assume any obligation or pay any fees and
expenses if the Merger Agreement is terminated because of a material breach of
the Merger Agreement by Newco, Union Capital or the Major Shareholder.
CONDITIONS TO THE MERGER
The obligations of the parties to consummate the Merger are subject to the
approval of the Merger Agreement by the shareholders of the Company, and
compliance with certain other covenants and conditions. See "The Merger --
Conditions to the Merger, Waiver" and "-- Certain Covenants of the Company and
Newco."
6
<PAGE>
EXCHANGE OF CERTIFICATES
As soon as practicable following the Effective Time, a letter of
transmittal and instructions for use in surrendering certificates for Company
Stock in exchange for the consideration to be received in the Merger will be
mailed to all shareholders. Shareholders must return the completed letters of
transmittal and their certificates in accordance with the instructions in order
to exchange their certificates for the Merger Consideration to be received by
such shareholder.
At or promptly after the Effective Time, cash in an amount sufficient to
pay all shareholders the amounts to which they will become entitled as a result
of the Merger will be deposited with Continental Stock Transfer and Trust
Company (the "Exchange Agent"). As soon as practicable after the Merger, the
Exchange Agent will commence distributing cash to each shareholder (other than
the Major Shareholder, except for Covered Shares, and Union Capital) upon the
surrender by such shareholder of stock certificates for Company Stock
accompanied by a duly executed letter of transmittal. After the Merger, each
outstanding certificate which prior thereto represented issued and outstanding
shares of Company Stock shall be deemed for all purposes to represent only the
right of the holder to receive $4.25 in cash, without interest, per share of
Company Stock (other than shares of Company Common Stock held directly or
indirectly by the Major Shareholder, except for Covered Shares).
HOLDERS OF COMPANY STOCK SHOULD NOT FORWARD THEIR STOCK CERTIFICATES WITH
THE ENCLOSED PROXY CARD. TRANSMITTAL MATERIALS AND INSTRUCTIONS RELATING TO
STOCK CERTIFICATES WILL BE MAILED TO SHAREHOLDERS AS SOON AS PRACTICABLE AFTER
THE EFFECTIVE TIME OF THE MERGER. SEE "THE MERGER."
FEDERAL INCOME TAX CONSEQUENCES
Generally, if the Merger is consummated, each shareholder of record at the
Effective Time other than the Major Shareholder (except for Covered Shares) and
Union Capital will be entitled to receive cash for their shares and will
recognize taxable gain or loss for federal income tax purposes equal to the
difference, if any, between the amount of such cash received and the tax basis
of the stock surrendered. Each shareholder should consult such shareholder's
tax adviser as to the particular consequences of the Merger to such shareholder,
including the application of state, local and foreign tax laws. See "Special
Factors -- Certain Federal Income Tax Consequences of the Merger."
7
<PAGE>
CERTAIN LITIGATION
On November 8, 1994, a class action complaint was filed in the Court of
Chancery of the State of Delaware in and for New Castle County. The complaint
was filed by Frank De Marco on his own behalf and on behalf of all security
holders of the Company except the defendants. Complaint was filed against the
Company and the Major Shareholder, George Kane, Robert Sperling, Mel Gordon and
Frank Stillo, officers and/or directors of the Company. The lawsuit seeks to
enjoin the consummation of the original offer made by the Major Shareholder to
acquire, through a merger transaction, all of the shares of the Company's Common
Stock not owned directly or indirectly by the Major Shareholder for a cash
purchase price of $3.25 per share. The suit also seeks, in the alternative,
rescission and damages as well as reimbursement of costs and disbursements in
unspecified amounts.
On March 23, 1995, the parties to the lawsuit executed a Memorandum of
Understanding which sets forth their agreement in principle providing for the
settlement of the lawsuit. Consummation of the settlement is subject to certain
conditions, including approval by the Court.
BUSINESS OF THE COMPANY
The Company is a holding company, incorporated in Delaware in 1926, with
marketing services businesses consisting of advertising agencies, sales
promotion businesses, and commercial printers. Each subsidiary operates
autonomously, drawing on the parent company for strategic and financial support.
Strong emphasis is placed on individual initiative and enterprise. The Company
conducts an active acquisition and corporate development program. See "Business
of Company." The Company is incorporated in Delaware and its principal
executive offices are located at 405 Park Avenue, New York, New York 10022;
telephone number (212) 832-0303.
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected historical financial information
for the Company and its subsidiaries for each of the five years in the period
ended December 31, 1994. The following information should be read in
conjunction with "Management's Discussion and Analysis of Results of Operations
and Financial Condition" and the Consolidated Financial Statements and related
Notes included elsewhere in this Proxy Statement.
8
<PAGE>
<TABLE>
<CAPTION>
MICKELBERRY COMMUNICATIONS INCORPORATED
SELECTED FINANCIAL DATA
In Thousands Three Months Ended As of and for the Fiscal Years Ended December 31,
March 31, ---------------------------------------------------------------
(except per share) 1995 1994 1994 1993 1992 1991 1990
-------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues
Tangible products $ 25,720 $23,064 $106,637 $100,095 $ 81,273 $ 68,291 $ 64,719
Services 5,465 4,497 20,986 18,849 27,971 37,301 35,814
-------- ------- -------- -------- -------- -------- --------
$ 31,185 $27,561 $127,623 $118,944 $109,244 $105,592 $100,533
======== ======= ======== ======== ======== ======== ========
Income
Tangible products 1,248 488 $ 1,739 $ 3,891 $ 3,822 $ 2,703 $ 3,221
Services 273 (62) 1,748 684 1,065 2,491 1,155
-------- ------- -------- -------- -------- -------- --------
1,521 426 3,487 4,575 4,887 5,194 4,376
Unallocated amounts (463) (426) (1,582) (2,148) 2,779 (1,285) (3,546)
Interest expense (483) (492) (1,990) (2,172) (2,083) (2,235) (2,629)
-------- ------- -------- -------- -------- -------- --------
Income (loss)
before taxes 575 (492) (85) 255 5,583 1,674 (1,799)
Income taxes
(benefits) 230 (197) (34) 101 2,233 670 (2,447)
-------- ------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary item
and cumulative
effect of change
in accounting 345 (295) (51) 154 3,350 1,004 648
Extraordinary item - - - (1,134) - -
Cumulative effect
of change in
accounting - - - 200 - - -
-------- ------- -------- -------- -------- -------- --------
Net income (loss) $ 345 $ 295 $ (51) $ 354 $ 2,216 $ 1,004 $ 648
======== ======= ======== ======== ======== ======== ========
Income (loss)
per share
Primary
Income (loss) before
extraordinary item
and cumulative
effect of change
in accounting $ .06 $ (.05) $ (.02) $ .02 $ .55 $ .16 $ .10
Extraordinary item - - - - (.19) - -
Cumulative effect
of change in
accounting - - - .03 - - -
-------- ------- -------- -------- -------- -------- --------
Net income (loss) $ .06 $ (.05) $ (.02) $ .05 $ .36 $ .16 $ .10
======== ======= ======== ======== ======== ======== ========
Fully diluted
Income (loss) before
extraordinary item
and cumulative
effect of change
in accounting $ .05 $ (.05) $ (.02) $ .02 $ .49 $ .16 $ .10
Extraordinary item - - - - (.16) - -
Cumulative effect
of change in
accounting - - - .03 - - -
-------- ------- -------- -------- -------- -------- --------
Net income (loss) $ .05 $ (.05) $ (.02) $ .05 $ .33 $ .16 $ .10
======== ======= ======== ======== ======== ======== ========
Cash dividends per
common share $ .015 $ .015 $ .06 $ .06 $ .06 $ .06 $ .06
======== ======= ======== ======== ======== ======== ========
Cash dividends per
preferred share $ .075 $ .075 $ .30 $ .30 $ .30 $ .30 $ .30
======== ======= ======== ======== ======== ======== ========
Total assets $104,693 $97,995 $100,456 $ 97,242 $ 88,631 $ 85,378 $ 79,528
======== ======= ======== ======== ======== ======== ========
Long term
obligations $ 20,113 $21,276 $ 20,703 $ 21,528 $ 22,511 $ 17,325 $ 14,736
======== ======= ======== ======== ======== ======== ========
Total Equity $ 35,056 $35,081 $ 34,773 $ 35,499 $ 35,605 $ 33,803 $ 33,214
======== ======= ======== ======== ======== ======== ========
Ratio of earnings
to fixed charges/(1)/ 219.05% 0% 96.17% 117.11%
Book value
per share $ 5.32 $ 5.33 $ 5.28 $ 5.36 $ 5.38 $ 5.53 $ 5.44
</TABLE>
(1) For purposes of computing the ratio of earnings to fixed charges, earnings
coverage represents the sum of income from continuing operations before
income taxes plus fixed charges. Fixed charges represent interest paid or
accrued on indebtedness of the Company.
9
<PAGE>
During 1994 the Company recorded a $2.5 million charge to reduce certain
inventory of the Excel Marketing Group to net realizable values. Also in 1994,
a $1.0 million charge (of which the Company's share is $500,000) was recorded to
adjust the inventory and allowance for returns of Excel Plus, Ltd. a company in
which the Excel Group owns 50%. (See Note 2 of the Notes to Consolidated
Financial Statements.)
In 1993, the Company acquired the Excel Group of companies. (See Note 2.)
During 1992, the Company sold Caribiner, Inc. (See Note 3.) Operating results
for these businesses are included only for the periods during which the Company
owned them. Effective January 1, 1993, the Company changed its method of
accounting for income taxes and recorded a $200,000 effect on income.
(See Note 1.)
Included in unallocated amounts are: for 1993, loss on an investment; for
1992, gain on sale of a business; and for 1991 adjustment to an investment.
(See Notes 3 and 5.) In 1990, the Company recorded a $2.8 million loss on an
investment which is included in unallocated amounts. Income for 1990 also
includes a $2 million adjustment to tax liabilities.
In 1992, as a result of retiring an issue of subordinated debentures, the
Company recorded an extraordinary loss of $1,134,000. (See Note 4.)
10
<PAGE>
Total equity reflects asset values at historic cost or amortized
historic cost where appropriate (e.g. for property, plant and equipment)
(see Consolidated Balance Sheets and accompanying notes in the financial
statements included elsewhere in this proxy statement). Book values per
share are calculated based on total equity adjusted to include the conversion
of the Convertible Debentures divided by the sum of outstanding Company Stock
and the Company Common Stock deemed to have been issued upon conversion
of the Convertible Debentures. Total equity and book value per share would
change if the fair values of the Company's property, plant and equipment were
different from amortized historic cost and such fair values were substituted
for amortized historic cost in the Company's balance sheets. The Company did
not have its property, plant and equipment appraised to determine what change,
if any, in total equity and book value per share might result from such
substitution of values. Nevertheless, the Company's management does not believe
that the fair values of the Company's property, plant and equipment would differ
materially from amortized historic cost. The reasons for management's belief
are described below.
The Company's property, plant and equipment at March 31, 1995 and
December 31, 1994 are summarized as follows:
<TABLE>
<CAPTION>
In thousands
<S> <C> <C>
March 31, 1995 December 31, 1994
-------------- -----------------
Leasehold improvements $ 3,749 $ 3,497
Machinery and equipment 42,736 42,337
-------- --------
Total historic cost 46,485 45,834
Less accumulated depreciation
and amortization (20,349) (19,154)
-------- --------
Amortized historic cost $ 26,136 $ 26,680
-------- --------
</TABLE>
The balances of machinery and equipment at historic cost can
be identified as printing and non-printing as follows:
<TABLE>
<CAPTION>
In thousands
<S> <C> <C>
March 31, 1995 December 31, 1994
-------------- -----------------
Printing $ 37,710 $ 37,501
Non-printing 5,026 4,836
------- -------
$42,736 $42,337
------- -------
------- -------
</TABLE>
As disclosed above, the Company's property, plant and
equipment consists of leasehold improvements, printing equipment
and equipment for non-printing businesses. The Company does not own
any real property.
The Company's management has determined in its reasonable
judgment that, as a general rule, the fair value of leasehold
improvements and non-printing equipment would not exceed amortized
historic cost. Leasehold improvements are attached to the leased
property and cannot be sold separate and apart from the leased
property. In most instances any value of the improvements becomes
the property of the landlord.
Non-printing equipment consists of furniture and office
equipment including computer and other electronic data processing
and communication devices. Although valuable to the ongoing
businesses, these assets have limited demand on the resale market.
The Company's printing machinery and equipment is of high
quality and well maintained. However, the market for used printing
equipment has been and remains soft. The printing industry is
experiencing a consolidation which has resulted in a surplus of
equipment available for sale. Accordingly, the Company's management
does not believe that the fair value of the Company's printing
machinery and equipment would exceed amortized cost.
11
<PAGE>
RECENT MARKET PRICES
The Company Common Stock is traded principally on the NYSE. The following
table sets forth, for the fiscal periods indicated, the high and low sales
prices per share of Company Common Stock on the NYSE:
High Low
----- -----
1993:
First Quarter............. 3/4 3
Second Quarter............ 3 1/2 2
Third Quarter............. 3 1/4 2 1/4
Fourth Quarter............ 2 7/8 2 3/8
1994:
First Quarter............. 3 3/8 2 3/8
Second Quarter............ 3 2 3/8
Third Quarter............. 2 5/8 2 1/4
Fourth Quarter............ 3 1/2 2 3/8
1995:
First Quarter............. 4 2 3/4
Second Quarter (to date).. 3 7/8 3 5/8
On October 31, 1994, the last trading day prior to the public
announcement of the Major Shareholder's proposal to purchase Company Common
Stock held by Public Common Shareholders for $3.25 per share, the closing sales
price for the Company Common Stock was $2.875. On March 20, 1995, the last
trading day prior to the public announcement of (i) the approval by the Board of
the Merger Agreement and (ii) the increase by the Major Shareholder of the
offered price to $4.25 per share, the closing sales price for the Company Common
Stock was $3.00. On March 28, 1995, the last trading day prior to the public
announcement of the signing of the Merger Agreement, the closing sales price for
the Company Common Stock was $3.875. Shareholders are advised to obtain current
market quotations for the Company Common Stock.
The Company Preferred Stock trades, on a limited and sporadic basis in the
over-the-counter market. The Company contacted the National Association of
Securities Dealers ("NASD") regarding trading in the Company Preferred Stock.
The Company was unable to obtain any information concerning trading in the
Company Preferred Stock for fiscal year 1993 but was provided with the following
information, for the fiscal periods indicated:
<TABLE>
<CAPTION>
High Bid Low Bid
-------- -------
<S> <C> <C>
1994:
First Quarter............. - -
Second Quarter............ 3 -
Third Quarter............. 3 2 3/4
Fourth Quarter............ 3 2 3/4
1995:
First Quarter............. 3 2 3/4
Second Quarter (to date).. - -
</TABLE>
On March 27, 1995, the last trading day prior to the public
announcement of the signing of the Merger Agreement for which a bid price
was reported, the Company Preferred Stock was quoted at a bid of $3.00.
12
<PAGE>
DIVIDENDS DURING PAST TWO YEARS:
The Company pays dividends on a quarterly basis and currently there
are no restrictions on the payment of such dividends. The Company declared and
paid dividends on each share of Company Stock as follows for the years ended
1994 and 1993 and for the first quarter of 1995:
<TABLE>
<CAPTION>
First Quarter
1994 1993 of 1995
----- ----- -------------
<S> <C> <C> <C>
Common Stock $ .06 $ .06 $ .0015
Preferred Stock $ .30 $ .30 $ .075
</TABLE>
13
<PAGE>
Newco is a newly formed Delaware corporation organized by the Major
Shareholder on March 17, 1995, in connection with the Merger and the Major
Shareholder owns all of the capital stock of Newco. Prior to the Merger, Newco
will not have any significant assets or liabilities (other than rights and
obligations related to the Merger).
UNION CAPITAL
Union Capital was formed in Nevada on June 28, 1976. the Major
Shareholder owns all of the capital stock of Union Capital. Union Capital has
no significant assets or liabilities, other than the Company Common Stock.
14
<PAGE>
SPECIAL FACTORS
BACKGROUND OF THE MERGER
At the Board meeting held on November 1, 1994, the Major Shareholder
made a formal proposal to the Board to buy all of the Common Stock not owned
directly or indirectly by him for a consideration of $3.25 in cash for each
outstanding share (the "Original Proposal"). The Board determined that it would
be appropriate to establish a Special Committee to review the Original Proposal
and make a recommendation to the Board as to the advisability and fairness to
the Public Common Shareholders of such proposal. Accordingly, the Board
appointed a Special Committee composed of Mr. John C. Mickle (the chairman of
the Special Committee), Mr. Mel Gordon, Mr. C. Gordon Murphy and Mr. Bernard S.
White. Each of the Special Committee members is an outside director of the
Company and is not employed by or affiliated with the Company other than in his
capacity as a director. Except for Mr. Garrett who is one of the Company's
non-employee directors but is Mr. Marlas' brother-in-law, the members of the
Special Committee constitute all of the Company's non-employee directors. The
Board authorized the Special Committee to take all appropriate steps to consider
the proposal and the Special Committee was specifically authorized to retain
special legal counsel and an independent financial advisor, and to incur other
appropriate fees and expenses. The Special Committee held several meetings
throughout late 1994 and the first quarter of 1995, in which among other things
the Special Committee (1) retained the law firm of Kirkland & Ellis, to act as
its special, independent legal advisor, (2) retained the investment banking firm
of Wertheim Schroder as its financial advisor, and (3) negotiated with the Major
Shareholder the terms of his proposal. As a result of such negotiations (subject
to the resolution of several issues on the merger agreement to the satisfaction
of the Major Shareholder) the Major Shareholder expressed its willingness to
increase the consideration to $4.25 per share and at a meeting on March 13, 1995
the Special Committee determined to recommend approval of the revised proposal
to the Board. See "--Proceedings and Recommendation of the Special Committee and
the Board, Fairness of the Transaction."
At the Board meeting held on March 21, 1995, the Major Shareholder
confirmed his proposal to increase the consideration from $3.25 in cash
for each outstanding share of Company Common Stock to $4.25 in cash for each
outstanding share of Company Common Stock. The Major Shareholder also informed
the Special Committee and the Board that he was contemplating offering to
purchase shares of Company Preferred Stock for $4.25 per share. Based on the
recommendation of the Special Committee and the opinion of Wertheim Schroder
that the Merger Consideration was fair to the Public Common Shareholders,
and considering also the independence of the Special Committee and
Wertheim Schroder, the Board adopted the conclusion and analyses of
Wertheim Schroder as its own, and approved the Merger Agreement subject
to the Board's receipt of Wertheim Schroder's written opinion that
the consideration payable to the holders of the Company Preferred
15
<PAGE>
Stock is fair to such holders, from a financial point of view. On March 28,
1995, Wertheim Schroder undertook an analysis of the fairness of the Merger
Consideration to holders of the Company Preferred Stock and reexecuted and
delivered its written opinion of March 21, 1995 that the Merger Consideration
was fair to the Public Shareholders from a financial point of view, and the
Merger Agreement was subsequently executed and delivered on March 29, 1995. See
"--Opinion of Financial Advisor."
PROCEEDINGS AND RECOMMENDATION OF THE SPECIAL COMMITTEE AND THE BOARD, FAIRNESS
OF THE TRANSACTION
PROCEEDINGS OF THE SPECIAL COMMITTEE
The Special Committee was established by the Board to review the
Original Proposal and to make a recommendation to the Board as to the
advisability and fairness of such Original Proposal to the Public Common
Shareholders.
To assist it in carrying out its responsibilities the Special
Committee, after interviewing several investment banking firms and law firms
experienced with transactions of the type proposed by the Major Shareholder,
retained Wertheim Schroder as its financial advisor and Kirkland & Ellis as its
legal advisor. See "Opinion of Financial Advisor." The Special Committee
directed Wertheim Schroder to obtain all financial and other information
regarding the Company's businesses and assets that were necessary for Wertheim
Schroder to evaluate the Company and render an opinion, from a financial point
of view, as to the fairness of the Original Proposal to the Public Common
Shareholders. The Special Committee also directed its legal advisor to discuss
with the Major Shareholder's legal counsel the structure of, and other legal
issues relating to, the Original Proposal. The Company's management was
directed by the Board to cooperate fully with the Special Committee's financial
and legal advisors and to provide any information they requested and the
advisors reported to the Special Committee that the Company's management was
fully cooperative and provided all requested information.
The Special Committee held five formal meetings and various informal
conferences among its members and/or financial and legal advisors. During the
period following its appointment and the retention of advisors, the Special
Committee (i) familiarized itself with the legal obligations and various
structures involving transactions such as the Original Proposal, and the related
legal and tax considerations, (ii) met with senior managers of the Company's
principal business groups to discuss developments affecting, and prospects for,
each such business group, (iii) reviewed the management forecasts of the
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operating and financial results for the Company for the fiscal years ending
December 31, 1995 through December 31, 1999 (the "Five Year Projections")
(see "--Projected Operating and Financial Results of the Company"), (iv)
reviewed the Company's audited financial statements for the fiscal year ended
December 31, 1994, (v) received reports from the Special Committee's financial
and legal advisors regarding discussions and negotiations with the Major
Shareholder and his financial and legal advisors, (vi) met with the Major
Shareholder to discuss his reasons for the proposal and his plans with respect
to the proposal and the Company, and (vii) considered the opportunities and
risks facing the Company and its Public Common Shareholders in view of the
Special Committee members' knowledge of the Company, the reports of the Special
Committee's legal and financial advisors and the Five Year Projections. Such
opportunities considered by the Special Committee include the opportunity of the
Company's printing business to take advantage of the increased capacity of its
printing facilities, as well as its reputation for excellent service. Such risks
considered by the Special Committee include the continuing need for capital
expenditures by the Company's printing business in order to maintain the
technical level of the printing facilities, the challenge of generating a return
sufficient to support such capital expenditures and the dependence of the
Company's advertising business upon a few key individuals and a relatively small
number of important client accounts.
On January 17, 1995, the Special Committee met with Wertheim Schroder
and discussed the Original Proposal. Wertheim Schroder reviewed with the Special
Committee the Five Year Projections (see "--Projected Operating and Financial
Results of the Company") and the Company's principal business groups on an
operational and financial basis, discussed current financial market conditions,
reviewed the business valuations involved in various acquisitions of comparable
companies, and reviewed the trading history of the Company Common Stock. After
discussion, the Special Committee asked Wertheim Schroder for its preliminary
opinion with respect to the fairness, from a financial point of view, of the
Original Proposal to the Public Common Shareholders. Wertheim Schroder responded
that, based on the then current state of its review, the Original Proposal by
the Major Shareholder was not fair, from a financial point of view to the Public
Common Shareholders. The Special Committee then instructed Wertheim Schroder to
advise the Major Shareholder's financial advisor that the Special Committee
would not recommend the Original Proposal and to discuss the valuation issues
with such advisor.
In February 1995 Wertheim Schroder responded orally to the Special
Committee regarding certain questions raised in the January 17, 1995 meeting and
handed out a written comparison, for the years 1989 through 1994, of the
budgeted revenues and operating income prepared by management for each of the
Company's business units against the actual results achieved and reported that
it had discussed valuation issues with the Major Shareholder's financial advisor
and had informed them that the Original Proposal would not be acceptable to the
Special Committee. Wertheim Schroder also reported to the Special Committee that
the Major Shareholder's financial advisor had indicated that there was a
possibility of increasing the merger consideration if a mutually acceptable
merger agreement was negotiated. The Special Committee authorized Wertheim
Schroder to continue discussions and to attempt to negotiate on behalf of the
Special Committee an increased merger consideration for the Public Common
Shareholders. The Special Committee also authorized its legal advisor, Kirkland
& Ellis, to continue negotiations with the Major Shareholder's legal counsel
concerning certain
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non-financial terms and conditions of a draft merger agreement which the Major
Shareholder's legal counsel had prepared to effect the Original Proposal.
During the week of February 20, 1995, Wertheim Schroder reported to
the Special Committee that its negotiations with the Major Shareholder and his
financial advisors had resulted in an expression by the Major Shareholder that,
(subject to the resolution of several issues on the merger agreement to the
satisfaction of the Major Shareholder) he would be willing to increase the
merger consideration to as high as $4.25 per share. The Special Committee also
received a report from Kirkland & Ellis on various issues relating to the draft
merger agreement. The Special Committee instructed Wertheim Schroder to
determine whether, assuming that the Major Shareholder was willing to
increase the merger consideration to $4.25 per share, such consideration
was fair from a financial point of view to the Public Common Shareholders.
The Special Committee met on March 8, 1995, and received and discussed
a written presentation, including financial analysis, from Wertheim Schroder
evaluating a transaction in which the Major Shareholder or his affiliates would
acquire all shares of the Company Common Stock held by the Public Common
Shareholders for an assumed consideration of $4.25 in cash per share
("Proposal"). Wertheim Schroder stated it was prepared to render its opinion
that such a Proposal was fair to the Public Common Shareholders from a financial
point of view. See "-- Opinion of Financial Advisor." The Special Committee also
discussed certain unresolved issues relating to the draft merger agreement,
including the shareholder vote required to approve the transaction.
In early March 1995, Kirkland & Ellis initiated discussions with
plaintiff's counsel in the Delaware class action (see "-- Certain Litigation")
concerning the status of the Proposal and the Special Committee's actions. The
Special Committee authorized Kirkland & Ellis to provide plaintiff's counsel
with a copy of (i) the Wertheim Schroder March 8, 1995 written presentation,
(ii) the minutes of the Special Committee's proceedings and (iii) other
documentation related to the Proposal. The Special Committee discussed various
matters raised by plaintiff's counsel and its expert.
On March 14, 1995 the Special Committee met, reviewed a draft of the
Wertheim Schroder written opinion, a revised draft of the merger agreement, and
received a report from Kirkland & Ellis regarding discussions with plaintiff's
counsel in the Delaware class action. After discussion, the Special Committee
resolved to recommend the Proposal for adoption by the Board as advisable and
fair to the Public Common
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Shareholders, subject to receipt of a final written opinion of Wertheim Schroder
in substance the same as the draft opinion reviewed at the meeting and written
confirmation from the Major Shareholder of his present intention not to sell
substantial assets of the Company.
On March 21, 1995, the Special Committee reviewed the final written
opinion of Wertheim Schroder and received a letter from the Major Shareholder
confirming that his present intention with respect to the Company after the
Merger was to continue the investments that the Company had made in its existing
businesses and that he currently contemplated no sales of any significant assets
of the Company or other material changes in regard to the business, other than
changes in capital structure resulting from the Merger. The Special Committee
then authorized the delivery of its report to the Board. On March 21, 1995 at a
meeting of the Board, Mr. John C. Mickle delivered the report of the Special
Committee, including that the Special Committee had unanimously concluded that
the Proposal, as reviewed by the Special Committee, was advisable and fair to
the Public Common Shareholders and that the Special Committee recommended that
the Proposal be approved by the Board.
BOARD OF DIRECTORS RECOMMENDATION
As noted above, on March 21, 1995, based on the Major
Shareholder's offer to pay $4.25 per share, the recommendation of the
Special Committee and the opinion of Wertheim Schroder that the Merger
Consideration was fair to the Public Common Shareholders and considering the
independence of the Special Committee and Wertheim Schroder, the Board adopted
the conclusion and analyses of Wertheim Schroder as its own, and, subject to the
Board's receipt of a written opinion from Wertheim Schroder that the
consideration payable to the holders of the Company Preferred Stock is fair to
such holders, unanimously (with Mr. Marlas and Mr. Garrett (who is Mr. Marlas'
brother-in-law) abstaining) approved the Merger Agreement. Wertheim Schroder
undertook an analysis of the fairness of the Merger Consideration to holders
of the Preferred Stock and reexecuted and delivered to the Board its written
opinion of March 21, 1995, that the Merger Consideration was fair to the
Public Shareholders, from a financial point of view. This condition
having been satisfied, the Board unanimously recommends a vote FOR
approval and adoption of the Merger Agreement.
Although the Merger Consideration is within the per share equity value
ranges which resulted from financial analysis performed by Wertheim Schroder and
described under "--Opinion of Financial Advisor," the Merger Consideration is
less than the high-end of each such equity value range; however, based on
the independence of the Special Committee, the designation by the Special
Committee of Wertheim Schroder as an independent financial advisor, the fairness
opinion of Wertheim Schroder and the recommendation of the Special Committee,
the Board has determined that the Merger Consideration is nonetheless fair to
the Public Common Shareholders.
FAIRNESS OF THE MERGER
The Special Committee concluded that the Merger is advisable and fair
to the Public Common Shareholders and recommended approval of the Merger to the
Board. This conclusion and recommendation was adopted by the Board. In reaching
this conclusion, the Special Committee considered a number of factors in light
of the Special Committee's knowledge of and familiarity with, and senior
management's presentation and the Special Committee's advisor's advice
regarding, the business, financial condition, results of
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operations and prospects of the Company, as well as the industries it serves,
the risks associated with achieving its prospective operating results and
general economic and market conditions. In view of the wide variety of factors
considered in connection with its evaluation of the Merger, the Special
Committee did not find it practicable to, and did not, quantify or otherwise
attempt to assign relative weights to the specific factors considered in
reaching its determination. The Special Committee considered each of the
factors to be an integral basis of its determination to recommend the Merger and
was not able to assign relative importance to any one factor over another
factor.
In particular, the factors considered by the Special Committee
included:
(a) The written opinion of Wertheim Schroder, dated March 21, 1995, to
the effect that, as of the date of such opinion, the Merger Consideration is
fair to the Public Common Shareholders from a financial point of view, and
the analysis and information previously presented to the Special Committee
orally and in writing by Wertheim Schroder (the "Wertheim Schroder
Presentation").
(b) The relationship of the valuations of the Company implied by the
Merger Consideration to the actual and projected financial results of the
Company for 1994 and 1995, respectively (see "--Projected Operating and
Financial Results of the Company").
(c) The relationship of the Merger Consideration to both the market
price of the Company Common Stock prior to the announcement of the Original
Proposal and the historical trading range for the Company Common Stock and the
general lack of liquidity provided by the market for the Company Common Stock.
This lack of liquidity is evidenced by the fact that for the six month period
prior to the public announcement of the Original Proposal on November 1, 1994,
of 128 trading days, on 46 of those days (36%), no trading of the shares of the
Company Common Stock was recorded, and during the same period, on average,
approximately 1,800 shares of the Company Common Stock traded daily, well below
the approximately 132,000 share average daily trading volume for a New York
Stock Exchange listed company.
(d) The relationship of the valuations of the Company implied by the
Merger Consideration to the liquidation, book value, and going concern values
for the Company as described in the Wertheim Schroder Presentation.
(e) The process by which the Merger Consideration and Merger Agreement
were negotiated.
The Special Committee considered the valuations of the Company implied
by the Merger Consideration as a multiple of historical net income of the
Company for 1994 (before deduction of certain non-recurring expenses related to
the Excel Marketing Group) and management's projected net income for 1995.
See "-- Opinion of Financial Advisor - Purchase Price Analysis." The Special
Committee considered that $4.25 cash per share to be paid to the Public
Shareholders pursuant to the Merger represents a
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premium of 47.8% over the $2.875 closing price quotation for the Common Stock as
reported by the New York Stock Exchange on October 31, 1994, the last trading
date prior to the public announcement of the Original Proposal. The Special
Committee also considered that $4.25 per share exceeded the range of trading
prices of the Common Stock as reported by the New York Stock Exchange during the
last four years. See "Recent Market Prices; Dividend History." The Special
Committee reviewed the various valuation ranges arrived at by the Wertheim
Schroder Presentation, and noted that the Merger Consideration was within the
range of values suggested by each of the various methodologies described under
"-- Opinion of Financial Advisor," below, and included in the Wertheim Schroder
Presentation. The Special Committee noted that the companies selected for
Wertheim Schroder's Comparable Publicly Traded Company Analysis were
considerably larger and, in most cases, more diversified than the Company. The
Special Committee considered that this would tend to make the range of values
suggested by the Comparable Publicly Traded Analysis less accurate than the
values suggested by the other valuation methods used by Wertheim Schroder. See
"Opinion of Financial Advisor." The Special Committee also noted that to seek a
potentially higher value for the Public Common Shareholders through a
liquidation involved substantial uncertainty, expense and delay.
Due to the position of the Major Shareholder, who owns directly or
indirectly an aggregate of approximately 48% of the Common Stock outstanding,
and based on discussions with Wertheim Schroder and legal counsel, the Special
Committee believed that it was impracticable to solicit effectively acquisition
offers for the Company from third parties. The Major Shareholder, who
effectively could prevent any sale of the Company or its assets, had stated he
would not agree to such a sale. The Special Committee was advised that in 1994
a group of investors indicated to the Major Shareholder some interest in
acquiring the Company's printing business, but that based on the perceived low
price suggested by such group of investors and the group's apparent lack of a
source of financing for the transaction, this inquiry was not considered serious
and was not pursued by management. The Special Committee was advised that no
other formal expressions of interest in acquiring the Company or any substantial
assets of the Company have been received recently by the Company or the Major
Shareholder.
The Special Committee also considered the process by which the Merger
Consideration and the Merger Agreement were negotiated, noting that the Merger
Agreement was the result of more than four months of consideration and
negotiation by the Special Committee and its legal and financial advisors, and
that
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as a result of the negotiations the Major Shareholder had increased his offered
price by 30.8% from $3.25 to $4.25.
The Special Committee took into consideration that following the
Merger the Public Shareholders would not participate in any future growth of the
Company, and that the Major Shareholder would benefit from any increase or
suffer the detriment of any decrease in the value of the Company. The Major
Shareholder's Original Proposal provided that the Merger should require the
vote of a majority of the shareholders. The Special Committee discussed whether
approval of the Merger should require the affirmative vote of a majority of the
Public Common Shareholders and negotiated the issue with the representatives of
the Major Shareholder. The representatives advised the Special Committee that
the Major Shareholder would not accept such a requirement because he felt it
could give a small minority of the Company's shareholders the power to veto the
Merger. However, as a result of these negotiations, the Major Shareholder
expressed his willingness to modify his Original Proposal to require that the
Merger be subject to the vote of two-thirds of the votes cast at the Special
Meeting. Consequently, the Special Committee determined that, in view of the
perceived economic benefit of the Merger to the Public Common Shareholders, the
Public Common Shareholders should not be deprived of the opportunity to receive
the Merger Consideration and the Special Committee recommended approval of the
Merger with the special voting requirements set forth in "The Merger -- Required
Vote." The Special Committee considered that such special voting requirements,
which condition the Merger on two-thirds of the votes cast at the Special
Meeting of shareholders being voted to approve the transaction, enable Public
Common Shareholders holding between 25 and 33 1/3% of the outstanding shares of
Common Stock (depending upon how many such shares are voted in favor of the
Merger) to prevent the occurrence of the Merger by voting against the
Merger.
The Special Committee, based upon information provided by the Company and
discussions with officials of the Company, as of the date of this Proxy
Statement, has been advised by the Company's management that there have not been
any significant changes in the Company's financial projections or other
information provided by the Company to the Special Committee or Wertheim
Schroder which would alter its fairness determination. It is a condition to the
Merger that the fairness opinion of Wertheim Schroder, dated March 21, 1995,
shall not have been withdrawn. In addition, Wertheim Schroder has confirmed its
fairness opinion as of the date of this Proxy Statement.
The Special Committee reviewed the complaint filed in the litigation and
considered comments by counsel for the plaintiff in the class action that the
merger consideration offered in the Original Proposal should be increased and
that the Merger should be subject to a separate vote by the Public Common
Shareholders. The Special Committee noted that the complaint as filed was based
on the Original Proposal and not the $4.25 per share consideration recommended
by the Special Committee.
No member of the Special Committee is employed by or affiliated with
the Company or the Major Shareholder except as a director of the Company. No
such member is or is expected to become an affiliate of, or has or is expected
to acquire any equity interest in, Newco or the Surviving Corporation; except
that after the Merger, the current directors of the Company, including members
of the Special Committee, will remain in such capacities with the Surviving
Corporation until successors are duly elected or appointed in accordance with
the applicable law. In light of the amount of time that was expected to be
devoted by the members of the Special Committee in connection with their
consideration of the Merger, the Special Committee received compensation in
addition to their regular compensation as members of the Board of $5,000 per
member ($7,500 for Mr. John C. Mickle, chairman of the Special Committee) for
each month or portion thereof, commencing with November 1, 1994, that such
member is serving on the Special Committee. This fee has been paid to the
members of the Special Committee for serving on the Special Committee through
March 31, 1995. Pursuant to an agreement entered into with the Company, the
members of the Special Committee are indemnified by the Company with respect to
their activities as members of the Special Committee. The members of the Special
Committee and the other members of the Board are also indemnified by the Company
under the Company's charter documents and the applicable sections of the
Delaware General Corporation Law with respect to their actions in connection
with the Merger. In addition, the members of the Special Committee and the other
members of the Board are entitled to the benefits of a directors', and officers'
liability insurance policy maintained by the Company.
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OPINION OF FINANCIAL ADVISOR
The Special Committee retained Wertheim Schroder to act as its
financial advisor in connection with its consideration of the Merger Agreement
based on Wertheim Schroder's experience in valuations of companies and their
securities in general. Wertheim Schroder is a nationally recognized investment
banking firm and, as part of its business, is engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, secondary distributions of securities, private
placements and valuations for estate, corporate and other purposes. No
limitations were imposed by the Special Committee or the Company on the scope of
the investigations by Wertheim Schroder or the procedures followed by Wertheim
Schroder in connection with the rendering of its opinion. Wertheim Schroder was
not authorized to, and did not, solicit any indications of interest from any
other party in connection with a possible sale of the Company or any assets of
the Company.
