<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 10, 1997
================================================================================
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
FILED BY THE REGISTRANT [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
GRAPHIC INDUSTRIES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box)
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, $0.10 par value, of the Registrant
(2) Aggregate number of securities to which transaction applies:
1,028,717 shares*
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
$21.75 (the cash consideration per share of Common Stock to be
received in the Merger)
(4) Proposed maximum aggregate value of transaction:
$22,374,595*
*Includes all outstanding shares as of December 4, 1997 that are
not owned by Wallace Computer Services, Inc. or a subsidiary
thereof and assumes conversion of the Company's 7% Convertible
Subordinated Debentures due May 15, 2006.
(5) Total fee paid:
$4,475 (all of which was previously paid)
[ ] Fee paid previously with preliminary materials.
[X] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: $44,301
(2) Form, Schedule or Registration Statement No.: Schedule 14D-1 and
Amendment No. 1 thereto
(3) Filing Party: Greenwich Acquisition Corp. and Wallace Computer
Services, Inc.
(4) Date Filed: October 3, 1997 and October 17, 1997
================================================================================
<PAGE> 2
GRAPHIC INDUSTRIES, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 22, 1997
To the Stockholders of GRAPHIC INDUSTRIES, INC.:
NOTICE IS HEREBY GIVEN that a Special Meeting of the Stockholders (the
"Special Meeting") of Graphic Industries, Inc. (the "Company") will be held at
the offices of the Company, 2155 Monroe Drive, N.E., Atlanta, Georgia 30324, on
Monday, December 22, 1997, at 11:00 a.m., Eastern time, for the following
purposes:
1. To consider and vote upon a proposal (the "Merger Proposal") to
approve the Amended and Restated Agreement and Plan of Merger, dated as of
October 12, 1997 (the "Merger Agreement"), among Wallace Computer
Services, Inc. ("Wallace"), Greenwich Acquisition Corp, a wholly owned
subsidiary of Wallace ("Merger Sub"), and the Company, a copy of which is
attached as Annex I to the accompanying Proxy Statement, which provides
for the merger of Merger Sub into the Company (the "Merger"), with the
Company continuing as the surviving corporation (the "Surviving
Corporation") and becoming a wholly owned subsidiary of Wallace. Pursuant
to the Merger Agreement, each outstanding share of Common Stock, par value
$0.10 per share, of the Company (the "Common Stock") (other than shares of
Common Stock owned by the Company, any subsidiary of the Company, Wallace,
Merger Sub, or any other subsidiary of Wallace or by stockholders, if any,
who are entitled to and who properly exercise dissenters' rights under the
Georgia Business Corporation Code (the "GBCC")), will be converted into
the right to receive $21.75 in cash, without interest.
2. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Only stockholders of record at the close of business on December 4, 1997,
will be entitled to notice of, and to vote at, the Special Meeting or any
adjournments or postponements thereof.
THE BOARD OF DIRECTORS OF THE COMPANY APPROVED AND ADOPTED THE MERGER
AGREEMENT, APPROVED THE MERGER, DETERMINED THAT THE TERMS OF THE MERGER ARE
FAIR TO, AND IN THE BEST INTERESTS OF, THE COMPANY'S STOCKHOLDERS AND
RECOMMENDS THAT THE STOCKHOLDERS VOTE IN FAVOR OF THE MERGER PROPOSAL.
If the Merger is consummated, stockholders of the Company will have
certain rights under the GBCC to dissent and demand appraisal of, and to
receive payment in cash for the fair value of, their shares of Common Stock.
Such right to dissent, if the statutory procedures are complied with, could
lead to a judicial determination of the fair value of the Common Stock
(excluding any appreciation or depreciation in anticipation of the Merger)
required to be paid in cash to such dissenting holders in respect of their
shares of Common Stock.
By Order of the Board of Directors
Donald P. Hunnicutt, Sr.
Secretary
Dated: December 10, 1997
<PAGE> 3
GRAPHIC INDUSTRIES, INC.
PROXY STATEMENT
TABLE OF CONTENTS
PAGE
----
SUMMARY i
INTRODUCTION 1
Purpose of the Special Meeting 1
Voting at the Special Meeting 1
Proxies 2
Proxy Solicitation 2
Other Matters to Be Considered 2
THE MERGER 2
Background of the Merger 2
Recommendation of the Company's Board of Directors 7
Opinion of Interstate/Johnson Lane Corporation 9
Interests of Certain Persons 12
Certain Effects of the Consummation of the Offer and the
Merger on the Common Stock 14
The Merger Agreement and the Stockholder Agreement 14
Accounting Treatment of the Merger 20
Regulatory Matters 20
SOURCE AND AMOUNT OF FUNDS 20
RIGHTS OF DISSENTING STOCKHOLDERS 20
Dissenters' Rights Procedure 21
CERTAIN FEDERAL INCOME TAX CONSEQUENCES 23
SELECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS 26
PRICE RANGE OF THE COMMON STOCK; DIVIDENDS 33
BUSINESS OF THE COMPANY 33
CERTAIN SECURITY HOLDINGS 34
CERTAIN INFORMATION CONCERNING WALLACE AND MERGER SUB 34
INDEPENDENT ACCOUNTANTS 35
OTHER MATTERS 35
ADDITIONAL INFORMATION 35
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE 36
INDEX TO FINANCIAL STATEMENTS F-1
ANNEXES
I. Amended and Restated Agreement and Plan of Merger
II. Article 13 of the Georgia Business Corporation Code
(Dissenters' Rights)
III. Opinion of Interstate/Johnson Lane Corporation
<PAGE> 4
GRAPHIC INDUSTRIES, INC.
2155 MONROE DRIVE, N.E.
ATLANTA, GEORGIA 30324
(404) 874-3327
_________
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 22, 1997
_________
SUMMARY
This summary has been prepared to assist stockholders of Graphic
Industries, Inc., a Georgia corporation (the "Company"), in their review of the
proposal (the "Merger Proposal"), described in detail in the attached Proxy
Statement, to approve the Amended and Restated Agreement and Plan of Merger,
dated as of October 12, 1997 (the "Merger Agreement"), among Wallace Computer
Services, Inc. ("Wallace"), Greenwich Acquisition Corp., a wholly owned
subsidiary of Wallace ("Merger Sub"), and the Company, a copy of which is
attached as Annex I hereto, which provides for the merger of Merger Sub into
the Company (the "Merger"), with the Company continuing as the surviving
corporation (the "Surviving Corporation") and becoming a wholly owned
subsidiary of Wallace. Pursuant to the Merger Agreement, each outstanding
share of Common Stock, par value $0.10 per share (the "Common Stock"), of the
Company (other than shares of Common Stock owned by the Company, any subsidiary
of the Company, Wallace, Merger Sub, or any other subsidiaries of Wallace or by
the stockholders, if any, who are entitled to and who properly exercise
dissenters' rights under the Georgia Business Corporation Code (the "GBCC")),
will be converted into the right to receive $21.75 in cash, without interest.
The Proxy Statement and the accompanying notice of special meeting and
form of proxy are first being mailed on or about December 10, 1997 to
stockholders entitled to notice of and to vote at the Special Meeting of
Stockholders of the Company to be held on Monday, December 22, 1997 (the
"Special Meeting").
This summary is not intended to be a complete explanation of the matters
relating to the Merger Agreement or the proposed Merger and is qualified in all
respects by reference to the detailed explanation contained in the Proxy
Statement and the Annexes thereto. Stockholders are urged to review carefully
the entire Proxy Statement, including the Annexes. Cross references in this
summary refer to captions in the Proxy Statement.
Purpose of Special Meeting To vote upon the Merger Proposal. See
"INTRODUCTION--Purpose of the Special
Meeting."
Date and Time of Special Meeting Monday, December 22, 1997 at 11:00 A.M.,
Eastern time
Place of Meeting Graphic Industries, Inc.
2155 Monroe Drive, N.E.
Atlanta, Georgia 30324
Record Date December 4, 1997
<PAGE> 5
Number of Outstanding Shares of
Common Stock Entitled to Vote 13,405,828
Number of Owners of Record of Shares
of Common Stock 202
Merger Terms
In the Merger, the Company will become a wholly owned subsidiary of Wallace,
and each outstanding share of Common Stock (other than shares of Common Stock
owned by the Company, any subsidiary of the Company, Wallace, Merger Sub, any
other subsidiaries of Wallace or by stockholders, if any, who are entitled to
and properly exercise dissenters' rights under the GBCC) will be converted into
the right to receive $21.75 per share in cash. See "THE MERGER."
Required Vote
The affirmative vote of a majority of the outstanding shares of Common Stock is
required for approval of the Merger Proposal. See "INTRODUCTION--Voting at the
Special Meeting." At the close of business on December 4, 1997 (the "Record
Date"), Wallace owned, through Merger Sub, 12,751,080 shares of Common Stock,
or approximately 95% of the aggregate number of outstanding shares of Common
Stock. ACCORDINGLY, WALLACE HAS THE POWER TO APPROVE THE MERGER PROPOSAL
WITHOUT THE AFFIRMATIVE VOTE OF ANY OTHER SHARES OF COMMON STOCK. MERGER SUB
WILL VOTE ALL SHARES OF COMMON STOCK OWNED BY IT IN FAVOR OF THE MERGER
PROPOSAL. APPROVAL OF THE MERGER PROPOSAL IS THEREFORE ENSURED. See "CERTAIN
SECURITY HOLDINGS."
Recommendation of the Company's
Board of Directors
The Board of Directors of the Company approved and adopted the Merger
Agreement, approved the Merger, determined that the terms of the Merger are
fair to, and in the best interests of, the Company's stockholders and
recommends that the stockholders vote in favor of the Merger Proposal.
Opinion of Financial Advisor
Interstate/Johnson Lane Corporation, the Company's financial advisor
("Interstate/Johnson Lane"), has delivered to the Company's Board of Directors
its written opinion that, as of the date of the Merger Agreement, the
consideration to be received by Company's stockholders pursuant to the Merger
is fair, from a financial point of view, to the Company's stockholders. See
"THE MERGER--Opinion of Financial Advisor."
Rights of Dissenting Stockholders
If the Merger is consummated, stockholders of the Company will have certain
rights under the GBCC to dissent and demand appraisal of, and to receive
payment in cash for the fair value of, their shares of Common Stock. See
"RIGHTS OF DISSENTING STOCKHOLDERS" and Annex II.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS OF THE COMPANY VOTE
"FOR" APPROVAL OF THE MERGER AGREEMENT.
Stockholders are urged to read and consider carefully the information
contained in this Proxy Statement and to consult with their personal financial
and tax advisors.
ii
<PAGE> 6
This Proxy Statement and the accompanying form of proxy are first being
mailed to holders of shares of Common Stock on or about December 10, 1997.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER OR
NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE, SIGN, AND
RETURN THE PROXY CARD IN THE ENCLOSED POSTAGE PAID ENVELOPE. PLEASE DO NOT
SEND YOUR STOCK CERTIFICATES AT THIS TIME.
NO PERSON IS AUTHORIZED BY THE COMPANY TO GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THE DELIVERY OF THIS PROXY STATEMENT SHALL NOT IMPLY THAT
THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS
OF THE COMPANY OR WALLACE SINCE THE DATE HEREOF.
iii
<PAGE> 7
GRAPHIC INDUSTRIES, INC.
2155 MONROE DRIVE, N.E.
ATLANTA, GEORGIA 30324
(404) 874-3327
_________
PROXY STATEMENT
_________
INTRODUCTION
This Proxy Statement is being furnished to the stockholders of the Company
in connection with the solicitation of proxies on behalf of the Board of
Directors of the Company for use at the Special Meeting.
This Proxy Statement and accompanying Notice of Special Meeting of
Stockholders and form of proxy are being mailed on or about December 10, 1997 to
stockholders entitled to notice of and to vote at the Special Meeting.
PURPOSE OF THE SPECIAL MEETING
At the Special Meeting, the stockholders of the Company are being asked to
consider and vote upon the approval of the Merger Agreement. Under the terms
of the Merger Agreement, at the Effective Time, (i) Merger Sub will be merged
with and into the Company, (ii) the Company will be the Surviving Corporation,
(iii) the separate existence of Merger Sub will cease, (iv) the Company will
become a wholly owned subsidiary of Wallace, and (v) each outstanding share of
Common Stock (other than shares of Common Stock owned by the Company, any
subsidiary of the Company, Wallace, Merger Sub, or any other subsidiary of
Wallace or by stockholders, if any, who are entitled to and who properly
exercise dissenters' rights under the GBCC) will be converted into the right to
receive $21.75 in cash (the "Merger Consideration"), without interest.
VOTING AT THE SPECIAL MEETING
The Board of Directors of the Company has fixed the close of business on
December 4, 1997 as the record date (the "Record Date") for the determination
of stockholders entitled to notice of, and to vote at, the Special Meeting.
Accordingly, only holders of record of shares of Common Stock at the close of
business on December 4, 1997 will be entitled to vote at the Special Meeting.
At the close of business on the Record Date, there were 13,405,828 shares of
Common Stock outstanding and entitled to vote, held by 202 stockholders of
record.
Holders of shares of Common Stock on the Record Date are entitled to one
vote per share, exercisable in person or by properly executed proxy, at the
Special Meeting. As of the Record Date, there were no outstanding shares of
Class B Common Stock, $0.10 par value ("Class B Shares"), of the Company. All
outstanding Class B Shares were automatically converted into shares of Common
Stock (on the basis of one share of Common Stock for each Class B Share) upon
the purchase of Class B Shares by Merger Sub from Mark C. Pope III on November
5, 1997 pursuant to the terms of the Amended and Restated Stockholder
Agreement, dated as of October 12, 1997 (the "Stockholder Agreement"), among
Merger Sub, Wallace and Mark C. Pope III. Any certificate for Class B Shares
so converted now represents the shares of Common Stock into which such Class B
Shares were automatically converted.
THE AFFIRMATIVE VOTE OF A MAJORITY OF THE OUTSTANDING SHARES OF COMMON
STOCK IS REQUIRED BY THE GBCC AND THE AMENDED AND RESTATED ARTICLES OF
INCORPORATION OF THE COMPANY FOR APPROVAL OF THE MERGER PROPOSAL. AT THE CLOSE
OF BUSINESS ON THE RECORD DATE, WALLACE OWNED, THROUGH MERGER SUB, 12,751,080,
OR APPROXIMATELY 95%, OF THE OUTSTANDING SHARES OF COMMON STOCK. ACCORDINGLY,
WALLACE HAS THE POWER TO ENSURE THE APPROVAL OF THE MERGER PROPOSAL WITHOUT THE
AFFIRMATIVE VOTE OF ANY OTHER SHARES OF COMMON STOCK. WALLACE AND MERGER SUB
ARE REQUIRED BY THE MERGER AGREEMENT TO VOTE ALL SHARES OF COMMON STOCK OWNED
BY THEM IN FAVOR OF THE MERGER PROPOSAL AND APPROVAL OF THE MERGER PROPOSAL IS
THEREFORE ENSURED. SEE "CERTAIN SECURITY HOLDINGS."
On October 12, 1997, the Company's Board of Directors approved the Offer
(as hereinafter defined), the Merger Agreement, the Merger and the Stockholder
Agreement in accordance with the Company's Amended and Restated
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<PAGE> 8
Articles of Incorporation (the "Charter"). As a result of such approval, the
affirmative vote of a majority of the outstanding shares of Common Stock is
sufficient for approval of the Merger Proposal.
The holders of a majority of the shares of Common Stock outstanding and
entitled to vote must be present in person or represented by proxy at the
Special Meeting in order for a quorum to be present. Pursuant to the Charter
and the GBCC, shares of Common Stock represented by proxies that reflect
abstentions or "broker non-votes" (i.e. shares held by a broker or nominee
which are represented at the Special Meeting, with respect to which such broker
or nominee is empowered to vote on at least one proposal but not empowered to
vote on other proposals) will be counted as shares of Common Stock present for
purposes of determining the number of Shares represented at the Special Meeting
and the presence of a quorum but shall constitute votes AGAINST the Merger
Proposal. If a quorum is not present or represented by proxy at the Special
Meeting, stockholders entitled to vote at the Special Meeting, whether present
in person or represented by proxy, shall only have the power to adjourn the
Special Meeting for the purpose of allowing additional time for soliciting and
obtaining additional proxies or votes. The shares of Common Stock owned by
Wallace, through Merger Sub, are sufficient to constitute a quorum for purposes
of the Special Meeting.
PROXIES
Stockholders of the Company are requested to complete, date, sign and
promptly return the accompanying form of proxy in the enclosed envelope.
Shares of Common Stock represented by properly executed proxies received by the
Company and not revoked will be voted at the Special Meeting in accordance with
the instructions contained therein. If instructions are not contained therein,
proxies will be voted FOR approval of the Merger Proposal.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted (a) by filing with the Secretary of
the Company written notice of such revocation bearing a later date than the
proxy, (b) by duly executing a subsequent proxy relating to the same shares and
delivering it to the Secretary of the Company, or (c) by attending the Special
Meeting and voting in person. Attendance at the Special Meeting will not in
and of itself constitute revocation of a proxy. Any written notice revoking a
proxy should be sent to the attention of Donald P. Hunnicutt, Secretary,
Graphic Industries, Inc., 2155 Monroe Drive, N.E. Atlanta, Georgia 30324.
PROXY SOLICITATION
All expenses of this solicitation, including the cost of preparing and
mailing this Proxy Statement, will be borne by the Company. No solicitation in
addition to this solicitation by use of the mails will be made.
In connection with this solicitation, brokers, nominees, fiduciaries and
other custodians have been requested to forward soliciting material to
beneficial owners of shares of Common Stock held of record by them, and such
custodians will be reimbursed for their expenses.
All information in this Proxy Statement concerning Wallace and Merger Sub
has been supplied by Wallace. All other information herein has been supplied
by the Company.
OTHER MATTERS TO BE CONSIDERED
It is not anticipated that any matter other than approval of the Merger
Proposal will be brought before the Special Meeting. If any other matter
should properly come before the meeting, proxies will be voted in accordance
with the best judgment of the persons named in the enclosed proxy.
THE MERGER
BACKGROUND OF THE MERGER
In November 1996, Mark C. Pope III (the "Selling Stockholder" or "Mr.
Pope"), the Company's largest stockholder until the purchase of shares of
Common Stock and Class B Shares by Merger Sub pursuant to the Offer and the
Stockholder Agreement, received a letter from another publicly-owned printing
company proposing that the Company
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<PAGE> 9
and such other printing company enter into discussions regarding an acquisition
of the Company. Such letter was accompanied by a financial analysis prepared
by such other company's financial advisor reflecting several possible business
combinations with the Company, involving consideration consisting of stock of
such other company or various combinations of cash and such stock. Mr. Pope
had several discussions with such other company, but no formal offer
materialized and the discussions were terminated on April 16, 1997.
On January 14, 1997, Mr. Pope met with Ronald J. Wareham, of R.J. Wareham
& Company, Incorporated (the "Wareham Company"), concerning the possible
engagement of the Wareham Company by the Company as its financial advisor. On
January 21, 1997, a meeting was held between Mr. Pope, Mr. Wareham and Carter
D. Pope concerning the possible purchase by Carter D. Pope of Atlanta Blue
Print Co. and Imaging Technologies Services, Inc., wholly-owned subsidiaries of
the Company (collectively "ITS"). Carter D. Pope is President of ITS and a
member of the Board of Directors of the Company. No further action was taken
with respect to that possible purchase of such companies until September 1997.
On January 15, 1997, a Financial Advisory Agreement with the Wareham
Company was entered into by the Company pursuant to which the Wareham Company
was engaged as financial advisor to the Company. Included among the services to
be provided by the Wareham Company was its agreement to contact possible
purchasers of the Company to determine the nature and extent of any interest
that they might have in acquiring the Company. Subsequent meetings between Mr.
Pope and Mr. Wareham were held on February 5 and February 18, 1997 to identify
possible purchasers of the Company. As agreed upon between Mr. Pope and Mr.
Wareham, the Wareham Company contacted a number of companies by letter and/or
telephone to determine whether any of such companies would be interested in
pursuing discussions with the Company concerning an acquisition of the Company.
A total of six companies in the printing or related industries and eight
financial buyers were contacted on behalf of the Company by or through the
Wareham Company between February 13, 1997 and May 21, 1997.
Except for the financial buyer referred to below, the companies or firms
contacted by the Wareham Company expressed a lack of interest in pursuing
discussions with the Company. In addition, Mr. Wareham contacted a major
investment banking firm about a possible leveraged recapitalization of the
Company. Mr. Wareham, Mr. Pope and Carter D. Pope met with such firm on May 21,
1997, but such transaction was not pursued further because, among other things,
Mr. Pope would have been required to leave a substantial amount of equity in
the Company and to manage a highly-leveraged company.
The Wareham Company initially contacted Wallace by letter dated May 5,
1997 to Robert J. Cronin, Chief Executive Officer of Wallace, inquiring if
Wallace would be interested in discussing a possible business combination with
the Company. On or about May 12, 1997, Michael T. Leatherman, Senior Vice
President and Chief Information Officer of Wallace, telephoned Mr. Wareham to
express preliminary interest in a transaction with the Company and to schedule
a meeting with Mr. Wareham and Mr. Pope.
The initial meeting between the Company and Wallace occurred on June 5,
1997, at which time Mr. Pope and Mr. Wareham met with Mr. Cronin and Mr.
Leatherman. During that meeting the persons present discussed the Company's
operations and Wallace's current strategy for expanding its commercial printing
operations through acquisitions. On June 12, 1997, Mr. Leatherman provided to
Mr. Wareham a preliminary list of information that Wallace desired in
connection with its review of the Company. A confidentiality agreement was
entered into between the Company and Wallace on July 3, 1997, and an
information package concerning the Company was provided to Wallace in mid-July.
On June 27, July 28 and July 31, 1997, the Company held a series of
meetings with a potential financial buyer of the Company, and a proposal to
acquire control of the Company in a leveraged buy-out was received from such
financial buyer by the Company on July 31, 1997. However, after consultation
with Mr. Wareham and others, such proposal was deemed unacceptable by Mr. Pope
because, among other things, the price was deemed inadequate and the proposal
was highly conditional. Such proposal was not pursued further by Mr. Pope and
Mr. Wareham.
A meeting with Mr. Leatherman, Mr. Pope, John R. Pope, President of one of
the Company's subsidiaries and a member of the Board of Directors of the
Company, and Mr. Wareham was held in Atlanta on August 12, 1997. At this
meeting, the parties discussed the structure of a possible transaction, the
recent movement in the price for the Common Stock, and the general operations
of the Company. Mr. Pope indicated that, as noted above, a financial buyer had
3
<PAGE> 10
expressed possible interest in acquiring the Company for a price in the range
of $15 to $16 per share of Common Stock. Mr. Pope indicated that he believed a
higher price was more appropriate. The parties took note of the recent
increases in market prices for the Common Stock, and Mr. Leatherman indicated
that Wallace would consider a price at or near $17.50 per share of Common
Stock. At the conclusion of this meeting, Mr. Leatherman requested additional
information concerning the Company.
A further meeting between the Company and Wallace occurred on August 19,
1997 among Mr. Cronin, Mr. Leatherman, Mr. Pope, John R. Pope and Carter D.
Pope, at which time further discussions were held, although no specific
proposal was made or price agreed upon. This meeting was held at Wallace's
headquarters and included visits to certain of Wallace's operations in the
Chicago area.
On August 21, 1997, telephone discussions concerning the increase in
market price for the Common Stock and announcement of recent acquisitions by
the Company were held among Mr. Pope, Leo Benatar, a member of the Board of
Directors of the Company, Mr. Cronin and Mr. Leatherman, and on August 25,
1997, the Company sent Wallace additional information concerning recent
acquisitions made by the Company.
On August 28, 1997, a meeting was held at Wallace's headquarters among Mr.
Cronin, Mr. Leatherman, other representatives of Wallace, representatives of
Smith Barney Inc., financial advisor to Wallace ("Smith Barney"), Mr. Pope,
John R. Pope, Mr. Benatar and Mr. Wareham. At this meeting, the parties
discussed the possibility of a cash tender offer for the Company by Wallace,
and a price of $18.50 per share of Common Stock was mentioned as a price which
Wallace might be willing to pay for the Company, assuming satisfactory
completion of due diligence and negotiation of a satisfactory merger agreement
and an agreement with Mr. Pope covering a portion of his shares of Common Stock
and Class B Shares. At this meeting the parties did not agree on the number of
shares of Common Stock or Class B Shares of Mr. Pope to be covered by the
agreement with Mr. Pope. On September 4, 1997, Mr. Leatherman met with certain
members of the Company's management in Atlanta, at which time he was given the
opportunity to learn more about the Company's operations and how they might be
integrated with Wallace's operations.
On August 29, 1997, the Company engaged Interstate/Johnson Lane for
purposes of rendering an opinion with respect to the fairness, from a financial
point of view, of the consideration to be received by the stockholders of the
Company, in a possible acquisition transaction with Wallace.
During the week of September 9, 1997, Mr. Leatherman, various other
members of Wallace's management, and representatives of Smith Barney held
additional meetings with the Company's management in Atlanta and members of
Wallace's management also visited the Company's plants in Houston, Philadelphia
and Boston. Mr. Benatar and Mr. Leatherman also met on September 9 and 11, 1997
during Mr. Leatherman's visit to Atlanta and discussed various matters
regarding the Company, its fit with Wallace and conditions in the printing
industry generally. In addition, management of Wallace, representatives of
Smith Barney, Sidley & Austin, legal counsel to Wallace, and Arthur Andersen
LLP, the independent accountants of Wallace, reviewed certain information
provided by the Company in a data room in the Atlanta offices of Powell,
Goldstein, Frazer & Murphy LLP, legal counsel to the Company, and at a data
room in the Atlanta offices of Ernst & Young LLP, independent accountants of
the Company.
On September 12, 1997, Sidley & Austin provided drafts of the merger
agreement among Merger Sub, Wallace and the Company (the "Original Merger
Agreement") and the stockholder agreement among Merger Sub, Wallace and Mr.
Pope (the "Original Stockholder Agreement") to the Company and to Powell,
Goldstein, Frazer & Murphy LLP, counsel for the Company and Mr. Pope. On
September 18 and 19, 1997, representatives of Sidley & Austin and Powell,
Goldstein, Frazer & Murphy LLP conducted telephonic discussions concerning the
terms of the proposed Original Merger Agreement and the Original Stockholder
Agreement. On September 20, 1997, Sidley & Austin delivered revised drafts of
the Original Merger Agreement and Original Stockholder Agreement to the
Company, Mr. Pope and their legal counsel.
On September 19, 1997, Mr. Benatar and Mr. Leatherman and legal counsel to
the Company and Wallace had telephone conversations concerning the sale of ITS
to Carter D. Pope and the proposed terms of such sale. Mr. Leatherman advised
that the businesses conducted by ITS are not consistent with the long term
strategic objectives of Wallace as they relate to its acquisition of the
Company and stated that Wallace had no objection to the sale of ITS as
proposed.
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<PAGE> 11
On September 24, 1997, at the regular quarterly meeting of the Board of
Directors of the Company, Mr. Pope advised the members of the Board of the
discussions to date with Wallace and the possible terms of an acquisition of
the Company by Wallace. Representatives of Interstate/Johnson Lane delivered
their verbal opinion as to the fairness, from a financial point of view, to the
holders of shares of Common Stock of the consideration proposed to be paid to
them. Carter D. Pope also expressed his continuing interest in acquiring ITS
from the Company, conditioned upon the acquisition of the Company by Wallace,
and offered to enter into a contract to that effect. After consultation with
its financial and legal advisors, the Board determined that it was in the best
interests of the stockholders for discussions to continue with Wallace and
agreed to meet again on September 28, 1997.
On September 25, 1997, Croft & Bender LLC was engaged by the Company to
render a fairness opinion with respect to the fairness, from a financial point
of view, to the Company of the consideration to be received by the Company from
the sale of ITS. Representatives of Croft & Bender LLC met on September 25 and
26, 1997, with Carter D. Pope and other representatives of ITS and with
representatives of the Company to obtain information necessary for them to
render their opinion, which was delivered to the Company on September 28, 1997.
Croft & Bender LLC stated in their opinion that the consideration to be
received by the Company from the sale of ITS is fair, from a financial point of
view, to the Company.
On September 25, 1997, members of Wallace's management conducted
additional visits to certain of the Company's plants.
On September 26 and 27, 1997, members of management of the Company,
including presidents of the Company's operating subsidiaries, met with members
of management of Wallace in Chicago to discuss how the operations of each of
the Company and Wallace might be integrated. Final terms of the Original Merger
Agreement and the Original Stockholder Agreement were negotiated between legal
counsel for the Company and Wallace. On September 27, 1997, Wallace conveyed a
written offer to the Company, offering to enter into the proposed Original
Merger Agreement and Original Stockholder Agreement.
On September 28, 1997, the Board of Directors of the Company met and, with
the advice of legal counsel, considered the written offer from Wallace to
acquire the Company pursuant to the Original Offer (as defined herein) and the
Merger at a price of $18.50 per share. The Board also received and considered
the written opinion of Interstate/Johnson Lane with respect to the Original
Offer and the Merger and the written opinion of Croft & Bender LLC with respect
to the sale of ITS. Mr. Pope advised the Board of the final terms of the
Original Stockholder Agreement. The terms of the Original Merger Agreement, the
Original Stockholder Agreement and the Stock Purchase Agreement between the
Company and Carter D. Pope (the "Stock Purchase Agreement") providing for the
sale of ITS were reviewed with the Board by legal counsel to the Company.
Following a number of questions from, and discussions among, the directors, the
Board of Directors of the Company (i) approved and adopted the Original Merger
Agreement and determined that the Original Offer and the Merger considered as a
whole are fair to and in the best interests of the Company and its
stockholders, (ii) recommended that the Company's stockholders tender their
shares of Common Stock in the Original Offer and approve and adopt the Original
Merger Agreement and the Merger, and (iii) approved the Stock Purchase
Agreement providing for the sale of ITS.
On September 28, 1997, immediately following the meeting of the Board of
Directors, the Original Merger Agreement and the Original Stockholder Agreement
were executed and delivered by the parties thereto. The Stock Purchase
Agreement was also executed and delivered. An announcement concerning the
Original Offer and the Merger was made on September 28, 1997.
On October 3, 1997, Merger Sub commenced an offer to purchase all
outstanding shares of Common Stock at an offer price of $18.50 per share net to
the seller in cash, without interest (the "Original Offer").
On October 6, 1997, Gerald F. Mahoney, Chairman of Mail-Well, Inc.
("Mail-Well"), telecopied a letter to Mr. Pope expressing interest in making an
offer for the Company and requesting access to the same due diligence materials
as had been provided to Wallace. A copy of the letter was delivered to Wallace
as required under the Original Merger Agreement. Wallace then provided the
Company with copies of telecopied correspondence between Mr. Mahoney and Mr.
Cronin, which consisted of (i) letters dated October 2, 1997 and October 3,
1997 from Mr. Mahoney to Mr. Cronin expressing an interest in purchasing
certain assets of the Company from Wallace, after the consummation of the
Merger,
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<PAGE> 12
and indicating that, if Wallace were unwilling to agree to such a
transaction, Mail-Well would consider the possibility of making a competing
offer to purchase the Company at a price in excess of $18.50 per share of
Common Stock, and (ii) a letter dated October 6, 1997, from Mr. Cronin to Mr.
Mahoney advising Mr. Mahoney that Wallace was not interested in selling assets
of the Company to Mail-Well.
On October 7, 1997, the Board of Directors of the Company met to consider
the October 6, 1997 letter from Mr. Mahoney to Mr. Pope. The Board of
Directors concluded that the October 6, 1997 letter from Mr. Mahoney was not
sufficiently definite with respect to the terms of an offer to acquire the
Company and did not include sufficient evidence of the ability of Mail-Well to
finance the acquisition of the Company in order for the members of the Board of
Directors to determine, as required by the Original Merger Agreement, that it
was necessary in connection with the exercise of their fiduciary duties to
allow Mail-Well access to the materials requested. Mail-Well was informed of
this conclusion on October 7, 1997, following the meeting of the Board of
Directors.
On October 9, 1997, the Company received a letter from Mr. Mahoney stating
that Mail-Well was willing, subject to reasonable and customary due diligence,
to pay at least $20.00 per share in cash for all of the shares of Common Stock
and Class B Shares of the Company, on substantially the same terms as contained
in the Original Merger Agreement, to which was attached an executed bank
commitment letter relating to financing for Mail-Well's offer and an executed
confidentiality agreement. Later that day, the Board of Directors of the
Company met to consider Mail-Well's letter. The Board of Directors determined
that in accordance with the terms of the Original Merger Agreement, it was
permitted to allow Mail-Well to review the same due diligence materials as had
been provided to Wallace, but took no further action with respect to
Mail-Well's letter. Following the meeting of the Board of Directors, the
Company advised Mail-Well that it would be allowed access to the same
information as had been provided to Wallace and access to the Company's
management and facilities, subject to the confidentiality agreement. On
October 10, 1997, both the Company and Mail-Well issued press releases relating
to Mail-Well's October 9, 1997 letter and the Company's decision to allow
Mail-Well to commence its due diligence investigation of the Company. The
Board of Directors of the Company took no other position with respect to the
October 9, 1997 letter from Mail-Well.
On October 10, 1997, certain arrangements were made for material and
information related to the Company to be available to Mail-Well and certain
material related to the Company was sent to Mail-Well.
Beginning on October 10, 1997 and continuing on October 11, 1997, Wallace
and its counsel had various discussions with Mr. Pope and his counsel, relating
to the possibility of an increase in the cash price to be paid in the Offer and
to certain modifications in the terms of the Original Stockholder Agreement and
the Original Merger Agreement. On October 11, 1997, Wallace's counsel
delivered drafts of an amendment to and restatement of the Original Stockholder
Agreement and an amendment to and restatement of the Original Merger Agreement
to Mr. Pope's counsel. Later that day and on October 12, 1997 such counsel
finalized the terms of both agreements, subject to approval by the Board of
Directors of Wallace and Company.
In the afternoon of October 12, 1997, following such approval by its Board
of Directors, Wallace telecopied a letter to Mr. Pope proposing to increase the
offer price to $21.75 (the "Offer Price") if Mr. Pope agreed, prior to Wallace
making such proposal to the Company, to commit, for a period of one year, to
vote the shares of Common Stock and Class B Shares owned by him against any
merger or merger agreement (other than the Merger and the Merger Agreement) and
against certain other competing transactions and not to (i) sell or otherwise
transfer any shares of Common Stock or Class B Shares owned by him (subject to
certain exceptions), (ii) enter into any voting arrangement or (iii) convert
the Class B Shares owned by him into shares of Common Stock, in each case,
whether or not the Board of Directors of the Company accepted Wallace's
proposal. Upon receipt of such written commitment by Mr. Pope, Wallace conveyed
a written offer to the Board of Directors of the Company, offering to enter
into the Merger Agreement simultaneously with Mr. Pope's execution of the
Stockholder Agreement. The written offer from Wallace to the Board of
Directors of the Company provided that the offer would expire at 8:00 p.m.
(eastern time) on October 12, 1997, and would be deemed automatically rejected
in the event of any disclosure to any person other than an officer, director,
employee or representative of the Company of such offer or the fact that
Wallace had made such offer prior to acceptance by the Company of such offer.
Upon receipt of such letter, the Board of Directors of the Company met to
consider the written offer from Wallace. The Board received and considered the
verbal opinion of Interstate/Johnson Lane with respect to the revised
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<PAGE> 13
Offer (as defined herein) and the Merger. The opinion was later confirmed in
writing (a copy of which appears as Annex III hereto). Following discussions
among the directors, the Board of Directors of the Company (i) approved and
adopted the Merger Agreement and determined that the revised Offer and Merger
considered as a whole are fair to and in the best interests of the Company and
its stockholders and (ii) recommended that the Company's stockholders tender
their shares of Common Stock in the Offer and approve and adopt the Merger
Agreement and the Merger.
Immediately following the meeting of the Board of Directors of the
Company, the Merger Agreement and the Stockholder Agreement were executed and
delivered by the parties thereto. An announcement concerning the Merger
Agreement and the Stockholder Agreement was made on October 12, 1997. The
Company, through its counsel, also informed Mail-Well of the execution of such
agreements and that Mail-Well's proposed due diligence investigation of the
Company was no longer appropriate.
On October 17, 1997, Merger Sub and the Company mailed supplemental
materials to the stockholders of the Company amending the Original Offer to
provide for a purchase price of $21.75 net to the seller in cash, without
interest (the "Offer"). The Offer expired at 12:00 midnight, New York City
Time, on Friday, October 31, 1997. On November 3, 1997, Merger Sub accepted
for payment shares of Common Stock tendered pursuant to the Offer. Merger Sub
subsequently purchased 8,447,988 shares of Common Stock tendered pursuant to
the Offer and 4,303,092 Class B Shares from Mr. Pope pursuant to the
Stockholder Agreement. Upon such purchase of Class B Shares, all outstanding
Class B Shares automatically converted into shares of Common Stock.
The terms of the Merger Agreement are described more fully under the
caption "The Merger Agreement" and such description is incorporated by
reference herein.
RECOMMENDATION OF THE COMPANY'S BOARD OF DIRECTORS
(a) The Board of Directors of the Company met on September 24, 1997 to
discuss and consider a possible proposal for the acquisition of the Company by
Wallace. During such meeting, the Board of Directors discussed the terms of a
possible acquisition proposal as communicated by Wallace to management and
reviewed the terms of the proposed Original Merger Agreement with legal counsel
to the Company, Interstate/Johnson Lane and the Wareham Company. Following such
discussion and review, the Board of Directors determined that it was in the
best interests of the stockholders for discussions to continue with Wallace.
Wallace conveyed a written offer to the Chairman of the Board of Directors of
the Company on September 27, 1997 offering to enter into the proposed Original
Merger Agreement and the proposed Original Stockholder Agreement. The Board of
Directors of the Company met again on September 28, 1997 and reviewed the terms
of the Original Merger Agreement and the Original Stockholder Agreement with
legal counsel, received the written opinion of Interstate/Johnson Lane with
respect to the fairness, from a financial point of view, of the consideration
to be received by the Company's stockholders in the Original Offer and the
Merger, and unanimously: (i) determined that the Original Offer and the Merger,
considered as a whole, are fair to and in the best interests of the Company and
its stockholders; (ii) approved and adopted the Original Merger Agreement; and
(iii) recommended that the Company's stockholders tender their shares of Common
Stock in the Original Offer and approve and adopt the Original Merger Agreement
and the Merger. On October 12, 1997, Wallace conveyed a written offer to the
Board of Directors of the Company offering to enter into the proposed Merger
Agreement which, among other things, increased the Offer Price from $18.50 to
$21.75 and provided Wallace with the option of terminating the Offer and
pursuing the purchase of the Company solely by means of the Merger. The Board
of Directors of the Company met on October 12, 1997 and reviewed the terms of
the Merger Agreement and the Stockholder Agreement with legal counsel, received
the verbal opinion of Interstate/Johnson Lane with respect to the fairness,
from a financial point of view, of the consideration to be received by the
Company's stockholders in the revised Offer and the Merger, and: (i) determined
that the revised Offer and the Merger, considered as a whole, are fair to and
in the best interests of the Company and its Stockholders; (ii) approved and
adopted the Merger Agreement; and (iii) recommended that the Company's
stockholders tender their shares in the Offer and approve and adopt the Merger
Agreement and the Merger.
