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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Schedule 14D-9
Solicitation/Recommendation Statement
Pursuant to Section 14(d)(4) of The
Securities Exchange Act of 1934
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PremiumWear, Inc.
(Name of Subject Company)
PremiumWear, Inc.
(Name of Person Filing Statement)
Common Stock, $.01 Par Value
(Title of Class of Securities)
740909106 (Common Stock)
(Cusip Number of Class of Securities)
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David E. Berg
Chief Executive Officer
PremiumWear, Inc.
5500 Feltl Road, Minnetonka, Minnesota 55343-7902
(800) 248-0158 or (952) 979-1700
(Name, Address and Telephone Number of Person Authorized to Receive
Notice and Communications on Behalf of the Person Filing Statement)
Copy To:
Frank B. Bennett, Esq.
Barbara Lano Rummel, Esq.
Lindquist & Vennum P.L.L.P.
4200 IDS Center
80 South Eighth Street
Minneapolis, Minnesota 55402
(612) 371-3211
[_] Check the box if the filing relates solely to preliminary communications
made before the commencement of a tender offer
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Item 1. Subject Company Information.
The name of the subject company is PremiumWear, Inc., a Delaware corporation
("PremiumWear"). The address of the principal executive offices of PremiumWear
is 5500 Feltl Road, Minnetonka, Minnesota 55343-7902. The telephone number of
PremiumWear at its principal executive offices is (952) 979-1700.
The title of the class of equity securities to which this
Solicitation/Recommendation Statement on Schedule 14D-9 (this "Statement")
relates is the Common Stock, par value $.01 per share (the "Common Stock"), of
PremiumWear, together with the associated rights to purchase preferred stock
(the "Rights") issued pursuant to the Rights Agreement, dated as of July 25,
1997, by and between PremiumWear and Norwest Bank of Minnesota, N.A. (the
shares of Common Stock together with any associated Rights are referred to in
this Statement as the "Shares"). As of May 26, 2000, there were 2,567,485
Shares issued and outstanding.
Item 2. Identity and Background of Filing Persons.
The filing person is the subject company. PremiumWear's business address and
business telephone number are set forth in Item 1 above.
This Statement relates to the tender offer by Penguin Sub, Inc., a Delaware
corporation ("Purchaser") and a wholly-owned subsidiary of New England Business
Service, Inc., a Delaware corporation ("Parent"), to purchase all outstanding
shares of Common Stock and the associated Rights, upon the terms and subject to
the conditions set forth in Purchaser's Offer to Purchase, dated June 9, 2000,
and in the related Letter of Transmittal (which, as they may be amended from
time to time, together constitute the "Offer"), at the purchase price of $13.50
per Share (the "Offer Price"), net to the tendering stockholder in cash,
without interest.
The Offer is described in a Tender Offer Statement on Schedule TO (as
amended or supplemented from time to time, the "Schedule TO"), filed by
Purchaser with the Securities and Exchange Commission (the "Commission") on
June 9, 2000. The Offer is being made pursuant to the terms of the Agreement
and Plan of Merger, dated as of May 26, 2000, by and among Parent, Purchaser
and PremiumWear (the "Merger Agreement"). The Merger Agreement provides, among
other things, for the making of the Offer by Purchaser, and further provides
that, following the purchase of Shares pursuant to the Offer and promptly after
the satisfaction or waiver of certain other conditions, Purchaser will be
merged with and into PremiumWear (the "Merger"). PremiumWear will continue as
the surviving corporation after the Merger (the "Surviving Corporation") and
will be a wholly owned subsidiary of Parent. As more fully described in Item 3
below, at the effective time of the Merger (the "Effective Time"), each
outstanding Share, except for Shares owned by Parent or any subsidiary of
Parent and Shares held by stockholders exercising their appraisal rights under
the General Corporation Law of the State of Delaware ("DGCL"), will be
converted into the right to receive the Offer Price, net to the holder in cash,
without interest.
The Schedule TO states that the principal offices of Purchaser and Parent
are located at 500 Main Street, Groton, Massachusetts 01471.
Item 3. Past Contacts, Transactions, Negotiations and Agreements.
For a description of certain contracts, agreements, arrangements or
understandings and any actual or potential conflicts of interests between
PremiumWear or its affiliates and (i) the PremiumWear executive officers,
directors or affiliates, or (ii) Purchaser or its executive officers, directors
and affiliates, see the Information Statement pursuant to Rule 14f-1 under the
Securities Exchange Act (the "Information Statement") that is attached as Annex
B to this Statement and is incorporated herein by reference. In addition,
stockholders should be aware of the following:
The Merger Agreement. The summary of the Merger Agreement and the
description of the conditions of the Offer contained in Sections 11 and 14,
respectively, of the Offer to Purchase of Parent and Purchaser, dated
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June 9, 2000 and filed as Exhibit (a)(1) to the Schedule TO, which is being
mailed to stockholders together with this Statement, are incorporated herein by
reference. Such summary and description are qualified in their entirety by
reference to the Merger Agreement, which has been filed as Exhibit (e)(1)
hereto and is incorporated herein by reference.
Purchaser's Designation of Persons to Be Elected to The PremiumWear Board of
Directors. The Merger Agreement provides that, promptly upon the acceptance for
payment of, and purchase payment by Purchaser for at least 51% of the
outstanding shares of Common Stock entitled to vote on any matter at a meeting
of stockholders pursuant to the Offer, Purchaser will be entitled to designate
such number of directors, rounded up to the nearest whole number, as will give
Purchaser representation on the PremiumWear Board of Directors equal to the
product of the total number of directors on the Board (giving effect to the
directors designated by Parent pursuant to this sentence) multiplied by a
fraction, the numerator of which shall be the number of Shares of Common Stock
beneficially owned by Purchaser and Parent and the denominator of which shall
be the number of Shares of Common Stock then outstanding. In furtherance
thereof, PremiumWear and its Board of Directors shall, at such time, take any
and all such action needed to cause Purchaser's designees to be appointed to
the Board of Directors of PremiumWear in such class of directors as shall
ensure the longest possible term for such designee as a member of the Board of
Directors of PremiumWear, including, without limitation, increasing the size of
the Board of Directors of PremiumWear (subject to the limitations set forth in
PremiumWear's Certificate of Incorporation and PremiumWear's By-Laws) and using
its reasonable efforts to secure the resignation of directors. The Information
Statement attached as Annex B to this Statement is being furnished in
connection with the possible designation by Purchaser, pursuant to the terms of
the Merger Agreement, of certain persons to be elected to the Board of
Directors other than at a meeting of PremiumWear's stockholders.
The Merger Agreement provides that at least two of the PremiumWear directors
who were directors on May 26, 2000 will continue to serve until the Effective
Time. Notwithstanding anything in the Merger Agreement to the contrary, in the
event that Purchaser's designees are elected to the PremiumWear Board prior to
the Effective Time, the affirmative vote of a majority of the Directors then in
office who were also directors on May 26, 2000 will be required for PremiumWear
to (i) amend or terminate the Merger Agreement or PremiumWear's Certificate of
Incorporation or By-Laws, (ii) extend the time for performance of Parent's and
Purchaser's respective obligations or waive any of PremiumWear's rights under
the Merger Agreement or (iii) take any other action by the PremiumWear Board
under or in connection with the Merger Agreement.
Indemnification and Insurance. Pursuant to the Merger Agreement, Parent
agreed, for a period of six years after the Effective Time (and until the
disposition of any claims made during, and remaining outstanding at the end of,
such six-year period), to indemnify and hold harmless each present and former
director and officer of PremiumWear (each an "Indemnified Party") against all
liabilities arising out of actions or omissions in their capacity as an officer
or director of PremiumWear occurring at or prior to the Effective Time.
The Merger Agreement also provides that Parent will, for six years after the
Effective Time, either (i) maintain PremiumWear's existing directors' and
officers' liability insurance ("D&O Insurance") covering acts or omissions
occurring at or prior to the Effective Time with respect to those persons who
are currently covered by PremiumWear's D&O Insurance, (ii) substitute therefor
D&O Insurance with at least the same coverage containing terms and conditions
no less advantageous, or (iii) cause Parent's own D&O Insurance to cover such
persons.
Effects of The Offer And The Merger Under PremiumWear Stock Plans And
Agreements Between PremiumWear And Its Executive Officers. The Merger Agreement
provides that each outstanding option to purchase shares of Common Stock (each,
a "PremiumWear Stock Option") granted under any stock option plan, program or
agreement to which PremiumWear or its subsidiaries is a party (collectively,
the "PremiumWear Option Plans") that is outstanding immediately prior to the
Effective Time, whether or not then exercisable, will be canceled and the
holder will be entitled to receive from Parent an amount (the "Stock Option
Consideration") in cash equal to the excess of (i) the product of (A) the
excess, if any, of (x) the Offer
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Price over (y) the per share exercise price of such PremiumWear Stock Option
multiplied by (B) the number of shares of Common Stock subject to such
PremiumWear Stock Option over (ii) any required income tax or employment tax
withholding.
The following table sets forth, with respect to each of the executive
officers and each of the directors of PremiumWear, (i) the number of Shares
subject to PremiumWear Stock Options held by such persons, (ii) the weighted
average exercise price of the options held by such persons and (iii) the
aggregate value of such options based upon the $13.50 Offer Price (i.e., the
total cash value less the exercise price).
<TABLE>
<CAPTION>
Weighted Average
Option Exercise Price Aggregate Value
Name Shares Per Share ($) of Options ($)
---- ------- ---------------- ---------------
<S> <C> <C> <C>
C. Derek Anderson................ 9,000 8.74 42,875
Keith A. Benson.................. 9,000 8.74 42,875
David E. Berg.................... 85,000 4.71 747,000
Cynthia L. Boeddeker............. 33,000 4.62 293,125
James S. Bury.................... 42,000 4.54 376,250
Thomas D. Gleason................ 102,500 5.19 851,562
Timothy C. Klouda................ -0- -- --
Alan W. Kosloff.................. 3,000 7.02 19,437
Gerald E. Magnuson............... 9,000 8.74 42,875
Mark B. Vittert.................. 9,000 8.74 42,875
</TABLE>
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(1) The following individuals are executive officers of PremiumWear: David E.
Berg, Cynthia L. Boeddeker, James S. Bury, Thomas D. Gleason and Timothy C.
Klouda. The following individuals are non-employee directors of
PremiumWear: C. Derek Anderson, Keith A. Benson, Alan W. Kosloff, Gerald E.