On March 8, 1995, Wertheim Schroder orally advised the Special
Committee that, based on various considerations and assumptions, it was of the
opinion as investment bankers that, as of such date, the Merger Consideration of
$4.25 cash per share was fair, from a financial point of view, to the Public
Common Shareholders and reviewed with the Special Committee a written analysis
on which such opinion was based. A copy of such written analysis is available
for inspection and copying at the Company's offices at 405 Park Avenue, New
York, New York 10022, by any interested equity security holder of the Company or
his representative who has been so designated in writing. Wertheim Schroder
subsequently confirmed its oral opinion by delivering to the Special Committee
its written opinion dated March 21, 1995, that the Merger Consideration is fair
from a financial point of view to the Public Common Shareholders. On March 28,
1995, Wertheim Schroder reexecuted and delivered its written opinion of March
21, 1995, that the Merger Consideration was fair to the Public Shareholders from
a financial point of view. A subsequent written opinion, dated the date of this
Proxy Statement, was also delivered to the Special Committee which opinion is
substantially similar to the March 21 opinion. The full text of Wertheim
Schroder's written opinion, dated the date of this Proxy Statement, which has
set forth the assumptions made, procedures followed, matters considered and
limits of its review, is attached hereto as Annex B and is incorporated by
reference herein. The following summary is qualified in its entirety by
reference to the full text of such opinion. Stockholders are urged to and
should read such opinion in its entirety for a complete description of
the assumptions made, matters considered and limits of the review conducted by
Wertheim Schroder in rendering its opinion. Wertheim Schroder's opinion does not
constitute a recommendation to the stockholders as to how to vote on the Merger
Agreement at the Special Meeting.
In connection with its opinion dated March 21, 1995, Wertheim Schroder,
among other things has: (a) reviewed the
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draft dated March 20, 1995 annual report, on Form 10-K of the Company for the
fiscal year ended December 31, 1994; the Annual Reports on Form 10-K and the
audited financial statements of the Company for the three fiscal years ended
December 31, 1993; its Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994; its Proxy Statement dated April 11, 1994, and reports issued
by the Company on Form 8-K dated March 3, 1993 and June 30, 1992; and all
amendments thereto; (b) reviewed certain internal, unaudited financial analyses
prepared by management of the Company which relate primarily to the Company's
historical and projected financial information; (c) reviewed the management
forecasts dated December 16, 1994 of the operating and financial results for the
Company for the fiscal years ended December 31, 1995 through December 31, 1999
and discussed with management any subsequent adjustments to those forecasts
through March 20, 1995 (as previously defined, the Five Year Projections) (see
"Projected Operating and Financial Results of the Company"); (d) visited the
principal operating divisions of the Company, including Sandy Alexander, Inc.
and Partners & Shevack, Inc.; (e) conducted discussions with the senior
management of the Company concerning its historical and forecasted financial and
operating results as presented and described in (a), (b) and (c) above; (f)
performed various valuation analyses, as deemed appropriate, of the Company
using generally accepted analytical methodologies, including (1) discounted cash
flow valuation analyses; (2) the application of the multiples reflected in
recent mergers and acquisitions for comparable businesses to the financial
results of the Company; and (3) the application of the public trading multiples
of comparable companies to the financial results of the Company; (g) reviewed
the trading history of the Company Common Stock and the Company Preferred Stock
in the public marketplace from January 1, 1990 to March 20, 1995; (h) reviewed
the trading prices and yields of selected publicly traded preferred stocks; (i)
reviewed the Statement of Resolution Establishing Series of Shares, Series A
Preferred Stock of the Company, dated September 3, 1982; (j) reviewed the draft
of the Merger Agreement dated March 17, 1995; (k) discussed with the financial
advisor to the Major Shareholder plans for financing the Merger; and (l)
performed such other financial studies, analyses, inquiries and investigations
as Wertheim Schroder deemed appropriate.
In connection with its subsequent written opinion, dated the date of this
Proxy Statement, Wertheim Schroder updated as needed its review of the items set
forth in the previous paragraph and reviewed the following documents, each of
which was not available at the time Wertheim Schroder delivered its March 21,
1995 opinion: the Annual Report on Form 10-K and the audited financial
statements of the Company for the fiscal year ended December 31, 1994; the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995;
and the final form of the Merger Agreement, dated as of March 21, 1995.
In rendering its opinion, Wertheim Schroder relied, with the
permission of the Special Committee, upon the accuracy and completeness of all
information supplied or otherwise made available to it by the Company, and
Wertheim Schroder did not assume any responsibility to independently verify such
information, or undertake an independent appraisal of the assets or liabilities
(contingent or otherwise) of the Company and was not furnished with any such
appraisals. Wertheim Schroder and the Special Committee were advised by senior
officers of the Company, and assumed without any responsibility to verify, that
the financial projections provided by management and used in
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<PAGE>
Wertheim Schroder's analyses were reasonably prepared and reflected the best
currently available estimates and judgment of senior management of the Company
as to the expected future financial performance of the Company. Wertheim
Schroder also reviewed and discussed with management of the Company various
competitive and other factors, risks, and opportunities affecting the different
business groups of the Company.
The following is a summary of certain financial analyses presented by
Wertheim Schroder in the Wertheim Schroder Presentation, and utilized in
connection with its written opinion to the Special Committee. It
does not purport to be a complete description of the Wertheim Schroder
Presentation. It does, however, summarize the principal financial analyses
performed by and relied upon by Wertheim Schroder in arriving at its opinion.
The preparation of a fairness opinion is a complex project and is not
necessarily susceptible to partial analysis or summary description. No single
analytical methodology used by Wertheim Schroder was critical to its overall
conclusion as each analytical technique has its inherent strengths and
weaknesses. No company or transaction used in any comparable analysis as a
comparison is identical to the Company or the proposed Merger. Accordingly, an
analysis of the results is not mathematical, rather it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the comparable companies and other factors that could affect
the public trading value of the comparable companies to which they are being
compared. The nature of available information may further affect the value of
any particular methodology or technique. Wertheim Schroder's conclusion was
based upon all the analyses and factors that it considered taken as a whole and
also on the application of Wertheim Schroder's experience and judgment. Its
conclusion involved significant elements of subjective judgment and qualitative
analysis. No value, merit or weight of any single technique or factor was
assigned by Wertheim Schroder. Accordingly, Wertheim Schroder believes that its
analyses must be considered as a whole and that to focus upon specific portions
of such analyses and factors would create an incomplete and misleading view of
the processes underlying the preparation of the opinion. Wertheim Schroder's
analyses and opinion were based upon management's forecasts and projections of
future results which are not necessarily indicative of actual future results.
Actual results may be significantly more or less favorable than the projected
results. In performing its analyses, Wertheim Schroder made numerous
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond the Company's control.
Any estimates contained therein are not necessarily indicative of actual value,
which may be
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<PAGE>
significantly more or less favorable than as set forth therein. Estimates of
value for the companies do not purport to be appraisals or necessarily reflect
the prices at which companies may actually be sold. Because such estimates are
inherently subject to uncertainty, Wertheim Schroder assumes no responsibility
for their accuracy.
PURCHASE PRICE ANALYSIS. In conducting its analysis, Wertheim Schroder
reviewed the Merger Consideration and calculated that the aggregate value of the
equity of the Company implied by the Merger Consideration is $38.3 million,
taking into consideration the number of shares of Company Common Stock
outstanding, the outstanding Stock Options with an exercise price lower than the
Merger Consideration, the Convertible Debentures and the Company Preferred Stock
(the "Equity Value"). Similarly, Wertheim Schroder calculated that the Aggregate
Enterprise Value of the Company (defined as the aggregate Equity Value of the
Company, plus outstanding debt, less cash and temporary investments) implied by
the Merger Consideration is $49.9 million. Based on these calculations, Wertheim
Schroder determined that the Aggregate Enterprise Value as a multiple to
revenues for the twelve months ended December 31, 1994 ("LTM") is .4x; to LTM
earnings before interest and taxes ("EBIT"), 12.0x; to LTM earnings before
interest, taxes, depreciation and amortization ("EBITDA"), 5.7x; to management's
projected 1995 revenues, .4x; to management's projected 1995 EBIT, 12.8x; to
management's projected 1995 EBITDA, 5.1x. Wertheim Schroder also determined that
the Equity Value as a multiple to LTM net income was 17.2x; to management's
projected 1995 net income, 21.6x; to the book equity ($45.5 million) and
tangible book equity ($33.4 million) of the Company at December 31, 1994 (taking
into consideration the outstanding Stock Options with an exercise price lower
than the Merger Consideration, the Convertible Debentures and the Company
Preferred Stock), 0.8x and 1.1x respectively. For purposes of calculating these
multiples, certain nonrecurring expenses recorded in 1994 were added back to
income. In addition, for both 1994 and 1995 the Convertible Debentures were
assumed to have been converted and certain Stock Options were assumed to have
been exercised.
Wertheim Schroder noted that the Merger Consideration represents a
47.8% premium over the trading price of the Company Common Stock one day before
the Original Proposal was announced, and represents a 70.0% premium over the
trading price of the Company Common Stock one month before the Original Proposal
was announced. Wertheim Schroder reviewed the history of trading prices of the
Company Common Stock, and noted that, since January 1, 1990, the Company Common
Stock had not traded above the Merger Consideration.
Wertheim Schroder reviewed the historical income statements and
current capitalization of the Company and noted that their analysis and
presentation of the Company's financial
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<PAGE>
statements, and calculations of associated ratios and multiples, reflect an
adjustment to exclude the $3.0 million aggregate expense in 1994 related to the
write-down of inventory value of the Excel Marketing Group and Excel Plus Ltd.
Wertheim Schroder discussed with the Special Committee each business of the
Company, its historical financial results, the Five Year Projections for each
respective business and important operating characteristics of each business.
Because the Company operates businesses in distinct business segments - printing
and advertising and promotion -- Wertheim Schroder generally performed its
valuation analysis on a business-by-business basis.
COMPARABLE PUBLICLY TRADED COMPANY ANALYSIS. Wertheim Schroder
reviewed a number of publicly held companies that operate businesses generally
comparable to the Company's business. With respect to the Company's printing
businesses (the "Printing Businesses"), Wertheim Schroder considered Banta
Corporation, Cadmus Communications Corporation, Consolidated Graphics, Inc.,
R.R. Donnelley & Sons Company and Graphic Industries, Inc. With respect to the
Company's advertising and promotion business (the "Advertising and Promotion
Businesses"), Wertheim Schroder considered Grey Advertising Inc., The
Interpublic Group of Companies Inc., Omnicom Group, Inc., Saatchi & Saatchi
Company PLC, True North Communications and WPP Group plc.
Wertheim Schroder reviewed historical financial information for each
of these companies and identified a range of multiples of public market value to
LTM net revenues, LTM EBIT, LTM EBITDA, LTM net income, and management's
projected fiscal year 1995 net income and management's projected fiscal year
1996 net income, respectively, at which businesses similar to the Company traded
in the public markets. Wertheim Schroder did not review a range of multiples to
projected revenue, EBIT and EBITDA for the comparable companies because of the
lack of reliable market data with regard to those projections.
Based on this review, Wertheim Schroder then applied ranges of
multiples consistent with the multiples reflected by the selected comparable
publicly traded printing companies to the historical LTM and management's
projected 1995 financial results of the Printing Businesses. Because of the
lack of reliable market data for projected revenues, EBIT and EBITDA with
respect to the projections of comparable publicly traded companies and the
inherent uncertainty of projected financial data vis a vis LTM data, the
multiple ranges applied to management's projected 1995 revenues, EBIT and
EBITDA, generally are based on discounts to the multiple ranges applied to the
LTM financial data. For LTM net revenues, the range of multiples applied was
0.6x to 0.8x; for LTM EBIT, 8.0x to 10.0x; for LTM EBITDA, 5.0x to 6.5x;
27
<PAGE>
for LTM net income, 12.5x to 16.0x; for management's projected 1995 revenues,
0.5x to 0.7x; for management's projected 1995 EBIT, 7.0x to 9.0x; for
management's projected 1995 EBITDA, 4.5x to 6.0x; and, for management projected
1995 net income, 11.0x to 12.5x. Based on these ranges, Wertheim Schroder
arrived at an Enterprise Value (representing the value of the operations of the
business, before consideration of debt, equity or cash used to finance that
business) range of the Printing Businesses of $35.0 million to $50.0 million.
Wertheim Schroder then applied ranges of multiples consistent with the
multiples reflected by the selected publicly traded advertising companies to the
historical LTM and management's projected 1995 financial results of the
Advertising and Promotion Businesses. Similar to the valuation of the Printing
Businesses, multiple ranges applied to management's projected 1995 revenues,
EBIT, and EBITDA are based on discounts to multiple ranges applied to LTM
financial data. For LTM net revenues, the range of multiples was 0.5x to 0.9x;
for LTM EBIT, 6.0x to 10.0x; for LTM EBITDA, 5.0x to 7.0x; for LTM net income,
12.0x to 16.0x; for management's projected 1995 revenues, 0.4x to 0.8x; for
management's projected 1995 EBIT, 5.0x to 9.0x; for management's projected 1995
EBITDA, 4.5x to 6.5x; and, for management's projected 1995 net income, 10.0x to
14.0x. Based on these ranges, Wertheim Schroder arrived at an Enterprise Value
range of the Advertising and Promotion Businesses of $9.2 million to $14.9
million.
As the business of the Excel Marketing Group ("Excel") is in the midst
of a change, Wertheim Schroder applied a valuation based on a discounted cash
flow of the Excel segment of the Five Year Projections (see "-- Discounted Cash
Flow Analysis"), rather than use a multiple of historical LTM or projected 1995
financial data. Based on a discounted cash flow analysis, Wertheim Schroder
arrived at an Enterprise Value range of Excel of $3.0 million to $5.0 million.
Wertheim Schroder considered corporate overhead as a reduction to Enterprise
Value. Based on EBITDA multiples consistent with those applied with respect to
the Printing Businesses and the Advertising and Promotion Businesses applied to
historical LTM and projected 1995 corporate overhead expense, Wertheim Schroder
reduced the aggregate Enterprise Value of the Company's businesses by a range of
$9.5 million to $12.5 million. Wertheim Schroder then added Enterprise Value
ranges for the Printing Businesses, the Advertising and Promotion Businesses and
Excel, less corporate overhead, to arrive at an aggregate Enterprise Value range
of the Company of $37.7 million to $57.4 million.
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<PAGE>
Based on the foregoing analysis and taking into account (i) the
Company's cash and temporary investments balance of $9.4 million; (ii) the
Company's aggregate debt balance of $32.5 million ($22.7 million pro forma
assuming conversion of the Company's outstanding convertible debt); (iii) the
number of shares of Company Common Stock currently outstanding; (iv) outstanding
Stock Options exercisable at various exercise prices; (v) the value of the
Company Preferred Stock; and, (vi) an assumed control premium of 35%, based on
an analysis of control premiums paid in 15 recent transactions with a value
between $10 million and $50 million and 10 recent transactions in which the
acquiror owned between 20% and 50% of the target company prior to the
transaction, Wertheim Schroder arrived at a per share equity value range for the
Company Common Stock of between $3.22 and $6.86 per share.
COMPARABLE ACQUISITION TRANSACTIONS ANALYSIS. Wertheim Schroder
prepared a valuation based on selected merger and acquisition transactions
involving companies comparable to the Company. In valuing the Printing
Businesses, Wertheim Schroder reviewed eleven transactions completed in 1993 and
1994 to identify ranges of multiples of net revenues, EBIT, EBITDA, and net
income at which businesses similar to the Printing Businesses have been acquired
in recent years. Because of the lack of reliable market data for projected
revenues, EBIT and EBITDA with respect to the projections of companies involved
in comparable acquisition transactions and the inherent uncertainty of projected
financial data vis a vis LTM data, the multiple ranges applied to management's
projected 1995 revenues, EBIT and EBITDA, generally are based on discounts to
the multiple ranges applied to the LTM financial data. The range of multiples
to LTM net revenues was 0.6x to 0.8x; to LTM EBIT, 9.0x to 12.0x; to LTM EBITDA,
6.0x to 8.0x; to LTM net income, 15.0x to 20.0 x; to management's projected 1995
revenues, 0.5x to 0.7x; to management's projected 1995 EBIT, 8.0x to 11.0x; to
management's projected 1995 EBITDA, 5.0x to 7.0x; to management's projected 1995
net income, 13.0x to 18.0x. Based on applying these ranges of multiples,
Wertheim Schroder derived an Enterprise Value range of $40 million to $60
million for the Printing Businesses.
Wertheim Schroder noted that although there have been a number of
recent acquisitions of advertising companies, the targets are typically
privately held and, therefore, little, if any, confirmable information regarding
historical financial performance is disclosed publicly. As a result, Wertheim
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<PAGE>
Schroder determined it would not be possible to value the Advertising and
Promotion businesses based on published financial data from comparable
acquisition transactions. Instead, based on its experience in valuing
comparable businesses, Wertheim Schroder believed that .8x to 1.0x net revenues
represented an industry benchmark for valuing advertising companies. Wertheim
Schroder noted that the actual valuation multiple paid for any particular
advertising company is influenced by factors such as the quality of its clients
and its dependence upon several clients, its growth potential and its operating
margins. Applying this range of multiples to the LTM revenues of the
Advertising and Promotion Businesses implied an Enterprise Value range of $16.0
million to $20.0 million for the Advertising and Promotion Businesses.
Similar to its methodology employed as to the Comparable Publicly
Traded Companies Analysis, Wertheim Schroder applied an Enterprise Value range
to Excel of $3.0 million to $5.0 million, based on a discounted cash flow
analysis. Wertheim Schroder considered corporate overhead as a reduction to
Enterprise Value. Based on EBITDA multiples consistent with those applied with
respect to the Printing Businesses and the Advertising and Promotion Businesses
applied to historical LTM and projected 1995 corporate overhead expense,
Wertheim Schroder reduced the aggregate Enterprise Value of the Company's
businesses by a range of $11.0 million to $15.0 million. Wertheim Schroder then
added the Enterprise Value range for the Printing Businesses, the Advertising
and Promotion Businesses and Excel, less corporate overhead, to arrive at an
aggregate Enterprise Value range for the Company of $48.0 million to $70.0
million.
Based on the foregoing analysis and taking into account (i) the
Company's cash and temporary investments balance of $9.4 million; (ii) the
Company's aggregate debt balance of $32.5 million ($22.7 million pro forma
assuming conversion of the Company's outstanding convertible debt); (iii) the
number of shares of Company Common Stock currently outstanding; (iv) outstanding
Stock Options exercisable at various exercise prices; and (v) the value of the
Company Preferred Stock; Wertheim Schroder arrived at a per share equity value
range for Company Common Stock of between $3.97 to $6.47 per share.
DISCOUNTED CASH FLOW ANALYSIS. Using the Five Year Projections and
other financial information supplied by the Company, Wertheim Schroder analyzed
the Company's projected tax-effected operating cash flow for the years 1995 to
1999 and calculated the present value of these amounts, applying discount rates
which it believed to be appropriate for various businesses of the Company. With
respect to the Printing Businesses, Wertheim Schroder applied discount rates
ranging from 10% to 14%; with respect to the Company's Advertising and Promotion
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<PAGE>
Businesses, Wertheim Schroder applied discount rates ranging from 12% to 16%;
and with respect to Excel, Wertheim Schroder applied discount rates ranging from
16% to 20%, reflecting the capitalization and the relative risk and variability
of cash flows inherent in each respective business. It then estimated the
"terminal value," i.e., the value of cash flow in years after 1999, by applying
multiples Wertheim Schroder believed to be appropriate to management's projected
EBITDA for 1999 and discounting this value to the present. Wertheim Schroder
determined, based on its experience in the valuation of companies in the
industries in which the Company competes and comparison with comparable
companies, that for the Printing Businesses, multiples of 5.0x to 7.0x were
appropriate; for the Advertising and Promotion Businesses, multiples of 5.0x to
7.0x were appropriate; and for Excel, multiples of 4.0x to 6.0x were
appropriate. These ranges of multiples are consistent with the ranges of
multiples derived from each of the Comparable Publicly Traded Company Analysis
and the Comparable Acquisitions Transactions Analysis.
Wertheim Schroder considered corporate overhead as a reduction to
Enterprise Value. Based on the present value of management's projected
corporate overhead expenses, Wertheim Schroder reduced the aggregate Enterprise
Value of the Company's businesses by a range of $10.5 million to $12.5 million.
The present value of management's projected tax-effected operating cash flows
for the years 1995 through 1999 were then added to the present value of the
projected terminal value in 1999 to arrive at a total Enterprise Value range for
the Company of between $43.4 million and $56.3 million. Based on the foregoing
analysis and taking into account (i) the Company's cash and temporary
investments balance of $9.4 million; (ii) the Company's aggregate debt balance
of $32.5 million ($22.7 million pro forma assuming conversion of the Company's
outstanding convertible debt); (iii) the number of shares of Company Common
Stock currently outstanding; (iv) outstanding Stock Options exercisable at
various exercise prices; and (v) the value of the Company Preferred Stock,
Wertheim Schroder arrived at a per share equity value range for the Company
Common Stock of between $3.27 to $4.96.
BREAK-UP (LIQUIDATION) ANALYSIS. In valuing the Company using a
Break-up Analysis, Wertheim Schroder assumed the separate sales of the
individual operating subsidiaries of the Company, conducted in an orderly
fashion, at values determined by the Discounted Cash Flow Analysis. Using such
assumptions, Wertheim Schroder arrived at a total Enterprise Value range of the
Company of $53.9 million to $68.8 million. Wertheim Schroder then deducted
contractual management bonuses that would have been
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<PAGE>
required to be paid to the Company's and its subsidiaries management upon the
occurrence of such sales, estimated corporate taxes on the respective net gains
in sales of the individual subsidiaries, and an assumed cost of liquidation of
approximately one year of corporate expenses and $1.0 million of fees and
expenses. Based on the foregoing analysis and taking into account (i) the
Company's cash and temporary investments balance of $9.4 million; (ii) the
Company's aggregate debt balance of $32.5 million ($22.7 million pro forma
assuming conversion of the Company's outstanding convertible debt); (iii) the
number of Shares of Company Common Stock currently outstanding; (iv) outstanding
Stock Options exercisable at various exercise prices; and (v) the value of the
Company Preferred Stock, Wertheim Schroder arrived at a per share equity value
range for the Company Common Stock of between $3.71 to $4.93.
With respect to the Company Preferred Stock, Wertheim Schroder
reviewed its terms and noted that in the event of any liquidation, dissolution
or winding up of the business, each share of the Company Preferred Stock would
receive a pro rata share of the net assets of the Company, based on its
proportion of the total number of shares of Company Preferred Stock and Company
Common Stock outstanding, subject to a minimum liquidation preference of $3.00
per share and a maximum liquidation payment of $7.50 per share. Wertheim
Schroder noted that the Company Preferred Stock was not subject to mandatory
redemption in the event of a change of control or otherwise, nor was it
convertible into Company Common Stock or exchangeable into other securities of
the Company. Although the Company Preferred Stock is registered under the
Securities Act and the Exchange Act, there has developed no liquid trading
market for the Company Preferred Stock. The Company Preferred Stock pays an
annual dividend of $0.30 per share, which would imply an effective yield for the
Company Preferred Stock of 7.1%, assuming a purchase price equal to $4.25 per
share. Wertheim Schroder noted that a review of trading prices and current
yields of selected comparable preferred stock issues revealed average yields
consistently above 7.1%. Based on its review of the Company Preferred Stock,
Wertheim Schroder determined that the Merger Consideration was within the per
share valuation range for the Company Preferred Stock.
The terms of the engagement of Wertheim Schroder by the Special
Committee are set forth in a letter agreement dated December 7, 1994, among
Wertheim Schroder, the Company and the Special Committee (the "Engagement
Letter"). Wertheim Schroder also received from the Company an indemnification
letter of the same date (the "Indemnification Letter"). Pursuant to the terms
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of the Engagement Letter, the Company agreed to pay Wertheim Schroder an initial
advisory fee of $50,000, a fee of $75,000 on January 15, 1995 and a fee of
$50,000 due at the earlier of (a) when Wertheim Schroder was prepared to deliver
a written or oral opinion with respect to the fairness, from a financial point
of view, of such transaction or (b) when the Merger is consummated. Wertheim
Schroder received an additional fee of $25,000 for expanding its opinion to
include the Company Preferred Stock. Each of these fees has become payable to
Wertheim Schroder and all fees have been paid. The Company also agreed to
reimburse Wertheim Schroder upon request from time to time for its necessary
and reasonable out-of-pocket expenses (estimated at $20,000), including the
reasonable fees and expenses of its legal counsel, incurred in
connection with the services performed under the Engagement Letter, provided the
Special Committee has approved the retention of such counsel. Pursuant to the
Indemnification Letter, the Company agreed to indemnify Wertheim Schroder
against certain liabilities relating to or arising out of its engagement,
including liabilities under Federal securities laws.
PROJECTED OPERATING AND FINANCIAL RESULTS OF THE COMPANY
The Company does not as a matter of course make public forecasts or
projections as to future revenues or results of operations. However, during
discussions regarding the Merger the Company provided Wertheim Schroder and the
Special Committee with Five Year Projections not available to the public.
The Five Year Projections were not prepared with a view toward public
disclosure or compliance with either the published guidelines of the Commission
regarding projections or forecasts or the American Institute of Certified Public
Accountants' Guide for Prospective Financial Statements. The Five Year
Projections were not prepared in accordance with generally accepted accounting
principles and were not audited or reviewed by independent accountants.
Independent accountants performed no services, and do not assume any
responsibility, with respect thereto.
The Five Year Projections, while presented with apparent numerical
specificity, were based upon numerous estimates and other assumptions (some of
which are referred to in the following paragraphs) which are inherently subject
to significant business, economic and competitive uncertainties, contingencies
and risks, all of which are difficult to quantify and many of which are beyond
the control of the Company. However, the Major Shareholder and the Company's
management confirmed to the Special Committee and Wertheim Schroder that the
Five Year Projections were based on assumptions believed to be reasonable by the
Company's management. Nevertheless, there can be no assurances that the Five
Year Projections will be realized, and it is likely that future results will
vary from those set forth below, possibly by material amounts. The Five Year
Projections included the information set forth below.
Dollars in thousands
<TABLE>
<CAPTION>
Year Ending Income
December 31 Revenues Before Taxes Net Income
- ----------- -------- ------------ ----------
<S> <C> <C> <C>
1995 $133,847 $2,172 $1,303
1996 143,322 3,365 2,019
1997 148,506 3,919 2,351
1998 153,890 4,470 2,682
1999 159,482 5,060 3,036
</TABLE>
The Five Year Projections were prepared by the Company's management during
the fourth quarter of 1994, solely for planning and analysis purposes. The Five
Year Projections were based on management's judgment at the time utilizing a
number of internal sources, including historical financial information, annual
plans and other business plans. The most significant assumptions made in
preparing the Five Year Projections were as follows:
1. Revenues will increase annually, with increases ranging from 3.62% to
7.07%. The greatest percentage increase is expected to occur in 1996 when a
full year's benefit of expanded printing capacity is expected to be
realized.
2. Cost of revenues will increase each year with increases ranging from
3.33% to 7.30%.
3. Selling and administrative expenses will increase each year with
increases ranging from 3.95% to 4.63%.
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4. Operating margins will range from a high of 3.67% to a low of 2.90%.
Margins will be affected by the contribution of each industry segment.
Printing margins are expected to be low in 1995 because of costs associated
with the start up of new equipment.
In addition to these specific assumptions, management assumed that the
competitive positions of its operating subsidiaries will not change and that raw
material costs will not change substantially.
The Company does not intend to update or otherwise publicly revise the Five
Year Projections presented herein to reflect circumstances existing or
developments occurring after the preparation of such information or to reflect
the occurrence of unanticipated events. The Five Year Projections are included
in the Proxy Statement solely because such information was available to the
Major Shareholder and provided to Wertheim Schroder and the Special Committee.
Inclusion of the Five Year Projections should not be regarded as a
representation by any person that the results will be achieved.
REPORTS AND APPRAISALS
None.
STRUCTURE AND PURPOSE OF THE MERGER
The structure of the acquisition as a merger was determined by Newco.
The Merger has been structured as a merger of Newco and the Company in order to
effectuate the acquisition of all the outstanding shares of the Company Stock
other than shares owned directly or indirectly by the Major Shareholder (except
for Covered Shares), thereby transferring the entire beneficial equity interest
in the Company to the Major Shareholder. The Merger has been structured as a
merger of Newco into the Company, with the Company as the Surviving Corporation,
in order to preserve the Company's corporate entity and existing contractual
arrangements with third parties.
The Major Shareholder has been concerned that the performance of the
Company Common Stock in the market has been negatively impacted by the Company's
small size and resulting relative lack of attention provided to the stock by
professional investment advisors and money managers, the diversity and nature of
its various business units, and the Company's traditional focus on a strong
balance sheet as opposed to consistent quarterly earnings. The Major Shareholder
believes that by being private the Company would be aided by the flexibility
inherent in a closely held corporation to implement a long-term business
strategy, without concentrating on short-term performance. There have been no
disagreements between the Major Shareholder and the Board relative to the
Company's direction. The
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purpose of the Merger is to provide the Public Shareholders the opportunity to
receive a fair consideration for their shares in excess of the market price of
the stock preceding the announcement of the Merger, while at the same time
providing the Major Shareholder what he views both as an attractive investment
opportunity and an opportunity to manage the Company with the flexibility
inherent in a closely-held enterprise. See "-- Background of the Merger." The
Major Shareholder chooses to propose the Merger at this time because he became
convinced that the efforts of the Company to achieve greater market acceptance
of the Company Common Stock had not achieved, and was unlikely to achieve in the
foreseeable future, the desired level of success. Further, it was not until this
time that the Major Shareholder was willing to accept the added risk inherent in
the more highly leveraged nature of the Company after consummation of the Merger
and the payment of the Merger Consideration to the Public Shareholders.
Each of Newco and the Major Shareholder believes that the Merger is
fair to the Public Shareholders. In arriving at this conclusion, they
considered (i) the historical and current market prices of the Company Common
Stock; (ii) the fact that the $4.25 price to be paid to Public Shareholders and
other terms and conditions of the Merger resulted from active arm's-length
negotiations between Newco and the independent Special Committee; (iii) the fact
that the Special Committee approved the Merger after consulting with independent
advisors; and (iv) the fact that the Special Committee at the time it approved
the Merger had received the opinion of Wertheim Schroder to the effect that as
of the date of such opinion the $4.25 cash per share consideration to be
received by the Public Common Shareholders is fair from a financial point of
view. Newco and the Major Shareholder did not attach relative weights to the
factors considered in reaching their conclusions. See "-- Proceedings and
Recommendation of the Special Committee and the Board, Fairness of the
Transaction."
CERTAIN EFFECTS OF THE MERGER
If the proposed Merger is consummated, the present holders of the
Company Stock (other than the Major Shareholder and its affiliates) will no
longer have an equity interest in the Company and, therefore, will not share in
its future earnings and growth. Instead, each holder of Company Stock will have
the right to receive $4.25 in cash, without interest, for each such share held
(other than shares held directly or indirectly by the Major Shareholder, except
for Covered Shares).
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<PAGE>
The Company would, as a result of the Merger, become a privately held
company. Company Common Stock would be delisted from the New York Stock
Exchange, the registration of Company Common Stock under the Exchange Act would
terminate and the Company would cease filing reports with the Commission.
Moreover, the Company would be relieved of the obligation to comply with the
proxy rules of Regulation 14A under Section 14 of the Exchange Act and its
officers, directors and 10% shareholders would be relieved of the reporting
requirements and restrictions on insider trading under Section 16 of the
Exchange Act. Accordingly, less information would be required to be made
publicly available than presently is the case.
If the Merger is consummated, the Major Shareholder's strategy for the
forseeable future is to continue to focus in the printing, advertising and
tableware businesses. The Major Shareholder intends to closely monitor each
business segment and to timely supply their capital requirements in order to
achieve the continued growth of each business segment through prudent oversight
and careful analysis of business conditions.
If the Merger is not consummated, the Company intends to continue to operate
the business in accordance with its past and present practice.
The Company's net book value at December 31, 1994 was $34,773,000 and
its net loss for 1994 was $51,000. Through his approximate 48% ownership of the
outstanding Company Common Stock, the Major Shareholder's interest in such net
book value and net loss was, as of December 31, 1994, approximately $16,671,840
and $24,000, respectively. Immediately after the Merger, all of the then
outstanding Company Common Stock of the Surviving Corporation would be owned by
the Major Shareholder. See "-- Interests of Certain Persons in the Merger,
Conflicts of Interest," "Certain Information Regarding Newco and the Major
Shareholder," and "Financial Statements -- Pro Forma Financial Data."
INTERESTS OF CERTAIN PERSONS IN THE MERGER; CONFLICTS OF INTEREST
In considering the recommendation of the Board with respect to the
Merger, shareholders should be aware that certain members of the Company's
management and members of the Board have certain interests which are described
below and which present them with conflicts of interest in connection with the
Merger Agreement. The Special Committee was aware of those conflicts and
considered them among the other matters described under "-- Background;--
Proceedings and Recommendation of the Special Committee and the Board, Fairness
of the Transaction; -- Structure and Purpose of the Merger." The executive
officers, directors and affiliates of the Company have stated that they will
vote the Company Common Stock held by them in favor of the Merger.
Ownership of the Company after the Merger. After the
Merger, the Major Shareholder will beneficially own all of the Company's
outstanding capital stock.
Directors of the Company after the Merger. The Merger Agreement
provides that after the Merger, the current directors of the Company (Mr. Robert
Garrett, Mr. John C. Mickle, Mr. Bernard S. White, Mr. George Kane, Mr. James
C. Marlas, Mr. Mel Gordon, Mr. C. Gordon Murphy and Mr. Frank Stillo) will
remain in such capacities with the Surviving
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<PAGE>
Corporation until successors are duly elected or appointed in accordance with
applicable law.
Employment of Company's Employees. Newco has indicated that,
subsequent to the Merger, the current officers and employees of the Company will
remain in such capacities with the Surviving Corporation. However, no new
employment agreements are currently contemplated.
Cash Payments to be Received in Merger. Various members of management
will receive cash payments in the Merger for cancellation of Stock Options.
Such payments will be equal to the difference between the Merger Consideration
and the per share exercise price of each Stock Option. The table below
summarizes the total amount each director and executive officer of the Company
will receive upon cancellation of the Stock Options.
Name Amount
---- ------
Robert Garrett $9,375
John C. Mickle 9,375
Bernard S. White 9,375
George Kane 35,937
James C. Marlas 0
Mel Gordon 9,375
C. Gordon Murphy 9,375
Frank Stillo 20,000
Gregory J. Garville 28,125
Fred T. Pugliese 8,062
Indemnification of Directors and Officers. The Merger Agreement
provides that the Company as the Surviving Corporation (i) for three years after
the Effective Time shall not change the provisions of its certificate of
incorporation relating to indemnification of present or former directors or
officers of the Company in a manner which adversely affects their rights to
indemnification, and (ii) for three years after the Effective Time to maintain
specified officers' and directors' liability insurance indemnifying them or if
the specified insurance is unavailable for the current premium, the Surviving
Corporation shall obtain as much insurance as can be obtained for 125% of the
current premium. In addition, pursuant to an agreement entered into with the
Company, the members of the Special Committee are indemnified with respect to
their activities as members of the Special Committee.
Under the Company's existing Certificate of Incorporation, By-laws and
certain indemnification arrangements and under currently effective officers' and
directors' liability insurance, the Company's officers and directors may have
certain rights to indemnification with respect to litigation relating to the
Merger. See "-- Proceedings and Recommendation of the Special Committee and the
Board, Fairness of the Transaction," and "The Merger -- Certain Covenants of the
Company and Newco."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following is a brief description of the material federal income
tax consequences of the Merger. This summary is for general information only.
It does not address tax consequences that may be relevant to certain types of
investors subject to special treatment under the federal income tax laws (such
as dealers in securities, banks, insurance companies and foreign individuals and
entities), or any state, local or foreign income tax laws. SHAREHOLDERS SHOULD
CONSULT THEIR OWN TAX
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<PAGE>
ADVISORS AS TO ANY FEDERAL, STATE, LOCAL, FOREIGN OR OTHER TAX CONSIDERATIONS
RELEVANT TO THEM.
The exchange of shares of Company Stock for $4.25 per share in the
Merger will be a taxable transaction to Public Shareholders. A Public
Shareholder will recognize gain or loss under federal income tax laws in an
amount by which the proceeds received in exchange for such shares exceed or are
less than the holder's tax basis in the shares. If the shares were a capital
asset in the hands of the Public Shareholder, such gain or loss will be capital
rather than ordinary and, in such instances, will be long term if the shares are
considered to have been held more than one year and short term if they are
considered to have been held one year or less on the date of the Merger.
Currently, the maximum federal income tax rate on net long-term capital gains is
28% as opposed to rates of up to 39.6% for ordinary income. Capital losses may
be used to offset capital gains. For individuals, any capital losses in excess
of capital gains may be used to offset income from other sources of up to $3,000
per year. Any remaining capital losses carry forward to future years, subject to
the same annual limits. For corporations, capital losses may only be used to
offset capital gains. Any unused capital losses may generally be carried back
for three years and carried forward five years.
Cash received by holders of Stock Options for the cancellation of such
Stock Options will be taxable to them as ordinary income, the Company may be
entitled to a corresponding deduction and the Company may be required to
withhold tax on such payments. If holders of Stock Options have acquired shares
of
38
<PAGE>
Company Common Stock upon the exercise of Stock Options or otherwise as
compensation, such stockholders should consult with their tax advisors to
determine the particular tax consequences to them of the Merger.
The waiver by each of the Major Shareholder and Union Capital, in
connection with, and only in connection with, the consummation of the Merger, of
his or its, as the case may be, right to receive any consideration for the
Company Common Stock (other than with respect to the Converted Shares) will not
result in the recognition by him or it of taxable gain.
The consummation of the Merger will not result in the recognition by
the Company of taxable gain.
Under the backup withholding rules, unless an exemption applies under
the applicable law and regulations, the Exchange Agent will be required to
withhold, and will withhold, 31% of all cash payments made in exchange for
shares of Company Stock unless the stockholder or other payee provides his tax
identification number (social security number, in the case of an individual, or
employer identification number, in the case of a corporation) and certifies that
such number is correct. Each shareholder of the Company and, if applicable,
each other payee should complete and sign the substitute Form W-9 to be included
in the transmittal materials and instructions relating to stock certificates to
be mailed to shareholders as soon as practicable after the Effective Time, so as
to provide the information and certification necessary to avoid backup
withholding, unless an applicable exemption exists and is proved in a manner
satisfactory to the Company and the Exchange Agent.
APPRAISAL RIGHTS
The following is a summary of the provisions of Section 262 of the
DGCL relating to appraisal rights. Section 262 of the DGCL is reproduced in its
entirety as Annex C to this Proxy Statement, and this summary is qualified in
its entirety by reference to Annex C. Stockholders should read carefully Annex
C and, if they wish to exercise their rights to an appraisal, follow carefully
the procedures set forth therein. Any stockholder considering demanding an
appraisal is advised to consult legal counsel.