(b) In reaching its conclusion and making its determinations as outlined
in paragraph (a) above, the Board of Directors considered a number of factors,
including, without limitation, the following:
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<PAGE> 14
(i) the consideration proposed to be paid by Wallace pursuant to the
Offer and the Merger relative to: (A) the Company's historical sales; earnings
before interest, taxes, depreciation and amortization ("EBITDA"); earnings
before interest and taxes ("EBIT"); net income and book value; (B) its internal
expectations concerning sales, EBITDA, EBIT, net income and book value; (C)
recent and historical market prices for the Common Stock; and (D) the results
of a discounted cash flow analysis;
(ii) the familiarity of the Board of Directors with the business,
financial condition and prospects of the Company; the nature of the Company's
industry and markets, including, in particular, the belief of the Board of
Directors that consolidation in the Company's industry will continue in an
increasingly competitive acquisition market and that for the Company to
maintain a leadership position in its industry would require continued growth,
including by way of acquisitions, substantial capital resources, and further
geographic expansion; and the belief of the Board of Directors that the
consideration proposed to be paid by Wallace pursuant to the Offer and the
Merger reflects the values inherent in the Company;
(iii) issues concerning management succession at the Company;
(iv) the desire of Mr. Pope, at the time of such Board approval the
largest stockholder of the Company, who owned approximately 35.5% of the total
shares of Common Stock and Class B Shares outstanding on a fully diluted basis
and who possessed approximately 82% of the total votes which might be cast at a
meeting of stockholders of the Company (assuming prior exercise of all
outstanding stock options and conversion of all outstanding debentures of the
Company), to sell the Company to Wallace, and his agreement with Wallace
(which was necessary to induce Wallace to offer to increase the Offer Price) to
commit, for a period of one year, to vote the shares of Common Stock and Class
B Shares owned by him against any merger or merger agreement (other than the
Merger and the Merger Agreement ) and against certain other competing
transactions and not to (a) sell or otherwise transfer any shares of Common
Stock or Class B Shares owned by him (subject to certain exceptions), (b) enter
into any voting arrangement or (c) convert the Class B Shares owned by him into
shares of Common Stock, in each case, whether or not the Board of Directors
accepted Wallace's proposal to enter into the Merger Agreement;
(v) that the written offer from Wallace to enter into the Merger
Agreement, which provided for an increase in the Offer Price to $21.75 per
share of Common Stock, would by its terms expire at 8:00 p.m. on October 12,
1997 and be deemed to have been rejected if disclosed to anyone other than
officers, directors, employees and representatives of the Company prior to its
acceptance;
(vi) the opinion of Interstate/Johnson Lane (described below) to the
effect that the consideration to be received by stockholders of the Company
pursuant to the Offer and the Merger is fair, from a financial point of view,
to such stockholders;
(vii) that all of the Company's stockholders will receive the same price
and consideration for their shares of Common Stock and Class B Shares;
(viii) the financial strength of Wallace and the absence of any financing
condition in the Offer or in the Merger Agreement;
(ix) that the Mail-Well proposal of October 9, 1997 contained a number of
conditions, including satisfactory completion of a due diligence investigation
of the Company, and that Mail-Well's bank financing commitment, which
accompanied its proposal, was, in the view of the Board, more conditional than
Wallace's bank financing commitment relating to the Offer and the Merger; and
(x) the realization that if the Company failed to enter into the Merger
Agreement offered by Wallace and Mail-Well did not subsequently offer to enter
into a merger agreement with the Company providing for its acquisition by
Mail-Well, stockholders of the Company would receive only $18.50 per share of
Common Stock under the Original Merger Agreement, rather than the higher Offer
Price of $21.75 per share of Common Stock being proposed by Wallace.
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<PAGE> 15
OPINION OF INTERSTATE/JOHNSON LANE CORPORATION
Interstate/Johnson Lane was retained by the Company to render an opinion
with respect to the fairness, from a financial point of view, of the
consideration to be received by the Company's stockholders from a possible
transaction with Wallace. Interstate/Johnson Lane delivered to the Board of
Directors of the Company its written opinion dated September 28, 1997 and an
update of that opinion on October 12, 1997 based upon the Merger Agreement (the
"Interstate/Johnson Lane Opinion") to the effect that, as of the date thereof,
based on the matters set forth therein, the consideration to be received by the
holders of shares of Common Stock in the Offer and the Merger is fair, from a
financial point of view, to such stockholders. The consideration was determined
based upon negotiations between the parties, without any involvement of
Interstate/Johnson Lane.
Interstate/Johnson Lane has consented to the inclusion of the
Interstate/Johnson Lane Opinion in this Proxy Statement.
THE FULL TEXT OF THE INTERSTATE/JOHNSON LANE OPINION, WHICH SETS FORTH THE
ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITS ON THE
REVIEW UNDERTAKEN, IS ATTACHED AS ANNEX III TO THIS PROXY STATEMENT AND IS
INCORPORATED HEREIN BY REFERENCE. THE SUMMARY OF THE INTERSTATE/JOHNSON LANE
OPINION SET FORTH HEREIN IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF THE OPINION IN ANNEX III. THE COMPANY'S STOCKHOLDERS ARE URGED TO READ
THE INTERSTATE/JOHNSON LANE OPINION IN ITS ENTIRETY. THE INTERSTATE/JOHNSON
LANE ANALYSES AND OPINION WERE PREPARED FOR AND ADDRESSED TO THE BOARD OF
DIRECTORS OF THE COMPANY AND ARE DIRECTED ONLY TO THE FAIRNESS, FROM A
FINANCIAL POINT OF VIEW, OF THE CONSIDERATION TO BE RECEIVED BY THE HOLDERS OF
SHARES OF COMMON STOCK OF THE COMPANY IN CONNECTION WITH THE OFFER AND THE
MERGER AND DO NOT CONSTITUTE AN OPINION AS TO THE MERITS OF THE OFFER OR THE
MERGER OR A RECOMMENDATION TO ANY HOLDER OF SHARES OF COMMON STOCK AS TO
WHETHER OR NOT TO TENDER THEIR SHARES OF COMMON STOCK OR AS TO HOW TO VOTE IN
CONNECTION WITH THE MERGER.
Interstate/Johnson Lane is a nationally recognized investment banking firm
and was selected by the Company based on the firm's reputation and general
investment banking experience, including its experience in rendering fairness
opinions. Interstate/Johnson Lane, as part of its investment banking business,
is engaged in the valuation of businesses and their securities in connection
with mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes.
In connection with rendering the Interstate/Johnson Lane Opinion,
Interstate/Johnson Lane, among other things, (i) reviewed a draft of the Merger
Agreement; (ii) reviewed annual audited financial statements for the Company
and Wallace for the prior three fiscal years, interim unaudited financial
statements through April 30, 1997 for Wallace and interim unaudited financial
statements through July 31, 1997 for the Company; (iii) reviewed publicly
available information including recent Securities and Exchange Commission (the
"Commission") filings and stockholder communications for the Company and for
Wallace, respectively; (iv) met with members of the senior management of the
Company to discuss its business, financial condition, operating results, and
projections; (v) compared certain financial and stock market data for the
Company with similar data for selected publicly held commercial printing
companies; (vi) reviewed the financial terms of certain recent business
combinations in the printing industry; (vii) reviewed premiums paid
historically for certain other publicly traded companies deemed relevant;
(viii) reviewed historical market price, volume data, and dividend history for
the Common Stock compared with comparable companies; (ix) reviewed a discounted
cash flow analysis for the Company; (x) reviewed published research reports and
investment opinions on the Company and the commercial printing industry; and
(xi) performed such other financial studies and analyses as deemed appropriate
by the Company.
In rendering the Interstate/Johnson Lane Opinion, Interstate/Johnson Lane
relied without independent verification upon the accuracy and completeness of
all the financial and other information furnished to it by or on behalf of the
Company, and others, including published information that Interstate/Johnson
Lane considered in its review. Interstate/Johnson Lane relied upon the
reasonableness of all projections and forecasts provided to it by the
management
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<PAGE> 16
of the Company and assumed the attainability of such results and that they were
prepared in accordance with accepted practice on bases reflecting the best
currently available estimates and good faith judgments of the Company's
management. Interstate/Johnson Lane's opinion is based upon the economic,
monetary, market and other conditions and circumstances existing and known to
it as of the date of the Interstate/Johnson Lane Opinion, and
Interstate/Johnson Lane assumed that there were no material changes in the
assets, financial condition, results of operation, business or prospects of the
Company since the date of the most recent financial statements made available
to it. Interstate/Johnson Lane has not made or considered any independent
evaluations or appraisals of the assets or liabilities (contingent or
otherwise) of either the Company or any of its subsidiaries. Interstate/Johnson
Lane does not express any opinion regarding the value of any of the Company's
specific individual assets. Interstate/Johnson Lane has also assumed, with the
Company's consent, that obtaining any necessary regulatory approvals and third
party consents for the Offer or the Merger or otherwise will not have an
adverse effect on the Company, Wallace or the combined company.
The following is a summary of the material financial analyses presented by
Interstate/Johnson Lane to the Board of Directors of the Company on September
24, 1997, and updated in a presentation on October 12, 1997. This summary does
not purport to be a complete description of the analyses performed by
Interstate/Johnson Lane in connection with providing its opinion to the
Company's Board of Directors.
Comparable Companies Analysis. Based on publicly available information and
First Call consensus earnings estimates, Interstate/Johnson Lane reviewed and
compared actual and estimated selected financial, operating and stock market
information and financial ratios of the Company to a group of ten companies.
(First Call compiles earnings estimates published by selected research analysts
for use by the investment community.) The Company was compared to a group of
ten commercial printing companies consisting of Banta Corporation, Bowne & Co.,
Inc., Cadmus Communications Corporation, Champion Industries Inc., Consolidated
Graphics, Inc., Devon Group, Inc., Merrill Corporation, R.R. Donnelley & Sons
Co., Mail-Well, Inc. and World Color Press, Inc. (the "Selected Printing
Companies"). The Company was also compared with a subset of the above
companies, based on the elimination of companies whose compound annual growth
rate for sales over the past three fiscal years was greater than 20%. The
subset of the selected companies consists of the following five companies:
Banta Corporation, Bowne & Co., Inc., Cadmus Communications Corporation, Devon
Group, Inc. and R.R. Donnelley & Sons Co. (the "Subset of Selected Printing
Companies"). The historical financial information and ratios analyzed for the
companies are as of their respective most recent reported periods.
Interstate/Johnson Lane's observations included, among other things, the
following: The Company had a compound annual growth rate in sales over the past
three fiscal years of 12.1% compared to 19.8% for the Selected Printing
Companies and 15.6% for the Subset of Selected Printing Companies; the Company
had a net debt to book value of total capital ratio of 52.1% compared with the
median of 40.3% for the Selected Printing Companies and 19.6% for the Subset of
Selected Companies (net debt equals short-term debt plus long-term debt less
cash and cash equivalents; book value of total capital equals book value of
shareholders' equity plus net debt); the Company had a market value of
capitalization to EBITDA multiple of 8.1 times compared to the median of 7.0
times for the Selected Printing Companies and 6.2 times for the Subset of
Selected Printing Companies (market value of capitalization equals the market
value of shareholders' equity plus net debt; EBITDA equals earnings before
interest, taxes, depreciation and amortization); the Company had a market value
of capitalization to EBIT multiple of 13.3 times compared to the median of 12.3
times for the Selected Printing Companies and 10.2 times for the Subset of
Selected Printing Companies (EBIT equals earnings before interest and taxes);
the Company had a market value of capitalization to sales multiple of 0.9 times
compared to the median of 1.0 times for the Selected Printing Companies and 1.0
times for the Subset of Selected Printing Companies.
Interstate/Johnson Lane also observed, among other things, the following:
The Company had a return on equity of 12.4% compared to the median of 15.3% for
the Selected Printing Companies and 13.1% for the Subset of Selected Printing
Companies. The Company had an operating cash flow margin, operating income
margin and net income margin of 11.4%, 6.9% and 3.2%, respectively, compared to
the median of 14.2%, 8.6% and 4.4%, respectively, for the Selected Printing
Companies and 14.0%, 8.5% and 4.8%, respectively, for the Subset of Selected
Printing Companies. The Company had a price to earnings multiple of 18.9, 17.5
and 16.1 times earnings for the latest twelve months, 1997 and 1998,
respectively, compared to the median of 24.2, 21.3 and 15.3 times,
respectively, for the Selected Printing Companies and 20.4, 18.5 and 15.3
times, respectively, for the Subset of Selected Printing Companies.
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<PAGE> 17
Although Selected Printing Companies were used for comparison purposes,
none of such companies is directly comparable to the Company. Accordingly, an
analysis of the results of such a comparison is not purely mathematical but
involves complex considerations and judgments concerning differences in
historical and projected financial and operating characteristics of the
Selected Printing Companies and other factors that could affect the public
trading value of the Selected Printing Companies or the Company to which they
are being compared.
Comparable Transactions Analysis. Interstate/Johnson Lane reviewed certain
information relating to 12 announced or completed mergers and acquisitions
since August 1, 1993 in which a United States commercial printing company was
acquired or merged into another entity (the "Selected Printing Company
Transactions") in a transaction with a value in excess of $20 million. Such
analysis indicated that the median values of the transaction value to EBIT, to
EBITDA and to net sales for the Selected Printing Company Transactions were
10.3 times, 6.2 times and 0.7 times, respectively, compared with the multiples
of the transaction value to EBIT, to EBITDA and to net sales of 13.3 times, 8.1
times and 0.9 times, respectively, for the transactions contemplated by the
Merger Agreement. The median values of the transaction equity value to book
equity value and to net income for the Selected Printing Company Transactions
were 1.8 times and 9.9 times, respectively, compared to a transaction equity
value to book equity value of 2.7 times and to net income of 21.8 times to be
paid pursuant to the transactions contemplated by the Merger Agreement.
Premiums Paid Analysis. Because of the limited number of recent public
printing company acquisitions, Interstate/Johnson Lane broadened its premiums
paid analysis to include acquisitions of companies in the service and
manufacturing industries which were comparable in transaction size to the price
to be paid pursuant to the Merger. Interstate/Johnson Lane reviewed certain
information relating to 27 announced or completed transactions since September
1, 1995 in which a public company in the service industry was acquired or
merged into another entity (the "Selected Service Company Transactions") in a
transaction with a value between $250 and $500 million. Such analysis indicated
that the median premium paid relative to the seller's stock price 9 months, 6
months, 3 months, 1 month and 1 week prior to the public announcement of the
acquisition of the acquired company (or the acquiror's interest in the
transaction) was 56.3%, 55.7%, 50.8%, 44.5% and 31.9%, respectively, for the
Selected Service Company Transactions compared to the premium to be paid
pursuant to the transactions contemplated by the Merger Agreement, relative to
the Company's stock price 9 months, 6 months, 3 months, 1 month and 1 week
prior to the public announcement of the Offer and the Merger of 130.5%, 90.2%,
64.2%, 34.9% and 19.2%, respectively.
Interstate/Johnson Lane reviewed certain information relating to 28
announced or completed transactions since September 1, 1995 in which a public
company in the manufacturing industry was acquired or merged into another
entity (the "Selected Manufacturing Company Transactions") in a transaction
with a value between $250 and $500 million. Such analysis indicated that the
median premium paid relative to the seller's stock price 9 months, 6 months, 3
months, 1 month and 1 week prior to the public announcement of a possible
acquisition of the acquired company (or the acquiror's interest in the
transaction) was 55.1%, 40.5%, 37.5%, 34.3% and 33.0%, respectively, for the
Selected Manufacturing Company Transactions compared to the premium to be paid
pursuant to the transactions contemplated by the Merger Agreement, relative to
the Company's stock price 9 months, 6 months, 3 months, 1 month and 1 week
prior to the public announcement of the Offer and the Merger of 130.5%, 90.2%,
64.2%, 34.9% and 19.2%, respectively.
Discounted Cash Flow Analysis. Interstate/Johnson Lane performed a
discounted cash flow analysis to determine a range of present values per share
of the Common Stock assuming the Company made no acquisitions after fiscal year
1998 and was sold at the end of fiscal 2003 (the "Internal Growth Case") or
made $24 million in acquisitions annually in fiscal 1999 through 2003 and was
sold at the end of fiscal 2003 (the "Acquisition Case"). Based on the Company's
fiscal 1998 budget and additional information supplied by management, base
revenues (excluding acquisitions) were forecast to increase by 5.0% per year
from fiscal 1999 to 2003, and operating margins were forecast to be constant.
The information provided by management assumed that there was no recession
affecting the commercial printing industry from fiscal 1999 to 2003 and that
the acquisitions were financed with debt.
For the terminal values in both cases, Interstate/Johnson Lane assumed
that the Company would be sold at the end of fiscal 2003 at an EBITDA multiple
range consistent with those seen in the Selected Printing Company Transactions
and with the EBITDA multiple to be paid pursuant to the transactions
contemplated by the Merger Agreement (6.75 to 7.25 times EBITDA). The free cash
flow streams and terminal values were presently valued using a range of
discount rates from 11% to 13%.
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Applying the above multiples and discount rates, Interstate/Johnson Lane
determined that the value of the Common Stock in the Internal Growth Case
ranged from approximately $16.44 to $20.52 per share, and in the Acquisition
Case ranged from approximately $17.89 to $22.86 per share.
Other Considerations. Interstate/Johnson Lane also considered that the
Company had certain other discussions with prospective acquirors over the last
11 months and considered the nature and results of those discussions as
presented by the Company.
The summary set forth above describes the material analyses that
Interstate/Johnson Lane performed, but does not purport to be a complete
description of such analyses or the analyses performed. The preparation of a
fairness opinion is a complex process and is not necessarily susceptible to
partial analysis or a summary description.
Interstate/Johnson Lane believes that its analyses must be considered as a
whole and that selecting portions of its analyses without considering all
factors and analyses would create an incomplete view of the analyses and
processes underlying its opinion. Interstate/Johnson Lane did not attribute any
particular weight to any analysis or factor considered by it but rather made
qualitative judgments as to the significance and relevance of each analysis and
factor. In its analyses, Interstate/Johnson Lane relied upon numerous
assumptions made by the Company with respect to industry performance, general
business and economic conditions and other matters, many of which are beyond
the control of the Company or Wallace. Analyses based on forecasts of future
results are not necessarily indicative of actual values, which may be
significantly more or less favorable than suggested by such analyses. No
company or transaction used as a comparison in the analysis is identical to the
Company or to the transactions contemplated by the Merger Agreement.
Additionally, estimates of the value of businesses do not purport to be
appraisals or necessarily reflective of the prices at which businesses actually
may be sold. Because such estimates are inherently subject to uncertainty,
Interstate/Johnson Lane does not assume responsibility for the accuracy of such
estimates. Interstate/Johnson Lane's analyses were prepared solely for purposes
of its opinion rendered to the Company's Board of Directors regarding the
fairness of the proposed consideration to be received by holders of shares of
Common Stock pursuant to the transactions contemplated by the Merger Agreement
and do not purport to be appraisals or necessarily reflect the prices at which
the Company or shares of Common Stock actually may be sold.
For the services of Interstate/Johnson Lane as financial advisor to the
Company in connection with the Offer and the Merger, Interstate/Johnson Lane
received a fee of $275,000. No portion of Interstate/Johnson Lane's fee was
contingent upon the consummation of the Offer or is contingent upon the closing
of the Merger. In addition, the Company has agreed to reimburse
Interstate/Johnson Lane for its reasonable out-of-pocket expenses incurred in
connection with the Offer and the Merger, but not to exceed $10,000, and to
indemnify Interstate/Johnson Lane against certain liabilities, including
certain liabilities arising under the federal securities laws.
Interstate/Johnson Lane has advised the Company that, in the ordinary
course of its business as a full-service securities firm, Interstate/Johnson
Lane may, subject to certain restrictions, actively trade the equity or debt
securities of the Company or of Wallace for its own account or for the accounts
of its customers and, accordingly, may at any time hold a long or short
position in such securities.
INTERESTS OF CERTAIN PERSONS
In considering the recommendation of the Board with respect to the Merger
Agreement, the stockholders of the Company should be aware that persons who
are, or have been, executive officers or directors of the Company, have
interests in the Merger in addition to their interests as stockholders of the
Company.
During its negotiations with the Company, Wallace advised the Company that
the businesses conducted by ITS were not consistent with the long term
strategic objectives of Wallace as they relate to its acquisition of the
Company. ITS provides: (i) imaging and reproduction products and services to
architects, engineers, contractors and other construction related markets; (ii)
facilities management operations on site for certain clients; and (iii) courier
services to the business community. The Company entered into a Stock Purchase
Agreement with Carter D. Pope pursuant to which Carter D. Pope agreed to
purchase and the Company agreed to sell all of the issued and outstanding
capital stock of ITS for a purchase price of $7,065,173, which represents the
net book value of ITS at August 31, 1997. The acquisition by Carter D. Pope of
the stock of ITS was conditioned upon the acceptance for payment of shares of
Common Stock by
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Wallace pursuant to the Offer. Carter D. Pope is Mr. Pope's son. The purchase
of the stock of ITS by Carter D. Pope was unanimously approved by the Board of
Directors of the Company, with the members of the Pope family abstaining. In
reaching its conclusion to approve the Stock Purchase Agreement, the Board of
Directors considered, among other things, the opinion of Croft & Bender LLC.
Such opinion states that the consideration that was received by the Company
from the sale of ITS is fair, from a financial point of view, to the Company.
The acquisition by Carter D. Pope of the stock of ITS was consummated as of
November 5, 1997.
Wallace has agreed to allow the Company to enter into employment
agreements, with terms ranging from one to three years, with certain executive
officers and directors of the Company which will be effective upon execution
and will remain in effect after the Merger. The aggregate value of benefits
(not including bonus payments) to be received by each executive officer and
director of the Company who will receive at least $100,000 in value of such
benefits pursuant to such employment agreements over the one, two or three-year
term thereof, as the case may be, will be: Alvan A. Herring, Jr. - $655,500;
Joseph A. Fasolo - $735,000; John R. Pope - $975,000; Jim R. Tidwell -
$556,500; Jeffrey Glover - $600,000 and Martin C. Kendall - $248,000. In
addition, Mr. Fasolo will receive up to $500,000 as a result of the Merger
pursuant to an agreement entered into with the Company in 1989 in connection
with the Company's acquisition of Baum Printing, Inc., of which Mr. Fasolo was
executive vice president and a stockholder. Donald S. Forshay, who ceased to be
an executive officer and an employee of the Company in December 1997, will
receive $142,800 consisting of his accrued bonus to the date of the
termination of his employment and a severance payment agreed upon between Mr.
Forshay and the Company. The aggregate value of all benefits to be received by
executive officers and directors of the Company pursuant to new employment
agreements to be entered into with the Company (not including bonus payments)
and pursuant to existing agreements between such persons and the Company is
$4,492,300.
In addition, Wallace has expressed its interest in entering into a
one-year consulting arrangement with Mr. Pope, although the terms of such
arrangement have not been determined.
The Company has indemnification agreements (collectively, the
"Indemnification Agreements") with its directors and officers. Each
Indemnification Agreement provides that the Company will indemnify and hold
harmless the director or officer party to it (an "Indemnitee") to the fullest
extent permitted by its Charter, By-laws and the GBCC, against all expenses,
liability and loss (including attorneys' fees, judgments, fines, and amounts
paid or to be paid in any settlement approved in advance by the Company, such
approval not to be unreasonably withheld) (collectively, "Indemnifiable
Expenses") actually and reasonably incurred or suffered by Indemnitee in
connection with any present or future threatened, pending or contemplated
investigation, claim, action, suit, or proceeding, whether civil, criminal,
administrative or investigative (collectively, "Indemnifiable Litigation"): (i)
to which Indemnitee is or was a party or is threatened to be made a party by
reason of any action or inaction in Indemnitee's capacity as a director or
officer of the Company, or (ii) with respect to which Indemnitee is otherwise
involved by reason of the fact that Indemnitee is or was serving as a director,
officer, employee or agent of the Company, or of any subsidiary or division,
or is or was serving at the request to the Company as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise.
The Company is not obligated under the Indemnification Agreements to make
any payment in connection with any claim made against the Indemnitee: (i) for
which payment is actually made to the Indemnitee under a valid and collectible
insurance policy, except in respect of any excess beyond the amount of payment
under such insurance; (ii) for which the Indemnitee is entitled to
indemnification and/or payment by reason of having given notice of any
circumstance which might give rise to a claim under any policy of insurance,
the terms of which have expired prior to the effective date of the applicable
Indemnification Agreement; (iii) for which the Indemnitee is indemnified by the
Company otherwise than pursuant to the applicable Indemnification Agreement;
(iv) based upon or attributable to the Indemnitee gaining any personal profit
or advantage to which he was not legally entitled; (v) for an accounting of
profits made from the purchase or sale by the Indemnitee of securities of the
Company within the meaning of Section 16(b) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), or similar provisions of any state
statutory law; or (vi) brought about or contributed to by the dishonesty of the
Indemnitee seeking payment hereunder; however, notwithstanding the foregoing,
the Indemnitee shall be protected under the appropriate Indemnification
Agreement as to any claims upon which suit may be brought against him by reason
of any alleged dishonesty on his part, unless a judgment or other final
adjudication thereof adverse to Indemnitee shall establish that he committed
acts of active and deliberate dishonesty with actual dishonest purpose and
intent, which acts were material to the cause of action so adjudicated. In
addition, pursuant to the Indemnification Agreements, the Company will pay
Indemnifiable Expenses incurred by an Indemnitee in connection with
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<PAGE> 20
any Indemnifiable Litigation in advance of the final disposition thereof,
provided that the Company has received an undertaking from or on behalf of
Indemnitee to repay the amounts advanced to the extent that it is ultimately
determined that Indemnitee is not entitled to be indemnified by the Company
under the appropriate Indemnification Agreement or otherwise.
The Merger Agreement provides that Wallace will maintain directors' and
officers' liability insurance covering persons covered by the policies of the
Company on the date of the Merger Agreement and provides that indemnification
for acts or omissions occurring at or prior to the Effective Time in favor of
the current or former directors, officers, employees and agents of the Company
and its subsidiaries as provided in their respective organizational documents
shall continue after the Effective Time. See "The Merger Agreement and the
Stockholder Agreement--The Merger Agreement--Indemnification."
CERTAIN EFFECTS OF THE CONSUMMATION OF THE OFFER AND THE MERGER ON THE COMMON
STOCK
Upon the expiration of the Offer, Merger Sub purchased 8,447,988 shares of
Common Stock that had been validly tendered and not withdrawn before such
expiration. Following such purchase, Merger Sub also purchased all of the
Selling Stockholder's 4,303,092 Class B Shares which, together with all other
Class B Shares, thereupon converted to shares of Common Stock. By means of the
foregoing, Wallace beneficially owns 12,751,080 shares or approximately 95% of
the shares of Common Stock outstanding as of the close of business on the
Record Date.
The purchase of the shares of Common Stock by Merger Sub pursuant to the
Offer reduced the number of shares of Common Stock that might otherwise trade
publicly and reduced the number of holders of such shares, which adversely
affects the liquidity and market value of the remaining shares of Common Stock
held by stockholders other than Merger Sub. As of the Record Date, there were
202 holders of record of shares of Common Stock.
On November 3, 1997, the Company was informed by the New York Stock
Exchange (the "NYSE") that the shares of Common Stock would no longer be listed
or traded on the NYSE because less than 600,000 of the outstanding shares of
Common Stock are publicly held. Upon consummation of the Merger, the Company
intends to terminate the registration of Common Stock under the Exchange Act
and to terminate the duty of the Company to file reports under the Exchange
Act. In addition, the Common Stock will no longer constitute "margin
securities" under the rules of the Federal Reserve Board, with the result,
among others, that lenders may no longer extend credit on collateral of the
Common Stock.
THE MERGER AGREEMENT AND THE STOCKHOLDER AGREEMENT
The Merger Agreement
The following summary of certain provisions of the Merger Agreement is
qualified in its entirety by reference to the text of the Merger Agreement, a
copy of which is attached as Annex I to this Proxy Statement.
The Merger. The Merger Agreement provides that, upon the terms and subject
to the conditions of the Merger Agreement, and in accordance with the GBCC,
Merger Sub shall be merged with and into the Company at the Effective Time.
Following the Merger, the separate corporate existence of Merger Sub shall
cease and the Company shall continue as the Surviving Corporation and shall
succeed to and assume all the rights and obligations of Merger Sub and the
Company in accordance with the GBCC. At the Effective Time, the Charter of the
Company and the By-laws of Merger Sub shall be the Charter and By-Laws of the
Surviving Corporation, respectively. The directors of Merger Sub shall become
the directors of the Surviving Corporation and the officers of the Company
shall become the officers of the Surviving Corporation.
Conversion of Securities. As of the Effective Time, by virtue of the
Merger and without any action on the part of Merger Sub, the Company or the
holders of any securities of Merger Sub or the Company, the shares of Common
Stock (other than shares owned by the Company, any subsidiary of the Company,
Wallace, Merger Sub, any other subsidiary of Wallace or by stockholders, if
any, who are entitled to and who properly exercise dissenters' rights under
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the GBCC) shall be converted into the right to receive from the Surviving
Corporation, in cash, without interest, the Merger Consideration. Each share
of stock of Merger Sub issued and outstanding immediately prior to the
Effective Time shall, at the Effective Time, by virtue of the Merger and
without any action on the part of the holder of any shares of stock of Merger
Sub, be converted into and become one fully paid and nonassessable shares of
common stock, $0.10 par value, of the Surviving Corporation.
Representations and Warranties. In the Merger Agreement, the Company has
made customary representations and warranties to Wallace and Merger Sub. The
representations and warranties of the Company relate, among other things, to:
its organization and qualification; subsidiaries; capital structure; authority
to enter into the Merger Agreement and to consummate the transactions
contemplated thereby; required consents and approvals; filings made by the
Company with the Commission under the Securities Act of 1933, as amended (the
"Securities Act") or the Exchange Act (including financial statements included
in the documents filed by the Company under these acts); absence of any
material adverse change; compliance with laws; tax matters; liabilities;
benefit plans and employees and employment practices; litigation; environmental
matters; state takeover statutes; and intellectual property related matters.
Merger Sub and Wallace have also made customary representations and
warranties to the Company. Representations and warranties of Merger Sub and
Wallace relate, among other things, to their organization and authority to
enter into the Merger Agreement and to consummate the transactions contemplated
thereby and required consents and approvals.
Covenants Relating to the Conduct of Business. During the period from the
date of the Merger Agreement to such time as Wallace's designees shall
constitute a majority of the Board of Directors of the Company, the Company has
agreed as to itself and its subsidiaries that, except as otherwise expressly
contemplated or permitted by the Merger Agreement or except to the extent
Wallace shall otherwise consent in writing:
(a) the Company shall, and shall cause its subsidiaries to, carry
on their respective businesses in the usual, regular and ordinary course in
substantially the same manner as theretofore conducted and shall use all
reasonable best efforts to preserve intact their present business
organizations, keep available the services of their present officers and
employees and preserve their relationships with customers, suppliers and
others having business dealings with the Company and its subsidiaries;
(b) the Company shall not, and shall not permit its subsidiaries
to, (x) declare or pay any dividends on or make any other distributions
in respect of its capital stock (other than regular quarterly cash
dividends not in excess of $.07 per share of Common Stock or $.05 per Class
B Share with usual record and payment dates and in accordance with the
Company's present dividend policy) except for dividends by a direct or
indirect wholly owned subsidiary of the Company to its Wallace, (y) split,
combine or reclassify any of its capital stock or issue or authorize or
propose the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock, or (z) repurchase, redeem
or otherwise acquire any shares of its capital stock or those of any
subsidiary or any other securities thereof or any rights, warrants or
options to acquire any such shares or other securities;
(c) the Company shall not, and shall not permit its subsidiaries
to, issue, deliver, sell, pledge, or encumber, or authorize or propose
the issuance, delivery, sale, pledge or encumbrance of, any shares of its
capital stock or any securities convertible into, or any rights, warrants,
calls, subscriptions or options to acquire, any such shares or convertible
securities, or any other ownership interest (including stock appreciation
rights or phantom stock) other than (i) the issuance of shares of Common
Stock upon the exercise of stock options pursuant to Stock-Based
Compensation Plans (as defined herein) outstanding on the date of the
Merger Agreement and in accordance with the terms of such stock options,
(ii) the issuance of shares of Common Stock upon the conversion of Class B
Shares, and (iii) the issuance of shares of Common Stock upon the
conversion of the Company's 7% Convertible Subordinated Debentures due May
15, 2006;
(d) the Company shall not, and shall not permit any of its
subsidiaries to, amend or propose to amend its charter or by-laws or
other similar organizational documents;
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(e) except as disclosed by the Company to Wallace on the date
of the Original Merger Agreement, the Company shall not, and shall not
permit any of its subsidiaries to, acquire or agree to acquire (i) by
merging or consolidating with, or by purchasing a substantial equity
interest in or substantial portion of the assets of, or by any other
manner, any business or any corporation, partnership, joint venture,
limited liability company, association or other business organization or
division thereof or (ii) any assets having a purchase price in excess of
$1,000,000, individually, or $5,000,000, in the aggregate, except
purchases of inventory in the ordinary course of business consistent with
past practice and expenditures consistent with the Company's current
capital budget previously furnished to Wallace;
(f) except as disclosed by the Company to Wallace as of the
date of the Original Merger Agreement and other than sales of its
products to customers and immaterial dispositions of personal property, in
each case in the ordinary course of business consistent with past
practice, the Company shall not, and shall not permit any of its
subsidiaries to, sell, lease, license, encumber or otherwise dispose of,
or agree to sell, lease, encumber or otherwise dispose of, any of its
assets;
(g) the Company shall not, and shall not permit any of its
subsidiaries to, incur any indebtedness for borrowed money or guarantee
any such indebtedness or issue or sell any debt securities or warrants or
rights to acquire any debt securities of the Company or any of its
subsidiaries, guarantee any debt securities of others, enter into any
"keep-well" or other agreement to maintain any financial statement
condition of another person or enter into any arrangement having the
economic effect of any of the foregoing, except for working capital
borrowings incurred in the ordinary course of business consistent with
past practice, or make any loans, advances or capital contributions to, or
other investments in, any other person, other than to the Company or any
wholly owned subsidiary of the Company, except for travel expenses made in
the ordinary course of business;
(h) the Company shall confer on a regular basis with Wallace
with respect to operational matters and promptly advise Wallace orally
and in writing of any material adverse change with respect to the Company.
The Company shall promptly provide to Wallace (or its counsel) copies of
all filings made by the Company with any governmental entity in connection
with the Merger Agreement and the transactions contemplated thereby;
(i) the Company shall not make any tax election that would
have a material effect on the tax liability of the Company or any of
its subsidiaries or settle or compromise any tax liability of the Company
or any of its subsidiaries that would materially affect the tax liability
of the Company or any of its subsidiaries. The Company shall, before
filing or causing to be filed any material tax return of the Company or
any of its subsidiaries or settling any tax liability not described in the
preceding sentence, consult with Wallace and its advisors as to the
positions and elections that may be taken or made with respect to such
return or with respect to such settlement;
(j) neither the Company nor any of its subsidiaries shall make
or agree to make any new capital expenditure or expenditures other than
expenditures consistent with the Company's current capital budget;
(k) the Company shall not, and shall not permit any of its
subsidiaries to, pay, discharge, settle or satisfy any claims, liabilities
or obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge, settlement or satisfaction,
(i) in the ordinary course of business consistent with past practice or in
accordance with their terms, of claims, liabilities or obligations
recognized or disclosed in the most recent consolidated financial
statements (or the notes thereto) of the Company filed with the Commission
or incurred since the date of such financial statements in the ordinary
course of business consistent with past practice or (ii) of claims,
liabilities or obligations to the extent they are less than $50,000 and
unrelated to the Company's stockholders or the transactions contemplated by
the Merger Agreement and the Stockholder Agreement, or waive the benefits
of, or agree to modify in any manner, any confidentiality, standstill or
similar agreement to which the Company or any of its subsidiaries is a
party;
(l) except as disclosed by the Company to Wallace on the date
of the Merger Agreement, neither the Company nor any of its subsidiaries
shall enter into or accept, or amend any existing, severance plan,
agreement or arrangement or enter into or amend any benefit plan or
employment or consulting agreement, other than as required by law;
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(m) neither the Company nor any of its subsidiaries shall
increase the compensation payable or to become payable to its directors,
officers or employees, except for increases required under employment
agreements existing on the date of the Merger Agreement, and increases for
employees in the ordinary course of business consistent with past practice
that, in any event, do not increase such employee's aggregate compensation
by more than 5% over such employee's aggregate compensation in effect on
the date of the Merger Agreement, or grant any severance or termination pay
to, or enter into any employment or severance payment, or establish, adopt,
enter into, or amend in any material respect or take action to enhance in
any material respect or accelerate any rights or benefits under, any
collective bargaining, bonus, profit sharing, thrift, compensation,
employment, termination, severance or other plan, agreement, trust, fund,
policy or arrangement for the benefit of any director, officer or employee,
except, in each case, as may be required to comply with applicable law or
regulation;
(n) except in the ordinary course of business, neither the
Company nor any of its subsidiaries shall (i) modify, amend or terminate
any material contract or agreement to which the Company or such subsidiary
is a party or (ii) waive, release or assign any material rights or claims;
and
(o) the Company shall not, and shall not permit any of its
subsidiaries to, authorize any of, or commit or agree to take any of, the
foregoing actions otherwise prohibited by the Merger Agreement.
No Solicitation. The Merger Agreement provides that the Company shall not,
nor shall it permit any of its subsidiaries to, nor shall it authorize or
permit any of its officers, directors or employees or any investment banker,
financial advisor, attorney, accountant or other representative retained by it
or any of its subsidiaries to, directly or indirectly, (1) solicit, initiate or
knowingly encourage (including by way of furnishing information), or take any
other action designed or reasonably likely to facilitate, any inquiries or the
making of any proposal which constitutes, or may reasonably be expected to lead
to, any Takeover Proposal (as defined below) or (2) participate in any
discussions or negotiations regarding any Takeover Proposal. The Merger
Agreement defines "Takeover Proposal" as any inquiry, proposal or offer from
any person relating to any direct or indirect acquisition or purchase of 20% or
more of the assets of the Company and its subsidiaries or 20% or more of any
class of equity securities of the Company or any of its subsidiaries, any
tender offer or exchange offer that if consummated would result in any person
beneficially owning 20% or more of any class of equity securities of the
Company or any of its subsidiaries, any merger, consolidation, business
combination, recapitalization, liquidation, dissolution or similar transaction
involving the Company or any of its subsidiaries other than the transactions
contemplated by the Merger Agreement, or any other transaction the consummation
of which could reasonably be expected to impede, interfere with, prevent or
materially delay the Offer and/or the Merger or which would reasonably be
expected to dilute materially the benefits to Wallace of transactions
contemplated by the Merger Agreement and the Stockholder Agreement.
The Merger Agreement provides further that neither the Board of Directors
of the Company nor any committee thereof shall (i) withdraw or modify, or
propose publicly to withdraw or modify, in a manner adverse to Wallace, the
approval or recommendation by such Board of Directors or such committee of the
Offer, the Merger or the Merger Agreement, (ii) approve or recommend, or
propose publicly to approve or recommend, any Takeover Proposal or (iii) cause
the Company to enter into any letter of intent, agreement in principle,
acquisition agreement or other similar agreement (each, an "Acquisition
Agreement") related to any Takeover Proposal.
In addition to the obligations of the Company described in the preceding
two paragraphs, the Merger Agreement provides that the Company shall promptly
advise Wallace orally and in writing of any request for information or of any
Takeover Proposal, the material terms and conditions of such request or
Takeover Proposal and the identity of the person making any such request or
Takeover Proposal. The Company is further required under the terms of the
Merger Agreement to keep Wallace fully informed of the status and details
(including amendments or proposed amendments) of any such request or Takeover
Proposal.
The Merger Agreement provides that nothing contained therein shall
prohibit the Company from taking and disclosing to its stockholders a position
contemplated by the Exchange Act or from making any disclosure to the Company's
stockholders if, in the good faith judgment of the Board of Directors of the
Company, after consultation with outside counsel, such disclosure is required
by applicable state or federal securities laws or is necessary in order to
comply with its fiduciary duties to the Company's stockholders under applicable
law. Neither the Company nor its Board
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<PAGE> 24
of Directors nor any committee thereof shall, except as permitted by the Merger
Agreement, withdraw or modify, or propose publicly to withdraw or modify, its
position with respect to the Offer, the Merger Agreement or the Merger or
approve or recommend, or propose publicly to approve or recommend, a Takeover
Proposal.