Magnuson and Mark B. Vittert.
(2) All options set forth in the table above had vested prior to the
consummation of the Merger Agreement, except that the following individuals
held unvested options in the amounts set forth next to their names which
were accelerated and vested pursuant to the existing terms of their option
agreements with PremiumWear as a result of the transactions contemplated by
the Merger Agreement: David E. Berg (51,500); Cynthia L. Boeddeker
(19,750); James S. Bury (24,000); and Thomas D. Gleason (81,250).
Consulting Agreement. In connection with the execution of the Merger
Agreement, Mr. Gleason entered into a consulting agreement with Parent and
PremiumWear (the "Consulting Agreement"). The Consulting Agreement has a term
of two years from the date of the Merger Agreement and provides, among other
things, that Mr. Gleason will assist PremiumWear in the transition following
the Merger. In consideration for his services, Mr. Gleason will receive
aggregate consulting and engagement fees of $582,500. The Consulting Agreement
also subjects Mr. Gleason to customary confidentiality, non-competition and
non-solicitation covenants and provides Mr. Gleason with indemnification
protection. The Consulting Agreement supersedes Mr. Gleason's existing Change
in Control Severance Agreement with PremiumWear, unless the Merger is not
completed, in which case the Consulting Agreement will be of no effect, and the
Change in Control Severance Agreement will be reinstated. The preceding summary
of the Consulting Agreement is qualified in its entirety by reference to the
Consulting Agreement, a copy of which is attached as Exhibit (e)(10) to this
Statement and incorporated herein by reference.
Mutual Non-Disclosure Agreement. Effective as of February 10, 2000,
PremiumWear and Parent entered into a Mutual Non-Disclosure Agreement (the
"Non-Disclosure Agreement"), pursuant to which the parties agreed to provide,
among other things, for the confidential treatment of their discussions
regarding the Offer and the Merger and the exchange of certain confidential
information. The Non-Disclosure Agreement provides that Parent will not buy
PremiumWear's Common Stock without the written consent of the Board of
Directors of PremiumWear prior to March 1, 2002. The preceding summary of the
Non-Disclosure Agreement is qualified in its entirety by reference to the Non-
Disclosure Agreement, a copy of which is attached as Exhibit (e)(4) to this
Statement and incorporated herein by reference.
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Item 4. The Solicitation or Recommendation.
(a) Recommendation of The Board of Directors. The Board of Directors of
PremiumWear, at a meeting held on May 25, 2000, unanimously determined that the
terms of the Merger Agreement, including the Offer and the Merger, are
advisable, fair to and in the best interests of the stockholders of
PremiumWear. At this meeting, the Board approved the Merger Agreement, the
Offer and the Merger and the other transactions contemplated by the Merger
Agreement. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS
ACCEPT THE OFFER AND TENDER THEIR SHARES IN THE OFFER AND APPROVE AND ADOPT THE
MERGER AGREEMENT. A letter to the PremiumWear stockholders communicating the
Board's recommendation is filed herewith as Exhibit (a)(3) and is incorporated
herein by reference.
(b) (i) Background of the Transaction.
Throughout 1999, members of Parent's management evaluated various
alternative strategies for securing a reliable source of supply for Parent's
personalized clothing/work wear product line. Parent first identified
PremiumWear as a potential source of supply through its research of public
companies, and in November 1999, Mr. Ron Doyle, division vice president of
Parent's personalized clothing/work wear product line, telephoned Mr. Thomas D.
Gleason, chairman of the PremiumWear Board, seeking to initiate discussions in
this regard.
On November 23, 1999, Mr. Robert J. Murray, chairman and chief executive
officer of Parent, and Mr. Joel S. Hughes, senior vice president, corporate
channel marketing of Parent, telephoned Mr. Gleason to inform him of Parent's
interest in evaluating PremiumWear as a vendor. They described Parent's
personalized clothing/work wear business to Mr. Gleason, and subsequently sent
Mr. Gleason background materials regarding Parent and its businesses. On
November 24, 1999, Messrs. Murray and Hughes spoke again with Mr. Gleason by
telephone, confirmed that Mr. Gleason had received the background materials and
arranged for representatives of Parent to meet with representatives of
PremiumWear at PremiumWear's facilities.
On December 8, 1999, Messrs. Hughes and Doyle met with Mr. Timothy C.
Klouda, president of the promotional products division of PremiumWear, at
PremiumWear's Clarksville, Tennessee distribution center. Mr. Klouda gave
Messrs. Hughes and Doyle a tour of the facility and introduced them to the
facility's supervisory staff. Messrs. Hughes, Doyle and Klouda then traveled to
PremiumWear's Minnetonka, Minnesota headquarters, and on December 9, 1999, Mr.
Klouda gave Messrs. Hughes and Doyle a tour of the Minnetonka facility and
introduced them to Mr. David E. Berg, president and chief executive officer of
PremiumWear, Ms. Cynthia L. Boeddeker, vice president of operations of
PremiumWear, and Mr. James S. Bury, chief financial officer of PremiumWear. The
discussions at these meetings related to a possible supply relationship between
PremiumWear and Parent.
Based on a favorable report from Messrs. Hughes and Doyle following this
business trip, Mr. Murray directed Parent's management to begin consideration
of PremiumWear as a potential acquisition candidate. On January 10, 2000, Mr.
Murray telephoned Mr. Gleason to arrange a meeting between the two of them and
sent Mr. Gleason additional information regarding Parent.
On January 25, 2000, Mr. Murray met with Mr. Gleason in Naples, Florida.
They discussed the business plans of both companies, and Mr. Murray asked Mr.
Gleason to consider whether a business combination of PremiumWear and Parent
would be advantageous to both companies. Mr. Gleason agreed that further
exploratory discussions were desirable, and he agreed with Mr. Murray to
arrange a meeting for PremiumWear's senior management to visit Parent's
headquarters in Groton, Massachusetts.
On various occasions between January 25 and February 15, 2000, Mr. Murray
spoke with Mr. Gleason and/or Mr. Berg by telephone with respect to the
logistics of the upcoming meeting, and on February 10, 2000, Parent and
PremiumWear entered into a mutual non-disclosure agreement to facilitate the
discussions between the two companies relating to a possible business
combination transaction.
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On February 16, 2000, Messrs. Gleason, Berg and Klouda traveled to Groton,
Massachusetts and met with Messrs. Murray, Hughes and Doyle, Mr. Daniel M.
Junius, senior vice president and chief financial officer of Parent, and other
members of Parent's management. Parent's representatives described its business
and strategic plans. In the course of these discussions representatives of both
companies acknowledged that a business relationship between the two companies,
possibly in the form of a strategic alliance or a business combination, could
be mutually advantageous.
On various occasions between February 17 and March 10, 2000, Mr. Murray
spoke with Mr. Gleason or Mr. Berg by telephone with respect to the logistics
of a planned visit by Messrs. Murray, Hughes and Junius to PremiumWear's
Minnetonka offices on March 11, 2000. At the same time, Mr. Murray spoke by
telephone at various times during this period with Mr. Gleason, Mr. Gleason's
legal representative and representatives of Arthur Andersen LLP, PremiumWear's
independent accountants, regarding the net operating loss carry forward of
PremiumWear and the tax consequences to Mr. Gleason of an acquisition of
PremiumWear by Parent. On April 18, 2000, Mr. Murray sent a package of
background materials describing Parent to each of PremiumWear's outside
directors.
In a telephone conversation on February 20, 2000, Mr. Gleason spoke with Mr.
Murray who indicated that Parent was prepared to submit an acquisition proposal
in the amount of $10 per share in cash. Mr. Gleason indicated to Mr. Murray
that he did not think the PremiumWear Board would be receptive to such a
proposal.
In a telephone conversation on February 22, 2000, Mr. Gleason described to
Messrs. Murray and Junius his ideas about ways to value PremiumWear's business.
At a meeting of the PremiumWear Board held on February 23, 2000, Mr. Gleason
reported on his discussions with Parent, including the price per share Mr.
Murray had indicated Parent was prepared to propose. The PremiumWear Board
advised Mr. Gleason to continue discussions but that a $10 per share price was
unacceptable.
At a special telephonic meeting of the PremiumWear Board held on March 1,
2000, Mr. Gleason reported that in discussions subsequent to the February 23rd
meeting of the PremiumWear Board, Mr. Murray had indicated that Parent was
prepared to submit an acquisition proposal in the range of $10-$12 per share in
cash. The PremiumWear Board had a general discussion regarding the merits of
the proposal and a strategic business combination with Parent and instructed
Mr. Gleason to continue discussions with Mr. Murray. The PremiumWear Board also
indicated to Mr. Gleason that the $10-$12 per share price range was still too
low but that it would consider an offer in the range of $13-$14 per share.
Messrs. Berg and Klouda indicated that they would like to investigate the
merits of a management buyout in light of the expression of interest by Parent.
Thereupon, Messrs. Berg and Klouda excused themselves from the meeting.
Following the PremiumWear Board meeting on March 1, 2000, Mr. Gleason spoke
further with Mr. Murray about matters related to a possible business
combination, including base and best case projections for PremiumWear.
Following that discussion, Mr. Bury provided Mr. Junius with the best case
projections, and in a telephone call on March 2, 2000, Mr. Gleason reviewed
those projections with Messrs. Murray and Junius.
At Mr. Gleason's request, on March 8, 2000 Mr. Junius sent a letter (the
"March 8 Letter") addressed to Mr. Gleason containing Parent's non-binding
indication of interest relating to a possible acquisition of PremiumWear. In
the March 8 Letter, Mr. Junius indicated that Parent would be interested in
acquiring 100% of the Shares at a price in the range of $13 to $14 per share,
payable in cash.
In the March 8 Letter, Mr. Junius further indicated that Parent was
confident that it would be able to obtain sufficient funds for the proposed
acquisition from the lenders under its existing credit facility, that before
entering into a definitive agreement Parent would have to be satisfied with its
due diligence review of PremiumWear's business and operations, and that the
definitive agreement would require the approval of Parent's Board of Directors.
At Mr. Gleason's request, on March 10, 2000, Mr. Junius sent a second letter
(the "March 10 Letter") addressed to Mr. Gleason containing substantially the
same terms as the March 8 Letter.
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On March 11 and 12, 2000, Messrs. Murray, Hughes and Junius traveled to
PremiumWear's offices in Minnetonka and met with Messrs. Berg, Bury and Klouda
and Ms. Boeddeker. Discussions at these meetings concerned how the two
companies might work together.
