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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
ARTISTIC GREETINGS INCORPORATED
(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.
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/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
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PROPOSED
NUMBER PER SHARE MERGER MAXIMUM AMOUNT OF
TITLE OF SECURITIES OF SHARES CONSIDERATION AGGREGATE VALUE FILING FEE
Common Stock, $.10 par value............ 5,843,406 $ 5.70 $33,307,414 $ 6,662
</TABLE>
/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
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ARTISTIC GREETINGS INCORPORATED
ONE KOMER CENTER
ELMIRA, NEW YORK 14902
[ ], 1998
DEAR STOCKHOLDER:
You are cordially invited to attend a Special Meeting of Stockholders (the
"Special Meeting") of Artistic Greetings Incorporated, a Delaware corporation
(the "Company"), to be held on [ ], 1998, at 10:00 a.m., Eastern time, at
[ ], New York, New York, for the following purposes:
1. To consider and vote upon a proposal (the "Merger Proposal") to
approve and adopt the Agreement and Plan of Merger (the "Merger Agreement"),
attached as Annex I to the accompanying Proxy Statement, dated as of
December 21, 1997, among MDC Communications Corporation, an Ontario, Canada
corporation ("MDC"), AGI Acquisition Co., a Delaware corporation and a
wholly-owned subsidiary of MDC ("Newco"), and the Company, and to approve
consummation of the merger of Newco with and into the Company (the
"Merger"), pursuant to which (a) the Company will be the surviving
corporation and will become a wholly-owned subsidiary of MDC and (b) each
outstanding share of common stock, par value $0.10 per share (the "Shares"),
of the Company (other than stock of the Company owned by the Company, MDC or
any of their respective subsidiaries) will be converted into the right to
receive $5.70 in cash (the "Merger Consideration"), without interest.
Consummation of the transactions contemplated by the Merger Agreement is
conditioned upon consummation of the Asset Sale described below.
2. To consider and vote upon a proposal (the "Asset Sale Proposal") to
approve and adopt the Asset Purchase Agreement (the "Asset Purchase
Agreement"), attached as Annex II to the accompanying Proxy Statement, dated
as of December 21, 1997, between Artistic Direct Incorporated, a New York
corporation ("ADI"), and the Company, and to approve the sale (the "Asset
Sale") of certain assets relating to the personalized product and catalog
businesses of the Company (the "P&C Businesses") for the consideration set
forth therein and the assumption of certain liabilities relating to the P&C
Businesses, on the terms and conditions more fully described therein or any
other similar asset purchase agreement for increased cash consideration
which the Special Committee and the Board of Directors of the Company
determines is more beneficial to the Stockholders of the Company. No
additional consideration will be received by the Stockholders as a result of
the Asset Sale. Consummation of the transactions contemplated by the Asset
Purchase Agreement is conditioned upon consummation of the Merger.
3. To consider a proposal to adjourn the Special Meeting if necessary to
permit further solicitation of proxies in the event there are not sufficient
votes at the time of the Special Meeting to approve and adopt the Merger
Agreement and the Asset Purchase Agreement and to approve the Merger and the
Asset Sale.
4. To transact such other business as may properly come before the
Special Meeting or any adjournments or postponements thereof.
In the event the Stockholders of the Company (i) vote in favor of the
proposal to approve and adopt the Merger Agreement and approve consummation of
the Merger but vote against the proposal to approve and adopt the Asset Purchase
Agreement and approve consummation of the Asset Sale or (ii) vote in favor of
the proposal to approve and adopt the Asset Purchase Agreement and approve
consummation of the Asset Sale but vote against the proposal to approve and
adopt the Merger Agreement and approve consummation of the Merger, neither
transaction will be consummated. Subject to certain conditions, holders of
approximately 45% of the Shares of the Company have agreed with MDC to vote
their Shares in favor of approval and adoption of the Merger Agreement, the
Merger, the Asset Purchase Agreement and the Asset Sale.
The items of business to be considered at the Special Meeting are more fully
described in the proxy statement (the "Proxy Statement") and Notice of Special
Meeting of Stockholders accompanying this
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letter. Details of the Merger Agreement, the Merger, the Asset Purchase
Agreement, the Asset Sale and other important information concerning the Company
appear in the accompanying Proxy Statement. Please give this material your
careful attention.
For the reasons set forth in the attached Proxy Statement, the Board of
Directors of the Company, based on the unanimous recommendation of the two
non-interested directors and of a special committee of the Board of Directors,
has approved the Merger Agreement and the Asset Purchase Agreement and
consummation of the Merger and the Asset Sale and has determined that the Merger
and the Asset Sale, taken together, are fair and in the best interests of the
Company and its unaffiliated Stockholders and recommends a vote by the
Stockholders of the Company for approval and adoption of the Merger Agreement
and the Asset Purchase Agreement and approval of consummation of the Merger and
the Asset Sale. Consummation of the transactions contemplated by the Merger
Agreement is conditioned upon consummation of the Asset Sale.
Accordingly, whether or not you plan to attend the Special Meeting, we urge
you to complete, sign and date the accompanying proxy card and return it in the
enclosed postage-prepaid envelope. You may revoke your Proxy in the manner
described in the accompanying Proxy Statement at any time before it has been
voted at the Special Meeting. If you attend the Special Meeting, you may vote in
person even if you have previously returned your proxy card. Your prompt
cooperation is greatly appreciated.
Sincerely,
Thomas C. Wyckoff
Assistant Secretary
Elmira, New York
[ ], 1998
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
2
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ARTISTIC GREETINGS INCORPORATED
ONE KOMER CENTER
ELMIRA, NEW YORK 14902
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD [ ], 1998
TO THE STOCKHOLDERS OF
ARTISTIC GREETINGS INCORPORATED:
NOTICE IS HEREBY GIVEN that a Special Meeting of the Stockholders (the
"Special Meeting") of Artistic Greetings Incorporated, a Delaware corporation
(the "Company"), will be held at [ ], New York, New York, on
[ ], 1998, at 10 a.m., Eastern time, for the following purposes:
1. To consider and vote upon a proposal (the "Merger Proposal") to
approve and adopt the Agreement and Plan of Merger (the "Merger Agreement"),
attached as Annex I to the accompanying Proxy Statement, dated as of
December 21, 1997, among MDC Communications Corporation, an Ontario, Canada
corporation ("MDC"), AGI Acquisition Co., a Delaware corporation and a
wholly-owned subsidiary of MDC ("Newco"), and the Company, and to approve
consummation of the merger of Newco with and into the Company (the
"Merger"), pursuant to which (a) the Company will be the surviving
corporation and will become a wholly-owned subsidiary of MDC and (b) each
outstanding share of common stock, par value $0.10 per share (the "Shares"),
of the Company (other than stock of the Company owned by the Company, MDC or
any of their respective subsidiaries) will be converted into the right to
receive $5.70 in cash (the "Merger Consideration"), without interest.
Consummation of the transactions contemplated by the Merger Agreement is
conditioned upon consummation of the Asset Sale described below.
2. To consider and vote upon a proposal (the "Asset Sale Proposal") to
approve and adopt the Asset Purchase Agreement (the "Asset Purchase
Agreement"), attached as Annex II to the accompanying Proxy Statement, dated
as of December 21, 1997, between Artistic Direct Incorporated, a New York
corporation ("ADI"), and the Company, and to approve the sale (the "Asset
Sale") of certain assets relating to the personalized product and catalog
businesses of the Company (the "P&C Businesses") for the consideration set
forth therein and the assumption of certain liabilities relating to the P&C
Businesses, on the terms and conditions more fully described therein or any
other similar asset purchase agreement for increased cash consideration
which the Special Committee and the Board of Directors of the Company
determines is more beneficial to the Stockholders of the Company. No
additional consideration will be received by the Stockholders as a result of
the Asset Sale. Consummation of the transactions contemplated by the Asset
Purchase Agreement is conditioned upon consummation of the Merger.
3. To consider a proposal to adjourn the Special Meeting if necessary
to permit further solicitation of proxies in the event there are not
sufficient votes at the time of the Special Meeting to approve and adopt the
Merger Agreement and the Asset Purchase Agreement and to approve the Merger
and the Asset Sale.
4. To transact such other business as may properly come before the
Special Meeting or any adjournments or postponements thereof.
In the event the Stockholders of the Company (i) vote in favor of the
proposal to approve and adopt the Merger Agreement and approve consummation of
the Merger but vote against the proposal to approve and adopt the Asset Purchase
Agreement and approve consummation of the Asset Sale or (ii) vote in favor of
the proposal to approve and adopt the Asset Purchase Agreement and approve
consummation of the Asset Sale but vote against the proposal to approve and
adopt the Merger Agreement and approve consummation of the Merger, neither
transaction will be consummated. Subject to certain conditions, holders of
approximately 45% of the Shares of the Company have agreed with MDC to vote
their Shares in
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favor of approval and adoption of the Merger Agreement, the Merger, the Asset
Purchase Agreement and the Asset Sale.
Only Stockholders of record at the close of business on [ ], 1998,
will be entitled to notice of, and to vote at, the Special Meeting.
All Stockholders are cordially invited to attend the Special Meeting in
person; however, to ensure your representation at the Special Meeting you are
urged to mark, sign, date and return the enclosed proxy card as promptly as
possible in the postage prepaid envelope enclosed for that purpose. YOU MAY
REVOKE YOUR PROXY IN THE MANNER DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT AT
ANY TIME BEFORE IT HAS BEEN VOTED AT THE SPECIAL MEETING. ANY STOCKHOLDER
ATTENDING THE SPECIAL MEETING MAY VOTE IN PERSON EVEN IF HE OR SHE HAS RETURNED
A PROXY.
Under Delaware law, Stockholders of the Company are entitled to appraisal
rights in connection with the Merger.
By Order of the Board of Directors
Thomas C. Wyckoff
Assistant Secretary
Dated: [ ], 1998
2
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TABLE OF CONTENTS
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PAGE
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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
FORWARD-LOOKING STATEMENTS................................................................................. 2
SUMMARY.................................................................................................... 3
SPECIAL FACTORS............................................................................................ 8
Background of the Merger................................................................................. 8
Recommendation of the Company's Board of Directors....................................................... 12
Perspective of ADI and Mr. Wyckoff....................................................................... 14
Opinion of Financial Advisor............................................................................. 15
Interests of Certain Persons............................................................................. 18
Certain Effects of the Consummation of the Merger........................................................ 19
Certain Effects of the Asset Sale........................................................................ 19
Plans for the Company After the Merger................................................................... 19
Projections of Future Operations......................................................................... 19
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA................................................................. 21
THE MERGER AGREEMENT....................................................................................... 22
THE ASSET PURCHASE AGREEMENT............................................................................... 29
THE STOCKHOLDERS AGREEMENT................................................................................. 32
SECURITY OWNERSHIP OF CERTAIN PERSONS...................................................................... 34
SOURCE AND AMOUNT OF FUNDS; EXPENSES....................................................................... 36
PRICE RANGE OF SHARES AND DIVIDENDS........................................................................ 37
RIGHTS OF OBJECTING STOCKHOLDERS........................................................................... 37
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.................................................................... 40
RECENTLY ISSUED ACCOUNTING STANDARDS....................................................................... 42
SELECTED CONSOLIDATED FINANCIAL DATA....................................................................... 43
UNAUDITED PRO FORMA FINANCIAL STATEMENTS................................................................... 44
GOING CONCERN QUALIFICATION IN 1997 AUDIT REPORT........................................................... 48
BUSINESS OF THE COMPANY.................................................................................... 49
CERTAIN INFORMATION CONCERNING MDC, NEWCO AND ADI.......................................................... 55
STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING.............................................................. 55
POSTPONEMENT OR ADJOURNMENT OF SPECIAL MEETING............................................................. 55
OTHER MATTERS.............................................................................................. 56
INDEMNIFICATION FOR FEDERAL SECURITIES LAW VIOLATIONS...................................................... 56
INDEPENDENT ACCOUNTANTS.................................................................................... 56
AVAILABLE INFORMATION...................................................................................... 56
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SCHEDULE I --Certain Information Regarding the Filing Persons
ANNEX I --Agreement and Plan of Merger
ANNEX II --Asset Purchase Agreement
ANNEX III --Stockholders Agreement
ANNEX IV --Opinion of PaineWebber Incorporated
ANNEX V --Text of Section 262 of the General Corporation Law of the State of Delaware
ANNEX VI --Annual Report of the Company on Form 10-K/A2 for the year ended December 31,
1997
ANNEX VII --Report of Independent Public Accountants
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INTRODUCTION
This Proxy Statement is being furnished to the Stockholders of Artistic
Greetings Incorporated, a Delaware corporation (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 of Stockholders of the Company to be held
on [ ], 1998 (the "Special Meeting").
This Proxy Statement and accompanying Notice of Special Meeting of
Stockholders and form of proxy are being mailed on or about [ ], 1998
to holders of shares (the "Stockholders") of Common Stock of the Company
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 Proposal and the Asset Sale
Proposal (each as defined herein). The Merger Proposal involves the merger of
AGI Acquisition Co., a Delaware corporation ("Newco") and a wholly owned
subsidiary of MDC Communications Corporation, an Ontario, Canada corporation
("MDC"), with and into the Company (the "Merger"), in accordance with an
Agreement and Plan of Merger, dated as of December 21, 1997 (the "Merger
Agreement"), by and among the Company, MDC and Newco, as a result of which (i)
the Company will be the surviving corporation and will become a wholly owned
subsidiary of MDC, and (ii) each outstanding share of common stock, par value
$0.10 per share (the "Shares") (other than stock of the Company owned by the
Company, MDC or any of their respective subsidiaries), will be converted into
the right to receive $5.70 in cash (the "Merger Consideration"), without
interest. The Asset Sale Proposal involves the asset sale (the "Asset Sale") by
the Company in accordance with the Asset Purchase Agreement, dated as of
December 21, 1997 (the "Asset Purchase Agreement"), by and among the Company and
Artistic Direct Incorporated, a New York corporation ("ADI"), or any other
similar asset purchase agreement providing increased cash consideration to the
Company from the sale of the P&C Businesses which the Special Committee and the
Board of Directors of the Company determine is more beneficial to the
Stockholders of the Company, as a result of which the Company will sell certain
assets, and ADI will assume certain liabilities, relating to the personalized
product and catalog businesses (the "P&C Businesses") of the Company. ADI was
formed by Thomas C. Wyckoff, Chief Operating Officer of the Company, for the
purpose of effecting the Asset Sale to ADI. Mr. Raymond Mahar, Jr. and Mr.
Wyckoff will be the principal equity investors in ADI, with Mr. Wyckoff
contributing $750,000, for an 80% interest in ADI, and Mr. Mahar contributing
$500,000 for a 20% interest in ADI. No additional consideration will be received
by the Stockholders as a result of the Asset Sale. Consummation of the
transactions contemplated by the Merger Agreement is conditioned upon
consummation of the Asset Sale and consummation of the transactions contemplated
by the Asset Purchase Agreement is conditioned upon consummation of the Merger.
VOTING AT THE SPECIAL MEETING
The Board of Directors of the Company has fixed the close of business on
[ ], 1998 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 the Shares at the close of business on
the Record Date will be entitled to vote at the Special Meeting. At the close of
business on the Record Date, there were [ ] Shares outstanding and entitled
to vote, held by approximately [ ] Stockholders of record.
Pursuant to the General Corporation Law of the State of Delaware (the
"DGCL"), the affirmative vote of holders of at least a majority of all of the
outstanding shares of Common Stock is required to approve and adopt the Merger
Agreement, the Merger, the Asset Sale Agreement and the Asset Sale. There is no
requirement that the Merger Agreement, the Merger, the Asset Sale Agreement and
the Asset Sale be approved by the vote of a majority of unaffiliated
Stockholders. At the time of entering into the Merger Agreement, MDC entered
into a Stockholders Agreement (the "Stockholders Agreement") with American
Greetings Corporation ("AGC") and Stuart Komer pursuant to which, subject to
certain conditions, AGC and Mr. Komer agreed with MDC to vote 2,250,000 and
371,786 Shares of the Company,
1
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respectively, for the Merger Proposal and the Asset Sale Proposal. Such Shares
constitute approximately 45% of the outstanding Shares. See "THE STOCKHOLDERS
AGREEMENT."
Any Shares not voted (whether by abstention, broker non-vote or otherwise)
will have the effect of votes "AGAINST" the Merger Proposal and the Asset Sale
Proposal.
PROXIES
Stockholders of the Company are requested to complete, date, sign and
promptly return the accompanying form of proxy in the enclosed envelope. Shares
represented by properly executed proxies received by the Company and not revoked
as described in the following paragraph will be voted at the Special Meeting in
accordance with the instructions contained herein. If instructions are not
contained therein, proxies will be voted "FOR" approval of the Merger Proposal
and "FOR" approval of the Asset 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 Assistant
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 Assistant 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 Thomas C. Wyckoff,
Assistant Secretary, Artistic Greetings Incorporated, One Komer Center, P.O. Box
1999, Elmira, New York 14902-1999.
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,
other than 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
held of record by them, and such custodians will be reimbursed for their
expenses.
All information in this Proxy Statement concerning MDC and Newco has been
supplied by MDC. All information in this Proxy Statement concerning ADI has been
supplied by ADI. All other information herein has been supplied by the Company.
OTHER MATTERS TO BE CONSIDERED
It is not anticipated that any matters other than the approval of the Merger
Proposal and the approval of the Asset Sale Proposal will be brought before the
Special Meeting. The Bylaws of the Company provide that no business may be
transacted at a special meeting of Stockholders unless it is included in the
notice of the meeting. However, if any other matter should properly come before
the meeting, proxies will be voted in the discretion of the persons named in the
enclosed proxy.
FORWARD-LOOKING STATEMENTS
The Company has made forward-looking statements in this document (including
disclosure that are incorporated by reference herein) that are subject to risks
and uncertainties. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors that may cause the actual results,
performances or achievements of the Company, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Forward-looking
statements include the information concerning possible or assumed future results
of operations of the Company set forth under "SPECIAL FACTORS--Background of the
Merger," "SPECIAL FACTORS--Plans for the Company After the Merger" and "SPECIAL
FACTORS--Projections of Future Operations" and those preceded or followed by or
that include the words "believes," "expects," "anticipates" or similar
expressions. There can be no assurance that (i) the Company and its Board have
correctly identified and assessed all of the factors affecting the Company's
businesses; (ii) the publicly available and other information with respect to
these factors on which the Company and its Board have based their analyses is
complete and correct; or (iii) the Company's strategy, and its Board's analyses
are correct; or (iv) the Company's strategy, which is based in part on these
analyses, will be successful.
2
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SUMMARY
This summary has been prepared to assist Stockholders of the Company, in
their review of the proposal (the "Merger Proposal"), described in detail in
this proxy statement (the "Proxy Statement"), to approve the Merger Agreement
and the Merger of Newco with and into the Company in accordance with the Merger
Agreement, as a result of which (i) the Company will be the surviving
corporation and will become a wholly owned subsidiary of MDC, and (ii) each
outstanding Share of common stock (the "Common Stock") (other than stock of the
Company owned by the Company, MDC or any of their respective subsidiaries) will
be converted into the right to receive $5.70 in cash without interest; and to
assist the Company's Stockholders in their review of the proposal (the "Asset
Sale Proposal"), described in detail in the attached Proxy Statement, to approve
the Asset Purchase Agreement and the Asset Sale by the Company in accordance
with the Asset Purchase Agreement or any other similar asset purchase agreement
providing increased cash consideration to the Company from the sale of the P&C
Businesses which the Special Committee and the Board of Directors of the Company
determine is more beneficial to the Stockholders of the Company. as a result of
which the Company will sell certain assets, and ADI will assume certain
liabilities, relating to the P&C Businesses of the Company. Consummation of the
transactions contemplated by the Merger Agreement is conditioned upon
consummation of the Asset Sale and consummation of the transactions contemplated
by the Asset Purchase Agreement is conditioned upon consummation of the Merger.
The Proxy Statement and the accompanying Notice of Special Meeting and form
of proxy are first being mailed on or about [ ], 1998 to Stockholders
entitled to notice of and to vote at the Special Meeting of Stockholders of the
Company to be held on [ ], 1998.
This summary is not intended to be a complete explanation of the matters
relating to the Merger Agreement or the proposed Merger or to the Asset Purchase
Agreement or the proposed Asset Sale and is qualified in all respects by
reference to the detailed explanation contained in this Proxy Statement and the
Annexes hereto. Stockholders are urged to review carefully the entire Proxy
Statement, including the Annexes. Cross references in this summary are to
captions in the Proxy Statement.
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PURPOSE OF SPECIAL MEETING...... To vote upon the Merger Proposal and Asset Sale Proposal.
See "INTRODUCTION--Purpose of the Special Meeting."
DATE AND TIME OF SPECIAL
MEETING....................... [ ], 1998 at 10 a.m., Eastern time
PLACE OF MEETING................ [ ], New York, New York
RECORD DATE..................... [ ], 1998
NUMBER OF OUTSTANDING SHARES OF
STOCK ENTITLED TO VOTE........ 5,843,406 Shares
APPROXIMATE NUMBER OF OWNERS OF
RECORD OF SHARES OF STOCK..... 550
MERGER TERMS.................... As a result of the Merger, the Company will become a
wholly owned subsidiary of MDC, and each outstanding Share
will be converted into the right to receive $5.70 per
Share in cash (the "Merger Consideration"). See "THE
MERGER AGREEMENT." Consummation of the Merger is
conditioned upon consummation of the Asset Sale described
below.
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ASSET SALE TERMS................ In the Asset Sale, the Company will sell certain assets
and transfer certain liabilities of the Company relating
to the P&C Businesses to ADI, pursuant to the Asset
Purchase Agreement, or to any other purchaser, pursuant to
any other similar asset purchase agreement providing
increased cash consideration to the Company from the sale
of the P&C Businesses which the Special Committee and the
Board of Directors of the Company determine is more
beneficial to the Stockholders of the Company. See "THE
ASSET PURCHASE AGREEMENT."
INTEREST OF CERTAIN PERSONS..... ADI was formed by Thomas C. Wyckoff, Chief Operating
Officer of the Company, for the purpose of effecting the
Asset Sale to ADI. Mr. Thomas C. Wyckoff (Chief Operating
Officer of the Company) and Mr. Raymond Mahar, Jr. will be
the principal equity investors in ADI. See "SPECIAL
FACTORS--Interests of Certain Persons." Pursuant to the
Asset Purchase Agreement, the Company has agreed to pay
the costs and expenses of ADI in connection with the
transactions contemplated by the Asset Purchase Agreement,
other than certain of the fees and expenses of financing
sources. See "SOURCE AND AMOUNT OF FUNDS; EXPENSES."
VOTING RIGHTS................... The close of business on [ ], 1998 has been
fixed as the Record Date for determining holders of Common
Stock entitled to notice of and to vote at the Special
Meeting. Each share of Common Stock outstanding on the
Record Date is entitled to one vote at the Special
Meeting. As of the Record Date, 5,843,406 shares of Common
Stock were outstanding and held of record by approximately
550 holders. The presence, in person or by proxy, of the
holders of a majority of the shares of Common Stock
entitled to vote at the Special Meeting is necessary to
constitute a quorum for the transaction of business of the
meeting.
Any proxy given by a stockholder may be revoked by the
stockholder at any time, prior to the voting of the proxy,
by delivering a written notice to the Assistant Secretary
of the Company, by executing and delivering a later-dated
proxy or by attending the meeting and voting in person.
Unless contrary instructions are indicated on the proxy
card, all Shares represented by valid proxies will be
voted "FOR" the Merger Proposal and "FOR" the Asset Sale
Proposal. See "INTRODUCTION--Voting at the Special Meet-
ing."
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REQUIRED VOTE................... The affirmative vote of the holders of a majority of the
outstanding Shares is required for approval of the Merger
Proposal and for approval of the Asset Sale Proposal. See
"INTRODUCTION-- Voting at the Special Meeting."
VOTING AGREEMENT OF CERTAIN
PRINCIPAL STOCKHOLDERS........ AT THE TIME OF ENTERING INTO THE MERGER AGREEMENT, MDC
ENTERED INTO A STOCKHOLDERS AGREEMENT WITH AGC AND MR.
KOMER PURSUANT TO WHICH, SUBJECT TO CERTAIN CONDITIONS,
AGC AND MR. KOMER AGREED TO VOTE 2,250,000 AND 371,786
SHARES OF COMMON STOCK, RESPECTIVELY, FOR APPROVAL OF THE
MERGER PROPOSAL AND THE ASSET SALE PROPOSAL. SEE "THE
STOCKHOLDERS AGREEMENT." SUCH SHARES CONSTITUTE
APPROXIMATELY 45% OF THE OUTSTANDING SHARES.
EFFECTIVE TIME OF THE MERGER.... The Merger is expected to become effective as of the date
and time (the "Effective Time") of the filing of an
appropriate Certificate of Merger with the Secretary of
State of the State of Delaware, which is anticipated to
occur as soon as practicable after the approval and
adoption of the Merger Agreement by the Company's
Stockholders and the satisfaction or waiver of the other
conditions to the Merger stated in the Merger Agreement,
including consummation of the Asset Sale. See "THE MERGER
AGREEMENT."
BACKGROUND OF THE MERGER........ For a description of the events leading to the approval
and adoption of the Merger Agreement and the Asset
Purchase Agreement by the Board, see "SPECIAL
FACTORS--Background of the Merger."
RECOMMENDATION OF THE COMPANY'S
BOARD OF DIRECTORS............ The Company's Board of Directors (the "Board"), based on
the unanimous recommendation of the two non-interested
directors of the Company and of a special committee (the
"Special Committee") of the Board consisting of Messrs.
Komer, Edelcup, Goodridge and Weiss (of which Messrs.
Komer and Weiss were each previously to be equityholders
of ADI), has approved the Merger, the Merger Agreement,
the Asset Purchase Agreement and the Asset Sale, has
determined that the Merger and the Asset Sale, taken
together, are fair to and in the best interests of the
Company's unaffiliated Stockholders and recommends that
the Stockholders vote "FOR" the Merger Proposal and the
Asset Sale Proposal. See "SPECIAL FACTORS--Recommendation
of the Company's Board of Directors."
PERSPECTIVE OF ADI AND MR.
WYCKOFF....................... Each of ADI and Mr. Wyckoff adopts the analyses of the
Company's Board of Directors under "--Recommendation of
the Company's Board of Directors." Based on the foregoing,
each of ADI and Mr. Wyckoff are of the opinion that the
Merger and the Asset Sale, taken together, are fair to the
unaffiliated Stockholders.
</TABLE>
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<TABLE>
<S> <C>
Mr. Wyckoff intends to vote all of the shares of the
Company's Stock that he owns for approval of the Merger
Proposal and the Asset Sale Proposal.
However, each of ADI and Mr. Wyckoff did not perform any
independent investigation or analysis with respect
thereto, and, accordingly, do not make any recommendation
to any Stockholder with respect to the Merger and the
Asset Sale. In addition, Stockholders should be aware that
the objective of ADI during the negotiation of the Asset
Sale was to obtain the best possible terms for itself and
its stockholders rather than for the Company and its
Stockholders. Accordingly, Stockholders are cautioned not
to rely upon the views of ADI or Mr. Wyckoff with respect
to the Merger and Asset Sale. See "SPECIAL
FACTORS--Perspective of ADI and Mr. Wyckoff."
OPINION OF FINANCIAL ADVISOR.... PaineWebber Incorporated, the Company's financial advisor
("PaineWebber"), has delivered to the Board its written
opinion dated [ ], 1998, a copy of which is
attached hereto as Annex IV, that, as of such date and on
the basis of and subject to the matters set forth therein,
the Merger Consideration to be received by the
unaffiliated Stockholders of the Company (as defined in
the opinion) is fair to the unaffiliated Stockholders of
the Company from a financial point of view. See "SPECIAL
FACTORS--Opinion of Financial Advisor."
RIGHTS OF OBJECTING
STOCKHOLDERS.................. Under the DGCL, Stockholders who do not vote in favor of
the Merger and file demands for appraisal prior to the
stockholder vote on the Merger Agreement, upon the
consummation of the Merger, have the right to obtain a
cash payment for the "fair value" of their shares of
Common Stock. In order to exercise such rights, a
stockholder must comply with all of the procedural
requirements of Section 262 ("Section 262") of the DGCL, a
description of which is provided in "Rights of Objecting
Stockholders" herein and the full text of which is
attached to this Proxy Statement as Annex V. Such "fair
value" will be determined in judicial proceedings, the
result of which cannot be predicted. Failure to take any
of the steps required under Section 262 may result in a
loss of such dissenter's rights. See "RIGHTS OF OBJECTING
STOCKHOLDERS."
CERTAIN U.S. FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER.... The receipt of cash for Shares pursuant to the Merger will
be a taxable transaction to the Stockholders for U.S.
Federal income tax purposes under the Internal Revenue
Code of 1986, as amended (the "Code"), and may be a
taxable transaction for foreign, state and local income
tax purposes as well. Stockholders should consult their
own tax advisors regarding the U.S. Federal income tax
consequences of the Merger, as well as any tax
consequences under state, local or foreign laws. See
"CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER."
</TABLE>
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A STOCKHOLDER WHO RETURNS A SIGNED PROXY BUT FAILS TO PROVIDE INSTRUCTIONS
AS TO THE MANNER IN WHICH SUCH SHARES ARE TO BE VOTED WILL BE DEEMED TO HAVE
VOTED TO APPROVE THE MERGER AGREEMENT AND THE MERGER AND THEREFORE TO HAVE
WAIVED HIS DISSENTERS' RIGHTS. NEITHER A VOTE AGAINST, NOR AN ABSTENTION, NOR A
FAILURE TO VOTE WITH REGARD TO THE MERGER AGREEMENT AND THE MERGER WILL
CONSTITUTE A TIMELY WRITTEN OBJECTION TO THE MERGER. SEE "RIGHTS OF OBJECTING
STOCKHOLDERS" IN THIS PROXY STATEMENT FOR A MORE COMPLETE DISCUSSION OF
STOCKHOLDERS' APPRAISAL RIGHTS.
THE BOARD, BASED ON THE UNANIMOUS RECOMMENDATION OF THE TWO NON-INTERESTED
DIRECTORS AND THE SPECIAL COMMITTEE, RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE
MERGER PROPOSAL AND "FOR" THE ASSET SALE PROPOSAL.
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.
THIS PROXY STATEMENT AND THE ACCOMPANYING FORM OF PROXY ARE FIRST BEING
MAILED TO STOCKHOLDERS ON OR ABOUT [ ], 1998.
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.
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, MDC, NEWCO OR ADI SINCE THE DATE HEREOF.
7
<PAGE>
SPECIAL FACTORS
BACKGROUND OF THE MERGER
The Company has considered continued growth in its revenues and earnings as
a key objective of its strategic planning, while recognizing the relatively
high-cost, low-margin nature of its principal businesses and the competitive
nature of their markets. In that context, and also taking into account the
shifting mix of the Company's business and other market factors, the Board has
from time to time reviewed the Company's strategic planning, including the
possibility of making acquisitions or divestitures of certain of its businesses.
Since the acquisition of Valcheck in May of 1995, the Company has explored
potential strategic combinations with other industry participants in its
business lines including, in the summer of 1996, approaching MDC to inquire
whether MDC was interested in disposing of certain of its businesses.
In September 1996, a representative of MDC contacted members of the Board
and made them aware of the interest of MDC in effecting a possible business
combination with the Company. In response to this contact, and in the context of
a general review of strategic alternatives, certain members of the Board met
with several financial advisors and selected PaineWebber to serve the Company in
such capacity. The Company also executed a confidentiality agreement with MDC on
October 21, 1996. On October 24, 1996, a meeting of the Board convened to review
the contacts with MDC and discuss with legal counsel and PaineWebber the options
available to the Company. At that meeting representatives of PaineWebber advised
the Board that the Company was engaged in highly competitive businesses in
relatively slow growth markets, that there was a good fit between the businesses
of the Company and the businesses of MDC, and that a privately negotiated
purchase was more likely to yield higher value to the Stockholders of the
Company than a public auction process. At that time the Board authorized
PaineWebber and management of the Company to prepare certain preliminary
financial information to deliver to MDC and to communicate to MDC that the
Company was interested in further discussions concerning a possible business
combination between MDC and the Company. In early December 1996, PaineWebber
delivered to MDC certain financial information concerning the Company and
meetings between management of the Company and management of MDC took place in
January 1997. In late January 1997, MDC communicated to the Company that it had
determined not to pursue further discussions regarding a business combination
with the Company at that time.
At a Board meeting on February 27, 1997, the Board further discussed
strategic alternatives available to the Company. At the meeting the Board
authorized management of the Company to investigate various means of creating
value for the Stockholders of the Company, including the possibility of a
management buyout or a sale of the Company. Throughout March and April 1997,
management of the Company contacted several possible financial and strategic
buyers of the Company. At the request of one potential strategic buyer,
management of the Company prepared a management buyout proposal. In late April
1997, the strategic buyer indicated to management of the Company that it had
determined not to pursue the management buyout alternative, and the other
parties approached had previously indicated that they did not wish to engage in
further discussions.
On April 30, 1997, the Board reviewed with management recent events and
discussed strategic alternatives available to the Company. On May 1, 1997, the
Board authorized the creation of the Special Committee, consisting of Messrs.
Komer, Edelcup, Goodridge and Weiss, to continue discussions with the potential
strategic buyer regarding transaction structures other than a management buyout
and also to seek out other parties who might be interested in effecting a
business combination with the Company. On May 1, 1997, the Special Committee
held its first meeting, together with PaineWebber as its financial advisor and
outside legal counsel, Cahill Gordon & Reindel. The Special Committee authorized
PaineWebber, in conjunction with management of the Company, to prepare a
memorandum describing the Company's businesses and containing financial
information concerning the Company and to approach, on a confidential basis,
strategic and financial parties who might be interested in discussions with the
Company regarding a possible business combination.
8
<PAGE>
During May and June of 1997, an offering memorandum was prepared and
approximately eleven entities were approached regarding potential interest in
the Company, including both entities which had previously discussed a possible
business combination with the Company. Three of the entities contacted,
including MDC, indicated interest in pursuing a possible transaction; the
remaining entities indicated that, for various reasons, they were not interested
in further discussions with the Company. Throughout June and July, MDC and one
other potential strategic buyer conducted extensive due diligence of the Company
and held numerous meetings to discuss the prospects of the Company's business
with members of management. The other third party who had indicated possible
interest did not participate in due diligence.
In late July 1997, the two strategic buyers were each provided the form of a
proposed two-step tender offer and merger agreement and were instructed by
PaineWebber to submit their highest and best offers on or before August 6, 1997.
On August 6, 1997, the Company received a letter of interest from MDC which
indicated a preliminary valuation of the Company of $25,000,000 to $35,000,000
or, on a fully diluted basis, a range of approximately $4.80 to $5.95 per Share.
The letter of interest contained certain conditions, especially with regard to
the P&C Businesses, as to which MDC requested an additional due diligence period
prior to furnishing a firm valuation of the Company. The second strategic buyer
declined to submit a proposal.
When requested by PaineWebber to clarify its letter, MDC delivered to the
Company a replacement letter of interest, dated August 7, 1997, which indicated
a valuation of the entire Company at $5.00 per Share, conditional upon MDC's
satisfaction that the P&C Businesses would generate fiscal 1998 operating
earnings of $2,000,000 and certain other conditions. The letter also provided
that in lieu of meeting such condition, MDC's valuation of the Company would be
$4.25 per Share, or approximately $25,000,000, for both the Check Business and
the P&C Businesses as a whole. The August 7 letter was subject to the same
conditions as the August 6 letter, as well as a complete due diligence condition
and a requirement that AGC enter into a lock-up agreement.
The Special Committee met on August 8, 1997 to review the status of
discussions. At the meeting PaineWebber discussed with the Special Committee the
marketing process conducted for the Company as well as the contents of the
letters from MDC. The Special Committee requested management of the Company to
prepare a summary of the Company's updated, stand-alone strategic business plan
for the next three years. The Special Committee did not then elect to pursue any
specific course of action.
Following the August 8 meeting, members of the Special Committee had
numerous discussions with MDC regarding the letters from MDC. MDC communicated
to the Special Committee that it did not want to assume the unknown risks of
owning the P&C Businesses and of disposing of the P&C Business in a separate
transaction following the Merger. The Board also discussed among themselves and
with management the Company's updated stand-alone business plan, which focused
on increasing the sales of the Company by a combination of cost reductions and
the reinvestment of substantially all of the earnings of the Company in
advertising for its principal product lines. In order to accommodate MDC, the
Special Committee considered other alternatives for the disposal of the P&C
Businesses. One such alternative considered was a separate auction of the P&C
Businesses. The Special Committee rejected this idea because, in the Special
Committee's opinion, the additional length of time such an auction would entail
(including customary due diligence analysis by prospective purchasers and
contractual negotiations) would have jeopardized the negotiations with MDC.
Another alternative considered by the Special Committee was to have
representatives of management approach MDC regarding a separate acquisition of
the P&C Businesses by management at the time of the Merger, which acquisition
would be pursuant to documentation that would allow the Company to receive and
accept higher and better offers, subject to a customary break-up fee with
expense reimbursement provisions. Mr. Wyckoff informed the Special Committee
that he was willing to investigate the possibility of acquiring the P&C
Businesses on such a basis. During this time, the Company indirectly heard that
a third party might be interested in acquiring the P&C Businesses. Due to the
harm such delay could have on the negotiations with MDC, and due to the
uncertainty
9
<PAGE>
surrounding such party's intentions, the Company determined that such indication
of interest did not warrant the time and expense to pursue that it would
require. Therefore, the Company did not contact this third party nor did the
third party ever directly contact the Company with any proposal.
In late August and early September, Mr. Wyckoff approached several lending
institutions and state agencies seeking financing for such a transaction. Mr.
Wyckoff also had discussions with members of the Special Committee as to the
value of the P&C Businesses.
On September 10, 1997, based on preliminary indications of interest from
potential financing sources and on prior discussions with members of the Special
Committee, Mr. Wyckoff informed MDC that he would be willing to form an entity
to purchase the P&C Businesses for $9 million in cash, subject to negotiation
regarding the allocation between MDC and such entity of certain liabilities
relating to the P&C Businesses. Representatives of MDC then informed PaineWebber
that MDC would consider a transaction involving consideration of $5.60 per
Share, subject to contemporaneous disposition of the P&C Businesses to Mr.
Wyckoff, if the terms included the payment of cash consideration of $9 million
and the satisfactory resolution of issues regarding assumption of liabilities
and separation of the Company's businesses.
The Special Committee believed that the $9 million cash consideration was
appropriate, based on its own understanding of comparable transactions and the
financing available for such transactions, as well as MDC's apparent valuation
of the P&C Businesses, in the context of the acquisition of the entire Company,
at a maximum of approximately $4.5 million based upon MDC's August 7th valuation
of the entire Company of approximately $29,500,000 and their subsequent
agreement to purchase solely the Check Business for approximately $25,000,000.
The Special Committee did not seek an independent appraisal of the value of the
P&C Businesses as its own separate entity, nor did it obtain a separate fairness
opinion with respect to the Asset Sale as the Board had determined that such a
fairness opinion was not required. In addition, the Special Committee also
deemed relevant the ability of other possible purchasers, after announcement of
any transaction, to request and receive information and make higher and better
offers for the P&C Businesses.
On September 10, 1997, the Special Committee convened to review these
discussions. At the conclusion of the meeting, the Board authorized management
and its representatives to continue discussions with MDC and Mr. Wyckoff
consistent with the proposal described to the Special Committee. Mr. Wyckoff
then continued his discussions and negotiations with sources of debt financing
and potential equity investors including Messrs. Komer and Weiss. Mr. Wyckoff
formed ADI on September 25, 1997.
On September 30, 1997, in response to recent trading activity in the
Company's common stock, the Company issued a press release stating that it was
engaged in discussions regarding a possible sale of the Company.
During the next month, representatives of the Company, MDC and ADI had
several discussions regarding the proposed transaction and MDC conducted due
diligence of the Company. On October 8, 1997, the Special Committee met to
review the status of discussions, including the separate sale of the Company's
check and P&C Businesses in a tax-efficient manner. At this meeting, PaineWebber
reviewed with the Special Committee analytic methods and preliminary conclusions
regarding ranges of value for the Company. Discussions among representatives of
the Company, MDC and ADI continued over the next month regarding the proposed
transaction. Representatives of ADI and MDC conducted preliminary negotiations
regarding the assets and liabilities to be acquired and assumed pursuant to an
asset sale, as well as the amount of cash consideration to be paid for the
assets, the amount and nature of the liabilities to be assumed by ADI, and the
nature of any continuing services to be provided by ADI to the Company. On
October 15, 1997 and November 7, 1997, the Company advanced $50,000, or a total
of $100,000, to ADI for the payment of expenses other than legal and accounting
fees, which advance was evidenced by two promissory notes (the "Notes"), each
with an interest rate of 6% from ADI to the Company. ADI also contacted and
negotiated with financing sources regarding possible financing for the Asset
Sale.
10
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In November and December, representatives of MDC discussed with
representatives of the Company changing the structure of the transaction to a
one-step cash merger from a two-step transaction involving a tender offer
followed by a merger. Recognizing that such a change would result in the
Company's Stockholders receiving payment for their Shares at a later date,
representatives of the Company requested that the proposed consideration to be
paid in the transaction be increased from $5.60 per Share to $5.70 per Share.
MDC agreed to the suggested increase in the per Share consideration. In
addition, the representatives of the Company and MDC negotiated regarding the
terms of the proposed Stockholders Agreement between MDC, AGC and Mr. Komer, as
well as the circumstances under which a break-up fee would become payable to MDC
by the Company. During this period, representatives of MDC completed their due
diligence analysis of the Company, MDC and ADI negotiated the economic terms of
the Asset Purchase Agreement (including the payment of legal and accounting
expenses of ADI by the Company and the forgiveness of the Notes by the Company
prior to closing), the Company and ADI negotiated the termination and break-up
fee provisions of the Asset Purchase Agreement and ADI continued its efforts to
obtain definitive debt financing commitments and equity capital for the
acquisition of the P&C Businesses, including discussions with Messrs. Komer and
Weiss. In addition, during this period, the Company received an indication of
interest regarding the purchase of the Company from a third party. Although the
Company delivered such third party a copy of the information memorandum
concerning the Company, the Company did not receive any proposal from such third
party regarding a business combination.
On December 19, 1997, the Special Committee met to review with ADI
commitment letters for the ADI debt financing. Management of ADI discussed with
the Special Committee the commitment letter from NationsCredit Commercial
Corporation ("NationsCredit") as well as commitments from the State of New York
and other public sector entities, and also discussed the equity structure of
ADI. Management of ADI informed the Special Committee that it needed to obtain
additional commitments for equity capital for NationsCredit to issue its
commitment letter. At this time, Messrs. Komer and Weiss each agreed to make an
equity investment in ADI of $500,000 for 18% of the fully diluted equity
interest of ADI, respectively. Since the equity investments of Messrs. Komer and
Weiss potentially placed their interests in conflict with those of the
unaffiliated Stockholders, the two remaining non-interested members of the
Special Committee acted independently in connection with the approval of the
Merger and the Asset Sale.
Following the Special Committee meeting on December 19, negotiations
continued among the Company, MDC and ADI resulting in resolution of the
remaining outstanding issues. On December 21, 1997, the Special Committee and
the Board met to review the final terms of the proposed Merger Agreement and
Asset Purchase Agreement. At this meeting, PaineWebber delivered to the Special
Committee its verbal opinion (later confirmed in writing as of the date hereof)
that the Merger Consideration to be received by the Stockholders of the Company,
other than AGC, pursuant to the Merger was fair to the Stockholders, other than
AGC, of the Company from a financial point of view. Messrs. Edelcup and
Goodridge, the two non-interested directors on the Special Committee, after
reviewing the Merger Agreement, the Merger, the Asset Purchase Agreement and the
Asset Sale, unanimously recommended to the Board and the Special Committee the
approval each of these agreements. At this meeting, the Board of Directors,
based on the unanimous recommendation of the two remaining non-interested
directors and of the Special Committee, voted to approve the Merger Agreement,
the Merger, the Asset Purchase Agreement and the Asset Sale for the reasons set
forth below under "--Recommendation of the Company's Board of Directors" and to
recommend that Stockholders vote to approve and adopt the Merger Agreement, the
Merger, the Asset Purchase Agreement and the Asset Sale.
On December 21, 1997, the Company and MDC executed the Merger Agreement and
the Company and ADI executed the Asset Purchase Agreement.
On March 27, 1998, each of Messrs. Weiss and Komer informed the Board that
he had withdrawn his committment to ADI and would no longer be an equity
investor in ADI, due to personal reasons. As a result, each of Messrs. Weiss and
Komer was once again considered a non-interested member of the
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Special Committee. In addition to the $10,000 bonus Messrs. Weiss and Komer will
receive for their service on the Special Committee if the Merger and the Asset
Sale are consummated, Mr. Komer is entitled to a contractual severance payment
of $1.2 million in connection with the closing of the transactions.
At that time, Mr. Wyckoff accepted an offer from Mr. Raymond Mahar, Jr., the
president and owner of Empire Label, Inc. ("Empire"), a primary supplier of raw
materials to the Company, who, prior to such time, had not otherwise been
affiliated with either of Messrs. Komer, Weiss, or Wyckoff or ADI, to the
Company, to invest in ADI. Subject to a confidentiality agreement dated October
9, 1997, Mr. Wyckoff and Mr. Mahar began discussions concerning the terms of an
investment by Mr. Mahar in ADI. Those discussions did not result in any
commitment to invest by Mr. Mahar, as the parties were unable to come to terms.