Third Party Standstill Agreements. During the period from the date of the
Merger Agreement through the Effective Time, the Company has agreed not to
terminate, amend, modify or waive any provision of any confidentiality or
standstill agreement to which the Company or any of its subsidiaries is a party
(other than any involving Wallace) unless the Company's Board of Directors
shall have determined in good faith, after consultation with outside counsel,
that it is necessary to do so in order to comply with its fiduciary duties to
the Company's stockholders under applicable law.
Stock Based Compensation. Pursuant to the Merger Agreement, the Company
has terminated each stock option plan, stock appreciation right plan, limited
stock appreciation right plan, restricted stock plan, employee stock purchase
plan, or any other plan or arrangement providing for compensation wholly or
partially in the form of Common Stock (excluding any plan which is intended to
be qualified under section 401(a) of the Internal Revenue Code of 1986, as
amended) (collectively, the "Stock-Based Compensation Plans"). All outstanding
options or awards under the Stock-Based Compensation Plans, whether vested or
unvested, ceased to be exercisable upon the purchase by Merger Sub of shares of
Common Stock pursuant to the Offer and were canceled by the Company. Holders
of such options or awards received cash payments from the Company in an amount
(if any) equal to the number of shares of Common Stock subject to each such
surrendered option or award multiplied by the difference (if positive) between
the exercise price per share of Common Stock (if any) covered by the option or
award and the highest per share price paid to stockholders of the Company in
the Offer.
Indemnification. Pursuant to the Merger Agreement, Wallace and Merger Sub
agreed that all rights to indemnification for acts or omissions occurring at or
prior to the Effective Time now existing in favor of current or former
directors, officers, employees and agents of the Company and its subsidiaries
as provided in their respective articles of incorporation or by-laws (or
similar organizational documents) shall survive the Merger and shall continue
in full force and effect in accordance with their terms. For six years from the
date Merger Sub first purchased shares of Common Stock pursuant to the Offer,
Wallace shall maintain in effect the Company's current directors' and officers'
liability insurance covering those persons who are currently covered by the
Company's directors' and officers' liability insurance policy; provided, that
in no event shall Wallace be required to pay a premium in any one year in an
amount in excess of 150 percent of the last per annum amount of premiums paid
by the Company prior to the date of the Merger Agreement; and provided,
further, that if the annual premiums of such insurance coverage exceed such
amount, Wallace shall be obligated to obtain a policy with the greatest
coverage available for a cost not exceeding such amount.
Board Representation. The Merger Agreement provides that promptly after
such time as Merger Sub acquires a majority of the combined voting power of the
Common Stock and Class B Shares, Merger Sub shall be entitled to designate at
its option up to that number of directors of the Company's Board of Directors,
subject to compliance with Section 14(f) of the Exchange Act, as will give
Merger Sub a majority of such directors and the Company shall, at such time,
cause Merger Sub's designees to be so elected by its existing Board of
Directors. However, in the event that Merger Sub's designees are elected to the
Board of Directors of the Company, until the Effective Time, such Board of
Directors shall have at least three directors who are directors on the date of
the Merger Agreement and who are not officers of the Company (the "Independent
Directors"). If the number of Independent Directors shall be reduced below
three for any reason whatsoever, the remaining Independent Directors shall
designate a person to fill such vacancy who shall be deemed to be an
Independent Director for purposes of the Merger Agreement or, if no Independent
Directors then remain, the other directors of the Company as of the date of the
Merger Agreement shall designate three persons to fill such vacancies who shall
not be officers or affiliates of the Company or any of its subsidiaries, or
officers or affiliates of Wallace or any of its subsidiaries, and such persons
shall be deemed to be Independent Directors for purposes of the Merger
Agreement. In connection with the foregoing, the Company will promptly, at the
option of Wallace, either increase the size of the Company's Board of Directors
and/or obtain the resignation of such number of its current directors as is
necessary to enable Merger Sub's designees to be elected or appointed to the
Company's Board of Directors as provided above. Merger Sub became entitled to
designate a majority of the Company's directors upon the purchase of shares of
Common Stock pursuant to the Offer and the purchase of Class B Shares pursuant
to the Stockholder Agreement. As of the date of this Proxy Statement, Merger
Sub has not elected to designate members to the Company's Board of Directors.
18
<PAGE> 25
Conditions Precedent. The respective obligations of each party to effect
the Merger shall be subject to the satisfaction (or waiver by each party) prior
to the Closing Date (as defined in the Merger Agreement) of the following
conditions: (a) if required by applicable law, the stockholders of the Company
shall have approved the Merger Agreement; (b) no statute, rule, regulation,
executive order, decree, temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction or
other governmental entity preventing the consummation of the Merger shall be in
effect (provided that each of the parties shall have used its reasonable best
efforts to prevent the entry of any such injunction or other order and to
appeal as promptly as possible any injunction or other order that may be
entered); and (c) Merger Sub shall have previously accepted for payment and
paid for the shares of Common Stock pursuant to the Offer (which condition has
been satisfied).
Termination. The Merger Agreement provides that it may be terminated at
any time prior to the Effective Time, whether before or after the approval of
the terms of the Merger Agreement by the stockholders of the Company under
certain conditions. As a result of the purchase of shares of Common Stock by
Merger Sub pursuant to the Offer, the Merger Agreement may be terminated only:
(a) by mutual written consent of Wallace and the Company; (b) by either Wallace
or the Company if any governmental entity shall have issued an order, decree or
ruling or taken any other action permanently enjoining, restraining or
otherwise prohibiting the acceptance for payment of, or payment for Common
Stock pursuant to the Merger and such order, decree or ruling or other action
shall have become final and nonappealable; or (c) by the Company, if Merger Sub
or Wallace shall have breached in any material respect any of their respective
representations, warranties, covenants or other agreements contained in the
Merger Agreement, which breach or failure to perform is incapable of being
cured or has not been cured within 20 days after the giving of written notice
to Wallace or Merger Sub, as applicable. In the event of a termination of the
Merger Agreement by either the Company or Wallace, the Merger Agreement shall
forthwith become void (except for certain specified provisions, including those
pertaining to the payment of certain expenses and fees and except for certain
confidentiality obligations of the parties) and there shall be no liability or
obligation on the part of Wallace, Merger Sub or the Company or their
respective officers or directors, other than for liability for any breach of
the Merger Agreement.
Fees and Expenses. Except as otherwise provided in the Merger Agreement,
all fees and expenses incurred in connection with the Offer, the Merger and the
Merger Agreement and the transactions contemplated thereby shall be paid by the
party incurring such fees and expenses whether or not the Offer or the Merger
is consummated. The provisions of the Merger Agreement requiring the Company
to pay a termination fee and certain expenses upon termination of the Merger
Agreement under certain circumstances were rendered inapplicable by the
purchase of shares of Common Stock by Merger Sub pursuant to the Offer.
Procedure for Termination, Amendment, Extension or Waiver. The Merger
Agreement provides that in the event Merger Sub's designees are appointed or
elected to the Board of Directors of the Company as described above under
"Board of Directors", after the acceptance for payment of the shares of Common
Stock pursuant to the Offer and prior to the Effective Time, the affirmative
vote of a majority of the Independent Directors is required for the Company to
amend or terminate the Merger Agreement, exercise or waive any of its rights or
remedies under the Merger Agreement, extend the time for performance of
Wallace's and Merger Sub's respective obligations under the Merger Agreement or
take any action to amend or waive any term or condition of the Company's
Charter or By-laws.
The Stockholder Agreement
On October 12, 1997, Merger Sub, Wallace and the Selling Stockholder
entered into the Stockholder Agreement. Pursuant to the Stockholder Agreement,
the Selling Stockholder granted Merger Sub an irrevocable option to purchase
432,089 shares of Common Stock and 2,239,046 Class B Shares (collectively, the
"Option Shares") owned by him, at a price of $21.75 per share. Mr. Pope also
agreed (i) to tender pursuant to the Offer the other 409,421 shares of Common
Stock owned by him, (ii) to sell the other 2,064,046 Class B Shares owned by
him to Merger Sub at the time of the sale to Merger Sub of the Options Shares
and (iii) upon written request of Merger Sub, to tender pursuant to the Offer
any shares of Common Stock owned by him that constituted Option Shares. Upon
the purchase of shares of Common Stock by Merger Sub pursuant to the Offer,
Merger Sub became obligated to purchase the Option Shares. The Selling
Stockholder also agreed that he would not transfer any shares of Common Stock
or Class B Shares owned by him to any person other than Merger Sub or Merger
Sub's designee (except for certain permitted transfers) and that he would vote
all of the shares of Common Stock and Class B Shares owned by him in favor of
the transactions contemplated by the
19
<PAGE> 26
Merger Agreement and against certain competing transactions at any meeting of
stockholders of the Company called to vote thereon.
Pursuant to the Stockholder Agreement, the Selling Stockholder tendered
841,510 shares of Common Stock pursuant to the Offer and, on November 5, 1997,
Merger Sub purchased 4,303,092 Class B Shares from the Selling Stockholder.
ACCOUNTING TREATMENT OF THE MERGER
The Merger will be accounted for under the "purchase" method of accounting
whereby the purchase price will be allocated based on the fair values of assets
acquired and liabilities assumed.
REGULATORY MATTERS
No federal or state regulatory requirements remain to be complied with in
order to consummate the Merger.
SOURCE AND AMOUNT OF FUNDS
Wallace has entered into a credit agreement ("Credit Agreement") with
certain lenders ("Lenders), and Bank of America NT&SA ("BofA") as agent for the
lenders for an unsecured credit facility in the aggregate principal amount of
$500,000,000 (the "Credit Facility").
The Credit Facility consists of a revolving loan facility under which
loans may be borrowed, repaid and reborrowed by Wallace from time to time for
the purpose of providing funds to consummate the Offer and the Merger, to
refinance certain indebtedness, to pay certain fees and expenses incurred in
connection with the Offer and the Merger and to provide working capital and for
other general corporate purposes. The Credit Facility will mature in five years
and will have no scheduled amortization.
Borrowings under the Credit Facility will bear interest at a floating rate
based upon, at Wallace's option (i) the higher of BofA's reference rate or the
Federal Funds rate plus 0.50% per annum, or (ii) the London Interbank Offered
Rate ("LIBOR") plus .175% to .30% per annum, depending on Wallace's ratio of
total funded indebtedness to EBITDA or its senior unsecured debt rating. In
addition, Wallace will have a competitive advance option under the Credit
Facility which will allow it to request uncommitted advances from the Lenders
at competitive rates on an auction basis. A facility fee will accrue on the
total Credit Facility regardless of usage at a rate ranging from 0.075% to
0.15% per annum, depending upon Wallace's ratio of total funded indebtedness to
EBITDA or its senior unsecured debt rating. Wallace will also pay BofA
underwriting and administration fees, reimburse certain expenses and provide
certain indemnities, all of which Wallace believes to be customary for
commitments of this type.
The Credit Agreement will contain conditions precedent, representations
and warranties, covenants (including financial covenants), events of default
and other provisions customary for such financings.
It is anticipated that the indebtedness incurred through borrowings under
the Credit Facility will be repaid from funds generated internally by Wallace
and its subsidiaries, including the Company and its subsidiaries, and from
other sources that may include the proceeds of the private or public sale of
debt or equity securities. No final decisions have been made concerning the
method Wallace will employ to repay such indebtedness. Such decisions when made
will be based on Wallace's review from time to time of the advisability of
particular actions, as well as on prevailing interest rates and financial and
other economic conditions.
RIGHTS OF DISSENTING STOCKHOLDERS
Notwithstanding the Merger, shares of Common Stock held by stockholders of
the Company who (a) did not surrender such shares of Common Stock pursuant to
the Offer in exchange for the $21.75 per share cash payment, (b) perfect their
rights to dissent with respect to such shares of Common Stock in accordance
with Article 13 of the GBCC
20
<PAGE> 27
("Article 13") and (c) do not thereafter withdraw their demands for payment
for such shares of Common Stock or otherwise lose their dissenters' rights, in
each case in accordance with the GBCC, shall represent the right to receive
from the Company such payment as is offered by the Company in its estimate of
the fair value per share of Common Stock or in certain other circumstances,
such payment as the holders thereof may be entitled to receive as determined by
the Superior Court of Fulton County, Georgia, plus, in either case, accrued
interest from the Effective Time to the time of payment or judicial judgment,
as the case may be.
Article 13 provides a procedure by which persons who were stockholders of
the Company as of the Record Date of the Special Meeting and who remain
stockholders as of the Effective Time of the Merger may demand payment of the
fair value of their shares of Common Stock in lieu of accepting the Merger
Consideration. Stockholders who wish to assert dissenters' rights must deliver
to the Company written notice of their intent to demand such payment for their
shares of Common Stock before the stockholder vote is taken with respect to the
Merger Proposal and must not vote their shares of Common Stock in favor of the
Merger Proposal. The determination of the fair value of the Common Stock will
be based on the value of the Common Stock immediately before the Merger,
excluding any appreciation or depreciation in anticipation of the Merger.
Stockholders should recognize that such demand for fair value payment or
judicial appraisal could result in a determination of a value higher or lower
than, or equivalent to, $21.75 per share of Common Stock. Pursuant to Article
13, within 10 days of the later of the date of the Merger or receipt of a
payment demand, the Company shall offer to pay to such dissenter the amount the
Company estimates to be the fair value of the shares of Common Stock with
respect to which dissenters' rights have been asserted. Dissenting
stockholders who accept the Company's fair value offer will receive such offer
of payment plus any accrued interest within 60 days of the making of the offer
by the Company or of the consummation of the Merger, whichever is later. If
the fair value of stockholders' shares is established pursuant to a judicial
proceeding pursuant to Article 13, because of the inability of such
stockholders and the Company to agree upon the fair value of the Common Stock,
such stockholders shall be entitled to judgment for the amount which the court
finds to be the fair value of their shares of Common Stock, plus interest to
the date of the judgment.
DISSENTERS' RIGHTS PROCEDURE
This section regarding dissenters' rights shall constitute the notice to
stockholders required by Section 14-2-1320 of Article 13 of the GBCC.
Dissenters' rights will be lost unless perfected by full and precise
satisfaction of the requirements of Article 13, the text of which is set forth
in full in Annex II hereto. The following description of the dissenters'
rights procedure is qualified in its entirety by the full text of Article 13.
NEITHER THE FAILURE TO VOTE IN FAVOR OF THE MERGER PROPOSAL, NOR AN AFFIRMATIVE
VOTE AGAINST THE MERGER PROPOSAL SATISFIES THE REQUIREMENTS OF ARTICLE 13;
RATHER, A SEPARATE WRITTEN DEMAND FOR PAYMENT MUST BE PROPERLY EXECUTED AND
DELIVERED TO THE COMPANY AS DESCRIBED BELOW.
Stockholders of the Company who wish to assert dissenters' rights for
their shares of Common Stock must make written notice of their intent to demand
payment for their shares of Common Stock in the event the Merger is consummated
before the stockholder vote on the Merger Proposal is taken (currently
scheduled to take place on December 22, 1997). Such stockholders must not
vote their shares of Common Stock in favor of the Merger Proposal. Written
notice of intent to demand payment for shares of Common Stock by way of
dissenters' rights should be addressed to the Company at the following address:
Graphic Industries, Inc.
2155 Monroe Drive, N.E.
Atlanta, Georgia 30324
Attn: Donald P. Hunnicutt, Sr.
As provided under Section 14-2-1321 of Article 13, record stockholders who
do not make written notice of their intent to demand payment in the event the
Merger is consummated before the stockholder vote on the Merger Proposal is
taken, or who vote their shares of Common Stock in favor of the Merger
Proposal, will lose their dissenters' rights under such Section. If the Merger
Proposal is approved at the stockholder meeting, the Company shall deliver
written notice to all stockholders who have properly given the Company notice
of their intent to exercise dissenters' rights and did not vote in favor of the
Merger Proposal. The notice shall be sent within 10 days after the Effective
Time and will state where payment demand must be sent and where and when Common
Stock certificates must be deposited pursuant
21
<PAGE> 28
to Article 13. The notice shall also set a date by which the Company must
receive demand payment from dissenting stockholders, which date will be no
fewer than 30 days nor more than 60 days after the date the notice is
delivered. Stockholders who receive such dissenters' notice must demand
payment and deposit their shares of Common Stock in accordance with the terms
of such notice or else they will lose their dissenters' rights under Article 13.
Beneficial owners of the shares of Common Stock should take such actions
as may be necessary to ensure that a timely and proper demand for dissenters'
rights is made by the record holders of such shares of Common Stock. Shares of
Common Stock held through brokerage firms, banks and other financial
institutions are frequently deposited with and held of record in the name of a
nominee of a central security depository, such as Cede & Co. Any beneficial
holder desiring dissenters' rights who holds shares of Common Stock through a
brokerage firm, bank or other financial institution is responsible for ensuring
that the demand for payment pursuant to dissenters' rights is made by the
record holder. The beneficial holder of such shares of Common Stock should
instruct such firm, bank or financial institution that the demand for payment
may be made by the record holder of the shares of Common Stock, which may be
the nominee of a central security depository if the shares of Common Stock have
been so deposited. As provided under Section 14-2-1303 of Article 13, a record
stockholder may assert dissenters' rights as to fewer than all of the shares of
Common Stock registered in his name only if he dissents with respect to all of
the shares of Common Stock beneficially owned by any one beneficial stockholder
and notifies the Company in writing of the name and address of each person on
whose behalf he asserts dissenters' rights.
As provided under Section 14-2-1325 of Article 13, within 10 days of the
later of the consummation of the Merger or receipt of payment demand, the
Company shall, by notice to dissenters who properly demanded payment, offer to
pay such dissenters the amount the Company estimates to be the fair value of
their shares of Common Stock, plus accrued interest. The offer of payment will
be accompanied by (i) the Company's balance sheet as of the end of a fiscal
year ending not more than 16 months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for
that year, and the latest available interim financial statements, if any, (ii)
a statement of the Company's fair value estimate, (iii) an explanation of how
interest was calculated, (iv) a statement of the rights of dissenters who are
dissatisfied with the payment offer and (v) a copy of Article 13. Stockholders
may accept the Company's offer by written notice within 30 days of the offer
(failure to respond within 30 days will be deemed an acceptance). The Company
will make payment to all those stockholders who have accepted or are deemed to
have accepted within 60 days after the making of the offer or the consummation
of the Merger, whichever is later.
As provided under Section 14-2-1327 of Article 13, stockholders who are
dissatisfied with the payment offer may notify the Company of their own
estimate of the fair value of their shares of Common Stock and the amount of
interest due and demand payment of such estimate if the dissenting stockholders
believe the amount offered by the Company is less than the fair value or that
the interest has been incorrectly calculated. Stockholders waive their right
to demand payment under this Section and are deemed to have accepted the
Company's offer unless they notify the Company of their demand within 30 days
after the Company's offer of payment for their shares of Common Stock.
As provided under Section 14-2-1330 of Article 13, if demand for payment
remains unsettled after the procedures described above have been followed, the
Company shall commence a proceeding within 60 days after receiving the payment
demand of the dissenting stockholders and petition the Superior Court in Fulton
County, Georgia to determine the fair value of the Common Stock and accrued
interest. All dissenting stockholders whose demands remain unsettled shall be
made parties to the proceeding. The court may appoint one or more persons as
appraisers to receive evidence and recommend a decision on the question of fair
value. In determining the fair value of the Common Stock, a court will take
into account all relevant factors, which may include the market value of the
Common Stock along with the asset value and the earning capacity of the
Company. However, Article 13 specifies that fair value means the value of the
Common Stock immediately before the effectuation of the Merger, excluding any
appreciation or depreciation in anticipation of the Merger. Dissenting
stockholders who are parties to any judicial appraisal proceeding are entitled
to the amount which the court finds to be the fair value of their shares of
Common Stock, plus interest to the date of the judgment.
The court shall assess costs of the proceeding against the Company, except
that the court may assess all or some of the costs against all or some of the
dissenting stockholders, in amounts the court finds equitable, to the extent
the court finds the dissenting stockholders acted arbitrarily, vexatiously, or
not in good faith. The court may also assess the fees and expenses of
attorneys and experts for the respective parties, in amounts the court finds
equitable (i) against the Company and in favor of any or all dissenters if the
court finds the Company did not substantially comply with the
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<PAGE> 29
requirements of the applicable provisions of Article 13 or (ii) against either
the Company or a dissenter, in favor of any other party, if the court finds
that the party against whom the fees and expenses are assessed acted
arbitrarily, vexatiously, or not in good faith with respect to the rights
provided by Article 13. If the court finds that the services of attorneys for
any dissenter were of substantial benefit to other dissenters similarly
situated, and that the fees for these services should not be assessed against
the Company, the court may award to those attorneys reasonable fees to be paid
out of the amounts awarded the dissenters who were benefitted.
If demand for payment remains unsettled and the Company does not commence
such judicial appraisal proceeding within the aforementioned 60 day period, it
shall pay each dissenting stockholder whose demand remains unsettled the amount
demanded by such dissenting stockholder. No action by any dissenting
stockholder to enforce dissenters' rights shall be brought more than three
years after the effectuation of the Merger.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain United States federal income tax
consequences of the Merger to beneficial owners whose shares of Common Stock
are converted to cash in the Merger. The discussion is for general information
only and does not purport to consider all aspects of federal income taxation
that may be relevant to beneficial owners of shares of Common Stock. The
discussion is based on current provisions of the Internal Revenue Code of 1986,
as amended (the "Code"), existing, proposed and temporary regulations
promulgated thereunder and administrative and judicial interpretations thereof,
all of which are subject to change. The discussion applies only to beneficial
owners of shares of Common Stock in whose hands the shares of Common Stock are
capital assets within the meaning of Section 1221 of the Code, and may not
apply to shares of Common Stock received pursuant to the exercise of employee
stock options or otherwise as compensation, or to certain types of beneficial
owners of shares of Common Stock (such as insurance companies, tax-exempt
organizations and broker-dealers) who may be subject to special rules. This
discussion does not discuss the federal income tax consequences to a beneficial
owner of shares of Common Stock who, for United States federal income tax
purposes, is a non-resident alien individual, a foreign corporation, a foreign
partnership or a foreign estate or trust, nor does it consider the effect of
any foreign, state or local tax laws.
BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER, EACH BENEFICIAL OWNER OF
SHARES OF COMMON STOCK SHOULD CONSULT SUCH BENEFICIAL OWNER'S OWN TAX ADVISOR
TO DETERMINE THE APPLICABILITY OF THE RULES DISCUSSED BELOW TO SUCH BENEFICIAL
OWNER AND THE PARTICULAR TAX EFFECTS TO SUCH BENEFICIAL OWNER OF THE MERGER,
INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND OTHER INCOME TAX LAWS.
The receipt of cash for shares of Common Stock pursuant to the Merger will
be a taxable transaction for federal income tax purposes. In general, for
federal income tax purposes, a beneficial owner of shares of Common Stock will
recognize gain or loss equal to the difference between the beneficial owner's
adjusted tax basis in the shares of Common Stock converted to cash in the
Merger and the amount of cash received therefor. Gain or loss must be
determined separately for each block of Common Stock (i.e., shares of Common
Stock acquired at the same cost in a single transaction) converted to cash in
the Merger. Such gain or loss will be capital gain or loss and will be
long-term gain or loss if the beneficial owner held the shares of Common Stock
for more than one year, on the date of the Effective Time of the Merger.
Long-term capital gain of individuals is currently taxed at a maximum rate of
20% for capital assets held more than eighteen months, and at a maximum rate of
28% for capital assets held for eighteen months or less but for more than
twelve months. For capital assets held twelve months or less, capital gain is
taxed at the same rates as ordinary income. The receipt of cash for shares of
Common Stock pursuant to the exercise of dissenters' rights will generally be
taxed in the same manner as described above.
Payments in connection with the Merger may be subject to "backup
withholding" at a rate of 31%, unless a beneficial owner of shares of Common
Stock (a) is a corporation or comes within certain exempt categories and, when
required, demonstrates this fact or (b) provides a correct TIN to the payor,
certifies as to no loss of exemption from backup withholding and otherwise
complies with applicable requirements of the backup withholding rules. A
beneficial owner who does not provide a correct TIN may be subject to penalties
imposed by the Internal Revenue Service. Any amount paid as backup withholding
does not constitute an additional tax and will be creditable against the
beneficial owner's federal income tax liability. Each beneficial owner of
shares of Common Stock should consult with his or her own tax advisor as to his
or her qualification for exemption from backup withholding and the procedure
for obtaining such
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<PAGE> 30
exemption. Beneficial owners who convert their shares of Common Stock into cash
in the Merger may prevent backup withholding by completing a Substitute Form
W-9 and submitting it to the Paying Agent for the Merger.
Wallace and Merger Sub will be entitled to deduct and withhold from the
consideration otherwise payable pursuant to the Merger Agreement to any
beneficial owner of shares of Common Stock such amounts as Wallace or Merger
Sub is required to deduct and withhold with respect to the making of such
payment. To the extent that amounts are so withheld by Wallace or Merger Sub,
such withheld amounts shall be treated for all purposes of the Merger Agreement
as having been paid to the beneficial owner of the Common Stock in respect of
which such deduction and withholding was made by Wallace or Merger Sub.
SELECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY
The selected consolidated financial data of the Company set forth below
for each of the years in the five-year period ended January 31,1997 have been
derived from the Company's audited consolidated financial statements for such
periods. The selected consolidated financial data set forth below for the six
months ended July 31, 1996 and 1997 are derived from unaudited financial
statements. More comprehensive financial information for the five-year period
ended January 31, 1997 is included in the Annual Reports on Form 10-K for such
years filed by the Company with the Commission, which are available as
described in "ADDITIONAL INFORMATION." A copy of the Company's January 31,
1997 audited financial statements appears elsewhere in this Proxy Statement.
See "INDEX TO FINANCIAL STATEMENTS". The following summary is qualified by
reference to, and should be read in conjunction with, such audited financial
statements.
24
<PAGE> 31
<TABLE>
<CAPTION>
Six Months Ended
Fiscal Years Ended January 31 July 31
----------------------------- ----------------
1997 1996 1995 1994 1993 1997 1996
---- ---- ---- ---- ---- ---- ----
RESULTS OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales $437,107,260 $417,261,697 $348,130,390 $335,467,743 $316,880,544 $225,570,076 $215,030,091
Cost of sales 329,515,288 318,319,117 263,485,570 257,549,959 243,109,921 169,158,403 161,651,259
------------ ------------ ------------ ------------ ------------ ------------ ------------
Gross Profit 107,591,972 98,942,580 84,644,820 77,917,784 73,770,623 56,411,673 53,378,832
Selling, general and
administrative expenses 78,354,798 72,510,489 63,040,317 61,260,267 59,961,199 40,910,638 39,610,841
Restructuring charge(1) 9,000,000 -- -- -- -- -- 9,000,000
Operating profit 20,237,174 26,432,091 21,604,503 16,657,517 13,809,424 -- --
Other income, net 3,595,644 2,670,660 1,716,054 2,469,351 2,454,356 1,650,606 1,657,470
Interest expense 10,654,151 11,712,475 9,539,823 8,426,398 9,103,891 5,776,130 5,418,280
Income before income taxes 13,178,667 17,390,276 13,780,734 10,700,470 7,159,889 11,375,511 1,007,181
Income taxes 5,898,000 6,760,000 5,375,000 4,200,000 3,441,000 4,550,000 1,030,000
Net income (1) $ 7,280,667 $ 10,630,276 $ 8,405,734 $ 6,500,470 $ 3,718,889 $ 6,825,511 $ (22,819)
============ ============ ============ ============ ============ ============ ===========
PER SHARE DATA:
Primary earnings per
share (1) .62 .98 .80 .65 .38 .58 --
Fully diluted -- -- -- -- -- .55 --
Dividends paid per common
share .07 .07 .07 .07 .07 .035(2) .035(2)
Dividends paid per Class B
common share .05 .05 .05 -- -- .025(2) .025(2)
BALANCE SHEET DATA:
Total current assets 144,850,361 142,475,950 119,181,058 115,404,007 109,193,748 154,520,362 139,158,369
Other assets 27,491,940 21,587,002 21,461,440 14,709,016 15,603,802 13,229,721 10,827,545
Property, plant & equipment 217,384,575 205,480,869 187,166,830 174,357,094 152,910,173 234,212,370 204,677,478
Total assets 299,476,296 286,502,712 253,166,270 237,405,425 220,388,856 322,883,904 284,871,932
Total current liabilities 60,831,036 58,405,751 73,389,719 66,766,269 68,801,425 59,161,626 55,651,698
Long-term obligations, less
current portion 99,676,541 97,651,125 68,781,374 67,560,368 57,519,213 113,881,136 99,060,524
Deferred income taxes 15,620,738 16,043,672 15,306,327 15,860,278 15,004,631 16,235,940 15,206,829
7% convertible subordinated
debentures 20,787,000 20,787,000 20,787,000 20,787,000 20,787,000 19,353,000 20,787,000
Total shareholders' equity 102,560,981 93,615,164 74,901,850 66,431,510 58,276,587 114,252,202 94,165,881
</TABLE>
(1) The $9 million restructuring charge related to the sale of the
Company's direct-mail subsidiary, Graphic Direct, Inc., and the closing of a
commercial printing subsidiary, The Stein Printing Company, Inc. The
after-tax effect of the charge was $6,026,500, or $0.52 per share. Without
the charge, net income would have been $13,307,167 and primary earnings
per share, $1.14.
(2) These figures represent dividends declared for the sixth month period
ended.
25
<PAGE> 32
Certain Company Projections. The Company does not as a matter of course
make public forecasts as to its future financial performance. However, in
connection with the preliminary discussions concerning the feasibility of the
Offer and the Merger, the Company prepared and furnished Wallace with certain
financial projections. This information included projections for the fiscal
year ending January 31, 1998 of (i) revenues of $464,832,000, (ii) net income
of $15,808,000 and (iii) earnings per share of $1.28 per share (collectively,
the "Projections"). The Projections have not been adjusted to reflect the
effects of the Offer or the Merger or the anticipated changes in the debt
structure of the Company. The Projections should be read together with the
other information contained herein.
THE PROJECTIONS WERE NOT PREPARED WITH A VIEW TO PUBLIC DISCLOSURE OR
COMPLIANCE WITH THE PUBLISHED GUIDELINES OF THE COMMISSION OR THE GUIDELINES
ESTABLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS REGARDING
PROJECTIONS OR FORECASTS AND ARE INCLUDED HEREIN ONLY BECAUSE SUCH INFORMATION
WAS PROVIDED TO WALLACE. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO
CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THE PROJECTIONS. THE PROJECTIONS REFLECT NUMEROUS ASSUMPTIONS,
ALL MADE BY MANAGEMENT OF THE COMPANY, WITH RESPECT TO INDUSTRY PERFORMANCE,
GENERAL BUSINESS, ECONOMIC, MARKET AND FINANCIAL CONDITIONS AND OTHER MATTERS
INCLUDING ASSUMED INTEREST EXPENSE AND EFFECTIVE TAX RATES CONSISTENT WITH
HISTORICAL LEVELS FOR THE COMPANY, ALL OF WHICH ARE DIFFICULT TO PREDICT, MANY
OF WHICH ARE BEYOND THE COMPANY'S CONTROL AND NONE OF WHICH WERE SUBJECT TO
APPROVAL BY WALLACE OR MERGER SUB. ACCORDINGLY, THERE CAN BE NO ASSURANCE THAT
THE ASSUMPTIONS MADE IN PREPARING THE PROJECTIONS WILL PROVE ACCURATE, AND
ACTUAL RESULTS MAY BE MATERIALLY DIFFERENT FROM THOSE CONTAINED IN THE
PROJECTIONS. THE INCLUSION OF THE PROJECTIONS HEREIN SHOULD NOT BE REGARDED AS
AN INDICATION THAT ANY OF WALLACE, MERGER SUB, THE COMPANY OR THEIR RESPECTIVE
FINANCIAL ADVISORS CONSIDERED OR CONSIDER THE PROJECTIONS TO BE A RELIABLE
PREDICTION OF FUTURE EVENTS, AND THE PROJECTIONS SHOULD NOT BE RELIED UPON AS
SUCH. NONE OF WALLACE, MERGER SUB, THE COMPANY AND ANY OF THEIR FINANCIAL
ADVISORS HAS MADE, OR MAKES, ANY REPRESENTATION TO ANY PERSON REGARDING THE
INFORMATION CONTAINED IN THE PROJECTIONS AND NONE OF THEM INTENDS TO UPDATE OR
OTHERWISE REVISE THE PROJECTIONS TO REFLECT CIRCUMSTANCES EXISTING AFTER THE
DATE WHEN MADE OR TO REFLECT THE OCCURRENCE OF FUTURE EVENTS EVEN IN THE EVENT
THAT ANY OR ALL OF THE ASSUMPTIONS UNDERLYING THE PROJECTIONS ARE SHOWN TO BE
IN ERROR.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
Set forth below are certain sections of the Management's Discussion and
Analysis of Financial Conditions and Results of Operations in the forms set
forth in the Company's Annual Report on Form 10-K for the year that ended
January 31, 1997 and the Company's Quarterly Report on Form 10-Q for the period
that ended July 31, 1997.
The following discussion and analysis of the Company's results of
operations and financial condition does not address the effect of the
consummation of the acquisition of the Company by Wallace, or Wallace's plans
for the Company following the acquisition, on the Company's liquidity, capital
resources, or results of operations.
26
<PAGE> 33
FOR THE SIX MONTHS ENDED JULY 31, 1997 VS. 1996.
The following table sets forth items from the Condensed Consolidated
Statements of Income as a percentage of net sales for the indicated periods.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JULY 31 JULY 31
------- -------
1997 1996 1997 1996
-------------------- --------------------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 75.8 75.7 75.0 75.2
Selling, general and
administrative expenses 18.1 18.6 18.1 18.4
Restructuring charge - - - 4.2
Interest and other income-net 0.9 0.9 0.7 0.8
Interest expense 2.7 2.7 2.6 2.5
Income before income taxes 4.3 3.9 5.0 0.5
Provision for income taxes 1.7 1.6 2.0 0.5
--- --- --- ---
Net income (loss) 2.6% 2.3% 3.0% - %
=== === === ===
</TABLE>
Results of Operations
General. On May 31, 1996 Mercury Printing Company, Inc. ("Mercury"),
Memphis, Tennessee, a subsidiary of the Company, acquired The Wimmer Companies,
Inc., a printer and publisher of cookbooks in Memphis, Tennessee. The
acquisition was financed through the issuance of 53,830 shares of the Company's
Common Stock valued at $583,376 and cash payments amounting to $1,042,281 to
retire certain debt obligations. In the quarter ended July 31, 1997 the Seller
returned 6,181 shares of the Company's Common Stock which related to a final
closing settlement. The shares were canceled.
On November 1, 1996 the Company acquired Presstar Printing Corporation
("PPC"), a commercial printing company in Silver Spring, Maryland, serving the
Baltimore, Maryland and Washington, D.C. market areas. The acquisition was
financed through the issuance of 102,059 shares of the Company's Common Stock
valued at $875,136 and cash payments amounting to $5,531,078 to retire certain
debt obligations. In the quarter ended April 30, 1997 the Seller returned
$301,480 of cash and 40,816 shares of the Company's Common Stock as part of a
post closing settlement. The shares were canceled.
On June 3, 1997, Imaging Technologies Services, Inc. ("ITS"), Atlanta,
Georgia, a subsidiary of the Company, acquired Birmingham Imaging Technologies,
Inc. a reprographics company serving the Birmingham, Alabama market. The
acquisition was financed through the issuance of cash payments in the amount of
$871,250 and a note payable of $153,750.
On July 1, 1997 the Company acquired The LithoPrint Company ("LC"), a
commercial printing company in Austin, Texas and LithoImage, Inc. a
state-of-the-art digital image processing company. The acquisition was
financed through the issuance of 366,029 shares of the Company's Common Stock
valued at $4,000,000 and a cash payment of $500,000.
In the quarter ended April 30, 1996 the Company recorded a one-time
pre-tax restructuring charge of $9,000,000. The after-tax effect of the charge
was $6,026,500 or equivalent to $0.52 per common share. The charge covered the
costs associated with the sale of the Company's direct-mail subsidiary, Graphic
Direct-Illinois ("GDI") and
27
<PAGE> 34
the closing of a commercial printing subsidiary, The Stein Printing Company,
Inc. ("SPC"). Excluding the charge, net income for the six months ended July
31, 1996 would have been $6,003,681 or $0.52 per share primary and $0.50 per
share fully diluted.
Net Sales. Net sales, for the three months ended July 31, 1997, increased
approximately $8.3 million or 8.1% as compared to the same period last year.
Of this increase, approximately 4.2% was attributable to the net sales of the
acquisitions discussed above in the General section. Excluding the sales of
the acquired businesses and of the subsidiaries affected by the restructuring,
net sales of the remaining operations increased by approximately 6.4%. Net
sales, for the six months ended July 31, 1997, increased approximately $10.5
million or 4.9% as compared to the same period last year. Of this increase,
approximately 3.3% was attributable to the net sales of the acquisitions
discussed above in the General section. Excluding the sales of the acquired
businesses and of the subsidiaries affected by the restructuring, net sales of
the remaining operations increased by approximately 6.3% for the six months
ended July 31, 1997.
Cost of Sales. Cost of sales, as a percentage of sales, remained
essentially the same for the three months ended July 31, 1997 as compared to
the same period last year. Cost of sales, as a percentage of sales, decreased
0.2%, for the six months ended July 31, 1997, as compared to the same period
last year. The improvement resulted from the stabilization of paper prices
which has allowed the Company to more fully recover these costs in their
pricing.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased 0.5%, as a percentage of sales for the three
months ended July 31, 1997 and 0.3% for the six months ended July 31, 1997, as
compared to the same periods last year. The percentage decrease in both
periods is due primarily to the significant sales increase which offset these
expenses. The dollar increase in these expenses is primarily due to higher
commissions on the increase in sales.
Restructuring Charge. A pre-tax $9,000,000 restructuring charge was
booked in the quarter ended April 30, 1996. See a discussion of the
restructuring charge in the General section above in Results of Operations.
Interest and Other Income-Net. Interest and other income-net, as a
percentage of sales, remained the same for the three months ended July 31, 1997
as compared to the same period last year. For the six months ended July 31,
1997, interest and other income-net, as a percentage of sales, decreased 0.1%
as compared to the same period last year. The decrease was due to a decrease
in interest income.
Interest Expense. Interest expense, as a percentage of sales, remained
the same for the three months ended July 31, 1997 as compared to the same
period last year. For the six months ended July 31, 1997, interest expense, as
a percentage of sales, increased 0.1% as compared to the same period last year.
The increase was due to an increase in the prime interest rate and higher
average borrowings.
Income Taxes. The effective income tax rate was 40.0% for the three
months ended July 31, 1997 and July 31, 1996. The effective tax rate for the
six months ended July 31, 1997 was 40.0% compared to 102.3% for the six months
ended July 31, 1996. The high tax rate for the six months ended July 31, 1996
was due to the restructuring charge booked in the quarter ended April 30, 1996
and discussed in the General section above in Results of Operations. A portion
of the restructuring charge related to the write-off of intangible assets for
which there is no tax benefit. The effective income tax rate without the
restructuring charge was 40.0% for the six months ended July 31, 1996.
FISCAL YEARS ENDED JANUARY 31 OF 1997, 1996 & 1995.