As a result of the March 11 and 12 discussions, Mr. Murray spoke with Mr.
Gleason by telephone several times between March 13 and 15, 2000, at which time
he reiterated Parent's interest in submitting an acquisition proposal within
the $13-$14 per share price range for the consideration of the PremiumWear
Board.
On March 16, 2000, Mr. Murray sent a letter (the "March 16 Letter")
addressed to Mr. Gleason containing Parent's proposal for the acquisition of
PremiumWear. In the March 16 Letter, Mr. Murray indicated that Parent proposed
to acquire 100% of the Shares for $13.25 in cash per share. The March 16 Letter
also recapitulated the other terms contained in the March 8 Letter and the
March 10 Letter.
At a special meeting on March 21, 2000, the PremiumWear Board met again and,
in light of Messrs. Berg and Klouda's previously expressed interest in
investigating a management buyout of PremiumWear, appointed all directors with
the exception of Messrs. Berg and Klouda to serve on a special committee for
the purpose of evaluating the proposed offer from Parent. Mr. Gleason reported
that he had received from Parent the March 16 Letter. The special committee of
the PremiumWear Board discussed the March 16 Letter in detail and instructed
Mr. Gleason to continue discussions with Parent to determine what other terms
and conditions would be part of any proposed transaction with Parent. The
special committee of the PremiumWear Board also discussed the tax and financial
impact of the proposed transaction price on the officers and directors of
PremiumWear. In light of PremiumWear's recent financial performance, the
special committee of the PremiumWear Board instructed the compensation
committee of the PremiumWear Board to take any necessary action to minimize or
eliminate any adverse financial or tax impact to Messrs. Gleason and Mr. Berg
in the event an agreement was reached within the financial parameters expressed
by Parent.
On March 22, 2000, Mr. Murray sent two letters to Mr. Berg outlining the
terms of proposed employment arrangements for Mr. Berg and for Messrs. Bury,
Klouda and Dennis G. Lenz, executive vice president of the promotional products
division of PremiumWear, and Ms. Boeddeker in connection with the proposed
acquisition of PremiumWear by Parent. The letters stated that the proposed
employment arrangements were subject to the negotiation, execution and delivery
of definitive employment agreements containing terms mutually satisfactory to
the executives and Parent.
In a telephone conversation on March 27, 2000 between Mr. Craig Barrows,
Vice President, General Counsel and Secretary of Parent, Mr. Gleason and
representatives of Lindquist & Vennum PLLP, PremiumWear's legal counsel, Mr.
Barrows described Parent's contemplated structure for the proposed acquisition,
consisting of a first-step cash tender offer for all outstanding shares, to be
followed by a second-step merger in which all shares not tendered would be
cashed out at the tender offer price. He also described a stock option that
Parent would be requesting from PremiumWear, pursuant to which Parent would be
granted the right to purchase, under certain circumstances, Shares in an amount
up to 19.9% of the then outstanding Shares.
In late March, 2000, Mr. Junius contacted Mr. Gleason to arrange a due
diligence meeting regarding PremiumWear's business and operations. Mr. Gleason
then coordinated the time for the due diligence meeting.
On April 5 and 6, 2000, Messrs. Junius, Barrows and David G. Foster, vice
president and controller of Parent, and representatives of Deloitte & Touche
LLP, Parent's independent accountants, traveled to Minneapolis, Minnesota to
conduct a due diligence review with respect to PremiumWear's business and
operations. Messrs. Junius, Barrows and Foster reviewed written materials
provided by PremiumWear at the offices of Lindquist & Vennum, and met there
with Messrs. Bury and Thomas H. Bird, controller of PremiumWear. Deloitte &
Touche's representatives met with representatives of Arthur Andersen at the
latter's offices to review materials relating to PremiumWear's recently
completed audit.
On April 11, 2000, Parent's legal representatives, Skadden, Arps, Slate,
Meagher & Flom LLP, distributed to PremiumWear's legal representatives first
drafts of the Merger Agreement and the proposed stock option agreement.
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On April 17, 2000, Mr. Murray distributed a draft of Mr. Berg's proposed
employment agreement.
On April 19, 2000, PremiumWear's legal representatives sent a letter to Mr.
Barrows regarding the proposed stock option agreement and the non-solicitation
and termination fee provisions contained in the draft Merger Agreement.
On April 19, 2000, Mr. Gleason sent a letter to Mr. Murray outlining a
proposed employment or consulting agreement to replace his change in control
severance agreement.
On April 20, 2000, PremiumWear's legal representatives distributed
additional comments on the Merger Agreement.
On April 21, 2000, Mr. Junius distributed drafts of the proposed employment
agreements to Messrs. Berg, Bury, Klouda and Lenz and Ms. Boeddeker.
Between April 6 and April 23, 2000, various telephone conversations occurred
between members of Parent's and PremiumWear's management and legal
representatives regarding additional due diligence items and related matters.
At a telephonic meeting of the PremiumWear Board on April 18, 2000, Mr.
Gleason reported that Messrs. Berg and Klouda had terminated their
investigation of a management buyout. Accordingly, the PremiumWear Board
determined to dissolve the previously appointed special committee. Mr. Gleason
then reported on the status of the negotiations with Parent. The compensation
committee of the PremiumWear Board also reported on the impact of the proposed
transaction on management at which time the PremiumWear Board ratified the
compensation committee's approval of modifications to Mr. Gleason's change in
control severance agreement and stock option agreement and Mr. Berg's change in
control severance agreement.
Beginning on April 24, 2000, Parent's and PremiumWear's legal
representatives, together with Messrs. Junius, Barrows and Bury, met in the
Boston offices of Skadden, Arps, Slate, Meagher & Flom LLP to negotiate the
terms of the Merger Agreement. Mr. Gleason joined those discussions in the
afternoon of April 24, 2000.
On April 25, 2000, Parent's Board of Directors held a special meeting to
consider the terms of the proposed acquisition of PremiumWear. Members of
Parent's management and Parent's legal representatives briefed the directors on
the status of negotiations concerning the Merger Agreement, the employment
agreements with the named PremiumWear executives, and the consulting
arrangement with Mr. Gleason. Management was directed to continue negotiations,
with the understanding that definitive terms of the transaction would be
presented to the directors for consideration at a subsequent meeting.
Discussions between Parent's and PremiumWear's legal representatives,
together with Messrs. Junius, Barrows and Gleason, resumed on the morning of
April 26, 2000. At this time Mr. Murray joined the discussions, and Mr. Gleason
announced that PremiumWear's Board of Directors had met telephonically and had
determined that they intended to obtain a fairness opinion from an independent
financial advisor with respect to the proposed transaction. The parties
discussed open issues under the Merger Agreement and Mr. Gleason's proposal
regarding a continuing employment or consulting arrangement with Parent.
Between April 26 and May 22, 2000, Parent's and PremiumWear's management and
legal representatives and the named PremiumWear executives' legal
representative continued to negotiate and exchange drafts of the Merger
Agreement, the employment agreements with the named executives and the
consulting agreement with Mr. Gleason.
In a telephone conversation on May 22, 2000, Mr. Murray informed Mr. Gleason
that he believed that the parties had come to a final understanding with
respect to the various agreements, and that he was prepared to submit the
transaction to Parent's Board of Directors for their consideration. At this
time Mr. Gleason informed
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Mr. Murray that, based on the report prepared by PremiumWear's independent
financial advisor, he was not confident that the PremiumWear Board would
approve a transaction at the proposed $13.25 per share price. After further
discussions, Mr. Murray offered to raise the transaction price to $13.50 per
share, and Mr. Gleason agreed to submit the proposed transaction at $13.50 per
share to PremiumWear's Board of Directors for their consideration.
At a special meeting held on May 25, 2000, PremiumWear's independent
financial advisor reported that it would deliver an opinion that the $13.50
price is fair to the stockholders. Thereafter, the PremiumWear Board approved
the terms of the Merger Agreement and the employment and consulting agreements
negotiated by Parent with the named executives and Mr. Gleason.
At a special meeting held on May 26, 2000, Parent's Board of Directors
approved the terms of the Merger Agreement and Mr. Gleason's consulting
agreement. Thereafter, Parent's and PremiumWear's legal representatives
finalized the Merger Agreement, and the Merger Agreement, the employment
agreements, the amendments to the named executives' change in control severance
agreements, and Mr. Gleason's consulting agreement were executed and delivered.
On May 30, 2000, Parent and PremiumWear issued press releases announcing the
execution of the Merger Agreement.
On June 9, 2000, in accordance with the Merger Agreement, the Purchaser
commenced the Offer.
(ii) Reasons For The Recommendation of The Board of Directors.
In reaching its recommendations described above in paragraph (a) of this
Item 4, the Board of Directors considered a number of factors, including the
following:
1. Financial Condition and Prospects of PremiumWear. The Board
considered the current and historical financial condition and results of
operations of PremiumWear, as well as the prospects and strategic
objectives of PremiumWear, including the risks involved in achieving those
prospects and objectives, and the current and expected conditions in the
industries in which PremiumWear's businesses operate. The Board discussed
its belief that the Shares have historically been undervalued and the
challenges of a relatively small market capitalization in the marketplace.
2. Transaction Financial Terms/Premium to Market Price. The Board
considered the relationship of the Offer Price and the Merger Consideration
to the historical market prices of the Shares. The $13.50 Offer Price and
Merger Consideration exceed the highest trading price of the Shares during
the twelve-month period preceding the announcement of the Merger Agreement
($11.00) and represent a 37% premium over the $9.875 Nasdaq National Market
closing price of the Shares on May 26, 2000 (the last trading day prior to
the announcement of the Merger Agreement and the Offer). The Board also
considered the form of consideration to be paid to holders of Shares in the
Offer and the Merger, and the certainty of value of cash consideration as
compared to stock consideration. The Board was aware that the consideration
received by holders of Shares in the Offer and Merger would be taxable to
the holders for federal income tax purposes.
3. Fairness Opinion of Peter J. Solomon Company Limited. The Board
participated in presentations from Peter J. Solomon Company Limited
("PJSC") and reviewed the opinion of PJSC, dated May 26, 2000, that, based
upon and subject to certain considerations and assumptions, the Offer Price
to be received by holders of Shares pursuant to the Merger Agreement is
fair, from a financial point of view, to such holders (other than Parent
and its affiliates). A copy of the opinion delivered by PJSC to the Board
of Directors, setting forth the procedures followed, the matters considered
and the assumptions made by PJSC in arriving at its opinion, is attached
hereto as Annex A and incorporated herein by reference. Stockholders are
urged to read this opinion in its entirety.