Discussions between the parties resumed on March 26, 1998, following
notification by Mr. Weiss that he was withdrawing his proposed investment in
ADI. On March 27, 1998, Messrs. Mahar and Wyckoff agreed on the terms of Mr.
Mahar's investment in ADI to include a $500,000 cash contribution in exchange
for a 20% equity position in ADI and also in consideration for a three-year
print management contract with an affiliate of Empire. The agreement between
Messrs. Wyckoff and Mahar is subject to Mr. Mahar's reasonable satisfaction with
ordinary course due diligence and the execution of certain related
documentation.
Mr. Wyckoff also agreed at such time to increase his equity investment in
ADI from $250,000 to $750,000. Approximately $500,000 of the funds to be used by
Mr. Wyckoff to make his equity investment in ADI will be borrowed from a
commercial lending institution and securities owned by Mr. Komer will
collateralize such loan. Mr. Wyckoff will pledge 20% of his equity in ADI to Mr.
Komer to secure such guarantee arrangements. Should Mr. Wyckoff default on
payment of the loan and Mr. Komer satisfy the loan as a result of his guarantee,
Mr. Komer could acquire Mr. Wyckoff's 20% equity interest in ADI through
foreclosure. It is currently anticipated that the loan will bear a market rate
of interest and mature in five years. Mr. Wyckoff anticipates repaying such loan
from personal funds, although no explicit plans or arrangements have been made
therefore.
On April 9, a party connected to an entity which had previously received
information about the Company contacted a representative of the Independent
Committee of the Company. This party indicated an interest in receiving
confidential information about the Company in connection with a possible
proposal to acquire certain assets of the Company. This party executed a
confidentiality agreement with the Company on April 13. There can be no
assurance that this party will make any proposal to enter into a transaction
with the Company or, if made, that the Independent Committee and the Board will
determine that any such proposal is beneficial to the Stockholders of the
Company. The Company is distributing this Proxy Statement to Stockholders in
connection with the proposed Merger and Asset Sale at this time due to the
existence of a termination date of May 21, 1998 in each of the Merger Agreement
and Asset Purchase Agreement. Failure to consummate the transactions
contemplated by the Merger Agreement and the Asset Purchase Agreement by such
date would enable the parties to such agreements to terminate the agreements.
RECOMMENDATION OF THE COMPANY'S BOARD OF DIRECTORS
In determining to approve the Merger Agreement and to recommend the Merger,
the Board considered the following material factors:
(i) the Board's uncertainty regarding the prospects of the Company for
high-level growth in future revenues and earnings, based upon each of the
Company's principal businesses operating in relatively low-margin, high cost
markets which are characterized by increasing competition for market share;
(ii) the Board's review of the historical market price of the Shares
compared to the price of $5.70 per Share (including such price being a
premium of approximately 20.0% to the December 19,
12
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1997 Share price and approximately 38.0% to the Share price one day prior to
the Company's press release on September 30, 1997).
(iii) the fact that during the last half of 1996 and throughout 1997, the
Company's stock had only traded briefly at prices above the per-share Merger
Consideration;
(iv) the private marketing process for the Company conducted by
PaineWebber and management of the Company which had failed to elicit other
parties interested in acquiring the Company at an acceptable price;
(v) the lack of third party interest in a business combination with the
Company following the September 30 press release of the Company, which
stated that the Company was in negotiations regarding a possible sale of the
Company;
(vi) the terms of the Merger Agreement, including provisions which
permit the Company to receive unsolicited offers for the Company and the
Company's ability to terminate the Merger Agreement to accept an offer that
the Board determines to be more favorable to the Stockholders of the
Company; and
(vii) the Special Committee's receipt of an oral presentation by
representatives of PaineWebber, which included, among other things, the oral
opinion of PaineWebber that the $5.70 per Share Merger Consideration to be
received by the Stockholders of the Company, other than AGC, pursuant to the
Merger is fair to the Stockholders, other than AGC, of the Company from a
financial point of view.
In determining to approve the Asset Purchase Agreement and to recommend the
Asset Sale, the Board considered the following material factors:
(i) the Board's understanding that MDC would only enter into a
transaction providing Stockholders of the Company consideration of $5.70 per
Share if the P&C Businesses were separately acquired pursuant to the Asset
Purchase Agreement and as contemplated in the Merger Agreement;
(ii) the terms of the Asset Purchase Agreement, including provisions
which permit the Company to receive unsolicited offers on substantially the
same basis as the Asset Purchase Agreement, for the P&C Businesses and to
terminate the Asset Purchase Agreement to accept an offer that the Board
determines to be more favorable to the Stockholders of the Company; and
(iii) the terms of the Merger Agreement which permit any increase in net
cash consideration (pursuant to any other transaction approved by the Board)
received by the Company for the P&C Businesses to be distributed to
Stockholders as an increase in the per-share consideration to be paid to
Stockholders in connection with the Merger.
The Board did not assign relative weights to the foregoing factors or
determine that any factor was of particular importance. Rather, the Board viewed
its position and recommendations as being based on the totality of the
information presented to and considered by it.
The Special Committee did not seek independent appraisals of the values of
the Check Business and the P&C Businesses as separate stand-alone entities, nor
did it obtain separate fairness opinions with respect to each transaction.
The Board believes that the Merger and the Asset Sale are procedurally fair
because: (1) at every stage of the negotiations, all material documents and all
material decisions were reviewed and approved by non-interested directors of the
Special Committee, in consideration of the fact that the Special Committee, at
certain points in time, contained two interested directors; (2) the Special
Committee retained and was advised by Cahill Gordon & Reindel, as outside
counsel; and (3) the Special Committee retained the Financial Advisor to render
a fairness opinion indicating that the Merger Consideration to be received by
the unaffiliated Stockholders pursuant to the Merger is fair to the unaffiliated
Stockholders from a financial point of view.
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<PAGE>
Based upon the foregoing and on the fairness opinion rendered by the
financial advisor, it is the Board's opinion that the Merger and Asset Sale,
taken together, are fair to unaffiliated Stockholders.
Stockholders should be aware that Mr. Thomas C. Wyckoff, Chief Operating
Officer of the Company, has interests which may present him with potential
conflicts of interest, and that the Board was aware of these potential conflicts
and considered them in making its recommendation and approving the Merger and
the Asset Sale. ADI was formed by Mr. Wyckoff for the purpose of effecting the
Asset Sale to ADI and Mr. Wyckoff will be the principal equity investor in ADI.
PERSPECTIVE OF ADI AND MR. WYCKOFF
Each of ADI and Mr. Wyckoff adopts the analyses of the Company's Board of
Directors above under "--Recommendation of the Company's Board of Directors."
Based on the foregoing, each of ADI and Mr. Wyckoff are of the opinion that the
Merger and the Asset Sale, taken together, is fair to unaffiliated Stockholders.
Mr. Wyckoff intends to vote his shares in favor of approval and adoption of the
Merger Agreement, the Merger, the Asset Purchase Agreement and the Asset Sale.
However, each of ADI and Mr. Wyckoff did not perform any independent
investigation or analysis with respect thereto and, accordingly, do not make any
recommendation to any Stockholder with respect to the Merger and the Asset Sale.
In addition, Stockholders should be aware that the objective of ADI during the
negotiation of the Asset Sale was to obtain the best possible terms for itself
and its stockholders rather than for the Company and its Stockholders.
Accordingly, Stockholders are cautioned not to rely upon the views of ADI or Mr.
Wyckoff with respect to the Merger and the Asset Sale.
While no formal valuation has been obtained for the P&C Businesses to be
acquired by ADI in the Asset Sale, what follows is an estimate of the
liquidation value, the going concern value and the book value of such business
by Mr. Wyckoff and ADI, based upon currently available information. In this
regard, it should be noted that neither Mr. Wyckoff nor ADI possess any
expertise in the area of appraisal or valuation of assets or businesses and no
reliance should be placed on any such valuation.
LIQUIDATION VALUE. Appraisals performed during the last six months for the
purpose of establishing the value of individual assets in connection with ADI's
application for financing the Asset Sale indicate an orderly liquidation value
of approximately $12 million for the tangible assets of the P&C Businesses. In
addition to such tangible assets, assuming a liquidation value of (a) $1 million
for the trademarks to be acquired by ADI in the Asset Sale, (b) $2 million for
the customer lists of the P&C Businesses and (c) net revenue of $1 million
attributable to orders which would continue to be processed after the P&C
Businesses ceased advertising, the gross liquidation value of the assets of the
P&C Businesses would be approximately $16 million. Reducing this amount by the
projected liabilities to be assumed by ADI in the Asset Sale of approximately
$9.5 million (which does not include the liabilities to be incurred by ADI in
order to fund the Purchase Price) would yield a net liquidation value for the
assets of the P&C Businesses of approximately $6.5 million. Neither Mr. Wyckoff
nor ADI has any intention to liquidate the P&C Businesses.
GOING CONCERN VALUE. No third party valuation has been done separately for
the P&C Businesses. It is the understanding of ADI and Mr. Wyckoff that the
going concern value of a private enterprise is typically determined based on
either a multiple of earnings or the discounted cash flow method. The 1997 pro
forma Statement of Operations for the P&C Businesses indicates a net loss from
operations. Accordingly, application of either an earnings multiple or the
discounted cash flow method to the pro forma results of operations for the P&C
Businesses would yield a negative going concern value.
BOOK VALUE. The book value of the P&C Businesses based on the pro forma
allocation as of December 31, 1997, is $17.381 million. However, the values
ascribed to assets for book purposes may not be indicative of realizable value.
See "Perspective of ADI and Mr. Wyckoff--Liquidation Value."
14
<PAGE>
OPINION OF FINANCIAL ADVISOR
As described under "--Background of the Merger," the Company engaged
PaineWebber to act as its exclusive financial advisor in connection with any
business combination involving the Company. PaineWebber has delivered to the
Special Committee its written opinion dated January 26, 1998, that, as of such
date and on the basis of and subject to the matters set forth therein, the
Merger Consideration to be received by the Stockholders pursuant to the Merger
is fair to the unaffiliated Stockholders from a financial point of view.
PaineWebber's opinion is directed to the Special Committee and does not
constitute a recommendation to any Stockholder of the Company as to how any such
Stockholder should vote on the Merger. PaineWebber has consented to the use of
its opinion and the summary of its analysis included under "SPECIAL
FACTORS--Opinion of Financial Advisor" in this Proxy Statement.
The full text of the opinion of PaineWebber, dated January 26, 1998, which
sets forth the assumptions made, procedures followed, matters considered and
limitations on the review undertaken, is attached as Annex IV to this Proxy
Statement. Stockholders are urged to read such opinion carefully and in its
entirety. The summary of the PaineWebber opinion set forth in this Proxy
Statement is qualified in its entirety by reference to the full text of such
opinion.
The Company retained PaineWebber as its financial advisor in connection with
the Merger. In connection with such engagement, the Special Committee requested
PaineWebber to render an opinion as to whether or not the proposed Merger
Consideration (as defined under "INTRODUCTION--Purpose of the Special Meeting")
to be received by the Stockholders is fair to the unaffiliated Stockholders from
a financial point of view.
In connection with the Board's consideration of the Merger Agreement,
PaineWebber delivered an oral opinion on December 21, 1997 to the effect that,
as of such date, and based upon its review and assumptions and subject to the
limitations summarized below, the Merger Consideration to be received by the
Stockholders, other than AGC, pursuant to the Merger is fair to the
Stockholders, other than AGC, from a financial point of view. Subsequently,
PaineWebber has reaffirmed and, at the request of the Company and in order to
satisfy the filing requirements for this Proxy Statement, altered its opinion
(the "Opinion") dated as of the date hereof, and it now provides as follows: the
proposed Merger Consideration to be received by the unaffiliated Stockholders of
the Company is fair to the unaffiliated Stockholders of the Company from a
financial point of view. For the purposes of the Opinion, "unaffiliated
Stockholders" means all of the Stockholders of the Company other than AGC and
Messrs. Komer, Weiss and Wyckoff. The Opinion was directed to, and prepared at
the request of and for the information of, the Special Committee and does not
constitute a recommendation to any Stockholder as to how any such Stockholder
should vote with respect to the Merger Proposal. It should be understood that
subsequent developments may affect the conclusions reached in the Opinion.
In arriving at its Opinion, PaineWebber, among other things: (i) reviewed
the Company's Annual Reports, Forms 10-K and related financial information for
the three fiscal years ended December 31, 1996, Forms 10-Q and the related
unaudited financial information for the nine months ended September 30, 1996 and
1997; (ii) reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets and prospects of the Company (the
"Projections") which were furnished to PaineWebber by the Company; (iii)
conducted discussions with members of senior management of the Company
concerning its businesses and prospects; (iv) reviewed the historical market
prices and trading activity for the Company's stock and compared them with that
of certain other publicly traded companies which PaineWebber deemed to be
relevant; (v) compared the results of operations of the Company with those of
certain other companies which PaineWebber deemed to be relevant; (vi) reviewed
the Merger Consideration premium to the historical market prices of the
Company's stock and compared them to historical transaction stock premiums paid
by acquirors in transactions of similar value; (vii) reviewed the Merger
Agreement; and (viii) reviewed such other financial studies and analyses and
performed such other investigations and took into account such other matters as
PaineWebber deemed necessary, including
15
<PAGE>
PaineWebber's assessment of general economic, market and monetary conditions.
PaineWebber summarily reviewed an initial draft copy of the Asset Purchase
Agreement focusing solely on its structure and proceeds, however, PaineWebber
did not consider, and was not asked to consider, such Asset Purchase Agreement
in rendering its Opinion.
In preparing the Opinion, PaineWebber relied on the accuracy and
completeness of all information that was publicly available, supplied or
otherwise communicated to PaineWebber by or on behalf of the Company and
PaineWebber did not assume any responsibility to independently verify such
information. With respect to the Projections, PaineWebber assumed, with the
Company's consent, that they were reasonably prepared on bases reflecting the
best available estimates and good faith judgments of the Company's management as
to the future performance of the Company at the time of such preparation.
PaineWebber noted that the Projections provided by the Company's management (i)
for the fiscal year ended December 31, 1997 were significantly greater than the
actual results for the twelve month period ended September 30, 1997; (ii) had
been prepared approximately eight months prior to the delivery of the Opinion;
and (iii) had not been updated since that time. PaineWebber did not undertake an
independent evaluation or appraisal of the assets or liabilities (contingent or
otherwise) of the Company, nor was PaineWebber furnished with any such
evaluations or appraisals. PaineWebber also assumed that (i) the purchase method
of accounting will be used; and (ii) all material assets and liabilities
(contingent or otherwise, known or unknown) of the Company are as set forth in
the consolidated financial statements. The Opinion is based upon economic,
monetary and market conditions existing on the date thereof. The Opinion does
not address the relative merits of the Merger Proposal and any other
transactions or business strategies that may have been discussed by the Special
Committee as alternatives to the Merger, or the decision of the Special
Committee to proceed with the Merger. In addition, PaineWebber was not requested
to, and did not, express any opinion as to the fairness, from a financial point
of view, of the Asset Purchase Agreement. The Company did not place any
limitations upon PaineWebber with respect to the procedures followed or factors
considered in rendering the Opinion.
The following paragraphs summarized the significant analyses performed by
PaineWebber in arriving at the Opinion.
MARKETING PROCESS. As part of its analysis in arriving at its Opinion,
PaineWebber reviewed and analyzed the results of its marketing process for the
Company to potential purchasers. Of the eleven parties contacted, only three
indicated interest in the Company in the form of a non-binding bid. Of the bids
received, MDC's cash offer was the highest and received the approval of the
Company's Board.
HISTORICAL STOCK PERFORMANCE. PaineWebber reviewed the history of the
trading prices and volume for the Shares of the Company's stock. This stock
performance review indicated that for the latest twelve months ("LTM") ended
December 15, 1997, the low and high trading prices were $3.38 and $5.13,
respectively. PaineWebber also reviewed the following stock price averages prior
to the Company's public announcement on September 30, 1997 that it was in
discussions regarding a possible merger: (i) latest 10 trading day
average--$3.63, (ii) latest 30 trading day average--$3.75, (iii) latest 60
trading day average-- $4.28, and (iv) latest 120 day trading day average--$4.63.
SELECTED COMPARABLE PUBLIC COMPANY ANALYSIS. Using publicly available
information, PaineWebber compared selected historical and projected financial,
operating and stock market performance data of the Company to the corresponding
data of the Comparable Companies (as defined below). The Comparable Companies
consisted of Concepts Direct, Inc., Damark International, Inc., Geographics,
Inc., Hanover Direct, Inc., Lillian Vernon Corporation and Norwood Promotional
Products, Inc. (collectively, the "Comparable Companies").
PaineWebber reviewed, among other information, the Comparable Companies'
multiples of total enterprise value (market value plus total debt and total
preferred stock less cash and cash equivalents) to (i) LTM net revenue, (ii) LTM
earnings before interest, taxes, depreciation and amortization ("EBITDA")
16
<PAGE>
and (iii) LTM earnings before interest and taxes ("EBIT"). As of December 15,
1997, the Comparable Companies' (i) LTM net revenue multiples ranged from 0.22x
to 1.65x; (ii) LTM EBITDA multiples ranged from 5.8x to 34.2x; and, (iii) LTM
EBIT multiples ranged from 9.0x to 39.7x. PaineWebber computed the multiples of
total enterprise value to (i) LTM net revenue, (ii) LTM EBITDA and (iii) LTM
EBIT based on the offer price of $5.70 per share to be 0.38x, 9.0x and 18.0x,
respectively.
PREMIUMS PAID ANALYSIS. PaineWebber analyzed purchase price per share
premiums paid by domestic companies in 271 publicly-disclosed cash and stock
merger transactions involving the purchase of a majority interest announced and
completed between January 1, 1995 and December 1, 1997 with market values
between $25.0 million and $100.0 million. This analysis indicated median
premiums to the target's closing stock price one day, one week and four weeks
prior to the announcement of the transaction of 20.0%, 24.2% and 30.2%,
respectively. The implied premiums paid to the Company based on the Merger
Consideration of $5.70 per share in cash and the Company's share price one day,
one week and four weeks prior to the Company's public announcement on September
30, 1997 was 38.0%, 38.0% and 52.0%, respectively.
DISCOUNTED CASH FLOW & PERPETUAL GROWTH ANALYSES. PaineWebber analyzed the
Company based on discounted cash flow and perpetual growth analyses of the
projected financial performance of the Company. Such projected financial
performance was based upon the historical financial results of the Company and
the Projections provided by the Company's management. As a result of the issues
related to the Projections as described above, PaineWebber used a range of
discount rates from 20% to 23% in conducting its discounted cash flow analysis.
These discount rates were determined through the use of the capital asset
pricing model and in conducting its analysis, PaineWebber reviewed with the
Company's management, the Company's projected financial performance and the
risks associated with the Company's business to derive what it believes are
appropriate discount rates and EBITDA perpetuity growth rates. These analyses
resulted in a valuation range of $3.70 to $6.93 per share.
The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant quantitative methods of financial analyses and
the application of those methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to partial analysis or summary
description. Accordingly, PaineWebber believes that its analysis must be
considered as a whole and that considering any portion of such analysis and of
the factors considered, without considering all analyses and factors, could
create a misleading or incomplete view of the process underlying the Opinion. In
its analyses, PaineWebber made numerous assumptions with respect to industry
performance, general business and economic conditions and other matters, many of
which are beyond the control of the Company. Any estimates contained in these
analyses are not necessarily indicative of actual values or predictive of future
results or values, which may be significantly more or less favorable than as set
forth therein. In addition, analyses relating to the value of businesses do not
purport to be appraisals or to reflect the prices at which businesses may
actually be sold. Accordingly, such analyses and estimates are inherently
subject to substantial uncertainty.
The Company selected PaineWebber to be its financial advisor in connection
with the Merger because PaineWebber is a prominent investment banking and
financial advisory firm with experience in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of securities, private placements and
valuations for corporate purposes.
Pursuant to an engagement letter between the Company and PaineWebber dated
October 4, 1996, PaineWebber will earn a success fee of $500,000 for rendering
financial advisory services in connection with the Merger at closing.
PaineWebber will earn an opinion fee of $200,000 upon rendering an Opinion which
will be credited towards the success fee. In addition, PaineWebber will be
reimbursed for certain of its related expenses. PaineWebber will not be entitled
to any additional fees or compensation in the event the Merger is not approved
or otherwise consummated. The Company also agreed, under separate
17
<PAGE>
agreement, to indemnify PaineWebber, its affiliates and each of its directors,
officers, agents and employees and each person, if any, controlling PaineWebber
or any of its affiliates against certain liabilities, including liabilities
under federal securities laws.
In the ordinary course of PaineWebber's business, PaineWebber may actively
trade the securities of the Company and MDC for its own account and for the
accounts of its customers and, accordingly, may at any time hold long or short
positions in such securities.
INTERESTS OF CERTAIN PERSONS
Certain members of the Company's management and of the Board may be deemed
to have certain interests in the Merger and in the Asset Sale that are in
addition to their interests as Stockholders of the Company and which may present
them with interests that are in conflict with the unaffiliated Stockholders. The
Board was aware of these interests and considered them, among other matters, in
approving the Merger Agreement, the Asset Purchase Agreement and the
transactions contemplated thereby. Each non-interested member of the Special
Committee will be paid a special bonus of $20,000, other than Messrs. Weiss and
Komer who will receive a special bonus of $10,000, if the Merger and Asset Sale
are consummated as compensation for their extraordinary efforts and time
dedicated to the Company over their tenure.
As a result of the Merger, Messrs. Komer and Joseph A. Calabro (the
President of the Company) will be entitled to receive, among other things,
severance payments of approximately $1,200,000 and $300,000, respectively, under
their existing employment agreements and based upon preliminary estimates of the
Company's performance in 1997. ADI was formed by Mr. Thomas C. Wyckoff, the
Chief Operating Officer of the Company, for the purpose of effecting the Asset
Sale to ADI. Mr. Wyckoff will be the principal equity investor in ADI owning 80%
of the outstanding common stock of ADI. Mr. Wyckoff will be employed by ADI.
Further, Mr. Wyckoff intends to enter into a loan agreement with ADI whereby Mr.
Wyckoff will borrow $600,000 on terms to be negotiated with the Board of
Directors of ADI. Mr. Wyckoff will also be entitled to other executive
compensation benefits as determined by the Board of Directors of ADI. The
Company has agreed to pay certain expenses of ADI incurred in connection with
the transactions contemplated by the Asset Purchase Agreement, as described
under "SOURCE AND AMOUNT OF FUNDS; EXPENSES." Such expenses include the legal
and accounting fees of ADI, as well as the reimbursement to ADI of up to
$100,000 in other expenses, and such payment would represent assets of the
Company utilized by ADI.
Mr. Wyckoff, along with other executive officers of the Company, has been
expending efforts in a circumscribed manner in order to further the
effectiveness of the operations of the Company during and subsequent to the
transition from the Company to ADI in connection with the Merger Proposal and
the Asset Sale Proposal. Tasks such as review of the Proxy Statement, review of
financial projections and operating procedures for ADI and other related items
would be included as expected to arise in connection with the transaction.
Other than as described in this section, there are no other material
benefits to be received by Messrs. Komer, Calabro and Wyckoff relating to the
Merger and the Asset Sale and, other than as described in this section, no other
insider of the Company will receive any material benefits from the Merger and
the Asset Sale.
No persons have been employed, retained or are to be compensated to make
solicitations or recommendations in connection with the Merger and the Asset
Sale other than the Financial Advisor, who will be rendering a fairness opinion,
and legal advisors, who are rendering legal advice.
18
<PAGE>
CERTAIN EFFECTS OF THE CONSUMMATION OF THE MERGER
As described under "INTRODUCTION--Purpose of the Special Meeting," at the
Effective Time, each outstanding Share will be converted into the right to
receive the Merger Consideration and the holders of Shares immediately before
the consummation of the Merger will possess no further interest in, or rights as
Stockholders of, the Company. The Shares have continued to be listed on The
Nasdaq Stock Market (the "Nasdaq"). Upon consummation of the Merger, the Company
intends to delist the Shares, to terminate the registration of Shares under the
Exchange Act, thus eliminating the duty of the Company to file reports under the
Exchange Act.
CERTAIN EFFECTS OF THE ASSET SALE
As a result of the Merger, the entire interest of the Company in the P&C
Businesses will be owned by ADI, and the current Stockholders will have no
continuing interest in such businesses. Therefore, following the Asset Sale, the
Stockholders other than those who have an interest in ADI will no longer benefit
from any increases in the value of the P&C Businesses and will no longer bear
the risk of any decreases in the value of such businesses. Following the Asset
Sale, ADI will own 100% of the P&C Businesses and will have complete control
over the management and conduct of such businesses, all income generated by the
P&C Businesses and any future increase in the value thereof. Similarly, ADI will
also bear the risk of any losses incurred in the operation of the P&C Businesses
and any decrease in the value of the P&C Businesses.
PLANS FOR THE COMPANY AFTER THE MERGER
Upon consummation of the Merger, the Company will become a wholly owned
subsidiary of MDC. MDC will continue to evaluate the business and operations of
the Company, other than the assets and liabilities transferred to ADI under the
Asset Purchase Agreement, with a view to enhancing the Company's performance in
conjunction with MDC's other businesses.
Upon consummation of the Asset Sale, the assets and certain liabilities of
the Company relating to the P&C Businesses will be transferred to ADI, which
will continue to operate the P&C Businesses in Elmira, New York.
After the Merger, ADI anticipates that it will continue its review of the
P&C Businesses and its assets, businesses, operations, properties, policies,
corporate structure, dividend policy, capitalization and management. In
connection therewith, ADI intends to consider whether any changes would be
desirable in light of the circumstances then existing. At this time, ADI intends
to continue the operations of the P&C businesses in its current location in
Elmira, New York. Effective upon consummation of the Asset Sale and the Merger,
it is expected that most of the current management of the Company will be the
initial management of ADI and Messrs. Wyckoff and Mahar will be directors of
ADI. Except as otherwise indicated in this Proxy Statement, ADI does not have
any other present plans or proposals which relate to or would result in an
extraordinary corporate transaction, such as a merger, reorganization or
liquidation involving the P&C Businesses, or a sale or transfer of a material
amount of assets of the P&C Businesses.
After consummation of the Merger and the Asset Sale, the Company will no
longer be subject to: (i) the periodic reporting obligations of the Exchange
Act, (ii) the short swing profit provisions of Section 16 of the Exchange Act,
and (iii) the going-private disclosure obligations of Rule 13e-3.
PROJECTIONS OF FUTURE OPERATIONS
In June 1997, management of the Company prepared projections of the
Company's future performance for inclusion in the financial information to be
distributed to persons interested in a possible business combination with the
Company, including MDC. These projections were not prepared with a view to
public disclosure or compliance with published guidelines of the Commission or
the guidelines established
19
<PAGE>
by the American Institute of Certified Public Accountants regarding projections.
The financial advisor does not assume any responsibility for the accuracy of
these projections. While presented with numerical specificity, these projections
are based upon a variety of assumptions relating to the businesses of the
Company, which may not be realized and are subject to significant uncertainties
and contingencies, many of which are beyond the control of the Company. There
can be no assurance that the projections would have been realized, and actual
results may vary materially from those shown.
Set forth below is a summary of the projections. The projections should be
read together with the financial statements of the Company referred to or
incorporated herein by reference.
ARTISTIC GREETINGS INCORPORATED(1)
PROJECTED FINANCIAL INFORMATION
(UNAUDITED)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
<S> <C> <C> <C> <C>
1997 1998 1999 2000
--------- --------- --------- ---------
Revenue.................................................................... $ 104.1 $ 111.2 $ 118.7 $ 126.2
Gross Profit(2)............................................................ $ 63.1 $ 67.2 $ 71.6 $ 76.2
Operating Income........................................................... $ 5.3 $ 5.7 $ 7.5 $ 9.9
Net Income................................................................. $ 2.7 $ 3.6 $ 4.9 $ 6.6
Depreciation & Amortization................................................ $ 3.3 $ 2.6 $ 2.8 $ 3.1
EBITDA..................................................................... $ 8.7 $ 8.3 $ 10.3 $ 13.0
</TABLE>
- ------------------------
(1) The Company assumed a 6.5% annual growth rate in revenue and that cost of
goods would remain constant at 40% of revenue. Each assumption is premised
upon moderate improvement over historical levels. In addition, the Company
assumed that advertising costs would remain constant as a percentage of
sales.
(2) Excludes depreciation.
20
<PAGE>
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA
(DOLLARS IN THOUSANDS)
The following table sets forth the summary pro forma consolidated financial
data which are presented to reflect the division of the assets and liabilities
and operations of the Company between those to be acquired by ADI in the Asset
Sale and those to be acquired by MDC pursuant to the Merger. The operating
statement data assume that the division took place at the beginning of the
period presented. The balance sheet data assume that the division took place on
December 31, 1997. The pro forma consolidated financial data reflects certain
adjustments related to the proposed transactions and are presented for
illustrative purposes only. The following data are not to be construed as
indicative of the results of operations or the financial position which would
have occurred had the division of the Company been effected at the beginning of
the period presented. Further, the values ascribed to assets for book purposes
may not be indicative of realizable value. As described in more detail in
"UNAUDITED PRO FORMA FINANCIAL STATEMENTS," the basis for this presentation is
an allocation of assets, liabilities, income and expenses which the Company
believes to be reasonable, but should not be construed as indicative of the
results of operations or financial position of the separate businesses indicated
as stand-alone entities. The summary unaudited pro forma financial data should
be read in conjunction with the historical and unaudited pro forma financial
statements of the Company contained elsewhere herein. See "AVAILABLE
INFORMATION," "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE," SELECTED
CONSOLIDATED FINANCIAL DATA" and "UNAUDITED PRO FORMA FINANCIAL STATEMENTS."
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
-----------------------------------------------------------------------------
PRO FORMA PRO FORMA PRO FORMA PRO FORMA ADJUSTED
ACTUAL P & C BUSINESSES CHECK BUSINESS ADJUSTMENTS CHECK BUSINESS
---------- ---------------- -------------- ----------- ------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Sales...................... $ 101,499 $ 55,174 $ 46,325 -- $ 46,325
Income (Loss) from
Operations................... $ (146) $ (2,396) $ 2,250 $ (2,500) $ (250)
Net Income (Loss).............. $ (1,064) $ (3,246) $ 2,182 $ (3,401) $ (1,219)
---------- ---------------- -------------- ----------- -------
BALANCE SHEET DATA:
Assets:
Current Assets............... $ 11,178 $ 8,296 $ 2,882 -- $ 2,882
Non-Current and Other
Assets....................... $ 20,680 $ 18,537 $ 2,143 -- $ 2,143
---------- ---------------- -------------- ----------- -------
Total Assets:.................. $ 31,858 $ 26,833 $ 5,025 -- $ 5,025
---------- ---------------- -------------- ----------- -------
Liabilities:
Current Liabilities.......... $ 19,390 $ 8,233 $ 11,157 -- $ 11,157
Long-term Liabilities........ $ 1,219 $ -0- $ -0- -- $ -0-
Total Liabilities:............. $ 20,609 $ 9,452 $ 11,157 -- $ 11,157
Stockholders' Equity, net:..... $ 11,249 $ 17,381 $ (6,132) -- $ (6,132)
---------- ---------------- -------------- ----------- -------
Total Liabilities and
Stockholders' Equity:........ $ 31,858 $ 26,833 $ 5,025 -- $ 5,025
---------- ---------------- -------------- ----------- -------
</TABLE>
21
<PAGE>
THE MERGER AGREEMENT
The following is a summary of the material provisions of the Merger
Agreement and is qualified in its entirety by reference to the Merger Agreement,
a copy of which is attached hereto as Annex I.
GENERAL. The Merger Agreement provides for the submission of the Merger
Proposal to the Company's Stockholders as promptly as practicable after the
consummation of the Merger. The closing of the Merger will take place at 10:00
a.m. on a date to be specified by MDC or Newco. The Merger shall become
effective when the Certificate of Merger, executed in accordance with the
relevant provisions of the DGCL, are accepted for record by the Secretary of
State of the State of Delaware (the time of such filing being referred to as the
"Effective Time").
THE MERGER. The Merger Agreement provides that following the satisfaction
or waiver of the conditions described below under "Conditions to the Merger" and
in accordance with the DGCL, at the Effective Time Newco will be merged with and
into the Company, and each then outstanding Share (other than Shares owned by
the Company or by any subsidiary of the Company and Shares owned by MDC, Newco
or their affiliates or held by Stockholders, if any, who are entitled to and who
properly exercise dissenters' rights under the DGCL) will be converted into the
right to receive an amount in cash equal to the merger consideration per Share
paid pursuant to the Merger, without interest.
CONDITIONS TO THE MERGER. The Merger Agreement provides that the Merger is
subject to the satisfaction or waiver of the following conditions by the
Company, MDC and Newco: (1) the expiration or termination of any waiting period
(and any extension thereof) applicable to the Merger under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act") and (2) no
temporary restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal restraint or
prohibition preventing the consummation of the Merger shall be in effect;
PROVIDED, HOWEVER, that each of the Company, Newco and MDC shall have used its
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.
CONDITIONS OF THE COMPANY. The Merger Agreement provides that the Merger is
subject to the satisfaction or waiver of the following conditions by the
Company: (1) the approval of the Merger Agreement and the adoption of the Merger
by the affirmative vote or consent of the holders of a majority of the
outstanding Shares in accordance with applicable law and the Company's
Certificate of Incorporation; (2) there shall not have occurred any event or
circumstances that has had or is reasonably likely to have a Material Adverse
Effect, which is defined as any change or effect that is or is reasonably likely
to be materially adverse to the business, operations, assets, financial
condition or results of operations of the Company, on the Company; (3) all
representations and warranties of the Company under the Merger Agreement which
are qualified as to materiality shall be true and correct in all respects and
all representations and warranties of the Company under the Merger Agreement
that are not qualified as to materiality shall be true and correct in all
material respects on and as of the Effective Time; (4) the Company shall have
performed in all material respects all covenants and agreements required to be
performed by it prior to the Effective Time, and (5) MDC shall have received a
certificate signed on behalf of the Company by its chief executive officer to
the effect set forth in clauses (3) and (4) above.
CONDITIONS OF MDC AND NEWCO. The Merger Agreement provides that the Merger
is subject to the satisfaction or waiver of the following conditions by MDC and
Newco: (1) all conditions under the Asset Purchase Agreement shall have been
satisfied or waived and the transactions contemplated thereby shall have been
consummated; (2) all representations and warranties of MDC and Newco under the
Merger Agreement which are qualified as to materiality shall be true and correct
in all respects and all representations and warranties of MDC and Newco under
the Merger Agreement that are not qualified as to materiality shall be true and
correct in all material respects on and as of the Effective Time; and
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(3) MDC and Newco shall have performed in all material respects all covenants
and agreements required to be performed by each of them prior to the Effective
Time.
There can be no assurance that all conditions to the Merger will be
satisfied.
TERMINATION OF THE MERGER AGREEMENT. The Merger Agreement may be terminated
at any time prior to the Effective Time, whether before or after approval of
matters presented in connection with the Merger by the Stockholders of the
Company:
(1) by mutual written consent of the Company, Newco and MDC;
(2) by either the Company, Newco or MDC if any court of competent
jurisdiction in the United States or Canada or other United States or Canadian
governmental body shall have issued a final order, injunction, decree or ruling
or taken any other final action restraining, enjoining or otherwise prohibiting
the Merger and such order, injunction, decree, ruling or other action is or
shall have become nonappealable; PROVIDED that this right to terminate the
Merger Agreement shall not be available to any party which has not used its
reasonable best efforts to cause any such order, injunction, decree, ruling or
other action to be lifted;
(3) by either MDC and Newco or the Company if the Stockholders of the
Company fail to adopt and approve the Merger Agreement, the Asset Purchase
Agreement, the Merger and the transactions contemplated by the Merger Agreement
and the Asset Purchase Agreement at the Special Meeting and any adjournment
thereof, by the requisite vote, which is the approval of a majority of the
outstanding shares of Common Stock (the "Requisite Vote");
(4) by the Company if a corporation, partnership, person or other entity or
group shall have made a bona fide offer not solicited in violation of the Merger
Agreement that the Board by a majority vote determines in its good faith
judgment and in the exercise of its fiduciary duties (i), based upon the advice
of the Financial Advisor, is more favorable to the Company's Stockholders than
the Merger and (ii), based upon the written advice of outside counsel, must not
make or must withdraw or modify its recommendation of the Merger in order to
avoid breaching its fiduciary duties under applicable law; PROVIDED,
HOWEVER,that such termination under this clause shall not be effective (i)
unless MDC or Newco does not, within five business days of receipt of the
Company's notification of its intention to enter into a definitive agreement
with respect to a superior proposal, make an offer that the Board by a majority
vote determines in its good faith judgment and in the exercise of its fiduciary
duties, based upon the advice of PaineWebber, is at least as favorable to the
Company's Stockholders as the superior proposal and (ii) until the Company has
made payment of the full fee and expense reimbursement required by the Merger
Agreement;
(5) by MDC and Newco, if (i) there shall have been a breach of any
representation or warranty on the part of the Company that is or will have a
Material Adverse Effect on the Company or which materially adversely affects the
ability of the Company to consummate the Merger, (ii) there shall have been a
breach of any covenant or agreement on the part of the Company which is or will
result in a Material Adverse Effect on the Company or materially adversely
affects the ability of the Company to consummate the Merger, which shall not
have been cured prior to the earlier of (A) 10 days following notice of such
breach and (B) two business days prior to the Closing Date, (iii) the Company
shall engage in negotiations with any entity or group (other than MDC or Newco)
that has proposed a Third Party Acquisition (as defined below), (iv) the Board
(A) shall have withdrawn or modified in a manner adverse to Newco its approval
or recommendation of the Merger Agreement or the Merger or shall have
recommended another offer or transaction or shall have adopted any resolution to
effect any of the foregoing or (B), in response to any tender or exchange offer
for more than 20% of the outstanding Common Stock, shall not have recommended
rejection of such tender offer or exchange offer within the time periods
specified by applicable law, or shall have adopted any resolution to effect any
of the foregoing; (v) the existing Asset Purchase Agreement shall have become
terminable by the Company and the Company shall not have entered into a
substitute Asset Purchase Agreement with another party within two Business Days;
or (vi) the Company
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shall have failed to mail this Proxy Statement as promptly as practicable after
the clearance thereof by the SEC or the Company has failed to include in this
Proxy Statement the Board's recommendation of the Merger;
(6) by the Company if (i) there shall have been a breach of any
representation or warranty on the part of MDC or Newco which materially
adversely affects (or materially delays) the consummation of the Merger or (ii)
there shall have been a material breach of any covenant or agreement on the part
of MDC or Newco and which materially adversely affects (or materially delays)
the consummation of the Merger which shall not have been cured prior to the
earliest of (A) ten days following notice of such breach and (B) two business
days prior to the Closing Date; or
(7) by MDC and Newco or the Company if the Merger shall not have been
consummated on or before the date that is five months from the date of the
Merger Agreement; PROVIDED that this right to terminate the Merger Agreement
shall not be available to any party which has not used its reasonable best
efforts to cause the Merger to be consummated.
FEES AND EXPENSES. The Merger Agreement provides that the Company shall pay
to MDC upon demand an amount of $600,000 (the "Liquidated Damages") if:
(1) MDC and Newco terminate the Merger Agreement pursuant to clause (5) of
"Termination of the Merger Agreement" and within 18 months thereafter the
Company enters into an agreement with respect to a Third Party Acquisition, or a
Third Party Acquisition occurs, involving any party (or any affiliate thereof)
(x) with whom the Company (or its agents) had negotiations with a view to a
Third Party Acquisition, (y) to whom the Company (or its agents) furnished
information with a view to a Third Party Acquisition or (z) who had submitted a
proposal or expressed an interest in a Third Party Acquisition, in the case of
each of clauses (x), (y) and (z) after the date hereof and prior to such
termination;
(2) MDC and Newco terminate the Merger Agreement pursuant to clause (5) of
"Termination of the Merger Agreement," and within 18 months thereafter a Third
Party Acquisition shall occur involving a consideration for Shares (including
the value of any stub equity) in excess of the Merger Consideration; or
(3) (A) the Company terminates the Merger Agreement pursuant to clause (4)
of "Termination of the Merger Agreement", (B) MDC and Newco or the Company
terminate the Merger Agreement pursuant to clause (3) of "Termination of the
Merger Agreement" or (C) MDC and Newco terminate this Agreement pursuant to
clause (5) of "Termination of the Merger Agreement," the Company shall pay to
MDC and Newco either prior to termination in the case of the event described in
this section or within one business day following the execution and delivery of
such agreement or such occurrence or termination, as the case may be, in the
case of the event described in this paragraph, a fee, in cash, of $1,300,000,
plus reasonable, documented out-of-pocket third party expenses of MDC and Newco
incurred in connection with the transactions contemplated hereby, PROVIDED,
HOWEVER, that the Company in no event shall be obligated to pay more than one
such $1,300,000 fee with respect to all such agreements and occurrences and such
termination.
"Third Party Acquisition" means the occurrence of any of the following
events (i) the acquisition of the Company by merger or otherwise by any person
(which includes a "person" as such term is defined in Section 13(d)(3) of the
Exchange Act) or entity other than MDC, Newco or any affiliate thereof (a "Third
Party"); (ii) the acquisition by a Third Party of more than 30% of the total
assets of the Company (other than pursuant to the Asset Purchase Agreement);
(iii) the acquisition by a Third Party of 30% of more of the outstanding Shares;
(iv) the adoption by the Company of a plan of liquidation or the declaration or
payment of an extraordinary dividend; or (v) the repurchase by the Company or
any of its subsidiaries of more than 20% of the outstanding Shares, other than a
repurchase which was not approved by the Company or publicly announced prior to
the termination of the Merger Agreement and which is not part of a series of
transactions resulting in a change of control.
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CONDUCT OF BUSINESS BY THE COMPANY. The Merger Agreement provides that
during the period from the date of the Merger Agreement to the earlier of the
Effective Time and the appointment or election of Newco's designees to the Board
of Directors of the Company pursuant to the terms of the Merger Agreement (such
earlier time, the "Control Time"), the Company shall, and shall cause its
subsidiaries to, conduct its operations according to its ordinary and usual
course of business consistent with past practice, and will use all commercially
reasonable efforts to preserve intact its business organization, to keep
available the services of its officers and employees and to maintain
satisfactory relationships with suppliers, distributors, customers and others
having business relationships with it and will take no action which would
adversely affect its ability to consummate the Merger or the other transactions
contemplated by the Merger Agreement. Without limiting the generality of the
foregoing, and except as otherwise expressly provided in the Merger Agreement or
the Asset Purchase Agreement, prior to the Effective Time, the Company will not,
without the prior written consent of MDC and except as disclosed in a letter to
MDC delivered at the time of execution of the Merger Agreement:
(a) amend its Restated Certificate of Incorporation (or other applicable
charter document) or By-Laws;
(b) authorize for issuance, issue, sell, deliver, grant any options for, or
otherwise agree or commit to issue, sell or deliver any shares of any class of
capital stock of the Company or any securities convertible into or exchangeable
or exercisable for shares of any class of capital stock or any other ownership
interest (including, but not limited to, stock appreciation rights or phantom
stock) of the Company, other than pursuant to and in accordance with the terms
of the Common Stock Equivalents outstanding on the date of the Merger Agreement
and listed on Schedule 3.13 of the Merger Agreement;
(c) split, combine or reclassify any shares of its capital stock, declare,
set aside or pay any dividend or other distribution (whether in cash, stock or
property or any combination thereof) in respect of its capital stock or
purchase, redeem or otherwise acquire any shares of its own capital stock;
(d) (i) create, incur, assume, maintain or permit to exist any long-term
debt or any short-term debt for borrowed money other than under existing lines
of credit and except for short-term debt incurred in the ordinary course of
business and consistent with past practice; (ii) assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other person; or (iii) make any loans,
advances or capital contributions to, or investments in, any other person in
excess of $50,000 in the aggregate (other than investments in marketable
securities made in the ordinary course of business of the Company and consistent
with past practice);
(e) except as may be required by law, enter into, adopt or amend or
terminate any bonus, profit sharing, compensation, severance, termination, stock
option, stock appreciation right, restricted stock, performance unit, stock
equivalent, stock purchase agreement, pension, retirement, deferred
compensation, employment, severance or other employee benefit agreement, trust,
plan, fund or other arrangement for the benefit or welfare of any current or
former director, officer or employee in any manner, or (except for normal
increases in salary or wages of employees who are not officers of the Company in
the ordinary course of business consistent with past practice that, in the
aggregate, do not result in a material increase in benefits or compensation
expense to the Company, and as required under existing agreements) increase in
any manner the compensation or fringe benefits of any current or former
director, officer or employee or grant any severance or termination pay or pay
any benefit not required by any plan, agreement, trust, fund, policy and
arrangement as in effect as of the date of the Merger Agreement;
(f) except for sales of inventory in the ordinary course of business and
consistent with past practice, sell, transfer, lease or otherwise dispose of, or
encumber, or agree to sell, transfer, lease, or otherwise dispose of or
encumber, any assets, properties, real, personal or mixed not in excess of
$50,000 individually;
(g) enter into any agreements, commitments or contracts, except agreements,
commitments or contracts either (i) for the purchase, sale or lease of goods or
services in the ordinary course of business
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and consistent with past practice or (ii) which do not, individually, relate to
the making of payments or the provision of services for consideration in excess
of $50,000 over the term of any such agreement, commitment or contract;
(h) authorize, recommend, propose or announce an intention to authorize,
recommend or propose, or enter into any agreement in principle or an agreement
with respect to, any plan of liquidation or dissolution, any acquisition (by
merger, consolidation or acquisition of assets or securities or any disposition
of any assets or securities) of any corporation, partnership or other business
organization or division thereof or any change in its capitalization, or any
entry into a material contract or any amendment or modification of any material
contract or any release or relinquishment of any material contract rights not in
the ordinary course of business and consistent with past practice or modify or
amend the contracts between the parties referred to in the letter referred to
above;
(i) except as previously approved by the Board of Directors of the Company
prior to the date of the Merger Agreement and as identified to MDC prior to the
date of the Merger Agreement, authorize or commit to make capital expenditures
in any calendar month in excess of $100,000; PROVIDED, HOWEVER, that amounts not
authorized or committed in any calendar month may be carried forward to future
calendar months;
(j) permit any material insurance policy naming the Company as a beneficiary
or a loss payee to be canceled, terminated or materially altered;
(k) maintain its books and records in a manner not in the ordinary course of
business and consistent with past practice; (l) enter into any hedging, option,
derivative or other similar transaction;
(m) change any assumption underlying, or method of calculating, any bad
debt, contingency, provision or other reserve;
(n) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, contingent or otherwise), other than the payment, discharge
or satisfaction of liabilities in the ordinary course of business and consistent
with past practice;
(o) except as may be required as a result of a change in law or in generally
accepted accounting principles, change any of the accounting practices or
principles used by it;
(p) make any material tax election or settle or compromise any material
federal, state, local or foreign tax liability;
(q) settle or compromise any pending or threatened suit, action or claim
which is material;
(r) collect receivables or pay payables or purchase inventory or make
shipments to customers, other than in the ordinary course of business consistent
with past practice;
(s) modify the amount spent on advertising for the Company as a whole and
the allocation between each of the check business and the P&C Businesses from
the schedule related thereto previously delivered by the Company to MDC; or
(t) agree to do any of the foregoing or any action which would make any of
the representations or warranties of the Company contained in the Merger
Agreement untrue and incorrect as of the date when made if such action had then
been taken.