Basis of Presentation
In fiscal year 1995, the Company adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Investments in Debt and Equity Securities"
("SFAS 115"). In applying SFAS 115, the Company recorded in fiscal year 1995 a
cumulative decrease in retained earnings of approximately $1,313,000, net of
income taxes of approximately $909,000, and a corresponding decrease in the
carrying value of its marketable securities. In fiscal year 1996, the Company
recorded an increase in retained earnings of approximately $973,000, net of
income taxes of approximately $670,000, and a corresponding increase in the
carrying value of its marketable securities. In fiscal year 1997, the Company
recorded a decrease in retained earnings of approximately $125,000, net of
income taxes of approximately $138,000, and a corresponding decrease in the
carrying value of its marketable securities. These changes in the fair value
28
<PAGE> 35
of its marketable securities were due entirely to the effect of changes in
market interest rates during fiscal years 1995, 1996 and 1997 and do not
necessarily reflect the ultimate realization on these investments.
The following table sets forth items from the Consolidated Statements of
Income as a percentage of net sales for the indicated years.
<TABLE>
<CAPTION>
Year Ended January 31
---------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 75.4 76.3 75.7
Selling, general and administrative expenses 17.9 17.4 18.1
Restructuring charge 2.1 - -
Interest and other income-net 0.8 0.6 0.5
Interest expense 2.4 2.8 2.7
--- --- ---
Income before income taxes 3.0 4.1 4.0
Income taxes 1.3 1.6 1.6
--- --- ---
Net Income 1.7% 2.5% 2.4%
=== === ===
</TABLE>
Results of Operations
General. The Company has experienced significant growth over the last
five fiscal years. Net sales increased in each of the fiscal years during this
time period, reaching a record $437,107,260 in fiscal year 1997. Over the
1993-1997 fiscal periods, the Company experienced a compounded annual growth
rate of 8.4% in sales. This performance has been accomplished both through the
acquisition of established businesses in the printing and graphic arts industry
and through internal growth and development.
During the past five fiscal years, the Company invested approximately
$98.2 million in additional property, plant and equipment, including new
multi-color presses, automated scanning equipment, electronic prepress
equipment and other computerized equipment.
During fiscal 1995, the Company merged The Central Press of Miami, Inc.
("CP"), Pompano Beach, Florida into the Pompano Beach, Florida location which
was acquired during fiscal 1994 from Graphic Dynamics Inc. During fiscal 1995,
the Company merged Graphic Direct, Inc.-Michigan ("GDM") of Madison Heights,
Michigan with Graphic Direct, Inc.-Illinois ("GDI") of Elmhurst, Illinois.
During fiscal 1995, the Company acquired Southern Signatures, Inc. ("SSI"),
Atlanta, Georgia. SSI is primarily engaged in the printing of graphic
communications.
During fiscal 1996, the Company acquired Carpenter Reserve Printing
Company ("CRPC"), a commercial printing company in Cleveland, Ohio and Quadras,
Inc. ("Quadras"), a creative design agency in Atlanta, Georgia. These
businesses were acquired through the issuance of the Company's Common Stock.
Also in fiscal 1996, acquisitions were made by three of the Company's
subsidiaries as follows: Monroe Litho, Inc. ("Monroe"), Rochester, New York
acquired the Graphic Operations Department of Bausch & Lomb, Incorporated for
cash and subsequently merged the operation into its facilities; Mercury
Printing Company, Inc. ("Mercury"), Memphis, Tennessee acquired for cash a
creative design agency that has since become a part of its operations; and
Atlanta Blue Print Co. ("ABP"), acquired for the Company's Common Stock a
reprographics company in Atlanta, Georgia which was merged into its operations.
29
<PAGE> 36
During fiscal 1997, the Company acquired Presstar Printing Corporation
("PPC"), a commercial printing company in Silver Spring, Maryland. PPC was
acquired through the issuance of the Company's Common Stock and cash payments
to retire certain debt obligations. Also in fiscal 1997, one of the Company's
subsidiaries, Mercury Printing Company, acquired The Wimmer Companies, Inc., a
printer and publisher of cookbooks in Memphis, Tennessee that has since become
a part of its operations. The acquisition was financed through the issuance of
the Company's Common Stock and cash payments to retire certain debt
obligations.
On May 14, 1996 the Company announced an agreement in principle for the
sale of its direct-mail subsidiary, GDI and the closing of a commercial
printing subsidiary, The Stein Printing Company, Inc. ("SPC"), Atlanta,
Georgia. On May 31, 1996, the sale of certain assets of GDI was concluded. In
connection with these actions, the Company recorded in its first quarter ended
April 30, 1996, a pre-tax restructuring charge of $9,000,000. The after-tax
effect of the charge was $6,026,500 or equivalent to $0.52 per common share.
The charge primarily covered the costs of liquidating and disposing of certain
assets, the write-off of intangible assets, and a provision for certain
expenses, including severance pay and future lease obligations. The composition
of the Company's restructuring reserves as of January 31, 1997 is discussed in
Note 10 of Notes to Consolidated Financial Statements.
Net Sales. Net sales for fiscal 1997 increased approximately $19.8
million or 4.8% over fiscal 1996. Of this increase, approximately 4.7% was the
result of businesses acquired in the past two fiscal years. Net sales decreased
approximately $23.0 million in fiscal 1997 compared to fiscal 1996 at two of
the Company subsidiaries, GDI and SPC, due to the sale of GDI and the closing
of SPC during fiscal 1997 as previously discussed above in the General section
of Results of Operations. Excluding the net sales of the acquired businesses
and the net sales of GDI and SPC, net sales on a fully comparable basis
increased approximately 6.0% due to increased sales volume. Net sales for
fiscal 1996 increased approximately $69.1 million or 19.9% over fiscal 1995. Of
this increase, approximately 2.5% was the result of the businesses acquired in
the prior two fiscal years, approximately 9.4% was due to increased sales
volume growth at our operations, approximately 4% was due to the mix of jobs
produced (including an increase in fulfillment business) and approximately 4%
was attributable to paper price increases (which are typically passed through).
The Company's operations are geographically diverse with a wide customer
base. Accordingly, from year to year the Company experiences different results
from different geographical areas, depending in many respects on local market
factors. Because of this, the aggregate results for the Company may be
different than for each operation. In fiscal year 1997, the Company experienced
strong results from its Southeastern and New England operations. In fiscal year
1996, the Company experienced strong results from its Southwestern,
Mid-Atlantic and New England operations. In other years, this pattern may vary.
The Company considers this diverse revenue base as one of its competitive
advantages.
Cost of Sales. Cost of sales, as a percentage of sales, decreased 0.9% in
fiscal 1997 as compared to fiscal 1996. The improvement resulted from the
following: stabilization of paper prices which has allowed our companies to
more fully recover these costs in their pricing; increased utilization of
equipment and technology and volume purchasing programs. Cost of sales, as a
percentage of sales, increased 0.6% in fiscal 1996 as compared to fiscal 1995.
This increase resulted from the pass through of paper price increases and by
the increase in fulfillment and distribution operations which do not carry the
same margin as other work.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses, as a percentage of sales, increased 0.5% in fiscal
1997 compared with fiscal 1996. The fiscal 1996 percentage of sales was
historically low due to the inflated sales level in fiscal 1996 which was
caused by the pass through of the significant paper price increases during the
year. Selling, general and administrative expenses, as a percentage of sales,
decreased 0.7% in fiscal 1996 as compared to fiscal 1995. The decrease was due
to the effect of the Company's ongoing focus on operations and expense
reduction and the significant sales increase which offset these expenses. The
dollar amount increase in these expenses was primarily due to higher
commissions on the increase in sales and higher office salary costs associated
with the acquisitions made during these fiscal years.
Restructuring Charge. In the quarter ended April 30, 1996 the Company
recorded a pre-tax restructuring charge of $9,000,000. The after-tax effect of
the charge was $6,026,500. The charge is discussed above in the General section
of Results of Operations and Note 10 of Notes to Consolidated Financial
Statements. Excluding the charge, net income for fiscal year 1997 was
$13,307,167 or $1.14 per share Primary, an increase of 25.2% compared with
fiscal year 1996.
30
<PAGE> 37
Interest and Other Income-Net. Interest and other income-net, as a
percentage of sales, increased 0.2% in fiscal 1997 compared to fiscal 1996.
Both the percentage and dollar change was primarily due to higher gains on the
disposition of certain assets and higher investment income in fiscal 1997
compared to fiscal 1996. Interest and other income-net, as a percentage of
sales, increased 0.1% in fiscal 1996 as compared to fiscal 1995. Both the
percentage and dollar change was primarily due to gains on the disposition of
certain assets, as compared to losses on similar transactions recorded in
fiscal 1995.
Interest Expense. Interest expense, as a percentage of sales, decreased
0.4% in fiscal 1997 compared to fiscal 1996. The decrease was the result of
lower borrowing costs due to the refinancing of substantially all floating rate
obligations in December 1995, partially offset by higher average borrowings in
fiscal 1997 compared to fiscal 1996. Interest expense, as a percentage of
sales, increased 0.1% in fiscal 1996 as compared to fiscal 1995. This increase
was due to the full effect during the year of prior increases in the prime
interest rate and to an increase in borrowings, described below.
Income Taxes. The effective tax rate for fiscal 1997 was 44.8% compared
to 38.9% in fiscal 1996. The increase was due to the restructuring charge
booked in fiscal 1997 and discussed above in the General section of Results of
Operations and Note 10 of Notes to Consolidated Financial Statements. A portion
of the restructuring charge related to the write-off of intangible assets for
which there is no tax benefit and a portion of the charge received no state tax
benefit due to the significant loss. The effective tax rate for fiscal 1996 was
38.9% which was comparable to fiscal 1995. See Note 4 of Notes to Consolidated
Financial Statements of the Company for additional information on the Company's
effective income tax rate.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Capital Resources for the Six Months Ended July 31, 1997 vs. 1996
At July 31, 1997, the Company had approximately $95.4 million in working
capital as compared to approximately $83.5 million at July 31, 1996. Capital
expenditures for property, plant and equipment were approximately $14.1 million
during the six months ended July 31, 1997.
The Company's capital expenditures and increase in other assets have been
financed by funds from operations, from additional borrowings and from use of
cash and cash equivalents during the first six months. The increase in other
assets is primarily due to advance payments for several capital projects.
The Company believes that existing working capital, including a cash and
marketable securities balance of approximately $29.8 million at July 31, 1997,
funds provided from operations, undrawn bank lines and additional bank
financing will be adequate to satisfy the Company's presently anticipated needs
for working capital and capital expenditures, including possible future
acquisitions.
Liquidity and Capital Resources for the Fiscal Years Ended as of January 31,
1997, 1996 and 1995
At January 31, 1997, the Company had approximately $84.0 million in
working capital compared with $84.1 million at January 31, 1996. Capital
expenditures for property, plant and equipment during fiscal 1997 were
approximately $23.5 million. During fiscal 1997 other assets increased by
approximately $5.3 million. This increase was primarily due to advance
payments on the purchase of three sheet-fed presses, one web press, and new
electronic prepress equipment that will be placed in service in fiscal 1998.
Also contributing to the increase in other assets was the long-term portion of
a note receivable from the sale of GDI. The Company's capital expenditures and
increase in other assets in fiscal 1997 were financed by cash provided by
operating activities, by the proceeds from the sale of assets and by the
decrease in cash. The Company's capital expenditures and increase in current
assets in fiscal 1996 were financed by cash provided by operating activities,
by a decrease in other assets and by additional bank borrowing. See Note 3 of
Notes to Consolidated Financial Statements of the Company for additional
information regarding the Company's obligations.
31
<PAGE> 38
During fiscal 1997, the Company amended its revolving credit facility to
include $10 million in additional commitments for a total of $120 million for
the facility.
During fiscal 1996, the Company refinanced approximately $90 million of
term loans and lines of credit collateralized by accounts receivable, owned by
its subsidiaries, into a parent company revolving credit agreement with a total
commitment of $110 million provided by eight commercial banks. In conjunction
with the refinancing, interest rates were reduced, terms of the borrowing
arrangements were improved, and future repayment requirements were lowered, all
as compared to the prior agreements. Also as a part of the refinancing,
certain amounts which had previously been classified as current liabilities
became long-term obligations, resulting in an increase in working capital.
The Company believes that existing working capital, funds provided from
operations, unused availability under the revolving credit of approximately
$27.2 million and additional bank financing will be adequate to satisfy the
Company's needs for working capital and capital expenditures, including
possible future acquisitions.
Impact of Inflation
The Company has experienced increases in the costs of materials, labor,
equipment and machinery, as well as other operating expenses. Its ability to
pass on such increased costs through increased prices has been affected
differently in different time periods; however, the Company has generally been
able to mitigate cost increases by increasing its production efficiencies or by
passing on increased costs to customers.
SERVICE AND PRODUCTS
The following table indicates the approximate percentages of total gross
revenues of the Company attributable to each class of service provided by the
Company for the indicated periods:
Fiscal Year
-----------
Class of Service 1997 1996 1995
================================================================================
Financial and Corporate Printing 38% 35% 34%
Graphic Communications 46 43 43
Reprographic Services 7 7 7
Point-of-Purchase Materials 6 6 6
Direct Mail 1 6 7
Educational Services 2 3 3
--- --- ---
Total 100% 100% 100%
=== === ===
SUBSEQUENT EVENTS
On August 1, 1997, the Company acquired Harvey Press, Inc. ("HP"), the
largest commercial printing company in New Orleans, Louisiana. The acquisition
was financed through the issuance of 334,549 shares of the Company's Common
Stock valued at $4,300,000.
On August 29, 1997, the Company acquired Bruce Offset Company ("BOC"), a
commercial printing company in Elk Grove Village, Illinois, serving the
Chicago, Illinois market area. The acquisition was financed through the
32
<PAGE> 39
issuance of cash payments amounting to $9,200,000, additional cash payments
amounting to $1,869,984 to retire certain debt obligations and the assumption
of certain debt obligations amounting to $875,000.
On September 3, 1997, The Central Press of Miami, Inc. ("CP"), Pompano
Beach, Florida, a subsidiary of the Company acquired substantially all the
assets and certain liabilities of Graphic Technologies, Inc., a prepress and
commercial printer in Fort Lauderdale, Florida. The acquisition was financed
through the issuance of cash payments amounting to $987,110, additional cash
payments of $777,918 to retire certain debt obligations, the assumption of
certain debt obligation amounting to $554,073 and the issuance of a note
payable in the amount of $1,373,875.
PRICE RANGE OF COMMON STOCK; DIVIDENDS.
Prior to November 3, 1997, the shares of Common Stock were listed on the
NYSE. The following table sets forth for the periods indicated the high and low
sales prices per share of Common Stock as listed on the NYSE (or on the Nasdaq
National Market for periods prior to June 24, 1997) and the dividends declared
per share of Common Stock.
<TABLE>
<CAPTION>
HIGH LOW DIVIDENDS
---- --- ---------
<S> <C> <C> <C>
Year Ended January 31, 1996:
First Quarter $10 1/2 $ 8 5/8 $.0175
Second Quarter 11 1/2 9 1/2 .0175
Third Quarter 10 5/8 9 1/4 .0175
Fourth Quarter 13 3/8 9 5/8 .0175
Year Ended January 31, 1997:
First Quarter $12 $10 $.0175
Second Quarter 11 1/2 8 1/4 .0175
Third Quarter 9 5/8 8 3/8 .0175
Fourth Quarter 10 1/8 6 1/4 .0175
Year Ended January 31, 1998:
First Quarter $11 3/4 $ 9 $.0175
Second Quarter 13 5/8 9 3/8 .0175
Third Quarter 22 13 7/16 .0175
</TABLE>
On September 26, 1997, the last full day of trading prior to the public
announcement of the execution of the Original Merger Agreement, the closing
price per share of Common Stock as reported on the NYSE was $20.00. On October
2, 1997, the last full day of trading prior to the commencement of the Original
Offer, the closing price per share of Common Stock as reported on the NYSE was
18 3/8. On October 10, 1997, the last full day of trading prior to the public
announcement of the execution of the Merger Agreement, the closing price per
share of Common Stock as reported on the NYSE was $21 5/16. On October 16,
1997, the last full day of trading prior to mailing of the supplemental tender
offer materials relating to the Offer, the closing price per share of Common
Stock as reported on the NYSE was $21 13/16. On October 31, 1997, the last full
day of trading prior to the acceptance for payment by Merger Sub of shares of
Common Stock in the Offer, the closing price per share of Common Stock as
reported on the NYSE was 21 11/16. On November 3, 1997, the Company was
informed by the NYSE that the Common Stock would no longer be listed or traded
on the NYSE because less than 600,000 of the outstanding shares of Common Stock
were publicly held as of such date.
BUSINESS OF THE COMPANY
The Company is a Georgia corporation with its principal executive offices
located at 2155 Monroe Drive, N.E., Atlanta, Georgia 30324. The Company was
incorporated in Georgia in 1970 as the parent of its operating subsidiaries and
divisions.
33
<PAGE> 40
The Company engages in all aspects of financial and corporate printing,
reprographic services, commercial printing, direct mail printing and other
graphic communications. The Company ranks approximately 17th by sales among
commercial printing firms in North America.
The Company is subject to the informational requirements of the Exchange
Act and in accordance therewith files public reports and other information with
the Commission relating to business, financial conditions and other matters.
Such reports and other information are available for inspection and copying at
the offices of the Commission in the manner as set forth under "ADDITIONAL
INFORMATION."
CERTAIN SECURITY HOLDINGS
The following table sets forth information, as of the Record Date,
concerning (i) all persons known to the Company to be the beneficial owners of
more than 5% of the shares of Common Stock, (ii) the shares of Common Stock
beneficially owned by each director and named executive officer of the Company
and (iii) the shares of Common Stock beneficially owned by all directors and
officers of the Company as a group. Except as otherwise indicated, the person
listed as the beneficial owner of shares of Common Stock has sole voting and
investment power for all such shares of Common Stock.
<TABLE>
<CAPTION> Shares
Beneficially Percent of
Name Owned Class
---- ----- -----
<S> <C> <C>
Wallace Computer
Services Inc. (1)
2275 Cabot Drive
Lisle, Illinois 60532 12,751,080 95.12%
Mark C. Pope III 25,000 *(2)
All directors and executive
officers as a group (16 persons) 30,000 *(2)
</TABLE>
----------------
(1) Shares are owned of record by Greenwich
Acquisition Corp., a wholly owned subsidiary of Wallace.
(2) Less than one percent.
CERTAIN INFORMATION CONCERNING WALLACE AND MERGER SUB
Merger Sub is a newly incorporated Georgia corporation. To date, Merger
Sub has not conducted any business other than that incident to its formation,
the execution and delivery of the Merger Agreement and the Stockholder
Agreement, the commencement of and acceptance for payment of, and payment for,
shares of Common Stock in the Offer and the purchase of Class B Shares pursuant
to the Stockholder Agreement. Accordingly, no meaningful financial information
with respect to Merger Sub is available. Merger Sub is a wholly owned
subsidiary of Wallace. The principal executive office of Merger Sub is located
at 2275 Cabot Drive, Lisle, Illinois 60532.
Wallace, a Delaware corporation, has its principal executive office at
2275 Cabot Drive, Lisle, Illinois 60532. Wallace is engaged predominantly in
the computer services and supply industry and sells a broad line of products
and services, including business forms, commercial and promotional graphics
printing, computer labels, machine ribbons, computer hardware and software,
computer accessories, office products and electronic forms.
Wallace is subject to the informational requirements of the Exchange Act
and in accordance therewith files periodic reports and other information with
the Commission relating to its business, financial condition and other matters.
Such reports and other information are available for inspection and copying at
the offices of the Commission in the same
34
<PAGE> 41
manner as set forth with respect to the Company under "ADDITIONAL INFORMATION."
Such material may also be inspected at the offices of the NYSE, 20 Broad Street,
New York, New York 10005.
INDEPENDENT ACCOUNTANTS
The consolidated balance sheets of the Company and subsidiaries as of
January 31, 1997 and 1996 and the related consolidated statements of
operations, cash flows and stockholders' equity for each of the three years in
the period ended January 31, 1997 have been audited by Ernst & Young LLP,
independent public accountants, whose report thereon is included on page F-2.
A representative of Ernst & Young LLP will be present at the Special
Meeting, will be available to respond to appropriate questions and will have
the opportunity to make a statement if so desired.
OTHER MATTERS
The Board of Directors does not intend to present any matter for action at
this meeting other than the matters described in this Proxy Statement. If any
other matters properly come before the Special Meeting, it is intended that the
holders of the proxies hereby solicited will act in respect to such matters in
accordance with their best judgment. Proposals of stockholders intended to be
presented at the next Annual Meeting of Stockholders must be received by not
later than January 21, 1998 in order to be eligible for inclusion in the proxy
statement and/or proxy for that meeting.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Exchange
Act and in accordance therewith files reports, proxy statements and other
information with the Commission. All such reports, proxy statements and other
information can be inspected and copied at the public reference facilities of
the Commission 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and
at the Commission's regional offices at 7 World Trade Center, Suite 1300, New
York, NY 10048 and 500 West Madison Street, Suite 1300, Chicago, IL 60661.
Copies of such material can also be obtained from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Room 3190, Washington, D.C. 20549
at prescribed rates. Such material should also be available on-line through
the Commission's EDGAR electronic filing and retrieval system and on the
Commission's World Wide Web site at http://www.sec.gov.
35
<PAGE> 42
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated into this Proxy Statement by reference:
1. The Company's Annual Report on Form 10-K for the year ended January
31, 1997, filed on April 30, 1997;
2. Amendments to the Company's Annual Report on Form 10-K/A for the year
ended January 31, 1997, filed on May 1, 1997 and May 12, 1997;
3. The Company's Quarterly Reports on Form 10-Q for the quarters ended
April 30, 1997 and July 31, 1997, filed on June 13, 1997 and September 12,
1997, respectively; and
4. The Company's Current Report on Form 8-K filed on November 18, 1997.
All documents or reports subsequently filed by the Company pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchanged Act after the date hereof
and prior to the date of the Special Meeting shall be deemed to be incorporated
by reference into this Proxy Statement and to be a part of this Proxy Statement
from the date of filing of such document. Any statement contained herein, or
in a document all or a portion of which is incorporated or deemed to be
incorporated by reference herein, shall be deemed to be modified or superseded
for purposes of this Proxy Statement to the extent that a statement contained
herein or in any other subsequently filed document which also is or is deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Proxy Statement.
The Company will provide without charge to any person to whom this Proxy
Statement is delivered, or on the written or oral request of such person and by
first class mail or other equally prompt means within one business day of
receipt of such request, a copy of any of or all the foregoing documents
incorporated by reference (other than exhibits not specifically incorporated by
reference into the texts of such documents). Requests for such documents
should be directed to: Donald P. Hunnicutt, Graphic Industries, Inc., 2155
Monroe Drive, N.E., Atlanta, Georgia 30324, (404) 874-3327.
By Order of the Board of Directors,
Donald P. Hunnicutt, Sr.
Secretary
December 10, 1997
PLEASE MARK, SIGN AND DATE THE ACCOMPANY PROXY AND
MAIL IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
PLEASE DO NOT SEND YOUR STOCK CERTIFICATES AT THIS TIME.
36
<PAGE> 43
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Public Accountants.............................. F-2
Consolidated Balance Sheets as of January 31, 1997 and 1996........... F-3
Consolidated Statements of Income for the years ended.................
January 31, 1997, 1996 and 1995...................................... F-4
Consolidated Statements of Shareholders' Equity for the years.........
ended January 31, 1997, 1996 and 1995................................ F-5
Consolidated Statements of Cash Flows for the years ended.............
January 31, 1997, 1996 and 1995...................................... F-6
Notes to Consolidated Financial Statements............................ F-7
Condensed Consolidated Statements of Income (unaudited) for the
three months ended and the six months ended July 31, 1997
and 1996............................................................. F-15
Consolidated Balance Sheets (unaudited) as of July 31, 1997
and 1996............................................................. F-16
Consolidated Statements of Cash Flows (unaudited) for the three
months ended and the six months ended July 31, 1997 and 1996......... F-18
Notes to Consolidated Financial Statements (unaudited)................ F-19
F-1
<PAGE> 44
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Graphic Industries, Inc.
We have audited the accompanying consolidated balance sheets of Graphic
Industries, Inc. and subsidiaries as of January 31, 1997 and 1996, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended January 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Graphic
Industries, Inc. and subsidiaries at January 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended January 31, 1997, in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, in 1995 the
Company changed its method of accounting for its investments in marketable
securities.
/s/ Ernst & Young LLP
Atlanta, Georgia
March 12, 1997
F-2
<PAGE> 45
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 31
-------------------
1997 1996
----- ------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (Notes 1 and 8) $ 7,212,351 $ 14,476,139
Marketable securities (Note 8) 23,577,079 20,031,842
Trade accounts receivable, less allowance for
doubtful accounts of $1,985,000 in 1997 and
$1,250,000 in 1996 (Note 3) 80,658,006 73,807,212
Inventories (Note 3):
Materials 10,113,812 11,695,824
Work in process 18,597,802 18,593,850
------------ ------------
28,711,614 30,289,674
Prepaid expenses and other current assets 1,552,493 1,998,694
Deferred income taxes (Note 4) 3,138,818 1,872,389
------------ ------------
Total current assets 144,850,361 142,475,950
Other assets 10,582,417 5,243,584
Property, plant and equipment (Note 3):
Land 9,027,467 8,414,866
Buildings and improvements 43,637,850 39,693,622
Machinery and equipment 164,719,258 157,372,381
------------ ------------
217,384,575 205,480,869
Less accumulated depreciation 90,250,580 83,041,109
------------ ------------
127,133,995 122,439,760
Goodwill, less accumulated amortization of
$3,311,000 in 1997 and $3,026,000 in 1996 16,909,523 16,343,418
------------ ------------
Total assets $299,476,296 $286,502,712
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable (Notes 3 and 8) $ 15,814,485 $ 16,917,239
Trade accounts payable 21,426,662 19,930,381
Accrued compensation 6,752,127 5,705,247
Other current liabilities 13,365,846 12,243,124
Current portion of long-term obligations 3,471,916 3,609,760
------------ ------------
Total current liabilities 60,831,036 58,405,751
Long-term obligations, less current portion (Notes
3 and 8) 99,676,541 97,651,125
Deferred income taxes (Note 4) 15,620,738 16,043,672
Convertible subordinated debentures (Notes 2 and 8) 20,787,000 20,787,000
Shareholders' equity (Notes 2, 3 and 7):
Preferred stock, no par value--authorized 500,000
shares; none issued - -
Common stock, $.10 par value--authorized
20,000,000 shares; issued and outstanding
7,357,309 shares in 1997 and 7,104,250 shares in
1996; including 78,599 shares in 1997 and 95,791
shares in 1996 held in treasury 735,731 710,425
Common stock, Class B, $.10 par value--authorized
10,000,000 shares; issued and outstanding
4,518,817 in 1997 and 4,519,117 in 1996 451,882 451,912
Additional paid-in capital 19,496,988 17,182,567
Retained earnings (Note 8) 82,657,865 76,229,748
------------ ------------
103,342,466 94,574,652
Treasury stock, at cost (781,485) (959,488)
------------ ------------
Total shareholders' equity 102,560,981 93,615,164
Commitments (Note 5)
------------ ------------
Total liabilities and shareholders' equity $299,476,296 $286,502,712
</TABLE>
SEE ACCOMPANYING NOTES.
F-3
<PAGE> 46
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year ended January 31
===========================================================================================
1997 1996 1995
===========================================================================================
<S> <C> <C> <C>
Net sales $437,107,260 $417,261,697 $348,130,390
Cost of sales 329,515,288 318,319,117 263,485,570
--------------------------------------------------------
107,591,972 98,942,580 84,644,820
Selling, general and
administrative expenses 78,354,798 72,510,489 63,040,317
Restructuring charge (Note 10) 9,000,000 - -
Interest and other income, net 3,595,644 2,670,660 1,716,054
Interest expense 10,654,151 11,712,475 9,539,823
--------------------------------------------------------
Income before income taxes 13,178,667 17,390,276 13,780,734
Income taxes (Note 4) 5,898,000 6,760,000 5,375,000
--------------------------------------------------------
Net income $ 7,280,667 $10,630,276 $ 8,405,734
--------------------------------------------------------
Net income per share:
Primary $ .62 $ .98 $ .80
--------------------------------------------------------
Fully diluted $ .62 $ .95 $ .79
--------------------------------------------------------
See accompanying notes.
</TABLE>
F-4
<PAGE> 47
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
Common Stock Class B Additional
--------------------------------------------------- Paid-In
Shares Amount Shares Amount Capital
=================================================================================================
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 31, 1994 5,872,240 $587,224 4,519,117 $ 451,912 $ 6,698,015
Net income - - - - -
Cumulative effect of change in
accounting principle, net of
tax - - - - -
Adjustment to unrealized loss
on marketable securities,
net of tax - - - - -
Treasury stock award - - - - (6,906)
Purchase of treasury stock - - - - -
Common stock issued under
non-compete agreement 77,650 7,765 - - 665,188
Common stock issued in
connection with acquisition 119,337 11,934 - - 993,066
Common stock issued from
exercise of stock options 165,222 16,522 - - 973,424
Cash dividends on common
stock ($.07) - - - - -
Cash dividends on common stock,
Class B ($.05) - - - - -
----------------------------------------------------------------
BALANCE AT JANUARY 31, 1995 6,234,449 623,445 4,519,117 451,912 9,322,787
Net income - - - - -
Adjustment to unrealized loss
on marketable securities, net of
tax - - - - -
Common stock issued under
employee stock purchase plan 22,214 2,221 - - 200,350
Purchase of treasury stock - - - - -
Common stock issued from
exercise of stock options 239,293 23,929 - - 1,646,994
Common stock award 888 89 - - 7,903
Common stock issued in
connection with acquisitions 607,406 60,741 - - 6,004,533
Cash dividends on common
stock ($.07) - - - - -
Cash dividends on common
stock, Class B ($.05) - - - - -
----------------------------------------------------------------
BALANCE AT JANUARY 31, 1996 7,104,250 710,425 4,519,117 451,912 17,182,567
----------------------------------------------------------------
Net income - - - - -
Adjustment to unrealized loss
on marketable securities, net of
tax - - - - -
Common stock issued under
employee stock purchase plan - - - - (40,795)
Purchase of treasury stock - - - - -
Common stock issued from
exercise of stock options 34,815 3,482 - - 293,536
Common stock award 5,924 592 - - 54,576
Common stock issued in
connection with
current and prior year
acquisitions 212,020 21,202 - - 2,007,104
Class B shares converted to
common stock 300 30 (300) (30) -
Cash dividends on common
stock ($.07) - - - - -
Cash dividends on common
stock, Class B ($.05) - - - - -
----------------------------------------------------------------
BALANCE AT JANUARY 31, 1997 7,357,309 $735,731 4,518,817 $ 451,882 $19,496,988
----------------------------------------------------------------
<CAPTION>
Treasury Stock Total
Retained ----------------------- Shareholders'
Earnings Shares Amount Equity
==================================================================================================
<S> <C> <C> <C> <C>
BALANCE AT JANUARY 31, 1994 $58,854,707 (14,400) $ (160,348) $ 66,431,510
Net income 8,405,734 - - 8,405,734
Cumulative effect of change in
accounting principle, net of
tax 87,000 - - 87,000
Adjustment to unrealized loss
on marketable securities, net of
tax (1,400,352) - - (1,400,352)
Treasury stock award - 2,272 25,299 18,393
Purchase of treasury stock - (77,461) (794,380) (794,380)
Common stock issued under
non-compete agreement - 12,128 135,049 808,002
Common stock issued in
connection with acquisition - - - 1,005,000
Common stock issued from
exercise of stock options - - - 989,946
Cash dividends on common
stock ($.07) (423,047) - - (423,047)
Cash dividends on common
stock, Class B ($.05) (225,956) - - (225,956)
----------------------------------------------------------------
BALANCE AT JANUARY 31, 1995 65,298,086 (77,461) (794,380) 74,901,850
Net income 10,630,276 - - 10,630,276
Adjustment to unrealized loss
on marketable securities, net of
tax 973,030 - - 973,030
Common stock issued under
employee stock purchase plan - 30,243 310,149 512,720
Purchase of treasury stock - (48,573) (475,257) (475,257)
Common stock issued from
exercise of stock options - - - 1,670,923
Common stock award - - - 7,992
Common stock issued in
connection with acquisitions - - - 6,065,274
Cash dividends on common
stock ($.07) (445,688) - - (445,688)
Cash dividends on common
stock, Class B ($.05) (225,956) - - (225,956)
----------------------------------------------------------------
BALANCE AT JANUARY 31, 1996 76,229,748 (95,791) (959,488) 93,615,164
----------------------------------------------------------------
Net income 7,280,667 - - 7,280,667
Adjustment to unrealized loss
on marketable securities, net of
tax (125,144) - - (125,144)
Common stock issued under
employee stock purchase plan - 67,953 686,908 646,113
Purchase of treasury stock - (50,761) (508,905) (508,905)
Common stock issued from
exercise of stock options - - - 297,018
Common stock award - - - 55,168
Common stock issued in
connection with
current and prior year
acquisitions - - - 2,028,306
Class B shares converted to
common stock - - - -
Cash dividends on common
stock ($.07) (501,454) - - (501,454)
Cash dividends on common
stock, Class B ($.05) (225,952) - - (225,952)
----------------------------------------------------------------
BALANCE AT JANUARY 31, 1997 $82,657,865 (78,599) $ (781,485) $102,560,981
================================================================
</TABLE>
See accompanying notes.
F-5
<PAGE> 48
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended January 31
---------------------------------------
1997 1996 1995
==================================================================================
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $7,280,667 $10,630,276 $8,405,734
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 18,999,855 16,599,327 14,113,780
Loss (gain) on sale of property,
plant and equipment and investments 296,675 (671,263) 623,192
Provision for deferred taxes (1,253,000) 169,000 265,000
Changes in operating assets and
liabilities:
Trade accounts receivable (4,800,635) (10,806,806) (118,009)
Inventories 2,861,594 (2,305,649) (5,705,536)
Prepaid expenses and other current
assets 509,961 (330,474) 13,030
Trade accounts payable (1,300,281) (6,257,260) 6,010,620
Other current liabilities 1,540,374 1,694,285 (2,029,170)
-------------------------------------------------
Net cash provided by operating
activities 24,135,210 8,721,436 21,578,641
INVESTING ACTIVITIES
Additions to property, plant and
equipment (23,527,407) (24,982,790) (21,927,430)
Proceeds from sale of property, plant
and equipment 7,354,200 3,868,999 3,937,578
Assets of acquired businesses, net of
cash acquired (7,069,236) (3,330,242) -
Purchase of marketable securities (24,355,192) (12,541,201) (12,263,429)
Proceeds from sale and maturity of
marketable securities 21,182,522 16,226,328 5,569,530
Other investing activities (5,337,297) 4,719,454 (6,110,287)
-------------------------------------------------
Net cash used in investing activities (31,752,410) (16,039,452) (30,794,038)
FINANCING ACTIVITIES
Borrowings on long-term obligations 20,763,478 92,643,850 12,450,971
Payments on long-term obligations (19,069,299) (73,131,436) (10,716,358)
Net repayments of notes payable (1,102,754) (5,380,588) (446,557)
Purchase of treasury stock (508,905) (475,257) (794,380)
Stock options exercised 297,018 1,670,923 989,946
Other financing activities (26,126) (150,932) (630,610)
-------------------------------------------------
Net cash provided by financing
activities 353,412 15,176,560 853,012
-------------------------------------------------
Net increase (decrease) in cash and
cash equivalents (7,263,788) 7,858,544 (8,362,385)
Cash and cash equivalents at beginning
of year 14,476,139 6,617,595 14,979,980
-------------------------------------------------
Cash and cash equivalents at end of year $7,212,351 $14,476,139 $6,617,595
-------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Income taxes $6,039,000 $4,925,000 $6,306,000
-------------------------------------------------
Interest $10,705,000 $11,516,000 $9,743,000
-------------------------------------------------
</TABLE>
NON-CASH TRANSACTIONS
During fiscal year 1995, the Company issued 89,778 shares of its stock (valued
at $808,002) to an officer of the Company in settlement of a non-compete
agreement entered into in fiscal year 1990 when the Company acquired Monroe
Litho, Inc. This transaction is reflected in goodwill in the accompanying
consolidated balance sheets.
See accompanying notes.
F-6
<PAGE> 49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997
1 SUMMARY OF ACCOUNTING POLICIES
Graphics Industries, Inc. and subsidiaries ("GII" or the "Company") are
engaged in providing comprehensive printing, graphic arts services, and related
products and supplies through facilities located in 12 states, principally
Georgia, Texas, Pennsylvania, and Massachusetts. The Company services a
diverse customer base and, therefore, has minimal exposure to credit loss from
any particular customer or industry segment.
The following accounting policies are presented to assist the reader in
understanding the Company's financial statements.
PRINCIPLES OF CONSOLIDATION The consolidated financial statements
include the accounts of the Company and all of its subsidiaries, Baum Printing,
Inc., Carpenter Reserve Printing Company, the Central Press of Miami, Inc.,
Craftsman Printing Company, Graphic Direct, Inc. Illinois, Hermitage Press,
Inc., Hoechstetter Printing Company, Inc., Imaging Technologies Services, Inc.,
IPD Printing & Distributing, Inc., Mercury Printing Company, Inc., Monroe
Litho, Inc., Presstar Printing Corporation, Quadras, Inc., Southern Signatures,
Inc., State Printing Company, Inc., The Stein Printing Company, Inc., Wetmore &
Company, Williams Printing Company, W.E. Andrews Co., Inc., A.C. Scanning, Inc.
and W.E. Andrews Co., Inc., of Connecticut. The operations of Graphic Direct,
Inc. Michigan were merged into other subsidiaries during fiscal year 1995.
During fiscal year 1996, the Company acquired Allied Reprographic Services and
Supplies, Carpenter Reserve Printing Company, and Quadras, Inc. These
acquisitions were financed through issuance of 607,406 shares of the Company's
stock valued at $6,065,274. In December 1995, the Company acquired the
printing operations of Bausch & Lomb for $2,839,000 in cash, including $600,000
for prepaid rebates. Cost exceeded the fair value of net assets for these 1996
acquisitions by approximately $4.5 million.
During fiscal year 1997, the Company acquired The Wimmer Companies,
Inc. and Presstar Printing Corporation. These acquisitions were financed
through issuance of 155,889 shares of the Company's stock valued at $1,458,512
and cash payments amounting to $6,650,927. Cost exceeded the fair value of net
assets for these 1997 acquisitions by approximately $653,000.
The above acquisitions were accounted for using the purchase method of
accounting. Operations of the acquired companies have been included in the
consolidated statements of income from the respective dates of purchase.
All significant intercompany accounts and transactions have been eliminated in
consolidation.
USE OF ESTIMATES The preparation of the consolidated financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts reported
in the consolidated financial statements and accompanying notes. Actual
results may differ from those estimates.
REVENUE RECOGNITION The Company reports revenue, with the related
costs, in the accounting period in which the job is completed and available for
delivery to the customer. The Company generally does not require collateral for
its accounts receivable.
CASH EQUIVALENTS The Company considers all highly liquid investments
with a maturity of three months or less when purchased to be cash equivalents.
INVENTORIES Inventories are stated at the lower of cost (first-in, first-out
basis) or replacement market.
PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is stated
on the basis of cost. Depreciation is computed using the straight-line method
over the estimated useful life of each asset as set forth below. Leases and
leasehold improvements that have been capitalized are amortized over the lives
of the leases. Amortization of these assets is included in depreciation
expense.
<TABLE>
<S> <C>
Buildings 15 - 30 years
Building improvements 5 - 25 years
Machinery and equipment 4 - 10 years
Vehicles 2 - 5 years
</TABLE>
GOODWILL In connection with the Company's acquisitions, costs in
excess of the fair value of net assets acquired are recorded as goodwill.
Goodwill is amortized on a straight-line basis over a forty-year period. The
carrying value of goodwill is reviewed if the facts and circumstances suggest
that it may be impaired. If this review indicates that the goodwill will not
be recoverable, the Company's carrying value of the goodwill would be reduced
to its estimated fair value.