4. Timing of Completion. The Board considered the anticipated timing of
consummation of the transactions contemplated by the Merger Agreement,
including the structure of the transactions as a tender
9
<PAGE>
offer for all of the Shares, which should allow stockholders to receive the
transaction consideration earlier than in an alternative form of
transaction, followed by the Merger in which stockholders will receive the
same consideration as received by stockholders who tender their Shares in
the Offer.
5. Limited Conditions to Consummation. The Board recognized that the
obligation of Parent and Purchaser to consummate the Offer and the Merger
is subject to a limited number of conditions. The Board considered the
financial strength of Parent and its ability to complete the transaction
with a limited number of conditions. The Board noted the Offer is
conditional upon Parent borrowing funds under its recently expanded
borrowing facility to finance the purchase of the Shares. The Board also
considered the likelihood of obtaining required regulatory approvals, and
the terms of the Merger Agreement regarding the obligations of both
companies to pursue such regulatory approvals.
6. Alternative Transactions. The Board considered that under the terms
of the Merger Agreement, while PremiumWear is prohibited from soliciting
acquisition proposals from third parties, PremiumWear may engage in
discussions or negotiations with, and may furnish non-public information
to, a third party who makes a written acquisition proposal if, among other
things, (1) the Board determines in good faith after having taken into
account the advice of its legal counsel that such action is required in
order for such Board of Directors to comply with its fiduciary obligations
to PremiumWear's stockholders under applicable law, (2) at least two
business days prior to participating in discussions or negotiations with,
or furnishing or disclosing any nonpublic information to such third party,
PremiumWear gives Parent written notice of the identity of the third party
and PremiumWear's intention to participate in discussions or negotiations
with, or furnish nonpublic information to, such party, and PremiumWear
receives from such third party an executed confidentiality agreement
containing terms no less restrictive than the terms of the confidentiality
agreement executed with Parent, and (3) at least two business days prior to
furnishing or disclosing any nonpublic information to such third party,
PremiumWear furnishes such information to Parent (to the extent such
information has not been previously delivered or made available by
PremiumWear to Parent). The Board considered that the terms of the Merger
Agreement permit PremiumWear to terminate the Merger Agreement to enter
into such a superior transaction involving PremiumWear if, among other
things, PremiumWear pays Parent expenses and a termination fee in an amount
not to exceed $1,220,000 prior to terminating the Merger Agreement. The
Board considered the possible effect of these provisions of the Merger
Agreement on third parties who might be interested in exploring an
acquisition of PremiumWear. In this regard, the Board recognized that the
provisions of the Merger Agreement relating to termination fees and
solicitation of acquisition proposals were insisted upon by Parent and
Purchaser as a condition to entering into the Merger Agreement.
7. Potential Conflicts of Interest. The Board considered interests of
certain PremiumWear executives in the Offer and the Merger (see Item 3
Effects of the Offer and the Merger Under PremiumWear Stock Plans and
Agreements Between PremiumWear and its Executive Officers.)
8. Complementary Business. The Board considered the complementary nature
of Parent's business and PremiumWear's business and Parent's intent to
maintain PremiumWear's business strategy and employees.
In view of its many considerations, the Board did not find it practical to,
and did not, quantify or otherwise assign relative weights to the specific
factors considered. In addition, individual members of the Board may have given
different weights to the various factors considered. After weighing all of
these considerations, the Board determined to approve the Merger Agreement and
recommend that holders of Shares tender their Shares in the Offer.
(c) Intent to Tender. To the knowledge of PremiumWear, each director and
executive officer of PremiumWear who owns Shares presently intends to tender in
the Offer all Shares that they own of record or beneficially, except to the
extent such tender would violate applicable securities laws.
10
<PAGE>
Item 5. Persons/Assets Retained, Employed, Compensated or Used.
Pursuant to a letter agreement dated May 8, 2000, PremiumWear retained Peter
J. Solomon Company Limited to provide a fairness opinion and to perform such
other financial advisory services as may from time to time be agreed upon by
PremiumWear and PJSC.
Pursuant to the PJSC engagement letter, PremiumWear agreed to pay PJSC a fee
of $200,000, with the first $100,000 to be paid on execution of the engagement
letter and $100,000 upon initial submission of the fairness opinion (whether or
not favorable). PremiumWear has also agreed to reimburse PJSC for reasonable
expenses as incurred. In addition, PremiumWear has also agreed to indemnify
PJSC and its affiliates, counsel and other professional advisors, and their
respective directors, officers, controlling persons, agents and employees
against certain liabilities and expenses, including certain liabilities under
the federal securities laws, arising out of PJSC's engagement.
Except as described above, neither PremiumWear nor any person acting on its
behalf currently intends to employ, retain or compensate any other person to
make solicitations or recommendations to stockholders on its behalf concerning
the Offer.
Item 6. Interest in Securities of the Subject Company.
Except for the issuance of options to PremiumWear's non-employee directors
(5,000 shares in the aggregate) in connection with the Annual Shareholder
Meeting on May 17, 2000, no transactions in Shares have been effected during
the past 60 days by PremiumWear or, to the knowledge of PremiumWear, by any
executive officer, director, affiliate or subsidiary of PremiumWear.
Item 7. Purposes of the Transaction and Plans or Proposals.
Except as set forth in this Statement, PremiumWear is not currently
undertaking or engaged in any negotiations in response to the Offer that relate
to (1) a tender offer for or other acquisition of PremiumWear's securities by
PremiumWear, any subsidiary of PremiumWear or any other person; (2) an
extraordinary transaction, such as a merger, reorganization or liquidation,
involving PremiumWear or any subsidiary of PremiumWear; (3) a purchase, sale or
transfer of a material amount of assets of PremiumWear or any subsidiary of
PremiumWear; or (4) any material change in the present dividend rate or policy,
or indebtedness or capitalization of PremiumWear.
Except as set forth in this Statement, there are no transactions,
resolutions of the Board of Directors, agreements in principle, or signed
contracts in response to the Offer that relate to one or more of the events
referred to in the preceding paragraph.
Item 8. Additional Information.
Rights Agreement. On June 8, 2000, the Rights Agreement, dated as of July
25, 1997, by and between PremiumWear and Norwest Bank of Minnesota, N.A., as
Rights Agent, was amended (the "Amendment to Rights Agreement") (a) to render
the Rights Agreement inapplicable with respect to the Offer, the Merger, the
Merger Agreement and the transactions contemplated hereby and thereby and (b)
to ensure that (i) neither Parent nor Sub nor any of their Affiliates (as
defined in the Rights Agreement) or Associates (as defined in the Rights
Agreement) is considered to be an Acquiring Person (as defined in the Rights
Agreement) and (ii) the provisions of the Rights Agreement, including the
occurrence of a Distribution Date (as defined in the Rights Agreement), are not
and shall not be triggered by reason of the announcement or consummation of any
of the other transactions contemplated by the Merger Agreement. A copy of the
Amendment to Rights Agreement is attached hereto as Exhibit (e)(5) and is
incorporated herein by reference.
Delaware General Corporation Law. As a Delaware corporation, PremiumWear is
subject to Section 203 of the DGCL. In general, Section 203 would prevent an
"interested stockholder" (generally
11
<PAGE>
defined as a person beneficially owning 15% or more of a corporation's voting
stock) from engaging in a "business combination" (as defined in Section 203)
with a Delaware corporation for three years following the date such person
became an interested stockholder unless: (1) before such person became an
interested stockholder, the board of directors of the corporation approved the
transaction in which the interested stockholder became an interested
stockholder or approved the business combination, (2) upon consummation of the
transaction which resulted in the interested stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction commenced (excluding
for purposes of determining the number of shares of outstanding stock held by
directors who are also officers and by employee stock plans that do not allow
plan participants to determine confidentially whether to tender shares), or (3)
following the transaction in which such person became an interested
stockholder, the business combination is (x) approved by the board of directors
of the corporation and (y) authorized at a meeting of stockholders by the
affirmative vote of the holders of at least 66 2/3% of the outstanding voting
stock of the corporation not owned by the interested stockholder. In accordance
with the provisions of Section 203, the Board of Directors has approved the
Merger Agreement, as described in Item 4 above and, therefore, the restrictions
of Section 203 are inapplicable to the Merger.
Regulatory Approvals. The Offer is subject to the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and the rules
promulgated thereunder, which provide that certain acquisition transactions may
not be consummated unless certain information has been furnished to the
Antitrust Division of the Department of Justice (the "Antitrust Division") and
the Federal Trade Commission (the "FTC") and certain waiting period
requirements have been satisfied.
Pursuant to the requirements of the HSR Act, Purchaser has advised
PremiumWear that it expects to file a Notification and Report Form with respect
to the Offer and Merger with the Antitrust Division and the FTC on or about
June 9, 2000. As a result, the waiting period applicable to the purchase of
Shares pursuant to the Offer would be scheduled to expire at 11:59 p.m., New
York City time, 15 days after such filing. However, prior to such time, the
Antitrust Division or the FTC may extend the waiting period by requesting
additional information or documentary material relevant to the Offer from
Purchaser. If such a request is made, the waiting period will be extended until
11:59 p.m., New York City time, on the tenth day after substantial compliance
by Purchaser with such request. Thereafter, such waiting period can be extended
only by court order.
The Antitrust Division and the FTC frequently scrutinize the legality under
the Antitrust Laws (as defined in the Offer to Purchase, which is incorporated
by reference as Exhibit (a)(1) to this Schedule) of transactions such as the
acquisition of Shares by Purchaser pursuant to the Offer and the Merger. At any
time before or after Purchaser's acquisition of Shares, the Antitrust Division
or the FTC could take such action under the antitrust laws of the United States
as it deems necessary or desirable in the public interest, including seeking to
enjoin the purchase of Shares pursuant to the Offer or seeking divestiture of
Shares acquired by Purchaser or divestiture of substantial assets of Parent,
PremiumWear, or their respective affiliates. Private parties and state
attorneys general may also bring legal actions under the Antitrust Laws under
certain circumstances.
PremiumWear does not, and Parent has advised PremiumWear that it does not,
believe that the consummation of the Offer or Merger will result in a violation
of the Antitrust Laws. Nevertheless, there can be no assurance that a challenge
to the Offer on antitrust grounds will not be made, or if such a challenge is
made, what the result will be.
12
<PAGE>
Item 9. Material to be Filed as Exhibits.