BOARD OF DIRECTORS. The Merger Agreement provides that prior to the
Effective Time, the Company shall take all commercially reasonable efforts to
deliver to MDC the resignation of such directors of the Company as MDC shall
specify, effective at the Effective Time.
STOCK OPTIONS. The Merger Agreement provides that prior to the consummation
of the Merger, the Board shall use its best efforts to cause the terms of all
outstanding stock options heretofore granted under any stock option plan of the
Company (collectively, the "Stock Plans") to be adjusted to provide that, at
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the Effective Time, each stock option outstanding immediately prior to the
consummation of the Merger shall be canceled and the holder thereof shall be
entitled to receive as soon as practicable thereafter from the Company in
consideration for such cancellation a cash payment of an amount equal to (i) the
excess, if any, of (A) the Merger Consideration over (B) the exercise price per
share of Common Stock subject to such stock option, multiplied by (ii) the
number of shares of Common Stock for which such stock option shall not
theretofore have been exercised.
Prior to the consummation of the Merger, the Board of Directors (or, if
appropriate, any committee administering the Stock Plans) shall adopt such
resolutions or take such actions as are commercially reasonable, subject, if
necessary, to obtaining consents of the holders thereof, to carry out the terms
of the Merger Agreement and to provide that, on and after the Effective Time, no
officer, director or employee of the Company shall have any right to acquire any
interest in, any equity security of the Company or any of its subsidiaries.
INDEMNIFICATION. For six years after the Effective Time, MDC shall cause
the Surviving Corporation to indemnify, defend and hold harmless the present and
former directors and officers of the Company, determined as of the Effective
Time, against all losses, claims, damages, expenses or liabilities
(collectively, "Costs") (but only to the extent such costs are not otherwise
covered by insurance or are not promptly paid by insurance) arising out of
actions or omissions or alleged actions or omissions occurring at or prior to
the Effective Time to the extent permitted or required under applicable law and
the Company's Restated Certificate of Incorporation and By-Laws in effect at the
date hereof (to the extent consistent with applicable law).
For a period of three years after the Effective Time, the Surviving
Corporation shall use its best efforts to cause to be maintained in effect the
current policies of directors' and officers' liability insurance maintained by
the Company (PROVIDED that the Surviving Corporation may substitute therefor
policies of at least the same coverage and amounts containing terms and
conditions which are no less advantageous) with respect to claims arising from
facts or events which occurred before the Effective Time to the extent
available; PROVIDED, HOWEVER, that the Surviving Corporation shall not be
obligated to make annual premium payments for such insurance to the extent such
premiums exceed 150% of the annual premiums paid as of the date hereof by the
Company for such insurance (which the Company represents and warrants to be not
more than $60,000).
Pursuant to the Merger Agreement, MDC agreed to guarantee each and every one
of the obligations of the Surviving Corporation set forth in the foregoing two
paragraphs.
REASONABLE NOTIFICATION. The Merger Agreement provides that, on the terms
and subject to the conditions of the Merger Agreement, the Company shall give
prompt notice to MDC of any notice of, or other communication relating to, a
default or event which, with notice or lapse of time or both, would become a
default, received by the Company subsequent to the date of the Merger Agreement
and prior to the Effective Time, under any contract material to the business,
operations, assets or financial condition of the Company to which the Company is
a party or is subject. Each of the Company and MDC shall give prompt notice to
the other party of (a) any notice or other communication from any third party
alleging that the consent of such third party is or may be required in
connection with the Merger or other transactions contemplated hereby, (b) the
occurrence or existence of any event which would, or could with the passage of
time or otherwise, make any representation or warranty made by such party
contained in the Merger Agreement untrue or (c) any failure of such party to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by it of the Merger Agreement; PROVIDED, HOWEVER, that the delivery
of any notice pursuant to the Merger Agreement shall not limit or otherwise
affect the remedies available hereunder to the party receiving such notice.
PROCEDURE FOR AMENDMENT, EXTENSION OR WAIVER. The Merger Agreement provides
that it may be amended by action taken by the Company, MDC and Newco at any time
before or after approval of the
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Merger by the Stockholders of the Company (if required by applicable law) but,
after any such approval, no amendment shall be made which requires the approval
of such Stockholders under applicable law without such approval. The Merger
Agreement may not be amended except by an instrument in writing signed on behalf
of the parties hereto. At any time prior to the Effective Time, each party
thereto may (i) extend the time for the performance of any of the obligations or
other acts of the other party, (ii) waive any inaccuracies in the
representations and warranties of the other party contained in the Merger
Agreement or in any document, certificate or writing delivered pursuant thereto
or (iii) waive compliance by the other party with any of the agreements or
conditions contained therein. Any agreement on the part of either party thereto
to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party. The failure of either
party to the Merger Agreement to assert any of its rights thereunder shall not
constitute a waiver of such rights.
REPRESENTATIONS AND WARRANTIES. In the Merger Agreement, the Company has
made customary representations and warranties to MDC and Newco with respect to,
among other things, its organization, capitalization, financial statements,
public filings, conduct of business, employee benefit plans, labor relations and
employment matters, compliance with laws, real property, commission filings,
insurance, related party matters, subsidiaries, tax matters, litigation, vote
required to approve the Merger Agreement, undisclosed liabilities, information
supplied, the absence of any material adverse changes in the Company since
December 31, 1996, inapplicability of state takeover statutes, the opinion of
the Company's financial advisor and brokers, fees and expenses, intellectual
property, environmental matters and contracts. The representations and
warranties in the Merger Agreement expire on the day of the closing (the
"Closing") of the Merger Agreement.
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THE ASSET PURCHASE AGREEMENT
The following is a summary of the material terms of the Asset Purchase
Agreement. This summary is not a complete description of the terms and
conditions thereof and is qualified in its entirety by reference to the Asset
Purchase Agreement, a copy of which is attached hereto as Annex II.
THE ASSET PURCHASE. Upon the terms and subject to the conditions of the
Asset Purchase Agreement, at the Closing, ADI will purchase from the Company
certain assets and assume certain liabilities of the Company relating to its P&C
Businesses, including, without limitation, all related intangible assets, going-
concern value and goodwill, as well as the real property (the "Real Property")
and leased property (the "Leased Property") of the Company (collectively, the
"Assets") (such transactions being referred to herein as the "Asset Sale").
PURCHASE PRICE. In consideration of the transfer to ADI of the Assets, ADI
shall on the Closing Date (a) deliver to the Company $9,000,000 (the "Purchase
Price") by wire transfer of immediately available funds, into an account of the
Company designated to ADI at least two Business Days prior to the Closing Date
(PROVIDED that at the election of the ADI, up to $250,000 of the Purchase Price
may be satisfied by delivery to the Company of a junior subordinated promissory
note) and (b) assume the Assumed Liabilities. The Purchase Price shall be
subject to adjustment for: (i) capital expenditures on property, plant and
equipment (other than routine maintenance and servicing) in excess of $100,000
per calendar month during the period from the date of the Asset Purchase
Agreement through the Closing Date, provided that to the extent that in any
calendar month less than $100,000 is so expended, such difference may be carried
forward to future calendar months; (ii) the positive difference of approximately
$435,333 between (A) Mr. Komer's Severance Payment (as defined in the Asset
Purchase Agreement) of $948,000 that would have been due Mr. Komer if the
transactions contemplated by the Merger Agreement had occurred prior to December
31, 1997, and (B) Mr. Komer's Severance Payment of approximately $1,050,000
payable at the time of the Merger and (C) $333,333; and (iii) any
indemnification payments made by the parties pursuant to the Asset Purchase
Agreement.
ASSUMED LIABILITIES. In addition to payment of the Purchase Price, ADI
shall assume at the Closing, and subsequently in due course pay, honor and
discharge, (i) all the obligations, debts and liabilities of the Company arising
out of or relating to the P&C Businesses or the Assets, (ii) the employment
related liabilities as set forth in the Asset Purchase Agreement, (iii) all
environmental liabilities of the Company, (iv) the obligations, debts and
liabilities set forth in the Asset Purchase Agreement, (v) contingent and
unknown liabilities arising out of or relating primarily to the P&C Businesses,
the Real Property or the Leased Property, accruing before, on or after the
Closing Date, (vi) the liabilities listed on the balance sheet of the Company to
the extent set forth in the Asset Purchase Agreement, (vii) liabilities which
related to both the P&C Businesses and the businesses of the Company other than
the P&C Businesses (the "Joint Liabilities") to the extent provided in the Asset
Purchase Agreement and as shall be set forth in the Asset Purchase Agreement,
and (viii) the allocable share of Joint Employee Liabilities set forth in the
Asset Purchase Agreement, determined on the basis of FTE (full time employee)
equivalents (collectively, the "Assumed Liabilities"). The Company shall retain
and ADI shall not assume any of the Company's obligations, debts and liabilities
set forth in the Asset Purchase Agreement and any other obligations, debts and
liabilities other than the Assumed Liabilities (the "Excluded Liabilities").
INDEMNIFICATION. On and after the Closing Date, the Company shall indemnify
and hold ADI and its affiliates harmless against and in respect of all actions,
claims, suits, demands, judgments, costs and expenses (including reasonable
attorneys' fees of ADI) (collectively, "Damages") relating to (i) the Excluded
Liabilities, (ii) the ownership or operation of the Excluded Assets by the
Company or any other person following the Closing Date, (iii) the Merger
(whether arising from a claim made by a stockholder of the Company or otherwise)
(iv) the representation by the Company regarding broker fees set forth in the
Asset Purchase Agreement or (v) the obligations of the Company regarding AGI
employees, including, without limitation, employee benefit plans and employment
liabilities, as set forth in the Asset Purchase
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Agreement. The indemnification provided for in the Asset Purchase Agreement
shall terminate and be of no further force and effect two years from the Closing
Date. The Company shall not be liable pursuant to the Asset Purchase Agreement
for any amounts which in the aggregate exceed $9,000,000.
On and after the Closing Date, ADI shall indemnify and hold the Company and
its affiliates harmless against and in respect of all Damages relating to (i)
the Assumed Liabilities, (ii) the ownership or operation of the P&C Businesses
or the Assets by ADI or any other person following the Closing Date, (iii) the
representation by ADI regarding broker's fees set forth in the Asset Purchase
Agreement, (iv) the Deferred Contracts to the extent provided in the Asset
Purchase Agreement, or (v) the obligations of ADI regarding the Company
employees, including, without limitation, employee benefit plans and employment
liabilities, as set forth in the Asset Purchase Agreement. ADI shall not be
liable pursuant to the above provisions for any amounts, which in the aggregate
exceed $9,000,000.
CONDITIONS TO THE ASSET PURCHASE AGREEMENT. The respective obligations of
each party to effect the Asset Sale are subject to the fulfillment or written
waiver at or prior to the Closing Date of the condition that no Governmental
Entity or court of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any law, rule, regulation, executive order,
decree, injunction or other order (whether temporary, preliminary or permanent)
which is then in effect and has the effect of prohibiting the Asset Sale,
PROVIDED that, in the case of any such decree, injunction or other order, 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 practicable any
decree, injunction or other order that may be entered.
The obligation of the Company to effect the Asset Sale is subject to the
fulfillment at or prior to the Closing of the following additional conditions;
PROVIDED that the Company may waive in writing any of such conditions in its
sole discretion: (1) ADI shall have performed in all material respects each of
its agreements contained in the Asset Purchase Agreement required to be
performed on or prior to the Closing, and each of the representations and
warranties of ADI contained in the Asset Purchase Agreement shall be true and
correct on and as of the Closing Date as if made on and as of such date; (2) ADI
shall have furnished to the Company a certificate, dated the Closing, signed by
the appropriate officers of ADI, certifying to the effect that to their best
knowledge, the conditions set forth in (1) above; (3) ADI shall have made
delivery of the Purchase Price; (4) ADI shall have executed and delivered the
Assumption Agreement covering the Assumed Liabilities; (5) all conditions
precedent to the consummation of the Merger (or any merger pursuant to any
successor merger agreement) shall have been satisfied or waived and the parties
thereto are ready, willing and able to consummate such transaction immediately
after the consummation of the transactions contemplated hereby.
The obligation of ADI to effect the Asset Sale is subject to the fulfillment
at or prior to the Closing of the following additional conditions, PROVIDED that
ADI may waive in writing any such conditions in its sole discretion: (1) the
Company shall have performed in all material respects each of its agreements
contained in the Asset Purchase Agreement required to be performed on or prior
to the Closing and each of the representations and warranties of the Company
contained in the Asset Purchase Agreement shall be true and correct on and as of
the Closing as if made on and as of such date; (2) the Company shall have
furnished to ADI a certificate, dated the Closing, signed by the appropriate
officers of the Company, certifying to the best of their knowledge, the
conditions set forth in (1) above have been satisfied; (3) there shall not have
occurred any Material Adverse Change with respect to the P&C Businesses between
the date hereof and the Closing Date; (4) the Company shall have executed and
delivered the Bill of Sale and Assignment covering the Assets set forth in the
Annexes to the Asset Purchase Agreement and the Assumed Contracts and Leased
Property Lease Agreements in the Annexes to the Asset Purchase Agreement; (5)
the Company shall have executed and delivered the Warranty Deed covering the
Real Property relating to the Real Property; (6) the Company shall have executed
and delivered the Limited Liability Company Agreement conveying the trademarks
and other intellectual property rights to be conveyed; (7) ADI shall have
obtained title commitments for title insurance on the Real Property; (8) the
Company shall have endorsed and delivered the title certificates to the Assets
described in the Annexes to
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the Asset Purchase Agreement; and (9) the Company shall have executed and
delivered the Trademark Assignment Agreement conveying the trademarks to be
conveyed as described on the Annexes to the Asset Purchase Agreement.
TERMINATION. The Asset Purchase Agreement may be terminated at any time
prior to the Closing Date as follows: (a) by the mutual written consent of the
Company and ADI; (b) by the Company or ADI if any court of competent
jurisdiction in the United States or other United States governmental body shall
have issued a final order, injunction, decree or ruling or taken any other final
action restraining, enjoining or otherwise prohibiting the transactions
contemplated thereby, and such order, injunction, decree, ruling or other action
is or shall have become nonappealable, PROVIDED that the right to terminate the
Asset Purchase Agreement shall not be available to any party which has not used
its reasonable best efforts to cause any such order, injunction, decree, ruling
or other action to be lifted; (c) by either the Company or ADI if the
Stockholders of the Company fail to adopt and approve the Asset Purchase
Agreement and the Merger Agreement and the transactions contemplated by the
Asset Purchase Agreement and the Merger Agreement at the special meeting
contemplated by the Merger Agreement by the Requisite Vote; (d) by the Company
if a corporation, partnership, person or other entity or group shall have made a
bona fide offer not solicited in violation of the Asset Purchase Agreement that
the Board by a majority vote determines in its good faith judgment and in the
exercise of its fiduciary duties is more favorable to the Company's Stockholders
than the transactions contemplated hereby; PROVIDED, HOWEVER, that such
termination shall not be effective until the Company has made payment to ADI of
the full fee and expense reimbursement required by the Asset Purchase Agreement;
(e) by ADI, if (i) there shall have been a breach of any representation or
warranty on the part of the Company that is or will have a Material Adverse
Effect on the P&C Businesses or which materially adversely affects the ability
of the Company to consummate the transactions contemplated hereby or (ii) there
shall have been a breach of any covenant or agreement on the part of the Company
which is or will result in a Material Adverse Effect on the Company or the P&C
Businesses or materially adversely affects the ability of the Company to
consummate the transactions contemplated thereby, which shall not have been
cured prior to the earlier of (A) 10 days following notice of such breach and
(B) two Business Days prior to the Closing Date or (iii) the Board shall have
withdrawn or modified in a manner adverse to ADI its approval or recommendation
of the Asset Purchase Agreement or shall have adopted any resolution to effect
the foregoing; (f) by the Company if (i) there shall have been a breach of any
representation or warranty on the part of ADI which materially adversely affects
(or materially delays) the consummation of the transaction contemplated thereby
or (ii) there shall have been a material breach of any covenant or agreement on
the part of ADI and which materially adversely affects (or materially delays)
the consummation of the transaction contemplated hereby which shall not have
been cured prior to the earliest of (A) 10 days following notice of such breach
and (B) two Business Days prior to the Closing Date; or (g) by the Company or
ADI if the Merger Agreement shall have been terminated unless the Company shall
have entered into another merger agreement substantially in the form of the
Merger Agreement and approved by the Board of Directors of the Company.
CERTAIN PAYMENTS. (i) If ADI terminates the Asset Purchase Agreement as
described above in clause (e) of "Termination" and within 12 months thereafter
the Company enters into an agreement with respect to a Third Party Acquisition,
or a Third Party Acquisition occurs, involving any party (or any affiliate
thereof) (x) with whom the Company (or its agents) had negotiations with a view
to a Third Party Acquisition, (y) to whom the Company (or its agents) furnished
information with a view to a Third Party Acquisition or (z) who had submitted a
proposal or expressed an interest in a Third Party Acquisition, in the case of
each of clauses (x), (y) and (z) after the date hereof and prior to such
termination; or (ii) ADI terminates the Asset Purchase Agreement as described
above in clause (e) of "Termination," and within 18 months thereafter a Third
Party Acquisition shall occur involving a consideration in excess of the
Purchase Price; or (iii) the Company terminates the Asset Purchase Agreement as
described above in clause (d) of "Termination," the Company shall pay to ADI
either prior to termination in the case of the event described in clause (iii)
above or within one Business Day following the execution and delivery of such
31
<PAGE>
agreement or such occurrence or termination, as the case may be, in the case of
an event described in the Asset Purchase Agreement $360,000 plus the
unreimbursed, reasonable documented out-of-pocket third party expenses of ADI
incurred in connection with the transactions contemplated by the Asset Purchase
Agreement as liquidated damages immediately upon such termination (the
"Termination Fee"), in cash; PROVIDED, HOWEVER, that the Company in no event
shall be obligated to pay more than one such Termination Fee with respect to all
such agreements and occurrences.
THIRD PARTY ACQUISITION means the acquisition by any person (which includes
a "person" as such term is defined in Section 13(d)(3) of the Securities
Exchange Act of 1934) or entity other than ADI of all or a material portion of
the Assets or the P&C Businesses.
THE STOCKHOLDERS AGREEMENT
MDC, AGC and Mr. Komer entered into the Stockholders Agreement.
The following is a summary of the material terms of the Stockholders
Agreement. This summary is not a complete description of the terms and
conditions thereof and is qualified in its entirety by reference to the
Stockholders Agreement, a copy of which is attached hereto as Annex III.
COVENANTS OF EACH STOCKHOLDER. Each Stockholder has agreed that during the
period commencing on the date of the Stockholders Agreement and continuing until
the termination of the Stockholders Agreement, each Stockholder, severally and
not jointly, agrees as follows: (a) at any meeting of Stockholders of the
Company called to vote upon the Merger, the Merger Agreement, the Asset Purchase
or the Asset Purchase Agreement (which term, for purposes of the Stockholders
Agreement, is defined to include the asset purchase agreement and any other
asset purchase agreement substantially in the form thereof and providing for the
payment of cash consideration of at least $9 million) or at any adjournment
thereof or in any other circumstances upon which a vote, consent or other
approval with respect to the Merger, the Merger Agreement, the Asset Purchase or
the Asset Purchase Agreement is sought, such Stockholder shall vote (or cause to
be voted) the subject Shares in favor of the Merger and the Asset Purchase, the
adoption by the Company of the Merger Agreement and the Asset Purchase Agreement
and the approval of the terms thereof and each of the other transactions
contemplated by the Merger Agreement and the Asset Purchase Agreement; (b) at
any meeting of Stockholders of the Company or at any adjournment thereof or in
any other circumstances upon which the Stockholder's vote, consent or other
approval is sought, the Stockholder shall vote (or cause to be voted) the
Subject Shares against (i) any merger agreement or merger (other than the Merger
Agreement and the Merger), consolidation, combination, sale of a material amount
of assets (other than the Asset Purchase Agreement and the Asset Purchase),
reorganization, recapitalization, dissolution, liquidation or winding-up of or
by the Company or any other takeover proposal (collectively, "Takeover
Proposal"), (ii) any action or agreement that would result in a breach of any
covenant, representation or warranty or any other obligation or agreement of the
Company under the Merger Agreement, the Asset Purchase Agreement or the
Stockholders Agreement or (iii) (x) any material amendment of the Company's
certificate of incorporation or by-laws, (y) any change in a majority of the
persons who constitute the Board of Directors of the Company or (z) any other
proposal or transaction involving the Company, which is intended or could
reasonably be expected to impede, frustrate, prevent, delay or nullify (A) the
ability of the Company to consummate the Merger or the Asset Purchase or (B) any
of the transactions contemplated by the Stockholders Agreement, the Asset
Purchase Agreement or the Merger Agreement. Each Stockholder further agreed not
to commit or agree to take any action inconsistent with the foregoing; (c) each
Stockholder, severally and not jointly, agreed not to (i) offer to sell, sell,
transfer, encumber, pledge, assign or otherwise dispose of (including by gift)
(collectively, "Transfer"), or enter into any contract, option or other
arrangement with respect to or consent to the Transfer of, the Subject Shares or
any interest therein to any person other than pursuant to the terms of the
Merger, (ii) except as contemplated hereby, grant any proxies or powers of
attorney with respect to the Subject Shares, deposit any Subject Shares into a
voting trust or enter into any voting arrangement with respect to the Subject
Shares, or any interest in the foregoing, except with MDC or
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<PAGE>
Newco, (iii) take any action that would make any representation or warranty of
such Stockholder contained herein untrue or incorrect or have the effect of
preventing or disabling the Stockholder from performing such Stockholder's
obligations under the Stockholders Agreement or (iv) commit or agree to take any
of the foregoing actions; (d) each Stockholder irrevocably waived any rights of
appraisal or rights to dissent from the Merger that the Stockholder may have;
(e) each Stockholder agreed with, and covenants to, MDC that the Stockholder
shall not request that the Company register the transfer (book-entry or
otherwise) of any certificate or uncertificated interest representing any of the
Subject Shares, unless such transfer is made in compliance with the Stockholders
Agreement. In the event of a stock dividend or distribution, or any change in
the Common Stock by reason of any stock dividend or distribution, or any change
in the Common Stock by reason of any stock dividend, split-up, recapitalization,
combination, exchange of shares or the like, the term "Subject Shares" shall be
deemed to refer to and include the Subject Shares as well as all such stock
dividends and distributions and any shares into which or for which any or all of
the Subject Shares may be changed or exchanged and the Purchase Price shall be
accordingly adjusted. Each Stockholder shall be entitled to receive any cash
dividend paid by the Company during the term of the Stockholders Agreement until
the Subject Shares are canceled in the Merger or purchased under the
Stockholders Agreement; (f) each Stockholder, severally and not jointly, shall
not, nor shall it authorize or permit any partner, officer, director or employee
of, or any investment banker, attorney or other advisor or representative of,
such Stockholder to, directly or indirectly, (i) solicit, initiate or encourage
the submission of any Takeover Proposal (as defined in the Merger Agreement) or
(ii) participate in any discussions, conversations, negotiations or other
communications regarding, or furnish to any person any information with respect
to, or otherwise cooperate in any way, assist or participate in, facilitate or
encourage any effort or attempt by any other person or entity, to seek to do any
of the foregoing or take any other action to facilitate any inquiries or the
making of any proposal that constitutes, or is likely to lead to, any Takeover
Proposal; PROVIDED, HOWEVER, that the foregoing shall not restrict a Stockholder
who is also a director of the Company from taking actions in such Stockholder's
capacity as a director to the extent and in the circumstances permitted by
Section 4.02 of the Merger Agreement. Each Stockholder, in its capacity as such,
will immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any of the foregoing.
TERMINATION. Other than as provided therein, the covenants and agreements
contained in the Stockholders Agreement will terminate and no party shall have
any rights or obligations under the Stockholders Agreement and the Stockholders
Agreement shall become null and void and have no further effect upon the
earliest of (a) the Effective Time, and (b) the date on which the Merger
Agreement is terminated pursuant to Section 6.01 thereof.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN PERSONS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of January 21, 1998, by (1) each
beneficial owner of more than 5% of the outstanding Common Stock of the Company,
(2) each Director of the Company, (3) the Executive Officers of the Company, and
(4) all Directors and Executive Officers of the Company as a group. The Company
believes that each of the following persons has sole investment and voting power
in respect of his/her/its shares owned except as otherwise noted.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OWNERSHIP
NAME OF COMMON STOCK OF COMMON STOCK(1)
- ----------------------------------------------------------- ----------------- -----------------------
<S> <C> <C>
2,250,000(2) 38.5%
American Greetings Corporation.............................
One American Road
Cleveland, OH 44144
469,746(3) 8.0%
Stuart Komer...............................................
One Komer Center
Elmira, NY 14902
Joseph A. Calabro.......................................... 35,000(4) *
Norman S. Edelcup.......................................... 8,000 *
Lyndon E. Goodridge........................................ 7,000 *
Irving I. Stone............................................ 1,500(5,6) *
Morry Weiss................................................ 3,364(6) *
Thomas C. Wyckoff.......................................... 40,540(7) *
Robert T. McDonough........................................ 10,650(8) *
William T. Ingram.......................................... 5,900(9)
Michelle Crane-Alderman.................................... 9,600(10)
All Directors and Executive Officers of the Company as a 591,300(3, ,9) 10.1%
group (10 persons).......................................
</TABLE>
- ------------------------
* Indicates less than 1% of the Company's issued and outstanding shares.
(1) Percentages have been calculated assuming, in the case of each person, the
exercise of all options that are currently or will become exercisable within
the next 60 days by each such person, but not the exercise of any options
owned by any other person listed. The calculation of percentage ownership
for all Directors and Executive Officers as a group assumes the exercise of
all options that are currently or will become exercisable within the next 60
days by each such person.
(2) For a description of certain arrangements between the Company and AGC, see
the discussion immediately following these footnotes.
(3) Includes options to purchase 138,960 shares that are currently or will
become exercisable by Mr. Komer within the next 60 days and 4,000 shares
owned by Mr. Komer's wife. As of April 14, 1998, Mr. Komer is acting as
President and Chief Executive Officer of the Company.
(4) Includes options to purchase 31,000 shares that are currently or will become
exercisable by Mr. Calabro within the next 60 days. On April 14, 1998, Mr.
Calabro resigned as President and Chief Executive Officer of the Company,
but remains a Director of the Company.
(5) These shares are held in the Judith Stone Weiss Trust for the benefit of Mr.
Stone, who has sole voting and investment power with respect to these
shares.
(6) Does not include the 2,250,000 shares of Common Stock owned by AGC.
(7) Includes options to purchase 14,000 shares that are currently or will become
exercisable by Mr. Wyckoff within the next 60 days and 640 shares owned by
Mr. Wyckoff's wife.
(8) Includes options to purchase 12,000 shares that are currently or will become
exercisable by Mr. McDonough within the next 60 days.
(9) Includes options to purchase 3,400 shares that are or will become
exercisable by Mr. Ingram within the next 60 days.
(10) Includes options to purchase 7,400 shares that are or will become
exercisable by Mr. Crane-Alderman within the next 60 days.
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<PAGE>
Pursuant to a standstill agreement (the "Original Standstill Agreement"),
AGC purchased 2,250,000 shares (as adjusted for a stock split) of the Company's
Common Stock (the "AGC Shares"), for an aggregate net purchase price of
$6,450,000. AGC acquired its interest in the Company primarily as an investment.
However, in addition, the Company has agreed to promote certain of AGC's
greeting card products through its catalogs and AGC may promote certain of the
Company's personalized products through AGC's retail outlets.
On June 16, 1992, the Company and AGC amended the Original Standstill
Agreement (the "Amended Standstill Agreement") governing the control over the
AGC Shares.
The Amended Standstill Agreement superceded and terminated in their entirety
both the Original Standstill Agreement, which was among the Company, AGC and Mr.
Komer, and the Voting Trust Agreement of the same date and among the same
parties, under which the AGC Shares had been held until that date.
Under the Amended Standstill Agreement, AGC is generally prohibited from
purchasing any additional shares of Common Stock and has agreed to vote the AGC
Shares only in accordance with the recommendations made to the Company's
Stockholders by the Board. AGC retains the right to nominate a maximum of two
Directors to the Board, so long as it owns more than 20% of the outstanding
shares of Common Stock. It can nominate only one Director if its percentage
ownership drops to between 10% and 20% of the outstanding shares of Common Stock
and loses these nomination rights entirely if its percentage ownership drops
below 10%. AGC also has certain anti-dilution rights to enable it to maintain
its present proportionate ownership of approximately 36% of the outstanding
shares of Common Stock.
Additionally, during the term of the Amended Standstill Agreement AGC is
permitted to sell any of the AGC Shares only to the public, either in a
registered offering or under Rule 144 ("Rule 144") of the Securities Act of
1933, as amended (the "Act"), subject, however, to the Company's prior right of
first refusal to purchase any or all of such shares at their then-current market
price. AGC also has certain "demand" and "piggyback" registration rights to
enable it to have the AGC Shares registered for public sale. Under the Amended
Standstill Agreement, AGC can acquire the balance of the outstanding shares of
Common Stock or the Company's assets only in a transaction approved by the Board
(excluding any Directors nominated by AGC).
Unless earlier terminated, the Amended Standstill Agreement will expire on
December 31, 2000. However, it can be terminated at any time by AGC upon 90 days
notice to the Company. As of April 30, 1996, the Company could have terminated
the Amended Standstill Agreement at any time upon giving one year's notice to
AGC and under certain other circumstances. The Amended Standstill Agreement also
can be terminated by either party upon notice given within 90 days following any
termination of a Marketing Agreement (defined below), and automatically
terminates at such time as AGC's holdings constitute less than 5% of the
outstanding shares of Common Stock. Within 60 days prior to the effective date
of any termination of the Amended Standstill Agreement, however, the Company has
the right to purchase all or any part of the AGC Shares at their then-current
market price, and/or to require AGC to sell all or part of the AGC Shares in a
registered public offering.
Mr. Komer is not a party to the Amended Standstill Agreement. However, in a
letter to AGC dated June 16, 1992, he has agreed that, during the term of the
Amended Standstill Agreement, any sales of his Company shareholdings will only
be made through an underwritten public offering or under Rule 144.
Simultaneously with the signing of the Amended Standstill Agreement, the
Company and AGC also executed a direct mail agreement (the "Marketing
Agreement") that gives the Company exclusive rights to market and sell by mail
certain paper products based on AGC's designs through the Company's catalogs,
order fulfillment and other direct mail marketing programs. This Agreement
likewise expires on December 31, 2000, unless earlier terminated upon nine
months advance notice given by either party.
At the Effective Time of the Merger, the foregoing arrangements shall
terminate except that ADI will continue to license certain intellectual property
from AGC.
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<PAGE>
SOURCE AND AMOUNT OF FUNDS; EXPENSES
The total amount of funds required by Newco to purchase all of the Shares
pursuant to the Merger and to pay related fees and expenses is approximately $35
million. Newco will obtain all funds needed for the Merger through a combination
of cash of the Company as a result of the Asset Sale and loans from MDC which
MDC will initially fund from existing cash reserves and available lines of
credit.
The total amount of funds required by ADI to consummate the Asset Sale is
approximately $9.55 million and to provide for working capital of ADI is
approximately $3.0 million. ADI will obtain such funds from: (i) $5.0 million
from NationsCredit pursuant to the terms of a commitment letter and $3.0 million
under a revolving credit facility from NationsCredit for working capital
purposes; (ii) additional debt financing in the aggregate of $3.3 million from
the Empire State Economic Development Fund of the State of New York, the Chemung
County Industrial Development Agency and the City of Elmira Loan Fund; and (iii)
$1.25 million of cash equity contributions from Messrs. Wyckoff and Mahar in the
amounts of $750,000 and $500,000, respectively. In addition, at the election of
ADI, up to $250,000 of the Purchase Price may be satisfied by delivery to the
Company of a junior subordinate promissory note. The Empire State Economic
Development Fund of the State of New York has agreed to make a loan in an amount
not to exceed $3.0 million to ADI. ADI has also entered into an agreement with
the Chemung County Industrial Development Agency whereby ADI will receive a loan
in the amount of $100,000 for a term of five years with an interest rate of 0%.
Finally, ADI has entered into an agreement with Southern Tier Economic Growth,
as administrator of the City of Elmira Loan Fund in the amount of $200,000 for a
term of five years with a fixed rate at prime minus 2% points based in the Prime
Lending Rate at the time of closing.
In connection with the transaction, the Company anticipates incurring
expenses of approximately $225,000, principally consisting of legal and
accounting fees. In addition, pursuant to the Asset Purchase Agreement, the
Company has agreed to pay the costs and expenses of ADI in connection with the
transactions contemplated by the Asset Purchase Agreement, other than the fees
and expenses of financing sources. ADI has informed the Company that the fees
and expenses to be so paid by the Company are currently anticipated to be
approximately $900,000, consisting of 592,000 in legal fees incurred to date and
approximately $158,000 in additional legal fees expected to be incurred, $50,000
of accounting expenses and $100,000 of other expenses. Prior to the
effectiveness of the Merger, two promissory notes from ADI in favor of the
Company in the aggregate principal amount of $100,000 will be recharacterized as
an expense of the Company.
Each non-interested member of the Special Committee will be paid a special
bonus of $20,000, other than Messrs. Weiss and Komer who will receive a special
bonus of $10,000, if a transaction is consummated as compensation for their
extraordinary efforts and time dedicated to the Company over their tenure. Each
non-employee director has also received his regular fees (an aggregate of $8,400
per person) in connection with the Special Committee and Board meetings attended
in 1997 as well as the payment of his $12,500 annual retainer fee for the
previous twelve months for his services historically paid on the date of the
Company's annual meeting.
There are no other material benefits, other than those previously described
in "SPECIAL FACTORS--Interests of Certain Persons," to be received by Messrs.
Komer, Calabro and Wyckoff relating to the Merger and the Asset Sale and no
other insider of the Company will receive any material benefits from this Merger
and the Asset Sale.
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<PAGE>
PRICE RANGE OF SHARES AND DIVIDENDS
The Shares trade on the Nasdaq under the symbol "ARTG". The following table
sets forth, for the fiscal quarters indicated, the high and low sales price per
Share on Nasdaq. All prices set forth are as reported in published financial
sources:
<TABLE>
<CAPTION>
MARKET PRICE
------------------------
<S> <C> <C>
HIGH LOW
----- ---
1996:
First Quarter.............................................................. 3 23/8
Second Quarter............................................................. 4 1/1 23/4
Third Quarter.............................................................. 5 7/ 33/8
Fourth Quarter............................................................. 5 5/1 41/4
1997:
First Quarter.............................................................. 5 41/4
Second Quarter............................................................. 5 3/1 313/16
Third Quarter.............................................................. 4 5/ 33/8
Fourth Quarter............................................................. 5 3/ 41/4
1998:
First Quarter.............................................................. 5 1/ 51/32
Second Quarter (through April 15, 1998).................................... 5 9/1 515/32
</TABLE>
On December 19, 1997, the last full trading day prior to the announcement of
the terms of the Merger Agreement and the Asset Purchase Agreement, the reported
closing sales price per Share on Nasdaq was $4.75. On April 15, 1998 the last
full trading day prior to the filing of this proxy statement, the reported
closing sales price per share on Nasdaq was $5 1/2. There are no material
restrictions upon the Company's ability to pay dividends to its Stockholders and
the Company has not paid dividends to its Stockholders in fiscal year-end 1994
through 1997. STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR
THE SHARES.
RIGHTS OF OBJECTING STOCKHOLDERS
APPRAISAL RIGHTS OF DISSENTING STOCKHOLDERS
The following summary of the material provisions of Delaware law relating to
the appraisal rights of Stockholders is qualified in its entirety by reference
to the provisions of Section 262 of the DGCL set forth in full as Annex V to
this Proxy Statement.
Holders of record of shares of Common Stock (each, a "Share") who comply
with the applicable procedures summarized herein will be entitled to appraisal
rights under Section 262 of the DGCL. A person having a beneficial interest in
shares of Common Stock held of record in the name of another person, such as a
broker or nominee, must act promptly to cause the record holder to follow the
steps summarized below properly and in a timely manner to perfect appraisal
rights.
ALL REFERENCES IN SECTION 262 AND IN THIS SUMMARY TO A "STOCKHOLDER" ARE TO
THE RECORD HOLDER OF SHARES OF COMMON STOCK AS TO WHICH APPRAISAL RIGHTS ARE
ASSERTED. VOTING AGAINST, ABSTAINING FROM VOTING OR FAILING TO VOTE ON APPROVAL
AND ADOPTION OF THE MERGER AGREEMENT WILL NOT CONSTITUTE A DEMAND FOR APPRAISAL
WITHIN THE MEANING OF SECTION 262 OF THE DGCL.
Stockholders who follow the procedures set forth in Section 262 may receive,
in lieu of the $5.70 cash per share of Common Stock to be paid in the Merger, a
cash payment equal to the "fair value" of their Shares, exclusive of any element
of value arising from the accomplishment or expectation of the Merger, together
with a fair rate of interest, if any, as determined by the Court of Chancery.
Such fair value is to be
37
<PAGE>
determined by judicial appraisal and could be more than, the same as, or less
than, the Merger Consideration. The statutory right of appraisal granted by
Section 262 is subject to strict compliance with the procedures set forth below.
Failure to follow any of these procedures may result in a termination or waiver
of appraisal rights under Section 262.
To be entitled to receive payment of the fair value of the shares of Common
Stock, a stockholder (i) must file a written demand for appraisal of his or her
shares of Common Stock with the company prior to the voting by Stockholders on
the Merger Agreement at the Meeting (such demand must reasonably inform the
Company of the identity of the stockholder and that the stockholder intends
thereby to demand an appraisal of his or her shares of Common Stock); (ii) must
not vote his or her shares of Common Stock in favor of approval and adoption of
the Merger Agreement; and (iii) must have his or her shares of Common Stock
valued in an appraisal proceeding, as described below. A proxy or vote against
approval and adoption of the Merger Agreement will not satisfy the requirement
that a stockholder file a written demand for appraisal as set forth above. The
requirement of a written demand is separate from, and should not be confused
with, the requirement that a stockholder not vote in favor of approval and
adoption of the Merger Agreement. A failure to vote on the Merger Agreement will
not be construed as a vote in favor of approval and adoption of the Merger
Agreement and will not constitute a waiver of a stockholder's rights of
appraisal. A stockholder who returns a signed proxy indicating that he or she
abstains from voting will similarly not waive his or her rights of appraisal.
However, because a proxy signed and left blank will, unless properly revoked, be
voted in favor of approval and adoption of the Merger Agreement, a stockholder
who returns a signed proxy left blank will waive his or her rights of appraisal.
Therefore, a stockholder electing to exercise appraisal rights who votes by
proxy must not leave his or her proxy blank, but must either vote against
approval and adoption of the Merger Agreement or abstain from voting.
A holder of shares of Common Stock wishing to exercise such holder's
appraisal rights must be the record holder of such shares of Common Stock on the
date the written demand for appraisal is made and must continue to hold such
Shares of record until the Effective Time of the Merger. Accordingly, a holder
of shares of Common Stock who is the record holder of shares of Common Stock on
the date the written demand for appraisal is made, but who thereafter transfers
such Shares prior to the Effective Time of the Merger, will lose any right to
appraisal in respect of such shares of Common Stock.
Only a holder of record of shares of Common Stock is entitled to assert
appraisal rights for the shares of Common Stock registered in that holder's
name. A demand for appraisal should be executed by or on behalf of the holder of
record, fully correctly, as such holder's name appears on such holder's stock
certificates. If the shares of Common Stock are owned of record in a fiduciary
capacity, such as by a trustee, guardian or custodian, execution of the demand
should be made in that capacity, and if the shares of Common Stock are owned of
record by more than one person as in a joint tenancy or tenancy in common, the
demand should be executed by or on behalf of all joint owners. An authorized
agent, including an agent for two or more joint owners, may execute a demand for
appraisal on behalf of a holder of record; however, the agent must identify the
record owner or owners and expressly disclose the fact that, in executing the
demand, the agent is agent for such owner or owners. A record holder such as a
broker who holds shares as nominee for several beneficial owners may exercise
appraisal rights with respect to the shares held for one or more beneficial
owners while not exercising such rights with respect to the shares held for
other beneficial owners; in such case, the written demand should set forth the
number of shares as to which appraisal is sought, and where no number of shares
of Common Stock is expressly mentioned the demand will be presumed to cover all
shares of Common Stock held in the name of the record owner. Stockholders who
hold their shares of Common Stock in brokerage accounts or other nominee forms
and who wish to exercise appraisal rights are urged to consult with their
brokers to determine the appropriate procedures for the making of a demand for
appraisal by such a nominee.
If the Merger Agreement is approved and adopted by the Stockholders, the
Company or the Surviving Corporation, as the case may be, will send a notice,
either before the Effective Time or within ten days thereafter, stating that
appraisal rights are available to each stockholder who has filed an adequate
written
38
<PAGE>
demand for appraisal with the Company and who has not voted in favor of approval
and adoption of the Merger Agreement. Within 120 days after the Effective Time,
the Company or any stockholder seeking appraisal rights may file a petition in
the Court of Chancery demanding a determination of the value of the shares of
Common Stock of all Stockholders seeking appraisal rights. The Company is under
no obligation, and has no present intention, to file such a petition, and all
Stockholders seeking to exercise appraisal rights should initiate all necessary
action with respect to the perfection of their appraisal rights within the time
periods and in the manner prescribed in Section 262. Within 120 days after the
Effective Time, any stockholder who has complied with the provisions of Section
262, upon written request, shall be entitled to receive from the Company a
statement setting forth the aggregate number of Shares not voted in favor of
approval and adoption of the Merger Agreement and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares of Common Stock. Such written statement must be mailed to any such
stockholder within ten days after his or her written request for such a
statement is received by the Company or within ten days after expiration of the
period for delivery of demands for appraisal under Section 262(d), whichever is
later.
If a petition for appraisal is timely filed, the Court of Chancery will
conduct a hearing on such petition to determine whether the Stockholders seeking
appraisal rights have complied with Section 262 and have thereby become entitled
to appraisal rights. The Court of Chancery will then determine the fair value of
the shares of Common Stock exclusive of any element of value arising from the
expectation or accomplishment of the Merger, but including a fair rate of
interest, if any, to be paid on the amount determined to be the fair value. In
determining fair value, the Court of Chancery is to take into account all
relevant factors. Stockholders considering appraisal should bear in mind that
the fair market value of their Shares determined under Section 262 could be more
than, the same as, or less than, the consideration they will receive pursuant to
the Merger Agreement if they do not seek appraisal of their shares of Common
Stock, and that the written opinion of PaineWebber set forth as Annex IV hereto
is not necessarily an opinion regarding fair value under Section 262. The
Delaware Supreme Court has stated that "proof of value by any techniques or
methods which are generally considered acceptable in the financial community and
otherwise admissible in court" should be considered in the appraisal
proceedings.
The Chancery Court will determine the amount of interest, if any, to be paid
upon the amounts to be received by persons whose Shares have been appraised. The
costs of the appraisal proceeding may be assessed against one or more parties to
the proceeding as the Court of Chancery may consider equitable. Upon application
by a stockholder, the Court of Chancery may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceedings (including, without limitation, reasonable attorneys' fees and the
fees and expenses of experts) to be charged pro rata against the value of all of
the Shares entitled to an appraisal.