F-7
<PAGE> 50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997
LONG-LIVED ASSETS In March 1995, the FASB issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"),
which requires impairment losses to be recognized for long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are not sufficient to recover
the assets' carrying amount. The Company adopted SFAS 121 in the first quarter
of fiscal year 1997. The adoption had no effect on the financial statements.
CHANGE IN ACCOUNTING PRINCIPLE In fiscal year 1995, the Company
adopted Statement of Financial Accounting Standards No. 115, "Accounting for
Investments in Debt and Equity Securities" ("SFAS 115"). The cumulative effect
of adopting SFAS 115 at February 1, 1994 increased the carrying value of the
Company's marketable securities by $145,000, and also increased shareholders'
equity by $87,000 (net of $58,000 of deferred income taxes) to reflect the
unrealized holding gains on these securities which were previously carried at
cost.
NET INCOME PER COMMON SHARE Primary net income per common share is
based on the weighted average number of shares of common stock outstanding
during each year. Fully diluted net income per share is based on the weighted
average number of shares of common stock outstanding and the assumed conversion
of convertible securities outstanding after appropriate adjustment for interest
on convertible debentures during each year. Shares issuable under the
Company's incentive stock option plans would not materially dilute net income
per share; therefore, they have not been included in the computations. The
number of shares used in computing primary net income per common share was
11,663,751 in 1997, 10,894,319 in 1996 and 10,556,833 in 1995. The number of
shares used in computing fully diluted net income per common share was
12,942,951 in 1997, 12,173,519 in 1996 and 11,836,033 in 1995.
2 CONVERTIBLE SUBORDINATED DEBENTURES
The Company has outstanding $20,787,000 of 7% convertible subordinated
debentures due May 15, 2006. The debentures are unsecured general obligations
of the Company.
The debentures are convertible into common stock of the Company at any
time on or before May 15, 2006, unless previously redeemed, at a conversion
price of $16.25 per share, subject to adjustment, as defined.
The debentures are subject to redemption through payment into a sinking
fund. The sinking fund is scheduled to retire 75% of the debentures prior to
maturity. The Company reacquired and holds $2,338,000 of these debentures.
The Company's intention is to present these debentures to the trustee for
cancellation in lieu of required cash payments into the sinking fund. Remaining
payment requirements for fiscal years ending January 31 are as follows:
<TABLE>
<S> <C>
1998 $ -
1999 1,412,000
2000 1,875,000
2001 1,875,000
2002 1,875,000
Thereafter 13,750,000
-----------
$20,787,000
===========
</TABLE>
3 DEBT
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
January 31
----------------------------
1997 1996
==================================================================================
<S> <C> <C>
Revolving line of credit
with interest at LIBOR
plus 1.75% $ 77,000,000 $ 75,600,000
Term loan agreement with
bank with interest at
prime (8.25% at January
31, 1997) payable in
installments of $383,000
annually, including
interest 1,400,171 1,646,153
Real estate mortgage loan
agreements with interest
from 4.5% to 10.4%, payable
in installments aggregating
from $26,000 to $395,000
annually, including interest 20,426,531 17,771,454
Capital lease obligations, payable
in installments
aggregating from $3,000 to
$302,000 annually, with
interest at 8.4% to 17.65% or
prime plus .25% to.5% 1,827,727 3,043,724
Industrial development revenue
bonds with interest from 3% to
70% of prime (5.78% at January
31, 1997) 458,012 553,874
Other notes with interest at 3% to
11.25% or 30 day commercial paper
rate plus 2.35% 2,036,016 2,645,680
----------------------------
103,148,457 101,260,885
Less amounts due within one year 3,471,916 3,609,760
----------------------------
$ 99,676,541 $ 97,651,125
----------------------------
</TABLE>
F-8
<PAGE> 51
On December 21, 1995, the Company entered into a $110 million
revolving credit facility with a group of lenders led by
NationsBank. The interest rate on this indebtedness is a
floating rate which, at the Company's option, will equal
NationsBank's prime rate or a specified margin (based upon a
specific financial ratio) over LIBOR. This indebtedness is
secured by substantially all the accounts receivable and
inventories of the Company and its subsidiaries.
On November 18, 1996, the revolving credit facility was amended
to include $10 million in additional commitments, for a total
availability of $120 million for this facility. In addition,
the maturity date of the amounts outstanding under the revolving
credit facility was extended one year to December 21, 1998 with
two consecutive one-year renewable periods, with renewal at the
option of the Company.
Under the provisions of the revolving credit facility, the
Company may also borrow up to $10 million for short-term
financing. At January 31, 1997, the Company had borrowed the
full amount available under this provision and such amount is
reflected in notes payable in the accompanying balance sheets.
This facility contains covenants, including maintenance of a
maximum leverage ratio, minimum net worth, a minimum cash flow
to fixed charges ratio, maximum debt to earnings ratio and
certain limits on outstanding debt and ocher transactions.
The Company and certain of its subsidiaries also have credit
agreements with various banks to provide short-term financing,
tied into the revolving credit facility through an intercreditor
provision. Some of these agreements contain covenants,
including maintenance of a minimum net worth and a minimum cash
flow to fixed charges ratio. Under these agreements, the
Company can borrow an aggregate of $25,000,000 as of January 31,
1997. Interest rates on these lines are primarily at the banks'
prime interest rates (8.25% at January 31, 1997). At January
31, 1997, the available unused portion of the credit lines was
approximately $19,200,000. The credit agreements are renewed
and revised periodically.
Certain property, plant and equipment is pledged as collateral
on long-term obligations other than the revolving credit
facility.
Aggregate maturities of long-term obligations as of January 31,
1997, are approximately $3,472,000 in 1998, $2,880,000 in 1999,
$2,761,000 in 2000, $79,688,000 in 2001, $2,180,00 in 2002 and
$12,168,000 thereafter, assuming the revolving credit facility
is renewed to its maximum term.
4 INCOME TAXES
The Company accounts for income taxes using the liability method
as required by Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" ("SFAS 109"). SFAS 109
requires the recognition of deferred tax assets and liabilities
for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases.
The components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
Year ended January 31
-----------------------------
1997 1996 1995
===============================================
<S> <C> <C> <C>
Federal
Current $ 5,902,000 $5,304,000 $3,661,000
Deferred (1,007,000) 138,000 334,000
State
Current 1,249,000 1,287,000 1,449,000
Deferred (246,000) 31,000 (69,000)
------------------------------------
$ 5,898,000 $6,760,000 $5,375,000
</TABLE>
A reconciliation of income tax expense computed at the statutory
federal income tax rate to the Company's effective income tax
rate follows:
<TABLE>
<CAPTION>
Year ended January 31
=====================
<S> <C> <C> <C>
1997 1996 1995
----------------------
Federal rate 34.3% 34.3% 34.3%
State, net of federal tax benefit 6.7 4.6 6.3
Expenses for which no tax benefits were recorded 3.1 1.3 0.9
Other, net .7 (1.3) (2.5)
----------------------
44.8% 38.9% 39.0%
======================
</TABLE>
F-9
<PAGE> 52
Significant components of the Company's deferred tax liabilities and assets are
as follows:
<TABLE>
<CAPTION>
January 31
<S> <C> <C>
1997 1996
Deferred tax liabilities:
Property, plant and equipment $15,367,254 $16,344,631
Other, net 253,484 260,050
-------------------------
Total deferred tax liabilities 15,620,738 16,604,681
Deferred tax assets:
State net operating loss
carryforwards (NOLs) (1,233,581) (1,429,875)
Federal net operating loss
carryforwards - (259,242)
Employee benefit accruals (1,167,642) (1,034,743)
Allowance for doubtful
accounts (795,191) (498,750)
Unrealized loss on
marketable securities (337,490) (238,772)
Other, net (838,495) (312,932)
---------------------------
Total deferred tax assets (4,372,399) (3,774,314)
Valuation allowance for
state NOLs 1,233,581 1,340,916
---------------------------
Net deferred tax liabilities $12,481,920 $14,171,283
===========================
</TABLE>
The deferred tax accounts are presented in the accompanying
balance sheets as follows:
<TABLE>
<CAPTION>
January 31
1997 1996
<S> <C> <C>
Current portion (net asset) $(3,138,818) $(1,872,389)
Long-term portion (net liability) 15,620,738 16,043,672
---------------------------
Net deferred tax liabilities $12,481,920 $14,171,283
===========================
</TABLE>
SFAS 109 requires that a valuation allowance be recognized if it
is "more likely than not" that some or all of the deferred tax
assets will not be realized. Management believes that the
future reversal of existing taxable temporary differences
provides evidence that a significant portion of the deferred tax
assets will be realized. The change in the valuation allowance
during 1997 and 1996 was not material.
5
COMMITMENTS
The Company leases facilities, equipment, machinery and vehicles under
operating leases. Certain land and building leases have renewal options for
periods ranging from one to ten years. Rental expense for operating leases
amounted to $7,995,000, $7,314,000, and $6,655,000 in 1997, 1996, and 1995,
respectively. Future minimum payments under non-cancellable leases with
initial or remaining terms of one year or more consisted of the following at
January 31, 1997:
<TABLE>
<S> <C>
1998 $6,258,000
1999 4,550,000
2000 2,431,000
2001 829,000
2002 208,000
Thereafter 483,000
Total $14,759,000
</TABLE>
The Company and its subsidiaries are involved in certain legal
actions and claims arising in the ordinary course of business.
Management believes (based on advice of legal counsel) that such
litigation and claims will be resolved without material effect
on the Company's financial position.
6
E M P L O Y E E B E N E F I T S
The Company has a profit sharing plan (PSP) which includes a
"salary reduction plan" as described in Section 401(k) of the
Internal Revenue Code. The PSP provides for discretionary
employee contributions not in excess of 15% of the employee's
annual salaries. The salary reduction plan provides for Company
contributions based on 50% of the first 4% of the covered
employee's contribution. The Company expensed contributions to
these plans of approximately $2,308,000, $1,631,000, and
$1,287,000 in 1997, 1996, and 1995, respectively.
The Company has a payroll-based employee stock ownership plan
(Paysop) which provides for contributions made by the Company
and its subsidiaries, as determined by the respective board of
directors, and covers substantially all employees.
Contributions to the plan for the years ended January 31, 1997,
1996, and 1995 were not significant.
The Company has an employee stock purchase plan which provides
for the purchase of up to 500,000 shares of the Company's
outstanding common stock. The plan provides for employee
contributions not to exceed $10,400 per employee in any one
calendar year and allows participants to utilize these
contributions to purchase shares of the Company's common stock
at a 10% discount from market value. The remaining 10% and all
related fees and expenses are paid by the plan.
F-10
<PAGE> 53
Participants may also purchase up to $10,000 of common stock per
year at market value. The Company expensed contributions to the
plan of approximately $87,000, $98,000, and $21,000 during 1997,
1996, and 1995, respectively.
Pursuant to various collective bargaining agreements,
contributions to union-sponsored multi-employer pension plans
made by the Company's two unionized subsidiaries were
approximately $238,000, $279,000, and $400,000 in 1997, 1996,
and 1995, respectively. Information as to the respective
subsidiaries' portion of accumulated plan benefits and plan
net assets is not determinable.
The Company does not provide postretirement benefits, such as
healthcare and life insurance, to retirees.
7
S T O C K O P T I O N AND A W A R D P L A N S
The Company has elected to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB
25") and related Interpretations in accounting for its employee
stock options because, as discussed below, the alternative fair
value accounting provided for under Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123") requires use of option valuation
models that were not developed for use in valuing employee stock
options. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the
underlying stock on the dare of grant, no compensation expense
is recognized.
The Company adopted an Incentive Stock Option Plan in April 1988
("1988 Plan") which permits the granting of options to officers
and key employees to purchase up to an aggregate of 750,000
shares of the Company's common stock, no more than 200,000 of
which may be issued to persons who are directors of the Company.
In April 1991, the Board of Directors approved an amendment to
the 1988 Plan. The number of shares exercisable each year was
changed from 50% in the third and fourth years following the
year of grant to 33 1/3% during January in the three years
following the amendment. Additionally, in fiscal year 1995 each
subsidiary company president was granted a two-year option for
5,000 shares which are exercisable in two cumulative
installments of 50% each year. Options not exercised within the
required times are terminated and cancelled.
The Company adopted a Stock Option Plan in September 1991 ("1991 Plan"). The
Plan permits the granting of incentive stock options or non-qualified stock
options to officers, key employees and outside directors to purchase up to an
aggregate of 1,000,000 shares of the Company's common stock, no more than
250,000 of which may be issued to persons who are directors of the Company.
Options granted under the 1991 Plan are exercisable during January in the three
years following the date of grant in increments of 33 1/3% each year. Options
not exercised within the required times are terminated and cancelled.
The Company adopted a Stock Option Plan in April 1995 ("1995 Plan").
The Plan permits the granting of options to officers, key employees, and
directors of the Company and its subsidiaries to purchase up to an aggregate of
1,000,000 shares of the Company's common stock, no more than 250,000 of which
may be issued to persons who are directors of the Company. Options granted
under the 1995 Plan are exercisable in one designated month occurring in the
period from February to July in each of the three years following the date of
grant in increments of 33 1/3% each year. Options not exercised within the
required times are terminated and cancelled.
Pro forma information regarding net income and earnings per share is required
by SFAS 123, which also requires that the information be determined as if the
Company has accounted for its employee stock options granted subsequent to
January 31, 1995 under the fair value method of that Statement. The fair value
for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 1997
and 1996, respectively: risk-free interest rates of 6.87% and 6.95%; a dividend
yield of .80% and .80%; volatility factors of the expected market price of the
Company's common stock of .35 and .35; and a weighted-average expected life of
the option of 3 years and 3 years.
The Black-Scholes option valuation model was developed for use
in estimating the fair value of traded options which have no
vesting restrictions and are fully transferable. In addition,
option valuation models require the input of highly subjective
assumptions including the expected stock price volatility.
Because the Company's employee stock options have
characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its employee stock
options.
F-11
<PAGE> 54
For purposes of pro forma disclosures, the estimated fair value
of the options is amortized to expense over the options' vesting
period. The Company's pro forma information follows (in
thousands except for earnings per share information):
<TABLE>
<S> <C> <C>
1997 1996
======= =======
Pro forma net income $7,011 $10,341
Pro forma net income per share:
Primary .60 .95
Fully diluted .60 .92
============== ======= =======
</TABLE>
Because SFAS 123 is applicable only to options granted
subsequent to January 31, 1995, its pro forma effect will not be
fully reflected until future years.
A summary of the Company's stock option activity and related information for
the years ended January 31 follows:
<TABLE>
<CAPTION>
Weighted
Average
Options Exercise
(000) Price
=============================================================
<S> <C> <C>
1 9 9 7
Outstanding at beginning of year 728 $8.76
Granted 77 8.43
Exercised (39) 8.67
Canceled (145) 8.82
------
Outstanding at January 31 621 8.71
Shares available for future grants 749
Weighted-average fair value of
options granted during the year 2.42
=================
1 9 9 6
Outstanding at beginning of year 346 $7.48
Granted 648 8.75
Exercised (239) 7.00
Canceled (27) 7.74
Outstanding at January 31 728 8.76
Shares available for future grants 974
Weighted-average fair value of
options granted during the year 2.64
1 9 9 5
Outstanding at beginning of year 375 $5.99
Granted 192 8.78
Exercised (165) 6.01
Canceled (56) 6.29
Outstanding at January 31 346 7.48
Shares available for future grants 595
</TABLE>
Exercise prices for options outstanding as of January 31, 1997
ranged from $7.88 to $9.38. The weighted-average remaining
contractual life of those options is one year. No options were
exercisable at the end of each fiscal year.
In April 1992 the Company adopted a Stock Award Plan. This plan
provides for awards of the Company's common stock to key
employees and directors up to an aggregate of 400,000 shares.
The plan is administered by a committee, appointed by the Board
of Directors, that has full authority to make awards under the
plan. During 1997, 1996 and 1995, 5,924 shares, 888 shares and
2,272 shares, respectively, were awarded under this plan and
charged to compensation expense.
8
F A I R V A L U E O F F I N A N C I A L I N S T R U M E N T S
A N D I N V E S T M E N T S
The following methods and assumptions are used by the Company in
estimating its fair value disclosures for financial instruments.
CASH AND CASH EQUIVALENTS The carrying value of cash and cash
equivalents approximates fair value.
MARKETABLE SECURITIES Management determines the appropriate
classification of securities at the time of purchase and reevaluates such
designations as of each balance sheet date. All marketable securities are
classified as "available-for-sale" and, therefore, are carried at fair value,
with the difference between cost and fair value, net of tax, reported as a
component of retained earnings. At January 31, 1997 and 1996, this difference
was an unrealized loss of approximately $465,000 and $340,000 which was net of
income taxes of approximately $377,000 and $239,000, respectively. This
difference was due to the effect of changes in market interest rates on the
fair value of these securities. Realized gains and losses are included in
investment income. The cost of securities sold is based on the specific
identification method. Interest and dividends on securities classified as
available for sale are included in interest income.
F-12
<PAGE> 55
The following is a summary of available-for-sale securities at
January 31, 1997 and 1996:
<TABLE>
<CAPTION>
Estimated
Gross Unrealized Gross Unrealized Fair
Cost Gains Losses Value
===============================================================================
<S> <C> <C> <C> <C>
1997
U.S. Treasury
bonds $ 4,824,080 $ - $(183,377) $ 4,640,703
Municipal
bond funds 14,873,672 22,710 (552,915) 14,343,467
--------------------------------------------------------------
Total debt
securities 19,697,752 22,710 (736,292) 18,984,170
Equity
securities 3,655,272 35,987 (149,821) 3,541,438
Other
securities 1,066,518 2,640 (17,687) 1,051,471
--------------------------------------------------------------
$24,419,542 $61,337 $(903,800) $23,577,079
1996
U.S. Treasury
bonds $ 1,776,192 $ 9,183 $ - $ 1,785,375
Municipal
bonds 403,500 - (7,500) 396,000
Municipal
bond funds 13,517,193 15,710 (339,538) 13,193,365
--------------------------------------------------------------
Total debt
securities 15,696,885 24,893 (347,038) 15,374,740
Equity
securities 3,953,766 14,425 (263,430) 3,704,761
Other
securities 960,280 18,257 (26,196) 952,341
--------------------------------------------------------------
$20,610,931 $57,575 $(636,664) $20,031,842
==============================================================
</TABLE>
The investments in U.S. Treasury bonds are scheduled to mature
in fiscal years 2025 through 2026.
CONVERTIBLE SUBORDINATED DEBENTURES The fair value of the
debentures approximates $18,916,000 and $19,124,000 as of
January 31, 1997 and 1996, respectively, based on its quoted
market prices.
SHORT-TERM BORROWINGS AND LONG-TERM OBLIGATIONS The carrying
amounts of the short-term borrowings and long-term obligations
approximate the instruments' fair values.
9 R E L A T E D P A R T Y T R A N S A C T I O N S
In January 1995, the Chairman of GII purchased certain land from
GII for $750,000, which represents the higher of two MAI
appraisals obtained. In connection with this transaction, GII
realized a gain of approximately $450,000. This transaction was
approved by the Board of Directors of the Company.
In January 1997, the Chairman of GII purchased a certain
building from GII for $640,000, which represents the higher of
two MAI appraisals obtained. In connection with this
transaction, GII realized a gain of approximately $335,000.
This transaction was approved by the Board of Directors of the
Company.
10 R E S T R U C T U R I N G C H A R G E
On May 14, 1996 the Company announced an agreement in principle
for the sale of its direct-mail subsidiary. Graphic Direct,
Inc.-Illinois ("GDI") and the closing of a commercial printing
subsidiary, The Stein Printing Company, Inc. ("SPC"). On May
31, 1996, the sale of certain assets of GDI was concluded. In
connection with these actions, the Company recorded in its first
quarter ended April 30, 1996, a one-time pre-tax restructuring
charge of $9,000,000. The after-tax effect of the charge was
$6,026,500 or equivalent to $0.52 per common share. The charge
primarily covers the costs of liquidating and disposing of
certain assets, the write-off of intangible assets, and a
provision for certain expenses, including severance pay and
future lease obligations.
F-13
<PAGE> 56
The composition of the Company's restructuring reserves as of January
31, 1997 is as follows:
<TABLE>
<CAPTION>
Original Writedown Cash Restructuring
Restructuring of Assets Payments Reserves as of
Reserve to Fair Value January 31, 1997
===================================================================================================
<S> <C> <C> <C> <C>
Restructuring loss on
writedown of current assets $1,633,665 $(1,633,665) $ - $ -
Restructuring loss on
writedown of property and
equipment and other assets 2,516,688 (2,516,688) - -
Restructuring expenditures
to close facilities
including termination
benefits of $2,177,271 4,161,018 - 3,149,392 1,011,626
Impairment loss on
intangible assets 688,629 (688,629) - -
----------------------------------------------------------------------
Total restructuring reserves $9,000,000 $(4,838,982) $3,149,392 $1,011,626
======================================================================
</TABLE>
For the year ended January 31, 1996, the combined results for GDI and
SPC were net sales of $32,647,782 and a pre-tax loss of $(1,376,281). For the
year ended January 31, 1997, the combined results were net sales of $9,602,649
and pre-tax loss of $(70,055).
At January 31, 1997, the Company believes that the provision for
restructuring continues to be adequate and will not require adjustment
in future periods.
F-14
<PAGE> 57
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
THREE MONTHS ENDED SIX MONTHS ENDED
JULY 31, JULY 31,
------------------------- -------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $110,324,269 $102,068,890 $225,570,076 $215,030,091
Cost of sales 83,580,514 77,270,786 169,158,403 161,651,259
------------ ------------ ------------ ------------
26,743,755 24,798,104 56,411,673 53,378,832
Selling,
general and
administrative
expenses 19,927,519 18,977,889 40,910,638 39,610,841
Restructuring
charge - - - 9,000,000
Interest and
other income-net 990,149 886,756 1,650,606 1,657,470
Interest expense 3,018,938 2,729,741 5,776,130 5,418,280
------------ ------------ ------------ ------------
Income before
income taxes 4,787,447 3,977,230 11,375,511 1,007,181
Income taxes 1,915,000 1,591,000 4,550,000 1,030,000
------------ ------------ ------------ ------------
Net income (loss) $ 2,872,447 $ 2,386,230 $ 6,825,511 $ (22,819)
============ ============ ============ ============
Net income
per share:
Primary $ .24 $ .21 $ .58 $ -
===== ===== ===== ====
Fully diluted.23 $ .20 $ .55 $ -
===== ===== ===== ====
Dividends declared:
Common Stock $.0175 $.0175 $.035 $.035
====== ====== ===== =====
Class B Common
Stock $.0125 $.0125 $.025 $.025
====== ====== ===== =====
</TABLE>
See notes to condensed consolidated financial statements.
F-15
<PAGE> 58
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JULY 31, JANUARY 31,
1997 1997
------------ ------------
(Unaudited)
<S> <C> <C>
A S S E T S
- -----------
Current Assets
Cash and marketable securities $ 29,818,841 $ 30,789,430
Trade accounts receivable 81,587,020 80,658,006
Inventories:
Materials 11,513,478 10,113,812
Work in process 25,207,438 18,597,802
------------ ------------
36,720,916 28,711,614
Prepaid expenses and other
current assets 6,393,585 4,691,311
------------ ------------
Total Current Assets 154,520,362 144,850,361
Other Assets 13,229,721 10,582,417
Property, Plant and Equipment
Land 10,315,438 9,027,467
Buildings and improvements 46,933,559 43,637,850
Machinery and equipment 176,963,373 164,719,258
------------ ------------
234,212,370 217,384,575
Less accumulated depreciation 97,494,523 90,250,580
------------ ------------
136,717,847 127,133,995
Goodwill-net 18,415,974 16,909,523
------------ ------------
$322,883,904 $299,476,296
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
F-16
<PAGE> 59
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JULY 31, JANUARY 31,
1997 1997
----------------- ------------
<S> <C> <C>
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current Liabilities
Notes payable $ 17,103,985 $ 15,814,485
Accounts payable 20,988,317 21,426,662
Other current liabilities 17,317,677 20,117,973
Current portion of long-term
obligations 3,751,647 3,471,916
------------ ------------
Total Current Liabilities 59,161,626 60,831,036
Long-Term Obligations, less
current portion 113,881,136 99,676,541
Deferred Income Taxes 16,235,940 15,620,738
7% Convertible Subordinated
Debentures 19,353,000 20,787,000
Shareholders' Equity
Preferred Stock, no par value;
authorized 500,000
shares; none issued -0- -0-
Common Stock, $.10 par value;
authorized 20,000,000 shares;
issued 7,829,663 at July 31,
1997 and 7,357,309 at January
31,1997, including treasury
shares of 89,313 at July 31,
1997 and 78,599 at January
31, 1997 782,966 735,731
Common Stock, Class B, $.l0 par
value; authorized 10,000,000
shares; issued 4,518,817 in
both periods 451,882 451,882
Additional paid-in capital 24,393,208 19,496,988
Retained earnings 89,559,810 82,657,865
------------ ------------
115,187,866 103,342,466
Less treasury stock at cost (935,664) (781,485)
------------ ------------
114,252,202 102,560,981
------------ ------------
$322,883,904 $299,476,296
============ ============
</TABLE>
F-17
<PAGE> 60
See notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
July 31,
----------------------------
1997 1996
------------- -------------
OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) $ 6,825,511 $ (22,819)
Restructuring charge, net of tax -0- 2,101,566
Depreciation and amortization 9,989,929 8,886,885
Net (gain) loss on sale of property,
plant and equipment and investments (1,019,082) 936,476
Gain on purchase of Convertible
Subordinated Debentures (81,405) -0-
Provision for deferred taxes 227,500 200,175
Changes in operating assets and liabilities (12,752,847) (6,698,235)
------------ -------------
Net cash provided by operating activities 3,189,606 5,404,048
INVESTING ACTIVITIES
Additions to property, plant and equipment (14,149,845) (8,789,594)
Proceeds from sale of property, plant and
equipment 1,771,937 3,991,134
Assets of acquired businesses, net of
cash acquired (1,073,565) (1,445,121)
Net sale (purchase) of marketable securities 9,558,254 (5,849,177)
Other investing activities (3,612,743) (5,809,340)
------------ -------------
Net cash used in investing activities (7,505,962) (17,902,098)
FINANCING ACTIVITIES
Borrowings on long-term obligations 12,566,303 3,000,000
Payments on long-term obligations (1,728,696) (2,015,197)
Net borrowings on notes payable 1,289,500 477,458
Purchase of Convertible Subordinated
Debentures (1,352,595) -0-
Dividends (369,270) (362,485)
Other financing activities 1,206,262 405,480
------------ -------------
Net cash provided by financing activities 11,611,504 1,505,256
------------ -------------
Net increase (decrease) in cash and cash
equivalent 7,295,148 (10,992,794)
Cash and cash equivalents at beginning of period 7,212,351 14,476,139
------------ -------------
Cash and cash equivalents at end of period $ 14,507,499 $ 3,483,345
============ =============
</TABLE>
F-18
<PAGE> 61
See notes to condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JULY 31, 1997
NOTE A--BASIS OF PRESENTATION
The financial statements included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information not misleading. These financial statements should be read
in conjunction with the financial statements and related notes contained in the
1997 Annual Report on Form 10-K. In the opinion of Management, the financial
statements contain all adjustments of a normal recurring nature necessary to
present fairly the financial position as of July 31, 1997 and the results of
the operations and cash flows for the three months and six months then ended.
The results of operations for the six months ended July 31, 1997 are not
necessarily indicative of the results to be expected for the year ending
January 31, 1998.
NOTE B--MARKETABLE SECURITIES
The Company determines the appropriate classification of securities at the time
of purchase and reevaluates such securities at each balance sheet date. At
July 31, 1997, all marketable securities were classified as "available for
sale" and, therefore, were carried at fair value, with the difference between
cost and fair value, net of tax, reported as a component of retained earnings.
At July 31, 1997, this difference was an unrealized loss of $19,755 net of
income taxes of $16,163. This difference was due to the effect of changes in
market interest rates on the fair value of these securities.
NOTE C--NET INCOME PER COMMON SHARE
Primary earnings per share are computed based on the weighted average number of
common shares outstanding during the period. The common share equivalents did
not materially dilute primary earnings per share. Fully diluted earnings per
share are based on the weighted average number of common shares and common
share equivalents outstanding and, when dilutive, assumed conversion of
convertible securities during the period, after appropriate adjustments for
interest and applicable income tax effect.
NOTE D--SFAS NO. 128, "EARNINGS PER SHARE"
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<PAGE> 62
In February 1997 the Financial Accounting Standards Board issued a new
accounting pronouncement, SFAS No. 128, "Earnings per Share", which will
change the current method of computing earnings per share. The new standard
requires presentation of "basic earnings per share" and "diluted earnings per
share" amounts, as defined. SFAS No. 128 will be effective for the Company's
quarter and year ending January 31, 1998, and, upon adoption, all prior-period
earnings per share data presented shall be restated to conform with the
provisions of the new pronouncement. Application earlier than the Company's
quarter ending January 31, 1998 is not permitted.
Proforma basic and diluted earnings per share for the three months and six
months ended July 31, 1997 and 1996 calculated under the provisions of SFAS No.
128 are as follows:
<TABLE>
<CAPTION>
Quarter Ended July 31, Six Months Ended July 31,
---------------------- -------------------------
1997 1996 1997 1996
----------------------- -------- ------------
<S> <C> <C> <C> <C>
Basic earnings per share $.24 $.21 $.58 -
Diluted earnings per share $.23 $.20 $.55 -
</TABLE>
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Annex I
Conformed
---------
================================================================================
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
AMONG
WALLACE COMPUTER SERVICES, INC.,
GREENWICH ACQUISITION CORP.,
AND
GRAPHIC INDUSTRIES, INC.
DATED AS OF OCTOBER 12, 1997
================================================================================
<PAGE> 64
TABLE OF CONTENTS
-----------------
Page
<TABLE>
ARTICLE I
The Offer
<S> <C> <C>
SECTION 1.01. The Offer 2
SECTION 1.02. Company Actions 4
ARTICLE II
The Merger
SECTION 2.01. The Merger 6
SECTION 2.02. Closing 6
SECTION 2.03. Effective Time 6
SECTION 2.04. Effects of the Merger 6
SECTION 2.05. Articles of Incorporation and By-laws 6
SECTION 2.06. Directors 7
SECTION 2.07. Officers 7
SECTION 2.08. Option to Consummate Acquisition Solely Through Merger 7
ARTICLE III
Effect of the Merger on the Capital Stock of the
Constituet Corporations; Exchange of Certificates
SECTION 3.01. Effect on Capital Stock 7
(a) Capital Stock of Sub 7
(b) Cancellation of Treasury Stock and Parent
Owned Stock 7
(c) Conversion of Shares and Class B Shares 8
(d) Shares of Dissenting Stockholders 8
SECTION 3.02. Exchange of Certificates 8
(a) Paying Agent 8
(b) Exchange Procedure 9
(c) No Further Ownership Rights in Shares
or Class B Shares 10
(d) Termination of Payment Fund 10
(e) No Liability 10
</TABLE>
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<TABLE>
ARTICLE IV
Representations and Warranties of the Company
<S> <C> <C>
SECTION 4.01. Organization 11
SECTION 4.02. Subsidiaries 11
SECTION 4.03. Capitalization 11
SECTION 4.04. Authority 12
SECTION 4.05. Consents and Approvals; No Violations 12
SECTION 4.06. SEC Reports and Financial Statements 13
SECTION 4.07. Absence of Certain Changes or Events 14
SECTION 4.08. No Undisclosed Liabilities 15
SECTION 4.09. Information Supplied 15
SECTION 4.10. Benefit Plans; Employees and Employment
Practices 16
SECTION 4.11. Contracts; Indebtedness 19
SECTION 4.12. Litigation 19
SECTION 4.13. Compliance with Applicable Law 20
SECTION 4.14. Tax Matters 20
SECTION 4.15. State Takeover Statutes; Charter Provisions 22
SECTION 4.16. Environmental Matters 22
SECTION 4.17. Intellectual Property 23
SECTION 4.18. Brokers; Schedule of Fees and Expenses 24
SECTION 4.19. Opinion of Financial Advisor 24
ARTICLE V
Representations and Warranties of Parent and Sub
SECTION 5.01. Organization 25
SECTION 5.02. Authority 25
SECTION 5.03. Consents and Approvals; No Violations 25
SECTION 5.04. Information Supplied 26
SECTION 5.05. Interim Operations of Sub 26
SECTION 5.06. Brokers 26
ARTICLE VI
Covenants
SECTION 6.01. Covenants of the Company 26
(a) Ordinary Course 26
(b) Dividends; Changes in Stock 27
(c) Issuance of Securities 27
(d) Governing Documents 27
(e) No Acquisitions 27
(f) No Dispositions 28
(g) Indebtedness 28
(h) Advice of Changes; Filings 28
(i) Tax Matters 28
(j) Capital Expenditures 29
</TABLE>
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<TABLE>
<S> <C> <C>
(k) Discharge of Liabilities 29
(l) Benefit Plans 29
(m) Compensation 29
(n) Material Contracts 29
(o) General 30
SECTION 6.02. No Solicitation 30
SECTION 6.03. Third Party Standstill Agreements 32
SECTION 6.04. Other Actions 32
SECTION 6.05. Certain Waivers and Consents 32
SECTION 6.06. Information Relating to Certain
Benefit Plans 32
SECTION 6.07. Certain Deliveries 33
ARTICLE VII
Additional Agreements
SECTION 7.01. Stockholder Approval; Preparation of Proxy
Statement 33
SECTION 7.02. Access to Information 34
SECTION 7.03. Reasonable Best Efforts 35
SECTION 7.04. Directors 35
SECTION 7.05. Fees and Expenses 36
SECTION 7.06. Indemnification; Insurance 37
SECTION 7.07. Certain Litigation 37
SECTION 7.08. Stock-Based Compensation 38
SECTION 7.09. Allocation of Shares Under Qualified Plans 38
ARTICLE VIII
Conditions
SECTION 8.01. Conditions to Each Party's Obligation To
Effect the Merger 39
(a) Company Stockholder Approval 39
(b) No Injunctions or Restraints 39
(c) Purchase of Shares 39
SECTION 8.02. Conditions to Each Party's Obligation to Effect
the Merger Upon Exercise of the Merger Option 39
(a) Company Stockholder Approval 39
(b) No Injunctions or Restraints 39
(c) Performance of Obligations; Representations
and Warranties 39
(d) HSR Period 40
ARTICLE IX
Termination and Amendment
SECTION 9.01. Termination 40
SECTION 9.02. Effect of Termination 41
</TABLE>
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<TABLE>
<S> <C> <C>
SECTION 9.03. Amendment 41
SECTION 9.04. Extension; Waiver 42
ARTICLE X
Miscellaneous
SECTION 10.01. Nonsurvival of Representations, Warranties
and Agreements 42
SECTION 10.02. Notices 42
SECTION 10.03. Interpretation 43
SECTION 10.04. Counterparts 44
SECTION 10.05. Entire Agreement; No Third Party
Beneficiaries 44
SECTION 10.06. Governing Law 44
SECTION 10.07. Publicity 44
SECTION 10.08. Assignment 44
SECTION 10.09. Merger of the Company into Sub 45
SECTION 10.10. Enforcement 45
</TABLE>
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<PAGE> 68
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (this "Agreement") dated
as of October 12, 1997, among WALLACE COMPUTER SERVICES, INC., a Delaware
corporation ("Parent"), GREENWICH ACQUISITION CORP., a Georgia corporation and
a wholly owned subsidiary of Parent ("Sub"), and GRAPHIC INDUSTRIES, INC., a
Georgia corporation (the "Company").
W I T N E S S E T H:
WHEREAS, Parent, Sub and the Company are parties to that certain Agreement
and Plan of Merger dated as of September 28, 1997 (the "Original Merger
Agreement");
WHEREAS, pursuant to the Original Merger Agreement, on October 3, 1997 Sub
commenced a tender offer (the "Existing Offer") to purchase the shares of
Common Stock, par value $.10 per share, of the Company (the "Company Common
Stock"; the shares of Company Common Stock being hereinafter referred to as the
"Shares") at a purchase price of $18.50 per share, net to the seller in cash,
without interest thereon, upon the terms and subject to the conditions set
forth in the Original Merger Agreement, in furtherance of the acquisition of
the Company by Parent;
WHEREAS, Parent, Sub and the Company wish to amend the Original Merger
Agreement to provide for the amendment of the offer price to be paid for the
Shares in Sub's tender offer and the consideration to be paid for the Shares
and the Class B Shares (as defined below) in the Merger (as defined below) and
to make certain other amendments to the Original Merger Agreement;
WHEREAS, the respective Boards of Directors of Parent, Sub and the Company
have approved the acquisition of the Company by Parent on the terms and subject
to the conditions set forth in this Agreement;
WHEREAS, in furtherance of such acquisition, Parent proposes to cause Sub
to amend the Existing Offer (as so amended and as it may be further amended
from time to time as permitted under this Agreement, the "Offer") to increase
the purchase price for the Shares to $21.75 per share (such amount, or any
higher price that may be paid for each Share in the Offer, being hereinafter
referred to as the "Offer Price"), net to the seller in cash, without interest
thereon, upon the terms and subject to the conditions set forth in this
Agreement; and the Board of Directors of the Company has adopted resolutions
approving the Offer and the Merger and recommending that holders of Shares
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accept the Offer and that the Company's stockholders approve and adopt this
Agreement;
WHEREAS, the respective Boards of Directors of Parent, Sub and the Company
have each approved the merger of Sub into the Company (the "Merger"), upon the
terms and subject to the conditions set forth in this Agreement, whereby each
of the Shares and each share of Class B Common Stock, par value $.10 per share,
of the Company (the "Class B Common Stock"; the shares of Class B Common Stock
being hereinafter referred to as the "Class B Shares"), other than the Shares
and Class B Shares owned directly or indirectly by Parent or the Company and
Dissenting Shares (as defined in Section 3.01(d)), will be converted into the
right to receive the Offer Price;
WHEREAS, the Board of Directors of the Company has approved the terms of
the Amended and Restated Stockholder Agreement (the "Stockholder Agreement") to
be entered into by Parent, Sub and Mark C. Pope III, as a stockholder of the
Company, concurrently with the execution of this Agreement as an inducement to
Parent to enter into this Agreement, which Amended and Restated Stockholder
Agreement supersedes the Stockholder Agreement dated as of September 28, 1997
among such parties (the "Original Stockholder Agreement"); and
WHEREAS, Parent, Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Offer and the Merger and also to prescribe various conditions to the Offer and
the Merger.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby,
Parent, Sub and the Company hereby agree as follows:
ARTICLE I
The Offer
--------
SECTION 1.01. The Offer. (a) Subject to the provisions of this
Agreement, as promptly as practicable but in no event later than five business
days after the date of the public announcement by Parent and the Company of
this Agreement, Sub shall, and Parent shall cause Sub to, amend the Existing
Offer to reflect the Offer Price and to make such other amendments as are
necessary to conform the Existing Offer to this Agreement. The obligation of
Sub to, and of Parent to cause Sub to, amend the Offer and accept for payment,
and pay for, any Shares tendered pursuant to the Offer shall be subject only to
the conditions set forth in Exhibit A (the "Offer Conditions") and to the terms
and conditions of this Agreement, including the Merger Option (as defined
herein) (any of which may be waived in
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<PAGE> 70
whole or in part by Sub in its sole discretion, except that Sub shall not
waive the Minimum Condition (as defined in Exhibit A) without the consent of
the Company). Sub expressly reserves the right to modify the terms of the
Offer, except that, without the consent of the Company, Sub shall not (i)
reduce the number of Shares subject to the Offer, (ii) reduce the Offer Price,
(iii) impose any other conditions to the Offer other than the Offer Conditions
or modify the Offer Conditions (other than to waive any Offer Conditions to the
extent permitted by this Agreement), (iv) except as provided in the next
sentence, extend the Offer or (v) change the form of consideration payable in
the Offer. Notwithstanding the foregoing, Sub may, without the consent of the
Company, (i) extend the Offer, if at the scheduled or extended expiration date
of the Offer any of the Offer Conditions shall not be satisfied or waived,
until such time as such conditions are satisfied or waived, (ii) extend the
Offer for any period required by any rule, regulation, interpretation or
position of the Securities and Exchange Commission (the "SEC") or the staff
thereof applicable to the Offer and (iii) extend the Offer for any reason on
one or more occasions for an aggregate period of not more than 15 business days
beyond the latest expiration date that would otherwise be permitted under
clause (i) or (ii) of this sentence, in each case subject to the right of
Parent, Sub or the Company to terminate this Agreement pursuant to the terms
hereof. Parent and Sub agree that if at any scheduled expiration date of the
Offer, the Minimum Condition or the HSR Condition (as defined in Exhibit A)
shall not have been satisfied and none of the conditions set forth in
paragraphs (a), (b), (c), (d), (e), (f), (g) or (h) of Exhibit A shall exist,
at therequest of the Company (confirmed in writing), Sub shall extend the Offer
from time to time, subject to the right of Parent, Sub or the Company to
terminate this Agreement pursuant to the terms hereof. Subject to the terms
and conditions of the Offer and this Agreement, Sub shall, and Parent shall
cause Sub to, accept for payment, and pay for, all Shares validly tendered and
not withdrawn pursuant to the Offer that Sub becomes obligated to accept for
payment, and pay for, pursuant to the Offer as soon as practicable after the
expiration of the Offer.