Under Section 262 of the DGCL, holders of record of shares of Company Stock
(the "Shares") who do not wish to accept the Merger Consideration and who have
neither voted in favor of the merger nor consented thereto in writing have the
right to seek an appraisal of the fair value of their Shares in the Delaware
Court of Chancery (the "Delaware Court"). Each stockholder is urged to read
39
<PAGE>
carefully the materials contained in this Proxy Statement and the other
materials incorporated herein in making a determination whether to accept the
Merger Consideration or to seek an appraisal pursuant to the DGCL. Stockholders
desiring to exercise their appraisal rights under the DGCL are referred to
herein as "Appraisal Stockholders."
Under Section 262 of the DGCL, a vote against the Merger does not
constitute a demand for appraisal rights. Each Appraisal Stockholder wishing to
assert a right to such appraisal must, on or before _______ __, 1995, make a
written demand for the appraisal of his or her Shares to the Company at the
address set forth below. Failure to make such demand on or before _______ __,
1995 will foreclose an Appraisal Stockholder's right to an appraisal. The demand
must reasonably inform the Company of the identity of the Appraisal Stockholder
making the demand as well as the intention of such Appraisal Stockholder to
demand an appraisal of the fair value of the Shares held by such stockholder.
For purposes of making an appraisal demand, the address of the Company
is: Mickelberry Communications Incorporated, 405 Park Avenue, New York, New
York 10022, Attention: Fred Pugliese.
Only a holder of record of Shares, or a person duly authorized and
explicitly purporting to act on the record holder's behalf, is entitled to
assert an appraisal right with respect to the Shares registered in the record
holder's name. Beneficial owners who are not record holders and who wish to
exercise appraisal rights are advised to consult promptly with the appropriate
record holders as to the timely exercise of appraisal rights. A record holder,
such as a broker, who holds Shares as a nominee for others may exercise
appraisal rights with respect to the Shares held for one or more beneficial
owners, while not exercising such rights for other beneficial owners. In such a
case, the written demand should set forth the number of shares as to which the
demand is made. Where no Shares are expressly mentioned, the demand will be
presumed to cover all Shares held in the name of such record holder.
A holder of Shares held in "street name" who desires an appraisal must
take such actions as may be necessary to ensure that a timely and proper demand
for an appraisal is made by the record holder of such Shares. Shares held
through brokerage firms, banks and other financial institutions are frequently
deposited with and held of record in the name of a nominee of a central security
depository, such as Cede & Co. Any holder of Shares desiring an appraisal who
held his or her Shares through a brokerage firm, bank or other financial
institution is responsible for ensuring that the demand for an appraisal is made
by the record holder. The Appraisal Stockholder should instruct
40
<PAGE>
such firm, bank or institution that the demand for an appraisal must be made by
the record holder of the Shares, which might be the nominee of a central
security depository if the Shares have been so deposited. As required by Section
262 of the DGCL, a demand for an appraisal must reasonably inform the Company of
the identity of the record holder (which might be a nominee as described above)
and of such holder's intention to seek an appraisal of such Shares.
A demand for an appraisal of Shares owned of record by two or more
joint holders must identify and be signed by or for all of the holders. A
demand for an appraisal signed by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations or others acting in a
fiduciary or representative capacity must so identify the persons signing the
demand.
An appraisal demand may be withdrawn by an Appraisal Stockholder
within 60 days after the Effective Time, but thereafter the written approval of
the Company is needed for any such withdrawal. Upon withdrawal of an appraisal
demand, a holder of Shares will be entitled to receive the Merger Consideration.
No interest will be paid on this amount.
Within 120 days after the Effective Time (the "120-Day Period"), any
Appraisal Stockholder who has properly demanded an appraisal and who has not
withdrawn his or her demand as provided above (such Appraisal Stockholders being
hereinafter referred to collectively as the "Dissenting Stockholders") and the
Company each has the right to file in the Delaware Court a petition (the
"Petition") demanding a determination of the fair value of the dissenting Shares
(the "Dissenting Shares") held by all of the Dissenting Stockholders. If,
within the 120-Day Period, no Petition shall have been filed as provided above,
all rights to an appraisal will cease and all of the Dissenting Stockholders
will become entitled to receive the Merger Consideration, without interest
thereon after the Effective Time, with respect to such Dissenting Shares. The
Company is not obligated and does not intend to file such a Petition. Any
Dissenting Stockholder is entitled, pursuant to a written request to the Company
made within the 120-Day Period, to receive from the Company a statement setting
forth the aggregate number of Shares with respect to which demands for appraisal
have been received and the aggregate number of Dissenting Stockholders.
Upon the filing of the Petition, service of a copy thereof is required
to be made upon the Surviving Corporation, which, within 20 days after such
service must be filed in the office of the Register in Chancery in which the
Petition was
41
<PAGE>
filed a duly verified list containing the names and addresses of all Appraisal
Stockholders. The Delaware Court may order that notice of the time and place
fixed for the hearing on the Petition be sent by registered or certified mail to
the Surviving Corporation and all of the Dissenting Stockholders, and be
published at least one week before the day of the hearing in a newspaper of
general circulation published in the City of Wilmington, Delaware or in another
publication determined by the Delaware Court. The Delaware Court will approve
the form of notice by mail and by publication. The costs relating to these
notices will be borne by the Company. If a hearing on the Petition is held, the
Delaware Court is empowered to determine which Appraisal Stockholders have
complied with the provisions of Section 262 of the DGCL and are entitled to an
appraisal of their Shares. The Delaware Court may require that Dissenting
Stockholders submit their stock certificates which had represented Shares for
notation thereon of the pendency of the appraisal proceedings. The Delaware
Court is empowered to dismiss the proceedings as to any Dissenting Stockholder
who does not comply with such requirement. Accordingly, Dissenting Stockholders
are cautioned to retain their stock certificates pending resolution of the
appraisal proceedings.
Dissenting Shares will be appraised by the Delaware Court at their
fair value as of the Effective Time, exclusive of any element of value arising
from the accomplishment or expectation of the Merger. The value so determined
for the Shares could be equal to, more than or less than the Merger
Consideration, and could be based upon considerations other than, or in addition
to, the Merger Consideration, the market value of the Shares, asset values and
earning capacity. The Company reserves the right to assert in any appraisal
proceeding that the fair value of the Shares as of the Effective Time is less
than the Merger Consideration.
In Weinberger v. UOP, Inc., et al. (decided February 1, 1983), the
Delaware Supreme Court stated, among other things, that "proof of value by any
techniques or methods which are generally considered acceptable in the financial
community and otherwise admissible in court" should be considered in an
appraisal proceeding, and that "fair price obviously requires consideration of
all relevant factors involving the value of a company..." The Delaware Supreme
Court stated that in making this determination of fair value the court must
consider market value, asset value, dividends, earnings prospects, the nature of
the enterprise and any other factors which could be ascertained as of the date
of the merger that throw any light on future prospects of the merged
corporation. The Delaware Supreme Court also held that "elements of future
value, including the nature of
42
<PAGE>
the enterprise, which are known or susceptible of proof as of the date of the
merger and not the product of speculation, may be considered." In addition, the
Delaware Supreme Court stated in Weinberger that while ordinarily a
stockholder's only monetary remedy would be an appraisal, such remedy may not be
adequate "in certain cases, particularly where fraud, misrepresentation, self-
dealing, deliberate waste of corporate assets, or gross and palpable
overreaching are involved," and that in such cases the Delaware Court would be
free to fashion any form of appropriate relief.
The Delaware Court may also, on application, (i) determine a fair rate
of interest, simple or compound, if any, to be paid to Dissenting Stockholders
in addition to the value of the Dissenting Shares for the period from the
Effective Time to the date of payment, (ii) assess costs among the parties as
the Delaware Court deems equitable and (iii) order all or a portion of the
expenses incurred by any Dissenting Stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and fees
and expenses of experts, to be charged pro rata against the value of all
Dissenting Shares. Determinations by the Delaware Court are subject to
appellate review by the Delaware Supreme Court.
Dissenting Stockholders are generally permitted to participate in the
appraisal proceedings. No appraisal proceeding in the Delaware Court shall be
dismissed as to any Dissenting Stockholder without the approval of the Delaware
Court, and this approval may be conditioned upon terms which the Delaware
Court deems just.
From and after the Effective Time, Dissenting Stockholders will not be
entitled to vote their Shares for any purpose and will not be entitled to
receive payment of dividends or other distributions in respect of such Shares
payable to stockholders of record thereafter.
FINANCING OF THE MERGER
Approximately $22,876,000 will be required in order to pay (i) the
holders of all of the outstanding shares of Company Stock, other than shares of
Company Common Stock held directly or indirectly by the Major Shareholder
(except for Covered Shares), for their shares, (ii) the value of the Stock
Options, (iii) for repayment and/or cancellation of the Convertible Debentures,
other than those held directly or indirectly by the Major Shareholder, and (iv)
the expenses in connection with the Merger. The Major Shareholder has engaged
Argosy as its financial advisor to arrange for the financing of the Merger. A
condition to consummation of the Merger is that Newco obtain third party
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<PAGE>
financing on terms satisfactory to the Company and Newco for the funds required
to be paid pursuant to the Merger.
EXPENSES OF THE MERGER
Whether or not the Merger is consummated, the Company has agreed to (i)
assume all of the obligations of the Major Shareholder and any entity formed by
him for purposes of completing the Merger, including Newco under that certain
Letter Agreement, including without limitation, indemnities, contribution,
compensation and expense reimbursements all in accordance with Section 15 of
such Letter Agreement, and (ii) pay all reasonable attorneys' fees, expenses and
disbursements incurred in connection with the transactions contemplated by the
Merger Agreement. Notwithstanding the foregoing, the Company shall not assume
any obligation or pay any fees and expenses if the Merger Agreement is
terminated because of a material breach by Newco, Union Capital or the Major
Shareholder of any of their respective representations, warranties or covenants
under the Merger Agreement. The total estimated expenses resulting from the
Merger are $1,645,000. This figure is comprised of the following:
<TABLE>
<CAPTION>
<S> <C>
Accounting $ 7,000
Legal $510,000
Financing Fees $281,800
Prepayment 0
Investment Banking $707,000
Printing Costs $ 33,000
Filing Fees $ 3,200
Special Committee Fees $ 99,000
Solicitation Expenses $ 4,000
----------
$1,645,000
==========
</TABLE>
CERTAIN LITIGATION
On November 8, 1994, a class action complaint was filed in the Court
of Chancery of the State of Delaware in and for New Castle County. The
complaint was filed by Frank De Marco on his own behalf and on behalf of all
security holders of the Company except the defendants. Complaint was filed
against the Company, and the Major Shareholder, George Kane, Robert Sperling,
Mel Gordon and Frank Stillo, officers and/or directors of the Company. The
lawsuit seeks to enjoin the consummation of the original offer made by the Major
Shareholder to acquire, through a merger transaction, all the shares of the
Company's Common Stock not owned directly or indirectly by the Major Shareholder
for a cash purchase price of $3.25 per share. The suit also seeks, in the
alternative, rescission and damages as well as reimbursement of costs and
disbursements in unspecified amounts.
On March 23, 1995, the parties to the lawsuit executed a Memorandum of
Understanding which sets forth their agreement in principle providing for the
settlement of the lawsuit. Consummation of the settlement is subject to certain
conditions, including approval by the Court. Under the settlement, Mr. DeMarco
will receive the same consideration (i.e. the Merger Consideration) for his
shares as that being offered to the Public Common Shareholders pursuant to the
Merger.
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<PAGE>
THE MERGER
GENERAL
The Merger Agreement provides that, subject to the adoption of the
Merger Agreement by the shareholders of the Company and compliance with certain
other covenants and conditions, Newco will be merged with and into the Company
and the Company will be the Surviving Corporation, with the Major Shareholder
constituting its sole shareholder. All material terms of the Merger Agreement
have been disclosed in the body of this Proxy Statement. All references to the
terms and conditions of the Merger Agreement in this Proxy Statement are
qualified in their entirety by reference to the Merger Agreement, a copy of
which is attached hereto as Annex A.
At the Effective Time of the Merger, each outstanding share of Company
Stock (other than shares held directly or indirectly by the Major Shareholder,
except Covered Shares) will be converted into the right to receive $4.25 in
cash, without interest. In connection with, and only in connection with, the
consummation of the Merger, each of the Major Shareholder and Union Capital is
waiving its right to receive any consideration in exchange for the Company Stock
owned by him or it, as the case may be (except the Covered Shares).
REQUIRED VOTE
The presence, in person or by properly executed proxy, of the holders
of a majority of the outstanding shares of Company Stock is necessary to
constitute a quorum at the Special Meeting. Each shareholder is entitled to (a)
one vote for each share of Company Common Stock held by such shareholder and (b)
1/10 of a vote for each share of Company Preferred Stock held by such
shareholder. Under Delaware law and the Company's Certificate of Incorporation,
as amended, and By-laws, the affirmative vote of holders of a majority of the
outstanding shares entitled to vote at the Special Meeting is required to
approve the Merger Agreement. In addition, the Merger Agreement itself
conditions the obligations of the Company and Newco under the Merger Agreement
to an affirmative vote of at least (1) the holders of a majority of shares of
Company Stock outstanding on the record date of such Special Meeting or (2)
66 2/3% of the votes cast by the holders of shares voting of Company Stock at
the meeting, whichever is greater. The Major Shareholder, who owns directly or
indirectly approximately 48% of the Company Stock, has already agreed to vote
his shares in favor of the Merger. Upon reasonable inquiry the Company was
informed that all directors, executive officers and affiliates of the Company
and any person controlling such executive officer, director or affiliate (i)
presently intend to tender their shares pursuant to the Merger Agreement and to
vote for the Merger and (ii) have not made any recommendation in support of or
opposed to the Merger. For purposes of this vote, abstentions will be counted as
shares voted, while broker non-votes will not be so counted. The approval of the
Merger by at least a majority of unaffiliated security holders is not required
by the Merger Agreement.
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<PAGE>
EFFECTIVE TIME
The Merger will become effective by filing a Certificate of Merger,
consistent with the Merger Agreement, with the Secretary of State of Delaware.
The Merger will be consummated only upon satisfaction or waiver, where
permissible, of the terms and conditions of the Merger Agreement and provided
that the Merger Agreement has not been terminated. If the Merger has not been
consummated by September 30, 1995, either the Company or Newco may terminate the
Merger Agreement so long as the reason that the Merger has not been consummated
is not due to the failure of the party choosing to terminate to fulfill any of
its obligations thereunder. No such waiver or termination will require the vote
or consent of the holders of Company Stock.
PAYMENT FOR SHARES
In order to receive the cash to which Company shareholders will be
entitled as a result of the Merger, each holder of certificates representing
shares of Company Stock will be required to surrender such holder's stock
certificate or certificates, together with a duly executed letter of
transmittal, to the Exchange Agent. Upon receipt of such certificate or
certificates together with a duly executed letter of transmittal, the Exchange
Agent will issue a check or draft to the person or persons entitled thereto in
an amount equal to $4.25 for each share of Company Stock represented by such
stock certificate or certificates. If any payment for shares of Company Stock
is to be made in a name other than that in which the certificates for such
shares surrendered for payment are registered on the stock transfer books of the
Company as of the Effective Time, certificates so surrendered must be properly
endorsed or otherwise in proper form for transfer and the person requesting such
payment must pay to the Exchange Agent any transfer or other taxes required by
reason of the payment to a person other than the registered owner of the
certificate or certificates surrendered or shall establish to the satisfaction
of the Exchange Agent that such tax has been paid or is not applicable. No
interest will be paid or accrued on amounts payable upon the surrender of any
stock certificate.
Instructions with regard to the surrender of certificates, together
with a letter of transmittal to be used for this purpose, will be mailed to
shareholders as promptly as practicable after the Effective Time. It also is
expected that letters of transmittal will be available at the office of the
Exchange Agent no later than the first business day following the Effective
Time. Shareholders should surrender certificates for shares of Company Stock
only with a letter of transmittal.
46
<PAGE>
SHAREHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THE ENCLOSED PROXY
CARD.
CONDITIONS TO THE MERGER, WAIVER
The respective obligations of Newco and the Company to consummate the
Merger are subject to the satisfaction or waiver, on or before the Effective
Time, of the conditions that (a) the approval of the Merger and the Merger
Agreement at the Special Meeting by the affirmative vote of at least (1) the
holders of a majority of shares of Company Stock outstanding on the record date
of such Special Meeting or (2) 66 2/3% of the votes cast by the holders of
shares of Company Stock voting at the Special Meeting, whichever is greater, (b)
the opinion of Wertheim Schroder not being withdrawn, (c) any waiting period
applicable to the Merger under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976 (the "Hart-Scott-Rodino Act") shall have terminated or expired, (d) the
absence of any statute, rule or regulation which makes consummation of the
Merger illegal or otherwise prohibited or any order, decree, injunction or
judgment enjoining the consummation of the Merger and (e) the receipt of an
opinion of counsel of the Company, in form and substance reasonably satisfactory
to the Company and Newco, as to the validity of the Merger under Delaware Law.
The obligations of Newco to consummate the Merger are subject to the
satisfaction or waiver, on or before the Effective Time, of the additional
conditions that (a) the representations and warranties of the Company contained
in the Merger Agreement and in any certificate or other writing delivered by the
Company pursuant hereto shall be true and correct in all material respects at
and as of the Effective Time as if made at and as of such time; (b) the Company
shall have performed and complied in all material respects with each obligation,
agreement and covenant to be performed by and complied with by it under the
Merger Agreement at or prior to the Effective Time; (c) consummation on terms
satisfactory to Newco of third party financing for (1) the Merger Consideration,
(2) the value of the Stock Options and (3) the repayment of the Convertible
Debentures not held by the Major Shareholder or its affiliates; (d) the holders
of not more than 5% of the outstanding shares of Company Preferred Stock and
Company Common Stock shall have exercised their appraisal rights in the Merger
in accordance with Delaware Law; (e) the prepayment and cancellation of all
Convertible Debentures; (f) holders of Stock Options constituting at least 95%
of the shares represented thereby shall have entered into
47
<PAGE>
termination agreements with respect thereto in form and substance satisfactory
to Newco; and (g) no action or proceeding shall have been commenced or
threatened for the purpose of obtaining an injunction, order or damages before
any court or governmental agency or other regulatory or administrative agency or
commission, domestic or foreign, which Newco shall on advice of counsel,
reasonably determine would (1) result in the imposition of material limitations
on the ability of the Company or Newco effectively to consummate the Merger, (2)
have the effect of rendering the Merger violative of any applicable law, or (3)
have a material adverse effect on the business, assets or financial condition of
the Surviving Corporation.
The obligations of the Company to consummate the Merger are subject to
the satisfaction or waiver, on or before the Effective Time, of the additional
conditions that (a) the representations and warranties of Newco contained in the
Merger Agreement and in any certificate or other writing delivered by Newco
pursuant hereto shall be true and correct in all material respects as of the
Effective Time as if made at and as of such time (other than any inaccuracies in
such representations or warranties that are attributable to the Company); (b)
Newco shall have performed in all material respects all of its obligations to be
performed and complied with by it under the Merger Agreement at or prior to the
Effective Time; (c) consummation on terms satisfactory to the Company of third
party financing for (1) the Merger Consideration, (2) the value of the Stock
Options and (3) the repayment of the Convertible Debentures; and (d) no action
or proceeding shall have been commenced or threatened for the purpose of
obtaining an injunction, order or damages before any court or governmental
agency or other regulatory or administrative agency or commission, domestic or
foreign, which the Company shall on advice of counsel, reasonably determine
would (1) result in the imposition of material limitations on the ability of the
Company or Newco effectively to consummate the Merger, (2) have the effect of
rendering the Merger violative of any applicable law, or (3) have a material
adverse effect on the business, assets or financial condition of the Surviving
Corporation.
CERTAIN COVENANTS OF THE COMPANY AND NEWCO
Conduct of Business. Subject to certain exceptions (including,
without limitation, the payment of regular quarterly dividends on the Company's
Common Stock and Preferred Stock of $0.015 and $0.075 per share, respectively),
prior to the Effective Time (a) the Company will carry on its business in the
ordinary course consistent with past practice and (b) the Company
48
<PAGE>
will not, and will not permit any of its subsidiaries to, conduct certain
activities and enter into certain transactions.
Treatment of Existing Company Stock Options. The Company will use its
best efforts to cause the holders of all Stock Options under the Company's 1981
Incentive Stock Option Plan, 1992 Stock Option Plan, and 1993 Outside Directors'
Stock Option Plan to agree in writing to cancel such Options as of and subject
to the occurrence of the Effective Time, pursuant to an option termination
agreement in form and substance satisfactory to Newco. Each holder of a Stock
Option who executes and delivers such a termination agreement and whose Option
has an exercise price less than $4.25 per share will have the right to receive
in cash, if the Option is presently exercisable, an amount equal to the number
of shares subject to the Option, times the difference between $4.25 and the per
share exercise price of the Option. Of the outstanding Stock Options, options
representing 421,139 shares have exercise prices of less than $4.25 and options
representing 89,175 shares have exercise prices equal to or more than $4.25.
Indemnification and Insurance. The Company has agreed as the
Surviving Corporation (i) not to change, for three years after the Effective
Time, the provisions of its certificate of incorporation relating to
indemnification of present or former directors or officers of the Company in a
manner which adversely affects their rights to indemnification, and (ii) to use
its best efforts to maintain in effect for not less than three years from and
after the Effective Time the specified officers' and directors' liability
insurance indemnifying them or if the specified insurance is unavailable at the
current premiums, to obtain as much insurance as can be obtained for a premium
not in excess of 125% of the current premium paid for directors' and officers'
liability insurance.
Treatment of Existing Convertible Debentures. The Company will take
all actions deemed necessary by Newco to obtain the consent of the holders
(other than the Major Shareholder) of the Convertible Debentures to the
prepayment and/or cancellation of the Convertible Debentures as of the Effective
Time.
Vote. The Company has agreed, in accordance with applicable law, to
use its best efforts to solicit from its shareholders proxies in favor of the
approval of the Merger and the Merger Agreement.
Payment of Expenses. Whether or not the Merger is consummated, the
Company has agreed to (i) assume all of the obligations of the Client under the
Letter Agreement including,
49
<PAGE>
without limitation, indemnities, contribution, compensation, expense
reimbursements all in accordance with Section 15 of such Letter Agreement and
(ii) pay all reasonable attorneys' fees, expenses and disbursements incurred by
the Client in connection with the transactions contemplated by the Merger
Agreement. The Company shall not assume any obligation or pay any fees and
expenses if the Merger Agreement is terminated because of a material breach of
the Merger Agreement by Newco, Union Capital or the Major Shareholder.
TERMINATION, AMENDMENTS
The Merger Agreement may be terminated before the Effective Time (a)
by the mutual consent of the Boards of Directors of Newco and the Company, or
(b) by either the Board of Directors of Newco or the Company if the Merger shall
not have been consummated on or before September 30, 1995; provided, however,
-------- -------
that neither party may terminate the Merger Agreement pursuant to clause (b)
above, if the failure of such party to fulfill any of its obligations under the
Merger Agreement shall have been the reason the Merger shall not have been
consummated on or before said date.
Subject to applicable law, the Merger Agreement may be amended,
modified and supplemented by the mutual consent of the Company and Newco (as
authorized by each Board of Directors) at any time prior to the Effective Time;
provided, however, that any decrease of the amount or change in the type of
- -------- -------
consideration payable in the Merger in respect of shares of Company Stock,
any amendment affecting conditions to which the obligations of Newco or the
Company are subject, or any amendment affecting the conditions under which the
Merger Agreement may be terminated, shall also be approved by the Special
Committee.
CERTAIN INFORMATION REGARDING NEWCO,
UNION CAPITAL AND THE MAJOR SHAREHOLDER
Newco is a newly formed Delaware corporation organized on March 17,
1995, in connection with the Merger. Newco's principal offices are located at
405 Park Avenue New York, New York 10022. The Major Shareholder is the sole
shareholder, director, and executive officer of Newco.
Prior to the Merger, Newco will not have any significant assets or
liabilities (other than its rights and obligations in connection with the Merger
Agreement) and will not
50
<PAGE>
engage in any activities other than those incident to its formation and the
transactions contemplated by the Merger Agreement. At the date of this Proxy
Statement, the authorized capital stock of Newco consists of 4,000,000 shares of
common stock, $1.00 par value per share, of which 3,000,000 shares are issued
and outstanding and all of which are owned by the Major Shareholder.
The Major Shareholder, as the sole shareholder of Newco, and the Board
of Directors of Newco, of which the Major Shareholder is the sole director, have
approved and adopted the Merger Agreement. The business address of the Major
Shareholder is 405 Park Avenue, New York, New York 10022.
Union Capital was formed in Nevada on June 28, 1976. The Major
Shareholder owns all of the capital stock of Union Capital. Union Capital has
no significant assets or liabilities, other than the Company Common Stock. The
address of the principal business office of Union Capital is 40 Highland Drive,
West Caldwell, New Jersey 07006.
The Major Shareholder is the Chairman of the Board, President and
Chief Executive Officer of the Company. The Major Shareholder has been the Chief
Executive Officer of the Company for more than the preceding five years.
DESCRIPTION OF COMPANY CAPITAL STOCK
Common Stock. Of the 20,000,000 shares of Common Stock, $1.00 par
value, which the Company is authorized to issue, 5,877,948 shares of Company
Common Stock were, as of March 20, 1995, outstanding and held by approximately
1,250 shareholders of record.
Holders of the Common Stock are entitled to one vote per share on all
matters to be voted upon by the shareholders. Common shareholders are entitled
to receive such dividends as may be declared from time to time by the Board out
of funds legally available therefor. In the event of liquidation, dissolution,
or winding up of the Company, the holders of Company Common Stock are entitled
to share ratably in all assets remaining after payment of liabilities, have no
preemptive or conversion rights and are not subject to further call or
assessment by the Company. There are no redemption or sinking fund provisions
applicable to the Company Common Stock. The Company Common Stock currently
outstanding is validly issued, fully paid and nonassessable.
Preferred Stock. Of the 5,000,000 shares of Preferred Stock, $1.00
par value, which the Company is authorized to issue, 242,334 shares of Preferred
Stock were, as of March 20, 1995, outstanding and held by approximately 125
shareholders of record.
51
<PAGE>
Holders of the Preferred Stock are entitled to a 1/10 vote per share
on all matters to be voted upon by the shareholders.
RECENT MARKET PRICES; DIVIDEND HISTORY
Recent Market Prices. The Company Common Stock is traded principally
on the NYSE. The following table sets forth, for the fiscal periods indicated,
the high and low sales prices per share of Company Common Stock on the NYSE:
High Low
----- -----
1993:
First Quarter............. 3 3/4 3
Second Quarter............ 3 1/2 2
Third Quarter............. 3 1/4 2 1/4
Fourth Quarter............ 2 7/8 2 3/8
1994:
First Quarter............. 3 3/8 2 3/8
Second Quarter............ 3 2 3/8
Third Quarter............. 2 5/8 2 1/4
Fourth Quarter............ 3 1/2 2 3/8
1995:
First Quarter............. 4 3 3/4
Second Quarter (to date).. 3 7/8 3 5/8
On October 31, 1994, the last trading day prior to the public
announcement of the Major Shareholder's proposal to purchase Company Common
Stock held by Public Common Shareholders for $3.25 per share, the closing sales
price for the Company Common Stock was $2.875. On March 20, 1995, the last
trading day prior to the public announcement of (i) the approval by the Board of
the Merger Agreement and (ii) the increase by the Major Shareholder of the
offered price to $4.25 per share, the closing sales price for the Company Common
Stock was $3.00. On March 28, 1995, the last trading day prior to the public
announcement of the signing of the Merger Agreement, the closing sales price for
the Company Common Stock was $3.875. Shareholders are advised to obtain current
market quotations for the Company Common Stock.
52
<PAGE>
The Company Preferred Stock trades, on a limited and sporadic basis, in the
over-the-counter market. The Company contacted the NASD regarding trading in the
Company Preferred Stock. The Company was unable to obtain any information
concerning trading in the Company Preferred Stock for fiscal year 1993 but was
provided with the following information, for the fiscal periods indicated:
<TABLE>
<CAPTION>
High Bid Low Bid
-------- -------
<S> <C> <C>
1994:
First Quarter............. - -
Second Quarter............ 3 -
Third Quarter............. 3 2 3/4
Fourth Quarter............ 3 2 3/4
1995:
First Quarter............. 3 2 3/4
Second Quarter (to date).. - -
</TABLE>
On March 27, 1995, the last trading day prior to the public
announcement of the signing of the Merger Agreement for which a bid price
was reported, the Company Preferred Stock was quoted at a bid of $3.00.
53
<PAGE>
Dividends During Past Two Years: The Company pays dividends on a
quarterly basis and currently there are no restrictions on the payment of such
dividends. The Company declared and paid dividends on each share of Company
Stock as follows for the years ended 1994 and 1993 and for the first quarter of
1995:
<TABLE>
<CAPTION>
First Quarter
1994 1993 of 1995
----- ----- -------------
<S> <C> <C> <C>
Common Stock $ .06 $ .06 $ .0015
Preferred Stock $ .30 $ .30 $ .075
</TABLE>
If the Merger is not consummated for any reason, the payment of any
future dividends will be determined by the Board in view of the results of the
Company's operations, its financial condition and other factors. If the Merger
is consummated, present holders of the Company Common Stock (other than the
Major Shareholder and its affiliates) will have no continuing interest in the
business of the Company.
54
<PAGE>
BUSINESS OF THE COMPANY
OVERVIEW
Mickelberry Corporation is a holding company, incorporated in Delaware
in 1926, with marketing services businesses consisting of advertising agencies,
sales promotion businesses, and commercial printers. Each subsidiary operates
autonomously, drawing on the parent company for strategic and financial support.
Strong emphasis is placed on individual initiative and enterprise. The Company
conducts an active acquisition and corporate development program.
PRINTING
The Company, through its subsidiaries Sandy Alexander, Inc. and Modern
Graphic Arts (the "Printing Segment" or "Segment") is a commercial printer
specializing in high-quality color reproduction.
High-quality lithography, also referred to as fine color printing, refers
to the top quality range of commercial printing, such as required by specialty
retailers for catalogs, public companies for annual reports, and a wide variety
of commercial enterprises for advertising and promotional materials. Four,
five, six and even eight colors may be used for detailed reproduction and
accurate color rendition and consistent tone. Quality paper which may include
gloss and coating and a variety of textures and weights are normally associated
with fine color printing.
The Company's Printing Segment provides a full range of capabilities
serving the fine color printing market. The Segment also prints small-run
publications for the publishing industry and a variety of products for the
direct-mail industry.
Two production facilities include a complete spectrum of graphic arts
skills. For pre-production, color separation and pre-press operations the
Segment employs a unique blend of computerized digital equipment and laser
scanning and imaging systems. Press room facilities include six web and six
sheet fed presses. Complete prep, platemaking and bindery departments are also
maintained. In-line finishing capabilities, including cutting, gluing,
perforating and folding finished product, are an important element of post press
services. The Company also provides a separate fulfillment center for storage
and distribution of printed and other material.
55
<PAGE>
The commercial printing industry is fragmented and highly competitive.
According to the U.S. Department of Commerce there are 37,000 commercial
printers in the U.S. market providing shipments of an estimated $56 billion
annually. North American Publishing Co., a publisher of printing industry
magazines and books produces a listing of the 500 largest printers, based on
revenues, in the market. For 1994, the largest printer had revenues of $4.4
billion and the 500th largest had revenues of $9.6 million. Based on this
listing the Company's combined printing business ranks 82nd in revenues for that
year.
Competition in the printing industry is based on quality of work, service,
in the form of ability to accommodate special needs of clients, location and
price. The Company's larger printing facility is located in the New York
metropolitan area. This location affords the Company access to a highly skilled
work force and proximity to the largest printing customers in the market. The
Company's printing facilities are well equipped with state of the art machinery.
Accordingly, the Company competes effectively on the basis of quality and
service. The New York area, however, is also a high cost environment.
Accordingly, where price is the major buying consideration, the Company's New
York facility has difficulty competing with printers in lower cost regions. The
Company's St. Petersburg facility is located in a lower cost area and is able to
compete more effectively on the basis of price.
The Printing Segment employs 28 full-time salespeople, 23 of whom are
located in the Northeast, 1 in the Midwest and 4 in the Southeast.
Principal raw materials used in fine color printing are paper and ink. In
recent years, supplies of such materials have been readily available. However,
during the second half of 1994, as economic conditions improved, suppliers of
paper increased prices substantially and, in certain instances, established
limits on purchases. As a significant customer, the Printing Segment was able
to acquire the product it needed. In addition, the Segment keeps an inventory
of a wide variety of paper and ink products.
The Printing Segment accounted for 64% of consolidated revenues in 1994.
ADVERTISING AND PROMOTION
The Company's Advertising and Promotion segment consists of two advertising
agencies, a sales promotion agency and a company involved in marketing tableware
products.
56
<PAGE>
Partners & Shevack, Inc., with offices in New York City and Bender,
Browning, Dolby & Sanderson Advertising, Inc., with offices in Chicago and
Milwaukee are each full service advertising agencies. They serve a broad range
of clients and plan, create, produce and place advertising in various media such
as television, radio, newspapers and magazines. They also offer additional
services including marketing consultation and research, design and production of
merchandising and promotional materials, direct marketing capabilities and
public relations.
Partners & Shevack was formed through the consolidation of four separate
agencies acquired beginning in 1980. Its major clients include: American Home
Products Corporation, Church & Dwight, Co., Inc., National Westminster Bancorp,
Pfizer, Reckitt & Colman, Inc., The Scotts Company, Dutch Boy Paints and KLM
Royal Dutch Airlines.
Bender, Browning, Dolby & Sanderson was acquired in 1985. It counts among
its clients Amoco Chemical Corp., Country Companies Insurance, Midwest Express
Airlines and Prime Option MasterCard.
The principal sources of the advertising agencies' revenues are commissions
and fees on gross media and production costs.
Commissions are earned on advertising placed with the various media. The
agencies receive production commissions for the preparation and production of
ads. The agencies may charge fees in lieu of media and production commissions.
Federal, State and local governments and their agencies and various
consumer groups have directly or indirectly affected or attempted to affect the
scope, content and manner of presentation of advertising. The continued
activity by government and by consumer groups regarding advertising may cause
further changes in domestic advertising practices in the future.
The Company's promotion agency, Ventura Associates International, Inc., is
involved in the design and administration of all styles of sales promotion
programs including sweepstakes, games, contests, premiums, sales incentives and
rebates. Such programs are widely employed by many businesses to interest
consumers in their products, or to serve as incentives for their employees and
agents. Ventura's creative, account executive and administrative personnel work
closely with its clients in creating and completing a wide variety of programs.
The Company's advertising and promotion businesses operate in the highly
competitive marketing industry. According to Value
57
<PAGE>
Line, U.S. companies spend $148 billion annually marketing their products. The
Agency Red Book lists 4,800 advertising agencies of which 2,900 have billings in
excess of $1 million annually. The U.S. Department of Commerce estimates that
media advertising billings amount to about $37 billion annually.
The Company's advertising agencies are considered medium sized. The
industry includes 21 agencies each with annual billings in excess of $1 billion,
world-wide. The Company's agencies each have billings of between $35 million
and $200 million. There are an estimated 4,300 agencies with annual billings
under $25 million.
Competition in the advertising agency business is based on creativity and
client service. Certain large consumer advertisers also require an agency to
have a presence in numerous geographic areas. The Company believes that its
agencies provide creative products and afford client service at the highest
levels. Accordingly, they can compete with agencies much larger in size.
Indeed, size becomes a competitive advantage since the Company's agencies
provide each of their clients with access to the firm's best talent. At a
larger agency, some of these clients would be served by a less experienced
staff. Because of the Company's size, however, certain national and
international advertisers may not consider employing them.
Advertising agencies contract with their clients to serve as agency of
record for specific products or services. These contracts can be terminated on
relatively short notice. The loss of one or more product assignments would be
detrimental to the Company's advertising agencies. In the sales promotion
company clients are served on an assignment basis.
The Excel Marketing Group is engaged in designing, importing and marketing
stainless steel and silverplate flatware and other tableware products under its
own brand, Retroneu(R), and through a licensing agreement under the
Farberware(R) name. Major customers include Bloomingdales, Marshalls and
Lechters.
The retail tabletop market was approximately $3.5 billion in 1992. Excel
competes with many better-known and larger companies in the tabletop industry.
Competition is based on product quality, price and service.
Excel's products are imported from the Orient, principally Korea and China.
Excel has established agreements with manufacturers and merchandise has been
available as needed.
During 1994, Excel's traditional dinnerware continuity promotions suffered
from a lack of consumer and retailer interest. In an attempt to revive these
programs, the Company entered into an agreement to sell licensed products in
connection with the promotions. The licensed products promotions were not
successful.
58
<PAGE>
The Advertising and Promotion segment accounted for 36% of consolidated
revenues in 1994.
GENERAL
None of the Company's customers accounted for 10% of consolidated
revenues for any of the three years ended December 31, 1994.
The Company employed 657 individuals as of December 31, 1994.
The Company conducts an active corporate development program.
Potential acquisition candidates are identified via screening of public
information and through the Company's knowledge of the industries in which it
operates. In addition, the Company receives information from investment bankers
and other intermediaries concerning businesses which are for sale.
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected historical financial information
for the Company and its subsidiaries for each of the five years in the period
ended December 31, 1994. The following information should be read in
conjunction with "MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION", and the Consolidated Financial Statements and related
Notes that are included elsewhere in this Proxy Statement.