A stockholder will fail to perfect his or her right of appraisal if he or
she (i) does not deliver a written demand for appraisal to the Company prior to
the vote for approval and adoption of the Merger Agreement, (ii) votes his or
her Shares in favor of approval and adoption of the Merger Agreement, (iii) does
not file a petition for appraisal within 120 days after the Effective Time, or
(iv) delivers to the Company both a written withdrawal of his or her demand for
appraisal and an acceptance of the terms of the Merger Agreement, except that
any such attempt to withdraw such demand not made within 60 days after the
Effective Time requires the written approval of the Company. If any stockholder
who properly demands appraisal of such stockholder's shares of Common Stock
under Section 262 fails to perfect, or effectively withdraws or loses, such
stockholder's right to appraisal as provided in (iii) or (iv) above, the shares
of Common Stock of such stockholder will be converted into the right to receive
the Merger Consideration receivable with respect to such shares of Common Stock
in accordance with the Merger Agreement.
If an appraisal proceeding is properly instituted, such proceeding may not
be dismissed as to any stockholder who has perfected his or her right of
appraisal without the approval of the Court of Chancery, and any such approval
may be conditioned on such terms as the Court of Chancery deems just.
39
<PAGE>
After the Effective Time, no stockholder who has demanded appraisal rights
will be entitled to vote his or her Shares for any purpose or to receive
dividends on, or other distributions in respect of, such shares of Common Stock
(except dividends or distributions payable to Stockholders as of a record date
prior to the Effective Time).
Delaware courts have decided that the statutory appraisal remedy, depending
on factual circumstances, may or may not be a dissenter's exclusive remedy.
Several decisions by the Delaware courts have held that a controlling
stockholder of a company involved in a merger has a fiduciary duty to the other
stockholders which requires that the merger be "entirely fair" to such other
stockholders. In determining whether a merger is fair to minority stockholders,
the Delaware courts have considered, among other things, the type and amount of
consideration to be received by stockholders and whether there was fair dealing
among the parties. The Delaware Supreme Court stated in WEINBERGER V. UOP, INC.,
457 A.2d 701, 714 (1983), that although the remedy ordinarily available in a
merger that is found not to be "fair" to minority stockholders is the right to
appraisal described above, such appraisal remedy may not be adequate "in certain
cases, particularly where fraud, misrepresentation, self-dealing, deliberate
waste of corporate assets, or gross and palpable overreaching are involved," and
that in such cases the Chancery Court would be free to fashion any form of
appropriate relief.
FAILURE BY A STOCKHOLDER TO FOLLOW THE STEPS REQUIRED BY DELAWARE LAW FOR
PERFECTING RIGHTS OF APPRAISAL MAY RESULT IN THE LOSS OF SUCH RIGHTS. IN VIEW OF
THE COMPLEXITY OF THESE PROVISIONS OF THE DELAWARE GENERAL CORPORATION LAW,
STOCKHOLDERS WHO ARE CONSIDERING DISSENTING FROM THE APPROVAL AND ADOPTION OF
THE MERGER AGREEMENT AND EXERCISING THEIR RIGHTS UNDER SECTION 262 SHOULD
CONSULT THEIR LEGAL ADVISORS.
All written communications from Stockholders with respect to the exercise of
appraisal rights should be mailed to Artistic Greetings Incorporated, One Komer
Center, Elmira, New York 14902, Attention: Assistant Secretary.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material United States Federal
income tax consequences of the Merger to Stockholders. It is based upon laws,
regulations, rulings and judicial decisions now in effect. It does not address
all aspects of Federal income taxation that may be relevant to a particular
Stockholder in light of that Stockholder's personal circumstances, nor does it
address Federal income tax consequences to types of taxpayers subject to special
treatment under the Federal income tax laws (E.G., life insurance companies,
tax-exempt organizations, foreign taxpayers, securities dealers, or persons who
have entered into hedging transactions with respect to the Common Stock or who
hold the Common Stock as part of a conversion transaction, straddle or otherwise
as part of an integrated investment), nor does it address any aspect of state,
local, foreign or other tax laws. It is assumed that the shares of Common Stock
are held as capital assets (within the meaning of Section 1221 of the Code) by a
United States person I.E., (i) an individual who is a citizen or resident of the
United States; (ii) a corporation, limited liability company, partnership or
other business entity created in, or organized under, the laws of the United
States or any state or political subdivision thereof; (iii) an estate the income
of which is subject to United States Federal income taxation regardless of its
source; or (iv) a trust if a court within the United States is able to exercise
primary jurisdiction over its administration and one or more United States
persons have the authority to control all of its substantial decisions.
The receipt of cash for Common Stock pursuant to the Merger or pursuant to
the exercise of appraisal rights will be a taxable transaction to a Stockholder
for Federal income tax purposes under the Code, and also may be a taxable
transaction under applicable state, local, foreign and other tax laws. In
general, for Federal income tax purposes, a stockholder will recognize gain (or
loss) equal to the amount by which the cash received in exchange for the Common
Stock exceeds (or is exceeded by) the tax basis for such Common Stock. Such gain
or loss generally will be capital gain or loss. In the case of individuals, such
40
<PAGE>
capital gain will be subject to maximum Federal income tax rates of 20% for
Common Stock held for more than 18 months and 28% for Common Stock held for more
than one year but for not more than 18 months.
The foregoing discussion may not be applicable to Stockholders who acquired
their Common Stock pursuant to the exercise of options or other compensation
arrangements or who are not citizens or residents of the United States or who
are otherwise subject to special tax treatment under the Code.
Cash payments to Stockholders pursuant to the Merger may be subject to a
back-up withholding tax at a rate of 31% on the gross amount of such payments
unless the stockholder has complied with certain reporting and/or certification
procedures. The Letter of Transmittal, which will be sent to the former
Stockholders of the Company following the Effective Time if the Merger is
consummated, will include a substitute Form W-9 on which Stockholders can
provide the information required to avoid the backup withholding provisions of
federal income tax law. Any amount withheld from a stockholder under the backup
withholding rules will be allowed as a credit against such stockholder's Federal
income tax liability and may entitle the stockholder to a refund, provided that
the required information is timely furnished to the Internal Revenue Service.
Stockholders should consult their tax advisors regarding the application of
information reporting and backup withholding in their particular circumstances
and the availability of an exemption therefrom if the Stockholders cannot or do
not make the certifications required by the substitute Form W-9.
EACH STOCKHOLDER IS URGED TO CONSULT SUCH STOCKHOLDER'S OWN TAX ADVISOR TO
DETERMINE THE PARTICULAR TAX CONSEQUENCES TO SUCH STOCKHOLDER OF THE MERGER IN
VIEW OF THE STOCKHOLDER'S OWN PARTICULAR CIRCUMSTANCES.
REGULATORY APPROVALS
STATE TAKEOVER LAWS. A number of states throughout the United States have
enacted takeover statutes that purport, in varying degrees, to be applicable to
attempts to acquire securities of corporations that are incorporated or have
assets, stockholders, executive officers or places of business in such states.
In EDGAR V. MITE CORP., the Supreme Court of the United States held that the
Illinois Business Takeover Act, which involved state securities laws that made
the takeover of certain corporations more difficult, imposes a substantial
burden on interstate commerce and therefore was unconstitutional. In CTS CORP.
V. DYNAMICS CORP. OF AMERICA, however, the Supreme Court of the United States
held that a state may, as a matter of corporate law and, in particular, those
laws concerning corporate governance, constitutionally disqualify a potential
acquirer from voting on the affairs of a target corporation without prior
approval of the remaining stockholders, provided that such laws were applicable
only under certain conditions.
Section 203 of the DGCL limits the ability of a Delaware corporation to
engage in business combinations with "interested stockholders" (defined as any
beneficial owner of 15% or more of the outstanding voting stock of the
corporation) unless, among other things, the corporation's board of directors
has given its prior approval to either the business combination or the
transaction which resulted in the stockholder becoming an "interested
stockholder." The Company has represented in the Merger Agreement that it
properly approved, among other things, the Merger Agreement and the Merger for
purposes of Section 203 of the DGCL.
Based on information supplied by the Company, MDC does not believe that any
other state takeover statutes apply to the Merger. MDC has not currently
complied with any state takeover statute or regulation. MDC reserves the right
to challenge the applicability or validity of any state law purportedly
applicable to the Merger Agreement or the Merger and any action taken in
connection with the Merger Agreement or the Merger is not intended as a waiver
of such right. If it is asserted that any state takeover statute is applicable
to the Merger Agreement or the Merger and an appropriate court does not
determine that it is inapplicable or invalid as applied to the Merger Agreement
or the Merger, the Merger will not be consummated.
41
<PAGE>
ANTITRUST. Under the HSR Act and the rules promulgated thereunder by the
Federal Trade Commission (the "FTC"), the Merger may not be consummated until
notifications have been given and certain information has been furnished to the
FTC and the Antitrust Division of the Department of Justice (the "Antitrust
Division") and the applicable waiting period has expired or been terminated.
Following the filing by the Company and MDC of Notification and Report Forms
under the HSR Act with the FTC and the Antitrust Division, on March 3, 1998, the
FTC informed the Company of the early termination of the HSR waiting period. At
any time before or after consummation of the Merger, notwithstanding expiration
of the waiting period under the HSR Act, the Antitrust Division or the FTC could
take such action under the antitrust laws as it deems necessary or desirable in
the public interest, including seeking to enjoin the consummation of the Merger
or seeking divestiture of shares acquired by MDC or of substantial assets of the
Company. Private parties may also seek to take legal action under the antitrust
laws under certain circumstances.
Based on information available to them, the Company and MDC believe that the
Merger can be effected in compliance with federal and state antitrust laws.
However, there can be no assurance that a challenge to the consummation of the
Merger on antitrust grounds will not be made or that, if such a challenge were
made, the Company and MDC would prevail or would not be required to accept
certain adverse conditions in order to consummate the Merger.
RECENTLY ISSUED ACCOUNTING STANDARDS
SFAS NO. 130
In June 1997, the FASB issued Statement of Financial Accounting Standard No.
130, 'Reporting Comprehensive Income', which is applicable to the Company
effective January 1, 1998. This Statement establishes standards for reporting
and display of comprehensive income and its components (revenue, expenses, gains
and losses) in a full set of general purpose financial statements. Comprehensive
income is defined as the change in the equity of a business enterprise during a
period from transactions and other events and circumstances from nonowner
sources. It includes all changes in equity during a period (from net income and
other sources) except those resulting from investments by owners and
distributions to owners. Management believes that the adoption of this statement
will not have a material effect on the Company's consolidated results of
operations or financial position.
SFAS NO. 131
In June 1997, the FASB issued Statement of Financial Accounting Standard No.
131, 'Disclosures about Segments of an Enterprise and Related Information',
which is applicable to the Company effective January 1, 1998. This Statement
requires that a public business enterprise report financial and descriptive
information about its reportable operating segments. Operating segments are
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. The Statement
requires disclosure of a measure of segment profit or loss, certain specific
revenue and expense items, and segment assets. It requires reconciliations of
total segment revenues, total segment profit or loss, total segment assets, and
other amounts disclosed for segments to corresponding amounts in the
enterprise's general purposes financial statements. It requires that all public
business enterprises report information about the revenues derived from the
enterprise's products or services, about the countries in which the enterprise
earns revenues and holds assets, and about major customers regardless of whether
that information is used in making operating decisions. Management believes that
the adoption of this statement will not have a material effect on the Company's
consolidated results of operations or financial position.
42
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data of the Company set forth below
(dollars stated in thousands, except per share data) for each of the years in
the five-year period ended December 31, 1997 have been derived from the
Company's audited consolidated financial statements for such periods. More
comprehensive financial information for the three-year period ended December 31,
1997 is included in reports on Form 10-K for such years filed by the Company
with the Commission, which are available as described in "AVAILABLE INFORMATION"
and "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE." The following summary is
qualified by reference to, and should be read in conjunction with, such audited
financial statements including the Report of Independent Public Accountants,
which contains an explanatory paragraph indicating that there is a substancial
doubt about the Company's ability to continue as a going concern, accompanying
the Company's Annual Report on Form 10-K for the year ended December 31, 1997
attached hereto as Annex VI.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1997 1996 1995 1994 1993
---------------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net Sales.................................... $101,499 $98,911 $97,042 $91,121 $78,442
Net Income(Loss)............................. $(1,064) $2,675 $(9,952) $(426) $1,163
BALANCE SHEET DATA:
Total assets................................. $31,858 $28,998 $38,654 $37,909 $31,733
Current liabilities.......................... $19,390 $12,915 $16,998 $16,852 $9,198
Long-term debt............................... $936 $1,069 $9,593 $1,559 $1,848
Stockholders' equity......................... $11,249 $12,288 $9,548 $19,308 $20,295
PER SHARE DATA:
Net income (loss)
per share.................................. $(0.17) $0.42 $(1.57) $(0.07) $0.20
Ratio of earnings to fixed charges........... 2.64x 5.40x 97.81x (3.21)x 8.53x
Book value per common share.................. $1.86 $2.11 $1.64 $3.32 $3.50
<CAPTION>
Weighted average number of shares
outstanding................................ 6,090,023 6,349,318 6,331,688 5,912,136 5,957,569
<S> <C> <C> <C> <C> <C>
OTHER DATA:
Cash Flows from Operations
(Net Cash)................................. $1,655 $11,500 $(4,275) $(1,902) $2,697
Cash provided by (used in) investing
activities................................. $3,328 $(1,747) $(481) $(2,690) $(1,691)
Cash provided by (used in) financing
activities................................. $1,734 $(10,218) $5,136 $4,192 $(1,013)
</TABLE>
43
<PAGE>
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma financial statements are presented to
reflect the division of the assets and liabilities and operations of the Company
between those to be acquired by ADI in the Asset Sale and those to be acquired
by MDC pursuant to the Merger. The statement of operations assumes that the
division took place at the beginning of the period presented. The balance sheet
assumes that division took place on December 31, 1997. The unaudited pro forma
statements of operations for the fiscal year ended 1997 reflect certain
adjustments related to the proposed transactions and are presented for
illustrative purposes only. The following statements are not to be construed as
indicative of the results of operations or the financial position which would
have occurred had the division of the Company been effected at the beginning of
the period presented. Further, the values ascribed to assets for book purposes
may not be indicative of realizable value. The basis for this presentation is an
allocation of assets, liabilities, income and expenses which the Company
believes to be reasonable, but should not be construed as indicative of the
results of operations or financial position of the separate businesses indicated
as stand-alone entities. The unaudited pro forma financial statements should be
read in conjunction with the historical financial statements of the Company,
including the notes thereto, incorporated by reference in this Proxy Statement.
See "AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE."
44
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PRO FORMA
PRO FORMA PRO FORMA PRO FORMA ADJUSTED
ACTUAL P&C BUSINESSES CHECK BUSINESS ADJUSTMENTS CHECK BUSINESS
---------- ---------------- -------------- ----------- --------------
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA
AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net Sales........................... $ 101,499 $ 55,174 $ 46,325 -- $ 46,325
Cost of Sales....................... 45,038 21,709 23,329 -- 23,329
---------- ---------------- -------------- ----------- --------------
Gross Profit........................ 56,461 33,465 22,996 -- 22,996
Selling, Advertising, General and
Administrative Expenses........... 56,607 35,861 20,746 2,500(1) 23,246
---------- ---------------- -------------- ----------- --------------
Income (Loss) from Operations....... $ (146) $ (2,396) $ 2,250 $ (2,500) $ (250)
Other Income (Expense):
Interest and dividend income........ 84 0 84 -- 84
Net unrealized gain (losses) on
trading securities................ 32 0 32 -- 32
Net unrealized gain (losses) on
marketable securities............. 340 0 340 -- 340
Loss on disposition of fixed
assets............................ (897) (897) 0 -- 0
Interest expense.................... (280) (9) (271) -- (271)
Other............................... 56 56 0 -- 0
---------- ---------------- -------------- ----------- --------------
Income (Loss) before Income Taxes... (811) (3,246) 2,435 (2,500) (65)
Provision for (benefit for) Income
Taxes............................. 253 0 253 901 1,154
---------- ---------------- -------------- ----------- --------------
Net Income (Loss)................... $ (1,064) $ (3,246) $ 2,182 $ (3,401) $ (1,219)
---------- ---------------- -------------- ----------- --------------
Net Income (Loss) per common share
and common equivalent share....... $ (0.17) $ (0.53) $ 0.36 $ (.50) $ (0.20)
Weighted average number of common
and common equivalent shares
outstanding....................... 6,090,023 6,090,023 6,090,023 6,090,023 6,090,023
</TABLE>
The unaudited pro forma division of the Company's 1997 Statement of Operations
reflects an allocation of the items of income and expense on the books of the
Company on December 31, 1997 between the Check Business to be acquired by MDC
pursuant to the Merger and the P&C Businesses to be acquired by ADI in the Asset
Sale based on a hypothetical determination of the income and expense items which
would be attributable to each such business for such year. In this regard 100%
of interest and dividend income, net unrealized gain on trading securities, net
unrealized gain on marketable securities, provision for income taxes and
interest expense other than interest on the UDC and Elmira mortgages have been
allocated to the Check Business; 100% of loss on disposition of fixed assets
(all of which will be acquired by ADI), other income and interest expense
attributable to the UDC and Elmira mortgages have been allocated to the P&C
Businesses; and the remainder of the Company's income and expenses have been
allocated by determining the amount of each such item attributable to the Check
Business and by allocating the balance of each such item (including cost of
sales and Selling, Advertising, General and Administrative Expenses) to the P&C
Businesses. Such allocations should not be construed as indicative of actual
results had either the P&C Businesses or the Check Business been conducted as
independent, stand-alone businesses for the period presented.
(1) Reflects severance ($1,500), legal ($750), accounting ($50), printing ($100)
and other ($100) expenses incurred by the Company with respect to its
obligations and commitments to ADI. Certain of these expenses benefit both
the Company and ADI; the extent of this overlap is not readily quantifiable.
45
<PAGE>
UNAUDITED PRO FORMA BALANCE SHEET
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
-------------------------------------------
<S> <C> <C> <C>
PRO FORMA PRO FORMA
ACTUAL P&C BUSINESSES CHECK BUSINESS
--------- ---------------- --------------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and Equivalents.............................................. $ 160 $ 0 $ 160
Marketable Securities:
Trading, at market (cost $1,230)................................ 1,403 0 1,403
Available for sale, at market (cost $408)....................... 458 0 458
Trade Receivables (net of allowance for doubtful accounts of
$271)........................................................... 2,343 2,107 236
Income taxes receivable........................................... 420 0 420
Inventory......................................................... 2,518 2,461 57
Prepaid advertising............................................... 3,492 3,344 148
Prepaid expenses and other current assets......................... 384 384 0
--------- ------- -------
Total Current Assets:............................................... 11,178 8,296 2,882
--------- ------- -------
Deferred advertising.............................................. 3,683 1,607 2,076
Property, plant and equipment, net................................ 16,301 16,301 0
Cash surrender value of life insurance (net of policy loans of
$0)............................................................. 629 629 0
Other assets...................................................... 67 0 67
--------- ------- -------
Total Assets:....................................................... $ 31,858 $ 26,833 $ 5,025
--------- ------- -------
LIABILITIES
Current Liabilities:
Current portion of long-term debt................................. 4,494 145 4,349
Accounts payable, trade (includes checks-in- transit of $2,485)... 12,804 6,482 6,322
Accrued liabilites................................................ 1,521 1,431 90
Customer advances................................................. 571 175 396
Income taxes payable.............................................. 0 0 0
--------- ------- -------
Total Current Liabilities:.......................................... $ 19,390 $ 8,233 $ 11,157
--------- ------- -------
Long-term debt, net of current portion............................ 936 936 0
Other liabilities................................................. 283 283 0
--------- ------- -------
Total Liabilities:.................................................. $ 20,609 $ 9,452 $ 11,157
--------- ------- -------
STOCKHOLDERS' EQUITY, NET:.......................................... $ 11,249 $ 17,381 $ (6,132)
--------- ------- -------
Total Liabilities and Stockholders' Equity:......................... $ 31,858 $ 26,833 $ 5,025
--------- ------- -------
</TABLE>
The unaudited pro forma division of the Company's 1997 Balance Sheet
reflects an allocation of the assets and liabilities on the books of the Company
on December 31, 1997 between the Check Business to be acquired by MDC pursuant
to the Merger and the P&C Businesses to be acquired by ADI in the Asset Sale as
if the Asset Sale and the Merger had occurred on that date. In this regard 100%
of cash and equivalents, marketable securities, income tax receivables, other
assets (representing deposits and notes receivable allocable to the Check
Business) and long term debt other than the Company's UDC mortgage and City of
Elmira mortgage have been allocated to the Check Business; 100% of prepaid
expenses (representing expenses relating to property and computer equipment to
be acquired by ADI), property, plant and equipment, cash surrender value of life
insurance and the UDC and Elmira mortgages have been allocated to the P&C
Businesses; and the remainder of the Company's assets and liabilities have been
allocated based on the Company's reasonable assumption as to the business or
businesses to which they are attributable pursuant to the Asset Sale Agreement
and Merger Agreement.
46
<PAGE>
UNAUDITED PRO FORMA SALES DATA
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
-------------------------------------------
ACTUAL P&C BUSINESSES CHECK BUSINESS
---------- --------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Sales............................................................... $ 98,911 $ 55,811 $ 43,100
</TABLE>
AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
-------------------------------------------
ACTUAL P&C BUSINESSES CHECK BUSINESS
---------- --------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Sales............................................................... $ 97,042 $ 59,236 $ 37,806
</TABLE>
The unaudited pro forma division of the Company's 1996 and 1995 sales data
reflect an allocation of such item on the books of the Company on December 31,
1996 and December 31, 1995, respectively, between the Check Business to be
acquired by MDC pursuant to the Merger and the P&C Business to be acquired by
ADI in the Asset Sale. Such allocations should not be constructed as indication
of actual results had either the P&C Businesses or the Check Businesses been
conducted as independent stand-alone businesses for the periods presented.
47
<PAGE>
GOING CONCERN QUALIFICATION IN 1997 AUDIT REPORT
As described in the Financial Statements, the Company incurred a net loss of
$1,064 for the year ended December 31, 1997. This factor, among others, raises
substantial doubt about the Company's ability to continue as a going concern.
The Company's continuation as a going concern is dependent upon its ability to
generate sufficient cash flow to meet its obligations on a timely basis, to
comply with the terms of the Revolver, to obtain additional financing or
refinancing as may be required, and ultimately to obtain profitability. In light
of the Company's projected earnings and cash flow, management believes the
Company has sufficient financial resources to maintain its current level of
operations. However, cash generated from operations alone may not be sufficient
to repay the outstanding line of credit in the event of future covenant
violations, which would give the lender the right to call the obligation. There
can be no assurance that the Company will not have covenant violations in future
periods. In addition, based on the projected earnings, it is substantially
likely that the Company will violate the minimum tangible net worth covenant for
the first quarter of 1998. There can be no assurance that the lender will not
call the Revolver or if such obligation is called, that the Company will be in a
financial position to repay such obligations in such event.
Financial information is not available as of the date hereof to determine
compliance by the Company with the financial covenants in the Credit Agreement
for the three-month period ended March 31, 1998. Due to the foregoing, the
Company has not yet sought or received a waiver from Marine Midland Bank with
respect to the three-month period ended March 31, 1998.
48
<PAGE>
BUSINESS OF THE COMPANY
GENERAL
The Company sells, markets and manufactures domestically a broad range of
personalized products focused on three core business lines (i) personalized bank
checks ("Checks"), (ii) name and address products ("Personalized Products") and
(iii) gift items (some of which are personalized), greeting cards, apparel and
household consumable items ("Catalog Items"). The merchandise is sold via free
standing newspaper inserts ("FSIs"), co-op mailing programs ("Co-ops" and,
together with FSIs, "Mass Media") and catalogs throughout the United States. The
Company also generates revenues from personalized product and catalog
fulfillment services ("Fulfillment Services"), package insert programs ("PI
Programs") and mailing list rentals to other concerns ("List Rentals").
Additionally, the Company has initiated an advertising and sales campaign over
the Internet where its interactive, order-capable home page can be found at
www.artisticgreetings.com. The Company also markets certain of its merchandise
internationally in countries which include Canada, the United Kingdom (the
"U.K.") and Australia.
MARKETING AND PROMOTION
The Company's advertising efforts for its Checks and Personalized Products
are focused primarily on Mass Media. An exclusive agreement with Valassis
Communications, Inc. ("Valassis") provides the Company with a right of first
refusal to participate in Valassis FSI media publications distributed through
Sunday newspapers in 55 million homes across the country 48 weeks each year (the
"Advertising Agreement"). The Company considers this exclusive access to its
customers crucial to geographically and demographically targeting, and
profitably managing, its customer solicitation efforts. In particular, the
Advertising Agreement enables the Company to target its advertising and measure
response from customers in regions which have historically produced the highest
response rates for specific products, as well as determine which regions are
less suitable for the Company's solicitation efforts.
Since the early 1980's, Artistic has also participated in nationwide Co-op
mailing programs in order to enhance its domestic market penetration. Under
these programs, printed inserts advertising the Company's products are
distributed along with inserts of other participating marketers through the
mail. Additionally, the Company has been advertising in Co-op mailings in Canada
and Australia since 1993 and 1997, respectively, and PI Programs in the U.K.
since the late 1980's.
The Company also distributes its catalog, THE PERSONAL
TOUCH-Registered Trademark-, through the mail and in the Company's PI Program.
The PERSONAL TOUCH CATALOG-Registered Trademark- is a digest-size catalog of low
to middle-priced consumer products that mails monthly, with four distinct
seasonally thematic merchandise groupings (Spring, Summer, Fall and Holiday).
More than 90% of the 400,000 PERSONAL TOUCH CATALOG-Registered Trademark-
customers who have purchased merchandise from the catalog in the last 12 months
are middle to upper income bracket (average income above $50,000), educated
females between 25 and 55 years old. The catalog features personalized and
decorative labels, stationery, greeting cards, gifts, apparel and creative
accessories. The three major product groupings sold in the catalog are: (i)
utilitarian paper, labels, home/office paper and productivity tools, (ii)
licensed character items and (iii) natural-decoratively themed items such as
flowers, angels and animals.
The Company began to advertise its Checks on the World Wide Web in August
1994. The web pages have had the advantage of showing substantially all
available Artistic Check designs, and the Company has recently completed the
next step in an ongoing initiative to expand its Internet presence to include
Personalized Products, with an order-capable Internet server displaying a home
page at www.artisticgreetings.com.
CHECKS
GENERAL. Artistic Checks-Registered Trademark-, the Company's Check product
line, was initiated in August 1993 and was expanded in May 1995 through the
acquisition from Valassis of the assets of its direct-mail check
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operation, The Valcheck Company (the "Valcheck Acquisition"), which, like the
Company, had been engaged in the direct-mail check market (the "Direct-Mail
Channel"). The Valcheck Acquisition also added significantly to the Company's
check sales and added nearly one million names to its customer list. Check sales
represented 46% of the Company's 1997 net sales, compared with 44% and 39% in
1996 and 1995, respectively. Artistic currently subcontracts its check printing
through an arrangement with the John H. Harland Company ("Harland") at a
contractually-determined price per box of checks printed. For a further
description of this arrangement, see "Manufacturing--Checks."
MARKETPLACE. Management believes that the domestic market for personalized
bank checks in 1997 was approximately $2 billion in sales with checks being sold
through financial institutions (the "Bank Channel") representing 85% or $1.7
billion and the Direct-Mail Channel representing 15% or $300 million of the
total. The Company believes that the total market for checks in the United
States is growing at a 2% to 3% rate annually, which, management believes,
represents a diminishing per capita usage of checks as electronic banking and
debit card usage increases, offset by the growth in population of the United
States. The slow growth of the total check market does not, however, reflect
negatively on the Direct-Mail Channel which has seen growth rates averaging
10%-12% per year over the past five years, as consumers continue to recognize
the significant favorable price differential, convenience, variety of design and
high quality of checks offered through the Direct-Mail Channel.
The Direct-Mail Channel is fragmented with a trend toward consolidation
similar to that evidenced over the past five to seven years in the Bank Channel,
where regional-check marketers and manufacturers took advantage of economies of
scale by merging with larger companies like Deluxe Corporation ("Deluxe"),
Harland and Clarke American ("Clarke American"). Management believes that the
high solicitation costs of new customers in the Direct-Mail Channel favors
established, direct-mail check purveyors like Artistic over the long-term. This
advantage results from the costs of acquiring new customers being financed by
higher-margin check reorders for which the Company incurs virtually no
advertising expense, thereby increasing profitability and supporting the ongoing
expense of advertising campaigns for first-time customers. The largest
direct-mail check producer in the Direct-Mail Channel is Current, Inc., owned by
Deluxe, with an estimated 40% share of the Direct-Mail Channel in 1997. The
Company believes that its sales are approaching those of its nearest size
competitor, Checks In The Mail, a subsidiary of Clarke-American, and that both
companies are vying for the number two position in the Direct-Mail Channel, with
another approximate 33% share of the Direct-Mail Channel between them in 1997.
Management believes that the remaining share of the Direct-Mail Channel is
represented by numerous other smaller companies.
STRATEGY. In the Check business, management expects regular and predictable
growth to occur in initial customer orders as advertising continues at levels
similar to those experienced in 1996, with higher growth in revenue from the
check-reorder stream as customers acquired previously return to Artistic to
replenish their check supplies at the Company's low-reorder prices.
BUSINESS CHECKS. The Company began a campaign in 1997 for the sale of
three-to-a page business and desk checks ("Desk Checks") in its mass media
advertising vehicles. The Company believes that the sale of Desk Checks
represent 8% of the total check market and that such percentage will continue to
grow as consumers recognize Desk Checks as a convenient and efficient
alternative to the traditional pocket check.
PERSONALIZED PRODUCTS
GENERAL. Personalized Products consist primarily of labels, miniprinters,
stamps and other lower-price point items, personalized in high volume for
millions of the Company's customers. The shipment of these approximately 3
million units in 1997 has the additional benefit to the Company of providing
"ride-along" opportunities for the Company's own advertising material, including
its catalog, as well as the sale of the space in those packages to third parties
in the Company's PI Program. See "--PI Program."
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Personalized Products sales represented 33% of the Company's 1997 net sales,
compared with 37% and 45% in 1996 and 1995, respectively.
Personalized Products include labels, pens, pencils, stationery, calling
cards, self-inking stampers, other stamps, memo pads, keychains, nameplates,
letter openers, hand embossers, luggage tags and greeting cards. The Company
also markets personalized products with images such as Looney Toons-TM- and Star
Trek-TM- licensed from Warner Brothers and Viacom Consumer Products,
respectively, among others.
MARKETPLACE. Management believes that the approximate domestic market size
for this segment in 1997 was approximately $250 million in sales. Artistic's
1997 sales of $34 million in this segment represented an approximate 13% market
share, making it a major competitor along with Current and Concepts Direct,
Inc., among others, in this category. Management believes that the Personalized
Product market has growth potential of approximately 3%-5% per annum, which
would tend to minimize the entrance of new participants. There exists severe
price competition in this product line as the customers' primary focus in their
purchase decision for these highly consumable products is price.
Success in this segment is driven partially by the ability to utilize
existing printing technologies and Mass Media marketing techniques to access new
market segments, by leveraging database expertise and by targeting new customers
and repeat buyers. The Company is redesigning the management of its database
with the assistance of a third-party partner whose expertise and advice the
Company believes should enable it to more scientifically determine, among other
things, Artistic's "best" customers across its name lists and allow the Company
to cross-sell and more carefully deliver its product offerings to such proven
buyers. See "--List Rentals."
STRATEGY. In the P&C Businesses, management expects to maintain sales at
traditional levels in the United States, while testing the international
marketplaces in such areas as the U.K. and Australia. The Company's strategy is
to attempt to replicate abroad its domestic success with the Personalized
Products line by focusing on new customers who do not have readily available
access to the simplicity and convenience of labels, miniprinters and other
personalized products, which the Company can manufacture and ship quickly and
efficiently. An added benefit of the international marketplace is the Company's
ability to introduce and market its Personalized Products at higher price points
than are available domestically, potentially improving overall Company margins.
CATALOG
GENERAL. More than ten years ago, the Company began a catalog solicitation
program as a tool to market the Company's Personalized Products and broaden the
number of products sold, as well as to attract a more upscale market with higher
margin merchandise and to increase its mail-order customer base. The Company
distributes its catalog through direct mailings to its own customers, to
customers whose names are rented from mailing lists and by inclusion of its
catalog in each of the millions of boxes shipped in the Company's PI Programs
each year, as well as in orders shipped by other catalog and merchandise
mailers. In 1997 Artistic shipped more than 23 million catalogs and expects to
distribute 3% less in 1998. Catalog sales represented 18% of the Company's 1997
net sales, compared with 15% and 10% in 1996 and 1995, respectively.
MARKETPLACE. Management believes that the direct mail, Catalog Items market
has annual sales in excess of $800 million. With an approximate 2% market share,
the Company is a relatively small competitor but believes it has significant
growth opportunities in this market. Management believes that gift and
merchandise companies compete in three distinct demographic income-segments:
low-middle; upper-middle; and upper. Artistic's PERSONAL TOUCH
CATALOG-Registered Trademark- targets primarily upper-middle level income
customers, defined as those with household incomes higher than $50,000.
STRATEGY. In the Catalog Items business the Company is expecting sales
growth and improved margins from its newly refocused PERSONAL TOUCH
CATALOG-Registered Trademark-. The Company has redesigned the layout of the
PERSONAL
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TOUCH CATALOG-Registered Trademark- and has refined its product offerings to
further appeal to its upper-middle income and primarily female customers. The
Company is furthering its plan to build the circulation and sales performance of
the PERSONAL TOUCH CATALOG-Registered Trademark- by systematically accentuating
the most successful products and eliminating those evidencing the poorest
performance. Concurrently, management has determined to leverage its fixed
expenses of this well-established franchise by offering to provide marketing and
manufacturing fulfillment services to other catalog merchants--primarily in the
nonprofit sector--where the economies of developing new catalog programs are
somewhat more favorable than in the "for-profit" sector. For a further
description of these efforts, see "Fulfillment Services--HSUS."
While the Check and Personalized Product businesses employ more aggressive
pricing to attract customers, the Catalog Items market relies more on the
novelty, variety and quality of merchandise to secure orders. Sales tend to be
more seasonal with a large percentage of sales occurring during the October
through December period. However, with the strategic development of the breadth
of product in the PERSONAL TOUCH CATALOG-Registered Trademark- described above,
management expects to mitigate the historically cyclical nature of this
business.
FULFILLMENT SERVICES
GENERAL. The Company has a highly efficient, well-established marketing and
manufacturing infrastructure which it maintains to service its three core
business lines. This infrastructure is flexible, scaleable and lends itself to
providing additional capacity in a low-cost manner. The Company has contracted
to produce for Harland stampers and miniprinters ("Stamps") sold through
Harland's network of financial institutions (the "Harland Stamp Program") and
has completed the first year of a five-year arrangement with the Humane Society
of the United States ("HSUS") to market, merchandise and fulfill orders for its
HSUS catalog program (the "HSUS Catalog Program").
HARLAND STAMP PROGRAM. In furtherance of the Company's relationship with
Harland as described under "Manufacturing--Checks," Harland has contracted to
have the Company produce its requirements for "Slim Stamps" and for a high
percentage of Harland's requirements for the production of other Stamp products.
Harland receives orders for Stamps from its customers, processes the orders and
electronically transmits the personalized information directly to the Company's
manufacturing facility where the Stamps are produced and shipped, generally
within a twenty-four hour period. Although the revenue derived from the Harland
Stamp Program, which began in September of 1996, does not represent a
significant portion of the Company's sales, management believes that, because of
the success of the program, additional opportunities exist to produce more
Stamps and other products for Harland and other third parties.
HSUS CATALOG PROGRAM. The HSUS is an international, non-profit organization
devoted to the promotion, protection and the humane treatment of animals.
Artistic and the HSUS have agreed to a five-year program in which Artistic
provides its catalog expertise to create, design, merchandise and fulfill orders
in keeping with the mission-related activity of the HSUS. The Company is a
"turnkey" provider of these services to the HSUS. The services provided to the
HSUS have been developed with limited additional cost as the Company is
utilizing its existing capabilities for marketing, production and fulfillment of
its PERSONAL TOUCH CATALOG-Registered Trademark-.
PI PROGRAMS
The Company's PI Program is an important element in the continuing
development of its ability to access, service and solicit orders from its
established customer base of over 7 million buyers. The PERSONAL TOUCH
CATALOG-Registered Trademark- and other Artistic advertising material is
inserted in each package that is shipped to the Company's customers and provides
an inexpensive means of targeted solicitation to proven Artistic buyers that
results in high average order sizes and favorable response rates. As the
Company's customer base continues to grow through general sales activity, the PI
Program becomes a more powerful marketing asset of the Company. The Company also
derives revenue from the marketing of the space in its outgoing
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packages to other direct-mail participants for their advertising to "ridealong"
with the Company's shipments.
LIST RENTALS
Artistic has 400,000 PERSONAL TOUCH CATALOG-Registered Trademark- customers
who have purchased Catalog Items from the Company in the past 12 months, 3
million direct-to-consumer check customers, and 3.5 million customers of other
P&C Businesses advertised in Mass Media (collectively, the "Artistic Names"). As
of January 1, 1997, the Company contracted with Brigar Computer Services, Inc.
and Direct Tech, Inc. ("BDT") for the management and maintenance of the Artistic
Names. With support, training and advisement of the BDT consultants, Artistic
has been able to more effectively utilize its catalog database management,
statistical modeling and other file management techniques such as
recency-frequency-monetary file segmentation. As a result of the proven success
of sales through Artistic's in-house PI Program, management will continue to
focus on building package insert opportunities or the "back end," to leverage
the Artistic Names as that list continues to grow. Additionally, management is
focusing on cross-selling between the Artistic Names and the names of the
partners for whom it will conduct catalog fulfillment and other services. The
Company has also historically generated revenue from the rental and exchange of
the Artistic Names to and with other direct-mail companies. Management expects
that with its renewed focus on the maintenance of the Artistic Names, the
Company should derive additional revenue from such list rental activities as it
becomes easier to market the Artistic Names to other direct mailers who would
benefit from the characteristics of the Artistic customers represented by the
Artistic Names.
MANAGEMENT INFORMATION SYSTEMS
In 1996 the Company began an extensive effort to overhaul its entire
information systems infrastructure following a full-scale review of the
Company's system capabilities. The study determined that the Company was
enduring substantive capacity and reliability problems with its proprietary
software and hardware. After the completion of the systems assessment in July of
1996, a strategic information systems plan was developed and a software package
systems selection made. The following improvements have been accomplished in
1997
- Aging proprietary enterprise hardware was replaced with an open systems
architecture relying on common HP 9000 hardware and the UNIX operating
system, which has been networked with client/server enterprise
applications and PC based office automation tools.
- Proprietary financial and inventory systems were replaced with Lawson
Insight, a client/server based enterprise software package.
- Existing PICK operating system-based order processing protocol was
converted to run under the UNIX operating system on the new HP 9000
hardware.
- Use of stand-alone PC's was consolidated to a modem PC network running
standard Microsoft Office tools with e-mail and on-line calendaring and
scheduling systems for office automation.
From this enterprise-wide effort, the Company experienced enhanced access to
financial and operational information for decision making and control in terms
of both order content and timeliness of production and delivery, as well as a
flexible information system architecture that can be easily scaled upward to
support anticipated growth of the Company's business.
MANUFACTURING
CATALOG ITEMS AND PERSONALIZED PRODUCTS. The Company personalizes
approximately 90% of the products that it sells, while other-items are
manufactured by outside vendors, "pick-packed and shipped" at Artistic Plaza or
"drop-shipped" directly from the vendor. The Company has recently completed
renovation of Artistic Plaza, a 142,000 square foot facility, which provides the
necessary space for all
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current manufacturing operations of the Company. Management believes that
housing all manufacturing under one roof has decreased the cost of material
movement and increased productivity through more efficient utilization of its
personnel.
Manufacturing operations utilize some of the newest technology available for
production of the Company's products. Activities are monitored to provide
up-to-the-minute order tracking and training programs assure a qualified group
of employees. Quality assurance is maintained to provide the Company's customers
with the highest degree of accuracy of product received.
The Company maintains a wide variety of paper inventory to meet the demand
for its customers' orders. The Company has been better able to plan its
inventory replenishment cycle which reduces the commitment of large amounts of
working capital to inventory. These improvements have been accomplished through
major programs such as supplier partnerships, replenishment, just-in time
material management, consigned supply and inventory concepts, and strict quality
management practices. These approaches have resulted in reduced supply, freight
costs and scrap costs, and more efficient reporting and tracking procedures and
controls. The warehouse operations utilize efficient storage location and
handling methods to ensure security of materials, reduced loss and damage, and
ease of movement. These concepts add to a more efficient and low-cost operation.
CHECKS. On August 29, 1996, the Company contracted with Harland for the
production of the Company's requirements for checks for a period of seven years
(the "Harland Contract"). All orders for Check products are received by the
Company, processed and electronically transferred to a Harland production
facility in Denver, Colorado. Harland imprints the customers' checks and ships
the orders directly from its facilities for a contractually determined price per
box. The Harland Contract is a valuable asset to the Company as it provides for
virtually unlimited check production capacity with no significant limitations or
capital expenditure requirements which would otherwise be associated with the
growth of the Check product line. As a part of the Harland Contract, the Company
sold its check-production equipment to Harland at net book value resulting in no
gain or loss being recognized. The Company believes that its relationship with
Harland is positive.
BACKLOG/POSTAGE. The Company's backlog of orders is generally small in
relation to total sales and is not material to an understanding of the Company's
business. Additionally, rapid order fulfillment is one means by which the
Company can distinguish itself from its competition. Once a product is available
for shipment, the mode of transportation can be U.S. bulk mail, priority mail or
Federal Express. Because the Company is heavily involved in direct-mail
solicitations and shipping of orders, increases in U.S. Postal Service ("USPS")
rates affect its cost of doing business to a degree. Each time the USPS raises
postage rates, the Company evaluates the classes of postage affected, the rates
of increase and the potential impact on Company profits before it passes those
increases on to its customers. The Company ships 2% of its products through
private shipping providers such as Federal Express pursuant to contractual
arrangements. The cost of such shipping is, generally, passed on to the customer
and the Company is therefore not detrimentally affected by changes in price
structure under such contracts.
DATA ENTRY/ORDER PROCESSING. Over 6.9 million incoming orders were handled
in the Company's order processing department in 1997. Approximately 85% of the
Company's orders are received through the mail, with the remainder being
accepted via the telephones. The orders received through the mail are opened,
processed and batched for data entry usually within four hours of receipt from
the post office.
Two data entry sites, one at Artistic Plaza and the other in Binghamton, New
York, key and verify each order. Networked computers utilizing post-relational
database technology, along with fully integrated scanning devices, assist data
entry clerks in the entry of personalized and other information related to each
order. The speed and accuracy consistently exhibited by this department
contributes to a high level of customer satisfaction, as well as the retention
and growth of repeat customers.
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THE CALL CENTER. An increasing percentage of the Company's revenue is being
generated through its call center. In 1997, over 2.4 million telephone calls
were answered as compared to 3.2 million calls in 1996. Though the volume of
call has decreased, the overall revenue from the phone center has increased.
This is a direct reflection of the reduction of customer-service related phone
calls. With a base of over 12 million customers, along with a direct link to the
manufacturing floor, the customer service/call center representatives are able
to recall detailed order history, facilitating customer inquiries, reorders or
problem resolution. The use of cross-selling and "up-selling" techniques results
in the average order from the Company being 20-30% higher when placed over the
telephone versus when it is received through the mail.
RAW MATERIALS. The raw materials necessary for the Company's business are
principally paper, paper products and printing supplies. While increases in the
prices of these commodities affect the Company's cost of goods sold, such
increases likewise affect the Company's competition; thus, it is not uniquely
vulnerable to such changes. The Company historically has found the necessary
materials readily available in sufficient quantities.
EMPLOYEES. As of March 2, 1998, the Company had approximately 549
employees, including 477 hourly and 72 salaried workers. The Company maintains
strong employee relations which has helped to build a cohesive organization that
is focused, innovative and highly motivated. To enhance its workforce, Artistic
has established ongoing programs for employee training, safety and
communications. The Company believes its employee relations to be good. Artistic
has never experienced a work stoppage and its employees are not represented by a
labor union.
CERTAIN INFORMATION CONCERNING MDC, NEWCO AND ADI
Newco is a newly incorporated Delaware corporation and an indirect
wholly-owned subsidiary of MDC. To date, Newco has not conducted any business
other than in connection with the Merger. Accordingly, no meaningful financial
information with respect to Newco is available. The principal executive offices
of Newco are located at 45 Hazelton Avenue, Toronto, Ontario, Canada M5R 2E3.
MDC, an Ontario corporation, has its principal executive office at 45
Hazelton Avenue, Toronto, Ontario, Canada M5R 2E3. MDC is principally engaged in
the business of manufacturing security products, including stamps, checks,
tickets and plastic cards, operating a non-retail mail order catalog operation,
and a retail and catalog packaged seed company. In addition, MDC provides
advertising, marketing and design services and products.