(b) On the date of amendment of the Existing Offer, Parent and Sub shall
file with the SEC an amendment (the "14D-1 Amendment") to its Tender Offer
Statement on Schedule 14D-1 dated as of October 3, 1997 (as amended from time
to time, the "Schedule 14D-1") with respect to the Offer, which shall contain
such amendments and supplements to the offer to purchase and a related letter
of transmittal and summary advertisement as Parent, in its reasonable judgment,
shall deem necessary (such Schedule 14D-1 and the documents included therein
pursuant to which the Offer will be made, together with any supplements or
amendments thereto, the "Offer Documents"), and Parent and Sub shall cause to
be disseminated the Offer Documents to holders of Shares as and to the extent
required by applicable Federal securities laws. Parent, Sub and the Company
each agrees
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<PAGE> 71
promptly to correct any information provided by it for use in the Offer
Documents if and to the extent that such information shall have become false or
misleading in any material respect, and Parent and Sub further agree to take
all steps necessary to cause the Schedule 14D-1 as so corrected to be filed
with the SEC and the other Offer Documents as so corrected to be disseminated
to holders of Shares, in each case as and to the extent required by applicable
Federal securities laws. The Company and its counsel shall be given reasonable
opportunity to review and comment upon the Offer Documents prior to their
filing with the SEC or dissemination to the stockholders of the Company. Parent
and Sub agree to provide the Company and its counsel any comments Parent, Sub
or their counsel may receive from the SEC or its staff with respect to the
Offer Documents promptly after the receipt of such comments and to cooperate
with the Company and its counsel in responding to any such comments.
(c) Parent shall provide or cause to be provided to Sub on a timely basis
the funds necessary to accept for payment, and pay for, any Shares that Sub
becomes obligated to accept for payment, and pay for, pursuant to the Offer.
SECTION 1.02. Company Actions. (a) The Company hereby approves of and
consents to the Offer and represents and warrants that the Board of Directors
of the Company, at a meeting duly called and held, at which all directors were
present, duly and unanimously adopted resolutions approving and adopting this
Agreement, approving the Offer, the Merger and the Stockholder Agreement,
determining that the terms of the Offer and the Merger are fair to, and in the
best interests of, the Company's stockholders and recommending that holders of
Shares accept the Offer and that the Company's stockholders approve this
Agreement and the Merger. The Company represents and warrants that its Board
of Directors has received the opinion of Interstate/Johnson Lane Corporation
that the proposed consideration to be received by holders of Shares pursuant to
the Offer, and by holders of Shares and Class B Shares pursuant to the Merger,
is fair to such holders from a financial point of view, and a complete and
correct signed copy of such opinion will be promptly delivered by the Company
to Parent. The Company has been advised by each of its directors and executive
officers that each such person intends to tender all Shares owned by such
person pursuant to the Offer.
(b) On the date the 14D-1 Amendment is filed with the SEC, the Company
shall file with the SEC an amendment to its Solicitation/ Recommendation
Statement on Schedule 14D-9 dated as of October 3, 1997 with respect to the
Existing Offer (such Schedule 14D-9, as amended from time to time, the
"Schedule 14D-9") containing the recommendation described in paragraph (a)
(subject to the right of the Board of Directors of the Company to withdraw or
modify its approval or recommendation of the Offer, the Merger and this
Agreement as set forth in
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Section 6.02(b), and the Compay shall cause to be disseminated the Schedule
14D-9 to holders of Shares as and to the extent required by applicable Federal
securities laws. Each of the Company, Parent and Sub agrees promptly to
correct any information provided by it for use in the Schedule 14D-9 if and to
the extent that such information shall have become false or misleading in any
material respect, and the Company further agrees to take all steps necessary to
amend or supplement the Schedule 14D-9 and to cause the Schedule 14D-9 as so
amended or supplemented to be filed with the SEC and disseminated to holders of
Shares, in each case as and to the extent required by applicable Federal
securities laws. Parent and its counsel shall be given reasonable opportunity
to review and comment upon the Schedule 14D-9 prior to its filing with the SEC
or dissemination to stockholders of the Company. The Company agrees to provide
Parent and its counsel any comments the Company or its counsel may receive from
the SEC or its staff with respect to the Schedule 14D-9 promptly after the
receipt of such comments and to cooperate with Parent, Sub and their counsel in
responding to any such comments.
(c) In connection with the Offer and the Merger, the Company shall cause
its transfer agent or agents to furnish Sub promptly with mailing labels
containing the names and addresses of the record holders of Shares and Class B
Shares as of a recent date and of those persons becoming record holders
subsequent to such date, together with copies of all lists of stockholders,
security position listings and computer files and all other information in the
Company's possession or control, to the extent reasonably available to the
Company, regarding the beneficial owners of Shares, Class B Shares and any
securities convertible into Shares, and shall furnish to Sub such information
and assistance (including updated lists of stockholders, security position
listings and computer files) as Parent may reasonably request in communicating
the Offer to the Company's stockholders. Subject to the requirements of
applicable law, and except for such steps as are necessary to disseminate the
Offer Documents and any other documents necessary to consummate the Merger,
Parent and Sub and their agents shall hold in confidence the information
contained in any such labels, listings and files, will use such information
only in connection with the Offer and the Merger and, if this Agreement shall
be terminated, will, upon request, deliver, and will use their best efforts to
cause their agents to deliver, to the Company all copies of such information
then in their possession or control.
(d) The Company shall transmit to each holder of Class B Shares
contemporaneously with the transmission of the Offer Documents to the holders
of Shares (i) the Offer Documents, (ii) a letter stating that holders of Class
B Shares who wish to participate in the Offer must request the conversion of
their Class B Shares into Shares pursuant to the Amended and Restated Articles
of Incorporation of the Company and (iii) a form of
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<PAGE> 73
conversion request, which conversion request shall provide that a holder of
Class B Shares requests conversion thereof simultaneous with Sub's first
acceptance for payment of Shares pursuant to the Offer, and that the Shares
received upon such conversion shall be deemed validly tendered pursuant to the
Offer.
ARTICLE II
The Merger
SECTION 2.01. The Merger. Upon the terms and subject to the conditions
set forth in this Agreement, and in accordance with the Georgia Business
Corporation Code (the "GBCC"), Sub shall be merged with and into the Company at
the Effective Time (as defined in Section 2.03). Following the Effective Time,
the separate corporate existence of Sub shall cease and the Company shall
continue as the surviving corporation (the "Surviving Corporation") and shall
succeed to and assume all the rights and obligations of Sub in accordance with
the GBCC.
SECTION 2.02. Closing. The closing of the Merger will take place at 10:00
a.m. on a date mutually agreed to by Parent and the Company, which shall be no
later than the second business day after satisfaction or waiver of the
conditions set forth in Article VIII (the "Closing Date"), at the offices of
Sidley & Austin, One First National Plaza, Chicago, Illinois 60603, unless
another date, time or place is agreed to in writing by the parties hereto.
SECTION 2.03. Effective Time. Subject to the provisions of this
Agreement, as soon as practicable on or after the Closing Date, the parties
shall file a certificate of merger or other appropriate documents (in any such
case, the "Certificate of Merger") executed in accordance with the relevant
provisions of the GBCC and shall make all other filings or recordings required
under the GBCC. The Merger shall become effective at such time as the
Certificate of Merger is duly filed with the Secretary of State of the State of
Georgia, or at such other time as Sub and the Company shall agree should be
specified in the Certificate of Merger (the time the Merger becomes effective
being hereinafter referred to as the "Effective Time").
SECTION 2.04. Effects of the Merger. The Merger shall have the effects
set forth in Section 14-2-1106 of the GBCC.
SECTION 2.05. Articles of Incorporation and By-laws. (a) The Amended and
Restated Articles of Incorporation of the Company, as in effect immediately
prior to the Effective Time, shall be amended as of the Effective Time so
that Article V of such Amended and Restated Articles of Incorporation reads in
its entirety as follows: "The total number of shares of all classes of stock
that the corporation shall have authority to issue is
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<PAGE> 74
1,000 shares of Common Stock, par value $.10 per share. Any references to Class
B Common Stock, Class B Stock or Preferred Stock contained in any other Article
hereof shall be disregarded." Such Amended and Restated Articles of
Incorporation, as so amended, shall be the articles of incorporation of the
Surviving Corporation until thereafter changed or amended as provided therein
or by applicable law.
(b) The By-laws of Sub as in effect immediately prior to the Effective
Time shall be the By-laws of the Surviving Corporation, until thereafter
changed or amended as provided therein or by applicable law.
SECTION 2.06. Directors. The directors of Sub immediately prior to the
Effective Time shall be the directors of the Surviving Corporation, until the
earlier of their resignation or removal or until their respective successors
are duly elected and qualified, as the case may be.
SECTION 2.07. Officers. The officers of the Company immediately prior to
the Effective Time shall be the officers of the Surviving Corporation, until
the earlier of their resignation or removal or until their respective
successors are duly elected and qualified, as the case may be.
SECTION 2.08. Option to Consummate Acquisition Solely Through Merger.
Notwithstanding anything to the contrary contained in this Agreement, Parent
may, at its option and upon written notice to the Company, elect to terminate
the Offer and seek to acquire the Company solely by means of the Merger (the
"Merger Option"). If Parent elects to exercise the Merger Option, the Merger
shall be subject to the conditions set forth in Section 8.02 hereof (instead of
Section 8.01 hereof). Upon Parent's election of the Merger Option, the Company
shall promptly take the actions described in Section 7.01 with respect to
obtaining the Company Stockholder Approval. To the extent deemed necessary by
Parent in connection with the exercise of the Merger Option, the Company shall
enter into an amendment and restatement of this Agreement with Parent and Sub.
ARTICLE III
Effect of the Merger on the Capital Stock of the
Constituent Corporations; Exchange of Certificates
SECTION 3.01. Effect on Capital Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of the holder of any
Shares or Class B Shares or any shares of capital stock of Sub:
(a) Capital Stock of Sub. Each issued and outstanding share of
capital stock of Sub shall be converted into and
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become one fully paid and nonassessable share of Common Stock, par value
$.10 per share, of the Surviving Corporation.
(b) Cancellation of Treasury Stock and Parent Owned Stock. Each
Share and Class B Share that is owned by the Company or by any subsidiary
of the Company and each Share and Class B Share that is owned by Parent,
Sub or any other subsidiary of Parent shall automatically be canceled and
retired and shall cease to exist, and no consideration shall be delivered
in exchange therefor.
(c) Conversion of Shares and Class B Shares. Subject to Section
3.01(d), each Share and Class B Share issued and outstanding (other than
Shares and Class B Shares to be canceled in accordance with Section
3.01(b)) shall be converted into the right to receive from the Surviving
Corporation in cash, without interest, the Offer Price (the "Merger
Consideration"). As of the Effective Time, all such Shares and Class B
Shares shall no longer be outstanding and shall automatically be canceled
and retired and shall cease to exist, and each holder of a certificate
representing any such Shares or Class B Shares shall cease to have any
rights with respect thereto, except the right to receive the Merger
Consideration, without interest.
(d) Shares of Dissenting Stockholders.
Notwithstanding anything in this Agreement to the contrary, any issued and
outstanding Shares or Class B Shares held by a person (a "Dissenting
Stockholder") who objects to the Merger and complies with all the
provisions of GBCC concerning the right of holders of Shares and/or Class
B Shares to dissent from the Merger and require appraisal of their Shares
and/or Class B Shares ("Dissenting Shares") shall not be converted as
described in Section 3.01(c), but shall be converted into the right to
receive such consideration as may be determined to be due to such
Dissenting Stockholder pursuant to the GBCC. If, after the Effective
Time, such Dissenting Stockholder withdraws his demand for appraisal or
fails to perfect or otherwise loses his right of appraisal, in any case
pursuant to the GBCC, his Shares and/or Class B Shares shall be deemed to
be converted as of the Effective Time into the right to receive the Merger
Consideration. The Company shall give Parent (i) prompt notice of any
demands for appraisal of Shares or Class B Shares received by the Company
and (ii) the opportunity to participate in and direct all negotiations and
proceedings with respect to any such demands. The Company shall not,
without the prior written consent of Parent, make any payment with respect
to, or settle, offer to settle or otherwise negotiate, any such demands.
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SECTION 3.02. Exchange of Certificates. (a) Paying Agent. Prior to
the Effective Time, Parent shall designate a bank or trust company to act as
paying agent in the Merger (the "Paying Agent"), and, from time to time on,
prior to or after the Effective Time, Parent shall make available, or cause the
Surviving Corporation to make available, to the Paying Agent cash in amounts
and at the times necessary for the payment of the Merger Consideration
upon surrender of certificates representing Shares or Class B Shares as part of
the Merger pursuant to Section 3.01 (it being understood that any and all
interest earned on funds made available to the Paying Agent pursuant to this
Agreement shall be turned over to Parent).
(b) Exchange Procedure. As soon as reasonably practicable after the
Effective Time, the Paying Agent shall mail to each holder of record of a
certificate or certificates that immediately prior to the Effective Time
represented Shares or Class B Shares (the "Certificates"), (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Paying Agent and shall be in a form and have such other
provisions as Parent may reasonably specify)
and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for the Merger Consideration. Upon surrender of
a Certificate for cancellation to the Paying Agent or to such other agent
or agents as may be appointed by Parent, together with such letter of
transmittal, duly executed, and such other documents as may reasonably be
required by the Paying Agent, the holder of such Certificate shall be
entitled to receive in exchange therefor the amount of cash into which the
Shares or Class B Shares theretofore represented by such Certificate shall
have been converted pursuant to Section 3.01, and the Certificate so
surrendered shall forthwith be canceled. In the event of a transfer of
ownership of Shares or Class B Shares that is not registered in the
transfer records of the Company, payment may be made to a person other
than the person in whose name the Certificate so surrendered is
registered, if such Certificate shall be properly endorsed or otherwise be
in proper form for transfer and the person requesting such payment shall
pay any transfer or other taxes required by reason of the payment to a
person other than the registered holder of such Certificate or establish
to the satisfaction of the Surviving Corporation that such tax has been
paid or is not applicable. Until surrendered as contemplated by this
Section 3.02, each Certificate (other than Certificates representing
Dissenting Shares) shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender the amount of
cash, without interest, into which the Shares or Class B Shares
theretofore represented by such Certificate shall have been converted
pursuant to Section 3.01. No interest will be paid or will accrue on the
cash payable upon the surrender of any Certificate. Parent, Sub, the
Surviving Corporation, the Company or the Paying Agent shall be entitled
to deduct and withhold from
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the consideration otherwise payable pursuant to this Agreement to any
holder of Shares or Class B Shares such amounts as Parent, Sub, the
Surviving Corporation, the Company or the Paying Agent is required to
deduct and withhold with respect to the making of such payment under the
Code (as hereinafter defined) or under any provisions of state, local or
foreign tax law. To the extent that amounts are so withheld by
Parent, Sub, the Surviving Corporation, the Company or the Paying Agent,
such withheld amounts shall be treated for all purposes of this Agreement
as having been paid to the holder of the Shares or Class B Shares in
respect of which such deduction or withholding was made by Parent, Sub,
the Surviving Corporation, the Company or the Paying Agent.
(c) No Further Ownership Rights in Shares or Class B Shares. All cash
paid upon the surrender of Certificates in accordance with the terms of this
Article III shall be deemed to have been paid in full satisfaction of all rights
pertaining to the Shares and Class B Shares theretofore represented by such
Certificates. At the Effective Time, the stock transfer books of the Company
shall be closed, and there shall be no further registration of transfers on the
stock transfer books of the Surviving Corporation of the Shares and the Class B
Shares that were outstanding immediately prior to the Effective Time. If, after
the Effective Time, Certificates are presented to the Surviving Corporation or
the Paying Agent for any reason, they shall be canceled and exchanged as
provided in this Article III.
(d) Termination of Payment Fund. Any portion of the funds made
available to the Paying Agent to pay the Merger Consideration which remains
undistributed to the holders of Shares or Class B Shares for six months after
the Effective Time shall be delivered to Parent, upon demand, and any holders of
Shares or Class B Shares who have not theretofore complied with this Article III
and the instructions set forth in the letter of transmittal mailed to such
holders after the Effective Time shall thereafter look only to Parent for
payment of the Merger Consideration to which they are entitled.
(e) No Liability. None of Parent, Sub, the Company or the Paying Agent
shall be liable to any person in respect of any cash delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law.
If any Certificates shall not have been surrendered prior to seven years after
the Effective Time (or immediately prior to such earlier date on which any
payment pursuant to this Article III would otherwise escheat to or become the
property of any Governmental Entity (as defined in Section 4.05)), the cash
payment in respect of such Certificate shall, to the extent permitted by
applicable law, become the property of the Surviving Corporation, free and clear
of all claims or interests of any person previously entitled thereto.
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ARTICLE IV
Representations and Warranties of the Company
The Company represents and warrants to Parent and Sub as follows:
SECTION 4.01. Organization. The Company and each of its subsidiaries
(as defined in Section 10.03) is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation and
has all requisite corporate power and authority to carry on its business as now
being conducted. The Company and each of its subsidiaries is duly qualified or
licensed to do business and in good standing in each jurisdiction in which the
property owned, leased or operated by it or the nature of the business conducted
by it makes such qualification or licensing necessary, except in such
jurisdictions where the failure to be so duly qualified or licensed and in good
standing would not have a material adverse effect (as defined in Section 10.03)
on the Company or prevent or materially delay the consummation of the Offer
and/or the Merger. The Company has delivered to Parent complete and correct
copies of its Amended and Restated Articles of Incorporation and By-laws
and the articles of incorporation and by-laws (or similar organizational
documents) of its subsidiaries.
SECTION 4.02. Subsidiaries. Item 4.02 of the letter from the Company
to Parent dated as of September 28, 1997, which letter relates to the Original
Merger Agreement and is designated therein as the Company Disclosure Letter (the
"Company Letter") lists each subsidiary of the Company. Except as set forth in
Item 4.02 of the Company Letter, all the outstanding shares of capital stock of
each such subsidiary are owned by the Company, by another wholly owned
subsidiary of the Company or by the Company and another wholly owned subsidiary
of the Company, free and clear of all pledges, claims, liens, charges,
encumbrances and security interests of any kind or nature whatsoever
(collectively, "Liens"), and are duly authorized, validly issued, fully paid and
nonassessable. Except as set forth in Item 4.02 of the Company Letter and
except for the capital stock of its subsidiaries, the Company does not own,
directly or indirectly, any capital stock or other ownership interest in any
corporation, partnership, joint venture, limited liability company or other
entity.
SECTION 4.03. Capitalization. The authorized capital stock of the
Company consists of 20,000,000 Shares, 10,000,000 Class B Shares and 500,000
shares of Preferred Stock, no par value per share. At the close of business on
September 26, 1997, (i) 8,086,951 Shares were issued and outstanding, (ii)
83,287 Shares were held by the Company in its treasury, (iii) 1,506,163 Shares
were reserved for issuance upon exercise of options to purchase Shares ("Company
Stock Options") issued pursuant to the
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Company's stock option plans, (iv) 307,374 shares were reserved for issuance
under the Company's Associate Stock Purchase Plan and 477,786 shares were
reserved for issuance under the Company's 1992 Stock Award Plan, (v) 1,190,954
Shares were reserved for issuance upon conversion of the Company's 7%
Convertible Subordinated Debentures due May 15, 2006 (the "Convertible
Debentures"), (vi) 4,518,817 Class B Shares were issued and outstanding and
(vii) no Class B Shares were held by the Company in its treasury. Except as
set forth above, as of the date of this Agreement, no shares of capital stock
or other voting securities of the Company were issued, reserved for issuance or
outstanding. All outstanding shares of capital stock of the Company are, and
all shares which may be issued will be, when issued, duly authorized, validly
issued, fully paid and nonassessable and not subject to preemptive rights.
Except as set forth above, there are no bonds, debentures, notes or other
indebtedness of the Company having the right to vote (or convertible into, or
exchangeable for, securities having the right to vote) on any matters on which
stockholders of the Company may vote. Except as set forth above, as of the
date of this Agreement, there are not any securities, options, warrants, calls,
rights, commitments, agreements, arrangements or undertakings of any kind to
which the Company or any of its subsidiaries is a party or by which any of them
is bound obligating the Company or any of its subsidiaries to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of capital
stock or other voting securities of the Company or of any of its subsidiaries
or obligating the Company or any of its subsidiaries to issue, grant, extend
or enter into any such security, option, warrant, call, right, commitment,
agreement, arrangement or undertaking. As of the date of this Agreement, there
are not any outstanding contractual obligations of the Company or any of its
subsidiaries (i) to repurchase, redeem or otherwise acquire any shares of
capital stock of the Company or (ii) to vote or to dispose of any shares of the
capital stock of any of the Company's subsidiaries.
SECTION 4.04. Authority. The Company has the requisite corporate power
and authority to execute and deliver this Agreement and, subject to the
approval of this Agreement by the holders of a majority of the combined voting
power of the Shares and the Class B Shares (the "Company Stockholder
Approval"), to consummate the transactions contemplated hereby. The execution,
delivery and performance of this Agreement and the consummation by the Company
of the Merger and of the other transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of the Company and no
other corporate proceedings on the part of the Company are necessary to
authorize this Agreement or to consummate the transactions so contemplated (in
each case, other than, with respect to the Merger, the Company Stockholder
Approval). This Agreement has been duly executed and delivered by the Company
and, assuming this Agreement constitutes a valid and binding
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obligation of Parent and Sub, constitutes a valid and binding obligation of
the Company enforceable against the Company in accordance with its terms.
SECTION 4.05. Consents and Approvals; No Violations. Except as set forth
in Item 4.05 of the Company Letter, and except for filings, permits,
authorizations, consents and approvals as may be required under, and other
applicable requirements of, the Securities Exchange Act of 1934, as amended
(the "Exchange Act") (including the filing with the SEC of the Schedule 14D-9
and a proxy statement relating to any required Company Stockholder Approval
(the "Proxy Statement")), the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), the GBCC, the laws of other states in which
the Company is qualified to do or is doing business, state takeover laws and
foreign and supranational laws relating to antitrust and anticompetition
clearances, neither the execution, delivery or performance of this Agreement by
the Company nor the consummation by the Company of the transactions
contemplated hereby will (i) conflict with or result in any breach of any
provision of the Amended and Restated Articles of Incorporation or By-laws of
the Company or of the similar organizational documents of any of its
subsidiaries, (ii) require any filing with, or permit, authorization, consent
or approval of, any Federal, state or local government or any court, tribunal,
administrative agency or commission or other governmental or other regulatory
authority or agency, domestic, foreign or supranational (a "Governmental
Entity") (except where the failure to obtain such permits, authorizations,
consents or approvals or to make such filings would not have a material
adverse effect on the Company or prevent or materially delay the consummation
of the Offer and/or the Merger), (iii) result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, amendment, cancellation or acceleration)
under, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, lease, license, contract, agreement or other instrument or
obligation to which the Company or any of its subsidiaries is a party or by
which any of them or any of their properties or assets may be bound or (iv)
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to the Company, any of its subsidiaries or any of their properties
or assets, except in the case of clauses (iii) or (iv) for violations, breaches
or defaults that would not have a material adverse effect on the Company or
prevent or materially delay the consummation of the Offer and/or the Merger.
SECTION 4.06. SEC Reports and Financial Statements. The Company and
each of its subsidiaries has filed with the SEC, and has heretofore made
available to Parent true and complete copies of, all forms, reports, schedules,
statements and other documents required to be filed by it since February 1,
1994, under the Exchange Act or the Securities Act of 1933 (the
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"Securities Act") (such forms, reports, schedules, statements and other
documents, including any financial statements or schedules included therein,
are referred to as the "Company SEC Documents"). The Company SEC Documents, at
the time filed, (a) did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading and (b) complied in all material respects with
the applicable requirements of the Exchange Act and the Securities Act, as the
case may be, and the applicable rules and regulations of the SEC thereunder.
Except to the extent that information contained in any Company SEC Document has
been revised or superseded by a subsequently filed Company Filed SEC Document
(as defined in Section 4.07) (a copy of which has been made available to Parent
prior to the date hereof), none of the Company SEC Documents contains an untrue
statement of a material fact or omits to state a material fact required to be
stated or incorporated by reference therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of the Company included in the
Company SEC Documents comply as to form in all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto, have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except as may be indicated in the notes thereto or, in
the case of the unaudited statements, as permitted by Form 10-Q of the SEC) and
fairly present (subject, in the case of the unaudited statements, to normal,
recurring audit adjustments) the consolidated financial position of the Company
and its consolidated subsidiaries as at the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended.
SECTION 4.07. Absence of Certain Changes or Events. Except as
disclosed in the Company SEC Documents filed and publicly available prior to the
date of this Agreement (the "Company Filed SEC Documents") or in Item 4.07 of
the Company Letter, since February 1, 1997, the Company and its subsidiaries
have conducted their respective businesses only in the ordinary course, and
there has not been (i) any material adverse change with respect to the Company,
(ii) any declaration, setting aside or payment of any dividend or other
distribution with respect to its capital stock (other than regular quarterly
cash dividends not in excess of $.07 per Share and $.05 per Class B Share with
usual record and payment dates and in accordance with the Company's present
dividend policy) or any redemption, purchase or other acquisition of any of its
capital stock, (iii) any split, combination or reclassification of any of its
capital stock or any issuance or the authorization of any issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock, (iv) (x) any granting by the Company
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or any of its subsidiaries to any officer of the Company or any of its
subsidiaries of any increase in compensation, except in the ordinary course of
business (including in connection with promotions) consistent with past
practice or as was required under employment agreements in effect as of
September 26, 1997, (y) any granting by the Company or any of its subsidiaries
to any such officer of any increase in severance or termination pay, except as
part of a standard employment package to any person promoted or hired, or as
was required under employment, severance or termination agreements in effect as
of September 26, 1997, or (z) except employment agreements in the ordinary
course of business consistent with past practice with employees other than any
executive officer of the Company, any entry by the Company or any of its
subsidiaries into any employment, consulting, severance, termination or
indemnification agreement with any such employee or executive officer, (v) any
damage, destruction or loss, whether or not covered by insurance, that has or
reasonably could be expected to have a material adverse effect on the Company,
(vi) any revaluation by the Company of any of its material assets or (vii) any
material change in accounting methods, principles or practices by the Company.
SECTION 4.08. No Undisclosed Liabilities. Except as and to the extent
set forth in Item 4.08 of the Company Letter or in the Company's Annual Report
to Shareholders for the fiscal year ended January 31, 1997, as of January 31,
1997, neither the Company nor any of its subsidiaries had any liabilities or
obligations of any nature, whether or not accrued, contingent or otherwise, that
would be required by generally accepted accounting principles to be reflected on
a consolidated balance sheet of the Company and its subsidiaries (including the
notes thereto). Since January 31, 1997, except as and to the extent set forth
in Item 4.08 of the Company Letter or in the Company Filed SEC Documents,
neither the Company nor any of its subsidiaries has incurred any liabilities of
any nature, whether or not accrued, contingent or otherwise, that would be
reasonably expected to have a material adverse effect on the Company.
SECTION 4.09. Information Supplied. None of the information supplied
or to be supplied by the Company specifically for inclusion or incorporation by
reference in (i) the Offer Documents, (ii) the Schedule 14D-9, (iii) the
information to be filed by the Company in connection with the Offer pursuant to
Rule 14f-1 promulgated under the Exchange Act (the "Information Statement") or
(iv) the Proxy Statement, will, in the case of the Offer Documents, the Schedule
14D-9 and the Information Statement, at the respective times the Offer
Documents, the Schedule 14D-9 and the Information Statement are filed with the
SEC or first published, sent or given to the Company's stockholders, or, in the
case of the Proxy Statement, at the time the Proxy Statement is first mailed to
the Company's stockholders or at the time of the Stockholders Meeting (as
defined in Section 7.01), contain any untrue statement of a
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material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Schedule 14D-9,
the Information Statement and the Proxy Statement will comply as to form in all
material respects with the requirements of the Exchange Act and the rules and
regulations thereunder, except that no representation or warranty is made by
the Company with respect to statements made or incorporated by reference
therein based on information supplied by Parent or Sub specifically for
inclusion or incorporation by reference therein.
SECTION 4.10. Benefit Plans; Employees and Employment Practices. (a)
Except as disclosed in the Company Filed SEC Documents or Item 4.10(a) of the
Company Letter, since the date of the most recent audited financial statements
included in the Company Filed SEC Documents, there has not been any adoption or
amendment in any material respect (including any increase or improvements in
benefits or coverage) by the Company or any of its subsidiaries of any
collective bargaining agreement or any bonus, pension, profit sharing, deferred
compensation, incentive compensation, stock ownership, stock purchase, stock
option, phantom stock, retirement, vacation, severance, disability, death
benefit, hospitalization, medical, fringe benefit, excess supplemental
executive compensation, employee stock purchase, stock appreciation, restricted
stock or other material employee benefit plan, policy, arrangement or
understanding (whether or not in writing) providing benefits to any current or
former employee, officer or director of the Company or any of its subsidiaries
(collectively, "Benefit Plans"); provided that, with respect to any Benefit
Plans sponsored by a subsidiary of the Company, the foregoing representation is
limited to the actual knowledge of the Company. Except as disclosed in Item
4.10(a) of the Company Letter, there exist no employment, consulting,
severance, termination or indemnification agreements, or any other similar
arrangements or understandings (whether or not in writing) between the Company
or any of its subsidiaries and any current or former employee, officer or
director of the Company or any of its subsidiaries.
(b) Item 4.10(b) of the Company Letter contains a list of all "employee
pension benefit plans" (as defined in Section 3(2) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) (sometimes referred to
herein as "Pension Plans"), "employee welfare benefit plans" (as defined in
Section 3(1) of ERISA) and all other Benefit Plans maintained, sponsored or
contributed to, by the Company or any of its subsidiaries for the benefit of
any current or former employees, officers or directors of the Company or any of
such subsidiaries (the "Subject Benefit Plans"); provided that, with respect to
any Subject Benefit Plans sponsored by a subsidiary of the Company
("Subsidiary Subject Benefit Plans"), the foregoing representation is limited
to the actual knowledge of the Company.
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The Company has delivered to Parent true, complete and correct copies of
(i) each Subject Benefit Plan listed in Item 4.10(b) of the Company Letter,
including any amendments thereto (or, in the case of any unwritten Subject
Benefit Plans, descriptions thereof), (ii) the most recent annual report on
Form 5500 (and related schedules and financial statements or opinions required
in connection therewith) filed with the Internal Revenue Service with respect
to each such Subject Benefit Plan (if any such report was required), (iii) if
applicable, the most recent actuarial report with respect to each such Subject
Benefit Plan, (iv) the most recent summary plan description (and a summary of
material modifications, if applicable) for each such Subject Benefit Plan, (v)
if applicable, the most recent determination letter issued by the Internal
Revenue Service with respect to each such Subject Benefit Plan and (vi) if
applicable, each trust agreement and group annuity contract relating to each
such Subject Benefit Plan. Any Benefit Plan that is not a Subject Benefit Plan
is either required by and maintained in accordance with applicable local law or
is immaterial to the applicable subsidiary.
(c) Except as disclosed in Item 4.10(c) of the Company Letter, all
Pension Plans listed in Item 4.10(b) of the Company Letter which are intended
to be tax-qualified have been timely amended to comply with ERISA and the
Internal Revenue Code of 1986, as amended (the "Code"), including changes
required by the Unemployment Compensation Amendments of 1992 and the Omnibus
Budget Reconciliation Act of 1993, and determination letters in respect of such
Pension Plans have been received from the Internal Revenue Service to the
effect that such Pension Plans are qualified and exempt from Federal income
taxes under Section 401(a) and 501(a), respectively, of the Code, and no such
determination letter has been revoked nor, to the best knowledge of the
Company, has revocation been threatened, nor has any such Pension Plan been
amended since the date of its most recent determination letter or application
therefor in any respect that would adversely affect its qualification or
materially increase its costs. With respect to any Pension Plan maintained
by a subsidiary of the Company, the representation set forth in the preceding
sentence is limited to the actual knowledge of the Company.
(d) Except as disclosed in Item 4.10(d) of the Company Letter, each
Benefit Plan has been administered in all material respects in conformity with
its terms and the applicable requirements of ERISA and the Code and other
applicable laws; and all contributions required to be made have been made in
accordance with the provisions of each such Benefit Plan and with ERISA and the
Code and other applicable laws.
(e) Except as disclosed in on Item 4.10(e) of the Company Letter, none of
the Company or any of its subsidiaries, or any other person or entity that,
together with the Company, is
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treated as a single employer under Section 414(b), (c), (m) or (o) of the Code,
currently maintains or has maintained, or has or had any obligation to
contribute to, during the five-year period preceding the date hereof any
"defined benefit plan" (within the meaning of Section 3(35) of ERISA) or any
"multiemployer plan" (within the meaning of Section 3(37) of ERISA), or has
incurred any liability under Title IV of ERISA or to the Pension Benefit
Guaranty Corporation that has not been fully paid as of the date hereof. None
of the Company, any officer of the Company, any of the Benefit Plans which are
subject to ERISA, including the Pension Plans, any trusts created thereunder
or, to the knowledge of the Company, any trustee or administrator thereof or
any subsidiary of the company (or officer thereof), has engaged in a non-exempt
"prohibited transaction" (as such term is defined in Section 406 of ERISA or
Section 4975 of the Code) or any other breach of fiduciary responsibility that
could reasonably be expected to subject the Company, any of its subsidiaries or
any officer of the Company or any of its subsidiaries to any tax or penalty on
prohibited transactions imposed by Section 4975 of the Code or to any liability
or civil penalty under Section 502(i) or (1) of ERISA.
(f) With respect to any Benefit Plan that is an employee welfare benefit
plan, except as disclosed in Item 4.10(f) of the Company Letter, (i) no such
Benefit Plan is funded through a "welfare benefits fund", as such term is
defined in Section 419(e) of the Code, (ii) each such Benefit Plan that is a
"group health plan," as such term is defined in Section 607 of ERISA, complies
with the applicable requirements of part 6 of Title I of ERISA, (iii) each such
Benefit Plan that is a "group health plan," as such term is defined in Section
706 of ERISA, complies with the applicable requirements of part 7 of Title I of
ERISA and (iv) except as disclosed on Item 4.10(f) of the Company Letter, each
such Benefit Plan (including any such Plan covering
retirees or other former employees) may be amended or terminated without
material liability to the Company or any of its subsidiaries on or at any time
after the consummation of the Offer.
(g) Except as disclosed on Item 4.10(g) of the Company Letter, with
respect to each Benefit Plan, all material reports and information required to
be filed with the U.S. Department of Labor, the Internal Revenue Service or
each Benefit Plan participant have been timely filed.
(h) There is no dispute, arbitration, claim, suit or grievance, pending
or threatened, involving a Benefit Plan (other than routine claims for benefits
payable under any such plan), and, to the knowledge of the Company, there is no
basis for such a claim.
(i) Item 4.10(i) of the Company Letter sets forth the names of all
current officers and directors of the Company and
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all employees of the Company whose compensation is in excess of $80,000 per
year, together with each employee's current salary, most recent bonus
(excluding sales bonuses), date of birth and date of employment.
(j) Except as disclosed in Item 4.10(j) of the Company Letter, there are
no material controversies, strikes, work stoppages or disputes pending or, to
the knowledge of the Company, threatened between the Company or any of its
subsidiaries and any current or former employees, no labor union or other
collective bargaining unit represents or has ever represented any employee of
the Company or any of its subsidiaries and no organizational effort by any
labor union or other collective bargaining unit currently is under way or
threatened with respect to any employee. A true, complete and correct copy of
any applicable collective bargaining agreement has been provided to Parent, and
the Company and its subsidiaries are in compliance in all material respects
with the terms thereof.
SECTION 4.11. Contracts; Indebtedness. (a) Except as disclosed in Item
4.11 of the Company Letter or in the Company Filed SEC Documents, there are no
contracts or agreements that are material to the business, properties, assets,
financial condition or results of operations of the Company and its
subsidiaries taken as a whole. Neither the Company nor any of its subsidiaries
is in violation of or in default under (nor does there exist any condition
which upon the passage of time or the giving of notice would cause such a
violation of or default under) any loan or credit agreement, note, bond,
mortgage, indenture, lease, permit, concession, franchise, license or any other
contract, agreement, arrangement or understanding, to which it is a party or by
which it or any of its properties or assets is bound, except for violations or
defaults that could not reasonably be expected to result in a material adverse
effect on the Company.
(b) Item 4.11 of the Company Letter sets forth (i) a list of all
agreements, instruments and other obligations pursuant to which any
indebtedness of the Company or any of its subsidiaries in a principal amount in
excess of $250,000 is outstanding or may be incurred and (ii) the respective
principal amounts outstanding thereunder as of August 31, 1997.
SECTION 4.12. Litigation. Except as disclosed in Item 4.12 of the
Company Letter or in the Company Filed SEC Documents, as of the date of this
Agreement, there is no suit, claim, action, proceeding or investigation pending
or, to the knowledge of the Company, threatened against the Company or any of
its subsidiaries that could reasonably be expected to have a material adverse
effect on the Company or prevent or materially delay the consummation of the
Offer and/or the Merger. Except as disclosed in Item 4.12 of the Company
Letter or in the Company Filed SEC
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Documents, as of the date of this Agreement, neither the Company nor any of
its subsidiaries is subject to any outstanding judgment, order, writ,
injunction or decree that could reasonably be expected to have a material
adverse effect on the Company or prevent or materially delay the consummation
of the Offer and/or the Merger.
SECTION 4.13. Compliance with Applicable Law. The Company and its
subsidiaries hold all permits, licenses, variances, exemptions, orders and
approvals of all Governmental Entities necessary for the lawful conduct of
their respective businesses (the "Company Permits"), except for failures to
hold such permits, licenses, variances, exemptions, orders and approvals that
would not have a material adverse effect on the Company or prevent or
materially delay the consummation of the Offer and/or the Merger. The Company
and its subsidiaries are in compliance with the terms of the Company Permits,
except where the failure so to comply would not have a material adverse effect
on the Company or prevent or materially delay the consummation of the Offer
and/or the Merger. Except as disclosed in the Company Letter or in the Company
Filed SEC Documents, to the knowledge of the Company, the businesses of the
Company and its subsidiaries are not being conducted in violation of any law,
ordinance or regulation of any Governmental Entity, except for possible
violations that would not have a material adverse effect on the Company or
prevent or materially delay the consummation of the Offer and/or the Merger. To
the knowledge of the Company, except as set forth in the Company Filed SEC
Documents, as of the date of this Agreement, no investigation or review by any
Governmental Entity with respect to the Company or any of its subsidiaries is
pending or threatened, other than, in each case, those the outcome of which
would not be reasonably expected to have a material adverse effect on the
Company or prevent or materially delay the consummation of the Offer and/or the
Merger.