The following Exhibits are filed herewith:
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
(a)(1) Offer to Purchase dated June 9, 2000 (incorporated by reference to
Exhibit (a)(1)(A) to the Schedule TO of Purchaser filed on June 9,
2000).
(a)(2) Letter of Transmittal (incorporated by reference to Exhibit
(a)(1)(B) to the Schedule TO of Parent and Purchaser filed on June
9, 2000).
(a)(3) Form of Letter to Stockholders of PremiumWear, dated June 9,
2000.*
(a)(4) Press Release issued by PremiumWear on May 30, 2000 (incorporated
by reference to Exhibit 99 to the Schedule 14D-9C of PremiumWear
filed on May 30, 2000).
(e)(1) Agreement and Plan of Merger, dated as of May 26, 2000, among
Parent, Purchaser and PremiumWear (incorporated by reference to
Exhibit (d)(1) to the Schedule TO of Parent filed on June 9,
2000).
(e)(2) Opinion of Peter J. Solomon Securities Company Limited, dated May
26, 2000 (included as Annex A to the Statement).*
(e)(3) The Information Statement of PremiumWear dated June 9, 2000
(included as Annex B to the Statement).*
(e)(4) Mutual Non-Disclosure Agreement, dated effective February 10,
2000, between Parent and PremiumWear (incorporated by reference to
Exhibit (d)(2) to the Schedule TO of Parent filed on June 9,
2000).
(e)(5) Amendment to Rights Agreement, dated June 8, 2000, to the Rights
Agreement, dated as of July 25, 1997 by and between PremiumWear
and Norwest Bank of Minnesota, N.A. (incorporated by reference to
Exhibit 1 to the Form 8-A/A of PremiumWear filed on June 9, 2000).
(e)(6) Amended and Restated Change in Control Severance Agreement made
and entered into by and between PremiumWear and Thomas D. Gleason
effective as of April 18, 2000 (incorporated by reference to
Exhibit 99.2 to the Form 8-K of PremiumWear filed on June 9,
2000).
(e)(7) Amended and Restated Change in Control Severance Agreement made
and entered into by and between PremiumWear and David E. Berg
effective as of May 22, 2000 (incorporated by reference to Exhibit
99.3 to the Form 8-K of PremiumWear filed on June 9, 2000).
(e)(8) Employment Agreements made and entered into effective as of May
26, 2000 by and between PremiumWear, Inc. and (a) David E. Berg,
(b) Cynthia L. Boeddeker, (c) James S. Bury, (d) Timothy C. Klouda
and (e) Dennis G. Lenz (incorporated by reference to Exhibit
99.4(a)-(e) to the Form 8-K of PremiumWear filed on June 9, 2000).
(e)(9) First Amendment to Change in Control Severance Agreement made and
entered effective as of May 26, 2000 by and between PremiumWear,
Inc. and (a) David E. Berg, (b) Cynthia L. Boeddeker, (c) James S.
Bury, (d) Timothy C. Klouda and (e) Dennis G. Lenz (incorporated
by reference to Exhibit 99.5(a)-(e) to the Form 8-K of PremiumWear
filed on June 9, 2000).
(e)(10) Consulting Agreement, dated as of May 26, 2000, between
PremiumWear, Inc., New England Business Service, Inc. and Thomas
D. Gleason (incorporated by reference to Exhibit 99.6 to the Form
8-K of PremiumWear filed on June 9, 2000).
(g) Not applicable.
</TABLE>
--------
* Included with the Statement mailed to stockholders.
13
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of its knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
PREMIUMWEAR, INC.
/s/ James S. Bury
By: _________________________________
James S. BuryVice President of
Finance
Dated: June 9, 2000
14
<PAGE>
EXHIBIT (a)(3)
[PREMIUMWEAR LETTERHEAD]
June 9, 2000
To Our Stockholders:
On behalf of the Board of Directors of PremiumWear, Inc. (the "Company"), I
am pleased to inform you that the Company has entered into an Agreement and
Plan of Merger dated as of May 26, 2000 (the "Merger Agreement"), with New
England Business Service, Inc. and Penguin Sub, Inc., its wholly-owned
subsidiary ("Purchaser"), pursuant to which Purchaser has today commenced a
cash tender offer (the "Offer") to purchase all of the outstanding shares of
common stock, including the related preferred stock purchase rights, of the
Company (the "Shares") at a price of $13.50 per Share. Under the Merger
Agreement, the Offer will be followed by a merger (the "Merger") in which any
remaining Shares (other than Shares held by Purchaser and by stockholders who
perfect appraisal rights under Delaware law) will be converted into the right
to receive $13.50 per Share in cash. Consummation of the Offer is subject to
certain conditions, as more fully described in the enclosed materials,
including at least a majority of the Shares, determined on a fully diluted
basis, being validly tendered and not withdrawn prior to the expiration of the
Offer.
Your Board of Directors has unanimously determined that the Offer and the
Merger are advisable and fair to and in the best interests of the Company's
stockholders, and has approved the Offer and the Merger. The Board of
Directors recommends that the stockholders of the Company accept the Offer and
tender their shares pursuant to the Offer.
In arriving at its recommendation, the Board of Directors gave careful
consideration to the factors described in the enclosed Schedule 14D-9,
including, among other things, the written opinion of Peter J. Solomon Company
Limited, the Company's financial advisor, that, subject to the assumptions,
factors and limitations set forth therein, the consideration to be received by
holders of Shares in the Offer and the Merger is fair to such holders from a
financial point of view. The opinion of Peter J. Solomon Company Limited is
attached to the Schedule 14D-9. The Schedule 14D-9 contains other important
information relating to the Offer, and you are encouraged to read the Schedule
14D-9 carefully.
In addition to the enclosed Schedule 14D-9, also enclosed is Purchaser's
Offer to Purchase and related materials, including a Letter of Transmittal, to
be used for tendering your Shares in the Offer. These documents state the
terms and conditions of the Offer and provide instructions as to how to tender
your Shares. We urge you to read these documents carefully in making your
decision with respect to tendering your shares pursuant to the offer.
If you need assistance with the tendering of your Shares, please contact
the information agent for the Offer, The Altman Group, Inc., at its address or
telephone number appearing on the back cover of the Offer to Purchase.
On behalf of the Board of Directors and management of the Company, we thank
you for your support.
Very truly yours,
/s/ Thomas D. Gleason
Thomas D. Gleason
Chairman of the Board
<PAGE>
ANNEX A
May 26, 2000
Board of Directors
PremiumWear, Inc.
5500 Feltl Road
Minnetonka, MN 55343-7902
Ladies and Gentlemen:
You have advised us that PremiumWear, Inc. (the "Company") proposes to enter
into the Agreement and Plan of Merger, dated as of May 26, 2000, by and among
New England Business Service, Inc. (the "Parent"), its wholly-owned subsidiary,
Penguin Sub, Inc. (the "Sub"), and the Company (the "Agreement") providing for
a tender offer (the "Offer") by Sub to acquire all outstanding shares of the
Company's Common Stock, $.01 par value (such shares, together with any
associated rights issued pursuant to the Rights Agreement, dated as of July 25,
1997, by and between the Company and the Norwest Bank Minnesota, N.A., are
hereinafter referred to as the "Common Stock"), other than any shares owned by
the Parent or its affiliates, at a price of $13.50 per share, net to the seller
in cash (the "Offer Price"). You have advised us that the Agreement further
provides that, following completion of the Offer, Sub will be merged (the
"Merger" and, together with the Offer, the "Transaction") with and into the
Company, and the Company shall continue as the surviving corporation under the
name "PremiumWear, Inc." Each share of Common Stock issued and outstanding
immediately prior to the effective time of the Merger (other than shares held
by affiliates or dissenters) shall forthwith cease to exist and be converted
into and represent the right to receive the Offer Price, and each share of Sub
then issued and outstanding shall become one share of the surviving
corporation. In connection therewith, you have asked us to advise you with
respect to the fairness, from a financial point of view, to the holders of the
Common Stock (other than the Parent and its affiliates) of the Offer Price.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of the Company;
(ii) reviewed certain internal financial statements and forecasts and
other financial and operating data concerning the Company prepared by the
management of the Company;
(iii) discussed the past and current operations, financial condition and
prospects of the Company with management of the Company;
(iv) reviewed the reported prices and trading activity of the Common
Stock;
(v) compared the financial performance and condition of the Company and
the reported prices and trading activity of the Common Stock with that of
certain other comparable publicly traded companies;
(vi) reviewed publicly available information regarding the financial
terms of certain transactions comparable, in whole or in part, to the
Transaction;
(vii) reviewed the Agreement; and
(viii) performed such other analyses as we have deemed appropriate.
We have assumed and relied upon the accuracy and completeness of the
information reviewed by us for the purposes of this opinion and we have not
assumed any responsibility for independent verification of such information.
With respect to the financial projections, we have assumed that the financial
projections were Peter J. Solomon Securities Company
767 Fifth Avenue
limited New York, New York
10153
A-1
<PAGE>
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the future financial performance of the Company. We have not
conducted a physical inspection of the facilities or property of the Company.
We have not assumed any responsibility for any independent valuation or
appraisal of the assets or liabilities of the Company, nor have we been
furnished with any such valuation or appraisal. We have assumed and relied
upon, in all respects material to our analysis, that the representations and
warranties of each party contained in the Agreement are true and correct, that
each party will perform all of the covenants and agreements required to be
performed by it and that all of the conditions to the Transaction will be
satisfied without waiver thereof. We have also assumed that all material
governmental, regulatory and other consents and approvals will be obtained and
that in the course of obtaining any of the foregoing, as contemplated by the
Agreement, no restrictions or conditions will be imposed or waivers made, that
would have a material adverse effect on the Transaction. We have relied as to
all legal matters on advice of counsel to the Company. Our opinion is
necessarily based on economic, market and other conditions as in effect on, and
the information made available to us as of, May 26, 2000. Further, our opinion
does not address the Company's underlying business decision to undertake the
Transaction.
In arriving at our opinion, we were not authorized to solicit, and did not
solicit, interest from any party with respect to the sale or other business
combination involving the Company or any of its assets.
We have acted as financial advisor to the Company in connection with the
Transaction and will receive a fee for our services.
This letter is solely for the information of the Board of Directors of the
Company and is not on behalf of and is not intended to confer rights or
remedies upon any other entity or persons, and may not be used for any other
purpose without our prior written consent; provided, however, that a copy
hereof may be filed with the Securities and Exchange Commission or other
regulatory agencies and included as part of the proxy or tender offer materials
or similar documents provided to the Company's shareholders, so long as this
opinion will be reproduced in full therein and any description of or reference
to us or summary hereof therein will be in a form reasonably acceptable to us
and our counsel.