ADI is a New York corporation formed by Thomas C. Wyckoff for the purpose of
acquiring the P&C Businesses of the Company. To date, ADI has not conducted any
business other than in connection with the Asset Sale. The principal executive
offices of ADI are located at 111 Drive A, Strathmont Park, Elmira, New York
14905.
STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
The 1998 Annual Meeting of Stockholders of the Company has been postponed
pending the results of the Special Meeting. In the event the Merger is not
consummated and the 1998 Annual meeting is held,
any stockholder proposal intended to be presented at the 1998 Annual Meeting
must have been received by the Company prior to date of this proxy statement in
order to be considered for inclusion in the proxy statement and form of proxy
for such meeting.
POSTPONEMENT OR ADJOURNMENT OF SPECIAL MEETING
The Company is also requesting the Stockholders to vote to allow the Company
to adjourn the Special Meeting if necessary to permit further solicitation of
proxies in the event there are not sufficient votes at
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the time of the Special Meeting to approve and adopt the Merger Agreement and
the Asset Purchase Agreement and to approve the Merger and the Asset Sale.
OTHER MATTERS
Management knows of no other matter which may properly be brought before the
Special Meeting. Under the Company's Bylaws, no business may be transacted at a
special meeting of Stockholders unless it is included in the notice of the
meeting. 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.
INDEMNIFICATION FOR FEDERAL SECURITIES LAW VIOLATIONS
It is the opinion of the Commission that indemnification for federal
securities law violations may be unenforceable.
INDEPENDENT ACCOUNTANTS
The financial statements of the Company for the year ended December 31, 1997
included in the Company's Annual Report on Form 10-K, as amended by the Form
10-K/A and the Form 10-K/A2, attached as Annex VI to this Proxy Statement have
been audited by Arthur Andersen LLP, independent accountants, as stated in their
report appearing therein.
It is expected that representatives of Arthur Andersen LLP will be present
at the Special Meeting and will have an opportunity to respond to appropriate
questions of Stockholders and to make a statement, if they so desire.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Commission
and in accordance therewith files reports, proxy statements, and other
information in accordance with the Exchange Act. These materials can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's regional offices at Seven World Trade Center, 13th Floor, New
York, New York 10048 and Northwest Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such material also can be obtained from
the Public Reference Section of the Commission, Washington, D.C. 20549 at
prescribed rates. The Commission also maintains a web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission at the address
"http://www.sec.gov." In addition, the Company's Common Stock is listed on
Nasdaq and material filed by the Company can be inspected at the offices of The
Nasdaq Stock Market, Rep 1735 K Street N.W., Washington, D.C. 20006. After the
Merger, it is expected that registration of the Common Shares under the Exchange
Act will be terminated.
This Proxy Statement includes information required by the Commission to be
disclosed pursuant to Rule 13e-3 under the Exchange Act, which governs so-called
"going private" transactions by certain issuers of their affiliates. In
accordance with the rule, the Company has filed with the Commission, under the
Exchange Act, a Schedule 13E-3 relating to the Merger and the Asset Sale. This
Proxy Statement does not contain all of the information set forth in the
Schedule 13E-3, parts of which are omitted in accordance with the regulations of
the Commission. The Schedule 13E-3, and any amendments thereto, including
exhibits filed as a part thereof, will be available for inspection and copying
at the offices of the Commission as set forth above.
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By Order of the Board of Directors,
Thomas C. Wyckoff
ASSISTANT SECRETARY
[ ], 1998
PLEASE COMPETE AND RETURN YOUR PROXY CARD PROMPTLY IN THE ENCLOSED ENVELOPE. NO
POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
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PLEASE MARK, SIGN AND DATE THE ACCOMPANYING PROXY AND MAIL IT PROMPTLY IN
THE ENCLOSED POSTAGE-PAID ENVELOPE.
<PAGE>
SCHEDULE I
CERTAIN INFORMATION REGARDING
THE FILING PERSONS
The following table sets forth the name, business address, age, principal
occupation or employment at the present time and during the last five years, the
name, principal business and address of any corporation or other organization in
which such occupation or employment is or was conducted and current
directorships of the executive officers, directors and stockholders of Artistic
Direct Incorporated ("ADI"), all of whom are citizens of the United States.
Except as otherwise noted, the address of each such corporation or organization
listed and the business addresses of such persons is the address of ADI, 111
Drive A, Strathmont Park, Elmira, New York 14905. Each person has had the
principal occupation or employment listed for more than the past five years
except as otherwise noted.
<TABLE>
<CAPTION>
NAME AND PRESENT PRINCIPAL OCCUPATION OR
BUSINESS ADDRESS AGE EMPLOYMENT AND FIVE YEAR EMPLOYMENT HISTORY
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Raymond Mahar, Jr.................................... 38 Director of ADI. Mr. Mahar founded Empire Label
Company, Elmira, NY, in 1995. He currently serves as
President. Prior to that, he was employed for 13
years at Mahar Business Forms, Rochester, NY, and
served as Vice President, Sales and Marketing, until
he left to establish Empire.
Thomas C. Wyckoff.................................... 31 Director, Chief Executive Officer and President of
ADI Mr. Wyckoff has served as Artistic's Chief
Operating Officer, Executive Vice President, General
Counsel and Assistant Secretary since May 1997. Prior
to that, he served as Senior Vice President
Administration/ Corporate Development, General
Counsel and Assistant Secretary since October 1996.
From January through October 1996, he served as
Senior Vice President, General Counsel and Assistant
Secretary and as Artistic's General Counsel from July
through December 1995. From September 1991 through
July 1995, Mr. Wyckoff was associated with Cahill
Gordon & Reindel, a law firm headquartered in New
York, New York where his practice focused on
corporate securities and transactional law.
</TABLE>
<PAGE>
ANNEX I
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
MDC COMMUNICATIONS CORPORATION,
AGI ACQUISITION CO.
AND
ARTISTIC GREETINGS INCORPORATED
DATED AS OF DECEMBER 21, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE I
THE MERGER
PAGE
-----
Section 1.01. The Merger.............................................................. 2
<S> <C>
Section 1.02. Effective Time.......................................................... 2
Section 1.03. Certificate of Incorporation and By-Laws of Surviving Corporation....... 2
Section 1.04. Directors and Officers of Surviving Corporation......................... 2
Section 1.05. Closing................................................................. 3
Section 1.06. Further Assurances...................................................... 3
Section 1.07. Conversion of Shares.................................................... 4
Section 1.08. Stock Options........................................................... 4
Section 1.09. Stockholders' Meeting; Proxy Statement.................................. 5
Section 1.10. Dissenting Shares....................................................... 6
Section 1.11. Payment for Shares...................................................... 6
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PARENT AND NEWCO
Section 2.01. Organization............................................................ 8
Section 2.02. Authority Relative to This Agreement.................................... 9
Section 2.03. No Violations, Etc...................................................... 9
Section 2.04. Proxy Statement......................................................... 10
Section 2.05. Financing............................................................... 10
Section 2.06. Brokers................................................................. 11
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 3.01. Organization and Qualification.......................................... 11
Section 3.02. Authority Relative to This Agreement.................................... 11
Section 3.03. No Violations, Etc...................................................... 12
Section 3.04. Board Recommendation.................................................... 13
Section 3.05. State Antitakeover Statutes............................................. 13
Section 3.06. Fairness Opinion........................................................ 13
Section 3.07. Proxy Statement......................................................... 13
Section 3.08. Finders or Brokers...................................................... 14
Section 3.09. SEC Filings............................................................. 14
Section 3.10. Financial Statements.................................................... 15
Section 3.11. Absence of Undisclosed Liabilities...................................... 15
Section 3.12. Absence of Changes or Events............................................ 16
Section 3.13. Capitalization.......................................................... 17
Section 3.14. Litigation.............................................................. 18
Section 3.15. Insurance............................................................... 18
Section 3.16. Compliance with Law..................................................... 18
Section 3.17. Employee Benefits....................................................... 19
Section 3.18. Taxes................................................................... 20
Section 3.19. Contracts............................................................... 21
Section 3.20. Related Party Transactions.............................................. 22
Section 3.21. Real Property........................................................... 22
Section 3.22. Environmental Matters................................................... 22
Section 3.23. Intellectual Property................................................... 23
</TABLE>
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<TABLE>
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ARTICLE IV
COVENANTS
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PAGE
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<S> <C>
Section 4.01. Conduct of Business of the Company...................................... 25
Section 4.02. Other Potential Bidders................................................. 28
Section 4.03. Access to Information................................................... 29
Section 4.04. Commercially Reasonable Efforts; Other Actions.......................... 30
Section 4.05. Public Announcements.................................................... 31
Section 4.06. Notification of Certain Matters......................................... 31
Section 4.07. Indemnification......................................................... 31
Section 4.08. Expenses................................................................ 32
Section 4.09. Resignation of Directors................................................ 32
Section 4.10. Asset Purchase Agreement................................................ 32
ARTICLE V
CONDITIONS TO THE OBLIGATIONS OF PARENT,
NEWCO AND THE COMPANY
Section 5.01. Conditions to Obligations of Parent, Newco and the Company.............. 33
Section 5.02. Conditions to Obligations of Parent and Newco........................... 33
Section 5.03. Conditions to Obligations of Company.................................... 34
ARTICLE VI
TERMINATION; AMENDMENT, WAIVER
Section 6.01. Termination............................................................. 34
Section 6.02. Effect of Termination................................................... 36
Section 6.03. Certain Payments........................................................ 37
Section 6.04. Amendment............................................................... 38
Section 6.05. Extension; Waiver....................................................... 38
ARTICLE VII
DEFINITIONS
Section 7.01. Terms Defined in This Agreement......................................... 39
ARTICLE VIII
MISCELLANEOUS
Section 8.01. Waiver of Compliance; Consents.......................................... 40
Section 8.02. Survivability; Investigations........................................... 40
Section 8.03. Notices................................................................. 40
Section 8.04. Assignment; No Third Party Beneficiaries................................ 41
Section 8.05. Governing Law........................................................... 42
Section 8.06. Counterparts............................................................ 42
Section 8.07. Severability............................................................ 42
Section 8.08. Interpretation.......................................................... 42
Section 8.09. Entire Agreement........................................................ 42
Signatures............................................................................ S-1
</TABLE>
<TABLE>
<S> <C>
Exhibits
Exhibit 1................................ Asset Purchase Agreement
Exhibit 2................................ Stockholders Agreement
</TABLE>
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of December 21, 1997 (the
"Agreement"), by and among MDC Communications Corporation, an Ontario
corporation ("Parent"), AGI Acquisition Co., a Delaware corporation ("Newco"),
which is an indirect wholly owned Subsidiary of Parent, and Artistic Greetings
Incorporated, a Delaware corporation (the "Company"). Newco and the Company are
hereinafter sometimes collectively referred to as the "Constituent
Corporations."
RECITALS
WHEREAS, the Board of Directors of the Company (the "Board") has, in light
of and subject to the terms and conditions set forth herein, (i) determined that
the Merger (as defined below) is fair to the stockholders of the Company and in
the best interests of such stockholders and (ii) approved and adopted this
Agreement and the transactions contemplated hereby (including the transactions
contemplated by the Asset Purchase Agreement (as defined herein)) and resolved
to recommend approval and adoption by the stockholders of the Company of this
Agreement and the Asset Purchase Agreement;
WHEREAS, contemporaneously herewith, the Company is entering into an Asset
Purchase Agreement, dated as of even date herewith, with Artistic Direct
Incorporated (together with any other asset purchase agreement substantially in
the form of Exhibit 1 hereto and providing for the payment of cash consideration
of at least $9 million and the assumption of the Assumed Liabilities (as defined
therein), the "Asset Purchase Agreement"), pursuant to which the Company has
agreed to sell (the "Asset Sale") certain assets relating to the personalized
product and catalog businesses of the Company (the "P&C Business") for the
consideration set forth therein and the assumption of certain liabilities
relating to the P&C Business, on the terms and conditions more fully described
therein; and
WHEREAS, the Board of Directors and the shareholders of Newco have, in light
of and subject to the terms and conditions set forth herein, approved and
adopted this Agreement and the transactions contemplated hereby.
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants, agreements and conditions contained
herein, the parties hereto agree as follows:
ARTICLE I
THE MERGER
Section 1.01. THE MERGER. (a) In accordance with the provisions of this
Agreement and the Delaware General Corporation Law (the "Delaware Act"), at the
Effective Time (as hereinafter defined), Newco shall be merged (the "Merger")
with and into the Company, and the Company shall be the surviving corporation
(hereinafter sometimes called the "Surviving Corporation") and shall continue
its corporate existence under the laws of the State of Delaware. The name of the
Surviving Corporation shall be "the Company". At the Effective Time the separate
existence of Newco shall cease.
(b) The Merger shall have the effects on Newco and the Company as
constituent corporations of the Merger as provided under the Delaware Act.
Section 1.02. EFFECTIVE TIME. The Merger shall become effective at the
time of filing of, or at such later time specified in, a certificate of merger,
in the form required by and executed in accordance with the Delaware Act, with
the Secretary of State of the State of Delaware in accordance with the
provisions of the Delaware Act (the "Certificate of Merger"). The date and time
when the Merger shall become effective is herein referred to as the "Effective
Time."
Section 1.03. CERTIFICATE OF INCORPORATION AND BY-LAWS OF SURVIVING
CORPORATION. The Certificate 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 Four of such Certificate is amended to read in its entirety
as follows: "The total number of shares of stock which the Corporation shall
have authority to issue is 1,000 shares, all of one class of Common Stock having
a par value of $.01 per share, and each share of Common Stock shall be entitled
to one vote on all matters as to which such stock is entitled to vote.". As so
amended, the Certificate of Incorporation of the Company shall be the
Certificate of Incorporation of the Surviving Corporation until thereafter
amended as provided therein or by law. The By-Laws of Newco, as in effect
<PAGE>
immediately prior to the Effective Time, shall be the By-Laws of the Surviving
Corporation until thereafter amended as provided therein, by the Certificate of
Incorporation or by law.
Section 1.04. DIRECTORS AND OFFICERS OF SURVIVING CORPORATION. The
directors of Newco immediately prior to the Effective Time will be the initial
directors of the Surviving Corporation, and the officers of the Company
immediately prior to the Effective Time will be the initial officers of the
Surviving Corporation, in each case until their successors are elected and
qualified.
Section 1.05. CLOSING. (a) Unless this Agreement shall have been
terminated and the transactions herein contemplated shall have been abandoned
pursuant to the provisions of Section 6.01, and subject to satisfaction or
waiver of the provisions of Article V hereof, the closing (the "Closing") of
this Agreement shall take place at the offices of Simpson Thacher & Bartlett,
425 Lexington Avenue, New York, New York, at 10:00 a.m. local time as soon as
practicable but no later than the second business day after the satisfaction or
waiver of the conditions set forth in Sections 5.01, 5.02 and 5.03 hereof, or at
such other place, time and date as the parties may mutually agree. The date and
time of such Closing are herein referred to as the "Closing Date." For purposes
of this Agreement "business day" shall mean any day except Saturday, Sunday and
any day which shall be in New York City a legal holiday or a day on which
banking institutions in New York or Toronto are authorized or required by law or
other government action to close.
(b) At the Closing, Parent, Newco and the Company shall cause a Certificate
of Merger to be executed and filed with the Secretary of State of the State of
Delaware as provided in the Delaware Act, and shall take any and all other
lawful actions and do any and all other lawful things to cause the Merger to
become effective.
Section 1.06. FURTHER ASSURANCES. If, at any time after the Effective
Time, the Surviving Corporation shall consider or be advised that any deeds,
bills of sale, assignments, assurances or any other actions or things are
necessary or desirable to vest, perfect or confirm of record or otherwise in the
Surviving Corporation its right, title or interest in, to or under any of the
rights, properties or assets of either of the Constituent Corporations acquired
or to be acquired by the Surviving Corporation as a result of, or in connection
with, the Merger or otherwise to carry out this Agreement, the officers and
directors of the Surviving Corporation shall be authorized to execute and
deliver, in the name and on behalf of each of the Constituent Corporations or
otherwise, all such deeds, bills of sale, assignments and assurances and to take
and do, in the name and on behalf of each of the Constituent Corporations or
otherwise, all such other actions and things as may be necessary or desirable to
vest, perfect or confirm any and all right, title and interest in, to and under
such rights, properties or assets in the Surviving Corporation or otherwise to
carry out this Agreement.
Section 1.07. CONVERSION OF SHARES. (a) Each share (a "Share") of Common
Stock, par value $.10 per share (the "Common Stock"), of the Company issued and
outstanding immediately prior to the Effective Time (other than (i) Shares held
in the Company's treasury, (ii) Shares held by Parent, Newco or any other
subsidiary of Parent and (iii) Dissenting Shares (as defined in Section 1.10
hereof)) shall, at the Effective Time, by virtue of the Merger and without any
action on the part of Newco, the Company or the holder thereof, be cancelled and
extinguished and be converted into the right to receive, pursuant to Section
1.11, $5.70 per Share in cash (the "Merger Consideration"), payable to the
holder thereof, without interest thereon, upon the surrender of the certificate
formerly representing such Share, less any required withholding of taxes;
PROVIDED that, in the event the aggregate cash consideration net of fees,
expenses and other direct costs (including any break-up or termination fee and
liquidated damages, if any) received by the Company pursuant to the Asset
Purchase Agreement exceeds $9,000,000, the Merger Consideration with respect to
each such Share shall be increased to include the pro rata portion of the amount
by which such consideration exceeds $9,000,000. At the Effective Time, each
outstanding share of the common stock, par value $.01 per share, of Newco shall
be converted into a share of common stock, par value $.01 per share, of the
Surviving Corporation.
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(b) Each Share held in the treasury of the Company and each Share held by
Parent, Newco or any subsidiary of Parent, or the Company immediately prior to
the Effective Time shall, by virtue of the Merger and without any action on the
part of Newco, the Company or the holder thereof, be cancelled, retired and
cease to exist and no payment shall be made with respect thereto.
Section 1.08. STOCK OPTIONS. (a) Prior to the consummation of the Merger,
the Board shall use its best efforts to cause the terms of all outstanding stock
options heretofore granted under any stock option plan of the Company
(collectively, the "Stock Plans") to be adjusted to provide that, at the
Effective Time, each stock option outstanding immediately prior to the
consummation of the Merger shall be cancelled and the holder thereof shall be
entitled to receive as soon as practicable thereafter from the Company in
consideration for such cancellation a cash payment of an amount equal to (i) the
excess, if any, of (A) the Merger Consideration over (B) the exercise price per
share of Common Stock subject to such stock option, multiplied by (ii) the
number of shares of Common Stock for which such stock option shall not
theretofore have been exercised.
(b) All amounts payable pursuant to Section 1.08(a) shall be subject to any
required withholding of taxes and shall be paid without interest.
(c) Prior to the consummation of the Merger, the Board of Directors (or, if
appropriate, any committee administering the Stock Plans) shall adopt such
resolutions or take such actions as are commercially reasonable, subject, if
necessary, to obtaining consents of the holders thereof, to carry out the terms
of this Section 1.08 and to provide that, on and after the Effective Time, no
officer, director or employee of the Company shall have any right to acquire any
interest in, any equity security of the Company or any of its subsidiaries.
Section 1.09. STOCKHOLDERS' MEETING; PROXY STATEMENT. (a) The Company,
acting through the Board, shall in accordance with applicable law and the
Company's Certificate of Incorporation and By-Laws:
(i) duly call, give notice of, convene and hold a special meeting of its
stockholders (the "Special Meeting") to be held as soon as practicable
following the date of this Agreement for the purpose of considering and
taking action upon this Agreement and the Asset Purchase Agreement and the
transactions contemplated hereby and thereby;
(ii) subject to its fiduciary duties as determined in good faith by a
majority of the Board, based upon the written opinion of outside counsel,
include in the Proxy Statement (as amended or supplemented, the "Proxy
Statement") required to be distributed to holders of Common Stock in
connection with the Merger the recommendation of the Board that the
stockholders of the Company vote in favor of the approval and adoption of
this Agreement and the Asset Purchase Agreement and the transactions
contemplated hereby and thereby and the written opinion of PaineWebber
Incorporated (the "Financial Adviser") that the cash consideration to be
received by the stockholders of the Company pursuant to the Merger is fair,
from a financial point of view, to such stockholders; and
(b) The Company shall prepare and file with the Securities and Exchange
Commission (the "SEC") the Proxy Statement and shall use all reasonable efforts
to respond promptly to any comments made by the SEC with respect to the Proxy
Statement and any preliminary version thereof, have the Proxy Statement cleared
by the SEC and cause the Proxy Statement to be mailed to the Company's
stockholders at the earliest practicable time. The Company shall give Parent and
its counsel the opportunity to review the Proxy Statement prior to its being
filed with the SEC and shall consult with Parent and its counsel regarding
comments made by the SEC.
At such meeting, Parent, Newco and their affiliates will vote all Shares
owned by them (or with respect to which such entities exercise voting control)
in favor of approval and adoption of this Agreement and the transactions
contemplated hereby.
Section 1.10. DISSENTING SHARES. Notwithstanding anything in this
Agreement to the contrary, Shares outstanding immediately prior to the Effective
Time and held by a holder who has not voted in favor of the Merger or consented
thereto in writing and who has demanded appraisal for such Shares in
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<PAGE>
accordance with Section 262 of the Delaware Act ("Dissenting Shares") shall not
be converted into a right to receive the Merger Consideration, unless such
holder fails to perfect or withdraws or loses his right to appraisal, in which
case such Shares shall be treated as if they had been converted as of the
Effective Time into a right to receive the Merger Consideration, without
interest thereon. The Company shall give Parent and Newco prompt notice of any
demands received by the Company for appraisal of Shares and, prior to the
Effective Time, Parent and Newco shall have the right to direct all negotiations
and proceedings with respect to such demands. Prior to the Effective Time, the
Company shall not, except with the prior written consent of Parent or Newco,
make any payment with respect to, or settle or offer to settle, any such
demands.
Section 1.11. PAYMENT FOR SHARES. (a) Prior to the Effective Time, Parent
and Newco shall designate a bank or trust company reasonably acceptable to the
Company to act as exchange agent in connection with the Merger (the "Exchange
Agent"). At or prior to the Effective Time, Parent or Newco will provide the
Exchange Agent with the funds necessary to make the payments contemplated by
Section 1.07(a) hereof (the "Exchange Fund"). Such funds shall be invested by
the Exchange Agent as directed by Newco or, after the Effective Time, the
Surviving Corporation, PROVIDED that such investments shall be in obligations of
or guaranteed by the United States of America, in commercial paper obligations
rated A-1 or P-1 or better by Moody's Investors Service, Inc. or Standard &
Poor's Corporation, respectively, or in certificates of deposit, bank repurchase
agreements or banker's acceptances of commercial banks with capital exceeding
$500 million. Any net profit resulting from, or interest or income produced by,
such investments will be payable to the Surviving Corporation or Parent, as
Parent directs.
(b) Promptly after the Effective Time, the Exchange Agent shall mail to each
record holder, as of the Effective Time, of an outstanding certificate or
certificates which immediately prior to the Effective Time represented Shares
(the "Certificates") a form letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon proper delivery of the Certificates to the Exchange Agent) and
instructions for use in effecting the surrender of the Certificates for payment
therefor. Upon surrender to the Exchange Agent of a Certificate, together with a
duly executed letter of transmittal and any other required documents, the holder
of such Certificate shall receive in exchange therefor (as promptly as
practicable) the Merger Consideration, without any interest thereon, less any
required withholding of taxes, and such Certificate shall forthwith be
cancelled. If payment is to be made to a person other than the person in whose
name a Certificate so surrendered is registered, it shall be a condition of
payment that the Certificate so surrendered shall be properly endorsed or
otherwise in proper form for transfer, that the signatures on the Certificate or
any related stock power shall be properly guaranteed and that the person
requesting such payment shall either pay any transfer or other taxes required by
reason of the payment to a person other than the registered holder of the
Certificate so surrendered or establish to the satisfaction of the Surviving
Corporation that such tax has been paid or is not applicable. Until surrendered
in accordance with the provisions of this Section 1.11(b), each Certificate
(other than Certificates representing Shares held in the Company's treasury or
by Parent or Newco, or by any subsidiary of Parent or Newco, and other than
Certificates representing Dissenting Shares) shall represent for all purposes
only the right to receive for each Share represented thereby the Merger
Consideration.
(c) After the Effective Time, there shall be no transfers on the stock
transfer books of the Surviving Corporation of the Shares which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation, they shall be cancelled
and exchanged for the consideration provided for, and in accordance with the
procedures set forth, in this Article I.
(d) From and after the Effective Time, the holders of Certificates
evidencing ownership of Shares outstanding immediately prior to the Effective
Time shall cease to have any rights with respect to such Shares except as
otherwise provided herein or by applicable law. Such holders shall have no
rights, after the Effective Time, with respect to such Shares except to
surrender such Certificates in exchange for cash
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<PAGE>
pursuant to this Agreement or to perfect any rights of appraisal as a holder of
Dissenting Shares that such holders may have pursuant to Section 262 of the
Delaware Act.
(e) Any portion of the Exchange Fund (including the proceeds of any
investment thereof) that remains unclaimed by the stockholders of the Company
for six months after the Effective Time shall be repaid to the Surviving
Corporation. Any stockholders of the Company who have not theretofore complied
with this Article I shall thereafter look only to the Surviving Corporation
(subject to abandoned property, escheat or other similar laws) only as general
creditors for payment of their claims for the Merger Consideration for each
Share such stockholders hold, without any interest.
(f) Notwithstanding anything to the contrary in this Section 1.11, none of
the Exchange Agent, Parent or the Surviving Corporation shall be liable to a
holder of a Certificate formerly representing Shares for any amount properly
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF PARENT AND NEWCO
Each of Parent and Newco jointly and severally represents and warrants to
the Company as follows:
Section 2.01. ORGANIZATION. Parent is a corporation duly organized, validly
existing and in good standing under the laws of Ontario. Newco is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. Newco has not engaged in any business since it was
incorporated other than in connection with the transactions contemplated by this
Agreement. Parent owns directly or indirectly all of the outstanding capital
stock of Newco.
Section 2.02. AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Parent and Newco
has full corporate power and authority to execute and deliver this Agreement and
to consummate the Merger and the other transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the Merger and
the other transactions contemplated hereby have been duly and validly authorized
by the Board of Directors of each of Parent and Newco and by Parent as the sole
stockholder of Newco and no other corporate proceedings on the part of Parent or
Newco are necessary to authorize this Agreement or to consummate the Merger or
the other transactions contemplated hereby. This Agreement has been duly and
validly executed and delivered by each of Parent and Newco and, assuming the due
authorization, execution and delivery hereof by the Company, constitutes a valid
and binding agreement of each of Parent and Newco, enforceable against each of
them in accordance with its terms, except to the extent that its enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other laws affecting the enforcement of creditors' rights generally or by
general equitable or fiduciary principles.
Section 2.03. NO VIOLATIONS, ETC. (a) Assuming that all filings, permits,
authorizations, consents and approvals have been duly made or obtained as
contemplated by this Section 2.03, the execution and delivery of this Agreement
and the consummation by Parent and Newco of the Merger and the other
transactions contemplated hereby will not (i) violate any provision of the
Certificate of Incorporation or By-Laws or similar organizational document of
either Parent or Newco, (ii) assuming that all consents, approvals and
authorizations contemplated by clause (b) below have been obtained and all
filings described in such clause have been made, violate any statute, rule,
regulation, order or decree of any public body or authority by which Parent,
Newco or any of their properties is bound, or (iii) result in a violation or
breach of, or constitute (with or without due notice or lapse of time or both) a
default under, any license, franchise, permit, indenture, agreement or other
instrument to which Parent or Newco is a party, or by which Parent, Newco or any
of their properties is bound, excluding from the foregoing clauses (ii) and
(iii) violations, breaches and defaults which, either individually or in the
aggregate, would not materially impair the ability of Parent or Newco to
consummate the Merger or the other transactions contemplated hereby or have a
material adverse effect on the business, operations, assets or financial
condition of Parent and its subsidiaries taken as a whole.
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(b) No filing or registration with, or authorization, consent or approval
of, or notification to any governmental entity is required by Parent or Newco in
connection with the execution and delivery of this Agreement or the consummation
by Parent and Newco of the Merger and the other transactions contemplated
hereby, except (i) in connection with the applicable requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), (ii) in connection, or in compliance, with the provisions of the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder (the "Securities Act") or the Exchange Act, (iii) the filing of
appropriate merger documents as required by the Delaware Act, (iv) such
consents, approvals, orders, authorizations, registrations, declarations and
filings as may be required under the corporation, takeover or blue sky laws of
various states and (v) such other consents, orders, authorizations,
registrations, declarations and filings the failure of which to be obtained or
made, either individually or in the aggregate, would not materially impair the
ability of Parent or Newco to consummate the Merger and the other transactions
contemplated hereby or have a material adverse effect on the business,
operations, assets or financial condition of Parent and its subsidiaries taken
as a whole.
Section 2.04. PROXY STATEMENT. None of the information supplied by Parent
or Newco in writing for inclusion in the Proxy Statement will, at the respective
times that the Proxy Statement or any amendments or supplements thereto are
filed with the SEC and are first published or sent or given to holders of
Shares, and, at the time that it or any amendment or supplement thereto is
mailed to the Company's stockholders, at the time of the Stockholders' Meeting
or at the Effective Time, contain any statement which, at the time and in the
light of the circumstances under which it is made, is false or misleading with
respect to any material fact, or which omits to state any material fact
necessary in order to make the statements therein not false or misleading or
necessary to correct any statement in any earlier Proxy Statement which has
become false or misleading.
Section 2.05. FINANCING. Parent or Newco, at the Effective Time, will have
sufficient funds available to consummate the Merger.
Section 2.06. BROKERS. Except for Furman Selz (a true and correct copy of
whose engagement agreement has been provided to the Company), no broker, finder
or investment banker is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by and on behalf of Parent or Newco.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Newco that, except as
disclosed in the disclosure statement (the "Disclosure Statement"), dated the
date hereof, from the Company to Parent:
Section 3.01. ORGANIZATION AND QUALIFICATION. The Company 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 own, lease and operate its properties and to carry on its business
as now being conducted. The Company is duly qualified as a foreign corporation
to do business, and is in good standing, in each jurisdiction where the
character of its properties owned or leased or the nature of its activities
makes such qualification necessary, except for failures to be so qualified or in
good standing which would not, individually or in the aggregate, have a Material
Adverse Effect or prevent or materially delay the consummation of the Merger.
When used in connection with the Company, the term "Material Adverse Effect"
means any change or effect that is or is reasonably likely to be materially
adverse to the business, operations, assets, financial condition or results of
operations of the Company. The Company is not in violation of any of the
provisions of its Restated Certificate of Incorporation or By-laws. The Company
has previously delivered to Parent accurate and complete copies of the Company's
Restated Certificate of Incorporation and By-laws, as currently in effect.
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Section 3.02. AUTHORITY RELATIVE TO THIS AGREEMENT. The Company has full
corporate power and authority to execute and deliver this Agreement and to
consummate the Merger and the other transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the Merger and
the other transactions contemplated hereby have been duly and validly authorized
by the Board of Directors of the Company and no other corporate proceedings on
the part of the Company are necessary to authorize this Agreement or to
consummate the Merger and the other transactions contemplated hereby (other
than, with respect to the Merger and the sale of assets contemplated by the
Asset Purchase Agreement, the approval of a majority of the outstanding shares
of Common Stock (the "Requisite Vote") at the Special Meeting or any adjournment
thereof). This Agreement has been duly and validly executed and delivered by the
Company and, assuming the due authorization, execution and delivery hereof by
Parent and Newco, constitutes a legal, valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms, except to
the extent that its enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws affecting the enforcement
of creditors' rights generally or by general equitable or fiduciary principles.
Section 3.03. NO VIOLATIONS, ETC. Except for the filings of the Certificate
of Merger, filings required under the Securities Act and the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), filings required under and in
compliance with the HSR Act and as set forth on Schedule 3.03 hereto, no filing
with, notification to and no permit, authorization, consent or approval of, any
public body is necessary for the consummation by the Company of the Merger or
the other transactions contemplated hereby, excluding from the foregoing
permits, authorizations, consents, approvals and notices which (i) if not
obtained, made or given, either individually or in the aggregate, would not
materially impair the ability of the Company to consummate the Merger or the
other transactions contemplated hereby or have a Material Adverse Effect or (ii)
are required in connection with the transactions contemplated by the Asset
Purchase Agreement. Neither the execution and delivery of this Agreement nor the
consummation of the Merger or the other transactions contemplated hereby nor
compliance by the Company with any of the provisions hereof will (i) subject to
obtaining the approval of a majority of the outstanding shares of Common Stock
at the Special Meeting or any adjournment thereof if and to the extent required
by the Delaware Act, conflict with or result in any breach of any provision of
the Restated Certificate of Incorporation or By-Laws of the Company, (ii) other
than as set forth on Schedule 3.03 hereto or as required in connection with the
transactions contemplated by the Asset Purchase Agreement, 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, cancellation,
acceleration, redemption or repurchase or result in the loss of a material
benefit) under, any of the terms, conditions or provisions of any (x) note,
bond, mortgage, indenture, or deed of trust or (y) license, lease, agreement or
other instrument or obligation to which the Company is a party or by which any
of them or any of their properties or assets may be bound or (iii) violate any
order, writ, injunction, decree, statute, rule or regulation applicable to the
Company or any of its properties or assets, excluding from the foregoing clauses
(ii) and (iii) violations, breaches or defaults which, either individually or in
the aggregate, would not materially impair the Company's ability to consummate
the Merger or the other transactions contemplated hereby or have a Material
Adverse Effect.
Section 3.04. BOARD RECOMMENDATION. The Board has approved and adopted this
Agreement, the Merger and the other transactions contemplated hereby, determined
that the consideration to be received by the holders of shares of Common Stock
pursuant to the Merger is fair to the holders of such Shares and recommended
that the holders of such Shares approve and adopt this Agreement, the Merger and
the other transactions contemplated hereby.
Section 3.05. STATE ANTITAKEOVER STATUTES. The Company or the Board, as
applicable, has granted all approvals and taken all other steps necessary to
exempt the Merger and the other transactions contemplated hereby from the
requirements and provisions of Section 203 of the Delaware Act and any other
state antitakeover statute or regulation such that none of the provisions of
such Section 203 or any other "business combination," "moratorium," "control
share," or other state antitakeover statute or regulation
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(x) prohibits or restricts the Company's ability to perform its obligations
under this Agreement or its ability to consummate the Merger and the other
transactions contemplated hereby, (y) would have the effect of invalidating or
voiding this Agreement, or (z) would subject Parent or Newco to any material
impediment or condition in connection with the exercise of any of their
respective rights under this Agreement.
Section 3.06. FAIRNESS OPINION. The Company has received the opinion of the
Financial Adviser to the effect that as of the date hereof the cash
consideration to be received by the stockholders of the Company pursuant to the
Merger is fair, from a financial point of view, to such stockholders.
Section 3.07. PROXY STATEMENT. The Proxy Statement will comply as to form in
all material respects with applicable federal securities laws, except that no
representation is made by the Company with respect to information supplied by
Newco or Parent for inclusion in the Proxy Statement. The information supplied
by the Company in writing for inclusion in the Proxy Statement will not, at the
respective times that the Proxy Statement or any amendments or supplements
thereto are filed with the SEC and are first published or sent or given to
holders of Shares, contain any statement which, at the time and in the light of
the circumstances under which it is made, is false or misleading with respect to
any material fact, or which omits to state any material fact necessary in order
to make the statements therein not false or misleading or necessary to correct
any statement in any earlier Proxy Statement which has become false or
misleading.
Section 3.08. FINDERS OR BROKERS. Except for the Financial Adviser, the
Company has not employed any investment banker, broker, finder or intermediary
in connection with the transactions contemplated hereby who might be entitled to
a fee or any commission the receipt of which is conditioned upon consummation of
the Merger or the Asset Sale. The Company has heretofore furnished to Parent a
complete and correct copy of all agreements between the Company and the
Financial Adviser pursuant to which such firm would be entitled to any payment
relating to the transactions contemplated hereby.
Section 3.09. SEC FILINGS. (a) The Company has filed with the SEC all
required forms, reports and documents required to be filed by it with the SEC
since December 31, 1995 (collectively, the "Company SEC Reports"), all of which
complied as to form when filed in all material respects with the applicable
provisions of the Securities Act and the Exchange Act, as the case may be. None
of the Company SEC Reports (including all exhibits and schedules thereto and
documents incorporated by reference therein) contained when filed or (except to
the extent revised or superseded by a subsequent filing with the SEC) contains
any untrue statement of a material fact or omitted or omits to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
(b) The Company will deliver to Parent as soon as they become available true
and complete copies of any report or statement mailed by it to its
securityholders generally or filed by it with the SEC, in each case subsequent
to the date hereof and prior to the Effective Time. As of their respective
dates, such reports and statements (excluding any information therein provided
by Parent or Newco, as to which the Company makes no representation) will not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they are made, not misleading and will
comply in all material respects with all applicable requirements of law. The
audited financial statements and unaudited interim financial statements of the
Company to be included or incorporated by reference in such reports and
statements will be prepared in accordance with United States generally accepted
accounting principles applied on a consistent basis throughout the periods
involved and will fairly present the financial position of the Company as of the
dates thereof and the results of operations and cash flow for the periods then
ended (subject, in the case of any unaudited interim financial statements, to
normal year-end adjustments and to the extent they may not include footnotes or
may be condensed or summary statements).
Section 3.10. FINANCIAL STATEMENTS. The audited financial statements and
unaudited interim financial statements of the Company included or incorporated
by reference in the Company's forms, reports and documents filed with the SEC
since December 31, 1995 have been prepared in accordance with United
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States generally accepted accounting principles ("GAAP") applied on a consistent
basis during the periods involved, and fairly present the financial position of
the Company as of the dates thereof and the results of operations and cash flows
for the periods then ended (subject, in the case of any unaudited interim
financial statements, to normal year-end adjustments and to the extent they may
not include footnotes or may be condensed or summary statements) and such
audited financial statements have been certified as such (without exception) by
the Company's independent auditors.
Section 3.11. ABSENCE OF UNDISCLOSED LIABILITIES. The Company has no
liabilities or obligations of any nature, whether absolute, accrued, unmatured,
contingent or otherwise, or any unsatisfied judgments or any leases of
personalty or realty or unusual or extraordinary commitments, except the
liabilities recorded on the balance sheet of the Company at December 31, 1996
and the notes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1996, and except for liabilities or obligations
incurred in the ordinary course of business and consistent with past practice
since December 31, 1996 and those that would not individually or in the
aggregate have a Material Adverse Effect.
Section 3.12. ABSENCE OF CHANGES OR EVENTS. Since December 31, 1996:
(a) there has not been any direct or indirect redemption, purchase or
other acquisition of any shares of capital stock of the Company, or any
declaration, setting aside or payment of any dividend or other distribution
by the Company in respect of its capital stock, other than the payment made
by the Company with respect to 500,000 shares of Common Stock put to the
Company by Valcheck Company on June 30, 1997;
(b) except in the ordinary course of business and consistent with past
practice, the Company has not incurred any indebtedness for borrowed money,
or assumed, guaranteed, endorsed or otherwise as an accommodation become
responsible for the obligations of any other individual, firm or
corporation, made any loans or advances to any other individual, firm or
corporation or entered into any commitment or transaction material to the
Company taken as a whole;
(c) there has not been any material change in the accounting methods,
principles or practices of the Company;
(d) there has not been any damage, destruction or loss, whether or not
covered by insurance, except for such as would not, individually or in the
aggregate, have a Material Adverse Effect;
(e) there has been no change in the business, operations, assets or
financial condition of the Company that has had or will have a Material
Adverse Effect;
(f) there has not been any revaluation by the Company of any of its
material assets, including but not limited to writing down the value of
inventory or writing off notes or accounts receivable, in any case, other
than in the ordinary course of business and in connection with the
revaluation of certain fixed assets as set forth in the Disclosure
Statement;
(g) there has not been any increase in or establishment of any bonus,
insurance, severance, deferred compensation, pension, retirement, profit
sharing, stock option (including without limitation the granting of stock
options, stock appreciation rights, performance awards or restricted stock
awards), stock purchase or other employee benefit plan or agreement or
arrangement, or any other increase in the compensation payable or to become
payable to any present or former directors, officers or key employees of the
Company, except for increases in base compensation in the ordinary course of
business consistent with past practice, or any employment, consulting or
severance agreement or arrangement entered into with any such present or
former directors, officers or key employees; or
(h) there has not been any agreement by the Company to (i) do any of the
things described in the preceding clauses (a) through (g) other than as
expressly contemplated or provided for in this Agreement or (ii) take,
whether in writing or otherwise, any action which, if taken prior to the
date of this Agreement, would have made any representation or warranty in
this Article III untrue or incorrect.
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Section 3.13. CAPITALIZATION. The authorized capital stock of the Company
consists of 10,000,000 shares of Common Stock. As of the date hereof, there are
6,538,802 shares of Common Stock outstanding of which 695,396 shares of Common
Stock held in the Company's treasury. As of the date hereof, no shares of Common
Stock were reserved for issuance upon the exercise of outstanding options and
options which may be granted under the Stock Plans of the Company, all of which
options and plans are listed and described in Schedule 3.13 hereto (the "Common
Stock Equivalents"), and the number of shares issuable upon exercise of all such
options is as previously disclosed to Parent by the Company. Except as set forth
above and except for the Common Stock Equivalents there are not outstanding any
shares of capital stock or other voting securities, any existing options,
warrants, calls, subscriptions, or other rights or other agreements or
commitments obligating the Company to issue, transfer or sell any shares of
capital stock or voting securities of the Company or any other securities
convertible into or exchangeable for or evidencing the right to subscribe for
any such shares. There are no outstanding stock appreciation rights with respect
to the capital stock of the Company. All issued and outstanding shares of Common
Stock are duly authorized and validly issued, fully paid, nonassessable and free
of preemptive rights with respect thereto. The Company has no subsidiaries.
There are no outstanding obligations of the Company to repurchase, redeem or
otherwise acquire any shares of capital stock. 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 which is material to the business of the Company.
Section 3.14. LITIGATION. There is no (i) claim, action, suit,
investigation or proceeding pending or, to the knowledge of the Company,
threatened against or relating to the Company before any court or governmental
or regulatory authority or body or arbitration tribunal, or (ii) outstanding
judgment, order, writ, injunction or decree, or application, request or motion
therefor, of any court, governmental agency or arbitration tribunal in a
proceeding to which the Company or any of its assets was or is a party except,
in the case of clauses (i) and (ii) above, such as would not, individually or in
the aggregate, either prevent or materially delay the Company's ability to
consummate the Merger or the other transactions contemplated hereby or have a
Material Adverse Effect.
Section 3.15. INSURANCE. Schedule 3.15 hereto lists all material insurance
policies in force on the date hereof covering the businesses, properties and
assets of the Company and all claims against such policies. All such policies
are currently in effect and true and complete copies of all such policies have
been delivered to Parent. The Company has not received notice of the
cancellation of any of such insurance in effect on the date of this Agreement.
As of the date hereof, there are no material claims by the Company under any
such policy or instrument as to which any insurance company is denying liability
or defending under a reservation of rights clause. To the Company's best
knowledge, all necessary notifications of claims have been made to insurance
carriers other than those which would not have a Material Adverse Effect.
Section 3.16. COMPLIANCE WITH LAW. The Company has not violated or failed
to comply with any statute, law, ordinance, regulation, rule or order of any
foreign, federal, state or local government or any other governmental department
or agency, or any judgment, decree or order of any court, applicable to its
business or operations except where any such violation or failure to comply
would not, individually or in the aggregate, have a Material Adverse Effect. The
Company has all permits, licenses and franchises from governmental agencies
required to conduct its businesses as now being conducted, except for such
permits, licenses and franchises the absence of which would not, individually or
in the aggregate, have a Material Adverse Effect or prevent or materially delay
the consummation of the Merger.
Section 3.17. EMPLOYEE BENEFITS. (a) Schedule 3.17 contains a true and
complete list of each "employee benefit plan" (within the meaning of section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), including, without limitation, multiemployer plans within the meaning
of ERISA section 3(37)), stock purchase, stock option, severance, employment,
change-in-control, fringe benefit, collective bargaining, bonus, incentive,
deferred compensation and all other employee benefit plans, agreements,
programs, policies or other arrangements, whether or not subject to ERISA, under
which any employee or former employee of the Company has any present or future
right to benefits or under which the Company has any present or future material
liability, other than any such plan
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or plans that, individually or in the aggregate, do not provide for any payment
or payments or unrecorded liabilities in excess of $50,000.