59
<PAGE>
MICKELBERRY COMMUNICATIONS INCORPORATED
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
In Thousands Three Months Ended As of and for the Fiscal Years Ended December 31,
March 31, ---------------------------------------------------------------
(except per share) 1995 1994 1994 1993 1992 1991 1990
------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues
Tangible products $25,720 $23,064 $106,637 $100,095 $ 81,273 $ 68,291 $ 64,719
Services 5,465 4,497 20,986 18,849 27,971 37,301 35,814
------- ------- -------- -------- -------- -------- --------
$31,185 $27,561 $127,623 $118,944 $109,244 $105,592 $100,533
======= ======= ======== ======== ======== ======== ========
Income
Tangible products 1,248 488 $ 1,739 $ 3,891 $ 3,822 $ 2,703 $ 3,221
Services 273 (62) 1,748 684 1,065 2,491 1,155
------- ------- -------- -------- -------- -------- --------
1,521 426 3,487 4,575 4,887 5,194 4,376
Unallocated amounts (463) (426) (1,582) (2,148) 2,779 (1,285) (3,546)
Interest expense (483) (492) (1,990) (2,172) (2,083) (2,235) (2,629)
------- ------- -------- -------- -------- -------- --------
Income (loss)
before taxes 575 (492) (85) 255 5,583 1,674 (1,799)
Income taxes
(benefits) 230 (197) (34) 101 2,233 670 (2,447)
------- ------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary item
and cumulative
effect of change
in accounting 345 (295) (51) 154 3,350 1,004 648
Extraordinary item - - - (1,134) - -
Cumulative effect
of change in
accounting - - - 200 - - -
------- ------- -------- -------- -------- -------- --------
Net income (loss) $ 345 $ 295 $ (51) $ 354 $ 2,216 $ 1,004 $ 648
======== ======= ======== ======= ======== ======== ========
Income (loss)
per share
Primary
Income (loss) before
extraordinary item
and cumulative
effect of change
in accounting $ .06 $ (.05) $ (.02) $ .02 $ .55 $ .16 $ .10
Extraordinary item - - - - (.19) - -
Cumulative effect
of change in
accounting - - - .03 - - -
------- ------- -------- -------- -------- -------- --------
Net income (loss) $ .06 $ (.05) $ (.02) $ .05 $ .36 $ .16 $ .10
======== ======= ======== ======= ======== ======== ========
Fully diluted
Income (loss) before
extraordinary item
and cumulative
effect of change
in accounting $ .05 $ (.05) $ (.02) $ .02 $ .49 $ .16 $ .10
Extraordinary item - - - - (.16) - -
Cumulative effect
of change in
accounting - - - .03 - - -
------- ------- -------- -------- -------- -------- --------
Net income (loss) $ .05 $ (.05) $ (.02) $ .05 $ .33 $ .16 $ .10
======== ======= ======== ======= ======== ======== ========
Cash dividends per
common share $ .015 $ .015 $ .06 $ .06 $ .06 $ .06 $ .06
======== ======= ======== ======= ======== ======== ========
Cash dividends per
preferred share $ .075 $ .075 $ .30 $ .30 $ .30 $ .30 $ .30
======== ======= ======== ======= ======== ======== ========
Total assets $104,693 $97,995 $100,456 $97,242 $ 88,631 $ 85,378 $ 79,528
======== ======= ======== ======= ======== ======== ========
Long term
obligations $ 20,113 $21,276 $ 20,703 $21,528 $ 22,511 $ 17,325 $ 14,736
======== ======= ======== ======= ======== ======== ========
Total Equity $ 35,056 $35,081 $ 34,773 $35,499 $ 35,605 $ 33,803 $ 33,214
======== ======= ======== ======= ======== ======== ========
Ratio of earnings
to fixed charges/(1)/ 219.05% 0% 96.17% 117.11%
Book value
per share $ 5.32 $ 5.33 $ 5.28 $ 5.36 $ 5.38 $ 5.53 $ 5.44
</TABLE>
(1) For purposes of computing the ratio of earnings to fixed charges, earnings
coverage represents the sum of income from continuing operations before
income taxes plus fixed charges. Fixed charges represent interest paid or
accrued on indebtedness of the Company.
60
<PAGE>
During 1994 the Company recorded a $2.5 million charge to reduce certain
inventory of the Excel Marketing Group to net realizable values. Also in 1994,
a $1.0 million charge (of which the Company's share is $500,000) was recorded to
adjust the inventory and allowance for returns of Excel Plus, Ltd. a company in
which the Excel Group owns 50%. (See Note 2 of the Notes to Consolidated
Financial Statements.)
In 1993, the Company acquired the Excel Group of companies. (See Note 2.)
During 1992, the Company sold Caribiner, Inc. (See Note 3.) Operating results
for these businesses are included only for the periods during which the Company
owned them. Effective January 1, 1993, the Company changed its method of
accounting for income taxes and recorded a $200,000 effect on income. (See Note
1.)
Included in unallocated amounts are: for 1993, loss on an investment; for
1992, gain on sale of a business; and for 1991 adjustment to an investment.
(See Notes 3 and 5.) In 1990, the Company recorded a $2.8 million loss on an
investment which is included in unallocated amounts. Income for 1990 also
includes a $2 million adjustment to tax liabilities.
In 1992, as a result of retiring an issue of subordinated debentures, the
Company recorded an extraordinary loss of $1,134,000.
Total equity reflects asset values at historic cost or amortized
historic cost where appropriate (e.g. for property, plant and equipment)
(see Consolidated Balance Sheets and accompanying notes in the financial
statements included elsewhere in this proxy statement). Book values per
share are calculated based on total equity adjusted to include the conversion
of the Convertible Debentures divided by the sum of outstanding Company Stock
and the Company Common Stock deemed to have been issued upon conversion
of the Convertible Debentures. Total equity and book value per share would
change if the fair values of the Company's property, plant and equipment were
different from amortized historic cost and such fair values were substituted
for amortized historic cost in the Company's balance sheets. The Company did
not have its property, plant and equipment appraised to determine what change,
if any, in total equity and book value per share might result from such
substitution of values. Nevertheless, the Company's management does not believe
that the fair values of the Company's property, plant and equipment would differ
materially from amortized historic cost. The reasons for management's belief
are described below.
The Company's property, plant and equipment at March 31, 1995 and
December 31, 1994 are summarized as follows:
<TABLE>
<CAPTION>
In thousands
<S> <C> <C>
March 31, 1995 December 31, 1994
-------------- -----------------
Leasehold improvements $ 3,749 $ 3,497
Machinery and equipment 42,736 42,337
-------- --------
Total historic cost 46,485 45,834
Less accumulated depreciation
and amortization (20,349) (19,154)
-------- --------
Amortized historic cost $ 26,136 $ 26,680
-------- --------
</TABLE>
The balances of machinery and equipment at historic cost can
be identified as printing and non-printing as follows:
<TABLE>
<CAPTION>
In thousands
<S> <C> <C>
March 31, 1995 December 31, 1994
-------------- -----------------
Printing $ 37,710 $ 37,501
Non-printing 5,026 4,836
------- -------
$42,736 $42,337
------- -------
------- -------
</TABLE>
As disclosed above, the Company's property, plant and equipment consists of
leasehold improvements, printing equipment and equipment for non-printing
businesses. The Company does not own any real property.
The Company's management has determined in its reasonable judgment that, as
a general rule, the fair value of leasehold improvements and non-printing
equipment would not exceed amortized historic cost. Leasehold improvements are
attached to the leased property and cannot be sold separate and apart from the
leased property. In most instances any value of the improvements becomes the
property of the landlord.
Non-printing equipment consists of furniture and office equipment including
computer and other electronic data processing and communication devices.
Although valuable to the ongoing businesses, these assets have limited demand on
the resale market.
The Company's printing machinery and equipment is of high quality and well
maintained. However, the market for used printing equipment has been and remains
soft. The printing industry is experiencing a consolidation which has resulted
in a surplus of equipment available for sale. Accordingly, the Company's
management does not believe that the fair value of the Company's printing
machinery and equipment would exceed amortized cost.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESPONSIBILITY FOR FINANCIAL STATEMENTS
Management has prepared and is responsible for the consolidated financial
statements and related financial information included in this report. These
financial statements were prepared in accordance with generally accepted
accounting principles which are consistently applied and appropriate in the
circumstances. The statements necessarily include amounts based on management's
best judgment and estimates.
The Company maintains accounting and other control systems, including
internal audits of its subsidiary operations to provide reasonable assurance
that assets are safeguarded and that the books and records reflect the
authorized transactions of the Company. Underlying the concept of reasonable
assurance is the premise that the cost of control should not exceed the benefit.
Management believes that the Company's accounting and other control systems
appropriately recognize this cost/benefit relationship.
61
<PAGE>
The Company's independent accountants, KPMG Peat Marwick, LLP, provide an
independent objective assessment of the degree to which management meets its
responsibility for fairness in financial reporting. They evaluate the Company's
system of internal accounting control in determining the nature and extent of
audit tests and perform such tests and other procedures as they deem necessary
to reach and express an opinion on the financial statements. The report of KPMG
Peat Marwick appears on page F-2.
The Audit Committee of the Board is responsible for reviewing and monitoring
the Company's financial reports and accounting practices. The Audit Committee,
consisting of three non-management directors, meets to discuss audit and
financial reporting matters with representatives of management, the internal
auditor and the independent accountants. The internal auditor and the
independent accountants have direct access to the Audit Committee.
GENERAL
The Company's financial statements reflect the acquisition of a business,
the sale of a business, write-down of an investment, accounting changes and an
extraordinary item. (See Notes 2, 3, 4, 5, 7 and 13 of the Notes to Consolidated
Financial Statements.) These transactions affect the comparability of the
financial statements presented.
RESULTS OF OPERATIONS
Consolidated revenues were $31.2 million in the first quarter of 1995,
a 13% increase over the $27.6 million of revenues recorded in the first quarter
of 1994. Revenue increased in both the advertising and promotion and printing
segments representing, for each segment, greater volume of business.
Equity in pre tax earnings of Excel Plus, the Excel Marketing Group's
European joint venture was a loss of $127,000 in the first quarter of 1995
compared with a break-even in 1994.
Operating income was $892,000 in the first quarter of 1995 compared with
a loss of $158,000 in 1994. The improvement in operating income results from the
increased volume of business mentioned above, better margins in the printing
business and reduced losses for the Excel Marketing Group. The Excel Marketing
Group lost money in both the first quarter of 1995 and 1994. These losses
include the Group's equity in the earnings (loss) of Excel Plus. The losses are
lower in 1995 since a smaller portion of the business relates to supermarket
continuity programs.
Pre tax income was a profit of $575,000 for the first quarter of 1995
compared with a loss of $492,000 in 1994. The improvement in pre tax income
mirrors the improvement in operating income discussed above.
Consolidated
Consolidated revenues were $127.6 million in 1994, an increase of $8.7
million over 1993 revenues of $118.9 million. The Excel Marketing Group, was
acquired in 1993, and included in operating results for 10 months. Comparing
1994 and 1993 revenues by including a full year's operations for Excel in 1993,
revenues would have increased by $4.7 million in 1994. Most of this increase
results from higher revenues in the advertising and promotion segment.
Revenues were $118.9 million in 1993, an increase of $9.7 million over 1992
revenues of $109.2 million. Excluding the Excel Marketing Group and Caribiner,
Inc., which was sold in 1992, revenues were $99.4 million in 1993, and $101.6
million in 1992. The $2.2 million decline in revenues in 1993 principally
reflects lower revenues in the advertising and promotions segment.
62
<PAGE>
Operating income was $1.2 million in 1994 and $2.7 million in 1993.
Adjusting to include Excel for all of 1993, operating income would have been
$2.6 million. The decline in operating income in 1994 results from poor
performance for the Excel Group which lost $3.6 million as compared with a
break-even in 1993.
Operating income was $2.7 million in 1993 and 1992. Excluding the
operations of the Excel Group in 1993 and Caribiner in 1992, operating income
was $2.7 million in 1993 and $2.4 million in 1992. This increase results from
slightly improved margins in the printing segment.
See below for a discussion of operating results by industry segment.
Income (loss) before taxes, extraordinary item and cumulative effect of
change in accounting principle was a loss of $85,000 in 1994 and income of
$255,000 in 1993. This decline in pretax results includes the reduction in
operating income discussed above, partially offset by an improvement in other
income and expense. In 1993, other expense reflected the write-down of an
investment in a company engaged in the record industry. See Note 5 of the Notes
to Consolidated Financial Statements.
Income before taxes, extraordinary item and change in accounting principle
was $255,000 in 1993 and $5.6 million in 1992. The principal reasons for this
decrease in pretax income are a decrease in investment income, an increase in
other expenses and the $3.2 million gain on the sale of Caribiner recognized in
1992. The decrease in investment income results from a one-time gain on the
sale of a temporary investment in 1992. The increase in other expenses reflects
the write-down of an investment in a record company.
See Note 13 of the Notes to Consolidated Financial Statements for an
analysis of income tax provisions for the years 1994, 1993 and 1992.
As of January 1, 1994, the Company changed its method of accounting for
temporary investments in order to comply with the provisions of Statement of
Financial Accounting Standards No. 115, Accounting for Certain Investments in
Debt and Equity Securities ("SFAS 115"). Pursuant to SFAS 115, in 1994 an
unrealized loss on certain investments was recognized via an adjustment to
stockholders' equity. This adjustment did not affect net income. For 1993 and
1992, the Company accounted for these investments at the lower of cost or market
with any
63
<PAGE>
resulting adjustments included in net income. See Note 7 of the Notes to
Consolidated Financial Statements.
Effective January 1, 1993, the Company changed its method of accounting for
income taxes. In connection with this change, $200,000 of income, representing
the cumulative effect of this change as of that date, was recorded. See Note 13
of the Notes to Consolidated Financial Statements.
In 1992, the Company retired the remaining balance of its issue of 11.5%
Subordinated Debentures resulting in an extraordinary loss of $1.1 million. See
Note 4 of the Notes to Consolidated Financial Statements.
By Industry Segment
Note 15, Business Segment Information, of the Notes to Consolidated
Financial Statements shows revenues and income before taxes for each of the
Company's industry segments for the three years ended December 31, 1994. Income
amounts include investment income and other expense and income in the industry
segment to which they apply but exclude equity in income or loss of an
affiliated company.
Revenues for the advertising and promotion segment were $46.4 million in
1994 an increase of $8.1 million over 1993. Adjusting 1993 revenues to include
a full year for the Excel Marketing Group, revenues increased by $4.1 million in
1994. This increase reflects greater advertising expenditures by clients of the
Company's advertising subsidiaries and sales growth for the Farberware flatware
and dinnerware products at Excel.
For this segment, revenues increased to $38.4 million in 1993 from $28
million in 1992. Excluding the Excel Marketing Group and Caribiner, revenues
were $18.8 million in 1993 and $20.3 million in 1992. This reduction results
from a decrease in sweepstakes prizes, in the sales promotion business.
In 1994, the advertising and promotion segment recognized a pretax loss of
$876,000 as compared with profit of $613,000 in 1993. Excluding the effects of
investment and other income but including the Company's equity in earnings and
loss of an affiliated Company, the segment lost $2.1 million in 1994 and earned
$547,000 in 1993. This significant change results from operations at the Excel
Marketing Group.
During 1994, Excel's traditional dinnerware continuity promotions suffered
from a lack of consumer and retailer
64
<PAGE>
interest. In an attempt to revive these programs, the Company entered into an
agreement to sell licensed products in connection with the promotions. The
licensed products promotions were not successful.
The Excel Group's joint venture in Europe, Excel Plus Ltd., also
experienced difficult market conditions in 1994 and recognized a loss for the
period. For both its US and European operations the Company recorded
adjustments to inventory values and to the allowance for returns. See Note 2 of
the Notes to Consolidated Financial Statements. In March 1995, the Company was
informed by the other 50% owner of Excel Plus Ltd. that it may want to terminate
the joint venture agreement. The Company is engaged in discussions with the
other owner as to the liquidation of assets and liabilities as well as the
future of the joint venture. Management does not believe that resolution of the
uncertainty regarding this joint venture will have a material effect on the
Company.
The inclusion of the results of the Excel Marketing Group for 10 months in
1993 did not materially affect the comparability of pretax income between 1994
and 1993.
Pretax income in the advertising and promotion segment was $.6 million in
1993 and $1.1 million in 1992. Excluding the Excel Marketing Group, Caribiner
and the effects of investment income and other income and expense, income was
$.5 million in 1993 and $.6 million in 1992.
In the printing segment, revenues were $81.2 million in 1994 as compared
with $80.6 million in 1993. This modest increase in revenues reflects a
continuing softness in the market for high quality commercial printing. In
addition, in 1994 the Company installed two finishing lines at its St.
Petersburg, Florida facility and dismantled a web press at the Clifton, New
Jersey plant. During the periods when this work was being performed, productive
capacity was reduced.
Revenues were $80.6 million in 1993 as compared with $81.3 million in 1992.
This decline reflects a soft market. Pricing was extremely competitive since
there was excess printing capacity in the market.
Income for the printing segment was $5.3 million in 1994 and $4.0 million
in 1993. Investment income and other income and expense had no effect on these
amounts. The improvement in earnings in 1994 includes better pricing and more
efficient production. It also reflects an adjustment to a self insured
65
<PAGE>
medical reserve and inventory profits recognized when paper prices increased
dramatically in the second half of the year.
Income for the segment was $4.0 million in 1993 and $3.8 million in 1992.
Investment income and other income and expense had no effect on these amounts.
The slight increase in income in 1993 results from improvements in production
efficiencies in the Company's St. Petersburg, Florida facility.
FINANCIAL CONDITION
The Company's financial position as of March 31, 1995 is shown in the
unaudited Consolidated Balance Sheets. The major change in the Company's
financial condition at March 31, 1995 compared to December 31, 1994 is the
increase in non cash working capital and a corresponding decrease in cash and
temporary investments. Inventory balances increased by $7.8 million during the
first quarter. These increases were principally in the printing segment and
result from increased business in printing corporate annual reports.
As of March 31, 1995 the Company had not yet borrowed money to finance the
additions to property, plant and equipment made in 1994. The Company expects to
finance these additions which will increase cash and temporary expenditures by
about $5 million.
The Company's financial position as of December 31, 1994 and 1993 is shown
in the Consolidated Balance Sheets. Note 15, Business Segment Information,
discloses identifiable assets by industry segment. The Consolidated Statements
of Cash Flows for the three years ended December 31, 1994 shows increases and
decreases in cash resulting from operating, investing and financing activities.
Liquidity
The Company had cash and temporary investments of $9.4 million at December
31, 1994, compared with $13.2 million at the end of 1993. The decline in cash
and temporary investments in 1994 results from payments made for additions to
property, plant and equipment. The Company expects to borrow money to finance
some of these expenditures, bringing cash and temporary investments balances
back to the year-end 1993 level. After completing this financing, cash and
temporary investments will exceed the current needs of ongoing operations. It
is management's intention to invest these funds in new businesses or to expand
existing subsidiaries. The Company may also use some of the cash and temporary
investments to fund a proposed merger transaction. See Note 17 of the Notes to
Consolidated Financial Statements.
Working capital was $18.1 million at December 31, 1994, compared with $21.9
million at December 31, 1993. The Company's working capital balances and ratios
are affected by its advertising businesses. The full amounts of an advertising
agency's receivables and payables are recorded as assets and liabilities while
only the commission portion of the billings is shown as revenues. The Excel
Group uses a line of credit to finance the acquisition of flatware and
dinnerware inventories.
Capital Reserves
The Company's advertising and promotion segment is not capital intensive,
but the printing segment does require a
66
<PAGE>
continuing expansion and upgrading of equipment. The Company's capital needs for
these existing businesses are satisfied through operations. In addition,
equipment acquisitions can be arranged through many sources of debt or lease
financing.
Long-term debt was 37% and 38% of the Company's total capitalization as of
December 31, 1994 and 1993, respectively.
The Company was committed to acquire $1.7 million of property, plant and
equipment at December 31, 1994. The Company expects to finance these
expenditures with loans secured by the equipment.
INFLATION
Inflation has influenced the Company's financial position and operations.
Some of the revenues reflected in the Consolidated Statements of Income are
simply higher prices and do not represent increased activity. These revenues
are, to a degree, offset by increased expenses which also simply reflect higher
costs. Depreciation expense, however, is not adjusted currently to reflect
increased equipment costs. Since much of the Company's equipment is relatively
new, the potential distortion to depreciation expense is not significant. It
has been the Company's experience that new equipment incorporates productivity
savings which offset increased depreciation costs.
67
<PAGE>
BENEFICIAL OWNERSHIP OF SHARES
OF
THE COMPANY
The following table sets forth to the best of the Company's knowledge,
the beneficial ownership of voting securities, as of March 13, 1995, with
respect to (i) each person or group known to the Company to own more than 5% of
the outstanding Shares and (ii) each director and executive officer of the
Company. Unless otherwise indicated in the footnotes following the table, the
person as to whom the information is given has sole voting and investment power
over the Shares indicated as beneficially owned.
68
<PAGE>
Each person listed below is a citizen of the United States. Unless
otherwise indicated, the business address of each person listed below is 405
Park Avenue, New York, New York 10022.
<TABLE>
<CAPTION>
Title of Class Name of Beneficial Percentage of
Owner Number of Shares(1) Class
- -------------- ---------------------------- ------------------- --------------
<S> <C> <C> <C>
Common Stock James C. Marlas 3,826,903(2) 55.3%
Lindner Dividend Fund 1,302,588(3) 18.1%
7711 Carondelet Avenue
P.O. Box 16900
St. Louis, MO 63105
Dimensional Fund Advisors, Inc. 362,250 6.2%
1299 Ocean Avenue
Suite 650
Santa Monica, CA 90401
George Kane 89,997(4) 1.3%
Bernard S. White 44,102(5) *
Gregory J. Garville 36,325(6) *
C. Gordon Murphy 12,000(7) *
Frank Stillo 11,250(8) *
Robert Garrett 11,070(9) *
Mel Gordon 10,400(10) *
John C. Mickle 10,600(11) *
Fred T. Pugliese 13,583(12) *
Preferred
Stock
Karla Davis 14,472 6%
4033 Santa Barbara
Dallas, TX 75214
Catherine Neuhoff Dickson 21,400 8.8%
2645 Vista Del Arroyo
San Angelo, TX 76904
Henry Neuhoff III 15,793 6.5%
12008 Fieldwood Lane
Dallas, TX 74234
Robert Vincent Neuhoff 15,919 6.6%
4710 Dorset Road
Dallas, TX 75229
</TABLE>
_____________________________
(1) Unless noted otherwise all shares presented are beneficially owned by
the listed owners in terms of both voting and investment power.
(2) 1,974,065 of these shares are held in the name of Union Capital
Corporation, of which Mr. Marlas is the sole stockholder. Mr. Marlas
is the holder of $4,200,000 in principal amount of the Company's 8%
Convertible Subordinated Debentures due May 2002. The convertible
subordinated debentures are convertible into the Company's Common
Stock, par value $1, at any time at a price of $4.25 per share.
Accordingly, 988,235 of the shares beneficially owned represent the
shares which may be acquired upon conversion of those debentures. An
additional 50,000 shares represent exercisable options (which were
granted in 1992 under the Company's 1981 Incentive Stock Option Plan),
and 203,000 shares represent shares held for Mr. Marlas' benefit in
qualified retirement plans.
(3) Lindener Dividend Fund, Inc. is the beneficial owner of $5,536,000 in
principal amount of the Company's 8% Convertible Subordinated
Debentures due May 2002. Accordingly, all of the Shares beneficially
owned represent the shares which may be acquired upon conversion of
those debentures.
(4) includes 32,500 exercisable options.
(5) includes 10,000 exercisable options.
(6) includes 30,000 exercisable options.
(7) includes 10,000 exercisable options.
(8) includes 10,000 exercisable options.
(9) includes 10,000 exercisable options.
(10) includes 10,000 exercisable options.
(11) includes 10,000 exercisable options.
(12) includes 9,000 exercisable options.
* Less than one percent.
69
<PAGE>
The following table sets forth to the best of the Company's knowledge, any
purchases of Company Stock made by the Company or any affiliate since January 1,
1993:
<TABLE>
<CAPTION>
PRICE/ AVERAGE
DATE OF FORM IDENTITY PER PURCHASE
FILING # SECURITY DATE TYPE OF PURCHASER # SHARES SHARE PRICE
- ------- ----- --------- ------- --------------- ------------------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
8.2.94 4 COMMON 7.5.94 DIRECT PURCHASE Mr. James C. Marlas 500 2.50 2.438
" 7.11.94 " " 4000 2.375 2.438
" 7.13.94 " " 1000 2.50 2.438
" 7.15.94 " " 200 2.50 2.438
" 7.18.94 " " 100 2.50 2.438
" 7.19.94 " " 3000 2.50 2.438
7.11.94 4 COMMON 6.20.94 DIRECT PURCHASE Mr. James C. Marlas 2000 2.50 2.688
" 6.21.94 " " 2500 2.50 2.688
6.8.94 4 COMMON 5.26.94 DIRECT PURCHASE Mr. James C. Marlas 1600 2.50 2.688
</TABLE>
70
<PAGE>
CERTAIN TRANSACTIONS IN COMPANY STOCK
During the past 60 days, no transactions in Company Stock were
effected by the persons named in the table set forth above.
PROXY SOLICITATION
Proxies are being solicited by and on behalf of the Board. All
expenses of this solicitation, including the cost of preparing and mailing this
Proxy Statement, will be borne by the Company. In addition to solicitation by
uses of the mails, proxies may be solicited by directors, officers and employees
of the Company in person or by telephone, telegram or other means of
communication. Such directors, officers and employees will not be additionally
compensated, but may be reimbursed for out-of-pocket expenses in connection with
such solicitation. Arrangements will also be made with custodians, nominees and
fiduciaries for forwarding of proxy solicitation material to beneficial owners
of the Company Common Stock held of record by such persons, and the Company may
reimburse such custodians, nominees and fiduciaries for reasonable expenses
incurred in connection therewith. MacKenzie Partners, Inc. has been engaged
71
<PAGE>
to solicit proxies on behalf of the Company for a fee of $4,000 plus reasonable
out-of-pocket expenses.
CURRENT INFORMATION: DELISTING AND DEREGISTRATION
The Company is subject to the informational requirements of the
Exchange Act, and in accordance therewith, files reports, proxy statements and
other documents and information with the Commission. The Company officers,
directors and principal shareholders are also presently subject to certain
filing requirements, as well as certain trading restrictions, imposed under the
Exchange Act. Such reports, proxy statements and other documents and
information, as well as the aforementioned Schedule 13E-3, are available for
inspection and copying at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the Regional Offices of the Commission located at Room 3190,
Kuczynsky Federal Building, 230 South Dearborn Street, Chicago, Illinois 60604,
and Seven World Trade Center, New York, New York 10048. Copies of such
material may be obtained at prescribed rates by mail addressed to the
Commission's Public Reference Section, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Company's Common Stock is listed on the New York
Stock Exchange, and such material and other information can also be inspected at
the offices of the New York Stock Exchange at 20 Broad Street, New York, NY
10005.
After the Effective Time, the Company Common Stock will be delisted
from the New York Stock Exchange, registration of the Company Common Stock under
the Exchange Act will terminate and the Company will cease filing reports with
the Commission. Moreover, the Company will be relieved of the obligation to
comply with the proxy rules of Regulation 14A under Section 14 of the Exchange
Act, and its officers, directors and 10% shareholders will be relieved of the
reporting requirements and "short-swing" trading liability under Section 16 of
the Exchange Act.
INDEPENDENT AUDITORS
Representatives of KPMG Peat Marwick, LLP, the Company's independent
auditors, are expected to be present at the Special Meeting and will have an
opportunity to make a statement should they desire to do so. Such
representatives are also expected to be available to respond to questions.
72
<PAGE>
FUTURE SHAREHOLDER PROPOSALS
If the Merger is not consummated, any shareholder who wishes to
present a proposal for inclusion in the Proxy Statement for action at future
Annual Meetings of Shareholders must comply with the rules and regulations of
the Commission then in effect. The date by which such proposals must be
received by the Company for inclusion in the Company's Proxy Statement for the
1995 Annual Meeting has not yet been determined. If the Merger is not
consummated, the Company will inform holders of the Common Stock of the date by
which such proposals must be received by the Company for inclusion in the
Company's Proxy Statement for the 1995 Annual Meeting of Shareholders.
OTHER BUSINESS
The Board does not intend to bring any other matters before the
Special Meeting and does not know of any matters to be brought before the
Special Meeting by others. If any other matter should come before the Special
Meeting, it is the intention of the persons named in the accompanying proxy to
vote the proxy on behalf of the shareholders they represent in accordance with
their best judgment.
73
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Unaudited Financial Statements:
Consolidated Balance Sheets at March 31,
1995 and 1994.......................................... F-2
Consolidated Statements of Income
for the three months ended
March 31, 1995 and 1994................................ F-3
Consolidated Statement of Stockholders' Equity
for the three months ended March 31, 1995.............. F-4
Consolidated Statement of Cash Flows for the
three months ended March 31, 1995 and 1994............. F-5
Notes to Consolidated Financial Statements............. F-6
Audited Financial Statements:
Report of Independent Accountants...................... F-8
Consolidated Balance Sheets............................ F-9
Consolidated Statements of Income...................... F-10
Consolidated Statements of Stockholders' Equity........ F-11
Consolidated Statements of Cash Flows.................. F-12
Notes to Consolidated Financial Statements ............ F-13
Excel Plus Limited Financial Statements................ F-29
Other:
Quarterly Data......................................... F-43
Pro Forma Financial Data............................... F-45
Condensed Consolidated Balance Sheet (Unaudited)....... F-46
Condensed Consolidated Statement of
Income (Unaudited).................................... F-47
Notes to Unaudited Pro Forma Condensed
Consolidated Financial Statements..................... F-49
</TABLE>
F-1
<PAGE>
MICKELBERRY COMMUNICATIONS INCORPORATED
CONSOLIDATED BALANCE SHEETS
In Thousands (except shares and par values)
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
---------- -------------
<S> <C> <C>
Assets
Current assets
Cash $ 157 $ 1,596
Temporary investments 4,380 7,759
Receivables, less allowances for 34,648 32,701
doubtful accounts and returns -
$4,285 (1994 - $5,260)
Inventories 27,864 20,045
-------- --------
Total current assets 67,049 62,101
Intangibles - net 10,946 11,152
Property, plant and equipment - net 26,136 26,680
Other 562 523
-------- --------
$104,693 $100,456
======== ========
Liabilities
Current liabilities
Accounts payable $ 23,467 $ 16,479
Notes payable 8,537 9,180
Accrued liabilities 11,040 13,222
Income taxes payable 2,927 2,614
Current portion of long-term debt 2,615 2,547
-------- --------
Total current liabilities 48,586 44,042
Deferred income taxes 938 938
Long-term debt 20,113 20,703
Stockholders' equity
Preferred stock, par value $1 - 242 242
$5,000,000 shares authorized;
242,000 shares issued (minimum
liquidation preference $727)
Common stock, par value $1 - 5,878 5,878
20,000,000 authorized;
5,878,000 shares issued
Capital 2,157 2,157
Retained earnings 27,029 26,790
Cumulative foreign currency
translation adjustment (54) (56)
Unrealized holding gain (loss) (196) (238)
-------- --------
Total stockholders' equity 35,056 34,773
-------- --------
$104,693 $100,456
======== ========
</TABLE>
F-2
<PAGE>
MICKELBERRY COMMUNICATIONS INCORPORATED
CONSOLIDATED BALANCE SHEETS
For the three months ended
March 31, 1995 and 1994
In Thousands (except per share)
<TABLE>
<CAPTION>
1st Quarter
------------------
1995 1994
-------- --------
<S> <C> <C>
Revenues
Tangible products $25,720 $23,064
Services 5,465 4,497
------- -------
31,185 27,561
Equity in pre-tax earnings (127) --
(loss of affiliated company
Costs and expenses
Cost of revenues
Tangible products 19,883 18,256
Services 4,880 4,207
Selling and administrative 5,403 5,256
------- -------
30,166 27,719
======= =======
Operating income (loss) 892 (158)
Other expense (income)
Interest expense 483 492
Investment income (127) (148)
Other - net (39) (10)
------- -------
317 334
------- -------
Income (loss) before taxes 575 (492)
Income taxes (benefit) 230 (197)
Net income (loss) $ 345 $ (295)
======= =======
Income (loss) per common share
Primary:
Net income (loss) 0.06 (0.05)
------- -------
Fully diluted:
Net income (loss) 0.05 (0.05)
------- -------
Dividends per common share $ 0.015 $ 0.015
------- -------
</TABLE>
F-3
<PAGE>
MICKELBERRY COMMUNICATIONS INCORPORATED
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the three months ended March 31, 1995
In Thousands
<TABLE>
<CAPTION>
Cumulative
Common Capital Foreign Unrealized Total
Preferred Stock in Excess Currency Holding Stock
Stock, Par of Par Retained Translation Gain Holders'
Par Value $1 Value $1 Value Earnings Adjustment (Loss) Equity
------------ -------- --------- --------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at $242 $5,878 $2,157 $26,790 $(56) $(238) $34,773
December 31, 1994
Net Income -- -- -- 345 -- -- 345
Cash Dividends -- -- -- (106) -- -- (106)
Translation -- -- -- -- 2 -- 2
adjustments
Change in market -- -- -- -- -- 42 42
value of available-
for-sale securities
(net of tax)
Balance at $242 $5,878 $2,157 $27,029 $(54) $(196) $35,056
March 31, 1995 ==== ====== ====== ======= ==== ===== =======
</TABLE>
F-4
<PAGE>
MICKELBERRY COMMUNICATIONS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended
March 31, 1995 and 1994
<TABLE>
<CAPTION>
In Thousands
Operating Activities 1995 1994
------- -------
<S> <C> <C>
Net Income (loss) $ 345 $ (295)
Adjustments to reconcile
net income to net cash:
Depreciation 1,195 1,050
Amortization 209 212
Net change in:
Accounts receivable (1,947) 1,425
Inventories (7,819) (2,796)
Accounts payable 6,988 2,568
Accrued liabilities (2,182) (974)
Income taxes 313 (186)
Notes payable to bank (643) (189)
------- -------
Net increase (decrease) from operating activities (3,541) 1,193
------- -------
Investing Activities
Net change in temporary investments 3,421 2,124
Expenditures for property, plant
and equipment (651) (1,857)
Expenditures for intangibles -- (34)
Other (39) 296
------- -------
Net increase (decrease) from
investing activities 2,731 529
------- -------
Financing Activities
Principal payments for debt (525) (430)
Dividends paid (106 (106)
------- -------
Net increase (decrease) from
financing activities (631) (536)
------- -------
Effect of exchange rate changes
on cash 2 15
------- -------
Net increase (decrease) in cash (1,439) 1,201
Cash at beginning of year 1,596) 460
------- -------
Cash at end of period 157 $ 1,661
======= =======
</TABLE>
F-5
<PAGE>
MICKELBERRY COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of the Company's management, the financial statements
reflect all adjustments necessary to a fair statement of the results for
the interim periods presented.
2. The results of operations for the three months ended March 31, 1995 and
1994 are not necessarily indicative of the results to be expected for the
full year.
3. Inventories at March 31, 1995 and December 31, 1994 consist of:
<TABLE>
<CAPTION>
In Thousands
1995 1994
------- -------
<S> <C> <C>
Finished goods $ 9,503 $ 8,761
Work-in-process 12,943 7,166
Raw materials 5,418 4,118
------- -------
$27,864 $20,045
======= =======
</TABLE>
4. Intangibles and Property, Plant and Equipment
Intangibles: Intangibles at March 31, 1995 and December 31, 1994 are
-----------
valued at cost and consist of:
<TABLE>
<CAPTION>
In Thousands
1995 1994
------- -------
<S> <C> <C>
Costs in excess of net tangible assets
of businesses acquired $15,746 $15,746
Less accumulated amortization (4,800) 4,594)
------- -------
$10,946 $11,152
======= =======
</TABLE>
Property, Plant and Equipment: Property, plant and equipment at March 31,
-----------------------------
1995 and December 31, 1994 are valued at cost and consist of:
<TABLE>
<CAPTION>
In Thousands
1995 1994
-------- --------
<S> <C> <C>
Leasehold improvements $ 3,749 $ 3,497
Machinery and equipment 42,736 42,337
-------- --------
46,485 45,834
Less accumulated depreciation
and amortization (20,349) (19,154)
-------- --------
$ 26,136 $ 26,680
======== ========
</TABLE>
F-6
<PAGE>
5. Consolidated statements of Cash Flows
The following is supplemental information regarding cash flows:
<TABLE>
<CAPTION>
In Thousands
1995 1994
----- -----
<S> <C> <C>
Cash paid during the period for:
Interest $ 283 $ 309
Income taxes $ 56 $ 103
</TABLE>
6. Equity in Affiliated Company
The Excel Marketing Group, a wholly owned subsidiary of the Company, owns a
50% interest in Excel Plus Ltd., a company engaged in dinnerware and other
product promotions in Europe. The Company accounts for Excel Plus under
the equity methods and records its share of Excel Plus' income or loss
before taxes as a separate item in the Consolidated Statements of Income.
The Company's share of Excel Plus' income tax expense is included in the
consolidated provision for income taxes.
Summarized financial information of Excel Plus is as follows:
<TABLE>
<CAPTION>
March 31, December 31,
In Thousands 1995 1994
------------ -------------
<S> <C> <C>
Current assets $ 4,771 $ 6,418
Non current assets 60 52
------- -------
$ 4,831 $ 6,470
======= =======
Current liabilities $ 6,235 $ 7,617
Non current liabilities -- --
Equity (1,404) (1,147)
------- -------
$ 4,831 $ 6,470
======= =======
1st Quarter
----------------------
1995 1994
------- -------
Revenues $ 1,962 $ 1,245
Costs and expenses 2,216 1,245
------- -------
Income (loss) before taxes (254) --
Income taxes (benefit) -- --
------- -------
Net income (loss) $ (254) $ --
======= =======
</TABLE>
F-7
<PAGE>
Report of Independent Accountants
---------------------------------
To the Board of Directors and
Stockholders of Mickelberry Communications Incorporated
We have audited the accompanying consolidated balance sheets of Mickelberry
Communications Incorporated and subsidiaries as of December 31, 1994 and 1993,
and the related consolidated statements of income, stockholders' equity, and
cash flows for each of the three years ended December 31, 1994. In connection
with our audits of the consolidated financial statements, we have also audited
the financial statement schedules as of and for the three years ended December
31, 1994 as listed in the index on page F-1. These consolidated financial
statements and financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Mickelberry
Communications Incorporated and subsidiaries as of December 31, 1994 and 1993
and the results of their operations and their cash flows for each of the three
years ended December 31, 1994 in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedules
referred to above, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly, in all material respects,
the information set forth therein.
As discussed in Notes 1 and 13 to the consolidated financial statements, in
1993 Mickelberry Communications Incorporated changed its method of accounting
for income taxes.