This letter does not constitute a recommendation to any holder of Common
Stock as to whether or not such holder should tender shares in the Offer or as
to how any such holder should vote on the Merger.
Based on, and subject to, the foregoing, we are of the opinion that on the
date hereof, the Offer Price is fair, from a financial point of view, to the
holders of Common Stock (other than the Parent and its affiliates).
Very truly yours,
PETER J. SOLOMON COMPANY LIMITED
A-2
<PAGE>
ANNEX B
PREMIUMWEAR, INC.
5500 Feltl Road
Minnetonka, Minnesota 55343
INFORMATION STATEMENT PURSUANT TO
SECTION 14(f) OF THE SECURITIES EXCHANGE
ACT OF 1934 AND RULE 14f-1 THEREUNDER
General
This Information Statement is being mailed on or about June 9, 2000 as part
of the Solicitation/Recommendation Statement on Schedule 14D-9 of PremiumWear,
Inc. (the "Company"). You are receiving this Information Statement in
connection with the possible election of persons designated by New England
Business Service, Inc. ("Parent") to a majority of seats on the Board of
Directors (the "Board of Directors" or the "Board") of the Company other than
at a meeting of the stockholders of the Company. Such election would occur
pursuant to an Agreement and Plan of Merger (the "Merger Agreement") by and
among the Company, Parent, Penguin Sub, Inc., a Delaware corporation and a
wholly owned subsidiary of Parent ("Purchaser"). The Merger Agreement is more
fully described in Section 11 of the Offer to Purchase, which is enclosed with
the Schedule 14D-9, of which this Information Statement is a part. Capitalized
terms used and not defined in this Annex B have the meanings assigned to them
in the Schedule 14D-9.
The Merger Agreement provides that, upon the consummation of the Offer, the
Company shall cause Purchaser's designees to be elected to the Board of
Directors of the Company (the "Company Board") under the circumstances
described in the Merger Agreement.
Pursuant to the Merger Agreement, the Purchaser commenced the Offer on June
9, 2000. The Offer is currently scheduled to expire at 5:00 p.m., New York City
time, on Friday, July 7, 2000, unless the Purchaser extends it. If the Offer is
not extended and all conditions to the Offer have been satisfied or waived,
Purchaser and Parent will be obligated to purchase all Shares validly tendered
pursuant to the Offer and not withdrawn and Purchaser will be entitled to
designate directors for election to the Board of Directors. If the Merger
Agreement is terminated or if Purchaser does not accept Shares tendered for
payment, then Purchaser will not have any right to designate directors for
election to the Board of Directors.
This Information Statement is being mailed to you in accordance with Section
14(f) of the Securities Exchange Act and Rule 14f-1 promulgated thereunder.
Information set forth herein related to Parent, Purchaser or the Parent
Designees (as defined herein) has been provided by Parent. You are urged to
read this Information Statement carefully. You are not, however, required to
take any action.
Rights to Designate Directors and Purchaser Designees
The Merger Agreement provides that, promptly upon the acceptance for payment
of, and payment by Purchaser for, shares of Common Stock equal to at least 51%
of the outstanding shares of Common Stock entitled to vote on any matter at a
meeting of the stockholders of the Company pursuant to the terms of the Offer,
Purchaser shall be entitled to designate up to such number of directors on the
Board of Directors of the Company, rounded up to the next whole number, as will
give Purchaser representation on the Board of Directors of the Company equal to
at least that number of directors which equals the product of the total number
of directors on the Board of Directors of the Company (including not less than
two directors who are directors of the Company as of the date of the Merger
Agreement and giving effect to the directors elected pursuant to this sentence)
multiplied by a fraction, the numerator of which shall be the number of shares
of
B-1
<PAGE>
Common Stock beneficially owned by Purchaser and Parent and the denominator of
which shall be the number of shares of Common Stock then outstanding. In
furtherance thereof, the Company and its Board of Directors shall, at such
time, take any and all such action needed to cause Purchaser's designees to be
appointed to the Board of Directors of the Company in such class of directors
as shall ensure the longest possible term for such designee as a member of the
Board of Directors of the Company, including, without limitation, increasing
the size of the Board of Directors of the Company (subject to the limitations
set forth in the Company's Certificate of Incorporation and the Company's By-
Laws) and using its reasonable efforts to secure the resignation of directors.
Purchaser has informed the Company that it will choose its designees to the
Company Board from the directors and executive officers of Parent and Purchaser
(the "Purchaser Designees") listed in Schedule I to the Offer to Purchase, a
copy of which is being mailed to the Company's stockholders together with the
Schedule 14D-9. Purchaser has informed the Company that each of the directors
and executive officers listed in Schedule I to the Offer to Purchase has
consented to serve as a director of the Company if appointed or elected. The
information about these persons in the Offer to Purchase is incorporated herein
by reference. The address of each such person is set forth in the Offer to
Purchase. None of the Purchaser Designees currently is a director of, or holds
any positions with, the Company. Purchaser has advised the Company that, to the
best of Purchaser's knowledge, except as set forth below, none of the Purchaser
Designees or any of their affiliates beneficially owns any equity securities or
rights to acquire any such securities of the Company, nor has any such person
been involved in any transaction with the Company or any of its directors,
executive officers or affiliates that is required to be disclosed pursuant to
the rules and regulations of the Commission other than with respect to
transactions between Parent, Purchaser and the Company that have been described
in the Schedule TO or the Schedule 14D-9.
Certain Information Concerning the Company
The Common Stock is the only class of equity securities of the Company
outstanding which is entitled to vote at a meeting of the stockholders of the
Company. As of the close of business on May 26, 2000, there were 2,567,485
outstanding shares of Common Stock, of which Parent and Purchaser own no shares
as of the date hereof.
Information Concerning Directors and Executive Officers of the Company
The Company's Board of Directors is divided into three classes of directors,
each director serving a three-year term. Approximately one-third of the
directors belong to each class. Information regarding the Company's directors
and their principal occupations are set forth below, based upon information
furnished to the Company by such persons. Unless otherwise indicated, each of
the directors has held their respective positions for more than the past five
years.
<TABLE>
<CAPTION>
Director
Director Name and Age Principal Occupation and Other Directorships Since
--------------------- -------------------------------------------- --------
<C> <S> <C>
Directors whose terms expire in 2003:
C. Derek Anderson (59) Senior Managing Partner and director of 1991
Plantagenet Capital Management LLC
(investment partnership); Director, Anderson
Capital Management, Inc. (investment
management firm); Director of various
private companies.
Mark B. Vittert (52) Private Investor; Director of Lee 1991
Enterprises, Inc. (communications company).
</TABLE>
B-2
<PAGE>
<TABLE>
<CAPTION>
Principal Occupation and Other Director
Director Name and Age Directorships Since
--------------------- ------------------------------ --------
<C> <S> <C>
Directors whose terms expire in 2002:
Keith A. Benson (56) Vice Chairman, Chief Financial Officer and 1993
Director of Musicland Stores Corporation
and The Musicland Group, Inc. (retail
stores).
Thomas D. Gleason (64) Chairman of the Company; from September of 1995
1996 to July of 1999, Mr. Gleason served as
Chief Executive Officer of the Company;
Vice Chairman of Wolverine World Wide, Inc.
(footwear manufacturing and marketing),
1993 through April 1996; Chief Executive
Officer of Wolverine World Wide, Inc. from
1972 to 1993.
Alan W. Kosloff (59) Chairman and Chief Executive Officer of 1999
Kosloff & Partners, LLC (financial
consulting and investment banking) since
1996; from 1976 through 1995, Mr. Kosloff
served in various capacities, most recently
as Chairman, President and CEO, at American
Marketing Industries, Inc., a private
company in the corporate promotional
products/advertising specialty industry
with incentive and premium apparel.
Directors whose terms expire in 2001:
David E. Berg (43) Chief Executive Officer of the Company 1999
since July 1999; President since August
1997; Chief Operating Officer of the
Company from December 1996 to July 1999;
Executive Vice President of Sales and
Marketing from May 1995 to August 1997;
Vice President, National Sales Manager,
Retail Division, from January 1990 to
October 1993.
Timothy C. Klouda (47) Founder in 1986, director and Chief 1999
Executive Officer of Klouda-Lenz, Inc., an
independent sales representative
organization which was acquired by the
Company in March 1999.
Gerald E. Magnuson (69) Of Counsel to Lindquist & Vennum PLLP (law 1982
firm); Partner of Lindquist & Vennum PLLP
to December 1994; Director of Research,
Incorporated, Sheldahl, Inc. and WSI
Industries, Inc.
</TABLE>
Director Compensation
The Board's compensation program is designed to provide compensation at
levels to meet competitive conditions for the retention and recruitment of
qualified individuals to serve as directors on the Board of Directors. Non-
employee members of the Board of Directors receive an annual fee of $8,000 plus
$750 for each Board meeting attended in person, $300 for each meeting attended
by telephonic conference, $500 for each committee meeting held more than 24
hours before or after a Board meeting and $150 for each committee meeting held
within 24 hours of a Board meeting.
The Company's 1999 Stock Plan provides for the annual, automatic granting of
a defined number of options to directors who are not employees of the Company.
Such options are granted to each director who is not an employee of the Company
and who (i) is elected or re-elected as a director by the shareholders at any
annual or special meeting of the shareholders or (ii) is serving an unexpired
term as a director on the date of an annual meeting at which any other director
is elected. Each such person shall, as of the date of such annual meeting,
automatically receive a non-qualified option to purchase 1,000 shares of Common
Stock with the option price equal to the fair market value of the Company's
Common Stock on such date. These options will have five-year terms. The 1999
Stock Plan also permits granting of additional or alternative options to
directors at the discretion of the Board.
B-3
<PAGE>
1999 Board Meetings; Committees
The Board met six times during fiscal 1999. Each director attended more than
75% of the meetings of the Board of Directors and any committee on which he
served.
The Board of Directors has established three standing committees, the Audit
Committee, the Compensation Committee and the Governance Committee. The Audit
Committee, which met twice during the last fiscal year, is currently comprised
of Messrs. Benson (Chairman), Magnuson and Kosloff. Among other duties, the
Audit Committee reviews the internal and external financial reporting of the
Company, reviews the scope of the independent audit and considers comments by
the independent public accountants regarding internal controls and accounting
procedures and management's response to those comments.