(b) With respect to each Company Plan, the Company has delivered or made
available to Parent a current, accurate and complete copy (or, to the extent no
such copy exists, an accurate description) thereof and, to the extent
applicable: (i) any related trust agreement or other funding instrument; (ii)
the most recent determination letter, if applicable; (iii) any summary plan
description for a Company Plan; and (iv) for the most recent year (A) the Form
5500 and attached schedules, (B) audited financial statements and (C) actuarial
valuation reports;
(c) Except to the extent not reasonably expected to have a Material Adverse
Effect: (i) each Company Plan has been established and administered in
accordance with its terms, and in compliance with the applicable provisions of
ERISA, the Code and other applicable laws, rules and regulations; (ii) each
Company Plan which is intended to be qualified within the meaning of Code
section 401(a) has received a favorable determination letter as to its
qualification, and nothing has occurred, whether by action or failure to act,
that could reasonably be expected to cause the loss of such qualification; (iii)
no event has occurred and no condition exists that would subject the Company to
any material tax, fine, lien, penalty or other liability imposed by ERISA, the
Code or other applicable laws, rules and regulations; (iv) for each Company Plan
with respect to which a Form 5500 has been filed, no material change has
occurred with respect to the matters covered by the most recent Form since the
date thereof; and (v) no "reportable event" (as such term is defined in ERISA
section 4043), "prohibited transaction" (as such term is defined in ERISA
section 406 and Code section 4975) or "accumulated funding deficiency" (as such
term is defined in ERISA section 302 and Code section 412 (whether or not
waived)) has occurred with respect to any Company Plan within the last five
years for which has resulted or is reasonably likely to result in any material
liability that remains unsatisfied;
(d) Except as set forth in the Disclosure Statement, with respect to each of
the Company Plans that is not a multiemployer plan within the meaning of section
4001(a)(3) of ERISA but is subject to Title IV of ERISA, as of the Closing Date,
the assets of each such Company Plan are at least equal in value to the present
value of the accrued benefits (vested and unvested) of the participants in such
Company Plan on a termination and projected benefit obligation basis, based on
the actuarial methods and assumptions indicated in the most recent actuarial
valuation reports;
(e) Except to the extent not reasonably expected to have a Material Adverse
Effect: with respect to any Company Plan, (i) no actions, suits or claims (other
than routine claims for benefits in the ordinary course) are pending or
threatened, (ii) no facts or circumstances exist that could give rise to any
such actions, suits or claims, and (iii) no written or oral communication has
been received from the PBGC in respect of any Company Plan subject to Title IV
of ERISA concerning the funded status of any such plan or any transfer of assets
and liabilities from any such plan in connection with the transactions
contemplated herein; and
(f) Except as set forth in the Disclosure Statement, no Company Plan exists
that could result in the payment to any present or former employee of the
Company of any money or other property or accelerate or provide any other rights
or benefits to any present or former employee of the Company as a result of the
transaction contemplated by this Agreement, whether or not such payment would
constitute a parachute payment within the meaning of Code section 280G and
whether or not some other future event is required to trigger payment or
otherwise result in liability to the Company.
Section 3.18. TAXES. Except as set forth in the Disclosure Statement, the
Company and any consolidated, combined, unitary or aggregate group for tax
purposes of which the Company or any former subsidiary is or was a member has
(x) timely filed (or there have been filed on its behalf) with the appropriate
governmental authorities all Tax Returns (as hereinafter defined) required to be
filed by it on or prior to the date hereof, and (y) duly paid in full or made
provision in accordance with United States GAAP (or there has been paid or
provision has been made on its behalf) for the payment of all Taxes (as
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hereinafter defined) for all periods ending through the date hereof, except for
any such filings or payments which would not, individually or in the aggregate
have a Material Adverse Effect.
"Taxes" shall mean any and all taxes, charges, fees, levies or other
assessments, including, without limitation, income, gross receipts, excise, real
or personal property, sales, withholding, social security, occupation, use,
service, service use, license, net worth, payroll, franchise, transfer and
recording taxes, fee and charges, imposed by the Service or any taxing authority
(whether domestic or foreign including, without limitation, any state, county,
local or foreign government or any subdivision or taxing agency thereof
(including a United States possession)), whether computed on a separate,
consolidated, unitary, combined or any other basis; and such term shall include
any interest whether paid or received, fines, penalties or additional amounts
attributable to, or imposed upon, or with respect to, any such taxes, charges,
fees, levies or other assessments. "Tax Return" shall mean any report, return,
document, declaration or other information or filing required to be supplied to
any taxing authority or Jurisdiction (foreign or domestic) with respect to
Taxes, including, without limitation, information returns, any documents with
respect to or accompanying payments of estimated Taxes, or with respect to or
accompanying requests for the extension of time in which to file any such
report, return, document declaration or other information.
Section 3.19. CONTRACTS. Each note, bond, mortgage, indenture, lease,
license, contract, agreement or other instrument or obligation to which the
Company is a party or by which any of it or any of its properties or assets may
be bound (collectively, the "Contracts") is legally valid and binding against
the Company and, to the Company's best knowledge, each other party thereto and
in full force and effect, except where failure to be legally valid and binding
and in full force and effect would not, individually or in the aggregate, have a
Material Adverse Effect, and there are not defaults thereunder by the Company
and, to the Company's best knowledge, any other party thereto, except those
defaults that would not have a Material Adverse Effect on the Company. The
Company has previously made available for inspection by Newco or its
representatives all material Contracts listed on Schedule 3.19.
Section 3.20. RELATED PARTY TRANSACTIONS. Except as set forth in the
Disclosure Statement or in the Company SEC Documents, no director, officer,
partner, employee, "affiliate" or "associate" (as such terms are defined in Rule
12b-2 under the Exchange Act) of the Company has borrowed money from or has
outstanding any indebtedness or other similar obligations to the Company.
Section 3.21. REAL PROPERTY. The Company has sufficient title or
leaseholds to real property to conduct its business as currently conducted with
only such exceptions as individually or in the aggregate would not have a
Material Adverse Effect.
Section 3.22. ENVIRONMENTAL MATTERS. Except as would not result in a
Material Adverse Effect, and except as disclosed in the Disclosure Statement:
(i) The Company holds all Environmental Permits (as defined below), and
the Company is in compliance with all Environmental Laws;
(ii) As of the date hereof, there are no Environmental Claims (as
defined below) pending or, to the knowledge of the Company, threatened
against the Company;
(iii) The Company is not a party to any consent decree, order or
agreement which requires performance of any response or corrective action to
address any Hazardous Material or any violation of Environmental Law;
(iv) To the knowledge of the Company, there are no (A) underground
storage tanks, (b) polychlorinated biphenyls, (C) friable asbestos or
asbestos-containing materials, (D) sumps, (E) surface impoundments, (F)
landfills, or (G) sewers or septic systems present at any facility currently
owned or leased by the Company that is expected to give rise to liability of
the Company under any Environmental Laws;
(v) To the knowledge of the Company, there are no events or conditions,
including without limitation the release, threatened release, emission,
discharge, generation, treatment, storage or
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disposal of Hazardous Materials (as defined below), that would reasonably be
expected to give rise to liability of the Company under any Environmental
Laws;
(vi) The Company has not assumed by contract any liabilities or
obligations under any Environmental Laws; and
(vii) For purposes of this Agreement, the following terms shall have the
following meanings:
"ENVIRONMENTAL CLAIM" means any written notice, claim, demand, suit,
complaint, proceeding or other communication by any person alleging
liability or potential liability (including without limitation liability
or potential liability for investigatory costs, cleanup costs,
governmental response costs, natural resource damages, property damage,
personal injury, fines or penalties) under any Environmental Laws,
including without limitation any liability resulting from the presence,
discharge, emission, release or threatened release of any Hazardous
Materials at any location, whether or not owned, leased or operated by
the Company.
"ENVIRONMENTAL LAWS" means all applicable foreign, federal, state and
local statutes, rules, regulations, ordinances, common law, orders and
decrees relating in any manner to pollution or protection of the
environment, including without limitation the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, the Solid Waste
Disposal Act, the Clean Air Act, the Clean Water Act, the Toxic
Substances Control Act, the Emergency Planning and
Community-Right-to-Know Act, the Occupational Safety and Health Act and
the Safe Drinking Water Act, all as amended.
"ENVIRONMENTAL PERMITS" means all permits, licenses, registrations
and other governmental authorizations required under Environmental Laws
for the Company to conduct its operations and businesses.
"HAZARDOUS MATERIALS" means all hazardous or toxic substances,
wastes, materials or chemicals, petroleum (including crude oil or any
fraction thereof) and petroleum products, asbestos and
asbestos-containing materials, pollutants, contaminants and all other
materials and substances regulated by any Environmental Law.
Section 3.23. INTELLECTUAL PROPERTY. Schedule 3.23 sets forth a list of
all material registered and material unregistered Intellectual Property (as
defined below) owned by the Company and used in the conduct of its business and
all agreements granting any right to use or practice any right relating to the
Intellectual Property currently used in the conduct of the Company's business
(the "Licenses") as of the date hereof. Except as set forth in the Disclosure
Statement (i) the Company is the sole owner of all of its rights under the
Licenses free and clear of any liens, claims, encumbrances or interests; (ii)
the Company is the sole owner of, or has a valid right to use pursuant to a
License, all patents and patent applications, registered and unregistered
trademarks, service marks, trade names, trade dress, logos, company names and
other source or business identifiers, including all goodwill associated
therewith, the names, likenesses and other attributes of individuals, registered
and unregistered copyrights, computer programs and databases, trade secrets,
proprietary technology, know-how, industrial designs and other confidential
information and any pending applications for any of the foregoing (collectively,
the "Intellectual Property") currently used in the conduct of the Company's
business, free and clear of any liens, claims, encumbrances or interests; (iii)
to the Company's best knowledge, the present operations of the Company do not,
and its past operations did not, infringe upon, violate, interfere or conflict
with the rights of others with respect to any Intellectual Property, and no
claim is pending or, to the Company's best knowledge, threatened, to this
effect; (iv) to the Company's best knowledge, none of the Intellectual Property
is invalid or unenforceable, or has not been used or enforced or has failed to
be used or enforced in a manner that would result in the abandonment,
cancellation or unenforceability of any of the Intellectual Property and no
claim is pending or, to the Company's best knowledge, threatened, to this
effect; (v) no License provision or any other contract, agreement or
understanding to which the Company is a party would prevent the continued use by
the Company (as currently used by the Company) of any Intellectual Property
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following the consummation of the transactions contemplated hereby; (vi) to the
Company's best knowledge, no person is infringing upon or otherwise violating
any Intellectual Property or License; and (vii) there are no claims pending or,
to the Company's best knowledge, threatened in connection with any License, in
all cases in clauses (i) through (vii) of this Section 3.23 with only such
exceptions as would not, individually or in the aggregate, have a Material
Adverse Effect.
ARTICLE IV
COVENANTS
Section 4.01. CONDUCT OF BUSINESS OF THE COMPANY. Except as set forth in
the Disclosure Statement and as expressly agreed to in writing by Parent, during
the period from the date of this Agreement to the Effective Time, the Company
will conduct its operations according to its ordinary and usual course of
business consistent with past practice, and will use all commercially reasonable
efforts to preserve intact its business organization, to keep available the
services of its officers and employees and to maintain satisfactory
relationships with suppliers, distributors, customers and others having business
relationships with it and will take no action which would adversely affect its
ability to consummate the Merger or the other transactions contemplated hereby.
Without limiting the generality of the foregoing, and except as otherwise
expressly provided in this Agreement or the Asset Purchase Agreement, prior to
the Effective Time, the Company will not, without the prior written consent of
Parent and except as disclosed in the Disclosure Statement:
(a) amend its Restated Certificate of Incorporation (or other applicable
charter document) or By-Laws;
(b) authorize for issuance, issue, sell, deliver, grant any options for,
or otherwise agree or commit to issue, sell or deliver any shares of any
class of capital stock of the Company or any securities convertible into or
exchangeable or exercisable for shares of any class of capital stock or any
other ownership interest (including, but not limited to, stock appreciation
rights or phantom stock) of the Company, other than pursuant to and in
accordance with the terms of the Common Stock Equivalents outstanding on the
date hereof and listed on Schedule 3.13;
(c) split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of its
capital stock or purchase, redeem or otherwise acquire any shares of its own
capital stock;
(d) (i) create, incur, assume, maintain or permit to exist any long-term
debt or any short-term debt for borrowed money other than under existing
lines of credit and except for short-term debt incurred in the ordinary
course of business and consistent with past practice; (ii) assume,
guarantee, endorse or otherwise become liable or responsible (whether
directly, contingently or otherwise) for the obligations of any other
person; or (iii) make any loans, advances or capital contributions to, or
investments in, any other person in excess of $50,000 in the aggregate
(other than investments in marketable securities made in the ordinary course
of business of the Company and consistent with past practice);
(e) except as may be required by law, enter into, adopt or amend or
terminate any bonus, profit sharing, compensation, severance, termination,
stock option, stock appreciation right, restricted stock, performance unit,
stock equivalent, stock purchase agreement, pension, retirement, deferred
compensation, employment, severance or other employee benefit agreement,
trust, plan, fund or other arrangement for the benefit or welfare of any
current or former director, officer or employee in any manner, or (except
for normal increases in salary or wages of employees who are not officers of
the Company in the ordinary course of business consistent with past practice
that, in the aggregate, do not result in a material increase in benefits or
compensation expense to the Company, and as required under existing
agreements) increase in any manner the compensation or fringe benefits of
any current or former director, officer or employee or grant any severance
or termination pay or pay any benefit not required by any plan, agreement,
trust, fund, policy and arrangement as in effect as of the date hereof;
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(f) except for sales of inventory in the ordinary course of business
and consistent with past practice, sell, transfer, lease or otherwise
dispose of, or encumber, or agree to sell, transfer, lease, or otherwise
dispose of or encumber, any assets, properties, real, personal or mixed not
in excess of $50,000 individually;
(g) enter into any agreements, commitments or contracts, except
agreements, commitments or contracts either (i) for the purchase, sale or
lease of goods or services in the ordinary course of business and consistent
with past practice or (ii) which do not, individually, relate to the making
of payments or the provision of services for consideration in excess of
$50,000 over the term of any such agreement, commitment or contract;
(h) authorize, recommend, propose or announce an intention to
authorize, recommend or propose, or enter into any agreement in principle or
an agreement with respect to, any plan of liquidation or dissolution, any
acquisition (by merger, consolidation or acquisition of assets or securities
or any disposition of any assets or securities) of any corporation,
partnership or other business organization or division thereof or any change
in its capitalization, or any entry into a material contract or any
amendment or modification of any material contract or any release or
relinquishment of any material contract rights not in the ordinary course of
business and consistent with past practice or modify or amend the contracts
between the parties referred to in paragraph 15 of the Disclosure Letter;
(i) except as previously approved by the Board of Directors of the
Company prior to the date hereof and as identified to Parent prior to the
date hereof, authorize or commit to make capital expenditures in any
calendar month in excess of $100,000; PROVIDED, HOWEVER, that amounts not
authorized or committed in any calendar month may be carried forward to
future calendar months;
(j) permit any material insurance policy naming the Company as a
beneficiary or a loss payee to be cancelled, terminated or materially
altered;
(k) maintain its books and records in a manner not in the ordinary
course of business and consistent with past practice;
(l) enter into any hedging, option, derivative or other similar
transaction;
(m) change any assumption underlying, or method of calculating, any bad
debt, contingency, provision or other reserve;
(n) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, contingent or otherwise), other than the payment,
discharge or satisfaction of liabilities in the ordinary course of business
and consistent with past practice;
(o) except as may be required as a result of a change in law or in
generally accepted accounting principles, change any of the accounting
practices or principles used by it;
(p) make any material tax election or settle or compromise any material
federal, state, local or foreign tax liability;
(q) settle or compromise any pending or threatened suit, action or
claim which is material;
(r) collect receivables or pay payables or purchase inventory or make
shipments to customers, other than in the ordinary course of business
consistent with past practice;
(s) modify the amount spent on advertising for the Company as a whole
and the allocation between each of the check business and the P&C Business
from the schedule related thereto previously delivered by the Company to
Parent; or
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<PAGE>
(t) agree to do any of the foregoing or any action which would make any
of the representations or warranties of the Company contained in this
Agreement untrue and incorrect as of the date when made if such action had
then been taken.
Section 4.02. OTHER POTENTIAL BIDDERS. (a) The Company, its affiliates and
their respective officers, directors, employees, representatives and agents
shall immediately cease any existing discussions or negotiations, if any, with
any parties conducted heretofore with respect to any acquisition or exchange of
all or any material portion of the assets of, or any equity interest in, the
Company or any business combination with the Company other than a sale of assets
and assumption of liabilities pursuant to the Asset Purchase Agreement. The
Company may, directly or indirectly, furnish information and access, in each
case only in response to unsolicited requests therefor made after the date
hereof, to any corporation, partnership, person or other entity or group
pursuant to confidentiality agreements, and may participate in discussions and
negotiate with such entity or group concerning any merger, sale of assets, sale
of shares of capital stock or similar transaction involving the Company or any
division of the Company, if such entity or group has submitted a bona fide
written proposal to the Board relating to any such transaction and the Board by
a majority vote determines in its good faith judgment, based upon the written
advice of outside counsel, that failing to take such action would constitute a
breach of the Board's fiduciary duty under applicable law; PROVIDED, HOWEVER,
that the Company may furnish information and access, and participate in
discussing and negotiate, with respect to a sale of assets and assumption of
liabilities pursuant to the Asset Purchase Agreement. The Board shall notify
Parent immediately if any such proposal is made and shall in such notice
indicate in reasonable detail the identity of the offeror and the terms and
conditions of any proposal and shall keep Parent promptly advised of all
material developments in connection therewith. Except as set forth above,
neither the Company or any of its affiliates, nor any of its or their respective
officers, directors, employees, representatives or agents shall, directly or
indirectly, encourage, solicit, participate in or initiate discussions or
negotiations with, or provide any information to, any corporation, partnership,
person or other entity or group (other than Parent and Newco, any affiliate or
associate of Parent and Newco or any designee of Parent and Newco) concerning
any merger, sale of assets, sale of shares of capital stock or similar
transactions involving the Company or any division of the Company (other than
with respect to the assets and liabilities to be transferred pursuant to the
Asset Purchase Agreement), PROVIDED, HOWEVER, that nothing herein shall prevent
the Board from taking, and disclosing to the Company's stockholders, a position
contemplated by Rules 14D-9 and 14e-2 promulgated under the Exchange Act with
regard to any tender offer, PROVIDED, FURTHER, that the Board shall not
recommend that the stockholders of the Company tender their Shares in connection
with any such tender offer unless the Board by a majority vote determines in its
good faith judgment that, based upon the written advice of outside counsel,
failing to take such action would constitute a breach of the Board's fiduciary
duty under applicable law.
(b) Notwithstanding anything in this Agreement to the contrary, no action
taken by the Board, based upon the written advice of outside counsel, in the
exercise of its fiduciary duties, shall constitute a breach of any provision of
this Agreement.
Section 4.03. ACCESS TO INFORMATION. (a) From the date of this Agreement
until the Effective Time, the Company will give Parent and Newco and their
authorized representatives (including counsel, environmental and other
consultants, accountants, auditors, and intellectual property counsel and
agents) full access during normal business hours to all facilities, personnel
and operations and to all books and records of the Company, will permit Parent
and Newco to make such inspections as they may reasonably require and will cause
its officers to furnish Parent with such financial and operating data and other
information with respect to the businesses and properties of the Company as
Parent may from time to time reasonably request.
(b) Parent will permit the Company and its agents, including its counsel
and auditors, to have access to Parent's books and records and personnel for the
purpose of conducting customary due diligence regarding the accuracy of the
Parent SEC Documents.
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<PAGE>
(c) Each of Parent and Newco will hold and will cause their respective
authorized representatives, including consultants and advisors, to hold in
strict confidence pursuant to the Confidentiality Agreement dated October 21,
1996 between Parent and the Company (the "Confidentiality Agreement") all
documents and information concerning the Company furnished to Parent or Newco in
connection with the transactions contemplated by this Agreement. The Company
will hold and will cause its respective authorized representatives, including
consultants and advisers, to hold in strict confidence pursuant to the
Confidentiality Agreement all documents and information concerning the Parent
and Newco furnished to the Company in connection with the transactions
contemplated by this Agreement.
Section 4.04. COMMERCIALLY REASONABLE EFFORTS; OTHER ACTIONS. Subject to
the terms and conditions herein provided, Parent, Newco and the Company shall
use all commercially reasonable efforts to take, or cause to be taken, all other
actions and do, or cause to be done, all other things necessary, proper or
appropriate under applicable laws and regulations to consummate and make
effective as soon as practicable the transactions contemplated by this
Agreement, including, without limitation, (i) the filing of Notification and
Report Forms under the HSR Act with the Federal Trade Commission (the "FTC") and
the Antitrust Division of the Department of Justice (the "Antitrust Division")
and using all commercially reasonable efforts to respond as promptly as
practicable to all inquiries received from the FTC or the Antitrust Division for
additional information or documentation, (ii) the obtaining of all necessary
consents, approvals or waivers, and (iii) the lifting of any legal bar to the
Merger. Parent shall cause Newco to perform all of its obligations under this
Agreement and shall not take any action which would cause the Company to fail to
perform its obligations hereunder. The Company shall not take any action which
would cause Parent or Newco to fail to perform its obligations hereunder.
Section 4.05. PUBLIC ANNOUNCEMENTS. Before issuing any press release or
otherwise making any public statement with respect to the Merger or any of the
other transactions contemplated hereby, Parent, Newco and the Company will
consult with, and obtain the consent of, which consent shall not be unreasonably
withheld, each other as to its form and substance and shall not issue any such
press release or make any such public statement prior to obtaining such consent,
except as may be required by law or any listing agreement with its securities
exchange.
Section 4.06. NOTIFICATION OF CERTAIN MATTERS. The Company shall give
prompt notice to Parent of any notice of, or other communication relating to, a
default or event which, with notice or lapse of time or both, would become a
default, received by the Company subsequent to the date of this Agreement and
prior to the Effective Time, under any contract material to the business,
operations, assets or financial condition of the Company to which the Company is
a party or is subject. Each of the Company and Parent shall give prompt notice
to the other party of (a) any notice or other communication from any third party
alleging that the consent of such third party is or may be required in
connection with the Merger or other transactions contemplated hereby, (b) the
occurrence or existence of any event which would, or could with the passage of
time or otherwise, make any representation or warranty made by such party
contained herein untrue or (c) any failure of such party to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder; PROVIDED, HOWEVER, that the delivery of any notice pursuant to
this Section 4.06 shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
Section 4.07. INDEMNIFICATION. (a) For six years after the Effective Time,
Parent shall cause the Surviving Corporation to indemnify, defend and hold
harmless the present and former directors and officers of the Company,
determined as of the Effective Time, against all losses, claims, damages,
expenses or liabilities (collectively, "Costs") (but only to the extent such
costs are not otherwise covered by insurance or are not promptly paid by
insurance) arising out of actions or omissions or alleged actions or omissions
occurring at or prior to the Effective Time to the extent permitted or required
under applicable law and the Company's Restated Certificate of Incorporation and
By-Laws in effect at the date hereof (to the extent consistent with applicable
law).
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<PAGE>
(b) For a period of three years after the Effective Time, the Surviving
Corporation shall use its best efforts to cause to be maintained in effect the
current policies of directors' and officers' liability insurance maintained by
the Company (provided that the Surviving Corporation may substitute therefor
policies of at least the same coverage and amounts containing terms and
conditions which are no less advantageous) with respect to claims arising from
facts or events which occurred before the Effective Time to the extent
available; PROVIDED, HOWEVER, that the Surviving Corporation shall not be
obligated to make annual premium payments for such insurance to the extent such
premiums exceed 150% of the annual premiums paid as of the date hereof by the
Company for such insurance (which the Company represents and warrants to be not
more than $60,000).
(c) Parent hereby agrees to guarantee each and every one of the obligations
of the Surviving Corporation set forth in Sections 4.07(a) and 4.07(b).
Section 4.08. EXPENSES. Except as set forth in Section 6.03, Parent and
Newco, on the one hand, and the Company, on the other hand, shall bear their
respective expenses incurred in connection with the Merger, including, without
limitation, the preparation, execution and performance of this Agreement and the
transactions contemplated hereby and all fees and expenses of investment
bankers, finders, brokers, agents, representatives, counsel and accountants.
Section 4.09. RESIGNATION OF DIRECTORS. Prior to the Effective Time, the
Company shall take all commercially reasonable efforts to deliver to Parent the
resignation of such directors of the Company as Parent shall specify, effective
at the Effective Time.
Section 4.10. ASSET PURCHASE AGREEMENT. (a) The Company shall not amend
the Asset Purchase Agreement or waive any of its rights thereunder without the
prior written consent of Parent.
(b) The Company shall keep Parent reasonably informed of the status of the
financing related to the Asset Purchase Agreement.
ARTICLE V
CONDITIONS TO THE OBLIGATIONS OF
PARENT, NEWCO AND THE COMPANY
Section 5.01. CONDITIONS TO OBLIGATIONS OF PARENT, NEWCO AND THE
COMPANY. The respective obligations of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Time of each of the
following conditions:
(a) this Agreement, the Asset Purchase Agreement, the Merger and the
transactions contemplated by the Asset Purchase Agreement shall have been
adopted by the affirmative vote of the stockholders of the Company by the
Requisite Vote;
(b) any waiting period applicable to the Merger under the HSR Act shall
have terminated or expired; and
(c) there shall not have been any action taken, or any statute, rule,
regulation, judgment, decree, order or injunction proposed, sought,
promulgated, enacted, entered, enforced or deemed applicable to the Merger,
or any other action shall have been taken, proposed or threatened, by any
state or federal government or governmental authority or by any U.S. or
Canadian court, that presents substantial likelihood of prohibiting or
restricting consummation of the Merger.
Section 5.02. CONDITIONS TO OBLIGATIONS OF PARENT AND NEWCO. The
obligations of Parent and Newco to effect the Merger shall be subject to the
fulfillment at or prior to the Effective Time of each of the following
conditions:
(a) there shall not have occurred any event or circumstances that has
had or is reasonably likely to have a Material Adverse Effect on the
Company;
I-18
<PAGE>
(b) all representations and warranties of the Company under this
Agreement which are qualified as to materiality shall be true and correct in
all respects and all representations and warranties of the Company under
this Agreement that are not qualified as to materiality shall be true and
correct in all material respects on and as of the Effective Time;
(c) the Company shall have performed in all material respects all
covenants and agreements required to be performed by it prior to the
Effective Time;
(d) Parent shall have received a certificate signed on behalf of the
Company by its chief executive officer to the effect set forth in clauses
(b) and (c) above; and
(e) all conditions under the Asset Purchase Agreement shall have been
satisfied or waived and the transactions contemplated thereby shall have
been consummated.
Section 5.03. CONDITIONS TO OBLIGATIONS OF COMPANY. The obligations of the
Company to effect the Merger shall be subject to the fulfillment at or prior to
the Effective Time of each of the following conditions:
(a) all representations and warranties of Parent and Newco under this
Agreement which are qualified as to materiality shall be true and correct in
all respects and all representations and warranties of Parent and Newco
under this Agreement that are not qualified as to materiality shall be true
and correct in all material respects on and as of the Effective Time.
(b) Parent and Newco shall have performed in all material respects all
covenants and agreements required to be performed by each of them prior to
the Effective Time.
ARTICLE VI
TERMINATION; AMENDMENT, WAIVER
Section 6.01. TERMINATION. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time, whether before or
after stockholder approval thereof:
(a) by mutual written consent of Parent, Newco and the Company;
(b) by Parent and Newco or the Company if any court of competent
jurisdiction in the United States or Canada or other United States or
Canadian governmental body shall have issued a final order, injunction,
decree or ruling or taken any other final action restraining, enjoining or
otherwise prohibiting the Merger and such order, injunction, decree, ruling
or other action is or shall have become nonappealable; PROVIDED that the
right to terminate this Agreement pursuant to this Section 6.01(b) shall not
be available to any party which has not used its reasonable best efforts to
cause any such order, injunction, decree, ruling or other action to be
lifted;
(c) by either the Parent and Newco or the Company if the stockholders of
the Company fail to adopt and approve this Agreement, the Asset Purchase
Agreement, the Merger and the transactions contemplated by this Agreement
and the Asset Purchase Agreement at the Special Meeting and any adjournment
thereof, by the Requisite Vote;
(d) by the Company if a corporation, partnership, person or other entity
or group shall have made a bona fide offer not solicited in violation of
Section 4.02 that the Board by a majority vote determines in its good faith
judgment and in the exercise of its fiduciary duties (i), based upon the
advice of the Financial Advisor, is more favorable to the Company's
stockholders than the Merger and (ii), based upon the written advice of
outside counsel, must not make or must withdraw or modify its recommendation
of the Merger in order to avoid breaching its fiduciary duties under
applicable law; PROVIDED, HOWEVER, that such termination under this clause
shall not be effective (i) unless Parent or Newco does not, within 5
business days of receipt of the Company's notification of its intention to
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<PAGE>
enter into a definitive agreement with respect to a superior proposal, make
an offer that the Board by a majority vote determines in its good faith
judgment and in the exercise of its fiduciary duties, based upon the advice
of the Financial Advisor, is at least as favorable to the Company's
stockholders as the superior proposal and (ii) until the Company has made
payment of the full fee and expense reimbursement required by Section 6.03;
(e) by Parent and Newco, if (i) there shall have been a breach of any
representation or warranty on the part of the Company that is or will have a
Material Adverse Effect on the Company or which materially adversely affects
the ability of the Company to consummate the Merger, (ii) there shall have
been a breach of any covenant or agreement on the part of the Company which
is or will result in a Material Adverse Effect on the Company or materially
adversely affects the ability of the Company to consummate the Merger, which
shall not have been cured prior to the earlier of (A) 10 days following
notice of such breach and (B) two business days prior to the Closing Date,
(iii) the Company shall engage in negotiations with any entity or group
(other than Parent or Newco) that has proposed a Third Party Acquisition (as
defined below), (iv) the Board (A) shall have withdrawn or modified in a
manner adverse to Newco its approval or recommendation of this Agreement or
the Merger or shall have recommended another offer or transaction or shall
have adopted any resolution to effect any of the foregoing or (B), in
response to any tender or exchange offer for more than 20% of the
outstanding Common Stock, shall not have recommended rejection of such
tender offer or exchange offer within the time periods specified by
applicable law, or shall have adopted any resolution to effect any of the
foregoing; (v) the existing Asset Purchase Agreement shall have become
terminable by the Company and the Company shall not have entered into a
substitute Asset Purchase Agreement with another party within 2 Business
Days; or (vi) the Company shall have failed to mail the Proxy Statement as
promptly as practicable after the clearance thereof by the SEC or the
Company has failed to include in the Proxy Statement the Board's
recommendation of the Merger;
(f) by the Company if (i) there shall have been a breach of any
representation or warranty on the part of Parent or Newco which materially
adversely affects (or materially delays) the consummation of the Merger or
(ii) there shall have been a material breach of any covenant or agreement on
the part of Parent or Newco and which materially adversely affects (or
materially delays) the consummation of the Merger which shall not have been
cured prior to the earliest of (A) 10 days following notice of such breach
and (B) two business days prior to the Closing Date; or
(g) by Parent and Newco or the Company if the Merger shall not have been
consummated on or before the date that is 5 months from the date of this
Agreement; provided that the right to terminate this Agreement pursuant to
this Section 6.01(g) shall not be available to any party which has not used
its reasonable best efforts to cause the Merger to be consummated.
Section 6.02. EFFECT OF TERMINATION. In the event of the termination and
abandonment of this Agreement pursuant to Section 6.01, this Agreement shall
forthwith become void and have no effect, without any liability on the part of
any party hereto or its affiliates, directors, officers or stockholders, other
than the provision of this Section 6.02 and Section 6.03 hereof. Nothing
contained in this Section 6.02 shall relieve any party from liability for any
breach of this Agreement.
Section 6.03. CERTAIN PAYMENTS. (a) In the event Parent and Newco
terminate this Agreement pursuant to Section 6.01(e)(i), (ii) or (v) hereof,
Parent and Newco would suffer direct and substantial damages, which damages
cannot be determined with reasonable certainty. To compensate Parent and Newco
for such damages, the Company shall pay to Parent, as liquidated damages
immediately upon such a termination, an amount equal to the reasonable,
documented out-of-pocket third party expenses of Parent and Newco incurred in
connection with the transactions contemplated hereby, not to exceed
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<PAGE>
$600,000 in the aggregate. It is specifically agreed that the amount to be paid
pursuant to this Section 6.03(a) represents liquidated damages and not a
penalty.
(b) If
(i) Parent and Newco terminate this Agreement pursuant to Section
6.01(e)(vi) hereof and, within 18 months thereafter the Company enters into
an agreement with respect to a Third Party Acquisition, or a Third Party
Acquisition occurs, involving any party (or any affiliate thereof) (x) with
whom the Company (or its agents) had negotiations with a view to a Third
Party Acquisition, (y) to whom the Company (or its agents) furnished
information with a view to a Third Party Acquisition or (z) who had
submitted a proposal or expressed an interest in a Third Party Acquisition,
in the case of each of clauses (x), (y) and (z) after the date hereof and
prior to such termination; or
(ii) Parent and Newco terminate this Agreement pursuant to Section
6.01(e)(iii) or (vi), and within 18 months thereafter a Third Party
Acquisition shall occur involving a consideration for Shares (including the
value of any stub equity) in excess of the Merger Consideration; or
(iii) (A) the Company terminates this Agreement pursuant to 6.01(d)
hereof or (B) Parent and Newco or the Company terminate this Agreement
pursuant to Section 6.01(c) hereof or (C) Parent and Newco terminate this
Agreement pursuant to Section 6.01(e)(iv),
the Company shall pay to Parent and Newco either prior to termination in the
case of the event described in Section 6.03(iii)(A) or within one business day
following the execution and delivery of such agreement or such occurrence or
termination, as the case may be, in the case of the event described in Section
6.03(i), (ii), (iii)(B) or (iii)(C), a fee, in cash, of $1,300,000, plus
reasonable, documented out-of-pocket third party expenses of Parent and Newco
incurred in connection with the transactions contemplated hereby, PROVIDED,
HOWEVER, that the Company in no event shall be obligated to pay more than one
such $1,300,000 fee with respect to all such agreements and occurrences and such
termination.
"Third Party Acquisition" means the occurrence of any of the following
events (i) the acquisition of the Company by merger or otherwise by any person
(which includes a "person" as such term is defined in Section 13(d)(3) of the
Exchange Act) or entity other than Parent, Newco or any affiliate thereof (a
"Third Party"); (ii) the acquisition by a Third Party of more than 30% of the
total assets of the Company (other than pursuant to the Asset Purchase
Agreement); (iii) the acquisition by a Third Party of 30% of more of the
outstanding Shares; (iv) the adoption by the Company of a plan of liquidation or
the declaration or payment of an extraordinary dividend; or (v) the repurchase
by the Company or any of its subsidiaries of more than 20% of the outstanding
Shares, other than a repurchase which was not approved by the Company or
publicly announced prior to the termination of this Agreement and which is not
part of a series of transactions resulting in a change of control.
Section 6.04. AMENDMENT. This Agreement may be amended by action taken by
the Company, Parent and Newco at any time before or after approval of the Merger
by the stockholders of the Company (if required by applicable law) but, after
any such approval, no amendment shall be made which requires the approval of
such stockholders under applicable law without such approval. This Agreement may
not be amended except by an instrument in writing signed on behalf of the
parties hereto.
Section 6.05. EXTENSION; WAIVER. At any time prior to the Effective Time,
each party hereto may (i) extend the time for the performance of any of the
obligations or other acts of the other party, (ii) waive any inaccuracies in the
representations and warranties of the other party contained herein or in any
document, certificate or writing delivered pursuant hereto or (iii) waive
compliance by the other party with any of the agreements or conditions contained
herein. Any agreement on the part of either party hereto to any such extension
or waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party. The failure of either party hereto to assert any of its
rights hereunder shall not constitute a waiver of such rights.
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ARTICLE VII
DEFINITIONS
Section 7.01. TERMS DEFINED IN THIS AGREEMENT. The following capitalized
terms used herein shall have the meanings ascribed in the indicated sections.
<TABLE>
<S> <C>
Agreement........................................................... First
Paragraph
Antitrust Division.................................................. 4.04
Asset Purchase Agreement............................................ 1.07
Board............................................................... Recitals
Certificates........................................................ 1.11
Certificate of Merger............................................... 1.12
Closing............................................................. 1.05
Closing Date........................................................ 1.05
Common Stock........................................................ Recitals
Company............................................................. First
Paragraph
Common Stock Equivalents............................................ 3.13
Company SEC Reports................................................. 3.04
Contracts........................................................... 3.19
Confidentiality Agreement........................................... 4.02
Delaware Act........................................................ 1.01
Disclosure Statement................................................ Article III
Dissenting Shares................................................... 1.10
Effective Time...................................................... 1.02
ERISA............................................................... 3.17
Exchange Act........................................................ 3.03
Exchange Agent...................................................... 1.11
Exchange Fund....................................................... 1.11
Financial Advisor................................................... 1.09
FTC................................................................. 4.04
HSR Act............................................................. 2.03
Intellectual Property............................................... 3.23
Licenses............................................................ 3.23
Material Adverse Effect............................................. 3.01
Merger.............................................................. 1.01
Merger Consideration................................................ 2.07
Newco............................................................... First
Paragraph
Parent.............................................................. First
Paragraph
Proxy Statement..................................................... 1.09
SEC................................................................. 1.04
Securities Act...................................................... 2.03
Special Meeting..................................................... 1.09
Stock Plans......................................................... 1.08
Surviving Corporation............................................... 1.01
Tax Return.......................................................... 3.18
Taxes............................................................... 3.18
Third Party......................................................... 6.03
Third Party Acquisition............................................. 6.03
</TABLE>
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<PAGE>
ARTICLE VIII
MISCELLANEOUS
Section 8.01. WAIVER OF COMPLIANCE; CONSENTS. Any failure of Parent or
Newco, on the one hand, or the Company, on the other hand, to comply with any
obligation, covenant, agreement or condition herein may be waived by the Company
or Parent or Newco, respectively, only by a written instrument signed by the
party granting such waiver, but such waiver or failure to insist upon strict
compliance with such obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure. Whenever this Agreement requires or permits consent by or on behalf of
any party hereto, such consent shall be given in writing in a manner consistent
with the requirements for a waiver of compliance as set forth in this Section
8.01.
Section 8.02. SURVIVABILITY; INVESTIGATIONS. The respective
representations and warranties of Parent, Newco and the Company contained herein
or in any certificates or other documents delivered prior to or at the Closing
shall not be deemed waived or otherwise affected by any investigation made by
any party hereto and shall not survive the Closing.
Section 8.03. NOTICES. All notices and other communications hereunder
shall be in writing and shall be delivered personally, by next-day courier or
mailed by registered or certified mail (return receipt requested), first class
postage prepaid, or telecopied with written confirmation of receipt, to the
parties at the addresses specified below (or at such other address for a party
as shall be specified by like notice; provided, that notices of a change of
address shall be effective only upon receipt thereof). Any such notice shall be
effective upon receipt, if personally delivered or telecopied, one day after
delivery to a courier for next-day delivery, or three days after mailing, if
deposited in the U.S. mail, first class postage prepaid.
(a) if to the Company, to
One Komer Center
P.O. Box 1999
Elmira, NY 14902-1999
Telephone: (607) 735-4500
Facsimile: (607) 733-5699
Attention: Stuart Komer
with a copy to
Cahill Gordon & Reindel
80 Pine Street
New York, NY 10005
Telephone: (212) 701-3000
Facsimile: (212) 269-5420
Attention: William B. Gannett, Esq.
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(b) if to Parent, or Newco, to
45 Hazelton Avenue
Toronto, Ontario
Canada M5R 2E3
Telephone: (416) 960-9000
Attention: Miles S. Nadal
with a copy to
Marni J. Lerner, Esq.
Edward J. Chung, Esq.
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Telephone: (212) 455-2000
Facsimile: (212) 455-2502
Section 8.04. ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This Agreement and
all of the provisions hereof shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns, but
neither this Agreement nor any of the rights, interests or obligations hereunder
shall be assigned by any of the parties hereto without the prior written consent
of the other parties, except that Parent and Newco may assign all or any of
their respective rights and obligations hereunder to any direct or indirect
wholly owned subsidiary or subsidiaries of Parent, PROVIDED that no such
assignment shall relieve the assigning party of its obligations hereunder if
such assignee does not perform such obligations. This Agreement is not intended
to confer any rights or remedies hereunder upon any other person except the
parties hereto and, with respect to Section 4.07, the officers and directors of
the Company.
Section 8.05. GOVERNING LAW. Except as the laws of the State of Delaware
are by their terms applicable, this Agreement shall be governed by the laws of
the State of New York (regardless of the laws that might otherwise govern under
applicable New York principles of conflicts of law) as to all matters, including
but not limited to matters of validity, construction, effect, performance and
remedies.
Section 8.06. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 8.07. SEVERABILITY. In case any one or more of the provisions
contained in this Agreement should be invalid, illegal or unenforceable in any
respect against a party hereto, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party and such invalidity, illegality or unenforceability shall only apply as to
such party in the specific jurisdiction where such judgment shall be made.
Section 8.08. INTERPRETATION. The article and section headings contained
in this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect the meaning or
interpretation of this Agreement. As used in this Agreement, the term "person"
shall mean and include an individual, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization and a government or any
department or agency thereof.
Section 8.09. ENTIRE AGREEMENT. This Agreement, including the exhibits
hereto and the documents and instruments referred to herein (including the
Confidentiality Agreement and Disclosure Statement), embodies the entire
agreement and understanding of the parties hereto in respect of the subject
matter contained herein and supersedes all prior agreements and the
understandings between the parties with respect to such subject matter. There
are no representations, promises, warranties, covenants, or undertakings, other
than those expressly set forth or referred to herein and therein.
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IN WITNESS WHEREOF, Parent, Newco and the Company have caused this Agreement
to be signed by their respective duly authorized officers as of the date first
above written.
<TABLE>
<S> <C> <C>
MDC COMMUNICATIONS CORPORATION
By: /s/ MILES S. NADAL
----------------------------------------
Name: Miles S. Nadal
Title: PRESIDENT AND CHIEF EXECUTIVE
OFFICER
AGI ACQUISITION CO.
By: /s/ PETER LEWIS
----------------------------------------
Name: Peter Lewis
Title:
ARTISTIC GREETINGS INCORPORATED
By: /s/ STUART KOMER
----------------------------------------
Name: Stuart Komer
Title: CHAIRMAN OF THE BOARD
</TABLE>
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ANNEX II
ASSET PURCHASE AGREEMENT
BETWEEN
ARTISTIC GREETINGS INCORPORATED
AND
ARTISTIC DIRECT INCORPORATED
------------------------
DATED AS OF DECEMBER 21, 1997
------------------------
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TABLE OF CONTENTS
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ARTICLE I
PURCHASE AND SALE
Section 1.1 The Asset Purchase...................................................................... 1
Section 1.2 Purchase Price.......................................................................... 2
Section 1.3 Assumption of Liabilities............................................................... 2
Section 1.4 Closing................................................................................. 3
Section 1.5 Further Assurances...................................................................... 3
Section 1.6 FMV Schedule............................................................................ 3
Section 1.7 Intellectual Property LLC............................................................... 3
Section 1.8 Purchase Price Adjustments.............................................................. 3
Section 1.9 Allocation of Certain Joint Liabilities................................................. 3
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF ADI
Section 2.1 Organization and Qualification.......................................................... 3
Section 2.2 Authority............................................................................... 4
Section 2.3 No Violations, Etc...................................................................... 4
Section 2.4 Brokers................................................................................. 4
Section 2.5 Financing............................................................................... 5
Section 2.6 No Other Representations or Warranties.................................................. 5
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ARTISTIC
Section 3.1 Organization and Qualification.......................................................... 5
Section 3.2 Authority............................................................................... 5
Section 3.3 No Violations, Etc...................................................................... 5
Section 3.4 Board Recommendation.................................................................... 6
Section 3.5 Brokers................................................................................. 6
Section 3.6 No Other Representations or Warranties.................................................. 6
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 4.1 Conduct of Business..................................................................... 6
Section 4.2 Other Potential Bidders................................................................. 8
Section 4.3 No Solicitation......................................................................... 9
ARTICLE V
ADDITIONAL AGREEMENTS
Section 5.1 Fees and Expenses....................................................................... 9
Section 5.2 Reasonable Best Efforts................................................................. 9
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Section 5.3 Intentionally Omitted................................................................... 10
Section 5.4 Financing............................................................................... 10
Section 5.5 Artistic and ADI Indemnification........................................................ 10
Section 5.6 Public Announcements.................................................................... 12
Section 5.7 Sales and Transfer Taxes................................................................ 12
Section 5.8 Access to Information................................................................... 12
Section 5.9 Risk of Loss............................................................................ 13
Section 5.10 Bulk Transfer Laws...................................................................... 13
Section 5.11 Transition Services Agreement, Etc...................................................... 13
Section 5.12 Employee Relations and Benefits......................................................... 13
ARTICLE VI
CONDITIONS PRECEDENT TO THE ASSET PURCHASE
Section 6.1 Conditions to Each Party's Obligation to Effect the Asset Purchase...................... 14
Section 6.2 Conditions to Obligation of Artistic to Effect the Asset Purchase....................... 15
Section 6.3 Conditions to Obligations of ADI to Effect the Asset Purchase........................... 15
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
Section 7.1 Termination............................................................................. 16
Section 7.2 Effect of Termination................................................................... 17
Section 7.3 Certain Payments........................................................................ 17
Section 7.4 Waiver.................................................................................. 18
ARTICLE VIII
POST-CLOSING COVENANTS
Section 8.1 Access to Information................................................................... 18
ARTICLE IX
GENERAL PROVISIONS
Section 9.1 Notices................................................................................. 19
Section 9.2 Interpretation.......................................................................... 20
Section 9.3 Counterparts............................................................................ 20
Section 9.4 Entire Agreement; No Third-Party Beneficiaries.......................................... 20
Section 9.5 Governing Law........................................................................... 20
Section 9.6 Assignment.............................................................................. 20
Section 9.7 Severability............................................................................ 21
Section 9.8 Enforcement............................................................................. 21
Section 9.9 Defined Terms........................................................................... 21
Section 9.10 Consent to Jurisdiction................................................................. 21
Annex 1 Description of Assets and Liabilities
Annex 2 List of Assumed Contracts and Leased Property Lease Agreements
Annex 3 Description of Real Property
Annex 4 List of Assumed Liens
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Schedule 1.1 Assumed Balance Sheet Assets
Schedule 1.1A Joint Assets
Schedule 1.1B Excluded Assets
Schedule 1.3 Excluded Liabilities
Schedule 1.3A Joint Balance Sheet Liabilities
Schedule 1.3B Joint Employee Liabilities
Schedule 2.5 Proposal Letters
Exhibit A Assumption Agreement
Exhibit B Transition Services Agreement
Exhibit C Advertising and Fulfillment Agreement
Exhibit D Bill of Sale and Assignment
Exhibit E Warranty Deed
Exhibit F Trademark Assignment Agreement
Exhibit G Limited Liability Company Agreement
Exhibit H Promissory Note
</TABLE>
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<PAGE>
ASSET PURCHASE AGREEMENT (this "Agreement") dated as of December 21, 1997,
between ARTISTIC GREETINGS INCORPORATED, a Delaware corporation ("Artistic"),
and ARTISTIC DIRECT INCORPORATED, a privately-held New York corporation ("ADI").