New York, New York
February 24, 1995, except for Notes 2 and 17, as to which the date is March 21,
1995
F-8
<PAGE>
MICKELBERRY COMMUNICATIONS INCORPORATED
CONSOLIDATED BALANCE SHEETS
In Thousands (except shares and par values)
<TABLE>
<CAPTION>
Assets 1994 1993
--------- --------
<S> <C> <C>
Current assets
Cash $ 1,596 $ 460
Temporary investments 7,759 12,722
Receivables, less allowances for
doubtful accounts and returns
$5,260 (1993-$3,050) 32,701 30,832
Inventories 20,045 16,931
-------- -------
Total current assets 62,101 60,945
Intangibles-net 11,152 11,944
Property, plant and equipment-net 26,680 22,421
Other 523 1,932
-------- -------
$100,456 $97,242
======== =======
Liabilities
Current liabilities
Accounts payable $ 16,479 $15,712
Notes payable 9,180 6,901
Accrued liabilities 13,222 11,832
Income taxes payable 2,614 2,624
Current portion of long-term debt 2,547 1,926
-------- -------
Total current liabilities 44,042 38,995
Deferred income taxes 938 1,220
Long-term debt 20,703 21,528
Stockholders' equity
Preferred stock, par value $1 -
5,000,000 shares authorized;
242,000 shares issued (minimum
liquidation preference $727) 242 242
Common stock, par value $1 -
20,000,000 shares authorized;
5,878,000 shares issued
(5,876,000 in 1993) 5,878 5,876
Capital in excess of par value 2,157 2,154
Retained earnings 26,790 27,266
Cumulative foreign currency translation
adjustment (56) (39)
Unrealized holding gain (loss) (238) -
-------- -------
Total stockholders' equity 34,773 35,499
-------- -------
</TABLE>
$100,456 $97,242
======== =======
See Notes to Consolidated Financial Statements.
F-9
<PAGE>
MICKELBERRY COMMUNICATIONS INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
IN THOUSANDS (EXCEPT PER SHARE)
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Revenues
Tangible products $106,637 $100,095 $ 81,273
Services 20,986 18,849 27,971
-------- -------- --------
127,623 118,944 109,244
Equity in pre-tax income (loss) of
affiliated company (907) 124 -
Costs and expenses
Cost of revenues
Tangible products (includes rent
paid to a related party: $980 in
1994, $862 in 1993 and $478 in 1992) 85,089 79,443 66,791
Services 17,807 16,695 22,278
Selling and administrative 22,668 20,232 17,492
-------- -------- --------
125,564 116,370 106,561
-------- -------- --------
Operating income 1,152 2,698 2,683
Other expense (income)
Interest expense 1,990 2,172 2,083
Investment income (631) (759) (1,780)
Gain on sale of business - - (3,170)
Other-net (122) 1,030 (33)
-------- -------- --------
1,237 2,443 (2,900)
-------- -------- --------
Income (loss) before taxes (benefit),
extraordinary item and
cumulative effect of change in
accounting principle (85) 255 5,583
Income taxes (benefit) (34) 101 2,233
-------- -------- --------
Income (loss) before extraordinary
item and cumulative effect of change
in accounting principle (51) 154 3,350
Extraordinary item-loss on
extinguishment of debt - - (1,134)
Cumulative effect of change in
accounting for income taxes - 200 -
-------- -------- --------
Net income (loss) $ (51) $ 354 $ 2,216
======== ======== ========
Income (loss) per common share
Primary
Income (loss) before
extraordinary item and
cumulative effect of change
in accounting principle $ (.02) $ .02 $.55
Extraordinary item - - (.19)
Cumulative effect of change in
accounting principle - .03 -
-------- -------- --------
Net income (loss) $ (.02) $ .05 $.36
======== ======== ========
Fully diluted
Income (loss) before
extraordinary item and cumulative
effect of change in accounting
principle $ (.02) $ .02 $ .49
Extraordinary item - - (.16)
Cumulative effect of change
in accounting principle - .03 -
-------- -------- --------
Net income (loss) $ (.02) $ .05 $ .33
======== ======== ========
Dividends per common share $ .06 $ .06 $ .06
======== ======== ========
Number of shares used to
calculate earnings per share
Primary 5,876 5,914 5,941
Fully diluted 5,876 5,914 7,263
</TABLE>
See Notes to Consolidated Financial Statements.
F-10
<PAGE>
MICKELBERRY COMMUNICATIONS INCORPORATED
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1994, 1993 and 1992
In Thousands
<TABLE>
<CAPTION>
Cumulative
Common Capital Foreign Unrealized Total
Preferred Stock, in Excess Currency Holding Stock
Stock, Par of Par Retained Translation Gain holders'
Par Value $1 Value $1 Value Earnings Adjustment (Loss) Equity
------------ -------- ---------- --------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at 12/31/91 $242 $ 5,870 $ 2,146 $ 25,545 $ - $ - $33,803
Net income - - - 2,216 - - 2,216
Cash dividends - - - (425) - - (425)
Stock options
exercised - 5 6 - - - 11
---- -------- -------- -------- ---- ----- -------
Balance at 12/31/92 242 5,875 2,152 27,336 - - 35,605
Net income - - - 354 - - 354
Cash dividends - - - (424) - - (424)
Stock options
exercised - 1 2 - - - 3
Translation
adjustments - - - - (39) - (39)
---- -------- -------- -------- ---- ----- -------
Balance at 12/31/93 242 5,876 2,154 27,266 (39) - 35,499
Effect of change in
accounting for avail-
able for-sale securi-
ties (net of tax) - - - - - 57 57
Net income - - - (51) - - (51)
Cash dividends - - - (425) - - (425)
Stock options
exercised - 2 3 - - - 5
Translation
adjustments - - - - (17) - (17)
Change in market
value of available-
for-sale securities
(net of tax) - - - - - (295) (295)
---- -------- -------- -------- ---- ----- -------
Balance at 12/31/94 $242 $ 5,878 $ 2,157 $ 26,790 $(56) $(238) $34,773
==== ======== ======== ======== ==== ===== =======
</TABLE>
For each of the three years ended December 31, 1994, 1993 and 1992, dividends
paid on common stock were $.06 per share and on preferred stock were $.30 per
share. See Notes to Consolidated Financial Statements.
F-11
<PAGE>
MICKELBERRY COMMUNICATIONS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1994, 1993 and 1992
In Thousands
<TABLE>
<CAPTION>
Operating activities 1994 1993 1992
------- ------- --------
<S> <C> <C> <C>
Net income (loss) $ (51) $ 354 $ 2,216
Adjustments to reconcile net income (loss)
to net cash from operations
Equity in after tax (income) loss of
affiliated company 544 (81) -
Depreciation 3,740 3,473 3,187
Amortization 847 791 549
Extraordinary item (gross of tax benefit) - - 1,719
Cumulative effect of change in accounting
for income taxes - (200) -
Gain on sale of business - - (3,170)
Net change in components of operating
working capital
Accounts receivable (1,869) (4,165) 1,643
Inventories (3,114) 5,094 (457)
Accounts payable 767 (2,453) 6,271
Notes payable 2,279 (1,026) -
Accrued liabilities 1,576 2,296 (6,653)
Income taxes 163 (1,768) 1,410
------- ------- --------
Net increase from
operating activities 4,882 2,315 6,715
------- ------- --------
Investing activities
Business acquired - (9,493) -
Proceeds from sale of business - - 7,981
Net change in temporary investments 4,567 12,058 (6,745)
Expenditures for intangibles (42) - -
Expenditures for property, plant and
equipment (8,004) (2,396) (11,961)
Proceeds (expenditures) for
other assets 370 (19) 89
------- ------- --------
Net increase (decrease) from
investing activities (3,109) 150 (10,636)
------- ------- --------
Financing activities
Principal payments for debt (1,892) (6,612) (5,185)
Proceeds from issuance of debt 1,675 4,111 9,012
Proceeds from issuance of stock 5 3 11
Dividends paid (425) (424) (425)
------- ------- --------
Net increase (decrease) from
financing activities (637) (2,922) 3,413
------- ------- --------
Effect of exchange rate changes on cash - (9) -
------- ------- --------
Net increase (decrease) in cash 1,136 (466) (508)
Cash at beginning of year 460 926 1,434
------- ------- --------
Cash at end of year $ 1,596 $ 460 $ 926
======= ======= ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Principles of Consolidation: The accompanying consolidated financial
statements include the accounts of the Company and its subsidiaries.
Investments in which the Company has at least a 20% but not more than a 50%
interest are accounted for under the equity method.
Earnings per Share: Primary earnings per common share are calculated by
dividing income available to common stock by the sum of the weighted average
number of common shares outstanding plus incremental shares deemed issued via
exercise of stock options. For primary earnings per share purpose, the number
of incremental shares are calculated using average market prices for common
stock during the period.
For purposes of calculating fully diluted earnings per share, incremental
shares resulting from stock options are calculated using end of period market
prices, if higher than average prices. Also for fully diluted purposes, if
dilution results, the number of common shares issuable on conversion of
convertible debt and the after tax effect of interest expense on such debt are
added to the denominator and numerator, respectively, of the earnings per share
calculation.
Intangibles: Intangibles are amortized on a straight-line basis over
periods up to 40 years. When events or changes in circumstance indicate that
the carrying amount of assets, including intangibles, may not be recoverable,
the Company assesses impairment, if any, of such carrying amounts by estimating
future cash flows expected to result from the use of the assets. Where the sum
of the expected future net cash flows exceeds the carrying amount of the asset
no impairment is recognized.
Property and Depreciation: Property, plant and equipment (including
capitalized leased equipment) are recorded at cost and depreciated on straight-
line or accelerated methods over estimated useful lives (which range as follows:
leasehold improvements - 5 to 15 years, machinery and equipment - 3 to 10
years).
Income Recognition: The principal sources of revenues, for the Company's
advertising agency subsidiaries, are commissions and fees on gross media and
production costs. Revenue is generally recognized on media liability dates for
media and completion dates for production costs. In accordance with industry
practice, payroll costs are expensed as incurred.
Revenues and expenses relating to producing business conferences were
generally recognized on presentation date.
F-13
<PAGE>
Sales of merchandise by the Company's subsidiary which is engaged in
supermarket promotions, are made subject to customers' rights to return unsold
items. Revenue is recognized by the Company when merchandise is shipped to
customers and a reserve is recorded for estimated future returns.
Income Taxes: In February 1992, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes. Statement 109 requires a change from the deferred method of
accounting for income taxes of APB Opinion 11 to the asset and liability method
of accounting for income taxes. Under the asset and liability method of
Statement 109, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under Statement 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
Effective January 1, 1993, the Company adopted Statement 109 and has
reported the cumulative effect of that change in the method of accounting for
income taxes in the Consolidated Statements of Income.
Pursuant to the deferred method under APB Opinion 11, which was applied in
1992 and prior years, deferred income taxes were recognized for income and
expense items that were reported in different years for financial reporting
purposes and income tax purposes using the tax rate applicable for the year of
the calculation. Under the deferred method, deferred taxes were not adjusted
for subsequent changes in tax rates.
Foreign Currency Translation: Assets and liabilities of a foreign
subsidiary and a foreign joint venture are translated at current exchange rates
as of the balance sheet date. Income statement accounts are translated at
weighted average exchange rates during the year. Differences resulting from the
translation process are recorded in stockholders' equity as a currency
translation adjustment.
2. Business Acquired
In March 1993, the Company acquired the Excel Marketing Group of companies
for $9.5 million plus expenses. The Excel companies are engaged in marketing
dinnerware, flatware and other products in supermarket promotions and through
department stores and mass merchant outlets. The acquisition has been accounted
for as a purchase; and accordingly, the acquired assets and liabilities have
been recorded at their estimated fair values at date of acquisition. The excess
of the purchase price over the fair value of net assets acquired has been
recorded as goodwill, an
F-14
<PAGE>
intangible asset. The goodwill will be amortized on the straight line basis over
a period of 40 years. The results of the Excel companies are included in the
Consolidated Statements of Income from March 1, 1993.
During 1994, the traditional dinnerware continuity promotions conducted
with supermarket chains suffered from a lack of consumer and retailer interest.
Fewer promotions were run and the merchandise sold at each promotion was, in
general, less than in previous years. In an attempt to revive supermarket
promotions, the Company started using licensed products for these programs. The
licensed products promotions were not successful. As a result of the lack of
interest in dinnerware programs and the failure of licensed products, the
Company's management decided to reduce the inventory of products sold via
supermarket promotions by disposing of them at discounted prices through
alternative channels of distribution. A charge of $2.5 million was recorded to
reduce these inventories to their net realizable values.
The Excel Marketing Group owns a 50% interest in Excel Plus Ltd., a company
engaged in dinnerware and other product promotions in Europe. The Company
accounts for Excel Plus under the equity method and records its share of Excel
Plus' income or loss before taxes as a separate item in the Consolidated
Statements of Income. The Company's share of Excel Plus' income tax expense or
benefit is included in the consolidated provision for income taxes.
F-15
<PAGE>
Summarized financial information of Excel Plus is as follows:
<TABLE>
<CAPTION>
In Thousands 1994 1993
-------- ------
<S> <C> <C>
Current assets $ 6,418 $3,367
Non current assets 52 25
------- ------
$ 6,470 $3,392
======= ======
Current liabilities $ 7,617 $3,163
Non current liabilities - -
Equity (1,147) 229
------- ------
$ 6,470 $3,392
======= ======
Revenues $ 6,713 $5,076
Costs and expenses 8,527 4,828
------- ------
Income (loss) before taxes (1,814) 248
Income taxes (benefit) (91) 86
------- ------
Net income (loss) $(1,723) $ 162
======= ======
</TABLE>
Included in the operating results of Excel Plus for 1994 is a $1 million
charge to adjust inventory to its net realizable value and to record an
additional allowance for returns.
Undistributed losses of Excel Plus which are included in consolidated
retained earnings are $574,000 at December 31, 1994. The Company has
guaranteed $2,073,600 of debt owed by Excel Plus, Ltd.
3. Gain on Sale of Business
In June 1992, the Company sold its business conferences subsidiary,
Caribiner, Inc., for approximately $8 million.
A gain of $3,170,000 was recognized as a result of the sale. Operating results
for Caribiner, Inc. are included in the Consolidated Statements of Income
through June 30, 1992.
4. Debt and Financing Arrangements
<TABLE>
<CAPTION>
Borrowing Schedule, Long-Term:
In Thousands 1994 1993
------- -------
<S> <C> <C>
7.16% Note due monthly through March 1998 $ 913 $ 1,154
7.75% Promissory Note due monthly through
October 1999 2,287 2,572
8.5% Promissory Note due monthly through
May 1999 866 1,021
10.29% Promissory Note due monthly through
July 1999 1,113 1,294
7.58% Note due monthly through April 2000 2,258 2,589
8% Promissory Note due monthly through
July 2000 1,583 -
7.5% Promissory Note due monthly through
July 2000 3,767 4,291
8% Convertible Subordinated Debentures due
May 2002 9,733 9,721
Other debt 730 812
------- -------
23,250 23,454
Less current portion 2,547 1,926
------- -------
</TABLE>
$20,703 $21,528
======= =======
F-16
<PAGE>
Payments due on the debt for years after 1994 are, $2,547,000 in 1995,
$2,534,000 in 1996, $2,457,000 in 1997, $2,410,000 in 1998, $2,415,000 in 1999
and $10,887,000 thereafter.
Extinguishment of Debt: During 1992 the Company retired its issue of 11.5%
Subordinated Debentures. The debentures were issued originally at 83.75% of
their $11,775,000 principal amount. This discount was being amortized over the
term of the debentures. The Company retired the debentures for consideration
equal to their principal amount resulting in a pretax loss of $1,719,000. The
loss, net of a $585,000 tax benefit, is included in the Consolidated Statements
of Income as an extraordinary item.
Conversion: In connection with the 1992 retirement of the 11.5%
Subordinated Debentures, the Company issued $9,828,000 in principal amount of 8%
Convertible Subordinated Debentures. The debentures are convertible at any time
into the Company's common stock, par value $1, at a conversion price of $4.25
per share. The Company can redeem the debentures for their principal amount at
any time after June 1998 and can redeem them after June 1996 and before June
1998 provided the common stock is trading at a price in excess of 150% of the
conversion price.
Notes Payable and Lines of Credit: The Excel Marketing Group has lines of
credit providing a maximum of $16.8 million for working capital and foreign
exchange purposes. At December 31, 1994, $9,180,000 was outstanding under these
lines at a weighted average interest rate of 5.2%. The Excel Group violated
certain covenants contained in the lines of credit agreements. Waivers of these
violations were obtained from the lending institution.
Collateral: As collateral for some of the above debt, the Company has
pledged assets with a net book value of $25,666,000 at December 31, 1994.
Covenants: The borrowing agreements require maintenance of certain
subsidiary earnings and capital requirements and impose restrictions regarding
payments of dividends and other distributions to common shareholders and
purchases of treasury stock. At December 31, 1994, $7,438,000 of retained
earnings was available for these purposes.
5. Write-down of Investment and Related Party Transactions
In 1993, the Company invested $1.0 million as the initial equity capital of
November Records, Inc., a corporation organized to produce and distribute
recorded music. As a result of the exigencies encountered in starting this
business, November used the capital invested by the Company in 1993 and sought
additional capital. Because of the risk associated with this further
investment, the Company decided against making an additional capital
contribution to November. The Company's Chief Executive Officer agreed to
invest $500,000 in November. Other investors agreed to invest an additional
$500,000. Following these additional capital contributions the Company's
ownership in November was reduced to 40%. Since the Company's
F-17
<PAGE>
controlling ownership of November was temporary, its detailed operating accounts
have not been included in the Consolidated Statements of Income. Rather, the
write-off of the Company's investment is included as other expense in 1993.
The Company's printing subsidiary leases facilities from a partnership in
which three members of the Company's Board of Directors own an aggregate
interest of 33%. The Excel Marketing Group leases facilities from a partnership
in which a member of the Company's Board of Directors owns a 14% interest. Rent
paid to these partnerships for the three years ended December 31, 1994, 1993 and
1992 was $980,000, $862,000 and $478,000, respectively.
In connection with the acquisition of the Excel Marketing Group in March
1993, the Company paid $2.6 million to an individual who became a member of the
Company's Board of Directors following the purchase. The payment was made in
exchange for the individual's ownership interest in the Excel Group. In
addition, the Company paid $2.5 million to the individual's brother-in-law and
$100,000 to the individual's mother, each of whom was also an owner of the Excel
Group.
At the time of its acquisition the Excel Marketing Group owed money to the
individual's mother. This obligation was evidenced by a note payable. The
balance owing on this note at December 31, 1994 was $587,500. Interest on the
note is the prime rate plus 1% and amounted to $36,300 and $48,300 for the years
ended December 31, 1993 and 1994.
6. Consolidated Statements of Cash Flows
Supplemental information regarding cash flows:
<TABLE>
<CAPTION>
In Thousands 1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Cash paid during the year for
Interest $2,008 $2,141 $1,944
Income taxes $ 600 $1,083 $ 237
</TABLE>
Noncash Investing and Financing Activities: During 1992, the Company
exchanged equipment with a value of $1,435,000 as partial payment for
replacement equipment.
During 1992, the Company issued $9,828,000 of 8% Convertible Subordinated
Debentures in exchange for $9,828,000 in principal amount of 11.5% Subordinated
Debentures, which were retired.
7. Temporary Investments and Investment Income
Temporary investments consist of the following:
<TABLE>
<CAPTION>
In Thousands 1994 1993
------- -------
<S> <C> <C>
Money market deposits $3,560 $ 8,169
Certificates of deposit 1,095 1,053
Bond funds 3,500 3,500
Unrealized losses (396) -
------ -------
</TABLE>
$7,759 $12,722
====== =======
Statement of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities ("SFAS 115"), was issued in May 1993
and was applicable to the Company as of January 1, 1994. SFAS 115 requires that
certain investments be classified as either held-to-maturity, trading or
available-for-sale. Held-to-maturity investments are accounted for at amortized
cost. Trading and available-for-sale securities are accounted for at market
value. Changes in market values for trading
F-18
<PAGE>
securities are reported in the income statement. Changes in market values for
available-for-sale securities are reported, net of tax, as unrealized holding
gains or losses in the Statement of Stockholders' Equity.
Included in temporary investments at December 31, 1994 and 1993 are
investments classified as available-for-sale securities. The unrealized net of
tax gain on such investments as of January 1, 1994 is reported in the Statement
of Stockholders' Equity as the effect of a change in accounting for available-
for-sale securities.
Prior to January 1, 1994 the Company accounted for available-for-sale
securities at the lower of cost or market. During the year ended December 31,
1992 the carrying value of these securities was reduced to market value
Investment income consists of the following:
<TABLE>
<CAPTION>
In Thousands 1994 1993 1992
-------- -------- ------
<S> <C> <C> <C>
Interest $ 629 $ 721 $ 824
Dividends 2 3 1
Gain on sales and adjustments
to carrying values of
temporary investments, net - 35 955
------- ------- ------
$ 631 $ 759 $1,780
======= ======= ======
</TABLE>
8. Intangibles and Property, Plant and Equipment
Intangibles: Intangibles are valued at cost and consist of:
<TABLE>
<CAPTION>
In Thousands 1994 1993
------- -------
<S> <C> <C>
Costs in excess of net tangible assets
of businesses acquired $15,746 $15,703
Accumulated amortization (4,594) (3,759)
------- -------
$11,152 $11,944
======= =======
</TABLE>
F-19
<PAGE>
Property, Plant and Equipment: Property, plant and equipment is valued at
cost and consists of:
<TABLE>
<CAPTION>
In Thousands 1994 1993
-------- --------
<S> <C> <C>
Leasehold improvements $ 3,497 $ 3,006
Machinery and equipment 42,337 34,847
-------- --------
45,834 37,853
Accumulated depreciation (19,154) (15,432)
-------- --------
$ 26,680 $ 22,421
======== ========
</TABLE>
9. Commitments
Leases: The Company leases certain property, plant and equipment under
long term leases. Some of the leases include renewal options, escalation
clauses and purchase options. Rent expenses charged to operations during the
years ended December 31, 1994, 1993 and 1992 were $3,188,000, $3,148,000 and
$3,954,000, respectively.
Approximate minimum annual rental commitments under all noncancelable
uncapitalized leases for years ended after 1994 are $3,110,000 in 1995,
$3,197,000 in 1996, $3,194,000 in 1997, $2,079,000 in 1998, $956,000 in 1999 and
$2,038,000 thereafter.
Capital expenditures: At December 31, 1994, the Company had commitments to
acquire approximately $1.7 million of property, plant and equipment.
10. Retirement Plans
The Company maintains profit-sharing plans covering most employees. The
costs under these plans were $669,000 in 1994, $697,000 in 1993 and $618,000 in
1992. The Company's policy is to fund the costs accrued.
The Company contributes to multi-employer defined benefit retirement plans
as required under contracts with collective bargaining units representing
certain employees of the Company's printing business. The costs, representing
the required contributions under these plans, were $367,000 in 1994, $329,000 in
1993 and $254,000 in 1992. The Company's policy is to fund the retirement costs
accrued.
F-20
<PAGE>
11. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market, and consist of:
<TABLE>
<CAPTION>
In Thousands 1994 1993
------- -------
<S> <C> <C>
Finished goods $ 8,761 $ 8,751
Work-in-process 7,166 4,970
Materials 4,118 3,210
------- -------
$20,045 $16,931
======= =======
</TABLE>
12. Accounts Payable and Accrued Liabilities
Accounts payable consist of the following:
<TABLE>
<CAPTION>
In Thousands 1994 1993
------- -------
<S> <C> <C>
Trade $13,342 $12,566
Due to banks 2,952 2,683
Other 185 463
------- -------
$16,479 $15,712
======= =======
</TABLE>
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
In Thousands 1994 1993
------- ------
<S> <C> <C>
Unearned income $ 3,803 $3,954
Compensation and employee benefits 4,876 3,348
Trade 2,549 2,180
Other 1,994 2,350
------- -------
$13,222 $11,832
======= =======
</TABLE>
13. Income Taxes
As discussed in Note 1, the Company adopted Statement 109 as of January 1,
1993.The cumulative effect of this change in accounting for income taxes of
$200,000 is determined as of January 1,1993 and is reported separately in the
Consolidated Statements of Income. Pretax income from continuing operations for
the year ended December 31, 1993 was not affected as a result of applying
Statement 109.
F-21
<PAGE>
Income (loss) before taxes consists of:
<TABLE>
<CAPTION>
In Thousands 1994 1993 1992
-------- ------- --------
<S> <C> <C> <C>
Domestic $ 1,151 $ 329 $5,583
Foreign (1,236) (74) -
------- ----- -------
$ (85) $ 255 $5,583
======= ===== =======
</TABLE>
The provision for income taxes (benefit) includes the following:
<TABLE>
<CAPTION>
In Thousands 1994 1993 1992
------- ------ -------
<S> <C> <C> <C>
Currently payable
Federal $ 768 $ - $1,583
State and local 45 65 180
Foreign - 43 -
------- ----- -------
813 108 1,763
Deferred
Federal (702) 115 360
State and local (145) (37) 110
Foreign - (85) -
------- ----- -------
(847) (7) 470
------- ----- -------
$ (34) $ 101 $2,233
======= ===== =======
</TABLE>
The components of deferred income taxes (benefit) for 1994 and 1993 are as
follows:
<TABLE>
<CAPTION>
In Thousands 1994 1993
----- -------
<S> <C> <C>
Deferred tax expenses (benefits)
(exclusive of the benefit of
net operating loss) $(847) $ 549
Benefit of net operating loss - (556)
------- -------
$ (847) $ ( 7)
======= =======
</TABLE>
The components of deferred income taxes (benefit) for 1992 are as follows:
<TABLE>
<CAPTION>
In Thousands 1992
-------
<S> <C>
Difference in basis of assets sold $(1,903)
Reinstatement of deferred income
taxes previously adjusted as a
result of net operating losses 2,135
Depreciation 238
-------
$ 470
</TABLE>
=======
F-22
<PAGE>
The following is a reconciliation of the applicable statutory federal
income tax rate to the effective rates reported in the financial statements:
<TABLE>
<CAPTION>
1994 1993 1992
--------------- -------------- -------------
% of % of % of
Dollars in Pretax
Thousands Amount Income Amount Income Amount Income
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Tax at statutory
rate $ (29) (34)% $ 87 34 % $1,898 34 %
State and local
tax net of federal
benefit (expense) (68) (79)% 18 7 % 191 4 %
Amortization of
intangibles 77 89 % 44 18 % 68 1 %
Nondeductible
(deductible) expenses (14) (16)% (34) (13)% 76 1 %
Foreign tax - - (14) (6)% - -
----- ---- ----- ---- ------ --
$ (34) (40)% $ 101 40 % $2,233 40 %
===== ==== ===== ==== ====== ==
</TABLE>
The tax effects of temporary differences and carryforwards that give rise
to significant portions of the deferred tax assets and deferred tax liabilities
at December 31, 1994 and 1993 are presented below.
<TABLE>
<CAPTION>
In Thousands
Deferred tax assets 1994 1993
-------- --------
<S> <C> <C>
Allowance for doubtful accounts $ 185 $ 164
Net operating loss carryforwards - 556
Alternative minimum tax credit
carryforwards 859 373
Basis of investment 745 331
Basis of inventory 1,001 -
Accrued expenses - 55
Other 36 50
------- -------
Total gross deferred tax assets 2,826 1,529
Less valuation allowance - -
------- -------
Net deferred tax assets 2,826 1,529
Deferred tax liabilities
Accumulated depreciation (3,600) (2,748)
Change in accounting (164) -
Other - (1)
------- -------
Total gross deferred tax liabilities (3,764) (2,749)
------- -------
Net deferred tax liabilities $ (938) $(1,220)
======= =======
</TABLE>
The Company has alternative minimum tax credit carryforwards of
approximately $859,000 which are available to reduce future federal income taxes
over an indefinite period.
F-23
<PAGE>
Included in other income for the year ended December 31, 1992 is $491,000
representing interest on tax refunds.
14. Stockholders' Equity
Options: The Board of Directors of the Company has granted stock options
to certain employees pursuant to the 1981 Incentive Stock Option Plan and the
1992 Stock Option Plan. Pursuant to its term, as of April 1992, options may no
longer be granted under the 1981 Incentive Stock Option Plan. Options
previously granted under the 1981 plan remain viable. Under the 1992 Stock
Option Plan, options for up to 400,000 shares may be granted. Options generally
become exercisable over a three year period following the date of grant. The
option price is the fair market value of the stock on the date of grant.
Options have been granted to non-employee members of the Company's Board of
Directors pursuant to the 1993 Outside Directors Stock Option Plan. Under this
plan, options for up to 100,000 shares may be granted. The option price is the
fair market value of the stock on the date of grant. Options are exercisable
upon grant.
Changes in options during the years ended December 31, 1994 and 1993, were
as follows:
<TABLE>
<CAPTION>
No. of Option Price
Shares per Share
------- ---------------
<S> <C> <C>
Outstanding at December 31, 1992 434,150 $2.25 - $5.875
Exercised (1,333) $ 2.650
Canceled (21,667) $2.25 - $4.875
Granted 228,500 $2.75 - $3.313
-------
Outstanding at December 31, 1993 639,650 $2.25 - $5.875
Exercised (2,000) $ 2.625
Canceled (7,000) $2.265 - $4.750
Granted 15,000 $ 3.310
-------
Outstanding at December 31, 1994 645,650 $2.25 - $5.875
=======
</TABLE>
At December 31, 1994, options on 527,314 shares were exercisable and shares
reserved for future option grants amounted to 254,500.
Preferred Stock, par value $1: The preferred stock is entitled to a
cumulative annual dividend of $.30 per share, may be redeemed at the option of
the Company for $7.50 per share and is entitled to one-tenth of a vote per share
at all stockholder meetings. Each share has a minimum liquidation preference of
F-24
<PAGE>
$3.00 and will participate with the common stock up to a maximum liquidation
payment of $7.50.
15. Business Segment Information
Information regarding the Company's operations in different industries as
of December 31, 1994, 1993 and 1992 and for the years then ended, is as follows:
<TABLE>
<CAPTION>
In Thousands Pretax Identi- Depreciation
Income fiable Capital &
1994 Revenues (Loss) Assets Expenditures Amortization
- ---- -------- ------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Advertising
and promotion $ 46,431 $ (876) $ 34,343 $ 536 $1,272
Printing 81,192 5,270 58,788 7,450 3,286
-------- ------- -------- ------- ------
127,623 4,394 93,131 7,986 4,558
Unallocated
amounts (2,489) 7,325 18 29
Interest
expense (1,990)
-------- ------- -------- ------- ------
$127,623 $ (85) $100,456 $ 8,004 $4,587
======== ======= ======== ======= ======
1993
- ----
Advertising
and promotion $ 38,366 $ 613 $ 35,190 $ 716 $1,195
Printing 80,578 3,962 50,239 1,671 3,042
-------- ------- -------- ------- ------
118,944 4,575 85,429 2,387 4,237
Unallocated
amounts (2,148) 11,813 7 27
Interest
expense (2,172)
-------- ------- -------- ------- ------
$118,944 $ 255 $ 97,242 $ 2,394 $4,264
======== ======= ======== ======= ======
1992
- ----
Advertising
and promotion $ 27,971 $ 1,065 $ 14,860 $ 587 $1,147
Printing 81,273 3,822 49,662 11,374 2,447
-------- ------- -------- ------- ------
109,244 4,887 64,522 11,961 3,594
Unallocated
amounts 2,779 24,109 142
Interest
expense (2,083)
-------- ------- -------- ------- ------
$109,244 $ 5,583 $ 88,631 $11,961 $3,736
======== ======= ======== ======= ======
</TABLE>
F-25
<PAGE>
Information regarding the Company's foreign and domestic operations is as
follows:
<TABLE>
<CAPTION>
In Thousands Pretax
Income Identifiable
1994 Revenues (Loss) Assets
- ---- -------- ------ ------------
<S> <C> <C> <C>
United States $126,991 $1,151 $100,724
Canada 632 (329) 306
United Kingdom
(equity in affiliated co.) - (907) (574)
-------- ------ --------
$127,623 $ (85) $100,456
======== ====== ========
</TABLE>
<TABLE>
<CAPTION>
Pretax Identifiable
1993 Revenues Income Assets
- ---- -------- ------ ------------
<S> <C> <C> <C>
United States $118,376 $ 329 $ 96,655
Canada 568 (198) 472
United Kingdom
(equity in affiliated co.) - 124 115
-------- ------ --------
$118,944 $ 255 $ 97,242
======== ====== ========
</TABLE>
During 1992 the Company's operations were confined to the United States.
16. Disclosure Concerning Financial Instruments
The Company does not have any concentrations of credit risk arising from
financial instruments. The Company has guaranteed $350,000 of debt owed by
Southeast Publishing Ventures, Inc. ("SPV"). The Company has a minority
ownership interest in SPV. The Company has guaranteed $2,073,600 of debt owed
by Excel Plus, Ltd. If either SPV or Excel Plus, Ltd. fail to make payments on
their debt the Company would be required to pay the guaranteed amount.
The estimated fair values of the Company's financial instruments at
December 31, 1994, and 1993 are as follows:
<TABLE>
<CAPTION>
1994 1993
---------------- -----------------
Carrying Fair Carrying Fair
In Thousands Amount Value Amount Value
------- ------- -------- -------
<S> <C> <C> <C> <C>
Assets
- ------
Temporary investments $ 7,759 $ 7,759 $12,722 $12,818
Long-term investments
included in other
assets $ 410 $ 410 $ 916 $ 956
Liabilities
- -----------
Notes payable $ 9,180 $ 9,180 $ 6,901 $ 6,901
Long-term debt for
which it is
practicable to
estimate fair value $13,516 $12,632 $13,733 $13,575
Not practicable $ 9,734 $ - $ 9,721 $ -
</TABLE>
F-26
<PAGE>
Fair values of temporary and long term investments were determined based
upon quoted market prices where available or on management's best estimate. In
general, management's best estimates are based on estimated future cash flows
discounted, where appropriate, at rates commensurate with the risks involved.
Fair value of long-term debt was estimated by discounting the debt
repayment streams at rates currently offered by lending institutions. This
method of estimating fair value is not applicable to the 8% Convertible
Subordinated Debentures because it does not consider the value associated with
the conversion privilege. Quoted market prices for the debentures were not
available so it was not practicable to estimate fair value.
Unless noted otherwise, carrying amount is the same as the amount reported
in the balance sheet.
All financial instruments are held for purposes other than trading.
17. Offer to Purchase Common Stock
On November 1, 1994 the Company announced that James C. Marlas, the
Chairman, President and Chief Executive Officer of the Company, proposed to
acquire, through a merger transaction, all the shares of the Company's Common
Stock not owned by Mr. Marlas for a cash purchase price of $3.25 per share.
Mr. Marlas beneficially owns approximately 48% of Mickelberry's outstanding
Common Stock, not including shares issuable upon conversion of debentures owned
by him. The Company's Board of Directors appointed a special committee to
evaluate Mr. Marlas' proposal.
As a result of the Company's announcement of Mr. Marlas' proposal, on
November 8, 1994 a class action complaint was filed, in the Court of Chancery of
the State of Delaware in and for New Castle County against the Company and
certain of its officers and directors. The lawsuit seeks an injunction barring
Mr. Marlas from acquiring the shares of the Company's Common Stock pursuant to
his proposal. If, however, the proposed transaction is consummated the lawsuit
seeks rescission and damages as well as an accounting for profits and
reimbursement of expenses. The parties have reached an agreement in principle
to settle this lawsuit, which agreement is subject to court approval. If court
approval is not granted it is not possible to estimate the liability, if any,
which the Company may incur as a result of this lawsuit. In any event,
management does not expect that this lawsuit will have a material adverse effect
on the financial position of the Company.
The proposal was subject to a number of conditions, including the execution
of a mutually satisfactory definitive
F-27
<PAGE>
merger agreement, a satisfactory agreement reached with institutional investors
holding the Company's Convertible Subordinated Debentures regarding the early
retirement of these securities, the receipt of all necessary consents and
governmental approvals and the receipt of financing.
The Company's special committee of Directors evaluated Mr. Marlas's
proposal (including an increase of the cash purchase price from $3.25 per share
to $4.25 per share) and on March 21, 1995 recommended that the Company enter
into the merger transaction and the Board of Directors approved the Agreement
and Plan of Merger on March 21, 1995 (including the payment of the same
consideration to the holders of the Company's Preferred Stock).
The consummation of the transactions contemplated by the Agreement and Plan
of Merger is subject to a number of conditions, including (a) the approval of
the Agreement by the affirmative vote of at least (1) the holders of a majority
of the shares outstanding or (2) 66 2/3% of the votes cast by the holders of the
shares voting at a special meeting, whichever is greater, (b) a satisfactory
agreement reached with institutional investors holding the Company's Convertible
Subordinated Debentures regarding the early retirement of these securities, (c)
the receipt of all necessary consents and governmental approvals, (d) the
holders of not more than 5% of the outstanding shares of Preferred Stock and
Common Stock shall have exercised their appraisal rights in the Merger, and (e)
the receipt of third-party financing.
F-28
<PAGE>
EXCEL PLUS LIMITED
FINANCIAL STATEMENTS
FOR THE YEAR ENDED
31 DECEMBER 1994
Together with the Directors' and
Auditors' Report
REGISTERED NUMBER: 2682392
DIRECTORS' REPORT - FOR THE YEAR ENDED 31 DECEMBER, 1994
The directors present their report on the affairs of the company together with
the accounts and auditors' report for the year ended 31 December 1994.
PRINCIPAL ACTIVITIES AND BUSINESS REVIEW
The principal activity of the company continues to be the supply of goods for
continuity promotions, in particular for the food retail sector.
The results for the year are disappointing. The directors have put in place
immediate remedial action and expect the company's performance to improve
significantly in 1995.
RESULTS AND DIVIDENDS
Turnover for the year amounts to (Pounds)4,362,655 (1993, eleven months -
(Pounds)3,431,411) and loss for the year was (Pounds)548,612 (1993, eleven
months - profit (Pounds)109,291). The directors do not propose to declare a
dividend (1993 - (Pounds)nil).
FIXED ASSETS
The movements in tangible fixed assets are set out in Note 7 to the
accounts.
DIRECTORS AND THEIR INTERESTS
The directors of the company who served during the year were:
N.F. Cope
R. Sperling (USA)
J. Saslow (USA)
T.E. McCarthy
P.I. Jones
On 2 March 1995 R. Sperling resigned from the Board of Directors. On 18 May
1995 P.I. Jones resigned from and P.D. Trucman was appointed to the Board of
Directors. On 22 May 1995 I.C. Cummings was appointed to the Board of
Directors.