The Compensation Committee, which met three times during the last fiscal
year, is currently comprised of Messrs. Anderson (Chairman), Benson and
Vittert. The Compensation Committee approves the compensation arrangements for
senior management. The Board of Directors has established a Stock Grant
Subcommittee of the Compensation Committee, currently comprised of Messrs.
Benson and Vittert, which grants awards under the Company's stock plans.
The Board of Directors also has a Governance Committee, currently comprised
of Messrs. Magnuson (Chairman), Vittert and Gleason, which reviews Board
governance and membership matters. The Governance Committee also fulfills those
duties typically performed by a Nominating Committee. The Governance Committee
met once during the last fiscal year.
Executive Officers
Following is information regarding the Company's executive officers other
than Messrs. Gleason, Berg and Klouda (whose information is set forth above
with the other directors).
<TABLE>
<CAPTION>
Executive
Officer
Name and Age Position Since
------------ -------- ---------
<C> <S> <C>
Cynthia L. Boeddeker (42) Vice President of Operations since March 1996
2000; Vice President and General
Merchandise Manager, December 1996 to
March 2000; Director of Sourcing and
Inventory Management, February 1994 to
December 1996; Import Manager, March
1992 to February 1994; Sourcing
Administrator, July 1991 to March 1992
James S. Bury (56) Vice President of Finance, December 1996 1990
to present; Vice President and
Controller, May 1990 to December 1996;
Corporate Controller, August 1989 to May
1990; Vice President Finance, Men's
Apparel Division, February 1988 to
August 1989
</TABLE>
Compensation of Executive Officers
The following table shows, for fiscal years 1999, 1998 and 1997, the cash
compensation paid by the Company, as well as certain other compensation paid or
accrued for those years, to David Berg, the President and Chief Executive
Officer, Thomas D. Gleason, the Chairman and former Chief Executive Officer,
and to each of the three other executive officers of the Company who received
more than $100,000 during the last fiscal year (together, the "Named
Executives").
B-4
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
------------------------------------ ------------
Securities
Other Annual Underlying All Other
Principal Position Year Salary ($) Bonus ($)(1) Compensation Options (#) Compensation($)(2)
------------------ ---- ---------- ------------ ------------ ------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Thomas D. Gleason(3).... 1999 165,577 79,012 -- -- 13,824
Chairman 1998 180,000 7,501 -- 100,000 13,532
1997 180,000 -- -- 40,000 30,389
David E. Berg (4)....... 1999 184,615 73,104 -- 15,000 10,749
President and 1998 168,654 25,394 -- 50,000 7,529
Chief Executive Officer 1997 158,077 41,250 -- 20,000 7,158
James S. Bury........... 1999 131,423 55,852 -- -- 8,825
Chief Financial Officer,
Vice 1998 129,000 20,963 -- 30,000 8,585
President of Finance and 1997 128,077 34,375 -- 12,000 8,101
Assistant Secretary
Cynthia L. Boeddeker.... 1999 119,808 32,054 -- -- 5,986
Vice President of 1998 109,615 31,517 -- 25,000 4,512
Operations 1997 90,000 24,750 -- 8,000 6,211
Timothy C. Klouda (5)... 1999 156,923 -- -- -- 3,354
President of Klouda-
Lenz, Inc.
</TABLE>
--------
(1) For fiscal 1999, all bonus amounts represent payments pursuant to the 1998
Bonus Plan. For fiscal 1998, includes $18,750, $15,625 and $11,250 paid
pursuant to the hold-in-place agreements to Messrs. Berg and Bury and Ms.
Boeddeker, respectively. For fiscal 1997, all bonus amounts represent
payments pursuant to the hold-in-place agreements. See "Compensation
Committee Report on Executive Compensation--Annual Incentives" for a
discussion of the hold-in-place agreements.
(2) Includes Company contributions to the Company's retirement plan, premiums
paid for term life insurance and other payments as described below. For
fiscal 1999, the Company's contributions to the retirement plan for
Messrs. Gleason, Berg, Bury and Klouda and Ms. Boeddeker totaled $3,857,
$3,584, $3,265, $2,808 and $2,365, respectively. In 1999, the Company also
paid profit sharing contributions earned in 1998 of $5,400, $5,060,
$3,870, 0, and $3,288, respectively. For fiscal 1998, the Company's
contributions to the retirement plan for Messrs. Gleason, Berg, Bury and
Ms. Boeddeker totaled $3,600, $3,162, $2,562 and $1,800, respectively. In
1998, the Company also paid profit sharing contributions earned in 1997 of
$4,015, $3,373, $3,225 and $2,192, respectively. For fiscal 1997, the
Company's contributions to the retirement plan for Messrs. Gleason, Berg,
Bury and Ms. Boeddeker totaled $1,212, $3,162, $3,202 and $1,800,
respectively. The amounts indicated for Mr. Gleason and Ms. Boeddeker
include $22,500 and $2,250, respectively, as compensation to Mr. Gleason
and Ms. Boeddeker due to stock option exercises in 1997. In 1997, the
Company also paid profit sharing contributions earned in fiscal 1996 to
Messrs. Gleason, Berg, Bury and Ms. Boeddeker totaling $1,329, $3,000,
$2,500 and $1,748, respectively. The balance, if any, for each year for
all Named Executives reflects term life insurance premiums.
(3) Mr. Gleason was Chief Executive Officer through July 4, 1999.
(4) Mr. Berg was elected Chief Executive Officer on July 5, 1999.
(5) Mr. Klouda became President and Chief Executive Officer of Klouda-Lenz,
Inc., a subsidiary of the Company, on May 19, 1999.
B-5
<PAGE>
Stock Options
The following table contains information concerning individual grants of
stock options under the 1999 and the 1991 Stock Plan to each of the Named
Executives during the last fiscal year.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential
Realizable
Value at
Assumed
Annual Rates
of Stock
Price
Appreciation
for Option
Individual Grants Term ($)
---------------------------------- -------------
Percent
of Total Market
Options Granted Price
Options to Employees Exercise on Grant Expiration
Name Granted (#) in Fiscal Year Price ($) Date ($) Date 5% 10%
---- ---------- --------------- --------- -------- ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Thomas D. Gleason....... -- -- -- -- -- -- --
David E. Berg........... 15,000(1) 37.5% 5.50 5.50 12/15/04 22,793 50,367
James S. Bury........... -- -- -- -- -- -- --
Cynthia L. Boeddeker.... -- -- -- -- -- -- --
Timothy C. Klouda....... -- -- -- -- -- -- --
</TABLE>
--------
(1) Becomes exercisable with respect to 25% of the shares of Common Stock
subject to the option on December 15, 1999, 2000, 2001 and 2002.
The following table sets forth information with respect to the Named
Executives concerning the exercise of options during fiscal 1999 and
unexercised options held as of January 1, 2000:
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND JANUARY 1, 2000 OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at 1/1/00 (#) at 1/1/00 ($)(1)
Shares Acquired Value ------------------------- -------------------------
Name on Exercise (#) Realized ($) Unexercisable Exercisable Unexercisable
---- --------------- ------------ Exercisable ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Thomas D. Gleason....... 10,000 $22,500 17,500 97,500 $7,813 $53,438
David E. Berg........... -- -- 25,250 59,750 37,813 29,188
James S. Bury........... -- -- 13,000 29,000 22,750 17,500
Cynthia L. Boeddeker.... -- -- 9,500 23,500 15,688 13,438
Timothy C. Klouda....... -- -- 0 0 -- --
</TABLE>
--------
(1) Based on a market price of $5.50 per share of Common Stock on December 31,
1999.
Employment Agreements and Change in Control Agreements
The Company has entered into Change in Control Severance Agreements with
David E. Berg, Cynthia L. Boeddeker, James S. Bury, Thomas D. Gleason, Timothy
C. Klouda and Dennis G. Lenz (collectively, the "Executives"). The agreements
provide, among other things, for a lump sum cash severance payment to the
Executives in the event of an involuntary termination of employment in
connection with a change in control of the Company, as defined in the
agreement, in an amount equal to two times the executives annual compensation.
The Change in Control Severance Agreement with the Company's Chairman has
substantially the same terms and conditions, except that the severance payment
is triggered upon the change in control of the Company, irrespective of
termination of employment. Each agreement also requires the Company to continue
to provide the Executive, for a period of 24 months, with the benefits and
perquisites that were provided to the Executive prior to the qualifying
termination of employment. In addition, the agreements with Messrs. Gleason and
Berg also provide for the Executive to receive a gross-up payment if the
Executive becomes subject to excise tax as a result of any payments that the
Executive receives under the agreement, or otherwise, which are determined to
be "excess parachute payments." The agreements with the other Executives
contain a limitation
B-6
<PAGE>
on the amount of any payments which constitute "excess parachute payments." The
Executives who are parties to the Change in Control Severance Agreements, other
than Mr. Gleason, have entered into First Amendments to their Change in Control
Severance Agreements with the Company in connection with the Merger Agreement,
pursuant to which such Executives have waived certain of their rights under
their Change in Control Severance Agreements in exchange for new employment
agreements.
In connection with the Merger Agreement, the Company has entered into
Employment Agreements with each of David E. Berg, Cynthia L. Boeddeker, James
S. Bury, Timothy C. Klouda and Dennis G. Lenz effective as of May 26, 2000. The
term of the agreements with Mr. Berg and Ms. Boeddeker continue until June 30,
2003 and the agreements with Messrs. Bury, Klouda and Lenz continue until June
30, 2004, unless terminated as provided in the Agreement. The agreements
generally provide for a base salary, plus eligibility for an annual executive
bonus following the Merger, which is tied to the performance of PremiumWear and
Parent, and a Special Incentive Plan based on PremiumWear's performance, which
will be paid in the form of restricted stock of Parent for the fiscal years
2001 through 2003. In addition, each of the Executives will receive an option
grant to purchase shares of Parent common stock following the Merger and will
be paid the pro rata earned amount under the Company's 2000 Bonus Plan within
60 days after the Merger. Each of the agreements contains customary employment
terms and provides that upon termination of employment by the Company without
Cause or by the Executive for Good Reason (as defined therein), the Executive
is entitled to his or her base salary for the remaining term of the Agreement,
a pro rata bonus and continued benefits for the severance period, and
accelerated vesting of stock options and restricted stock. Each of the
Executives are subject to customary confidentiality, non-competition and non-
solicitation covenants and are entitled to certain indemnification protection.