Thomas C. Wyckoff has formed ADI (an S election corporation) in order to
acquire certain assets and to assume certain liabilities described in Annex 1.
Concurrently herewith, Artistic and MDC Communications Corporation, an
Ontario corporation ("MDC"), have entered into an Agreement and Plan of Merger
(the "Merger Agreement"), dated as of even date herewith, (the "Merger") of AGI
Acquisition Co., a Delaware corporation and a wholly owned subsidiary of MDC,
with and into Artistic.
It is a condition to the Merger that the Asset Purchase (as defined below)
shall have been consummated.
Prior to consummation of the Merger, subject to the terms and conditions of
this Agreement, Artistic shall sell to ADI certain assets, and assign to ADI
certain liabilities, of Artistic relating to its Personalized Product and
Catalog businesses (the "P&C Businesses"), including, without limitation, all
related intangible assets, going-concern value and goodwill, as well as the real
property (the "Real Property") and leased property (the "Leased Property") of
Artistic (collectively, the "Assets") (such transactions being referred to
herein as the "Asset Purchase").
ADI, on the one hand, and Artistic, on the other, desires to make certain
representations, warranties and agreements in connection with the Asset Purchase
and to prescribe various conditions to the Asset Purchase.
Accordingly, in consideration of the premises and the representations,
warranties and agreements herein contained, the parties hereto agree as follows:
ARTICLE I
THE ASSET PURCHASE
Section 1.1 THE ASSET PURCHASE. Upon the terms and subject to the
conditions of this Agreement, at the Closing (as defined in Section 1.4), ADI
shall purchase and acquire from Artistic, and Artistic shall convey, assign,
transfer and sell to ADI, all of Artistic's right, title and interest in and to
the Assets described in Annex 1, including the assets listed on the balance
sheet of Artistic as set forth on Schedule 1.1 (the "Assumed Balance Sheet
Assets"), and including the assets relating to both the P&C Businesses and the
businesses of Artistic other than the P&C Businesses as set forth on Schedule
1.1A (the "Joint Assets") to the extent the Joint Assets relate to the P&C
Businesses, with such additions, deletions and replacements as may have occurred
between the date hereof and the Closing Date (as defined in Section 1.4) in the
ordinary course of business consistent with Section 4.1 or as the parties may
otherwise agree is necessary to make any corrections thereto (it being
understood that the Assets shall not include any assets, properties and other
rights relating to the check business of Artistic and those assets, properties
and other rights set forth in Schedule 1.1B (the "Excluded Assets")). At the
Closing, Artistic shall deliver to ADI such specific assignments, bills of sale,
endorsements, deeds and other good and sufficient instruments of conveyance and
transfer, in form and substance reasonably satisfactory to ADI and Artistic and
their respective counsel, as shall be reasonably requested by ADI to effectively
vest in ADI title to all the Assets. Simultaneously with the delivery of such
instruments, Artistic shall transfer to ADI originals of all contracts,
agreements, commitments, books, records, files, certificates, licenses, permits,
plans and specifications and other data relating to and reasonably necessary for
the continued operation of the P&C Businesses.
Section 1.2 PURCHASE PRICE. In consideration of the transfer to ADI of the
Assets, ADI shall on the Closing Date (a) deliver to Artistic $9,000,000 (the
"Purchase Price") by wire transfer of immediately
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available funds, into an account of Artistic designated to ADI at least two
Business Days prior to the Closing Date (provided that at the election of the
ADI, up to $250,000 of the Purchase Price may be satisfied by delivery to
Artistic of a Promissory Note substantially in the form of Exhibit H) and (b)
assume the Assumed Liabilities (as defined in Section 1.3). The Purchase Price
shall be subject to adjustment pursuant to Section 1.8 and Section 5.5(e).
"Business Day" shall mean any day other than a Saturday, Sunday or other day on
which banks are authorized to be closed in New York City or Toronto.
Section 1.3 ASSUMPTION OF LIABILITIES.
(a) ASSUMED LIABILITIES. In addition to payment of the Purchase Price, ADI
shall assume at the Closing, and subsequently in due course pay, honor and
discharge, (i) all the obligations, debts and liabilities of Artistic arising
out of or relating to the P&C Businesses or the Assets, (ii) the employment
related liabilities of Business Employees as set forth in Section 5.12, (iii)
all environmental liabilities of Artistic, (iv) the obligations, debts and
liabilities set forth on Annex 1, (v) contingent and unknown liabilities arising
out of or relating primarily to the P&C Businesses, the Real Property or the
Leased Property, accruing before, on or after the Closing Date (as defined in
Section 1.4), (vi) the liabilities listed on the balance sheet of Artistic to
the extent set forth on Annex 1(the "Assumed Balance Sheet Liabilities"), (vii)
liabilities which relate to both the P&C Businesses and the businesses of
Artistic other than the P&C Businesses (the "Joint Liabilities") to the extent
provided in Section 1.9 and as shall be set forth on Schedule 1.3A and (viii)
the allocable share of Joint Employee Liabilities set forth in Schedule 1.3B,
determined on the basis of FTE (full time employee) equivalents (collectively,
the "Assumed Liabilities"). Artistic shall retain and ADI shall not assume any
of Artistic's obligations, debts and liabilities set forth on Schedule 1.3 and
any other obligations, debts and liabilities other than the Assumed Liabilities
(the "Excluded Liabilities").
(b) THIRD-PARTY CONSENTS. Any leases, rental agreements, insurance
policies, sales orders, insurance contracts, trust agreements, licenses,
agreements, permits, purchase orders, registered user agreements, commitments
and any and all other contracts or binding arrangements, whether written or
oral, express or implied, which are related to the P&C Businesses and the
Assets, including any entered into between the date hereof and the Closing in
the ordinary course of business, all of which shall be identified on Annex 2
except for contracts entered into between the date hereof and the Closing
(collectively, the "Assumed Contracts"), shall be assumed by ADI at the Closing
Date. To the extent that any Assumed Contract is not assignable without the
consent of another party, this Agreement shall not constitute an assignment or
an attempted assignment thereof if such assignment or attempted assignment would
constitute a breach thereof or of any other Assumed Contract. Artistic agrees to
use its reasonable efforts on or prior to the Closing Date to obtain the consent
of such other party to the assignment to ADI of any such Assumed Contract in all
cases in which such consent is required for such assignment. If such consent
cannot be so obtained on or prior to the Closing Date, Artistic agrees to
cooperate with ADI in any reasonable arrangement designed to provide for ADI the
benefits intended to be assigned to ADI under the relevant Assumed Contract,
including enforcement at the cost and for the account of ADI of any and all
rights of Artistic against the other party thereto arising out of the breach or
cancellation thereof by such other party or otherwise (such Assumed Contracts
being the "Deferred Contracts"); provided that all losses, taxes or other items
generated by the relevant Deferred Contracts shall be for ADI's account;
provided further, that, except as otherwise provided in this Agreement or the
Schedules, Exhibits and Annexes hereto, Artistic shall not have any liability to
ADI arising out of such Deferred Contracts and ADI shall reimburse Artistic and
indemnify and hold Artistic harmless from all liabilities incurred or asserted
as a result of Artistic's post-Closing direct or indirect ownership of the
Deferred Contracts.
(c) ASSUMPTION AGREEMENT. On the Closing Date (as defined in Section 1.4),
ADI shall execute and deliver to Artistic the Assumption Agreement,
substantially in the form of Exhibit A.
Section 1.4 CLOSING. The closing of the Asset Purchase (the "Closing")
shall take place in the offices of Simpson Thacher & Bartlett, 425 Lexington
Avenue, New York, New York, at 10:00 a.m., local
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<PAGE>
time, on the second Business Day following the date on which all the conditions
to the consummation of the transactions contemplated herein set forth in Article
VI have been satisfied or waived, or such other time, date and place as ADI and
Artistic shall agree (such date being the "Closing Date").
Section 1.5 FURTHER ASSURANCES. From and after the Closing Date, upon the
reasonable request of ADI, Artistic shall do, execute, acknowledge and deliver
all such further acts, assurances, deeds, assignments, transfers, conveyances
and other instruments and papers as may be reasonably required to sell, assign,
transfer, convey and deliver to and vest in ADI, and protect its right, title
and interest in and employment of, all the Assets intended to be sold, assigned,
transferred, conveyed and delivered to ADI pursuant to this Agreement
(including, with respect to any Assets that are licensed or leased to Artistic,
to cause, upon the request of ADI, the assignment of any such licenses or leases
(and any other maintenance, servicing or other agreement specifically relating
to any Asset) to ADI, the expenses of any such action to be borne equally by
Artistic and ADI, it being understood that until such assignment, ADI will
reimburse Artistic for charges and lease payments it makes after the Closing
Date (for periods after the Closing Date) in respect of such Assets under any
such licenses or leases), and as otherwise may be appropriate to carry out the
transactions contemplated by this Agreement.
Section 1.6 FMV SCHEDULE. Within 45 days after the Closing Date, ADI and
Artistic will determine the fair market value of the various classes of the
Assets, the Assumed Liabilities and the other rights and benefits conferred
hereunder and will set forth such fair market value upon an agreed schedule (the
"FMV Schedule"). The parties agree that the Purchase Price shall be allocated
for tax purposes among the Assets in a manner consistent with the FMV Schedule
and the provisions of Section 1060 of the Internal Revenue Code of 1986, as
amended (the "Code") and the Treasury regulations promulgated thereunder. The
allocation set forth on the FMV Schedule shall be made in good faith and arrived
at by arm's length negotiation, and each of the parties agrees that it will not
take, without the prior written consent of the other, any position on any
federal or state income or transfer tax return (including Form 8954, Asset
Acquisition Statement under Section 1060 of the Code) or before any governmental
agency, any position or make any allocation inconsistent with that set forth in
the FMV Schedule.
Section 1.7 INTELLECTUAL PROPERTY LLC. Immediately following the Closing
but prior to the Effective Time of the Merger (as defined in the Merger
Agreement), ADI and Artistic will enter into a Limited Liability Company
Agreement (the "Limited Liability Agreement") substantially in the form of
Exhibit G whereby ADI and Artistic shall contribute to a limited liability
company formed by the parties prior to the Closing Date, certain intellectual
property and other interests referred to on the schedules to the Limited
Liability Agreement, and also shall consummate the other transactions
contemplated by the Limited Liability Agreement (including the schedules
thereto).
Section 1.8 PURCHASE PRICE ADJUSTMENTS. (a) Following the Closing, the
parties will in good faith determine the amount, if any, by which Artistic has
made capital expenditures on property, plant and equipment (other than routine
maintenance and servicing) in excess of $100,000 per calendar month during the
period from the date hereof through the Closing Date (provided that to the
extent that in any calendar month less than $100,000 is so expended, such
difference may be carried forward to future calendar months), the Purchase Price
will be increased by the amount of such excess expenditure (the "Excess"). Upon
final agreement of the parties as to the amount of the Excess, ADI shall deliver
a promissory note to Artistic in substantially the form of the Promissory Note
attached as Exhibit G with an issue price equal to the Excess.
(b) At Closing, Artistic shall deliver to ADI the sum of (i) the positive
difference between (A) the Komer Severance Payment (as defined in Section 5.12
(j)) that would have been due Komer if the transactions contemplated by the
Merger Agreement had occurred prior to December 31, 1997, and (B) the Komer
Severance Payment payable at the time of the Merger and (ii) $333,333. Such
payments shall be made by wire transfer of immediately available funds, at
Closing, to an account designated by ADI
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to Artistic at least two days prior to the Closing, and shall be considered an
adjustment to the Purchase Price.
Section 1.9 ALLOCATION OF CERTAIN JOINT LIABILITIES. During the period
from the date hereof through the Closing Date, ADI and Artistic shall endeavor
in good faith to allocate between Assumed Liabilities and Excluded Liabilities
the Joint Liabilities which otherwise have not been so allocated. If any Joint
Liability can not be so allocated by the parties, Artistic will be responsible
for 100% of such Joint Liability and ADI will pay to Artistic amounts necessary
to satisfy 55% of such Joint Liability (within five days of Artistic's
satisfaction of such liabilities).
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF ADI
ADI represents and warrants to Artistic as follows:
Section 2.1 ORGANIZATION AND QUALIFICATION. ADI (i) is a corporation duly
organized, validly existing and in good standing under the laws of the State of
New York and has all requisite corporate power and authority to carry on its
business as now being conducted and to own and operate the properties and assets
it now owns, and (ii) is in good standing in each jurisdiction where the
character of its business owned or held under lease or the nature of its
activities makes such qualification necessary, except where the failure to be so
qualified would not, individually or in the aggregate, have a Material Adverse
Effect on ADI or prevent or materially delay the consummation of the
transactions contemplated hereby. "Material Adverse Change" or "Material Adverse
Effect" means, when used with respect to ADI, Artistic or the P&C Businesses,
any change or effect that is or, is reasonably likely to be materially adverse
to the business, operations, assets, financial condition or results of
operations of ADI, Artistic or the P&C Businesses, as the case may be.
Section 2.2 AUTHORITY. ADI has all requisite power and authority to
execute and deliver this Agreement, the Bill of Sale and Assignment, the
Assumption Agreement and any other agreement contemplated hereby to which it is
a party, to perform its obligations hereunder and thereunder, and to consummate
the Asset Purchase and the other transactions contemplated hereby. The execution
and delivery by ADI of this Agreement and the consummation by ADI of the Asset
Purchase and the other transactions contemplated hereby have each been duly and
validly authorized by the Board of Directors of ADI and no other corporate
proceedings on the part of ADI are necessary to authorize this Agreement or to
consummate the Purchase and the other transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by ADI and, assuming
the valid authorization, execution and delivery of this Agreement by Artistic,
constitutes a legal, valid and binding agreement of ADI, enforceable against ADI
in accordance with its terms, except to the extent such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer or other similar laws of general applicability relating to or affecting
the enforcement of creditors' rights and by the effect of general principles of
equity (regardless of whether enforceability is considered in a proceeding in
equity or at law).
Section 2.3 NO VIOLATIONS, ETC. The execution and delivery of this
Agreement do not or will not, as the case may be, and the consummation of the
transactions contemplated hereby and compliance with the provisions hereof do
not or will not, conflict with, or result in any violation of, or default (with
or without notice or lapse of time, or both) under, or give rise to a right of
termination, cancelation or acceleration of any obligation or to the loss of a
material benefit under, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties or assets of ADI
under, any provision of (i) the Certificate of Incorporation or Bylaws of ADI,
(ii) any loan or credit agreement, note, bond, mortgage, indenture, lease or
other agreement, instrument, permit, concession, franchise or license applicable
to ADI, or (iii) any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to ADI or any of its properties or assets, other than, in
the case of clauses (ii) or (iii), any such conflicts, violations, defaults,
losses, liens, security interests, charges or encumbrances that, individually or
in the aggregate,
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would not have a Material Adverse Effect on ADI, materially impair the ability
of ADI to perform its obligations hereunder or prevent the consummation of any
of the transactions contemplated hereby. No filing or registration with, or
authorization, consent or approval of, any domestic (federal and state), foreign
or supranational court, commission, governmental body, regulatory agency,
authority or tribunal (a "Governmental Agency") is required by or with respect
to ADI in connection with the execution and delivery of this Agreement by ADI or
is necessary for the consummation by ADI of the Asset Purchase, except for such
consents, orders, authorizations, registrations, declarations and filings, the
failure of which to be obtained or made would not, individually or in the
aggregate, have a Material Adverse Effect on ADI, materially impair the ability
of ADI to perform its obligations hereunder or prevent the consummation of the
transaction contemplated hereby.
Section 2.4 BROKERS. No broker, investment banker or other person is
entitled to any broker's, finder's or similar fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of ADI.
Section 2.5. FINANCING. ADI has in hand binding proposal, commitment or
similar letters, which are currently in effect and true and correct copies of
which are attached hereto as Schedule 2.5, with a reputable financial
institution or institutions or Governmental Agencies to obtain, together with
commitments of equity and/or subordinated indebtedness (of no less than $1.25
million in the aggregate, excluding the $250,000 Promissory Note referred to in
Section 1.2 (the "Proposal Letters"), all funds necessary to enable ADI to
finance the Purchase Price and consummate this Agreement (the "Financing").
Section 2.6. NO OTHER REPRESENTATIONS OR WARRANTIES. Except for the
representations and warranties contained in this Article II, neither ADI nor any
other person makes any other express or implied representation or warranty on
behalf of ADI.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ARTISTIC
Artistic represents and warrants to ADI as follows:
Section 3.1 ORGANIZATION AND QUALIFICATION. Artistic (i) is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to carry
on its business as now being conducted and to own and operate the properties and
assets it now owns, and (ii) is duly qualified as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character of
its business owned or leased or the nature of its activities makes such
qualification necessary, except where the failure to be so qualified or in good
standing would not, individually or in the aggregate, have a Material Adverse
Effect on the P&C Businesses, or prevent or materially delay the consummation of
the transactions contemplated hereby.
Section 3.2 AUTHORITY. Artistic has all requisite power and authority to
execute and deliver this Agreement, the Bill of Sale and Assignment, the
Assumption Agreement and any other agreement contemplated hereby to which it is
a party, to perform its obligations hereunder and thereunder, and to consummate
the Asset Purchase and the other transactions contemplated hereby. The execution
and delivery by Artistic of this Agreement and the consummation by Artistic of
the Asset Purchase and the other transactions contemplated hereby have each been
duly and validly authorized by the Board of Directors of Artistic (the "Board")
and no other corporate proceedings on the part of Artistic are necessary to
authorize this Agreement or to consummate the Asset Purchase and the other
transactions contemplated hereby (other than, with respect to the Merger and the
Asset Purchase, the receipt of the "Requisite Vote" (as defined in the Merger
Agreement)). This Agreement has been duly and validly executed and delivered by
Artistic and, assuming the valid authorization, execution and delivery of this
Agreement by ADI, constitutes a legal, valid and binding agreement of Artistic,
enforceable against Artistic in accordance with its terms, except to the extent
such enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer or other similar laws of general applicability
relating to or affecting the enforcement of creditors' rights and by the effect
of general principles of equity (regardless of whether enforceability is
considered in a proceeding in equity or at law).
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Section 3.3 NO VIOLATIONS, ETC. Subject to receipt of the Requisite Vote,
the execution and delivery of this Agreement do not or will not, as the case may
be, and the consummation of the transactions contemplated hereby and compliance
with the provisions hereof do not or will not, conflict with, or result in any
violation of, or default (with or without notice of lapse of time, or both)
under, or give rise to a right of termination, cancelation or acceleration of
any obligation or to the loss of a material benefit under, or result in the
creation of any lien, security interest, charge or encumbrance upon any of the
properties or assets of Artistic under, any provision of (i) the Certificate of
Incorporation or Bylaws of Artistic, (ii) any loan or credit agreement, note,
bond, mortgage, indenture, lease or other agreement, instrument, permit,
concession, franchise or license applicable to Artistic, or (iii) any judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to
Artistic or any of its respective properties or assets, other than, in the case
of clauses (ii) or (iii), any such conflicts, violations, defaults, losses,
liens, security interests, charges or encumbrances that, individually or in the
aggregate, would not have a Material Adverse Effect, materially impair the
ability of Artistic to perform its obligations hereunder or prevent the
consummation of any of the transactions contemplated hereby. Except for the
filings referred to in Section 3.03 and Schedule 3.03 to the Merger Agreement,
which are incorporated by reference herein, no filing or registration with, or
authorization, consent or approval of, any Governmental Agency is required by or
with respect to Artistic in connection with the execution and delivery of this
Agreement or the Merger Agreement by Artistic or is necessary for the
consummation by Artistic of the Merger, the Asset Purchase and the other
transactions contemplated hereby and thereby, except for such consents, orders,
authorizations, registrations, declarations and filings, the failure of which to
be obtained or made would not, individually or in the aggregate, have a Material
Adverse Effect on Artistic, materially impair the ability of Artistic to perform
its obligations hereunder or thereunder or prevent the consummation of the
transactions contemplated hereby or thereby.
Section 3.4 BOARD RECOMMENDATION. The Board has approved and adopted this
Agreement, the Asset Purchase, the Merger and the other transactions
contemplated by this Agreement and the Merger Agreement, determined that the
consideration to be received by the holders of shares of common stock of
Artistic pursuant to the Merger is fair to the holders of such shares and
recommended that the holders of such shares approve and adopt the Merger
Agreement, the Merger, the Asset Purchase and the other transactions
contemplated by this Agreement and the Merger Agreement.
Section 3.5 BROKERS. No broker, investment banker or other person is
entitled to any broker's, finder'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 Artistic.
Section 3.6 NO OTHER REPRESENTATIONS OR WARRANTIES. Except for the
representations and warranties contained in this Article III, neither Artistic
nor any other person makes any other express or implied representation or
warranty on behalf of Artistic.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 4.1 CONDUCT OF BUSINESS. Prior to the Closing Date, Artistic shall
operate its business (including the P&C Businesses) in the ordinary course of
business and in all respects in accordance with Section 4.01 of the Merger
Agreement.
Section 4.2 OTHER POTENTIAL BIDDERS. Artistic, its affiliates and their
respective officers, directors, employees, representatives and agents shall
immediately cease any existing discussions or negotiations, if any, with any
parties conducted heretofore with respect to a transaction or series of
transactions involving the Assets and the Assumed Liabilities to be transferred
or assumed hereunder. Artistic, its affiliates and their respective officers,
directors, employees, representatives and agents, may, directly or indirectly,
furnish information and access, in each case only in response to unsolicited
requests therefor made after the date hereof, to any corporation, partnership,
person or other entity or group pursuant to confidentiality
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agreements, and may participate in discussions and negotiate with such entity or
group concerning any transaction involving the Assets and the Assumed
Liabilities, if such entity or group has submitted a bona fide written proposal
to the Board relating to any such transaction and the Board by a majority vote
determines that such transaction would be on substantially the same basis as
this Agreement and would result in increased aggregate cash consideration being
available to the stockholders of Artistic. The Board shall notify ADI
immediately if any such proposal is made and shall in such notice indicate in
reasonable detail the identity of the offeror and the terms and conditions of
any proposal and shall keep ADI promptly advised of all material developments in
connection therewith. Except as set forth above, neither Artistic or any of its
affiliates, nor any of its or their respective officers, directors, employees,
representatives or agents shall, directly or indirectly, encourage, solicit,
participate in or initiate discussions or negotiations with, or provide any
information to, any corporation, partnership, person or other entity or group
(other than ADI, any affiliate or associate of ADI or any designee of ADI)
concerning any transaction involving the Assets or the Assumed Liabilities.
Nothing in this Section 4.2 shall prohibit Artistic from complying with its
obligations under the Merger Agreement.
Section 4.3 NO SOLICITATION. Artistic agrees that it will not, from and
after the Closing through and including the fifth anniversary of the Closing
Date, without the prior written consent of ADI, directly or indirectly, solicit
the employment of any person who is at that time an employee, representative or
officer of the P&C Businesses and who was prior to the Closing an employee of
Artistic in connection with any of the P&C Businesses and whose compensation and
benefits were in excess of $50,000 per year; provided that in no event will this
provision limit Artistic in its normal advertising, posting or other general
employment opportunity communication activities.
ARTICLE V
ADDITIONAL AGREEMENTS
Section 5.1 FEES AND EXPENSES. Whether or not the Closing occurs, all
costs and expenses (other than fees and expenses of financing sources) incurred
by Artistic in connection with this Agreement and the transactions contemplated
herein, shall be paid by Artistic, and all such costs and expenses (other than
fees and expenses of financing sources) of ADI shall be paid by Artistic at or
prior to Closing. Prior to the Closing or upon termination of this Agreement,
Artistic shall recharacterize the promissory notes, dated October 15, 1997 and
November 7, 1997, of ADI as an expense of Artistic.
Section 5.2 REASONABLE BEST EFFORTS. Upon the terms and subject to the
conditions set forth in this Agreement, each of the parties shall use all
reasonable best efforts to take, or cause to be taken, all actions, and to do,
or cause to be done, and to assist and cooperate with the other party in doing,
all things necessary, proper or advisable to consummate and make effective, in
the most expeditious manner practicable, the Asset Purchase and the other
transactions contemplated by this Agreement and the prompt satisfaction of the
conditions hereto, including, without limitation, all required consents,
authorizations, orders, exemptions and approvals of any third parties,
including, without limitation, Governmental Agencies.
Section 5.3 INTENTIONALLY OMITTED.
Section 5.4 FINANCING. (a) ADI shall deliver to Artistic on or before the
date (which shall be no later than five Business Days after it has been cleared
by the Securities and Exchange Commission (it being understood that Artistic
will notify ADI of such clearance promptly)) (the "Mailing Date") on which the
Proxy Statement (as defined in the Merger Agreement) is scheduled to be mailed
to the stockholders of Artistic true and correct copies of each Proposal Letter
which shall be in full force and effect at such time.
(b) In the event that all or any portion of the Financing provided for in
the Proposal Letters has become unavailable at or prior to the Mailing Date,
regardless of fault, ADI shall deliver to Artistic within
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10 Business Days of the Mailing Date, proposal, commitment or similar letters
from others providing for the financing necessary for the consummation of the
transactions contemplated hereby, on and subject to terms and conditions no less
favorable to ADI in the aggregate than provided for in the Proposal Letters.
(c) During the period from the Mailing Date through the Closing Date, in the
event that all or any portion of the Financing provided for in the Proposal
Letters becomes unavailable, regardless of fault, ADI shall deliver to Artistic
within 30 days of the date that such financing became unavailable, proposal,
commitment or similar letters from others providing for the financing necessary
for the consummation of the transactions contemplated hereby, on and subject to
terms and conditions no less favorable to ADI in the aggregate than provided for
in the Proposal Letters. ADI shall keep Artistic promptly informed of all
material developments with respect to the Financing.
(d) ADI intends that the terms and conditions of the Financing shall be no
less favorable taken as a whole than those previously set forth in the Proposal
Letters or any replacement letters. ADI shall use its best efforts to satisfy at
or before the Closing all conditions to the transactions constituting the
Financing and to its drawing down the cash proceeds thereunder.
Section 5.5 INDEMNIFICATION.
(a) ARTISTIC INDEMNITY. On and after the Closing Date, Artistic shall
indemnify and hold ADI and its affiliates harmless against and in respect of all
actions, claims, suits, demands, judgments, costs and expenses (including
reasonable attorneys' fees of ADI) (collectively, "Damages") relating to (i) the
Excluded Liabilities, (ii) the ownership or operation of the Excluded Assets by
Artistic or any other person following the Closing Date, (iii) the Merger
(whether arising from a claim made by a stockholder of Artistic or otherwise)
(iv) the representation by Artistic regarding broker fees set forth in Section
3.5 or (v) the obligations of Artistic regarding AGI employees, including,
without limitation, employee benefit plans and employment liabilities, as set
forth in Section 5.12. The indemnification provided for in this Section 5.5(a)
shall terminate and be of no further force and effect two years from the Closing
Date. Artistic shall not be liable pursuant to this Section 5.5(a) for any
amounts which in the aggregate exceed $9,000,000.
(b) ADI INDEMNITY. On and after the Closing Date, ADI shall indemnify and
hold Artistic and its affiliates harmless against and in respect of all Damages
relating to (i) the Assumed Liabilities, (ii) the ownership or operation of the
P&C Businesses or the Assets by ADI or any other person following the Closing
Date, (iii) the representation by ADI regarding broker's fees set forth in
Section 2.4, (iv) the Deferred Contracts to the extent provided in Section 1.3,
or (v) the obligations of ADI regarding AGI employees, including, without
limitation, employee benefit plans and employment liabilities, as set forth in
Section 5.12. ADI shall not be liable pursuant to this Section 5.5(b) for any
amounts, which in the aggregate exceed $9,000,000.
(c) INDEMNIFICATION PROCEDURES. With respect to third-party claims, all
claims for indemnification by each of ADI or Artistic or their affiliates, as
the case may be (an "Indemnified Party") hereunder shall be asserted and
resolved as set forth in this Section 5.5. In the event that any written claim
or demand for which ADI or Artistic, as the case may be (an "Indemnifying
Party"), would be liable to any Indemnified Party hereunder is asserted against
or sought to be collected from any Indemnified Party by a third party (a "Third
Party Claim"), such Indemnified Party shall promptly notify the Indemnifying
Party of such claim or demand and the amount or the estimated amount thereof to
the extent then feasible (which estimate shall not be conclusive of the final
amount of such claim or demand) (the "Claim Notice"); provided that failure of
such Indemnified Party to give prompt notice as provided herein shall not
relieve the Indemnifying Party of any of its obligations hereunder, except to
the extent that the Indemnifying Party is materially prejudiced by such failure.
The Indemnifying Party shall have 20 days from the personal delivery or mailing
of the Claim Notice (the "Notice Period") to notify the Indemnified Party (a)
whether or not the Indemnifying Party disputes the liability of the Indemnifying
Party to the Indemnified Party hereunder with respect to such claim or demand
and (b) whether or not it desires to defend the Indemnified Party against
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such claim or demand. All reasonable costs and expenses incurred by the
Indemnified Party in defending such claim or demand shall be a liability of, and
shall be paid by, the Indemnifying Party. Except as hereinafter provided, in the
event that the Indemnifying Party notifies the Indemnified Party within the
Notice Period that it desires to defend the Indemnified Party against such claim
or demand, the Indemnifying Party shall have the right to defend the Indemnified
Party by appropriate proceedings, through counsel of its own choosing, subject
to the reasonable approval of such Indemnified Party, and shall have the sole
power to direct and control such defense. If the Indemnifying Party shall assume
the defense of a claim or demand, it shall not settle or compromise such claim
without the prior written consent of the Indemnified Party, unless such
settlement or compromise includes as an unconditional term thereof the giving by
the claimant of a release of the Indemnified Party from all liability with
respect to such claim or demand. If the Indemnifying Party shall assume the
defense of a claim or demand, the fees of any separate counsel retained by the
Indemnified Party shall be borne by such Indemnified Party unless there exists a
conflict between them as to their respective legal defenses (other than one that
is of a monetary nature), in which case the Indemnified Party shall be entitled
to retain separate counsel, the reasonable fees and expenses of which shall be
reimbursed by the Indemnifying Party. If the Indemnifying Party does not notify
the Indemnified Party within 20 days after the receipt of the Claim Notice that
it elects to undertake the defense thereof and acknowledges its obligation to
indemnify the Indemnified Party hereunder, the Indemnified Party shall have the
right to contest, settle or compromise the claim but shall not thereby waive any
right to indemnity therefor pursuant to this Agreement.
(d) NET AMOUNTS. The amount of any indemnification payments made pursuant
to this Section 5.5 shall be computed net of any insurance proceeds received by
the Indemnified Party in connection with such payments. If the amount with
respect to which any claim is made under this Section 5.5 (an "Indemnity Claim")
gives rise to a currently realizable Tax Benefit (as defined below) to the party
making the claim, the indemnity payment shall be reduced by the amount of the
Tax Benefit available to the party making the claim. To the extent such
Indemnity Claim does not give rise to a currently realizable Tax Benefit, if the
amount with respect to which any Indemnity Claim is made gives rise to a
subsequently realized Tax Benefit to the party that made the claim, such party
shall refund to the Indemnifying Party the amount of such Tax Benefit when, as
and if realized. For the purposes of this Agreement, any subsequently realized
Tax Benefit shall be treated as though it were a reduction in the amount of the
initial Indemnity Claim, and the liabilities of the parties shall be
redetermined as though both occurred at or prior to the time of the indemnity
payment. For purposes of this Section 5.5(d), a "Tax Benefit" means an amount by
which the tax liability of the party (or group of corporations including the
party) is reduced (including, without limitation, by deduction, reduction of
income by virtue of increased tax basis or otherwise, entitlement to refund,
credit or otherwise) plus any related interest received from the relevant taxing
authority. Where a party has other losses, deductions, credits or items
available to it, the Tax Benefit from any losses, deductions, credits or items
relating to the Indemnity Claim shall be deemed to be realized proportionately
with any other losses, deductions, credits or items. For the purposes of this
Section 5.5(d), a Tax Benefit is "currently realizable" to the extent it can be
reasonably anticipated that such Tax Benefit will be realized in the current
taxable period or year or in any tax return with respect thereto (including
through a carryback to a prior taxable period) or in any taxable period or year
prior to the date of the Indemnity Claim. In the event that there should be a
determination disallowing the Tax Benefit, the Indemnifying Party shall be
liable to refund to the Indemnified Party the amount of any related reduction
previously allowed or payments previously made to the Indemnifying Party
pursuant to this Section 5.5(d). The amount of the refunded reduction or payment
shall be deemed a payment under this Section 5.5 and thus shall be paid subject
to any applicable reductions under this Section 5.5(d).
(e) ADJUSTMENT TO PURCHASE PRICE. The parties agree that any
indemnification payments made pursuant to this Agreement shall be treated for
tax purposes as an adjustment to the Purchase Price, unless otherwise required
by applicable law.
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(f) MITIGATION. Each Indemnified Party shall be obligated in connection
with any claim for indemnification under this Section 5.5 to use all
commercially reasonable efforts to mitigate damages upon and after becoming
aware of any event which could reasonably be expected to give rise to such
damages.
(g) NOTICE. Whenever any claim for indemnification shall arise under
Section 5.5 other than a Third Party Claim (a "Claim"), the party seeking
indemnification (the "Indemnitee") shall notify in writing the party from which
indemnification is sought (the "Indemnitor") of the Claim within 60 days after
the Indemnitee becomes aware of the Claim's existence, with such notice to
contain the factual basis for the Claim and the amount or an estimate (if known
or reasonably determinable) of the liability that may arise therefrom, provided
that the failure to provide such notice shall not affect the Indemnitor's right
to indemnification hereunder except to the extent that the Indemnitor is
materially prejudiced by such failure.
(h) LIMITATION OF DAMAGES. Neither party hereto nor any affiliate of
either of them shall be liable for any consequential, punitive or special
damages pursuant to this Agreement or any of the agreements contemplated hereby.
(i) SURVIVAL. The indemnities provided in this Section 5.5 shall survive
the Closing.
Section 5.6 PUBLIC ANNOUNCEMENTS. Before issuing any press release or
otherwise making any public statement with respect to the Asset Purchase or any
of the other transactions contemplated hereby, ADI and Artistic will consult
with, and obtain the consent of, each other (which consent shall not be
unreasonably withheld) as to the form and substance of such release or statement
and shall not issue any such release or make any such statement prior to
obtaining such consent, except as may be required by law or the rules and
regulations of the Securities and Exchange Commission or any securities exchange
or national quotation system.
Section 5.7 SALES AND TRANSFER TAXES. Each of ADI and Artistic shall pay
one-half of any and all domestic and foreign sales, use, excise, documentary,
stamp duties, motor vehicle registration, value added and/or transfer or similar
taxes and filing or recording expenses or fees due with respect to the Asset
Purchase or otherwise required to be paid in connection with the transfer of the
Assets; provided that each party shall be responsible for any interest charge,
penalty or addition to tax applicable to it under applicable law with respect
thereto.
Section 5.8 ACCESS TO INFORMATION. (a) Artistic shall afford to ADI, and
to ADI's accountants, counsel, financial advisers and other representatives,
reasonable access during normal business hours and permit them to make such
inspections during normal business hours as they may reasonably require during
the period from the date of this Agreement through the Closing Date to all
books, contracts, commitments and records relating to the P&C Businesses and the
Real Property and, during such period, Artistic shall furnish to ADI (i) access
to each report, schedule, registration statement and other document filed by
Artistic during such period pursuant to the requirements of federal or state
laws relating to the P&C Businesses and the Real Property and (ii) all other
information concerning the P&C Businesses and the Real Property as ADI may
reasonably request. Except as required by law, ADI will hold, and will cause its
affiliates, associates and representatives to hold, any non-public information
in confidence until such time as such information otherwise becomes publicly
available and shall use its reasonable best efforts to ensure that such
affiliates, associates and representatives do not disclose such information to
others without the prior written consent of Artistic. In the event of
termination of this Agreement for any reason, ADI shall promptly return or
destroy all non-public documents so obtained from Artistic and any copies made
of such documents for ADI. ADI shall not, and shall cause its affiliates,
associates and representatives not to, use any non-public information regarding
Artistic in any way detrimental to Artistic.
(b) No investigation pursuant to this Section 5.8 shall affect any
representation or warranty in this Agreement of any party hereto or any
condition to the obligations of the parties hereto.
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Section 5.9 RISK OF LOSS. All risk of loss to the Assets, including,
without limitation, the Real Property and Leased Assets, shall remain in
Artistic until the transfer of the Assets on the Closing Date. In the event of
any casualty or loss to the Assets prior to the Closing and ADI elects to
consummate this transaction, ADI may, at ADI's option, require Artistic at
Closing to assign by specific assignment to ADI all of its claims under and the
proceeds of any and all insurance policies (including proceeds received by
Artistic prior to Closing) as well as claims against any third parties relating
to such casualty or loss on the property subject thereto.
Section 5.10 BULK TRANSFER LAWS. Artistic shall comply with the provisions
of any so-called "bulk transfer" or similar laws of any applicable jurisdiction
concerning the Asset Purchase, and ADI shall reasonably cooperate with Artistic
in connection therewith.
Section 5.11 TRANSITION SERVICES AGREEMENT, ETC. On the date hereof,
Artistic and ADI shall enter into each of a Transition Services Agreement (the
"Transition Services Agreement") and Advertising and Fulfillment Agreement (the
"Advertising and Fulfillment Agreement"), substantially in the form of Exhibit B
and C, respectively.
Section 5.12 EMPLOYEE RELATIONS AND BENEFITS.
(a) BUSINESS EMPLOYEES. For purposes of this Agreement, "Business
Employees" shall mean all employees of Artistic (other than Komer and Joseph
Calabro) as of the Closing Date.
(b) CONTINUITY OF EMPLOYMENT. The parties hereto intend that there shall
be continuity of employment with respect to the Business Employees. ADI shall
offer employment, commencing on the Closing Date, to each Business Employee
(including those on vacation, layoff, leave, short-term or long-term disability
or other permitted absence of employment) with comparable compensation
(including salary, fringe benefits, job responsibility and location) as that
provided to such employees by Artistic prior to Closing. Nothing in this
Agreement, including this Section 5.12 (b) confers upon any person any right to
continued employment by Artistic or ADI as of and after the Closing Date.
(c) EMPLOYMENT LIABILITIES. On and after the Closing Date, ADI shall be
responsible and liable for all liabilities and obligations (including under any
benefit plans) in connection with the employment before, on or after Closing (or
termination of employment) of the Business Employees hired by ADI including the
assumption of any employment agreements with respect to such Business Employees.
(d) SERVICE CREDIT. With respect to the Business Employees hired by ADI,
ADI shall give credit for all service with Artistic for all purposes under the
401(k) plans assumed by ADI, but only to the same extent credit had been given
under the 401(k) plans assumed by ADI prior to the Closing Date.
(e) WELFARE PLANS. With respect to any ADI plan that is a "welfare benefit
plan" (as defined in Section 3(1) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA")), or would be a "welfare benefit plan", if such
plan were subject to ERISA, for the benefit of Business Employees on and after
the Closing Date, ADI shall (i) not exclude any Business Employee previously
covered by a similar welfare benefit plan maintained by Artistic from inclusion
in any such plan on the basis of any pre-existing condition limitations and (ii)
give effect, in determining any deductible and maximum out-of-pocket
limitations, to claims incurred and amounts paid by, and amounts reimbursed to,
its employees with respect to the welfare benefit plans as maintained by
Artistic immediately prior to Closing.
(f) 401(K) PLANS. With respect to any 401(k) benefit plan maintained by
Artistic for the benefit of the Business Employees or of former employees of
Artistic (collectively, the "401(k) Plans"), ADI shall assume all the rights,
obligations, duties and sponsorship of Artistic under the 401(k) Plans. Artistic
and ADI shall cooperate to amend all agreements and documents necessary to
permit ADI to assume all such rights, obligations, duties and sponsorship.
(g) ACCRUED VACATION. With respect to any accrued but unused vacation time
to which any Business Employees hired by ADI are entitled, Artistic shall remain
responsible for payments to such Business
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Employees relating to such accrued vacation time up through Closing, and ADI
shall assume responsibility for payments for any such accrued vacation time of
such Business Employees thereafter.
(h) BONUSES. With respect to any compensation bonuses to which any
Business Employees hired by ADI are entitled, Artistic shall remain responsible
for such bonuses arising out of employment up through January 1, 1998, and ADI
shall assume responsibility for bonus payments arising out of employment of such
Business Employees thereafter.
(i) POST-RETIREMENT BENEFITS. To the extent that Business Employees hired
by ADI receive (or are eligible to receive) any Post-Retirement Benefits from
Artistic immediately prior to the Closing Date, such employees shall receive (or
be eligible to receive) the same Post-Retirement Benefits from ADI following
Closing to the same extent that Artistic would have been obligated therefor, and
on and after the Closing Date, no such Business Employee shall be eligible to
receive "Post-Retirement Benefits" from Artistic (including, but not limited to,
retiree medical benefits).
(j) SEVERANCE OF KOMER AND LIFE INSURANCE POLICY. ADI shall assume the
obligation to pay the severance and other payments and reimbursement obligations
to which Komer is entitled under the Executive Employment Agreement between
Artistic and Komer dated August 3, 1993, (the "Komer Severance Payment"). With
respect to the life insurance policies referred to on Annex 2-G insuring
Artistic in the event of the death of Komer (the "Komer Policies"), ADI shall
acquire the right to receive payment under the Komer Policies in the amount of
their aggregate cash surrender value thereof (the "Artistic Cash Surrender Value
Payment"). In addition, Artistic shall make the payments to ADI at Closing as
set forth in Section 1.8(b).
(k) WARN ACT. To the extent applicable to such party, each party shall
provide any required notice under the Worker Adjustment and Retraining
Notification Act ("WARN") and any other similar applicable law and to otherwise
comply with any such statute with respect to any "plant closing" or "mass
layoff" (as defined in WARN) or similar event affecting their respective
employees and occurring on or after Closing or arising as a result of the
transactions contemplated hereby.
ARTICLE VI
CONDITIONS PRECEDENT TO THE ASSET PURCHASE
Section 6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE ASSET
PURCHASE. The respective obligations of each party to effect the Asset Purchase
are subject to the fulfillment or written waiver at or prior to the Closing Date
of the condition that no Governmental Entity or court of competent jurisdiction
shall have enacted, issued, promulgated, enforced or entered any law, rule,
regulation, executive order, decree, injunction or other order (whether
temporary, preliminary or permanent) which is then in effect and has the effect
of prohibiting the Asset Purchase or any of the other transactions contemplated
hereby; provided that, in the case of any such decree, injunction or other
order, 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
practicable any decree, injunction or other order that may be entered.
Section 6.2 CONDITIONS TO OBLIGATION OF ARTISTIC TO EFFECT THE ASSET
PURCHASE. The obligation of Artistic to effect the Asset Purchase is subject to
the fulfillment at or prior to the Closing of the following additional
conditions; provided that Artistic may waive in writing any of such conditions
in its sole discretion:
(a) PERFORMANCE OF OBLIGATIONS; REPRESENTATIONS AND WARRANTIES. ADI
shall have performed in all material respects each of its agreements
contained in this Agreement required to be performed on or prior to the
Closing, and each of the representations and warranties of ADI contained in
this Agreement shall be true and correct on and as of the Closing Date as if
made on and as of such date.
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(b) OFFICERS' CERTIFICATE. ADI shall have furnished to Artistic a
certificate, dated the Closing, signed by the appropriate officers of ADI,
certifying to the effect that to their best knowledge, the conditions set
forth in Section 6.2 (a) have been satisfied.
(c) DELIVERY OF PURCHASE PRICE. ADI shall have made delivery of the
Purchase Price as provided in Section 1.2 of this Agreement.
(d) ASSUMPTION AGREEMENT. ADI shall have executed and delivered the
Assumption Agreement, in the form attached as Exhibit A, covering the
Assumed Liabilities.
(e) MERGER AGREEMENT. All conditions precedent to the consummation of
the Merger (or any merger pursuant to any successor merger agreement) shall
have been satisfied or waived and the parties thereto are ready, willing and
able to consummate such transaction immediately after the consummation of
the transactions contemplated hereby.