SECTION 4.14. Tax Matters. Except as set forth in Item 4.14 of the
Company Letter:
(a) The Company and each of its subsidiaries has filed all Federal income
tax returns and reports and all other material tax returns and reports required
to be filed by it. All such returns and reports are complete and correct in
all material respects. The Company and each of its subsidiaries has paid (or
the Company has paid on its subsidiaries' behalf) all taxes (as defined below)
shown as due on such returns and reports and all material taxes for which no
return was required to be filed, and the most recent financial statements
contained in the Company Filed SEC Documents reflect an adequate reserve for
all taxes payable by the Company and its subsidiaries for all taxable periods
and portions thereof through the date of such financial statements.
(b) No material tax return of the Company or any of its subsidiaries is
under audit or, to the knowledge of the Company, examination by any taxing
authority. Each material
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deficiency resulting from any audit or examination relating to taxes of the
Company or any of its subsidiaries by any taxing authority has been paid.
No material issues relating to taxes were raised in writing by the relevant
taxing authority during any presently pending audit or examination, and no
material issues relating to taxes were raised in writing by the relevant taxing
authority in any completed audit or examination that can reasonably be expected
to recur in a later taxable period. The
Federal income tax returns of the Company and each of its subsidiaries
consolidated in such returns have been examined by and settled with the Internal
Revenue Service for all years through the taxable year ended January 31, 1994.
(c) There is no agreement or other document extending, or having the
effect of extending, the period of assessment or collection of any taxes and no
power of attorney with respect to any taxes has been executed or filed with any
taxing authority.
(d) No material liens for taxes exist with respect to any assets or
properties of the Company or any of its subsidiaries, except for statutory
liens for taxes not yet due.
(e) None of the Company or any of its subsidiaries is a party to or is
bound by any tax sharing agreement, tax indemnity obligation or similar
agreement, arrangement or practice with respect to taxes (including any advance
pricing agreement, closing agreement or other agreement relating to taxes with
any taxing authority), in all cases other than this Agreement.
(f) None of the Company or any of its subsidiaries shall be required to
include in a taxable period ending after the Effective Time taxable income
attributable to income that accrued in a prior taxable period but was not
recognized in any prior taxable period as a result of the installment method of
accounting, the completed contract method of accounting, the long-term contract
method of accounting, the cash method of accounting or Section 481 of the Code
or comparable provisions of state, local or foreign tax law.
(g) The disallowance of a deduction under Section 162(m) of the Code for
employee remuneration will not apply to any amount paid or payable by the
Company or any of its subsidiaries under any contract, plan, program,
arrangement or understanding currently in effect.
(h) No amount or other entitlement that could be received (whether in
cash or property or the vesting of property) by any Person who, with respect to
the Company or any of its affiliates, is a "disqualified individual" (as such
term is defined in proposed Treasury Regulation Section 1.280G-1) under any
employment, severance or termination agreement, other compensation arrangement
or Company Benefit Plan currently in
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effect will be characterized as an "excess parachute payment" or a
"parachute payment" (as such terms are defined in Section 280G(b)(1) of the
Code) as a result of any of the transactions contemplated by this Agreement.
(i) No taxes will be required to be withheld under Section 1445, and no
sales taxes, transfer, real property transfer or gains taxes, or similar taxes
will be imposed as a result of the transactions contemplated by this Agreement.
(j) As used in this Agreement, "taxes" shall include all Federal, state,
local and foreign income, property, sales, use, excise, employment, withholding
and other taxes, tariffs or governmental charges of any nature whatsoever,
together with any interest and penalties, and "tax return" shall include any
return, report or similar statement required to be filed with respect to any
tax (including any attached schedules), including, without limitation, any
information return, claim for refund, amended return or declaration of
estimated tax.
SECTION 4.15. State Takeover Statutes; Charter Provisions. Section
14-2-1111 of the GBCC is inapplicable to the Offer, the Merger, this Agreement,
the Stockholder Agreement and the transactions contemplated by this Agreement
and the Stockholder Agreement. The action of the Board of Directors of the
Company in approving and adopting this Agreement and approving the Offer, the
Merger and the Stockholder Agreement is sufficient (i) to render inapplicable
to the Offer, the Merger, this Agreement, the Stockholder Agreement and the
transactions contemplated by this Agreement and the Stockholder Agreement the
supermajority voting provisions of Article VII of the Company's Amended and
Restated Articles of Incorporation and (ii) to comply with the provisions of
Section 14-2-1132 of the GBCC. To the knowledge of the Company, no other state
takeover statute or similar statute or regulation applies or purports to apply
to the Offer, the Merger, this Agreement, the Stockholder Agreement or
any of the transactions contemplated by this Agreement or the Stockholder
Agreement.
SECTION 4.16. Environmental Matters. (a) Except as set forth in Item
4.16 of the Company Letter, neither the Company nor any of its subsidiaries has
(i) placed, held, located, released, transported or disposed of any Hazardous
Substances (as defined below) on, under, from or at any of the Company's or any
of its subsidiaries' properties or any other properties, other than in a
manner that could not, in all such cases taken individually or in the
aggregate, reasonably be expected to result in a material adverse effect on the
Company, (ii) any knowledge or reason to know of the presence of any Hazardous
Substances on, under or at any of the Company's or any of its subsidiaries'
properties or any other property but arising from the Company's or any of its
subsidiaries' properties, other than in a manner that could not reasonably be
expected to result in a
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material adverse effect on the Company, or (iii) received any written notice
(A) of any violation of any statute, law, ordinance, regulation, rule,
judgment, decree or order of any Governmental Entity relating to any matter of
pollution, protection of the environment, environmental regulation or control
or regarding Hazardous Substances on, under or emanating from any of the
Company's or any of its subsidiaries' properties or any other properties
(collectively, "Environmental Laws") that has not been resolved or settled with
the relevant Governmental Entity, (B) of the institution or pendency of any
suit, action, claim, proceeding or investigation by any Governmental Entity or
any third party in connection with any such violation, (C) requiring the
response to or remediation of Hazardous Substances at or arising from any of
the Company's or any of its subsidiaries' properties or any other properties,
(D) alleging noncompliance by the Company or any of its subsidiaries with the
terms of any permit required under any Environmental Law in any manner
reasonably likely to require material expenditures or to result in material
liability or (E) demanding payment for response to or remediation of Hazardous
Substances at or arising from any of the Company's or any of its subsidiaries'
properties or any other properties, except in each case for the notices set
forth in Item 4.16 of the Company Letter. For purposes of this Agreement, the
term "Hazardous Substance" shall mean any toxic or hazardous materials or
substances, including asbestos, buried contaminants, chemicals, flammable
explosives, radioactive materials, petroleum and petroleum products and any
substances defined as, or included in the definition of, "hazardous
substances", "hazardous wastes," "hazardous materials" or "toxic substances"
under any Environmental Law.
(b) Except as set forth in Item 4.16 of the Company Letter, no
Environmental Law imposes any obligation upon the Company or its subsidiaries
arising out of or as a condition to any transaction contemplated by this
Agreement or the Stockholder Agreement, including any requirement to modify or
to transfer any permit or license, any requirement to file any notice or other
submission with any Governmental Entity, the placement of any notice,
acknowledgment or covenant in any land records, or the modification of or
provision of notice under any agreement, consent order or consent decree, except
where any failure to notify or place any notice would not reasonably be expected
to result in a material adverse effect on the Company or prevent or materially
delay the consummation of the Offer and/or the Merger. No Lien has been placed
upon any of the Company's or its subsidiaries' properties under any
Environmental Law.
(c) Except as set forth in the Item 4.16 of the Company Letter, none of
the Company or any of its subsidiaries owns, operates or leases any facility
qualifying as an industrial establishment under the New Jersey Industrial Site
Recovery Act.
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SECTION 4.17. Intellectual Property. The Company and its subsidiaries
own, or are validly licensed or otherwise have the right to use, all patents,
patent rights, trademarks, trade names, service marks, copyrights, know how and
other proprietary intellectual property rights and computer programs
(collectively, "Intellectual Property Rights") that are material to the conduct
of the business of the Company and its subsidiaries taken as a whole. Item
4.17 of the Company Letter sets forth a description of all Intellectual
Property Rights that are material to the conduct of the business of the Company
and its subsidiaries taken as a whole. Except as set forth in Item 4.17 of the
Company Letter, no claims are pending or, to the knowledge of the Company,
threatened that the Company or any of its subsidiaries is infringing or
otherwise adversely affecting the rights of any person with regard to any
Intellectual Property Right so as to materially adversely affect any of the
Company's material Intellectual Property Rights, and the Company is not aware
of any basis for any such claims. To the knowledge of the Company, except as
set forth in Item 4.17 of the Company Letter, no person is infringing the
rights of the Company or any of its subsidiaries with respect to any material
Intellectual Property Right so as to materially adversely affect such
Intellectual Property Right.
SECTION 4.18. Brokers; Schedule of Fees and Expenses. No broker,
investment banker, financial advisor or other person, other than
Interstate/Johnson Lane Corporation and R. J. Wareham & Company, Incorporated,
the fees and expenses of which will be paid by the Company (and as reflected in
agreements between Interstate/Johnson Lane Corporation and the Company and R.
J. Wareham & Company, Incorporated and the Company, copies of which have been
furnished to Parent), is entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company. The estimated fees and expenses incurred and to be
incurred by the Company in connection with this Agreement and the transactions
contemplated by this Agreement (including the fees of the Company's legal
counsel and the legal counsel for its financial advisor) are set forth in Item
4.18 of the Company Letter.
SECTION 4.19. Opinion of Financial Advisor. The Company has received the
opinion of Interstate/Johnson Lane Corporation, dated the date of this
Agreement, to the effect that, as of the date of this Agreement, the
consideration to be received in the Offer and the Merger by the Company's
stockholders is fair to the Company's stockholders from a financial point of
view, and a complete and correct signed copy of such opinion has been, or
promptly upon receipt thereof will be, delivered to Parent.
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ARTICLE V
Representations and Warranties
of Parent and Sub
Parent and Sub represent and warrant to the Company as follows:
SECTION 5.01. Organization. Each of Parent and Sub is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite corporate power and
authority to carry on its business as now being conducted.
SECTION 5.02. Authority. Parent and Sub have requisite corporate power
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the part of
Parent and Sub and no other corporate proceedings on the part of Parent and Sub
are necessary to authorize this Agreement or to consummate such transactions.
This Agreement has been duly executed and delivered by Parent and Sub, as the
case may be, and, assuming this Agreement constitutes a valid and binding
obligation of the Company, constitutes a valid and binding obligation of each
of Parent and Sub enforceable against them in accordance with its terms.
SECTION 5.03. Consents and Approvals; No Violations. Except for filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Exchange Act (including the filing with
the SEC of the Offer Documents), the HSR Act, the GBCC, the laws of other
states in which Parent is qualified to do or is doing business, state takeover
laws and foreign and supranational laws relating to antitrust and
anticompetition clearances, neither the execution, delivery or performance of
this Agreement by Parent and Sub nor the consummation by Parent and Sub of the
transactions contemplated hereby will (i) conflict with or result in any breach
of any provision of the respective certificate of incorporation or by-laws of
Parent and Sub, (ii) require any filing with, or permit, authorization, consent
or approval of, any Governmental Entity (except where the failure to obtain
such permits, authorizations, consents or approvals or to make such filings
would not be reasonably expected to prevent or materially delay the
consummation of the Offer and/or the Merger), (iii) result in a violation or
breach of, or constitute (with or without due notice or lapse of time or both)
a default (or give rise to any right of termination, amendment, cancellation or
acceleration) under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, license, lease, contract, agreement or other
instrument or obligation to which Parent or
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any of its subsidiaries is a party or by which any of them or any of their
properties or assets may be bound or (iv) violate any order, writ, injunction,
decree, statute, rule or regulation applicable to Parent, any of its
subsidiaries or any of their properties or assets, except in the case of
clauses (iii) and (iv) for violations, breaches or defaults which would not,
individually or in the aggregate, be reasonably expected to prevent or
materially delay the consummation of the Offer and/or the Merger.
SECTION 5.04. Information Supplied. None of the information supplied or
to be supplied by Parent or Sub specifically for inclusion or incorporation by
reference in (i) the Offer Documents, (ii) the Schedule 14D-9, (iii) the
Information Statement or (iv) the Proxy Statement will, in the case of the
Offer Documents, the Schedule 14D-9 and the Information Statement, at the
respective times the Offer Documents, the Schedule 14D-9 and the Information
Statement are filed with the SEC or first published, sent or given to the
Company's stockholders, or, in the case of the Proxy Statement, at the time the
Proxy Statement is first mailed to the Company's stockholders or at the time of
the Stockholders Meeting, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading. The Offer Documents will comply as to form in
all material respects with the requirements of the Exchange Act and the rules
and regulations thereunder, except that no representation or warranty is made
by Parent or Sub with respect to statements made or incorporated by reference
therein based on information supplied by the Company specifically for inclusion
or incorporation by reference therein.
SECTION 5.05. Interim Operations of Sub. Sub was formed solely for the
purpose of engaging in the transactions contemplated hereby, has engaged in no
other business activities and has conducted its operations only as contemplated
hereby.
SECTION 5.06. Brokers. No broker, investment banker, financial advisor
or other person, other than Smith Barney Inc., the fees and expenses of which
will be paid by Parent, is entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Parent or Sub.
ARTICLE VI
Covenants
SECTION 6.01. Covenants of the Company. Until such time as Parent's
designees shall constitute a majority of the
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members of the Board of Directors of the Company, the Company agrees as to
itself and its subsidiaries that (except as expressly contemplated or permitted
by this Agreement or except to the extent that Parent shall otherwise consent
in writing):
(a) Ordinary Course. The Company shall, and shall cause its subsidiaries
to, carry on their respective businesses in the usual, regular and ordinary
course in substantially the same manner as heretofore conducted and shall use
all reasonable best efforts to preserve intact their present business
organizations, keep available the services of their present officers and
employees and preserve their relationships with customers, suppliers and others
having business dealings with the Company and its subsidiaries.
(b) Dividends; Changes in Stock. The Company shall not, and shall not
permit any of its subsidiaries to, (i) declare or pay any dividends on or make
other distributions in respect of any of its capital stock (other than regular
quarterly cash dividends not in excess of $.07 per Share or $.05 per Class B
Share with usual record and payment dates and in accordance with the Company's
present dividend policy), except for dividends by a direct or indirect wholly
owned subsidiary of the Company to its parent, (ii) split, combine or
reclassify any of its capital stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock or (iii) repurchase, redeem or otherwise
acquire any shares of capital stock of the Company or its subsidiaries or any
other securities thereof or any rights, warrants or options to acquire any such
shares or other securities.
(c) Issuance of Securities. The Company shall not, and shall not permit
any of its subsidiaries to, issue, deliver, sell, pledge or encumber, or
authorize or propose the issuance, delivery, sale, pledge or encumbrance of,
any shares of its capital stock of any class or any securities convertible
into, or any rights, warrants, calls, subscriptions or options to acquire, any
such shares or convertible securities, or any other ownership interest
(including stock appreciation rights or phantom stock) other than (i) the
issuance of Shares upon the exercise of stock options pursuant to Stock-Based
Compensation Plans outstanding on the date of this Agreement and in accordance
with the terms of such stock options, (ii) the issuance of Shares upon the
conversion of Class B Shares, and (iii) the issuance of Shares upon the
conversion of any Convertible Debentures.
(d) Governing Documents. The Company shall not, and shall not permit any
of its subsidiaries to, amend or propose to amend its articles of
incorporation or by-laws (or similar organizational documents).
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(e) No Acquisitions. The Company shall not, and shall not permit any of
its subsidiaries to, acquire or agree to acquire (i) by merging or
consolidating with, or by purchasing a substantial equity interest in or
substantial portion of the assets of, or by any other manner, any business or
any corporation, partnership, joint venture, limited liability company,
association or other business organization or division thereof or (ii) any
assets having a purchase price in excess of $1,000,000, individually, or
$5,000,000, in the aggregate, except purchases of inventory in the ordinary
course of business consistent with past practice and expenditures consistent
with the Company's current capital budget previously furnished to Parent.
(f) No Dispositions. Except as disclosed in Item 6.01(f) of the Company
Letter, other than sales of its products to customers and immaterial
dispositions of personal property, in each case in the ordinary course of
business consistent with past practice, the Company shall not, and shall not
permit any of its subsidiaries to, sell, lease, license, encumber or otherwise
dispose of, or agree to sell, lease, encumber or otherwise dispose of, any of
its assets.
(g) Indebtedness. The Company shall not, and shall not permit any of its
subsidiaries to, (i) incur any indebtedness for borrowed money or guarantee any
such indebtedness or issue or sell any debt securities or warrants or rights to
acquire any debt securities of the Company or any of its subsidiaries,
guarantee any debt securities of others, enter into any "keep-well" or other
agreement to maintain any financial statement condition of another person or
enter into any arrangement having the economic effect of any of the foregoing,
except for working capital borrowings incurred in the ordinary course of
business consistent with past practice, or (ii) make any loans, advances or
capital contributions to, or investments in, any other person, other than to
the Company or any direct or indirect wholly owned subsidiary of the Company,
except for travel advances made in the ordinary course of business.
(h) Advice of Changes; Filings. The Company shall confer on a regular
basis with Parent with respect to operational matters and promptly advise
Parent orally and in writing of any material adverse change with respect to
the Company. The Company shall promptly provide to Parent (or its counsel)
copies of all filings made by the Company with any Governmental Entity in
connection with this Agreement and the transactions contemplated hereby.
(i) Tax Matters. The Company shall not make any tax election that would
have a material effect on the tax liability of the Company or any of its
subsidiaries or settle or compromise any tax liability of the Company or any of
its subsidiaries that would materially affect the tax liability of the Company
or any
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of its subsidiaries. The Company shall, before filing or causing to be
filed any material tax return of the Company or any of its subsidiaries or
settling any tax liability not described in the preceding sentence, consult
with Parent and its advisors as to the positions and elections that may be
taken or made with respect to such return or with respect to such settlement.
(j) Capital Expenditures. Neither the Company nor any of its
subsidiaries shall make or agree to make any new capital expenditure or
expenditures other than expenditures consistent with the Company's current
capital budget previously furnished to Parent.
(k) Discharge of Liabilities. The Company shall not, and shall not
permit any of its subsidiaries to, pay, discharge, settle or satisfy any
claims, liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge, settlement or
satisfaction, (i) in the ordinary course of business consistent with past
practice or in accordance with their terms, of claims, liabilities or
obligations recognized or disclosed in the most recent consolidated financial
statements (or the notes thereto) of the Company included in the Company Filed
SEC Documents or incurred since the date of such financial statements in the
ordinary course of business consistent with past practice or (ii) of claims,
liabilities or obligations to the extent they are less than $50,000 and
unrelated to the Company's stockholders or the transactions contemplated by
this Agreement and the Stockholder Agreement, or waive the benefits of, or
agree to modify in any manner, any confidentiality, standstill or similar
agreement to which the Company or any of its subsidiaries is a party.
(l) Benefit Plans. Except as disclosed in Item 6.01(l) of the Company
Letter, neither the Company nor any of its subsidiaries shall enter into or
accept, or amend any existing, severance plan, agreement or arrangement or
enter into or amend any Benefit Plan or employment or consulting agreement,
other than as required by law.
(m) Compensation. Neither the Company nor any of its subsidiaries shall
increase the compensation payable or to become payable to its directors,
officers or employees, except for increases required under employment
agreements existing on the date hereof, and increases for employees in the
ordinary course of business consistent with past practice that, in any event,
do not increase such employee's aggregate compensation by more than 5% over
such employee's aggregate compensation in effect on the date hereof, or grant
any severance or termination pay to, or enter into any employment or severance
payment, or establish, adopt, enter into, or amend in any material respect or
take action to enhance in any material respect or accelerate any rights or
benefits under, any collective bargaining, bonus, profit sharing, thrift,
compensation, employment, termination,
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severance or other plan, agreement, trust, fund, policy or arrangement for the
benefit of any director, officer or employee, except, in each case, as may be
required to comply with applicable law or regulation.
(n) Material Contracts. Except in the ordinary course of business,
neither the Company nor any of its subsidiaries shall (i) modify, amend or
terminate any material contract or agreement to which the Company or such
subsidiary is a party or (ii) waive, release or assign any material rights or
claims.
(o) General. The Company shall not, and shall not permit any of its
subsidiaries to, authorize any of, or commit or agree to take any of, the
foregoing actions otherwise prohibited by this Section 6.01.
SECTION 6.02. No Solicitation. (a) The Company shall, and shall direct
and use reasonable best efforts to cause its officers, directors, employees,
representatives and agents to, immediately cease any discussions or
negotiations with any parties that may be ongoing with respect to a Takeover
Proposal (as hereinafter defined). The Company shall not, nor shall it permit
any of its subsidiaries to, nor shall it authorize or permit any of its
officers, directors or employees or any investment banker, financial advisor,
attorney, accountant or other representative retained by it or any of its
subsidiaries to, directly or indirectly, (i) solicit, initiate or knowingly
encourage (including by way of furnishing information), or take any other
action designed or reasonably likely to facilitate, any inquiries or the making
of any proposal which constitutes, or may reasonably be expected to lead to,
any Takeover Proposal or (ii) participate in any discussions or negotiations
regarding any Takeover Proposal; provided, however, that if, at any time prior
to the acceptance for payment of Shares pursuant to the Offer, the Board of
Directors of the Company determines in good faith, after consultation with
outside counsel, that it is necessary to do so in order to comply with its
fiduciary duties to the Company's stockholders under applicable law, the
Company may, in response to a Takeover Proposal which was not solicited
subsequent to the date hereof, and subject to compliance with Section 6.02(c),
(x) furnish information with respect to the Company to any person pursuant to a
customary confidentiality agreement (as determined by the Company after
consultation with its outside counsel) and (y) participate in negotiations
regarding such Takeover Proposal. For purposes of this Agreement, "Takeover
Proposal" means any inquiry, proposal or offer from any person relating to any
direct or indirect acquisition or purchase of 20% or more of the assets of the
Company and its subsidiaries or 20% or more of any class of equity securities
of the Company or any of its subsidiaries, any tender offer or exchange offer
that if consummated would result in any person beneficially owning 20% or more
of any class of equity securities of the Company or any of its subsidiaries,
any
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merger, consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction involving the Company or any of its
subsidiaries, other than the transactions contemplated by this Agreement, or
any other transaction the consummation of which could reasonably be expected to
impede, interfere with, prevent or materially delay the Offer and/or the Merger
or which would reasonably be expected to dilute materially the benefits to
Parent of the transactions contemplated by this Agreement and the Stockholder
Agreement.
(b) Except as set forth in this Section 6.02, neither the Board of
Directors of the Company nor any committee thereof shall (i) withdraw or
modify, or propose publicly to withdraw or modify, in a manner adverse to
Parent, the approval or recommendation by such Board of Directors or such
committee of the Offer, the Merger or this Agreement, (ii) approve or
recommend, or propose publicly to approve or recommend, any Takeover Proposal
or (iii) cause the Company to enter into any letter of intent, agreement in
principle, acquisition agreement or other similar agreement (each, an
"Acquisition Agreement") related to any Takeover Proposal. Notwithstanding the
foregoing, in the event that prior to the acceptance for payment of Shares
pursuant to the Offer the Board of Directors of the Company determines in good
faith, after consultation with outside counsel, that it is necessary to do so
in order to comply with its fiduciary duties to the Company's stockholders
under applicable law, the Board of Directors of the Company may (subject to
this and the following sentences) (x) withdraw or modify its approval or
recommendation of the Offer, the Merger and this Agreement or (y) approve or
recommend a Superior Proposal (as defined below) or terminate this Agreement
(and concurrently with or after such termination, if it so chooses, cause the
Company to enter into an Acquisition Agreement with respect to any Superior
Proposal), but in each of the cases set forth in this clause (y), only at a
time that is after the fifth business day following Parent's receipt of written
notice (a "Notice of Superior Proposal") advising Parent that (i) the Board of
Directors of the Company has received a Superior Proposal and (ii) the actions
the Board of Directors of the Company intends to take with respect to such
Superior Proposal, specifying the material terms and conditions of such
Superior Proposal and identifying the person making such Superior Proposal. For
purposes of this Agreement, a "Superior Proposal" means any bona fide proposal
made by a third party to acquire, directly or indirectly, for consideration
consisting of cash and/or securities, more than 50% of the combined voting
power of the shares of Company Common Stock and Class B Common Stock then
outstanding or all or substantially all the assets of the Company and otherwise
on terms which the Board of Directors of the Company determines in its good
faith judgment (based on the advice of a financial advisor of nationally
recognized reputation) to be more favorable to the Company's stockholders
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than the Offer and the Merger and for which financing, to the extent required,
is then committed.
(c) In addition to the obligations of the Company set forth in paragraphs
(a) and (b) of this Section 6.02, the Company shall immediately advise Parent
orally and in writing of any request for information or of any Takeover
Proposal, the material terms and conditions of such request or Takeover
Proposal and the identity of the person making such request or Takeover
Proposal. The Company will keep Parent fully informed of the status and
details (including amendments or proposed amendments) of any such request or
Takeover Proposal.
(d) Nothing contained in this Section 6.02 shall prohibit the Company
from taking and disclosing to its stockholders a position contemplated by the
Exchange Act or from making any disclosure to the Company's stockholders if, in
the good faith judgment of the Board of Directors of the Company, after
consultation with outside counsel, such disclosure is required by applicable
state or Federal securities laws or is necessary in order to comply with its
fiduciary duties to the Company's stockholders under applicable law; provided,
however, neither the Company nor its Board of Directors nor any committee
thereof shall, except as permitted by Section 6.02(b), withdraw or modify, or
propose publicly to withdraw or modify, its position with respect to the Offer,
this Agreement or the Merger or approve or recommend, or propose publicly to
approve or recommend, a Takeover Proposal.
SECTION 6.03. Third Party Standstill Agreements. During the period from
the date of this Agreement through the Effective Time, the Company shall not
terminate, amend, modify or waive any provision of any confidentiality or
standstill agreement to which the Company or any of its subsidiaries is a party
(other than any involving Parent) unless the Company's Board of Directors shall
have determined in good faith, after consultation with outside counsel, that it
is necessary to do so in order to comply with its fiduciary duties to the
Company's stockholders under applicable law.
SECTION 6.04. Other Actions. Except as expressly contemplated or
permitted by this Agreement, the Company shall not, and shall not permit any of
its subsidiaries to, take any action that would, or that could reasonably be
expected to, result in (i) any of the representations and warranties of the
Company set forth in this Agreement that are qualified as to materiality
becoming untrue, (ii) any of such representations and warranties that are not
so qualified becoming untrue in any material respect or (iii) any of the Offer
Conditions not being satisfied (subject to the Company's right to take actions
specifically permitted by Section 6.02).
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SECTION 6.05. Certain Waivers and Consents. The Company shall use its
reasonable best efforts to obtain any and all waivers or consents necessary
from the lenders listed on Item 6.05 of the Company Letter prior to the
acceptance by Sub of any Shares tendered pursuant to the Offer.
SECTION 6.06. Information Relating to Certain Benefit Plans. (a) As soon
as practicable, but in no event later than October 28, 1997, the Company shall
deliver to Parent each of the items listed in clauses (i) through (vi) of the
second sentence of Section 4.10(b) hereof with respect to each Subsidiary
Subject Benefit Plan, to the extent such information was not previously
delivered to Parent in accordance with Section 4.10(b) hereof.
(b) The Company represents and warrants that after September 28, 1997 and
prior to the date hereof it delivered to the union pension fund office for each
multiemployer plan to which the Company and its subsidiaries contribute a
written request for a withdrawal liability calculation or for information that
will allow the Company to make such a calculation. The Company shall deliver
such information to Parent no later than one business day following the receipt
by the Company.
SECTION 6.07. Certain Deliveries. The Company shall deliver to Parent,
not more than 20 days prior to, but not later than, Sub's acceptance for
payment of any Shares pursuant to the Offer, a statement in accordance with
Treas. Reg. Section Section 1.1445-2(c)(3) and 1.897-2(h), and neither Parent
nor Sub shall have actual knowledge that such statement is false or received a
notice that the statement is false pursuant to Treas. Reg. Section 1.1445-4.
In addition, the Company shall deliver to Parent on the date Sub first accepts
for payment any Shares pursuant to the Offer the notification to the Internal
Revenue Service, in accordance with the requirements pursuant to Treas. Reg.
Section 1.897-(h)(2), of delivery of the statement referred to in the
preceding sentence, signed by a responsible corporate officer of the Company.
ARTICLE VII
Additional Agreements
SECTION 7.01. Stockholder Approval; Preparation of Proxy Statement. (a)
If the Company Stockholder Approval is required by law, the Company shall, as
soon as practicable following (i) the expiration of the Offer or (ii) the
exercise by Parent of the Merger Option, duly call, give notice of, convene
and hold a meeting of its stockholders (the "Stockholders Meeting") for the
purpose of obtaining the Company Stockholder Approval. The Company shall,
through its Board of Directors (but subject to the right of its Board of
Directors to withdraw or modify its approval or recommendation of the Offer,
the Merger
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and this Agreement as set forth in Section 6.02(b)), recommend to its
stockholders that the Company Stockholder Approval be given. Without limiting
the generality of the foregoing, the Company agrees that its obligations
pursuant to the first sentence of this Section 7.01(a) shall not be affected by
(i) the commencement, public proposal, public disclosure or communication to the
Company of any Takeover Proposal or (ii) the withdrawal or modification by
the Board of Directors of the Company of its approval or recommendation of the
Offer, this Agreement or the Merger.
(b) If the Company Stockholder Approval is required by law, the Company
shall, at Parent's request, as soon as practicable following (i) the expiration
of the Offer or (ii) the exercise by Parent of the Merger Option, prepare and
file a preliminary Proxy Statement with the SEC and shall use its reasonable
best efforts to respond to any comments of the SEC or its staff and to cause
the Proxy Statement to be mailed to the Company's stockholders as promptly as
practicable after responding to all such comments to the satisfaction of the
staff. The Company shall notify Parent promptly of the receipt of any comments
from the SEC or its staff and of any request by the SEC or its staff for
amendments or supplements to the Proxy Statement or for additional information
and will supply Parent with copies of all correspondence between the Company or
any of its representatives, on the one hand, and the SEC or its staff, on the
other hand, with respect to the Proxy Statement or the Merger. If at any time
prior to the Stockholders Meeting there shall occur any event that should be
set forth in an amendment or supplement to the Proxy Statement, the Company
shall promptly prepare and mail to its stockholders such an amendment or
supplement. The Company shall not mail any Proxy Statement, or any amendment
or supplement thereto, to which Parent reasonably objects. Parent shall
cooperate with the Company in the preparation of the Proxy Statement or any
amendment or supplement thereto.
(c) Parent agrees to cause all Shares purchased pursuant to the Offer and
all other Shares owned by Parent or any subsidiary of Parent to be voted in
favor of the Company Stockholder Approval.
SECTION 7.02. Access to Information. Upon reasonable notice and subject
to restrictions contained in confidentiality agreements to which the Company is
subject (from which it shall use reasonable best efforts to be released) and
subject to the terms of the Confidentiality Agreement (the "Confidentiality
Agreement"), dated July 3, 1997, between the Company and Parent, the Company
shall, and shall cause each of its subsidiaries to, afford to Parent and to the
officers, employees, accountants, counsel and other representatives of Parent
all reasonable access, during normal business hours during the period prior to
the Effective Time, to all their respective properties, books,
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contracts, commitments and records and, during such period, the Company shall
(and shall cause each of its subsidiaries to) furnish promptly to Parent (a) a
copy of each report, schedule, registration statement and other document filed
or received by it during such period pursuant to the requirements of the
Federal or state securities laws or the Federal tax laws and (b) all other
information concerning its business, properties and personnel as Parent may
reasonably request.
SECTION 7.03. Reasonable Best Efforts. Except as otherwise contemplated
in this Agreement, each of the Company, Parent and Sub agree to use its
reasonable best efforts to take, or cause to be taken, all actions necessary to
comply promptly with all legal requirements that may be imposed on itself with
respect to the Offer and the Merger (which actions shall include furnishing all
information required under the HSR Act and in connection with approvals of or
filings with any other Governmental Entity) and shall promptly cooperate with
and furnish information to each other in connection with any such requirements
imposed upon any of them or any of their subsidiaries in connection with the
Offer and the Merger. Except as otherwise contemplated in this Agreement, each
of the Company, Parent and Sub shall, and shall cause its subsidiaries to, use
its reasonable best efforts to take all reasonable actions necessary to obtain
(and shall cooperate with each other in obtaining) any consent, authorization,
order or approval of, or any exemption by, any Governmental Entity or other
public or private third party required to be obtained or made by Parent, Sub,
the Company or any of their subsidiaries in connection with the Offer and the
Merger or the taking of any action contemplated thereby or by this Agreement,
except that no party need waive any substantial rights or agree to any
substantial limitation on its operations or to dispose of any assets. Without
limiting the foregoing, Parent shall (i) contemporaneously with the purchase of
Shares pursuant to the Offer, lend, contribute or otherwise transfer to the
Company funds in an amount sufficient to enable the Company to repay its then
outstanding indebtedness under the Amended and Restated Credit Agreement dated
as of July 15, 1997 referred to in Item 4.05 of the Company Letter and (ii) use
its reasonable best efforts to cause the Company to repay such indebtedness
contemporaneously with such purchase and obtain the release of all guaranties
and security interests granted in connection with such indebtedness.
SECTION 7.04. Directors. Promptly upon Sub having acquired a majority of
the combined voting power of the Shares and Class B Shares, Sub shall be
entitled to designate such number of directors on the Board of Directors of the
Company as will give Sub, subject to compliance with Section 14(f) of the
Exchange Act, a majority of such directors, and the Company shall, at such
time, cause Sub's designees to be so elected by its existing Board of
Directors; provided, however, that in the event that Sub's designees are
elected to the Board of Directors
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of the Company, until the Effective Time such Board of Directors shall have at
least three directors who are directors on the date of this Agreement and who
are not officers of the Company (the "Independent Directors"); and provided
further that, in such event, if the number of Independent Directors shall be
reduced below three for any reason whatsoever, the remaining Independent
Directors or Director shall designate a person or persons to fill such vacancy
or vacancies, each of whom shall be deemed to be an Independent Director for
purposes of this Agreement or, if no Independent Directors then remain, the
other directors shall designate three persons to fill such vacancies who shall
not be officers or affiliates of the Company or any of its subsidiaries, or
officers or affiliates of Parent or any of its subsidiaries, and such persons
shall be deemed to be Independent Directors for purposes of this Agreement.
Subject to applicable law, the Company shall take all action requested by
Parent that is reasonably necessary to effect any such election, including
mailing to its stockholders the Information Statement containing the
information required by Section 14(f) of the Exchange Act and Rule 14f-1
promulgated thereunder, and the Company agrees to make such mailing with the
mailing of the Schedule 14D-9 (provided that Sub shall have provided to the
Company on a timely basis all information required to be included in the
Information Statement with respect to Sub's designees). In connection with
the foregoing, the Company will promptly, at the option of Parent, either
increase the size of the Company's Board of Directors and/or obtain the
resignation of such number of its current directors as is necessary to enable
Sub's designees to be elected or appointed to, and to constitute a majority of
the directors on, the Company's Board of Directors as provided above.
SECTION 7.05. Fees and Expenses. (a) Except as provided below in this
Section 7.05, all fees and expenses incurred in connection with the Offer, the
Merger, this Agreement and the transactions contemplated by this Agreement
shall be paid by the party incurring such fees or expenses, whether or not the
Offer or the Merger is consummated.
(b) The Company shall pay, or cause to be paid, in same day funds to
Parent (x) the amount of the Expenses (as hereinafter defined) and (y)
$6,750,000 (the "Termination Fee") under the circumstances and at the times set
forth as follows:
(i) if Parent or Sub terminates this Agreement under Section
9.01(d), the Company shall pay the Expenses and the Termination Fee upon
demand;
(ii) if the Company terminates this Agreement under Section 9.01(e),
the Company shall pay the Expenses and the Termination Fee concurrently
therewith; and
(iii) if, at the time of any other termination of this Agreement
(other than by the Company pursuant to
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Section 9.01(f) or 9.01(g)), a Takeover Proposal shall have been made
(other than a Takeover Proposal made prior to the date hereof), the
Company shall pay the Expenses, if terminated by the Company, concurrently
therewith or, if terminated by Parent, upon demand; in addition, if within
18 months of such termination, the Company shall enter into an Acquisition
Agreement providing for a Takeover Proposal or a Takeover Proposal shall
be consummated, the Company shall pay the Termination Fee concurrently
with the earlier of the entering into of such Acquisition Agreement or the
consummation of such Takeover Proposal.
"Expenses" shall mean documented and reasonable out-of-pocket fees and expenses
incurred or paid by or on behalf of Parent in connection with the Offer, the
Merger or the consummation of any of the transactions contemplated by this
Agreement, including all fees and expenses of law firms, commercial banks,
investment banking firms, accountants, experts and consultants to Parent.
SECTION 7.06. Indemnification; Insurance. (a) Parent and Sub agree that
all rights to indemnification for acts or omissions occurring at or prior to
the Effective Time now existing in favor of the current or former directors,
officers, employees and agents (the "Indemnified Parties") of the Company and
its subsidiaries as provided in their respective articles of incorporation or
by-laws (or similar organizational documents) shall survive the Merger and
shall continue in full force and effect in accordance with their terms.
(b) For six years from the earlier of the date Sub first purchases Shares
pursuant to the Offer or the Effective Time, Parent shall maintain in effect
the Company's current directors' and officers' liability insurance covering
those persons who are currently covered by the Company's directors' and
officers' liability insurance policy (a copy of which has been heretofore
delivered to Parent); provided, however, that in no event shall Parent be
required to pay a premium in any one year in an amount in excess of 150 percent
of the last per annum amount of premiums paid by the Company prior to the date
hereof; and, provided, further, that if the annual premiums of such insurance
coverage exceed such amount, Parent shall be obligated to obtain a policy with
the greatest coverage available for a cost not exceeding such amount.
(c) This Section 7.06 shall survive the consummation of the Merger at the
Effective Time, is intended to benefit the Company, Parent, the Surviving
Corporation and the Indemnified Parties, and shall be binding on all successors
and assigns of Parent and the Surviving Corporation.
SECTION 7.07. Certain Litigation. The Company agrees that it shall not
settle any litigation commenced after the date hereof against the Company or
any of its directors by any
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stockholder of the Company relating to the Offer, the Merger, this Agreement or
the Stockholder Agreements, without the prior written consent of Parent. In
addition, the Company shall not voluntarily cooperate with any third party that
may hereafter seek to restrain or prohibit or otherwise oppose the Offer or the
Merger and shall cooperate with Parent and Sub to resist any such effort to
restrain or prohibit or otherwise oppose the Offer or the Merger; provided,
however, that the foregoing shall not limit any rights of the Company under
Section 6.02(b).
SECTION 7.08. Stock-Based Compensation. (a) Prior to the earlier of
purchase of Shares pursuant to the Offer or the Effective Time, the Company
shall terminate each stock option plan, stock appreciation right plan, limited
stock appreciation right plan, restricted stock plan, employee stock
purchase plan, or any other plan or arrangement providing for compensation
wholly or partially in the form of Shares (excluding any plan which is intended
to be qualified under section 401(a) of the Code) (collectively, the
"Stock-Based Compensation Plans"), and shall grant no additional options or
awards under such Stock-Based Compensation Plans.