Except in respect of N.F. Cope, none of the directors had a beneficial interest
in the shares of the company during the year. N.F. Cope had an option to
subscribe for 5,000 'C' ordinary shares of (Pounds)1 each at par. Subsequent to
the year end on 9 May 1995 N.F. Cope waived this option.
SHARE CAPITAL AND SUBSEQUENT EVENT
The called up share capital of the company was divided equally between 'A'
ordinary shares and 'B' ordinary shares. On 22 May 1995 the company issued 1
'C' ordinary share of (Pounds)1 to the holder of the 'A' ordinary shares at a
premium of (Pounds)499,999 for cash consideration. On the same day the holder
of the 'B' ordinary shares, Product Plus (London) Limited, acquired all the
issued 'A' and 'C' ordinary shares and consequently the company
F-29
<PAGE>
DIRECTORS' REPORT - FOR THE YEAR ENDED 31 DECEMBER 1994 (CONTINUED)
SHARE CAPITAL AND SUBSEQUENT EVENT (CONTINUED)
became a wholly owned subsidiary undertaking of Product Plus (London) Limited.
On 22 May 1995 the company adopted new Articles of Association.
The company has also changed its accounting reference date to 23 May.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
Company law requires the directors to prepare financial statements for each
financial year which give a true and fair view of the state of affairs of the
company and of the profit or loss of the company for that period. In preparing
those financial statements, the directors are required to:
. select suitable accounting policies and then apply them consistently;
. make judgements and estimates that are reasonable and prudent;
. state whether applicable accounting standards have been followed;
. prepare the financial statements on the going concern basis unless it
is inappropriate to presume that the company will continue in
business.
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
company and to enable them to ensure that the financial statements comply with
the Companies Act 1985. They are also responsible for safeguarding the assets
of the company and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
CHARITABLE DONATIONS
The company made charitable donations of (Pounds)3,190 (1993 - (Pounds)nil)
during the year.
AUDITORS
The directors will place a resolution before the Annual General Meeting to
reappoint Arthur Andersen as auditors for the ensuing period.
BY ORDER OF THE BOARD
239 Old Marylebone Road D.R. WOOLLEY
London Secretary
NW1 5QT 16 June 1995
F-30
<PAGE>
AUDITORS' REPORT
To the members of Excel Plus Limited.
We have audited the financial statements on pages 5 to 15 which have been
prepared under the historical cost convention and the accounting policies set
out on pages 8 and 9.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As described on page 3 the company's directors are responsible for the
preparation of the financial statements. It is our responsibility to form an
independent opinion, based on our audit, on those statements and to report our
opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements.
It also includes an assessment of the significant estimates and judgements made
by the directors in the preparation of the financial statements and of whether
the accounting policies are appropriate to the company's circumstances,
consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
In forming our opinion, we have considered the adequacy of the company's
provisions for inventory returns, and the net realisable value of inventory held
at year end. The provision made by management against inventory has been based
on anticipated sales contracts for 1995 and expected levels of returns. The
future recoverability of inventory balances is contingent on the continued
success of this business which is still in its developmental stage, and
management's judgements in respect of 1995 proving correct. Our opinion is not
qualified in this respect.
Without qualifying our opinion, we draw your attention to Note 14(c) which sets
out the consideration given by the directors to the net liability position of
the company.
OPINION
In our opinion the financial statements give a true and fair view of the
company's state of affairs at 31 December 1994 and of its loss and cash flows
for the year then ended and have been properly prepared in accordance with the
Companies Act 1985.
Arthur Andersen 16 June 1995
Chartered Accountants and Registered Auditors
1 Surrey Street
London
WC2R 2PS
F-31
<PAGE>
PROFIT AND LOSS ACCOUNT - FOR THE YEAR ENDED 31 DECEMBER 1994
<TABLE>
<CAPTION>
NOTE 12 MONTHS TO 11 MONTHS TO
31 DECEMBER 31 DECEMBER
1994 1993
(Pounds) (Pounds)
<S> <C> <C> <C>
TURNOVER 1(b),2 4,362,655 3,431,411
Cost of sales (3,295,487) (2,208,319)
---------- ----------
GROSS PROFIT 1,067,168 1,223,092
Administrative expenses (1,561,589) (1,037,906)
---------- ----------
OPERATING (LOSS)/PROFIT (494,421) 185,186
Net Interest payable 5 (113,039) (17,047)
---------- ----------
(LOSS)/PROFIT ON ORDINARY 3 (607,460) 168,139
ACTIVITIES BEFORE TAXATION
Taxation 6 58,848 (58,848)
---------- ----------
RETAINED (LOSS)/PROFIT 12 (548,612) 109,291
FOR THE PERIOD ========== ==========
</TABLE>
This profit and loss account includes all recognised gains and losses arising
during the year and represents continuing operations.
A statement of the movement in reserves is given in Note 12.
The accompanying notes are an integral part of this profit and loss
account.
F-32
<PAGE>
BALANCE SHEET - AS AT 31 DECEMBER 1994
<TABLE>
<CAPTION>
NOTE 1994 1993
(Pounds) (Pounds)
<S> <C> <C> <C>
FIXED ASSETS
Tangible assets 7 32,838 16,725
CURRENT ASSETS
Stock 2,659,024 1,357,957
Debtors 8 1,130,933 917,766
Cash at bank and in hand 709,208 179,559
---------- ----------
4,499,165 2,455,282
CREDITORS: Amounts falling due 9 (4,926,324) (2,317,716)
within one year
NET CURRENT (LIABILITIES)/ASSETS (427,159) 137,566
---------- ----------
NET (LIABILITIES)/ASSETS (394,321) 154,291
========== ==========
CAPITAL AND RESERVES
Share Capital 10 45,000 45,000
Reserves 12 (439,321) 109,291
---------- ----------
TOTAL CAPITAL EMPLOYED (394,321) 154,291
========== ==========
</TABLE>
Signed on Behalf of the Board on 16 June 1995.
T.E. MCCARTHY
DIRECTOR
The accompanying notes are an integral part of this balance sheet
F-33
<PAGE>
CASH FLOW STATEMENT - FOR THE YEAR ENDED 31 DECEMBER, 1994
<TABLE>
<CAPTION>
NOTE 12 MONTHS TO 11 MONTHS TO
31 DECEMBER 31 DECEMBER
1994 1993
(Pounds) (Pounds)
<S> <C> <C> <C>
NET CASH OUTFLOW FROM OPERATING 13(a) (776,852) (428,156)
ACTIVITIES
Returns from investments
and servicing of finance
Interest received 9,045 1,486
Interest paid (122,084) (18,533)
-------- --------
NET CASH OUTFLOW FROM RETURNS ON (113,039) (17,047)
INVESTMENTS AND SERVICING OF FINANCE -------- --------
Taxation
UK CORPORATION TAX PAID (58,848) -
-------- --------
Investing activities
PURCHASE OF TANGIBLE FIXED ASSETS (22,266) (21,062)
-------- --------
NET CASH OUTFLOW BEFORE FINANCING (971,005) (466,265)
Issue of ordinary shares - 44,998
-------- --------
NET CASH INFLOW FROM FINANCING - 44,998
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS 13(b) (971,005) (421,267)
======== ========
</TABLE>
The accompanying notes are an integral part of this cash flow statement
F-34
<PAGE>
NOTES TO THE ACCOUNTS - FOR THE YEAR ENDED 31 DECEMBER 1994
1. ACCOUNTING POLICIES
A summary of the principal accounting policies, all of which have been
applied consistently throughout the year, and the preceding period, is
set out below:
a) Basis of accounting
The accounts have been prepared under the historical cost
convention in accordance with UK applicable accounting standards
and on a going concern basis.
b) Turnover
Turnover, which excludes VAT, represents the invoiced value of
goods and services supplied in the normal course of business less
provision for actual and anticipated returns.
c) Stocks
Stocks comprise goods for resale and are stated at the lower of
cost and net realisable value. Cost is determined on a first in,
first out basis and includes transport and handling costs. Net
realisable value is the price at which stocks can be sold in the
normal course of business after allowing for the costs of
realisation and, where appropriate, the cost of conversion from
their existing state to a finished condition. Provision is made,
where necessary, for obsolete, slow moving and defective stock.
d) Tangible fixed assets
Tangible fixed assets are stated at cost less accumulated
depreciation.
Depreciation is calculated so as to write off the cost of
tangible fixed assets on a straight line basis over the expected
useful economic lives of the assets concerned. The principal
annual rates used for this purpose are:
Computer equipment 25%
Fixtures and fittings 15%
e) Foreign currencies
Trading transactions denominated in foreign currencies are
translated into sterling at the exchange rate ruling at the time
of the transaction being effected. Monetary assets and
liabilities denominated in foreign currencies are translated into
sterling at the exchange rates ruling at the balance sheet date.
Exchange gains or losses are included in the operating
profit.
F-35
<PAGE>
NOTES TO THE ACCOUNTS - FOR THE YEAR ENDED 31 DECEMBER 1994
1. ACCOUNTING POLICIES (CONTINUED)
f) Taxation
Corporation tax is provided on taxable profits at the current
rate. Deferred taxation (which arises from differences in the
timing of the recognition of items, principally depreciation, in
the accounts and by the tax authorities) has been calculated
using the liability method. Deferred tax is provided on timing
differences which will probably reverse at the rates of tax
likely to be in force at the time of reversal. Deferred tax is
not provided on timing differences which, in the opinion of the
directors, will probably not reverse.
2. TURNOVER
All turnover and profits on ordinary activities arise from countries
within the European Community.
3. (LOSS)/PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION
(Loss)/Profit on ordinary activities before taxation is stated after
charging:
<TABLE>
<CAPTION>
12 MONTHS TO 11 MONTHS TO
31 DECEMBER 31 DECEMBER
1994 1993
(Pounds) (Pounds)
<S> <C> <C>
Auditors' remuneration
- audit fees 18,000 12,000
- other services 8,000 -
Depreciation 6,153 4,337
Staff costs (see note 4) 351,776 179,123
======= =======
</TABLE>
4. STAFF COSTS
a) The average number of persons employed by the company (including
the executive director), during the year was 11 (1993-6).
b) Employment costs of all employees included above:
<TABLE>
<CAPTION>
12 MONTHS TO 11 MONTHS TO
31 DECEMBER 31 DECEMBER
1994 1993
(Pounds) (Pounds)
<S> <C> <C>
Wages and salaries 323,971 164,155
Social Security costs 27,805 14,968
------- -------
351,776 179,123
======= =======
</TABLE>
F-36
<PAGE>
NOTES TO THE ACCOUNTS - FOR THE YEAR ENDED 31 DECEMBER 1994
4. STAFF COSTS (CONTINUED)
c) Directors
<TABLE>
<CAPTION>
12 MONTHS TO 11 MONTHS TO
31 DECEMBER 31 DECEMBER
1994 1993
(Pounds) (Pounds)
<S> <C> <C>
Highest paid director 49,100 89,141
======== =========
Emoluments of the other directors are
as follows: Number Number
(Pounds)Nil - 5,000 4 6
== ==
</TABLE>
5. NET INTEREST PAYABLE
<TABLE>
<CAPTION>
12 MONTHS TO 11 MONTHS TO
31 DECEMBER 31 DECEMBER
1994 1993
(Pounds) (Pounds)
<S> <C> <C>
On Bank overdraft repayable within 5 years (122,084) (18,533)
Bank interest receivable 9,045 1,486
-------- -------
(113,039) (17,047)
======== =======
</TABLE>
6. TAXATION
The tax credit/(charge) is based on the (loss)/profit on ordinary activities
for the year and comprises:
<TABLE>
<CAPTION>
12 MONTHS TO 11 MONTHS TO
31 DECEMBER 31 DECEMBER
1994 1993
(Pounds) (Pounds)
<S> <C> <C>
Corporation tax at 33% - (58,848)
Prior year tax recoverable 58,848 -
-------- -------
58,848 (58,848)
======== =======
</TABLE>
F-37
<PAGE>
NOTES TO THE ACCOUNTS - FOR THE YEAR ENDED 31 DECEMBER 1994
7. TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
FIXTURES,
FITTINGS AND
EQUIPMENT
(Pounds)
<S> <C>
COST
As at 1 January 1994 21,062
Additions 22,266
---------
As at 31 December 1994 43,328
---------
DEPRECIATION
As at 1 January 1994 4,337
Charge for the year 6,153
---------
As at 31 December 1994 10,490
---------
NET BOOK VALUE
As at 1 January 1994 16,725
=========
As at 31 December 1994 32,838
=========
</TABLE>
8. DEBTORS
<TABLE>
<CAPTION>
1994 1993
(Pounds) (Pounds)
<S> <C> <C>
Trade debtors 893,145 482,227
Amounts due from shareholders - 116,574
Corporation tax recoverable 58,848 -
VAT recoverable 129,126 153,721
Other debtors 16,954 112,566
Prepayments and accrued income 32,860 52,678
--------- ---------
1,130,933 917,766
========= =========
</TABLE>
All amounts due, fall for payment within one year.
F-38
<PAGE>
NOTES TO THE ACCOUNTS - FOR THE YEAR ENDED 31 DECEMBER 1994
9. CREDITORS - AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
1994 1993
(Pounds) (Pounds)
<S> <C> <C>
Bank overdraft 2,101,480 600,826
Trade creditors 1,603,132 872,035
Amounts due to shareholders 59,692 264,276
Corporation tax payable - 58,848
Other taxes and social security 18,127 9,133
Accruals and deferred income 1,143,893 512,598
--------- ---------
4,926,324 2,317,716
========= =========
</TABLE>
The bank overdraft facility is guaranteed by the company's ultimate UK
parent company.
10. CALLED-UP SHARE CAPITAL
<TABLE>
<CAPTION>
1994 1993
(Pounds) (Pounds)
<S> <C> <C>
Authorised
22,500 'A' ordinary shares of
(Pounds)1 each 22,500 22,500
22,500 'B' ordinary shares of
(Pounds)1 each 22,500 22,500
5,000 'C' ordinary shares of
(Pounds)1 each 5,000 5,000
--------- ---------
50,000 50,000
========= =========
Allotted, called-up and fully paid
22,500 'A' ordinary shares of
(Pounds)1 each 22,500 22,500
22,500 'B' ordinary shares of
(Pounds)1 each 22,500 22,500
--------- ---------
45,000 45,000
========= =========
</TABLE>
On 22 May 1995 the company issued 1 'C' ordinary share of (Pounds)1 to the
holder of the 'A' ordinary shares at a premium of (Pounds)499,999 for cash
consideration. On the same day the holder of the 'B' ordinary shares,
Product Plus (London) Limited, acquired all the issued 'A' and 'C' ordinary
shares and consequently the company became a wholly owned subsidiary
undertaking of Product Plus (London) Limited. On 22 May 1995 the company
adopted new Articles of Association.
F-39
<PAGE>
NOTES TO THE ACCOUNTS - FOR THE YEAR ENDED 31 DECEMBER 1994
11. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
1994 1993
(Pounds) (Pounds)
<S> <C> <C>
Shareholders' funds at beginning of period 154,291 2
Retained (loss)/profit for the financial period (548,612) 109,291
New share capital subscribed - 44,998
-------- -------
Shareholders' funds at end of period (394,321) 154,291
======== =======
12. RESERVES 1994 1993
(Pounds) (Pounds)
Profit and Loss Account
At beginning of period 109,291 -
Retained (loss)/profit for the period (548,612) 109,291
-------- -------
At end of period (439,321) 109,291
======== =======
</TABLE>
F-40
<PAGE>
NOTES TO THE ACCOUNTS - FOR THE YEAR ENDED 31 DECEMBER 1994
13. CASH FLOW INFORMATION
a) Reconciliation of operating (loss)/profit to net cash outflow from
operating activities:
<TABLE>
<CAPTION>
1994 1993
(Pounds) (Pounds)
<S> <C> <C>
Operating (loss)/profit (494,421) 185,186
Depreciation 6,153 4,337
Increase in stocks (1,301,067) (1,357,957)
Increase in debtors (154,319) (917,766)
Increase in creditors 1,166,802 1,658,044
---------- ----------
Net cash outflow from operating activities (776,852) (428,156)
========== ==========
</TABLE>
b) Analysis of changes in cash and cash equivalents during the year:
<TABLE>
<CAPTION>
CASH AT BANK AND IN BANK NET
HAND OVERDRAFT
(Pounds) (Pounds) (Pounds)
<S> <C> <C> <C>
At beginning of year 179,559 (600,826) (421,267)
At end of year 709,208 (2,101,480) (1,392,272)
------- ---------- ----------
Change during year 529,649 (1,500,654) (971,005)
======= ========== ==========
</TABLE>
14. GUARANTEES AND OTHER FINANCIAL COMMITMENTS
a) Capital Commitments
No capital expenditure had been approved and contracted for, or
approved but not contracted, by the company at 31 December 1994 (
1993 - (Pounds)Nil).
b) Pension arrangements
The company does not operate a defined contribution pension
scheme. The company contributes to individual staff private
pension plans, and the assets of the schemes are held separately
from those of the company in independently administered funds.
The pension cost charge represents contributions payable in
respect of the period by the company to the fund.
c) Financial Support
Following the change in ownership on 22 May 1995 (see also Note
10), the called up share capital of the company is held by
Product Plus (London) Limited, a company incorporated in the
United Kingdom. The ultimate United Kingdom parent company of
Product Plus (London) Limited, Diversified Agency Services
Limited has agreed to provide the company with financial support.
The directors have considered the financial position of the
company and have concluded that the company is able to meet its
liabilities as they fall due.
F-41
<PAGE>
NOTES TO THE ACCOUNTS - FOR THE YEAR ENDED 31 DECEMBER 1994
15. ULTIMATE PARENT COMPANY
As a consequence of the company becoming a wholly owned subsidiary of
Product Plus (London) Limited the company has become a subsidiary
undertaking of Diversified Agency Services Limited, the United Kingdom
parent company, whose principal place of business is at 239 Old
Marylebone Road, London NW1 5QT.
The ultimate parent company is Omnicom Group Inc. a company
incorporated in the United States of America. The consolidated
accounts of Omnicom Group Inc. are available to the public and may be
obtained from Omnicom Group Inc., 437 Madison Avenue, New York 10022,
USA.
16. SUMMARY OF DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
These financial statements have been prepared in accordance with UK
GAAP, which differ in certain respects from US GAAP.
Under UK GAAP, deferred taxes are accounted for to the extent that it
is considered probable that a liability or asset will crystallise in
the foreseeable future. Under US GAAP, deferred taxes are accounted
for on all temporary differences, as defined. A valuation allowance
is established in respect of those deferred tax assets where it is
more likely than not that some portion will remain unrealised.
Under US GAAP, a tax benefit for the 1994 loss would be recognised.
However because a question exists concerning the realisation of this
benefit, a reserve for the full amount would be recognised. The net
effect of establishing the reserve would result in income statement
and balance sheet presentations identical to those shown in the
accompanying statements.
The cash flow statement has been prepared under UK Financial Reporting
Standard number 1. The principal differences between this statement
and cash flow statements prepared under US Financial Accounting
Standards number 95 are as follows:
1) Under the UK standard, net cash flows from operating activities
is determined before considering cash flows from (a) returns on
investments and servicing of finance and (b) taxes paid. Under
the US standard, net cash flow from operating activities would be
determined after these items.
2) The UK definition of cash and cash equivalents includes advances
from banks or financial institutions with a maturity of three
months or less at the date of the advance. Under the US
standard, these liabilities would be shown as a separate item to
reconcile net income to the net change in cash resulting from
operating activities.
Other differences between UK and US GAAP do not affect the accompanying
financial statements.
F-42
<PAGE>
Mickelberry Communications Incorporated
Quarterly Data
In Thousands First Second Third Fourth Full
(except per share) Quarter Quarter Quarter Quarter Year
-------- -------- -------- -------- --------
[S] [C] [C] [C] [C] [C]
1994
Revenues $27,561 $29,457 $35,866 $34,739 $127,623
Operating
income (loss) $ (158) $ 519 $ 1,882 $(1,091) $ 1,152
Net income (loss) $ (295) $ 120 $ 912 $ (788) $ (51)
Income (loss) per
common share
Primary $ (.05) $ .02 $ .15 $ (.14) $ (.02)
Fully diluted $ (.05) $ .02 $ .12 $ (.14) $ (.02)
1993
Revenues $25,300 $29,345 $31,110 $33,189 $118,944
Operating
income $ 82 $ 422 $ 587 $ 1,607 $ 2,698
Income (loss)
before cumulative
effect of change
in accounting $ (100) $ (276) $ (52) $ 582 $ 154
Net income (loss) $ 100 $ (276) $ (52) $ 582 $ 354
Income (loss) per
common share
Primary
Income (loss)
before cumulative
effect of change
in accounting $ (.02) $ (.05) $ (.01) $ .10 $ .02
Net income (loss) $ .01 $ (.05) $ (.01) $ .10 $ .05
Fully diluted
Income (loss)
before cumulative
effect of change
in accounting $ (.02) $ (.05) $ (.01) $ .08 $ .02
Net income (loss) $ .01 $ (.05) $ (.01) $ .08 $ .05
During the fourth quarter of 1994, the Excel Marketing Group recorded a
$2.5 million charge to reduce certain inventories to net realizable values.
In addition, a $1 million charge was recorded for Excel Plus, a joint
venture in which the Excel Group has a 50% interest. The charge was to
adjust inventory to net realizable value and to record an additional
allowance for returns. Net income for the second quarter of 1994 had
previously been reported as $109,000. Included in that amount was an
incorrect investment income number.
F-43
<PAGE>
Operating income for the second and third quarters of 1993 had previously been
reported as a loss of $141,000 and income of $272,000, respectively. During
these quarters, the results for November Records, Inc., a newly formed
corporation had been included in operating income. During the fourth quarter of
1993, the Company determined that its controlling ownership of November was
temporary and the inclusion of November's results in operating income was
inappropriate. Also during 1993 the Company had classified its share of income
from Excel Plus, as other income. At year end it was determined that the results
of this joint venture should be included in operating income. Accordingly, the
Company has restated its second and third quarter income statements to
reclassify the losses of November to other expense and to include the income of
the joint venture in operating income. These reclassifications did not affect
either income (loss) before cumulative effect of change in accounting or net
income (loss) for these quarters. (See Notes 2 and 5 of the Notes to
Consolidated Financial Statements.)
Effective January 1, 1993, the Company changed its method of accounting for
income taxes. During the first quarter of 1993 a $200,000 cumulative effect was
credited to income as a result of this accounting change. (See Notes 1 and 13 of
the Notes to Consolidated Financial Statements.)
This schedule is unaudited.
F-44
<PAGE>
PRO FORMA FINANCIAL DATA
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MICKELBERRY COMMUNICATIONS INCORPORATED
The following unaudited pro forma condensed consolidated balance sheet as of
December 31, 1994 and the unaudited pro forma condensed consolidated statement
of income for the year ended December 31, 1994, give effect to the merger of
Mickelberry Acquisition Corporation into Mickelberry Communications
Incorporated. The pro forma adjustments related to the pro forma condensed
consolidated balance sheet are computed assuming the merger was consummated as
of December 31, 1994. Pro forma adjustments related to the pro forma condensed
consolidated statement of income are computed assuming the transaction was
consummated at January 1, 1994. The pro forma information is based on the
historical financial statements of Mickelberry Communications Incorporated
giving effect to the transaction under the assumptions and adjustments in the
accompanying notes to the pro forma financial statements.
The pro forma statements have been prepared by Mickelberry Communications
Incorporated based upon the balance sheet of Mickelberry Communications
Incorporated as of December 31, 1994 and its income statement for the year then
ended. These pro forma statements may not be indicative of the results that
actually would have occurred if the combination had been in effect on the dates
indicated or which may be obtained in the future. The pro forma financial
statements should be read in conjunction with the audited financial statements
of Mickelberry Communications Incorporated contained elsewhere herein.
F-45
<PAGE>
Mickelberry Communications Incorporated
Unaudited Pro Forma Condensed Consolidated Balance Sheet
March 31, 1995
In thousands (except per share)
<TABLE>
<CAPTION>
Historical Pro Forma Pro Forma
March 31, 1995 Adjustments March 31, 1995
-------------- ----------- --------------
<S> <C> <C> <C>
Assets
Current assets
Cash $ 157 $ 157
Temporary investments 4,380 4,380
Receivables 34,648 34,648
Inventories 27,864 27,864
-------- --------
Total current assets 67,049 67,049
Intangibles - net 10,946 (1,291) (5) 9,655
Property, plant and
equipment - net 26,136 26,136
Other 562 562
-------- --------- --------
$104,693 $ (1,291) $103,402
======== ========= ========
Liabilities
Current liabilities
Accounts payable $ 23,467 $ 23,467
Notes payable 8,537 8,537
Accrued liabilities 11,040 11,040
Income taxes payable 2,927 2,927
Current portion of long-term debt 2,615 2,615
-------- --------
48,586 48,586
Deferred income taxes 938 938
Long-term debt 20,113 17,249 (4) 37,362
Stockholders' equity
Preferred stock 242 (242)(3)
Common equity 34,814 (18,298)(2) 16,516
-------- --------- --------
Total stockholders' equity 35,056 (18,540) 16,516
-------- --------- --------
$104,693 $ (1,291) $103,402
======== ========= ========
Book Value Per Share $5.32 $5.92
======== ========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.
F-46
<PAGE>
Mickelberry Communications Incorporated
Unaudited Pro Forma Condensed Consolidated Statement of Income
Three Months Ended March 31, 1995
In thousands (except per share)
<TABLE>
<CAPTION>
Historical Pro Forma Pro Forma
1995 Adjustments 1995
----------- ------------ ----------
<S> <C> <C> <C>
Revenues
Tangible products $25,720 $25,720
Services 5,465 5,465
------- ---------
31,185 31,185
Equity in pre-tax earnings (loss)
of affiliated company (127) (127)
Costs and expenses
Cost of revenues
Tangible products 19,883 19,883
Services 4,880 4,880
Selling and administrative 5,403 (14) /7/ 5,389
------- ----- ---------
30,166 (14) 30,152
------- ----- ---------
Operating income (loss) 892 14 906
Other expense (income)
Interest expense 483 459 /6/ 942
Investment income (127) (127)
Other-net (39) (39)
------- ---------
317 459 776
------- ----- ---------
Income (loss) before taxes (benefit) 575 (445) 130
Income taxes (benefit) 230 (178) /8/ 52
------- ----- ---------
Net Income (loss) $ 345 $ 267 $ 78
======= ===== =========
Income (loss) per common share
Primary $0.06 $0.03
======= =========
Fully diluted $0.05 $0.03
======= =========
Number of shares used to
calculate earnings pr share
Primary 5,923 2,789
Fully diluted 8,304 2,789
Ratio of Earnings to Fixed Changes 219.05% 113.8%
</TABLE>
See Note to Unaudited Pro Forma Condensed Consolidated Financial Statements.
F-47
<PAGE>
Mickelberry Communications Incorporated
Unaudited Pro Forma Condensed Consolidated Statement of Income
Year Ended December 31, 1994
In thousands (except per share)
<TABLE>
<CAPTION>
Historical Pro Forma Pro Forma
1994 Adjustments 1994
----------- ------------ ----------
<S> <C> <C> <C>
Revenues
Tangible products $106,637 $106,637
Services 20,986 20,986
-------- ---------
127,623 127,623
Equity in pre-tax earnings (loss)
of affiliated company (907) (907)
Costs and expenses
Cost of revenues
Tangible products 85,089 85,089
Services 17,807 17,807
Selling and administrative 22,668 (57)/(7)/ 22,611
-------- ------- ---------
125,564 (57) 125,507
-------- ------- ---------
Operating income (loss) 1,152 57 1,209
Other expense (income)
Interest expense 1,990 1,837/(6)/ 3,827
Investment income (631) (631)
Other-net (122) (122)
-------- ---------
1,237 1,837 3,074
-------- ------- ---------
Income (loss) before taxes (benefit) (85) (1,780) (1,865)
Income taxes (benefit) (34) (712)/(8)/ (746)
-------- ------- ---------
Net Income (loss) $ (51) $(1,068) $ (1,119)
======== ======= =========
Income (loss) per common share
Primary $(0.02) $(0.40)
======== =========
Fully diluted $(0.02) $(0.40)
======== =========
Number of shares used to
calculate earnings per share
Primary 5,876 2,789
Fully diluted 5,876 2,789
Ratio of Earnings to Fixed Charges 96.17% 52.58%
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements.
F-48
<PAGE>
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
1. Basis of Presentation
The unaudited pro forma condensed consolidated financial statements
give effect to the Merger. In conjunction with the Merger, the Company
intends to borrow $22,876,000 which will be used as follows:
In Thousands
Payment for common and preferred shares.. $15,022
Cancellation of options.................. 581
Redemption of convertible debentures..... 5,628
Estimated transaction expenses........... 1,645
-------
$22,876
=======
The Merger will be accounted for as a step acquisition. Pursuant to
this accounting treatment, residual interests in the Company will be
carried over at the investors' predecessor basis. Since it is impracticable
to recompute predecessor basis, the investors' proportionate equity in the
book value of the Company will be carried over following the Merger.
Residual interests of the Company prior to the Merger which will continue
after the Merger amount to approximately 48%.
2. Adjustment to reflect the reduction in equity resulting from the
acquisition of approximately 52% of the stock of the Company as of March
31, 1995.
3. Elimination of preferred stockholder interest as of March 31, 1995.
4. Issuance of debt to finance the Merger transaction ($22,876,000) net of
redemption of convertible debentures ($5,627,000).
5. Adjustment resulting from the acquisition of approximately 52% of the
Company's common equity at less than book value. The Company has not yet
obtained an appraisal of the fair values of its assets and liabilities.
However, the Company does not believe that such fair values would be
materially different than recorded book value at March 31, 1995.
Accordingly, the reduction in accounting values resulting from the
acquisition has been reflected in intangibles.
F-49
<PAGE>
6. Increase in interest costs for the three months ended March 31, 1995
and for the year ended December 31, 1994 as follows:
<TABLE>
<CAPTION>
In Thousands
Year Ended Three Months Ended
December 31, 1994 March 31, 1995
----------------- -------------------
<S> <C> <C>
Interest on new debt - $22,876 at 10%.. $2,287 $ 572
Less interest on redeemed
debt - 5,627 at 8%.................... (450) (113)
------ -----
$1,837 $ 459
====== =====
</TABLE>
7. Reduction in amortization of intangible assets, as follows:
<TABLE>
<CAPTION>
In Thousands
Year Ended Three Months Ended
December 31, 1994 March 31, 1995
----------------- -------------------
<S> <C> <C>
Reduction of intangibles - $1,142 / 20. $57 $ 14
=== ======
</TABLE>
8. Adjustment to income taxes at 40% of the amount of net pretax pro
forma adjustments. Statutory rate of 40% represents 34% federal rate and 6%
state and local rate net of federal benefit.
F-50
<PAGE>
PLEASE MARK, SIGN AND DATE THE ENCLOSED PROXY AND MAIL IT PROMPTLY. NO
POSTAGE STAMP IS NECESSARY IF MAILED IN THE UNITED STATES.
<PAGE>
PROXY
MICKELBERRY COMMUNICATIONS INCORPORATED
SPECIAL MEETING OF STOCKHOLDERS--________, 1995
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints GEORGE KANE and FRED T. PUGLIESE, and
each of them, Proxies of the undersigned with power of substitution to
each, to vote all shares of Mickelberry Communications Incorporated (the
"Company") which the undersigned is entitled to vote at the Special Meeting
of Shareholders to be held on ________, 1995 at ____ at the offices of
_______________, New York, NY, or at any adjournment or postponement
thereof, as indicated on the reverse side.
Continued on reverse side
<PAGE>
____________________ ___________________
COMMON PREFERRED
1. APPROVAL AND ADOPTION OF AGREEMENT AND PLAN OF MERGER. Approval and
adoption of the Agreement and Plan of Merger, dated as of March 21, 1995
(the "Merger Agreement"), among the Company, Mickelberry Acquisition
Corporation, Union Capital Corporation and James C. Marlas, as described in
the Proxy Statement.
FOR AGAINST ABSTAIN
____ ____ ____
2. TRANSACTION OF OTHER BUSINESS. Transaction of such other business as may
properly come before the meeting or any adjournments or postponements
thereof.
SHARES WILL BE VOTED AS DIRECTED EXCEPT THAT IF NO DIRECTION IS GIVEN, THIS
PROXY WILL BE VOTED IN FAVOR OF PROPOSAL 1. THE UNDERSIGNED HEREBY
ACKNOWLEDGES RECEIPT OF THE PROXY STATEMENT OF THE COMPANY DATED _________,
1995.
DATED:___________________, 1995
_______________________________
(Signature)
_______________________________
(Signature, if jointly held)
Title:_________________________
Please sign exactly as your name
appears on your stock certificate.
When shares are held by joint tenants,
both should sign. When signing as an
attorney, executor, administrator,
trustee or guardian, give full title
as such. If a corporation, sign in
in full corporation name by President
or other authorized officer. If a
partnership, sign in partnership
name by authorized person. This
Proxy votes all shares in all
capacities.
PLEASE SIGN, DATE AND MAIL YOUR
PROXY CARD PROMPTLY.
<PAGE>
Exhibit (10)(e)
================================================================================
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
MICKELBERRY COMMUNICATIONS INCORPORATED,
MICKELBERRY ACQUISITION CORPORATION,
UNION CAPITAL CORPORATION
AND
MR. JAMES C. MARLAS
DATED AS OF MARCH 21, 1995
================================================================================
<PAGE>
TABLE OF CONTENTS
ARTICLE I
THE MERGER
SECTION 1.1. Meeting of Mickelberry's Stockholders; Proxy
Statement; Schedule 13E-3.......................... A-7
1.2. The Merger......................................... A-8
1.3. Conversion of Outstanding Shares................... A-9
1.4. Surrender and Exchange............................. A-10
1.5. Certificate of Incorporation....................... A-11
1.6. By-laws............................................ A-11
1.7. Directors and Officers............................. A-11
1.8. Stock Transfer Books............................... A-11
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF MICKELBERRY
SECTION 2.1. Corporate Organization............................. A-12
2.2. Capitalization..................................... A-12
2.3. Authorization and Validity of Agreement............ A-12
2.4. No Conflict or Violation........................... A-13
2.5. Consents and Approvals............................. A-13
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF MICKELBERRY ACQUISITION
SECTION 3.1. Corporate Organization............................. A-14
3.3. Subsidiaries and Equity Investments................ A-14
3.4. Authorization and Validity of Agreement............ A-14
3.5. No Conflict or Violation........................... A-15
3.6. Consents and Approvals............................. A-15
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF UNION CAPITAL AND MARLAS
SECTION 4.1. Corporate Organization............................. A-16
4.2. Capitalization of Union Capital.................... A-16
4.3. Title to Cancelled Shares.......................... A-16
4.4. Authorization and Validity of Agreement............ A-16
4.5. No Conflict or Violation........................... A-17
i
<PAGE>
ARTICLE V
COVENANTS OF MICKELBERRY
SECTION 5.1. Conduct of Mickelberry............................. A-17
5.2. Access to Information.............................. A-18
5.3. Indemnification and Insurance...................... A-19
5.4. Vote............................................... A-20
5.5. Letter Agreement and Other Fees and Expenses....... A-20
5.6. Stock Options...................................... A-20
5.7. No Mergers, Consolidations, Sale of Stock, etc..... A-21
5.8. Convertible Debentures............................. A-21
ARTICLE VI
COVENANTS OF MICKELBERRY ACQUISITION
SECTION 6.1. Conduct of Mickelberry Acquisition................. A-21
6.2. Access to Information.............................. A-22
ARTICLE VII
COVENANTS OF UNION CAPITAL AND MARLAS
SECTION 7.1. Vote............................................... A-22
7.2. No Sale or Disposition; Waiver..................... A-22
ARTICLE VIII
OTHER AGREEMENTS
SECTION 8.1. Best Efforts....................................... A-22
8.2. Notification of Certain Matters.................... A-23
8.3. Further Assurances................................. A-23
ARTICLE IX
CONDITIONS TO THE MERGER
SECTION 9.1. Conditions to the Obligations of Each Party........ A-24
9.2. Conditions to the Obligation of Mickelberry........ A-24
9.3. Conditions to the Obligation of Mickelberry
Acquisition....................................... A-25
ARTICLE X
TERMINATION
SECTION 10.1. Termination....................................... A-26
10.2. Effect of Termination............................. A-26
ii
<PAGE>
ARTICLE XI
MISCELLANEOUS
SECTION 11.1. Notices........................................... A-27
11.2. Survival.......................................... A-27
11.3. Amendment......................................... A-27
11.4. Waiver............................................ A-28
11.5. Successors and Assigns............................ A-28
11.6. Governing Law..................................... A-28
11.7. Integration....................................... A-29
11.8. Headings and References........................... A-29
11.9. Counterparts; Effectiveness....................... A-29
SIGNATURES .................................................. A-30
EXHIBIT A Form of Certificate of Incorporation of the
Surviving Corporation
SCHEDULES
Schedule 1.3 Certain Shares
Schedule 2.1 Subsidiaries
iii
<PAGE>
INDEX TO DEFINED TERMS
Defined Term Where Defined
------------ -------------
Agreement............................................ Introduction
Cancelled Shares..................................... (S) 1.3(a)
Certificate of Merger................................ (S) 1.2(b)
Client............................................... (S) 5.5
Common Stock......................................... (S) 2.2
Convertible Debentures............................... (S) 2.4
Delaware Law......................................... (S) 1.2(a)
Effective Time....................................... (S) 1.2(b)
Exchange Act......................................... (S) 1.1(b)
HSR Act.............................................. (S) 2.5
Letter Agreement..................................... (S) 5.5
Marlas............................................... Introduction
Merger............................................... Recitals
Merger Consideration................................. (S) 1.3(a)
Mickelberry.......................................... Introduction
Mickelberry Acquisition.............................. Introduction
Option Consideration................................. (S) 5.6
Options.............................................. (S) 5.6
Paying Agent......................................... (S) 1.4(a)
Preferred Stock...................................... (S) 2.2
Proxy Statement...................................... (S) 1.1(b)
SEC.................................................. (S) 1.1(b)
Schedule 13E-3....................................... (S) 1.1(b)
Share................................................ (S) 1.3(a)
Special Meeting...................................... (S) 1.1(a)
Subsidiary........................................... (S) 2.1
Surviving Corporation................................ (S) 1.2(a)
Termination Agreement................................ (S) 5.6
Union Capital........................................ Introduction
Wertheim Opinion..................................... (S) 2.4
iv
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of March 21, 1995 (this "AGREEMENT") by
---------
and among MICKELBERRY COMMUNICATIONS INCORPORATED, a Delaware corporation
("MICKELBERRY"), MICKELBERRY ACQUISITION CORPORATION, a Delaware corporation
-----------
("MICKELBERRY ACQUISITION"), UNION CAPITAL CORPORATION, a Nevada corporation
-----------------------
("UNION CAPITAL") and Mr. JAMES C. MARLAS ("MARLAS").