Section 6.3 CONDITIONS TO OBLIGATIONS OF ADI TO EFFECT THE ASSET
PURCHASE. The obligation of ADI to effect the Asset Purchase is subject to the
fulfillment at or prior to the Closing of the following additional conditions,
provided that ADI may waive in writing any such conditions in its sole
discretion:
(a) PERFORMANCE OF OBLIGATIONS; REPRESENTATIONS AND
WARRANTIES. Artistic shall have performed in all material respects each of
its agreements contained in this Agreement required to be performed on or
prior to the Closing and each of the representations and warranties of
Artistic contained in this Agreement shall be true and correct on and as of
the Closing as if made on and as of such date.
(b) OFFICERS' CERTIFICATE. Artistic shall have furnished to ADI a
certificate, dated the Closing, signed by the appropriate officers of
Artistic, certifying to the best of their knowledge, the conditions set
forth in Section 6.3 (a) have been satisfied.
(c) ABSENCE OF CHANGES. There shall not have occurred any Material
Adverse Change with respect to the P&C Businesses between the date hereof
and the Closing Date.
(d) BILL OF SALE AND ASSIGNMENT. Artistic shall have executed and
delivered the Bill of Sale and Assignment, in the form attached hereto as
Exhibit D, covering the Assets set forth on Annex 1 and the Assumed
Contracts and Leased Property Lease Agreements set forth on Annex 2.
(e) WARRANTY DEED. Artistic shall have executed and delivered the
Warranty Deed covering the Real Property in the form attached hereto as
Exhibit E (or such other form as may be required in the State of New York
for a general warranty deed) relating to the Real Property.
(f) LIMITED LIABILITY COMPANY AGREEMENT. Artistic shall have executed
and delivered the Limited Liability Company Agreement, in the form attached
as Exhibit G, conveying the trademarks and other intellectual property
rights to be conveyed as described in the schedules thereto.
(g) TITLE INSURANCE. ADI shall have obtained title commitments for
title insurance on the Real Property.
(h) TITLES. Artistic shall have endorsed and delivered the title
certificates to the Assets described in Annex 1.
(i) TRADEMARK ASSIGNMENT AGREEMENT. Artistic shall have executed and
delivered the Trademark Assignment Agreement, in the form attached as
Exhibit F, conveying the trademarks to be conveyed as described on Annex 1.
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ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
Section 7.1 TERMINATION. This Agreement may be terminated at any time
prior to the Closing Date as follows:
(a) by the mutual written consent of Artistic and ADI;
(b) by Artistic or ADI if any court of competent jurisdiction in the
United States or other United States governmental body shall have issued a
final order, injunction, decree or ruling or taken any other final action
restraining, enjoining or otherwise prohibiting the transactions
contemplated hereby, and such order, injunction, decree, ruling or other
action is or shall have become nonappealable; provided that the right to
terminate this Agreement pursuant to this Section 7.1(b) shall not be
available to any party which has not used its reasonable best efforts to
cause any such order, injunction, decree, ruling or other action to be
lifted;
(c) by either Artistic or ADI if the stockholders of Artistic fail to
adopt and approve this Agreement and the Merger Agreement and the
transactions contemplated by this Agreement and the Merger Agreement at the
special meeting contemplated by the Merger Agreement by the Requisite Vote;
(d) by Artistic if a corporation, partnership, person or other entity or
group shall have made a bona fide offer not solicited in violation of
Section 4.2 that the Board by a majority vote determines in its good faith
judgment and in the exercise of its fiduciary duties is more favorable to
Artistic's stockholders than the transactions contemplated hereby; provided,
however, that such termination under this clause shall not be effective
until Artistic has made payment to ADI of the full fee and expense
reimbursement required by Section 7.3;
(e) by ADI, if (i) there shall have been a breach of any representation
or warranty on the part of Artistic that is or will have a Material Adverse
Effect on the P&C Businesses or which materially adversely affects the
ability of Artistic to consummate the transactions contemplated hereby or
(ii) there shall have been a breach of any covenant or agreement on the part
of Artistic which is or will result in a Material Adverse Effect on Artistic
or the P&C Businesses or materially adversely affects the ability of
Artistic to consummate the transactions contemplated hereby, which shall not
have been cured prior to the earlier of (A) 10 days following notice of such
breach and (B) two Business Days prior to the Closing Date or (iii) the
Board shall have withdrawn or modified in a manner adverse to ADI its
approval or recommendation of this Agreement, or shall have adopted any
resolution to effect the foregoing;
(f) by Artistic if (i) there shall have been a breach of any
representation or warranty on the part of ADI which materially adversely
affects (or materially delays) the consummation of the transaction
contemplated hereby or (ii) there shall have been a material breach of any
covenant or agreement on the part of ADI and which materially adversely
affects (or materially delays) the consummation of the transaction
contemplated hereby which shall not have been cured prior to the earliest of
(A) 10 days following notice of such breach and (B) two Business Days prior
to the Closing Date; or
(g) by Artistic or ADI if the Merger Agreement shall have been
terminated unless Artistic shall have entered into another merger agreement
substantially in the form of the Merger Agreement and approved by the Board
of Directors of Artistic.
Section 7.2 EFFECT OF TERMINATION. In the event of the termination and
abandonment of this Agreement pursuant to Section 7.1, this Agreement shall
forthwith become null and void and have no further force and effect, without any
liability on the part of any party hereto or its affiliates, directors, officers
or stockholders, other than the provisions of Sections 5.1, 7.2, 7.3 and 9.10,
and the third sentence
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of Section 5.8 (a), all of which shall survive such termination. Nothing
contained in this Section 7.2 shall relieve any party from liability for any
material and willful breach of this Agreement.
Section 7.3 CERTAIN PAYMENTS. If:
(i) ADI terminates this Agreement pursuant to Section 7.1(e)(iii) hereof
and, within 12 months thereafter Artistic enters into an agreement with
respect to a Third Party Acquisition, or a Third Party Acquisition occurs,
involving any party (or any affiliate thereof) (x) with whom Artistic (or
its agents) had negotiations with a view to a Third Party Acquisition, (y)
to whom Artistic (or its agents) furnished information with a view to a
Third Party Acquisition or (z) who had submitted a proposal or expressed an
interest in a Third Party Acquisition, in the case of each of clauses (x),
(y) and (z) after the date hereof and prior to such termination; or
(ii) ADI terminates this Agreement pursuant to Section 7.1(e)(iii), and
within 18 months thereafter a Third Party Acquisition shall occur involving
a consideration in excess of the Purchase Price; or
(iii) Artistic terminates this Agreement pursuant to 7.1(d) hereof,
Artistic shall pay to ADI either prior to termination in the case of the event
described in clause (iii) above or within one Business Day following the
execution and delivery of such agreement or such occurrence or termination, as
the case may be, in the case of an event described in Section 7.3(i) or (ii),
$360,000 plus the unreimbursed, reasonable documented out-of-pocket third party
expenses of ADI incurred in connection with the transactions contemplated by
this Agreement as liquidated damages immediately upon such termination (the
"Termination Fee"), in cash; provided, however, that Artistic in no event shall
be obligated to pay more than one such Termination Fee with respect to all such
agreements and occurrences.
"Third Party Acquisition" means the acquisition by any person (which
includes a "person" as such term is defined in Section 13(d)(3) of the
Securities Exchange Act of 1934) or entity other than ADI of all or a material
portion of the Assets or the P&C Businesses.
Section 7.4 WAIVER. At any time prior the Closing Date, the parties hereto
may (i) extend the time for the performance of any of the obligations or other
acts of the other parties hereto; (ii) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto; and (iii) waive compliance with any of the agreements or
conditions contained herein which may legally be waived. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in an instrument in writing signed on behalf of such party. The
failure of either party hereto to assert any of its rights hereunder shall not
constitute a waiver of such rights.
ARTICLE VIII
POST CLOSING COVENANTS
Section 8.1 ACCESS TO INFORMATION.
(a) Artistic agrees that it will (i) maintain the pre-closing financial
records of the P&C Businesses in the offices of Artistic in Baltimore, Maryland
following the Closing Date and (ii) permit ADI and its respective financial and
tax advisors access to such records during normal business hours on two-days'
prior written notice to Artistic, as set forth in Section 9.1 hereof.
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(b) If at any time it is necessary that a party be furnished with additional
information, documents or records relating to the Assets or the P&C Businesses
in order properly to prepare or support its tax returns or other documents or
reports required to be filed with governmental authorities or any securities
exchanges or otherwise for any purpose in connection with the performance or
discharge by the parties of their obligations hereunder, and such information,
documents or records are in the possession or control of another party, such
other party agrees to use all reasonable efforts to furnish or make available
such information, documents or records (or copies thereof).
(c) Each party to this Agreement hereby agrees that it shall cooperate with
the other by executing and/or filing or causing to be executed and/or filed any
required documents (including any real property transfer tax returns required to
be filed with respect to the transactions contemplated by this Agreement and any
forms or reports required to be filed pursuant to Section 1060 of the Code, the
Treasury Regulations promulgated thereunder or any provisions of state or local
law) and by making available to the other, without limitation, all work papers,
records and notes of any kind, at all reasonable times, for the purpose of
allowing the appropriate party to complete tax returns, forms and reports,
respond to audits, obtain refunds, make any determination required under this
Agreement, verify issues and negotiate settlements with tax authorities or
defend or prosecute tax claims. In the case of income taxes relating to the P&C
Businesses, Artistic shall be exclusively responsible for handling the
compliance and audits for income taxes for periods prior to and including the
Closing Date and ADI shall be exclusively responsible for handling the
compliance and audits for income taxes for periods after the Closing Date.
ARTICLE IX
GENERAL PROVISIONS
Section 9.1 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally, sent by
overnight courier or telecopied (with a confirmatory copy sent by overnight
courier) 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 ADI, to:
Artistic Direct Incorporated
One Komer Center
PO Box 1999
Elmira, NY 14902
Attention: Thomas C. Wyckoff
Title: Chief Executive Officer and President
Facsimile: (607) 733-5782
Telephone: (607) 735-4555
with copies to:
Roberts, Sheridan & Kotel
Tower 49
12 East 49th Street
New York, NY 10017
Attention: Rory M. Deutsch, Esq., and
Ira L. Kotel, Esq.
Facsimile (212) 299-8686
Telephone: (212) 299-8600
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<PAGE>
(b) If to Artistic:
Artistic Greetings Incorporated
One Komer Center
P.O. Box 1999
Elmira, NY 14902
Attention: Joseph A. Calabro
Title: President
Facsimile: (607) 733-5699
Telephone: (607) 735-4508
with copies to:
Cahill Gordon & Reindel
80 Pine Street
New York, NY 10005-1702
Attention: William B. Gannett, Esq.
Facsimile: (212) 269-5420
Telephone: (212) 701-3000
and
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Attention: Marni I. Lerner, Esq., and Edward J. Chung, Esq.
Facsimile: (212) 455-2502
Telephone: (212) 455-2000.
Section 9.2 INTERPRETATION. When a reference is made in this Agreement of
a Section, such reference shall be to a Section of this Agreement unless
otherwise indicated, and the words "hereof," "herein" and "hereunder" and
similar terms refer to this Agreement as a whole and not to any particular
provision of this Agreement, unless the context otherwise requires. 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."
Section 9.3 COUNTERPARTS. This Agreement may be executed in counterparts,
all of which shall be considered one and the same agreement and shall become
effective when one or more counterparts have been signed by each of the parties
and delivered to the other parties.
Section 9.4 ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This
Agreement, and the Transition Services Agreement, the Joint Marketing Services
Agreement, the Escrow Agreement, the Trademark Assignment Agreement and the
other agreements, documents and instruments referred to herein, (i) constitute
the entire agreement between the parties hereto and supersedes all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof and (ii) are not intended to confer upon
any person (including, without limitation, any employees of Artistic) other than
the parties any rights or remedies hereunder; provided, however, that legal
counsel for the parties hereto may rely upon the representations and warranties
contained herein and in the certificates delivered pursuant to Sections 6.2 (b)
and 6.3 (b).
Section 9.5 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
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Section 9.6 ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by operation of law or
otherwise by any of the parties without the prior written consent of the other
party in its sole and absolute discretion, and any such purported assignment
without the express prior written consent of the other party shall be void ab
initio. Subject to the preceding sentence, this Agreement shall be binding upon,
inure to the benefit of, and be enforceable by, the parties and their respective
successors and assigns.
Section 9.7 SEVERABILITY. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby are not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties shall negotiate
in good faith to modify this Agreement so as to effect he original intent of the
parties as closely as possible in a mutually acceptable manner in order that the
transactions be consummated as originally contemplated to the fullest extent
possible.
Section 9.8 ENFORCEMENT. The parties agree that if all the conditions set
forth in Article VI are satisfied on or prior to the Closing Date, and this
Agreement shall not have otherwise been terminated, and Artistic shall breach
its obligation to consummate the transactions contemplated hereby, including,
without limitation, the provisions of Article I, that irreparable damages would
occur to ADI, that money damages would not be an adequate remedy at law, and,
accordingly, that ADI shall be entitled to specifically enforce the terms and
provisions of this Agreement in any court of competent jurisdiction in the
United States or any state thereof or any place that the Assets are located, in
addition to any other right or remedy to which it is entitled at law or in
equity. Artistic shall not assert, and hereby knowingly waives any defense in
any such action that money damages would be an adequate remedy at law.
Section 9.9 DEFINED TERMS. For purposes of this Agreement, the term:
(a) "affiliate" of a person means a person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, the first mentioned person; and
(b) "person" means an individual, corporation, partnership, association,
trust, unincorporated organization, other entity or group (as defined in
Section 13(d)(3) of the Exchange Act).
Section 9.10 CONSENT TO JURISDICTION. In the event that any legal
proceedings are commenced in any court with respect to any matter arising under
this Agreement, the parties hereto specifically consent and agree that the
courts of the State of New York and/or the Federal Courts located in the State
of New York shall have jurisdiction over each of the parties hereto and over the
subject matter of any such proceedings, and the venue of any such action shall
be in New York County, New York and/or the U.S. District Court for the Southern
District of New York.
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<PAGE>
IN WITNESS WHEREOF, ADI and Artistic have executed this Agreement as of the
date first written above.
ARTISTIC DIRECT INCORPORATED
By: /s/ THOMAS C. WYCKOFF
--------------------------------------
Name: Thomas C. Wyckoff
Title: CHIEF EXECUTIVE OFFICER AND
PRESIDENT
ARTISTIC GREETINGS INCORPORATED
By: /s/ JOSEPH A. CALABRO
--------------------------------------
Name: Joseph A. Calabro
Title: PRESIDENT
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<PAGE>
ANNEX III
STOCKHOLDERS AGREEMENT dated as of December 21, 1997 among MDC
COMMUNICATIONS CORPORATION, an Ontario corporation ("PARENT"), and the
undersigned holders (each a "STOCKHOLDER" and, collectively, the "STOCKHOLDERS")
of shares of common stock, par value $.10 per share (the "COMMON STOCK"), of
ARTISTIC GREETINGS INCORPORATED, a Delaware corporation (the "COMPANY").
WHEREAS, Parent, AGI Acquisition Co., a Delaware corporation and a wholly
owned subsidiary of Parent ("SUB"), and the Company, propose to enter into an
Agreement and Plan of Merger dated as of the date hereof (as the same may be
amended or supplemented, the "MERGER AGREEMENT"; capitalized terms used but not
defined herein shall have the meanings set forth in the Merger Agreement)
providing for the merger of Sub with and into the Company (the "MERGER"), upon
the terms and subject to the conditions set forth in the Merger Agreement;
WHEREAS, concurrently with the execution of the Merger Agreement, the
Company and Artistic Direct Incorporated, a New York corporation ("ADI"),
propose to enter into an Asset Purchase Agreement dated as of the date hereof
(as the same may be amended or supplemented and together with any other asset
purchase agreement substantially in the form thereof and providing for the
payment of cash consideration of at least $9 million, the "ASSET PURCHASE
AGREEMENT") providing for ADI to purchase certain of the assets, and assume
certain of the liabilities, of the Company (the "ASSET PURCHASE");
WHEREAS, each Stockholder owns the number of shares of Common Stock set
forth opposite its or his name on the signature page of this Agreement (such
shares of Common Stock, the "EXISTING SHARES" and, together with any other
shares of capital stock of the Company acquired by such Stockholder after the
date hereof and during the term of this Agreement, and other than 40,000 shares
of Common Stock which Mr. Komer has transferred, or may transfer, to one or more
charitable entities, being collectively referred to herein as the "SUBJECT
SHARES"); and
WHEREAS, as a condition to its willingness to enter into the Merger
Agreement, Parent has requested that each Stockholder enter into this Agreement;
NOW, THEREFORE, to induce Parent to enter into, and in consideration of its
entering into, the Merger Agreement, and in consideration of the premises and
the representations, warranties and agreements contained herein, the parties
agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER. Each Stockholder
hereby, severally and not jointly, represents and warrants to Parent as of the
date hereof in respect of himself or itself as follows:
(a) AUTHORITY. The Stockholder has all requisite legal capacity, power
and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly authorized,
executed and delivered by the Stockholder and constitutes a valid and
binding obligation of the Stockholder enforceable in accordance with its
terms. The execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated hereby and compliance with the
terms hereof will not, conflict with, or result in any violation of, or
default (with or without notice or lapse of time or both) under any
provision of, any trust agreement, organizational documents, standstill
agreement, loan or credit agreement, note, bond, mortgage, indenture, lease
or other agreement, instrument, permit, concession, franchise, license,
judgment, order, notice, decree, statute, law, ordinance, rule or regulation
applicable to the Stockholder or to the Stockholder's property or assets. If
the Stockholder is married and the Stockholder's Subject Shares constitute
community property or otherwise need spousal or other approval to be legal,
valid and binding, this Agreement has been duly authorized, executed and
delivered by, and constitutes a valid and binding agreement of, the
Stockholder's spouse, enforceable against such spouse in accordance with its
terms. No trust of which such Stockholder is a trustee requires the consent
of any beneficiary to the execution and delivery of this Agreement or to the
consummation of the transactions contemplated hereby.
<PAGE>
(b) THE SUBJECT SHARES. Such Stockholder is the record holder or
beneficial owner of the number of the Existing Shares as is set forth
opposite such Stockholder's name on the signature page hereto. On the date
hereof, the Existing Shares set forth opposite such Stockholder's name on
the signature page hereto constitute all of the outstanding shares of Common
Stock owned of record or beneficially by such Stockholder. Such Stockholder
does not have record or beneficial ownership of any shares of Common Stock
not set forth on signature page hereto. Such Stockholder has sole power of
disposition with respect to all of the Existing Shares set forth opposite
such Stockholder's name on the signature page hereto and sole voting power
with respect to the matters set forth in Section 6 hereof and sole power to
demand dissenter's or appraisal rights, in each case with respect to all of
the Existing Shares set forth opposite such Stockholder's name on the
signature page hereto, with no restrictions on such rights, subject to
applicable federal securities laws and the terms of this Agreement. Such
Stockholder will have sole power of disposition with respect to Subject
Shares other than Existing Shares, if any, which become beneficially owned
by such Stockholder and will have sole voting power with respect to the
matters set forth in Section 3 hereof and sole power to demand dissenter's
or appraisal rights, in each case with respect to all Subject Shares other
than Existing Shares, if any, which become beneficially owned by such
Stockholder with no restrictions on such rights, subject to applicable
federal securities laws and the terms of this Agreement.
(c) Such Stockholder's Subject Shares and the certificates representing
such Subject Shares are now and at all times during the term hereof will be
held by such Stockholder, or by a nominee or custodian for the benefit of
such Stockholder, free and clear of all liens, claims, security interests,
proxies, voting trusts or agreements, understandings or arrangements or any
other encumbrances whatsoever, except for any such encumbrances or proxies
arising hereunder.
(d) No broker, investment banker, financial adviser or other person is
entitled to any broker's, finder's, financial adviser's or other similar fee
or commission in connection with the transactions contemplated hereby based
upon arrangements made by or on behalf of such Stockholder in his or her
capacity as such.
(e) Such Stockholder understands and acknowledges that Parent and Sub
are entering into the Merger Agreement in reliance upon such Stockholder's
execution and delivery of this Agreement with Parent.
2. REPRESENTATIONS AND WARRANTIES OF PARENT. Parent hereby represents and
warrants to each Stockholder that Parent has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by Parent, and
the consummation of the transactions contemplated hereby, have been duly
authorized by all necessary corporate action on the part of Parent. This
Agreement has been duly executed and delivered by Parent and constitutes a valid
and binding obligation of Parent enforceable in accordance with its terms. The
execution and delivery of this Agreement do not, and the consummation of the
transactions contemplated hereby and compliance with the terms hereof will not,
conflict with, or result in any violation of, or default (with or without notice
or lapse of time or both) under any provision of, the certificate of
incorporation or by-laws of Parent, any trust agreement, loan or credit
agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise, license, judgment, order, notice,
decree, statute, law, ordinance, rule or regulation applicable to Parent or to
Parent's property or assets.
3. COVENANTS OF EACH STOCKHOLDER. From and after the date hereof and until
the termination of this Agreement in accordance with Section 8, each
Stockholder, severally and not jointly, agrees as follows:
(a) At any meeting of stockholders of the Company called to vote upon
the Merger, the Merger Agreement, the Asset Purchase or the Asset Purchase
Agreement or at any adjournment thereof or in any other circumstances upon
which a vote, consent or other approval with respect to the Merger, the
Merger Agreement, the Asset Purchase or the Asset Purchase Agreement is
sought, such Stockholder
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shall vote (or cause to be voted) the Subject Shares in favor of the Merger
and the Asset Purchase, the adoption by the Company of the Merger Agreement
and the Asset Purchase Agreement and the approval of the terms thereof and
each of the other transactions contemplated by the Merger Agreement and the
Asset Purchase Agreement.
(b) At any meeting of stockholders of the Company or at any adjournment
thereof or in any other circumstances upon which the Stockholder's vote,
consent or other approval is sought, the Stockholder shall vote (or cause to
be voted) the Subject Shares against (i) any merger agreement or merger
(other than the Merger Agreement and the Merger), consolidation,
combination, sale of a material amount of assets (other than the Asset
Purchase Agreement and the Asset Purchase), reorganization,
recapitalization, dissolution, liquidation or winding-up of or by the
Company or any other takeover proposal (collectively, "TAKEOVER PROPOSAL"),
(ii) any action or agreement that would result in a breach of any covenant,
representation or warranty or any other obligation or agreement of the
Company under the Merger Agreement, the Asset Purchase Agreement or this
Agreement or (iii) (x) any material amendment of the Company's certificate
of incorporation or by-laws, (y) any change in a majority of the persons who
constitute the Board of Directors of the Company or (z) any other proposal
or transaction involving the Company, which is intended or could reasonably
be expected to impede, frustrate, prevent, delay or nullify (A) the ability
of the Company to consummate the Merger or the Asset Purchase or (B) any of
the transactions contemplated by this Agreement, the Asset Purchase
Agreement or the Merger Agreement. The Stockholder further agrees not to
commit or agree to take any action inconsistent with the foregoing.
(c) Each Stockholder, severally and not jointly, agrees not to (i) offer
to sell, sell, transfer, encumber, pledge, assign or otherwise dispose of
(including by gift) (collectively, "TRANSFER"), or enter into any contract,
option or other arrangement with respect to or consent to the Transfer of,
the Subject Shares or any interest therein to any person other than pursuant
to the terms of the Merger, (ii) except as contemplated hereby, grant any
proxies or powers of attorney with respect to the Subject Shares, deposit
any Subject Shares into a voting trust or enter into any voting arrangement
with respect to the Subject Shares, or any interest in the foregoing, except
with Parent or Sub, (iii) take any action that would make any representation
or warranty of such Stockholder contained herein untrue or incorrect or have
the effect of preventing or disabling the Stockholder from performing such
Stockholder's obligations under this Agreement or (iv) commit or agree to
take any of the foregoing actions.
(d) Each Stockholder hereby irrevocably waives any rights of appraisal
or rights to dissent from the Merger that the Stockholder may have.
(e) Each Stockholder agrees with, and covenants to, Parent that the
Stockholder shall not request that the Company register the transfer
(book-entry or otherwise) of any certificate or uncertificated interest
representing any of the Subject Shares, unless such transfer is made in
compliance with this Agreement. In the event of a stock dividend or
distribution, or any change in the Common Stock by reason of any stock
dividend or distribution, or any change in the Common Stock by reason of any
stock dividend, split-up, recapitalization, combination, exchange of shares
or the like, the term "Subject Shares" shall be deemed to refer to and
include the Subject Shares as well as all such stock dividends and
distributions and any shares into which or for which any or all of the
Subject Shares may be changed or exchanged and the Purchase Price (as
defined herein) shall be accordingly adjusted. Each Stockholder shall be
entitled to receive any cash dividend paid by the Company during the term of
this Agreement until the Subject Shares are cancelled in the Merger or
purchased hereunder.
(f) Each Stockholder, severally and not jointly, shall not, nor shall it
authorize or permit any partner, officer, director or employee of, or any
investment banker, attorney or other advisor or representative of, such
Stockholder to, directly or indirectly, (i) solicit, initiate or encourage
the
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submission of any Takeover Proposal or (ii) participate in any discussions,
conversations, negotiations or other communications regarding, or furnish to
any person any information with respect to, or otherwise cooperate in any
way, assist or participate in, facilitate or encourage any effort or attempt
by any other person or entity, to seek to do any of the foregoing or take
any other action to facilitate any inquiries or the making of any proposal
that constitutes, or is likely to lead to, any Takeover Proposal; provided,
however, that the foregoing shall not restrict a Stockholder who is also a
director of the Company from taking actions in such Stockholder's capacity
as a director to the extent and in the circumstances permitted by Section
4.02 of the Merger Agreement. Each Stockholder, in its capacity as such,
will immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with
respect to any of the foregoing.
(g) THE STOCKHOLDER HEREBY GRANTS TO, AND APPOINTS SUB AND ANY DESIGNEE
OF SUB, EACH OF THEM INDIVIDUALLY, STOCKHOLDER'S IRREVOCABLE (UNTIL THE
TERMINATION OF THIS AGREEMENT) PROXY AND ATTORNEY-IN-FACT WITH FULL POWER OF
SUBSTITUTION) TO VOTE THE SUBJECT SHARES OF STOCKHOLDER AS INDICATED IN
SECTION 3(A) AND 3(B) ABOVE. THE STOCKHOLDER INTENDS THIS PROXY TO BE
IRREVOCABLE (UNTIL THE TERMINATION OF THIS AGREEMENT) AND COUPLED WITH AN
INTEREST AND WILL TAKE SUCH FURTHER ACTION AND HEREBY REVOKES ANY PROXY
PREVIOUSLY GRANTED BY STOCKHOLDER WITH RESPECT TO SUCH STOCKHOLDER'S SUBJECT
SHARES.
4. FURTHER AGREEMENTS OF STOCKHOLDERS. If, after termination of this
Agreement pursuant to Section 7 hereof, Stockholder receives any cash or
non-cash consideration in respect of the Subject Shares in connection with a
Third Party Business Combination (as defined below) during the period commencing
on the date of such termination and ending on the first anniversary thereof (the
"SALE PERIOD"), Stockholder shall promptly pay over to Parent one half of the
excess, if any, of such consideration over the product of the Merger
Consideration and the number of Subject Shares with respect to which such
consideration is received by such Stockholder in connection with such Third
Party Business Combination (the "EXCESS CONSIDERATION"); PROVIDED that, (i) if
the consideration received by such Stockholder shall be securities listed on a
national securities exchange or traded on the NASDAQ National Market ("NASDAQ"),
the per share value of such consideration shall be equal to the closing price
per share listed on such national securities exchange or NASDAQ on the date such
transaction is consummated and (ii) if the consideration received by such
Stockholder shall be in a form other than securities, the per share value shall
be determined in good faith as of the date such transaction is consummated by
Parent and the Stockholders, or, if Parent and the Stockholders cannot reach
agreement, by a nationally recognized investment banking firm reasonably
acceptable to the parties. The term "THIRD PARTY BUSINESS COMBINATION" of the
Company means the occurrence of any of the following events: (A) the Company is
acquired by merger or otherwise by any person or group, including Parent or any
affiliate thereof (a "THIRD PARTY"); (B) the Company enters into an agreement
with a Third Party which contemplates the acquisition of 20% or more of the
total assets of the Company; (C) the Company or Parent enters into a merger or
other agreement with a Third Party which contemplates the acquisition of more
than 20% of the outstanding shares of the Company's capital stock; or (D) a
Third Party acquires more than 20% of the total assets of the Company. If during
the Sale Period, any Stockholder Transfers his or its Subject Shares to any
other person (other than in connection with a Third Party Business Combination
described above) and such other person receives any consideration for any
Subject Shares in connection with a Third Party Business Combination within the
Sale Period, such Stockholder shall continue to be bound by the provisions of
this Section 4 with respect to the payment to Parent of the Excess Consideration
as if such Stockholder received such consideration for the Subject Shares in
such Third Party Business Combination.
5. FURTHER ASSURANCES. The Stockholder will, from time to time, execute and
deliver, or cause to be executed and delivered, such additional or further
consents, documents and other instruments as Parent
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may reasonably request for the purpose of effectively carrying out the
transactions contemplated by this Agreement.
6. ASSIGNMENT. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties without the prior
written consent of the other parties, except that Parent may assign, in its sole
discretion, any or all of its rights, interests and obligations hereunder 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.
7. TERMINATION. Except for Stockholder's obligations pursuant to Section 4,
this Agreement shall terminate, and no party shall have any rights or
obligations hereunder and this Agreement shall become null and void and have no
further effect upon the earliest of (a) the Effective Time, and (b) the date on
which the Merger Agreement is terminated pursuant to Section 6.01 thereof.
Nothing in this Section 7 shall relieve any party of liability for breach of
this Agreement.
8. COSTS AND EXPENSES. All costs and expenses incurred in connection with
this Agreement and the consummation of the transactions contemplated hereby
shall be paid by the party incurring such expenses.
9. GENERAL PROVISIONS.
(a) AMENDMENTS. This Agreement may not be amended except by an
instrument in writing signed by each of the parties hereto.
(b) NOTICE. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or sent by
overnight courier (providing proof of delivery) to Parent in accordance with
Section 9.03 of the Merger Agreement and to each Stockholder at its or his
set forth on the signature page of this Agreement (or at such other address
for a party as shall be specified by like notice).
(c) INTERPRETATION. When a reference is made in this Agreement to
Sections, such reference shall be to a Section to this Agreement unless
otherwise indicated. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Wherever the words "include", "includes"
or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation".
(d) SEVERABILITY. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law, or
public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or
legal substance of the transactions contemplated hereby is not affected in
any manner materially adverse to any party. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced,
the parties hereto shall negotiate in good faith to modify this Agreement so
as to effect the original intent of the parties as closely as possible in a
mutually acceptable manner in order that the transactions contemplated
hereby may be consummated as originally contemplated to the fullest extent
possible.
(e) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement,
and shall become effective when one or more of the counterparts have been
signed by each of the parties and delivered to the other party, it being
understood that each party need not sign the same counterpart.
(f) ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This Agreement
(including the documents and instruments referred to herein) (i) constitutes
the entire agreement and supersedes all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof and (ii) is not intended to confer upon any Person other than the
parties hereto any rights or remedies hereunder.
III-5
<PAGE>
(g) GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware regardless of the laws
that might otherwise govern under applicable principles of conflicts of law
thereof.
10. STOCKHOLDER CAPACITY. No person executing this Agreement who is or
becomes during the term hereof a director or officer of the Company makes any
agreement or understanding herein in his capacity as such director or officer.
The Stockholder signs solely in his capacity as the record holder or beneficial
owner of, or the trustee of a trust whose beneficiaries are the beneficial
owners of, such Stockholder's Subject Shares and nothing herein shall limit or
affect any actions taken by a Stockholder in his capacity as an officer or
director of the Company to the extent specifically permitted by the Merger
Agreement.
11. 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
located in the State of Delaware or in a Delaware state court, this being in
addition to any other remedy to which they are entitled at law or in equity. In
addition, each of the parties hereto (i) consents to submit such party to the
personal jurisdiction of any Federal court located in the State of Delaware or
any Delaware state court in the event any dispute arises out of this Agreement
or any of the transactions contemplated hereby, (ii) agrees that such party will
not attempt to deny or defeat such personal jurisdiction by motion or other
request for leave from any such court; (iii) agrees that such party will not
bring any action relating to this Agreement or the transactions contemplated
hereby in any court other than a Federal court sitting in the state of Delaware
or a Delaware state court and (iv) waives any right to trial by jury with
respect to any claim or proceeding related to or arising out of this Agreement
or any of the transactions contemplated hereby. All rights, powers and remedies
provided under this Agreement or otherwise available in respect hereof at law or
in equity shall be cumulative and not alternative, and the exercise of any
thereof by any party shall not preclude the simultaneous or later exercise of
any other such right, power or remedy by such party.
III-6
<PAGE>
IN WITNESS WHEREOF, Parent has caused this Agreement to be signed by its
officer thereunto duly authorized and each Stockholder has signed this
Agreement, all as of the date first written above.
<TABLE>
<S> <C> <C> <C>
MDC COMMUNICATIONS CORPORATION
By: /s/ PETER LEWIS
----------------------------------------
Name: Peter M. Lewis
Title: EXECUTIVE VICE PRESIDENT,
CORPORATE DEVELOPMENT
Number of Subject Shares: STOCKHOLDER:
2,250,000 AMERICAN GREETINGS CORPORATION
By: /s/ MORRY WEISS
----------------------------------------
Name: Morry Weiss
Title: CHAIRMAN AND CHIEF EXECUTIVE
OFFICER
Address: One American Road
Cleveland, Ohio 44144
Number of Subject Shares: STOCKHOLDER:
411,786
/s/ STUART KOMER
----------------------------------------
Name: Stuart Komer
Address: 850 Euclid Avenue
Elmira, New York 14901
</TABLE>
III-7
<PAGE>
ANNEX IV
, 1998
CONFIDENTIAL
The Special Committee of the Board of Directors
Artistic Greetings Incorporated
One Komer Center
Elmira, NY 14902
Ladies and Gentlemen:
Artistic Greetings Incorporated (the "Company") has entered into an
Agreement and Plan of Merger (the "Agreement") with AGI Acquisition Co.
("Newco") and MDC Communications Corp. ("Parent") dated December 21, 1997,
pursuant to which Newco shall be merged with and into the Company (the
"Merger"). At the Effective Time (as defined in the Agreement) of the Merger,
each outstanding share of common stock, par value $0.10 per share of the Company
(the "Company Common Stock"), other than shares held in the Company's treasury,
will be converted into the right to receive $5.70 in cash (the "Merger
Consideration").
You have asked us whether or not, in our opinion, the proposed Merger
Consideration to be received by the unaffiliated shareholders of the Company is
fair to the unaffiliated shareholders of the Company from a financial point of
view. For the purposes of this opinion, "unaffiliated shareholders" means all of
the shareholders of the Company other than American Greetings Corporation,
Stuart Komer, Morry Weiss and Thomas C. Wycoff.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed the Company's Annual Reports, Forms 10-K and related financial
information for the three fiscal years ended December 31, 1996, the
Company's Forms 10-Q and the related unaudited financial information for
the nine months ended September 30, 1996 and 1997;
(2) Reviewed certain information, including financial forecasts, relating to
the business, earnings, cash flow, assets and prospects of the Company
which were furnished to us by the Company;
(3) Conducted discussions with members of senior management of the Company
concerning its businesses and prospects;
(4) Reviewed the historical market prices and trading activity for the
Company Common Stock and compared them with that of certain other
publicly traded companies which we deemed to be relevant;
(5) Compared the results of operations of the Company with that of certain
other companies which we deemed to be relevant;
(6) Reviewed the Merger Consideration premium to the historical market
prices of the Company Common Stock and compared them to historical
transaction stock premiums paid by acquirors in transactions of similar
value;
(7) Reviewed the Agreement; and
(8) Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we
deemed necessary, including our assessment of general economic, market
and monetary conditions.
In preparing our opinion, we have relied on the accuracy and completeness of
all information that was publicly available, supplied or otherwise communicated
to us by or on behalf of the Company, and we have not assumed any responsibility
to independently verify such information. With respect to the financial
<PAGE>
forecasts (the "Projections") examined by us, we have assumed, with your
consent, that they were reasonably prepared on bases reflecting the best
available estimates and good faith judgments of the Company's management as to
the future performance of the Company at the time of such preparation.
PaineWebber Incorporated noted that the Projections provided by the Company's
management (i) for the Fiscal Year Ended December 31, 1997 were significantly
higher than the actual results for the twelve month period ended September 30,
1997; (ii) had been prepared approximately eight months prior to delivery of the
Opinion; and (iii) had not been updated since that time. We have not undertaken,
and have not been provided with, an independent evaluation or appraisal of the
assets or liabilities (contingent or otherwise) of the Company and have assumed
that (i) the purchase method of accounting will be used, and (ii) all material
assets and liabilities (contingent or otherwise, known or unknown) of the
Company are as set forth in the consolidated financial statements.
Our Opinion is directed to the Special Committee of the Board of Directors
of the Company and does not constitute a recommendation to any shareholder of
the Company as to how any such shareholder should vote on the Merger. This
opinion does not address the relative merits of the Merger and any other
transactions or business strategies that may have been discussed by the Special
Committee of the Board of Directors of the Company as alternatives to the Merger
or the decision of the Special Committee of the Board of Directors of the
Company to proceed with the Merger. In addition, we were not requested to, and
have not, expressed any opinion as to the fairness, from a financial point of
view, of that sale of certain assets and liabilities of the non-check businesses
of the Company. Our opinion is based on economic, monetary and market conditions
on the date hereof.
In rendering this opinion, we have only been engaged to act as an agent or
fiduciary of the Special Committee of the Board of Directors of the Company.
In the ordinary course of its business, PaineWebber Incorporated may trade
the securities of the Company and Parent for its own account and for the
accounts of customers and, accordingly, may at any time hold long or short
positions in such securities.
PaineWebber Incorporated is currently acting as financial advisor to the
Special Committee of the Board of Directors of the Company in connection with
the Merger and will receive a fee in connection with rendering of this opinion
and upon the consummation of the Merger.
On the basis of, and subject to the foregoing, we are of the opinion that,
as of the date hereof, the proposed Merger Consideration to be received by the
unaffiliated shareholders of the Company pursuant to the Merger is fair to the
unaffiliated shareholders of the Company from a financial point of view.
This opinion has been prepared at the request of and for the information of
the Special Committee of the Board of Directors of the Company in connection
with the Merger and shall not be reproduced, summarized, described or referred
to, provided to any person or otherwise made public or used for any other
purpose without the prior written consent of PaineWebber Incorporated; provided,
however, that this letter may be reproduced in full in the Proxy Statement
relating to the Merger.
Very truly yours,
PAINEWEBBER INCORPORATED
IV-2
<PAGE>
ANNEX V
TEXT OF SECTION 262 OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
SECTION 262, APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to Section 228
of this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
Section 251(g) of this title), Section 252, Section 254, Section 257, Section
258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no appraisal
rights shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for its
approval the vote of the stockholders of the surviving corporation as
provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to Sections
251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (OR DEPOSITORY RECEIPTS IN
RESPECT THEREOF) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this paragraph.
<PAGE>
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a meeting
of stockholders, the corporation, not less than 20 days prior to the
meeting, shall notify each of its stockholders who was such on the record
date for such meeting with respect to shares for which appraisal rights are
available pursuant to subsections (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation, a
written demand for appraisal of his shares. Such demand will be sufficient
if it reasonably informs the corporation of the identity of the stockholder
and that the stockholder intends thereby to demand the appraisal of his
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must do
so by a separate written demand as herein provided. Within 10 days after the
effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation
who has complied with this subsection and has not voted in favor of or
consented to the merger or consolidation of the date that the merger or
consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to Section 228
or Section 253 of this title, each constituent corporation, either before
the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of stock
of such constituent corporation who are entitled to appraisal rights of the
approval of the merger or consolidation and that appraisal rights are
available for any or all shares of such class or series of stock of such
constituent corporation, and shall include in such notice a copy of this
section; provided that, if the notice is given on or after the effective
date of the merger or consolidation, such notice shall be given by the
surviving or resulting corporation to all such holders of any class or
series of stock of a constituent corporation that are entitled to appraisal
rights. Such notice may, and, if given on or after the effective date of the
merger or consolidation, shall, also notify such stockholders of the
effective date of the merger or consolidation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of such
notice, demand in writing from the surviving or resulting corporation the
appraisal of such holder's shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and
that the stockholder intends thereby to demand the appraisal of such
holder's shares. If such notice did not notify stockholders of the effective
date of the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date of the
merger or consolidation notifying each of the holders of any class or series
of stock of such constituent corporation that are entitled to appraisal
rights of the effective date of the merger or consolidation or (ii) the
surviving or resulting corporation shall send such a second notice to all
such holders on or within 10 days after such effective date; provided,
however, that if such second notice is sent more than 20 days following the
sending of the first notice, such second notice need only be sent to each
stockholder who is entitled to appraisal rights and who has demanded
appraisal of such holder's shares in accordance with this subsection. An
affidavit of the secretary or
V-2
<PAGE>
assistant secretary or of the transfer agent of the corporation that is
required to give either notice that such notice has been given shall, in the
absence of fraud, be prima facie evidence of the facts stated therein. For
purposes of determining the stockholders entitled to receive either notice,
each constituent corporation may fix, in advance, a record date that shall
be not more than 10 days prior to the date the notice is given, provided
that if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the day
on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw his demand for
appraisal and to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and (d)
hereof, upon written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement setting
forth the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written statement shall
be mailed to the stockholder within 10 days after his written request for such a
statement is received by the surviving or resulting corporation or within 10
days after expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion,
V-3
<PAGE>
permit discovery or other pretrial proceedings and may proceed to trial upon the
appraisal prior to the final determination of the stockholder entitled to an
appraisal. Any stockholder whose name appears on the list filed by the surviving
or resulting corporation pursuant to subsection (f) of this section and who has
submitted his certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that he is not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
V-4
<PAGE>
ANNEX VI
<PAGE>
ARTISTIC GREETINGS INCORPORATED
ONE KOMER CENTER
ELMIRA, NEW YORK 14902
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS
[ ], 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Joseph A. Calabro and William Ingram,
jointly and severally, proxies for the undersigned with full power of
substitution, and hereby authorizes them to represent and to vote, in accordance
with the instructions on the reverse side of this card, all shares of the common
stock, par value $.10 per share (the "Shares"), of Artistic Greetings
Incorporated. The undersigned is entitled to vote at the Special Meeting of
Stockholders to be held on [ ], 1998 at [ ], New York, New York,
commencing at 10 a.m., Eastern Daylight Time, or at any postponement or
adjournment thereof. The proxies may vote in their discretion upon such other
business as may properly be brought before the meeting or any postponement or
adjournment thereof.
COMMENTS/ADDRESS CHANGE: PLEASE MARK COMMENTS/ADDRESS BOX ON REVERSE SIDE
CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE
<PAGE>
The shares represented by this Proxy will be voted as directed by the
stockholder. Where no voting instructions are given, the shares represented by
this Proxy will be voted FOR Items 1 and 2.
Please Mark your votes as this
Item 1 -- Approve the Merger Agreement and Merger as described in the
Company's Proxy Statement. The Board of Directors recommends a vote FOR approval
of the Merger Agreement and the Merger.
<TABLE>
<S> <C> <C>
FOR AGAINST ABSTAIN
/ / / / / /
</TABLE>
Item 2 -- Approve the Asset Purchase Agreement and Asset Sale as described
in the Company's Proxy Statement or any other similar asset puchase agreement
providing increased cash consideration to the Company from the sale of the P&C
Businesses which the Special Committee and the Board of Directors of the Company
determine is more beneficial to the Stockholders of the Company. The Board of
Directors recommends a vote FOR approval of the Asset Purchase Agreement and the
Asset Sale.
<TABLE>
<S> <C> <C>
FOR AGAINST ABSTAIN
/ / / / / /
</TABLE>
Item 3 -- Approve the adjournment or postponement of the Special Meeting if
necessary to obtain additional votes for the approval of the Merger Agreement,
the Merger, the Asset Purchase Agreement or the Asset Sale.
<TABLE>
<S> <C> <C>
FOR AGAINST ABSTAIN
/ / / / / /
</TABLE>
Item 4 -- In the discretion of the Board of Directors, upon such other
business as may be properly brought before the Special Meeting.
<TABLE>
<S> <C> <C>
FOR AGAINST ABSTAIN
/ / / / / /
</TABLE>
If you plan to attend the Special Meeting, please check this box / /
COMMENTS/ADDRESS CHANGE Please mark this box if you have written
comments/address change on the reverse side. / /
Receipt is hereby acknowledged of the Notice of Special Meeting and Proxy
Statement of Artistic Greetings Incorporated
<TABLE>
<S> <C>
-----------------------------------------------
Signature(s)
Date
-----------------------------------------------
PLEASE MARK, DATE AND SIGN AS YOUR NAME APPEARS
OPPOSITE AND RETURN IT IN THE ENCLOSED
ENVELOPE. IF ACTING AS EXECUTOR, ADMINISTRATOR,
TRUSTEE, GUARDIAN, ETC. YOU SHOULD SO INDICATE
WHEN SIGNING. IF THE SIGNER IS A CORPORATION,
PLEASE SIGN FULL CORPORATE NAME.
</TABLE>