(b) Immediately upon the purchase of Shares pursuant to the Offer, or
immediately prior to the Effective Time, if earlier, all outstanding options or
awards under the Stock-Based Compensation Plans, whether vested or unvested,
shall cease to be exercisable, shall be canceled by the Company, and shall
thereafter represent only a right to receive, upon its surrender to the
Company, a cash payment from the Company in an amount (if any) equal to the
number of Shares subject to each such surrendered option or award multiplied by
the difference (if positive) between the exercise price per Share (if any)
covered by the option or award and the Offer Price.
(c) All amounts payable pursuant to this Section shall be subject to any
required withholding of taxes and shall be paid without interest.
SECTION 7.09. Allocation of Shares Under Qualified Plans. The Company
shall take such action as is necessary so that, prior to the earlier of the
purchase of Shares pursuant to the Offer or the Effective Time, (i) no
participant in a Pension Plan that is a defined contribution plan intended to
be qualified under section 401(a) of the Code can have any additional amount
allocated to the participant's account in the form of Shares or in the form of
any other securities of the Company and (ii) to the extent any such plan
provides for investment of participants' accounts in an investment fund which
is invested primarily in Shares, no participant may direct that any portion of
the participant's account be invested in such fund (other than the portion of
such account invested in such fund immediately prior to the earlier of the
purchase of Shares pursuant to the Offer or the Effective Time).
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ARTICLE VIII
Conditions
SECTION 8.01. Conditions to Each Party's Obligation To Effect the Merger.
The respective obligation of each party to effect the Merger (other than
pursuant to the Merger Option) shall be subject to the satisfaction (or waiver
by each party) prior to the Closing Date of the following conditions:
(a) Company Stockholder Approval. If required by applicable law,
the Company Stockholder Approval shall have been obtained.
(b) No Injunctions or Restraints. No statute, rule, regulation,
executive order, decree, temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other Governmental Entity preventing the consummation of
the Merger shall be in effect; provided, however, that each of the
parties shall have used reasonable best efforts to prevent the entry of
any such injunction or other order and to appeal as promptly as possible
any injunction or other order that may be entered.
(c) Purchase of Shares. Sub shall have previously accepted for
payment and paid for Shares pursuant to the Offer.
SECTION 8.02. Conditions to Each Party's Obligation To Effect the Merger
Upon Exercise of the Merger Option. The respective obligation of each party to
effect the Merger upon the exercise by Parent of the Merger Option shall be
subject to the satisfaction (or waiver by each party, in the case of (a) or (b)
below, or Parent, in the case of (c) below) prior to the Closing Date of the
following conditions:
(a) Company Stockholder Approval. If required by law, the Company
Stockholder Approval shall have been obtained.
(b) No Injunctions or Restraints. No statute, rule, regulation,
executive order, decree, temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other Governmental Entity preventing the consummation of
the Merger shall be in effect; provided, however, that each of the
parties shall have used reasonable best efforts to prevent the entry of
any such injunction or other order and to appeal as promptly as possible
any injunction or other order that may be entered.
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(c) Performance of Obligations; Representations and Warranties.
The Company shall have performed in all material respects any material
obligation and complied in all material respects with any material
agreement or covenant of the Company to be performed or complied with by
it under this Agreement; and each of the representations and warranties
of the Company set forth in this Agreement that are qualified as to
materiality shall be true and correct as of the Closing Date as if made
on and as of the Closing Date and each of the representations and
warranties of the Company set forth in this Agreement that are not so
qualified shall be true and correct in all material respects on the
Closing Date as if made on and as of the Closing Date.
(d) HSR Period. Any waiting period under the HSR Act applicable
to the Merger shall have expired or been terminated.
ARTICLE IX
Termination and Amendment
SECTION 9.01. Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval of the terms of
this Agreement by the stockholders of the Company:
(a) by mutual written consent of Parent and the Company;
(b) by either Parent or the Company:
(i) if (x) as a result of the failure of any of the Offer
Conditions the Offer shall have terminated or expired in accordance
with its terms without Sub having accepted for payment any Shares
pursuant to the Offer or (y) Sub shall not have accepted for
payment any Shares pursuant to the Offer prior to March 31, 1998
or, if the Merger Option has been exercised by Parent, the Merger
has not been effected prior to June 30, 1998; provided, however,
that the right to terminate this Agreement pursuant to this Section
9.01(b)(i) shall not be available to any party whose failure to
perform any of its obligations under this Agreement results in the
failure of any such condition or if the failure of such condition
results from facts or circumstances that constitute a breach of any
representation or warranty under this Agreement by such party; or
(ii) if any Governmental Entity shall have issued an order,
decree or ruling or taken any other action
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permanently enjoining, restraining or otherwise prohibiting the
acceptance for payment of, or payment for, shares of Company Common
Stock pursuant to the Offer or shares of Company Common Stock or
Class B Shares pursuant to the Merger and such order, decree or
ruling or other action shall have become final and nonappealable;
(c) by Parent or Sub prior to the purchase of Shares pursuant to
the Offer in the event of a breach by the Company of any representation,
warranty, covenant or other agreement contained in this Agreement which
(i) would give rise to the failure of a condition set forth in paragraph
(e) or (f) of Exhibit A and (ii) cannot be or has not been cured within
20 days after the giving of written notice to the Company;
(d) by Parent or Sub if either Parent or Sub is entitled to
terminate the Offer as a result of the
occurrence of any event set forth in paragraph (d) of Exhibit A to this
Agreement;
(e) by the Company in accordance with Section 6.02(b), provided
that it has complied with all provisions thereof, including the notice
provisions therein, and simultaneously with such termination the Company
pays to Parent the Expenses and the Termination Fee specified under
Section 7.05(b)(ii);
(f) by the Company, if Sub or Parent shall have breached in any
material respect any of their respective representations, warranties,
covenants or other agreements contained in this Agreement, which breach
or failure to perform is incapable of being cured or has not been cured
within 20 days after the giving of written notice to Parent or Sub, as
applicable; or
(g) by the Company, if the Offer has not been timely commenced in
accordance with Section 1.01.
SECTION 9.02. Effect of Termination. In the event of a termination of
this Agreement by either the Company or Parent as provided in Section 9.01,
this Agreement shall forthwith become void and there shall be no liability or
obligation on the part of Parent, Sub or the Company or their respective
officers or directors, except with respect to the last sentence of Section
1.02(c), Section 4.18, Section 5.06, Section 7.05, this Section 9.02 and
Article X; provided, however, that nothing herein shall relieve any party for
liability for any breach hereof.
SECTION 9.03. Amendment. This Agreement may be amended by the parties
hereto, by action taken or authorized by
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their respective Boards of Directors, at any time before or after obtaining the
Company Stockholder Approval (if required by law), but, after the purchase of
Shares pursuant to the Offer, no amendment shall be made which decreases the
Merger Consideration and, after the Company Stockholder Approval, no amendment
shall be made which by law requires further approval by such stockholders
without obtaining such further approval. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto. Following the election or appointment of the Sub's designees pursuant
to Section 7.04 and prior to the Effective Time, the affirmative vote of a
majority of the Independent Directors then in office shall be required by the
Company to (i) amend or terminate this Agreement by the Company, (ii) exercise
or waive any of the Company's rights or remedies under this Agreement, (iii)
extend the time for performance of Parent and Sub's respective obligations
under this Agreement or (iv) take any action to amend or otherwise modify the
Company's Certificate of Incorporation or By-Laws.
SECTION 9.04. Extension; Waiver. At any time prior to the Effective
Time, the parties hereto, by action taken or authorized by their respective
Boards of Directors, may, to the extent legally allowed, (i) subject to the
provisions of Section 9.03, extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (ii) subject to the
provisions of Section 9.03, waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto or
(iii) subject to the provisions of Section 9.03, waive compliance with any of
the agreements or conditions contained herein. Any agreement on the part of a
party hereto to any such extension or waiver shall be valid only if set forth
in a written instrument signed on behalf of such party. The failure of any
party to this Agreement to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of those rights.
ARTICLE X
Miscellaneous
SECTION 10.01. Nonsurvival of Representations, Warranties and Agreements.
None of the representations and warranties in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Effective
Time. This Section 10.01 shall not limit any covenant or agreement of the
parties which by its terms contemplates performance after the Effective Time of
the Merger.
SECTION 10.02. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally,
telecopied (which is confirmed),
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sent by overnight courier (providing proof of delivery) or mailed by registered
or certified mail (return receipt requested) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to the Company, to:
Graphic Industries, Inc.
2155 Monroe Drive, N.E.
Atlanta, Georgia 30324
Attention: Chairman
Telecopy No.: (404) 874-7589
and with a copy (which copy shall not constitute a
notice) to:
Powell, Goldstein, Frazer & Murphy, LLP
191 Peachtree Street, NE
Atlanta, Georgia 30303
Attention: G. William Speer
Telecopy No.: (404) 572-5958
and
(b) if to the Parent or Sub, to:
Wallace Computer Services, Inc.
2275 Cabot Drive
Lisle, Illinois 60532
Attention: President
Telecopy No.: (630) 588-5111
and with a copy (which copy shall not constitute a
notice) to:
Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
Attention: Frederick C. Lowinger and
Steve Sutherland
Telecopy No.: (312) 853-7036
SECTION 10.03. Interpretation. When a reference is made in this
Agreement to an Article or a Section, such reference shall be to an Article or
a Section of this Agreement unless otherwise indicated. The table of contents
and headings contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Agreement.
Whenever the words "include", "includes" or "including" are used in this
Agreement, they shall be deemed to be followed by the words "without
limitation". The phrase "made available" in this Agreement shall mean that the
information
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referred to has been made available if requested by the party to whom such
information is to be made available. As used in this Agreement, the term
"subsidiary" of any person means another person, an amount of the voting
securities, other voting ownership or voting partnership interests of which is
sufficient to elect at least a majority of its Board of Directors or other
governing body (or, if there are no such voting interests, 50% or more of the
equity interests of which) is owned directly or indirectly by such first
person. As used in this Agreement, "material adverse change" or "material
adverse effect" means, when used in connection with the Company, any change or
effect (or any development that, insofar as can reasonably be foreseen, is
likely to result in any change or effect) or fact or condition that,
individually or in the aggregate with any such other changes or effects, is
materially adverse to the business, properties, assets, financial condition,
results of operations or prospects of the Company and its subsidiaries taken as
a whole.
SECTION 10.04. Counterparts. This Agreement may be executed in two or
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when two or more counterparts have been signed by
each of the parties and delivered to the other parties, it being understood
that all parties need not sign the same counterpart.
SECTION 10.05. Entire Agreement; No Third Party Beneficiaries. This
Agreement, the Stockholder Agreement and the Confidentiality Agreement
constitute the entire agreement and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof (including the Original Merger Agreement and the Original
Stockholder Agreement), and except as provided in Section 7.06 are not intended
to confer upon any person other than the parties hereto or thereto any rights
or remedies hereunder or thereunder.
SECTION 10.06. Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of Georgia without regard to
any applicable conflicts of law.
SECTION 10.07. Publicity. Except as otherwise required by law, court
process or the rules of the New York Stock Exchange, for so long as this
Agreement is in effect, neither the Company nor Parent shall, or shall permit
any of its subsidiaries to, issue or cause the publication of any press release
or other public announcement with respect to the transactions contemplated by
this Agreement without prior consultation with the other party, which consent
shall not be unreasonably withheld.
SECTION 10.08. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties, except that Sub may assign, in its sole
discretion, any
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or all of its rights, interests and obligations hereunder to Parent or to any
direct or indirect wholly owned subsidiary of Parent. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of and be
enforceable by the parties and their respective successors and assigns.
SECTION 10.09. Merger of the Company into Sub. If at any time prior to
the Closing Date Parent notifies the Company that it desires for the Company to
be merged with and into Sub (in lieu of Sub merging with and into the Company),
the Company, Parent and Sub will promptly negotiate in good faith an amendment
to and restatement of this Agreement which provides for such changes to this
Agreement as are necessary or appropriate to effectuate such merger (and upon
finalization thereof, the parties will promptly enter into such amendment and
restatement).
SECTION 10.10. Enforcement. The parties agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States or
any state, this being in addition to any other remedy to which they are
entitled at law or in equity.
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IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement
to be signed by their respective officers thereunto duly authorized as of the
date first written above.
WALLACE COMPUTER SERVICES, INC.
By: /s/ Robert J. Cronin
--------------------
Name: Robert J. Cronin
Title: President
GREENWICH ACQUISITION CORP.
By: /s/ Robert J. Cronin
--------------------
Name: Robert J. Cronin
Title: Chief Executive Officer
GRAPHIC INDUSTRIES, INC.
By: /s/ Mark C. Pope III
--------------------
Name: Mark C. Pope III
Title: Chairman
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EXHIBIT A
CONDITIONS OF THE OFFER
Notwithstanding any other term of the Offer or this Agreement, Sub shall
not be required to accept for payment or, subject to any applicable rules and
regulations of the SEC, including Rule 14e-1(c) under the Exchange Act
(relating to Sub's obligation to pay for or return tendered Shares after the
termination or withdrawal of the Offer), to pay for any Shares tendered
pursuant to the Offer unless (i) there shall have been validly tendered and not
withdrawn prior to the expiration of the Offer such number of Shares that,
together with the Shares and Class B Shares subject to the Option contained in
the Stockholder Agreement (to the extent not then tendered in the Offer), would
constitute a majority of the Shares and Class B Shares that in the aggregate
are outstanding, determined on a fully diluted basis for all outstanding stock
options, the Convertible Debentures, other securities convertible into Shares
or Class B Shares and any other rights to acquire Shares or Class B Shares (the
"Minimum Condition") and (ii) any waiting period under the HSR Act applicable
to the purchase of Shares pursuant to the Offer shall have expired or been
terminated (the "HSR Condition"). Furthermore, notwithstanding any other term
of the Offer or this Agreement, Sub shall not be required to accept for payment
or, subject as aforesaid, to pay for any Shares not theretofore accepted for
payment or paid for, and may terminate the Offer if, at any time on or after
the date of this Agreement and before the expiration of the Offer (or, in the
case of conditions related to regulatory matters, before the acceptance of such
Shares for payment or the payment therefor), any of the following conditions
exists (other than as a result of any action or inaction of Parent or any of
its subsidiaries that constitutes a breach of this Agreement):
(a) there shall be threatened or pending by any Governmental Entity
any suit, action or proceeding (i) challenging the acquisition by Parent
or Sub of any Shares under the Offer or pursuant to the Stockholder
Agreement, seeking to restrain or prohibit the making or consummation of
the Offer or the Merger or the performance of any of the other
transactions contemplated by this Agreement or the Stockholder Agreement
(including the voting provisions thereunder), or seeking to obtain from
the Company, Parent or Sub any damages that are material in relation to
the Company and its subsidiaries taken as a whole, (ii) seeking to
prohibit or materially limit the ownership or operation by the Company,
Parent or any of their respective subsidiaries of a material portion of
the business or assets of the Company and its subsidiaries, taken as a
whole, or Parent and its subsidiaries, taken as a whole, or to compel
the Company or Parent to dispose of or
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hold separate any material portion of the business or assets of the
Company and its subsidiaries, taken as a whole, or Parent and its
subsidiaries, taken as a whole, as a result of the Offer or any of the
other transactions contemplated by this Agreement or the Stockholder
Agreement, (iii) seeking to impose material limitations on the ability of
Parent or Sub to acquire or hold, or exercise full rights of ownership
of, any Shares to be accepted for payment pursuant to the Offer or
purchased under the Stockholder Agreement including, without limitation,
the right to vote such Shares on all matters properly presented to the
stockholders of the Company, (iv) seeking to prohibit Parent or any of
its subsidiaries from effectively controlling in any material respect any
material portion of the business or operations of the Company or its
subsidiaries or (v) which otherwise is reasonably likely to have a
material adverse effect on the business, properties, assets, financial
condition, results of operations or prospects of the Company and its
subsidiaries taken as a whole; or there shall be pending by any other
person any suit, action or proceeding which is reasonably likely to have
a material adverse effect on the business, properties, assets, financial
condition, results of operations or prospects of the Company and its
subsidiaries taken as a whole.
(b) there shall be enacted, entered, enforced, promulgated or deemed
applicable to the Offer or the Merger by any Governmental Entity any
statute, rule, regulation, judgment, order or injunction, other than the
application to the Offer or the Merger of applicable waiting periods
under the HSR Act, that is reasonably likely to result, directly or
indirectly, in any of the consequences referred to in clauses (i) through
(v) of paragraph (a) above;
(c) there shall have occurred any material adverse change with
respect to the Company;
(d) (i) the Board of Directors of the Company or any committee
thereof shall have withdrawn or modified in a manner adverse to Parent or
Sub its approval or recommendation of the Offer, the Merger or this
Agreement, or approved or recommended any Takeover Proposal or (ii) the
Board of Directors of the Company or any committee thereof shall have
resolved to take any of the foregoing actions;
(e) any of the representations and warranties of the Company set
forth in this Agreement that are qualified as to materiality shall not be
true and correct or any such representations and warranties that are not
so qualified shall not be true and correct in any material respect, in
each case at the date of this Agreement and at the scheduled or extended
expiration of the Offer;
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(f) the Company shall have failed to perform in any material respect
any material obligation or to comply in any material respect with any
material agreement or covenant of the Company to be performed or
complied with by it under this Agreement;
(g) there shall have occurred and continued to exist for not less
than three business days (i) any general suspension of trading in, or
limitation on prices for, securities on a national securities exchange in
the United States (excluding any coordinated trading halt triggered
solely as a result of a specified decrease in a market index), (ii) a
declaration of a banking moratorium or any suspension of payments in
respect of banks in the United States, (iii) any limitation (whether or
not mandatory) by any Governmental Entity on, or other event that
materially adversely affects, the extension of credit by banks or other
lending institutions, (iv) a commencement of a war or armed hostilities
or other national or international calamity directly or indirectly
involving the United States which in any case is reasonably expected to
have a material adverse effect on the Company or to materially adversely
affect Parent's or Sub's ability to complete the Offer and/or the Merger
or materially delay the consummation of the Offer and/or the Merger;
(h) the Stockholder Agreement shall not be in full force and effect
or the Stockholder (as defined therein) shall be in material breach
thereof or have indicated his intention not to perform his obligations
thereunder; and
(i) this Agreement shall have been terminated in accordance with its
terms.
The foregoing conditions are for the sole benefit of Parent and Sub and
may, subject to the terms of this Agreement, be waived by Parent and Sub in
whole or in part at any time and from time to time in their sole discretion.
The failure by Parent or Sub at any time to exercise any of the foregoing
rights shall not be deemed a waiver of any such right, the waiver of any such
right with respect to particular facts and circumstances shall not be deemed a
waiver with respect to any other facts and circumstances and each such right
shall be deemed an ongoing right that may be asserted at any time and from time
to time. Terms used but not defined herein shall have the meanings assigned to
such terms in the Agreement to which this Exhibit A is a part.
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ANNEX II
GEORGIA BUSINESS CORPORATION CODE
ARTICLE 13. DISSENTERS' RIGHTS
PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
14-2-1301 DEFINITIONS.--As used in this article, the term:
(1) "Beneficial shareholder" means the person who is a beneficial owner of
shares held in a voting trust or by a nominee as the record shareholder.
(2) "Corporate action" means the transaction or other action by the
corporation that creates dissenters' rights under Code Section 14-2-1302.
(1)(3) "Corporation" means the issuer of shares held by a dissenter before
the corporate action, or the surviving or acquiring corporation by merger or
share exchange of that issuer.
(2)(4) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under Code Section 14-2-1302 and who exercises that right when
and in the manner required by Code Sections 14-2-1320 through 14-2-1327.
(3)(5) "Fair value," with respect to a dissenter's shares, means the value
of the shares immediately before the effectuation of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action.
(4)(6) "Interest" means interest from the effective date of the corporate
action until the date of payment, at a rate that is fair and equitable under
all the circumstances.
(5)(7) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.
(6)(8) "Shareholder" means the record shareholder or the beneficial
shareholder. (Last amended by Act 526, L. '93, eff. 7-1-93.)
____
Act 526, L. '93, eff. 7-1-93, added matter in italic and deleted (1)"(2)";
(2)"(3)"; (3)"(4)"; (4)"(5)"; (5)"(6)"; and (6)"(7)".
14-2-1302 RIGHT TO DISSENT.--(a) A record shareholder of the corporation
is entitled to dissent from, and obtain payment of the fair value of his shares
in the event of, any of the following corporate actions:
(1) Consummation of a plan of merger to which the corporation is a party:
(A) If approval of the shareholders of the corporation is required for the
merger by Code Section 14-2-1103 or the articles of incorporation and the
shareholder is entitled to vote on the merger; or
(B) If the corporation is a subsidiary that is merged with its parent
under Code Section 14-2-1104;
(2) Consummation of a plan of share exchange to which the corporation is a
party as the corporation whose shares will be acquired, if the shareholder is
entitled to vote on the plan;
(3) Consummation of a sale or exchange of all or substantially all of the
property of the corporation if a shareholder vote is required on the sale or
exchange pursuant to Code Section 14-2-1202, but not including a sale pursuant
to court order or a sale for cash pursuant to a plan by which all or
substantially all of the net proceeds of the sale will be distributed to the
shareholders within one year after the date of sale;
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(4) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
(A) Alters or abolishes a preferential right of the shares;
(B) Creates, alters, or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption or
repurchase, of the shares;
(C) Alters or abolishes a preemptive right of the holder of the shares to
acquire shares or other securities;
(D) Excludes or limits the right of the shares to vote on any matter, or
to cumulate votes, other than a limitation by dilution through issuance of
shares or other securities with similar voting rights;
(E) Reduces the number of shares owned by the shareholder to a fraction of
a share if the fractional share so created is to be acquired for cash under
Code Section 14-2-604; or
(F) Cancel, redeems, or repurchases all or part of the shares of the
class;
(5) Any corporate action taken pursuant to shareholder vote to the extent
that Article 9 of this chapter, the articles of incorporation, bylaws, or a
resolution of the board of directors provides that voting or nonvoting
shareholders are entitled to dissent and obtain payment for their shares.
(b) A shareholder entitled to dissent and obtain payment for his shares
under this article may not challenge the corporate action creating his
entitlement unless the corporate action fails to comply with procedural
requirements of this chapter or the articles of incorporation or bylaws of the
corporation of (1)the vote required to obtain approval of the corporate action
was obtained by fraudulent and deceptive means, regardless of whether the
shareholder has exercised dissenter's rights.
(c) Notwithstanding any other provision of this article, there shall be no
right of dissent in favor of the holder of shares of any class or series which,
at the record date fixed to determine the shareholders entitled to receive
notice of and to vote at a meeting at which a plan of merger or share exchange
or a sale or exchange of property or an amendment of the articles of
incorporation is to be acted on, were either listed on a national securities
exchange or held of record by more than 2,000 shareholders, unless:
(1) In the case of a plan of merger or share exchange, the holders of
shares of the class or series are required under the plan of merger or share
exchange to accept for their shares anything except shares of the surviving
corporation or another publicly held (2)corporation which at the effective date
of the merger or share exchange are either listed on a national securities
exchange or held of record by more than 2,000 shareholders, except for scrip or
cash payments in lieu of fractional shares; or
(2) The articles of incorporation or a resolution of the board of
directors approving the transaction provides otherwise. (Last amended by Act
567, L. '89, eff. 7-1-89.)
____
Act 567, L. '89, eff. 7-1-89, added matter in italic and deleted (1)"is
fraudulent with respect to the shareholder or the corporation" and (2)"company".
14-2-1303 DISSENT BY NOMINEES AND BENEFICIAL OWNERS.--A record shareholder
may assert dissenters' rights as to fewer than all the shares registered in his
name only if he dissents with respect to all shares beneficially owned by any
one beneficial shareholder and notifies the corporation in writing of the name
and address of each person on whose behalf he asserts dissenters' rights. The
rights of a partial dissenter under this Code section are determined as if the
shares
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as to which he dissents and his other shares were registered in the names of
different shareholders.
PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
14-2-1320 NOTICE OF DISSENTERS' RIGHTS.--(a) If proposed corporate
action creating dissenters' rights under Code Section 14-2-1302 is submitted to
a vote at a shareholders' meeting, the meeting notice must state that
shareholders are or may be entitled to assert dissenters' rights under this
article and be accompanied by a copy of this article.
(b) If corporate action creating dissenters' rights under Code Section
14-2-1302 is taken without a vote of shareholders, the corporation shall notify
in writing all shareholders entitled to assert dissenters' rights that the
action was taken and send them the dissenters' notice described in Code Section
14-2-1322 no later than ten days after the corporate action was taken. (Last
amended by Act 526, L. '93, eff. 7-1-93.)
____
Act 526, L. '93, eff. 7-1-93, added matter in italic.
14-2-1321 NOTICE OF INTENT TO DEMAND PAYMENT.--(a) If proposed corporate
action creating dissenters' rights under Code Section 14-2-1302 is submitted to
a vote at a shareholders' meeting, a record shareholder who wishes to assert
dissenters' rights:
(1) Must deliver to the corporation before the vote is taken written
notice of his intent to demand payment for his shares if the proposed action is
effectuated; and
(2) Must not vote his shares in favor of the proposed action.
(b) A record shareholder who does not satisfy the requirements of
subsection (a) of this Code section is not entitled to payment for his shares
under this article.
14-2-1322 DISSENTERS' NOTICE.--(a) If proposed corporate action creating
dissenters' rights under Code Section 14-2-1302 is authorized at a
shareholders' meeting, the corporation shall deliver a written dissenters'
notice to all shareholders who satisfied the requirements of Code Section
14-2-1321.
(b) The dissenters' notice must be sent no later than ten days after the
corporate action was taken and must:
(1) State where the payment demand must be sent and where and when
certificates for certificates shares must be deposited
(2) Inform holders of uncertificated shares of what extent transfer of the
shares will be restricted after the payment demand is received;
(3) Set a date by which the corporation must receive the payment demand,
which date may not be fewer than 30 nor more than 60 days after the date the
notice required in subsection (a) of this Code section is delivered; and
14-2-1323 DUTY TO DEMAND PAYMENT.--(a) A record shareholder sent a
dissenters' notice described in Code Section 14-2-1322 must demand payment and
deposit his certificates in accordance with the terms of the notice.
(b) A record shareholder who demands payment and deposits his shares under
subsection (a) of this Code section retains all other rights of a shareholder
until these rights are cancelled or modified by the taking of the proposed
corporate action.
(c) A record shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under this article.
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14-2-1324 SHARE RESTRICTIONS.--(a) The corporation may restrict the
transfer of uncertificated shares from the date the demand for their payment is
received until the proposed corporate action is taken or the restrictions
released under Code Section 14-2-1326.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
14-2-1325 OFFER OF PAYMENT.--(a) Except as provided in Code Section
14-2-1327, within ten days of the later of the date the proposed corporate
action is taken or receipt of a payment demand, the corporation shall (1)by
notice to each dissenter who complied with Code Section 14-2-1323 offer to pay
to such dissenter the amount the corporation estimates to be the fair value of
his or her shares, plus accrued interest.
(b) The offer of payment must be accompanied by:
(1) The corporation's balance sheet as of the end of a fiscal year ending
not more than 16 months before the date of payment, an income statement for
that year, a statement of changes in shareholders' equity for that year, and
the latest available interim financial statements, if any;
(2) A statement of the corporation's estimate of the fair value of the
shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand payment under Code
Section 14-2-1327; and
(5) A copy of this article.
(c) If the shareholder accepts the corporation's offer by written notice
to the corporation within 30 days after the corporation's offer or is deemed to
have accepted such offer by failure to respond within said 30 days, payment for
his or her shares shall be made within 60 days after the making of the offer or
the taking of the proposed corporate action, whichever is later. (Last amended
by Act 526, L. '93, eff. 7-1-93.)
____
Act 526, L. '93, eff. 7-1-93, added matter in italic and deleted (1)"offer
to pay".
14-2-1326 FAILURE TO TAKE ACTION.--(a) If the corporation does not take
the proposed action within 60 days after the date set for demanding payment and
depositing share certificates, the corporation shall return the deposited
certificates and release the transfer restrictions imposed on uncertificated
shares.
(b) If, after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under Code Section (1)14-2-1322 and repeat the payment demand
procedure. (Last amended by Act 964, L. '90, eff. 3-22-90.)
____
Act 965, L. '90, eff. 3-22-90, added matter in italic and deleted
(1)"14-2-1422".
14-2-1327 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR
OFFER.--(a) A dissenter may notify the corporation in writing of his own
estimate of the fair value of his shares and amount of interest due, and demand
payment of his estimate of the fair value of his shares and interest due, if:
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(1) The dissenter believes that the amount offered under Code Section
14-2-1325 is less than the fair value of his shares or that the interest due is
incorrectly calculated; or
(2) The corporation, having failed to take the proposed action, does not
return the deposited certificates or release the transfer restrictions imposed
on uncertificated shares within 60 days after the date set for demanding
payment.
(b) A dissenter waives his or her right to demand payment under this Code
section and is deemed to have accepted the corporation's offer unless he or she
notifies the corporation of his or her demand in writing under subsection (a)
of this Code section within 30 days after the corporation offered payment for
his or her shares, as provided in Code Section 14-2-1325.
(c) If the corporation does not offer payment within the time set forth in
subsection (a) of Code Section 14-2-1325:
(1) The shareholder may demand the information required under subsection
(b) of Code Section 14-2-1325, and the corporation shall provide the
information to the shareholder within ten days after receipt of a written
demand for the information; and
(2) The shareholder may at any time, subject to the limitations period of
Code Section 14-2-1332, notify the corporation of his own estimate of the fair
value of his shares and the amount of interest due and demand payment of his
estimate of the fair value of his shares and interest due. (Last amended by
Act 526, L. '93, eff. 7-1-93.)
____
Act 526, L. '93, eff. 7-1-93, added matter in italic.
PART 3. JUDICIAL APPRAISAL OF SHARES
14-2-1330 COURT ACTION.--(a) If a demand for payment under Code Section
14-2-1327 remains unsettled, the corporation shall commence a proceeding within
60 days after receiving the payment demand and petition the court to determine
the fair value of the shares and accrued interest. If the corporation does not
commence the proceeding within the 60 day period, it shall pay each dissenter
whose demand remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding, which shall be a
nonjury equitable valuation proceeding, in the superior court of the county
where a corporation's registered office is located. If the surviving
corporation is a foreign corporation without a registered office in this state,
it shall commence the proceeding in the county in this state where the
registered office of the domestic corporation merged with or whose shares were
acquired by the foreign corporation was located.
(c) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled parties to the proceeding, which
shall have the effect of an action quasi in rem against their shares. The
corporation shall serve a copy of the petition in the proceeding upon each
dissenting shareholder who is a resident of this state in the manner provided
by law for the service of a summons and complaint, and upon each nonresident
dissenting shareholder either by registered or certified mail (1)or by
publication, or in any other manner permitted by law.
(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) of this Code section is plenary and exclusive. The court
may appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers
described in the order appointing them or in any amendment to it. Except as
otherwise provided in this chapter, Chapter 11 of Title 9, known as the
"Georgia Civil
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Practice Act," applies to any proceeding with respect to
dissenters' rights under this chapter.
(e) Each dissenter made a party to the proceeding is entitled to judgment
for the amount which the court finds to be the fair value of his shares, plus
interest to the date of judgment. (Last amended by Act 526, L. '93, eff.
7-1-93.)
____
Act 526, L. '93, eff. 7-1-93, added matter in italic and deleted (1)"and".
14-2-1331 COURT COSTS AND COUNSEL FEES.--(a) The court in an appraisal
proceeding commenced under Code Section 14-2-1330 shall determine all costs of
the proceeding, including the reasonable compensation and expenses of
appraisers appointed by the court, but not including fees and expenses of
attorneys and experts for the respective parties. The court shall assess the
costs against the corporation, except that the court may assess the costs
against all or some of the dissenters, in amounts the court finds equitable, to
the extent the court finds the dissenters acted arbitrarily, vexatiously, or
not in good faith in demanding payment under Code Section 14-2-1327.
(b) The court may also assess the fees and expenses of attorneys and
experts for the respective parties, in amounts the court finds equitable:
(1) Against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the requirements
of Code Sections 14-2-1320 through 14-2-1327; or
(2) Against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses are
assessed acted arbitrarily, vexatiously or not in good faith with respect to
the rights provided by this article.
(c) If the court finds that the services of attorneys for any dissenter
were of substantial benefit to the dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation, the
court may award to these attorneys reasonable fees to be paid out of the
amounts awarded the dissenters who were benefited.
14-2-1332 LIMITATION OF ACTIONS.--No action by any dissenter to enforce
dissenters' rights shall be brought more than three years after the corporate
action was taken, regardless of whether notice of the corporate action and of
the right to dissent was given by the corporation in compliance with the
provisions of Code Section 14-2-1320 and Code Section 14-2-1322.
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ANNEX III
[INTERSTATE/JOHNSON LANE LETTERHEAD]
October 12, 1997
Board of Directors
Graphic Industries, Inc.
2155 Monroe Drive, NE
Atlanta, Georgia 30324
Gentlemen:
You have requested an update to our opinion dated September 28, 1997 as to
the fairness, from a financial point of view, to the holders of the outstanding
common stock of Graphic Industries, Inc. ("Graphic Industries") of the
consideration to be received in the proposed tender offer (the "Offer") by
Greenwich Acquisition Corporation ("Greenwich"), a Georgia corporation and
wholly owned subsidiary of Wallace Computer Services, Inc. ("Wallace"), for all
of the outstanding common stock of Graphic Industries and the merger of
Greenwich with and into Graphic Industries (the "Merger"). The Offer and the
Merger will be effected pursuant to the terms and conditions set forth in the
Amended and Restated Agreement and Plan of Merger among Wallace, Greenwich, and
Graphic Industries dated as of October 12, 1997 (the "Agreement").
In arriving at our updated opinion, we, among other things, (i) reviewed
the October 12, 1997 draft of the Agreement; (ii) reviewed annual audited
financial statements for Graphic Industries and Wallace for the prior three
fiscal years, interim unaudited financial statements through April 30, 1997 for
Wallace and interim unaudited financial statements through July 31, 1997 for
Graphic Industries; (iii) reviewed publicly available information including
recent Securities and Exchange Commission ("SEC") filings and stockholder
communication for Graphic Industries and for Wallace, respectively; (iv) met
with members of the senior management of Graphic Industries to discuss its
business, financial condition, operating results, and projections; (v) compared
certain financial and stock market data for Graphic Industries with similar data
for selected publicly held commercial printing companies; (vi) reviewed the
financial terms of certain recent business combinations in the printing
industry; (vii) reviewed premiums paid historically for certain other publicly
traded companies deemed relevant; (viii) reviewed historical market price,
volume data, and dividend history for the common stock of Graphic Industries
compared with comparable companies; (ix) reviewed a discounted cash flow
analysis for Graphic Industries; (x) reviewed published research reports and
investment opinions on Graphic Industries and the commercial printing industry;
and (xi) performed such other financial studies and analyses as we deemed
appropriate. We were not requested to and did not solicit the interest of third
parties in submitting a competing offer for the acquisition of Graphic
Industries.
In rendering this opinion, we have relied upon the accuracy and
completeness of all financial and other information furnished to us by or on
behalf of Graphic Industries, and others, including published information that
we considered in our review. We were not requested to and generally have not
undertaken to verify independently the accuracy and completeness of such
information. We have relied upon the reasonableness of all projections and
forecasts provided to us by the management of Graphic Industries and have
assumed the attainability of such results and that they were prepared in
accordance with accepted practice on bases reflecting the best currently
available estimates and good faith judgments of Graphic Industries' management.
We have not independently verified any such information. Our opinion herein is
based upon the economic, monetary and market and other conditions and
circumstances existing and known to us as of the date hereof and we have assumed
that there have been no material changes in the assets, financial condition,
results of operation, business or prospects of Graphic Industries since the date
of the most recent financial statements
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made available to us. We have not made or considered any independent evaluations
or appraisals of the assets or liabilities (contingent or otherwise) of either
Graphic Industries or Wallace. Consequently, we do not express any opinion
regarding the value of any of Graphic Industries' or Wallace's specific
individual assets. We were not requested to, and therefore did not, participate
in the structuring or negotiating of the Offer or the Merger.
Interstate/Johnson Lane Corporation, as part of its investment banking
business, is engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. Pursuant to
our engagement in connection with this fairness opinion, we will receive a fee
for our services in rendering said opinion.
The opinion expressed herein is provided to the Graphic Industries Board of
Directors and does not constitute a recommendation to any stockholder of Graphic
Industries as whether to tender shares pursuant to the Offer or as to how any
such stockholder should vote on the Merger. The opinion, and any supporting
analysis or other material supplied by us may not be quoted, referred to, or
used in any public filing or in any written document without the prior written
approval of Interstate/Johnson Lane Corporation; provided that we hereby consent
to the inclusion of this letter as an attachment to the amended Schedule 14D-9
of Graphic Industries relating to the Offer and the Merger or as an attachment
to the Proxy Statement to be filed with the SEC by Graphic Industries and to be
submitted to the stockholders of Graphic Industries in connection with the Offer
and the Merger.
Based upon the foregoing considerations and our review and analysis, it is
our opinion that as of the date hereof the consideration to be received by the
common stockholders of Graphic Industries in the Offer and the Merger is fair,
from a financial point of view, to the common stockholders of Graphic
Industries.
Sincerely,
/s/INTERSTATE/JOHNSON LANE CORPORATION
- --------------------------------------
INTERSTATE/JOHNSON LANE CORPORATION
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GRAPHIC INDUSTRIES, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR SPECIAL MEETING DECEMBER 22, 1997
The undersigned stockholder of Graphic Industries, Inc., a Georgia
corporation, (the "Company"), hereby appoint(s) Mark C. Pope III, Alvan A.
Herring, Jr. and Donald P. Hunnicutt, Sr., and each of them, as proxies for the
undersigned, with full power of substitution, for and in the name, place and
stead of the undersigned, to attend the Special Meeting of Stockholders of the
Company to be held at the offices of the Company, 2155 Monroe Drive, N.E.,
Atlanta, Georgia 30324 on December 22, 1997 at 11:00 A.M. Eastern Time, and any
adjournment(s) thereof, and to cast on behalf of the undersigned the number of
votes the undersigned would be entitled to vote if personally present as set
forth herein and otherwise to represent the undersigned at the meeting with all
powers possessed by the undersigned if personally present at the meeting. The
undersigned acknowledges receipt of the Notice of the Special Meeting of
Stockholders and the accompanying Proxy Statement and releases any proxy
heretofore given with respect to such meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR APPROVAL OF THE MERGER AGREEMENT AS SET FORTH IN PARAGRAPH 1 ON THE
REVERSE SIDE.
(CONTINUED FROM REVERSE SIDE)
GRAPHIC INDUSTRIES, INC. PROXY FOR SPECIAL MEETING
This proxy is revocable at any time before it is exercised and the
undersigned reserve(s) the right to attend the meeting and vote in person.
PROPOSAL
1. PROPOSAL FOR APPROVAL OF THE AMENDED AND RESTATED AGREEMENT AND PLAN OF
MERGER dated as of October 12, 1997 by and among the Company, Greenwich
Acquisition Corp. and Wallace Computer Services, Inc.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
The undersigned hereby ratifies and confirms all that said attorneys and
proxies, or any one or more of them or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof and any prior proxies are
hereby revoked.
Dated: , 1997
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Signature
Your signature should be as your name
appears hereon. When signed in a
fiduciary or representative capacity
please show your full title as such.
For joint accounts each joint owner
should sign.
PLEASE DATE, SIGN AND RETURN IN THE
ENCLOSED ENVELOPE PROMPTLY.