------------- ------
WHEREAS, each of Mickelberry Acquisition and Union Capital is wholly owned by
Marlas;
WHEREAS, each of Union Capital and Marlas owns shares of common stock of
Mickelberry;
WHEREAS, the parties hereto desire to effect the merger of Mickelberry
Acquisition with and into Mickelberry (the "MERGER") pursuant to the terms of
------
this Agreement;
WHEREAS, upon the consummation of the Merger, each share of common stock of
Mickelberry Acquisition will be converted into and become one share of common
stock of the surviving corporation; and
WHEREAS, the Board of Directors of each of Mickelberry and Mickelberry
Acquisition have determined that the Merger contemplated hereby is fair to and
in the best interests of Mickelberry and its shareholders and Mickelberry
Acquisition and its sole shareholder;
NOW THEREFORE, in consideration of the foregoing and the mutual agreements
contained herein, the parties hereto agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1. Meeting of Mickelberry's Stockholders; Proxy Statement;
-------------------------------------------------------
Schedule 13E-3. (a) Mickelberry will take all action necessary in accordance
- --------------
with applicable law to convene a meeting of its stockholders (the "SPECIAL
-------
MEETING") as promptly as practicable after the date hereof to consider and vote
- -------
upon the Merger. The Board of Directors of Mickelberry, subject to its
fiduciary duties as advised by counsel, will recommend that Mickelberry's
stockholders vote in favor of the Merger and the approval and adoption of this
Agreement.
(b) As soon as practicable, Mickelberry shall file with the Securities and
Exchange Commission (the "SEC") under the Securities Exchange Act of 1934, as
---
amended (the "EXCHANGE ACT"),
------------
<PAGE>
and shall use its best efforts to have cleared by the SEC, a proxy statement
(together with any amendments or supplements thereto, the "PROXY STATEMENT"),
---------------
with respect to the Special Meeting. In addition, Mickelberry and Mickelberry
Acquisition shall file with the SEC and make available to Mickelberry's
shareholders, as required by applicable law, a joint Schedule 13E-3 (together
with any amendments or supplements thereto, the "SCHEDULE 13E-3") with respect
--------------
to the Special Meeting and the Merger. Mickelberry Acquisition, Union Capital
and Marlas will provide all information relating to them or their affiliates
(other than Mickelberry or any of its subsidiaries) for use in preparation of
the Proxy Statement and Schedule 13E-3. Mickelberry will provide all
information, other than that relating to Mickelberry Acquisition, Union Capital,
Marlas or their respective affiliates (other than Mickelberry or any of its
subsidiaries), for use in the Proxy Statement and in the Schedule 13E-3. The
information provided and to be provided by Mickelberry, Mickelberry Acquisition,
Union Capital and Marlas, respectively, for use in the Proxy Statement and in
the Schedule 13E-3 shall be true and correct in all material respects and shall
not omit to state any material fact necessary in order to make such information
not misleading as of the date of the Proxy Statement or the Schedule 13E-3, as
the case may be, and as of the date of the Special Meeting. Mickelberry will
promptly advise Mickelberry Acquisition, Union Capital and Marlas and
Mickelberry Acquisition, Union Capital or Marlas, as the case may be, will
promptly advise Mickelberry, in writing if at any time prior to the Effective
Time Mickelberry, Mickelberry Acquisition, Union Capital or Marlas shall obtain
knowledge of any facts that might make it necessary or appropriate to amend or
supplement the Proxy Statement or the Schedule 13E-3 in order to make the
statements contained or incorporated by reference therein not misleading or to
comply with applicable law. The Proxy Statement shall contain the recommendation
of the Board of Directors of Mickelberry referred to in subdivision (a) of this
Section 1.1 as well as the conclusion of the Board of Directors of Mickelberry
that the terms and conditions of the Merger are fair to the shareholders of
Mickelberry (other than Union Capital and Marlas).
SECTION 1.2. The Merger. (a) At the Effective Time, the Merger shall
----------
occur in accordance with the General Corporation Law of the State of Delaware
("DELAWARE LAW"), whereupon the separate existence of Mickelberry Acquisition
------------
shall cease, and Mickelberry shall be the surviving corporation (the "SURVIVING
---------
CORPORATION").
- -----------
(b) As soon as practicable after all of the conditions set forth in
Article VII have been satisfied or waived, Mickelberry and Mickelberry
Acquisition will file, or cause to be filed, with the Secretary of State of the
State of Delaware a certificate of merger for the Merger in accordance with
Delaware Law (the
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<PAGE>
"CERTIFICATE OF MERGER"). The Merger shall become effective at the time such
---------------------
filing is made or at such other time as is set forth in the Certificate of
Merger (the "EFFECTIVE TIME").
--------------
(c) From and after the Effective Time, the Surviving Corporation shall
possess all the rights, privileges, powers and franchises and be subject to all
of the restrictions, disabilities and duties of Mickelberry and Mickelberry
Acquisition, all as provided under Delaware Law.
SECTION 1.3. Conversion of Outstanding Shares.
--------------------------------
(a) At the Effective Time:
(i) each share of Preferred Stock and of Common Stock of Mickelberry
(a "SHARE" and, collectively, the "SHARES") outstanding immediately prior
----- ------
to the Effective Time (except for the Cancelled Shares) shall, except as
otherwise provided in subsections (a)(iii) and (b) of this Section 1.3, be
converted into and represent the right to receive $4.25 in cash (the
"MERGER CONSIDERATION");
--------------------
(ii) each Share held by Union Capital and by Marlas outstanding
immediately prior to the Effective Time other than those listed on Schedule
1.3 hereof (a "CANCELLED SHARE" and, collectively, the "CANCELLED SHARES")
--------------- ----------------
shall, by virtue of the Merger, and without any action on the part of the
holder thereof, be cancelled and retired and cease to exist, without any
conversion thereof; provided, however, that in connection with, and only in
-------- -------
connection with, the consummation of the Merger, each of Union Capital and
Marlas waives its right to receive the Merger Consideration and consents to
being treated less favorably than the other shareholders of Mickelberry;
(iii) each Share held by Mickelberry as treasury stock immediately
prior to the Effective Time or owned by any direct or indirect subsidiary
of Mickelberry immediately prior to the Effective Time shall be cancelled,
and no payment shall be made with respect thereto; and
(iv) each share of common stock of Mickelberry Acquisition
outstanding immediately prior to the Effective Time shall be converted into
and become one share of common stock of the Surviving Corporation.
(b) Notwithstanding subsection (a)(i) of this Section 1.3, Shares
outstanding immediately prior to the Effective Time and held by a holder who has
not voted in favor of the Merger or consented thereto in writing and who has
demanded appraisal for such Shares in accordance with Delaware Law shall
not be
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<PAGE>
converted into a right to receive the Merger Consideration pursuant to such
subsection (a)(i) unless such holder fails to perfect or withdraws or loses his
right to appraisal. If after the Effective Time such holder fails to perfect or
withdraws or loses his right to appraisal, such Shares shall thereupon be deemed
to have been converted into and to represent the right to receive, at the
Effective Time, the Merger Consideration pursuant to the terms of subsection
(a)(i) of this Section 1.3, without any interest thereon or addition thereto.
Mickelberry shall give Mickelberry Acquisition prompt notice of any demands
received by Mickelberry for appraisal of Shares, and Mickelberry Acquisition
shall have the right to participate in all negotiations and proceedings with
respect to such demands. Mickelberry shall not, except with the prior written
consent of Mickelberry Acquisition, make any payment with respect to, or settle
or offer to settle, any such demands.
SECTION 1.4. Surrender and Exchange. (a) Promptly after the Effective
----------------------
Time, the Surviving Corporation, or such bank or trust company acting as paying
agent (the "PAYING AGENT") for the Merger pursuant to an agreement in a form to
------------
be mutually agreed upon by Mickelberry and Mickelberry Acquisition, shall mail
or cause to be mailed to each (i) holder of Shares at the Effective Time a
letter of transmittal for use in surrendering for exchange the certificate or
certificates representing such Shares, and (ii) holder of Options at the
Effective Time a letter of transmittal for use in transmitting the Termination
Agreement. After the Effective Time, each such holder, upon surrender to the
Paying Agent of such certificate or certificates or Termination Agreement, as
the case may be (together with such letter of transmittal duly executed), will
be entitled to receive the Merger Consideration or the Option Consideration, as
the case may be. Until so surrendered, each such certificate shall after the
Effective Time represent for all purposes only the right to receive the Merger
Consideration. At the Effective Time, Mickelberry Acquisition shall furnish or
cause to be furnished to the Paying Agent funds equal to the aggregate Merger
Consideration payable to the holders of Shares and the aggregate Option
Consideration payable to the holders of Options. After the Effective Time,
there shall be no further registration or transfers of Shares. The Surviving
Corporation shall establish reasonable procedures for the delivery of the Merger
Consideration to holders of Shares whose stock certificates have been lost,
destroyed or mutilated.
(b) If any delivery of the Merger Consideration is to be made pursuant to
Section 1.3(a)(i) to a person other than the registered holder of the
certificate or certificates surrendered in exchange therefor, it shall be a
condition to such delivery that the certificate or certificates so surrendered
shall be properly endorsed or be otherwise in proper form for transfer and
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<PAGE>
that the person requesting such delivery shall (i) pay to the Paying Agent any
transfer or other taxes required as a result of delivery to a person other than
the registered holder or (ii) establish to the satisfaction of the Paying Agent
that such tax has been paid or is not payable.
(c) Any holder of Shares who has not exchanged his Shares for the Merger
Consideration in accordance with subsection (a) within six months after the
Effective Time shall have no further claim upon the Paying Agent and shall
thereafter look only to the Surviving Corporation for payment in respect of his
Shares. Notwithstanding the foregoing, no party hereto shall be liable to a
holder of Shares for any amount paid to a public official pursuant to applicable
abandoned property laws.
SECTION 1.5. Certificate of Incorporation. The Certificate of
----------------------------
Incorporation of the Surviving Corporation shall be amended in the Merger to
read as set forth in Exhibit A.
SECTION 1.6. By-laws. The By-laws of Mickelberry Acquisition in effect
-------
at the Effective Time shall be the By-laws of the Surviving Corporation until
amended in accordance with applicable law.
SECTION 1.7. Directors and Officers. From and after the Effective Time,
----------------------
until successors are duly elected or appointed in accordance with applicable
law, (a) the directors of Mickelberry at the Effective Time shall be the
directors of the Surviving Corporation and (b) the officers of Mickelberry at
the Effective Time shall be the officers of the Surviving Corporation.
SECTION 1.8. Stock Transfer Books. At the Effective Time the stock
--------------------
transfer books of Mickelberry shall be closed and no transfer of Common Stock
shall thereafter be made on such stock transfer books.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF MICKELBERRY
Mickelberry represents and warrants to Mickelberry Acquisition, Union
Capital and Marlas that:
SECTION 2.1. Corporate Organization. Each of Mickelberry and its
----------------------
Subsidiaries (as defined below) is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, and has all requisite corporate power and authority to own its
properties and assets and to conduct its businesses as now conducted.
"SUBSIDIARY" or "SUBSIDIARIES" means any corporation of which Mickelberry owns,
---------- ------------
A-5
<PAGE>
directly or indirectly, shares of capital stock having in the aggregate 50% or
more of the total combined voting power of the issued and outstanding shares of
capital stock entitled to vote generally in the election of directors of such
corporation. Schedule 2.1 contains a list of all the Subsidiaries together with
Mickelberry's percentage of ownership of each such Subsidiary.
SECTION 2.2. Capitalization. The authorized capital stock of Mickelberry
--------------
consists of 25,000,000 shares, consisting of 5,000,000 shares of Preferred
Stock, par value $1.00 per share (the "PREFERRED STOCK"), and 20,000,000 shares
---------------
of Common Stock, par value $1.00 per share (the "COMMON STOCK"), and 242,334 and
------------
5,877,948 shares of Preferred Stock and Common Stock, respectively, are issued
and outstanding. The shares of Common Stock and the shares of Preferred Stock
have been duly authorized and validly issued, and are fully paid and
nonassessable and no personal liability attaches to the ownership thereof. The
Common Stock and the Preferred Stock are the only outstanding capital stock of
Mickelberry.
SECTION 2.3. Authorization and Validity of Agreement. Mickelberry has
---------------------------------------
the corporate power to enter into this Agreement, to carry out its obligations
hereunder, and to consummate the Merger. The execution and delivery of this
Agreement and the performance of Mickelberry's obligations hereunder have been
duly authorized by all necessary corporate action, including, without
limitation, by the Board of Directors of Mickelberry. The consummation of the
Merger has been duly authorized by all necessary corporate action, other than
the affirmative vote of the stockholders of Mickelberry in accordance with
applicable law and this Agreement, and approval of the Merger by the
stockholders of Mickelberry has been recommended by the Board of Directors of
Mickelberry. Wertheim Schroder & Co. Incorporated has delivered to the Special
Committee of the Board of Directors of Mickelberry its opinion, dated March 21,
1995, that the Merger Consideration is fair from a financial point of view to
the holders of the Shares (the "WERTHEIM OPINION") other than Union Capital and
----------------
Marlas. This Agreement has been duly executed by Mickelberry and constitutes
the valid and binding obligation of Mickelberry enforceable against Mickelberry
in accordance with its terms, except (i) to the extent that enforceability may
be limited by applicable bankruptcy, insolvency, reorganization or other laws
affecting the enforcement of creditors' rights generally, and (ii) that the
availability of equitable remedies, including specific performance, is subject
to the discretion of the court before which any proceeding therefor may be
brought.
SECTION 2.4. No Conflict or Violation. As of the Effective Time, the
------------------------
execution, delivery and performance by Mickelberry of this Agreement and
consummation of the Merger does not and will
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<PAGE>
not (i) violate or conflict with any provision of the Restated Certificate of
Incorporation or By-laws of Mickelberry, (ii) violate any provision of law, or
any order, judgment or decree of any court or other governmental or regulatory
authority, and (iii) violate or result in a breach of or constitute (with due
notice or lapse of time or both) a default under any contract, lease, loan
agreement, mortgage, security agreement, indenture (other than the indenture for
Mickelberry's 8% Convertible Debentures due May 2002 (the "CONVERTIBLE
-----------
DEBENTURES")) or other agreement (other than the two Equipment Financings by
- ----------
Sandy Alexander, Inc., as obligor, NationsBank Leasing Corporation, as lender
and Mickelberry as guarantor dated March 25, 1993 and April 7, 1993,
respectively) or instrument to which Mickelberry or any of its Subsidiaries is a
party or by which it is bound or to which its properties or assets are subject,
nor will result in the creation or imposition of any lien, charge or encumbrance
of any kind whatsoever upon any of the properties or assets of Mickelberry or
any of its Subsidiaries, nor will adversely affect or result in the
cancellation, modification, revocation or suspension of any of the licenses,
franchises, permits, authorizations or approvals issued or granted to
Mickelberry or any of its Subsidiaries by the United States, any state or local
government, any foreign national or local government, or any department, agency,
board, commission, bureau or instrumentality of any of the foregoing, except (in
the case of clauses (ii) and (iii) above only) for such violations or breaches
which would not, individually or in the aggregate, present a reasonable
likelihood of having a material adverse effect on the business, assets or
financial condition of Mickelberry and its subsidiaries, taken as whole.
SECTION 2.5. Consents and Approvals. As of the Effective Time, no
----------------------
material consent, waiver, authorization or approval of any governmental or
regulatory authority, domestic or foreign, or of any other person, firm or
corporation, and no material declaration or notification to or filing or
registration with any such governmental or regulatory authority, is required on
the part of Mickelberry in connection with the execution and delivery of this
Agreement by Mickelberry, the performance by Mickelberry of its obligations
hereunder, or the consummation of the Merger, other than in connection with or
in compliance with the applicable provisions of Delaware Law, the Exchange Act
or the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR ACT").
-------
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF MICKELBERRY ACQUISITION
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<PAGE>
Mickelberry Acquisition represents and warrants to Mickelberry that:
SECTION 3.1. Corporate Organization. Mickelberry Acquisition is a
----------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. Since its date of incorporation, Mickelberry
Acquisition has not engaged in any activities not related to the acquisition, or
proposed acquisition, of Shares or the transactions contemplated by this
Agreement and the Merger and as of the Effective Time Mickelberry Acquisition
will have no liabilities other than those incurred to facilitate or in
connection with the acquisition, or proposed acquisition, of Shares or the
transactions contemplated by this Agreement and the Merger.
SECTION 3.2. Capitalization of Mickelberry Acquisition. The authorized
-----------------------------------------
capital stock of Mickelberry Acquisition consists of 4,000,000 shares of common
stock, par value $1.00 per share, 3,000,000 of which are issued and outstanding,
and all of which are owned by Marlas.
SECTION 3.3. Subsidiaries and Equity Investments. As of the date of this
-----------------------------------
Agreement there are no corporations of which Mickelberry Acquisition owns,
directly or indirectly, shares of capital stock having in the aggregate 50% or
more of the total combined voting power of the issued and outstanding shares of
capital stock entitled to vote generally in the election of directors of such
corporation.
SECTION 3.4. Authorization and Validity of Agreement. Mickelberry
---------------------------------------
Acquisition has the corporate power to enter into this Agreement and to carry
out its obligations hereunder. The execution and delivery of this Agreement,
the performance of Mickelberry Acquisition's obligations hereunder and the
consummation of the Merger have been duly authorized by the Board of Directors
and by the sole shareholder of Mickelberry Acquisition and no other proceedings
on the part of Mickelberry Acquisition are necessary to authorize such
execution, delivery and performance. This Agreement has been duly executed by
Mickelberry Acquisition and is the legal, valid and binding obligation of
Mickelberry Acquisition, enforceable against Mickelberry Acquisition in
accordance with its terms, except (i) to the extent that enforceability may be
limited by applicable bankruptcy, insolvency, reorganization or other laws
affecting the enforcement of creditors' rights generally, and (ii) that the
availability of equitable remedies, including specific performance, is subject
to the discretion of the court before which any proceeding therefor may be
brought.
SECTION 3.5. No Conflict or Violation. As of the Effective Time, the
------------------------
execution, delivery and performance by Mickelberry
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<PAGE>
Acquisition of this Agreement and consummation of the Merger does not and will
not (i) violate or conflict with any provision of the charter documents or By-
laws of Mickelberry Acquisition, (ii) violate any provision of law, or any
order, judgment or decree of any court or other governmental or regulatory
authority, and (iii) violate or result in a breach of or constitute (with due
notice or lapse of time or both) a default under any contract, lease, loan
agreement, mortgage, security agreement, trust indenture or other agreement or
instrument to which Mickelberry Acquisition is a party or by which Mickelberry
Acquisition is bound or to which its properties or assets are subject, nor will
result in the creation or imposition of any lien, charge or encumbrance of any
kind whatsoever upon any of the properties or assets of Mickelberry Acquisition,
nor will adversely affect or result in the cancellation, modification,
revocation or suspension of any of the licenses, franchises, permits,
authorizations or approvals issued or granted to Mickelberry Acquisition by the
United States, any state or local government, any foreign national or local
government, or any department, agency, board, commission, bureau or
instrumentality of any of the foregoing except (in the case of clauses (ii) and
(iii) above only) for such violations or breaches which would not, individually
or in the aggregate, present a reasonable likelihood of having a material
adverse effect on the business, assets or financial condition of Mickelberry
Acquisition.
SECTION 3.6. Consents and Approvals. As of the Effective Time, no
----------------------
material consent, waiver, authorization or approval of any governmental or
regulatory authority, domestic or foreign, or of any other person, firm or
corporation, and no material declaration or notification to or filing, or
registration with any such governmental or regulatory authority, is required in
connection with the execution and delivery of this Agreement by Mickelberry
Acquisition, the performance by Mickelberry Acquisition of its obligations
hereunder or the consummation of the Merger, other than in connection with or in
compliance with the applicable provisions of Delaware Law, the Securities Act of
1933, as amended, the Exchange Act or the HSR Act.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF UNION CAPITAL AND MARLAS
Each of Union Capital and Marlas represents and warrants to Mickelberry
that:
SECTION 4.1. Corporate Organization. Union Capital is a corporation duly
----------------------
organized, validly existing and in good standing under the laws of the State of
Nevada.
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<PAGE>
SECTION 4.2. Capitalization of Union Capital. The authorized capital
-------------------------------
stock of Union Capital consists of 1,000 shares of common stock, no par value,
100 of which are issued and outstanding, and all of which are owned by
Marlas.
SECTION 4.3. Title to Cancelled Shares. All of the Cancelled Shares are
-------------------------
owned of record and beneficially by Union Capital or Marlas, as the case may be,
in each case free and clear of all liens.
SECTION 4.4. Authorization and Validity of Agreement. Union Capital has
---------------------------------------
the corporate power to enter into this Agreement and to carry out its
obligations hereunder. Marlas has full legal capacity to enter into this
Agreement and to carry out its obligation hereunder. The execution and delivery
of this Agreement and the performance of Union Capital's obligations hereunder
have been duly authorized by the board of directors and by the sole shareholder
of Union Capital and no other proceedings on the part of Union Capital are
necessary to authorize such execution, delivery and performance. This Agreement
has been duly executed by each of Union Capital and Marlas and is the legal,
valid and binding obligation of Union Capital and Marlas, enforceable against
Union Capital and Marlas in accordance with its terms, except (i) to the extent
that enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or other laws affecting the enforcement of creditors' rights
generally, and (ii) that the availability of equitable remedies, including
specific performance, is subject to the discretion of the court before which any
proceeding therefor may be brought.
SECTION 4.5. No Conflict or Violation. As of the Effective Time, the
------------------------
execution, delivery and performance by each of Union Capital and Marlas of this
Agreement and consummation of the Merger does not and will not (i) violate or
conflict with any provision of the charter documents or By-laws of Union
Capital, (ii) violate any provision of law, or any order, judgment or decree of
any court or other governmental or regulatory authority, and (iii) violate or
result in a breach of or constitute (with due notice or lapse of time or both) a
default under any contract, lease, loan agreement, mortgage, security agreement,
trust indenture or other agreement or instrument to which Union Capital or
Marlas is a party or by which Union Capital or Marlas is bound or to which its
properties or assets are subject, nor will result in the creation or imposition
of any lien, charge or encumbrance of any kind whatsoever upon any of the
properties or assets of Union Capital or Marlas, nor will adversely affect or
result in the cancellation, modification, revocation or suspension of any of the
licenses, franchises, permits, authorizations or approvals issued or granted to
Union Capital by the United States, any state or local government, any foreign
national or local government, or any department, agency,
A-10
<PAGE>
board, commission, bureau or instrumentality of any of the foregoing except (in
the case of clauses (ii) and (iii) above only) for such violations or breaches
which would not, individually or in the aggregate, present a reasonable
likelihood of having a material adverse effect on the business, assets or
financial condition of Union Capital or Marlas, as the case may be.
ARTICLE V
COVENANTS OF MICKELBERRY
Mickelberry agrees that:
SECTION 5.1. Conduct of Mickelberry. From and after the date of this
----------------------
Agreement and until the Effective Time, Mickelberry shall conduct its business
solely in the ordinary course consistent with past practice and, without the
prior written consent of Mickelberry Acquisition, will not, except as required
or permitted pursuant to the terms hereof or as may occur in the ordinary course
of business consistent with past practice:
(i) make any material change in the conduct of its businesses and
operations or enter into any material transaction;
(ii) make any change in its Restated Certificate of Incorporation or
By-laws; issue any additional shares of capital stock or equity securities
(other than an exercise of options or convertible securities, in each case
outstanding on the date hereof), grant any option, warrant or right to
acquire any capital stock or equity securities, issue any security
convertible into or exchangeable for its capital stock, alter in any
material respect the terms of any of its outstanding securities, or make
any change in its outstanding shares of capital stock or in its
capitalization, whether by reason of a reclassification, recapitalization,
stock split or combination, exchange or readjustment of shares, stock
dividend or otherwise;
(iii) incur, assume or guarantee any indebtedness for borrowed money,
issue any notes, bonds, debentures or other corporate securities or grant
any option, warrant or right to purchase any thereof;
(iv) make any sale, assignment, transfer, abandonment or other
conveyance of any of its assets or any part thereof;
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<PAGE>
(v) subject any of its assets, or any part thereof, to any lien or
suffer such to be imposed other than such liens as may arise by operation
of law;
(vi) redeem, retire, purchase or otherwise acquire, directly or
indirectly, any shares of its capital stock or declare, set aside or pay
any dividends (other than regular quarterly dividends on its Common Stock
and Preferred Stock of $0.015 and $0.075 per share, respectively) or other
distribution in respect of such shares;
(vii) take any other action that would cause any of the representations
and warranties made in this Agreement not to remain true and correct; or
(viii) commit itself to do any of the foregoing.
SECTION 5.2. Access to Information. From and after the date hereof and
---------------------
subject to the execution of such confidentiality agreements as Mickelberry shall
reasonably require, Mickelberry will give Mickelberry Acquisition and its
counsel, financial advisors, auditors and other authorized representatives
reasonable access to the offices, properties, books and records of Mickelberry
and will instruct Mickelberry's employees, counsel, financial advisors and
financing sources to cooperate with any such person in its investigation of
Mickelberry.
SECTION 5.3. Indemnification and Insurance. (a) For a period of three
-----------------------------
years from the Effective Time, Mickelberry, as the Surviving Corporation, shall
maintain in its Certificate of Incorporation the provisions with respect to
indemnification set forth in paragraph 8 of Exhibit A attached hereto, which
provisions shall not be amended, repealed or otherwise modified for such a
period in any manner that would adversely affect the rights thereunder of
persons who at the Effective Time were directors, officers, employees or agents
of Mickelberry (such persons being third-party beneficiaries of this Section
5.3) with respect to actions and omissions occurring prior to the Effective
Time, unless such modification is required by law.
(b) For a period of three years from the Effective Time, the Surviving
Corporation shall use its best efforts to maintain in effect directors' and
officers' liability insurance covering those persons who are currently covered
by Mickelberry's directors' and officers' liability insurance policy with
respect to actions and omissions occurring prior to the Effective Time on terms
no less favorable than the terms of such current insurance coverage.
Notwithstanding the foregoing, if the directors' and officers' liability
insurance referred to in this subdivision (b) is unavailable for the Current D&O
Premium, the Surviving Corporation shall obtain as much insurance as can be
obtained for
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<PAGE>
a premium not in excess (on an annualized basis) of the current D&O
Premium. The Company will use its best efforts to give to any director and
officer covered by this Section 5.3, 30 days prior written notice of any
reduction on coverage or cancellation of the directors' and officers' liability
insurance referred to in this subdivision (b). For purposes of this subdivision
(b), the "CURRENT D&O PREMIUM" shall be an amount not greater than 125% of the
-------------------
premium paid by Mickelberry (on an annualized basis) for directors' and
officers' liability insurance during the period from October 1, 1994 to the
Effective Time.
(c) In the event the Surviving Corporation or any of its successors or
assigns (i) consolidates with or merges into any other person and shall not be
the continuing or surviving corporation or entity of such consolidation or
merger or (ii) transfers all or substantially all of its properties and assets
to any person, then and in each such case, proper provision shall be made so
that the successors and assigns of the Surviving Corporation shall assume all of
the obligations set forth in this Section 5.3.
SECTION 5.4. Vote. From and after the date hereof, Mickelberry will, to
----
the extent required by applicable law or as otherwise reasonably requested by
Mickelberry Acquisition and in accordance with Delaware Law and its certificate
of incorporation and By-laws, use its best efforts to (a) solicit from the
shareholders of Mickelberry proxies in favor of the approval of this Agreement
and (b) take all other action necessary or helpful to secure a vote of
shareholders in favor of the Merger and to approve this Agreement.
SECTION 5.5. Letter Agreement and Other Fees and Expenses. Whether or
--------------------------------------------
not the Merger is consummated (except as provided below), from and after the
date hereof and without the execution of any further instrument, Mickelberry
will (a) assume all of the obligations of Marlas and of any entity formed by him
for purposes of completing the Merger (including but not limited to Mickelberry
Acquisition) (collectively, the "CLIENT") under that certain Letter Agreement
------
dated November 23, 1994 (the "LETTER AGREEMENT"), by and among the Client, The
----------------
Argosy Group L.P. and The Argosy Securities Group L.P., including, without
limitation, indemnities, contribution, compensation and expense reimbursements,
all in accordance with Section 15 of such Letter Agreement and in connection
therewith Mickelberry will reimburse the Client for any amounts previously paid
by it pursuant to the Letter Agreement and (b) pay all reasonable attorneys'
fees, expenses and disbursements of the Client incurred prior to or after the
date hereof in connection with the transactions contemplated by this
Agreement;
provided, however, that Mickelberry shall not be obligated to assume any
- -------- -------
obligation or to pay any fees and expenses under this Section 5.5 (and Marlas
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<PAGE>
shall repay to Mickelberry any amounts paid by Mickelberry pursuant to this
Section 5.5) if this Agreement is terminated because of a material breach by
Mickelberry Acquisition, Union Capital or Marlas of any of its representations,
warranties or covenants contained hereunder.
SECTION 5.6. Stock Options. Prior to the Effective Time, Mickelberry
-------------
shall use its best efforts to cause the holders (other than Marlas) of all
outstanding options (the "OPTIONS") under the 1981 Incentive Stock Option Plan
-------
and the 1992 Stock Option Plan to agree in writing to cancel such Options as of
and subject to the occurrence of the Effective Time, pursuant to an Option
Termination Agreement (the "TERMINATION AGREEMENT") in form and substance
---------------------
satisfactory to Mickelberry Acquisition. Each holder of an Option who so
executes and delivers such a Termination Agreement and whose Option has an
exercise price less than the Merger Consideration, shall have the right to
receive in cash, if the Option is presently exercisable, an amount equal to the
Merger Consideration less the exercise price for each such Option and any
----
applicable withholding taxes (the "OPTION CONSIDERATION").
--------------------
SECTION 5.7. No Mergers, Consolidations, Sale of Stock, etc. From and
-----------------------------------------------
after the date hereof, neither Mickelberry nor any of its Subsidiaries will
directly or indirectly, through officers, employees, representatives or agents,
solicit any inquiries or proposals to enter into or continue any discussions,
negotiations or agreements relating to the sale or exchange of the Shares, the
merger, reorganization or business combination of Mickelberry with, or the
disposition of a significant amount of Mickelberry's assets or business to, any
person other than Mickelberry Acquisition or its affiliates.
SECTION 5.8. Convertible Debentures. From and after the date hereof,
----------------------
Mickelberry will assist Mickelberry Acquisition and take all actions deemed
necessary by Mickelberry Acquisition to obtain the consent of the holders (other
than Marlas) of the Convertible Debentures to the prepayment and/or the
cancellation, as of the Effective Time, of all the Convertible Debentures on
terms reasonably satisfactory to Mickelberry Acquisition.
ARTICLE VI
COVENANTS OF MICKELBERRY ACQUISITION
Mickelberry Acquisition agrees that:
SECTION 6.1. Conduct of Mickelberry Acquisition. From and after the date
----------------------------------
of this Agreement and until the Effective Time, Mickelberry Acquisition shall
conduct its business solely in the ordinary course consistent with past practice
and, without the
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<PAGE>
prior written consent of Mickelberry, will not, except as required or permitted
pursuant to the terms hereof or as may occur in the ordinary course of business
consistent with past practice:
(i) make any change in its Certificate of Incorporation; or
(ii) take any other action that would cause any of the representations
and warranties made in this Agreement not to remain true and correct; or
(iii) commit itself to do any of the foregoing.
SECTION 6.2. Access to Information. From and after the date hereof and
---------------------
subject to the execution of such confidentiality agreements as Mickelberry
Acquisition shall reasonably require, Mickelberry Acquisition will give
Mickelberry and its counsel, financial advisors, auditors and other authorized
representatives reasonable access to the offices, properties, books and records
of Mickelberry Acquisition and will instruct Mickelberry Acquisition's
employees, counsel, financial advisors and financing sources to cooperate with
any such person in its investigation of Mickelberry Acquisition.
ARTICLE VII
COVENANTS OF UNION CAPITAL AND MARLAS
Each of Union Capital and Marlas agrees that:
SECTION 7.1. Vote. Union Capital and Marlas will vote the Cancelled
----
Shares and the Shares listed on Schedule 1.3 in favor of the approval and
adoption of this Agreement and the approval of the Merger.
SECTION 7.2. No Sale or Disposition; Waiver. From and after the date of
------------------------------
this Agreement and until the earlier of the Effective Time and the termination
of this Agreement, (i) neither Union Capital nor Marlas will sell or otherwise
dispose of any Cancelled Shares or Shares listed on Schedule 1.3 other than to
any of its respective affiliates or otherwise to facilitate the consummation of
the transactions contemplated by this Agreement and (ii) Marlas agrees to waive
any default or event of default under the Convertible Debentures if such default
or event of default has occurred and is continuing solely as a result of the
transactions contemplated by this Agreement.
ARTICLE VIII
OTHER AGREEMENTS
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<PAGE>
The parties hereto agree that:
SECTION 8.1. Best Efforts. Upon the terms and subject to the conditions
------------
set forth in this Agreement, each party shall use its best efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations, including
without limitation under the HSR Act, to consummate the transactions
contemplated by this Agreement as promptly as possible. Without limiting the
generality of the foregoing, Mickelberry Acquisition agrees to use its best
efforts to obtain the financing referred to in Section 9.3(c).
SECTION 8.2. Notification of Certain Matters. Each party to this
-------------------------------
Agreement will give prompt notice to the other parties hereof of:
(i) any notice or other communication from any person or entity
alleging that the consent of such person or entity is or may be required in
connection with the transactions contemplated by this Agreement;
(ii) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions
contemplated by this Agreement;
(iii) any action, suit, claim, investigation or proceeding commenced
or, to its knowledge, threatened against, relating to or involving or
otherwise affecting Mickelberry on the one hand, or Mickelberry
Acquisition, Union Capital and/or Marlas on the other hand, which is
reasonably likely to affect materially the transactions contemplated by
this Agreement;
(iv) the occurrence, or failure to occur, of any event or change in
circumstances where such occurrence or failure to occur would be likely to
cause any representation or warranty contained in this Agreement to be
untrue and inaccurate in any material respect at any time from the date
hereof to the Effective Time; and
(v) any material failure of such party to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder.
No such notification shall affect the representations or warranties of the
parties or the conditions to the obligations of the parties hereunder.
SECTION 8.3. Further Assurances. At and after the Effective Time, the
------------------
officers and directors of the Surviving
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<PAGE>
Corporation will be authorized to execute and deliver, in the name and on behalf
of Mickelberry or Mickelberry Acquisition, any deeds, bills of sale, assignments
or assurances and to take and do in the name and on behalf of Mickelberry or
Mickelberry Acquisition any other actions and things to vest, perfect or confirm
of record or otherwise in the Surviving Corporation any and all right, title and
interest in, to and under any of the rights, properties or assets of Mickelberry
acquired or to be acquired by the Surviving Corporation as a result of, or in
connection with, the Merger.
ARTICLE IX
CONDITIONS TO THE MERGER
SECTION 9.1. Conditions to the Obligations of Each Party. The
-------------------------------------------
obligations of Mickelberry and Mickelberry Acquisition to consummate the Merger
are subject to (a) the approval of the Merger and this Agreement at the Special
Meeting by the affirmative vote of at least (1) the holders of a majority of the
Shares outstanding on the record date of such Special Meeting or (2) 66 2/3% of
the votes cast by the holders of the Shares voting at the Special Meeting,
whichever is greater, (b) the Wertheim Opinion not being withdrawn, (c) any
waiting period applicable to the Merger under the HSR Act shall have terminated
or expired, (d) the absence of any statute, rule or regulation which makes
consummation of the Merger illegal or otherwise prohibited or any order, decree,
injunction or judgment enjoining the consummation of the Merger, and (e) the
receipt of an opinion of counsel to Mickelberry, in form and substance
reasonably satisfactory to Mickelberry and Mickelberry Acquisition, as to the
validity of the Merger under Delaware Law.
SECTION 9.2. Conditions to the Obligation of Mickelberry. The obligation
-------------------------------------------
of Mickelberry to consummate the Merger is subject to the satisfaction or waiver
of the following further conditions:
(a) Mickelberry Acquisition shall have performed in all material
respects all of its obligations hereunder required to be performed by it at
or prior to the Effective Time;
(b) the representations and warranties of Mickelberry Acquisition
contained in this Agreement and in any certificate or other writing
delivered by Mickelberry Acquisition pursuant hereto shall be true in all
material respects at and as of the Effective Time as if made at and as of
such time (other than any inaccuracies in such representations or
warranties that are attributable to Mickelberry);
A-17
<PAGE>
(c) receipt by Mickelberry of a certificate signed by an executive
officer of Mickelberry Acquisition to the effect set forth in paragraphs
(a) and (b) of this Section;
(d) consummation on terms satisfactory to Mickelberry of third-party
financing for (1) the Merger Consideration, (2) the Option Consideration
and (3) the repayment of the Convertible Debentures; and
(e) no action or proceeding shall have been commenced or threatened
for the purpose of obtaining an injunction, order or damages before any
court or governmental agency or other regulatory or administrative agency
or commission, domestic or foreign, which Mickelberry shall on advice of
counsel, reasonably determine would (1) result in the imposition of
material limitations on the ability of Mickelberry or Mickelberry
Acquisition effectively to consummate the Merger, (2) have the effect of
rendering the Merger violative of any applicable law, or (3) have a
material adverse effect on the business, assets or financial condition of
the Surviving Corporation.
SECTION 9.3. Conditions to the Obligation of Mickelberry Acquisition.