In connection with the execution of the Merger Agreement, Mr. Gleason
entered into a consulting agreement with Parent and the Company (the
"Consulting Agreement"). The Consulting Agreement has a term of two years from
the date of the Merger Agreement and provides, among other things, that Mr.
Gleason will assist the Company in the transition following the Merger. In
consideration for his services, Mr. Gleason will receive aggregate consulting
and engagement fees of $582,500. The Consulting Agreement also subjects
Mr. Gleason to customary confidentiality, non-competition and non-solicitation
covenants and provides Mr. Gleason with indemnification protection. The
Consulting Agreement supersedes Mr. Gleason's existing Change in Control
Severance Agreement with the Company, unless the Merger is not completed, in
which case the Consulting Agreement will be of no effect, and the Change in
Control Severance Agreement will be reinstated.
Compensation Committee Report on Executive Compensation
Decisions on compensation of the Company's executives are generally made by
the Compensation Committee of the Board, currently consisting of Messrs.
Anderson (Chairman), Benson and Vittert. All decisions by the Compensation
Committee relating to the compensation of the Company's executive officers were
during fiscal 1999 and will, in fiscal 2000, be reviewed by the full Board.
Pursuant to SEC rules designed to enhance disclosure of companies' policies
with regard to executive compensation, set forth below is a report submitted by
the Compensation Committee addressing the Company's compensation policies for
fiscal 1999 as they affected the executive officers other than the Chief
Executive Officer who, for fiscal 1999, were the Company's four highest paid
executive officers whose compensation exceeded $100,000 (collectively the
"Named Executives"). The following report shall not be deemed incorporated by
reference by any general statement incorporating by reference this proxy
statement into any filing under the Securities Act of 1933 (the "1933 Act") or
the Securities Exchange Act of 1934 (the "1934 Act"), except to the extent that
the Company specifically incorporates this information by reference, and shall
not otherwise be deemed filed under the 1933 Act or the 1934 Act.
Compensation Philosophy. The Compensation Committee's executive compensation
policies are designed to provide competitive levels of compensation that
integrate pay with the Company's annual and long-term performance goals, reward
above-average corporate performance, recognize individual initiative and
B-7
<PAGE>
achievement, and assist the Company in attracting and retaining qualified
executives. Furthermore, the Company's use of stock options and restricted
stock grants reflects the Compensation Committee's position that stock
ownership by management and stock-based performance compensation arrangements
are beneficial in aligning management's and shareholders' interest and the
enhancement of shareholder value. Compensation payments, to the extent
possible, are designed to qualify for deductibility under the Internal Revenue
Code of 1986, as amended.
The Company has designed its executive compensation plans around these
policies and objectives. The Compensation Committee believes the Company's
compensation arrangements consistently meet these goals. The following is a
description of the Company's current plans and how each relates to the
objectives indicated above.
Base Salary. The Chief Executive Officer generally recommends to the
Compensation Committee the annual salary of each officer of the Company
(including the Named Executives) other than himself and the Compensation
Committee considers and generally approves the salary recommendations. In
determining or approving appropriate salary levels, the Compensation Committee
considers levels of responsibility, experience, individual performance and
internal equity, as well as external pay practices.
Annual Incentives. During fiscal 1999, the Company maintained a 1999 Bonus
Plan for payment of incentive compensation to key managers, including the Named
Executives. The Bonus Plan rewards participants for their contributions to the
attainment of certain Company goals established for profitability, sales volume
and inventory turns during the fiscal year, as well as, to a much lesser
degree, achievement of personal objectives for each participant. Consideration
is also given to progress towards other corporate objectives that may be
specified during the course of a given year, such as the successful transition
of the Company's manufacturing and distribution business in North Carolina to a
new distribution center in Tennessee. Incentive payments are based on the level
of achievement against those goals. For 1999, Messrs. Gleason, Berg, Bury,
Klouda, and Ms. Boeddeker earned $50,915, $56,769, $40,413, $36,000 and
$36,841, respectively, pursuant to the Bonus Plan. These payments were made
during fiscal 2000.
Long-term Incentives. The Company's overall long-term compensation
philosophy is that long-term incentives should be related to improvement in
long-term shareholder value. In furtherance of this objective, the Company
awards to its executive officers and other key personnel stock options and, on
a very selected basis, restricted stock. Stock options encourage and reward
effective management that results in long-term corporate financial success, as
measured by stock price appreciation. Stock options have value from the date
the stock options are granted. Shareholders also benefit from such stock price
appreciation. The 1991 and 1999 Stock Plans allow the grant of incentive stock
options and non-qualified stock options. Stock options are awarded consistent
with the Company's objective to include in total compensation a long-term
equity interest for executive officers, with greater opportunity for reward if
long-term performance is sustained. To encourage a longer-term perspective, the
options are only exercisable over a multiple year period and grants are made at
an option price equal to the fair market value of the Common Stock on the date
of grant. In granting options, the Named Executive's individual role in
contributing to the development and achievement of the Company's strategic
planning process and goals are also considered.
Other Compensation Programs. The Company maintains certain broad-based
employee benefit plans in which its executive officers, including the Named
Executives, have been permitted to participate, including retirement, life and
health insurance plans. The Company's retirement plan consists of a profit
sharing plan, pursuant to which the Board of Directors may make annual
discretionary contributions, and a 401(k) employee savings plan which allows
employees to make pre-tax contributions and in which the Company matches
employee contributions in an amount equal to one-half of the employee's
contribution up to 5% of the employee's base salary. In February 2000, the
Board of Directors approved a discretionary contribution to the profit sharing
plan with regard to 1999. Other non-cash compensation benefits are provided to
the Named Executives, none of which are directly or indirectly tied to Company
performance.
B-8
<PAGE>
CEO Fiscal 1999 Compensation. Regulations of the SEC require the Company to
disclose the Compensation Committee's basis for compensation reported for its
Chief Executive Officer in fiscal 1999 and to discuss the relationship between
the Company's performance during the last fiscal year and such Chief Executive
Officer's compensation. In July, 1999, David Berg was elected Chief Executive
Officer of the Company, an office formerly held by the Company's Chairman, Mr.
Gleason. As a result, Mr. Gleason's base salary was reduced from $180,000 to
$150,000, reflecting his reduced role in the Company's day-to-day operations.
Mr. Berg's salary was increased from $175,000 to $195,000 at that time. The
Company's compensation philosophy for the Chief Executive Officer is consistent
with the philosophies described in this report for all of the Named Executives.
SUBMITTED BY THE COMPENSATION COMMITTEE
OF THE COMPANY'S BOARD OF DIRECTORS
C. Derek Anderson Keith A. Benson Mark B. Vittert
The report of the Compensation Committee and the following stock performance
graph are not deemed to be "soliciting material" or to be "filed" with the
Commission or subject to Regulation 14A or 14C or to the liabilities of Section
18 of the Securities Exchange Act, except to the extent the Company
specifically requests that such information be treated as soliciting material
or specifically incorporates it by reference into any filing under the
Securities Act of 1933, as amended, or the Securities Exchange Act.
B-9
<PAGE>
Securities Ownership of Certain Beneficial Owners, Directors and Executive
Officers
The following table sets forth, as of May 26, 2000 (unless otherwise
specified), the beneficial ownership of Common Stock of the Company by each
shareholder who is known by the Company to own beneficially 5% or more of the
outstanding Common Stock of the Company, each director, each nominee for
director, each Named Executive and by all directors and executive officers as a
group. Except as otherwise indicated, the shareholders listed in the table have
full voting and investment powers with respect to the shares indicated.
<TABLE>
<CAPTION>
Number of Shares Percent of
Beneficially Owned Outstanding Shares
------------------ ------------------
<S> <C> <C>
Heartland Advisors, Inc................ 209,000(1) 8.2%
790 North Milwaukee Street
Milwaukee, WI 53202
The Clark Estates, Inc................. 196,282(1)(2) 7.7%
One Rockefeller Plaza, Suite 3100
New York, NY 10020
C. Derek Anderson...................... 67,500(3)(4) 2.6%
456 Montgomery, #200
San Francisco, CA 94104
Keith A. Benson........................ 12,800(4) *
Thomas D. Gleason...................... 144,750(4) 5.6%
Gerald E. Magnuson..................... 19,800(4) *
Mark B. Vittert........................ 89,808(4) 3.5%
David E. Berg.......................... 95,720(4) 3.7%
James S. Bury.......................... 49,079(4) 1.9%
Cynthia L. Boeddeker................... 20,250(4) *
Alan W. Kosloff........................ 8,000(4) *
Timothy C. Klouda...................... 123,446 4.8%
All directors and executive officers as
a group (10 persons).................. 631,153(4) 24.6%
</TABLE>
--------
* Less than 1%
(1) Based on a Schedule 13G filed with the Securities and Exchange Commission.
(2) The Clark Estates, Inc. provides administrative assistance to a number of
Clark family accounts which beneficially own an aggregate 196,282 shares of
the Company's Common Stock, including The Clark Foundation, which owns
95,390 shares. The Clark Estates, Inc. has, or in certain instances shares,
voting power and/or dispositive power with respect to such shares. The
Clark Estates, Inc. has no remainder or other economic interest in such
trust or fiduciary accounts.
(3) Mr. Anderson shares voting and dispositive power with respect to 52,000
shares acquired by Anderson Capital Management, Inc. ("ACM") as agent for
its investment advisory clients and, accordingly, Mr. Anderson may be
deemed to be the beneficial owner of such shares. Mr. Anderson disclaims
beneficial ownership of those shares and 6,500 of the shares represented as
beneficially owned by him which are owned by his wife.
(4) Includes 21,250 shares for Mr. Gleason, 9,000 shares for each of Messrs.
Anderson, Magnuson, Benson and Vittert, 13,250 shares for Ms. Boeddeker,
33,500 shares for Mr. Berg, 18,000 shares for Mr. Bury, 3,000 for Mr.
Kosloff and 125,000 shares for all directors and executive officers as a
group, which may be acquired within sixty days of the date hereof upon the
exercise of outstanding stock options. Excludes options that will
accelerate solely as a result of the transactions contemplated by the
Merger Agreement.
Section 16(a) Beneficial Ownership Reporting Compliance
To the Company's knowledge based on review of copies of such forms furnished
to the Company and written representations, all Forms 3, 4, and 5 required by
Section 16(a) of the Securities Exchange Act have been timely filed with
respect to the most recently concluded fiscal year, except that Mr. Kosloff
failed to file a Form 4 in a timely manner.
B-10