-------------------------------------------------------
The obligation of Mickelberry Acquisition to consummate the Merger is subject to
the satisfaction or waiver of the following further conditions:
(a) Mickelberry shall have performed in all material respects all of
its obligations hereunder required to be performed by it at or prior to the
Effective Time;
(b) the representations and warranties of Mickelberry contained in
this Agreement and in any certificate or other writing delivered by
Mickelberry pursuant hereto shall be true in all material respects at and
as of the Effective Time as if made at and as of such time;
(c) receipt by Mickelberry Acquisition of a certificate signed by an
executive officer of Mickelberry to the effect set forth in paragraphs (a)
and (b) of this Section;
(d) consummation on terms satisfactory to Mickelberry Acquisition of
third-party financing for (1) the Merger Consideration, (2) the Option
Consideration and (3) the repayment of the Convertible Debentures;
(e) the holders of not more than 5% of the outstanding shares of
Preferred Stock and Common Stock shall have exercised their appraisal
rights in the Merger in accordance with Delaware Law;
A-18
<PAGE>
(f) the prepayment and cancellation of all Convertible Debentures;
(g) holders of Options constituting at least 95% of the shares
represented thereby shall have entered into Termination Agreements with
respect thereto in form and substance satisfactory to Mickelberry
Acquisition; and
(h) no action or proceeding shall have been commenced or threatened
for the purpose of obtaining an injunction, order or damages before any
court or governmental agency or other regulatory or administrative agency
or commission, domestic or foreign, which Mickelberry Acquisition shall on
advice of counsel, reasonably determine would (1) result in the imposition
of material limitations on the ability of Mickelberry or Mickelberry
Acquisition effectively to consummate the Merger, (2) have the effect of
rendering the Merger violative of any applicable law, or (3) have a
material adverse effect on the business, assets or financial condition of
the Surviving Corporation.
ARTICLE X
TERMINATION
SECTION 10.1. Termination. This Agreement may be terminated and the
-----------
Merger may be abandoned at any time prior to the Effective Time:
(a) by mutual written consent of Mickelberry and Mickelberry
Acquisition after approval of their respective Board of Directors; or
(b) by either Mickelberry or Mickelberry Acquisition after approval
of the Board of Directors of Mickelberry or Mickelberry Acquisition, as the
case may be, if the Merger has not been consummated on or before September
30, 1995; provided, however, that neither party may terminate this
-------- -------
Agreement pursuant to this clause (b) if the failure of such party to
fulfill any of its obligations under this Agreement shall have been the
reason that the Merger shall not have been consummated on or before said
date.
SECTION 10.2. Effect of Termination. If this Agreement is terminated
---------------------
pursuant to Section 10.1, this Agreement shall become void and of no effect with
no liability on the part of any party hereto.
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<PAGE>
ARTICLE XI
MISCELLANEOUS
SECTION 11.1. Notices. All notices, requests and other communications to
-------
any party hereunder shall be in writing (including facsimile or similar writing)
and shall be given:
(a) if to Mickelberry to:
Mickelberry Communications Incorporated
405 Park Avenue
New York, New York 10022
Facsimile: (212) 832-0554
Attention: Mr. John C. Mickle
(b) if to Mickelberry Acquisition to:
Mickelberry Acquisition Corporation
c/o Mickelberry Communications Incorporated
405 Park Avenue
New York, New York 10022
Facsimile: (212) 832-0554
Attention: Mr. James C. Marlas
or such other address or facsimile number as such party may hereafter specify by
notice to the other party hereto. Each such notice, request or other
communication shall be effective (i) if given by facsimile, when such facsimile
is transmitted to the facsimile number specified in this Section and the
appropriate confirmation is provided, (ii) if given via United States mail,
three days after such notice is deposited in the mail in a postage pre-paid
envelope, or (iii) if given by any other means, when delivered at the address
specified in this Section.
SECTION 11.2. Survival. None of the representations, warranties,
--------
agreements or covenants contained herein shall survive the Effective Time except
for the agreements contained in Sections 1.3, 1.4, 1.5, 1.6, 1.7, 1.8, 5.3, 5.5
and 8.3.
SECTION 11.3. Amendment. Subject to applicable law, any provision of
---------
this Agreement may be amended by the parties hereto, by action of each of their
respective Boards of Directors or by their respective officers duly authorized
by such Board of Directors, at any time prior to the Effective Time; provided,
--------
however, that any decrease of the amount or change in the type of the Merger
- -------
Consideration or any amendment to Article IX, Article X or this Section 11.3
shall also be approved by the Special Committee of the Board of Directors of
Mickelberry. Any
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<PAGE>
amendment to this Agreement shall be in writing signed by all the parties
hereto.
SECTION 11.4. Waiver. (a) At any time prior to the Effective Time,
------
Mickelberry Acquisition on the one hand, and Mickelberry on the other hand, may
(i) extend the time for the performance of any agreement of the other party or
parties hereto, (ii) waive any accuracy in the representations and warranties
contained herein or in any document delivered pursuant hereto, or (iii) waive
compliance with any agreement or condition contained herein; provided, however,
-------- -------
that if such waiver would have the same effect as any decrease of the amount or
change in the type of the Merger Consideration or any amendment to Article IX,
Article X or Section 11.3 hereof, such waiver shall also be approved by the
Special Committee of the Board of Directors of Mickelberry. Any agreement on
the part of any party to any such extension or waiver shall be effective only if
set forth in a writing signed on behalf of such party and delivered to the other
parties.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other right, power or privilege. The
rights and remedies herein provided shall be cumulative and not exclusive of any
rights or remedies provided by law.
SECTION 11.5. Successors and Assigns. The provisions of this Agreement
----------------------
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided, however, that no party may assign
-------- -------
or otherwise transfer any of its rights under this Agreement without the consent
of the other parties hereto.
SECTION 11.6. Governing Law. This Agreement shall be construed in
-------------
accordance with and governed by the internal laws of the State of Delaware
without regard to principles of conflict of laws.
SECTION 11.7. Integration. This Agreement embodies the entire agreement
-----------
and understanding among the parties hereto and supersedes all prior agreements
and understandings relating to the subject matter hereof.
SECTION 11.8. Headings and References. The headings of the Articles and
-----------------------
Sections of this Agreement are inserted for convenience only and shall not
constitute a part hereof.
SECTION 11.9. Counterparts; Effectiveness. This Agreement may be signed
---------------------------
in any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto
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<PAGE>
and hereto were upon the same instrument. This Agreement shall become effective
when each party hereto shall have received counterparts hereof signed by the
other party hereto.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
MICKELBERRY COMMUNICATIONS INCORPORATED
/s/George Kane
-----------------------------
By: George Kane
Title: Senior Vice President
MICKELBERRY ACQUISITION CORPORATION
/s/James C. Marlas
-----------------------------
By: James C. Marlas
Title: President
UNION CAPITAL CORPORATION
/s/James C. Marlas
-----------------------------
By: James C. Marlas
Title: Chairman
JAMES C. MARLAS
/s/James C. Marlas
-----------------------------
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<PAGE>
EXHIBIT A
RESTATED
CERTIFICATE OF INCORPORATION
OF
MICKELBERRY COMMUNICATIONS INCORPORATED
* * * * * * * *
1. The name of the corporation (the "Corporation") is: Mickelberry
Communications Incorporated.
2. The address of its registered office in the State of Delaware is 1209
Orange Street in the City of Wilmington, County of New Castle. The name of its
registered agent at such address is The Corporation Trust Company.
3. The nature of the business or purposes to be conducted or promoted by
the Corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of the State of
Delaware.
4. The total number of shares of stock which the Corporation shall have
authority to issue is 4,000,000 shares of Common Stock, each of which shall have
a par value of one dollar ($1.00) per share.
5. In furtherance and not in limitation of the powers conferred by
statute, the by-laws of the Corporation may be made, altered, amended or
repealed by the stockholders or by a majority of the entire board of
directors.
6. Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them
<PAGE>
and/or between this Corporation and its stockholders or any class of them, any
court of equitable jurisdiction within the state of Delaware may, on the
application in a summary way of this Corporation or of any creditor or
stockholder thereof or on the application of any receiver or receivers appointed
for this Corporation under the provisions of section 291 of Title 8 of the
Delaware Code or on the application of trustees in dissolution or of any
receiver or receivers appointed for this Corporation under the provisions of
section 279 of title 8 of the Delaware Code order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this Corporation as consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all stockholders or class of stockholders of this Corporation, as the case may
be, and also on this Corporation.
7. Elections of Directors need not be by written ballot.
-2-
<PAGE>
8. A Director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under section 174 of the General Corporation Law of the
state of delaware, or (iv) for any transaction from which the director derived
any improper personal benefit. If the Delaware General Corporation Law is
amended after approval by the stockholders of this provision to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the general Corporation
law of the state of delaware, as so amended.
Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
-3-
<PAGE>
SCHEDULE 1.3
Certain Shares
--------------
59,400 shares of Common Stock held by Marlas in its Keogh Plan
<PAGE>
SCHEDULE 2.1
Subsidiaries
------------
Percentage Owned
Name by Mickelberry
---- ----------------
Bender, Browning, Dolby & Sanderson 100%
Excel Importing Corp. 100%
M C Graphics, Inc. 100%
Mickelberry Mining Corporation 100%
Mickelberry Holding Corporation 100%
Excel Showroom, Inc. 100%
Nadler & Larimer (Europe) Corporation 100%
Newcourt Industries 100%
Partners & Shevack Inc. 100%
Sandy Alexander, Inc. 100%
Sandy Alexander Realty, Inc. (NJ) 100%
Ventura Associates International, Inc. 100%
Mibon Marketing Inc. 100%
Excel Plus, Ltd. 50%
<PAGE>
Annex B
-------
WERTHEIM OPINION
[Letterhead of Wertheim Schroder & Co.
Incorporated]
March 21, 1995
The Special Committee of The Board of Directors
Mickelberry Communications Incorporated
405 Park Avenue
New York, NY 10022
The Special Committee of The Board of Directors:
We understand that Mickelberry Communications Incorporated
("Mickelberry") and Mickelberry Acquisition Corporation ("Mickelberry
Acquisition") are planning to enter into a Plan and Agreement of Merger (the
"Merger Agreement"), whereby Mickelberry Acquisition will merge with Mickelberry
(the "Transaction"). The Merger Agreement provides, among other things, that
each share of Common Stock and Series A Preferred Stock of Mickelberry, except
for shares owned by Mr. James C. Marlas or any of his affiliates, will be
converted into and represent the right to receive $4.25 in cash ("the Merger
Consideration").
You have requested our opinion, as investment bankers, as to the
fairness of the Transaction, from a financial point of view, to the holders of
Common Stock and Series A Preferred Stock of Mickelberry other than James C.
Marlas and affiliated entities (the "Opinion"). It is understood that the
Opinion shall be used by you and the Board of Directors solely in connection
with your consideration of the fairness of the Merger Consideration to the
stockholders of Mickelberry and for no other purpose, and that Mickelberry will
not furnish the Opinion or any other material prepared by Wertheim Schroder &
Co. Incorporated ("Wertheim Schroder") to any other person or persons or use or
refer to the Opinion for any other purpose without Wertheim Schroder's prior
written approval. Wertheim Schroder understands and agrees that its Opinion may
be referred to and reproduced in full in a schedule 13E-3 to be filed with the
Securities and Exchange Commission in connection with the Transaction in any
proxy document mailed to stockholders of Mickelberry or other soliciting
document.
<PAGE>
The Special Committee of The Board of Directors
Mickelberry Communications Incorporated
March 21, 1995
Page 2
Wertheim Schroder, as part of its investment banking business, is regularly
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, secondary distributions of
listed and unlisted securities, private placements and valuations for estate,
corporate and other purposes.
In connection with our opinion set forth herein, we have, among other things:
(i) reviewed the draft Annual Report, as of March 20, 1995, on Form 10-K of
the Company for the fiscal year ended December 31, 1994; the Annual
Reports on Form 10-K and the audited financial statements of the Company
for the three fiscal years ended December 31, 1993; its Quarterly Reports
on Form 10-Q for the quarter ended September 30, 1994; its Proxy Statement
dated April 11, 1994; and reports issued by the Company on Form 8-K dated
March 3, 1993 and June 30, 1992; and all amendments thereto;
(ii) reviewed certain internal, unaudited financial analyses prepared by
management of the Company and the audited financial statements for the
period ended December 31, 1994;
(iii) reviewed the management forecasts of the operating and financial
results for the Company dated December 16, 1994 for the fiscal years ended
December 31, 1995 through December 31, 1999 and discussed with management
any subsequent adjustments to those forecasts through March 20, 1995;
(iv) visited the principal operating divisions of the Company, including
Sandy Alexander, Inc. and Partners & Shevack, Inc.;
(v) conducted discussions with the senior management of the Company concerning
its historical and forecasted financial and operating results;
B-2
<PAGE>
The Special Committee of The Board of Directors
Mickelberry Communications Incorporated
March 21, 1995
Page 3
(vi) performed various valuation analyses, as deemed appropriate, of
Mickelberry using generally accepted analytical methodologies, including:
(i) discounted cash flow valuation analyses; (ii) the application of the
multiples reflected in recent mergers and acquisitions for comparable
businesses to the financial results of Mickelberry; and (iii) the
application of the public trading multiples of comparable companies to
the financial results of Mickelberry;
(vii) reviewed the trading history of the Company's Common Stock and Series
A Preferred Stock in the public marketplace from January 1, 1990 to
March 20, 1995;
(viii) reviewed the trading prices and yields of selected publicly traded
preferred stocks;
(ix) reviewed the Statement of Resolution Establishing Series of Shares,
Series A Preferred Stock of the Company, dated September 3, 1982;
(x) reviewed the draft of the Merger Agreement dated March 17, 1995;
(xi) discussed with the financial advisors to Mr. Marlas and Mickelberry
Acquisition their plans for financing the Transaction; and
(xii) performed such other financial studies, analyses, inquiries and
investigations as we deemed appropriate.
In rendering our Opinion, Wertheim Schroder does not assume any
responsibility to independently verify the accuracy or completeness of
information furnished by or on behalf of Mickelberry, but does rely on its
accuracy and completeness in all material respects and does not assume any
responsibility to perform (or be required to retain any persons to perform) any
independent valuations or appraisals of Mickelberry's assets. With respect to
financial forecasts for Mickelberry, we have been advised by the management of
Mickelberry and we have assumed, without independent
B-3
<PAGE>
The Special Committee of The Board of Directors
Mickelberry Communications Incorporated
March 21, 1995
Page 4
investigation, that they have been reasonably prepared and reflect the best
currently available estimates and judgment of the management of Mickelberry as
to the expected future financial performance of Mickelberry.
Our Opinion is necessarily based upon financial, economic, market and other
conditions as they exist, and the information made available to us, as of the
date hereof, and assumes that the Merger Agreement as finally entered into will
conform to the draft reviewed by us. We disclaim any undertaking or obligation
to advise any person of any change in any fact or matter affecting our Opinion
which may come or be brought to our attention after the date of this Opinion.
This Opinion does not constitute a recommendation as to any action
Mickelberry should take in connection with the Transaction. This Opinion
relates solely to the question of the fairness, from a financial point of view,
of the Merger Consideration.
Based upon and subject to the foregoing, we are of the opinion, as
investment bankers, that as of the date hereof, the Merger Consideration, to be
paid by Mickelberry Acquisition in the Transaction is fair, from a financial
point of view, to the holders of Common Stock and Series A Preferred Stock of
Mickelberry, other than James C. Marlas or any of his affiliates.
Very truly yours,
Wertheim Schroder & Co.
Incorporated
B-4
<PAGE>
Annex C
-------
SECTION 262 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
262 APPRAISAL RIGHTS. (a) Any stockholder of a corporation of this
State who holds shares of stock on the date of the making of a demand pursuant
to subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to (S) 228 of this title shall be entitled to an appraisal by the Court
of Chancery of the fair value of his shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class
or series of stock of a constituent corporation in a merger or consolidation to
be effected pursuant to (S) 251, 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc., or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the holders of the surviving corporation as
provided in subsection (f) of (S) 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal
rights under this section shall be available for the shares of any class or
series of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to (S)(S) 251,
252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
<PAGE>
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this paragraph;
or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts described in
the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under (S) 253 of this title is not owned
by the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation
that appraisal rights under this section shall be available for the shares of
any class or series of its stock as a result of an amendment to its certificate
of incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsection (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsections (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder electing to demand the appraisal of
his shares shall deliver to the corporation, before the taking of the vote on
the merger or
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<PAGE>
consolidation, a written demand for appraisal of his shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal of
his shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must do so
by a separate written demand as herein provided. Within 10 days after the
effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation who
has complied with this subsection and has not voted in favor of or consented to
the merger or consolidation of the date that the merger or consolidation become
effective; or
(2) If the merger or consolidation was approved pursuant to (S) 228
or 253 of this title, the surviving or resulting corporation, either before the
effective date of the merger or consolidation or within 10 days thereafter,
shall notify each of the stockholders entitled to appraisal rights of the
effective date of the merger or consolidation and that appraisal rights are
available for any or all of the shares of the constituent corporation, and shall
include in such notice a copy of this section. The notice shall be sent by
certified or registered mail, return receipt requested, addressed to the
stockholder at his address as it appears on the records of the corporation. Any
stockholder entitled to appraisal rights may, within 20 days after the date of
mailing of the notice, demand in writing from the surviving or resulting
corporation the appraisal of his shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and that
the stockholder intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration
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<PAGE>
of the period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of
a copy thereof shall be made upon the surviving or resulting corporation which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
as the Court deems advisable. The forms of the notices by mail and by
publication shall be approved by the Court, and the costs thereof shall be borne
by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair
rate of interest, the Court may consider all relevant factors, including the
rate of interest which the surviving or resulting corporation would have had to
pay to borrow money during the pendency of the proceeding. Upon application by
the surviving or resulting corporation or by any stockholder entitled to
participate in the appraisal proceeding, the Court may, in its discretion,
permit discovery or other pretrial proceedings and may proceed to trial upon the
appraisal prior to the final determination of the stockholder entitled to an
appraisal. Any stockholder whose name appears on the
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<PAGE>
list filed by the surviving or resulting corporation pursuant to subsection (f)
of this section and who has submitted his certificates of stock to the Register
in Chancery, if such is required, may participate fully in all proceedings until
it is finally determined that he is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the
shares, together with interest, if any, by the surviving or resulting
corporation to the stockholders entitled thereto. Interest may be simple or
compound, as the Court may direct. Payment shall be so made to each such
stockholder, in the case of holders of uncertificated stock forthwith, and the
case of holders of shares represented by certificates upon the surrender to the
corporation of the certificates representing such stock. The Court's decree may
be enforced as other decrees in the Court of Chancery may be enforced, whether
such surviving or resulting corporation be a corporation of this State or of any
state.
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation,
no stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting shareholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or
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<PAGE>
resulting corporation. (Last amended by Ch. 262, L. '94. eff. 7-1-94.)
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<PAGE>
Annex D
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[Letterhead of The Argosy Group L.P.]
November 23, 1994
Mr. James C. Marlas
c/o Mickelberry Communications Incorporated
405 Park Avenue
New York, NY 10022
Dear Mr. Marlas:
This agreement (the "Agreement") will confirm that you, individually and on
behalf of any entity formed by you for purposes of completing a transaction of
the type described below (collectively, "you"), have retained The Argosy Group
L.P. and The Argosy Securities Group L.P. (collectively, "Argosy") as your
exclusive financial advisor on the terms and conditions set forth herein, in
connection with your proposed acquisition of the common stock of Mickelberry
Communications Incorporated (the "Company") that is currently owned by
shareholders other than yourself or your affiliates (the "Public Shares") either
through a merger or cash tender offer (the "Transaction"). In addition, upon
execution of a definitive agreement with respect to the Transaction, Argosy will
act as exclusive placement agent, on the terms and conditions set forth herein,
in connection with the proposed placement with lending institutions of bank or
senior financing (the "Senior Debt") to consummate the Transaction. The net
proceeds from the Senior Debt will be used to purchase the Public Shares and
potentially to refinance the Company's 8% Convertible Subordinated Debentures
due May 2002 (the "Financing").
<PAGE>
Mr. James C. Marlas
November 23, 1994
Page 2
1. Retention. (a) Subject to the provisions set forth below in this
---------
Agreement, you hereby retain Argosy as your exclusive financial advisor in
connection with the Transaction and exclusive placement agent in connection with
the proposed placement of the Senior Debt in the event of a Transaction. You
agree that you will not directly, or indirectly, engage an investment banking
firm other than Argosy to place any Senior Debt (or any securities similar to
Senior Debt) with respect to the Transaction.
(b) Argosy agrees to act as your exclusive financial advisor for the
transaction and exclusive placement agent for the Financing, subject to
satisfactory completion of its due diligence investigation.
2. Compensation. (a) In consideration for services rendered hereunder,
------------
you agree to pay to Argosy a Transaction Fee and a Financing Fee. The
transaction Fee will be payable in two parts: (i) $75,000 in cash upon the
execution of this Agreement; and (ii) $125,000 in cash upon the closing of the
Transaction. In the event during the term of this Agreement that a third-party
purchases a majority of the Company's common shares beneficially owned by you,
Argosy will be entitled to receive the $125,000 fee as detailed in the preceding
section (ii). In the event that the Transaction is consummated and Argosy
places the Senior Debt, a Financing Fee equal to 1.0% of the gross proceeds of
the Senior Debt will be payable on the date of the closing of the Financing (the
"Closing Date") directly out of the proceeds of the Senior Debt. Such placement
fees shall be paid by wire transfer or by delivery to Argosy of a certified or
official bank check or checks payable to its order in immediately available
funds. In the event that at your request Argosy places securities in the
Financing other than Senior Debt, Argosy will be compensated at a level that is
customary for the type of securities placed.
(b) Whether or not the Transaction or the Financing is consummated, you
hereby agree to reimburse Argosy promptly upon request (not less frequently than
monthly) for all reasonable out-of-pocket expenses (including word processing
charges, messenger and duplicating services, facsimile expenses, research
document expenses, travel expenses and other customary expenditures) incurred by
it in connection with the Transaction and the Financing. Prior to the execution
of a definitive agreement with respect to a Transaction, fees and disbursements
of legal counsel shall only be reimbursable under this paragraph 2(b) to the
extent approved in advance by you. Amounts payable pursuant to this paragraph
2(b) and paragraph 2(a) may be withheld by Argosy from the payment of the
proceeds of the placement of the Senior Debt.
(c) Argosy's engagement relating to the Transaction and the Financing under
this Agreement may be terminated by either Argosy or you upon five days' written
notice delivered to the terminated party, except as noted in Section 5. In the
event of a Transaction, if a Financing is consummated prior to the expiration or
other termination of this Agreement, then Argosy shall be entitled to receive
all of the amounts due under Sections 2(a) and 2(b). Argosy shall be
responsible to keep a true and complete record of all prospective lenders (the
"Argosy Investors") which have been contacted by Argosy with respect to, or
provided information relating to, the Financing, utilizing record keeping
methods customary in the investment banking business for placement agents of
securities. If
<PAGE>
Mr. James C. Marlas
November 23, 1994
Page 3
this Agreement is terminated by you and you (or any of your affiliates)
consummates a Financing pursuant to which any Argosy Investor (or any affiliate
thereof) is a party, prior to one year from the date of Argosy's termination,
then you shall promptly pay Argosy a fee equal to 1.0% of the proceeds received
by you in such a transaction from any such Argosy Investor.
In the event that this Agreement expires, or is terminated for any reason, you
shall promptly pay Argosy all amounts due under Section 2(b).
(d) Except as set forth herein, no fee paid or payable to Argosy or any of
its affiliates shall be credited against any other fee paid or payable to Argosy
or any of its affiliates. Nothing contained in this Agreement shall require
Argosy to purchase any securities or make any investment in the Company for its
own account, directly or indirectly.
3. Offering Materials. (a) You will use your best efforts to cause the
------------------
Company to furnish Argosy with information necessary to prepare a private
placement memorandum with respect to the Financing (the "Offering Materials"),
subject to the Company obtaining a confidentiality agreement acceptable to it.
(b) Argosy will perform due diligence; however you recognize and confirm
that Argosy (A) will use and rely primarily on the Offering Materials and on
information available from generally recognized public sources in performing the
services contemplated by this Agreement without having independently verified
the same; (B) is authorized as exclusive placement agent with respect to the
Senior Debt to transmit to any prospective lender a copy or copies of the
Offering Materials, forms of purchase agreements and any other legal
documentation supplied to Argosy expressly for transmission to any prospective
lender by you or on your behalf in connection with the performance of Argosy's
services hereunder or any transaction contemplated hereby; (C) does not assume
responsibility for the accuracy or completeness of the Offering Materials and
such other information; (D) will not make an appraisal of any assets of the
Company; and (E) reserves the right to continue to perform due diligence during
the course of the engagement until the Financing is consummated or this
Agreement is terminated in accordance with Section 2(c). Argosy agrees to keep
the Offering Materials confidential so long as it is and remains non-public,
unless disclosure is required by law or requested by any government or
regulatory agency or body (and then only after giving the Company notice and an
opportunity to contest such disclosure to the extent practicable), and Argosy
will not make use thereof, except in connection with its services hereunder.
<PAGE>
Mr. James C. Marlas
November 23, 1994
Page 4
(c) You agree that any reference to Argosy in any release, communication,
or material distributed to prospective lenders is subject to Argosy's prior
written approval. If Argosy resigns prior to the dissemination of any such
release, communication or material, no reference shall be made therein to
Argosy.
(d) Without Argosy's prior written consent, no advice rendered by Argosy in
connection with the services performed by Argosy pursuant to this Agreement will
be quoted by you or your affiliates or representatives nor will any such advice
be referred to in any report, document, release or other communication, whether
written or oral, prepared, issued or transmitted by such person, except to the
extent required by law (in which case the appropriate party shall so advise the
other in writing prior to such use and shall consult with the other with respect
to the form and timing of disclosure).
(e) You represent (and, upon the execution of a definitive agreement with
respect to the Transaction, will cause the Company to represent) that the
Offering Materials will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements contained therein, in light of the circumstance under which
they are made, not misleading, except that no representation will be made with
respect to any of the projections contained therein. You agree to advise Argosy
promptly of the occurrence of any event or any other change known to you which
results in the Offering Materials containing any untrue statement of a material
fact or omitting to state any material fact required to be stated therein or
necessary to make the statements contained therein, in light of the
circumstances under which they were made, not misleading.
4. Indemnity. (a) In consideration of Argosy's agreement to act on your
---------
behalf, notwithstanding any limitations set forth herein, you agree to indemnify
and hold harmless Argosy, its agents, employees, officers and directors, and any
person who controls Argosy within the meaning of Section 15 of the Securities
Act of 1933 or Section 20 of the Securities Exchange Act of 1934, as amended
(each, an "Indemnified Party" and collectively, the "Indemnified Parties"), from
and against any and all losses, claims, damages, liabilities and expenses
(including, but not limited to, all reasonable legal expenses, any and all other
reasonable expenses incurred in investigating, preparing or defending against
any action or proceeding, commenced or threatened, (whether or not any
Indemnified Party is a named party)), to which an Indemnified Party, jointly or
severally, may become subject, which arise out of or are based upon (i) any
transaction contemplated by this Agreement, the retention of Argosy under this
Agreement, the performance of services by Argosy hereunder or any involvement or
alleged involvement of Argosy in the Transaction or the Financing, or (ii) any
untrue statement or alleged untrue statement of fact contained in any
information (oral or
<PAGE>
Mr. James C. Marlas
November 23, 1994
Page 5
written) or document furnished or made available by the Company directly
(including, without limitation, the Offering Materials, as from time to time
amended and supplemented), or through Argosy or otherwise, or any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements contained therein, in light of the
circumstance under which they were made, not misleading. Notwithstanding the
foregoing, no Indemnified Party shall be entitled to indemnification under this
Section 4 to the extent such loss, claim, damage, liability or expense is
determined by a final judgment of a court of competent jurisdiction to have
resulted primarily from any Indemnified Person's gross negligence, willful
malfeasance, bad faith or material breach of this Agreement ("Disabling
Conduct") and any payment or reimbursement made to such Indemnified Party by you
in connection with any such action or proceeding will be repaid by such
Indemnified Party to you.
If any action or proceeding (including any governmental proceeding) is
brought or asserted against an Indemnified Party in respect of which indemnity
may be sought against you, such Indemnified Party shall promptly notify you in
writing of the institution of such action or proceeding. Each Indemnified Party
shall give you prompt notice upon becoming aware of any claim for which
indemnity or contribution may be sought hereunder; failure to provide such
notice will not, however, relieve you from any obligation or liability you have
hereunder or otherwise, except to the extent such failure causes you to forfeit
material rights. You, at your option, may assume the defense of any such claim
with counsel reasonably satisfactory to Argosy, except if such Indemnified Party
has been advised by counsel that, due to a conflict of interests or because
there may be legal defenses available to such Indemnified Party that are
different from or additional to defenses available to you, separate counsel for
you and such Indemnified Party is advisable in which case, the fees and expenses
of one firm of counsel on behalf of all Indemnified Parties shall be at your
expense; provided, that, upon invoking such option you shall keep such
Indemnified Party informed of the progress of any such claim.
You agree that, without the prior written consent of each of the relevant
Indemnified Parties, you will not settle, compromise or consent to the entry of
any judgment in any pending or threatened claim, action or proceeding in respect
of which indemnification could be sought hereunder (whether or not such
Indemnified Parties are actual or potential parties to such claim, action or
proceeding, (i) that involved any equitable relief that binds or purports to
bind such Indemnified Parties and (ii) unless such settlement, compromise or
consent includes an unconditional release for such Indemnified Parties from all
liability arising out of such claim, action or proceeding. Argosy and each such
Indemnified Party shall have the right to employ separate counsel in any such
action to participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of Argosy
<PAGE>
Mr. James C. Marlas
November 23, 1994
Page 6
or such Indemnified Party unless (a) the Company has agreed to pay such fees and
expenses, or (b) you shall have failed to assume the defense of such action or
proceeding. You shall not be liable for any settlement of any such action or
proceeding effected without your written consent (which shall not be
unreasonably withheld or delayed), but if you have failed to assume such
defense, if such claim is settled with your written consent, or there is a final
judgement for the plaintiff in any such action or proceeding, you agree to
indemnify and hold harmless Argosy and any such Indemnified Party from and
against any loss, liability, damage or expense by reason of such settlement or
judgment.
If the indemnification provided for in this Section 4 is unavailable to an
Indemnified Party in respect of any losses, claims, damages, liabilities and
expenses referred to herein or insufficient to hold an indemnified person
harmless (other than by reason of such Person's Disabling Conduct), then you
agree that in lieu of indemnifying such Indemnified Party, you shall contribute
to the amount paid or payable by such Indemnified Party as a result of such
losses, claims, damages, liabilities and expenses (i) in such proportion as is
appropriate to reflect the relative benefits received by them on the one hand
and the Indemnified Party on the other from the placement of the Senior Debt or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also your relative fault
on the one hand the relative fault of the Indemnified Party on the other in
connection with the untrue statements or omissions or other actions (or alleged
untrue statements, omissions or other actions) which resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by you on the one hand
the Indemnified Party on the other shall be deemed to be in the same proportion
as the total principal amount of the Senior Debt, less the value of the
compensation which would be received by such Indemnified Party pursuant to
Section 2(a) hereof, bears to such compensation. Your relative fault on the one
hand the relative fault of the Indemnified Party on the other shall be
determined by reference to, among other things, whether such untrue statements
or omissions or other actions (or alleged untrue statements, omissions or other
actions) relate to information supplied or action taken by you or the Company on
the one hand or by the Indemnified Party on the other and the relevant persons'
relative intent, knowledge, access to information and opportunity to correct or
prevent such untrue statements, omissions or actions. The amount paid or
payable by a party as a result of the losses, claims, damages, liabilities and
expenses referred to above shall be deemed to include any legal or other fees or
expenses reasonably incurred by such party in connection with investigating or
defending any action or claim. You and Argosy agree that it would not be just
and equitable if contribution pursuant to this Section 4 were determined by pro
rata allocation or by any other method of allocation which does not take into
account the equitable considerations referred to above.
<PAGE>
Mr. James C. Marlas
November 23, 1994
Page 7
The aforesaid indemnity and contribution agreements shall apply to any
related activities engaged in by any Indemnified Party prior to this date and to
any modification of Argosy's engagement hereunder, and shall remain in full
force and effect regardless of any investigation made by or on behalf of Argosy
or any of its agents, employees, officers, directors or controlling persons and
shall survive the placement of the Senior Debt. You agree to promptly notify
Argosy of the commencement of any litigation or proceeding against you or any of
your affiliates in connection with the transactions contemplated hereby. The
agreements contained in this Section 4 shall remain in full force and effect
following the completion or termination of Argosy's engagement hereunder and
shall be in addition to any liability that you may otherwise have to Argosy and
its agents, employees, officers, directors or controlling persons.
You also agree that no Indemnified Party shall have any liability (whether
direct or indirect, in contract or tort to otherwise) to you for or in
connection with advice or services rendered or to be rendered by Argosy pursuant
to this Agreement, the transactions contemplated hereby or any Indemnified
Party's actions or inactions in connection with any such advice, services or
transactions except for liabilities (and related expenses) that are determined
by a final judgment of a court of competent jurisdiction to have resulted
primarily from such Indemnified Party's Disabling Conduct in connection with any
such advice, actions, inactions or services.
5. Survival of Certain Provisions. The representations, warranties,
------------------------------
covenants and confidentiality provisions contained in Section 3, the provisions
contained in Section 4 of this Agreement and your obligation to pay Argosy any
compensation earned pursuant hereto shall remain operative and in full force and
effect regardless of (a) any completion or termination of the Transaction or the
Financing, (b) any termination of this Agreement, or (c) any investigation made
by or on behalf of Argosy or any affiliate of Argosy, and shall be binding upon,
and shall inure to the benefit of, any successors, assigns, heirs and personal
representatives of you, Argosy, the Indemnified Parties and any such person.
6. Conditions of Placement. It is understood that the obligations of
-----------------------
Argosy are to use reasonable efforts to place the Senior Debt and there is no
obligation on the part of Argosy to purchase the Senior Debt. The obligations
of Argosy are subject to satisfactory completion of a due diligence
investigation by Argosy and its counsel, market conditions and the form and
terms of the Senior Debt, the Offering Materials and all related documents being
mutually acceptable to you and Argosy.
7. Notices. Notice given pursuant to any of the provisions of this
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Agreement shall be in writing and shall be mailed or delivered (a) if to you, at
your office at 405 Park
<PAGE>
Mr. James C. Marlas
November 23, 1994
Page 8
Avenue, New York 10022; and (b) if to Argosy, at its offices at 1325 Avenue of
the Americas, New York, New York 10019, Attention: Jay Bloom.
The parties hereto, by written notice to the other parties, may designate
additional or different addresses for subsequent notices or communications.
8. Counterparts. (a) This Agreement may be executed simultaneously in
------------
two or more counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same instrument.
9. Third Party Beneficiaries. This Agreement has been and is made solely
-------------------------
for the benefit of the parties hereto, and their respective successors and
assigns, and no other person shall acquire or have any right under or by virtue
of this Agreement.
10. Choice of Law, Jurisdiction, Recovery of Attorney's Fees. This
--------------------------------------------------------
Agreement shall be governed by, and construed in accordance with, the laws of
the State of New York (without regard to its conflict of laws provisions). You
hereby irrevocably submit to the exclusive jurisdiction of the Federal and New
York State courts located in the City of New York in connection with any suit,
action or proceeding related to this agreement or any of the matters
contemplated hereby, irrevocably waive any defense of lack of personal
jurisdiction and irrevocably agree that all claims in respect of any suit,
action or proceeding may be heard and determined in any such court. You
irrevocably waive, to the fullest extent you may effectively do so under
applicable law, any objection which you may now or hereafter have to the laying
of venue of any such suit, action or proceeding brought in any such court and
any claims that any such suit, action or proceeding brought in any such court
has been brought in an inconvenient forum. Subsequent to the signing of a
definitive agreement with respect to the Transaction, you will cause the Company
to agree to pay or reimburse Argosy for all reasonable costs and expenses
incurred by Argosy in connection with the enforcement of any of its rights under
this Agreement including, without limitation, all reasonable attorneys fees and
expenses of its counsel.
11. Headings. The section headings in this Agreement have been inserted
--------
as a matter of convenience of reference and are not a part of this Agreement.
12. Press Announcements. At any time after the consummation or other
-------------------
public announcement of the Transaction or the placement of the Senior Debt, and
with your prior approval (which approval shall not be unreasonably withheld or
delayed), Argosy may place an announcement (at its expense) in such newspapers
and publications as it may choose,
<PAGE>
Mr. James C. Marlas
November 23, 1994
Page 9
stating that Argosy has acted as financial advisor and placement agent of the
Senior Debt contemplated by this Agreement.
13. Term. Except as provided herein, the Agreement shall run from the
----
date of this letter to December 31, 1995, unless extended by mutual consent of
the parties.
14. Amendment. This Agreement may not be modified or amended except in
---------
writing duly sworn by the parties hereto.
15. Assignment; Successors. You consent to the assignment of Argosy's
----------------------
rights hereunder to any affiliate of, or successor to, Argosy. Upon the signing
of a definitive agreement with respect to a Transaction, you shall cause the
Company to assume all of your obligations under this Agreement, including,
without limitation, indemnities, contribution, compensation and expense
reimbursements, whereupon you shall be released from any such obligations.
16. Enforceability. If any term, provision, covenant or restriction
--------------
contained in this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void, unenforceable or against its regulatory
policy, the remainder of the terms, provisions, covenants and restrictions
contained in this Agreement shall remain in full force and effect and shall in
no way be affected, impaired or invalidated.
Please sign and return the original and one copy of this letter to indicate
your acceptance of the terms set forth herein whereupon this letter and your
acceptance shall constitute a binding agreement between you and Argosy.
Very truly yours,
THE ARGOSY GROUP L.P.
THE ARGOSY SECURITIES GROUP L.P.
By: /s/ Jay Bloom
__________________
Jay Bloom
Managing Director
<PAGE>
Mr. James C. Marlas
November 23, 1994
Page 10
Accepted and agreed to
as of November 23, 1994
By: /s/ James C. Marlas
--------------------------
James C. Marlas, on behalf
of himself and any entity
formed by him for purposes
of completing a Transaction
